Interdisciplinary Management Research - IMR VI

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

HOCHSCHULE PFORZHEIM UNIVERSITY
_____________________________________________________________
INTERDISCIPLINARY MANAGEMENT RESEARCH VI
INTERDISZIPLINRE MANAGEMENTFORSCHUNG VI
Osijek 2010.
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:
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
Dirk Wentzel, Ph.D., Hochschule Pforzheim University, Germany
Review Committee:
Luka Crnkovi, Ph.D., Faculty of Economics in Osijek, Croatia
Olga Deman Dobrnji, Ph.D., Boarding School Ivan Cankar, Ljubljana, Slovenia
Ivan Ferenak, Ph.D., Faculty of Economics in Osijek, Croatia
Reiner Gildeggen, Ph.D., Hochschule Pforzheim University, Germany
Nino Grau, Ph.D., University of Applied Sciences, Fachhochschule Giesen-Friedberg,
Germany
Slavo Kuki, Ph.D., University of Mostar, Faculty of Economics, Bosnia and
Herzegovina
Hartmut Lo er, Ph.D., Pforzheim University, Business School, Germany
Bla Orosdy, Ph.D., University of Pcs, Faculty of Business and Economics, Hungary
Ivan Pavlovi, Ph.D., University of Mostar, Faculty of Economics, Bosnia and
Herzegovina
Jusuf ehanovi, Ph.D., Juraj Dobrila University of Pula, Croatia
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
The publishing of this book was approved by the Senate
of Josip Juraj Strossmayer University of Osijek
CIP zapis dostupan u raunalnom katalogu Gradske i
sveuiline knjinice Osijek pod brojem
ISSN 1847-0408
ISBN 978-953-253-079-7
Indexed in: RePEc, EconPapers
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
Urban Bacher, Kathrin Wolf
AUTOMATISIERTE KONTOABFRAGEN UND BANKGEHEIMNIS ...........................15
Berislav Bolfek, Biljana Lonari
BUSINESS PERFORMANCE MANAGEMENT USING MODEL FOR PROFIT
OPTIMIZATION .................................................................................................................28
Sanja Bonjak
HUMAN RESOURCE MANAGEMENT OF THE CITY OF VINKOVCI
CONTINUOUS EDUCATION AND MOTIVATION OF EMPLOYEES AS
A BASIS OF SUCCESS ..........................................................................................................37
Martina Bri
TRANSSHIPMENT MODEL IN THE FUNCTION OF COST
MINIMIZATION IN A LOGISTICS SYSTEM ....................................................................48
Iris Broman
STRUCTURE AND OPERATIONAL MANAGEMENT IN
LABORATORY ANIMAL PRACTICE ................................................................................60
Gordana Duki, Goran Andrijani
ANALYSIS OF PERCEPTION OF CERTAIN EMPLOYMENT
ASPECTS, WORK CONDITIONS AND COMMITMENT
AMONG CROATIAN MANAGERS ....................................................................................70
Erika Grau, Nino Grau
PROJEKTMANAGEMENTNORMEN IN INTERNATIONALEN PROJEKTEN .......86
uro Horvat, Nataa Trojak
MARKETING IN CONTEMPORARY ENVIRONMENT TRADITIONAL
VS. VALUEADDED MARKETING ..................................................................................95
Zoran Jeremi
ADVANTAGES OF ISTRIA REGARDING GOLF AS PART
OF TOURIST PRODUCT ..................................................................................................111
Marijan Kari, Maa Slabinac, Ivan Kristek
KNOWLEDGE IN THE FUNCTION OF ENTERPRISE MANAGEMENT ..................122
Maja Lamza-Maroni, Jerko Glava, Igor Mavrin
CULTURAL MANAGEMENT IN THE REPUBLIC OF
CROATIA POSSIBILITIES OF DEVELOPMENT ........................................................133
Marani Robert, Pupavac Drago
APPLICABILITY OF INFORMATION TECHNOLOGIES IN PARKING
AREA CAPACITY OPTIMIZATION .................................................................................143
Mane Medi, Mario Banoi, Mladen Panci

BRANDING IMPACT ON THE ECONOMIC DEVELOPMENT OF CITIES AND
COUNTIES - EXAMPLE BRANDING CITY OF ILOK ...................................................152
Murali Murti
THE LUXURY PHENOMENON THE GLOBALIZATION OF VARIETY................162
Stipan Penavin, Dubravka Pekanov Starevi, Martina Harc
CRISIS AS AN OPPORTUNITY FOR OPTIMIZING COMPANIES
COST MANAGEMENT SYSTEMS .................................................................................177
Mate Perii, Neven eri
THE EVALUATION MODEL OF THE SUSTAINABLE
RECEPTIVE CAPACITY IN TOURISTIC LIGHTHOUSE BUIILDINGS ......................186
Ticijan Peruko, Robert Zenzerovi
CORPORATE LOAN MANAGEMENT MODEL
AS THE INSTRUMENT OF BANKS PRODUCT OPTIMIZATION .............................194
Svetlana Petrovi
GLOBALIZATION OF THE CROATIAN OIL INDUSTRY ............................................210
Ljubo ula
MODELLING OF AN NAUTICAL TOURIST PORTS BUSINESS SYSTEM (NTBS) ...222
Milan Puvaa, Dinko Roso
GOOGLE TOOLS IMPLEMENTATION INTO THE
PROMOTION OF WEB SOLUTIONS ............................................................................236
Nikola Rovis
PRIORITIZED ACTIONS FOR MARKETING IMPROVEMENT:
A TOOL FOR SMALL BUSINESS MARKETING PROGRAMMES ..............................244
Zlatko ehanovi, Giorgio Cadum, Igor ehanovi
STRATEGY FOR THE DESTINATIONAL EMARKETING & SALES ........................255
eljko Turkalj, Ivana Fosi, Davor Dujak
MOTIVATIONAL COMPENSATION A FACTOR IN STAFF
TURNOVER IN RETAIL ORGANIZATIONS ................................................................264
Ulrich Vossebein
PERSONALENTWICKLUNG UND
ORGANISATIONSENTWICKLUNG IM PROJEKTMANAGEMENT ........................275
Ivica Zdrili
THE INFLUENCE OF APPLYING THE TQM PRINCIPLE ON
THE BUSINESS RESULTS OF BIG CROATIAN COMPANIES ......................................286
Andrew Lynch
OPERATIONAL DECISIONMAKING: DIFFERENCES IN
PRIMARY AND SECONDARY PERCEPTION ...............................................................297
Josip Mesari, Antun undali
MANAGEMENT OF MANAGEMENT OF MANAGEMENT...
AND HOW TO DEVELOP MANAGEMENT CURRICULUM .....................................305
Nihada Muji
THE ROLE OF COMPLEXITY, UNCERTAINTY AND IRREVERSIBILITY
IN SOCIAL SCIENCES AND MODELS ..........................................................................320
Microeconomics, Macroeconomics and Monetary Economics
Octavian Jula
PUBLIC POLICIES AND ECONOMIC CRISES ............................................................335
Igor ivko, Zdenko Klepi, Nikola Papac
TRANSPARENCY OF FINANCIAL REPORTING AS INTERNAL
MECHANISM OF CORPORATE GOVERNANCE IN BANKS IN B&H ......................350
International Economics
Besim Culahovic, Eldin Mehic, Emir Agic
FOREIGN DIRECT INVESTMENT LOCATION AND INSTITUTIONAL
DEVELOPMENT IN IN THE MANUFACTURING SECTOR IN
SOUTH EAST EUROPEAN COUNTRIES .......................................................................365
Hartmut Ler
BESCHFTIGUNGSPROBLEME DEUTSCHLANDS IM ZEICHEN DER
AKTUELLEN INTERNATIONALEN WIRTSCHAFTS UND
FINANZMARKTKRISE .....................................................................................................381
Alexander Moheit, Dirk Wentzel
FINANCIAL CRISIS 2008 AND THE STABILITY PERFORMANCE OF
EASTERN EUROPEAN EU MEMBERS AND GREECE: CHALLENGES
FOR THE STABILITY OF THE EURO ............................................................................406
Josip Romi
INVESTMENT INCENTIVE POLICIES TOWARD ATTRACTING
FOREIGN DIRECT INVESTMENTS: THE CROATIAN EXPERIENCE .......................445
Mladen Vedri
ECONOMIC RECOVERY: POSSIBLE SOLUTIONS WITHIN
A NATIONAL ECONOMY ................................................................................................456
Financial Economics
Zuzana Gallov, Daniel Stavrek
MODELING OF CAUSAL RELATIONSHIPS BETWEEN FOREIGN DIRECT
INVESTEMENT, EXPORT AND ECONOMIC GROWTH FOR SLOVENIA.............489
Branko Mati, Hrvoje Serdarui, Maja Vretenar
MANAGING NONINTEREST INCOME AS PART OF
BANK BUSINESS STRATEGY ..........................................................................................499
Izabela Pruchnicka-Grabias
SOVEREIGN WEALTH FUNDS THE ACTIVITY AND ITS
CONSEQUENCES FOR THE GLOBAL ECONOMY ....................................................510
Jasmina Selimovi
ACTUARIAL ESTIMATION OF TECHNICAL PROVISIONS
ADEQUACY IN LIFE INSURANCE COMPANIES ..........................................................523
Dominika Crnjac Mili

POISSON PROCESSES AND COMPOUND POISSON PROCESSES IN INSURANCE
MANAGEMENT .............................................................................................................. 534
Public Economics
Flavius Rovinaru, Mihaela Rovinaru, Liviu Deceanu
ELECTORAL CYCLES IN ROMANIA. CASE STUDY: THE INFLUENCES ON
EMPLOYMENT INDUCED BY MACROECONOMIC GOVERNMENTAL
ECONOMIC POLICIES ....................................................................................................545
Boris Sabatti
INSTITUTIONAL SUPPORT SYSTEM IN ISTRIAN COUNTY AS A
FACTOR OF REGIONAL DEVELOPMENT MANAGEMENT ....................................556
Ivana Barkovi
ECONOMIC FREEDOM AS PRECONDITION FOR ECONOMIC
PROSPERITY: CROATIAN EXPERIENCE ......................................................................566
Boris Crnkovi, eljko Poega, Ivo Mijo
ANALYSIS OF CROATIAN PRIVATIZATION FUND PORTFOLIO ...........................580
Davor uti
MINISTRY OF DEFENSE BUDGET IN THE CONDITIONS OF RECESSION ..........591
Slobodan Stojanovi, Ivan Penava
MUNICIPAL BONDS AS A SOURCE OF REVENUES FOR BUDGETS OF LOCAL
GOVERNMENTS IN CROATIA........................................................................................608
Health, Education and Welfare
Mario Bajto, Igor Alrevi
APPLICATION OF DOUBLE PYRAMID OF THE LEADERSHIP
AND QUALITY CIRCLES IN HEALTH CARE FACILITIES......................................621
Legevi Jelena
DETERMINANTS OF SERVICE QUALITY IN HIGHER EDUCATION....................631
Zoran Panda
LIFELONG LEARNING IN CROATIA:CHALLENGES AND PERSPECTIVES.............648
Josip upari
CROATIA, KNOWLEDGE SOCIETY AND PERSPECTIVE
OF STATE EMPLOYEES ....................................................................................................662
Kata Ivi
KNOWLEDGE ECONOMY CHANGE MANAGEMENT
IN HIGHER EDUCATION................................................................................................674
Law and Economics
Renata Peri, Emina Konji, Nikola Mijatovi
TAX EXEMPTION AND TAX RELIEF IN PROFIT TAX SYSTEM
OF THE REPUBLIC OF CROATIA ..................................................................................687
Oliver Radolovi
HOTEL GUESTS PRIVACY PROTECTION IN TOURISM BUSINESS LAW ............699
Vjekoslav Puljko
NEW SOLUTIONS OF THE EUROPEAN PRIVATE INTERNATIONAL
LAW IN THE FIELD OF INSURANCE CONTRACTS ..................................................709
Business Administration and Business Economics Marketing Accounting
Comiati Raluca, Plaias Ioan
THE IMPACT OF CONSUMERS ATTITUDE TOWARD
ADVERTISING ON PRODUCT ATTITUDE ................................................................ 727
Dario Dunkovi, urica Juri, Tereza Nikoli
MARKETING ASPECTS IN STRATEGIC MANAGEMENT ACCOUNTING ............. 739
Dinko Juki, Boica Dunkovi
BRANDSPHERE: EXPECTED VALUE VS COGNITION VALUE ............................... 751
Marcel C Pop, Lacramioara Radomir, Andreea I. Maniu,
Monica M. Zaharie, Andrei M. Scridon
STRENGTHENING BANK MARKET PRESENCE BY MONITORING
CLIENTS SATISFACTION WITH DISTRIBUTION CHANNELS ............................ 764
Thomas Cle, Lena Fischer, Nadine Walter
THE PROVINCIALISM OF GLOBAL BRANDS AN EMPIRICAL ANALYSIS OF
BRAND EQUITY DIFFERENCES IN MEXICO AND GERMANY ............................ 776
Kasim Tati, Merima injarevi
RELATIONSHIP BETWEEN ENVIRONMENTAL CONCERN AND GREEN
PURCHASING BEHAVIOR .............................................................................................. 801
Boris Marjanovi, Klaudio Tominovi
ORGANIZATIONAL STRUCTURE IN THE FUNCTION OF CREATION
OF ADDED VALUE .......................................................................................................... 811
Bodo Runzheimer
INTERNATIONALIZATION OF GERMAN ACCOUNTING DO FAIRVALUE
VALUATIONS LEAD TO A HIGHER QUALITY FINANCIAL REPORTING? .......... 820
Markus Hfele
DIE ABSCHLUSSPRFUNG DEUTSCHER UNTERNEHMEN IM
ZEICHEN DER WIRTSCHAFTSKRISE .......................................................................... 843
Ishak Mei
INTENSIVE PROCESSES OF RETAIL INTERNATIONALIZATION ........................... 856
Zdenko Segetlija
INFORMATION TECHNOLOGY IN THE STRATEGY
OF A RETAIL COMPANY ................................................................................................ 866
Saa Vuji, Slobodan Vuji
MANAGERS MOTIVES FOR TRANSFORMATION OF NON-PROFIT
ORGANIZATION INTO A FOR-PROFIT ORGANIZATION ON THE
EXAMPLE OF MICROCREDIT ORGANIZATION ....................................................... 877
Laszlo Sitanyi
HUNGARY AND THE NEIGHBOURING COUNTRIES INNOVATION POSITION
BASED ON EUROPEAN DATA....................................................................................... 887
Liana Stanca, Cristina Felea, Ioana Pop, Chi Sebastian,

Horea Grebl, Lacurezeanu Ramona, Buchmann Robert
MATHEMATICAL MODEL OF OPTIMIZING DECISION MAKING FOR
WORK FORCE INTEGRATION IN THE KNOWLEDGE SOCIETY ......................... 928
Economic Development, Technological Change, and Growth
Sanela Ravli, Ivana Zelenko
PROJECTS FOR PRE-ACCESSION EU FUNDS AS A
CONTRIBUTION TO THE DEVELOPMENT OF CROATIAN ...................................941
Draen Barkovi
CHALLENGES OF INTERDISCIPLINARY RESEARCH ..............................................951
Urban, Rural and Regional Economics
Vladimir Cini, Nataa Drvenkar
EUROPEAN UNION TRIPLE HELIX MODEL OF THE NEW INDUSTRY ..........963
ula Borozan, Anita Frajman-Jaki
REGIONAL ECONOMIC DISPARITIES AND CIVIL SOCIETY:
EVIDENCE FROM CROATIA ...........................................................................................976
Goran Marijanovi, Draen ui, Gabrijela alac
ROLE OF DEVELOPMENT AGENCIES IN THE REGIONAL DEVELOPMENT OF
THE REPUBLIC OF CROATIA .........................................................................................990
Bernadett Glosi-Kovcs, Norbert Pap, Zsuzsanna M. Csszr, Pter Remnyi
ENVIRONMENTAL DEVELOPMENT PROBLEMS IN THE MOST
DISADVANTAGEOUS HUNGARIAN MICROREGIONS .......................................1001
Vorwort
Es ist uns ein Vergngen, das Konferenzband Interdisziplinre Managementforschung
VI/ Interdisciplinary Management Research VI 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 und Serbien 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 VI/
Interdisciplinary Management Research VI umfasst 74 Arbeiten geschrieben von
139 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
Irland, Indien und Czechien. 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 VI/

Interdisciplinary Management Research VI 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 and Serbia, 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 VI/ Interdisciplinary
Management Research VI encompasses 74 papers written by 121 authors. The success
of former editions has echoed beyond the traditionally participative countries and
authors and now includes new authors from Ireland, India and the Czech Republic,
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
AUTOMATISIERTE KONTOABFRAGEN UND BANKGEHEIMNIS
15
AUTOMATISIERTE KONTOABFRAGEN
UND BANKGEHEIMNIS
Prof. Dr. Urban Bacher und Kathrin Wolf, Hochschule Pforzheim
urban.bacher@hs-pforzheim.de
Abstract
German credit institutions have the duty of banking condentiality, i.e. they
are obliged not to divulge their clients credit and nancial circumstances and to
deny queries in general. Banking condentiality is not specically regulated by law,
but the prevalent view is that banking condentiality is deducible from the general
banking contract. The exceptions to this disclosure ban are allowed only if there is
a legal requirement, or with the account holders consent. Automatic queries into
master le data of a bank account are a breach of banking condentiality. In this
way banking condentiality in Germany is being further weakened and systematically eroded.
JEL classication: G21, H83, M41,
Keywords: banking condentiality, automatic account queries, information
technologies
1. PROBLEMSTELLUNG
Betrachtet man die umfangreichen Beschrnkungen1, die das Bankgeheimnis in

den letzten Jahren mit Blick auf die Terrorabwehr gerade nach den Anschlgen in
den USA vom 11. September 2001 und in Madrid vom 11. Mrz 2004 der Verhinderung von Geldwsche und der Fiskaldelikte erfahren hat, so erhlt man leicht
den Eindruck, dass das Bankgeheimnis unweigerlich dem Untergang preisgegeben
wird (Eckle, 2007: 5). Komplettiert wird diese Entwicklung durch das jngste
Urteil des Bundesnanzhofes in Mnchen, welcher entschied, dass knftig Banken
1
Gesetz zur Bekmpfung des Terrorismus (09.01.2002), Gesetz zur Verbesserung der Bekmpfung
der Geldwsche und der Bekmpfung der Finanzierung des Terrorismus (08.08.2002), Viertes Finanzmarktfrderungsgesetz (21.06.2002).
16
Urban Bacher Kathrin Wolf
die Kontodaten ihrer Kunden auch dann an die Finanzmter weiterleiten drfen,
wenn es an einem strafrechtlichen Verdacht der Steuerhinterziehung mangelt.
Die nanziellen Verhltnisse der Brger sind gegenwrtig so transparent wie nie
zuvor. Gepaart mit der Tatsache, dass Bankdaten heutzutage weit mehr die persnlichen Lebensumstnde des Kontoinhabers widerspiegeln als noch vor einigen
Jahren, stellt dies eine uerst problematische Entwicklung dar.2 Fraglich ist, ob
die automatisierten Kontoabfragen wirklich notwendig sind, um die angestrebten
Ziele zu erreichen oder ob es sich nicht vielmehr um einen Vorwand handelt, die
Daten der Bankkunden auszuspionieren.
2. DURCHBRECHUNG DES BANKGEHEIMNISSES MITTELS
AUTOMATISCHER KONTOABFRAGE
2.1 Die Gesetzesinitiativen in 2003 und 2005
Den Grundstein fr die automatisierten Kontoabfragen legte die Legislative mit dem am 1. April 2003 in Kraft getretenen 24c KWG. Dieser wurde
als Teil des Gesetzes zur weiteren Fortentwicklung des Finanzplatzes Deutschland (Viertes Finanzmarktfrderungsgesetz) eingefhrt (Langweg & Tischbein, 2002: 59f ). Darauf aufbauend knnen seit 2005 diese Daten nun nach
93, 93b AO auch von den Finanzbehrden abgefragt werden, wenn dies zur
Festsetzung bzw. Erhebung von Steuern dient. Nach 93 VIII AO haben viele
andere Stellen der Sozialleistungstrger Zugri auf die Kontodaten, soweit dies zur
berprfung des Vorliegens der Anspruchsvoraussetzungen erforderlich ist. Aufgrund der sprlichen Medienberichterstattung von vielen Brgern unerkannt, hat
der Gesetzgeber somit in Folge der Terroranschlge ein regelrechtes Netz an staatlichen Kontoabfragemglichkeiten geschaen.
2.2 Das Bankgeheimnis in Deutschland
Das deutsche Bankgeheimnis verpichtet deutsche Kreditinstitute, Stillschweigen ber die Kredit- und Vermgensverhltnisse ihrer Kunden zu wahren und
Ausknfte generell zu verweigern (Bacher, 2009: 50). Das Bankgeheimnis ist gesetzlich nicht gesondert geregelt, nach der herrschenden Meinung ergibt sich das
Vgl. ZKA, Stellungnahme des Zentralen Kreditausschusses vom 24.02.2005, S. 7.
17
Bankgeheimnis aus dem allgemeinen Bankvertag.3 Ausnahmen der Oenbarung

sind nur per Gesetz4 oder durch Vereinbarung mit dem Kontoinhaber zulssig
(Bacher, 2009: 50-51). Eine automatische Einsicht in die Stammdaten eines Bankkontos ist ein Eingri in das Bankgeheimnis. Damit wird das Bankgeheimnis in
Deutschland weiter geschwcht und systematisch ausgehhlt.
2.3 DER AUTOMATISIERTE ABRUF VON KONTODATEN GEMSS 24C KWG
Gem 24c Abs. 1 S. 1 KWG sind smtliche Kreditinstitute verpichtet, eine

Datei zu fhren, die zum automatisierten Abruf von Kontoinformationen geeignet
ist. In dieser Abrufdatei sind folgende Inhalte einzustellen:
- Konto- bzw. Depotnummer
- Name des Kontoinhabers bzw. Verfgungsberechtigten
- Geburtsdatum des Kontoinhabers bzw. Verfgungsberechtigten
- Tag der Errichtung des Depots bzw. des Kontos
- Ausungstag des Kontos bzw. Depots
- Name und Anschrift des wirtschaftlich Berechtigten gem 8 Abs. 1
GWG.
Die Rechtfertigung zur Erfassung aller 500 Millionen in Deutschland gefhrten Konten ergibt sich daraus, dass erfahrungsgem jedes Konto zur Geldwsche
geeignet ist, unabhngig davon, wer Kontoinhaber oder Verfgungsberechtigter
ist.5
Nach den Vorschriften des 24c Abs. 1 S. 5 und 6 KWG haben die Kreditinstitute zu gewhrleisten, dass die BaFin jederzeit Daten aus der Datei in einem
automatisierten Verfahren abrufen kann. Dabei muss durch technische und organisatorische Manahmen sichergestellt werden, dass die Abrufe den Kreditinstituten
und somit auch den Kunden, deren Daten abgerufen werden, nicht zur Kenntnis
gelangen.
Zum Abruf berechtigt ist die BaFin, soweit dies zur Erfllung ihrer Aufgaben
im Hinblick auf die Bekmpfung von unerlaubt betriebenen Bankgeschften oder
3
4
5
Nebenpicht in Verbindung mit Nr. 2 der AGB-Banken.

Z. B. 33 ErbStG, 13 , 44 KWG, 161a StPO.
Vgl. BR-Drs. 936/01 neu vom 14. November 2001, S. 344 . Kritisch hierzu Zubrod, WM
2003,1217.
18
Finanzdienstleistungen sowie zur Abwehr eines Missbrauches der Banken durch

Geldwsche oder sonstige betrgerische Handlungen dient.6 Zudem muss die
BaFin anderen Behrden wie z.B. Gerichten und inlndischen Strafverfolgungsbehrden Auskunft aus den Dateien erteilen.
2.4 DER KONTENABRUF FR ZWECKE DES BESTEUERUNGSVERFAHRENS
Im Rahmen des Gesetzes zur Frderung der Steuerehrlichkeit vom 23.12.2003

wurde ein neuer 93b in die Abgabenordung eingefhrt, welcher besagt, dass
Kreditinstitute die nach 24c KWG zu fhrende Daten auch fr Abrufe nach
93 Abs. 7 und 8 AO zur Verfgung stellen mssen (Maag, 2007: 24). Jngst
wurden die Regelungen durch die Unternehmenssteuerreform 2008 gendert und
somit die vom Bundesverfassungsgericht geforderten Anpassungen umgesetzt.7
93 Abs. 7 AO bestimmt dabei, dass Finanzbehrden die Daten abrufen knnen,
wenn dies zur Festsetzung bzw. Erhebung von Steuern dienlich ist. Ergnzend dazu
regelt 93 Abs. 8 AO, dass auch andere Behrden auf die Daten zugreifen drfen,
soweit dies zur berprfung der Anspruchsvoraussetzungen erforderlich ist. Gemeint sind hier eine Vielzahl von Sozialleistungstrgern.
Dabei gelten dieselben Regelungen fr die Kontenabfragen wie fr die BaFin.8
Das hierzu erforderliche automatisierte Abrufverfahren soll voll umfnglich dem
von der BaFin fr die Zwecke des 24c KWG entwickelten Verfahren entsprechen.9 Gem 93 Abs. 9 AO sind die Betroenen auf die Mglichkeit des Kontenabrufs hinzuweisen. Die Verantwortung der Zulssigkeit des Datenabrufes und
der damit verbundenen Datenbermittlung liegt jeweils bei der ersuchenden Behrde.10 Nach der Durchfhrung ist der Betroene ber das Ergebnis der Abfrage
in Kenntnis zu setzen. In 93 Abs. 9 S. 3 AO ist jedoch explizit geregelt, dass dieser Hinweis bzw. die Benachrichtigung unter gegebenen Umstnden unterbleiben
kann, wenn dies die Ermittlungen gefhrdet.
6
BT-Drs. 14/8017, S. 122.

Im Beschluss vom 13.06.2007 uerte das BVerfG verfassungsrechtliche Bedenken gegenber 93
Abs. 7 und 8 AO. 93 Abs. 8 AO genge nicht der Normenklarheit. 93 Abs. 7 AO verstoe
gegen den Verhltnismigkeitsgrundsatz zudem mangele es an einer gesetzlichen Auskunfts- und
Benachrichtigungspicht gegenber den Betroenen; vgl. hierzu unten 2.4.2.
8
Vgl. 93b Abs. 4 AO.
9
Vgl. BR-Drucks. 542/03, S.20.
10
Vgl. 93b Abs. 3 AO.
7
19
Ziel der Regelung ist es, den Druck auf die bislang Steuerunehrlichen zu erhhen, um somit die Besteuerungsgerechtigkeit zu verbessern.11
2.5 RECHTLICHE BEWERTUNG DER REGELUNGEN
Bereits mit der Einfhrung des 24c KWG im Zuge des Vierten Finanzmarktfrderungsgesetzes12 wurden kritische Stimmen laut, die die Verfassungsmigkeit
der Regelung des automatisierten Kontoabrufes anzweifelten (Samson & Langrock,
2005: 18).
2.5.1 Ursprungsargument Terrorbekmpfung
Das Kontoabrufverfahren ist im Jahr 2003 mit der Begrndung zur Bekmpfung des Terrorismus eingefhrt worden. Die Kontrollmanahme steht im unmittelbarem Zusammenhang mit den Terroranschlgen vom 11. Sept. 2001 und dient
der Bekmpfung der organisierten Kriminalitt, der Geldwsche sowie der illegalen Schattenwirtschaft. Die geschaene Regelung ernet jedoch Polizei-, Steuerund Sozialbehrden und der Staatsanwaltschaft die Nutzung des Abrufsystems zur
Bekmpfung jeder Form von Kriminalitt und dies sogar mit einer niedrigeren
Schwelle fr den Abruf als die BaFin.13 Sehr bedenklich ist es, dass 24c Abs. 3 S.
1 Nr. 2 KWG keine Beschrnkung auf wenige besonders schwere oder thematisch
eingrenzbare Straftaten vornimmt.14 Zudem ndet kein Richtervorbehalt oder eine
andere unabhngige Prfung der Verhltnismigkeit statt.
2.5.2 Das Grundrecht auf informationelle Selbstbestimmung
Im Mittelpunkt der Diskussion zum Datenschutz steht das so genannte Volkszhlungsurteil des Bundesverfassungsgerichts vom 15.12.1983.15 Sptestens seit
dem Vorhaben der Volkszhlung und dem dazu ergangenen Urteil ist auch allge11
Vgl. BR-Drucks. 542/03, S. 8 und 18.

Vgl. BGBl. I (2002) Nr. 39, S. 2010, 2053 .
13
24c Abs. 2 KWG setzt als Anlass des Datenabrufs der BaFin eine besondere Eilbedrftigkeit
voraus. Die Formulierung drckt aus, dass es sich hierbei um keinen Regelfall, sondern um eine
Ausnahme in dringlichen Fllen handelt. In 24 c Abs. 3 KWG (BaFin Abruf fr fremde Zwecke)
ist von einzelnen Daten nicht mehr die Rede, auch bedarf es keiner besonderen Eilbedrftigkeit.
14
Vgl. dazu bereits die Kritik des Bundesrats in der Stellungnahme zum Gesetzentwurf der Bundesregierung vom 18.01.2002, BT-Drucks. 14/8017, Anlage 2, Nr. 54, S. 168.
15
Vgl. BVerfGE 65, 1 .
12
20
mein das Problembewusstsein, dass unter den Bedingungen moderner Technologien jede Erhebung und Verarbeitung personenbezogener Daten mit besonderen
Gefahren fr das Persnlichkeitsrecht des Betroenen verbunden ist, erwacht. Das
Gericht befasste sich zwar in erster Linie mit der beabsichtigten Volkszhlung, es
machte jedoch in den Urteilsgrnden ber den Streitgegenstand hinaus wichtige
grundstzliche Aussagen zur Interpretation des Grundrechts auf die freie Entfaltung der Persnlichkeit und entwickelte das individuelle Recht auf informationelle Selbstbestimmung.16 Damit hat das Bundesverfassungsgericht den Datenschutzbelangen Grundrechtscharakter und damit Verfassungsrelevanz verliehen.
Das Persnlichkeitsrecht17 ist ein zentrales Rechtsgut unserer Rechtsordnung
mit Verfassungsrang. Bereits 1969 entschied das Bundesverfassungsgericht, dass
es mit der Menschenwrde unvereinbar ist, wenn der Mensch zwangsweise in
seiner ganzen Persnlichkeit vollstndig registriert und katalogisiert wird und so
zum bloen Objekt staatlichen Handelns degradiert wird.18 Im Volkzhlungsurteil
wurde das allgemeine Persnlichkeitsrecht im Hinblick auf die modernen Informationstechnologien wie folgt deniert:19
Das Persnlichkeitsrecht umfasst das Recht des einzelnen grundstzlich selbst zu
entscheiden, wann und innerhalb welcher Grenzen persnliche Lebenssachverhalte oenbart werden. Diese Befugnis bedarf unter den Bedingungen der EDV in besonderem Mae des Schutzes, da diese Systeme ein vollstndiges Persnlichkeitsabbild
des einzelnen erlauben, ohne dass der Betroene dessen Richtigkeit und Verwendung
zureichend kontrollieren kann. Wer nicht mit hinreichender Sicherheit berschauen
kann, welche ihn betreenden Informationen in bestimmten Bereichen seiner sozialen
Umwelt bekannt sind, und wer das Wissen mglicher Kommunikationspartner nicht
einigermaen abzuschtzen vermag, kann in seiner Freiheit, aus eigener Selbstbestimmung zu planen oder zu entscheiden, wesentlich gehemmt werden. Mit dem Recht
auf informationelle Selbstbestimmung wren eine Gesellschaftsordnung und eine diese
ermglichende Rechtsordnung nicht vereinbar, in der Brger nicht mehr wissen knnen,
wer was wann und bei welcher Gelegenheit ber sie wei.
16
Vgl. BVerfGE 65, 1.

Abgeleitet aus Art. 2 Abs. 1 i.V.m. Art. 1 GG: Auang- oder Muttergrundrecht im Sinne einer allumfassende Handlungsfreiheit Jeder kann tun und lassen was er will, vgl. auch BVerfGE 6, 32.
18
Vgl. BVerfGE 27,6.
19
Auszug aus BVerfGE 65, 1, 42 und 46.
17
21
Hieraus folgt: Die freie Entfaltung der Persnlichkeit setzt unter den modernen Bedingungen der Datenverarbeitung den Schutz des Einzelnen gegen unbegrenzte Erhebung, Speicherung, Verwendung und Weitergabe seiner persnlicher Daten voraus. Das
Grundrecht gewhrleistet insoweit die Befugnis des Einzelnen, grundstzlich selbst ber
die Preisgabe und Verwendung seiner Daten zu bestimmen (informationelle Selbstbestimmung). Dabei kann nicht allein auf die Art der Aufgaben abgestellt werden. Entscheidend sind ihre Nutzbarkeit und Verwendungsmglichkeiten. Ein an sich belangloses Datum kann durch die Verknpfbarkeit einen neuen Stellenwert erhalten, insoweit
gibt es unter den Bedingungen der EDV kein belangloses Datum mehr.
Das Bundesverfassungsgericht gewhrleistet das Recht auf informationelle Selbstbestimmung jedoch nicht schrankenlos.20 Der Einzelne hat kein Recht auf eine
absolute uneingeschrnkte Herrschaft ber seine Daten, da er und seine Daten ein
Abbild der sozialen Realitt darstellen, das nicht ausschlielich dem Betroenen
zugeordnet werden kann. Der Grundgesetzgeber hat das Spannungsverhltnis zwischen Individuum und Gemeinschaft im Sinne der Gemeinschaftsgebundenheit der
Person entschieden.21
Die Verwendung der Daten muss auf den im Voraus gesetzlich festgelegten Zweck
begrenzt werden. Dabei mssen klar denierte Verarbeitungsvoraussetzungen geschaen werden, die sicherstellen, dass der einzelne nicht zum bloen Verarbeitungs- und Informationsobjekt wird.22
Besondere Anforderungen sind an die Belehrung des Betroenen zu stellen, da
nur ein informierter Brger seine Rechte wahrnehmen kann. Ein Brger kann die
Oenbarung persnlicher Lebenssachverhalte nur dann ausreichend bersehen,
wenn er wei, wann, wo und bei welcher Gelegenheit ber ihn Daten gesammelt
und verarbeitet werden. Jeder Zweifel hierber schrnkt in unzulssiger Art und
Weise Einzel- und Kollektivrechte ein. Die Unsicherheit, nicht zu wissen, was andere ber einen wissen, kann dazu fhren, sich anders zu verhalten als man eigentlich will. Gerade das soll aber vermieden werden.
20
21
22
Vgl. BVerfGE 65, 43 .

Vgl. BVerfGE 65, 1, 44 mit Verweis auf BVerfGE 4,7,15; 8, 274, 329 m. w. N.
Vgl. BVerfGE 65, 1, 48.
22
2.5.3 Das Kontenabrufurteil des Bundesverfassungsgerichts von 2003
24c KWG ist auf die Terroranschlge am 11. September 2001 auf das World
Trade Center zurckzufhren. Der Staat soll dadurch Konten abrufen knnen,
sobald ein Verdacht auf Geldwsche besteht sowie um den Terrorismus zu bekmpfen. Konkret soll der Staat die Mglichkeit haben, Kontenstrukturen und Geldbewegungen von Terrororganisationen einzusehen, um die Sicherheit der Welt
zu gewhrleisten. Der Kontoabruf wurde in den Folgejahren zur Frderung der
Steuerehrlichkeit und zur Verhinderung von Missbrauch von Sozialleistungen ausgebaut. Mehrere Klger, darunter eine Volksbank, legten Verfassungsbeschwerde
ein. Im Ergebnis war die Neuregelung verfassungskonform.23 Lediglich bei den
Kontenabrufen der anderen Behrden gem 93 Abs. 8 AO musste der Gesetzgeber nachbessern.
Das Bundesverfassungsgericht hat in seinem Urteil vom 13.06.2007 folgendes
festgestellt:24
- 93 Abs. 8 AO verletzt das Recht auf informationelle Selbstbestimmung.
Dagegen gengen die weiteren mit den Verfassungsbeschwerden angegrienen
Normen den verfassungsrechtlichen Anforderungen fr Eingrie in dieses
Grundrecht (Rz 83).
- Die angegrienen Vorschriften ermchtigen zu Eingrien in das Recht auf
informationelle Selbstbestimmung. ... Es gibt dem Einzelnen die Befugnis,
grundstzlich selbst ber die Preisgabe und Verwendung seiner personenbezogenen Daten zu bestimmen. Das Recht auf informationelle Selbstbestimmung
ergnzt besonders geregelte Garantien der Privatheit, insbesondere das Postund Fernmeldegeheimnis und den Schutz der rumlichen Privatsphre des
Wohnungsinhabers (Rz 84).
- Die in den angegrienen Normen geregelte Datenabrufe greifen in das Recht
auf informationelle Selbstbestimmung ein (Rz 89).
- Diese Normen haben zum Ziel, vor allem Strafverfolgungs-, Finanz- und Sozialbehrden Kenntnis ber das Bestehen von Konten und Depots, die der
Betroene bei inlndischen Kreditinstituten unterhlt, und Informationen
ber Stammdaten zu verschaen. Einblicke in die Kontoinhalte und Kontobewegungen erlauben die Informationen ber Kontostammdaten nicht. Stellt
23
24
Vgl. BVerfG, 1 BvR 1550/03 vom 13.06.2007.

Auszge aus BVerfG, 1 BvR 1550/03 vom 13.06.2007.
23
sich heraus, dass der Betroene ber bislang unbekannte Konten und Depots
verfgt, kann die jeweils handelnde Behrde gegebenenfalls auf der Grundlage
anderer Ermchtigungsnormen Informationen ber deren Inhalt erheben (Rz
90).
- Dem fr Normen zur Ermchtigung von Grundrechtseingrien magebenden
Gebot der Normenklarheit und Bestimmtheit wird die Befugnis aus 93 Abs.
8 zur Erhebung von Kontostammdaten in sozialrechtlichen Angelegenheiten
nicht gerecht. Demgegenber gengen 24c Abs. 3 KWG und 93 Abs. 7
AO diesem Gebot (Rz 93).
- Die in 24c Abs. 3 KWG und 93 Abs. 7 AO enthaltenen Eingrisermchtigungen gengen auch dem Grundsatz der Verhltnismigkeit (Rz 115).
- Die zu prfenden Normen dienen Gemeinwohlbelangen von erheblicher Bedeutung (Rz 126).
- Die angegrienen Normen ermchtigen zu Eingrien in das Grundrecht auf
informationelle Selbstbestimmung, die nicht auer Verhltnis zu den verfolgten Gemeinwohlbelangen stehen (Rz 130).
- Aus dem Gehalt der Informationen, die nach den angegrienen Normen abgerufen werden knnen - den bloen Kontostammdaten -, ergeben sich keine
Anhaltspunkte fr eine gesteigerte Intensitt des Grundrechtseingris durch
einen solchen Abruf (Rz 135)
- Aus dem Ergebnis des Abrufs der Kontostammdaten lsst sich je nach der
Kontofhrungspraxis der Kreditinstitute gegebenenfalls ersehen, um welche
Art eines Kontos es sich handelt. Es ist allerdings in keinem Fall erkennbar,
ob der Kontostand positiv oder negativ ist. Daher sind allenfalls Vermutungen
ber den Vermgensstand des Betroenen mglich. Zur Aufklrung des Sachverhalts bedarf es weiterer Ermittlungsmanahmen. Fr sie mssen Ermchtigungsgrundlagen bestehen, die einer selbststndigen verfassungsrechtlichen
Rechtfertigung bedrfen, wobei sich deren Anforderungen nach der meist
deutlich erhhten Intensitt des Grundrechtseingris durch solche weiteren
Ermittlungsmanahmen richten (Rz 137).
2.5.4 Eine erste kritische Bewertung
Kontoabfragen sind unzweifelhaft wichtig, um Terroristen, Sozial- und Steuerbetrgern auf die Schliche zu kommen, aber sie mssen berprfbar sein. Jeder
Brger muss die Mglichkeit haben, zu erfahren, wer was ber ihn wei. Ungewiss
24
bleibt zudem bis heute, ob die Ziele mit der Kontenschnelei berhaupt erreicht wurden bzw. werden. Der Staat kann derzeit keine bedeutenden Flle vorweisen, bei denen das Abfragesystem zu einer erfolgreichen Vereitelung einer Straftat
gefhrt hat.
Kritisch ist in diesem Zusammenhang auch, dass die Kreditinstitute gem
24c Abs. 1 KWG alle erdenklichen Manahmen treen mssen, damit niemand
von dem Datenabruf Kenntnis erlangt (Samson & Langrock, 2005: 21). Dieses
Transparenzgebot ist schon nach Art. 19 Abs. 4 GG - dem Grundrecht auf effektiven Rechtsschutz - geboten. Ein berechtigter Grund zur Geheimhaltung des
Datenabrufes ist nur in einem engen Korridor geboten. So ist z. B. im Falle der Terrorismusbekmpfung ein hheres Geheimhaltungsinteresse legitim. In der Praxis
unterbleibt jedoch trotz explizit gesetzlich verankerter Informationspicht auch in
anderen Fllen die Auskunft gegenber den Betroenen. Eigenen Angaben zufolge
wei das Finanzministerium in vielen Fllen des Datenabrufs gem 93 Abs. 7
und 8 AO nicht, ob die Kontoinhaber tatschlich ber einen Abruf informiert
wurden (Seith, 2007). Damit ist eine Kontrollmglichkeit, ob die Voraussetzungen
fr einen Datenabruf gegeben waren und damit verbunden auch ein Rechtsschutz
gegen den unerlaubten Abruf von Daten, nicht mehr gewhrleistet. Dies unterscheidet die Regelung gravierend von den Vorschriften der Strafprozessordnung,
denn dort ist gem 101 StPO nach einer Telefonberwachung bzw. 110d
StPO im Anschluss an das Betreten einer Wohnung durch verdeckte Ermittler der
betroene Brger zu unterrichten.25
Auch sollten mit Einfhrung der Abgeltungssteuer in 2008 Kontoabfragen nur
noch die Ausnahmen sein, da der Hauptgrund fr die Abfragen, die Verizierung
der Angaben des Steuerpichtigen, durch diese entfallen ist (Maag, 2007: 121).
In der Praxis zeigt sich hingegen ein anderes Bild: In den letzten Jahren hat die
Zahl der Abfragen stetig zugenommen26 und dies, obwohl laut Entscheidung des
Bundesverfassungsgericht Kontoabfragen nicht als Routineinstrument, sondern als
letztes Mittel angesehen werden sollen (Seith, 2007). Einen nicht unwesentlichen
Teil zu diesem Trend trgt sicher die Heimlichkeit des Abrufverfahrens bei, welches
25
26

Im 1. Halbjahr 2009 betrug die Zahl der Abfragen durch die Behrden 57.000. Zum Vergleich im
Jahr 2008 bearbeitet die BaFin 83.938 Anfragen davon entelen 277 auf die BaFin selbst, der Rest
verteilt sich laut BaFin-Jahresbericht auf Anfragen der Finanz-, Polizei- und Zollbehrden sowie auf
Anfragen vieler Staatsanwaltschaften.
25
dazu verleitet, die Ermittlungshrden in der Praxis nicht allzu hoch anzusetzen
(Maag, 2007: 168; Samson & Langrock, 2005: 27). Es besteht die begrndete
Sorge, dass die Finanzverwaltung ihr Ermessen im Bezug auf 93 Abs. 7 AO nicht
verfassungskonform ausbt. Zudem scheinen die Behrden mit den Abfragen berfordert zu sein. In einer Stichprobe bei den Finanzmtern oenbarte sich, dass die
Abfragen in neun von zehn Fllen Mngel aufwiesen.27 Nicht abstreiten lsst sich,
dass die Kontenabrufe ein wirksames Instrument der Finanzbehrde im Kampf
gegen Steuersnder darstellen, die Angemessenheit des Verfahrens bleibt indessen
zweifelhaft.
Banken fhlen sich durch die Einfhrung des Abrufsystems generell und durch die damit in Zusammenhang stehenden Kosten hintergangen. Sie selbst haben
keinen unmittelbaren Nutzen, mssen jedoch das Kontrollsystem einfhren und
bereithalten. Mehr noch: Kreditinstitute werden durch derartige Systeme immer
mehr zum Gehilfen der Staatsanwaltschaft und des berwachungsstaats.
3. ZUSAMMENFASSUNG MIT EINEM ERSTEN BEGRENZENDEN
LSUNGSANSATZ
Im Jahr 1949 ging man in Deutschland noch davon aus, dass jede erdenkliche Manahme, die das Vertrauensverhltnis zwischen Kunde und Bank gefhrden
knnte, den Geldumlauf sowie den Kapitalmarkt empndlich strt.28 Man war
daher gewillt, solche Strungen zu vermeiden. Heute stellt sich die Lage verndert dar, zahlreiche Regelungen hhlen das Bankgeheimnis immer weiter aus. Von
dem Recht auf informationelle Selbstbestimmung kann in vielen Fllen keine Rede
mehr sein. Fraglich ist auch, ob die fehlende Transparenz allein mit der Begrndung der Terrorabwehr gerechtfertigt werden kann.
Die Kreditinstitute wirken bei der Bekmpfung des Terrorismus und der Schwerstkriminalitt seit Jahren aktiv mit.29 Ebenso befrworten die Verantwortlichen
alle Manahmen, die angemessen und erforderlich sind, die Bedrohung zu minimieren. Die heute existierenden Regelungen gehen jedoch in ihrem Umfang
und in ihrer Ausgestaltung zu weit. Die Verhltnismigkeit der Eingrie in die
Privatsphre der Brger bleibt nicht gewahrt. Strengere Regelungen und schrfere
27
28
29
Vgl. O. V., Genossenschaftsblatt fr Rheinland und Westfalen, 4/2007, S. 3 .

Vgl. Bankenerlass vom 02.08.1949.
26
Kontrollen fr den Datenabruf beispielsweise durch eine prventive, unabhngige

Kontrollinstanz wren wnschenswert (Eckle, 2007: 7). Eine ebenfalls in der Literatur vielfach diskutierte Lsung, um den Datenmissbrauch zu verhindern, wre sicherlich, die Zustimmungserfordernis einer hheren Kontrollinstanz. Um die Zahl
der Abfragen auf ein gesundes Ma zu reduzieren, wren zudem Einzelabfragen als
Alternative zum automatisierten Abruf in begrndeten Fllen denkbar.
LITERATURVERZEICHNIS
1. Bacher, Urban (2009), Bankmanagement kompakt, 2. Auage, Konstanz.

2. BAFin, Jahresbericht 2008 der Bundesanstalt fr Finanzdienstleistungen,
URL:http: //www. ban.de/cln_108/nn_722564/SharedDocs/Downloads/, abgerufen am 24.08.2009.
3. Eckle, Markus (2007) Das Bankgeheimnis und die Richtlinie 2003/48/EG des
Rates vom 3. Juni 2003 im Bereich der Besteuerung der Zinsertrge, Medien
Verlag Khler, Stuttgart
4. Langweg, Peter & Tischbein, Heinz-Jrgen (2002) Der automatisierte Abruf
von Kontoinformationen nach 24c KWG, in: Bankinformation 10/2002, S.
59-61.
5. Maag, Bernhard (2008) Der verfassungsrechtliche Schutz des Bankgeheimnisses,
Verlag Dr. Kova, Hamburg
6. O. Verfasser (2007): Was bleibt vom Bankgeheimnis? In: Genossenschaftsblatt
fr Reinland und Westfalen 4/2007, pp. 3- 5.
7. Samson, Erich & Langrock, Marc (2005) Der glserne Bankkunde? Automatisierter Abruf von Kontoinformationen und Grundrecht auf informationelle
Selbstbestimmung, Band 1/3, Carl Heymanns Verlag, Mnchen
8. Seith, Anne (2007) Umstrittene Kontoabrufe- Die, die bibbern mssen, die
wollen wir ja kriegen, In: Spiegel Online, 12.07.2007, URL: http://www.spiegel.de/wirtschaft/ 0,1518,494102.html, abgerufen am 18.09.2009.
9. ZKA - Zentraler Kreditausschuss (Hrsg.) (2005): Stellungnahme zu den Verfassungsbeschwerden und zu dem Antrag auf einstweiligen Rechtsschutz gegen
das Verfahren des automatisierten Abruf von Kontoinformationen gem
24 c Kreditwesengesetz und 93 Abs. 7 und 8, 93 b Abgabenordnung.
27
10. Zubrod (2003) Automatisierter Abruf von Kontoinformationen nach 24c

KWG - Rechtliche Voraussetzungen und Grenzen, in Wertpapiermitteilungen
WM, pp. 1210-1217.
Berislav Bolfek Biljana Lonari
28
BUSINESS PERFORMANCE MANAGEMENT USING

MODEL FOR PROFIT OPTIMIZATION
Berislav Bolfek, Biljana Lonari
University of Applied Sciences of Slavonski Brod, Croatia
ABSTRACT
Performance management is an imperative for the management because their

success in managing a company depends on achieved results. Therefore, it is very
important that the management can always and at any moment aect business
results, i.e. prot movement. Ordinarily, business results or prot monitoring does
not seem to be a problem for the management, while taking various corrective actions directed at increasing prot is not that simple and this is a real problem for
the management. The question that arises is what activities and what total number
of these activities should be undertaken to achieve the planned level of prot.
As one of the possible ways for solving this problem is to develop a Model for
prot optimization, which should assist the management in performance managing. Model for prot optimization consists of two procedures for the optimization
of prot based on the method of linear programming. This model nds the optimal
relationship between the income from the sale of various products and services, so
it is possible to determine exactly which incomes should be increased and in what
measure it should be done. In this way the management gets a new opportunity to
take corrective actions in time to achieve the goals of the business policy in terms
of making prot.
JEL clasication: C61, L25,
Keywords: management, prots, linear programming
1. INTRODUCTION
In todays dynamic environment, it is necessary to manage the business results,

so that the company could be operated successfully and could make a prot, which
presents the measure of the success of individual companies at the market. Among
BUSINESS PERFORMANCE MANAGEMENT USING MODEL FOR PROFIT OPTIMIZATION
29
many responsible tasks of a company management, the business results management has one of the most important roles. A prot is a measure of the success of
individual companies, and therefore it is the most important category in relation
to other nancial indicators. Therefore, all companies regardless of their size must
prepare Income Statement, as a nancial report, prescribed by the statutory accounting, whose purpose is to calculate the gain (or loss) precisely, for the period
of one year (12 months).
The business results are not expected, they are managed. Today the terms accepted in economic terminology are: cost management, nancial management,
inventory management, production management, sales management, personnel
management, management accounting, quality management and other types of
management. For eective business results management, it is important that clearly
dened goals exist and that there is possibility to measure them.. Negative deviations from the goals refer to the necessity of taking action for their correction, or for
making new business decisions that set new goals. (Avelini-Holjevac; 1998, 6)
The high quality business results management involves careful planning of all
segments of business, as well as designing and monitoring of key indicators which
reect the actual situation (meaning how the company actually operates), and, at
the end, analyzing the reasons and the sources of deviations between desires and
reality, plans and results.
Bigger companies set up monitoring and compare realized prot with planned
prot, and this activity does not present a problem for the management of the company. However, in the case that there is an unwanted deviation from planned prot
what presents a bigger problem for the management, a corrective action in order to
achieve the planned prot should be taken.
Therefore, one of the ways to solve the mentioned problem is to establish the
model for prot optimization, developed and set up on the basis of linear programming methods.
2. MODEL FOR PROFIT OPTIMIZATION
Once comparison of the realized prot with the planned prot has been done,
there is the possibility that the realized prot is lower than the planned prot, and
that the deviation is bigger than allowed. This discrepancy leads the management to
the situation where there is a need to take specic measures and activities immediately, in order to increase prot as well as to achieve the planned level of prot.
30
This situation can be solved in a way to increase revenues additionally, or to

increase the existing volume of production and sales which will at the end result
in increased prot. However, parallelly with the increase in revenues, there is the
expenditures increasing, noting that the value of revenues increasing may not be
the same as one on the expenditure side. The above shows that the expenditures
do not have to grow as quickly as the revenues, but they can grow slower, or faster.
Therefore, an eort has to be made to raise more these revenue that are followed by
slower growth on the side of the expenditures.
Therefore, there is a need to make a selection of products and services that realize maximum prots and to organize their production and sales in order to reach
planned prot by increasing total revenues. This means that the optimal relationship between the incomes from the sale of various products and services should
be found, meaning that it is necessary to determine which revenues should be
increased and how much.
In this case it is necessary to implement the process of prot optimization, and
one of the ways to do it is by using the method of linear programming, which is
described in the literature and can be used for this purpose. That is why the method
of linear programming presents the basis on which the model for prot optimization has been positioned and developed.
Model for prot optimization just mentioned has been set up in a way so that
the optimization of the model proceeds in two mutually connected activities. In
the rst activity the maximum prot, using the resources currently available for
production, is being calculated, while in another activity we must calculate the
maximum prot realized by using additional resources for production.
2.1. The procedure for the optimization of the prot I
The rst activity in the Model for prot optimization is procedure for obtaining the optimal prot and through which the maximum prot, on the basis of all
resources currently available for the production, is calculated.
The aim is to determine the exact quantity of the types of products or services
which have to be produced and sold, with known prot realized on the particular
product or service, in order to achieve maximum total prot in the current year.
Available data for this purpose are in the planned calculations and work orders calculations indicating the prot amount in a particular product or service.
31
The above objective function which should be maximized can be written in the
mathematical form in this way:
OP = P 1 x 1 + P 2 x 2 + ... + P nx n max
(1)
with following explanation:

OP prot optimization at the annual level
P prot realized by selling the specic product or the specic service (product
groups or service groups)
x amount of the products or the services (product groups or service groups)
n number (code) of the specic product or the specic service (product groups
or service groups)
The restrictive factors that appear in maximizing prots as available manufacturing capacities have to be taken into consideration. That is why there are following
limitations in the model: availability of machine capacities, availability of work
(human) capacities, possibilities to sell on the market, so far agreed sales and production, and availability of raw materials for production.
The rst limiting factor is the total available machine capacities for the production of all products or services on annual basis, and can be expressed as follows:
mc 1x 1 + mc 2x 2 + ... + mc nx n MC
(2)

mc machine capacity needed to create a single product or service expressed in
machine hours
x amount of the products or the services (product groups or service groups)
n number (code) of the product or the service (product groups or service
groups)
MC total machine capacity available for production of all products or services
on annual basis, expressed in machine hours
Another limiting factor is the total available working (human) capacity for production of all products or services on annual basis and can be expressed as follows:
hc 1x 1 + hc 2x 2 + ... + hc nx n HC
(3)
32

hc working (human) capacity that is needed to create a single product or service, expressed in standard hours
x amount of products or services (product groups or service groups)
groups)
HC the total work (human) capacity available for production of all products or
services on annual basis, expressed in standard hours
The third limiting factor is the market, which means that there is a limited possibility of sales for each product or service, and the maximum amount of market
sales for each product or service has to be determined. This limit can be written as
follows:
x1 S1
x2 S2
(4)
x3 S3
S maximum annual sales of products or services expressed in units of measure
groups)
The fourth limiting factor is the existing, already concluded contracts and customer orders for certain products and services, or contracted production (sales) for
the current year. Above limit can be written as follows:
x1 A1
x2 A2
(5)
x3 A3
A agreed and realized sales (there are contracts and purchase orders, as well as the
invoices for goods sold) of products and services for the current year, expressed
in units of measure (pieces, kg, m, m2, m3, etc.).
33

n number (code) of the product or service (product groups or service groups)
The fth limiting factor is the overall availability of raw materials (materials for
production) at the annual level which should be sucient for the production of all
products, and can be expressed as follows:
r 1x 1 + r 2x 2 + ... + r nx n R
(6)
where:
r raw materials (materials for production) needed to create one product expressed in the unit of measure
groups)
R total raw materials (materials for production) available for the production of
all products at the annual level, expressed in units of measure (pieces, kg, m,
m2, m3, etc.).
At the end we have to specify restrictions in regard to the non-negativity:
x 1 0, x 2 0, ..., x n O
After nishing the procedure for prot optimization, as a result we get the exact amount of certain products or services that should be produced or sold in the
current year, in order to achieve maximized prots by taking into account all of
mentioned limiting factors.
After the procedure for the optimization of prot has been nished, we can
determine whether the optimized prot is lower than the planned prot. If the
optimized prot is bigger or equal to the planned prot the obtained results can
be applied. If the optimized prot is lower than the planned prot, the analysis
of deviations for optimized prot should be done. Through this analysis it can be
determined whether deviation is greater than allowed. If the deviation of the optimized prot is lower or equal to permitted deviation, current operations could be
continued. However, in the case that the deviation of optimized prot is higher
than permitted, it is necessary to carry out the process for prot optimizing II.
34
2.2. The procedure for optimizing prot II
The procedure for optimizing prot II presents the second activity for prot
optimization by which maximum prot can be calculated, in a way that, besides
the existing resources of production, additional resources for production are conducted, too.
Assuming that the result got by getting optimized prot (according to the previous terms from 1 to 6) is not satisfactory, and optimized prot is still lower than
planned, this means that revenues should be increased further. Namely, in such
cases in order to increase revenues, it can be arranged to install additional shifts
(second, third), and additional work in non-working days (on Saturday, on Sunday,
during public holiday), under condition that there is a possibility for selling in the
market additional quantities of products and services.
Therefore it is necessary to modify the existing objective function in the sense
of the introduction of additional work expressed in hours, with the dilemma of (an
unknown) how much extra work (hours) with a known cost we have to invest, in
order to achieve maximized prots.
The objective function modied in this way can be also written in the mathematical form in this way:
OP2 = P 1 x 1 + P 2 x 2 + ... + P nx n - PMy - PSzmax
(7)

OP 2 Optimization of prot at the annual level
P prot realized by selling specic product or service (product groups or service
groups)
groups)
PM price per additional machine hour
PS price per additional standard (human) hour
y the total number of additional machine hours
z the total number of additional standard hours
35
Five of the existing restrictions that are listed in the previous expressions of (1)
to (6) should be updated, only in the terms: (2) as the rst limit, and (3) as the
second limitation, while the other limitations do not change but remain the same.
Thus, all restrictions by the modied objective function can be written as follows:
1st
OP = P 1 x 1 + P 2 x 2 + ... + P nx n max +y
2nd mc 1x 1 + mc 2x 2 + ... + mc nx n MC + z
3rd
x1 S1
x2 S2
x3 S3
4th
x1 A1
x2 A2
x3 A 3
5th r 1x 1 + r 2x 2 + ... + r nx n R
By maintaining the same restrictions in regard to the non-negativity:
x 1 0, x 2 0, ..., x n O
The result of the repeated process of prot optimization, with the modied objective function, is to get the total number of extra hours as the basis for increasing
production, in order to achieve the maximum prot for the current year. Namely,
in this way we get the exact number of extra machine hours and standard hours for
each product or service, so increasing of the hours is not being implemented for all
products and services linearly, but the optimum relationship between all products
and services has been determined.
36
3. CONCLUSION
Business results management, in addition to nancial management, production

management, marketing management and human resources management, is one of
the most important tasks facing management. To manage the business results, it is
necessary to track from month to month moving of prot as well as the eventual
loss during the whole business year.
However, for successful management it is not enough to monitor only realized prots, and to compare it with the planned prot values. The management is
expected to react quickly and decisively to the unwanted situation of prot deviations, in sense of taking corrective actions to achieve planned or expected prots.
Exactly for this purpose The Model for prot optimization has been developed.
Basis of the model is linear programming method that calculates the maximum
prot that can be achieved in the current year with available and additional resources. Therefore, in the model there is the possibility to modify objective functions, in
order to introduct additional resources.
The basic advantage for the management that Model for prot optimization
provides is the possibility of taking timely corrective actions, in order to achieve
the goals of business policy, as well as to realize principles of business results which
should not be expected, but managed.
LITERATURE
1. Avelini-Holjevac, I. (1998). Kontroling: upravljanje poslovnim rezultatom, Hoteljerski fakultet Opatija, ISBN 953-6198-15-0, Opatija
2. Barkovi, D. (2001). Operacijska istraivanja, Ekonomski fakultet Osijek, ISBN
953-6073-51-X, Osijek
3. Bronson, R.-Nadimuthu,G. (1997). Operations research, McGraw Hill, ISBN
0-07-008020-8, New York
4. Chadwick, L. (2000). Osnove upravljakog raunovodstva, Mate d.o.o., ISBN
953-6070-63-4, Zagreb
5. Schroeder, R. (1999). Upravljanje proizvodnjom, Mate d.o.o., ISBN
953-6070-37-5, Zagreb
37
HUMAN RESOURCE MANAGEMENT

OF THE CITY OF VINKOVCI
CONTINUOUS EDUCATION AND MOTIVATION
OF EMPLOYEES AS A BASIS OF SUCCESS
Sanja Bonjak,dipl.oec/B.Sc.Econ.
Vukovar-Srijem County
City of Vinkovci
Department for nance
Abstract
The importance and the purpose of local governments is to satisfy and fulll the
general social needs of their citizens.
In order to complete this mission any local government is supposed to employ capable and competent professionals who would do their jobs eciently and
conscientiously.
Another very important point that any local government should be based on
is trust between public services and the citizens. The trust is Condicio sine qua non
when we talk about communication. It can be noticed that there is a great communication gap between citizens and local government as well as higher levels of
government, which is lled with distrust and lack of comprehension.
In such a distrustful climate there is no way ecient way of dealing with the
problems. Therefore, one of the primary tasks of any local government is to regain
the trust of its citizens! The rst contacts citizens have with the local government are
its employees. They are very important part of the system.
Although its been fteen years since local governments were established, not
much has been done in the sphere of human resources, which also reects the
quality of work of public sector. Therefore it is necessary to analyze current state of
human resources of local government, start to motivate employees and ensure their
continuous education. Such kind of actions in the local government units should
be a reection of their sense of obligation towards the sources of their nancing:
citizens, voters, clients and taxpayers.
JEL clasication: J33, O15
38
Sanja Bonjak
Key words: human resources, motivation, local government, employees, education, skills, City of Vinkovci
1. INTRODUCTION
For many years people, their needs and wishes have been neglected in organizations. By realizing that people are the initiators of each organization, big companies
followed by other organizations started working on systematic education, specializations and motivation of the employees. The purpose of that was to provide welltrained and well-motivated employees in order to make and develop a company of
great quality which would remain competitive with other companies.
In the time of constant changes in technology as well as the increase of the
complexity of jobs and need for further education and acquiring skills it becomes
an imperative to create the learning organization. Human resources management
is a complex system which enables the company to follow, shape and fully use the
present human resources with minimal expense. Continuous education and the
creative application of the newly acquired knowledge in solving the present and
the future problems as well as the motivation of the employees, is the philosophy
hardly known and applied within a local government. This very situation is one
of the main causes of the indolent, inecient organization resulting in irrational
spending of the budget which then disables the accomplishments of its main goal:
to create strong, nancially independent local governments which successfully meet
the public needs of their citizens. Having in mind that the City of Vinkovci is not
an exception, I conducted a research to get an insight into the present situation and
possibly suggest some measures for the improvement.
2. MOTIVATION
In the last decade, apart from economic and demographic changes, which inuenced the cities as local government units, there are also changes in the way
economy operates. Competition among cities, regions and local governments that
cover certain areas is getting bigger and bigger. The cities are becoming more
important in the political, economical and social sense. They are engaged in the
foreign as well as domestic politics, they form alliances; compete with other cities
in Croatia as well as in the EU. The cities are trying to increase their role of managing, guiding, and controlling of economic and territorial processes in the scope
of their activities in order to strengthen their economic basis and decrease the
government budget dependence. The city budget should be concentrated on at-
39
tracting new investments, business organizations and entrepreneurs and it should

rely on employed people who would nd some kind of interest to stay in town
instead of going elsewhere. In order to successfully carry out all of these tasks
a local government unit should improve human resource utilization. It should
be oriented towards making of such an administration that would qualitatively
and quantitatively meet the needs of its citizens and have long-term objectives
of insuring better life in the local community. To achieve better eciency of the
employees they need to be motivated.
Motivation is the activation of goal-oriented behavior. Motivation can be intrinsic or extrinsic. The term is generally used for humans but, theoretically, it can
also be used to describe the causes for animal behavior as well. This article refers
to human motivation. According to various theories, motivation may be rooted in
the basic need to minimize physical pain and maximize pleasure, or it may include
specic needs such as eating and resting, or a desired object, hobby, goal, state of
being, ideal, or it may be attributed to less-apparent reasons such as altruism, selfishness, morality, or avoiding mortality. Conceptually, motivation should not be
confused with either volition or optimism. (http://en.wikipedia.org/wiki/Motivation Seligman, Martin E.P. (1990). Learned Optimism. New York: Alfred A. Knopf,
Inc.. p. 101. ISBN 0-394-57915-1)
Motivating is one of the basic function of management. Moreover manager
function refers to the management, control or business management of people
employed in the company. It is about encouraging people to pay interest primary to
company objective i.e. users, sta satisfaction and general life satisfaction, although
the last one typically leads to higher image and company quality. System of motivation is extremely complicate process and it should performed by all leaders. In this
process everything must be followed, and always available for advice and auditing.
(Marui; 1995, p 36)
The indicator of how big an issue motivation is there are many research papers
and theories that deal with motivation: Maslowljevs, Aderfers, Herzbergers, McClellands, Atkinsons, Miners and many others. (Certo; 2008, p 382-388)
This great interest in the problem of motivation basically has three reasons: improvement of labor productivity, eciency and creativity, improvement of quality
of working hours spent in the organizations, strengthening of competitive ability
and business eciency of the organization. (Bahtjarevi iber; 1999, p 555)
Dierent authors mention dierent factors of motivation: a challenging job, a
possibility of success, responsibility, professional growth, promotion, recognition,
40
Sanja Bonjak
salary, working conditions, job security, interpersonal relations, possibility of education, stimulation for the job good done, awards.
The same factors do not apply to each and every employee. Each employee
has his/her own individual expectations and perception of the situation. Dierent people have dierent needs, wishes and desires and therefore act dierently in
the same situation. In order to secure the implementation of the right motivation
model and approach one has to know the individual characteristics and expectations of the employee.
Numerous research done lately show that the organizational climate within the business system inuences the working motivation of the employees and
their contentment. Indirectly it also aects the labor productivity and business
performance.
3. THE OVERVIEV OF THE SITUATION IN A LOCAL GOVERNMENT City of
Vinkovci
Every day we are more aware that the companies that realized that human resources they dispose of are one of the major factors of their existence and activity
are more successful than the companies which management deny or underestimate
the value of the people, their knowledge and motivation to work. We all know
that the last decade had been marked by severe changes within the local government in the Republic of Croatia. The law regulated economic, social and political
changes, the decentralization of the nancing of the local governments in attempt
to awaken their economy and stimulate nancial independence as well as provide
the optimal realization and rational spending of the budget, whereas the needs of
its citizens would be met. We come to a completely new way of thinking and clear
demand: city must start acting like an entrepreneur. Clearly, that is not always possible. The purpose of local government is meeting public needs of their citizens and
these often are not compatible to the entrepreneurs way of thinking. Nevertheless,
the local government should rationally dispose of their assets, should have clearly
dened investment programs into communal, housing, social and other sectors of
public needs, as well as control over their property like a good owner. (Vitezi et al;
2004, p 140). The accomplishments of these goals are not possible without people,
their specic skills, knowledge and their creativity.
41
3.1. Some Issuse Of Human Resources In The City Of Vinkovci
Analysis of situation in the City of Vinkovci opened the some issues.

3.1.1. Politics Into Human Resources Management
One of the basic issues is: How to avoid intrusion of politics into human resources management? The politics itself or the elected political leadership is very
often the cause of the signicant problems in organization. Choosing some of the
sta according to their political line, with no concern to their competence and
expertness to accomplish certain kind of work seems to be a very serious problem.
The question is how to reconcile the political demands and the need for absolutely
independent and expert administration.
The only solutions seems to be the severe separation of the political functions
from the expert service and professional employees, as well as maturation of the
political structures and their conscience that political management demands expert
sta, systematic education and following of their work. All above said imposes the
need for human resource planning process (Noe et al; 2000, p 146).
3.1.2. Individual Motivation
The next question is individual motivation. The most important task of management is to motivate other people. (Denny; 2000, p 7). The climate of the organization within the business system has great impact on motivation of the employees
and therefore their success in work. Follows the overview of employees by years of
service in City of Vinkovci.
Table 1: The overview of employees by years of service in City of Vinkovci

Years of service
< 5 years
5-10 years
10-15 years
15-20 years
20-25 years
> 25 years
TOTAL
Source: Autor
Number of employees
11
5
5
18
9
33
81
42
Sanja Bonjak
From the table is evident that 51.85% of employees are more than 20 years of
service. Most of them hardly catch up with the changes. Beside that they need encouragement and support. Young employees refresh are working environment, and
trying be support older employees.
The next question that arises is how to motivate people to work, how to, with
limited nancial resources, convince them to work the best way they can to show
their creativity, to coexist with their company but also how to convince their chiefs
that people are not expendable goods. It should be emphasized that the needs and
wishes of each and everyone are real and important, that employees have their
personal lives outside the company which should be respected and that they have
problems which one needs to be considerate about.
It is true that everyone disposes of certain potentials; they just have to notice
them and keep developing them. It is necessary to make a thorough analysis of
the disposable sta in order to ascertain knowledge, abilities and skills we already
dispose of and also to create programs for qualications and further education
which certain working place demands. Therefore, the expense of the systematic
qualication and education will seem to be irrelevant in comparison to the achieved
results.
The communication between the management and the employees is here of
great importance. The goals are the initiators of all the actions, so it is important
to notice the signicance of the motivation as the initiator of these actions and the
self development.
3.1.3. Structure Of Human Resource Of The City Of Vinkovci
To achieve the maximum in human resource management the experts believe

that each organization should have a special department or organizing unit which
would, according the certain methodology, supply, analyze and keep information
about employees.
This can be achieved by suggesting the managers certain solutions to the employees problems and measures to improve the work of the organization. As most
of the local governments in the Republic of Croatia neither the City of Vinkovci
has any special organizing unit or department for human resource management.
The necessary oce work, or collecting and managing legally prescribed evidence
is done by the service inside the Mayors oce.
43
The City of Vinovci is the local government with 81 employees within 7 organization units-departments and 12 local committees and city districts.
The City of Vinkovci provides for following public needs: its provides conditions for development of economy, social services, municipal and other services of
signicance for the city; urbanism, architecture and protection of environment;
living quality care, municipal services in the city area; children care, education,
public health, social welfare, culture, sports.
Follows the qualication structure employees in City of Vinkovci:
Table 2: Qualication structure of employees of the City of Vinkovci

Qualication
University qualication
Two-year past-secondary school qualication
Secondary school qualication
Unskilled worker
TOTAL
Number of employees Women

32
15
6
3
38
26
5
2
81
46
Man
17
3
12
3
35
Source: Autor
Graph 1: Qualication structure of employees of the City of Vinkovci

Qualification structure
in the City of Vinkovci
University qualification
6%
40%
Tw o-year past-secondary school

qualification
Secondary school qualification
Unskilled w orker
47%
7%
Source: Autor
It is evident from the given information that in systematization of the city work
force prevail the employees with secondary school qualication prevail. The number of employees with university qualication is not dissatisfying but it should
be taken into consideration that here are also the electoral or political functions
implied, to be more precise, the mayors deputies. The overview of the existing
44
Sanja Bonjak
condition in the City of Vinkovci has brought further problems to the surface: mild
dissatisfaction of the employees with the nancial compensation for their work;
poor communication within and between certain departments; insucient team
work; insucient sense of responsibility of the individuals for their work; lack of
trust between the manager and the employees. The rights and the obligations of
the City of Vinkovci as an employer to the employees of the local government are
regulated not only by legal regulations, but also by Wage and salary rulebook for
employees of the City of Vinkovci.
Currently there are no regulations in the City of Vinkovci which ensures conditions for applying material and non-material motivational compensation. As I have
already mentioned, systematic education of the employees and evaluation of their
work have not been conducted yet, but we can notice some progress in the period
from 2006 to 2009 in investing in people, their knowledge and skills. Here are a
few examples of that. The city of Vinkovci was completely computerized during
2005 and 2009 and in that period it was necessary to further educate the employees. But rst step is here. City of Vinkovci has dened the rules for evaluating employees, on the 3rd of March 2010 (is valid from the 31st March 2010).
Furthermore, by involving the City of Vinkovci into the project managed by
The Urban Institute the WCA (The Web Connected Application) Intranet-Internet
system for the local government were implemented. WCA system was created with
the purpose of quicker and more functional internal communication, information
exchange and to accomplish saving in time and oce materials. By introducing
this kind of communication it became necessary to further educate the employees
in using computer applications. All employees were adequately educated to communicate through WCA system. This system is still not accepted within oce communication of the City of Vinkovci nevertheless it is to be expected in future.
The employees of the City of Vinkovci who expressed desire for further education within postgraduate college are given nancial aid. This is important because
this education is connected to development of the local government, nancial
management and protection of environment. Except the above mentioned, the
employees can attend seminars and use business journals.
4. FURTHER STEPS
As it was mentioned, it is clear there is a tendency in the City of Vinkovci to

follow and develop knowledge and skills of the employees. This process is still at
45
the beginning. It has already been stated that there is not any special organizational
unit to provide for all human resources of the City of Vinkovci. Because of that,
chiefs of departments or managers are important. The insight in every department
has shown a very dierent approach in managers work. While some managers follow situation within department to the full scale, the other behave indierently
showing lack of creativity, managing skills and desire to communicate and learn. It
is important to emphasize that only a motivated manager can motivate the employees. He can create a good working atmosphere not only by nancial compensation
but also by his behavior and communication with employees. Unfortunately, even
then some sta will fail to complete their tasks with quality, to work in a team or
to continue their education. (Robbins; 1992, p 60)
Tax payers money is under constant public supervision and one should be very
careful while estimating the feedback between its spending and expected results.
Working in local government rstly stresses the factors of motivation like security, respect, accomplishment, but can hardly satisfy human need for high nancial compensation for the work. Respecting above mentioned and having in mind
legal and economic limitations of local government, I believe that it is possible to
improve the motivation of the employees of the City of Vinkovci by leading in
or applying following: having insight in personnel situations within every single
department; submitting managers reports to the City Government with insight
of work within the department and proposal to stimulate or punish employees;
continuous education through professional courses, seminars and literature, paid
tuitions, ensuring free days for preparing exams; stimulating creativity, job satisfaction and self-actualization; equal division of work; developing trust between managers and employees; agreeable working environment and team building. The cities
(local government units) can hire professionals and consultants to implement their
objectives but for a long-term solution the spirit of administration and its inner
system should be changed. Therefore, an introduction of management and human
resources management into local government units is essential. It is important to
say that in order to succeed in implementing of this objective each individual has
to change his/her way of thinking and acting. The bosses and the employees are
in this case equal. The bosses have to set an example decisively and rmly and the
employees should follow. Otherwise, there would be no long-term results and the
trust of the citizens would be gambled away.
46
Sanja Bonjak
5. CONCLUSION
The research has shown that the word motivation is one of the six most common
words used in companys records. Unfortunately, many people use it but not always understand it. I present only a small part of the human resource management
research. Systematic education and application of motivation techniques in local
government are at the beginning. The City of Vinkovci is not an exception.
The fact is that the City of Vinkovci disposes of signicant human potential,
with great ability to successfully perform their tasks. At the same time, it needs
to continually invest in personnels knowledge and skills, developing creativity,
responsibility and belonging to the organization. The knowledge of motivation
techniques is here invaluable. The situation of human resource in City of Vinkovci
is not alarming but there is many possibilities to progress it. In my opinion the
City of Vinkovci has made signicant progress. In the future we must continue
working on the developing employees knowledge and skills in order to develop
the organization itself. Such kind of actions in the local government units should
be a reection of their sense of obligation towards the sources of their nancing:
citizens, voters, clients and taxpayers.
BIBLIOGRAPHY
1. Bahtjarevi iber, F. (1999). Management ljudskih potencijala, Golden marketing, ISBN 953-6168-77-4, Zagreb
2. Certo, S.C. & Trevis Certo, S. (2008). Moderni menadment, 10. izdanje,
MATE, ISBN 938-953-246062-9, Zagreb
3. Denny, R. (2000). Motivirani za uspjeh, M.E.P. Consult, ISBN 953-6807-02-5,
Zagreb
4. Marui, S. (1995). Upravljanje i razvoj ljudskih potencijala, 2 izdanje, Ekonomski institute Zagreb, ISBN 953-6030-00-4, Zagreb
5. Noe, R.A., Holenback, J.R., Gerhat, B. & Wright, P.M. (2000). Menadment
ljudskih potencijala, tree izdanje, MATE, ISBN 953-246-012-8, Zagreb
6. Robbins, S.P. (1996) Bitni elementi organizacijskog ponaanja, tree izdanje,
MATE, ISBN 953-6070-30-8, Zagreb
47
7. Vitezi, N. (2004). Balanced Performance measurement of the Public Sector,

Zbornik radova sa Economic decentralization and Local Govertment, p 139-155,
ISBN 953-6148-39-0, Ekonomski fakultete Rijeka, Rijeka
8. http://en.wikipedia.org/wiki/Motivation Seligman, Martin E.P. (1990). Learned
Optimism. New York: Alfred A. Knopf, Inc.. p. 101. ISBN 0-394-57915-1
48
Martina Bri
TRANSSHIPMENT MODEL IN THE FUNCTION OF COST

MINIMIZATION IN A LOGISTICS SYSTEM
Martina Bri
Teaching Assistant
Faculty of Economics in Osijek
Croatia
ABSTRACT
Transportation is the most important subsystem of logistics in terms of value.

Transportation costs account for the largest portion of costs in a logistics system.
The paper will examine the usage of a transshipment model with the purpose of
minimizing the costs in a logistics system. Transshipment model is a multi-phase
transport problem in which the ow of material raw materials and services is
interrupted in at least one point between the origin and the destination. The whole
stock passes through intermediate points of reloading before the goods reach their
nal destination.
By using methods of mathematical and computer modelling it was attempted
to nd out how many intermediate points should be introduced into the system,
and whether their capacity should be limited. The purpose is to optimize the plan
which should ensure that total transportation and warehousing costs are brought to
a minimum, thus minimizing overall costs in the logistics system.
JEL clasication: C61, L25, R41
Keywords: Transportation Model, Transshipment Model, optimization, logistics, costs
1. Introduction
The concept of logistics has an important role in economic literature. There are
a number of dierent denitions for this concept, depending on ones worldview,
for example:
TRANSSHIPMENT MODEL IN THE FUNCTION OF COST MINIMIZATION IN A LOGISTICS SYSTEM
49
Logistics is the science that studies how to move items between origins and
destinations (usually from production to consumption) in cost eective ways. (Daganzo, 1996, 1)
Logistics can also be understood as a system that includes transportation, as well
as other activities such as inventory control, handling and sorting. Cost-eectiveness is a priority in logistics that can be achieved with careful coordination of all
activities.
In tracing the path of an item from production to consumption, it must be
(Daganzo, 1996, 19):
carried (handled) from the production area to a storage area,
held in this area with other items, where they wait for a transportation
vehicle,
loaded into a transportation vehicle,
transported to the destination, and
unloaded, handled, and held for consumption at the destination.
These operations incur costs related to motion (i.e., overcoming distance) and
cost related to holding (i.e., overcoming time). Motion costs are classied as either handling costs or transportation costs and holding costs include rent costs
and waiting costs.
Various methods of optimization are used in order to minimize costs in a logistics system. They can be applied in dierent logistical problems such as:
a) ONE-TO-ONE PROBLEMS: problems with only one origin and one
destination;
b) ONE-TO-MANY PROBLEMS: problems with one origin and many destinations (or vice versa), assuming that each item travels in only one vehicle
- in this situation one can dierentiate between problems without transshipment on one hand and problems that allow for transshipments at intermediate terminals on the other;
c) MANY-TO-MANY PROBLEMS: problems with any number of origins and
destinations, assuming that each item travels in only one vehicle
- in this situation there is also a dierence between problems without transshipment and those including multi-terminal systems with one transshipment or multiple transshipment.
50
Martina Bri
In this paper, the logistical problem MANY-TO-MANY with one transshipment was considered using a transshipment model in order to nd a rational and
optimal solution for the logistics system.
2. TRANSSHIPMENT MODEL
The transshipment problem is a transportation problem in which each origin

and destination can act as an intermediate point through which goods can be temporarily received and then transshipped to other points or to the nal destination.
(Gass, 1969, 232)
A transshipment model is a multi-phase transportation problem in which the
ow of goods (such as raw materials) and services between the source and the origin is interrupted in at least one point. The product is not sent directly from the
supplier (origin) to the point of demand; rather, it is rst transported to a transshipment point, and from there to the point of demand (destination). (Barkovi;
2002, 144)
In this model two questions must be answered with a view of minimizing the
costs:
how to transport the goods from the origin to the transshipment point;
how to transport the goods from the transshipment point to the destination
(Figure 1).
51
Figure 1: Product ow from origin to destination

TRANSSHIPMENT
POINTS
ORIGINS
A1
B1
S1
a1
b1
s1
SECOND PHASE OF
TRANSPORTATION
FIRST PHASE OF
TRANSPORTATION
A2
B2
S2
a2
b2
s2
Am
DESTINATIONS
Bn
Sr
am
Source: Paagi; 2003, 161
Transshipment model can be formulated as the following linear programming

problem (Paagi, 2003, 162-163):
m
min T =
c
i =1 k =1
x
k =1
kjk
j
ik
ik
i =1
r
x
k =1
ikik
k =1
j =1
x + cjkkj xkj + ck xjkkj
ik ik
ik
k =1 j =1
= b j , j = 1, 2, , n
(1)
(2)
= xjkkj
(3)
ai , i = 1, 2, , m
(4)
j =1
xikik 0, i = 1, 2, , m; k = 1, 2, , r
(5)
52
Martina Bri
xjkkj 0, k = 1, 2, , r; j = 1, 2, , n
(6)
In the mathematical formulation (1) (6) above the following symbols are used:
i - the symbol for origins Ai with available quantities on oer ai ( i = 1, 2, ,
m); k - the symbol for transshipment point S k with quantities sk (k = 1, 2, ,
r); j - the symbol for destinations B j with demands b j (j = 1, 2, , n); xik - the
quantity being transported from the origin Ai to the transshipment point S k ; xkj
- the quantity being transported from the transshipment point S k to the destination B j ; cik - transportation costs per unit of goods from the origin Ai to the
transshipment point S k ; ckj - transportation costs per unit from the transshipment
point S k to the destination B j and ck - warehousing costs per unit of goods at the
transshipment point S k .
The function of goal includes transportation costs from the origin to the transshipment point, transportation costs from the transshipment point to the destination and warehousing costs at the transshipment point, and according to (1) it has
to be minimized. The demand of all destinations will be satised thanks to the
restriction (2). Restriction (3) means that the quantity of goods delivered to each
transshipment point is equal to the quantity of goods transported from that transshipment point to the destination. Restriction (4) means that the quantity of goods
transported from each origin to all the transshipment points cannot exceed that
origins capacity. Restrictions (5) and (6) require non-negativity of decision-making
variables.
In a transshipment model it is possible to introduce another limitation which
ensures that the quantity of goods delivered to each transshipment point does not
exceed the capacity of a particular transshipment point:
m
ik
ik
sk , k = 1, 2, , r
(7)
i =1
A method for solving this type of transportation problems was proposed by

Russian mathematician V. A. Ma, however, somewhat earlier an analogous idea
was presented by American mathematician A. Orden. The Orden Ma method
reduces the transshipment problem to a classic transportation problem thanks to a
special design of the transportation table (Paagi, 2003, 163).
53
3. IMPLEMENTING A TRANSSHIPMENT MODEL
The problem of transshipment will be illustrated on an example (Figure 2)

which encompasses three origins, i.e. three factories and three retailers, i.e. points
of demand. Each origin has a certain maximum capacity of goods, i.e. the quantity
of stock in the three factories, represented by the nodes 1, 2 and 3 which are 500,
450 and 400 units, respectively. Each point of demand requires a certain quantity
of those goods, i.e. the demand at three retailers is represented by the nodes 7, 8
and 9 which are 350, 350 and 650 units, respectively.
Between origin nodes and destination nodes there are some nodes over which
the goods are sent to other immediate nodes or to the destination. In this case there
are arcs (actually directed from the origin towards the destination) with associated
(Barkovi, 2002, 50):
upper restrictions (or capacity) of the quantity of goods that can ow through
the arc,
unit costs for goods sent through the arc.
The following is under consideration:
introduction of two / three distribution centres,
whether the distribution centres should be without capacity limitation or if
they should be limited to e.g. 550 units.
The main requirement is to nd a solution in which destinations will be supplied from the origin at a minimal cost.
54
Martina Bri
Figure 2: An example of a transshipment model
Source: Adapted by the author according to: http://www.fpp.edu/~dtuljak/UPRAVLJANJE%20

ZALOG/vaja%204%20-%20%20DVOFAZNI%20TRANSPORTNI%20PROBLEM.pdf
x
If we use ij to determine the quantity being sent from node i to node j then
the linear program of this problem is presented as shown in Table 1.
Table 1: Formulation of transshipment problem through linear problem
x14 x15 x16 x24 x25 x26 x34 x35 x36 x47 x48 x49 x57 x58 x59 x67 x68 x69
vor 1
vor 2
vor 5
vor 6
min
= 450
1
-1
= 500
vor 3
vor 4
-1
-1
vor 7
vor 8
vor 9
Source: Authors calculations
-1
-1
-1
= 400
1
-1
-1
-1
1
-1
-1
-1
-1
-1
-1
= - 350
-1
-1
= - 350
-1
= - 650
55
Each restriction in the formulation above is associated to one node. Restriction

equations represent maintenance of ow into and out of node, and total sum of
ow inputs equals the total sum of ow outputs. In the table it can be observed that
each variable xij has one +1 in row i , and -1 in column j . This particular structure
is typical for the problems posed by transshipment model. (Barkovi, 2002, 146)
The transshipment model from Table 1 can be turned into a transportation
model by means of the Orden Ma method in which the transportation table is
compiled in a special way. (Table 2).
Table 2: Transportation table
1350
1350
1350
350
350
650
x14
x15
x16
x17
x18
x19
x24
x25
x26
x27
x28
x29
x34
x35
X36
x37
x38
x39
x44
x45
X46
x47
x48
x49
x54
x55
X56
x57
x58
x59
x64
x65
X66
x67
x68
x69
500
450
400
1350
1350
1350
In Table 2 not all the elds have a realistic rationale. Direct connections between
origins and destinations are not permissible. Such connections are always executed
through transshipment points. Furthermore, transportation between transshipment points makes no sense. All these elds were lled with a large number of M,
which ensures that these do not become basic elds.
56
Martina Bri
The elds at the crossing of rows and columns, which correspond to the same
transshipment point, are used to ll up the unused capacity at transshipment points.
Such elds in the table make up the so-called ctitious diagonal.
Transportation costs cik are entered into elds that are situated at the crossing
of origin lines and those of transshipment points, and the sum of warehousing costs
and costs of transportation from the transshipment point to destination ( ck + ckj
) is entered into elds that are situated at the crossing of lines for transshipment
points and destination lines.
By using one of the available computer programs (POM for Windows / WinQSB) an optimal solution is obtained (Figure 3 and Figure 4):
Figure 3: Optimal solution to a problem obtained by means of the computer program WinQSB
Source: Authors computation
57
Figure 4: Optimal solution to a problem in the case of unlimited capacity of distribution centres
Source: Authors design
In the next step, the possibility of limiting the capacity of distribution centres to
550 units was examined, and the result is shown in Figure 5:
Figure 5: Optimal solution to a problem in the case of limited capacity of distribution centres
Source: Authors design
58
Martina Bri
The obtained results indicate that it is sucient to introduce two distribution

centres, node 5 and node 6. In that case, total transportation costs from origin to
destination would amount to 6650 NJ (Figure 3 and Figure 4). If the capacities
of the distribution centre were limited to 550 units, total costs of transportation
would then amount to 7550 NJ (Figure 5). Therefore, it can be concluded that
capacity limiting is an unnecessary operation.
According to the optimal solution (Figure 3 and Figure 4), distribution node 5
should receive 500 units from the factory in node 1, 100 units from the factory in
node 2, and 400 units from the factory in node 3. Out of 1000 units that would
arrive to node 5, 350 units are shipped to supplement the demand by the retailer in
node 8, whereas 650 units are delivered to supplement the demand by the retailer
in node 9. Distribution node 6 should accept 350 units from the factory in node
2, and the whole quantity would be shipped to satisfy the demand by the node 7
retailer.
4. CONCLUSION
Transshipment problem can be viewed as a generalized transportation problem.

A situation is conceivable in which each origin can ship to all other origins as well
as to all destinations. Vice versa, a destination can ship goods to all other destinations and all origins. In this research transshipment problem was applied to the
logistics problem MANY-TO-MANY with one transshipment.
The goal was to describe rational structures for logistics systems and for their
operation, as well as to show how they can be determined. Decisions were required
regarding two problems: whether to introduce two or three distribution centres and
whether to limit their capacity to 550 units. The intention of any of these operations was to minimize total costs.
According to the optimal solution, it is concluded that it suces to introduce
two distribution centres, and in this case, total costs of transportation from origin
to destination are 6650 NJ.
It is also observable that a transshipment model and its application can provide
a cost-saving solution for a logistics system.
59
5. REFERENCES
Books
1. Barkovi, D. (2002) Operacijska istraivanja, Ekonomski fakultet u Osijeku,

ISBN 953-6073-51-X, Osijek
2. Daganzo, C. F. (1996) Logistics Systems Analysis, Second Revised ana Enlarged
Edition, Springer, ISBN 3-540-60639-4, Berlin
3. Gass, S. J. (1969) Linear Programming, Methods and Applications, Mc Graw
Hill Book Company, New York, London
4. Paagi, H. (2003) Matematike metode u prometu, Fakultet prometnih znanosti, ISBN 953-6790-81-5, Zagreb
Papers published in conference proceedings
1.Barkovi, D. (2002) Velike mree Potpora u distribucijskom planiranju,

Zbornik radova sa II. znanstvenog kolokvija Poslovna logistika u suvremenom
menadmentu, Segetlija Z. & Lamza Maroni, M. (ur.), str. 49 64, ISBN
953-6073-72-2 (knj. 1), Pore, 2002, Ekonomski fakultet u Osijeku, Osijek
Internet
1. http://www.fpp.edu/~dtuljak/UPRAVLJANJE%20ZALOG/vaja%20
4%20-%20%20DVOFAZNI%20TRANSPORTNI%20PROBLEM.pdf
(17.02.2010.)
60
Iris Broman
STRUCTURE AND OPERATIONAL MANAGEMENT IN

LABORATORY ANIMAL PRACTICE
mr.spec. Iris Broman, dr.vet.med.
ABSTRACT
Biomedical research projects involve a large number of human resource proles,

multiple processes and structures, regardless that they seem to be run by individuals at rst.
All research components are connected to each other and under the inuence of
all participants. In case that the head researcher doesnt govern the management of
this process, it will reect to it in a negative way: procurement and the paperwork
concerning animals and supplies will not be available the right way; the research
results will become unreliable and the whole agenda will be put to the ice.
Croatia nds herself today facing a line of accreditations and certications in order to adjust herself to EU membership, both institution and people. Organisation,
as a scientic branch, studies guidelines, advices and legislation provided by leading
scientic experts worldwide, in order to implement and modify them according to
her needs, in order to create stronger prole and capacity of human resources for
the global labour market.
JEL clasication: I11
Key words: Biomedical research, management, structure, European Union
membership
INTRODUCTION
The work with laboratory animals had, up until now, very little approach by the
standpoints of operative management, organization, social sciences methodology
and nance, while it was rather strictly held within biomedical sciences.
STRUCTURE AND OPERATIONAL MANAGEMENT IN LABORATORY ANIMAL PRACTICE
61
As Croatia is facing today lines of accreditation and certication, in order to

adjust itself to EU requirements, the guidelines and directives demand additional
approaches by their own nature, as , for, instance, the one described in this work.
The object of this research is management and activity organisation in work
with laboratory animals in Croatia.
Ministry of science took over the task to assembly numerous types and species of
animals into one register. In the meanwhile, with no approach to such a register, we
will consider as object of research just those animals that are prepared by Vivariums
in Croatia for the biomedical research.
Methodology of research for this work is very modest, so that, besides experimental method, well use comparative, normative and analytical method. As to
have a better overview no the issue, we divided the structure under headlines of
organization, management, research teams, nances, legislation and professional
regulation.
ORGANIZATION
The organization lather should be put up clearly during the planning process. It
will modify through time, according to the momentary operative demands. However, a good organizational skeleton will, at the certain time, when the work overload becomes so intense, that it turns out impossible for the leader, as a one person,
to have an overview, never the less to lead all the organizational aspect related to the
project, present a hallmark for the concept maintenance. Therefore, it is necessary
to post an optimal organization that will full the demands of domestic market and
an ecient adjustment to the EU standards. Organizational form, set up in that
manner, will create niches for management application, enabling this profession to
oer its production capacities to the world market.
The aims of organization can be perceived as:
general and special
simple and combined
temporary and permanent
The general ones present structuring the certain organizational state for the certain time frame. The special ones present ecient solving of certain organizational
problems. (Turkalj; 2008, 10)
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Iris Broman
Organizational structure in work with laboratory animals can be observed completely globally, at the regional or state level, or micro level, institution or laboratory, whose activities and results provide a reection of primary concepts, with
expression of all its faults and virtues. This approach enables the maximal use of
virtues.
The organizational hallmark that inuenced todays approach in work with the
laboratory animals and made it as uniformed as possible, is the scientic request
that every experiment, done anywhere in the world, has to be reproducible.
When the European Council declared its requests regarding the work with laboratory animals, built according to American and European guidelines, that was
also accepted by many countries and was implemented in their legislative systems,
the request for reproducibility of experiments made the organizational structure,
regarding the issue, specic and uniform.
The animal, or the animal model, has to live in the exact same environment
as it would live anywhere in the world, that also means that the human resources
that participate in this line of work, have to have approximately the same level of
knowledge, approach and do exactly the same things.
This organizational equality provides the whole line of advantages, amongst
which we can underline the general information approachability, but also the fact
that its tying down creativeness and autonomy of new organizational, managerial
and research approaches.
Work with laboratory animals in Croatia seems to be of special social interest
and is, therefore submitted to control of lines of Ministries. So, for instance, Ministry of Agriculture regulates the zoo hygienic measures, transport, ethical aspect
and the whole lot of other issues concerning the welfare and care for the animal as
a subject.
Ministry of Science encourages and funds activities, programs, counselling, science Congresses, gatherings and the palette of activities of organizational unites,
that do research work on animal models. Additionally, there are organized societies that deal and discuss dierent aspects of scopes of work with the laboratory
animals.
One successful leader, head of facility, researcher or manager uses the positive
forces within the organization and anticipates, limits and redirects the potentially
hazardous ones, horizontally and vertically. In order to do so, the manager has to
63
understand the structure (organization) and the process itself (management) and
their relevance while conducting the research. Organization draws us the ladder of
responsibility, while management describes their operability.
MANAGEMENT
Management is an activity within the organization that enables eciency free

of dispersion and forcing the resources.
Eciency and eectiveness achievement: eciency of a certain organization can
be measured by responsible precision (correctives) how certain processes develop,
meaning, for ex. do they produce by the lowest unit expenses (eciency) followed
by its ability to do the right thing to choose the right goals and methods and how
to achieve them(eectiveness). (Barkovi; 2009, 14)
Administrative aspects, quality control (meaning precision and accuracy) and
quality surveillance (meaning retrospectives and follow ups) form the structure axis
that enable the further operativeness.
Managerial skill is an executive process of gaining the organizational goals with
people, other organizational resources and through them (Certo & Certo; 2008,
16)
If the process seems to ow with a sense of ease that means it has a high quality professional management. That feeling of easiness also depends on the good
organization and well think trough operative part, that serves to the manager to
swiftly tune sudden negative impacts, that might happen in the process, regardless if somebody gets ill, there are legal changes, diculties in logistics, or, simply,
unexpected global changes.
Prognostics, as a method, or a simple creative anticipation together with a valid
information ow, can save the entire project from closing, or redirect it in another
direction, that has a capacity to compensate the losses. The duty allocation helps in
forming the organization and operative part, as well as in their disburdening. One
person can be delegated for placing orders and keeping the log on procurement,
not only for one but for a group of teams. That task will be assigned to people who
have suitable education and are involved in the operational part of the project in the
manner that they can follow, combine and foresee the requirements. As one person
gets delegated and accepted the duty, he/she becomes competence responsible.
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Iris Broman
As for resource allocation, there are two familiar ways.

The rst way is establishment of necessary coordination, cooperation and in
relation, resource allocation presents, largely or not, a forcing. We are talking about
centralized resource allocation-socialistic economy.
The other way, the other economy, mediates its activities throughout voluntary
cooperation.
We are talking about decentralized resource allocation capitalistic economy
market method. (Ferenak; 2003, 6)
Duty allocation, according to competence, and the level of responsibility, requires respect of the term procedural discipline, by all the participants. Everybody needs to know what they are supposed to do and when to do it. All participants have to respect legal regulations; they will come up in the benchmarks of
dierent activities.
It is quite clear that the previously arranged xed processes prevent a line of
mistakes and lower the frustration level. Task delegating pulls a need for joint decisions and simultaneous work on dierent tasks. That all seems to produce masses of
unnecessary paper and that the administrative part pushes over the limit. However,
on the end of the day, those same documents will keep up the coordination, lead to
higher eciency and prevent many mistakes.
TEAM DYNAMICS
Properly set up organization in work with laboratory animals and a good management should enable a large majority of interest teams that will constantly advance the professional and academic activity.
The index of complexity is a factor that drives the need for management. Every
change in operability and structure changes creates a base of a chain reaction of
which the participants may or may not be aware. On those occasions certain segments are suddenly no longer required, at least not in the form as planned. Then
the reorganizing has to be swift and clearly presented, because the time limit will
cause pression that will reect both to human resources and results.
Also, the amount of work can be piled up due to wrong assessments or unexpected back holds and that is the time for the quality management to show itself.
65
The rapid expansion of base of knowledge, new ideas, equipment and creativity
are characteristics of scientic research that have their dynamic uctuation going
on at the Universities, institutes and other sources of academic forces.
Traditionally, those institutions have a minglingscientic prole, a large number of small projects, swift changes in the types of projects and a fast exchange of
human resources.
Biomedical researches need a very demanding management.
Classic research is often characterized by individual research, that doesnt change
their characteristic for a longer period of time. Hierarchy is dened in precision,
decision making is lifted to the highest level, (therefore the communication gets
vertical), the operative part is well dened and therefore, often, if we want to know
something concerning a certain segment, well speak to the same person.
As opposed to that model, biomedical research is done in teams. Employees
work together, coordinate tasks, and often have collateral or communicative duties.
Team work presents a complex integrative mechanism. Postulates often require additional verbal communication. Authorities are often delegated within the group
and are not necessarily the same people for dierent projects for the same group in
dierent project types.
Science is coordinated with other duties the academic community is involved
with. The jobs that researcher do perform as the base job can serve as a positive
platform for research.
According to recent researches, all the teams go through same behaviouristic
phases. They are encouraged by emotional states of all participants. Each new member is confronted by the same questions: can he/she actually perform the task, what
is his/hers exact role in the entire process, who are his delegated and who are the actual authorities, who presents the competition and what are their characteristics.
That is the phase when the subject turns mainly to the main authority that he
recognises as a manager of the process.
In order to shorten that phase, manager should introduce the subject with the
structure and operability in the informative and transparent way. If the subject
gets to be closer acquainted wit the co-workers, the level of possible frictions gets
reduced.
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Iris Broman
The next phase is competition, conict of authority with the manager or with
other team members. In that phase the subject uses his previous knowledge and
experiences, builds his own niche, place under the sun and expresses the need for
aliation.
Manager should encourage discussions that must include problem solving propositions. The subject has to prove himself, so the discussion has to include explanations of personal attitudes.
After that, a team starts to get coherent. Starts to measure itself. It measures itself
against the manager (in some joint attitude) and/or in relation to another group.
They observe similarities and dierences, followed by comparing their results
compared to other teams.
Communication skills present an area where a lot of people face a lot of difculties. Some people have a problem to speak to strangers, some dont nd silence
as a particularly pleasant thing and some simply nd it stupid to discuss irrelevant
topics(Lamza-Maroni & Glava; 2008, 13)
Manager should describe the joint problem from dierent angles and request a
feed-back for problem solving. It is also time to delegate and re-delegate.
The nal phase is productivity. We have all proved ourselves, we are aware of our
approximate capabilities and that eected nding our own niche on the task and
within the team.
Manager follows the coordination quality and denes new goals.
It is suggested that teams, that are formed to do scientic projects done on laboratory animals and are approaching development or realization of a certain project,
accept these suggestions.
In the academic environment, researchers are used to high level of freedom, as
for the research topics and aims, as well to the scientic approach. Teams should
not only discuss common goals, but also the style and manner how something is
done. The right timing in coordination can depend on the style of one person.
Last but not least, changes and prompt analysis in non commercial research institutions depend on nances. Changes on that eld lead to operative changes that
involve surveillance and planning.
67
EXPENDITURE IN SCIENTIFIC RESEARCH
One of the central questions of contemporary societies, as well as our state,

is a question how to organize scientic research activities, or how to incorporate
it within activities of other professions, namely commerce and how to procure its
nances. Science development, application of research ndings, integration of science to commerce and other professional aspects of social structure, introduction of
modern technologies into work processes present a benchmark to production, well
being, work liberation and progress of the modern society.
In order to express its social function, scientic research, amongst other, requires
adequate nancing.
Throughout that aspect, scientic research should not be observed as a common public trade. In our country, scientic work has a special public interest, but
a problem is that the majority of scientic employees reside at the universities or
institutes whose scientic activity is, partially or in total, nanced by means collected through taxes, or some other instrument of public income.
Interest in scientic research is also present from the aspect of solving some existential problem that concerns human survival in general (nding new sources of
energy) (Srb & ulo; 2005, 73)
Changes in national budget allocation lead to the result that the academic research is conducted on the basis of long-term plans with a time assessment of many
years. In 1980s large reforms in structuring the scientic research took place on
many Universities. More than ever before, the survival of research teams depends
on research nances that, on the other hand, depend on their output, scientic and
qualitative.
Research projects are designed in the manner that their failure is nearly impossible. These changes have a feed-back. Planning and rigidness are opposed to exibility and creativeness of new ideas and nd themselves in disposition concerning
otherwise useful accidental ndings and results. This situation is non-stable. There
will always be a pressure on research organizations that will continuously be forced
to adjust organization, methodology and management of research.
REGULATIONS
Ethical committees are formed in many countries and should be in all of those
that conduct research. Their purpose is to dene necessities and justication on
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Iris Broman
animal experiments. As well as the assessments of how much the animal suers.
Protocols on animal experimentation have to be presented and authorized by such
committees in advance.
The project manager has to be aware of relevancy of the same legislation and
have in account all the ethical aspects while planning the experiment.
There is a world wide trend in increasing those demands and it embraces all the
people who are in any way connected to the work with laboratory animals on any
given level.
CONCLUSION
All above leads to the conclusion that in Croatia hasnt been achieved the necessary organization in management of laboratory animals. Organization we have
today oppresses creativity and autonomy of new organizational, managerial and
research potentials.
Management, as an activity, has to enable maximal eciency of each organizational form, with no dispersion and forcing the resources, so the space in the
promotion of work with laboratory animals is large. That space is observed by
professional management, the thoroughly thought through operational activities,
legislative changes, logistics and the long line of accreditations and certications
that lead to lining up to the EU guidelines. Each professional development is relied
upon multiple science research teams, so the approach of Vivarium should be the
same.
Team forming in the work with laboratory animals demands a multidisciplinary
managerial approach. Management is facing the task of forming multiple team proles and other participants. Scientic research and its nancing are eternal topics of
contemporary states. Our approach is that the scientic research work should not
be understood as a common public expense, because good organization, management and their teams bring prot and income, not expenditure.
Legislation in work with laboratory animals is set-up in Croatia, but this regulations need renement, follow up of new organizational forms, cooperation with
EU regulations, so, that it total, legislation and professional regulations become a
rolling stone of the development in the work with laboratory animals.
69
LITERATURE
1. Barkovi, Draen; Menadersko odluivanje, Ekonomski fakultet u Osijeku,

2009
2. Certo, Samuel C, Certo, Trevis S; Moderni management 10 izdanje, naslov
originalaModern management, 10th edition, 2008
3. Ferenak, Ivan; Poela ekonomike, Ekonomski fakultet u Osijeku, 2003
4. Lamza-Maroni, Maja, Glava, Jerko; Poslovno komuniciranje, Ekonomski
fakultet u Osijeku, 2008
5. Turkalj, eljko; Osnove organizacije praktikum, Ekonomski fakultet u Osijeku,
2008
6. Srb, Vladimir, ulo, Ivica Javno nanciranje i monetarna ekonomija,
Veleuilite u Poegi, 2005
Gordana Duki Goran Andrijani
70
ANALYSIS OF PERCEPTION OF CERTAIN EMPLOYMENT

ASPECTS, WORK CONDITIONS AND COMMITMENT AMONG
CROATIAN MANAGERS1
Gordana Duki1, Goran Andrijani2
1
Assistant Professor, Josip Juraj Strossmayer University of Osijek,
Faculty of Philosophy, Department of Information Sciences, Osijek, Croatia
2
Ph.D. Student, Josip Juraj Strossmayer University of Osijek,
Faculty of Economics, Osijek, Croatia
ABSTRACT
Company performance depends to a great extent on managers who, in the usual

understanding of their role, perform the functions of planning, organizing, staing, leading and controlling. Dierent factors of economic and social character
have an impact on all employees, and, by the same token, on managers. These issues should be permanently analyzed at the company level, which is primarily the
task of human resource management. However, to outline the general prole of
managers these attitudes should be examined at a higher level, which was the purpose of the present research. The main intention was to determine how Croatian
managers perceive certain aspects of their own employment, work conditions and
commitment, as well as to verify the signicance of dierences with regard to the
chosen characteristics. The research was conducted on a sample of managers based
in the four counties of Eastern Croatia. The collected data were analyzed by means
of adequate statistical methods. The results enable the managers, regardless of their
own answers to particular questions, to gain a clear insight into their position in the
business world, and to use their knowledge, experience and skills more eectively
in fullling their tasks.
JEL clasication: O15, E24
Keywords: Managers perception, economic and social factors, prole of managers, human resource management, statistical methods
1
The paper has been written in the scope of the project Regional University (Project code: 0100101427-0837)
ANALYSIS OF PERCEPTION OF CERTAIN EMPLOYMENT ASPECTS, WORK CONDITIONS...
71
1. INTRODUCTION
With the introduction of dierent kinds of ownership and transition to market

economy, numerous issues arose in the early 1990s in Croatian economic theory
and practice, with particular emphasis on management. Over the past two decades
management has been developing in the Republic of Croatia in rather peculiar circumstances. The war, privatization, the inherited ineciency of the economic system, loss of markets and frequent interference of political structures into economic
processes are just a few of the problems characteristic of that period. The deep crisis
that the world economy is currently going through has forced Croatian managers
to face new challenges.
Although a range of factors can exert an impact on any enterprise, the greatest
responsibility for its functioning lies denitely with its managers. It can therefore
be concluded that overall company performance depends crucially on their expertise and competences. Especially important is the managers capability to predict
and solve the problems and to set the company on the right course, seizing the opportunities at the right time, and noticing the threats within the enterprise and in
its environment at an early stage.
Planning, organizing, stang, leading and controlling are the basic management
functions. In keeping with this concept of management, the most important activities would be the following: planning of goals and tasks, dening the organizational
structure required to achieve those goals, choosing the right personnel, leading
people and processes, and control of task fullment. What comes to the foreground
in performing these functions are the managers characteristics. As any person, a
manager is dened by a specic combination of personal, i.e. emotional and psychological, as well as physical characteristics. They are formed under the inuence
of several factors. The two most important ones are hereditary and social aspects.
A good manager will have at least some of these desirable qualities: creativity, intelligence, persistence, diligence, energy and drive, boldness, enthusiasm, optimism,
initiative, rm character, honesty, openness, empathy, being well-balanced, objectiveness, condence and ambition. The knowledge and skills required for a managerial job are acquired through formal and informal education as well as through
actual work in practice. A managers quality is reected in the performance of the
company, i.e. the organization he/she manages. However, performance indicators
are not the only measure of that managers success. When evaluating a managers
performance, there are other things that should also be taken into account, such as
72
the atmosphere created by this manager, how satised his/her subordinates are, and
the impact of his/her decisions on the natural environment.
It has been pointed out above that managers are aected by dierent social factors, many of which are economic in character. Determining such factors, eliminating the negative and emphasizing the positive eects of managers activities will
certainly enhance their eciency and eectiveness. Considering the importance
of these issues, such analyses should be permanently conducted in each enterprise,
i.e. organization, which is primarily the task of the human resource management
function. The activities performed by this function are, in the widest sense, planning personnel needs, recruiting people, giving them appropriate assignment, leading and motivating employees, protection and promotion. However, drawing a
general manager prole goes beyond the human resource management function
and requires a comprehensive insight into their attitudes regarding dierent economic and social issues at a higher level. This was actually the aim of this research.
Through attitude analysis we intended to establish how Croatian managers perceive
certain aspects of their employment, work conditions and own commitment, and
to verify whether there are any statistically signicant dierences with reference to
the chosen characteristics in this context.
The results of the research enable managers to get a clearer picture of their position in the business world once they consider how they have graded particular
questions. Furthermore, the results indicate the factors which cause managers to
feel dissatised, and which thus have an impact on their commitment to work.
Finally, this type of analysis can help managers to more eectively direct their competences, skills and experience at achieving the set tasks.
2. PREVIOUS RESEARCH
Manager perceptions on various aspects of work and life have already been the
subject of numerous, dierently designed, studies, some of which will be briey
presented below.
Wu and Minor (1997) were evaluated similarities and dierences between female managers of dierent nationalities (Taiwan, Japan, and the United States).
They concluded that American, Japanese, and Taiwanese female managers had signicantly dierent perceptions concerning roles, personal traits, lifestyles, and leadership behaviour. According to their research, American female managers tended to
be more independent, more aggressive, more social, and more practical. Contrary
73
to this, Japanese female managers tended to be more dependent, less aggressive and
more work-oriented, and Taiwanese female managers tended to be more conservative, with a traditional family and gender role orientation. Wu and Minor also
found that while there were dierences in the relative importance of work as compared to other roles (such as their role in the family), none of the three groups felt
that their work role was the most important.
In his research paper, Maniam (2007) provides some knowledge on how managers as adult learners view their career success as a subjective element in the form of
intrinsic learning outcome.
Lyness and Judiesch (2008), using self ratings, peer ratings, and supervisor ratings of 9627 managers in 33 countries, examined within-source and multisource
relationships with multilevel analyses. They generally found that managers who
were rated higher in worklife balance were rated higher in career advancement
potential than were managers who were rated lower in worklife balance.
Hyvnen, Feldt, Salmela-Aro, Kinnunen, and Mkikangas (2009) in their study
approached young managers occupational well-being through their workrelated
goal pursuit. The main aim of their research was to identify content categories of
personal work goals and investigate their associations with background factors, goal
appraisals, burnout, and work engagement. Their study has shown that the contents of young managers work-related goals can contribute to the understanding of
individual dierences in occupational well-being.
The goal of the research by Miheli and Karlovan (2008) was to draw a prole
of a typical Croatian manager and then to compare the obtained results by manager segments in terms of their area of work, gender, age, education level, etc. The
research was conducted in two sections by means of on-line anonymous questionnaires. The rst section was based on responses by 214 managers, encompassing
their work dimension (the hours worked, income, how satised they were with
their career development and job itself, how much professional training they get
and how they cope with dierent managerial situations). The obtained responses
were compared along the following criteria: a managers position, total years of
service, number of subordinates, gender, age, marital status and level of education.
The second section of the research, conducted on a sample of 455 respondents,
was focused on private life of Croatian managers (satisfaction with their private
life, leisure time, family relationships, housing and their own car). This section also
74
included questions on the ways managers run their private nances. Although quite
comprehensive, this research was almost exclusively limited to frequency analysis.
Duki (2009) in her paper explored the dierences in attitudes between Croatian managers and non-managing employees regarding dierent aspects of material and non-material character. With this purpose, a sample was gathered of 360
respondents from the area of Osijek-Baranja County. The research has shown that
dierent aspects of employment and work-related issues received higher average
grades from managers than from other employees. The only exception was the assessment of the amount of own leisure time. Statistical signicance of dierences
was conrmed for 13 research variables. Using factor analysis three factors were determined: factor of job satisfaction, factor of satisfaction with income and wealth,
and factor of satisfaction with own leisure time.
3. Methods and sample description
Our research conducted by means of a written survey aimed to investigate how

certain aspects of employment, work conditions and own commitment were perceived by managers. There were 290 participants in the survey, all located in the
four counties of Eastern Croatia. The aim of the research and the instructions how
to ll in the questionnaire were given to each respondent in a face-to-face conversation. The gathered data were rst entered into a Microsoft Excel table, and then
processed by means of statistical packages SPSS and Statistica.
The collected data were analyzed by means of adequate statistical methods.
Descriptive statistics methods were used in order to describe the sample and the
dened variables. From the standpoint of inferential statistics, some groups as determined for the analysis purposes were not large enough. Since preliminary tests of
the hypothesis on normal distribution of the sample mostly failed to conrm this
assumption, it was necessary to examine the statistical signicance of dierences by
means of two non-parametric tests, the Kruskal-Wallis and the Mann-Whitney test.
In our analysis, the dierences considered to be statistically signicant are those
that were conrmed at the level p<0.05.
Among 290 mangers included in the survey there were 168 men (57.93%) and
122 women (42.07%). Their average age was 40.94 years, with standard deviation
of 9.92 years. The youngest manager in the sample was 21, and the oldest was 65
years of age, whereas the median value was 41 years. The respondents were divided
75
into three age groups for the analysis purposes. Table 1 shows the distribution of
respondents by gender and age group.
Table 1. Distribution of respondents by gender and age group

Age group (year)
21-35
36-50
51-65
Total
Gender
Male
58
(20.00%)
71
(24.48%)
39
(13.45%)
168
(57.93%)
Female
38
(13.10%)
72
(24.83%)
12
(4.14%)
122
(42.07%)
Total
96
(33.10%)
143
(49.31%)
51
(17.59%)
290
(100.00%)
Managers between 36 and 50 years of age accounted for the largest portion of
the sample. In this group the number of male and female managers was about the
same. Female managers had the weakest representation in the oldest group.
Table 2. Distribution of respondents by gender and education level

Education
level
Secondary school
Two-year college
University degree
Total
Gender
Male
68
(23.45%)
43
(14.83%)
57
(19.66%)
168
(57.93%)
Female
54
(18.62%)
23
(7.93%)
45
(15.52%)
122
(42.07%)
Total
122
(42.07%)
66
(22.76%)
102
(35.17%)
290
(100.00%)
The largest number of managers had a secondary education. Female managers with two-year college education were underrepresented in the sample, whereas
their share in the rst and third education group was about equal to that of male
respondents.
76
Table 3. Distribution of respondents by gender and management level

Management level
Lower management
Middle management
Top management
Total
Gender
Male
87
(30.00%)
56
(19.31%)
25
(8.62%)
168
(57.93%)
Female
61
(21.03%)
48
(16.55%)
13
(4.48%)
122
(42.07%)
Total
148
(51.03%)
104
(35.86%)
38
(13.10%)
290
(100.00%)
The largest number of respondents in our sample belonged to the ranks of lower
management, and the smallest number belonged to top management. When comparing men and women, the smallest proportion of women can be found in top
management.
Table 4. Distribution of respondents by education and management level

Management level
Lower management
Middle management
Top management
Total
Education level
Secondary school
85
(29.31%)
30
(10.34%)
7
(2.41%)
122
(42.07%)
Two-year college
36
(12.41%)
24
(8.28%)
6
(2.07%)
66
(22.76%)
University degree
27
(9.31%)
50
(17.24%)
25
(8.62%)
102
(35.17%)
Total
148
(51.03%)
104
(35.86%)
38
(13.10%)
290
(100.00%)
Respondents with secondary education were the majority in lower management,

while they had the lowest proportion in top management. The largest number of
respondents with two-year college education also belonged to lower management,
but they participated more signicantly in middle management, if we take account
of their proportion in the sample. In top management, as well as in middle management the greatest number of managers had a university education.
77
4. ANALYSIS RESULTS
In order to determine the ways Croatian managers perceive certain aspects

of their employment, work conditions and own commitment, and to check the
statistical signicance of dierences regarding the chosen features, there were 14
variables dened for the research:
Assessment of earned income (V1);
Assessment of current job (V2);
Assessment of job security (V3);
Assessment of working conditions (V4);
Assessment of work space quality (V5);
Assessment of technical equipment of working space (V6);
Assessment of interpersonal relationships at work (V7);
Assessment of relationship with superiors, if any (V8);
Assessment of relationship with subordinates (V9);
Assessment of professional training possibilities (V10);
Assessment of encouragement to continue formal education in the company
or institution where managers are employed (V11);
Assessment of possibilities for advancement at work (V12);
Assessment of own commitment at work (V13);
Assessment of the amount of own leisure time (V14).
The attitudes of the respondent were measured on the Likert scale comprising 5
grades, ranging from 1 as the lowest to 5 as the highest grade.
Managers assessed with the largest average grade their own commitment to work
(V13). In addition, the average grade of 4 or larger was given by respondents to the
following variables: assessment of relationship with subordinates (V9), assessment
of technical facilities in work space (V6), and assessment of the current job (V2).
The lowest grade was given to the encouragement to continue formal education
that they receive in the company or institution where they are employed (V11). A
relatively low average grade was further calculated for the variables dened as assessment of the available leisure time (V14) and assessment of work advancement
possibilities (V12).
78
Table 5. Basic descriptive statistics

Variable
V1
V2
V3
V4
V5
V6
V7
V8
V9
V10
V11
V12
V13
V14
Mean
Median
3.552
4.000
3.759
3.920
3.948
4.052
3.872
3.891
4.098
3.404
2.945
3.161
4.352
3.131
4.000
4.000
4.000
4.000
4.000
4.000
4.000
4.000
4.000
4.000
3.000
3.000
4.000
3.000
Descriptive statistics
Interquartile
Standard
range
deviation
1.000
0.876
1.000
0.856
2.000
0.986
2.000
0.900
2.000
1.006
1.000
0.916
2.000
0.869
2.000
0.936
1.000
0.675
1.000
1.073
2.000
1.221
2.000
1.171
1.000
0.655
2.000
1.165
Variation
coecient
24.661
21.412
26.240
22.951
25.468
22.595
22.443
24.042
16.461
31.512
41.438
37.038
15.060
37.209
Skewness
-0.361
-0.799
-0.503
-0.735
-0.780
-0.811
-0.419
-0.759
-0.466
-0.451
0.056
-0.184
-0.812
-0.086
For most of the variables, the median had the value 4. It was only for the three
variables assessed with lowest average grades that the median value was 3. On the
basis of the calculated variation coecients it can be concluded that the dispersion
in most of the analyzed distributions is quite high. The lowest dispersion of data is
observed in the variable dened as the estimate of own work commitment (V13).
According to skewness, it is only for variable V11 that distribution is positively
skewed.
79
Table 6. Basic descriptive statistics and results of the Mann-Whitney test

Gender
Variable
V1
V2
V3
V4
V5
V6
V7
V8
V9
V10
V11
V12
V13
V14
Mann-Whitney test
Male
Mean
3.530
3.982
3.774
3.862
3.875
4.065
3.845
3.838
4.126
3.373
2.913
3.145
4.339
3.030
Female
Median
4.000
4.000
4.000
4.000
4.000
4.000
4.000
4.000
4.000
3.000
3.000
3.000
4.000
3.000
Mean
3.582
4.025
3.738
4.000
4.049
4.033
3.910
3.957
4.059
3.446
2.991
3.183
4.369
3.270
Median
4.000
4.000
4.000
4.000
4.000
4.000
4.000
4.000
4.000
4.000
3.000
3.000
4.000
3.000
-0.625
-0.523
-0.312
-1.432
-1.365
-0.113
-0.660
-0.848
-0.727
-0.933
-0.565
-0.213
-0.664
-1.810
0.532
0.601
0.755
0.152
0.172
0.910
0.509
0.397
0.467
0.351
0.572
0.832
0.507
0.070
In most cases higher average grades were calculated for female managers. However, according to the Mann-Whitney test, at the level p < 0.05 no dierences in
attitudes between male and female managers were statistically signicant.
Table 7. Basic descriptive statistics and results of the Kruskal-Wallis test

Variable
V1
V2
V3
V4
V5
V6
V7
V8
V9
21-35
Mean
Median
3.583
4.000
4.073
4.000
3.833
4.000
4.042
4.000
4.073
4.000
4.240
5.000
4.073
4.000
4.024
4.000
4.106
4.000
Age group (year)

36-50
Mean
Median
3.615
4.000
4.021
4.000
3.818
4.000
3.915
4.000
3.944
4.000
3.993
4.000
3.790
4.000
3.915
4.000
4.114
4.000
Kruskal-Wallis test
51-65
Mean
Median
3.314
3.000
3.804
4.000
3.451
3.000
3.706
4.000
3.725
4.000
3.863
4.000
3.725
4.000
3.568
4.000
4.039
4.000
5.977
3.053
7.105
6.570
4.571
10.391
8.355
5.545
0.724
0.050
0.217
0.029
0.037
0.102
0.006
0.015
0.063
0.696
80
V10
V11
V12
V13
V14
3.579
2.957
3.379
4.385
3.219
4.000
3.000
3.000
4.000
3.000
3.333
3.000
3.100
4.357
3.134
3.000
3.000
3.000
4.000
3.000
3.275
2.771
2.922
4.275
2.961
3.000
3.000
3.000
4.000
3.000
4.213
1.237
5.889
1.226
1.515
0.122
0.539
0.053
0.542
0.469
The results of the Kruskal-Wallis test indicate that there is at least one age group
which diers signicantly from others in terms of perceptions regarding job security (V3), working conditions (V4), technical equipment of working space (V6), and
interpersonal relationship at work (V7). In all these cases, the lowest average grades
were given by respondents from the oldest age group. In order to establish between
which groups there are statistically signicant dierences in the above stated grades,
it was necessary to conduct the Mann-Whitney test for these cases.
Table 8. Results of the Mann-Whitney test

Variable
V3
V4
V6
V7
Mann-Whitney
test
Z
p
Z
p
Z
p
Z
p
21-35
36-50
-0.164
0.869
-1.505
0.132
-2.742
0.006
-2.534
0.011
Compared age groups (year)

21-35
51-65
-2.197
0.028
-2.504
0.012
-2.692
0.007
-2.331
0.020
36-50
51-65
-2.654
0.008
-1.500
0.134
-0.943
0.346
-0.675
0.500
According to the Mann-Whitney test, managers from the youngest and the
middle age group perceive dierently technical equipment of working space (V6)
and interpersonal relationship at work (V7). Furthermore, the results show that
all the dierences between managers from the youngest and the oldest age group
are statistically signicant. Managers belonging to the middle and the oldest age
groups had dierent perceptions regarding job security (V3).
81

Variable
V1
V2
V3
V4
V5
V6
V7
V8
V9
V10
V11
V12
V13
V14
Secondary school
Mean
Median
3.492
4.000
3.877
4.000
3.574
4.000
3.876
4.000
4.057
4.000
4.025
4.000
3.926
4.000
3.883
4.000
4.178
4.000
3.342
3.500
2.982
3.000
3.271
3.000
4.410
4.000
3.033
3.000
Education level
Two-year college
Mean
Median
3.621
4.000
4.045
4.000
3.848
4.000
3.924
4.000
3.924
4.000
4.121
4.000
3.833
4.000
3.881
4.000
3.969
4.000
3.394
3.500
2.952
3.000
3.015
3.000
4.318
4.000
3.106
3.000
Kruskal-Wallis test
University degree
Mean
Median
3.578
4.000
4.118
4.000
3.922
4.000
3.971
4.000
3.833
4.000
4.039
4.000
3.833
4.000
3.906
4.000
4.088
4.000
3.485
4.000
2.900
3.000
3.127
3.000
4.304
4.000
3.267
3.000
1.209
5.292
7.258
0.536
3.686
0.586
1.247
0.311
5.083
0.803
0.233
1.822
1.735
2.284
0.546
0.071
0.027
0.765
0.158
0.746
0.536
0.856
0.079
0.669
0.890
0.402
0.420
0.319
The results of the Kruskal-Wallis test showed that there is at least one education
level group that diers signicantly from others in terms of perceptions regarding
job security (V3). According to the Mann-Whitney test, managers with secondary
school and managers with university degree had dierent perceptions regarding job
security (Z = -2.523, p = 0.011). Dierences between the other compared education
level groups had not been statistically signicant.
82
Variable
V1
V2
V3
V4
V5
V6
V7
V8
V9
V10
V11
V12
V13
V14
Lower management
Mean
Median
3.399
3.000
3.899
4.000
3.615
4.000
3.757
4.000
3.932
4.000
3.986
4.000
3.824
4.000
3.794
4.000
4.049
4.000
3.274
3.000
2.878
3.000
2.986
3.000
4.284
4.000
3.074
3.000
Management level
Middle management
Mean
Median
3.673
4.000
3.990
4.000
3.798
4.000
4.010
4.000
3.913
4.000
4.077
4.000
3.875
4.000
3.902
4.000
4.106
4.000
3.452
4.000
3.010
3.000
3.272
3.000
4.327
4.000
3.231
3.000
Kruskal-Wallis test
Top management
Mean
Median
3.816
4.000
4.421
5.000
4.211
4.000
4.316
4.000
4.105
4.000
4.237
4.000
4.053
4.000
4.267
5.000
4.263
4.000
3.784
4.000
3.029
3.000
3.526
4.000
4.684
5.000
3.081
3.000
9.861
14.564
12.053
14.260
0.741
1.667
1.821
8.459
3.015
6.332
1.038
9.150
11.763
0.944
0.007
0.001
0.002
0.001
0.690
0.434
0.402
0.015
0.221
0.042
0.595
0.010
0.003
0.624
Among the analyzed characteristics, management level was the one that mostly
discriminated managers in terms of variables dened in this research. According to
the Kruskal-Wallis test, there is at least one group of managers that was, regarding
the management level they belong to, signicantly dierent from the others when
assessing their earned income (V1), current job (V2), job security (V3), working conditions (V4), relationship with superiors, if any (V8), professional training
possibilities (V10), possibilities for advancement at work (V12), and own work
commitment (V13). In all these cases the highest average grades were calculated on
the basis of top mangers responses. On average, the lowest grades were given by
respondents who belonged to lower management.
83
Table 11. Results of the Mann-Whitney test

Variable
V1
V2
V3
V4
V8
V10
V12
V13
Mann-Whitney
test
Z
p
Z
p
Z
p
Z
p
Z
p
Z
p
Z
p
Z
p
Compared management level groups

Lower management Lower management Middle management
Middle management
Top management
Top management
-2.249
-2.711
-1.206
0.025
0.007
0.228
-0.770
-3.701
-3.262
0.441
0.000
0.001
-1.488
-3.353
-2.436
0.137
0.001
0.015
-2.430
-3.390
-1.847
0.015
0.001
0.065
-0.639
-2.700
-2.690
0.523
0.007
0.007
-1.156
-2.425
-1.685
0.248
0.015
0.092
-2.027
-2.575
-1.682
0.043
0.010
0.092
-0.188
-3.251
-3.198
0.851
0.001
0.001
The results of the Mann-Whitney test showed that lower and top managers differ in all the analyzed cases. Statistical signicance was conrmed for dierences
between lower and middle managers regarding variables dened as assessment of
earned income (V1), assessment of working conditions (V4), and assessment of
work advancement possibilities (V12). Middle and top managers were dierent
signicantly in their perceptions of current job (V2), job security (V3), relationship
with superiors, if any (V8), and own work commitment (V13).
5. CONCLUSIONS
This paper has presented the results of the research whose main aim was to
establish the ways that Croatian managers perceive certain aspects of their employment, work conditions and own commitment. In addition, within the statistical
analysis, and using the Mann-Whitney test and the Kruskal-Wallis test, we examined the signicance of dierences in managerial attitudes regarding their gender,
membership in a dened age group, level of education and management level. The
84
research was conducted on a sample consisting of respondents located in the four

counties in Eastern Croatia. Male respondents accounted for the larger portion
of the sample. The largest proportion of managers who participated in the survey
belonged to the middle age group. Managers with secondary school education and
employed in lower management accounted for the largest share in the sample.
Managers evaluated with higher average grades their own work commitment,
relationship with subordinates, technical equipment of working space and satisfaction with the current job, whereas the lowest grades were given to the encouragement to continue formal education, available leisure time and work advancement
possibilities. Within the analysis, it was established that there were no questions
where managers assessments would show statistically signicant dierences in terms
of their gender. Signicant dierences in managers perceptions were conrmed
regarding certain age groups for the following cases: assessment of job security,
assessment of working conditions, assessment of technical equipment of working
space, and assessment of interpersonal relations at work. In case of education level,
managers with secondary school and managers with university degree had dierent
perceptions regarding job security. Managers were mostly discriminated in terms of
the management level that they belonged to. For this feature, statistically signicant
dierences were conrmed for 8 analyzed variables. Earned income, current job,
employment security, working conditions, relationship with superiors, professional
training possibilities, work advancement possibilities, and own work commitment
were given highest grades by top managers, whereas these features received lowest
grades by respondents who belonged to lower management.
REFERENCES
1. Duki, G., (2009), Analysis of Dierences in Attitudes Between Managers and

Non-Managing Employees, in: Barkovi, D., Dernoscheg, K.-H., Lamza-Maroni,
M., Mati, B., Pap, N., Runzheimer, B., Wentzel, D. (eds.), Interdisciplinary Management Research V, Josip Juraj Strossmayer University in Osijek - Faculty of Economics in Osijek / Hochschule Pforzheim University, Osijek, 329-339.
2. Gordon, G.G., (1989), Relationships of Personal Needs to Managers Perceptions
of Compensation, Journal of Business and Psychology, Vol. 4, No. 1, 15-26.
3. Hyvnen, K., Feldt, T., Salmela-Aro, K., Kinnunen, U., Mkikangas, A., (2009),
Young Managers Drive to Thrive: A Personal Work Goal Approach to Burnout and
Work Engagement, Journal of Vocational Behavior, Vol. 75, Issue 2, 183196.
85
4. Lyness, K.S., Judiesch, M.K., (2008), Can a Manager Have a Life and a Career?
International and Multisource Perspectives on Work-Life Balance and Career Advancement Potential, Journal of Applied Psychology, Vol. 93, No. 4, 789-805.
5. Maniam, V.A., (2007), Measuring Career Success as an Intrinsic Learning Outcome, International Conference on Teaching and Learning (ICTL 2007), Putrajaya (Malaysia), November 15-16, 2007, Conference Proceedings, http://ictl.
intimal.edu.my/ictl2007/ proceeding/Full_Paper/3A-05-Paper%2042%20(Malaysia).doc
6. Mathis, R., Jackson, J., (2008), Human Resource Management, Twelfth Edition, Thomson South-Western, Mason.
7. Miheli, S., Karlovan, S., (2008), Prol hrvatskog menadera, Istraivanje
asopisa Poslovni savjetnik i konzultantske kue Proago, Centar za management
i savjetovanje d.o.o., Zagreb.
8. Rothwell, W.J., Kazanas, H.C., (2003), Planning and Managing Human Resources: Strategic Planning for Human Resources Management, Second Edition,
HRD Press, Inc., Amherst.
9. Sikavica, P., Bahtijarevi-iber, F., (2004), Menadment - Teorija menadmenta
i veliko empirijsko istraivanje u Hrvatskoj, Masmedia, Zagreb.
10. Weihrich, H., Koontz, H., (1994), Menedment, Deseto izdanje, prijevod,
Mate d.o.o., Zagreb.
11. Worrall, L., Cooper, C.L., (1998), Managers Perceptions of Their Organisation: An Application of Correspondence Analysis, University of Wolverhampton, Wolverhampton Business School, Management Research Centre, Telford.
12. Wu, W.-Y., Minor, M.S., (1997), Role Perceptions, Personal Traits, Lifestyles
and Leadership: An Empirical Study of American, Japanese, and Taiwanese
Female Managers, International Business Review, Vol. 6, No. 1, 19-34.
13. Yun, S., Takeuchi, R., Liu, W., (2007), Employee Self-Enhancement Motives
and Job Performance Behaviors: Investigating the Moderating Eects of Employee Role Ambiguity and Managerial Perceptions of Employee Commitment, Journal of Applied Psychology, Vol. 92, No. 3, 745756.
Erika Grau Nino Grau
86
PROJEKTMANAGEMENTNORMEN IN
INTERNATIONALEN PROJEKTEN
Bedeutung, aktueller Stand und zuknftige Entwicklungen
Erika Grau1, Nino Grau2

GrauConsult GmbH,Germany
2
Fachhochschule Gieen-Friedberg, IPMA - International Project
Management Association, Germany
1
ABSTRACT
The importance of project management as a special organisational form for

temporary endeavours and in particular for international collaborations increases
steadily. Cooperation in international projects can be improved by the use of existing PM Standards. It is therefore important to be familiar with the national and
international project management Standards in order to employ them optimally.
JEL clasication: O22, H43
Keywords: Project Management, national and international Standards, ISO 10
006, DIN 69 000, ISO 21 5000, PRINCE2, ICB 3.0, PMBOK
1. BEDEUTUNG DER PROJEKTMANAGEMENTNORMEN IN INTERNATION
ALEN PROJEKTEN
Die Globalisierung der Geschftsbeziehungen fhrt dazu, dass die Erwartungshaltung der Kunden ein bisher kaum vorstellbares Niveau erreicht hat in Bezug
auf das Angebot der Sach- und Dienstleistungen. Alles soll schnell und billig angeboten werden, wie nie zuvor. Dies wird durch internationale Arbeitsteilung und
Anwendung komplexer Methoden und Technikern (inklusive Informations- und
Kommunikationstechnologie) fr die Koordination der verteilten Arbeit erreicht.
Die sich immer schneller ndernden Erwartungen der Kunden bedingen aber auch
eine starke Zunahme der Arbeit in temporren Organisationsstrukturen insbesondere sowohl im nationalen als auch im internationalen Projekten (Grau/Vossebein,
PROJEKTMANAGEMENTNORMEN IN INTERNATIONALEN PROJEKTEN
87
2010). Viele Dinge, die in einer gewachsenen, permanenten Organisation implizit

den Mitarbeitern bekannt sind, mssen bei (insbesondere internationaler) Zusammenarbeit in Vereinbarungen, LOI (Letter of Intent), MoU (Memorandum of Understanding), beziehungsweise in umfangreichen Vertrgen geregelt werden.
Als Folge permanent steigender Anzahl internationaler Projekte werden die
Projektmanager immer fter mit der Situation konfrontiert, dass sie vertragliche
Vereinbarungen in einem fr sie fremden Umfeld schlieen mssen. Schwierigkeiten ergeben sich daraus, dass ein (schriftlicher) Vertrag in verschiedenen Kulturen unterschiedliche Bedeutung haben kann. In dem westlichen, vom rmischen
Recht beeinussten Kulturkreis geht man davon aus, dass der Vertrag das Ende der
Vertragsverhandlungen darstellt, alle wesentlichen Willenserklrungen beinhaltet
und folglich von beiden Vertragsparteien exakt erfllt werden muss (Pacta sunt
servanda!). In einigen anderen Kulturkreisen (zum Beispiel China oder arabische
Welt) sind die persnlichen Beziehungen der Akteure viel wichtiger als der Vertrag
zwischen zwei Institutionen. Auch wenn beide Vertragsparteien dieselbe Vorstellung von der Verbindlichkeit des Vertrages haben, kann es zu Missverstndnissen
kommen, wenn sie aus unterschiedlichen Rechtssystemen kommen (zum Beispiel
kontinentaleuropisches, systematisch abstraktes Recht versus anglo-amerikanisches Case Law). Vollends ratlos ist zum Beispiel der deutsche Projektmanager, wenn
sein Auftraggeber im Vertrag eine bestimmte ihm bis dahin unbekannte Norm
(ISO, FIDIC, etc.) zum verbindlichen Bestandteil des Vertrages erklrt. Andererseits freut sich jeder Projektmanager, wenn er auf ihm bekannte Normen und
Standards zurckgreifen kann, um die Vertrge nicht ausufern zu lassen.
Fr den Projektmanager beziehungsweise fr andere am Projekt beteiligte Personen ist es also sehr wichtig, unterschiedliche Normen zu kennen und zu wissen,
in welchen Situationen welche dieser Normen zur Anwendung kommen sollen.
Man muss die Projektleiter dafr sensibilisieren, welche Fallen sie bei den Internationalen Projektvertrgen erwarten. Sie mssen ein Gefhl dafr haben, welche
Arten von Vertrgen es im internationalen Raum gibt, in wieweit diese gewissen
Standards unterliegen beziehungsweise inwieweit sie durch die Vertragsfreiheit zu
gestalten sind. Dadurch soll der Projektleiter davor bewahrt werden, aus Unwissen
fr ihn nachteilige Regelungen aus ihm unbekannten Standards zu akzeptieren.
Andererseits bekommt er ein Gefhl dafr, inwieweit die bestehenden Standards
die Vertragsgestaltung erleichtern und ihm bei entsprechenden Kenntnissen eine
groe Hilfe sein knnen.
88
2. AKTUELLER STAND DER PROJEKTMANAGEMENTNORMEN IN INTERNA

TIONALEN PROJEKTEN
2.1. Herkunft der Normen
Es gibt eine Menge von Standards, die sehr unterschiedlichen Ursprungs haben.
Fr sehr unterschiedliche Anwendungsgebiete werden also auch unterschiedliche
Normen sinnvoll anzuwenden sein (s. Abb. 1).
Abb. 1.: Unterschiedliche Normen fr Projektmanagement

2.1.1.Ozielle Projektmanagementnormen
Wenn man anfngt, sich mit Normen zu befassen, denkt man oft an die so
genannten oziellen Normen, die von einem oziellen Gremium fr Normierung
herausgegeben wurden. Dies sind auf internationaler Ebene in der Regel die Normen der ISO (International Standards Organisation). Auf nationaler Ebene ist
es das nationale Gremium, das auch Mitglied der ISO ist (zum Beispiel DIN Deutsches Institut fr Normung, ANSI - American National Standards Institute,
BSI British Standards Institute, usw.). In bestimmten Bereichen spielen auch die
europischen Normen (EN) eine wichtige Rolle.
89
Diese oziellen Normen haben aber in der Regel einen empfehlenden Charakter. Verbindlich werden sie erst, wenn sie entweder durch ein Gesetz vorgeschrieben oder von den Vertragsparteien in das Vertragswerk aufgenommen werden.
Ihr Vorteil liegt allerdings in der groen Verbreitung der ISO Normen (weltweit)
aber auch der teilweise weltweiten Verbreitung wichtiger nationaler Normen aus
Nationen, die durch ihre wirtschaftliche Leistungsfhigkeit einen groen Markt
erreichen.
2.1.2. Faktische Projektmanagementnormen
Vielfach entstehen in professionellen Gesellschaftern Informationen, die sich

zu einem anerkannten Wissenskanon (Body of Knowledge) verdichten. Solche
Ansammlungen von Wissen werden nicht selten in Form von Bchern der Community der Projektmanager zur Verfgung gestellt. Beispiele fr solche Normen
sind:
ICB 3.0 - International Competence Baseline der IPMA, beziehungsweise die
davon abgeleiteten nationalen Normen (NCB) (ICB, NCB sind registered trademark of IPMA)
PMBOK - Project Management Body of Knowledge des PMI (Project Management Institute) (PMBOK is registered trademark of PMI)
PRINCE2 - PRojects IN Controlled Environments (registered trademark of
OGC - Oce of Government Commerce)
Die ersten beiden oben genannten Normen sind von den Fachgesellschaften
entwickelt worden und werden von ihnen verbreitet und auch wirtschaftlich verwertet. PRINCE2 ist im Auftrag des OGC in Zusammenarbeit mit der britischen Projektmanagementgesellschaft (apm Association for Project Management)
entstanden und wird heute von einer selbststndigen Organisation (apmg apm
Group) weiter entwickelt und vertrieben.
2.1.3. Spezielle Standards
Fr unterschiedliche Branchen werden aber auch eigene Standards entwickelt

wie zum Beispiel:
Bau und gegebenenfalls Anlagebau
HOAI - Honorarordnungen fr Architekten und Ingenieure,
90
VOB - Vergabe- und Vertragsordnung fr Bauleistungen (frher: Verdingungsordnung fr Bauleistungen) Teil A (DIN 1960:2006-05) und
Teil B (DIN 1961:2006-10)
FIDIC - Fdration Internationale des Ingnieurs Conseils (International Federation of Consulting Engineers)
IT
(zum Beispiel V-Modell, SCRUM, )
Automotive
(zum Beispiel VDA 4.3, )
Hier sorgen in der Regel groe Nachfrager (zum Beispiel Automobilhersteller

gegen ber ihren Lieferanten) fr die bernahme der Normen durch eine groe
Anzahl von Unternehmen unterschiedlichster Grenordnung.
2.1.4. Reifegrad-Modelle
Reifegradmodelle beziehen sich in Analogie zu Reifegradmodell fr Gesamtunternehmen in der Regel nicht auf das einzelne Projekt, sondern auf das gesamte
System des Projektmanagements in einem Unternehmen (zum Beispiel PM-Delta
der GPM (Deutsche Gesellschaft fr Projektmanagement e. V., oder OPM3 des
PMI)). Hier gibt es allerdings auch Ausnahmen wie zum Beispiel das System fr die
Bewertung von herausragenden Projekten (Project Excellence Modell) der GPM.
2.2. Zielrichtung der Norm
Eine sinnvolle Klassizierung dieser Normen orientierte sich auch an der Frage,
welcher Teil des Wissensgebietes Projektmanagement normiert werden soll und wie
diese Norm benutzt werden kann.
Ein wesentliches Arbeitsgebiet ist das Erstellen von Glossaren. Ein Beispiel
dafr ist die DIN 69901:2009-01 (bestehen aus fnf Normblttern) Teil 5: Begrie, die ungefhr 150 Fachbegrie aus dem Gebiet Projektmanagement deniert.
Die Benutzung (beziehungsweise Einbindung durch Verweis) in Vertrge erspart
sicherlich die Kosten, die durch einfache Missverstndnisse auf der sprachlichen
Ebene entstehen knnten.
91
Ein weiteres Anwendungsgebiet ist die Normierung der Methodik. Ein gutes
Beispiel dafr ist die die 69.900:2009, in der die Methode der Netzplantechnik
genau beschrieben ist.
In der letzten Zeit hat die Ausrichtung der Normen an den im Projekt vorkommenden Teilprozessen zugenommen. Ein gutes Beispiel dafr ist die neue (2009
verentlichte DIN 69 900 . Das Interessante an dieser Norm ist, dass die einzelnen Teilprozesse nicht nur beschrieben wurden sondern auch als unbedingt
notwendige oder zustzlich hilfreich eingeordnet worden. Dies ermglicht es,
die Norm fr kleinere oder weniger komplexe Projekte in einer abgespeckten
Form anzuwenden (s. Abb. 2). Dieses Vorgehen nimmt diejenigen den Wind aus
den Segeln, die sich gerne der Anwendung von Normen mit dem Argument entziehen, dass die Normen durch ihre Brokratie fr kleinere Projekte zu viel Ballast
verursachen.
Projektmanagement-Prozesse (PM-Prozesse) nach DIN 69 901-2 : 2009 (Mindeststandard)
Initialisierung
Definition
1. Ablauf &
Termine
Planung
Steuerung
Abschluss
S.1.2
Termine
steuern
P.1.2
Terminplan
erstellen
S.2.1
nderungen
steuern
2. nderungen
S.3.1
Information,
Kommunikation,
Berichtswesen,
Dokumentation
steuern
3. Information,
Dokumentation,
Kommunikation
mgliche
Rekursionen
4. Kosten &
Finanzen
5. Organisation
6. Qualitt
7. Ressourcen
8. Risiko
S.7.1
Ressourcen
steuern
P.7.1
Ressourcenplan
erstellen
D.8.3
Machbarkeit
bewerten
9. Projektstruktur
P.8.1
Risiken
analysieren
P.8.2
Gegenmanahmen
zu Risiken planen
S.8.1
Risiken
steuern
P.9.1
Projektstrukturplan
erstellen
10. Vertrge &

Nachforderungen
11. Ziele
D.11.1
Ziele
definieren
Abb. 2: Mindeststandard der Project Managementprozesse nach DIN 69.901-2
S.11.1
Zielerreichung
steuern
A.6.1
Projekterfahrungen
sichern
92
Eine weitere Zielrichtung ist es, standardisierte Projektmanagement Mustervertrge anzubieten. Diese Vertrge knnen in seltenen Fllen sogar unverndert
bernommen werden. blicherweise werden sie individualisiert, das heit geringfgig gendert die Gegebenheiten des Projektes angepasst. Hier ist es besonders
wichtig, die Systematik dieser internationalen Vertrge zu verstehen, um den richtigen auszuwhlen. Hilfreich dabei ist es, das internationale Vertragswerk mit den
bekannten nationalen Rechtsvorschriften zu vergleichen (zum Beispiel aus FIDIC
die einzelnen Bcher (Silver Book/Red Book/Yellow Book mit VOB/A/B etc.)
Grundstzlich ist es bei der berlegung, einen oder mehrere Standards anzuwenden, wichtig, folgende Kriterien zu beachten:
Der Standard soll in der Region und bei den Kunden oder anderen Geschftspartnern relativ weit verbreitet sein.
Der Standard soll mglichst viele Projektmanagement-Elemente abdecken.

Die aufwndige Arbeit, einen paarweisen Vergleich von Projektmanagement
ist anders vorzunehmen wird von einer internationalen Organisation bernommen. Diese Organisation (GAPPS - Global Alliance for Project Performance Standards) fhrt solche Vergleiche mit Einverstndnis der fr den
jeweiligen Standard zustndigen Organisation. Wenn die jeweiligen Organisationen (zum Beispiel IPMA fr ICB und apmg frPRINCE2) zustimmen,
werden die Ergebnisse entlich zugnglich gemacht.
Fr den Standard soll es gengend Mglichkeiten geben, di den e eigenen

Mitarbeitern und gegebenenfalls den anderen am Projekt beteiligten Parteien
gengend Training zukommen lassen zu knnen. Damit wird gewhrleistet,
dass der vorgeschriebene Standard wirklich auch benutzt wird.
Es ist vorteilhaft, wenn nach dem auch Zertizierungen fr das Personal

durchgefhrt werden. Damit ist gewhrleistet, einen Nachweis ber das im
Training gelernte zu bekommen. Wenn die Zertizierungen relativ weit verbreitet sind, ergibt sich die Mglichkeit, bei personellen Engpssen relativ
zgig entsprechend geschultes Personal auf dem Arbeitsmarkt zu nden.
Sowohl beim Training als auch bei der Zertizierung sollte man darauf achten,
ob nur reines Wissen vermittelt wird (das womglich durch einfache multiple scheues Prfungen am Computer berprft wird) oder ob es sich um die Entwicklung
der Kompetenzen des Personals handelt, wie dies zum Beispiel bei dem 4-LevelSystem der IPMA der Fall ist.
93
3. ZUKNFTIGE ENTWICKLUNGEN DER PROJECT MANAGEMENTNORMEN
Abgesehen von den o. g. zurzeit soll Verfgung stehenden Normen, die immer weiter entwickelt werden, ist zur zeit die Entwicklung der ersteren ISO Norm
speziell fr das Projektmanagement, nmlich der ISO 21.500 durch das ISO PC
236 die wohl bedeutendste Aktivitt im Bereich der Projektmanagementnormen.
Es wird erwartet, dass diese Norm, an der seit ungefhr vier Jahren gearbeitet wird,
in 2012 verentlicht wird.
Da zur zeit die ISO 21.500 im Groen und Ganzen festgelegt ist, ist es fr
interessierte Kreise schon jetzt erkennbar, welche wichtige Gebiete bei dieser ersten Norm nicht bercksichtigt wurden. Deswegen wird seit ungefhr einem Jahr
die Diskussion darber gefhrt, welche Elemente demnchst auf der ISO Ebene
behandelt werden sollen. Viele dieser Diskussionen laufen in Richtung der Erweiterung des Focus Projektmanagement in Richtung Programm- und Portfoliomanagement. Weitere mgliche Bereiche sind Kompetenzen, Risikomanagement,
Earned Value Analysis, Metriken fr die Messung des Projekterfolgs, um nur
einige zu nennen.
Abschlieend bleibt es festzustellen, dass die Aktivitten auf dem Feld der Project
Managementnormen in den nchsten Jahren deutlich verstrkt werden. Es bleibt
zu hoen, dass es gelingen wird, die Normen zur Verbesserung der (insbesondere
International) Zusammenarbeit zu nutzen und nicht als Instrument zur Abwehr
der ungeliebten Konkurrenz auf den eigenen Mrkten.
4. LITERATURVERZEICHNIS
1. DIN (Hrsg.):
2. DIN 69900 Projektmanagement Netzplantechnik Beschreibungen und
Begrie
3. DIN 69901-1 Projektmanagement Projektmanagementsysteme Teil 1:
Grundlagen
4. DIN 69901-2 Projektmanagement Projektmanagementsysteme Teil 2: Prozesse, Prozessmodell
Methoden
94
6. DIN 69901-4 Projektmanagement Projektmanagementsysteme Teil 4: Daten, Datenmodell

Begrie
8. Grau, N. & Vossebein, U.(2010): eigener Karrierepfad im Projektmanagement,
Projektmanagement aktuell, 3/2010 (im Druck)
9. IPMA International Project Management Association (2006)(Hrsg.): ICB IPMA
Competence Baseline Version 3.0, Nijkerk, 2006
10. PMI Project Management Institute (2004)(Hrsg.) Guide to the Project Management Body of Knowledge. Upper Darby: Project Management Institute
MARKETING IN CONTEMPORARY ENVIRONMENT TRADITIONAL Vs. VALUE...
95
MARKETING IN CONTEMPORARY ENVIRONMENT

TRADITIONAL Vs. VALUEADDED MARKETING
dr.sc. uro Horvat
mr.sc. Nataa Trojak
Abstract
Contemporary business environment, characterized mainly by many, frequent

and strong changes, creates new challenges that companies must face. Marketing,
one of business functions that is among those most exposed to the market, is therefore forced to conduct changes in its own concept. Because of this reason, marketing
is today shifting from the sales concept, often identied with sales or promotion,
to a function that is creating and positioning added value for personal and business
consumption. This shift is being accomplished through actual marketing trends,
rst of all through client orientation and consumer behavior, cooperation with
consumers in marketing strategy creation, customer relationship management, focusing on immaterial resources and creativity. Value-Added Marketing is no longer
tactical element; it has moved to strategic position and its task is to ensure longterm survivor and success for the company. It is based on the premise that if one
wants to achieve certain market share, he has to oer products superior to those
currently available. This value maximization is capitalized by creating more product
attractiveness and satisfaction for the consumer, that will in the end result with better market penetration and consumer preference and also lead to prominent rates
of repeated or multiple repeated purchases.
JEL clasication: D4, M31, M37
Key words: contemporary environment, Traditional Marketing, Value-Added
Marketing, contemporary marketing trends
uro Horvat Nataa Trojak
96
EVOLUTION OF MARKETING
In terms of evolution, marketing has inherited a sales concept that has always
included remainders of the production concept,1 so the marketing concept is often
equalized with sales or promotion or economic publicity, which is not correct and
which indicates that its conceptual approach is actually not fully comprehended.
Among many denitions of marketing in which its fundamental determinants are
attempted to be placed, it is enlightening to state the one accepted by AMA (American Marketing Association)2: Marketing is the process of planning and executing
the pricing, promotion and distribution of goods, ideas, and services to create exchanges that satisfy individual and organizational goals. Therefore, marketing is
not merely sales or promotion it is much more than that. Meler3 denes the
fundamental objective of marketing as ecient and protable satisfying of consumer needs, while Grbac4 claims the task of marketing is to create and stimulate
to purchase what the consumers need and want.
Work on coordination between the business resources and consumer needs and
desires ensures more successful business and higher prots for business entities,
which is ultimately their objective. In other words, marketing is the process of creating and exchanging values between business and other entities and their consumers who are in the center of marketing interest because a business entity may only
achieve its objectives if it satises consumer needs. The purpose of business is not
attempting to sell what an enterprise is able to produce, but to sell what someone
wants to buy. We distinguish between three approaches or business entities market
focuses in marketing theory:5
1. Focus on consumers, which implies the identication of their desires and
their fulllment by using a set of activities to achieve the objectives;
2. Coordination and integration of a business entity so that all segments of the
human resources (managers and employees) have the same objective: shortterm and long-term satisfaction of consumers; and
1
2
3
4
5
Meler, M. (1999) Marketing, Ekonomski fakultet Sveuilita u Osijeku, Osijek, p 12

AMA Board Approves New Marketing Denitions, Marketing News, 1 March 1985, p 1
According to Meler, M. (2003) Neprotni marketing, Ekonomski fakultet Sveuilita u Osijeku,
Osijek, p 48
Grbac, B. (2006) Identitet marketinga, Ekonomski fakultet Sveuilita u Rijeci, Rijeka, p 11
Adapted according to Nickels, W.G. (1987) Understanding Business, Times Mirror / Mosby College
Publishing, St. Louis, p 179
97
3. Focus on prot, which implies nding of products and services enabling a

business entity to generate prot and survive and expand in the direction of a
higher degree of customer satisfaction, which requires redesign of the objectives ensuring a good market share.
In the business practice of a business entity, it is the successful marketing and
business strategies that optimally reconcile the focus on consumers (because unconditional acceptance of this concept may result in production of goods and services that are extremely attractive to consumers, but their production and sales are
expensive and they do not yield prot and prot is the basic purpose of existence
of a business entity) and focus on prot (because a focus on prot without ongoing
monitoring of the market, consumers and competition threatens the survival of a
business entity in the medium and long term). Each of the marketing strategies
still has the consumer in its core and a successful marketing strategy both in the
development of a product and its communication is the one that best understands
how consumers make their decisions to select products. Contemporary marketing
perceives the consumer not only as the end user of a service, but as a key factor that
is in the center of formation of a marketing strategy.
CONTEMPORARY MARKETING TRENDS
Contemporary marketing strategies are based on the knowledge of the target

market and its segments. Attention should primarily be paid to the motivation and
deciding methods of consumers, which largely aects their buying behavior.
In this respect, it is particularly important to know consumer behavior, which
includes a set of dierent forms and ways of human behavior when purchasing
products or services and includes all their manifest reactions in the buying process,
as well as the after-sales processes including valuation of the product and/or service
bought at the time of consumption and satisfaction with the after-sales service,
which is an inuential factor with respect to the repeated purchase. Consumer
behavior is an interdisciplinary area using knowledge in the areas of psychology,
economics, sociology and marketing. This is a discipline having its sources in conscious and subconscious determinants of human personality, as well as the factors
of each human behavior. It also involves dierent socio-cultural factors in the environment where consumers live and work, as well as dierent personal characteristics of consumers.
98
Consumer research implies research into the fundamental determinants of the

target group of potential consumers on the target market. Within his consumer
behavior model, Kotler6 presents seven most important consumer research issues,
or the so-called 7 Os of the market:
Who constitutes the market?
(Occupants);
What does the market buy?
(Objects);
Why does the market buy?
(Objectives);
Who participates in buying?
(Organizations);
How does the market buy?
(Operations);
When does the market buy?
(Occasions); and
Where does the market buy?
(Outlets).
There are many consumer behavior factor classications in literature and the
most frequently used one, under dierent names, is the original classication of the
same author who presents and systematically elaborates the main fours groups of
factors aecting consumer behavior, namely:7
Psychological (motivation, perception, learning, beliefs and attitudes)
Cultural (culture, subculture, social class system)
Social (reference groups, family, roles and status)
Personal (age and life-cycle stage, occupation, economic circumstances, lifestyle, personality and self concept).
As consumer behavior is determined by these and many other characteristics,
there is no possibility of a simple and automatic interpretation of consumer behavior. In addition, we should take into account the situation factors (factors relating to a specic situation, specic time and space, completely independent of the
characteristics of the consumers, objects and services being bought). They have the
greatest impact on behavior at the point of sale, which is why distributors are particularly keen to study the impact of these factors on the buying process.
Despite all patterns in the behavior of consumer and dierent strategies to satisfy
their needs, it is possible to build demand for a product by using motivational sugges6
See Kotler, Ph. (2001) Upravljanje marketingom Analiza, planiranje, primjena i kontrola, Mate,
Zagreb, p 202-203
According to Kotler, Ph., et.al. (2006) Osnove marketinga, Mate, Zagreb, p 255-270
99
tions and providing positive improvements. In a broader sense, innovation is the use
of a new idea or process providing the consumer with new benets or added value.
The contemporary marketing tendency is to be as close as possible to the consumer. It does not stop at merely knowing the consumers, but insists on their
involvement in the strategy creation process. The basic objective of these activities
is to enable bridging of the gap between the seller and consumers in the process
exchange function (Chart 1).
CHART 1: Functions to bridge gaps

MARKETING
MANAGER
A. Exchange Function
B. Logistic Functions
C. Support Functions
CUSTOMER AND
CONSUMER
Within the phenomenal forms of marketing, some authors divide conceptual

marketing directions into:8
Passive marketing (a result of the production concept, characterized by its
predominant focus on the product);
Operating marketing (a result of increased competitiveness, characterized by
focus on the function); and
Active marketing (a result of technological progress, and market saturation
and globalization, characterized by focus on the consumers and a central and
strategic position of the marketing function).
The common way of thinking among business entities in the past, as well as today to a certain extent, relies on the increase of sales and market share, which often
results in neglect of the existing and prospective customers.
The present marketing theory widely debates Customer Relationship Management (CRM) developed from Relationship Marketing. Namely, the present-day
consumer is under the inuence of new technologies, communication channels,
new products and services and is, in addition to the normal human needs, increasingly bombarded with, and often chooses articially created needs via dierent
See more in Vraneevi, T. (2000) Upravljanje zadovoljstvom klijenata, Golden marketing,

Zagreb, p 34-37
100
online activities. We refer to such consumers as hybrid consumers and they have
the following characteristics:9
68 percent search the Internet and shop in outlets;
54 percent search the outlets and shop online;
47 percent search the catalogs and shop online; and
38 search the Internet and shop by telephone.
The foregoing leads to the conclusion that, in the present knowledge economy,
intangible resources are becoming crucial for protable business. Knowledge is the
basic element in establishment of global competitiveness. Marketing analyses enable creation of applicable knowledge and all employees must ne involved in this
process. We should keep in mind that knowledge is a specic resource and knowledge management is expressed as a managerial tool based on special principles.
Furthermore, marketing processes must provide information on consumer needs
because it is the basic prerequisite for making the decision, the implementation of
which shall enable business entities to achieve their planned strategic objectives.
The new market relations in the form of new economy are largely based on intangible resources. The market transformation has caused redesigning of business
functions, including marketing. The present-day marketing processes are primarily
focused on the image and brands. Brand identity is a result of a strategic marketing
approach. The foundation of the total market identity includes brand market positioning i.e. recognizability of a product or service. This is achieved by marketing
communication, promotion, sales strategy, logo, design, product or service name
and other marketing tools. A signicant role in this is played by the tangible performance, primarily the quality of a product or service.10 Marketing communication used to be simple, so consumers were bombarded with promotional messages,
while present-day marketing managers establish a two-way communication and
systematically collect consumer attitudes and opinions that they use when redesigning existing and launching new products or services.
An open organizational structure is exceptionally useful for communication
and improvement of consumer relations. This is a signicant shift in development
compared to traditional marketing that aimed to impose, or better yet, dictate consumption. Marketing is being transformed into a business function that is becom9
Wind, Y., et.al. (2002) Convergence Marketing Strategies for Reaching the New Hybrid Consumer, Prentice Hall, Upper Saddle River, p XIII
10
Upshaw, B.L. (1995) Building Brand Identity, John Wiley & Sons, New York, p 24
101
ing proactive, primarily aiming to detect problems on the market and eliminate
them as soon as possible for the purpose of satisfying consumer needs. It actually
aims to create new added value for the consumers and provide them with full value
for their money.
Creativity is becoming a central element of marketing processes, culminating by
sales of new products, discovering new markets and using new technological solutions.
The marketing transformation is accompanied with radical structural modications:
the new marketing requires transformation of the organizational structure and the
business processes are becoming transparent and are implemented in a radically new
manner. The processes are managed by cross-functional teams. Such new approach
generates new added value with less expenses, and the use of practical knowledge. The
marketing transformation would not be possible without new information technology and the Internet. New principles are being postulated, enabling prot creation
in a new way. At the same time, new organizational relations are being developed,
stimulating cross-functional cooperation with mutual trust of all employees.
MARKETING BASED ON VALUE
The classic marketing concept implies a comprehensive process of planning and

implementation of activities for the purpose of satisfying consumer needs, desires
and expectations, with achievement of the business entitys objectives at the same
time. As a business philosophy, marketing management has evolved from passive
and operating marketing to active marketing in which it plays a strategic role in an
entitys business: this is the business philosophy of long-term survival and success
of a business entity.
Market-focused strategic planning is a management process of developing and
maintaining relations between the organizational objectives, sources and skills and
changing market opportunities. The objectives of strategic planning are to design
and redesign the business of an entity or its products and services in the way that
it achieves its planned prot and growth.11 Once again, the marketing manager has
become the most important functional associate in the strategic planning process,
having a central role in the denition of the business vision and mission, analyzing
of the environment, competitive and business situations, and in the development
of objectives and strategy. Planning is an integral part of the marketing process
11
Kotler, Ph. (2001) Idem, p 63
102
where business entities deliver a value to the market and generate certain prot.
Strategic management implies management used to avoid numerous threats from
the environment and at the same time take all opportunities.12
Furthermore, strategic management includes reviewing of specic long-term activities for the purpose of achieving future tasks, objectives and success. As a business
entitys environment changes on a daily basis, strategic marketing must be suciently
exible. Marketing planning implies a complex process requiring a systematic approach to identify and analyze external factors and their coordination with the possibilities or potentials of a business entity. Strategic marketing must oer the answers
to the questions of which markets and segments we want to compete in, with which
products and/or services, and what will be our basic competitive advantage.13 The
marketing strategy process ensures a structured activity by which we are able to conceive the marketing strategy for a product, service or business.14
Conception of strategies must provide access to the plan for achievement of the
competitive market objective and reviewing of their contributions for achievement
of a business entitys objectives. Launching a new product on a saturated market
is very dicult. USDA estimates that in the food industry segment alone two out
of three products launched on the market fail. And only one out of ve started
businesses manages to survive for ve years. According to Nilson,15 the minimum
estimated number of new food products launched every year in Western Europe
and America is 12,000, so if we look at the projects that were never launched, the
estimated failure rate is 70%, and if we consider that behind each project is at least
one year of preparation, we can conclude that around 8,400 years are lost or wasted
in the food sector alone. No one is motivated by failure and a high level of success
performs miracles for marketing experts evaluations and Nilson himself points out
that the future role of marketing should be in continuous improvement of notable
relative value for money of the products manufactured by a business entity.
Marketing managers achieve this by focusing on maximizing the value i.e. on
Value-Added Marketing (VAM). It is based on a clear, but often unrecognized fact:
12
13
14
15
Vraneevi, T., et.al. (2004) Upravljanje stratekim marketingom, Accent, Zagreb, p 27

Gilligan, C. & Wilson, M.S.R.: Strategic Marketing Planning, Butterworth Henemann, 2003, p
53
Vraneevi, T., et.al. (2004) Idem, p 31
Nilson, T.H.: Value-Added Marketing: Marketing Management for Superior Results, McGraw-Hill
Book Company Europe, Berkshire, 1992, p 41
103
if we want to obtain the desired market share, we must oer products superior to
those already available. Superior in any segment that will make your product or
service more valuable to the customer than a competing product or service. If a
business entity adopts the value-added marketing strategy, it will become more
prosperous because it will create greater value in the attractiveness of and satisfaction with its products, which will result in better market penetration and consumer
preference and, more importantly, ensure superior rates of repeated or multiple
purchases. Value-added marketing provides a new dimension, shifting marketing
from the area of searching for empty market niches to a strategy for improvement
of perception of the existing products and launching new ones only when it is certain that signicant benet can be achieved. The value-added marketing process is
presented in Chart 11.16
CHART 11: Value-Added Marketing Process

MAXIMIZATION VALUES
EXPECTED VALUE FOR MONEY
ABOVE-AVERAGE SATISFACTION
PRODUCT ATTRACTIVENESS
REPEATED PURCHASE RATE
PENETRATION OF NEW SEGMENTS
HIGHER SALES/PROFIT
16
Adapted according to Vraneevi, T. et.al. (2004) Idem, p 43.
104
To provide a better explanation of the value-added marketing concept, Nilson

presented explanations of some key words in connection with this:17
Continuity Managers are required to be continuously alert because one of
the common reasons of a drop in demand is neglecting of changes to consumer habits and attitudes and continuous innovations, adaptations and improvements, which are key factors of products and brand that are successful
in the long term;
Improvement Starting from the maxim that everything can always be done
better, improvement is the fundamental axiom of value-added marketing;
Noticeability Product noticeability must be as high as possible as it is the
central factor of a consumers purchase decision;
Relativity Noticeable value is a subjective fact; for long-term success, marketing managers must adopt the customers or consumers way of looking at
product value;
Value It is important to have a detailed view of how a consumer evaluates
product benets as it is impossible to improve something now known or not
well dened;
Money Noticeable relative value is observed and assessed in the context of
how much it costs to obtain a product;
Product Kada je rije o proizvodu, zapravo se to uvijek odnosi i na usluge;
te
Value Maximization Value maximization within the relevant cost parameters must be a daily objective.
17
Adapted according to Nilson, T.H. (1992) Idem, p 43-46

105
Figure 1: Added-Value Strategies
high
System Development
Solution
Innovation
low
Added value through grouping
Value Space
Core
Target Expansion
low
high
Adding value by segmentation and adaptation
The use of value-added marketing will make any product range of a business entity more competitive. A focus on achieving above-average satisfaction and higher
attractiveness through value maximization will result in increased noticeable value
for money. There are at least three possible strategies that may provide the necessary
dierentiation of the core business, as presented in Figure 1.18
CORE: This is the starting point where consumers do not notice a
dierence between a business entity and its competitors because what is oered
is not suciently adapted to the specic needs of individual consumers or segments and has no grouped added value.
QUADRANT
18
Kashani, K. (2006) Fighting Commoditization Strategies for Creating Novel Customer Values,
IMD, No. 137, p 1-4. http://proquest.umi.com/pqdweb?index=0&did=1167508431&SrchMod
e=1&sid=2&Fmt=6&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=11685903
47&clientId=42821, Access (11-01-2007)
106
TARGET EXPANSION: This represents a strategy tending to add value

by expansion of a business entitys core to better satisfy its special needs; dual
tactics are available: oer sub-adapted products to some consumers and better
adapted target products to other consumers.
QUADRANT
QUADRANT SYSTEM DEVELOPMENT: Business entities in this quadrant develop a

product-service package oering synergic benets of the system and the added
value for the consumer arises from integration of system elements, so the total
value exceeds the sum of its components.
QUADRANT SOLUTION/INNOVATION: Business entities in this quadrant oer a set
of packaged products and services targeting a specic segment or the individual
consumer, and oer products and solutions for its consumers specic problems
by combining products with focused services such as technical advice, training,
consultancy and the like, which requires innovations in creation of value, but
also promises high prots.
Therefore, the success of a marketing strategy based on value is always measured by customer satisfaction, the market share site and sales volume. The added
value and the strength of dierentiation of each strategy are in the attempt to shift
business outside the traditional denition of products and services. Such strategies
enable a business entity to oer its consumers new benets increasing its success
through higher productivity, lower costs and improvement of the competitive position on the market.
VALUE CREATION STRATEGIES
The famous American management theoretician and practitioner once said

(quote) that acquiring and retaining consumers is the business of all businesses so,
accordingly, all business strategies could be divided into oensive and defensive
strategies, which can be presented in a chart (Chart 2).
Oensive strategies imply attraction of new consumers or poaching of competitions consumers, while defensive strategies imply retention of the existing consumers and achieving a high level of the loyalty.
107
Chart 2: Two Types of Business Strategies

BUSINESS STRATEGY
OFFENSIVE
(acquiring new consumers)
market enlargement
battle for market

share
DEFENSIVE
(retaining the existing consumers)
building barriers
increase in repeated
purchases
Source: Fornell, C. (1992) A National Customer Satisfaction: The Swedish Experience, Journal
of Marketing, Vol. 56, p 6-21
However, we can determine based on the foregoing that traditional marketing

pays more attention to acquiring new consumers than retaining the existing ones,
which means it prefers oensive strategies. Regardless of the fact that (according
to supporters of this opinion) it is impossible to retain someone unless you acquire
them rst, we should take into account the following facts:19
In most business activities, only a minor part of the revenues is generated by
new consumers, and a major part by the existing ones;
Most companies focus most of their marketing resources on acquisition of
new consumers, rather than retaining the existing ones; and
Consumer loyalty (which is raised by defensive strategies) is a crucial success
factor, especially when large competition is present and the market is growing
slowly.
19
According to Vraneevi, T.: Idem, p 70
108
Presentation 20: Focus on the Market Share and Customer Satisfaction

DETERMINANTS
MARKET SHARE
On saturated markets with low
1. TYPICAL USE
growth rates
2. STRATEGY TYPES
Oensive
3. FOCUS
On the competition
4. PERFORMANCE MEASURES Relative market share
5. BEHAVIOR TARGET
Consumer acquisition
CUSTOMER SATISFACTION
On saturated markets with low growth
rates
Defensive
On customers and consumers
Repeated purchase rate
Higher customer and consumer loyalty
Recently, an increasing number of business entities have recognized and accepted the fact that retention of the existing consumers is much more protable
and attraction of new ones. This is why customer retention and customer loyalty
is more and more often in the center of their interest and they often incorporate
them in their missions.
The classic marketing approach deals with the use of both concepts under the
same market circumstances (small growth rate and market saturation), which impedes the growth of a company if it is positioned on a more propulsive-growing
and unsaturated market, which is also the reason why foreign companies have invaded the Croatian market.20 Accordingly, Fornell21 provides a tabular presentation
of the dierences between a focus on the market model and focus on customer
satisfaction (Presentation 20) in the context of ve determinants (characteristics of
a market on which a focus in typically used in present circumstances, strategy type,
performance measures and target behavior).
CONCLUSION
Like any other business element, marketing must be adapted to the characteristics of the environment. A very complex and dynamic environment aects marketing in a particularly intensive manner and its work results are reected in a developed market position and the market share achieved. It is for adaptation to new
characteristics of the environment that marketing was force to evolve its concept.
Once the focus on production was no longer able to provide adequate results, mar20
21
Idem, p 72
Adapted according to Fornell, C. (1992) A National Customer Satisfaction: The Swedish Experience, Journal of Marketing, Vol. 56, p 6-21
109
keting turned to the most signicant success factor the consumer. The center of
its interest is not only the consumer structure on the market, but also their behavior
and especially needs. Marketing is no longer just a means of selling products and/
or services on the market, but a philosophy present in all segments and all business
levels. However, customer satisfaction can only be achieved when the customers are
oered a certain value. This is why management is focused on maximizing the value
of the oer and such marketing philosophy represents Value-Added Marketing.
Although the foundations of added-value marketing is formulated very simply
oering products superior to those already on the market the achievement of this
objective is by no means simple. Achieving above-average satisfaction among consumers who are in contact with a huge number of products, brands, promotional
messaged and options requires a clear strategic orientation and creation of strategies
creating values that will attract new consumers or maximize the satisfaction of the
existing ones.
REFERENCES:
1. AMA Board Approves New Marketing Denitions (1985) Marketing News, 1

March
2. Fornell, C. (1992) A National Customer Satisfaction: The Swedish Experience,
Journal of Marketing, Vol. 56
3. Gilligan, C. & Wilson, M.S.R.: Strategic Marketing Planning, Butterworth
Henemann, 2003, p 53
4. Grbac, B. (2006) Identitet marketinga, Ekonomski fakultet Sveuilita u Rijeci,
Rijeka
5. Kashani, K. (2006) Fighting Commoditization Strategies for Creating
Novel Customer Values, IMD, No. 137, dostupno na: http://proquest.umi.
com/pqdweb?index=0&did=1167508431&SrchMode=1&sid=2&Fmt=6
&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1168
590347&clientId=42821, Access (11-01-2007)
6. Kotler, Ph. (2001) Upravljanje marketingom Analiza, planiranje, primjena i
kontrola, Mate, Zagreb
7. Kotler, Ph., et.al. (2006) Osnove marketinga, Mate, Zagreb
8. Meler, M. (1999) Marketing, Ekonomski fakultet Sveuilita u Osijeku, Osijek
110
9. Meler, M. (2003) Neprotni marketing, Ekonomski fakultet Sveuilita u

Osijeku, Osijek
10. Nickels, W.G. (1987) Understanding Business, Times Mirror / Mosby College
Publishing, St. Louis, p 179
11. Nilson, T.H. (1992) Value-Added Marketing: Marketing Management for Superior Results, McGraw-Hill Book Company Europe, Berkshire, 1992, p 41
12. Upshaw, B.L. (1995) Building Brand Identity, John Wiley & Sons, New York
13. Vraneevi, T. (2000) Upravljanje zadovoljstvom klijenata, Golden marketing,
Zagreb
14. Vraneevi, T., et.al. (2004) Upravljanje stratekim marketingom, Accent,
Zagreb
15. Wind, Y. , et.al. (2002) Convergence Marketing Strategies for Reaching the
New Hybrid Consumer, Prentice Hall, Upper Saddle River
ADVANTAGES OF ISTRIA REGARDING GOLF AS PART OF TOURIST PRODUCT
111
ADVANTAGES OF ISTRIA REGARDING GOLF AS PART OF

TOURIST PRODUCT
Zoran Jeremi1
1
Visoka poslovna kola Vinjan
Croatia
ABSTRACT
A long-term tourism development in Istria has to be based on comparative and

other advantages which stem from available resources. The integration of golf in
tourism development has to be considered according to the comparative advantages, since travels triggered o by golf encompass a large part of the emissive tourism
markets and are growing constantly. It is especially the case with wealthier consumers because Istria can not compete on the world tourist market without oering
them golf courses as the part of the tourist product. For better understanding of
tourism development in Istria and emphasizing golf as an important element in the
improvement of the Istrian tourist product, a further analysis of golf development
in the surrounding will be necessary. This research is referring to the golf development in Slovenia and Italian provinces in the vicinity, in order to compare them
and use them for developing golf as Istrian tourism product.
JEL clasication: L83
Key words: tourism, destination, advantages, tourist product
1. INTRODUCTION
Tourism represents a very dynamical and progressive activity with constant

changes and new client demands. In order for a destination to be competitive in the
world tourism market it is necessary to constantly adjust and full its tourism product. In order to understand and dene the tourist product better, it is necessary to
state a destinations comparative advantages and its derived oer which role is very
important in the tourist product creation. Golf and tourism travels motivated by
112
Zoran Jeremi
golf grow continually and represent one of the trends in world tourism. The most
developed tourist countries have recognized these trends and possibilities golf has
become an integral and indispensable part of their tourism product. By introducing golf, the overall quality of the tourist product has been enhanced because a
complete golf oer encompasses the best parts of other forms of the tourism oer.
This kind of concept should be recognized in Istria, the most prominent and most
developed tourist destination of Croatia. Istria has ideal conditions for golf development and its integration into the oer. It could become a prestigious golfers destination. Special advantages are the mild climate which enables golf playing during
the whole year as well as the proximity of the emissive markets. Another advantage
is that there are no golfer destinations in the vicinity. This research is based on golf
development in the competitive tourism countries in order to compare them and
put them in context of the development of golf in Istrian tourism.
2. GOLF AS A PART OF A TOURIST PRODUCT OF THE DESTINATION
It is necessary to dene elements of golf, in order to understand its importance

and compatibility as a part of the tourist destination oer.
2.1. Elements of a destinations tourist oer
Tourist product is a set of available resources, services and convenience for tourists
to use to meet their needs in a certain time and on a certain area (Kobai&Senei;
1989, 91). It is also the case with the destination tourist product which represents
an integrated set of all the elements of a tourist destination oer. A tourist destination product represents a sociocultural, economical, natural and ecological unity in
regard to tourist preferences (Maga; 2003, 28). The core of a destinations tourist
product is made out of a suitable combination of tourist resources. In accordance
with the general resource denition, a denition of a tourist resource can be derived
all means that could be useful to the tourism of a certain area (Kuen; 2002, 16).
Tourist resources are divided into tourist attractions and other direct and indirect
resources. Basic tourists resources are represented by tourist attractions which are
the main reasons tourists visit a destination. Other direct tourist resources are represented by the overall tourist infrastructure of a destination which ensures guests
a pleasant stay and dierent activities. Other indirect resources represent actions
of local population and state and are made out of the environment situation, geographical position and availability, communal infrastructure and political situation.
113
These resources represent an important part in creating the tourist oer. They are
important also for the tourists` perception of a destination. These resources need to
be arranged, equipped and marked since the users notice it and treat it as an integral part of the product (Kriman, 2008, 153). In order to understand and dene
the tourist oer better, it is necessary to state a destinations comparative advantages
and its derived oer which role is very important in the tourist product creation.
Comparative advantages of natural values of a destination are: climate, landscape,
beaches, ecological areas etc. while the derived oer is made out of various infrastructural and superstructural elements (Maga; 2003,52). It is necessary to take
into consideration the comparative advantages of a certain area and the possibility
of developing various segments of a tourist product of the tourist destination. The
long-term development has to be based on comparative advantages which stem
from available resources (natural and acquired), on interdependence and functionality of relations between individual activities and on the need to ensure better life
conditions to all residents in a tourist destination (Blaevi; 2007.; 218).
2.2. Golf compatibility with the destinations tourist product
Golf represents one of the most developed and mass commercial sports of today.
All golf market analyses show that golf has become an indispensable and necessary
part of a destinations tourist product, not only in Europe but all over the world.
Tourism development practice in the world shows that countries which do not have
golf courses in their oer can not seriously compete on the world tourist market
in the segment of richer consumers (Bartoluci&avlek; 2007,154). The tourist
product of a destination has to be seen, developed and created in this view, if its
goal is to compete on the demanding world tourist market. In order to view the
situation on the world golfer market better, several characteristic markers are used.
Their purpose is to view the dimensions of the spatial and population location of
golfer markets. The markers are: golf availability, i.e. the number of inhabitants of
a country per one golf course, the extent of the golfer population, i.e. the share of
golfers in a countrys population, the number of golfers on a golf course. From the
view of economical science and analysis, the most important information is the size
and structure of the world golfer market shown in US $. It is shown in the following table:
114
Zoran Jeremi
Table 1: Size and structure of the world tourist market

INDICATOR
WORLD
USA
EUROPE
Number of golf courses
31.500
15.990 (51%)
6.546 (21%)
Number of golf players
70 mil.
29 mil (41%)
8 mil (11%)
Number of inhabitants per a golf course
19.000
74.850
Golfer share in the total number of inhabitants (%)
9,6%
1,6%
2.222
1.813
1.222
$90 billion
$55 billion
$10 billion
Number of golfers per a golf course

Market value
Source: www.nfg.org, www.ega-golf.ch, (11.04.2008.)
The table shows there are 31.500 golf courses in the world and that around 70
million people practice golf. These gures represent a great potential in the tourist
sense. The most important information is that market value for a year amounts to
90 billion dollars. The most developed part of the world for golf are the US (51%
of the world golf courses, 41% of the players and market value 55 billion $). From
the point of view of this research, the situation in Europe is particularly interesting.
It is considered that Istria will be visited by European golfers. Europe owns around
6.500 golf courses 21% of the total golf courses in the world. It is also important
to state that a large number of these golf courses are found in the north where they
are closed, due to the climate, during cold winter months. A large number of the
total of 8 million (11% of the world golfer population) is forced to travel during
winter in order to play golf. Annual golf income in Europe amounts to 10 billion
dollars which represents important information for golf development as a part of
the tourist product.
3. ISTRIAN ADVANTAGES FOR GOLF DEVELOPMENT
For better analysis and comparison, it is necessary to show the current situation
in relation to golf courses in the competitive Mediterranean countries. All important tourist countries on the Mediterranean as well as Italian regions in the vicinity
of Istria have been taken into consideration. Comparative and other advantages of
Istria for golf development have been pointed out.
115
3.1. Situation on a wider area Mediterranean
As we already stated, basic tourist resources are tourist attractions which attract
tourists to visit a certain destination. In this case, the attractions are the golf courses
which represent the main reasons why people visit a destination. The main strength
of a destination are attraction complexes which have two functions attract guests
and full their expectations (Senei&Grgona; 2006; 141). Many Mediterranean
countries recognized their development chance in golf as a part of the tourist product. The development of golf in Spain began in the 1960s, and the most popular
golfer region is Costa del Sol with 51 golf courses.1 France has several golfer regions (Normandy, Biarritz, Paris) but the region around Cannes where the best
golf courses are found is far more known. In Portugal the Algarve region has 38
of the total 89 courses2 . During the 1980s the Portugal government systematically helped in creating the Algarve golf region in order to improve the usage
of accommodation outside the main season, prolong the main season and bring
richer guests. Turkey has built 17 golf courses on the same principle. They are
concentrated mostly in the tourist region Belek in the province Antalya.3 In this
way, with the help of the government a new European golf destination was consciously formed which managed to prole itself on the European market of tourist golf travels. Italy with its 258 golf courses 4 represents a signicant European
destination for golf vacation. The following table shows the number of golf courses
in the Mediterranean countries:
Table 2: Number of golf courses in the Mediterranean countries.

COUNTRY
France
Spain
Italy
Austria
Portugal
Turkey
2
3
4
NUMBER OF THE GOLF COURSES 2009

559
332
258
149
89
17
Source of data: http://www. bookyourgolf.net/Spain_Golf_Courses/Costa%20del%20Sol.htm (

20.02.1010.)
Source of dana: http://www.algarvegolf.net/index2.htm ( 15.02.2010.)
Source of dana: http://www.golfturkey.com/golf_courses ( 01.02.2010.)
Source of dana: http://www.ega-golf.ch ( 11.01.2010)
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Zoran Jeremi
Egypt
Slovenia
Tunis
Cyprus
Greece
Croatia
13
11
10
9
6
4
Source: www.ega-golf.ch ( 01.01.2009.)
On the basis of this information, the conclusion is that all important Mediterranean countries where tourism represents a signicant economic branch have or are
building their own golf courses. Their purpose is the modernization of the tourist
product oer as well as improving the quality of the tourists coming there on their
vacation. Besides, it is widely known golfers travel in pairs or groups so the extent
and importance of this segment is additionally emphasized. It can be concluded
that tourism and golf as world trends are in constant growth and compatible. Both
golf and tourism have mutual interest elds. In that view, both Croatia and Istria
have a lot to do.
3.2. Golf situation in the vicinity of Istria
For analysis of the golf oer situation, we have taken the situation in Slovenia
and Italian regions Friuli and Veneto.
Golf in Slovenia
As in many other countries, Slovenia has realized possibilities and opportunities

golf development oers. Slovenia has always been an interesting tourist country
with built tourist accommodation, but tourism has always been of a seasonal character oriented on the winter season. During 1990s investments in golf have started sponsored by local and state government. Along with the existing golf courses
in Mokrice, Bled and Lipice, other golf courses have been built. Slovenia now has
11 golf courses. 5 Two golf courses have been partially nanced by the European
Union foundation and there are golf courses Otoec and Diners Golf Club near
Ljubljana. There are also some other additional golf practice courses and a base for
further golf development around 9.000 golfers. It has to be stated that these golf
courses have been built mainly for local inhabitants, not to attract foreign tourists.
5
Source of data: http:// golfportal.info/gzs/zveza (01.03.2010.)
117
The cold climate does not allow playing golf during the whole year and it is one of
the aws of Slovenian golf.
This fact can be used to develop golf in Istria since the Slovenian emissive market is very interesting to us due to the number of golfers and proximity. So, many
golfers from Slovenia would come and visit the courses in Istria.
Golf in northern Italian regions Friuli and Veneto
There are more than 250 golf courses in Italy which primary purpose was to
meet the needs of local inhabitants, not the attraction of foreign tourists and development of golf regions.
During 1990s situation gradually changed to he benet of golf tourists, but
there are no regions like for example Costa del Sol, Algarve or Antalya in Italy.
Similar situation is found in the northern Italian regions Friuli ad Veneto. The
number and location of golf courses is shown in the following pictures:
Picture 1: Number and location of golf courses in the Veneto region
Source: Montanaro, N. (2009). Golf in Italia 2009, Federazione Italiana Golf,

Rim,str.22
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Zoran Jeremi
Picture 2: Number and location of golf courses in the Friuli region
Source: Montanaro, N. (2009). Golf in Italia 2009, Federazione Italiana Golf, Rim,str.22
Pictures show that both regions dispose in a sucient number of golf contents. There are not just Championship courses here but also courses for practising
found as parts of agritoursims. Since golf courses were built for the needs of local
inhabitants, the greatest number of golf courses can be found in the vicinity of
larger towns, such as: Triest, Udine, Venice etc. These courses function as classical
city courses based on club membership. In recent times, golf courses for tourist
purposes have been built in Lignano, Jesolo, Caorle mostly nanced by tourist
visits. Both regions are relatively well developed golf regions with rather long golfer
and tourist tradition and a solid local golfer base. However, they are not formed
into a unique destination product and none of these regions managed to become a
golfer region in the European frame. This is the advantage of Istria we can create
it to become a well known golfer region.
3.3. Comparative and other advantages of Istria for development of golf as a
part of the tourist product
Istria has all predispositions for golf development and forming itself as a well
known golfer region (Jeremi, 2008, 551). The mild climate enables golf playing
throughout the whole year, it has ecologically healthy nature and sea and the relief that suits modelling and golf course design. Golf course design is becoming a
dicult and demanding work (Wiren, 1990, 7). A great advantage is the vicinity
of large emissive markets and the fact that there are no golfer destinations in the
region. The following table shows the relation between the number of guests and
119
overnight stay and the number of golfers according to emissive countries in the
vicinity:
Table 3: Relation between the number of guests and overnight stay and the number of golfers according to
visiting countries (Istria, 2009)
COUNTRY
GERMANY
SLOVENIA
ITALY
AUSTRIA
NETHERLAND
CZECH
RUSSIA
DENMARK
GREAT BRITAIN
FRANCE
SWITZERLAND
SWEDEN
BELGIUM
IRELAND
NUMBER OF THE
VISITORS
603.093
412.762
474.775
350.968
150.964
98.560
53.928
40.209
43.024
56.036
35.116
32.667
25.356
2.316
NUMBER OF THE
OVERNIGHTS
5.371.594
2.470.583
2.305.636
2.057.315
1.665.352
639.827
554.670
350.564
307.616
265.758
217.824
214.349
199.151
12.778
% OF THE TOTAL FULL ADDITION NUMBER OF THE

OF THE VISITORS
GOLFERS
28,19
552.388
12,97
9.000
12,1
95.430
10,8
104.072
8,74
330.000
3,36
35.369
2,91
5.150
1,84
145.310
1,61
1.218.288
1,39
378 275
1,14
72.626
1,12
532.944
1,05
47.134
0,07
289.120
Source : European Golf Association, Eurostat, 2009. godine i TZ I statistic, 07.01.2010.
The table shows that the most important emissive markets for Istria own a large
golfer potential. It can also be concluded that this kind of tourist market would
come to Istria too if it were a golfer destination. It has to be considered that Istria
represents a typical car-destination it is well connected with Europe so that golfers can reach this destination quite easily, even outside the main season. Besides,
a large number of golf courses in the emissive countries are closed during winter
months. Istria has ideal conditions for golf playing throughout the whole year and
this represents an additional argument for the importance of golf in the Istrian
tourist product development.
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Zoran Jeremi
CONCLUSION:
All important Mediterranean countries where tourism represents a signicant

part of the economy already have or are building their own golfer regions. Their
purpose is to modernize the tourist oer and the uplift of the quality of tourists.
On the tourist market, the best known golf regions are Costa del Sol in Spain,
Algarve in Portugal and in recent times Antalya in Turkey. In our vicinity, in Slovenia, golf courses were mostly built to meet the needs of local inhabitants, not to
attract tourist. Besides, the cold climate does not suit playing golf throughout the
whole year. This fact could be very useful in golf development in Istria. Northern
Italian regions Friuli and Veneto are developed regions in terms of golf with a long
golfer and tourist tradition and a solid local golfer basis. But none of these regions
managed to become a widely known golfer region. This is seen as a great advantage of Istria it could become a golfer destination known on the entire European
continent. The long-term tourism development in Istria has to be based on comparative advantages which stem from available resources. It especially refers to the
mild climate which enables golf playing throughout the whole year, the vicinity of
emissive markets and the fact that there are no widely known golfer regions in the
vicinity. It can also be concluded that this kind of tourist market would come to
Istria too if it were a golfer destination. It has to be considered that Istria represents
a typical car-destination it is well connected with Europe so that golfers can reach
this destination quite easily, even outside the main season. Istria has all predispositions to develop golf and turn itself into a widely known golf region. This is why
it is necessary to insert golf as an integral part into the process of restructuring and
repositioning of the Istrian tourist product.
REFERENCES:
1. Bartoluci, M.;avlek, N.( 2007). Turizam i sport, kolska knjiga, ISBN

978-953-0-30342-3, Zagreb
2. Blaevi, B.(2007). Turizam u gospodarskom sustavu, Fakultet za turistiki i
hotelski menadment, ISBN 978-853-6198-96-2, Opatija
3. Jeremi, Z.(2007). Relevant characteristics of golf integration into the development of the tourist destination Istria, Zbornik radova sa Interdiscplinary Management Research IV, Barkovi, D. & Runzheimer, B. (ur), str. 542-553, ISBN
978-953-253-044-5, Pore, 01-03. lipanj 2007, Ekonomski fakultet u Osijeku
& Hochschule Pforzheim University of Applied Sciences, Osijek
121
4. Kobei,A.,Senei,J.(1989). Marketing u turizmu,kolska knjiga, ISBN

86-03-99499-4, Zagreb
5. Kriman,P.D.(2008). Marketing turistike destinacije, Mikrorad, ISBN
978-953-7498-12-2, Zagreb
6.Kuen,E.(2002). Turistika atrakcijska osnova, Institut za turizam, ISBN
953-6145-08-1, Zagreb
7. Maga, D.(2003). Management turistike organizacije i destinacije, Adami,
ISBN 953-6198-39-8, Rijeka
8. Montanaro, N. (2009). Golf in Italia 2009, Federazione Italiana Golf, Rim
9. Senei,J. & Grgona,J.(2006). Marketing menadment u turizmu, Mikrorad,
ISBN 953-6286-74-2, Zagreb
10. Wiren, G. (1990).Professional golf academy teaching manual, PGA of America, 90-600007, Palm Beach
11. http://www.nfg.org (11.04.2008.)
12. http://www.ega-golf.ch (11.04.2008.)
13. http://www.bookyourgolf.net/Spain_Golf_Courses/Costa( 20.02.1010.)
14. http://www.algarvegolf.net/index2.htm( 15.02.2010.)
15. http://www.golfturkey.com/golf_courses( 01.02.2010.)
16. http://www.golnitaly.no ( 11.01.2010)
17. http:// golfportal.info/gzs/zveza (01.03.2010.)
Marijan Kari Maa Slabinac Ivan Kristek
122
KNOWLEDGE IN THE FUNCTION OF ENTERPRISE

MANAGEMENT
Marijan Kari
Maa Slabinac
University of applied sciences Lavoslav Ruika in Vukovar
Ivan Kristek
Abstract
Modern information and communication technology systems have accelerated

processes of providing knowledge and enabled its organized utilization for the purposes of managing a rm. The quality of enterprise management has been signicantly increased by the development of dierent techniques of organizational learning. Experiences so far have shown that the implementation of these techniques can
help organizations in pursuing two types of organizational learning: adaptive and
generative. While adaptive learning supports continuous improvement of existing
knowledge organized management, generative learning supports the development
of learning culture and the creation of general climate in organization that favours
development of new knowledge and new models of thinking. This paper presents
the results of empirical research on the experience acquired in the implementation of information for the purpose of improvements in organizational learning
based on a sample of small and medium-sized enterprises in the counties of Eastern
Slavonia.
JEL clasication: D83, L53
Key words: sources of knowledge, knowledge management, organizational
learning, adaptive and generative learning, learning culture, ABC method
KNOWLEDGE IN THE FUNCTION OF ENTERPRISE MANAGEMENT
123
INTRODUCTION
Achievements of modern technological development are being transferred from

developed world to the countries of transition and put in the function of their economic development. Development of global economy demands even bigger managerial knowledge and capacity of entrepreneurs and big investments in implementation of new technologies and modernisation of production systems. Technological innovations make products life cycles shorter while satisfying consumers needs
becomes even heavier task to entrepreneurs. Such a signicant business changes
have a huge impact on management system of the enterprise.
The purpose of this paper is to present the benets of organised approach to
knowledge acquisition and utilisation and in implementation of dierent technologies as learning tools in business organisations. The survey method was used for
acquiring data, information, attitudes and opinions on subject of the research.
A total of 160 questionnaires were sent to the 25 best performing small and
medium-sized enterprises (measured by total turnover and gross prot in 2008)
in four counties of Eastern Slavonia: Osijek-Baranja, Vukovar-Sirmium, PoegaSlavonia and Slavonski Brod-Posavina. The research is based on 68 replied questionnaires (42,5% of total questionnaires sent). The size of surveyed enterprises
(measured by number of employees) has ranged from only 2 to 387. 39,7% of
enterprises in the sample were involved in service sector, 35,3% in manufacturing
while 25% in trade. Regarding the legal form of organisation, researched sample
has comprised 86% of private limited companies, 11% of public limited companies and 3% of craft businesses. 50% of respondents (each representing single
enterprise) included in survey are department managers as well as rm managers in
47% of examined enterprises, while the remaining 3% did not declare their position within an enterprise.
IMPORTANCE OF KNOWLEDGE FOR AN ENTERPRISE
Knowledge available to enterprises comprises their understanding of consumers

needs and business environment as well as knowledge, skills and experiences of
their employees. The way enterprise acquires, distributes and utilises knowledge determines its capacity for successful development. Knowledge is not only important
for huge companies, but it can and must be utilized even by the smallest entrepreneurs and craftsmen.
124
Understanding the role of knowledge in enterprise is of special importance for

growing enterprises. In reference to that, entrepreneurs must, above all, understand
the basic sources of knowledge available to the enterprise, best modes of information gathering and its utilisation and ways of creating a knowledge strategy for
particular enterprise.
Knowledge utilisation within enterprise is not necessarily associated with creative process of thinking up the new products and services or their new method of
sale. It is far much simpler and to the large degree already available in each enterprise. For instance, rms managers already have certain understanding of products
and services customers demand and of quantities they are willing to buy and to pay
for. Each entrepreneur is challenged in nding an adequate way to make knowledge
available and to exploit it eectively.
On a daily basis, enterprises use a certain forms of knowledge. As a prerequisite
for establishing a business, it is necessary to conduct market research and dene a
need for rms products and services. Entrepreneur will not start a business if he/she
nds out there is no need for products/services he/she intends to sell. Entrepreneur
can use acquired market knowledge in order to connect certain customers to specic types of products and service. Or, he/she can transfer knowledge to customers
providing them directions for usage or consulting services.
Employees of rm have certain knowledge, experiences, training or, just simple,
ways of doing things that enterprise uses as a resource. Having personnel that has
knowledge can be of invaluable importance for gaining distinction among competitors. Managers knowledge on what consumers want, as well as knowledge of
employees, can be considered as knowledge base in enterprise. The right way of its
utilisation can contribute to more eective enterprise management, reduction of
business risk and eective usage of opportunities. All of this enables competitive
knowledge advantage to enterprise.
BASIC SOURCES OF KNOWLEDGE
Among many sources of knowledge available to enterprise, as the most important, we researched (Basic...: 2009): customer knowledge (needs of buyers and their
opinions about the enterprise), attitudes of employees and suppliers (their impressions on performance of the enterprise), market knowledge (tracking records on developments within sector and acquiring knowledge on competitors performance),
business environment (developments in politics, economy, technology, society and
125
environment), professional associations and trade bodies (academic publications,

government publications, reports from research bodies, business and technical
magazines), business exhibitions and conferences (acquiring information and exchange of dierent knowledge for rms engaged in specic business sector), product research and development (information for creation of entirely new products),
organisational memory (in order not to lose knowledge and experiences built up
over the years of existence of the enterprise), Internet (knowledge from wide range
of dierent elds that refers to general development in certain market, economy
and technology).
Table 1: Importance of basic sources of knowledge in enterprise
Employees
Market
Internet
Business environment
Suppliers
Customers
Organisational memory
Product research and development
Conferences
Professional associations
Business exhibitions
No. of
respondents
Lowest
score
Highest
score
Arithmetic
mean
Standard
deviation
68
68
68
68
68
68
67
67
68
68
68
3
2
1
3
1
1
2
1
1
1
1
5
5
5
5
5
5
5
5
5
5
5
4,46
4,32
4,15
4,10
4,06
4,04
3,96
3,45
3,13
2,59
2,57
0,742
0,800
0,966
0,694
0,991
1,043
0,928
1,271
1,078
1,175
1,250
Source: calculations of the authors based on conducted research
Successful acquisition of knowledge and its eective utilisation requires, above

all, personnel familiar with the whole business process. It is necessarily to create
specic knowledge culture and to insure that employees recognise the importance
of knowledge. The research also conrmed that employees are recognized as the
most important source of knowledge in the enterprise (table 1).
Knowledge culture
Changes toward building up a knowledge culture in enterprise could begin with

entitlement of knowledge manager. It is a person responsible for monitoring the
126
ways at which enterprise provides, utilises and exchanges its knowledge. Wherever
it is possible this person should be one of high rank managers. This way knowledge
manager has a power to introduce any necessary key change and to emphasize the
importance of knowledge for the enterprise. Practice shows that knowledge manager is often slighted, which is also conrmed by research results only 22% of examined enterprises had person entitled for acquiring and exchange of knowledge.
It is needed to build such culture in enterprise in which knowledge has central
value. The research shows that most entrepreneurs are aware of the importance of
knowledge appreciation 58% of surveyed enterprises agreed on having built up
the culture in which knowledge has central value. One way for achieving this could
be introduction of nancial and non nancial incentives for personnel that succeeds
to bring new products and services to market or to suggest new ways of delivering
better service to customer. Besides, protection of each intellectual property (authors
right, designers rights, and patents) enterprise posses should be ensured. Due to
this, competitors will not be able to copy knowledge of the enterprise and extra
prot could be gained through knowledge licensing. Also, there is a need to take
measures for maintaining important knowledge within enterprise. Employment
policy has an important role in this. For instance, personnel could be bind by condentiality agreement, while employment contract could disable employees to leave
or work for one of direct competitors. In spite of the fact that 58% of surveyed
enterprises stated to have built up knowledge culture in the enterprise, the analyses
of empirical results as shown in table 2 indicate a scarce utilization of described
measures for establishing the knowledge culture.
Table 2: Establishment of knowledge culture in enterprise

Are there any incentives for personnel in
the enterprise
Is protection of intellectual property

implemented
Is condentiality agreement
implemented
Is there limitation for

employees to leave or
work for competitors
YES
42,60%
26,50%
44,10%
33,80%
NO
57,40%
73,50%
55,90%
66,20%
Management of the enterprise must nd an eective ways of distributing knowledge within the enterprise. It is important to avoid situations where knowledge and
skills are in possession of only one person. It is needed to consider the best ways of
distributing new ideas and information among personnel. Usually, there are already
127
regular meetings where employees get brief directions and invitation to mutually
exchange ideas and their best practice of doing business.
Special forms of knowledge sharing can be used, too. The organization must
reward individuals for supplying information to others. The workplace has become increasingly competitive, and many times, workers feel as though they would
jeopardize their job security by sharing their tacit knowledge (Anderson: s.a., 2).
It is possible to organise innovation workshops or brainstorming sessions where
freedom and initiative for thinking of improvements in enterprise is given to personnel. Also, knowledge bank with useful information and directions on how to
perform important tasks could be formed. This knowledge bank could be written.
But, for the purpose of easier access it would be better to use modern technology,
such as intranet. It can be used for fast distribution of knowledge among personnel
and as an initiative in giving new ideas or suggestions.
Table 3 shows the frequency of utilisation of the previously mentioned forms of
knowledge development, distribution and sharing as ranked by respondents using
1 (not implemented at all) - 5 (fully implemented) scale. The analysis showed insufcient exploitation of available forms and methods.
Table 3: Frequency of utilisation of the forms of knowledge development, distribution and sharing
Useful information and directions
No. of
respondents
68
Lowest
score
1
Highest
score
5
Arithmetic
mean
3,50
Standard
deviation
0,985
How to perform important tasks
68
3,22
1,104
Knowledge bank as intranet
67
2,90
1,437
Brainstorming sessions
67
2,69
1,416
Written knowledge bank
68
2,19
1,149
Innovation workshops
68
2,07
1,124
KNOWLEDGE UTILIZATION
Knowledge is a source of power not only to managers of the rm but also to

all employees having specic capacities and important skills. We list some important outcomes of knowledge utilisation included in the research (Exploiting...: 2009):
improvement of goods and services that enterprise sales, as well as their selling
128
methods, increased customer satisfaction (better understanding of their requirements, through feedback from selling personnel), increased quality of suppliers
(better awareness of management about what customers want), improved employees eectiveness and increased working productivity, better recruitment and staing policies (more eective utilisation of knowledge about customers demands
and adequate personnel to serve them), ability to sell knowledge of the personnel
(advisory or consulting services).
Table 4 shows the most appreciated purposes of knowledge utilization as ranked
by surveyed enterprises using 1 (unimportant) - 5 (very important) scale.
Table 4: Outcomes of knowledge utilisation in enterprise

No. of
respondents
68
Lowest
score
1
Highest
score
5
Arithmetic
mean
4,46
Standard
deviation
0,762
Improvement of goods and services
68
4,41
0,696
Improved employees eectiveness
68
4,38
0,670
Increased quality of suppliers
68
3,90
1,039
Ability to sell knowledge
68
3,88
1,030
Better recruitment and stang policies
68
3,87
1,021
Increased customer satisfaction
Knowledge acquiring and management requires usage of an adequate technology. We mention the most known technology types for knowledge management
(Using...: 2009): databases (for example, a database of customers), data warehouse
(in case of larger number of business units within enterprise or online sale), data
mining(data sorted to determine hidden patterns, for instance, the most popular
products), reporting and querying tools (creation of reports and their interpretation, for instance, the share of total sales achieved per employee), business intelligence portals (websites that interconnect all sorts of potentially useful information),
Internet and search engines, intranet (internal PCs network), extranet (connection of two or more intranets), customer relationship management (all forms of
interaction of the enterprise with its customers), call-centre systems (servicing a
large number of buyers if rm sells by telephone), website log-le analyses (helps
enterprise to analyse frequency of customers utilisation of website of the enter-
129
prise), systems to analyse and le (comprise customer letters, all types of suggestions, emails and call-centres responses).
As shown in table 5, respondents graded knowledge management technologies
using 1 (not implemented at all) - 5 (fully implemented) scale. The surveyed enterprises stated higher percentage points (approximately 50%) in use of Internet and
search engines as well as of databases and data warehouse.
Table 5: The technology types for knowledge management in enterprise
Internet and search engines
No. of
respondents
63
Lowest
score
2
Highest
score
5
Arithmetic
mean
4,30
Standard
deviation
0,796
Databases
66
3,71
1,333
Data warehouse
65
3,40
1,356
Reporting and querying tools
66
3,06
1,357
Business intelligence portals
65
2,97
1,287
Intranet
62
2,94
1,436
Data mining
65
2,88
1,431
Systems to analyse and le
64
2,53
1,380
Extranet
60
2,45
1,383
Website log-le analysis
64
2,39
1,399
Customer relationship management (CRM)
65
2,29
1,355
Call- centre systems
64
2,06
1,194
ORGANIZATIONAL LEARNING
There are many denitions of organisational learning that range from creation
of new knowledge, through creation of knowledge system, to changes in organisational practice. It is also dened for dierent levels within organisation and it can
be discussed in terms of learning hierarchy that ranges from individual to group
levels and nally to the organisation in whole (Driver: 2001, 1-3). This paper denes organisational learning as creation of new knowledge that leads to changes in
performance on individual and group level as well as on organisation as a whole.
130
Organisational learning can be dened for two very dierent types of learning:
(1) gradual, routine and adaptive (exible) and (2) radical, fractal and generative
(creative) learning (Senge: 1990, 14). Both types of learning are discussed as critical for eective organisational performance. Based on this view, enterprises should
be capable for adaptive learning, oriented to change management, as well as for
creative learning, oriented to creativity that results from shared eorts of organisations members. They should be capable in creation of new adaptive, as well as
creative knowledge for changes in performance at individual, group and organisation level.
Organisational learning is considered to have become a critical instrument for
sustainable organisational performance in todays continuously changing competitive environment and 60,3% of respondents in the research agreed on this statement. It has also become question of huge interest for practioneers in organisations who believe that becoming a learning organisation is a key to success of their
enterprises.
Adaptive (exible) learning has been researched at individual as well as at collective, organisational level. At individual level, adaptive learning refers to routine
activities of problem solving where assumptions are accepted without their prior
questioning and as such is more about utilisation of existing knowledge than about
development of the new one. At organisational level, adaptive learning mostly relates to knowledge enrichment, its formalisation, exchange and utilisation that have
already been developed earlier in the organisation. In fact, adaptive learning at level
of an individual and of an organisation must deal with utilisation and management
of existing knowledge.
When it comes to acquiring knowledge for better managers preparation of
decision making, dierent methods are used. For example, activity based costing
method (so called ABC method), helps managers in preparing decision by making
costs of each activity clearly visible so that non value added activities can be easily
detected or that decisions on prices can be more precisely made due to information that are usually not so visible in other cost allocation systems. In fact, ABC is
a knowledge management tool that can help organisation at its every level to better understand current nancial reality and to better response to current nancial
requirements. Although the benets of ABC methods are evident, the research
results are fully disappointing since every forth enterprise (or only 25% of surveyed
131
enterprises) is familiar with this method while only 16,2% uses it for management
of existing knowledge and the creation of the new one.
Today, there are dierent managerial tools for preparing decisions and for changing the way managers think about organisation and value creation. Such tools are
suitable for encouragement of creative learning in organisation. ABC is not only
used as a managerial tool for knowledge about costs, but as a process that gives an
opportunity to individual and group decision makers to challenge their assumptions about allocation of resources and value creation within an enterprise (Driver:
2001, 8-9).
CONCLUSION
The purpose of this paper is to examine the role of knowledge in enterprise and
to point out the contributions of information and communication technology in
creation of managerial tools that are in function of adaptive and creative learning
in enterprise. Such technologies support adaptive learning in organisations helping the management of business information and improvement of total knowledge
at all levels of the enterprise. Also, they encourage creative learning through the
development of social climate and culture in which existing assumptions about
organisational processes and performance can be questioned. Many scholars and
managers agree that creative learning gives the best opportunities and represents the
biggest hope for enterprises in 21st century.
Linking ideas within informationcommunication technology and organisational learning enables development of special tools for creation of new knowledge
that leads to changes in performance at individual, group and organisation level.
Changes in performance can be gradual with utilisation of more important business information for more eective decision making or radical with changes of
strategically direction of business based on new understanding of way organisation creates value for its customers. The empirical research conducted on a sample
of small and medium-sized enterprises in the counties of Eastern Slavonia shows
that organisational learning is in its initial phase of development and that changes
toward increased exploitation of team work and invention of even more eective
forms of organisation of the enterprise are needed.
132
LITERATURE
1. Anderson, A.A. (s.a.), Building A Knowledge Culture, Available at: http://www.

robbinsgioia.com/library/whitepapers/KnowledgeMgmt.pdf.
2. Basic sources of knowledge, Importance of knowledge management to a growing business, Business Link, United Kingdom, Available at: http://www.businesslink.gov.uk/bdotg/action/detail?r.s=sc&r.l1=1073858796&r.lc=en&r.
l3=1074003272&r.l2=1074299781&r.i=1073792240&type=RESOURCES&i
temId=1073792244&r.t=RESOURCES, Accessed: (14-12-2009).
3. Driver, M. (2001). Activity-based costing: a tool for adaptive and generative organizational learning, The Learning Organization, Volume 8, Number 3.
4. Exploiting your knowledge, Importance of knowledge management to a growing business, Business Link, United Kingdom, Available at: http://www.businesslink.gov.uk/bdotg/action/detail?r.s=sc&r.l1=1073858796&r.lc=en&r.
l3=1074003272&r.l2=1074299781&r.i=1073792244&type=RESOURCES&i
temId=1073792240&r.t=RESOURCES, Accessed: (14-12-2009).
5. Senge, P.M. (1990). The Fifth Discipline: The Art and Practice of the Learning
Organization, Doubleday, New York.
6. Using information technology to gain and manage knowledge, Importance of
knowledge management to a growing business, Business Link, United Kingdom, Available at http://www.businesslink.gov.uk/bdotg/action/detail?r.s=sc&r.
l1=1073858796&r.lc=en&r.l3=1074003272&r.l2=1074299781&r.i=10737
92240&type=RESOURCES&itemId=1073792239&r.t=RESOURCES, Accessed: (14-12-2009).
CULTURAL MANAGEMENT IN THE REPUBLIC OF CROATIA POSSIBILITIES...
133
CULTURAL MANAGEMENT IN THE REPUBLIC OF CROATIA

POSSIBILITIES OF DEVELOPMENT
Professor Maja Lamza-Maroni, Ph.D.
Jerko Glava, Ph.D. student
Igor Mavrin, Ph.D. student
SUMMARY
At the beginning of the 21st century modern societies have turned to creative industries as a key factor of their development. Culture (cultural) management as an
element of the new economy is most prominent in the specic sector of creative
industries. Creative industries encompass a variety of activities and thus include a
wide range of professions. What they have in common is that they bring together
creativity and specialized knowledge, specic skills and information technologies.
At present, being dominant on the information market and the digital content
market is the most protable area of human activity. In an indirect way, it also provides increasing opportunities to create the conditions for political and economic
domination.
This paper aims to discuss to what extent public policies of European countries
are harmonized and whether there is a coherent framework for promoting the values of the information society. Furthermore, we will look into the cultural policy
of the Republic of Croatia and determine how much creative industries have been
included in the priorities of this key strategic document for the countrys cultural
development.
JEL clasication: Z1
Keywords: creative industries, cultural management, cultural policy of the Republic of Croatia, public sector, cultural identity
134
Maja Lamza-Maroni Jerko Glava Igor Mavrin
1. INTRODUCTION
The goal of creative industries is to build the synergy of conceptual and practical
creative arts with creative industries in the context of information communication technologies, i.e. their new media technologies.
The process is occurring (and continuing) within the new knowledge economy,
which can be and is used by citizens consumers.
2. CREATIVE INDUSTRIES AND CULTURAL MANAGEMENT
There is no single denition of the term creative industry. This is hardly surprising due to the fact that this subject matter has been studied only for a shorter
period of time, although some creative industries have an exceptionally long history. John Hartley states that the idea of creative industries ...seeks to describe
conceptual and practical convergence of the creative arts (individual talent) with
cultural industries (mass scale) in the context of new media technologies (...) within
a new knowledge economy, for the use of newly interactive citizen consumers.
(Hartley; 2007:11) Some individuals describe creative industries as ...a spectrum
of economic activities that relate to creation and exploitation of knowledge and
information. (The Economy of Culture in Europe; 2006:49) Some authors use
the terms creative economy, i.e. cultural industries to describe creative industries.
Creative industries can also be dened as human activities that by incorporating
specic skills, creativity, knowledge and technology generate products and services,
i.e. contents aimed at providing information, education and entertainment, and
indirectly generate employment and nancial capital.
3. CREATIVE INDUSTRIES, CULTURAL INDUSTRIES AND EXPERIENCE ECONOMY
The concept creative industries rst appeared in the early 1990s of the previous century, and has been most intensively used in the United Kingdom, where
it is dened as ...those industries which have their origin in individual creativity,
skill and talent and which have a potential for wealth and job creation through the
generation and exploitation of intellectual property. (The Economy of Culture in
Europe; 2006:47) The approach to creative industries in this case is economic.
The French approach is economic-statistics and the term cultural industries is
used, which are dened as ...a set of economic activities that ally conception, creation, and production functions to more industrial functions of manufacturing and
135
commercialising at large scale, through the use of material supports or communication technologies. (The Economy of Culture in Europe; 2006:47)
In the Nordic countries, the experience economy is the term that is used, where
...the value of physical products only constitutes a fraction of the price. (The
Economy of Culture in Europe; 2006:48).
4. CULTURAL AND CREATIVE SECTOR
The study on the economy of culture in Europe proposes the existence of four circles into which the elements from cultural and creative sectors can be delineated:
1. Core arts visual arts (crafts, paintings, sculpture, photography), performing
arts (theatre, dance, circus, festivals), heritage (museums, libraries, archaeological sites, archives);
2. Cultural industries lm and video, television and radio, video games, music
(recorded music market, live music performances, revenues of collecting societies in the music sector), books and press (book publishing, magazine and
press publishing);
3. Creative industries and activities design (fashion design, graphic design,
interior design, product design), architecture, advertising;
4. Related industries (PC manufacturers, MP3 player manufacturers, mobile
industry, etc...). (The Economy of Culture in Europe; 2006:3)
5. THE SEGMENTATION MODEL OF THE CULTURAL AND CREATIVE SECTORS
The activities from the cultural and creative sectors can be classied according to
two criteria: individual vs. mass production and market approach vs. protectionist
approach. The activities divided by the above mentioned criteria can be demonstrated by the following model:
136
Picture 1: The segmentation model of the cultural and creative sectors
Source: Authors
6. CREATIVE INDUSTRIES IN A WORLD CONTEXT
There are some estimates at the world level that show how in 1991 creative
industries ...generated $ 2.2 billion revenue, which accounted for 7.5 per cent of
the global gross national product. (Flew; 2007: 501). The largest individual share
of the creative sector is that of the USA, where in 2001 the creative industries ...
accounted for 7.75 per cent of the gross national product, 5.9 per cent of national
employment and $ 88.97 billion in export. (Flew; 2007: 501) As for Great Britain, creative industries ...generate revenues of around 112.5 billion and employ
some 1.3 million people (...) exports contribute around 10.3 billion. (Creative
Industries Mapping Document; 2001: 10) At present, Croatia does not have detailed and unied statistics for creative industries. Nevertheless, the nancing of
culture is still based on the budget, where ...according to the 1999 estimates, the
Ministry of Culture accounts for 30%, towns account for 30%, the City of Zagreb
137
24%, counties 5% and municipalities account for 3%. (Strategija kulturnog razvitka; 2003: 47)
7. THE CONTEXT OF CREATIVE INDUSTRY IN THE CULTURAL POLICY
OF THE REPUBLIC OF CROATIA
Croatian cultural policy as a national report was adopted in 1998, and it neither
mentions nor denes creative industries. The Ministry of Culture singled out ve
main priorities in Croatia with a view to dening the strategies of cultural development: The preservation of cultural heritage (...); The revival of national image
and identity, including festivals, as well as promotion and presentation of history.
(...); The integration of the above mentioned (the revival of cultural heritage and
the revival of national image and identity; authors comment) with Croatian tourism oer (...); further computerization of cultural institutions and activities (...);
Stimulating coordination and expert collaboration at all levels of government (...).
(Hrvatska kulturna politika; 1998: 16)
Lately, redened priorities of the Government of the Republic of Croatia are
being emphasized. They include: greater investment in and decentralisation of the
cultural infrastructure; continuous promotion of cultural life and creativity in order to ensure that cultural programmes and activities are available to every citizen
to the greatest possible extent; strengthening international cultural cooperation,
with special emphasis on the European cultural programmes, particularly those
that support the mobility of artists and cultural professionals; reform of the system
of nancing and investment in the arts and culture including the introduction of
low interest rates for loans to revitalise certain branches of culture including publishing and librarianship; review of existing measures which support the status of
the artist in order to guarantee stability of his / her work and ensure adequate social
security protection; investment and support for cultural tourism projects in order
to ensure sustainable cultural and economic development; reform of legislation and
policies, primarily electronic media, book, lm, audiovisual and performing arts
policies, as well as investment in developing statistics and indicators; support for a
functioning network of cultural centres, libraries and other local cultural establishments. (Main cultural policy issues and priorities; http://www.culturalpolicies.net/
web/croatia.php?aid=41; accessed on 12 January 2010) The strategy of cultural
development of the Republic of Croatia (2003) advocates the cultural cooperation
with Europe, which should result in numerous benets: supporting and promoting
the social contract with the citizens of Europe and its nations as communities
138
founded on tolerance, diversity, creative values and civil society; starting the wider
process of educating human resources along with narrow education for competitive market, including the cultural rights of women, youth, minorities and other
marginalised groups; the process of creative employment via cultural industries
and cultural districts in towns; the system of preservation of communication and
expression specic qualities and identity patterns of small countries which are faced
with economic and cultural globalisation, i.e. industrial and media corporations
from large countries. (Strategija kulturnog razvitka; 2003: 34-35)
The goals, i.e. the priorities of cultural strategy should be continuously adapted
to the trends of the 21st century. The fact that the priorities of cultural policy were
created at the time of the rst years of democracy and war, i.e. post-war events in
Croatia has to be taken into account. Moreover, it is necessary to add the following
priorities of the Croatian national cultural policy to the already existing ones:
- supporting and developing the sector of creative industries (theatre, lm, music and other creative work, museum and gallery activities) as initiators of
economic development; - supporting cultural entrepreneurship, i.e. generating protability in the cultural and creative sector; - harmonizing with the
European cultural policies and utilising European integration processes for the
promotion of Croatian culture; using the positive elements of globalisation
(the possibility of transcultural integration and spread of ideas and products
of national culture on the global stage), and avoiding the negative aspects of
globalisation (the danger of losing ones own identity).
8. CREATIVE WORKER AS A PILLAR OF CREATIVE INDUSTRIES
The age of the new economy based on creative sector (both in production and in
consumption) also requires a new kind of employee, i.e. creative worker. This group
includes a vast multi-national workforce of talented people applying their individual creativity in design, production, performance and writing. (Hartley; 2007:
49) There is a broad range of professions that appear in particular segments of
creative sectors. In the lm sector there are actors, but also stunt doubles, directors,
screenplay writers, stage artists, lighting technicians and many other professions.
On the other hand, the heritage protection sector includes a completely dierent
kind of creative workers archaeologists, curators, museum counsellors, coordinators, experts in galleries and other professions. In the world, and increasingly in
Croatia, one can talk about creative workers as freelance employees without perma-
139
nent contracts, whose occasional employment is project-based. Although full-time

employment is still dominant, ...other ways of work are becoming sustainable
alternatives, such as permanent employment as freelance experts, part-time portfolio careers and sole proprietors. (Howkins; 2003: 185-186) Creative workers have
very little bargaining power, beyond the laws of supply and demand, operating
as self-employed satellite suppliers of professional or technical services. (Hartley;
2007: 50) We can present workers and consumers in the old and new economies
in the following way:
Table 3: Workers and consumers in the old and new economies

Issues
Old economy
New economy
Tastes
Skills
Educational needs
Workplace relations
Nature of employment
Stable
Job-specic skills
One-o craft training or degree
Adversarial
Stable
Changing rapidly
Broad skills and adaptability
Lifelong learning
Collaborative
Increasingly contract/project-based
Source: adapted from Flew; 2007:505
9. Creative industries in the public sector in the Republic of Croatia
Nevertheless, creative employment exists both in the public sector and as well
as in private enterprise. As a rule, the following basic creative activities are included
in the domain of the public sector in Croatia: performing arts (theatre, dance) and
heritage preservation (museums, libraries, archaeological sites, archives and related
activities). The analysis of the number of employees in creative industries in the
public sector for four Croatian regional centres Zagreb, Split, Rijeka and Osijek
is presented below. The data on employees are taken from the Internet site Poslovna
Hrvatska (www.poslovna.hr) in the period from 21 January until 30 January, while
the results of this research have been calculated by authors. The data include the
period from 2004 until 2008. 13 museums, 2 libraries, 1 archive, 7 theatres and
1 dancing ensemble from Zagreb were included in the analysis. 6 museums, 2 libraries, 1 archive and 3 theatres from Split were analyzed. In Osijek, 2 museums,
1 library, 1 archive, 2 heritage institutions (Agencija za obnovu osjeke Tvre and
Gradske galerije Osijek The Agency for the Restoration of Osijek Tvra and
Town Galleries Osijek) were analyzed.
140
Table: The employment overview in creative industries of the public sector

ZAGREB
Heritage preservation
Performing arts
TOTAL
2004
1.034
1.107
2.141
2005
1.065
1.102
2.167
2006
1.067
1.097
2.164
2007
1.260
1.117
2.377
2008
1.288
1.123
2.411
SPLIT
Performing arts
TOTAL
2004
204
304
508
2005
207
303
510
2006
212
303
515
2007
217
302
519
2008
223
307
530
RIJEKA
Performing arts
TOTAL
2004
136
297
433
2005
138
303
441
2006
141
298
439
2007
148
307
455
2008
150
321
471
OSIJEK
Performing arts
TOTAL
2004
102
242
344
2005
102
246
348
2006
104
250
354
2007
108
252
360
2008
117
251
368
Source: authors calculations
The previous data allows us to deduce the following conclusions:

- Zagreb and its employment in the creative part of the public sector, as the centre of Croatian cultural life, surpasses the total number of creative employment
of the three remaining regional centres (Split, Rijeka and Osijek);
141
- a signicant increase in creative employment in the public sector was recorded

in Zagreb in 2004 2008 period, while this growth is slower in other towns;
- employment in the public sector of creative industries is mostly based on performing arts, mainly in theatres (Split, Rijeka and Osijek); except in Zagreb,
where employment in heritage preservation and employment in performing
arts is mostly the same;
- creative employment in the public sector is proportionally distributed according to the size, i.e. the number of inhabitants in 4 regional centres.
CONCLUSION
Creative industries as a concept of employment in cultural, i.e. creative sector

are gaining in importance in European countries. The turnover in these types of industries is constantly increasing, whether it is in lm, music, stage arts or some other activities. The European cultural policies themselves (EU member states policies
and those of other countries) do not ignore economic contribution that creative
industries make to a countrys employment and GDP. Croatian cultural activities
are still mainly connected to the budget, but harmonisation with EU standards in
the pre-accession process will result in the development of creative industry sectors.
In the meantime, it is necessary to moderately increase creative employment in the
public sector, as well as support creative employment in the private sector by means
of grants on state and local level. Only by investing and supporting can Croatia
keep up with the countries of North America and the European Union, when it
comes to the new economy founded on creative industries.
REFERENCES
Books
1. Howkins, John: Kreativna ekonomija: kako ljudi zarauju na idejama; Zagreb,

Binoza Press, 2003; ISBN 953-6920-09-3
2. Lamza-Maroni, Maja, Glava, Jerko: Poslovno komuniciranje; Osijek, Studio
HS internet, Ekonomski fakultet u Osijeku, 2008; ISBN 978-953-253-053-7
142
Proceedings
1. Lamza-Maroni, M., Glava, J., Mavrin, I. (2009) Potentials of Osijek as a

Centre of Cultural Tourism, Interdisciplinary Management Research, Osijek, Faculty of Economics in Osijek, Croatia, vol. 5, ISSN 1847-0408, ISBN
978-953-253-061-2, pages 711-721
2. Lamza-Maroni, M., Glava, J., Bonjak, S. (2008) Contribution to the development of the urban management model, Interdisciplinary Management Research,
Osijek, Faculty of Economics in Osijek, Croatia, vol. 4, ISBN 978-953-253-044-5,
pages 526-542
3. Matic, B. & Serdarusic, H. (2009) Financing Regional Development Through
Development Banks, Interdisciplinary Management Research, Faculty of Economics in Osijek, Croatia, vol. 5, pages 749-759
4. Matic, B. & Serdarusic, H. (2008) Models of Including Financially Inactive
Population into the Financial System, Interdisciplinary Management Research,
Faculty of Economics in Osijek, Croatia, vol. 4, pages 296-309
Researches and documents
1. The Economy of Culture in Europe; Study prepared for the European Commission; 2006.
2. Creative Industries Mapping Document; 2001; (available at: http://www.culture.
gov.uk/reference_library/publications/4632.aspx/; accessed on 1 February 2010)
3. Hrvatska u 21. stoljeu: Strategija kulturnog razvitka; Zagreb, Ministarstvo kulture RH, 2003; ISBN 953-6240-23-8
Internet
1. www.poslovna.hr (accessed on: 21- 30 January 2010)

2. www.culturalpolicies.net (12 January 2010)
3. http://www.connectcp.org/proles/prole.php?proleid=22 (12 January 2010)
APPLICABILITY OF INFORMATION TECHNOLOGIES IN PARKING AREA CAPACITY OPTIMIZATION
143
APPLICABILITY OF INFORMATION TECHNOLOGIES IN

PARKING AREA CAPACITY OPTIMIZATION
Marani Robert, Phd
Rijeka Promet d.d.
Pupavac Drago, Phd
Polytehnic of Rijeka
ABSTRACT
Parking area is a complex system consisting of adequate system components and

of their inter-dependence; it is therefore necessary prior to analysing and planning
of parking capacities to dene the model of parking. The main goal of this paper
is analyze the role and prove the applicability of information technologies in the
function of design optimal parking area capacity. The working hypothesis is set:
Applying the information technologies in optimization of parking area capacity
the optimal number of servers (ramps) and the required capacity (number of parking spaces) in closed parking areas can be dened. Scientic methods applied in
conrming this hypothesis are based on waiting-line models and information modelling method. The use of information technologies in optimization parking area
capacity will be presented on an example of the Delta parking area in the City
of Rijeka. A particular merit of the model is its universal applicability because the
presented methodology can be applied to any other closed parking area, i.e. parking
area with ramps in current or future, changed conditions.
JEL clasication: C61
Key words: information technologies, parking area capacity, optimization, waiting-line models
1. INTRODUCTION
The research problem of importance for this work stems from the fact that the
demand for parking services is not constant. Changeability and dynamism of the
demand for parking services are the main problem in determining the required size
144
Marani Robert Pupavac Drago
of parking facilities. The lines at the entrance to the parking lot, especially in peak
periods, a daily occurrence. Accordingly, this paper will try to answer the following
questions: What is the demand for parking services, according to which should be
to design the optimal capacity of the parking lot?, Acceptable percentage of under
capacity of the parking area?, How to provide service to park at a time of increased
demand?. To nd answers to these questions and prove set hypothesis using Excel
spreadsheets to construct a realistic model of the theory of queues, which will support an open single-channel and multichannel queuing model.
2. RELEVANT CHARACTERISTICS PARKING AREA AS AN OPEN
SINGLECHANNEL OR MULTICHANNEL QUEUING SYSTEM
According to the classication system of queues, queues all systems are based on
the number of servicing channels are divided into two groups, as follows: Single
and multi-channel systems. According to the number of potential clients, all queuing systems are also divided into two groups, namely: open and closed systems of
queues. The common feature of all these models is that their clients Poisson input
ow stream, and that their output stream of clients and serving time is exponentially distributed.
Typical symbols of the model are (Barkovi et al.;1986,213):
- mean number of arrivals per time period
- mean number of people or items served per time period
S number of service facilities
P0 Probability of 0 units in the system (that is, the service unite is idle)
Pn probability of n units in the system
Wq average time a unit spends waiting in the queue
Ws average time a units spends in the system (waiting time plus service time)
Lq average number of units waiting in the queue
Ls average number of units (customers) in the system (waiting and being
served)
If the < , individual values of the waiting line in single-channel system can be
calculated from the following formulas (Heizer & Render; 2004, 715):
Wq =
Ls =
-
(-)
Ws =
-
Lq =
P0 = 1 -
(-)
145
Some values of the waiting line in multi-channel system can be calculated from
the following formulas:
P0 =
1
M 1 1 n

n 0 n!
zaM
( / ) M

Po
2

( M 1)!( M )
Ls =
Ws =
1 M M

M ! M
( / ) M
1 Ls
Po
2

( M 1)!( M )
Lq = Ls -

1
Wq = Ws -
Lq
If the number of inbound ramps to the parking area one, than we talking about
the single-channel system, otherwise we are talking about multi-channel system.
When the parking area lls up, entry ramps automatically prevent new vehicles
from entering into the parking area, i.e. the drivers trying to enter are signalled
that the parking area is complete and this initiates the creation of a line of vehicles
trying to enter into the parking area. Parking area represents a queuing system
with the following structure: customers are vehicles forming (or not) a waiting line
(depending on the current situation) in order to be served (parked) in a parking
section and after the service has been completed (certain length of parking time),
146
they exit the system. Parking system servicing is dened as an open system of queues because with him the intensity of input ow does not depend on the state system, ie the number of users in the system, because the source populations located
outside the system and users of the city roads (outside the park) come in observed
the system queues.
3. STATISTICAL DATA
Table 1 shows the number of vehicles arrived into the Delta parking area in
2009.
Table 1: Number of vehicles arrived into the Delta parking area in 2009 by days and months
147
Note: Number 0 denotes holidays, i.e. days (Sunday and national holidays) when parking fee
was not charged or months with less than 31 days.
Source: Statistical data of the Delta database
The number of spaces in the waiting line: total length of space appointed to the
waiting of the vehicles in order to be able to enter into the parking area is 80 m; if
the average length of a vehicle in the waiting line is 5 m, it follows that the maximum of 16 automobiles can be present on the reserved space in one moment, i.e.
m = 16. Therefore, the observed servicing process is classied as a queuing problem
with nite number of vehicles in the waiting line, M/M/S/16. Every next vehicle
(17th one) in the waiting line will be cancelled from the waiting line because the
line of vehicles would otherwise continue on the roads intended for the circulation
of motor vehicles.
The intensity of the vehicles arrival ow: the calculation will use the average
number of vehicles arriving daily into the parking area in 2005; = 1,569 vehicles
per day (with 14-hour working time and 293 days a year because the rest of the
days are holidays and the parking fee is not charged) or the average of 112 vehicles/
hour, i.e. 302 vehicles/hour in peak hours and maximum load of the parking area.
Intensity of servicing: the intensity of servicing () is obtained in the calculation
as a reciprocal value of the average servicing time ( t usl = arithmetic mean of the
servicing time); if the servicing time represents the time necessary for the driver
(parking area customer) to stop its vehicle in front of the entry terminal, to take
the parking ticket and to enter into the parking area and it amounts to an average
of 15 s, then t usl = 15 s = 0.0041666 hours (Marani,2008,356), and the intensity
of servicing
= 1/ t usl = 240 vehicles/hour.
4. COMPUTER SUPPORTED WAITING LINE MODEL
The most common case of queuing problems involves the single-channel, or

single-server, waiting line. In this situation, arrivals from a single line to be serviced
by a single station. In the table 2 set a model for problem solving using Excel
spreadsheets.
148
Table 2: Using Excel for Queing M/M/1 model
All data obtained for the average number of vehicles that are serviced during the
day, indicating that it is sucient only one ramp that is capable serviced all vehicles
arrived. Probability that there is no vehicle in the queuing system is 53.33% that is
in line only one vehicle is 78.22% that is in line two vehicles 89.83% (...).
Now it is evident that the peak hours, comes more vehicles per unit of time in
respect of their serving with only one entrance ramp. Based on the denition of
basic parameters in the parking lot, Delta as a system servicing a limited length
of the queue (M/M/S/16) gets to be = / = 302/240 = 1.25833. Accordingly,
the question whether increasing the number of input ramp increases/decrease the
value of indicators parking system? In order to get an answer to this question in the
table 3 set a multi-channel model.
149
Table 3: Using Excel for Queing M/M/S model
Based on data from the table 3 it is clear that a system with 2 inputs and peak
load is less than one, and thus satises the basic condition that the user (vehicle)
to be serviced before or after. This is not the case in a system with only one entrance
ramp. The probability that a vehicle in a system with two inputs to be immediately Served in peak periods amounts to 22.76%. On the basis of this it is easy to
conclude that with only one entrance ramp signicantly deteriorates the quality of
servicing the vehicle with the possibility of failure in the system, while the values
for the cases when placed at the entrance gate two input signicantly increases the
quality of servicing. It therefore follows that the two entrance ramps optimal number given the intensity of arrivals of vehicles in the parking and servicing their time
entering the vehicle.
150
5. DESIGN CAPACITY OF PARKING AREA
Capacity is the throughput, or the number of units a facility can hold, receive,
store, or produce in a period of time. The capacity determines if demand will be
met or if facilities will be idle.
The parking area capacity is expressed in the number of parking spaces, i.e. the
number of vehicles which use the parking service. The optimal number of entering
points, i.e. ramps, according to experts in garage facilities and closed parking areas
construction, amounts to one entering point per 250 parking spaces. This is the
statistical parking area capacity. The dynamical parking area capacity is calculated
by also taking into account the number of vehicles entering into the parking area
in a day, then the average parking time length and the total working time of the
parking area using the formula
PM

t
T
where:
PM total number of required parking spaces,

average number of vehicles per day,
t average parking time (hours),
T total working time of the parking area per day (hours).
If we take into consideration the fact that there is an average of 1,569 vehicles
arriving daily into the Delta parking area and that the average length of parking is
2 hours and the opening hours are 14 a day, the formula shows us that the required
number of parking spaces is 224. Based on the obtained results and taking into
account the fact that according to experts dealing with the construction of buildings and garage parking is sucient closed one entrance to 250 parking spaces, the
question of the validity of the formula. In support of these claims go and the fact
that the actual number of parking spaces in the parking lot is 458. The answer to
these questions should be sought in the fact that more than 40% of the parking
lot occupied permanent subscribers (tenants and companies), and this is the real
reason why the peak periods produce large columns stand at the door.
151
6. CONCLUSION
In this paper is demonstrate that by applying the information technologies the

optimal number of servers (ramps) and the required capacity (number of parking
spaces) in closed parking areas can be dened. After all, the verication of the set
out model of planning of optimal capacity of parking area capacity upon the actual
Delta parking area in the City of Rijeka has shown the indisputable applicability
of the results of a scientic research to actual parking area capacities. Transition of
the parking lot with one of two entrance ramps to shorten the queue leading to a
small number of cancellation in the system and effective utilization of capacity
parking lot. A particular merit of the model is its universal applicability because the
presented methodology can be applied to any other closed parking area, i.e. parking
area with ramps in current or future, changed conditions.
LITERATURE
1. Barkovi, D. et al.: (1986). Odluivanje u marketingu, Informator, ISBN 86301-0047-8, Zagreb.

2. Heizer, J., Render, B. (2004). Operations Management, seventh edition, Pearson
Prentice Hall, ISBN 0-13-120974-4, New Jersey.
3. Marani, R. (2008). Parkiranje u turistikim destinacijma, IQ Plus, d.o.o.,
ISBN 978-953-95705-1-2, Kastav.
Mane Medi Mario Banoi Mladen Panci
152
BRANDING IMPACT ON THE ECONOMIC

DEVELOPMENT OF CITIES AND COUNTIES - EXAMPLE
BRANDING CITY OF ILOK
Mane Medi, Ph.D.
Faculty of Economics
Mario Banoi, M.Sc.
Vukovar-Sirmium County
Mladen Panci, Teaching Assistant
Faculty of Economics
Abstract
In the time of globalization, countries, regions and cities which want to take
position on the tourist market or to attract investors are faced with increasing competition. Often dierent counties and cities oer similar investment opportunities,
the same living standard, cultural and gastronomic oer. Therefore we can assume
that the brand value and branding quality is based on increasing level of recognition and destinations value in the eyes of its target groups.
Since the City of Ilok, as well as the whole Vukovar-Sirmium County passed
consequences of war and transition in its economic structure, it is possible to identify a number of development problems (unemployment, decline in living standard
and decit in cities and countys budgets). All mentioned led to the decreased
attractiveness and worse image of Vukovar-Sirmium County and City of Ilok. In
this sense the concept of branding oers long-term sustainable solutions through
dierentiation based on rational - tangible and emotional - intangible factors where
the image of county cities takes a very important place. In this article a long-term
development vision and destination branding of the City of Ilok based on the
trac, natural, historical, demographic and social competitiveness factors, will be
proposed. Factors of attractiveness of the City of Ilok, selected through research
and analysis of its perceptions by target groups of consumers, will set up following
dierentiation points: location, nature, river port, cultural heritage, gastronomic
BRANDING IMPACT ON THE ECONOMIC DEVELOPMENT OF CITIES ...
153
and enological oer, knowledge and lifestyle. Based on these points, this article
will propose the positioning of the City of Ilok according to selected target segments of consumers and will built identity elements and brand promises. All above
mentioned can assure the realization of many advantages oered by the concept
of branding Ilok: better image and dierentiation, creation of a unique identity,
increased attractiveness and recognition of the City. The parallel implementation
of other development strategies will result with the creation of added value, increased employment rate, increased income, increased number of investors, better
infrastructure and education, strengthened overall economy and nally improved
living standard of the local population.
JEL clasication: M31, M37
Keywords: competitiveness of the region, place marketing, brand, destination
branding, City of Ilok
1. INTRODUCTION
City of Ilok is recognized like historic wine town in economic developed and
environmentally clean environment. Good trac connections, infrastructure, competitive economy and developed tourist oer based on the rich cultural, historical
and natural heritage. Today, City of Ilok revives after homeland war and deportation citizens of Ilok, and also it is open for change and hearty to welcome all its
guests. Many visitors compared Ilok with Opatija because of his natural beauty,
and also with Dubrovnik because of preserved medieval fortress and the wealth of
cultural monuments.
2. DEFINING THE TERMS OF BRAND AND BRANDING
When we are talking about the brand, generally we dont think about the whole
issues that occur in just one word. The classic denition of brand by the American
Association for the marketing, but also by Kotler (Kotler; 2006, 549) and Bennett
(Bennett, 1995th, 85), is presenting a name, term, sign, symbol or design, or their
combination, which aims is to identication of goods or services of one or a group
of producers and their dierentiation from competitors goods and services.
We can expand classical denition of brand by modern concepts about the fundamental system, visual, verbal and written characteristics in order to identify and
154
distinction product and service of one seller or one oerer from other. But the
brand goes beyond what we can see, hear or feel, so in this context we are observe
it like a phenomenon that behaves like a living organism, because its denition
dont only analyze the concept of products, names, symbols, or any physical contemplation characteristics. Well, the brand presents companies quality, the way of
business and communication within the company and interaction with the market.
However, the interaction witch the brand stimulates a series of emotional, rational,
cultural and sociological images which associate on producers. During the shopping consumers dont buy only a product, such as once thought, they also buy its
emotional meaning and substitutes for its unsatised needs. According to Pavlek
(Pavlek; 2008, 92-94), brand became valuable companies property and estimated it
is represented an average of about 50% of the balance sheet structure of companies
in developed countries.
The customers generally require a value in combination of functional and psychological benets and feature which implicit through functional product features
and psychological characteristics of the brand. (Vranesevic; 2007, 12)
3. THE ROLE OF BRAND AND BRANDING IN THE LOCAL
DEVELOPMENT OF CITIES
Every place has its original history and heritage that will aect on his image.
When we talking about city identity, that means that situation in which creates
assumption in the environment and inside of own organization and based on these
assumption creates expected perception how the subject want to be seen and accepted by actual and potential consumers.
The identity of the city is active role you can aect on it, while the image is passive process of marketing communications, and you cant aect on it. Image is the
perception of consumers and / or users of certain products, institutions, brands,
business or person who may or may not be in harmony with reality or actuality
(AMA, American Marketing Association, 2007). Also same agencies give denition
of marketing place like the branches of marketing, which aim is to aect on target
groups that could later develop a positive relationship with the products and services
that are related with specic places. The basic settings of marketing place are marketing theory, branding, rural and / or urban development, local economic development, and such like that it uses multiple objectives such as building a positive image
155
of place, attracting business investment, tourists and visitors, various institutions,

events, etc. (Rainisto; 2003, 28).
The identity of the city can also be seen as a set of characteristics of place that
dierent it from others. It is obviously that identity will always be a consequence of
some planned activities, marketing or those that belong in domain of urban planning and city management.
When the city achieves the appropriate level of the desired identity, then the
task of marketing place is that the desired identity forward to potential customers
/ users in a way that it is explained and understood as eligible image that they will
develop to the place. Marketing of places must be the way how the appropriate
identity will be located in the cognitive sphere of consumer / users. Therefore,
marketing of place must be integrated in all forms of economic development as a
natural element of the development.
Branding of place cant be restricted only on the name of place, logo or symbols,
but it means a positive association with people, hospitality, climate, geographical
location, history, heritage, architectural organization, etc. All these elements are
part of the overall identity of place. They cant be seen clearly, but they are result of
complex processes and phenomena that are created through a long period of time.
4. STARTING POINT FOR CREATING A BRAND CITY OF ILOK
Places are complex products since consumers perceive them through the many
services and experiences that arent under control of local government, but the
number of participants (stakeholders). Cities with dierent interests represent a
unique experience for each costumer.
The advantages of concept for creating brand can be used if are respected the
following principles of branding place (Hanson; 2004, 218):
Real estimate the place - to develop the brand on an authentic basis, mining, the
internal (within the consumer places), implement and external research (consumers outside the city), the perception of attractiveness factors and image
of place, and make comparisons with competitors. This research shouldnt be
older than 3 years.
Develop a vision for the future think the brand of place will look for 1o years
or even one generation ahead.
156
Dene attractive, unique brand position, which can be the communications

basis of dierent brand experiences.
Provide full support to the leaders, political unity and continuity, which are prerequisites for creating a successful long-term brand of place.
Should aect those who are aected: media, travel writers, celebrities, local businesses and others, and at least so far to reduce the possible negative eects.
Successful brand of place should be: based on truth, reect the aspirations for
future; present the spirit and personality of the place, be relevant and dierentiate for target consumers, convincing, inherent and sustainable (City of Hamilton;
2002., 2)
Common phenomenon is that cities which have experienced collapse of old
industries didnt develop parallel new industries and new basis of recognition. In
these situations, the necessity of regeneration of the city is indisputable, and also
imposes the need for brand creating. However, question is when should start with
creating a brand in a city which has lost its old role, and there is still nothing as
great as would be replaced, or whether move to create a brand before the implementation of regeneration of the city or after it. Sarah Jarvis recommend starting
branding parallel with regeneration and so that (Jarvis; 2005, 27):
identies what makes the city proper;
specialize leading project that will be the initiator and sign to others;
the accent from the beginning that creating brand is long-term project, as well
as the regeneration of the city.
5. SITUATION ANALYSIS CITY OF ILOK
For the purposes of this paper was implemented a SWOT analysis (Table 1) and
status presentation linked with the elements of identity. This research wasnt based
on the samples and because of that its purpose is to analyze situation in Ilok such as
status paradigm of marking city as a tourist destination in this part of Croatia.
Example of SWOT analysis present the analysis of elements that directly or indirectly inuence on creation of identity, and in that context they are assumption
for image creating and building brands of Ilok. At the same time, SWOT analysis
shows us positioning of Ilok in the context of tourist destinations
157
Table 1. SWOT analysis city of Ilok
Source: Made by authors (based on our own observations)
The above SWOT matrix city of Ilok and strategic goals of development it is
clear that Ilok can apply more marketing strategies:
Marketing of Attraction - The most prominent approach since Ilok developed
or prepared for the realization of many cultural and natural attractions (Old
Ilok cellars, The Odescalchi Castle, Tourist resort Principovac, Ilok walls, the
church Saint John of Capistrano, Danube coastline settlement).
158
Marketing of Infrastructure includes rich architecture and symbols of the

city, and a number of infrastructural projects.
Marketing of People - many famous historical persons ( Julije i Ante Benesis,
Saint John of Capistrano, Mladen Barbaric, Ivan Rengjeo, Livio Odescalchi)
who are source of many stories that can attract visitors and an inspiration for
the citizens. But a key part of the strategy of marketing of people is citizens
who are the most numerous and most eective carriers of brand, on condition that accept the oered concept of city branding as a part of their own
identity.
Marketing of Image - the current image of city of Ilok is, in accordance with
the SWOT matrix and acceptance in media, slightly positive and on that way
suggests a low recognition level of city. A number of started and planned projects are in collaboration with the Institute for Tourism Zagreb and the German Society for Technical Cooperation (GTZ) with the aim of strengthening
the attractiveness and infrastructure city of Ilok such as a good foundation
for starting a new project, creating and strengthening the brand image of the
city.
The brand benet pyramid is useful instrument in process of creating identity
and positioning of the city, which also used for formatting a brand promises.
159
Figure 1. Brand benet pyramid city of Ilok
Source: Made by authors (based on our own observations)
The promise of brand formed through by acronym TRS: traminac, romantika,

srea. Any of these words symbolize a group of reality based on the brand value city
of Ilok:
Traminac - Traminer from Ilok is leading wine between Europes traminers.
He was served at the coronation of Queen Elizabeth II and before that it was
listed among the wines that are served on the British Court. His harmony and
elegance represent him as a very pleasant aperitif.
Romantika romantic, adventurous, fantastic, incredible, wonderful, fairy
tale, imaginative, sensitive, scenic, charming, pleasant, beautiful, medieval,
perfect, ideological, unreal, alien. All those emotions that visitor experiences
in city of Ilok (Klai; 2004, 189).
Srea - happiness lasting, positive emotional condition which includes the calm
satisfaction with their lives, but also actively satisfaction and achievement.
160
Acronym TRS in Croatian also symbolizes the vine: eating grapes, grapes for
juice, wine and sherry. Its fruits particularly its wine, most of them perceives it like
a symbol of joy. Desire for pleasure motivates a man in all, but also she is source of
frustration when we cant nd a way to her.
6. CONCLUSION
The marketing of place strategy implementation must be implemented at all

levels, from the tourist board, right to local population. Through theoretical view
and the status presentation shows that the city of Ilok has built some elements of
identity.
However, according to theoretical preferences the identity isnt constructed in
entirety, and therefore is a problem of creating a real image at target groups and
the local population. When the citys identity becomes strong and specic, we can
expect the formation of positive image at target groups. Therefore, it is dicult to
talk about strong brands, as a factor of a successful positioning in the market. In
order to achieve an appropriate level of identity construction it is necessary joint
operations of tourist stakeholders, organizations, and institution who planes strategies for city of Ilok, on which based a proper and healthy development in general.
This process must include local populations and the manufacturing sector, because they are all stakeholders in the development and economic advancement of
its community. Neither of the action dont act independently, regardless if they are
prot or non-prot character, or public or private sector, they supplement and supporting each other.
Image and identity are very important factors in construction of strong and
recognizable brand name of the city, because it is very important to focus on the
theoretical study of the importance of place image and identity, as well as its practical application in practice in order to build competitive oer to domestic and
international market.
7. REFERENCES
1. AMA American Marketing Asociation (2007), Dictionary, available at: http://

www.marketingpower.com/mg-dictionary-view1438. accessed: (10-01-2010)
2. Anti, T. & Anti, V. & Panci, M (2007). Brand Valuation, available at: http://
ideas.repec.org/a/osi/journl/v4y2008p199-214.html accessed:(09-03-2009)
161
3. Bennett, P.D. (1995). Dictionary of marketing terms, McGraw-Hill, ISBN 9780844235981, Chicago
4. City of Hamilton: Branding Program Information Package, October, 2002.,
available at:http://www.city.hamilton.on.ca/newsroom/archives/2002Releases/
pdf/branding_information_package_2002-pdf, accessed: (10-01-.2010).
5. Hanson, S.: 18 Tips for a Winning Destination Brand, available at: http://www.
destinationbranding.com/articles/18Tips.pdf, accessed: (14- 03-2010)
6. Jarvis, S.: Rebranding as a Tool for Regeneration, Locum Destination Review,
London, Issue 17., 2005., available at:http://www.locumconsulting.com/pdf/
LDR17-FO-Rebranding.pdf accessed (11-03-2010)
7. Klai B (2004), Rijenik stranih rijei, Nakladni zavod Matice Hrvatske, Zagreb,
ISBN: 978-953-0-40935-4, Zagreb .
8. Kotler, Ph. (2006). Osnove marketinga, Mate, ISBN 953-246-023-3, Zagreb
9. Pavlek, Z. (2008). Branding, M.E.P. Consult, ISBN 978-953-6807-37-6,
Zagreb
10. Rainisto, S. K., Success factors of place marketing: a study of place marketing
practices in Northern Europe and the United States, Helsinki University of
Tehnology, 2003.ISBN 951-22-6684-9, Espoo
11. Vraneevi, T. (2007). Upravljanje markama (Brand management), Accent,
ISBN 978-953-99762-4-6, Zagreb
162
Murali Murti
THE LUXURY PHENOMENON THE GLOBALIZATION

OF VARIETY
Murali Murti, Professor of Management,
PES Institute of Technology, Bangalore, India
ABSTRACT:
Our contemporary understanding of globalization is an increasing interlinking

and interdependence of national economies within a global economy. This view of
globalization has become associated with large corporations driven by their own
immediate self-interests. This process is seen as leading to an increasingly homogenous global culture. This can be described as the globalization of uniformity.
The globalization of uniformity is most often identied with the phenomenon
of outsourcing, and the rise of the truly global corporation. Many of the arguments
against globalization arise out of fear engendered by this process; a fear that such
globalization of uniformity may lead to a loss of cultural identity and national
sovereignty.
Bu there is another, less widely studied, aspect to globalization. Improved communication, access to information, and lowering / elimination of barriers to trade,
can also lead to greater entrepreneurship and innovation. Globalization in this perspective can lead to specic local competencies taking deeper root and nding opportunities to ower not just in their local markets, but across the world. This can
be referred to as the globalization of variety, which, to some extent, can reverse
the outsourcing process and strengthen local cultures.
One example of the globalization of variety is the luxury industry, which is
today composed of companies which started out mainly as small family-owned
businesses and social enterprises barely fty years ago. Signicantly, the luxury
industry is largely Europe-driven, and now has an important role to play in the
continued evolution of European culture, identity and ethos. Research has shown
that changing the denitions of luxury has the potential to transform attitudes
towards wealth. This is critical to the future global economy.
THE LUXURY PHENOMENON THE GLOBALIZATION OF VARIETY
163
This paper studies the luxury industry as a microcosm of the globalization of

variety. Based on the analysis of the luxury industry, the paper proposes a taxonomy
within which dierent industry sectors can be studied from the two dierent globalization perspectives, and which can be used for making policy recommendations
to catalyze the evolution of new competencies within a local economy, and drive
these systematically to take advantage of the process of globalization of variety.
JEL clasication: F01
Keywords: globalization, industry, taxonomy
INTRODUCTION
Fifty years after international trade became a signicant feature of the global
economy after a gap of half a century of wars and tumultuous socio-political
change across the world the debate on globalization has shifted in focus. From
whether globalization is indeed a fact and therefore how societies, corporations
and individuals need to adapt, the questions are now linked to the benets and the
costs of globalization. Particularly after the 2008 global nancial crisis, the debate
has increased in urgency. As a measure of this, it is instructive that even think tanks
that work with the Conservative Party in the UK have described our current society
as an oligarchical market state that monopolises power and wealth,... that eectively
disempowers everybody else. (Blond, 2008)
In this debate, there is little opposition to the obvious benets of globalization.
People everywhere now have access to a variety of products and services that provide improvements in daily living unimaginable even a generation ago. Many of the
classic predictions of trade theory have been vindicated, from Finland becoming a
global centre for mobile phone technology research, to the domination today enjoyed by the Japanese automobile industry, to India as a global source for software
services, and most dramatically, China emerging as a global economic superpower
on the basis of her manufacturing prowess.
On the other hand, the drawbacks of globalization have also drawn increasing
attention from the academic community. At a fundamental level, a view has been
put forward that globalization merits study as a branch of International Relations
rather than management (Guedes & Faria, 2007), thus asserting the political sensitivity of globalization as an issue. It is admitted, even by its most diehard propo-
164
Murali Murti
nents, that while there is a commendable acceptance of the need for free trade and
liberal economic policies, globalization has not led to the free movement of labour.
(Tandon, 2008). While kaleidoscopic comparative advantage (Bhagwati, 1998),
implying erce competition at a global level between large rms, is a distinctive
feature of a globalised world, it is still unclear what the gains from such outcomes
are (Tandon, 2008).
The need for institutional changes as a way to mitigate the downsides of globalization has been the conclusion of many researchers (Bhagwati, 1998). Allied with
this is the need to redene corporate governance in a global context, to eliminate
inter-country loopholes (Guedes & Faria, 2007). The ideas of sustainability and corporate social responsibility have also gained traction as alternatives to the ill-eects
of globalization.
The focus of this paper is rather dierent. It views globalization from neither an
economic free trade framework, nor from the perspective of management theory.
It postulates that globalization develops in two paradigms the globalization of
uniformity, which is characterized by an increasing degree of similarity and homogeneity amongst organizations globally in term of their processes and ethos, and the
globalization of variety, which is characterized by competencies evolving through
entrepreneurship at grassroots levels in dierent countries, growing in scale ultimately to create distinct comparative advantages at the country level. The global
luxury industry is used as the basis for examining the relevance of this view.
THE GLOBALIZATION OF UNIFORMITY
The most visible aspect of the globalization process has been the rise of the
multinational corporation. From 1960 to 2008, the number of companies which
can be classied as MNCs has risen almost tenfold. The percentage of international
trade attributable to MNCs is now signicantly higher than it was fty years ago.
The most positive feature of this growth is the internationalization of the MNC.
From domination fty years ago, the percentage of US corporations has dropped
to barely 30%. Increasingly, companies from the Newly Industrialized Country
category (China, India, Brazil) have established themselves as successful MNCs
(Hill & Jain, 2007).
A signicant reason for the success and proliferation of MNCs has been the
productivity increases made possible by deployment of complex information tech-
165
nology (IT) systems. IT systems have enabled corporations to develop distinctive

competencies to help them outperform smaller rivals. Allied with the deployment
of IT systems has been a more scientic approach to the design of business processes within organizations.
However, this has taken place within a period of consolidation in the international IT industry. Thus, over the past thirty years, organizations have moved
towards the adoption of a few well-established international standards. Thus, Microsoft Windows has become the default desktop OS for most of the employees of
todays corporations. Similarly, Oracle databases form the core of the majority of
nancial systems, and SAP software the major basis of supply chain processes. Such
adoption of standards has led to increasing similarities in the business processes of
organizations.
Consequent to this increasing standardization of business processes has come
an increasing similarity in employee roles, and therefore of organization culture
and attitudes. To an increasing extent, working in one MNC is no longer very dierent
from working in others. This is one aspect of what can be called the globalization of
uniformity.
A second consequence of IT has been its eect on communications, and with it
the eects on marketing. Rapid access to information across the globe for everyone
now makes it possible for corporations to migrate to a global strategy viewing the
world as a single market with only marginal country dierences to a much larger
degree. This eect is most pronounced in the nancial markets, and to a great extent also in the markets for high technology products.
Consequently, consumers everywhere now have the opportunity to choose from
an increasingly standardized and narrow basket of brands whether for colas, automobiles or cell phones. This is a second aspect of the globalization of uniformity.
There are several indices, which have been evolved over the years, for the measurement of the extent of globalization in a particular country. The KOF index
has gained widespread acceptance and is used in this paper for the analysis of data
(ETH Zurich, 2009).
THE GLOBALIZATION OF VARIETY
Globalization was not only expected to usher in a new era of free trade. It was
also expected that the process would act as a catalyst for entrepreneurship develop-
166
Murali Murti
ment. It was expected that this would in turn make available to the global consumer an increasingly diverse set of products and services to choose from, leading
hopefully to an increase in the quality of life. This expectation has been borne out
to some extent by the pace of development of so many countries, as also by the
small, but increasing number of products and services innovated outside the developed world. This phenomenon may be termed the globalization of variety.
The role of entrepreneurship in economic development and growth is an area
that has been studied and understood perhaps less fully than other aspects. The
Schumpeter thesis (Schumpeter, 1942), that entrepreneurship gets gradually subsumed as a routine activity by large corporations, has never been fully validated
and does not explain the continual entrepreneurial dynamism shown in advanced
economies since the 1980s. Furthermore, in a globalizing world, the entrepreneur is
located at the intersection of several key fault lines of the modern age (Dahm, 2006).
Therefore, it is perhaps even more necessary today to assess, and evolve a model for,
the role of entrepreneurship in economic development, and more important, in
sustaining economic vitality and innovation.
Vinig and Kluijver (2007), studied the impact of globalization on entrepreneurship, and found no statistical correlation between the level of globalization in
a country, as measured by KOF index, and the level of entrepreneurship in that
country, as measured by Global Entrepreneurship Monitor (GEM) data. Surprisingly, and perhaps disturbingly, they found a negative eect of globalization on
entrepreneurship in low GDP countries.
However, this study did not distinguish between the two types of entrepreneurship now commonly accepted, viz. Traditional Entrepreneurship Activity (TEA)
and Social Entrepreneurship Activity (SEA). This has been attempted in this
paper.
GLOBALIZATION AND ENTREPRENEURSHIP: ANALYSIS OF DATA
For the purposes of this paper, the year 2009 has been chosen as the basis for
analysis. Data has been obtained from two sources:
1. For estimates of globalization, the KOF index has been used
2. For estimates of entrepreneurial activity, data from the Global Entrepreneurship
Monitor (GEM) 2009 report has been used.
167
This paper follows the categorization of economies into Factor Driven Economies, Eciency Driven Economies and Innovation Driven Economies, as dened
in the GEM report.
Following the GEM report methodologies, Social Entrepreneurship Activity
(SEA) has been subdivided into the following categories for analysis:
1. SEA that has Not For Prot (NFP) objectives
2. SEA that has Hybrid objectives, i.e. a combination of not-for prot and forprot objectives
3. SEA that has only For Prot (FP) objectives
4. Since the division between SEA and TEA is sometimes blurred, a fourth category
of TEA+SEA has also been included.
5. Finally, a summary analysis has been performed for pure TEA activity as well.
Data from a total of 43 countries has been used for the analysis. For each country, data for each of the above 5 categories of SEA and TEA were correlated against
the globalization index KOF for that country. Thus, the data set consisted of 258
distinct data items.
The list of countries referenced for analysis is given in Table 1.
Table 1: List of Referenced Countries by Economy Type

Factor Driven Economies
Eciency Driven Economies
Innovation Driven Economies
Algeria
Argentina
Belgium
Jamaica
Bosnia & Herzegovina
Finland
Lebanon
Brazil
France
Saudi Arabia
Chile
Germany
Uganda
China
Greece
Venezuela
Colombia
Iceland
Croatia
Israel
Dominican Republic
Italy
Ecuador
Korea
Hungary
Netherlands
Iran
Norway
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Murali Murti
Jordan
Slovenia
Latvia
Spain
Malaysia
Switzerland
Panama
United Kingdom
Peru
United Arab Emirates
Romania
United States
Russia
South Africa
Uruguay
The hypothesis which has been tested is as follows:

Globalization leads to an increased level of entrepreneurship activity in a
country
This hypothesis has been tested by calculation of the Pearson coecient of correlation r between the Globalization Index (KOF) for a particular country, and
the Entrepreneurship Index as given for each category of SEA or TEA for that
country in the GEM report.
The results are given below in Table 2
Table 2: Pearsons Coecient of Correlation r between Globalization Index and Entrpreneurship Index, 2009
S.N
Category
Average
KOF
Not For
Prot SEA
Hybrid
SEA
For Prot
SEA
TEA +
SEA
TEA
Factor Driven Economies
61.69
0.7619
-0.1909
-0.4436
-0.1176
-0.4924
Eciency Driven Economies
67.58
0.0545
0.1289
-0.5923
-0.3169
-0.4302
Innovation Driven Economies
80.26
-0.372
0.5203
0.2023
-0.3682
-0.2338
This analysis clearly brings out the following for the year 2009:
1. Traditional Entrepreneurship Activity (TEA) declined signicantly in 2009
for all three categories of economies in spite of globalization.
2. The blurred category (TEA+SEA) also declined signicantly during 2009
for all three categories of economies
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3. Factor Driven Economies, with the lowest average level of globalization at

61.89, showed growth in Social Entrepreneurship Activity (SEA) with NotFor-Prot objectives.
4. Eciency Driven Economies, with an average level of globalization at 67.58,
showed a slight increase in SEA that had Hybrid objectives, i.e. a combination of prot and not-for-prot objectives.
5. Innovation Driven Economies, with the highest average level of globalization
at 80.26, showed signicant growth in SEA that had Hybrid objectives, and
also some growth in SEA that had For-Prot objectives.
This leads to the following remarkable conclusions:
1. Lower levels of globalization, as found in factor driven economies, appear to
be associated with low levels of entrepreneurship activity during a downturn,
but associated also with signicant levels of non-prot activity during the
same time. Thus, there does not seem to be evidence of small groups of people coming together to nd economic solutions during a downturn. Instead
the formation of social enterprises appears to be based more on the need to
extend help and support to less fortunate segments of society.
2. Medium levels of globalization, as found in eciency driven economies, are
associated with an overall decline in entrepreneurship during a global downturn, but there is some evidence of small groups attempting to self-help
themselves to nd economic solutions during a downturn.
3. High levels of globalization, as found in Innovation Driven Economies, are
correlated with a clear pattern of small groups of people coming together to
use available people skills as a path to nding economic solutions during a
downturn.
This allows us to postulate the following two questions:
1. Can Social Entrepreneurship be a suitable vehicle for increasing the levels of
Globalization of Variety?
2. Can Social Entrepreneurship be a suitable vehicle for building up countrylevel comparative advantages in an increasingly globalized world?
We will now examine these questions using the Luxury Industry as the
framework.
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Murali Murti
THE LUXURY INDUSTRY
At rst glance, the luxury industry does not appear to be the ideal example to
choose while discussing social entrepreneurship, or the benets of globalization in
general. It is associated with only the very rich and very exclusive. It is also usually
associated with the highly developed countries of the Western world. It tends, nally, to be associated with decadence rather than vitality. Nevertheless, any analysis
(Kapferer & Bastien, 2009) of the luxury industry and of the luxury phenomenon provides useful insights.
First, luxury is a universal phenomenon:
1. Luxury as a concept has been with us consistently since the dawn of time.
Even the most ancient of societies evidenced luxury in the form of ornaments, attire, etc
2. Luxury exits because of intrinsic characteristics of human beings which are
common regardless of society and state. There is no country or society where
the idea of luxury has disappeared. All human beings exhibit the same characteristic of aspiring to a dream.
3. Luxury has a been a reason for trade throughout history the silks of China, spices of India and other Oriental exotica were powerful reasons for the
growth in mercantile trade after the Dark Ages
4. Luxury has always been associated with craftsmanship, and thus the development of exceptional skills within a society. In this respect, luxury has always
represented national comparative advantage at an incipient stage, in the form
of exceptionally skilled tradesmen.
5. Luxury has owered when communities as a whole have encouraged it. In
such environments of encouragement, luxury capabilities have evolved into
entrepreneurial ventures.
Second, in todays world, the luxury industry is primarily European in origin:
1. The majority of todays best known global luxury brands are companies that
are headquartered in France, Italy, Germany, the UK, Netherlands, Switzerland, etc.
2. Most of todays best known brands whether Ferrari, Louis Vuitton, Cartier,
Chanel, and others were small, family-owned businesses barely fty years
ago.
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3. The strategies which have been evolved to grow these small companies into
global brands are completely dierent from the mass marketing strategies
developed in the US and which today dominate the corporate world.
Third, globalization has enabled the luxury industry to make the transition from
craftsmanship to mass production:
1. The appeal of a luxury product or service is that it is one of a kind, or at the
very least, one of the very few. Hence its association with craftsmanship and
highly personalized customer service.
2. Todays luxury brands seek to make available this experience on a global
scale, through innovative marketing, advertising, and delivery infrastructure.
3. The strategic management of todays global luxury brands is very similar to
that of any other product. Concepts such as outsourcing, supply chain eciencies and the like are now commonplace in this industry. This is now the
major criticism directed against the luxury industry that the industry is in
fact deceiving customers into thinking that they are receiving a highly personalized product or service, when in fact the opposite may be true (Thomas,
2007).
Whatever may be the criticisms and their validity, the luxury industry does represent an unusual phenomenon:
1. It is based on craftsmanship capabilities that evolved in even very small societies, and which found social recognition.
2. These personalized skills then became the basis for setting up small companies
a process which we would today describe as social entrepreneurship with a
for-prot motive.
3. These social enterprises were enabled by globalization to make the transition
to conventional commercial enterprises and become part of nationally important large industries.
Let us illustrate these conclusions with two examples.
1. The Italian fashion industry, based around Milan, is today a multi-billion
Euro powerhouse, accepted as one of the three leading global centres for fashion. Yet fty years ago, there was no Italian fashion industry to speak of.
What did exist was an exceptionally skilled workforce distributed in villages
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Murali Murti
and towns across Italy, serving individual customers in bespoke mode, as a

cottage industry. With the Marshall Plan came new factories, which were
willing to employ skilled artisans. This led to a new industry, but not one that
aped the design houses of Paris and London, but rather one that was rooted
in Italian traditions. This edgling industry also quickly developed the necessary marketing skills, and was able to capitalize on the love aair for all things
Italian from espresso coee to leather goods to actors and actresses that
swept America in the post-war years. (White, 2000)
2. The Indian spa industry, with over 2000 spas located in 25-30 major centres,
generates over $400 million annually, and has carved itself a small, but growing, niche in the global $60 billion spa economy. Many of these spas also
oer products and services based on Indias indigenous Ayurvedic medical
traditions, a sector which has received encouragement through Government
policy. The sector is poised to grow at a CAGR of 22% over the next ten
years, one of the highest in the world. The wellness experience oered by
these spas is quintessentially and immersively Indian, designed around Indian
history, astrology and values, and dedicated to indigenous culture, myths,
materials and designs (Sharma, 2010).
The luxury industry, therefore, oers some interesting insights:
1. Social entrepreneurship, rooted as it is in the capabilities of people, is uniquely suited to building up comparative advantages based on people skills that
can eectively dierentiate a country, or a region.
2. Social enterprises are capable of making the transition from survival to commercial success through systematic evolution of business models, to the extent of achieving global status.
3. Governments can proactively enable this process with the right policy
initiatives.
TAXONOMY FOR POLICY MAKERS
With this background, we would like to propose a taxonomy for policy makers,
to enable the process of catalyzing the globalization of variety through social entrepreneurship. For this purpose, we dene the following:
173
1. Initiatives Level 1 (L1): Policy initiatives, including funding, with the objective of creating social enterprises that have a not-for-prot objective.
2. Initiatives Level 2 (L2): Policy initiatives, including funding, with the objective of creating social enterprises that have a hybrid objective, i.e. both prot
and not-for-prot.
3. Initiatives Level 3 (L3): Policy initiatives, including funding, with the objective of creating social enterprises that have a for-prot objective.
4. Initiatives Level 4 (L4): Policy initiatives, including funding, with the objective of creating traditional enterprises that have, obviously, only a for-prot
objective.
Our fundamental proposition is that, within a country, every economic sector
can be viewed as either (a) a factor-driven sector, or (b) an eciency driven sector,
or (c) an innovation driven sector. For each type of sector, there should be dierent policy prescriptions. The nal objective should be to move a social enterprise from
a non-for-prot model to a for-prot model, and then encourage it to evolve to a fully
commercial entrepreneurial business paradigm.
This is summarized in the following table.
Table 3: A Policy Taxonomy

Sector Type
Factor Driven Economic Sectors
SEA
Not for Prot
SEA
Hybrid
SEA
For Prot
L1
TEA
L4
Eciency Driven Economic Sectors
L2
Innovation Driven Economic Sectors
L2
L4
L3
L4
This taxonomy aligns exactly to the analysis of the eects of globalization on

entrepreneurship, and therefore would carry a relatively higher probability of
success.
LIMITATIONS OF THIS PAPER AND FUTURE DIRECTIONS FOR RESEARCH
No research is ever complete in itself, so the following are the major limitations
of this paper:
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Murali Murti
1. The correlation between globalization and entrepreneurship has been tested

for only one year, 2009.
2. The luxury industry has been described, but not rigorously analyzed, in terms
of the GEM classications.
These lead to the following possible directions for future research:
1. Correlation analysis of the rate of increase of globalization with the rate of
increase in entrepreneurship, rather than the absolute values.
2. Analysis of sample countries to determine whether the categorization of different sectors into factor-driven, eciency driven and innovation-driven is
indeed valid at a single country level.
3. Analysis of a selected sample of social enterprises to determine whether the
proposed transition (as shown in the L1L2L3 arrows above) is feasible.
CONCLUSIONS:
Every viewpoint carries within it an implicit system of values, and the propositions put forth in this paper are no exception. Perhaps the most important of these
values, at least to this author, is the belief that every country and community of
people carries within itself the seeds of a special characteristic and special quality.
These characteristics manifest themselves in cultural practices and values. It is the
assertion of this author that such cultural attributes can be leveraged to provide a
better life for people. Every country, in this authors view, has the intrinsic capability to distill and rene its cultural attributes to create products and services, possibly of luxury, that can capture the imaginations of people worldwide.
A second value arising out of this paper is the benets of the globalization of
variety. As contrasted with the globalization of uniformity, the globalization of variety empowers people, and through entrepreneurial action, leads to true improvements in the quality of life, not only for a particular community, but for people
everywhere.
In this respect, the author can do no better than to conclude, with a quote from
Jagdish Bhagwati, one of the doyens of free trade: And, so, free traders must now
walk hand in hand with the civil society groups seeking the social agendas. It is not as
dicult a task as the rst shock of discovering each other seemed to suggest. In fact, it is
the task for the rst decade of the next millennium.
175
REFERENCES:
Books
1. Hill, C. & Jain, A. (2009). International Business. ISBN-13: 978-0-070221796

2. Kapferer, J. N. & Bastien, V (2009). The Luxury Strategy. ISBN-13: 978-07494-5699-3
3. Schumpeter, Joseph A. (1942). Capitalism, Socialism and Democracy, ISBN-13:
978-0061330087
4. Thomas, Dana (2007). Deluxe: How Luxury Lost Its Lustre, ISBN-13: 9781594201295
5. White, Nicola (2000). Reconstructing Italian Fashion: America and the development of the Italian fashion industry, ISBN-13: 978-1859733417
Articles in Conference Proceedings
1. Bhagwati, Jagdish (1998). Free Trade: What Now? Keynote Address: International Management Symposium, University of St. Gallen, Switzerland, 25 May
1998.
2. Dahm, Harry (2006). Schumpeter, Entrepreneurship and Globalization: Towards a Theory of Dynamic Capitalism, Meeting of the American Sociological
Association, August 10, 2006. http://www.allacademic.com/meta/p105518_index.html
(accessed March 2010)
Articles in Journals
1. Guedes, Ana Lucia & Faria, Alexandre (2007). Globalization and international
management: in search of an interdisciplinary approach. BAR Brazilian Administration Review, May/August 2007, online version, ISSN 1807-7692.
2. Tandon, R (2008). The Globalization Syndrome of a New Millennium: A Holistic Analysis from a Non-Western World View. CJES Research Papers, No.
2008-1 ISSN 1824-0636, March 2008
3. Vinig, T., Kluijver, J. de (2007). Does Globalization Impact Entrepreneurship?
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Murali Murti
4. Comparative Study of Country Level Indicators, University of Amsterdam,

Netherlands . Sprouts: Working Papers on Information Systems, 7(8). http://
sprouts.aisnet.org/7-8 (accessed March 2010)
Articles on websites and blogs
1. Blond P. (2008). The True Tory Progressives. www.guardian.co.uk/

commentisfree/2008/may/30/davidcameron.welfare
2. Sharma, R. (2010). http://blogs.siliconindia.com/spasindia/
Websites
1. ETH, Zurich. http://globalization.kof.ethz.ch

(accessed march 2010)
2. Global Entrepreneurship Monitor (2009) www.gemconsortium.org
CRISIS AS AN OPPORTUNITY FOR OPTIMIZING COMPANIES COST MANAGEMENT SYSTEMS
177
CRISIS AS AN OPPORTUNITY FOR OPTIMIZING

COMPANIES COST MANAGEMENT SYSTEMS
Stipan Penavin, Faculty of Economics in Osijek
Dubravka Pekanov Starevi, Faculty of Economics in Osijek
Martina Harc, Electrodus d.o.o. Osijek
ABSTRACT
Typically rules that relation to available resources, especially nancial always

conditions companies business success. In practice, it is evident that companies
that have a more rational approach to their resources achieve better business results.
However, there are situations where this need particularly manifests as scarcity of
resources multiplies. It is a crisis. Crisis is a situation characterized by business
disturbances. Its eects reect primarily in the deterioration of companies market
position, mostly through the reduction of sales volume or decrease in sales price. In
both cases, it aects the decrease in business results. As in these conditions access
to external nancing resources is somewhat dicult, the company has to orient
to its internal reserves. They are located primarily in the more rational approach
to costs, which basically means that companies have to develop an adequate cost
management system. Through cost management, the relationship between sales
and production prices can be balanced, especially in crisis. In this case, the ability
to impact business results through cost management becomes a company resource.
Although in all business conditions there are strong reasons for developing this cost
approach, crisis represents an additional motive for its implementation. Eects of
cost management will be conditioned by model that is applied. Therefore, alternative models of cost management represent the basis for its eectiveness. Although
in the crisis it is much easier to develop sensitivity to cost management as an instrument for mitigating its eect, this approach needs to have a permanent character.
JEL clasication: D24
Key words: cost management, crisis, business results, production price, sales
price
178
Stipan Penavin Dubravka Pekanov Starevi Martina Harc
1. INTRODUCTION
Many factors, especially costs, determine companies business success. The cost
signicance is great even in stable business conditions, and it especially comes to
the fore in unstable ones. In the narrow sense costs aect the business results, and
in broader, they determine the degree of competitiveness of each company, as well
as its market position. This fact is reason enough to build a special approach to
costs primarily through managing them. Cost management means full cost control and direction in those business segments that will ensure maximum business
eects. It is essential that this practice is carried out permanently in the process of
doing business, especially in crisis. The crisis is a situation characterized by business disturbances at the macro-level, where it aects the functioning of the entire
economic system, and at the micro level, where it aects companies as elements of
that economic system. In such circumstances, the availability of resources within
the enterprise reduces to a minimum, making the business potential signicantly
reduced. That results in an increase in cost of products and services on one hand,
and in a reduction of competitiveness on the other. This complex condition, caused
by the crisis, provides an additional incentive for management to nd all possible
internal reserves of the company, which will enable normal functioning. There is
no doubt that cost management opens signicant opportunities to achieve a higher
degree of rationality in the use of already scarce resources, allowing the company
to survive competition. The fact is that cost management can signicantly reduce
the eects of the crisis in the functioning of individual enterprises. However, it
would be entirely wrong approach to study the justication of cost management
only in terms of crisis. It should be an integral part of business practice in all conditions, both in stable and unstable, and in this regard, it should have a permanent
character.
2. EFFECTS OF CRISIS ON COMPANIES
The eects of the crisis on business come to the fore in many forms. They mainly manifest through two aspects, market and nancial. In the rst case, they usually lead to a sales reduction because of reduction in demand for most products,
especially for small and medium enterprises. Other problems follow. Due to the
reduced sales companies achieve worse nancial results. Because of that, they cannot cover even the current business needs and opportunities for expanded reproduction signicantly reduce. Since in such conditions internal sources of nancing
operations and investments are not sucient, companies orient to external sources.
179
However, because of the high cost of capital and absence of adequate collaterals,
most companies have problems in accessing to nancial sources. This situation
generates insolvency, which means that one company cannot collect their claims,
and at the same time, it cannot meet its obligations to suppliers. Because of that,
company cannot buy necessary raw materials for further production and business.
Result is decrease in competitiveness and deterioration of market position. In the
case of a longer duration of the crisis, that takes permanent form. The eects of
these phenomena on the companies in the Republic of Croatia, as a direct consequence of the crisis can be seen in the following table.
Table 1: Overview of business condition indicators in the Republic of Croatia

Indicator
The average interest rate on loans contracted without a

currency clause
The average interest rate on loans contracted with a currency clause
Gross prot
Number of insolvent companies
Due reported orders for payment (000 kn)
IX. 2007.
IX. 2009.
Index
9.33
11.6
124.33
6.35
8.1
127.56
32,226
24,992
14,316,302
21,822
26,196
20,748,604
67.72
104.82
144.93
Source: Financial Agency, Croatian National Bank
Impact of the crisis is much wider than shown on the indicators at the micro
and macro level. Between these two levels, there is a strong interaction. Disorder of
certain macro-economic conditions reects in the business, which then poor results
reect on further movement of macroeconomic indicators.
3. THE IMPACT OF COST MANAGEMENT ON CRISIS EFFECTS IN BUSINESS
It is evident that the eects of the crisis reect in the disturbances in business.
Certainly that for the management of each company this situation is unacceptable
and in the conditions of the crisis it must activate all available resources, which
in these circumstances are unfortunately limited. Cost management, as a special
management technique, is a very powerful business policy instrument, which can
be used to reduce the negative eects of the crisis. The impact of cost management
to the eects of the crisis results from the nature of this business function. That is,
cost management in the narrow sense can be considered as a system of methods and
180
techniques in the process of identifying opportunities for eliminating unnecessary

costs (Peri, M; 2006.)
Key term in this case is the cost and primarily the cost that is not necessary for
conducting business processes. From this, it follows that the cost management is
permanent examination of justication for individual costs and their level. If it is
determined that there are costs that are not fully justied or that are unjustiably
high, they should be eliminated or at least reduced to a minimum. This sensitivity to the costs justiableness and their level must exist in all business conditions,
both stable and unstable. In the latter case, it must be even more developed as
the business in crisis conditions is burdened with phenomena that diminish its
eects. In a broader sense, cost management should create assumptions for establishing optimum relation between the resources involved in business processes
and business results achieved. In other words, this means that it is necessary, often
with scant resources, to achieve better business results. This need comes to the fore
particularly in conditions of crisis because the resources limitation is then at the
maximum. Technology of cost management consists of a series of activities that allow management to keep track of costs, estimate the eects of costs on the business
results, and directing costs in that direction in which they will be able to ensure
the realization of the previously mentioned optimal conditions. Activities in the
process of cost management are:
a. Planning (budgeting) costs, as a form of their denition in the coming period.
Cost planning is a management attempt to pre-dene their objectives in cost
movement in response to circumstances that may occur in the future. This
is particularly important if the company expects certain negative eects that
may occur because of the crisis. In this case, management through the plan
has pre-dened business policy that allows neutralization of the negative effects that may arise.
b. Cost movement control, as a function of monitoring implementation of dened plans. In the case of any deviation from the plan, especially in a negative
sense, the management will intervene to reduce possible negative eects. This
will be achieved either through an attempt to inuence the circumstances
that have changed, or if they cannot be inuenced, through the adjustment
of the cost plan to new circumstances.
c. Cost rationalization, which means any management intervention in reducing
the cost movement, especially if costs have a tendency to grow unjustiably.
181
Management action in this regard will be in the supply market and within
the business process.
d. Overhead allocation is perhaps the most signicant activity in cost management. It denes the unit product cost, which directly aects the degree of
competitiveness of the company and its market position. It has already been
pointed out that a direct consequence of crisis is reducing the business volume. This causes reduction in direct costs and increase in overhead in the
structure of total costs. The problem in overhead allocation is great in all
conditions, and specically in unstable conditions. If the overhead are not
realistically allocated to certain products, there is a danger that the unit cost
of some products will be unjustiably increased, while the unit cost of other
products would be lower, although should really be higher. In the rst case
level of competitiveness of such products will be disturbed, which will signicantly reduce sales, and in the second, the competitiveness of the product will
exist but unit cost will not be real because it did not include all costs. In both
cases, the company will achieve negative nancial results.
The purpose of these activities, carried out in the process of cost management, is
primarily to achieve unit cost of products and services that will be in a function of
increasing the company competitiveness and achieving better market position. In
the implementation of these activities, especially the latter, the company can use a
number of adequate models.
4. MODEL SELECTION IN A FUNCTION OF COST MANAGEMENT OPTIMIZATION
Cost management models must support the production of products that will
meet the customer requirements at the lowest possible cost for the company. In addition, these models should help to reduce production costs of existing products in
a way that eliminates waste. Traditional cost management models do not perform
the specied function or operate in an extremely competitive environment. To
achieve and maintain cost leadership while maintaining a satisfactory level of quality of their products, companies must use contemporary cost management models
such as Activity Based Costing, Target Costing or Total Quality Management.
4.1. Activity Based Costing (ABC model)
ABC model allocates product direct costs to products in the same way as traditional models. The dierence occurs in the allocation of indirect costs to products
182
of which the amount per unit of output is determined by applying specic criteria.
Unit cost of products or services established by the ABC model diers greatly from
the same cost calculated by the traditional models if the company produces complex products, products to customer requirements and if it operates in a complex
environment. The specicity of ABC model in comparison to traditional models of
cost management is the fact that the term activity replaces cost centers in traditional models, while the cost drivers in the ABC model replace overhead rates used in
traditional cost management models. ABC model looks at the costs through organizational activities, unlike traditional models that observe the same costs through
organizational departments (cost centers). The essence of this approach is to show
that almost all costs are variable. The basic concept of determining the unit cost
with ABC model states that the product cost equals the sum of the costs of raw materials used in production and costs of all activities used in production (Shields &
Young; 1989). (Gunasekaran et al.; 1999, 387). The essence of ABC model is the
assumption that products do not condition the use of resources in the company.
On the contrary, activities that take place in the company use resources, and those
activities condition the use of resources and therefore the costs.
According to Beheshti, H.M. (Beheshti, 2004, 382), a company can create and
maintain a competitive advantage by using the ABC management so as to: a. identify key activities, b determine the industry value chain for key activities, c. identify
cost drivers for each useful activity in the value chain, d. nd ways to control the
cost drivers in a better way than competitors and aspire reducing costs of activities
and e. to nd ways to increase the value of activities in the value chain. A large
number of case studies showed that the ABC model delivers signicant benets for
determining the sales price of products / services, in determining the production
mix, determining the protability of individual customers, as well as improving
business processes. The company that oers a lower sales price than competitors
for similar and / or the same product, becomes more competitive. The need for accurate cost determination is necessary in the circumstances of the crisis.
4.2. Target Costing
Target costing is the result of an extremely competitive environment in which

customers punish any attempt to increase product prices. Management accounting aims to motivate behavior in accordance with market demands in a way to
determine market acceptable cost that must be realized if the company wishes to
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be protable in a competitive market. Target costing application starts by specifying an acceptable market price for the product / service. When you subtract desired prot from an acceptable sales price, the result is the target cost that must be
achieved if the company wants to survive at the market. Target costing is a simple
approach to reduce the company cost. However, signicant dierence compared to
other models of cost management is the fact that the process of lowering costs takes
place in preproduction phase of the product life cycle, i.e. at the stage of planning
and product development. The basic feature of this cost accounting technique
is a signicant market orientation and a broad and integrative approach to the
key factors of the business. The basic simplied model of determining the target
cost of a new product bases on the planning and creation of products that will
satisfy the customer demands, determining the target cost of the product, comparing the target and the standard cost of product, and on redesign product process
if the target costs exceed the standard costs. Using the technique of target costs
can help in identifying market demands and creating products according to these
requirements. In that way this method of calculating the cost largely contributes to
strengthening the competitiveness in contemporary business conditions. (Potnik
Gali & Gali; 2008, 17)
4.3. Total Quality Management
Total Quality Management is a technique through which management develops

policies and practices to ensure that companies products and services meet consumer expectations. This approach includes increased product functionality, reliability, durability and serviceability. Cost management is used for analyzing cost
consequences of dierent products designs and for measuring and reporting on various aspects of quality. (Blocher et al.; 2002, 14). It means identifying and reducing
the costs associated with quality. The company that introduces the cost of quality
benets from a detailed analysis of its processes; it determines which activities add
no value and thus becomes aware of waste that is generated in the company. Therefore, it gets the ability to eliminate activities without value added and to increase
the eciency and eectiveness of its operations. Costs in the domain of the cost of
quality include the repetition of certain procedures, tests, guarantees and similar
procedures related to the defect of the process or product. One of the reasons why
the measurement of cost of quality is certainly justied is the fact that prevention
is cheaper than xing errors. The introduction of Total Quality Management in the
company can increase the costs of prevention and evaluation in order to reduce the
184
cost of errors. Cost of quality is not always easy to recognize. In its identifying can
help Activity Based Costing, as it makes some of the costs more visible.
5. COST MANAGEMENT AS A PERMENENT FORM OF BUSINESS POLICY
While cost management is a powerful instrument of business policy in crisis

situations, it would be wrong to depart from the approach when transition to stable
business conditions occurs. This fact is indisputable, but the question is whether
the role of cost management is same in the crisis and in a stable business conditions. Changing circumstances, exit from crisis to stable business conditions, will
certainly change the role of cost management as an instrument of business policy.
While in the crisis cost management priority role is preserving a borderline level
of competitiveness and market position, in stable conditions, it must create conditions to increase the level of competitiveness and improve market position of the
company. When in this regard some satisfactory level is achieved, through the cost
management it can be permanently maintained. In addition, changes in business
conditions, from the crisis to the stable, set new limits in terms of degree of optimization between resources involved and business results. While in the rst case that
means preserving the level of business eciency at least at the level of break-even,
in a stable business conditions aim is to ensure an adequate safety margin, which
means to increase the level of business success. All the previously stated leads to the
conclusion that despite the change in the role of cost management, moving from
one business circumstance to another, its position within the business policy does
not actually change. It should remain permanently integrated in a system of business policy instruments, and in that sense used in all business circumstances. It is
therefore reasonably to conclude that the cost management has a permanent, not
temporary character.
6. CONCLUSION
One of the key reasons for business success of every company is its market position. Stability of this position comes from the degree of competitiveness of company products, which is conditioned with cost of its products or services. Costs are
the primary factor that determines the unit cost/production price, and hence the
degree of competitiveness. Therefore, the cost management creates presumptions
for managing market position of each company. Since the market state is subject to
uctuations, whose range is moving from crisis to stable, the role of cost manage-
185
ment in the business policy is extremely important, especially in crisis conditions.

What will be the contribution of cost management to market position of individual
company will depend primarily on the choice of models that it will use. Traditional
cost management models cannot fully meet all the needs in this regard, especially
in crisis conditions, and because of that a number of contemporary models whose
application gives more eective results were developed. However, the introduction
of individual models in the process of cost management will have lower eects than
the parallel application of multiple models, given that their combination gives a
greater cost visibility and opportunities to improve the overall management system.
It is important however to point out that, when exit from the crisis conditions occurs, cost management does not lose its meaning, which is why it has no temporary,
but permanent character.
References:
1. Beheshti, H.M. (2004) Gaining and sustaining competitive advantage with

activity based cost management system. Industrial Management & Data Systems, 104 (5)
2. Blocher, E.J., Chen, K.H. and Lin, T.W. (2002) Cost management: A strategic
emphasis. USA: McGraw-Hill Irwin
3. Gunasekaran, A., Marri, H.B. and Grieve, R.J. (1999) Justication and implementation of activity based costing in small and medium-sized enterprises.
Logistics Information Management, 12 (5)
4. Peri, M.; Upravljanje trokovimanjemaka metodologija, XLI Simpozij: Financijsko restrukturiranje protnog i neprotnog sektora u hrvatskoj, Zagreb-Pula, 2006.
5. Potnik Gali, K. i Gali Z. (2008) Odreivanje ciljnih trokova u procesu razvoja novog proizvoda. Raunovodstvo, revizija i nancije, 2008 (10)
Mate Perii Neven eri
186
THE EVALUATION MODEL OF THE SUSTAINABLE RECEPTIVE

CAPACITY IN TOURISTIC LIGHTHOUSE BUIILDINGS
Mate Perii1, Neven eri2
1
Plovput d.o.o. Split, Croatia
2
University of Split, Faculty of Economics Split, Croatia
ABSTRACT
The analysis of the sensitivity of the touristic micro location, in the context of
receptive capacity, is a criterion, which determines the eciency of the destination commercialisation for the long-term. The performance management of tourist
destinations means achieving a sustainable level of spending on resources while
retaining underlying competitiveness. In the development the project Stone Lights,
this is an evaluation of the tourist value of Adriatic lighthouses. The authors of the
project aim to determine the exact approach to the sustainable capacity within a
controlled expenditure in the selected locations. Commercialization and the presumed legality of the project are conrmed in practice.
Experience is designed to model a pragmatic evaluation of the receptive capacity of the tourist destinations. The contemporary tourist practices often dene
the receptive capacity and access to the destination, primarily from the aspect of
established competitive advantages. Format models with the aspect of destination
management and allowable receptive capacity, means the purpose of customized
marketing information systems, and known development opportunities of the specic tourist destinations.
The tourist evaluation of the Adriatic lighthouses, and the fundamental variables
of the selected models, ecological sensitivity of the site, receptive capacity, hygienic
disposal of waste water, ambient attraction of the destination, and the sensitivity of
the each lightouse considering the number of max number of people staying there,
needs to be determined.
JEL clasication: Q01, Q56
Keywords: lighthouses, analysis, sensitivity, destination, capacities.
THE EVALUATION MODEL OF THE SUSTAINABLE RECEPTIVE CAPACITY IN TOURISTIC...
187
1. INTRODUCTION
The state owned Croatian lighthouse authority Plovput Ltd. is the legal follower of the Oce for Maritime safety in the Austro-hungarian empire that started lighthouse construction in the Adriatic. Due to the exceptional natural, cultural
and historical value of the lighthouse buildings, managing this prescious Croatian
heritage incorporates multidisciplinary approach, where the evaluation model of
the sustainable receptive capacity in touristic lighthouse buildings contributes signicantly.1 After the rst commercial phase of the project Stone lights touristic use
of Croatian lighthouses, they were worldwide immediately recognised as a particular
destination.2 Thanks to the all new approach of touristic lighthouse management,
and nature friendly solutions in power and water supply and disposal, the Stone
lights project was awarded a prize from the Ministry of environment in the category
Tourism and environment in 2001. Lighthouses in the Croatian Adriatic were soon
recognised as a global trade mark in tourism.3
Evironmental sensitivity in the context of receptive building capacity is a problem that Stone lights project had to tackle with from the very beginning of the
project concept.4 Establishing criteria of the sustainable receptive capacity for each
touristic lighthouse is the crucial step in long-term touristic use of these exceptional
lighthouse buildings. The success in their management means that each and every
one of them has to be evaluated separately. To do so is a challenge which Plovput
decided to deal with on a multidisciplinary level and in continuous cooperation
with the scientists from the Facutly of economics in Split.
While developing the project Stone lights touristic use of Croatian lighthouses,
precise and sustainable receptive capacity was established in order to monitor the
degradation of natural resources on these attractive locations. In the commercial
course of the project the assumed theories were proved in every day use.
The preparation of the 2nd project phase meant that the experience gathered was
summed up in a practical model used in evaluation of every single new lighthouse
to be potentially used as a tourist destination. The model, presented in this document, is based on the evaluation of the particular characteristics of every microlocation and indoor lighthouse space at hand.
Nowadays, destinations receptive capacity is determined primarily thru assesed
advantages over competition.5 In this particular case, regarding accomodation in
lighthouses, this approch would not be compatible ecient and protable longterm destination use.6
188
Shaping destination management model from the aspect of the sustainable receptive capacity includes adequate informational system of marketing, and knowledge of the exact location lighthouse building.
The implementation of the evaluation model we here present, in the context of
the sustainable receptive capacity, icludes good knowledge of market orientation of
the clients that visit these antique sites. Keeping this in mind, the evaluation model
of the sustainable receptive capacity in sustainable receptive capacity is based on
10-year-old observations and experience.
Long term succesful management of touristic lighthouses also depends on monitoring of the consequences of location degradation and pollution levels as well as
all other consequences.
Hower, it remains fairly dicult to determine how successful the management
of these attractive and valuable locations is.7 To be abolutely successful, the project
would have to take into consideration the usage of all resources of the location.
That makes synthetic analysis even more dicult, and more dependant on special
research of the eects tourist have on lighthouse evironment. This document presents exactly these special observations and researches.
2. THE EVALUATION MODEL OF THE SUSTAINABLE RECEPTIVE CAPACITY IN
TOURISTIC LIGHTHOUSE BUIILDINGS
2.1. Determinatives in model variable selection
In the former years of commercial project Stone lights interactions were determined, meaning that continuous monitoring and analysis of the change in these
interactions of the locations receptive capacity and intensity are necessary.8 These
experiences were the basis for testing the possible determinatives in variable selection of the future model of the sustainable receptive capapcity on one single lighthouse. By analyzing the factors, which, in a given time frame, can permanently
dene the receptive capacity of every single lighthouse building, we can obtain
many useful data.9 By carefuly selecting these the following determinatives for the
model variable at hand were assessed:
1. The eciency of waste water disposal on a lighthouse
2. The visitors impressions recorded in high season
3. The size of natural beaches in that area
189
4. Costs, complexity and capacity of fresh water storages on a lighthouse

5. Cultural and historical artefacts in that microlocation
6. The diversity of marine life both above and under sea surface near lighthouse
7. The indoor space capacity of a lighthouse
These determinatives were partially evaluated while selecting the variables that
might represent the model structure. The implementation means we have to understand the market orientation of the lighthouse clients. In this analysis, we focused
on the practical needs which had to be satised by oering the proper service in
lighthouse accomodation. Speedy and stressful lifestyle and long working hours
aect everyones life seriously. Relaxation in lighthouse seclusion is the therapy that,
in the 10-year long course of the Stone lights project, proved to be the proper answer
to such a lifestyle.
To oer as little similarity wih everyday life as possible, and yet to provide comfortable stay was our motto. Perhaps the main reason for choosing a lighthouse as
a tourist destination is its seclusion.10 In that context the conservative approach to
receptive capacity evaluation is proporional to higher pricing and therefore to larger
prot as well.
2.2. The model and its variables
The dened research problem determined the choice of scientic methods used
to shape the evaluation model. The research methods at hand were chosen in order
to fully comprehend the signicance of the sustainable receptive capacity evaluation regarding the microlocation sensitivity. The methodology is applied in order
to clearly derive the determinatives for the ecien tuse of the described model of
destination management with special ambience value. 11 The research was in part
conducted as a desk research, and in part as a eld research, by visiting the touristic
lighthouses and by interwieving the tourists that took accomodation in them.
Except for general research methods analysis and synthesis, induction and
deduction, description, explication and comparison, other methods were also used
case-study method and functional analysis method. Although the environment
of every touristic lighthouse is regarded as unique, we have tried to focus on comparative and measurable characteristics of all destinations in the context of the
assumed standard, resulting in the evaluation of the sustainable receptive capacity.
The factors used in this method are based on the environmental value to be com-
190
mercially used, water tank capacity, the capacity of the waste water disposal system,
main supply capacity (220V) supported by alternative energy sources, marine life
sensitivity, etc
Taking all that into condsideration, and by analyzing the gathered information
as the key variable in the evaluation of the sustainable receptive capacity of lighthouse buildings, we dened:
1. Locations ecological sensitivity dynamic receptive capacity
2. Fresh water supply options
3. Waste water diposal options
4. Locations ambience value
5. Locations value regarding possibilities for tourist activities
6. Ecological sensitivity regarding the quantity of dwelling persons
Ad1) The ecological sensitivity of the location is determined from the number
of the human dwellers on the lighthouse and its surroundings and the possible
negative eect their presence could represent. Grade 1 denes that no negative effects (no sensitivity) occur by using the full lighthouse capacity, and grade 5 means
that the risk of negative eects that occur by using the full lighthouse capacity is
high (high sensitivity).
Ad 2) The fresh water supply is determined from the fact whether the lighthouse
is connected to the main pipeline, the annual precipitation quantitiy that lls the
water tank, water tank capacity, possibility of water resupply by ships or vehicles.
Grade 5 means that the lighthouse is connected to the main pipeline, and grad 1
means that the water tank is small (no possibility of improvement due to ground
conguration) and that the annual precipitation quantitiy is exceeded by tourist
demand, thus water supply costs are very high.
Ad 3) Waste water diposal depends on the way waste waters are disposed of.
Grade 5 means that the lighthgouse is on land and connected to the sewage system.
Grade 1 means that disposal pits (on small islands) are limited (no possibility of
improvement due to gound conguration) in size, and that artical biolgical waste
containers are also limited in size. Waste waters are never led directly to the sea.
Ad 4) Locations ambience value means tthat there is a presence of natural resources in abundance both above and under the sea surface, natural beaches, archeological sites, endemic life forms, etcGrade 5 means there is an abundance of
these resources, and grade 1 means they are scarce.
191
Ad 5) Locations value regarding possibilities for tourist activities denes the

entire locations potential for tourist activities such as hiking, bathing, vehicle approach etc
Grade 5 means there are dierent sorts of such possibilities, grade 1 means such
possibilities are very limited (restricted access to sea, no vehicle approach, etc).
The model is based on partial evaluation of these variables and management
potenial of a touristic lighthouse in the context of probable eect on that microlocation. The model incorporates the continuous monitoring of natural resources in the
context of redening the receptive capacities of lighthouses that are already being
used for toutistic purposes. The model also incorporates an adequate marketing
system and already determined devolpment possibilities of a lighthouse as a tourist
destination.
3. CONCLUSION
The complex commercial project Stone lights touristic use of Croatian lighthouses, is much more than a display of natural resources such as lighthouse buildings
governed by Plovput Croatian lighthouse authority. The complexity of the project implementation is best shown in the acquired ecological standards that form
the basis for the model of sustainable receptive capacity of the lighthouse buildings
used for touristic purposes.
The practical evaluation of competetive advantages of a microlocation in the
context of the permitted receptive capacitiy in developed economies is considered a
must for ecient long term commercial use.12 Regarded strategically, such evaluation represents a guarantee for preservation of natural resources on a level recquired
to enable long term commercial use.
The interactive monitoring of this level means that the necessity for quick and
decisive reaction, in case these natural resources are compromised, is tackled in an
easier way. The evaluation model presented in this document is successfully applied
in the 2nd phase of the Stone lights project. It is the basis for strategic business decisions and for the reports made for Croatian government and Ministry of Maritime
aairs. The model can also be used for practical measures in case the monitored
lighthouses environment is compromised. This approach recqiures institutional
management of touristic lighthouse buildings.
192
The model we describe has established itself as an ecient basis for relevant
pricing policy.13 This quality pricing enabled additional prot in those microlocations where criteria we described were upheld. Within the function of status
monitoring it was necessary to establish one additional base for planing, cooordination and activity control in order to functionaly manage such a tourist destination.
The systematic approach in destination management in the context of the evaluated receptive capacity in sensitive environment is an advanced feature in market
denitions.14 Finally, when the evaluation model of a tourist destination is clear in
all its forms dependent and independent variables, the researcher is at the very
beginning. Further research steps assume that the model is tested in everyday life,
meaning that the model can potentially be used in other cases for other destinations of specic ambience value. Actually, one of the model goals is to encourage
special research on attractive lighthouse locations that have the potential to become
touristic lighthouses as well.
And nally, the hypothesis that an adequate evaluation model of the sustainable
receptive capacity of a tourist destination with special ambience value is conrmed
as it permits additional prot for already established accomodation price.
LITERATURA
1. orak, S.; Marui, Z.; i suradnici: TOMAS Ljeto 2007., Institut za turizam,
Ministarstvo turizma RH, Zagreb, 2008.
2. Doyle, P., Marketing Management and Strategy, 3rd edition, Pearson Education
Ltd., London 2002.
3. Hooley, G.J., Saunders, J.A., Piercy, N.F., Marketing Strategy and Competitive
Positioning,3th Ed, Prentice Hall, Harlow 2004.
4. Lukovi, T., eri, N., Modeling of the marketing strategy on tourism destination
with a special ambience value, The International Tourism Research Conference
Sustainable Tourism Development 25-27 November Stockholm 2008, Conference proceedings
5. Perii, M., Talijani, J., eri., N., Identity of national heritage in function of
specialised tourist oer of Croatia, 3rd Critical Tourism Studies Conference Connecting Academies of Hope, Zadar 21-24 June 2009, Conference proceedings
193
6. Perii, M., Andrijani, G., upari, J., Sanacija svjetioniarskih zgrada i njihovo
valoriziranje kroz komercijalne djelatnosti, naobjavljeno koautorsko istraivanje,
Plovput Split 2009.
7. Perii, M., Svjetionici u turistikoj ponudi kao specina destinacija, Interdisciplinary management research V, Pore 8.-10. May 2009.
8. Peter, J.P., Donnelly, J.H., Marketing Management: Knowledge and Skills, 7th Ed,
Irwin, Burr Ridge 2004.
9. eri, N., Kamena svjetla, prie i legende o jadranskim svjetionicima, o mjestima
na kojima su izgraeni i o njihovom podmorju, Marjan Tisak d.o.o. Split, travanj
2004.
10. eri, N., Kriteriji procjene ekasnosti sloenih investicijskih projekata, EF Split
Plovput Split, 2001., neobjavljena istraivaka studija
11. eri, N., Realizacija II Faze sloenog investicijskog projekta Kamena Svjetla sanacija i revitalizacija svjetioniarskih zgrada bez ljudske posade, lanak objavljen
u strunom asopisu za tehniku zatite okolia, Gospodarstvo i Okoli, oujak
2008., godina XVI, broj 90
12. eri, N., Global Marketing in preservation of natural resources in specialised segments of Tourism in Croatia, First european yacht tourism congress, Megagraf ,
Split 2002.
13. eri, N., Disposal of waste water in ecologically sensitive environment of lighthouses, lanak objavljen u zborniku radova ELMAR meunarodni simpozij,
Zadar lipanj, 2002.
14. igori, V., Perii, M., eri, N., Marketing i upravljanje okoliem, struni rad
objavljen u asopisu za tehniku zatite okolia, Gospodarstvo i Okoli, studeni
2009., godina XVII, broj 100
15. Vlada Republike Hrvatske, Dravna Uprava za zatitu prirode i okolia, Izvjee
o stanju okolia u Republici Hrvatskoj, Dravna Uprava za zatitu prirode i
okolia Zagreb 1998.
16. Zakon o zatiti prirode, Hrvatski sabor, Zagreb, 27. svibnja 2005.
Ticijan Peruko Robert Zenzerovi
194
CORPORATE LOAN MANAGEMENT MODEL AS THE

INSTRUMENT OF BANKS PRODUCT OPTIMIZATION
Ticijan PERUKO, PhD
Juraj Dobrila University of Pula
Robert ZENZEROVI, PhD
Juraj Dobrila University of Pula
In terms of dynamic market circumstances in the Croatian banking market,

the success of the banking business depends, among other things, on the selection
of appropriate banking products and their optimal combination. Adequate planning and managing the supply of banking products is one of the most important
preconditions for its success. In this sense, the need for performing the appropriate
researches focused on the formation of new management methods that will, with
already existing instruments, enable the adoption of more appropriate business
decisions and, as a consequence, better managing of banking business is logically
imposed.
Accounting information shows the movement in business operations in past
periods and is the basis for further activities planning, as well as analysis of business
objectives and results achieved. In this sense, models for managing the assortment
of banking products should be based on that reliable information in order to assure
that planning and management took place on realistic basis.
Supply of banks loans to corporate sector is signicant for the economic development of the country as a whole. Availability and acceptability of such loans
by the users, aects a number of macroeconomic variables particularly including
increase in production, employment and exports as the most important sub goals
focused to the achievement of the main goal - increase in the welfare of Croatian
population.
The aim of the conducted research is comprised in formation of the model that
provides appropriate information to management for planning and conducting the
corporate sector loans. Statistical and mathematical methods were employed on the
CORPORATE LOAN MANAGEMENT MODEL AS THE INSTRUMENT OF...
195
accounting data as the main research methods focused toward the model estimation. The model derived can be used as a decision support tool that supplement the
management information system database with information unavoidable in process
of managing the loans inside the group of corporate sector loans. In addition, this
model provides the information regarding the potential for further development of
this very important segment of banks loans. Practical application of the research
performed is shown in the operations of one big bank in the Republic of Croatia.
JEL clasication: C61, G21
Keywords: economic development, banking, corporate sector loan management
model, banking assortment
1. INTRODUCTION
National banking markets in developing countries are increasingly internationalized by entry of multinational banking groups that are, by purchasing existing
banks or establishing their subsidiaries, introducing new knowledge and experience as well as investing additional funds shaping in this way the modern trends of
banking sector development. Modern banking market is mainly characterized by
increasing competition and the impact of central bank with pronounced multiplication of banking products and services.
Increasing competition is forcing the banks to introduce and sell more competitive products and services. This leads to a multiplication of banking products
and services and to the strengthening of competition, not only in the area of classical banking products and services, but also in the area of products and services
supplied by other nancial institutions involved in banking market. Along with
the growing competition, the market is characterized with banks consolidation
through mergers and acquisitions with other banks, but also by connection with
the insurance companies and brokerage rms as well as the establishment of leasing
companies, investment funds and factoring companies. In this way banks are actually incorporating a sale of wide range of banking and nonbanking products that is
further improved by the implementation of new information and communication
technologies that are directly impacting cost reduction and rising the potential of
new products and services creation.
196
Appropriate assessment of market requirements and supply of adequate, typically innovative, banking products and/or services are prerequisites of successful
banking business. In this sense, the need for exibility in introducing and managing the banking products is imposed; the shorter the time between recognition of
the market needs or trends and the banking products creation as well as their acceptance by the bank as an organization, the greater are the possibilities for success.
Aforementioned is particularly highlighted in the segment of managing the active
banking products i.e. loans that directly aect the banks revenue and protability
in general. Given the importance of corporate loans for protability of individual
banks, but also the overall economic development of the country, the researchers
designed the model for corporate loan management whose structure and application is shown below.
The aim of the model is contained in the insurance of information base for decision making on the sale of certain banking loan or credit products for the corporate
sector that will result in maximizing banks revenues. Various scientic methods
were used in the process of model formation. Description, analysis and synthesis
methods were applied in determining the correlation of movement in revenues
per loan product and sales volume as a starting point for the quantication of that
relationship and optimization of loan assortment which is achieved by applying
mathematical and statistical methods among which are emphasized the regression
methods and nonlinear programming.
2. DESIGNINIG THE CORPORATE LOAN MANAGEMENT MODEL
Existing supply of credit banking products to corporate sector should be seen

in terms of achieved nancial results that enable their mutual comparison from a
nancial point of view, from the standpoint of the share of revenue from certain
corporate loan products in the total revenues from sales of these credit products,
and their movement through a certain period. Forecasting revenue growth for particular credit product in relation to the planned increase in volume of sales of the
same credit product involves an analysis of historical revenues patterns in relation
to the volume of sales of credit products, i.e. the amount of loans approved.
The statistical method of regression analysis was used in establishing the relations between credit products revenues and their volumes of sales. The research
included a double logarithmic regression model, which has a further standard form
(Sosic, 2006, p. 427):
= axb
197
(1)
Where,
represents revenues per corporate sector credit products (dependent variable),
x represents the amount of loans approved to corporate sector (independent
variable),
a represents constant and
b is regression coecient.
In double logarithmic regression model independent variable x consist of the
size of loans given to corporate sector, while the dependent variable y refers to the
revenues per corporate sector credit products. Usage of regression analysis resulted
in determination of corresponding relation which represents the starting point for
the projection of trends in corporate credit products revenues depending on the
planned increases in the amount of this loans approved. Representative ability of
the regression model is determined by the coecient of determination, while the
average deviation of empirical value of dependent variable from the regression value
of dependent variable is determined by standard deviation or standard error.
The above calculations allow the prediction with which corporate sector credit
products the bank can achieve the highest revenue and, accordingly, shape business strategy with corporate sector that will result in stronger sales of those credit
products that generate the highest revenues. Assuming the constant expenditures
on the basis of the funds involved, intensication of the sale of these products will
ultimately result in increased prots.
Appropriate management of banking assets, particularly of loan or credit products, includes maximization of total revenues from their sales what appear as the
result of maximization of revenues from individual credit product in the group
concerned. Under conditions of scarce nancial resources, satisfying the demand
for corporate sector credit products includes making appropriate decisions on
funds allocation to those credit products which, along with given costs of raising
funding sources, result in the highest revenues, and thereby indirectly in the highest prots.
The mathematical programming procedure was applied for this purpose. It is
the procedure that deals with the optimization problem in which the optimizer
is faced with certain restrictions. Restrictions in the banking business, in terms of
corporate sector credit products, relates to market restrictions that include limited
198
demand for loans as well as limited funds that are available for sale in form of the
credit products.
Corporate loan management model, as the optimization model, consist of the
double logarithmic regression models, which predict the movement of revenue
from each credit product in the future depending on the planned sale of that credit
product, and the results found in the process of non-linear programming.
Nonlinear programming is applied in the process of loan assortment optimization because the interrelationship of revenues and sales volume of corporate sector
credit products is nonlinear what is shown by selected regression model too.
Nonlinear programming which maximizes the function has the following general form (Chiang, 1994, p. 716):
Maximize
according to conditions
and
= (x1, x2, .., xn)

g1 (x1, x2, .., xn) r1
g2 (x1, x2, .., xn) r2
...
gm (x1, x2, .., xn) rm
Xj 0
(j= 1,2,, n)
(2)
Or in abbreviated form
Maximize
= (x)
(j= 1,2,, n)
according to conditions
gi (x) rm
(3)
and
X 0
Scientically based optimization model provides very useful information base
for making decision about intensifying the sale of certain corporate sector credit
products that will result in maximizing the total revenues according to the following conditions:
Maximum sale of credit products is estimated based on the market conditions
and represents the upper limit constraints;
Bank has total available funds, which are smaller than the market demand and
they should be sold to the customer in the form of credit products that will
maximize the revenues;
Initial state of the loans portfolio is the lower limit constraint.
199
Among the prominent advantages of the model is the fact that it is applicable
to small groups of credit products, and it will provide management with valuable
information when planning and designing the various scenarios in managing the
corporate sector credit products.
3. CORPORATE LOAN MANAGEMENT MODEL APPLICATION
In order to present the usefulness and wide possibilities of its use, the corporate
loan management model was tested on the example of one large bank that is operating in the Croatian banking market. It is important to note that the corporate
sector in the banking business is considered in a broader context and include, along
with private sector, state authorities units and nonprot organizations. Banks accounting information relates to the movements of volumes of sales and revenues
per corporate sector credit products for the period from 2003 till 2007. Table 1
shows the total amount of credit products sold by individual type, while table 2
includes the sales revenues of the same products.
200
Table 1. Total corporate sector credit products sold from 31.12.2003. until 31.12.2007.
Type of product
Total products sale in kunas

31.12. 2003.
31.12.2004.
31.12.2005.
31.12.2006.
31.12.2007.
1.044.098.108
1.225.121.103
1.344.139.258
1.359.775.029
1.139.471.529
Short term loans
20.410.073
42.312.439
46.423.011
47.481.048
54.586.234
Long term loans
1.023.688.035
1.182.808.664
1.297.716.247
1.312.293.982
1.084.885.296
OTHER COMPANIES
6.658.212.917
6.728.168.014
7.381.796.574
7.483.961.400
7.619.849.597
Short term loans
1.487.800.923
1.280.336.395
1.404.718.609
1.422.151.161
1.343.661.011
Long term loans
5.038.649.091
5.324.837.770
5.842.135.500
5.923.136.293
6.144.253.154
Credit lines
131.762.903
122.993.849
134.942.465
138.673.946
131.935.432
NONBANKING FINANCIAL INSTITUTIONS
181.501.168
246.670.350
270.633.900
298.391.228
115.306.007
Short term loans
173.573.096
240.891.525
264.293.672
291.421.783
111.080.863
Long term loans
7.318.605
4.988.745
5.473.392
5.462.585
4.200.728
609.466
790.081
866.835
1.506.861
24.415
STATE AUTHORITIES
892.117.295
1.421.862.022
1.559.993.178
1.815.981.906
1.819.865.840
Short term loans
288.810.162
656.523.116
720.303.072
941.401.837
956.551.247
Long term loans
603.307.133
765.338.906
839.690.106
874.580.068
863.314.593
NONPROFIT
ORGANIZATIONS
19.522.060
23.304.975
25.678.724
27.286.710
27.095.346
Short term loans
3.141.799
2.444.302
2.681.761
2.644.779
967.862
Long term loans
16.027.557
20.458.430
22.555.642
24.195.233
25.728.011
352.704
402.243
441.320
446.697
399.472
PUBLIC COMPANIES
Credit lines
Credit lines
Source: Banks internal nancial statements
201
Table 2. Revenues from corporate sector credit products from 31.12.2003. until 31.12.2007.
Type of product
PUBLIC COMPANIES
2003.
61.617.681
Revenues in kunas
2004.
2005.
2006.
68.947.350
74.178.005
76.348.440
2007.
64.062.377
Short term loans
916.651
1.912.649
2.120.584
2.124.094
2.626.960
Long term loans
60.701.030
67.034.701
72.057.421
74.224.346
61.435.417
407.320.496
428.267.311
462.705.189
470.280.995
478.526.242
Short term loans
96.678.244
89.595.461
94.014.887
94.168.667
92.449.473
Long term loans
300.500.974
329.322.305
358.467.912
365.729.182
375.982.587
10.141.278
9.349.545
10.222.390
10.383.146
10.094.183
NONBANKING FINANCIAL
INSTITUTIONS
7.046.868
9.767.501
10.186.144
10.847.306
5.344.252
Short term loans
6.519.554
9.340.324
9.750.290
10.372.906
5.031.621
Long term loans
487.512
340.888
380.329
378.574
310.634
39.803
86.288
55.525
95.827
1.998
STATE AUTHORITIES
42.643.406
59.136.540
64.837.043
78.779.647
78.693.144
Short term loans
16.253.341
27.560.515
29.750.713
41.712.864
41.991.869
Long term loans
26.390.065
31.576.025
35.086.330
37.066.783
36.701.275
1.333.577
1.437.233
1.603.185
1.696.396
1.731.420
Short term loans
289.626
210.419
221.113
222.902
100.296
Long term loans
1.010.376
1.190.628
1.342.584
1.433.309
1.594.561
33.576
36.186
39.487
40.186
36.563
OTHER COMPANIES
Credit lines
Credit lines
NONPROFIT ORGANIZATIONS
Credit lines
Source: Banks internal nancial statements
The corporate loan management model formation involves two basic stages. In
the rst phase the double logarithmic regression models for each type of banking
credit products are calculated along with appropriate parameters. Double logarithmic regression models are used to estimate the increase in revenues according to the
increase in sales volume for each credit product.
Applying double logarithmic regression models to banks corporate sector credit
products resulted in calculation of the values shown in Table 3. The level of signicance of regression model applied is 1%, which means that the obtained double
202
logarithmic regression models are statistically signicant. The models coecients

of determination range from 0.9306 to 0.9946, which means that from 93.06% to
99.46% of relations, are explained by a double logarithmic regression model.
Table 3 Double logarithmic regression models for corporate sector credit products in the analyzed bank
Regression
models
r2
Adjusted R
square
Standard
error
Short term loans to public

companies
Long term loans to public
companies
Short term loans to other
companies
Long term loans to other
companies
y = 0,0232x1,0388
0,9960
0,99462073
0,00010
0,012884649
y = 2,3076x0,8227
0,9734
0,96447263
0,00186
0,007438407
y = 3454,1x0,4848
0,9840
0,97861622
0,00086
0,001777381
y = 0,0058x1,1046
0,9831
0,97752111
0,00093
0,005958762
Credit lines to other companies
y = 0,5637x0,8928
0,9480
0,93069940
0,00510
0,004663742
Short term loans to nonbanking

nancial institutions
Long term loans to nonbanking
Credit lines to nonbanking nancial institutions
Short term loans to state
authorities
Long term loans to state
authorities
Short term loans to nonprot
organizations
Long term loans to nonprot
organizations
Credit lines to nonprot
organizations
y = 2,3682x0,785
0,9834
0,97789390
0,00091
0,020081689
y = 0,9342x0,8324
0,9878
0,98370744
0,00057
0,009345778
y = 0,1195x0,9642
0,9798
0,97312803
0,00122
0,113857909
y = 3,6613x0,7836
0,9699
0,95986605
0,00223
0,033817472
y = 0,2538x0,9125
0,9851
0,98017438
0,00077
0,008670541
y = 0,9188x0,8405
0,9817
0,97554780
0,00105
0,027103737
y = 0,1846x0,9338
0,9687
0,95830749
0,00236
0,015583176
y = 2,1535x0,7552
0,9800
0,97338706
0,00120
0,00514197
Type of product
Source: Authors calculations according to data from tables 1 and 2
In the second stage, according to the constraints of market demand for any corporate sector credit product, the nonlinear programming process is used in order
203
to generate information about distribution of funds in form of credit products that

maximize total revenue of the corporate loan group. The constraints mentioned
earlier would be taken into account. The upper limit constraint includes the maximum sale for each credit product. This assessment on the maximum sale is made by
banks management according to the market conditions. The following restrictions
apply to the fact that the bank has total funds that are less than the total market
demand and that it should sell credit products to customers in a manner to achieve
maximum revenue. The lower limit constraint in the process of optimization relates
to the balance of the portfolio as at 31.12.2007. The above restrictions and associated regression models are shown in Table 4.
204
Table 4 State of loan products, revenues and corresponding double logarithmic regression models of
corporate sector credit portfolio for the bank analyzed and upper limit market constraint
No.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
Type of product
Short term loans to public

companies
Long term loans to public
companies
Short term loans to other
companies
Long term loans to other
companies
Credit lines to other
companies
Short term loans to nonbanking nancial institutions
Long term loans to nonbanking nancial institutions
Credit lines to nonbanking
Short term loans to state
authorities
Long term loans to state
authorities
Short term loans to nonprot
organizations
Long term loans to nonprot
organizations
Credit lines to nonprot
organizations
Total
Source: Tables 1, 2 and 3
State of the
loans portfolio
on 31.12.2007.
in kunas
Revenues
in 2007 in
kunas
Regression
models
Maximum
increase in the
volume of sale
loans amount
(market limitation) in kunas
Z
54.586.234
2.626.960
y = 0,0232x1,0388
65.044.857
1.084.885.296
61.435.417
y = 2,3076x0,8227
1.250.350.885
1.343.661.011
92.449.473
y = 3454,1x0,4848
1.779.576.264
6.144.253.154
375.982.587
y = 0,0058x1,1046
6.574.350.874
131.935.432
10.094.183
y = 0,5637x0,8928
197.903.148
111.080.863
5.031.621
y = 2,3682x0,785
172.183.505
4.200.728
310.634
y = 0,9342x0,8324
4.578.794
24.415
1.998
y = 0,1195x0,9642
43.948
956.551.247
41.991.869
y = 3,6613x0,7836
1.386.999.308
863.314.593
36.701.275
y = 0,2538x0,9125
1.093.314.593
967.862
100.296
y = 0,9188x0,8405
1.016.256
25.728.011
1.594.561
y = 0,1846x0,9338
28.300.812
399.472
36.563
y = 2,1535x0,7552
479.102
10.721.588.319
628.357.436
12.554.142.346
205
The model application is shown in the example of one large bank that plans
to invest available funds of 778,411,681.00 kunas. The funds will be invested in
the form of corporate sector credit products. In this case, the total credit products
portfolio of the bank would increase to 11.5 million kunas. Terms of nonlinear
programming are as follows:
Maximize:
According to constraints:
Upper limit constraint:
total revenues (Y14)
Lower limit constraint:
X1:X13 initial balance of credit products portfolio as at 31.12.2007.
X1:X13 Z1:Z13
(4)
and
X14 (total balance of credit products portfolio) = 11.500.000 kn.
Where:
X balance of the portfolio by type of corporate sector credit products;
Z market constraint by type of corporate sector credit products.
206
Table 5 Planned portfolios and planned revenues values for corporate sector credit products according to the
model applied
Type of product
State of
the loans
portfolio on
31.12.2007. in
kunas
Planned
portfolio in
kunas
Revenues
in 2007 in
kunas
Planned
revenues in
kunas
Short term loans to public companies
54.586.234
65.044.857
2.626.960
3.032.869
Long term loans to public companies
1.084.885.296
1.250.350.885
61.435.417
70.353.981
Short term loans to other companies
1.343.661.011
1.343.661.011
92.449.473
92.449.473
Long term loans to other companies
6.144.253.154
6.574.350.874
375.982.587
405.721.744
131.935.432
197.903.148
10.094.183
14.391.995
111.080.863
111.080.863
5.031.621
5.031.621
4.200.728
4.578.794
310.634
327.227
24.415
43.948
1.998
3.582
Short term loans to state authorities
956.551.247
956.551.247
41.991.869
41.991.869
Long term loans to state authorities
863.314.593
966.638.202
36.701.275
40.137.006
Short term loans to nonprot organizations
967.862
1.016.256
100.296
102.827
Long term loans to nonprot organizations
25.728.011
28.300.812
1.594.561
1.677.728
399.472
479.102
36.563
41.976
10.721.588.319
11.500.000.000
628.357.436
675.263.898
Credit lines to other companies

Short term loans to nonbanking nancial
institutions
Long term loans to nonbanking nancial
institutions
Credit lines to nonbanking nancial
institutions
Credit lines to nonprot organizations

Total
Source: Authors calculations according to data from table 4
Obtained values shown in the planned portfolio indicate the planned values
that should be achieved in the sale of credit products in order to earn maximum
revenues from the total corporate sector credit products portfolio. Table 5 shows
that three credit banking products remain unchanged, which means that management does not emphasize their placement, while the sale of other products would
be intensied by taking appropriate management activities in order to reach the
207
planned values outlined in the planned portfolio. Furthermore, the table 5 shows
planned revenues for each type of credit product, which allows consideration and
comparison of the status of previous revenues and the planned revenues in relation
to the state of so far realized values by the type of loan and planned balances of
portfolio by type of loan.
Comparing the relative share of loans by type and realized revenues analyst can
get the information on the proportion of each type of loan in the total portfolio
and the share of revenue by types of loan, what, in further step, allows comparison
with the proportions of the planned size of the loans and revenues.
By calculating percentage increase in the planned value of loans in relation to
the realized values of the loans and the planned percentage increase in revenues in
relation to the realized values of revenues, one can analyze the planned increase in
revenues compared to the planned increase in the loans. On the basis of all mentioned, the banks management receives a series of new information that enable
him to successfully manage and control the assortment of corporate sector credit
products.
3. CONCLUSION
Corporate loan management model represents the scientically based developed

managerial instrument that can create high quality basis for planning and managing the assortment of corporate sector credit products in order to optimize the supply of banking products. In order to plan the placement of funds in form of credit
products for corporate sector, presented model provides information for disposing
the planned funds on credit products that are expected to achieve the greatest revenues up to the upper limit of market constraint. In further steps the funds could
be allocated to those products that achieve lower expected revenues and so on until
the whole amount available is not disposed.
By using this model decision maker could get insight into the need to increase
the portfolio of each credit product in order to achieve the maximum total revenues from the corporate sector credit products. The obtained information allows
a comparison between the planned increase in credit products sales and expected
revenues from credit products.
According to this, the analysis of the planned income and planned funds engaged in credit products can be made in order to group the products according to
208
their performance and to improve and optimize the assortment of banking products to corporate sector.
Future research of presented model can be focused on the analysis of banks
credit products by currency, as well as a detailed elaboration within each group of
banking credit products for the corporate sector.
REFERENCES:
1. Ahmed, A. S., Takedab, C., Shawn, T., (1999) Bank loan loss provisions: a reexamination of capital management, earnings management and signalling eects,
Journal of Accounting and Economics, 28, 1., 1-25.
2. Chiang, A. C., (1994) Osnovne metode matematike ekonomije, tree izdanje,
Mate, Zagreb.
3. Chorafas, N. D., (1991) Obiettivo protto-dal controllo dei costi al pricing
nellimpresa banca, Edibank-Iceb srl., Milano.
4. Cobb, I., Helliar, C., Innes, J., (1995) Management accounting change in a bank
Management Accounting Research, 6,2., 155-175.
5. Cox, D., Cox, M., (2006) The Mathematic of Banking and Finance, John Wiley
& Sons Ltd, Chichester.
6. Hefernan, S., (2005) Modern banking, John Wiley & Sons Ltd, Chichester.
7. Helliar, C., Cobb, I., Innes, J., (2002) A longitudinal case study of protability
reporting in a bank, The British Accounting Review, 34, 1., 27-53.
8. Lapin, L. L., (1987) Statistic for Modern Business Decision, Fourth Edition,
HBJ, Orlando.
9. Matthews, K., Thomposon, J., (2005) The Economics of Banking, John Wiley
& Sons Ltd, Chichester.
10. Naughton, T., Chan, L.S., (1998) Strategic dimensions of correspondent banking, International Journal of Bank Marketing, 16, 4., 153-160.
11. Nellis, J. G., McCaery, K. M., Hutchinson, R.W., (2000) Strategic challenges
for the European banking industry in the new millennium, International Journal of Bank Marketing, 18, 2., 53-64.
209
12. Ramesh, K., Revsine, L., (2000) The eects of regulatory and contracting costs
on banks choice of accounting method for other postretirement employee benets, Journal of Accounting and Economics, 30, 2., 159-186.
13. Sinkey, J. F., (2001) Commercial Bank Financial Management in The Financial-services Industry, Sixth Edition, Prentice-Hall, New Jersey.
14. oi, I., (2006) Primjenjena statistika, drugo izmjenjeno izdanje, kolska knjiga, Zagreb.
210
Svetlana Petrovi
GLOBALIZATION OF THE CROATIAN OIL INDUSTRY

Svetlana Petrovi, univ. spec. oecc.
ABSTRACT
Over the past years oil companies from Central European countries have gone
through a dicult market transformation process. They are mainly privatized, have
mostly reconstructed and modernised their production and market capacities and
have reorganised their businesses. By entering into mutual alliances, they try to defend the position in their respective domestic markets from take-overs from the east
and west alike, and through strategic alliances such companies also strengthen their
own competitive position in neighbouring markets in South Eastern and Eastern
Europe.
By its character and far-reaching consequences privatization of INA has been
one of major strategic decisions of the Croatian society. This has been the most
important decision since the incorporation of INA. Final success of this process
depends on global trends in the energy market, success of transition processes in
Croatia and neighbouring countries. Croatia could not have avoided cooperation
with the closest neighbours with which we share physical and territorial continuity.
INA has adopted a strategy characteristic for small size integrated companies and
must follow global trends; it has got a strategic partner and continues with technological development.
INA privatization concept has been dened to meet criteria imposed by the
globalization process, or its European derivative market liberalization.
JEL clasication: L24, L71
Keywords: globalization, privatization, market liberalization, INA, MOL.
1. INTRODUCTION
Modern world can be viewed as a world of capitalism, characterised by market unication, but at the same time dierent from society to society depending
211
on cultural particularities. However, the power of market and economic interests

gradually makes cultural patterns and life values uniform across the world.
Global is the most frequently used word when referring to the capitalism of the
last quarter of the twentieth century. Global capitalism is present in the form of
globalization promoted through the ideology of neoliberalism as something which
has no alternative in the modern world. Opinions about globalization vary, but
they all agree on one point it is a world process with economic and political interests of the most powerful countries in its centre.
According to many contemporary authors globalization is:
Spread of modern technologies, industrial production and all types of communication around the world,
Global networked economy, worldwide economic integration,
The process of growing interdependence and connectedness of the worldwide
economic activity
Globalization strengthens and develops multinational corporations having a
role of a kind of invisible government which replaces the functions of national
states. Modern global companies have developed and adjusted to political and other changes. Despite dierences and changes in political systems, which have culminated in the modern system of political democracy, globalization and unication
motives have persisted. The globalization process brings about the transfer of prot
and resources for development, or wealth redistribution.
Corporation, as a form for organizing economic activity and market dispersion
of capital has facilitated minimization of the investors initial risk of investment,
and has provided pre-conditions for the capital to take on its global market, nancial, and development and technological role. The corporation has enabled merging
private ownership of capital which provides initial capital for starting a business,
and social control of private and public ownership. Corporation has provided a
frame for private entrepreneurship to develop its initiative and innovation, ensuring at the same time relatively tight control of the lawful state over the corporation
along with respect for public interest.
Oil corporations have traditionally fostered global approach, systematic business organization and pre-set corporative behaviour, as a regular form of business
strategy and policy. In the era of electronics, computers and Internet, they have had
to adapt to faster decision making and business decision implementation.
212
Svetlana Petrovi
Multinational companies are real creators of globalization. Oil companies have

been among the rst ones to become multinational in terms of their business operations and manner of organization. The reason for such change was the fact that
energy, or oil sources did not coincide with the places of major consumption of
oil products. First modern corporations were established and started their development in the second half of the 19th century. The rst corporation with typical
features of a systematic organization was an oil company- Standard Oil. Nowadays,
a century and a half after the rst oil companies were established, the group of
leading integrated oil corporations has again been revived. Today this group of
top major oil companies comprises: Exxon Mobil, Shell, BP, and Chevron Texaco.
Many countries have based the strength of their economies on the businesses of
multinational companies. This applies to super forces such as the USA or Japan,
and also to medium sized and small countries such as Switzerland and Denmark.
Developing countries, Taiwan, South Korea, Malaysia and others have accelerated
their development with the help of multinational companies opening the access to
technological knowledge, organization and world market accessibility, because a
national governments capability is often not enough to ensure access to technologies, raw materials, energy and market sources.
The key goal of multinational corporations is maximization of global prot. The
central strategy of global corporations is creation of the world economic climate
which will ensure stability, growth and high prots for such a company.
Due to the fact that the areas of oil and oil derivatives consumption mostly
did not coincide with the main areas of production, since the beginning of the
20th century oil companies have overcome border restrictions and have grown into
companies with global proles. This was the time of the foundation of major oil
companies, establishment of global structures, acquisition of market shares and the
setting of new performance criteria.
The fact is that fossil fuels (oil, gas, coal) cover 80% of the world primary energy
demand. According to projections, until 2050 the world population will reach 11
billion, and, today already, more than two billion people do not have access to
modern forms of energy. Recent estimates show that until 2030 primary energy
demand will increase by 55%. The highest increase by as much as 80% is expected in the so called BRIC countries comprising Brazil, Russia, India and China.
213
Oil products consumption will continue to grow particularly due to the rise in
the number of vehicles, from 900 million today to over two billion, mostly in Asian
countries. Until 2030 global natural gas demand will increase by 43%.
Considering the above, general tendencies in the eld of energy security are
clear: diversication of supply routes and energy sources, greater security of pipeline oil and gas transportation and securing of sea straits for ensuring safe transport
of oil and LPG.
All indicators show that in the rst half of our century oil and gas will keep
their top energy role involving all economic, development, military, strategic, and
security consequences which will be more adverse for those having scarcer energy
sources, or those not ready for urgent changes in their national strategic plans of
this worlds dominant industry.
General features of the world oil and gas market are: sharp increase in oil and gas
demand, price growth, increasingly dicult access to oil and gas exploration licenses, growing costs of hydrocarbon reserve replacement, lack of renery capacity.
In the globalized economy, oil industry is at the forefront in business rationalization processes which enable survival in the marketplace. Opening of markets,
including also energy ones, facilitates faster growth, and the growth then enables
cost reduction by leveraging the economy of scale. Small size companies from small
countries adjust to these basic rules of the global market or gradually lose their
positions.
2. GLOBALIZATION AND INA D.D. AS ECONOMIC ENTITY
Croatia is a crude oil and natural gas importer, but considering its own reserves,
is to a lesser extent dependant on the import of these raw materials than the other
South Eastern European countries. Croatia belongs to small European countries,
and it is logical that in global terms INA Oil Company is among comparatively
smaller oil companies. A particularity of INAs business strategy is that its market
had previously been tied to the area of the former Yugoslavia, then for ten years it
was primarily operating on the domestic market, and is now under changed circumstances re-entering the markets of neighbouring countries, which once comprised its domestic market.
Business strategy of a small oil company must follow global trends, particularly
in the technology development. Otherwise, such companies lag behind, lose export
214
Svetlana Petrovi
capability, and later domestic market share, and sooner or later fall prey to takeovers, as larger and stronger neighbours eventually acquire such company that lags
behind, acquiring primarily its market.
INA-Industrija nafte d.d. is the largest and the most important Croatian enterprise. INA d.d. s participation in the overall Croatias energy production is 65%,
and, therefore, the company is rightly billed as the backbone of the Croatias energy system. INA d.d. does business with a number of international oil and gas
companies, participates in oil and gas exploration operations, provides services in
exploration and development, participates in the renery upgrade, and nally sells
a rang of more than 700 own products. INAs business strategy is characterised
by the careful adjustment to the inuences of the global oil market, entering the
globalized oil market through international oil and gas exploration and production
projects, and defence of the leading role in the rening and sales of oil products on
the domestic market.
Core activities of the company are oil and gas exploration and production in
Croatia and abroad, rening and wholesale and retail sale with 433 sales points in
Croatia and 49 in the region.
For a number of years INA d.d. has been the top Croatian company in terms
of total generated income, and export. INA d.d. parent company and INA Group
employ a total of 10,290 and 16,114 people respectively.
The basis of INA d.d. business operation1 is a focused oil and gas exploration
and production portfolio, reneries which are strategically positioned in attractive
markets, rst-rate retail network, good nancial results, an experienced strategic
partner MOL.
Idem
215
Table 1 Financial results of INA Group for 2007/2008
Source: INA, www.ina.hr (Accessed 01.03.2010.)
Domestic and Russian gas cover 60% and 40% of Croatias gas consumption
respectively. In addition to other consumers, around 600 households use natural
gas. INA reneries process and rene around 700 thousand tons of domestic oil,
which covers approximately 20% of the demand, the rest is imported oil.
INA d.d. competitors are large petrochemical companies which are present in
the entire South Eastern Europe including MOL, OMV, Lukoil and Hellenic petroleum. Regional players INA, d.d. Group, NIS and Petrol generally hold major
position in rening and sales in the domestic market, and to a lesser extent in
foreign markets. Major international oil players do not have signicant position in
the said region.
216
Svetlana Petrovi
Table 2 Financial results of regional companies for the rst three quarters of 2009
Source: Data taken from nancial statements of the companies
3. STRATEGIC INAMOL PARTNERSHIP AND FUTURE COMMITMENT
At the beginning of 1990s most Central European countries had national oil
companies which were state-owned. During the wave of the oil industry privatization and reconstruction which was taking place in the circumstances characterised
by low oil prices in the middle and at the end of 1990s, most Central European oil
and gas companies were privatized until the beginning of the 21st century. Companies privatized until 2002 include: Austrian OMV, Polish Orlen, Czech Unipetrol,
Slovakian Slovnaft, Hungarian MOL and Slovenian Petrol. Each of the mentioned
companies is the leader in its respective domestic market, although other companies
also operate on each of these markets. Thus, each of the Central European countries
can be said to have a relatively privatised and regulated oil products market. 2
Therefore, in its production structure, INA is the most similar to an integrated
oil company, with strong upstream segment, oil reneries producing a range of oil
Central and Eastern European Rening and Petrochemical 5th Annual Roundtable- Proceedings,
World Rening Association INA- Industrija nafte, Zagreb, 1-2 October 2002.
217
products and lubricants, and the petrol station network. According to its size and
the scope of operations it is a medium sized integrated oil company.
Main route for supplying oil to most Central European countries is import
from Russia, except for Austria, Slovenia and Croatia, which all meet their import
needs on the Mediterranean market with oil mostly coming from the Middle East
(Dekani et. al., 2003, 470).
Oil companies from Central and East European countries are spreading their inuence, either by participation in the privatization process in neighbouring countries or by entering into formal or non-formal strategic alliances. This shows further
determinants and energy market privatization. In such a privatization governments
typically retain a signicant ownership with the so called golden share, by which
they ensure decisive inuence of the government in preventing full take over of
the national oil company and avoid a loss of identity. In addition, the companies
carry out business restructuring accompanied by cost reduction, business quality
improvement and technology development, particularly in the rening segment.
Central European oil companies announce their penetration into the markets of
South Eastern and Eastern European countries (Bosnia and Herzegovina, Serbia,
Montenegro, Ukraine, Bulgaria). By strategic partnership and alliances the companies try to defend their respective domestic market from the expansion of major
players from the east and west alike. In the wave of economic development they
have managed to basically reconstruct their businesses and prepare for further expansion which is expected in the future.
Central European region does not have any signicant energy reserves, or potential resources, and oil companies are primarily focused on rening and marketing. INA is a company which has strong capacity in oil and gas production, and is
increasingly oriented towards exploration in other parts of the world.
INA was 100% owned by the Republic of Croatia which proposed the model
of privatization with strategic partnership. The privatization rules included the obligation of the partner regarding acceptance of INA business strategy, instead of
any voluntary and unannounced business decisions of the strategic partner after
the purchase of shares. The strategic partner had to accept allocation of funds to
investment projects of vital importance for development of INA. The main precondition for carrying out privatization was determination of INAs asset value. For
this purpose at the beginning of 2001 a consulting consortium was retained for the
value assessment and privatization model recommendation. During June 2001 in
218
Svetlana Petrovi
Croatian mass media it was published that according to the foreign consultants
assessment the value of INA increased by hundreds of millions of USD in the period between 2000 and 2002. The reasons for such value increase were favourable
country credibility with eects on risk and interest reduction, rise in oil prices,
elimination of oil products price disparity and successful business restructuring,
and cost reduction along with income growth. INA entered the year of privatization with such favourable results. INA share capital was divided into 10,000,000
ordinary shares (nominal value of one share was HRK 900.00).
When on 10 July 2003 public oers were opened at the Ministry of the Economy it was a surprise: for 25 per cent plus 1 share stake OMV and MOL oered
420 million and as much as 505 million dollars respectively. Moreover, they both
stated that they accept the so called Social Clause stipulating that in the following
three years there will be no ring in INA, and furthermore that they accept the
survival of both INA reneries and strategic plan of development envisaging a billion dollar investment in the development of core businesses of INA. By acquiring
25% plus one share MOL became INAs strategic partner, and INA become a part
of an integrated regional partnership in the oil and gas industry, which consists
of MOL, INA, Slovnaft and TVK. October 2008 was deadline of MOLs public
oering to take over INA. By the payment of cash to shareholders and transfer of
shares deposited during the public oering MOL has increased its ownership stake
to 47.16%.
MOL-INA strategic partnership has a unique position in the Central European
oil market, with leading market shares in Croatia, Hungary, Slovakia, but also in
Bosnia and Herzegovina and the Czech Republic, and is strategically positioned
for further development in the entire Central Europe. MOL, INA and Slovnaft
aggregately have rening capacity of 450,000 bbl / day and more than 1,200 petrol
stations in nine countries.
MOL helps INA with advice from a company which has undergone transformation from a state owned company into an eective, market oriented and competitive company. Coordination of market activities, exchange of know-how, and
implementation of joint projects will help INA and MOL Groups potential growth
in the region.
219
3.1. Joint projects:
Support to the Renery Modernization Programme

Strategic partners have launched an extensive project for modernization of INAs
Sisak and Rijeka reneries. This 900 million dollar worth development project will
facilitate implementation of the state-of-the-art technology according to standards
applied in the Slovnaft and MOL reneries. After the Sisak and Rijeka reneries
modernization, the quality of products will conform to the highest European standards. This project, which should ensure INAs place among the technically most
advanced reners in the region, comprises renery capacity expansion and reaching
EURO V quality standard. MOLs experiences gained through the modernization
of own reneries are a valuable contribution to INA in implementation of the programme for the modernization of its two reneries.
Development of the regional retail network
Mutual acceptance of fuel payment cards which can be used on INA and MOL
petrol stations. The partners have designed a marketing strategy for the entire South
Eastern Europe region which includes the overview of the regional retail status.
Integrated SAP system
In 2007 INA stabilised the SAP system and improved process and organizational pre-conditions for more quality SAP support, also relying on MOLs previous
experience regarding the implementation of an integrated SAP system.
By the SAP system implementation INA, d.d. has become stronger and more
successful in terms of knowledge and capabilities. In the last four years it has signicantly increased its goodwill, and has become more competitive and more competent for the ght with other regional players.
Other areas of cooperation
INA and MOL are jointly considering possibilities for future cooperation in
international projects in the eld of oil and gas exploration. Cooperation of the
two companies has lead to the joining of human and nancial resources which then
results in improved eectiveness. In exploration and production activities MOL
supports the use of INAs expertise accumulated on domestic and international
upstream projects.
220
Svetlana Petrovi
4. CONCLUSION
In the volatile oil market, in tough competition with oil giants which are still the
leaders of global industrialization, and in the climate of general geopolitical insecurity, small and medium sized oil companies must implement carefully considered
business strategy. Under such circumstances eectiveness, constant struggle to cut
costs and careful choice of strategic partnerships and regional market appearance
become survival imperative.
By its character and far-reaching consequences privatization of INA has been
one of major strategic decisions of the Croatian society. This has been the most
important decision since the incorporation of INA. Final success of this process
depends on global trends in the energy market, success of transition processes in
Croatia and neighbouring countries. Croatia could not have avoided cooperation
with the closest neighbours with which we share physical and territorial continuity,
and possibility for strategic alliances, strategic partnerships and consequently the
possibility of the model of joint business operation at an economic optimum in the
globalised environment in which the economy of scale has revised some historical
paradigms about the importance of national borders. The so called liberalization
process is not a breeze, but a hurricane of quick changes which in countries in transition hits the entire energy market (Dekani et al., 2003, 494).
INA has adopted a strategy characteristic for small size integrated companies
and must follow global trends; it has got a strategic partner and continues with
technological development. Otherwise, such companies lose their export capability
and then also domestic market share, and sooner or later they fall prey in takeovers, because a larger and more competent neighbour sooner or later acquires a
company which lags behind, taking over primarily its market.
Over the past years oil companies from Central European countries have gone
through a dicult market transformation process. They are mainly privatized, have
mostly reconstructed and modernised their production and market capacities and
have reorganised their businesses. By entering into mutual alliances, they try to defend the position in their respective domestic markets from take-overs from the east
and west alike, and through strategic alliances such companies also strengthen their
own competitive position in neighbouring markets in South Eastern and Eastern
Europe. INA privatization concept has been dened to meet criteria imposed by
the globalization process, or its European derivative market liberalisation. How-
221
ever, how to fully use such processes to the benet of the company and the country
is still an open issue.
Privatization of energy companies is closely connected with the energy market
deregulation. Energy market deregulation and privatization of energy companies
represent two segments of a unitary energy market regulation system which had
carefully been developed in the European Union for many years now. Its acceptance and integration in the national economy, is perhaps the most sensitive part of
the transition process and preparation for joining the European Union.
REFERENCES:
1. Dekani, I.; Karasalihovi, D.; Kolundi, S. (2003), Stoljee nafte - veza izmeu
nafte novca i moi koja je promijenila svijet, Zagreb, Naklada Zadro
2. Mommer, B. (2000), The governance of Enternational oil, the changing roles of
the Gama, Oxfor Institute for Energy studies.
3. Fawcett, Brian (2005), Gdje je McLuhan pogrijeio u vezi s globalnim selom i
to nije predvidio, Europski glasnik, God. 10 (2005.), br. 10, str. 159-170.
4. Hill, C.W.L. (2003), Global Business Today, New York, McGraw Hill/Irwin
5. Puljiz, V. (1998) Globalizacija i socijalna drava, Zagreb, Revija za socijalnu
politiku.
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MODELLING OF AN NAUTICAL
TOURIST PORTS BUSINESS SYSTEM (NTBS)
Ljubo ula, dipl.ing.
ABSTRACT
Simulation modelling of a nautical and tourist port NTBS (Nautical Tourist

Business System) in relation to investments in sports objects will result in an increase of the quality of the total oer and an increase of competitive forces of the
observed system. The system of nautical and tourist ports NTBS has all the characteristics of a complex organisation and business system, for which dynamic modelling ecient methods of simulation techniques have to be used.
In this paper, the NTBS will be determined through a global model of integral
nautical and tourist service (from berthing service as a basic service to all other additional services). The subsystem of investments in new capacities, like sports and
additional capacities will be determined by exogenous variable VINK value of
investments in new capacities.
Keywords: Simulation modelling, business system of nautical and tourist
ports, investments in sports objects, competitive advantages,, sports and recreation
market.
SYSTEM DYNAMICS QUALITY SIMULATION MODELS OF A NAUTICAL TOURIST
BUSINESS SYSTEM
The subsystem of investment in sports objects of a business system of a nautical and tourist port must have the characteristics of intelligent behaviour, which
implies the following characteristics of managing behaviour: If the capacity of
NTBS is full and if in the last several years the income per guest has not increased,
it is necessary, in the next mid-term period, to invest in new facilities which will
improve the quality of the total services of NTBS.
MODELLING OF AN NAUTICAL TOURIST PORTS BUSINESS SYSTEM (NTBS)
223
In this case it is planned to build at least 4 outdoor and two indoor tennis courts,
one beach volleyball court and one swimming pool of 50m2, including facilities like
dressing rooms, sauna, showers, massage and medical assistance, etc.). In case there
is a decline of interest in the main NTBS services, berthing, then it is necessary to
stop the construction of new capacities. This implies that the started objects will be
nished, while the others will be built after the demand increases again. Also, if the
state of the cash-ow account of NTBS is not positive or there are not sucient
means to cover the investment, it is necessary to ensure the mid-term and long term
loans in order to complete the investment.
In order to determine the global system dynamics simulation model of NTBS,
it is necessary to determine the following relevant subsystems: subsystem of berthing capacity (the main nautical and tourist service); subsystem of servicing vessels; subsystem of capacities of additional services (trade and catering); information
subsystem; subsystem of the state of cash-ow; subsystem of credits for performed
services; subsystem of debts; subsystem of income; subsystem of marketing and
sales; subsystem of long term and short term loans; subsystem of engagement of
total capacities; subsystem of the new sport capacities and their facilities.
Simulation of NTBS begins on the rst day of April of the observed business
year (TIME=120 days). The rst season nishes at the beginning of October of
the same year (TIME=300 days). The next period of o-season business begins
in October of the same year (TIME=300 days) and lasts to the beginning of the
new season (TIME=485 days). The new tourist season begins on the 485th day
(TIME=485 day) and lasts to October of the next business year (TIME=665
days). New o-season business begins on the 665th day and ends on the 850th day
(TIME=850 days).
Investing into new capacities begins on the 380th day (TIME=380) and lasts
on average 180 days, which means that it ends on the 560th day of business, and
the rst positive eects of the investment (variable KPNI), or increase of the total
income (UP), total operating costs (UTP), generator of the vessel arrivals (GDP)
and average realised revenues per vessel per day (POPPD) stars in time TIME=406
days.
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Ljubo ula
MENTAL, VERBAL AND STRUCTURAL SYSTEM-DYNAMICS SIMULATION MODEL

OF NTBS BUSINESS SYSTEM
In accordance with system dynamics simulation quality methodology, it is possible to
present the mental and verbal model of LNT in the following way: If the variable generator of the
vessel arrival GDP increases, the number of vessel registration a day BPPD will also increase, which
shows a positive (+) cause-eect connection UPV, i.e., as abbreviated:
GDP(+)(+)BPPD.
If the number of vessel registration a day BPPD increases, the total number of
registered vessels UBPP will also increase, which shows a positive (+) cause-eect
connection UPV, i.e., as abbreviated: BPPD(+) (+)UBPP.
If the total number of registered vessels UBPP increases, the number of vessel checkouts a day BOPD will also increase, which shows a positive (+) UPV., i.e., as abbreviated: UBPP(+) (+)BOPD.
"If the number of vessel checkouts a day BOPD increases, the total number of
registered vessels UBPP will decrease, which shows a negative (-) UPV, i.e., as abbreviated: BOPD(+) (-) UBPP.
"If the average staying time of vessels PVZP increases, then the number of vessel
checkouts a day BOPD decreases, which shows a negative (-) UPV, i.e., as abbreviated: PVZP(+)(-) BOPD.
(-) FBL1: The variables UBPP and BOPD create the so called negative (-) retroactive circle, or self-governing (-) KPD1, i.e., as abbreviated: UBPP(+) (+)
BOPD(+)(-) UBPP.
"If the number of vessel checkouts a day BOPD increases, the total value of the
issued invoices UVIR will also increase, which shows a positive (+) cause-eect connection UPV, i.e., as abbreviated: BOPD(+)(+)UVIR.
"If the average time of stay of vessels PVZP increases, the number of vessel checkouts
a day BOPD will be decreased, which shows a negative (-) UPV, i.e., as abbreviated:
PVZP(+) (-)BOPD.
"If the average realised revenue per vessel per day POPPD increases, the value of the
issued invoices a day VIRD will also increase, which shows a positive (+) UPV, i.e.,
as abbreviated: POPPD(+)(+)VIRD.
225
"If the value of the issued invoices a day VIRD increases, the total value of the
issued invoices UVIR will also increase, which shows a positive (+) cause-eect connection UPV, i.e., as abbreviated: VIRD(+)(+)UVIR.
"If the total value of the issued invoices UVIR increases, the value of the collected
debts a day VNPD will also increase, which shows a positive (+) cause-eect connection UPV: UVIR(+) (+)VNPD.
If the average time of collecting debts PVNP increases, the value of collected debts
a day VNPD will decrease, which shows a negative
(-) cause - eect connection UPV. PVNP(+)
(-) VNPD..
"If the value of collected debts a day VNPD increases, the total value of issued
invoices UVIR will decrease, which shows the negative (-) UPV. VNPD(+)(-)
UVIR.
The remaining FBL are shown in short form as follows:
(-) FBL2: The variables VNPD and UVIR create the so called negative (-) retroactive circle, or self-governing (-) FBL2, i.e., as abbreviated:
UVIR(+)VNPD(+)(-)UVIR.
(-) FBL3: The variables SUSZR and VISZRD create the so called negative (-)
retroactive circle, or self-governing (-) FBL3,, SUSZRD(+)VISZRD(+)(-)
SUSZRD.
(-) FBL4: The variables VUD and VIOPD create the so called negative (-) retroactive circle, or self - governing FBL4, VUD(+) VIOPD(+)(-)VUD.
The value of investment into new capacities VINK will be determined:
VINK.KL=DELAY3(PULSE(500000,1,380,1000),180)+DELAY3
(2000000, 1, 400, 1000),180)
(PULSE
Remark: The rst item of the equation VINK.KL (500,000 EUR) denotes the
total investment of the marina during the construction period of 180 days (its own
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Ljubo ula
nancial means and bank loan as the outer nances); the other item of the equation
denotes the possible investment in total of 2 million US$ of the foreign partner
investors, and it will not have a negative eect (increase of costs) to nancial state
of the giro account, but the new investor will ensure the return on investment by
an agreed share in the prot.
The investment eect will reect for the rst time in the realisation of the increased revenues in the following season.
Positive eects of the investment will reect in the variable KPNI coecient of
the increase of new investments:
KPNI.K=TABHL(KPNIT,VINK.KL,500,^2500,500)
KPNIT=1,1.2,1.5,1.8,1.9
The variable KPNI denotes an increase of revenues in the future period (after
completing the investment and the beginning of work of the completed new capacities). The symbol KPNIT denotes the tabular amplitudes of a relative factor of
increase of new investments to the growth of total revenues, costs, average costs per
vessel and the generator of vessel arriving.
The state of the total assets in the giro account SUSZR, will be determined:
SUSZR.K=SUSZR.J+DT(VUSZRD.JK-^ VISZRD.JK),
Remark: If the state of the total assets in the giro account is higher than zero,
then the marina is solvent, and if it is zero or less than zero, then it is nancially
insolvent and in order to be capable to pay its liabilities it has to ensure cash assets
on the basis of loans (mid-term or short term loans).
SYSTEM DYNAMICS STRUCTURAL FLOW DIAGRAM OF THE NTBS
In accordance to the completed mental and verbal simulation model of investing into sports and other objects in the NTBS business system, it is possible to
determine the system dynamics simulation ow diagram of NTBS.
GDP
vessel arrival
generator
UBPP
total number of registered
vessels
VUSZRD
value of paid
assets to the
transfer account a
day
SUSZR
total assets on the
transfer account
VIRD
the value of
issued invoices
a day
(-) FBL1
BOPD
number of vessel
checkouts a day
BPPD
number of vessel
registrations a day
PVZP
average time of
the stay of the
vessels
UTP +
total operating
costs
+
_
VDOPD
the value of liabilities a
day
+
VISZRD
the value of the paid
assets from a transfer
account a day
(-) FBL2
VNPD
the value of
collected debts a
day
VUD
the value of total
liabilities
UOPD
average realised
revenue of the
marina a day
(-) FBL4
VIOPD
the value of paid
liabilities a day
UVIR
total value of issued
invoices a day
PTPD
average costs
per vessel a day
(-) FBL3
POPPD
average realised
revenue per
vessel a day
_
INCOME
+
_
PVNP
average time of
collecting debts
PVIOP
average time of
paid liabilities
Figure 1: System Dynamics structural model of NTBS

THE RESULTS OF SIMULATIONS OF 0/1-SCENARIO OF NTBS RELATING TO
INVESTING INTO NEW SPORTS OBJECTS
Graphic results of the simulation following variables:

SUSZR= state of total assets of the cash ow;
UVIR= total value of issued invoices;
UBPP= total number of registered vessels
UOPD= average realised revenue of the marina per day;
UTP Total operating costs
INCOME Income of NTBS (euro /year)
VUD The value of total liabilities
VINK The value of investments into new capacities
BOPD Number of vessel checkouts a day
VIRD The value of issued invoices a day
VUSZRD The value of paid assets to the cash ow day
227
228
Ljubo ula
UBPP
B
O
P
D
B
P
P
D
GDP
PVZP
UBV
UVIR
UTP
V
I
R
D
PTPD
V
N
P
D
PVNP
POPPD
DOHODAK
SUSZR
V
D
O
P
D
U
O
P
D
V
U
S
Z
R
D
V
I
S
Z
R
D
VUD
D3
V
I
O
P
D
VINK
PULSE
PVIOP
180
KPNI
Figure 2: SD Structural ow diagram of the NTBS

The following gures show the state of the variable depending on the input variable GDB (generator of vessel arrival). For scenario 0 input variable is: GDP.K=STEP(100,100), a scenario 1 input variable is GDP.K=STEP
(100,100)*PULSE(8,1,120,2)*(2-NOISE()).
Comments
Analysing the obtained graphic results of the simulation of 0 scenarios it is

possible to notice that performance dynamics of variables is in accordance with
economic regularity of the
Figure 3: Graphic presentation of the simulation of 0 scenario variables SUSZR, UVIR and UBPP
229
Figure 4: Graphic presentation of the of 0 scenario - variables UOPD, INCOME and UTP
100.e3
280.
210.e3
SUSZR.ANTELI1X(-200.e3,100.e3)
UBPP.ANTELI1X(0.,280.)
ANTELI1a
UVIR.ANTELI1X(0.,210.e3)
25.e3
210.
157.5e3
-50.e3
140.
105.e3
-125.e3
70.
52.5e3
-200.e3
0. 120 160 200 240 280 320 360 400 440 480 520 560 600 640 680 720 760
0.
TIME
100.e3
280.
210.e3
SUSZR.ANTELI1X(-200.e3,100.e3)
UBPP.ANTELI1X(0.,280.)
ANTELI1a
820
UVIR.ANTELI1X(0.,210.e3)
25.e3
210.
157.5e3
-50.e3
140.
105.e3
-125.e3
70.
52.5e3
-200.e3
0. 120 160 200 240 280 320 360 400 440 480 520 560 600 640 680 720 760
0.
TIME
820
230
Ljubo ula
Figure 5: Graphic presentation of the of 0 scenario variables BOPD, VIRD, VPD, VUSZRD, VDOPD and VINK
Figure 6: Graphic presentation of the simulation of 1 scenario variables SUSZR, UVIR and UBPP
Figure 7: Graphic presentation of the of 1 scenario - variables UOPD, INCOME and UTP
231
Figure 8: Graphic presentation of the of 1 scenario variables BOPD, VIRD, VNPD, VUSZRD, VDOPD and VINK
NTBS as a unit within its surroundings.
The total number of registered vessels UBPP, will in the rst tourist season
realise a maximum of 285 vessels, while in the following season, due to the gradual
nishing of the investments into new capacities, or sport and other objects, the
interest of the nautical tourists will increase, which will result in the increase of the
total number of vessels, and thus the highest number of registered vessels, in total of
292 a day TIME=530. The characteristic of the number of vessels is stochastic.
The total realised income per day UOPD, in the rst tourist season will reach
its maximum of about 641 EUR per day, while in the following tourist season, due
to greater oer of sports facilities, the income of 6,749 EUR a day (TIME=555
day) will be realised.
In the rst tourist season, or the period of TIME=120 day to TIME=304 day,
the income of the marina has a negative value (loss) with the greatest loss of 0.33
EUR a day TIME= 240, after which it becomes positive on the day TIME=304 to
the new tourist season on the day TIME=486, and reaches its highest amount of
78,860 EUR a day on the day TIME=392. In the period of the following tourist
season TIME=486, the income is negative, and it has the highest loss in the amount
of -2,000 EUR a day on the day TIME=530. This loss will gradually decrease, and
it will become positive again on the day TIME=542, and by the end of the second
tourist season will remain positive, reaching its maximum value of 309,500 EUR a
day on the day TIME=790.
In the rst tourist season the total operating costs UTP are in their highest
amount of 5,100 EUR a day on the day TIME=184, and have stochastic character.
In the rst o-season period UTP from the day TIME=302to the day TIME=485
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they have their constant o-season value of 100 EUR a day, and cover all operating
costs of the marina out of the season. In the second tourist season which starts on
the day TIME=485, the costs grow to their maximum of 4,279 EUR on the day
TIME= 492. In the second o-season period the costs have again the value of 100
EUR a day.
The state of the total assets in the giro SUSZR in the rst part of the tourist
season to the day TIME=195 have a negative value, with the maximum shortage of
cash money of 2,902 EUR on the day TIME=156. Thus, from the day TIME=170
SUSZR becomes positive, realising the highest amount of assets of 86,050 EUR on
the day TIME=364 and retaining that value for several days. Before the beginning
of the new, second season on the day TIME=417 SUSSZR again becomes negative,
because of new investments, and reaches its maximum of 2,118E3 EUR on the day
TIME=519, after which it becomes positive again on the day TIME=631 the end
of the simulation period.
The work was given second scenario in which we increase the number of vessels
in the marina. The results of simulations are shown in pictures 6, 7, and 8. With the
increase of vessels in a marine, the value of observed variables will increase.
The total realised income a day UOPD, in the rst tourist season will reach
its maximum of about 758 EUR a day, and by the end of the second tourist season
will remain positive, reaching its maximum value of 22,520 EUR.
The income of the marina has a negative value in beginning of scenario 1 (from
TIME=120 to TIME=226), after that has positive values to end of scenario 1 and
reaches its highest amount of 1,271E3 EUR a day on the day TIME=810.
In the rst and second tourist season the total operating costs UTP has stochastic character, and rst tourist season the total operating costs UTP are in their
highest amount of 86,580 EUR a day. The second tourist seasons highest amount
of 183,600 EUR a day.
The state of the total assets in the giro SUSZR in the rst part of the tourist
season to the day TIME=158 have a negative value, with the maximum shortage of
cash money of 20,790 EUR a day. After that it has positive value to end of the rst
tourist season. In the second tourist season SUSZR has a negative value.
On the basis of the comments of the results of NTBS, and in view of the two
observed tourist seasons and the considerable investment with the aim of improving business as a whole, it may be concluded that the observed NTBS business
233
system for such a scenario 0 and scenario 1 of the observed development period is
stable and it gives positive nancial results (revenues, income, solvency etc.) and
total positive results in the observed period.
CONCLUSIONS
On the basis of the system dynamics research of the performance of the complex
business system NTBS, with the aid of a fast digital computer on which the performance simulation was done, it is possible to bring forward a number of relevant
conclusions:
1. A direct application of system dynamics simulation complex models in the
eld of scientic research of performance of nonlinear management systems has
full rationalization, because it ensures to the model constructor an extremely suitable software medium which may be determined as intelligent models of the second generation, if the rst generation refers to present expert systems.
2. System dynamics and its eciency of intelligent modelling of a business system may be considered as a logic order of development of intelligent systems in the
eld of applying research of dynamics of cybernetic business systems.
3. System dynamics uses special methodology and special software packages, the
most outstanding being: DYNAMO; Powersim, Stella, Vensim, and iThink.
4. System dynamics is especially convenient for the study of performance dynamics of business systems in which a great number of non-linear retroactive circles
operate, or for systems where at operating the system the use of managers intuition
alone fails.
5. A special importance and quality of applying system dynamics in education,
training, designing and exploitation of complex business management systems may
be considered in acquiring new knowledge which classic management methods
cannot oer.
On the basis of the above presentation, the authors of this paper recommend
the implementation of system dynamics methodology tool into all elds of human
activities with the aim of understanding various complex systems, in which the
experiment cannot be performed in real life without jeopardizing their existence,
growth and development.
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Ljubo ula
The possible scientic contribution of this paper is primarily in authorised determining of general multiple simulation models which allow for acquiring new
knowledge about dynamic performance of real nautical and tourist business systems, but also sports organisation systems. Also, in order to follow successfully the
development of modern sports industry, the students of kinesiology need knowledge and skills in various areas, especially economy, management and marketing.
By using the proposed tools and system dynamics simulation methodology, the
students will acquire knew knowledge about performance dynamics of complex
organisation systems in the eld of tourism, sports and recreation.
REFERENCES
1. Coyle, G. R. 1996. System Dynamics Modelling, Chapman & Hall,

London.
2. eri, V., Varga, M. and Birolla, Hugo, 1998. Poslovno raunarstvo, Znak,
Zagreb.
3. Duli, A. 2003. Nautiki turizam i upravljanjem lukom nautikog turizma,
Sveuilite u Splitu, Split.
4. Duli, A. 2001. Upravljanjem razvojem Turizma, Mate, Zagreb.
5. Muniti, A. 1989. Kompjuterska simulacija uz pomo sistemske dinamike,
Brodosplit, Split.
6. Pidd, M. 1997.: Computer Simulation in Management Science, Wiley, New
York.
7. eri, V. 1993.: Simulacijsko modeliranje, kolska knjiga, Zagreb.
8. Waren, K. 2002. Competitive Strategy Dynamics, John Wiley &
Sons,Chichester, Englaand.
9. Pidd, M. 1997. Computer Simulation in Management Science, Wiley, New
York.
10. Richardson, G.P. 1986 Problems with causal loop diagrams, Sistem Dynnamics Review 2:158-170.
11. Garcia, J.M. 2006 Theory and practical exercises of system dynamics, First
edition in English March.
235
12. Barlas, Y. 1996. Formal aspects of model validity and validation in system
dynamics, System Dynamics Reviea, Vol, 12, No.3, 183-210.
13. Coyle, R.G. 1977. Management system dynamics, John Wiley, New York.
14. Randers, J. 1980. Elements of the system dynamics method, MA Productivity Press,
15. Sterman, J. D. 1985. Deterministic chaos in an experimental economic system, Jurnal of Economic Behavior and Organization 12.
16. Forrester J.W., 1984. Urban Dynamics, MIT, Cambridge, Massachusetts,
and London, England,
17. Seventh printing, Copyright 1969 by MIT Forrester J.W. 1980. Principles of
Systems, MIT
18. Press Cambridge, Massachusetts, and London, England, Second Preliminary
Edition, Ninth
19. Printing, Copyright 1968 by Jay W. Forrester Lyneis, M., James 1982. Corporate Planning and
20. Policy Design: A System Dynamics Approach, MIT Press Cambridge,
Massachusetts.
21. Waren, K. 2002. Competitive Strategy Dynamics, John Wiley & Sons,
Chichester, England.
Milan Puvaa Dinko Roso
236
GOOGLE TOOLS IMPLEMENTATION INTO

THE PROMOTION OF WEB SOLUTIONS
Milan Puvaa1, Dinko Roso2
1
Or d.o.o. Croatia
2
Jet Osijek d.o.o., Croatia
ABSTRACT
The Internet expansion around the world, of which Croatia is also a part, results
in increased electronic business. The business world increasingly realizes that the
traditional method of trading and doing business is becoming obsolete and that
a dierent, virtual era has started. Specialized portals and web shops are being
opened daily, diversifying the oer and thus attracting buyers. Since the Internet
is an ideal medium for the concept of perfect competition, almost identical solutions with the same products or services quickly appear. There are continuous efforts to nd ways of reaching consumers by means of new media. Web solutions
i.e. product promotion are shaped and improved by full adjustment to users after
researching their habits.
Google is a corporation which develops software solutions to satisfy both the
end user and the service provider. They update their available tools on a daily basis.
Lack of training in these tools is the key factor of their insucient utilization. The
research presented here is focused on advantages, that is, in what way their usage
will enhance the promotion of a companys web solution, thus achieving competitive advantage in todays business, which takes place online.
Keywords: Internet, promotion, Google
Introduction
At the time of economic uctuations and aggravated business circumstances,

budgets for marketing and market research are being reduced on a monthly basis.
Never before was the market saturated with products and information to such
GOOGLE TOOLS IMPLEMENTATION INTO THE PROMOTION OF WEB SOLUTIONS
237
an extent. It seems that the only competitive advantage is the price-related one.
However, what happens when we approach the bottom margin of protability? We
simply have to turn to something that will make our business more competitive,
without touching the nancial aspect. We choose new promotional and marketing
techniques that are available to us. Of course, having the technology and using it
in the right way are two dierent things. Research has shown that more than a year
ago in Great Britain there were more than 42 million Internet buyers. However,
50.1% Internet buyers who selected something for purchase never went through
with it ordered and paid (http://www.coremetrics.com/downloads/coremetricsbenchmark-industry-report-2009-03-us.pdf, March 10, 2010). The segment which
certainly leaves space for improvement is related to the information that Internet
shopping satisfaction increased by only 0.36% (IMRG Industry Report, 2009).
If the strategic decision has been made that the development of our company
should be based on a web shop, then the last percentage is something on which our
development team must intensively work.
Research and development
By selecting the research tools we also determine the direction of an organizations progress in accordance with the obtained results. We have previously decided
that we will use all the available Google tools on the virtual market. Less than ve
years ago Google launched the service for running and overview of visits to a website. The system was developed by Urchin Software Corporation which was taken
over by Google. Created over years of development, Google Analytics with its advanced statistical and analytical data can be, without any doubt, benecial to our
business.
The research that we conducted was based on a new program code that we integrated on the test station. The expected results: users resolution, average time spent
on the site, existence of a relation between the number of visits to the web page
and the change of its appearance, the way of nding the page, etc., will assist us in
developing a better web solution.
By the research shown in Figure 1 it was determined that changing the appearance of the home page attracted additional users. Almost 48.09% users in the observed period reached our website through search engines. Therefore a conclusion
is made that we should focus on the best possible placement within search results
of search engines. Optimization of the page itself should be done with emphasis
238
on Firefox and Internet Explorer search engines, since they account for 86.12%
of the market of our potential users. The era of web pages adjusted to dial-up or
ISDN modems has ended, because 56.45% of users now use broadband access to
the Internet. Visual attractiveness and a good layout of the page content should be
adjusted to 1024x768 resolution (17 monitor).
Figure 1. Interpreted results of Google Analytics service
Source: Authors
239
EFFICIENCY AND UTILIZED POTENTIAL
Following the research-based development of a website, it is important to use

the tool that will utilize the maximum potential. The tool with which we wish to
achieve the maximum eciency in attracting visitors and converting them into
buyers is Google Website Optimizer. Its complex algorithms have the possibility of
testing two dierent versions of a website. By means of this, A/B testing, we wish
to determine which version of our website is more adjusted and more acceptable to
the user. The assumption is that we want to analyze every part on the page, using an
advanced function of testing multiple variables and elements multivariate testing.
In this way the position of modules and their emphasis (photos, headlines, phrases,
etc.) will be optimized.
The goal is to achieve higher level of converting visitors into buyers. The process
is called conversion rate, and according to research, it is about 0.25% (http://www.
conversionrate.net/55-google-website-optimizer-tips).
The calculation formula is as follows:
P (conversion rate) = (number of buyers / number of visitors) *100
Figure 2. Retail companies / services by conversion rate (2009)
Source: http://www.marketingcharts.com/direct/top-10-online-retailers-by-conversion-rateapril-2009-9322/ (March 10, 2010)
240
By using the tool, we do not use our nancial and marketing resources. We only
use time resources by examining the opportunities oered to us. The marketing
advantage of oering our services in this way is the least possible mistake in estimating positioning and determining elements of our website. After conducting the
experiment we will determine that better results are achieved by each simpler visual
solution. The tool will sum up, quantify and present the data which we will then
use to avoid additional expenses for redesigning the entire solution.
After launching a website, the tools will continue to measure users reaction to
certain changes.
IMPLEMENTATION AND PROMOTION
The highest expense generated so far is time and human resources. The task of
the next tools is placement of our website and its promotion. In our marketing and
research work so far we had to determine, i.e. segment the market on which we
would like to focus. If the website were to be left on the broad spectrum of oer,
it would face too much competition of other suppliers. In earlier times this way of
thinking, programming and placing a website was possible with a relative success.
Situation is dierent nowadays. Specialization of oer and reduced number of key
words is our largest advantage. Further narrowing the focus of our e-business leads
us to the desired target group.
Determining the environment and user segmentation makes further course of
action much easier. Google search service is based on the Page Rank technology
which uses a complex algorithm code in the process of ranking websites according to their relevancy. The process is preceded by comparing the importance of
the content and the users query, followed by interpretation of results. The whole
system excludes any human work, which contributes to the objectivity of search.
Hypertext matching analysis is also a parallel process that is used to rene results for
the user, considering the web pages with similar content. Understanding the way
in which they act and the complexity of the above mentioned technologies is the
foundation on which to create a companys e-promotion strategy. Successful positioning depends to a great extent on the content, which must conrm and follow
the dened key words. From the empirical point of view, the business should be
dened by up to 10 words. What is advisable is a smaller number for the purpose
of optimization of the search itself, but also in view of the complexity of algorithms
for content indexing.
241
Figure 3. Simplied account of the Google indexing algorithm
Source: Authors
An important element of Googles indexing robots is also the time required for
the rst indexing of a website. Since people are not always familiar with the program code itself or with the manner of robot functioning, there are frequent attempts to nd ways to use the potential oered by them as eciently as possible.
Behind many search engines there is still a lot of human work and people, while
Google uses a fully automated search system. Clear denition of terms and words in
line with the product a company oers, website optimization and taking indexing
out of unimportant elements and sub-pages certainly raises its ranking in search
query results of search engines.
242
Continuous adjustments must be made by means of search algorithm evolution

and all tools must be simultaneously used to achieve the best possible eciency of
web content optimization that will guarantee desired results.
CONCLUSION
The only market which is not slowed down by recession or inuenced by external factors and which does not know working hours is the Internet. In expansion of
ever better, more ecient and more eective websites, it is becoming increasingly
dicult to compete with programming and design companies, especially the Western ones. However, even if we do outperform the design of a website itself, this does
not provide any guarantees for commercial success of our business. How to reach
the buyer and approach him or her with an oer is the question that has replaced
all previous questions. It has been proved in the paper how important preliminary
Internet research is, telling us about users habits and characteristics. The results are
used to build web elements, which will be, after optimization and testing of users
through Google Web Optimizer, joined in a single unit. Every new update will be
submitted to the same procedure. Such method of work opens the possibility for
the growth of visitor-to-buyer-conversion. Radical changes of a website can result
in increased visitor numbers by 30-40%, which can be used to keep the visitor
longer and promote our e-business.
The research of the way a company is conducting its Internet business as well
as the Internet promotion can be observed almost in real time through the Google
Analytics service. By using the same program a negative trend among users can be
observed, followed by immediate remedial measures. Free tools are used for many
improvements, without spending any resources. Average, but also advanced users
are not very familiar with all these processes. This statement can be supported by
the growing number of specialized companies whose sole activity is optimization of
websites and their ranking on search engines. Among these it is even more dicult
to nd a certied Google partner, both locally and in the wider region.
Popularization and interest for this business area is growing on a monthly basis,
because economic operators increasingly realize the power of placement on search
engines and the speed of nding their website. However, what is still worrying is
an extremely poor conversion rate (visitor-to-buyer) at the global level, which is
low, compared to the level of e-business. Considering the increasing information
awareness and promotion of available tools, our opinion is that this is a temporary
243
situation. In a long-term aspect, this will generate more ecient and more adjusted
websites that will nd their buyers.
REFERENCES
1. Rui, D.: e-Marketing, Faculty of Economics in Osijek, Osijek, 2003

2. Sria, V.; Spremi, M.: Informacijskom tehnologijom do poslovnog uspjeha,
Sinergija d.o.o. Zagreb, 2000
3. Informatiki asopis BUG (IT magazine), 01/2008 and 11/2007
4. http://www.readwriteweb.com/archives/2008_web_predictions.php,
(04.02.2010)
5. http://www.pcchip.hr/vijesti/Internet/google-i-yahoo-najpopularniji-onlinebrandovi, (20.02.2010)
6. http://www.nacional.hr/articles/view/37140, (02.02.2010)
7. http://www.httpool.hr/page.asp?newsid=193&areaid=4, (24.12.2010)
8. +http://futuria.hr/Internet-marketing-usluge/Internet-branding/, (03.03.2010)
9. http://www.ekolibri.hr/hr/Logotip.htm, (05.03.2010)
10. Wining with AdWords, Google, 2009
11. Make your website work, Google, 2009
12. http://www.conversionrate.net/55-google-website-optimizer-tips (10.03.2010)
13. http://www.seochat.com/c/a/Choosing-Keywords-Help/Increase-Your-AdSense-Revenue-Through-Keyword-Research/ (10.03.2010)
14. http://1-internetmarketing.net/tags/google-bot-algorithms/ (10.03.2010)
15. http://www.google.com/intl/hr/webmasters/docs/faq.html (10.03.2010)
16. https://www.google.com/analytics/settings/ (05.03.2010)
17. http://websiteoptimizer.blogspot.com/ (08.03.2010)
18. http://www.wired.com/magazine/2010/02/ff_google_algorithm/all/1
(03.03.2010)
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Nikola Rovis
PRIORITIZED ACTIONS FOR MARKETING IMPROVEMENT:

A TOOL FOR SMALL BUSINESS MARKETING PROGRAMMES
Nikola Rovis
Abstract
Purpose of this paper is to oer a pragmatic tool for management and marketing practitioners in small businesses. The name of the tool is Prioritized Action for
Marketing Improvements (PAMI). This work gives an overview of marketing and
strategy processes in small businesses and a brief description of Dibb and Simkin
buying proforma tool. The PAMI tool builds on successfully conducted market
segmentation and specication or implicit knowledge on targeted market segments
and market positioning. The tool is designed to help practitioners devise an actionable marketing plan. It provides a clear, intuitive and straight forward way to cross
the gap between a higher level planning activity and specic operation planning
activity in small business.
Key Words: Small business, Marketing management, Marketing planning,
Management tools; Marketing programmes
INTRODUCTION
Business strategy or competitive strategy serves as a mean to dene how the

business is to compete in the marketplace, and marketing process is a vital part of
transforming a higher-level strategy into operational reality (cf. Grant, 2008; Angwin et al, 2008). Marketing process includes analysis of external conditions and
internal capabilities, creation of adequate marketing strategy, development of marketing programmes and designing the implementation and control mechanisms
(cf. Dibb et all, 2006). Although there is a great amount of dierent methods and
tools in the eld of marketing strategy and marketing planning, there is a general
agreement that companies should use strategic thinking and have some kind of
marketing process in place, regardless of their industry or their size.
PRIORITIZED ACTIONS FOR MARKETING IMPROVEMENT: A TOOL...
245
Although small businesses are proclaimed as very important part of the local
and global economy, the great majority of business strategy and marketing planning literature is focused on large businesses. For illustration purposes, the author
has done a quick database research using ProQuest database on the number of
published articles in scholarly journals regarding strategy and marketing in March
2010. There was more than 97.000 published scholarly journal articles regarding
strategy, but less than 0,1% of that number is targeted to small business. Similarly,
there was more than 78.000 journal articles regarding marketing, but only around
2% of them focus on small business.
The overarching goal of every business is to maximize wealth of its owners.
However, small businesses have dierent needs regarding strategy denition and
marketing planning than large businesses. The sophisticated tools and techniques
are in most cases not available to small businesses (Van Auken and Ireland, 1980).
Planning activities in small businesses in general often tends to be squeezed out of
management focus due to the pressures of operational activities. Van Auken and
Ireland (1980) state some additional barriers to eective small business planning
as lack of time, fear of the unknown, scarcity of information, lack of quantitative
ability and change in external circumstances, but also state their belief that the
most important impediment is lack of management ability to properly start and
continue planning activities over time. They further state the list of factors small
businesses should avoid in order to keep their planning process eective and ecient, which all fall in categories of avoiding unnecessary complexity, detailing and
formalization.
Carson and Cromie (1989) state that due to predominating inuence of general
manager, who is often the owner and supplier of capital, and due to small businesses managerial and structural traits, marketing planning in small businesses should
be uniquely adapted to them. Small businesses often lack managerial and marketing skills, lack and misuse time, and are unable to employ experts (Tate et al., 1975
in Carson and Cromis, 1989). While large businesses focus on achieving ecient
coordination of specialists, small business managers need to be general specialists
whose focus is on pragmatic use of problem solving techniques (Schouhammer and
Kurilo, 1979 in Carson and Cromis, 1989).
Therefore, for eective conduction of marketing process in small business, tools
are needed that are clear, intuitive, not time consuming nor too formalized, and
most of all, practical. In this paper a brief overview of Dibb and Simkin Buying
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Nikola Rovis
proforma (Dibb and Simkin, 1996) will be provided. Continuing on Dibb and
Simkin Buying Proforma, a tool for developing actionable marketing programmes
for small businesses will be described, along with the seven stage process for tool
usage.
THE BUYING PROFORMA
Buying proforma is a marketing practitioners tool initially created by Dibb and

Simkin to help in marketing planning process by outlining the buying process in
a way to help managers develop a deep understanding of their customers and their
buying process (Dibb et al, 1998). The buying proforma describes the customer,
the customer buying process and the inuencing factors on the customer buying
process. Customer is described by dening the prole characteristics, needs and the
buying centre which is mostly used in business-to-business scenarios (Engel et al.,
2006; Hutt and Speh, 2006 in Simkin, 2008). Customer buying process is described
as a series of steps from becoming aware of the need, to purchasing and post-purchasing evaluation of the good or service. The inuencing factors of the buying process are all causes that can inuence the buying process in any of the process stages.
The proforma also visually depicts the relationship between each inuencing factor
and the stage in the buying process. The buying proforma is intended to be used
within a specic market segment, and it is not possible to use one buying proforma
for describing customers belonging to dierent market segments. An example of the
buying proforma is shown in Figure 1.
247
Figure 1 The Dibb and Simkin buying proforma example
Source: Simkin, 2008
Simkin (2008) describes the use of buying proforma in market segmentation

process as a part of a broader strategising process which must include a thorough
examination of external conditions and drivers as well as internal capabilities. Simkin argues that many market segmentation eorts fall short of their potential because of legacy segmentation which is very dicult to change in a radical way, and
so proposes the use of the buying proforma as an evolutionary solution for market
segmentation, focusing on customer purchasing behaviour rather than business
sector or product groupings, and doing so in an iterative and non-threatening way
for managers. Therefore, buying proforma is intended to serve two purposes: to
help practitioners in conducting market segmentation and, as initially conceived,
to help in marketing process.
The buying proforma has some limitations in several areas that are important to
small business practitioners. Although it is intuitive and simple, the relationship between inuencing factors and the buying process can be hard to understand in cases
when there is a greater number of inuencing factors in buying process, resulting in
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Nikola Rovis
cluttered visual representation in forms or arrows. Further, there is no indicator of

relative importance of each of the steps in the buying process, neither an indicator
of relative importance of the inuencing factors on the buying process.
The entire model is mostly descriptive and it serves well its intended purpose as
a help in developing marketing plan and as a tool for evolutionary market segmentation. However, if we want to move to the next stage in small business, which is to
develop an actionable marketing plan, the above limitations of the model come to
play. Small businesses need a model that can help them to create a plan of actions
to improve their business.
PAMI PRIORITIZED ACTIONS FOR MARKETING IMPROVEMENT
This paper introduces Prioritized Actions for Marketing Improvement (PAMI),

a tool designed to be of practical use for small businesses marketing and management practitioners. The purpose of PAMI is to oer a solution for managers which
will use the Dibb and Simkin buying proforma as well as all the outputs from
the strategising process as inputs into the process, and will produce the actionable
marketing plan for a small business as a result. As already stated, the strategising
process for small businesses should be clear, intuitive, not time consuming nor
too formalized, and most of all, practical. The entire strategising process for small
businesses is not in the scope of this paper. This paper focuses on bridging the nal
results of strategising process to actionable marketing plan. An example of PAMI
tool is shown in Figure 2.
Figure 2 PAMI tool example

Marketing budget available
1 00.000
Upgrade company
web
Search engines
optimisation
Advertise
parform personal
marketing
Produce marketing
materials
Gain publicity,
success stories
Organize events,
users education
ACTION ITEMS
RELATIVE
IMPORTANCE
THE CUSTOMER BUYING PROCES
TOTALS
1 . Need Awareness
50%
4
3
3
8
3
21
2. Development od customer's specification
30%
6
3
4
8
3
6
30
3. Finding Products / Suppliers
1 0%
3
2
7
6
4
22
4. Evaluating and choosing products / suppliers
1 0%
2
3
2
7
Pondered importance (scale)
1 00%
4,1
2,6
2,9
7,4
3,0
0,4
2,0
22
Pondered importance (share)
1 8%
1 2%
1 3%
33%
1 3%
2%
9% 1 00%
Initial budget allocation 1 8.304 1 1 .607 1 2.946 33.036 1 3.393 1 .786 8.929 1 00.000
Final budget allocation 1 0.000 1 0.000 28.000 42.000 1 0.000
0
0 1 00.000
Source: Authors illustration
249
THE REQUIRED SEVEN STAGES FOR USING PAMI
Prerequisite for using PAMI is that strategizing and marketing planning process
must be accomplished, including market segmentation if needed. The Buying proforma has to be developed for all targeted market segments, since the buying proforma is the very starting point. However, not the entire strategising process needs
to be formally dened in form of a written document, but it is important that all
of the participants of the process have awareness and knowledge of the business
strategic position and the future direction. PAMI has to be used separately for every
market segment. The seven stages of the process are:
1. Gather the team
The involved team should have cross-functional participants from general management, marketing, sales and customer related operations. It has to be assured that
all internal knowledge and power structures be involved, to use that knowledge
in the process but also to ease the implementation later. In small businesses many
functions can be combined in several, sometimes even only one person, so the team
could be pretty narrow.
2. Dene the relative importance of each step of the buying process
By completing the buying proforma, the team has described the buying process
for every market segment. Now a relative importance indicator for every step of
the buying process has to be assigned. This indicator shows how important for the
company performance is to inuence each specic stage of the buying process. For
example, if a company is in a relatively new market with small numbers of competitors and customers are not even aware of the goods or services in the companys
oer or the competition, probably the most important stage to inuence would be
to make customers aware of their needs. On the other hand, if the company is selling a commodity product for which there is a clear need for on the market and the
competitors are known, the greater relative importance would probably be placed
in the later stages of the buying process. A percentage point between 0% and 100%
has to be assigned to every stage of the buying process in such a way that they summarize to 100%, since this is an indicator of relative importance on the success of
the buying process. Location in PAMI table for entering thin values is shown with
the indicator of the stage number in Figure 3 (also shown for stages 3, 4 and 5).
250
Nikola Rovis
3. Dene the action items

The buying proforma lists the inuencing factors that have inuence over one
of more of the buying process stages. Inuencing factors are descriptive, and we
need to take them into account and produce a list of action items that inuence
the inuencing factors which will then inuence one or more stages of the buying
process. For example, if we detected in buying proforma that one of the inuencing
factors is the company salespersons direct communication with potential clients,
than possible action items could be: hire another sales person, educate our sales
force for better sales skills etc. Or, if the inuencing factor is ranking on the Internet search engines, then possible action items could be: optimize company web site
for search engines. The list of action items have to be developed after considering
each of the inuencing factors. Some action items can inuence more than one
inuencing factors, and some inuencing factors might not have any action items
related to them. This list of action can contain all elements of the marketing mix.
In order to keep PAMI simple, the marketing mix elements are left implicit under
the term action items.
Figure 3 PAMI tool with indicators of location for entering data respective to stages
Source: Authors illustration
251
4. Dene contribution importance of action items for each step of the buying process
Every action item listed should have some inuence on one or more stages of
the buying process. For every action item allocating contribution importance for
its inuence on each step in the buying process is needed. It is important to use a
predened scale with clear meaning. This paper suggest the scale to be from 0 to
10, where value inuence of 0 means that the action item does not inuence the
stage of the process (and need not be shown in the PAMI table), value of 1 means
that the action item inuences the stage of the process in a barely noticeable way,
and value of 10 means that the action item inuences the stage of the process in a
way that could be described as a breakthrough improvement.
5. Enter budget and do the calculations
The available budget has to be entered in the PAMI table. The budget entered
does not need to be a strictly formal budget since many small businesses are not
budget-based it can be a managers estimate of how much funds is the company
willing and able to invest into marketing for the upcoming period. All the calculations need to be performed. If spreadsheet software is used, all the calculations can
be performed automatically. The following values are to be calculated per every
action item: action item pondered importance (on scale), action item pondered importance (share), and initial budget allocation. In this way, the calculations reect
the overall importance of every action item to the entire buying process.
6. Analyze the results
Analyse the proposed results. Action item pondered importance shows the values on the scale from 0 to 10, which indicates the absolute pondered importance
of each action item on the entire buying process, where the meaning of values on
the scale are identical as described in stage 4. Respectively, action item pondered
importance is a percentage value that shows the relative share of impact on the
entire buying process in relation to all proposed action items. It is a relative indicator showing what percentage of inuence is to be achieved by realising this action
item in relationship to the inuence that would be achieved if all action items
are achieved. Finally, analyse the proposed budget allocation. These values are derived by multiplying the marketing budget available with the pondered importance
(share) of each action item. It serves as an indicator of the budget that would be
available to specic action items if the budget was to be allocated in relation to the
pondered importance of every action item. This should be seen just as a help in de-
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Nikola Rovis
ning the real budget for action items. Also, from the Totals column it is possible
to see the proposed total inuence of action items to each stage of the buying process. If some of the stages are neglected, some more action items could be thought
of for that specic stage.
7. Consider other factors and devise the nal actionable marketing plan
When deciding on the real action items that are to be conducted and the real
budget to be allocated for each specic action item, it has to be remembered that
PAMI has several shortcomings. You have to consider at least the following, which
is not contained within the tabular representation:
Some action items can be done only completely or not done at all, while initial
market allocation might have allocated only a part of the budget needed. For
such items a decision has to be made whether they be planned in total or not
at all. For example, when producing marketing brochures, producing 60% of
it would not make any business sense and would not yield any value.
action items might per se not be of signicant value, as would show
within the tabular representation. However, they might be an important prerequisite for some other activities, which is not represented in the table.
Some
Some
action items might require other non-nancial resources (for example,

some scarce employee time). If we do not have available enough of these resources, it would make no sense allocating only nancial resources.
There
might be synergies between dierent target market segments if business

has more than one segment. This tool is designed to help choose priorities and
allocate funds within one market segment. This is one of the reasons why this
tool is designed for small businesses they tend to have smaller amount of
market segments so this tool can be of help.
Other factors might come to play which may or may not be company specic.
PAMI is, just like other management tools, not a substitute for thinking rather,
it is a tool designed to help in thinking, analysing and decision making. After giving thought to all these considerations, the actionable marketing plan with budget
allocation can be produced.
253
CONCLUSION
Small businesses are pragmatically concerned with increasing sales and decreasing costs. Marketing is about the former. By conducting the strategic process and
using the Dibb and Simkin buying proforma, managers get and show a thorough
understanding of the buying process of their target market segments. Ideally, in
order to increase sales, all the stages of the buying process need to be inuenced. To
do so, action items are listed. However, the resources are scarce, so managers must
choose which action items to perform and how much of the available resources
would have to be allocated to each action item. PAMI is a management tool for
small businesses designed to help in this thinking, analyzing and decision making.
PAMI is used in seven pragmatic and intuitive steps, starting with team gathering, proceeding to dening relative importance of each buying process stage, dening the action items and their impact to each buying stage, entering available budget and performing calculations, and nishing with analyzing the proposed results,
bringing into play some qualitative issues and producing the actionable marketing
plan with allocated budget.
PAMI makes sure that decision maker has a clear indicator of value of each proposed action item to specic stages of target segment buying process as well as the
buying process as a whole, and therefore serves as input to the thinking, analyzing
and decision-making process for small businesses.
BIBLIOGRAPHY
1. Angwin, D et al (2008), The Strategy Pathnder, Blackwell Publishing, Oxford

2. Carson, D. and Cromie, S. (1989), Marketing Planning in Small Enterprises:
AModel and Some Empirical Evidence, Journal of Marketing Management, 5,
No.1, 33-49
3. Dibb, S. and Simkin, L. (1996). The Market Segmentation Workbook: Target
Marketing for Marketing Managers, Thomson, London
4. Dibb, S., Simkin, L. and Bradley, L. (1998), The Marketing Planning Workbook, Thomson, London
5. Dibb, S, Simkin, L., Pride, W., Ferrell, O. (2006), Marketing Concepts and
Strategies, Houghton Min Company, USA
254
Nikola Rovis
6. Engel, J.F., Blackwell, R.D. and Miniard, P.W. (2006), Consumer Behaviour,
West, Fort Worth, TX.
7. Grant, R (2008), Contemporary Strategy Analysis, sixth edition, Blackwell Publishing, Oxford
8. Hutt, M.D. and Speh, T.W. (2006), Business Marketing Management: Strategic View of Industrial and Organisational Markets, South Western, Cincinnati,
OH.
9. Schouhammer, H. and Kurilo, A. (1979), Entrepreneurship and Small Business Management, New York, John Wiley.
10. Simkin, L. (2008). Achieving market segmentation from B2B sectorisation,
Journal of Business & Industrial Marketing, vol. 23, issue: 7, pages 464-474,
ISSN: 0885-8624; Emerald Group Publishing Limited
11. Tate, C. E., Megginson, L. C, Scott, C, R. and Trueblood, L. R. (1975), Successful Small Business Management, Dallas, Texas, Business Publications.
12. Van Auken, P.M., & Ireland, R.D. 1980. An input-output approach to practical small business planning. Journal of Small Business Management, 18(1):
44-50.
STRATEGY FOR THE DESTINATIONAL EMARKETING & SALES
255
STRATEGY FOR THE DESTINATIONAL

EMARKETING & SALES
Zlatko ehanovi
Ekonomski fakultet Osijek
Giorgio Cadum
Igor ehanovi
SUMMARY
Every tourist destination should make and implement a destinations marketing

and sales strategy. A very important part of destinations sales and marketing strategy is the e-marketing and sales strategy. The cooperation of specialized regional development agencies, regional tourist board, local (city and county) tourist boards,
hoteliers, tourist agencies, conservators, entertainment and cultural program developers, private accommodation owners and others involved in creation of destinations overall oer, is essential for strategy creation and implementation. This paper
gives an overview showing one of many possible paths for creation of destinations
e-marketing and sales based on Istrian region example.
Key words: strategy, SWOT analysis, benchmarking analysis, on line presence,
interactive marketing communication
1. INTRODUCTION
Strategy for destinational marketing & sales and possibilities from informational
technology are merged into a single destinational strategy for e-marketing & sales.
When developing destinational e-marketing & sales strategy one starts from the existing situation, needs and protability of developing all segments of the destinational
e-marketing & sales. In addition to strategy of destinational e-marketing one has
to take into consideration interests of all interested parties involved in the strategy.
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Zlatko ehanovi Giorgio Cadum Igor ehanovi
Positioning is the act of shaping the oer and the image so that they take a crucial
and outlined competitive position in the conscience of the target market (Kotler,
2001. page. 295.). Strategic decisions attached to development of destinational emarketing & sales attempt to narrow down the wide area of possible application of
the e-marketing & sales strategy. Thus every destination as main strategic decisions
selects its areas of development actions for e-marketing and sales based on its own
success criteria. Strategic decisions also relate to the target market, positioning and
dierentiation by cluster and micro destination, CRM, etc. Strategy of e-marketing
is the combination of marketing and possibilities stemming from the informational
technology to accomplish set goals. It is designed so that it takes advantage of informational technology possibilities that the specic business oers in order to accomplish set goals (Strauss, El-ansary, Frost, 2003. str.24.). Therefore, e-marketing
strategy is the basic document for e-marketing activities realization. Dened as the set
of current and planned goals, resource usage and interaction of the company with the
market, competition and other society factors, it answers the three basic questions:
What (goals); Where (what service and what market are the strategy focus); and How
(what resources and activities will accomplish the market success).
2. SWOT ANALYSIS
SWOT analysis lists internal strengths and weaknesses as well as outside threats
and opportunities. The goal of the SWOT analysis is not only listing weaknesses,
strengths, opportunities and threats related to the analyzed problem but moreover
comparison of information on internal strengths and weaknesses with information
on outside opportunities and threats resulting in a specied proposal for shaping
of a clear marketing strategy. Fast development of internet has intensied online
trading and market has globalized for all types of products and services slowly creating a virtual or electronic market (Buhalis, Dimitrios, page 38.). As a result of
new market development before marketing experts were placed new opportunities
and challenges. In order to succeed in the new electronic environment marketing
experts in tourism must adapt marketing and sales to the new electronic market.
Strategy creation in general and so the strategy of destinational e-marketing &
sales very often starts with a SWOT analysis. In order to create proposals related to
destinational strategy for e-marketing & sales rst we must know the strengths and
weaknesses of the existing destinational e-marketing and sales as well as obtaining
information about opportunities and threats from the existing environment. Strategy of marketing relations can be simply explained in a sense that it is more ecient
257
to invest in creating long-term relationships with clients rather than relying in a few
disconnected one-time exchanges. Nevertheless, in practice, the implementation of
such marketing strategy is not simple (Zinkhan, George, 2002, str. 83.). For this
purpose it is best to start the SWOT analysis of destinational internet pages (region
and city). Following table provides an example of such analysis:
Table 1. SWOT analysis of destinational internet pages

Strengths
Weaknesses
*CMS system is good and has possibilities for further

development
*Quality information database
*Quality information update system
*Registered and accepted recognizable domain
* Number of visits to regional web pages is small

* Domains of regional web pages have not been systematically promoted
* Portal content is insucient based on quality and
quantity
* Regional visual identity is not present on the web pages
Opportunities
Threats
* Quality destinational web pages also build a Destination brand

* Quality destinational web page serves as a good
base for selling all parts of the tourist oer
* Quality destination web page is a good base for joint
promotion of the tourist destination as an outcome
of cooperation between private and public sector
* No content and no activity in selling by destinational

portals creates assumptions for development of uncontrolled private portals that take a more signicant place
online creating chaotic and for the tourist oer - the
most expensive marketing and sales.
Source: personal analysis & usage of www Tourist Boards (see bibliography), 2009.
After making a SWOT analysis it is necessary to set the goals of the destinational
e-marketing and sales strategy. Goals have to be set so that they provide answers
to the questions, what needs to be done, when and how much. For example goals
of the destinational sales and e-marketing strategy can be: strategy of destinational
e-marketing and sales should provide as much as possible destinational experience
in all its important segments and therefore improve the destinational brand building, dierent marketing activities should achieve the level of internet page visits
to about 30.000 visits per day, making dierent portals with possibility of selling
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all (accommodation, tourist, cultural.....) tourist content, making a wide information database as a support for the CRM, regularly update information about the
destination.
3. BENCHMARKING ANALYSIS
Benchmarking analysis encompasses best practice concept in the area of destinational web page development. Benchmarking is a sophisticated method of discovering areas that will be upgraded - from simple, such as sending orders and product
development, to more complex, such as ensuring quality, customer satisfaction and
managing resources (Schwartz, 1998, page 51.) With this purpose in mind it is
necessary to select a larger number of destinational web pages in dierent destinations worldwide (Italy, Tuscany, Provance, Rome, Spain, Greece, France, Portugal
and others). Analysis has to include elements such as web page map, main chapter
listings, entry pages, destination description, accommodation display, hospitality,
cultural and other content within the destination, organization of destinational
activities, accommodation reservation, transport organization, other searches, multimedia, CRM and more. Based on the previously listed elements a most acceptable
solution is selected and as such it serves as a base for development formulation of
the destinational e-marketing and sales strategy. As an example a sample of the
existing status of destinational web pages was analyzed, results were commented
based on the existing situation and expert opinion and best use concept recommendation in this area was made. Research included the web pages for destinations:
Spain, Costa del Sol, Malaysia, Ireland, Dubai, Greece, Wien and Portugal.
4. BENCHMARKING ANALYSIS CONCLUSIONS
Comparison of eight tourist board web pages (Spain, Costa del Sol, Malaysia,
Ireland, Dubai, Greece, Portugal, and Wien) and analysis of the obtained information resulted in Spain being the best example of a tourist destinational web page.
Spains web page is attributed with ideal ratio of content amount and information required for a potential destination visitor. There are many possibilities that
include ecient search of all information types (clusters based on dierent parameters, accommodation, transport, etc.). Ecient trip plan organization and obtaining many practical information for the user is easy. Simple use and navigation of
the web pages makes them very user friendly. Possibilities for easy communication
for all additional contents and questions exist and all are crowned by a superb and
259
very clear visual design. In addition, web pages of Ireland, Malaysia and Portugal
stand out as successful examples of destination internet presentation although they
fall behind Spain in many specic (above explained) segments.
5. TARGET MARKET
Within the context of e-marketing and sales target markets are characterized
by language type segmentation. Therefore content on destinational web pages has
to be oered in Croatian, Italian, English, German, Czech and other languages.
The existence of variables within the targeted markets have to be respected while
developing destinational web pages like the dierent age structure of internet users that relates to the intensity, capabilities and habits of internet users. Internet
has become the dominant informational tourism marketing channel. It is twice as
popular as any other information source. Searching information by using internet
while selecting the next destination strongly aects the decision making process.
Stunning 48% of tourists uses web as primary information source, 20% friend recommendations, 10% special oers, and only 9% classical tourist agencies (Country
Brand Index 2005, page 7.).
Internet role in marketing is as follows:
reaching the market (internet makes it possible to reach more guests than by
using classical channels);
presenting the oer (information is available 24 hours a day);
selling content (transaction is simpler for the end user and for the provider);
keeping the existing customers (CRM possibilities are larger and more cost
eective at the same time)
building brand image (internet application presents a competitive
advantage).
Let us examine the Istrian example. Regional web pages should, for example,
have a cluster classication or areal division within the region. Clusters are dierentiated based on the tourist oer, geographical characteristics, cultural and historical
localities, etc. Additional division within the cluster is required and based on micro
destinations such as cities and/or tourist towns. Previously mentioned is important
because of the dierences within a larger area such as tourist regions, and the same
conditions the need for cluster recognition and positioning of clusters and micro
destinations on the tourist market. Managing consumer or customer relations is an
260
obligation part of todays e-marketing and sales. Basis for CRM is the existence of:
customer database, web pages that are adaptable to the dierent aspects of customer demands and e-mail. CRM serves as a tool for establishing guest contact, oer
presentation, guest stimulation to choose a specic destination and creation of destination loyalty. In conclusion, for a qualitative approach to strategic e-marketing
and sales one has to dene the system parts within its business sphere and this can
be: oering accommodation, food, beverages..., local tourist boards, destinational
tourist board, destinational info center, companies that deal with destinational
strategy, business partners (tourist agencies for example), media, guests.
6. STRATEGIC DECISIONS FOR DESTINATIONAL MARKETING AND SALES
Possibilities for applying e-marketing are very wide thus the task of every decision making strategy on appropriate activities for the business whose processes are
being analyzed. Strategic decisions for e-marketing of Istria contains Target Market,
Positioning and Dierentiation, Customer Relations Management CRM, Business
Model, Levels of E-marketing Representation, Organizational Structure and Decisions on the Marketing Channel Modication, Target market decision making is
equally important for both marketing and e-marketing strategies. During segmentation precise variables are applied in order to dene segments while at the same
time inuencing the e-marketing activities. Selected positioning determines the
structure and content on the web pages that will, for example, be presented on a
cluster level. By e-marketing activities and specially while structuring web pages, it
is important to involve a micro destinational presentation.CRM in the electronic
environment is a crucial element of e-marketing that includes integrated marketing databases, web page personalization, e-mail personalization and other processes
aimed at CRM goals realization with respect to lowering operational expenses. Internet business model are company methods intended to realize long-term prots
by using internet. (Auah, Tucci, 2003, page 7.) The goal of this approach is to
unify the entire oer for a destination on the web pages (with all relevant information about the oer) but also to dierentiate those who support e-marketing activities with higher amounts of invested resources. Using brand additionally motivates
the providers to fulll of high quality standards that in return achieve higher levels
of quality for the entire destination. Web pages, as the central place for e-marketing
activities represent the biggest challenge for the e-marketing strategy. It is important to dene relationship of the involved forces and set accountability for activity
coordination. E-marketing application For Istria introduces a new channel of sales
261
and distribution. Nevertheless it is crucial to decide to what level the possibilities of

the electronic distribution channel will be exploited.
7. MODELS FOR EMARKETING STRATEGY CREATION
Integration of e-marketing strategy into marketing strategy presents a challenge for numerous organizations especially because those two strategies are created
separately and without joint coordination. However, the growing importance of
internet and its inuence on doing business demand an integration of strategies.
Strategy integration and activities coming from it also cause a necessity of high level
cooperation between the Tourist Board, local Tourist Boards, Oer Components
(hotel business, private accommodation, and activity organization) and outside
partners. Model for creation of e-marketing is the essence of methodological frame
for e-marketing strategy creation. As such it is based on the theory contributions
of authors in the area of e-marketing and it is adapted to destination specic situation. First step is to conclude that the strategy of e-marketing is part of the destinational marketing strategy. Marketing strategy is under direct inuence of goals and
strategy of the destination, making internal elements that aect the e-marketing
strategy. On the other hand external inuencing factors are the SWOT analysis for
needs of the e-marketing and completed benchmarking analysis. Integration of emarketing strategy into marketing strategy presents a challenge for numerous organizations because those tow strategies are often created separately and without joint
coordination. Moreover, the ever growing importance of internet and its direct
eect on the business condition strategy integration. Marketing strategy as a factor
of internal inuence denes the three functional elements: Market Segmentation,
Targeting and Positioning.
8. RESEARCH RESUTLTS
8.1. Future demands modications of marketing channel sales in a way that web
pages of a country and a reservation system of main oer components (i.e. hotel
chains) or in order to set up a uniqe online reservation system on a destinational
leve.
8.2. Proper e-marketing strategy creates a foundation for realzation of e-marketing
activities.
8.3. Strategy application is a logical next step that will result in fulllment of
planned business goals. In order to manage this sequence eciently it is important
262
to dene a step by step (detailed) activity plan with instructions for their realization. These instructions include organization of resources utilization with aim to
meet strategic goals.
8.4. Since internet has to be available 24 hours per day, 7 days a week, destinations
have to direct signicant marketing eorts in creation of contemporary and wholesome presence online that oers not only detailed destinational information but
also communicates a unique experiene.
8.5. Internet as a channel oers the possibility of strenhtening the relationship with
consumers before the visit
9. RESEARCH METHODOLOGY
During research we used the methods of analysis, description and comparison

of web pages for domestic and international destinations as well as using various
literature sources. In addition, observation method was used for international visits
to tourist destinations.
10. CONCLUSION
All parts of the tourist oer system have to be present within the strategy of
destinational e-marketing and sales. These parts create a new destinational marketing and sales channel causing a sense of product recognition and trust for guests.
Dierent approaches in presentation of the regional parts of the tourist oer are
possible on the web pages. The approach on a more simple level may be nanced
from the sojourn tax budget. A complex level can be nanced from the previously mentioned source and with additional funds from budgets of the local tourist
boards, accommodation owners, hotel companies, etc. In order to manage eectively a complex system of destinational e-marketing and sales it is necessary to
establish a clear organizational structure. Various solutions for organization and
management of destinational web pages exist. However in its essence there should
be a head coordinator (editor) of destinational web pages who at all times has access and the ability to coordinate information, oer and news. Speed of modern
media allows us not only to get the right information at the right time but also to
immediately forward it to our guests or share it with potential visitors. In conclusion, a successful strategy for the destinational e-marketing & sales creation process
has to involve all regional key players in order to maximize the existing resources
263
and bring the best possible economic growth to the destination focused on the long
term positive eects.
BIBLIOGRAPHY
1. Auah, A., Tucci (2003). Internet Business Models & Strategies, McGraw-Hill,
2. Buhalis, Dimitrios (2003). eTourism, Prentice Hall, Harlow,
3. Country Brand Index (2005). FutureBrand
4. Zinkhan, M., George (2002). Relationship Marketing: Theory and Implementation, Journal of Market-Focused Management, Vol. 5, str. 83.
5. Schwartz, K. D. (1998). benchmarking for dollars, Datamation br. 2.
6. Strauss, J., El-Ansary, A. (2003). Frost, R.: E-marketing, Prentice Hall.
7. http://www.spain.info, ( 10.3.2010 )
8. http://www.visitacostadelsol.com, ( 10.3.2010. )
9. http://www.tourism.gov.my, ( 10.3.2010. )
10. http://www.discoverireland.com, (10.3.2010.)
11 .http://www.dubaitourism.ae, (10.3.2010.)
12. http://www.gnto.gr, (10.3.2010.)
13. http://www.vienna.info, (10.3.2010.)
14. http://www.visitportugal.com, (10.3.2010.)
eljko Turkalj Ivana Fosi Davor Dujak
264
MOTIVATIONAL COMPENSATION A FACTOR IN STAFF

TURNOVER IN RETAIL ORGANIZATIONS
eljko Turkalj, Professor
Ivana Fosi, Assistant
Davor Dujak, Assistant
ABSTRACT
The most important factor in any organization is its employees. Due to rapid
changes in global business, employees are facing increasingly complex requirements.
If misunderstandings and indierence towards the importance and impact of motivation prevail in an organization, this will inevitably create tension in the work
environment; employees will become unmotivated, and therefore less ecient. All
this will lead to lower quality of products and services, reducing the organization
protability, but also to undesirable sta turnover. Within retail trade especially
high sta turnover is recorded, and the growth trend can only increase costs for
retail organizations. Employers must become aware of the positive correlation between employee satisfaction and protability in retailing, where it is important to
match well-organized business with adequate nancial support for employees.
This paper explains motivational compensation that reects nancial (direct and
indirect) and non-nancial motives for work, with special emphasis on its inuence
on sta turnover within retail organizations. We also want to investigate the presence and level of motivational compensation within retail organizations in Eastern
Croatia as compared to other activities. Furthermore, we will look into the extent
of sta turnover in retailing, as well as its main reasons.
JEL clasication: L81, J33
Keywords: motivational compensation, retail trade, sta turnover, sta turnover cost.
MOTIVATIONAL COMPENSATION A FACTOR IN STAFF TURNOVER IN RETAIL...
265
1. INTRODUCTION
Employees are the key factor in any organization. Change of jobs within a company or somebody leaving the company can sometimes have benecial eects on
its operations, but if this happens very frequently we speak of high sta turnover,
which is something most companies try to avoid. If an organization shows lack of
understanding or disregard for the importance and impact of motivation, tensions
can arise, employees become unmotivated, and thus less ecient, which can all lead
to lower quality of products and/or services, lower company protability, but also
higher sta turnover. These trends are particularly noticeable in retailing, one of the
crucial economic branches. In further text we will explain motivational compensation that reects nancial (direct and indirect) and non-nancial motives for work,
with special emphasis on its inuence on sta turnover within retail organizations.
We will also explore motivational compensation within retail companies in Eastern
Croatia in comparison with companies in other industries, as a key factor of sta
turnover level in retailing.
The research aims to investigate two hypotheses.
H1: High sta turnover has no positive eects on business.
H2: There is a negative correlation between motivational compensation rates
and sta turnover.
The rst hypothesis (H1) will be examined on the basis of secondary data, and
the second one (H2) on the basis of primary research.
2. MOTIVATIONAL COMPENSATION
Employee rewards can lead to better performance and employee satisfaction:

When the sta views them as fair, when they are related to eciency, and chosen
according to an individuals needs (Robbins, 1992: p. 250). For an employer to
decide how to distribute rewards to their sta, work performance has to be assessed.
The intention of performance assessment is to measure how much has an employee
contributed to achieving the assigned goal within a certain time period. Performance assessments provide relevant information to company management in order
to make decisions on important issues such as promotions, transfers or termination
of employment for their sta. After performance assessment the management can
decide on rewards that are aimed at keeping the sta highly motivated. In deter-
266
mining awards, one has to take into consideration an employees dedication, years
of service, skills, diculty of tasks and ability to take decisions independently.
Consequently, the emphasis should be on motivational compensation that reects both nancial (direct and indirect) and non-nancial motives for work, i.e.
rewards, as shown in Figure 1.
Figure 1. Motivational compensation

Internal and external environment
Motivation compensation
Non-nancial
Financial
Directly
Salary
Honorarium
Travel
Expenses
Representation
Indirectly
Social taxes:
Retirement foundation
Social assurance
Traineeship
Assurance:
Life, health
Holidays:
Vacations, short holidays, o period, tenement loan
Job
Interesting tasks
Challenge
Responsibility
Self approvement
Traineeship
Promotion
Achievement
Contacts
Working environment
Company policy
Management
Assistans
Status
Working environment
Adjustable working
time
Shorter working week
Work distribution
Food
Work at home
Source: according to Marui, S.(2001). Upravljanje ljudskim potencijalima, Adeco, Zagreb, p. 267
Material, i.e. nancial compensation comprises dierent forms of motivation

aimed at securing and improving employees material status and nancial compensations for the work done.
(http://www.poslovniforum.hr/management/motivacijske_tehnike.asp) Material
compensations are the basis of the motivation system.
267
Figure 1 shows that nancial compensations can be divided into two basic
groups:
1. Direct nancial, i.e. money gains for the employee (income, fees, travel expenses and expense account).
2. Indirect nancial gains that raise employees material standards, received as a
result of becoming an employee in this organization and unrelated to performance. These include: social benets (pension fund, social security), education, insurance (life, health), days o (annual leave, short leaves, sick leaves)
and housing loans.
Viewing the classication of material compensation from the standpoint of the
company, it can be seen that material rewards are related to the organizational level,
and are distributed according to organizational programs or policies, as well as success in goal attainment.
(http://www.poslovniforum.hr/management/motivacijske_tehnike.asp)
The purpose of non-material or non-nancial compensations is to provide incentives for work that meet a range of employee needs. As shown in Figure 1, these
compensations can also be divided into two groups.
The rst group includes interesting tasks, challenge, responsibility, self-realization, training, advancement, achievement and contacts. The second group is
comprised of company policies, leadership, co-workers, status, working conditions,
exitime, shorter work week, division of work tasks, oce canteen and work from
home.
Numerous non-material strategies have been developed in organizations, such
as job design, management style, worker participation, management by objectives,
exitime, recognition and feedback, organizational culture, training opportunities
and career development etc., which, together with material strategies, make up a
complex motivation system.
(http://www.poslovniforum.hr/management/motivacijske_tehnike.asp)
268
3. STAFF TURNOVER IN RETAIL ORGANIZATIONS

3.1. Retailing its place and role in modern supply chain
Retailing is a division of commerce as an economic activity1. Retail, retail trade,

or retailing are terms frequently used in English as synonyms. According to Levy &
Weitz, retailing2 is the set of business activities that adds value to the products and services sold to consumer for their personal or family use (Levy&Weitz, 2009: p. 6), and
consequently a retailer is a business that sells products and/or services to consumers for
their personal or family use (Levy & Weitz, 2009: p. 7). It is this direct contact with
the nal consumer that distinguishes retailers from any other supply chain participant3. The mediator role, i.e. being the organization that can most swiftly gauge the
mood and changes in consumer behaviour (insight into demand by nal consumers
of products and services is the most valuable information in the supply chain) gives
retailers great power when dealing with producers or service provides. Considering
its position in the supply chain and the daily fresh information it receives, retail trade
aims to not only manage, but also to partly or completely create the supply and the
demand sides of the supply chain. On the supply side, retail operators choose the
channels through which they will buy the goods, and on the demand side they choose
the channels (mostly according to customers demands) through which they will sell
and distribute products and services to nal consumers. By connecting diverse and
frequently numerous supply chains they weave their supply nets. It is thus justied
to speak of Retail Supply Chain Management, i.e. Retail Supply Chain Net (see more
Ayers et al, 2008).
3.2. The problem of sta turnover in retailing
When speaking of motivation, it should be pointed out that this issue is more
commonly a problem at lower operational levels. Whereas middle and top management positions are lled by people chosen for their competence and motivation
to show it, people who get adequate compensation for their work, in the shop
itself problems arise more often than not. Unfortunately, salaries for shop assistants
1
For a modern denition of commerce see Segetlija, Z. (2006). Trgovinsko poslovanje, Ekonomski
fakultet u Osijeku, Osijek, p. 21
The English retail is derived frm the French word retailleir for cut o a piece or break down to
smaller pieces, according to Levy & Weitz, 2009, p. 8
Although other participants can partly sell products and/or services to nal consumers for their
personal or family use, retailing is the only one that does this as a basic and main activity.
269
and other shop workers are not only lowest in retail companies, but are frequently
among the lowest in overall economy. According to a research by the web portal
MojPosao.hr, the average salary in retailing in Croatia is as much as 25.8% lower
that the overall average salary in the country4. Keeping in mind that these are
average values, we have to remember that salaries for shop workers are lower by
additional 40%.
The signicance of this problem is immense. A number of studies has shown
that shop workers are generally very dissatised which causes nor only a decreasing
protability in retailing (Keiningham et al, 2006.), but also a high sta turnover.
According to ACNielsen, annual sta turnover in an average shop can exceed 100
% (ACNielsen, 2006: p. 168), whereas Microsoft claims that it can be as high as
170% in a single year5. Consulting Group (an American consultancy company)
has stated that annual sta turnover in American retailing used to be under 70%,
whereas today the number can go as high as 300% in the case of employees in direct contact with customers, i.e. non-managerial sta working in shops (according
to Holman/Sheldon/Buzek, 2005).
There are numerous reasons for such a huge labour drain from the shops:
Unsatisfactory remuneration economy sector with very low salaries,
Extended working hours with very little leisure time,
Physically strenuous work,
Continuous additional training required,
Stress due to direct contact with customers,
A great number of temporary workers or those who are not serious about their
job, etc.
Apart from employees being dissatised, high sta turnover also causes great
concern for employers predominantly large retail chains. The annual cost of retailing sta turnover in Australia amounts to 379 million dollars, whereas a study
by Coca-Cola states that in the year 2000 an average supermarket had costs related
http://www.ured-ravnopravnost.hr/slike/File/MojPosao-Rezultati_Istrazivanja_o_visini_
placa_2008-2009.pdf (10 Dec. 2010)
http://www.microsoft.com/industry/retail/businessvalue/workforcemanagementarticle.mspx
Dec. 2007)
(10
270
to turnover in the amount of 198,177 dollars6. In addition to huge costs, there is

also a question of time and eort lost or wasted. New forms of retail activities such
as category management require employees to go through additional training and
develop new competences. For example, it will take some time to train the sta how
to implement and maintain planograms, how to ll shelves regularly and, generally, how to keep their shop in a condition envisaged by e.g. category managers. If a
shop is not laid out nicely, the sales results will be far from expected. Furthermore,
in shops with tens of thousands SKUs7, numerous operations are carried out related
to logistics, sales promotion, record-keeping and control, as well as the process of
buying and selling. The requirements posed to shop assistants and other shop workers are growing daily. Frequent changes and new employees make it more dicult
to meet all these requirements, which is automatically reected on sales results. All
these indicators conrm the rst hypothesis (H1) that high sta turnover will have
adverse eects on business.
4. CASE STUDY USING MOTIVATIONAL COMPENSATION IN RETAILING
We have established above that retailing is a peculiar economic sector in that

its sta turnover is among the highest, and its employees salaries are among the
lowest in the whole economy. We carried out some additional research to nd out
the extent of motivational compensation in the examined retailer, and compared
it with employees in some other economic sectors. We included in the research
employees at all hierarchical levels in four economic entities: a retailer (organization
A) and three non-retailing organizations (manufacturing industry, publicly-owned
utility company, and higher education institution). To facilitate the comparison,
we took the average results of the latter three and marked them as organization B.
The research was carried out by means of a questionnaire, and employees received
them personally. The questionnaire items were measured by closed-ended responses
with predened modality features. We will single out the results that are relevant
for the topic of the paper.
Report into nding and keeping good people in the retail sector, A report by the Australian Retailers Association, the Federal Department of Employment and Workplace Relations Work and Family Unit, and the Equal Opportunity for Women in the Workplace Agency.
http://www.eeo.gov.au/Information_Centres/resource_centre/eowa_publications/Balancing_the_
Till/Balancing_the_Till.pdf of 27 December 2007
Stock Keeping Units
271
We will focus here on the results related to nancial and non-nancial compensations. Regarding nancial compensations, we asked employees in a retail chain
whether they were satised with the fairness of rewards, i.e. salaries, as related to
work performance. Graph 1 clearly shows that the majority of employees in the organization A (36.2%) believe that rewards were not distributed fairly in relation to
work performance, whereas the results for employees of the examined organization
B are opposite, with almost 30.7% employees stating that the salaries were fair and
proportionate to work performance.
Graph 1. Fair distribution of rewards (salaries) related to work performance
Source: authors own research
In the area of non-nancial compensations, the most interesting responses referred to education and training programmes within the organization.
In terms of employee training, the analysis yielded very poor results. Looking
at the below stated forms of additional training (Graph 2), the largest percentage
of employees who have never taken part in any such programmes are found in the
group of in-house training (57%). The percentage of those who have never taken
part in a professional conference is 43.3% ; there are 69.8% of those who have never attended a seminar at the local university, 56% of those who have never attended
a specic training course, and 93% of those who have not had access to education
272
programmes abroad. Despite all this, the majority of employees study the literature
related to their work on their own (34.1%).
Graph 2. Education and training programmes within the organization
Source: authors own research
The retail organization, which exhibited by far the highest sta turnover among
the four economic entities included in our research, had employees who were receiving extremely low non-nancial compensations. This then conrmed the second hypothesis (H2).
5. CONCLUSION
What are retailers to do? Organizations need to become more aware of correlations between employee satisfaction (expressed also as lower sta turnover) and
protability. In retailing it is important to coordinate sound business organization
with adequate nancial compensation for employees. In addition, shop workers
need to understand the principles of modern retailing in order to be more successful in their work, and thus more satised. This is where non-nancial motivational
compensations become prominent.
273
Ad additional way for retailers to tackle the problem of high sta turnover is to
introduce new technologies which can reduce stang needs. Some of the technologies currently tested by retailers are Radio Frequency Identication, Smart Shelf
Pads, Personal Shopping Assistant, Self-Checkouts, Smart Scales, etc8. The introduction of such technologies almost always implies ethical dilemmas arising from
substituting people with dierent software and hardware. One line of thinking
argues that new technologies are introduced under pretence of enhancing shopping
experience, while they are primarily a means to cut the costs for the organizations
that have embraced them.
REFERENCES
1. ACNielsen, with Karolefski,J., Heller, A.(2006). Consumer-centric category

management : how to increase prots by managing categories based on consumer needs, John Wiley & Sons, Inc., Hoboken, New Jersey, ISBN:978-0471-70359-4
2. Ayers, J.B., Odegaard, M.A.(2008) Retail Supply Chain Management, Auerbach
Publications, Taylor & Francis Group, ISBN: 978-0-8493-9052-4
3. Holman, L., Sheldon, J., Buzek, G. (2005): The Future of Workforce Management, IHL Consulting Group, Franklin, SAD, http://www.microsoft.com/industry/retail/businessvalue/workforcemanagementarticle.mspx (10 December
2007)
4. http://www.future-store.org/ (10 January 2010)
5. http://www.poslovniforum.hr/management/motivacijske_tehnike.asp, (5 January 2010)
6. http://www.ured-ravnopravnost.hr/slike/File/MojPosao
Istrazivanja_o_visini_placa_2008-2009.pdf (10 January 2010)
Rezultati_
7. Keiningham, T.L., Aksoy, L., Daly, R.M., Perier, K., Solom, A.: Reexamining
the link between employee satisfaction and store performance in a retail environment, International Journal of Service Industry Management, Vol. 7, No. 1,
2006, pp 51 57, ISSN: 0956-4233
see more at http://www.future-store.org/ (10 January 2010)
274
8. Levy, M., Weitz, B.A. (2009): Retailing Management, Seventh Edition, McGrawHill / Irwin Inc., ISBN: 978-0-07-128424-0
9. Marui, S.(2001).Upravljanje ljudskim potencijalima, Adeco, Zagreb, ISBN:
953-97228-4-5
10. Report into nding and keeping good people in the retail sector, A report by
the Australian Retailers Association, the federal Department of Employment
and Workplace Relations Work and Family Unit, and the Equal Opportunity
for Women in the Workplace Agency prema http://www.eeo.gov.au/Information_Centres/resource_centre/eowa_publications/Balancing_the_Till/Balancing_the_Till.pdf (27 December 2007)
11. Robbins, S. P.(1992). Bitni elementi organizacijskog ponaanja, Mate, Zagreb,
ISBN: 953-6070-30-8
12. Segetlija, Z. (2006). Trgovinsko poslovanje, Ekonomski fakultet u Osijeku,
Osijek, ISBN: 953-253-005-3
PERSONALENTWICKLUNG UND ORGANISATIONSENTWICKLUNG IM PROJEKTMANAGEMENT
275
PERSONALENTWICKLUNG UND
ORGANISATIONSENTWICKLUNG IM
PROJEKTMANAGEMENT
Prof. Dr. Ulrich Vossebein
ABSTRACT
The study indicates that the professionalization of the project management further progresses. An important step has been carried out by the opening of academic
continuing education possibilities in the project management for an independent
career development in the project management. Clearly also became that all together the subject Project management is put up in comparison to 2004/05 broader.. The study also gives many advices to a sensible personnel development and
makes clear that an organisation development must be oered in many enterprises.
Good and successful project managers will decide in the longer term to follow on
the project management career only if they see here similar perspectives like in the
line career or the professional career.
JEL clasication: O15, O16, O22
Keywords: Project Management, Organisation Development
1. EINLEITUNG
Die zunehmende Bedeutung des Projektmanagements wird seit vielen Jahren

immer wieder durch Untersuchungen und Befragungen von Unternehmen nachhaltig besttigt. Dies bedeutet, dass in immer mehr Unternehmen die Arbeit in
Projekten als normal angesehen wird und man erwartet, dass die Mitarbeiter in der
Lage sind, Projekte zielorientiert und ezient durchzufhren. Aufgrund dessen,
das erst in den letzten Jahren Projektmanagement als Basismodul in vielen Studiengngen integriert ist, ergibt sich ein groer Weiterbildungsbedarf, um jederzeit
die notwendigen Kompetenzen in den einzelnen Projekten zur Verfgung stellen
zu knnen. In dem nachfolgenden Beitrag werden, nach einer kurzen Diskussion
276
Ulrich Vossebein
wichtiger Teilbereiche der Themenstellung, die Ergebnisse aus der 2. Gehaltsstudie

im deutschsprachigen Raum fr den Bereich Projektmanagement vorgestellt.
2. DER 3. KARRIEREPFAD
Diese Wandlung der Arbeitsweise bedingt Zweierlei: Auf der einen Seite mssen
individuelle Wissenslcken im Bereich Projektmanagement ausgeglichen werden.
Hierzu gibt es eine Vielzahl von Institutionen, die dies auf unterschiedlichem
Niveau anbieten. Auf der anderen Seite mssen in den Unternehmen aber auch die
Strukturen geschaen werden, dass sich eine erfolgreiche Arbeit in Projekten auch
fr die Projektmitglieder auszahlt. In diesem zweiten Bereich ergeben sich in den
meisten Unternehmen noch erhebliche Dezite. Themen wie Personalentwicklung,
Karriereplanung und Aufstiegsmglichkeiten im Rahmen des Projektmanagements
werden zwar schon auf vielen Veranstaltungen diskutiert, sind aber in der Regel
noch nicht in den Unternehmen implementiert.
Hierarchieebene
Linienlaufbahn
Projektlaufbahn
Fachlaufbahn
Abbildung 1: Projekt-, Linien- und Fachlaufbahn (Grau, Vossebein 2006)

Abbildung 1 spiegelt die typische Situation in vielen Unternehmen wider. Projektmitglieder werden aus der Linien- bzw. Fachorganisation fr Projekte zeitlich
begrenzt freigestellt, kehren aber nach Abschluss des Projekts wieder in ihren alten
Organisationsbereich zurck, indem es dann zu einer Karriereentwicklung kommen kann.
3. GEZIELTE WEITERBILDUNGSMASSNAHMEN
Fr eine kontinuierliche Weiterentwicklung und Schulung der Projektmitglieder ist zu beachten, dass die notwendigen Kompetenzen natrlich von der Funktion im Rahmen von Projekten abhngig sind. In Abbildung ist 2 sind die verschie-
277
denen Kompetenzbereiche in Abhngigkeit von der Ebene im Projektmanagement

kurz skizziert.
PM-Grundlagen
Fhrung
Projektstrukturierung
AblaufTerminplanung
Projektleiter
General Management
Risikomanagement
Finanzmittelmanagement
Kostenmanagement
Senior-Projektleiter
Projektdirektor
Abbildung 2: Zielgruppenspezische Weiterbildungsinhalte im Projektmanagement (Grau, Vossebein 2006)

Aufgrund des hohen Internationalisierungsgrades im Rahmend er Projektarbeit
sowie der sehr heterogenen Vorkenntnisse, mssen hohe Ansprche an eine Weiterbildung gestellt werden. Hierzu dienen einerseits die Reputation der Anbieter, zum
Beispiel eine anerkannte staatliche oder private Hochschule, bzw. die Akkreditierung durch international anerkannte Agenturen. Andererseits ist es aber auch
notwendig, dass aufgezeigt wird, wie die Qualitt und Aktualitt der Manahme
kontinuierlich verbessert und an die Bedrfnisse der Zielgruppe angepasst wird.
Eine Mglichkeit der Qualittssicherung von Weiterbildungsmanahmen ist in
Abbildung 3 im berblick dargestellt.
SelfAssessment
Ausfhrliche
Information
der Teilnehmer
Vorkurse
Einzeltraining
Evaluation
der Dozenten /
Rahmenbedingungen
Alumniarbeit
Zeit
Start der
Weiterbildung
Wissenschaftliche
Begleitforschung
Diskussion mit
Unternehmen
Ende der
Weiterbildung
Abbildung 3: Qualittssicherung bei Weiterbildungsangeboten (Grau, Vossebein 2006)
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Ulrich Vossebein
4. ZWEITE GEHALTSSTUDIE IM PROJEKTMANAGEMENT
Nach 2004/05 wurde 2009 eine zweite Gehaltsstudie im deutschsprachigen

Raum durchgefhrt, um einen valideren Einblick in die Projektorganisation sowie
das Gehaltsgefge der Projektmanager zu erhalten. Darber hinaus sollten neue
Erkenntnisse in Bezug auf die Aufstiegsmglichkeiten im Projektmanagement gewonnen werden. Die Studie wurde im Auftrag der Deutschen Gesellschaft fr Projektmanagement e.V. durchgefhrt. Teile der nachfolgenden Ergebnisse sind auch
in der projektmanagement aktuell 3/2010 (Grau, Vossebein 2010)verentlicht.
Insgesamt umfasst konnten 680 Fragebgen in der Auswertung bercksichtigt werden, was eine deutliche Steigerung gegenber den 213 Teilnehmern aus
dem Jahr 2004/05 bedeutet. Im Unterschied zu 2004/05 wurde keine schriftliche
sondern eine online-Befragung durchgefhrt.
4.1. Projektmanagement umfasst alle Bereiche
Die Studie belegt, dass Projektmanagement nicht mehr nur etwas fr Ingenieure
ist, sondern dass in sehr vielen Funktionsbereichen und Branchen Projekte durchgefhrt werden (vgl. Abbildung 4). Auch die Verteilung der Studienabschlsse
belegt, dass die Ingenieurlastigkeit, 2004/05 hatten 48,1 % der Befragten einen
Studienabschluss im Ingenieurbereich, der Vergangenheit angehrt. Neben dem
starken anstieg der Wirtschaftswissenschaftler und Mathematiker/Informatiker
treten jetzt auch Gesellschafts- und Sozialwissenschaftler signikant in der Stichprobe auf.
Ein Blick auf die Arbeitszeiten, die in Projekten verbracht werden, belegt eindrucksvoll die Aussage, dass die Projektarbeit fr viele Befragten die Hauptarbeitsform ist. 30,4 % der Befragten arbeiten ausschlielich in Projekten, weitere 37,3 %
zwischen 76 und 99 % ihrer Arbeitszeit. 2004/05 lagen die entsprechenden Werte
noch bei 21,1 % bzw. 31,5 %.
Fachrichtung im Studium:
- Ingenieurwesen:
29,9 %
- Mathematik/Informatik:
15,4 %
- Wirtschaftswissenschaften:
21,0 %
- Gesellschafts- und Sozialwiss.:
4,0 %
- Naturwissenschaften:
5,6 %
- Rechtswissenschaften:
0,6 %
Branchenverteilung:
- Consulting, Training, Coaching:
- Projektsteuerung:
- Automotive:
- Anlagenbau:
- Bau:
- Software:
- Telekommunikation:
279
24,4 %
13,2 %
11,3 %
9,3 %
4,7 %
22,5 %
12,6 %
Projektmanagement
Funktion im Unternehmen:
- IT-Beratung/Konzeption:
- Ingenieur Projektabwicklung:
- Softwareentwicklung:
- Forschung und Entwicklung:
- Qualittswesen:
- Personal:
- Logistik/Materialwirtschaft:
- Media/PR:
- Vertrieb:
26,0 %
21,8 %
8,8 %
10,3 %
17,9 %
6,0 %
5,3 %
3,9 %
8,4 %
Arbeitszeit in Projekten:
- Bis 35 %:
6,8 %
- 36 75 %:
25,5 %
- 76 99 %:
37,3 %
- 100%:
30,4 %
Abbildung 4: Einsatzbereiche von Projektmanagement

4.2. Klassische Weiterbildung im Projektmanagement
Betrachtet man zunchst die klassische nicht akademische Weiterbildung,

ist es sinnvoll, die einzelnen Gebiete nach dem GPM-Canon einzuteilen. In Abbildung 5 wird jeweils angezeigt, wie viel Prozent der Befragten schon einmal an
einer entsprechenden Weiterbildungsmanahme teilgenommen haben. Die Werte
in den Klammern geben das Ergebnis aus 2004/05 wider, so dass ein Vergleich
zwischen den beiden Zeitpunkten mglich ist.
Aullig ist zunchst, dass in allen Bereichen die Beteiligungsquote rcklug
ist. Dies drfte u.a. darauf zurckzufhren sein, dass seit einigen Jahren in immer
mehr Studiengngen ein Modul Projektmanagement fester Bestanteil des Curriculums ist, so dass die Grundlagen des Projektmanagements bereits in der Hochschule
vermittelt werden. Spitzenreiter der Weiterbildungsinhalte ist weiterhin Projektmanagement mit 77,8 % gegenber 88,3 % Teilnahme 2004/05. Aullig ist
auch, dass im Bereich Sozialkompetenz 3 der 4 Angebote eine Teilnahmequote von
ber 50 % haben. Hier scheinen noch Dezite auf breiter Front zu bestehen, die
durch die Weiterbildung kompensiert werden sollen.
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Ulrich Vossebein
Tabelle 1: Verteilung der Weiterbildungsaktivitten im Projektmanagement

Grundlagenkompetenz
General Management
Projektmanagement
Stakeholder und P-Umfeld
Normen und Richtlinien
Sonstiges
in Prozent
24,1 % (28,6 %)
77,8 % (88,3 %)
28,4 % (31,9 %)
19,6 % (23,9 %)
3,4 % (6,1%)
Methodenkompetenz
Projektstrukturierung
Ablauf- Terminplanung
Kostenmanagement
Finanzmittelmanagement
Sonstige
in Prozent
62,5 % (70,4 %)
56,5 % (62,9 %)
42,6 % (52,6 %)
20,7 % (28,6 %)
1,6 % (4,2 %)
Soziale Kompetenz
Gruppen, Team
Koniktmanagement
Motivation
Fhrung
Sonstiges
in Prozent
54,6 % (62,0 %)
50,7 % (59,2 %)
39,6 % (49,3 %)
52,4 % (60,1 %)
2,5 % (5,2 %)
Organisationskompetenz
Qualittsmanagement
Vertragsmanagement
Kongurations-, nderungsmanagement
Risikomanagement
EVD im PM
Sonstiges
in Prozent
41,3 % (43,2 %)
26,9 % (41,3 %)
31,3 % (36,3 %)
42,8 % (47,4 %)
42,4 % (49,3 %)
1,2 % (3,8 %)
Hervorzuheben ist weiterhin, dass sich die Gesamtausbildungsdauer von 45,71

Tage 2004/05 auf aktuell 50,5 Tage erhht hat. Dies ist als weiterer Beleg dafr
zu werten, dass das Thema Projektmanagement an Bedeutung gewinnt und die
Projektmanager eine tiefgehendes Fachwissen als Grundlage fr ihre Aufgaben als
notwendig erachten.
Die notwendige Aktualitt des PM-Wissens wird dadurch unterstrichen, dass
immerhin 3 von 4 Befragten im letzten Jahr an einer Weiterbildungsmanahme
teilgenommen haben. Fr jeden 2.-ten trit dies fr die letzten 6 Monate zu. Insgesamt hat die Grundqualikation sowie die kontinuierliche Weiterqualikation
im Bereich Projektmanagement einen sehr hohen Stellenwert, wie aus den bereits
aufgezeigten Ergebnissen deutlich wird.
4.3. Die Akademisierung des Projektmanagements nimmt zu
Die grte Vernderung bzgl. der Weiterqualikation ergab sich im akademischen Bereich. Gab es 2004/05 noch keine Teilnehmer mit einem Diplom im Projektmanagement, so lag der Anteil 2009 immerhin schon bei 7,5 % und war damit
die hugste Form einer Weiterqualikation im akademischen Bereich (vgl. Tabelle
2). Obwohl die Mglichkeiten, im Projektmanagement einen Diplom-Abschluss
zu erreichen, noch recht jung sind, zeigen die Ergebnisse, dass dies eine interessante
281
Qualizierungsmglichkeit im Projektmanagement ist. Dass dieser Abschluss sich

auch in Bezug auf die Aufstiegschancen im Projektmanagement sehr vorteilhaft ist,
wird spter noch aufgezeigt.
Tabelle 2: Akademische Zusatzausbildung

Zweites Studium
Aufbaustudium
Diplom-Projektmanager
MBA
Promotion
Absolute Werte
50
28
51
19
28
In Prozent
7,4
4,1
7,5
2,8
4,1
4.4. Verdienstmglichkeiten im Projektmanagement
Ein ganz wesentlicher Punkt im Zusammenhang mit der Karriereentwicklung

ist die Hhe des Gehalts. Wie viel kann im Projektmanagement verdient werden,
welche Abweichungen gibt es dort, was ist ein hohes, was ein niedriges Gehalt?
Eine Antwort auf diese Fragen gibt Tabelle 3, in der die wichtigsten Kennzahlen
in den beiden Erhebungszeitrumen dargestellt sind. Die Angaben beziehen sich
hierbei auf das Grundgehalt.
Tabelle 3: Verteilung des Grundgehalts

Durchschnittliches Jahresbruttogehalt
Hugster genannter Wert (Modus)
25 % - Wert
50 % - Wert
75 % - Wert
Standardabweichung
2009
67.664
60.000
49.000
63.000
78.000
27.385
2004/05
69.663
60.000
52.515
64.800
81.400
29.719
Beim ersten Blick auf Tabelle 3 fllt auf, dass das Durchschnittsgehalt gesunken
ist. Eine erste Erklrung hierzu ist in Tabelle 4 zu nden. Der Anteil der Teilnehmer, die die beiden hchsten Projektmanagementebenen erreicht haben, liegt mit
insgesamt 26,9 % deutlich unter dem Wert aus 2004/05 (37,1 %).
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Ulrich Vossebein
Tabelle 4: Erreichte Projektmanagementebene

in Prozent
2009
5,7
21,2
26,6
7,2
3,4
3,4
32,5
1. Ebene (z. B. Projektdirektor)

2. Ebene (z. B. Seniorprojektleiter)
3. Ebene (z. B. Projektleiter)
4. Ebene (z.B. Teilprojektleiter)
5. Ebene (z. B. Assistent im Projektmanagement)
Sonstiges (z.B. Projektcoach)
Keine Angabe
in Prozent
2004/05
9,9
27,2
25,4
8,0
3,3
4,7
21,5
Tabelle 5: Berufserfahrung auf der aktuellen PM-Ebene bzw. im PM insgesamt

in Jahren
bis 2
3 bis 5
6 bis 10
11 bis 15
ber 15
in Prozent
aktuelle PM-Ebene
21,7
37,1
30,8
6,2
4,2
in Prozent PM insgesamt
12,5
22,6
39,3
14,0
11,6
Dieses Ergebnis korrespondiert auch mit dem Rckgang der bereits im Projektmanagement verbrachten Berufsjahre. Beispielsweise lag der Wert fr mindestens
10 Berufsjahre im Projektmanagement 2004/05 noch bei 43.6 %, wohingegen
2009 nur noch 25,6 % der Teilnehmer zu dieser Gruppe gehrten. Die aktuelle
Verteilung ist in Tabelle 5 dargestellt, wobei zwischen den Berufsjahren auf der
letzten Projektmanagementebene und den gesamten Berufsjahren am Projektmanagement unterschieden wird.
4.5 Die wchentliche Arbeitszeit
Neben der Gehaltsfrage stellt sich auch die Frage, wie viele Stunden in der
Woche gearbeitet werden muss, um sein Gehalt zu bekommen. Hierbei ergeben
sich erfahrungsgem zwischen der tariich vereinbarten und der tatschlichen Arbeitszeit deutliche Unterschiede. In Tabelle 6 sind die entsprechenden Werte fr
die aktuelle Umfrage dargestellt.
283
Tabelle 6: Vereinbarte und tatschliche Wochenarbeitszeit

Vereinbarte Wochenarbeitszeit
39,80
40,00
40,00
4,045
Mittelwert
Median
Modus
Standardabweichung
Tatschliche Wochenarbeitszeit
47,21
45,00
45,00
8,355
Der einfache Blick auf Tabelle 6 macht deutlich, dass im Durchschnitt die
tatschliche Arbeitszeit pro Woche um 7,42 ber der tariich vereinbarten Regelung liegt. Die hugste Abweichung liegt bei 5 Stunden.
Da die meisten Teilnehmer nicht ausschlielich in Projekten arbeiten, wird in
Tabelle 7 aufgezeigt, wie viel Prozent der gesamten Arbeitszeit in Projekten verbracht wird, wobei die Analyse fr jede Projektmanagementebene separat durchgefhrt wurde (zu den Ebenen siehe auch Tabelle 4).
Tabelle 7: Arbeitszeit in Projekten

Bis 50 %
51 % - 79 %
80 % - 99 %
100%
Insgesamt
1. Ebene
1
12
17
9
39
2. Ebene
3
28
55
52
138
3. Ebene
9
45
75
47
176
4. Ebene
2
6
15
22
45
5. Ebene
2
5
6
6
19
sonstiges
4
5
7
7
23
Die Zahlen belegen, dass auf allen Ebenen nur wenig Beteiligte unter 50 %
in Projekten arbeiten. Erstaunlich ist aber auch, dass von den Projektdirektoren
(Ebene 1) doch ein recht hoher Prozentsatz weniger als 80 % in Projekte eingebunden sind, so dass an 1 bis 2,5 Tagen pro Woche fr Ttigkeiten auerhalb
von Projekten durchgefhrt werden. Prozentual der grte Anteil mit einer 100
% Einbindung in Projekte ergibt sich bei den Teilprojektleitern (Ebene 4), gefolgt
von den Senior-Projektleitern (Ebene 2), wobei hier auch ein sehr hoher Anteil
zumindest 80 % der Arbeitszeit in Projekten arbeitet.
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Ulrich Vossebein
4.6 Vorteile durch das Diplom im Projektmanagement
Eine sehr interessante Frage ergab sich aus der Tatsache, dass 2009 zum ersten Mal Teilnehmer auftraten, die ein Diplom in Projektmanagement im Rahmen
eines Weiterbildungsstudienangebots erworben haben. Was bringt dieser Akademische Abschluss? Ist dies ein Weg, um schneller im Projektmanagement Karriere
machen zu knnen?
Die Ergebnisse der Studie belegen eindeutig, dass sich durch ein Diplom in
Projektmanagement ein schnellerer Aufstieg im Projektmanagement mglich ist.
Dies bezieht sich hierbei explizit auf die Projektmanagementkarriere, da sich ein
Projektmanagement-Diplom nicht auf die Position auerhalb des Projektbereichs
auswirkt.
In Abbildung 5 sind die Zusammenhnge in Form eines Kausaldiagramms anschaulich dargestellt.
Abbildung 5: Das Projektmanagement-Diplom als Karrierebeschleuniger
PM-Erfahrung
insgesamt
eher gering
DiplomProjektmanager
Position im
Unternehmen
Projektmanagement-Ebene
Berufserfahrung in einer
bestimmten Position im
Unternehmen
In Abbildung 5 wird deutlich, dass die Vorteile des Diplom-Projektmanagers

wie beschrieben - nur im Projektmanagement zum Tragen kommen. Bezglich der
Position im Unternehmen auerhalb der Projekte lsst sich kein Zusammenhang
zum Diplom-Projektmanager nachweisen. Diese Erkenntnis zeigt, dass die Akademisierung des Projektmanagements zu einem schnelleren Aufstieg fhren kann,
was wiederum die Diskussion zum Thema Karrierepfad im Projektmanagement
positiv begeln wird.
285
4.7. Regressionsanalytischer Ansatz zur Bestimmung des Bruttogehalts
Die Quantizierung der Einussfaktoren auf die Gehaltshhe wurde mit Hilfe
einer multiplen Regression durchgefhrt. Das Ergebnis ist nachfolgend aufgefhrt,
wobei der Erklrungsanteil analog zur Studie aus 2004/05 bei rund 40 % lag. Es
alles sich somit nur die Grundfaktoren bestimmen, wohingegen zur Erklrung
der restlichen 60 % sehr stark in die Segmentierung eingestiegen werden msste,
fr die das Datenmaterial nicht ausreichend gro ist.
Jahresbruttogehalt = 38.311,17 3.126,511 * Projekt-Ebene
+ 39,147 * Gesamtausbildungsdauer im PM
+ 314,080 * Durchschnittliche Arbeitszeit pro Woche
+ 2353,734 * Berufserfahrung im PM insgesamt
5. SCHLUSSBETRACHTUNG
Die Studie zeigt auf, dass die Professionalisierung des Projektmanagements

weiter voranschreitet. Durch die Ernung akademischer Weiterbildungsmglichkeiten im Projektmanagement ist ein wichtiger Schritt fr eine eigenstndige Karriereentwicklung im Projektmanagement vollzogen worden. Deutlich wurde auch,
dass insgesamt das Thema Projektmanagement im Vergleich zu 2004/05 breiter
aufgestellt ist. Dies belegen die Verteilungen auf die Branchen und die Funktionen
im Unternehmen genauso wie die vielfltigen Studienabschlsse und die Erhhung der Arbeitszeit in Projekten. Die Studie gibt auch viele Hinweise auf eine
sinnvolle Personalentwicklung und macht deutlich, dass eine Organisationsentwicklung in vielen Unternehmen dringend geboten ist. Gute und erfolgreiche
Projektleiter werden sich nur lngerfristig fr die Projektmanagementlaufbahn entscheiden, wenn sie hier hnliche Perspektiven sehen wie in der Linien- oder der
Fachlaufbahn.
Quellen:
1. Grau, Nino, Vossebein, Ulrich: New Educational Requirements in Project Management Specic target groups International Commensurbility Innovative,
Vortrag IPMA World Congress 15. 17. 10. 2006 Shanghai
2. Grau Nino, Vossebein, Ulrich: Eigener Karrierepfad im Projektmanagement,
projektmanagement aktuell, 3/2010 (im Druck)
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Ivica Zdrili
THE INFLUENCE OF APPLYING THE TQM PRINCIPLE ON THE

BUSINESS RESULTS OF BIG CROATIAN COMPANIES
Ivica Zdrili
Adriatic Security d.o.o., Croatia,
ABSTRACT
Companies in the modern environment which constantly changes competitiveness, have to devote signicant time and resources, nancial and human, as well
as the energy to measure their own performance in achieving the preset strategic
goals.
Although the methods of managing business have signicantly changed over
the past few decades, the approaches to measuring and handling results of business
activities have remained unadapted to new circumstances.
However, it is not enough only to introduce new theoretical knowledge form
the eld of organisation and management but it is also necessary to nd a way how
to measure the introduced changes. Nowadays, the feedback is the key to success,
because it gives the concrete information about the success of introducing news
into a company as well as the information about performances of a company on
the whole. That is why today great attention is given to the methodologies which
try to evaluate the performance of a company.
The results of the conducted research show that companies with a low level of
performance in the research from the year 2000 went bankrupt or shut down during the following two four-year-cycles (2001-2008).
The results of the empirical research have shown a signicant correlation between the performances investigated in 2000 and the nancial results in the perod
until 2008.
JEL clasication: L15, P17
Keywords: Total Quality Management, TQM, MBNQA, Performance management, Croatian companies, large retailers and wholesalers
THE INFLUENCE OF APPLYING THE TQM PRINCIPLE ON THE BUSINESS RESULTS OF BIG...
287
1. INTRODUCTION
In the past, the success of companies was assessed on the basis of long-term and
other assets reported in the accounting balance sheet. During most of the twentieth century, the traditional management and control systems were applied in an
environment of mature products and stable technology. At that time, almost all
accounting procedures that exist today were in use.
Measuring the success of the organisation or the process shows whether what
has been done is good or not, it shows whether it is necessary to take some action or
not, and gives the guidelines which actions should be taken (Wealleanus, 2001, pp.
3). These claims gain a special signicance if we know that business performance
inuences the behaviour, both of managers and employees of an organisation (Lin,
2007, pp. 1069).
Bearing all the above mentioned in mind, it becomes clear that the evaluation
of performance is the primary wheel to the success of each company. Without
measuring the organisation it is not possible to determine the deviation of the
current state from the one aimed at, or to detect bad parts of the organisation in
order to implement measures for its improvement.
A famous sentence reads: Kada neto ne mjerite, onda to ne moete ni znati. Ako
neto ne znate, onda time ne moete upravljati. Kada ne moete upravljati, tada ste
preputeni na milost i nemilost.1 (Osli, 2008, pp. 160)
2. PRINCIPLES OF TQM THROUGH MBNQA
The American Quality Award is based on the principles of Total Quality Management, the methodology which takes continuous improvement as its basic value.
How can the term Total Quality Management be dened? Total Quality Management is the philosophy of commitment and loyalty of the whole organisation to
constant improvement in all areas. The results of application are Delight Customers,
Empowered Employees, Higher Revenue and Lower Costs (Figure 1).
Eng. :When you do not measure something, then you cannot know it. If you do not know something, then you cannot manage it. If you cannot manage, then you are left at mercy.
288
Ivica Zdrili
Figure 1: Results of TQM-a
Source: (Juran, M.J., 1999, 14.5.)

The worlds most important award for quality - MBNQA oers the methodology
how to measure the success of the implementation of Total Quality Management in
a company, i.e. it gives feedback how successful the implementation of Total Quality Management is, and provides information on companys performances.
Malcolm Baldrige National Quality Award was established in 1988, and
founded in 1987. It was named after Malcolm Baldrige, the American Minister of
Trade in the period from 1981 to 1987. He improved the eciency and eectiveness of the U.S. government.
The award is given each year for three categories of companies: manufacturing
companies, service companies and small companies. MBNQA is divided into seven
categories which represent a comprehensive framework for quality management
(Table 1). No standard approach is required in order to obtain MBNQA. Each
company is free to choose its own, specic techniques and approaches, within the
overall objectives and the criteria described above. The winners so far are very different. The power of MBNQA lies in the fact that it does not require any special
principles, but allows the exibility to each individual company in the denition of
good quality management.
289
Figure 2: Criteria for Performance Excellence Item Listing, 2000.

1 Leadership
1.1 Senior Leadership
1.2 Governance and Societal Responsibilities
2 Strategic Planning
2.1 Strategy Development
2.2 Strategy Deployment
3 Customer Focus
3.1 Customer Engagement
3.2 Voice of the Customer
4 Measurement, Analysis, and Knowledge Management
4.1 Measurement, Analysis, and Improvement of Organisational Performance
4.2 Management of Information, Knowledge, and Information Technology
5 Workforce Focus
5.1 Workforce Engagement
5.2 Workforce Environment
6 Process Management
6.1 Work Systems
6.2 Work Processes
7 Results
7.1 Product Outcomes
7.2 Customer-Focused Outcomes
7.3 Financial and Market Outcomes
7.4 Workforce-Focused Outcomes
7.5 Process Eectiveness Outcomes
7.6 Leadership Outcomes
TOTAL POINTS
120
70
50
85
40
45
85
40
45
90
45
45
85
45
40
85
35
50
450
100
70
70
70
70
70
1.000
Source: (Brown, 2008, pp.72-73)
Leadership, Strategic Planning, and Customer and Market Focus represent the
leadership triad. These categories are placed together to emphasize the importance
of thr leadership focus on strategy and customers. Human Resource Management,
Process Management, and Business Results represent the results triad. Employees of a
company and its supplier partners accomplish the work of the organisation through
its key processes that yield the business results. All company actions point towards
business results a composite of customer, nancial, and nonnancial performance
results, including human resource results and public responsibility. Information and
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Ivica Zdrili
Analysis is critical to eective management and fact-based system for improving

companys performance and competitiveness. Information and Analysis serve as the
foundation for the performance management system. (Figure 2)
Figure 3: Baldrige Criteria for Performance Excellence Framework: A Systems Perspective
(Source: Brown, 2008., pp.48)
The implementation of TQM requires loyalty, discipline and the constant eort
of all employees, taking into account that TQM involves (and depends on) everyone. Each activity should be performed correctly and directed toward the common
goal. Therefore, TQM can be considered as a system, which enables an enterprise to
improve all the work processes systematically and continuously, as well as product
(and service) quality and the quality of life. It assures avoiding useless eorts and
resource waste by assisting employees to reach the designated goals within the allocated time and budget.
CORE VALUES
visionary leadership
customer-driven excellence
organisational and personal learning
291
valuing workforce members and partners

agility
focus on the future
managing for innovation
management by fact
societal responsibility
focus on results and creating value
systems perspective
The main purpose of new systems of measuring companys success, i.e. business
excellence, are innovation, learning, and consequent improvement in accordance
with the objectives and orientation of the organisation. These major changes in the
measuring systems can be viewed as guidelines for establishing criteria.
Persistent implementation of selected models of excellence such as the MBNQA
provides the company with systematic introduction of TQM, and the possibility of
permanent comparison with the best. Besides serving for the competition for the
American award for quality, MBNQA becomes the real view of the situation in the
company and the processes that desperately need changes and improvement.
What happens in Croatian companies? What are their results in the implementation of continuous improvement? These and other questions are the subject of
this research that aims at answering what their competitive ability is like.
3.1. Research form 2000. questionnaire
The research concentrated on the large enterprises, which were expected to possess the satisfactory potential for the TQM implementation. The sample consisted
of 52 selected large retailers and wholesalers (in 14 of 20 Croatian counties), with
more than 250 employees.
The data were collected by means of a questionnaire, mailed to the top managers
(or presidents of the management boards) of the companies included in the sample.
The questionnaire, consisting of 29 items, was designed in order to obtain information about eleven core values of TQM (visionary leadership, customer-driven
excellence, organisational and personal learning, valuing workforce members and
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Ivica Zdrili
partners, agility, focus on the future, managing for innovation, management by

fact, societal responsibility, focus on results and creating value, systems perspective). For most questions multiple answers were provided, although some questionnaire items allowed the respondents to formulate the answers as they saw t.
The multiple-answer questions were directed toward establishing facts (regarding
organisation, its performance, etc.), while the mangers perceptions were measured
by the multiple-answer questions in the form of a standardised Likerts scale, which
is theoretically regarded as an optimal solution in constructing such a questionnaire
(Zelenika, 1998, pp.371).
Out of 52 questionnaires mailed, 17 were returned, i.e. the return rate is 32,69%.
Therefore, we believe that the obtained results may be considered representative.
The secondary data sources include the Croatian chamber of commerces data
on individual company performance in 1998., as well as the Croatian agency for
payments data on industry performance in 1998. and rst three quarters of 1999.
The data collected were processed with the Microsoft Excel 2007 and the statistical
analysis software for social sciences (SPSS v.15.0).
3.2. Investigation of the nancial results for the period 2001-2008
Financial results, RDiG, balance, secondary sources of CCC, Trade Croatia.

The results were analyzed on the basis of standard reports. In order to conrm the
results of applying the TQM principles in business, an analysis of nancial results
of business for the period of 8 years after the survey questionnaire and companys
assessment was made. The actual nancial results of business are grouped according to various indicators of business and are ranked. When ranking companies the
results of the last ve annual reports on business were considered (2004-2008).
293
4. RESEARCH RESULTS
Based on responses from the survey questionnaire in 2000 and grouping the
answers, the following results were obtained:
FFigure
igure 4: Performance
Per
errfo
form
rman
ance
an
ce ooff Cr
Croa
Croatian
oatititian
oa
an bbig
ig ttrade
rade
ra
de ccompanies
ompa
om
pani
pa
nies
ni
es iinn 20
2000
00
Source: Survey results (N=17)
The results show that 9 out of 17 companies have the performance lower than
400 points which is considered a poor score, while only 2 of 17 companies are over
500 points.
Following the nancial results of the investigated companies through the next
period of 8 years, it was shown that 10 of 17 companies went bankrupt or were
closed.
Table 1: Performance of Croatian big trade companies in 2000 and number of bankruptcy until end of 2008.
Points
0
101
201
301
401
501
601
100
200
300
400
500
600
700
Performance
2000.
0
1
2
6
6
2
0
Bankruptcy
0
1
2
4
3
0
0
100,0%
100,0%
66,7%
50,0%
0,0%
-
294
Ivica Zdrili
701
801
901
Total
800
900
1000
0
0
0
17
0
0
0
10
58,8%
From the above table it is obvious that there is a very signicant negative correlation (R =- 0.9525) between the performances of companies in 2000 and what
happened in the next eight years, i.e. that companies which achieved a lower value
of the performance in 2000 failed to survive on the market in the next period. Individual results of companies are the following:
Figure 5: Financial Performance of large trade companies and their relationship to the performances in 2000.
The results show that companies with low performances in 2000 disappeared
from the market (bankruptcy or extinction), while companies which had the best
performances managed to survive. Signicant progress was made only by two companies, while in the new measurements three companies are located in the dangerous zone. It is important to note that the results of research are related to the
period when the global nancial crisis was not present, so it had no impact on the
results of the research.
295
Figure 6: Linear correlation between performance in 2000 and nancial results 2001-2008.
Regression Statistics
Multiple R
0,567858599
R Square
0,322463389
Adjusted R Square 0,277294281
Standard Error
92,1 0372459
Observations
17
Regression
Residual
Total
Intercept
X Variable 1
df
1
15
16
ANOVA
SS
MS
F
Significance F
60561 ,04 60561 ,04 7,1 39025 0,01 741 2023
1 27246,4 8483,096
1 87807,5
Coefficients Standard Error

t Stat
P-value
331 ,9656046
28,47296635 1 1 ,65897506 6,40387E-09
0,222759981
0,083371 52 2,671 895401 0,01 741 2023
The value of Pearson coecient of linear correlation is R=0,568. As signicance

is 0,017 and is less than 0,050, the conclusion can be made that the obtained Pearson coecient of linear correlation is signicant, i.e. there is a statistically signicant
connection between performance in 2000 and nancial performance 2001-2008.
5. CONCLUSION
The presented results of research show that the use of TQM methodology as a
means of improving the organisation and measuring performances can help in assessing the overall performances of a company.
Measuring performances of a company can detect faults within the company,
which may lead to negative business results.
The conducted research showed that there is awareness about the key values of
TQM and they are not respected. The research showed that such companies went
bankrupt within next 8 years.
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Ivica Zdrili
By applying improvement methods like TQM, the companies will get new wind
in its sails and a better position on the market. However, there is still large space
for progress.
6. REFERENCES
1. Buble, M. & Zdrili; I. & Alrevi, N (2001): Possibilities for application of

Total Quality Management in improving organization of large trade enterprises in
transition: The case of Croatia, 4th International Conference Enterprise in Transition / Goi, S. (ed.), pp.43-45, Split-Hvar, 24-26. June 2001, Ekonomski
fakultet Split
2. Brown, M. (2008). Baldrige Award Winning Quality. London, New York: Productiviti Press - Taylor & Frabcis Group
3. Lin, C. K. (2007). The mediate eect of learning and knowledge on organisational performance. International Journal of Management, 107, str. 1066-1083.
4. Oakland, S.J. (2003). Total Quality Management, Oxford: ButterworthHeinemann.
5. Osli, I. (2008). Kvaliteta i poslovna izvrsnost. Zagreb: M.E.P. Consult.
6. Wealleanus, D. (2001). The organisational measurement manual. Hampshire:
Gower Publishing Ltd.
7. Zelenika, R. (1998). Metodologija i tehnologija izrade znanstvenog i strunog djela,
Rijeka: Faculty of Economics Rijeka.
8. Ziegenbein, K. (2008). Kontroling, Zagreb: RRiF plus.
OPERATIONAL DECISIONMAKING: DIFFERENCES IN PRIMARY AND SECONDARY...
297
OPERATIONAL DECISIONMAKING: DIFFERENCES

IN PRIMARY AND SECONDARY PERCEPTION
Andrew Lynch,
University of Limerick, Ireland
ABSTRACT
This paper outlines the dierences in perception between the person making an
operational decision within an SME (Primary) and someone who is knowledgeable
of the decision being made, but not directly involved in the process (Secondary).
An empirical rating mechanism is used to ascertain a participants attitude to a specic set of operational decisions. Over 130 interviews were carried out in 25 SMEs.
The Primary and Secondary responders were assessed and the dierences in decision rating outlined and discussed. The dierence in attitude to a decision within
an SME is not a new topic in literature. Nicholson and Cannon [2000], discuss the
dierences in how CFOs and MDs view top team dynamics, where dierences are
elucidated in interviews between the dierent groups. In this paper the dierences
in perception are based on a decision taxonomy methodology, which allows for the
empirical rating of one operational decision over another. The delta in perception
can thus be deduced and plotted graphically for analysis and discussion.
JEL clasication: D7, D81
Keywords: Operational, Decision-making, Perception
INTRODUCTION
Classication, particularly in a scientic sense, deals with the description of

an entity and applies observed characteristics to a taxonomy key, thus placing the
entity into its natural home or category. For the purposes of this paper the enterprise in question is a Small to Medium Enterprise (SME) as dened by the European Union [EU Commission, 2003]. Within an SME, many decisions must be
made. Some occur regularly, some less frequently; many involve multi-disciplinary
298
Andrew Lynch
skills, while more still are made in the normal function of the role in question.
All of these decisions, however, need to be made. Within a functional enterprise,
the ability to make decisions, frames the success or otherwise of the company.
An operational decision within an SME can take many guises. Take for instance
the case of the following two decisions: the decision to make or buy a particular
component within a manufacturing process and the decision to paint walkway
lines on the factory oor. The make-buy decision would appear to most people to
be more important. If you manufacture a component that could be bought for
less than your own manufacturing costs, then failure to do so, would run the risk
of ineciency, and cost you customers and possibly your business. Alternatively,
in the spirit of the Chinese buttery proverb, an argument could be made for the
importance of the latter decision. While walkway lines on the factory oor may
not initially seem critical, their absence may result in an accident, which if serious
enough could result in the temporary closure of the factory, the same subsequent
loss of customers, and ultimately of the business itself. Clearly this logic could in
theory be applied to all decisions and any proposed methodology must overcome
this aspect of decisions analysis.
The eectiveness of information systems, formal or otherwise, is dicult to
evaluate in an independent manner. It would be quite problematic to qualify a
statement that a particular decision has been made easier by virtue of the introduction of a new methodology or information delivery technique. While colloquial
evidence may suggest this is indeed the case, an empirical evaluation eludes the
modern practitioner. There is still no method of classifying a decision in an empirical manner. Such a classication would allow an enterprise to assess the number of
dicult decisions, specic to the enterprise in question. The more of these an organisation has, the more dicult the operation will be to manage. The value of this
aspect of the research lies in the provision of a tool, which can be used to evaluate
the eectiveness of a management improvement plan (e.g. an ERP implementation). The number of dicult decisions would now be measurable and a reduction
or delta can be ascertained on behalf of the organisation after a DSS implementation program.
It is also noted at this point that a decision does not exist in a vacuum. Interactions are required to qualify a decision. decision to jump out of an aeroplane
could be taken as an illustrative example. The decision itself is dierent in classication terms from decision about what breakfast cereal to have before one gets
into the plane. A rather simple classication system would separate these decisions
299
instinctively and the taxonomy process could proceed. There are, however, other
considerations outside the essence of the decision itself. Now consider the input
or eect a decision-maker can have on these two selected decisions. The decision
to jump out of an aeroplane is dierent for an experienced parachutist and a rsttimer. By the same token, the cereal selection decision would be made one way by a
dyslexic who is allergic to nuts and another way by a linguist who is not. So in the
classication process we must allow not only for the essence of the decision itself,
but also for the eect of the decision-maker who is interacting with said decision.
There is, however, another consideration: the environment in which the decision
and decision-maker nd themselves.To extend the analogy of the parachutist, the
decision to jump from a plane at 20,000 feet and the decision to jump from one
that was sitting on the runway are to markedly dierent!
..
Decision
Decision-Maker
..
Decision-Environment
Dynamic Decision
Dig. 1.0. Elements of a decision
This proposed methodology mirrors the basic concept of biological classication, in that a sucient number of factors are evaluated in order that separation or
classication can be carried out.
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Andrew Lynch
Decision
3 Main Elements
Factors
Rating Levels
Level Chosen
Decision
Decision under Review
Decision-Maker
Decision-Environment
Dig. 2.0. Relationship between Decision Elements and Factor Levels
Consider two decisions. One decision which is made by an operator, in the ordinary process of the job, without the need for input from anyone else, under no time
pressure, or urgency, requiring no past experience, where there is a limited number
of options and where the outcomes are well known to the decision-maker. This can
now be empirically separated from a very dierent decision - one which is made by
the Managing Director, requiring adaptive novel thinking, and input from senior
management or from a board, which is made under a time constraint, with urgent
connotations, and where the outcomes to dierent options are not known by the
decision-maker(s) at the decision point. While one would expect such decisions
to be readily separated, the considerable grey area between them is also within the
classication granularity. This methodology allows such classication to be empirically assessed, with weightings allocated on the dierent levels within the factors
outlined.
In the case of the decision itself, twelve factors were relevant for the decision
evaluation process: Organisation level, Nature, Format, Time, Urgency, Frequency,
Learnt experience, Support decisions, Accumulation, Number of Options, Type
and Outcome Prole. In the case of the decision maker, the seven factors were:
the Number of Reports, Portfolio Prole, Experience, Attitude to Risk, Exposure
to DDS, Impact on Decision-maker, and nally Risk to Decision-Maker due to
Inaction.
301
For the decision environment the factors included were: Impact on the Company, Risk to the Company, Decision Measurement, Visibility within Company,
Sector, Company Change Prole, Political Environs and Scorecard Applicability
METHODOLOGY
A series of operational decisions associated with a number of SME departments

were assessed. The departments in question were (in no particular order); Production, Quality, Sales & Marketing, Purchasing and Accounts. Three decisions were
chosen for each department to allow the rating system to rank the individual decisions within each of these areas. A survey was constructed which addressed the
three main elements of a decision: the decision itself, the decision maker and the
decision environment and the factors associated with each. The primary decision
maker was asked to consider a particular decision. A number of statements were
read, which reected various levels within a factor for that decision. The participant
indicated the statement, which in his/her opinion reected the most accurate representation for that factor. The process was repeated for a secondary participant who
was not directly responsible for making the decision. The results were collated with
the other primary and secondary participants ndings and a median calculated for
each factor. The resultant median for each of the factors was then summed to give
an overall rating for that particular decision, for each of the two groups (primary
and secondary).
The survey was loaded onto a web-based survey support system (Survey Monkey) to which access was restricted by password control. Over 130 individual surveys were carried out across key decision makers in 25 dierent SMEs. While the
survey was facilitated, it had a dened key and support document to explain the
decision under review and the factors being considered. The results were either put
directly into the web-based program or recorded by the analyst to be plugged into
the system at a later date. A number of observations are made at this point. In the
rst iteration of the survey, the decisions under review were not suciently dened.
When asked to consider the decision on the level of stock, for example, respondents
would query the level of importance of the material itself (e.g. stationary or a key
component). While the initial selection of the departmental decisions was based
on their perceived range of complexity (easy complex), more work was clearly
required to dene the actual decision being considered. In the example taken, the
nal version read Decision on the month-to-month stock levels of a high usage,
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Andrew Lynch
low value component. The participants themselves were chosen to reect the decision-making responsibility within the department in question. A given participant
was restricted to answering for two departments, in order to reduce bias within the
overall results. Each participant identied a level he/she thought most reective for
each of the factors identied in the survey. The responses for all participants within
a factor were isolated and a median found. The resultant median totals were then
summed and an overall rating level for a particular decision was calculated. The
decision ratings were then plotted, for both the primary and secondary decision
makers and the dierences observed.
RESULTS:
Differences in Decision Making Perception
120
110
100
90
80
Primary
Secondary
70
60
50
Advert Layout
Part Ship
Stock Take Time
Test Criteria
Stock Levels
Determine Lot Size
Debt Collection - how
Contract Review
Pass/Fail Criteria
Product Failed - what next?
Criteria for Profit
Assessing Marketing Data
Choose Vendor
Make/Buy New Product
30
Decide Market Targets
40
Fig 3.0. Dierences in decision-making perception, between primary and secondary decision makers.
303
DISCUSSION:
Fifteen decisions across 5 departments of an SME were assessed under this research. The primary decision maker in each case indicated the best-t statement
for each of the decisions in their area. The same decisions were then assessed by a
person knowledgeable in the decision, but not primarily responsible for making
it (the secondary respondent). The mean average for each was then plotted, to assess the dierences in perception by both these stakeholders. This is represented in
gure 3.0.
The secondary respondents considered 9 of the decisions reviewed easier then
indicated by the primary decision maker. One decision (Part ship) was considered
the same by both parties, while, the balance of 5 were considered more dicult by
the latter grouping. Notably in the secondary respondents, the test criteria and the
contract review and the debt collection were considered considerably more dicult
than that perceived by the person responsible for making the decision itself.
CONCLUSION:
Decision making in the SME is a wide a varied activity. Decisions are often
made with incomplete information and under pressures of both time and risk. The
perception of a decision will vary depending on the relationship one has with the
decision being undertaken. Generally a decision maker will perceive a decision to
be more dicult or important, than a person who is not directly making the same
decision. A wider study across more operational decisions would yield more accurate results in future research studies.
ACKNOWLEDGEMENT:
The information obtained as part of this paper was pursued in order to full
the requirements of an EU framework 6 project. This project is entitled Enterprise
Performance Optimisation for Small and Medium Enterprises (EPOSME) and its
purpose is to pursue research for the benet of SMEs.
REFERENCES:
1. Cannon, N. and Cannon, D. (2000). Two views from the bridge: how CFOs
and SME leaders perceive top team dynamics. European Management Journal
18(4): 367-376.
304
Andrew Lynch
2. European Union (2003), Commission Recommendation, Concerning the denition of Micro, Small and Medium-sized Enterprises, Ocial Journal of the
European Union, notied under document number C (2003) 1422.
MANAGEMENT OF MANAGEMENT OF MANAGEMENT... AND HOW TO DEVELOP ...
305
MANAGEMENT OF MANAGEMENT OF MANAGEMENT...

AND HOW TO DEVELOP MANAGEMENT CURRICULUM
Josip Mesari
Antun undali
ABSTRACT
Some schools of management and institutions with long-standing experience in

managerial education have recently started questioning and changing approaches
and contents of their curricula, prompted by intensied globalisation processes
and the necessity for integrating and specialising managerial knowledge on the one
hand as well as disastrous results of managerial practice. Booming of schools of
management in the world, as well as in the Republic of Croatia was the reason for
investigating management curricula on some world class school of management
as well as those in Republic of Croatia. Creation of management curriculum was
proposed by using of ontology.
JEL clasication: I20
Key words: management, curriculum, ontology
INTRODUCTION
Schools of management in the world, as well as in the Republic of Croatia, are

booming. They are being developed on several levels: vocational studies, undergraduate, graduate and postgraduate studies and life-long education. Education is
received in terms of pure studies of management (schools and study programmes)
and, especially in the Republic of Croatia, within study programmes of business
economics as separate courses of study (management), as courses of study of management disciplines (managerial economics, management, or managerial courses
of study of other disciplines within the studies of business economics and other
studies).
306
Josip Mesari Antun undali
Some schools of management and institutions with long-standing experience

in managerial education (Yale School of Management, MIT Sloan School of Management, Academy of Management, Institute of Management Science, Academy
of Service Management etc.) have recently started questioning and changing approaches and contents of their curricula, prompted by intensied globalisation processes and the necessity for integrating and specialising managerial knowledge on
the one hand as well as disastrous results of managerial practice with far-reaching
social implications on the other hand. The question is if socially unacceptable behaviour of managers that has brought us to the gloomy vision of economy is the
result or the implication of inappropriate managerial education and if higher education institutions where managers are educated are responsible for this situation.
Several scholars have recently voiced their concerns about the current state of
management research and pedagogy (Pfeer, J., Fong, C.T.;2002,78-85), (Mintzberg, H., Gosling, J.;2002,64-76), (Donaldson, L.;2002,96-106 ).
Ghosal (Ghoshal;2005,76) pointed: In the main, their arguments have focused
on the lack of impact of management research on management practice and the lack
of eectiveness of management education for business performance students.
On the other hand, Ghoshal (Ghoshal;2005,76) raises a dierent concern. He argues that academic research related to the conduct of business and management has
had some very signicant and negative inuences on the practice of management
More specically, he suggests that by propagating ideologically inspired amoral theories, business schools have actively freed their students from any sense of moral
responsibility.
Ghoshal explains his arguments in the following way:
a) the development process of schools of management and their attempts to
adopt the scientic models, which Hayek described as pretence of knowledge, underlining that management theories are based on partialization of
analysis, the exclusion of any role for human intentionality or choice, and the
use of sharp assumption and deductive reasoning. The result of pretence of
knowledge is the fact that most managerial knowledge is of paradigmatic
b) Ideology-based gloomy vision described by Milton Friedman as (neo) liberalism which is grounded in a set of pessimistic assumptions about both
individuals and institutions whose primary purpose is solving negative prob-
307
lems. The result of this ideology is that managers more frequently rely on
adapting and solving problems and not on creating new values.
c) Combined together, (a) and (b) has led management research increasingly
in direction of making excessive truth-claims based on partial analysis and
unbalanced assumptions. Since the theories inuence practice, and managers
adopt theorists worldview, the consequence is :
d) Negative assumptions became real through the process of double
hermeneutics.
This double hermeneutics has lead to both diverse interpretations of management theories in practice and dierent interpretations of validity of underlying
theories in scientic management within academic circles.
The leading schools of management, with their good intentions but also with
deeply rooted pretence-of-knowledge philosophy, have introduced the scholarship
of discovery, decreasing the importance of other kinds of scholarships (scholarship of practice, scholarship of integration (synthesis) and scholarship of teaching
- pedagogy). The majority of other schools, who are followers (especially in the
economies that did not have a tradition in managerial education) have become
(bad) interpreters of acquired paradigms1.
On the other hand, obsessed as they are with real world and sceptical as most
of them are of all theories, managers are no exception to the intellectual slavery of
practical men. (Keynes;1953,309), cited by (Ghoshal;2005,75). Knowledge,
mostly paradigmatic and not deeply analytic (cause-and-eect type of knowledge),
have given practical managers an occasional footing when looking for practical
solutions or, on the contrary, when justifying failures.
Torch bearers of academic management will readily ask questions if the catastrophic results in practice are to be blamed on the managers educated through
managerial studies or if they are the work of some other, self-proclaimed managers
with no, insucient or partial academic management background.
1
When creating curricula of our study programmes, based on the ideas of the Bologna declaration, we were
given instructions to include at least ve European or world known universities that have a list of courses
oered in our curricula. Since management in our economy was still in its puberty at that time, one could
ask whether the creators of management curricula (or, more precisely, of syllabuses as lists of courses!) in
higher education institutions had the opportunity, the possibility and most of all knowledge, experience
and ability to evaluate the validity of contents that were the argument to initiate study programmes,
courses of study and courses, whose image we have oered as a model for development.
308
The hierarchical nature of management and unclear borders between levels,

from the operational, tactical, strategic (in more or less complex business systems),
to governance which is a transformational kind of management over another kind
of object of management as well as frequent role changes, leave failure suspects,
including those with academic management background, with little room for
hiding.
What are the domains of knowledge that a manager (general type of manager)
should possess and what kinds of knowledge are oered today in academic management education? The answer to this question does not seem complicated when it
comes to relatively narrow areas of human practice and academic education. Nevertheless, management is a broad term by nature and its complexity is increased due
to unclear borders it shares with other social and natural sciences.
The aim of this paper is to dene the curriculum of general management by
analyzing the syllabuses of management studies (body of knowledge), and the
purpose would be knowledge sharing, its continuous usage, upgrading and updating by developing management ontology.
MANAGEMENT STUDY PROGRAMMES IN THE REPUBLIC OF CROATIA
The overview of registered study programmes that cover management of all

kinds and are provided at dierent levels (vocational, undergraduate, graduate,
postgraduate, doctoral) can be found at MOZVAG, web portal of Information
system of Agency of science and higher education of Ministry of education, science
and sports of Republic of Croatia. According to the data from the cited source, the
number of study programmes of dierent kinds of management is 61.
Those programmes that include in its name Management and that are taught
as courses of study within business economics at undergraduate and graduate levels have been chosen to be analysed as management curricula. The following are
included:
The course of study Management within the study of Business Economics in
Dubrovnik (undergraduate)
The course of study Management within the study of Business Economics at the
Faculty of Economics in Osijek (undergraduate and graduate studies)
309

Pula (undergraduate and graduate studies)
Zadar (undergraduate and graduate studies)
Zagreb (undergraduate and graduate studies)
The similarities of management programmes in Croatia lie in the relatively high
number of courses providing supportive managerial knowledge (common fundamental courses). All undergraduate studies have the managerial course entitled
Management, and in ve cases there is also Human Resources Management. Other
(core and elective) courses dier from one programme to the other, encompassing a
range of methodological disciplines of management, managerial business functions,
types of business systems and levels of management. Graduate studies continue the
specializations commenced at undergraduate level. In this context, the prospective manager can gain a desirable framework of managerial knowledge, but these
competencies are fragmented in uncoordinated islands of knowledge which are difcult to integrate. In addition, graduates are not provided with the competence to
carry out such integration (Mesari; 2007,218)) The key competence of a manager
raised on fragmented managerial knowledge is adaptability rather than creativity
and leadership. Together with the accompanying pedagogy, the latter concepts are
at the heart of curriculum reengineering described in the introduction.
General management curricula in the Republic of Croatia have yet to show
results. One may wonder about the reasons for the doubts expressed here if verication is still ahead of us. Given that in creating our syllabuses (not curricula) there
was frequently indiscriminate acceptance of role models which are now undergoing
changes, it is justied to propose an overhaul of management curricula, as well as of
other curricula belonging to business economics studies.
WHAT IS A CURRICULUM AND HOW IS IT DEVELOPED?
In a broad sense, a curriculum can be understood as a course of (trans)formative

experience that can include experiences gathered in formal education as well as
directed and undirected and take place outside of school (Whitson, J.A.;2006). In
formal education or schooling (cf. education), a curriculum is simply understood as
310
a set of courses, course work, and content oered at a school or university. According to, (Smith M. K.;1996,2000) the current curriculum theories can be seen:
as a body of knowledge (syllabus) to be transmitted
as an attempt to achieve certain ends in students product
as process
as praxis
An approach to curriculum theory and practice which focuses on syllabus is
only really concerned with content. Curriculum is a body of knowledge - content
and/or subjects. Education in this sense is the process by which these are transmitted or delivered to students by the most eective methods that can be devised
(Blenkin et al;1992,23).
A curriculum should be productive in a sense of achieving set objectives. In this
case, there have to be criteria for measuring productivity, and the outcomes are
usually broken down into smaller units. The issues that exist in this approach is
who sets the goals, if they can be anticipated during the implementation period and
who, what and by what criteria is being measured when it comes to the productivity of knowledge that is transferred.
To see curriculum as a particular type of process means to observe a multitude
of elements in the constant interaction of teachers (that have an ability to think
critically, in-action, an understanding of their role and the expectations others have
of them, and a proposal for action which sets out essential principles and features of
the educational encounter. With all positive aspects of this approach, certain issues
arise and they deal with the quality of a teacher and classroom pedagogy.
In the curriculum as praxis approach, curriculum itself develops through the
dynamic interaction of action and reection. That is, the curriculum is not simply
a set of plans to be implemented, but rather is constituted through an active process
in which planning, acting and evaluating are all reciprocally related and integrated
into the process (Grundy;1987,115). At its centre is praxis: informed, committed
action. When creating a curriculum of a certain discipline, the rst step is usually
the formulation of desired/required body of knowledge. Curriculum analyses are
conducted by confronting course contents and underlying pedagogy with the suggested body of knowledge.
311
AN APPROACH TO CREATING MANAGEMENT CURRICULUM
The creation of a curriculum in an increasing number of schools of management

is based on:
- basic functions of management (planning, organizing, leading, coordinating,
controlling, stang, motivating)
- formation of business policy
- implementations of policies and strategies
- multidivisional management hierarchy
- general and specic knowledge of certain areas
- methodological foundations and related pedagogy etc.
At the same time, these curricula are expanding into more and more areas and
encompassing a higher number of implementation categories.
The body of knowledge of general management (seen as a number of courses
in a syllabus) has increased in this way and oers a number of possibilities for its
utilization in a chosen context.
Generally speaking, new approaches to revising management curricula are being
carried out in some of the following contexts:
- linear growth of acquired management paradigms into new areas of management without changes in philosophical and sociological context of management (expanding the horizons into an increasing number of whats)
- placing managers into central organizational context - (manager in the position of a competitor, organizer of funds sourcing, investor, innovator, state and
society connector, employee, operation engine of global macro economy,
customer and negotiator (Yale School of Management; New management curriculum) in which the answer to the questions who and how have to be
found, in the new socio-economic context after which managerial skills are
implemented into specic areas. The approach from integration towards specialisations (at rst a small number of orientational disciplines, followed by
integrated management perspectives and specialisation)
- expanding the acquired management paradigms to new theories and new
methodological concepts from dierent management disciplines (a high number of more or less relevant disciplines, and only after this follows the integration and/or specialisation)
In the following text we shall propose curriculum development by means of
management ontology. Through class and attribute hierarchies and their instances
312
ontologies make it possible for concepts to be simultaneously fragmented and integrated, which will provide for better understanding of the complex management
domain.
DEVELOPMENT OF A CURRICULUM BY USING ONTOLOGY
There are a number of related works and curricula that have been developed
by using ontologies. To mention only a few: (Kincheloe;2003,47-64), (Yu-Liang
Chi;2009, 136-140), (Dicheva et al;2005), (Ronchetti, Sant;2007), (Lovreni,
ubrilo; 2007,35-41) (Milam;2003), (Song; 2005). The development of ontology is a complex task that demands the knowledge of classes and relations within a
specic domain. The development of ontologies is currently facilitated by the use of
software solutions which enable a relatively fast development and evaluation of an
ontology (ontological editors, in which classes, attributes and relations are dened,
questions are raised and graphic solutions of project ontologies are created). The
problem with the development of ontologies is that they are never fully developed.
Moreover, before even starting an ontology development, the ontology creators
have to dene objectives and ask questions that the ontology should provide answers for.
In computer science and information science, ontology is a formal representation of the knowledge by a set of concepts within a domain and the relationships between those concepts. It is used to reason about the properties of that
domain, and may be used to describe the domain. In theory connected to the
information science, an ontology is a formal, explicit specication of a shared
conceptualisation. (Gruber; 1993,1). An ontology provides a shared vocabulary,
which can be used to model a domain that is, the type of objects and/or concepts that exist, and their properties and relations (http://en.wikipedia.org/wiki/
Ontology_(computer_science))
Common components of ontologies include:
Individuals: instances or objects (the basic or ground level objects)
Classes: sets, collections, concepts, classes in programming, types of objects,
or kinds of things.
Attributes: aspects, properties, features, characteristics, or parameters that objects (and classes) can have
Relations: ways in which classes and individuals can be related to one
another
313
Function terms: complex structures formed from certain relations that can be
used in place of an individual term in a statement
Restrictions: formally stated descriptions of what must be true in order for
some assertion to be accepted as input
Rules: statements in the form of an if-then (antecedent-consequent) sentence
that describe the logical inferences that can be drawn from an assertion in a
particular form
Axioms: assertions (including rules) in a logical form that together comprise
the overall theory that the ontology describes in its domain of application.
Events: the changing of attributes or relations
If an ontological domain is precisely dened, concepts, classes, attributes and relations are created by means of ontological tools. On the other hand, if a domain, as
in the case of general management, is broadly dened, one has to understand how
such domain relates to the so-called upper ontologies. SUMO ontology (Suggested
Upper Merged Ontology) is the upper ontology that was used to investigate concepts on which usable domain ontologies can be developed. Each research domain
has its own unique thesaurus which represents a basis for the creation of an ontology. Some available thesauruses (economics-related thesauruses) and ontologies developed from them can partly be used to develop a management thesaurus and ontology based on it. (Management Thesaurus, http://libraryds.grenoble- em.com/
en/services_missions/Pages/Thesaurus_ Management.aspx) , and (Thesaurus of
Economic, Social and Cultural Rights, http://shr.aaas.org/thesaurus/) STW Thesaurus for Economics, http://zbw.eu/stw/versions/latest/about)
WHAT IS MANAGEMENT AND WHAT ARE THE FUNDAMENTAL CONCEPTS OF
MANAGEMENT EDUCATION?
Beginning with the management practice and management curricula, the following meanings of the noun management can be noticed:
- The practice of management
- A study discipline
- Organisational structure in a rm, among a group of people
- A university course
- A university course of study (programme)
- Methodology...
314
By placing management in the context of upper ontology (in this case SUMO
ontology), management belongs to the following classes (Figure 1):
Figure 1. Management as a part of SUMO ontology classes
DEVELOPMENT OF THE DOMAIN ONTOLOGY OF MANAGEMENT
The purpose of creating domain ontology (Noy, McGuinness; 2001,1) might

be:
To share common understanding of the structure of information among people or software agents
To enable reuse of domain knowledge
315
To make domain assumptions explicit

To separate domain knowledge from the operational knowledge
To analyze domain knowledge
Also according to (Ontology, http://edutechwiki.unige.ch/en/
Ontology#Limitations):
To enable a machine to use the knowledge in some application.
To enable multiple machines to share their knowledge.
To help yourself understand some area of knowledge better.
To help other people understand some area of knowledge.
To help people reach a consensus in their understanding of some area of
knowledge.
For the time being, the purpose of creating a simple management ontology that
is planned to be developed is to determine where and what kind of management
is taught at institutions of higher education in Croatia, what is comprised in the
syllabuses of those study programmes, which narrower domains they belong to and
which pedagogy they are based on.
A part of the initial ontology developed in Protege ontological editor is shown
in Figure 2.
316
Figure 2. Part of initial ontology of management developed in Protege ontology editor
Ontology, like other methods and concepts used in curriculum development

has inherent biases derived from their respective domains, cultures, purposes and
the environment in which their entities exist.(Shirky;2005)
CONCLUSION
Management as a scientic and practical discipline is being continuously developed, resulting in good solutions or solutions with acceptable or unacceptable
consequences. The confrontation of management theory and practice, which are
interconnected, implicating mutual changes in their spiral of development, shows
that results on both sides can have unexpected consequences.
Similarly to other social sciences, management is self-fullling, which means
that new (as a rule paradigmatic) theories change the existing practice and vice
versa, i.e. some at a given moment accepted solutions of good practice become the
basis for creating new theories. The changes in academic management education
have been caused by the insights from management disciplines, management practice, other social sciences, as well as by requirements for institutions of higher education to take responsibility for consequences at all levels of management practice.
The leading universities with a long tradition in academic management education subject their curricula to changes with the aim of a more precise management
317
positioning within the given socioeconomic context. Similar projects should be

undertaken by the institutions of higher education that provide academic management education in the Republic of Croatia, where management education and
management practice do not have a deeply rooted tradition. Deviant behaviour
and catastrophic results in management practice that have caused a gloomy vision
of economy should be the reason for management academics to face the facts and
take an active role in the necessary changes by immediately questioning current
management curricula and the related pedagogy.
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320
Nihada Muji
THE ROLE OF COMPLEXITY, UNCERTAINTY AND

IRREVERSIBILITY IN SOCIAL SCIENCES AND MODELS
Nihada Muji
Faculty of Law in Osijek
Abstract
Complexity, uncertainty and irreversibility are notions generated in natural sciences, where they have induced a change of scientic models, in spite of initial
misunderstandings and rejections. Considering that complexity, uncertainty and
irreversibility are characteristic for business activities and life in modern society,
this paper, while using the insights of natural sciences, attempts to (re)construct
their role in social sciences, especially economics and economic models. It is difcult to properly quantify these indicators, a fact which often led to explanations
that treated them as anomalies, while they were excluded from scientic models.
It is therefore not surprising that answers given to economic questions often did
not contain these variables and were consequently often paradoxical. Complexity,
uncertainty and irreversibility are indicators suitable for the information age, and
were not utilized in the terminology and models of the industrial age and classical
science. By generalizing and connecting contemporary insights of natural sciences
with systems theory and chaos theory1 it is easier to answer questions asked within
social sciences, and especially economics.
JEL clasication:C61
Key words: complexity, uncertainty, irreversibility, purposes, science, models
One of the main postulates of chaos theory is: simple systems generate complex behavior. Complex
systems are sources of simple behavioral patterns. Most importantly, the laws of complexity contain
universality, disregarding the building elements of the system. Glick, J. Kaos. Zagreb: Izvori, 1996,
p.308.
THE ROLE OF COMPLEXITY, UNCERTAINTY AND IRREVERSIBILITY IN SOCIAL...
321
INTRODUCTION
Changes in science were always grounded in natural sciences. Due to greater

possibilities of experimentation in natural systems (although it often seems that
living in social systems means living in experimental conditions) and due to higher
veriability of the results, the scientic paradigms of natural sciences were modied and became paradigms of other scientic disciplines. For example: Newtons
model of the universe based on absolute space and time, elementary solid particles,
strictly causal natural phenomena and on the ideal of objective description of the
world was for a long time generally accepted as the model of the entire scientic
world. Similarly, numerous economic models, based on classical science, gave unexpected and even paradoxical answers to questions posed. The more practitioners
and researchers tried to explain the situation, the sharper became the paradoxes.
Using tightly structured models and strict determinism, social sciences more or
less successfully resolved the problems of the industrial age. When, however, those
same causal models attempt to answer the problems of the information age, the
same paradoxical situation is created as the one the physicists found themselves in
while trying to describe the atomic physics in terms of classical physics. This paper
does not claim to teach about the scientic paradigm changes in natural sciences,
but to demonstrate openness to the introduction of some of those concepts to
social sciences even before the paradoxical responses coerce us into it. So when F.
Capra states: ...we cannot decompose the world into independently existing smallest units. As we penetrate into matter, nature does not show us any isolated basic
building blocks, but rather appears as a complicated web of relations between the
various parts of the whole. These relations always include the observer in an essential way. The human observer constitutes the nal link in the chain of observational
processes, and the properties of any atomic object can only be understood in terms
of the objects interaction with the observer. This means that the classical ideal of
an objective description of nature is no longer valid,2 it is dicult to believe that
he is explaining the principles of quantum physics, and not those of economics.
Therefore, if we want to learn to ask the right questions and get the right, and not
paradoxical, answers, we must, just as natural sciences do, pay more attention to
the notions of uncertainty, complexity, irreversibility, even when it is dicult to
quantify and use them in scientic models.
Capra, F. The Tao of Physics. Fontana/Collins, 1976, pp.371.
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COMPLEXITY AND UNCERTAINTY FROM STREAMLINE FLOW TO TURBULENCE
Even small dierences in some of the key action factors3 can induce sudden
and important changes in the system behavior, which in the process changes from
predictable through random to chaotic.
Due to their openness and dynamics, social and especially economic systems are
susceptible to accelerated movement from the streamline (laminar) to chaotic ow.
When the ow is laminar, small disturbances disperse on their own. But after the
turbulence, as chaotic disorder in all measurements (small vortices within bigger
ones), sets in, the disturbances grow to catastrophic dimensions. Turbulent movement, i.e. processes, is inconstant and random. In an economic system they create
resistance and spend its resources. In order to understand a turbulence one should,
rst of all, understand complexity and change. Complexity is understood as the
numerosity and diversity of the factors relevant for making business decisions, as
well as for the numerosity and diversity of the connections between the factors. It is
important to notice the existence of the internal and external complexity. Internal
complexity is conditioned by the development and diversication process within
an organization, while the external complexity is induced by social, economic, legal
and political changes in the environment. Simultaneously with the increase in complexity rises the change dynamics of certain processes (the number and the speed of
changes is increasing). Turbulence thereby brings fast and numerous changes and
the growth of the internal and external complexity together.
In his book Strategic Management4 Anso has identied following factors that
contribute to the emergence of turbulences: decreased predictability of change, which
is reected in ever shorter time spans that are available for strategic reaction; level
of novelty of change, as the measurement of immutability of existing organizational
potentials that an enterprise can keep while taking control of the change, and increase in the frequency of change which indicates that we have to expect an increasing
number of changes within ever shorter intervals.
Sensitivity to initial conditions lies in the core of the chaos theory, while the unpredictability of the
chaotic systems represents one of the biggest restrictions in scientic thought, which we inherited
from the twentieth century.
Anso, H.I.. Strategic Management. London 1979. pp.50, as cited in: Osmanagi Bedenik, N.:
Potencijali poduzea. Zagreb, 1993, p.34.
323
Liessmann5 presented a good explanation of the inuence of the environment

(external complexity) on the development of turbulences using the following
scale:
- First level of turbulence exists in a cyclically repetitive environment,
- Second level occurs in an expanding environment,
- Third level in the environment of constant change
- Fourth level in the environment of sudden change
- Fifth level of turbulence is associated with an unpredictable environment.
In the circumstances of Croatian economy the rst two levels are improbable.
Third, fourth and fth levels are characteristic for our time and although it generates fear in many, turbulence is not always negative.
During the transition from turbulence to chaos autonomous use of random
processes occurs, which results in saltatory development and a state of higher complexity. Such processes, recognized in nature, led to the development of the indeterministic theory of purposeful evolution, i.e. the theory of self-organization.
According to this theory, the Second Law of Thermodynamics6 is of importance
only in the thermodynamics of closed systems. To open systems, such as all social
systems, and thereby economic systems, followed by a high level of interaction with
the environment, apply the laws of thermodynamics of real systems, therefore those
who in science seek a general understanding of the habits of nature would be better
served with the laws of chaos than the Second Law.
According to contemporary scientic interpretations, chaos that occasionally
occurs in the behavior of complex dynamic systems, such as social systems, is fractal
in its nature.
The word fractal came to stand for a way of describing, calculating and thinking about shapes that are irregular and fragmented, jagged and broken up - shapes
from the crystalline curves of snowakes to the discontinuous dust of galaxies. A
5
Liessmann, K.K Strategisches Controlling als Aufgabe des Managements. Handbuch Controlling.
Stuttgart: Poeschel, 1990, p.305-308.
According to the Second Law of Thermodynamics, everything is inclined towards chaos. Every
transition of energy from one form to the other loses something in the form of heat. Entropy in the
universe increases constantly, just as in any other hypothetical isolated system.
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Nihada Muji
fractal curve implies an organizing structure that lies hidden among the hideous
complication of such shapes.7
The fractal character of chaos manifests itself as a trait of trajectories in phase
space to shift from regular or periodic trajectories to stochastic ones and vice
versa.
This causes the modern systematic thinking to reverse into its opposite. System
behavior is unpredictable, and in more complex systems even chaotic. In the chaos
that was generated this way we nd stochastic attractors, points of stationary state,
some sort of attraction force that brings regularity to chaos, while the recognition
of these regularities can take the system to a higher-order state.
This is the reason why contemporary social and economic organizations (especially in Japan) cause random uctuations, which through mutations (of the
existing organization) leads to saltatory development and higher-order state. The
creation of turbulence gives rise to entropy, which in turn brings forth the construction of information where there was none and thus the knowledge of the
system is augmented.
Turbulent ows (processes) impose an intensive exchange of matter, energy and
information on every level and in all directions. Some of these connections can be
fatal, while others mean new quality, and even self-organization.
In the recent theory of organization of social systems, self-organization is revealed as continuous self-regeneration, new birth of organization8 (on the higher
level; authors comment). Dee Hock9 brought attention to the harmonic combination of order and chaos by his chaordic (CHAos + ORDer) organization.
Unpredictability which is associated with turbulent and chaotic processes is
typical only of human systems, therefore the necessary transfer of relevance from
idolatry of the mechanic world order (industrial revolution) to the human model
of action (postindustrial and information society) is unavoidable. Thus the selfcreating ability of the people who represent the pillars of an organization becomes
the fundamental criterion, as well as resource, of the overcoming of the complexity
and uncertainty of the turbulent and even chaotic surroundings.
7
8
9
Glick, J. Kaos. Zagreb: Izvori,1996, p.123.

Jui, B. Sustavsko miljenje, vol 3(3), 1994.
Dee W. Hock. Birth of the Chaordic Age. San Francisco: Berrett Koehler, 1999.
325
GROWTH OF UNCERTAINTY FROM CLASSICAL ORGANIZATION THEORY TO

MODERN VIEWS
From the antropological point of view, uncertainty represents the main characteristic of human existence. From the decision-making point of view, uncertainty
could be seen as any situation in which there exists more than one form of behaviour, whereas a decision represents a choice between these possibilities. As J.
Monod stated: Human destiny and human goal are not written anywhere, and it
depends solely on a human being what he or she will choose. A man always brings
uncertainty into his or her choices....
In Croatia information uncertainty is very interesting regarding the relationship
between a company-system and its relevant economic, legal and political environment. We cannot count on relationship between a situation of certainty, in which
the future of an environment is unambiguously determined, whereas a system can
be determined and can act towards it unambiguously (certainty equals 1) and optimally. There is a growing number of situations where the future is ambiguously
determined and can be seen through two categories:
- Risk when the ambiguity is known and likelihood is predictable, that is, it
can be measuerd (likelihood is bigger than 0 and it summs up to 1).
- Uncertainty when the ambiguity is of an uknown likelihood and it brings
unsecurity and hazard. In situations of certainty an ability to judge relevant
factors is needed for decision-making, wheras in situations of uncertainty
evaluating outcomes and modalities occurs as a specic content of a decisionmaking process. Furthermore, decisions have a routinized nature in certain
instances and are chosen from a programme that is at disposal, and which
has been, for a huge part, already incorporated into the structure of a system.
Uncertainty demands, on the other hand, making new decisions based on specic evaluations of multiple directions of acting and their possible outcomes.
Rational system behaviour demands a possiblity of behaviour forecasting and
evaluating of a situation, action and eect. That is why in risky situations one
tends to anticipate and evaluate the likelihood of occurance of possible outcomes
and their utility. When uncertain situations occur, exploring the future might be a
strategy to employ, which decreases areas of uncertainty, as a result of which, uncertainty is transformed into likelihood and hazard into risk.
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Nihada Muji
There is a need to be reminded that even Taylor and Fayol put an emphasis in
the classic organization theory on an important, from todays point of view even
overly emphesized, role of structures and functions in overcoming uncertainties.
According to them, a structure and functions can eliminate every uncertainty and
a need for a free judgement.
Later on, March and Simon, in theory of social systems and theory on adaptable
and rational organizations, pointed to a crucial role of an organization structure in
absorbing uncertainties.
The fraim for decision-making, according to this model, consists of an organizational structure, which, with its characteristics, either complicates or facilitates
decision-making process, which regulates uncertainty.
The process of decision-making means, above all, use of standard operative procedures, which (are already determined by structure) almost automatically lead to a
decision. As a result of it, one tries to incorporate into these procedures everything,
which alleviates doubts and conicts. The procedures can represent a result of a
decision- making process, when bigger issues are not concerned.
However, a system is becoming more and more a part of a complex and extremley uncertain environment, which inuences its choices and vice versa. The
environment is considered to be that part of the surroundings, which determines
requests for a system (i.e. a company) with regard to achieving its goals and with
which it has to comply with. Finally, in order to fulll dimensions of openess and
dynamics as preconditions of its survival, the system meets one of the needs of its
environment with its purposes. Vice versa, structuring parts of the environment
will depend on abilities of the system to meet its environments needs (and on the
way it monopolizes those abilities), which are relevant or potentially relavant to
dening and achieving goals of the system.
In order for a system to succeed, it is not enough to know the certainty level of
an incoming information from the environment, but one should also know certainty of eect of decision makers activities a system.
327
To more fully understand the system behaviour with a regard to the level of the
environments certainty10, it is good to check some of the dimensions which determine such a behavior.
Table 1: System behavior regarding the level of the environments certainty

SYSTEM
PROBABILITY
ENVIRONMENT
CERTAINTY
RISK
UNCERTAINTY
Ambiguous situation with Ambiguous situation with an un

Unambiguous situation, known likelihood S1-Sn known likelihood S1-Sn
certain S1
0<w<1
w=1
w=1
w=?
ANALYTICAL METHODS Deterministic

PREDICTABILITY
Forecast
Stochastic
Forecast
RESEARCH
Past (trend)
Past (regression analysis)
PLANNING
Programming
Programming
SOLUTION
One optimum
One optimum
Heuristic
Projection
Future
(decreasing uncertainty, scenarios)
Strategy, strategic games, scenarios and simulations
More conditioned suboptimal
solutions
Methods that are to be used while making decision in the given three situations
of the environments (un)certainty depend on time (how early new phenomena are
anticipated) and range of information and their signicance for the analysis and
perceiving of changes.
In accordance with it, data collecting systems for early warning have been developed throughout many areas, which are also known as radar or alarm systems.
Predicting in risk and security conditions was based on knowing the past and
present, which was enough for creating forecasts and extrapolation of the future.
10
According to: Masse, P. Le plan ou l anti-hasard, Gallimard, p.188-200, the table has been modied
because of this article
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Nowadays, forecasts lose its importance since the relation between achieved and
planned results is mostly inadequate.
For forecasting, stable objects of observation are required, as well as linear time,
which makes it inapplicable in conditions of great complexity and rapid changes.
We do not live in times when in the focus of our attention were immobile phenomena. Our primary interests are not stabile situations and perseverance anymore, but
rather development, crises and instability. We do wish to research both phenomena
that remain constant and phenomena that change, evolution of growth, genesis
and mutation of the norms of social conduct.
Real life as well as science shows a creative role of irreversibility nowadays, which
enables processes of spontaneous organization. We live again in the world of coincidence where reversibility11and determinism are just rare cases, whereas irreversibility
and indeterminism are becoming the rule. The notion of classic science that treats
irreversibility as an illusion or as a result of a supercial description is in conict with
the new concept, according to which irreversibility is a source of order, creator of
organization. Irreversible processes cease to be just approximation of reversible processes, and the growth of entropy is not synonymous to losses any longer, but it also
represents a spontaneous evolution of the system.
Uncertain future cannot be anticipated based on the past and present, but
only by exploiting uncertain future by creating scenarios of the environment in
the range from optimistic to pessimistic, and by simulating possible behavior of a
system. Forecasting is giving way to projecting or even anticipating, which is why
there are no more unambiguous goals or unambiguous and optimal solutions. In
an environment where only a change and complexity are certain to happen, strategic management is becoming more important. We do not talk about or use or
or strategies, but rather and and strategies, which describes a dynamic play
of the system with its environment. Within the play of order and chaos, decisionmaking is not associated with long-term plans and conservative strategies, but with
a pure feeling of utility and healthy principles, with a help of which a number of
11
Irreversible (lat. irreversibly): irrevocable, unalterable, unrepeatable, can happen just in one direction, one-sided
Economic processes are irrevocable in time; it is impossible to go back to the time when one was
preparing or making a decision by trying to x the wrong one. Once a decision has been made,
resources have been used, which may cause durable consequences to the system and the environment, and so changing preconditions for the future.
329
individual and short-term goals (which are understood and which lead to the desired goal) are created.
MODELS, THEIR BOUNDARIES AND USE IN NEW CONDITIONS
Decision-making in new conditions is opposite of static decision-making in an

orthodox economy. Neither of classic methods of projection is satisfactory. When
control services compare ex post results with the anticipated ones, disappointments
appear frequently. People involved with statistics, economy or social accountants
have been trying to hand in compatible reports, which could be capable to, at least,
partially determine the direction of actions. To put it more precisely, projections
with changeable objects should possess a certain level of coherence, but all the
phenomena they try to show, occur in irreversible time, and for none of them there
have been any tested dynamic regularities, or likelihood coecients that could be
used. Linear projections do not include uctuations. Exponential projections depend on the choice of exponents and have the same disadvantage. Logistic projection is based on a notion of a long evolution as a known fact. For a long time the
only cure for unsatisfactory projections were audits that were performed in
continuously shorter intervals. The term projection has lost its meaning in that
way, so a good anticipation may even be better than a classic projection.
Hence, many questions arise frequently, such as if the new decision-making will
have problems with quantications, mathematizations or, more broadly, quantitative analysis; if it points out to diculties that economics deals with since it is preoccupied with narrow theories and market analyses, and detached from historical
dynamism or human resources. Are formalizations and mathematizaitions, applied
to economics, not on the way to qualitative progress, accepting neglected variables
and relations, some of which are a part of new idea of development?
In any case, it can be said, that the less irreversible time, complexity and uncertainty are taken into account, the harder it is to integrate into one model all the
variables which may aect the functioning of a system or to choose, without any
arbitration, the variables whose eect is crucial. It does not mean that we must give
up that model, but rather that we must work on their operationalization.
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Nihada Muji
Analogy and an inspiration for that could be the model of a constructive-dispersive structure, simplied by I. Prigogine12 and the Brussels schools theory.
The main idea of that school is an evolution that may lead into metastabile
forms of things and energy, farther from the positions of balance. Under the condition of neglecting plain verbal transpositions, it may show a way to researchers
of physical, biological and information entropy-negentropy and to learning about
their consequences in the economical and social systems. Such formulations are
completely dierent from mechanical balance and inert objects; they are used in
order to reproduce nets of goals and active systems at dierent levels in a more suitable way.
The latest models do not refer solely to units (individuals brought to simplied
sequences of comparative statistics), but they also use instruments, with which one
can achieve a combination of units and sectors (matrix), their interconnections
(transient matrix) with asymmetries being included (diagonal matrix), and placing
(according to ones needs) matrices of successive data into vector spaces where they
are being deformed.
CONCLUSION
By changing the object and methods of research, modern science is leaving the
illusion of its exterritoriality and the notion of itself as an integral part of the culture in which it develops. Metamorphosis of science means inevitable search of
models of tting scientic work into the society, in order to make science more
or less useful, and not deaf to the needs and demands of the society. Science is
becoming an object of buy-and-sell agreements and a tool of global competition,
and exactly that science, which will know to ask the right questions, and so it will
get the right answers, is the science which can understand and change the world.
In social sciences, changes of paradigms occur more slowly than in natural sciences
(which have a greater possibility of performing experiments, and results of which
are more susceptible to control).
However, noone prevents social sciences to include the notions and insights of
natural sciences in a more creative way, e.g. when such occurrences happen that on
asked questions, only paradox answers are repeatedly received.
12
Prigogine, I., Stengers I. Novi savez, Zagreb: Globus, 1982.
331
Physicists also received paradox answers when they tried to ask questions from
atomic physics with a language of a classic physics13. Since questions and answers
are related to systems, insights of natural sciences can be very easily transformed
into social sciences especially economics. We may even be able to better understand unexpected answers that life oers in the areas of the employment, stock
exchange, energetics, ecology, industry, public sector, law and politics if we could
understand and take into account the role of complexity, uncertainty, irreversibility
of the world we live in. Although such phenomena are hard to quantify, we should
not give up and we should insist on putting them into models, but we should also
work on their operationalization.
There are no perfect systems for measuring and by gaining new insights, some
parameters will be neglected, some new will be used, and as more complex they get,
the greater is their importance for us. The goal of the model is, and it should be forgotten, to explain and not to simplify a condition, and what is the most important
(the most truthful), will in time become the most simple.
The orientation of economic (but also social) systems directed towards achieving
certain goals appears as an attractor, the focal point, which enables absorption and
reduction of complexity and uncertainty.
BIBLIOGRAPHY
1. Anso, H.I. Strategic Management. London 1979. pp.50

2. Brigham E. F., Pappas J.L. Managerial Economics, Dryden Press, 1995
3. Capra, F. The Tao of Physics Fontana/Collins, 1976, pp.371.
4. Dee W. Hock. Birth of the Chaordic Age. San Francisco: Berrett Koehler,
1999.
5. Glick, J. Kaos. Zagreb: Izvori, 1996, p.123. p.308.
6. Handbuch Controlling. Stuttgart: Poeschel, 1990, p.305-308.
7. Jui, B. Sustavsko miljenje, vol 3(3), 1994.
8. Neville L. The Strategic Planning Workbook, Kogan Page, London 2002
13
Only when they could understand the structure of the atomic physics, were they able to ask questions with a language of atomic phycics, and then they received the answers.
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Nihada Muji
9. Osmanagi Bedenik, N.: Potencijali poduzea. Zagreb, 1993, p.34.

10. Prigogine, I., Stengers I. Novi savez, Zagreb: Globus, 1982.
11. Salvatore, D. Ekonomija za menadere, Mato, ZG, 1998
MICROECONOMICS,
MACROECONOMICS
AND
MONETARY
ECONOMICS
PUBLIC POLICIES AND ECONOMIC CRISES
335

Octavian JULA, PhD
Faculty of Economics and Business Administration
Babes Bolyai University
Cluj Napoca, ROMANIA
ABSTRACT
The paper will analyze in which way and what is the overall impact of the public
policies can and should be applied governments or local responsibilities in order to
ght against macroeconomic disequilibriums.
From all the major three economic policies, pubic spending policy, scal policy
and monetary policy, each has a special role and has a sudden or a longer time in
which results should appear.
Only one single public policy cannot correct market private failures. We cannot
nd one economic model that can be applied in economics in order to avoid or
to surpass economic crises. A mixture of all public policies can be the solution for
national economies and a classical liberal view at international level.
Should nancial policy become a goal of the public policy makers? Or by using
public spending policy governments should achieve a lower rate of unemployment?
The crises in nancial systems that have occurred have demonstrated the linkage
between nancial stability and the health of the economy. We must say that the forces which shape public policies in periods of economic crisis tend to be different in
character from the major determinants of policy-making in periods of prosperity.
So that we must analize if between the causes of economic and financial crisis
are also some causes from the public sector economy and if it is possible to make
the dissapear or at least to be fewer.
We must ensure that all the datas will be influenced by the level of how much
an emergent economy id depending on trade with developed countries.
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Octavian Jula
If at national level public policies can modify the economic environment a free
trade phenomenon cand be the solution for decreasing disparities and lowering
posibilities of wide economic crisis.
JEL classication: G01, H30
Key words: public policy, economic and financial crisis
1. PUBLIC POLICIES A MUST TO ENSURE FREE MARKET ENVIRONMENT?
Each time that a market failure occurs, a question appears at the horizon: should
the government intervene or not? Like Will Rogers says: the business of the government is to keep out of business that is unless the business needs government help.
This seems to be a quotation that was brought into the light by both economist
and politicians, which means the most important actors in this business and policy
maker environment. Even some presidents like Herbert Hover understood that it
is a must that not only government should keep out but also and maybe most important is that business should keep out of the government. Even so maybe some
times the government intervention in the economy will produce much more harm
than the market failure itself. Why is that?
One of the causes of market failure is maybe that perfect competition serves only
as a benchmark for the real economics and does not stand for a real situation.
There are a set of criticisms to be expressed when we use the perfect competition
situation as a benchmark.
In these cases we can speak about the Nirvana criticism, the second best criticism
and the normative criticism (Colander; 2004, 409). When we consider a market
failure we speak about those situations in which the market strives in the direction
in which the individual decision do not lead to a social desirable outcome. We can
consider that this may be the time when a government intervention is needed.
A government action on the market does not have a known result. It is possible that the specic action to improve or not the desirability of the market. If we
can speak about market failures why should not speak about government failures.
Which is worse the governmental or the market failure?
Of course all the time we can have either positive or negative externalities of
the markets. It is impossible to state from the rst moment which is the case.
Sometimes actions of the government or situations from the market can lead in the
337
rst moments to a positive externality and then, maybe years after, to a negative
externality. Some would argue that the some inventions had positive externalities,
and we can say here that maybe this is the case of the personal computer, but in
the same manner the computer produces in latest years dependency which can and
should be considered as a negative externality.
Is it a situation for government intervention? We think not.
So what should be the solution? It is possible that not only a solution to be the
answer but maybe a mix of them. We can propose here in the beginning: direct
regulation, incentive policies and/or voluntary solutions. The best way maybe to
solve them depends on the type of the elasticity and for sure depends on the type
of industry.
2. ECONOMIC OR FINANCIAL CRISIS?
What are we facing today, an economic or a nancial global crisis? Reply should
be: none or both. If in the beginning we achieved a nancial crisis based on a
deregulation of the nancial markets, now when governments are moving towards
a higher degree of nancial market regulation the world is moving towards an economic crisis.
If the policy makers will consider that regulating the market will be a solution
for the nancial world they might be right, but in the same moment regulating too
much the markets can drive the world economy into a period of stagnant economy
overall.
According to the Commissions analysis, unless policies take up the new challenges, potential GDP in the EU could fall to a permanently lower trajectory, due
to several factors. First, protracted spells of unemployment in the workforce tend to
lead to a permanent loss of skills. Second, the stock of equipment and infrastructure
will decrease and become obsolete due to lower investment. Third, innovation may
be hampered as spending on research and development is one of the rst outlays
that businesses cut back on during a recession. Member States have implemented
a range of measures to provide temporary support to labour markets, boost investment in public infrastructure and support companies. To ensure that the recovery
takes hold and to maintain the EUs growth potential in the long-run, the focus
must increasingly shift from short-term demand management to supply-side structural measures. Failing to do so could impede the restructuring process or create
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Octavian Jula
harmful distortions to the Internal Market. Moreover, while clearly necessary, the
bold scal stimulus comes at a cost. On the current course, public debt in the euro
area is projected to reach 100% of GDP by 2014. (Economic Crisis In Europe:
Causes, Consequences and Responses, 2009)
3. MARKET FAILURE OF THE FINANCIAL SYSTEM
Even emergent countries, even countries without a well developed stock market
felt sooner or later a crash.
Even if the nancial market of a country is big or small, even if it is a complicated market or not, complexity of transactions and complexity of conditions on
the stock market occurs and that complexity usually it is the cause for nancial
turmoil. It is the case of the investment in assets, or in the modern securities.
Sometimes not even those which are trading with those modern and special tools
are not understanding completely what they are trading eectively.
The complexities of the assets underlying investment securities, and of the means
of originating those assets, can lead to a failure of lending standards and unanticipated defaults. Consider rst the complexities of the underlying assets, which can
include mortgage loans and a wide range of other nancial assets.
The complexities of modern investment securities can lead to a failure of investing standards and nancial-market practices for several reasons: these complexities
impair disclosure; they obscure the ability of market participants to see and judge
consequences; and they make nancial markets more susceptible to nancial contagion and also more susceptible to fraud.
Complexity can deprive investors and other market participants of the understanding needed for markets to operate eectively. Even if all information about
a complex structure is disclosed, complexity increases the amount of information
that must be analyzed in order to value the investment with a degree of certainty.
This additional analysis entails higher cost.
Complexity can add great eciency and depth to nancial markets, but it also
can cause a multitude of market failures. These failures, however, fall into three
broad categories: (A) failures, such as impaired disclosure, caused by information
uncertainty; (B) failures, such as nancial contagion and the inability to predict
consequences, caused by nonlinearity and tight coupling; and (C) failures, such as
339
moral hazard, servicer paralysis, and fraud, caused by conicts and other forms of
misalignment (Schwarz, 2009, 26).
3.1. Western European Economies
Although the crisis originated in the US, the impact is heavier in Europe partially due to the larger size of the scal stimulus plans as well as the speed of reaction
in the US. According to the OECD Economic Outlook revised forecasts of September, US GDP will contract by 2.8% in 2009, whereas Euro area (12 countries)
is expected to contract by 3.9% and UK by 4.7% (Onaran, O, 2009)
The eurozone ocially sunk into technical recession in Q2 and Q3 2008, as two
of its biggest economies, Germany and Italy, shrank for two consecutive quarters.
Sweden and Ireland have also slipped into technical recession in 2008 and Spain
and the UK are expected to enter technical recession in the last quarter of 2008;
Western European trade is mostly conducted within the region with 80.0% of
exports destined to European countries in 2007. 7.6% of exports were destined to
North America and Australasia, which are also facing downturns; Some economies
are highly dependant on exports. In 2007, exports as a share of GDP amounted
to 61.3% in the Netherlands, 40.0% in Germany, and 37.2% in Sweden. France,
Italy, Spain and the UK were far less dependant on exports, which contributed less
than a quarter of their GDP.
The nancial system breakdown in Western Europe caught the governments
from France, Germany, Spain and other major countries from EU not so well prepared. Dierent measures were taken: the bank of England reduced the reference
interest rate from 5.0% in September 2008 to 2.0% in November 2008; Germany
indicated that it will focus on investments in industry and infrastructure, and similar cuts were made by the European Central Bank and Swedens central bank. It
seems that not even the most developed and important countries in western Europe
did not have a unique and common policy to face crisis.
3.2. Eastern European Economies
The consequences of the world economic crisis will burden this region more
than the rest of the world in coming years, declared the chief economist of the
EBRD, Erik Berglf, speaking on the fringes of a conference held by the Austrian
Central Bank in Vienna in November 2009.
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Octavian Jula
The International Monetary Fund has also issued a number of blunt warnings
about developments in eastern Europe. The Austrian Standard quotes IMF economist Christoph Rosenberg, who declares that the recent recovery of nancial markets in the region is almost exclusively due to the increased appetite for risk on the
part of investors and has little to do with any improvements in the real economy.
(Salzmann, M, Deepening Economic Crisis in Eastern Europe, 2009)
So that we can speak not about a nancial, not even an economic crisis in Eastern Europe, but we can say that it is a come back to the roots. The economies of
Eastern Europe grew a lot in the last years and for sure that growing economy doest
not stand as a result for increasing productivity of increasing exports, but maybe it
is the result of the foreign direct investment coming from more and more appeal to
risks for western European investors.
Maybe the crisis in Eastern Europe could have been lighter if the FDI were
increasing with the same rate as productivity. But what happened was that the national economies increased more on the consumption basis then on the production
one. An economic increase based only on consumption is now playing the last role
in todays economics.
Now it is time for public policies to enter the stage and solve the issue. Only
the work of national banks will not solve the economic crisis on their own. A set
of public spending policies is needed. Maybe one master plan for infrastructure
and production is needed in Eastern Economies. Structural changes should follow
and these structural changes should rely on the products with a real comparative
advantage and increasing productivity where it is possible.
What the Eastern Europe should do? For sure should rely on westerns experience and try to catch up as fast as it is possible the gap between them and the western countries. If in the previous years some scal changes were made to make the
business environment more appeal to foreign investors now it is time for evaluations and stability. Foreign direct investments will not represent at least for the next
couple of years and start-up for the engine of the economy so maybe the emergent
eastern countries should rely more on their own forces and not on imports of technology and capital.
341
3.3. Divergent or convergent measures between east and west?
Both economies from eastern and western countries tried on their own way to
reply to the nancial crisis, but unfortunately all the measures taken by the policy
makers led to economic crisis. Solutions proposed by the nationals governments
were quite dierent between east and west and also between countries.
If some countries took the solution of cutting down expenses and to decrease
public expenditure (like Germany, France, Italy and Romania) other took the measures of lowering taxes and aiming for a higher consumption and in the end a
higher production (the case of Bulgaria and Poland).
Dierent measures for dierent structures of the economies. It is a struggle if
a national economy depends too much on foreign trade (the countries mentioned
in the rst group) and it appear that during this economic and nancial crisis,
economies not so dependent of other economies, such as in the case of Bulgaria and
Poland, are dealing a lot better than the previous group.
So that what will be the reply to the question to be divergent or convergent to a
common situation and maybe to a common policy? Well the answer will be in the
end that countries will adapt and adjust to that model that will drive them out of
the economic crisis in the beginning and from the nancial crisis in the end. If it is
already a given that the economic crisis spread from west to east maybe this can be
as in the case of a volcano. It will end from the point that all started but will leave
great traces into national economies.
Table 1. Unemployment rate

%
2003
2004
2005
2006
2007
2008
2009
Bulgaria
18
14.3
12.7
11.5
9.6
7.7
6.3
Croatia
21.7
19.5
13.8
18
17.2
11.8
13.7
Romania
8.3
7.2
6.3
5.9
6.1
4.1
4.4
Poland
18.1
20
19.5
18.2
14.9
12.8
9.8
Germany
9.8
10.5
10.6
11.7
7.1
7.8
Italy
9.1
8.6
8.6
7.7
6.2
6.8
France
9.1
9.7
10.1
9.9
8.7
7.9
7.4
Uk
5.2
4.8
4.7
2.9
5.3
5.6
Sounce: CIA World Factbook
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As it appears from the tabel above the economies did not show signs of economic crisis from the start, the unemployment rate was still decreasing in both
eastern and western countris. Only some nancial data were showing signs of macroeconomic disequilibrium.
If we analize the GDP per capita in eastern and western Europe we will see the
drecreasing data even from 2007 when the unemployment rate was decreasing and
maybe when the GDP per capita in Europe will stop decreasing the unemployment
rate will end the increase. It is possible and quite likely to happen that the unemployment rate to have a gap of one or even two years considering the start of the
nancial crisis in th end of 2007.
Table 2. GDP based on purchasing-power-parity (PPP) per capita per capita

%
2003
2004
2005
2006
2007
2008
2009
Bulgaria
7.88
10.01
10.05
10.35
12.41
6.20
-4.56
Croatia
7.24
6.42
7.41
8.20
8.58
4.55
-3.76
Romania
7.91
12.16
7.53
11.83
9.62
9.77
-6.71
Poland
6.17
8.17
6.86
9.76
9.90
7.12
2.58
Germany
1.92
4.09
4.07
6.70
5.58
3.53
-3.71
Italy
2.11
3.84
2.54
4.71
3.68
0.30
-4.38
Uk
4.61
5.57
4.62
5.59
4.82
2.38
-3.28
Sounce: CIA World Factbook
As we mention above there are some case countries like Poland in which even if
the GDP per capita decreased it still have a positive value and it seems that here the
nancial and economic crisis will not occur. But it is possible that like in the case of
the gap of the unemployment rate that one entire country to have a gap from the
rest of EU27 to experience that crisis.
The nancial crisis has hit the various Member States to a dierent degree. Ireland, the Baltic countries, Hungary and Germany are likely to post contractions
this year well exceeding the EU average of -4%. By contrast, Bulgaria, Poland,
Greece, Cyprus and Malta seem to be much less aected than the average.
Countries where export demand has been strong and/or which have registered
current account surpluses are more exposed to the sharp contraction of world trade
(e.g. Germany, the Netherlands, and Austria). Countries which have been running
343
large surpluses are also more likely to be exposed to adverse balance sheet eects
of corrections in international nancial asset markets. Conversely, countries which
have been running large current account decits may face a risk of reversals of capital ows. Some Member States in Central and Eastern Europe are in this category.
In some of these cases, the sudden stops in foreign nancing forced governments
to make a call on balance of payment assistance from the EU, IMF and the World
Bank.
Countries which house large nancial centers, such as the United Kingdom, Ireland and Luxembourg, are obviously exposed to nancial turbulence. Conversely,
countries which are the home base of cross-border banking activities in emerging
economies in Central and Eastern Europe are also likely to be more strongly affected. The exposure for European banks to emerging market risk is fairly concentrated in a few countries.
Some of the countries took more nancial measures than economic ones. Both
Romania and Bulgaria had increased the importance of nancial and scal policy
and did not give such a great attention to economic measures. Both of them experienced high rates of increasing GDP on the basis of foreign direct investment,
but when the investors experienced economic problems even with those nancial
measures, the crisis spread rapidly.
Poland on the other hand took some economic structural reforms that changed
the country, and, also with a very big market, approximately 38.500.000 inhabitants, managed to create a national economy not so dependent of the foreign trade
and foreign direct investors. Maybe the overall increase in the last 10 years was not
so important in Poland in comparison with the rest of the eastern European countries but maybe was it is stronger and more reliable.
4. GOVERNMENTAL SOLUTION OR GOVERNMENTAL FAILURE?
As we have seen so far considering the nancial system approximately all the
governmental measures were to fail. So unfortunately we must say that we are in
the situation of a governmental failure greater than the market failure. What was
the story? Some nancial institutions had a series of problems coming from their
actions on the free market. The response of the market was that the actions that
those nancial institutions had were that of a bankruptcy. How the governments
responded? Unfortunately with a failure, and a bigger one. Instead of leaving the
market mechanisms to solve the problems, even a bankruptcy can be a solution
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sometimes, the governments nationalized the problems. So governments brought a

problem from the private market into the national economic systems.
Why the government did not had success till so far in solving at least the nancial problem? There are several answers to this question.
First of all is that the governments do not have enough information on that
specic matter. The policy makers should know at least the size of the problem. But
because this system is one in which the nancial innovation is something that is
in fashion so to say today. Why is this lack of knowledge in this eld? It is certain
now that the number and speed of innovations exceeds the possibility of law makers to respond so quickly to the changes in the market. The financial market turmoil prompted central banks to have much more frequent and detailed discussions
about market developments and the technical aspects of their market operations,
both bilaterally and collectively. Such enhanced cooperation took place both at the
Governors level and at the experts level. The Bank for International Settlements
served as a forum in this respect. Communication across central banks intensified
as the turbulent episode evolved over time.
Central banks also acted in concert on some occasions. Although coordinated
action had been considered already in August 2007, the first such action took place
later in the year, amid heightened market tensions arising from year-end funding
pressures. The central banks of five currency areas (BoC, ECB, SNB, Fed and BoE)
jointly announced on 12 December 2007 a number of coordinated measures to
provide term funding. Two other central banks the BoJ and the Riksbank joined the announcement to indicate their support. A key element was the establishment of swap lines between the Federal Reserve, on the one hand, and the ECB and
the SNB, on the other. This allowed the two central banks in continental Europe to
conduct US dollar auctions during European trading hours to help alleviate time
zone frictions and to complement the Federal Reserves TAF auctions [Committee
on the Global Financial System (CGFS) (2008)]
345
Table 3. Special measures taken during the nancial crisis

EA
JP
CH
GB
US
RO
Exceptional ne-tuning (frequency, conditions)
Exceptional long-term open market operations
Front-loading of reserves in maintenance period
Change in reserve requirements/targets
Change in the standing lending facility
Y
Y
Broadening of eligible collateral
Broadening of counterparties
Introducing or increasing securities lending
EA = euro area; JP = Japan; CH = Switzerland; GB = United Kingdom; US = United States; RO

= Romania; Y = yes; blank = no
Source: National Banks and Committee on the Global Financial System Papers.
In we consider only one of the above measures; it is obvious that the 2007 till
today nancial crisis was predictable.
For instance if we take into account only the reserve requirement into the last
40 years we will observe a huge decrease.
Table 4. Change in reserve requirements

1968
1978
1988
1998
2008
Great Britain
20.5
15.9
5.0
3.1
Germany
19.0
19.3
17.2
11.9
United States of America
12.3
10.1
8.5
10.3
10
Maybe we can express a link between change in the reserve requirements and the
unemployment rate. If the national bank increases the reserve requirement, than
the supply of money will decrease and business will enter into a period of low nancial liquidity. This possibility together with the decrease of the consumption of
population can lead, not immediately, to a decrease of the total demand for goods
and services. If in the rst moments the companies can nd solutions using the toll
of foreign trade, the export to be more specic, meanwhile the nancial turmoil
is spreading and companies will react in decreasing production on the developed
markets at rst and then on emergent countries. This is why emergent economies
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will experience rst an economic decrease and only after that a nancial one. If in
the case of developed market economies the rst problem seems to be the nancial
one, in the emergent countries the negative experience will occur in the economy as
a whole and only after that will be more and more obvious in the nancial sector.
What is the outcome of the analysis of those measures? Well we see that in the
areas in which we had more and more problems the regulations proposed are more
and more strict.
Second of all, the government nature is a bureaucratic one and does not allow
smooth changes on the way to market intervention. We should say that the government intervention will change the market on the long run and not as it is requested
today to have solutions on a short run, so that the market failure to be eliminated.
Not in the end a government does not have all the time the incentive to solve
the problem entirely. Lets consider that the nancial system is one of the most
globalize systems nowadays. Why a national government to have the incentive to
solve the problem of a multinational company, even if it is a nancial one? Maybe
the answer to this question should be the boomerang eect on national economies
of the international nancial institutions.
All around those problems can not be understood and known by only one bureaucratic government and for sure the action of a single government will not have
desired and requested result.
The answer of the nancial system came from the international nancial institutions. For some countries the answer was late, for other was wrong and for some
others inappropriate. Here we can consider the experience of Greece, Hungary (not
needing anymore the help of international nancial institutions) and maybe (hopefully not) the case of the other eastern economies.
5. CONCLUSION AND PROPOSALS
Financial systems may experience problems that may give rise from two distinct
developments that can each make it more dicult for central banks to keep the
relevant interest rates near their policy rate targets: rst, there may be unpredictable shifts in the aggregate demand for reserves; second, there may be occasions on
which a central bank needs to extend large amounts of credit but at the same time
keep the net aggregate supply of reserves consistent with its policy rate target.
347
Another improtant problem is that of communication. Misinformation and misinterpretation of central bank actions are more likely and costly in times of stress.
What should the central banks do? First of all to try al least to increase communication with the market participants and media. Sometimes changes in economic environment are more or less turbulent in according with the capacity of the governor
or the board of governors to communicate with the economic environment.
Maybe it is more important to communicate, to explain problems and measures than to act without promoting and explaining the impact of central banks
actions.
Also in these cases the explanations not only of the economic and financial
solutions proposed are to be explained but also some economic outcomes can be
explained and than maybe when those economic outcomes occur the market will
not be so to say suprised.
As an example the measures taken by the NBR (National Bank of Romania), even
if they seemed more strict than other measures taken by other national banks.
The expectation that central banks will act to attenuate market malfunctioning
may create moral hazard by weakening market participants incentives to manage
liquidity prudently. So that maybe central banks intervention should be or not be
public? In certain cases, if we consider that all the time the financial system will
have a super-bank to manage all the problems, the banks and other financial or
non-financial institutions will deal more happy and without any burden on to the
financial market. This is not what the market should do. They must be aware of all
the risks and to manage liquidity wisely and not so wide-handed.
All of that can not represent but financial solutions, but maybe much more important are those economic solutions. If the cause of this nancial-economic crisis
seems to be the failure of the nancial markets we think that the solution is more
an economic one then nancial. It will be in the hands of national governments
to change the markets and hopefully not using only nancial tools but also other
economic policies like the public spending policy and the scal policy.
The public spending policy should create jobs for those sectors that shrank or
in the worse case scenario to try to change on medium and long term the structure
of the economy. A good thing that usually economic crisis are bringing is increasing interest for savings and decreasing appeal for consumption (maybe the best
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example here is USA in 2007 with a savings rate of no more than 1% and nowadays
a saving rate of 7% average for 2009).
The question that will arise is whether the governments will have enough money
to nance this new public spending policy. We can propose here two solutions:
one to leave the problem of the ination on the second plan or to try to cut other
expenses not so compulsory for the national economies. Ination can be avoided,
but this means that policy makers will have to agree categories of expenses to be
cut down. One solution for the countries in EU will be for instance the decreasing
expenses for the ocials and commissions of EU. This can be a very boiling point
because it has to be decided exactly by the beneciary of those expenses. It is a
though point but lets imagine that this crisis will be due in a reasonable time of 3-5
years or the worse case scenario to have a come-back of the economy in the same
manner and time as the big crisis from 1929-1933. Hopefully the policy makers
will take into account the public benet and not an individual or even a national
one, otherwise they will create once again an new market failure, this time not only
a nancial one but more complex a general economic market failure of the capitalist market system.
REFERENCES
1. Colander (2004), Economics, ISBN 0-07-254902-5, New York

2. Allen F., D. Gale (2007), Understanding Financial Crises, ISBN-13:
9780199251414, Oxford University Press
3. Allen, Franklin and Gale, Douglas M., An Introduction to Financial Crises (August 14, 2007). Wharton Financial Institutions Center Working Paper No. 0720. Available at SSRN:http://ssrn.com/abstract=1008311
4. Babus, Ana, Carletti, Elena and Allen, Franklin, Financial Crises: Theory and Evidence (June 8, 2009). Available at SSRN: http://ssrn.com/abstract=1422715
5. Gorton H., L. Huang (2004), Liquidity, Eciency and Bank Bailouts,
American Economic Review 94, 455-483, http://c.wharton.upenn.edu/c/
papers/02/0233.pdf (05.01.2010)
6. 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)
349
7. 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)
8. Committee on the Global Financial System (CGFS) (2008), Central bank operations in response to the financial turmoil, CGFS Publications No. 31, http://
www.bis.org/review/r090210e.pdf (05.01.2010)
9. Site:http://thinkexist.com/quotation/it_is_just_as_important_that_business_keep_out_of/195403.html (25.02.2010)
10. http://www.indexmundi.com/ (28.02.2010)
11. Economic Crisis In Europe: Causes, Consequences and Responses http://
ec.europa.eu/economy_finance/publications/publication15887_en.pdf
(25.02.2010)
12. Onaran, O. (2009), Global crisis and global reaction in Western and Eastern
European Union, http://www.internationalviewpoint.org/spip.php?article1797
(28.02.2010)
13. Salzmann, M, Deepening Economic Crisis in Eastern Europe, (2009) http://
www.wsws.org/articles/2009/nov2009/euro-n24.shtml (05.03.2010)
14. Schwarz, LS, Regulating complexity in nancial markets, http://papers.ssrn.
com/sol3/papers.cfm?abstract_id=1240863 (15.02.2010)
350
Igor ivko Zdenko Klepi Nikola Papac
TRANSPARENCY OF FINANCIAL REPORTING AS

INTERNAL MECHANISM OF CORPORATE GOVERNANCE IN
BANKS IN B&H
Igor ivko1, Zdenko Klepi2, Nikola Papac3
ABSTRACT
Corporate governance is a group of relations between owners, stockholders and

other groups of interest or inuence. Actually it is a group of relations between
dierent participants of the corporation business who work on determining then
direction and successfulness of the corporation.
Corporate governance is shown through several dierent mechanisms that enable the management to govern the corporation for the welfare of one or more
interested parties. The management is represented as the agent that runs the corporation for the welfare of dierent principals. Adequate and transparent reporting
is one of the most signicant internal mechanisms of corporate governance and is
very important for the existing and future investors on the market of capital because it is a picture of behavior and work of the management of the corporation.
Through the presentation of previously made nancial statements the banks
provide information about themselves and their business running to investors,
creditors, analysts and other interested parties, i.e. they make their business running transparent. Transparency in nancial reporting means insuring the simplicity
and easiness of access to information, their accuracy, quality, timing, presentation
in clear and simple terms, and all that provides control over debtors and owners
discipline, market evaluation of the bank, control of risks, responsibility of managers and bank directors.
1
2
3
Ph.D. Igor ivko, Faculty of Economics, University of Mostar

Ph.D. Zdenko Klepi, Faculty of Economics, University of Mostar
B.sc. Nikola Papac, Faculty of Economics, University of Mostar
TRANSPARENCY OF FINANCIAL REPORTING AS INTERNAL MECHANISM...
351
The goal of this work is to analyze the use of Internet with the purpose of
nancial statements and improvement of transparency of nancial statements of
banks in Bosnia and Herzegovina. Transparency in banking industry is the crucial
element of supervising process and ecient market discipline, but it is also one
of crucial internal mechanisms of corporate governance. Special attentions will bi
given to congruency of presented information and the directions of third column
of Basel II. with the purpose of ensuring market discipline and EU Directive of
Transparency.
JEL classication: G21, M4
Key words: corporate governance, transparency, internal mechanisms of corporate governance, nancial statements, Basel II, EU Directive of Transparency
1. INTRODUCTION
In the broadest meaning, corporate governance is a relation between a manager (administration) and investors who invested capital in the corporation. If we
observe this in a narrower meaning, corporate governance is the system, which
ensures to the owner (investor) that the supreme management, named and set in
order to achieve aims of the organization, would accomplish the main accepted obligation, which is making additional capital value for the owners. The setting of the
corporate governance should provide all material data concerned with corporation
including nancial situation, work results, ownership and managing the association in time and precisely.
Transparency in bank industry is an important feature in supervision process
and in making ecient market discipline. We can talk about market discipline only
when market participants have total access to timely and precise information which
enables them to join banks activity and to measure risk in banks activities and
bank nancial situation, its risk prole and the managing risk system. Public announcement and supervision information have to promote safety and reliability of
banks system as well as protect the consumer. Transparency in the states of central
and southern east Europe has special place because banks are in instant structural
changes in nancial department: nancial innovations, growing complexity of the
business transactions, nancial conglomerates, rising consumers requests, banking internationalization, exposing to risks. Only the existent and improvements of
transparency only can help to prevent nancial crisis.
352
Many companies use Internet today as instrument for business and communications, from online goods orders and services to information assurance for investors, creditors and other interested users. Banks can use the Internet to ensure
nancial information about their business via corporative web site. Internet can
be used to publish the nancial performances, nancial issues (capital, solvency
and liquidity), and exposure to risks, accounting principles, as well as information
about corporate bank governance in public.
2. THE TERM OF CORPORATE GOVERNANCE
The term of corporate governance is pretty wide open and there are a lot of
approaches, which can help to dene it. Corporate governance is linked to corporations in which the ownership is separated from governance and thereby we can
dene it:
According to OECD denition (Organization for Economic Cooperation and
Development) corporate governance includesset of the relations between management, administration, stockholders and the rest interested groups. Corporate
governance also represents the structure inside which the goals of the business are
determined as well as funds for achieving those goals and monitoring its business
transactions. Good corporate governance should oer proper encouragement for
the administration and management in order to achieve goals, which are of great
interest for business and stockholders4
Corporate governance is relation between dierent participants while determining direction and ecacy of the corporation. The main participants of this process are the owners of the corporations, management and supervisory committee.
The rest of the participants are employees, buyers, suppliers, creditors and wider
social community5
According to Cadbury: corporate governance is managing and controlling of
the corporation.6
Organization for Economic Co-Operation And Development: OECD Principles of Corporate Governance, OECD Publications, Pairs, 2004., p. 12., accepted from: www.oecd.org/
dataoecd/32/18/31557724.pdf, 20/08/2008
Monks, R. A. G. & Minow, N.: Corporate governance, 3rd Edition, Blackwell Publishing, 2003,
p.12.
Dunlop, A.: Corporate Governance and Control, Kogan Page Publisher, 1998, p.3.
353
To develop eective corporate governance we have to cover three elds: (1)

control of the management where board directors are controlling choice and
verifying actions of the headmasters; (2) Reporting the stockholders revision and
including in making important decisions of the owners, and (3) monitoring and
valuation of the long term strategies and business activities valuation.7
3. MECHANISMS OF THE CORPORATE GOVERNANCE
Corporate governance manifests throughout many dierent mechanisms, which

enables for management to administrate corporation for welfare of one or more
interested parties. Management manifests as agent administrating corporation for
dierent principals welfare (stockholders and stakeholders).
There is a variety of dierent mechanisms which ensure corporate governances
eciency, as great stockholders, creditors, internal control and supervision systems,
external and autonomous auditors, and o course legal sets inside which a corporation operates.
All these mechanisms are put into two main groups: internal and external.8
Outer (external) mechanisms include: legal set (frame), market inuence and
competition and minority owners interests protection. Internal mechanisms in
the most cases are: directors committee, motivation politics of the management,
ownership concentration, relations with stakeholders and transparency in current
nancial actions and reporting.
3.1. Transparency as corporate governance mechanism
The fth internal mechanism is transparency in nancial and current business,

and it is about adequate and transparent disclosure of relevant information about
the business (disclosure routine notion or term).
Adequate and transparent disclosure is very important for existing and future
investors on the capital market, because it brings picture about corporation management behavior and actions. This issue is elaborated in V. OECDs corporate
governance principle (Data disclosure and transparency).
Neziri, D.: Korporativno upravljanje pokreta razvoja trine ekonomije, Poduzetnika ekonomija, Volume IX, 12/2005. p. 238-354., accepted from: http//:www.ebscohost.com/, May 2008
Tipuri, D.: nadzorni odbor i korporativno upravljanje, Sinergija, Zagreb 2006, p. 56
354
From V. OECDs corporate governance principle we can conclude that the corporate governance frame should enable timely and precisely to disclosure all issues
important for corporation, including nancial situation, results, ownership, and
corporate governance.9
This principle requests public disclosure, at least once a year, but some countries
request periodical disclosure on semi annual or quarter ground, or even more
frequent, if some important events, with inuence on corporation are taking place.
Corporations often undertake voluntary to disclosure data, which goes even further
from minimal requests, and it matches to market requests and needs.
Stockholders and potential investors request for delivery of the sure, comparable, and detailed enough information in order to judge relations within the administration and to make decisions about value, ownership, and votes by virtues of
stocks. Insucient or inexplicit information can endanger markets functionality;
can raise capitals costs and can lead to unsatisfactory resources distribution.
3.2. Institutional set for nancial report transparency in Federation of Bosnia and
Herzegovina
The most regulations from the corporate governance in Bosnia and Herzegovina
are dened by entity lows. At the state level, at accounting domain and accounting regulations there is a state Low about accounting and audit of Bosnia and
Herzegovina10, which forties standards for accounting and audit implementation
in Bosnia and Herzegovina. Nevertheless, beside afore-mentioned low at the state
level there are entity lows and these are: The low about accounting and audit in
Federation of Bosnia and Herzegovina11 and The low about accounting and revision in Serb Republic.12
Organization for Economic Co-Operation And Development: OECD Principles of Corporate Governance, OECD Publications, Pairs, 2004., p. 2.
10
Low about accounting and audit of Bosnia and Herzegovina, Ocial Gazette of Bosnia and Herzegovina, Number 42/04
11
Low about accounting and audit of Federation of Bosnia and Herzegovina, Ocial Gazette of the
Federation of Bosnia and Herzegovina, Number 32/05
12
Low about accounting and audit of Republic of Srpska, Ocial Gazette of Republic of Srpska,
Number 67/05
355
International accounting standards, i.e. International Financial Report Standards are grounds to create native accounting regulations, which onwards regulate
all actions concerned with creating nancial reports.
Commissions for securities (stocks) in both entities have dierent obligations
for annual reporting. Joint stock company in both entities are obliged to prepare
annual nancial reports and reviser reports or supervisory boards reports for revision. (Federation of Bosnia and Herzegovina) or supervisory and authority board
(Republic of Srpska), which are to be presented to main stocks congress and to be
available for stockholders.
Annual nancial reports must be the revision and consolidation issue, they are
to be delivered to specialized agency FIP in Federation of Bosnia and Herzegovina
and AFIP in Serb Republic. Regulations in Serb Republic bind joint stock companies whose stocks belong to at least one hundred stockholders or at least to one
PIF (Privatization investing found) to disclosure annual summary nancial reports,
as well as to publish the report about the most important events and activities in
daily newspapers. Joint stock companies with marketable securities (practically all
of them) also have to deliver annual reports about business activities to their Commission for securities and to stock market including summary nancial reports,
revision report as well as report about the latest activities and future plans.
The low about securities in both entities are obliged by joint stock companies
to prepare semi annual reports about activities in business. They contain the main
nancial data, which were not the revision issue. Investment funds in Federation
of Bosnia and Herzegovina are bind to prepare quarterly reports while other jointstock companies in Bosnia and Herzegovina are not. Apart from few, reports are
simple. Less than a half of joint stock companies in both entities disclose reports
or deliver them to their Commission for securities or stock market.
3.3. Transparency and bank nancial reporting
The market can be ecient only on the grounds of proper, useful and timely
available information. Actually, in bank business activities it is necessary to provide
information clarity from nancial reports, to make the way they are published
more simple as well as to enable debtors and owners discipline supervision, bank
market valuation and to provide managers responsibility.
356
This is possible to achieve with implementation of accounting standards and

behavior standards. Banks within European Union whose securities are used for
trade on nancial market have been obliged to implement International Accounting Standards and thus raise publicity access to information with regard to possibilities oered by national accounting standards. However, European banks rating
on American stock markets must implement International Financial Report Standards, because with their implementation they achieve similar level of transparency
as U.S. GAAP standards.
Financial reports composed according to standards must give precise and fair
view on property, obligations, nancial position and benet or waste on consolatory level.
Transparency, eciency and integrating nancial market would contribute in
achieving unique community market and would contribute to its faster growth, as
well as would contribute to opening new workplaces, better allocation of capital as
the result of costs reduction. Transparency provides that investor feels safety and
it allows more simple performances and bank property valuations, but for other
participants at nancial market too. Actually transparency must achieve two goals:
investors protection (creditors, depositories) and to enable market ecacy. Transparency represents some way of the banks self regulation.
4. BANKS TRANSPARENCY IN BOSNIA AND HERZEGOVINA
Bank management in Bosnia and Herzegovina according to existing lows about

accounting is responsible to enable nancial reports prepared for each year according to International Financial Report Standards which give truthful and fair value
for the period given. Annual banks report includes:
Responsibility for nancial reports
Autonomous revisers report
Balance sheet
Success balance
Report about cash ew
Report about changes in share capital
Notes about nancial reports
357
In 2006 we studied thirty three banks in bank system of Bosnia and Herzegovina, and we fortied those twenty eight banks has an Internet site, or eighty ve
percent, while ve among banks has not internet connection or it is in reconstruction. At this eighty ve percent of banks web pages oer nancial information, but
timely publications vary. From this pattern seventy six percent of banks have nancial reports published on the Internet i.e. they have developed Internet nancial
reporting. Annual nancial reports have been published on the Internet.
In 2007 we studied 32 banks in Bosnia and Herzegovina. All of them, i.e. 100%
had internet page and all of them had nancial reports available, but the way reports were published and the way they were shaped vary, these two segments were
not standardized. There are corporative reports from wide ones, which are standardized for banks centrals to those with contracted nancial reports with copy of
the reversionary judgment. It could be said; the ways of reporting were not standardized. Just ve banks had reports about business actions in 5-year period, which
was ordered by EU directive about transparency.
In 2008 all banks had Internet pages, but till the time this work was done (1st
of March 2009) neither of them had reports published.
However we have to consider interest of some banks for minor or more indigent transparency for many reasons: time assurance institute, precise and detailed
accounting system, resources for reporting function, reports composed according
to international standards and revised by external reviser, and for all this costs are
high, especially for smaller banks.13
In order to advance transparency and to reach higher transparency level necessary for business action in globalized nancial world we need to adjust national
legislative and practice to the guidelines of EU Directive transparency the third
Basel post.
5. TRANSPARENCY DIRECTIVE
Where bank transparency is concerned, primarily monitoring the area in euro

integrations context and approaching to euro zone countries Transparency Directive
2001/34/EC i 2004/109/EC could not be avoided. Directive purpose is transparency request harmonization, i.e. establishing request for public reporting current
13
European Parliament and Council, (2001): Directive 2001/34/EC, p.2
358
and periodical information for the entities whose stocks are traded on the EU markets. Transparency Directive regulates the deadlines for publishing certain types of
publications, and its implementation has started since the end of 2006 in national
euro zone lows, whereas for implementation twenty-four months are needed.
The main Transparency Directive features are:14
Common deadlines for publishing four months after the reporting period is over annual nancial report and two months for temporary nancial
reports.
Annual reports must contain: revised nancial reports, managers report
Publications must be available for publicity at least for ve years
Semi annual nancial report, according to International Accounting Standards 34 must contain added managers report
Temporary managers reports (process review and business performances reviews and position as well as main risk factors description and incertitude
to which management is confronted) for eminent action in rst and third
quarter
Obligation to publish reports on the Internet
Ad hoc reporting harmonization
In order to carry away obstacles and to introduce eective new transparency
requests in community special control of national competent bodies is needed for
directive to enable timely available information. Financial market participants are
obliged to translate all current and periodic information in all languages spoken in
countries members in whom their actions are traded.
6. BANK TRANSPARENCY AND MARKET DISCIPLINE
Market discipline, as the third post of the New Basel standard has its purpose
to put together requests which have become banks issues in the rst post (minimal
capital adequacy) and those from second post (supervisory control over banks).
This Basels standard post determines big inuence of national supervisor over bank
in order to work with eectiveness, ducially, and with certain amount of safety.
Guided by this, the Basel committee for bank supervision made number of re-
14
European Parliament and Council: Directive 2004/109/EC, 2004, p.40-49
359
quests to enable market participants to have access to key information about banks
actions.
Establishing market discipline it is attempted to enable for every single participant on the market to dispose equally with information about bank, which enables
better and easier decisions making. Thats the reason why Basel II puts upon adoption of informing public politicks as a need which is to be adopted by the administration of every bank, and with in it is dened information mould and volume
which will be available for publicity and frequency of their publishing.15
6.1. Financial performances
Market participants and supervisors need information about banks nancial

performances. Particularly important is to publish information:
Banks protability and prot variability to make easier judgment about potential change in nancial position and possibilities of deposit and commitments repayment, cash ow
Incomes and costs reviews in order to fortify wage quality, to fortify reasons
for bank protability changes, netto interest margin, relation between costs
and interests
Financial contribution review of dierent banks activities and geographical
areas on nancial performances
Managers reports about events which eected current and would eect future
nancial bank performances
6.2. Financial position
Information about bank nancial position is important to predict banks abilities in identifying obligations and nancial obligations. Information are published
about:
property mould and amount, obligations, capital including both maturity
structure and repayment plan useful for liquidity valuation, bank solvent and
nancial power
fees and provision by losses and the way they are formed, ability to manage the
losses is represented through this
15
Basel Committee on Bank Supervision: Enhancing Bank Transparency, September 1998, p.18
360
active and passive structures in o balanced record

regulatory capital and stockholders capital in order to get information about
banks ability to absorb future potential prots and their future growing
property mould and amount concerned with collaterals
6.3. Strategies and practices in risk governance
The public needs to have ensured information about strategies and practices
governance and risk control. Informations, which needed to be published, are:
management risk psychology, politics and methodology; risk resources; method of
governance and controlling the risks; using derivates in risk governance.
6.4. Exposure to risk
Market participants and supervisors are to be delivered qualitative and quantitative information about: exposure to risk including governance strategy and ecacy
governance strategy; risk prole i.e. risks in balance positions and o balanced
record at the current moment as well as banks appetite for taking over the risks;
credit risk, market risk, interest risk, exchange rate and liquidity risk;
Information published in a due time would guide to a better market discipline.
7. CONCLUSION
Market works well when identies nancial institution in risk, in, otherwise
healthy nancial system as black sheep among white sheep. Thats the reason why
its the key thing developing and advancing transparency in supercial nancial systems as nancial systems in countries of the southern east Europe. As long as there
are information about nancial condition in business activities the stocks price and
conditions for getting onto debt will maintain bank risk. In order to avoid problems in business actions and bank crisis we must close informatics gap as well as
to give information to market participants both to identify nancial performances
and positions and to identify nancial institution risk prole.
For transparent system in providing nancial reports and corporate governance
improving it is necessarily to follow the accounting and revision mode in a persistent ways, to introduce standard shape for annual report, to strengthen directly
information publishing via central records, adjust the Low about securities as well
as other lows.
361
Also, we have to endure in publishing information about important indirect

ownership according to EU transparency directive, we have to improve approach
to the information about companies, including online court register and web
portals, integrated interface which should cover Sarajevos stock market as well as
Banja Lukas stock market and to introduce a window for informing about the
companies.
Higher reporting transparency contributes to a higher corporate governance
quality, strengthen condence among investors, developing nancial market, better identication of dierent institutions and managing nancial crises, all these
are extremely important elements in social economics conditions of Bosnia and
Herzegovina for long term stability and development.
REFERENCES
1. Basel Committee on Bank Supervision: Enhancing Bank Transparency, September 1998

2. Dunlop, A.: Corporate Governance and Control, Kogan Page Publisher, 1998
3. European Parliament and Council, (2001): Directive 2001/34/EC
4. European Parliament and Council, (2004): Directive 2004/109/EC
5. European Parliament and Council: Directive 2004/109/EC, 2004
6. Laws and regulations about banks, accounting and audit in Bosnia and
Herzegovina
7. Monks, R. A. G. & Minow, N.: Corporate governance, 3rd Edition, Blackwell
Publishing, 2003
8. Neziri, D.: Korporativno upravljanje pokreta razvoja trine ekonomije,
Poduzetnika ekonomija, Volume IX, 12/2005. p. 238-354., accepted from:
http//:www.ebscohost.com/, May 2008
9. Organization for Economic Co-Operation and Development: OECD Principles
of Corporate Governance, OECD Publication, Paris, 2004
10. Tipuri, D.: nadzorni odbor i korporativno upravljanje, Sinergija, Zagreb
2006
INTERNATIONAL
ECONOMICS
FOREIGN DIRECT INVESTMENT LOCATION AND INSTITUTIONAL DEVELOPMENT IN IN THE...
365
FOREIGN DIRECT INVESTMENT LOCATION AND

INSTITUTIONAL DEVELOPMENT IN IN THE MANUFACTURING
SECTOR IN SOUTH EAST EUROPEAN COUNTRIES
Besim Culahovic, PhD
Eldin Mehic, MSc
Emir Agic, MSc
School of Economics and Business,
Sarajevo, Bosnia and Herzegovina
ABSTRACT
This paper investigates the importance of factor endowment vis--vis institutions development in explaining the locational choice of foreign investors in manufacturing sector in SEE countries. Using panel dataset for the period 1999 to 2006
we constructed an econometric model that was used to estimate the determinants
of FDI on sectoral level. The determinants were grouped into control variables and
institutionally related variables. The selection of control variables was motivated by
existing research on FDI, and our results are consistent with the empirical evidence
on the key determinants of FDI reported in the literature. Our analysis indicates
that the overall quality of the institutions attracts FDI in manufacturing sector in
SEE region. Besides, we identied individual determinants by disaggregating to
subsets of institutional development. In this context, the results indicate that a few
institutional changes enhanced FDI receipts to manufacturing sector: development
of privatisation process, liberalization of foreign exchange and trade, development
of competition policy and development of infrastructure reform. On the other
hand, enterprise restructuring, domestic price liberalization and development of
the banking sector do not seem to be a signicant motive for FDI in our study,
probably because the described institutional changes do not present a signicant
obstacle to foreign investors.
JEL classication: O16, R58
Key words: foreign direct investment, location determinants, South East European countries, manufacturing sector, panel data
366
Besim ulahovi Eldin Mehi Emir Agi
1. INTRODUCTION
Foreign direct investment inow in transition countries triggered numerous debates and studies on FDI determinants in these states. The use of dierent explanatory variables in FDI determinant studies is due to the fact that FDI is a complex
economic category dependent on numerous factors, the comparative signicance
of which can change in accordance with the economic environment development
over time; a change in a recipient countrys economy may also bring about a change
in FDI determinants (UNCTAD; 1998). Although traditional determinants do
not disappear due to globalization, their signicance diminishes, while determinants such as institutional development and structural reforms gain in signicance.
In this context, the paper is aimed at analyzing the inuence of various dimensions
of the institutional framework on FDI.
The extensive research into the nature and determinants of FDI in transition
economies has paid little attention to the study of FDI determinants in SEE countries, primarily due to a lack of comparable data. In over 45 empirical studies we
reviewed, only four cover some of the South East Europe (SEE)1 countries, while
only two include all countries of the region (Demekas et al; 2005, Kersan-kabi &
Orli; 2007). Besides, there is an observable lack of research into FDI determinants
on the sectoral level, which is interesting since FDI is related to industry rather
than to countries (Buigues-u and Jacquemin, 1994), and since FDI concentration
in individual sectors in the transition countries can aect the direction and speed of
the economy restructuring process as foreign investors can bring in a set of tangible
and intangible benets essential for the development of market economy in these
countries (Resmini, 2000).
For these reasons, the paper attempts to ll the gap in the current debate on the
relationship between the institutional infrastructure development and FDI in SEE
countries on the sectoral level, in the period 1999-2006. Our central hypothesis
is that countries with more developed institutions for market economy also have
a greater FDI stock in the manufacturing industry. The paper is organized as follows. Section 2 discusses the theoretical context of FDI determinants from the
host economies perspective. Section 3 provides empirical issues, while Section 4
discusses variables and methodology used in the paper. Section 5 oers the panel
regression results while Section 6 discusses conclusions.
1
Countries of South East Europe: Albania, Bosnia and Herzegovina, Bulgaria, Croatia, FYR Macedonia, Romania, Serbia and Montenegro
367
2. THEORETICAL FRAMEWORK
In his attempt to answer the question as to why, how and when FDI will occur,
Dunning merged dierent FDI theories into the so-called OLI theory. The eclectic
theory postulates that three conditions are essential for a FDI. The rst condition is
that the rm must have a net ownership advantage over the other rms serving the
foreign market. This ownership advantage may be a product or process dierentiation ability, a monopoly power, a better resource capacity or usage, or an exclusive,
favored access to product markets etc. The second condition requires that the rm
prefer internalizing its ownership advantages rather than externalizing them. This
means that the rm possessing ownership advantages must deem producing abroad
more protable than selling or leasing its activities to foreign rms. A rm might
prefer internalizing its ownership advantages in order to protect the quality of its
products, to control supplies and conditions of sales of inputs, to control market
outlets. Finally, the rm enjoying an ownership advantage and an internalization
incentive will produce abroad only if there are abroad location advantages such as
cheaper labor, higher labor productivity, market access etc. (see Dunning and Buckley, 1977; Dunning 1988). The ownership, location, and internalization (OLI) advantages are not static. They may change over time. Location determinants are the
only group of determinants that the host country governments can directly aect.
Dunning identied four types of investment activities by multinationals: market
seeking, resource seeking, eciency seeking and/or strategic asset seeking ones. In
accordance with Dunnings approach, FDI determinants will depend on the type
of undertaken activities, and each of the listed types corresponds with a specic set
of OLI benets.
Dunning (2005) also included factors related to institutions and institutional
infrastructure in the existing eclectic paradigm, consequent to the impact of globalization and aims of the New Paradigm Development (NPD). He identied three
generic groups of factors that can inuence FDI inow: frameworks of policies and
strategies for FDI, economic determinants and business exemptions. As classied,
the institutionally related determinants are spread over each of the three groups. The
group of FDI-related policies and strategies includes policies for market functioning and structure, bilateral agreements on FDI, privatization, industrial policies,
etc. The economic determinants group was expanded with the availability, quality
and cost of skilled labour, membership in regional integration agreements, market
institutions quality, quality of managerial and other creative resources, physical
368
infrastructure, etc., while the business exemption group includes investment incentives and promotion, legislation quality and intellectual property protection,
good institutional infrastructure and support (banking, accounting jobs, and other
services), social capital, regional clusters and networking.
The above framework of FDI gives guidance in identifying the set of economic
and institutional variables to be tested as determinants of investment locations,
which is discussed in detail in the next section.
3. EMPIRICAL ISSUES
There is a number of empirical studies on FDI determinants that are mostly

distinguished by the choice of explanatory variables, applied methodology and the
sample of countries included in the research. Our review of empirical literature focuses on the most signicant papers researching the link between FDI and selection
of explanatory, including institutionally related variables in transition countries.
In the transition economy context, legal framework was radically changing in
order to create a new set of formal institutions in the 1990s. Most studies indicate
that institutional development is a signicant location advantage in international
business. According to the World Bank (1996), the change of ownership in transition countries is probably the most signicant institutional change. Lansbury, Pain
and Smidkova (1996) found that the share of private sector has a positive eect
on FDI inow in the sample of Central European countries. Besides, Holland and
Pain (1998) and Bevan and Estrin (2000) found that the level of privatisation is
closely tied with the increase in FDI inows in CEECs.
Transition from planned to market economy also required the establishment of
institutions for unimpeded exchange of goods and services. In this context, research
shows that liberalization of home markets, openness and competition policy development have a favourable impact on FDI inow (Blattner, 2002, Cieslik and Ryan,
2004). Connection between host country political instability and FDI inows was
also discussed in literature on FDI determinants. Smarzynska (2002) and Bevan
et al. (2000) found that poor protection of property rights has a negative impact
on FDI inows. Pournarakis and Varsakelis (2002) also studied the connection
between institutional factors and FDI using panel-data set for 19 CEEC countries
in the period 1997-2000 and found that civil and political rights and corruption
are crucial in explaining FDI inows in the observed transition economies. Kinoshita and Campos (2003) used a sample of 25 transition economies in the period
369
1990-1998 to study location determinants classied into three categories: country

specic advantages, institutions and agglomeration economies. Their main conclusion is that institutions and agglomeration economies have a higher impact on
FDI inows than other economic variables. Bevan et al. (2004) found that several
specic formal institutions inuence FDI: private ownership of business, banking
sector reform, foreign exchange and trade liberalization, and legal development.
Conversely, domestic price liberalization, non-bank nancial sector development
and competition policy do not enhance FDI.
4. MODELLING AND DATA
The empirical framework employed in the analysis involves the use of a single
equation model for testing the relationship between FDI and institutional infrastructure. The model regresses the FDI data on a measure of institutional development, and a set of control variables. The dependent variable in the paper is FDI
stock per capita2, NACE 1-digit in the manufacturing sector for each observed
SEE country in the period 1999-2006. Due to the lack of data for SEE countries,
we took a particular eort to attempt to create a relevant database of FDI in the
manufacturing sector of the observed countries, which can serve the goals of this
analysis. Most FDI data were taken from the Vienna Institute for International
Economic Studies (WIIW) database. Data that were missing for certain years were
added based on the authors calculations and estimates founded on the data collected from various sources.3
4.1.Independent variables
4.1.1. Institutional infrastructure
The concept of locational advantages captures properties of host locations that

make them attractive to potential foreign direct investors (Dunning; 1958, 1998).
2
There are several advantages in working on FDI stocks rather than ows. First, foreign investors
decide on the worldwide allocation of output, hence on capital stocks. Second, stocks account for
foreign direct investment being nanced through local capital markets, hence it is a better measure
of capital ownership (Devereux and Grith, 2002). Finally, stocks are much less volatile than ows
which are sometimes dependent on one or two large takeovers, especially in relatively small countries
(Quere et al, 2005).
National Bank of Romania, National Bank of Serbia, Foreign Investment Promotion Agency Bosnia
and Herzegovina
370
Initial studies related to FDI determinants mostly focused on factor endowments,

particularly on labour cost and productivity as local advantages. In recent years,
multinational enterprises increasingly focus on created assets (Narula & Dunning, 2000) including knowledge-based assets, infrastructure and institutions of
the host economy. Legal, political and administrative systems tend to be the internationally immobile framework whose costs determine in international attractiveness of a location. Institutions aect the capacity of rms to interact and therefore
aect the relative transaction and coordination costs of production and innovation
(Mudambi & Navarra; 2002: p. 636). Thus, institutional environment can be a
signicant location determinant in attracting FDI. In this paper, institutional development was measured based on a series of indicators of the transition process
progress constructed by EBRD. Indices can take values from 1 to 4+, whereby a
higher index denotes getting closer to norms of developed market economies.
The construct measurements of the independent variable rst used the conrmatory analysis with the following indicators: Large scale privatisation, Small scale
privatisation, Enterprise restructuring, Price liberalisation, Trade & forex system,
Competition policy, Banking reform & interest rate liberalisation, Securities markets & non-bank nancial institutions, Overall infrastructure reform and Telecommunications, in order to verify their relevance for the analysis and to obtain meaningful factors measuring the levels of institutional transformation. All variables
loaded on the one factor, hereafter referred to as FACINST, with an eigenvalue of
7,013 and which explained 70,133%of variance. Besides the FACINST variable,
which is a proxy variable for institutional development, the selected4 EBRD indicators were used in order to nd out which particular institutions inuence FDI
(Table 1).
Index of small scale privatisation (SSP) was not used because it has small within standard deviations, which suggests that coecient for SSP may not be as well identied as the others (Baum;
2006, 223).
371
Table 1: Construct and variables denition

Construct
Regulation
Variable denition
Large scale privatisation index (LSP)
Enterprise restructuring index (ER)
Index of price liberalisation (PL)
Index of trade & forex system liberalization (TFS)
Index of competition policy (CP)
Financial infrastructure
Index of banking reform & interest rate liberalisation (BR)
Infrastructure
Index of overall infrastructure reform (OIR)
Privatization and enterprise reform

Liberalization
Predicted eect
+
+
+
+
+
In some cases, there is some collinearity5 between the indicators of institutional

development, largely because progress in various elements of the transition process
often occur simultaneously, if unevenly, in particular countries. For this reason,
we test hypothesis by estimating a series of equations, one for each institutional
development index.
In order to ensure that we are able to obtain unbiased econometric estimates,
our analysis controls for a number of factors that the existing literature has identied as important determinants of FDI. The inuence of institutional development
on FDI stocks, our analysis controls for a number of factors that the existing literature has identied as important determinants of FDI. A set of control variables are
intended to capture those structural characteristics of the host economy that may
attract FDI.
4.1.2. Market size
Most empirical studies on FDI in transition countries suggest that most enterprises in these countries invest in order to nd new markets for their products,
regardless of the industry the investment is made in (Lankes and Venables; 1996).
A larger market oers a few potential benets for the investing rm. First, a larger
market represents a greater number of potential customers, which may lead to profit growth. Higher prots may also be due to the fact that a larger market facilitates
potential economies of large-scale production and xed cost reduction. Besides, a
larger market allows more ways of new product placement, although it depends
both on the overall market size and on the dynamics of the market (Resmini; 2000).
Our model includes GDP per capita which is a proxy for the purchasing power of
5
Correlations matrix is not presented due to space limitations
372
local consumers (local demand) and market size. We expect a positive sign for this
variable: countries with higher purchasing power of their consumers are expected
to attract more foreign investors.
4.1.3. Input cost
Besides the size and dynamics of the market and access to the host market, the
prevailing factors for attracting FDI certainly include the cost and quality of input
factors (Neuhaus, 2005). According to the neoclassical theory of determinants, an
FDI enterprise can undertake a foreign investment because of the advantage, i.e.
lower manufacturing cost in the host economy including the cost of labour, energy
and raw materials. The analysis considers wages, as an independent variable, as a
proxy variable for input cost. We calculate unit labor costs as the ratio of the annual
average wage in each economy to GDP per capita in each economy. In this way, our
measure of unit labor cost is eectively a unitless ratio (Bevan et al; 2004).
4.1.4. Macroeconomic stability
Successful implementation of economic reforms in transition countries is a

good sign to potential investors, since stable macroeconomic performance implies
a lower risk for investment. In this context, price stability is a good indicator for
host governments macroeconomic management. The sustainability of moderate
or low ination tells investors how successful the host government is and thus the
prospect of further growth. Thus, the lower the average ination rate is in the host
country, the more foreign investment will be attracted to the country (Kinoshita
and Campos; 2002). The paper therefore approximates macroeconomic stability
with the ination rate. We expect the higher ination to have a negative eect on
FDI inows in the manufacturing sector, i.e. the coecient to be negative.
4.1.5. Openness
Liberalization of trade could be closely related to FDI, because it could make the
country more attractive for foreign investors. Trade and FDI can be either substitutes or complements, and consequently barriers to trade can have two conicting
inuences on FDI. In the context of vertical FDI, trade openness facilitates imports
of intermediate goods for production and allows exports of nal products after the
production, which is a common case in the manufacturing industry of the observed
transition countries. Conversely, if FDI is horizontal, which means that they are a
direct substitute for trade, FDI inows are likely to decrease with the liberalization
373
of host economys trade regimen. The paper used the shares of imports and exports
in the observed countries GDO as the degree of openness. The expected sign of the
coecient with this variable is positive (depends on FDI form).
Data used for independent variables are mainly those from the United Nations
Economic Commission for Europe Statistical Division Database, compiled from
national and international (CIS, EUROSTAT, IMF, OECD) ocial sources, World
Development Indicators (WDI) database and Vienna Institute for International Economic Studies (WIIW). Despite the fact that there are dierent sources for independent variables, the goal was to use data only from a couple of sources in order to
avoid problems due to dierent ways of dening variables and the way of data collection, at least in terms of independent variables. Data for independent variables
that were missing in the listed database were complemented by data published by
National Statistical Oces of the sample countries.
The model we estimated to depict the determinants FDI is as follows:
FDIit = + i + 1GDPpci(t-1) + 2WAGEi(t-1) + 3OPENESSi(t-1) + 4INFLATIONi(t-1)
+ 5INSTITUTIONALi(t-1) + eit
where INSTITUTIONAL refers to the institutional related variables FACINST,
LSP, ER, PL, TFS, CP, BR and OIR.
We used a panel data set covering seven South East transition economies6 between 1999 and 2006. Data were not available for all the seven countries for all the
years, and the dataset is therefore unbalanced. Since a change in any independent
variable may take some time to aect FDI, we lag all independent variables by one
year except for variables CP and BR7. Since the all variables are expressed in logs,
the estimated coecients should be interpreted as elasticities.
Given the longitudinal nature of the dataset, we begin by estimating equation
(1) with country xed eects model (FEM)8. Use of pooled data in econometric
6
Albania, Bosnia and Herzegovina, Bulgaria, Croatia, FYR Macedonia, Romania, Serbia and
Montenegro
Variable CP was not used in (current) period t because it has small within standard deviations,
which suggests that coecient for CP. There is some collinearity between GDPpc and variable
BR in (current) period t. Besides, the independent variables were lagged to account for possible endogeneity issues - measuring the impact of institutions on FDI encounters the classical
problem of reverse causality.
Results for FEM model is not presented due to space limitations
374
analyses frequently leads to certain complications (Hicks; 1994, 171-72). First,

errors tend to be no independent from a period to the next. In other terms, they
might be serially correlated, such that errors in country i at time t are correlated
with errors in country i at time t+1. Second, the errors tend to be correlated across
nations. They might be contemporaneously correlated, such that errors in country
i at time t are correlated with errors in country j at time t. Third, errors tend to be
heteroschesdastic, such that they may have diering variances across ranges or sub
sets of nations. And fourth, errors may contain both temporal and cross-sectional
components reecting cross-sectional eects and temporal eects. In other words,
even if we start with data that were homoschedastic and not auto-correlated, we
risk producing a regression with observed heteroschestastic and auto-correlated errors. This is because heteroschedasticy and auto-correlation we observe is a function
also of model misspecication. It is for this reason that we applied tests for checking
the presence of heteroschedasticity and auto-correlation. First, a modied Wald test
for groupwise heteroskedasticity in xed eect regression model reveals the presence of heteroscedasticity which, while leaving coecient estimates unbiased, can
signicantly inuence standard errors and therefore aect hypothesis testing. There
are a number of statistical techniques that can address this problem (e.g. weighted
least squares), but their applicability and implementation are less clear in a panel
context (Podesta; 2000).
In addition to heteroscedasticity, the estimates using FEM model are also aected by serial correlation. In particular, a Wooldridge test for autocorrelation in panel
data rejects the null hypothesis of no rst order serial correlation. The consequences
of autocorrelation are similar to heteroscedasticity, but the problems caused by
the latter are usually more severe. OLS coecient estimates remain consistent and
unbiased in the presence of autocorrelation, but they are no longer best linear unbiased estimators (BLUE) or asymptotically ecient. Furthermore, autocorrelation
causes standard errors to be biased.
Consequent to the previously described problems, both Parks-Kmenta method

and Beck and Katzs (1995) proposal are alternatives. They represent two dierent
approaches to tackle the complications of serial correlation, contemporaneous correlation and heteroscedasticity. Beck and Katz show that the overcondence in the
standard errors makes the Parks-Kmenta method unusable unless where there are
more time points than there are cross-section units. In other words, they recommend using Parks only when T is very large relative to N, which is not the case
in this paper (T is almost identical to N). Nevertheless, Beck and Katz (Beck and
375
Katz; 1995) showed that these approaches signicantly underestimate the variability of the estimated coecients, especially if the sample size is small. In this study,
we followed the suggestions of Beck and Katz and estimated OLS with panelcorrected standard errors (PCSEs) using Prais-Winsten to take into account the
AR(1) process.
5. PANEL REGRESSION RESULTS
In Table 2 we report the results separately for each of the observed measures of
institutional related variables combined with the same set of control variables.
Table 2: Panel regression results

GDP_pc
(t-1)
Wage (t-1)
Openness
(t-1)
Ination
(t-1)
FAC1
(t-1)
LSP (t-1)
Model 1
Model 2
Model 3
Model 4
Model 5
Model 6
Model 7
1.179***
(0.282)
-0,764
(0,477)
0,912**
(0,436)
-0,009
(0,027)
0,769***
(0,191)
1,454***
(0,333)
-0,566
(0,520)
1,072**
(0,529)
-0,037
(0,028)
1,669***
(0,327)
-0,398
(0,572)
1,560***
(0,494)
-0,028
(0,031)
1,700***
(0,314)
-0,358
(0,593)
1,591***
(0,440)
-0,028
(0,031)
1,534***
(0,252)
-0,387
(0,536)
1,209**
(0,561)
-0,017
(0,029)
1.551***
(0.296)
-0,501
(0,516)
1,446***
(0,515)
-0,038
(0,031)
1,619***
(0,396)
-0,376
(0,554)
1,568***
(0,499)
-0,028
(0,029)
1,554*
(0,835)
ER (t-1)
0,111
(0,902)
PL (t-1)
-0,377
(1,639)
TFS (t-1)
2,360***
(0,950)
CP (t)
0,612*
(0,367)
BR (t)
0,343
(1,464)
0,94
0,000
0,94
0,000
0,95
0,000
0,94
0,000
0,94
0,000
0,94
0,000
0,95
0,00
1,061*
(0,568)
0,95
0,00
42
42
42
42
42
42
42
42
OIR (t-1)
R-sq
Prob>chi2
N
Model 8
1,507***
(0,281)
-0,240
(0,485)
1,272***
(0,305)
-0,015
(0,029)
376
Note: Robust standard errors in parentheses. Asterisks indicate variables whose coecients are
signicant at the 10%(*), 5%(**), and 1% (***) level, respectively. All regressions include a constant and country dummies (not reported in the table).
There is no precise counterpart to R2 in the generalised regression model. The R2 from the
transformed model is purely descriptive (see Greene 1999:467).
Turning rst to the results for the control variables, we note that, in all models,
the variables display the correct sign and that coecients cannot change signicantly. This shows us the stability of the model. FDI is positively related to GDPpc
and is always statistically signicant at the 1% level. Therefore, larger markets,
which recorded faster economic growth, oered better opportunities for manufacturing industries to make use of their ownership advantages, which in turn led to
a greater FDI inow into this sector. Surprisingly, wages are insignicant although
they have the expected sign in all the models. A possible explanation for the obtained results can be found in the use of average wages in the analysis, rather than
the wages in the manufacturing industry, since such data are not available for all the
observed countries. Ination as an approximation variable of macroeconomic reforms success has also the expected negative relationship with FDI ows, although
it is not statistically signicant. This should not undermine the importance of price
stabilization in the transition period. It is perceived that stabilisation programmes
were successful so that ination is no longer seen as a possible impediment to FDI
inow. Rather, as the price stabilization is typically introduced in the initial stage of
transition and external liberalization in the latter stage, investors may distinguish
the winner of economic reform by looking at the outcome of external liberalization. Openness is a variable always being highly signicant and exerting a positive
inuence on the FDI in the manufacturing sector in SEE countries. The positive
eect of openness is in contrast to the arguments that FDI inows are a substitute
for trade. A positive estimated coecient for this variable can be interpreted as evidence that FDI is used to serve other markets and not only the market of the host
country. Consequently, it can be concluded that FDI in the manufacturing sector
in the SEE countries is vertically oriented.
We can now consider the results for the institution-related variables. The most
important result in model 1 is that the establishment of institutions for market
economy signicantly increases FDI inows in manufacturing sector in SEE region. The result is highly statistically signicant having in mind the relatively short
period of observation. In the context of obtained results, the relationship between
institutional development and FDI can be viewed as a channel through which in-
377
stitutions promote the growth of productivity. Developed institutions and progress

in transition can have a positive inuence on development through promotion of
investment.
Models 2 and 3 present results of the inuence of privatization and enterprise
reform. Large-scale privatization has a positive sign and the coecient is statistically signicant. Enterprise restructuring, however, does not have signicant implications for FDI since the observed region mostly witnessed weak enforcement
of bankruptcy legislation and little action taken to strengthen competition and
corporate governance.
In models 4 and 5 we nd partial evidence that liberalization has a signicant
eect on FDI. Progress in domestic price liberalization does not have a signicant
eect on FDI stock, but foreign exchange and trade liberalization do; indeed, the
coecient is statistically signicant. Thus, a liberal trade regime can stimulate investment because it allows for specialisation and larger-scale production, which
are of the greatest importance in small countries. Today FDI is often motivated
more by productivity enhancing opportunities than by the need to access local
markets, which explains why multinationals delocalise the labour-intensive part
of their production chain to transition economies. Local businesses in transition
economies may benet from this development, in that some functions of the value
chain may be contracted out to domestic suppliers. Trade can interact with FDI to
increase the competitiveness of domestic enterprises exports through knowledge
and technology transfer.
The development of competition policy has a signicant impact on FDI receipts
but only at the 10% level. Although the competition policy in the region is still in
the early stage of development, the obtained result may indicate the tendency by
certain foreign investors to invest in protected or regulated markets to gain market
power (see Bevan et al.; 2004).
Banking reform and interest rate liberalization do not have a signicant eect
on FDI in the manufacturing sector of the observed region (model 7). Such a result
is expected, due to the signicant lending to private enterprises and signicant
presence of private banks, particularly in the period after 2000. Therefore, foreign
investors do not seem to consider the eectiveness of the banking sector as an obstacle to investment.
378
Although endowments of physical infrastructure are still relatively weak, results

in Model 8 indicate that investors pay attention to this category as well, since the
OIR variable is signicant at 10% level. The infrastructure sector is undergoing a
process of restructuring through the establishment of sector regulators, privatisation
of state enterprises and opening of domestic markets to competition. Physical infrastructure is therefore becoming less of a constraint for foreign direct investors.
6. CONCLUSION
Our analysis presented in this paper indicates that general measure of institutional development, proxied by the FACINST variable, is statistically signicant
and conrms that the overall quality of the institutions attracts FDI in manufacturing sector in SEE region. The impact of institutional progress on FDI conrms that
traditional variables cannot fully explain FDI in SEE region, and that institutionally related variables should be attached a particular signicance in future research.
Besides, we identied individual determinants by disaggregating to subsets of institutional development. In this context, results indicate that a few institutional
changes enhanced FDI receipts to manufacturing sector: privatisation process, liberalization of foreign exchange and trade, development of competition policy and
development of infrastructure reform. On the other hand, enterprise restructuring,
domestic price liberalization and development of the banking sector do not seem to
be a signicant motive for FDI in our research, probably since the described institutional changes are not a signicant obstacle to foreign investors investing activities. The weak inuence of domestic price liberalization and the insignicant eect
of the development of competition policy on FDI may point to the conclusion that
certain foreign investors invest in this region in order to achieve extra prot, and
that policy makers should consider the possibility of conicting interests of foreign
business and institutional development.
LITERATURE:
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OxfordUniversity Press.
BESCHFTIGUNGSPROBLEME DEUTSCHLANDS IM ZEICHEN DER AKTUELLEN ...
381
BESCHFTIGUNGSPROBLEME DEUTSCHLANDS IM
ZEICHEN DER AKTUELLEN INTERNATIONALEN
WIRTSCHAFTS UND FINANZMARKTKRISE
Professor Dr. Hartmut Ler
Pforzheim University, Germany
ABSTRACT
Continuing high unemployment is a big economic and socio-political challenge

in Germany, as well as in many other countries. The problems with employment
have been intensied with the current economic and nancial crisis. When the goal
of full employment is unattainable, there are numerous negative consequences.
Closer examination reveals that the globalisation dispute is frequently used to push
particular interests. Politicians are trying to shift the responsibility for problems
elsewhere. Internal problems and lack of capacity to act are blamed on anonymous
globalised markets. The globalisation dispute is used by employers to divert trade
union policy and the national government policy to a more entrepreneur-friendly
course. The aim is to achieve political action as adjustment to economic pressures
of the world market, or alternatively, in the protectionist direction.
JEL clasication: G01
Keywords: unemployment, economic crisis, nancial crisis, goal of full employment, labour market analysis
1 PROBLEMSTELLUNG
Die dauerhaft hohe Arbeitslosigkeit ist eine groe wirtschafts- und gesellschaftspolitische Herausforderung in Deutschland und in vielen anderen Staaten.
Das Beschftigungsproblem hat sich durch die aktuelle Wirtschafts- und Finanzkrise noch verschrft. Wird das Ziel Vollbeschftigung verfehlt, dann hat dies zahlreiche negative Auswirkungen.
382
Hartmut Ler
Gesellschaftliche Aspekte: Gefhrdung des sozialen Friedens und der politischen Stabilitt;
Gesamtwirtschaftliche Aspekte: konomische Ezienzverluste durch Unterauslastung des Produktionsfaktors Arbeit und geringeren materiellen Wohlstand; geringere Steuereinahmen des Staates und hhere Sozialausgaben;
Persnliche Aspekte: geringere materielle Freiheit, mangelnde soziale Anerkennung und weitere psychologische Konsequenzen.
Das Vollbeschftigungsziel ist dann erreicht, wenn alle arbeitsfhigen und zugleich arbeitswilligen Personen entsprechend ihrer Neigung und ihrer Qualikation
zu bestmglichen Arbeitsbedingungen und einem entsprechenden Entgelt beschftigt sind.
Der deutsche Arbeitsmarkt hat sich in den Jahren 2002 bis 2006 positiv entwickelt. Die Erwerbsttigenzahl stieg und die Zahl der Arbeitslosen ging zurck.
Neben der gnstigen Konjunkturentwicklung haben die Arbeitsmarktreformen der
Jahre 2002 und 2004 und die moderate Tariohnpolitik zu dieser Entwicklung
beigetragen. Die konjunkturelle Arbeitslosigkeit konnte durch die wirtschaftliche
Dynamik beseitigt werden und auch die nicht-konjunkturbedingte Arbeitslosigkeit
hat sich verringert. Gleichwohl hat sich die wirtschaftliche Situation nicht bei allen
Personengruppen verbessert.
Seit dem Jahr 2008 hat sich die wirtschaftliche Lage in Deutschland grundlegend
verndert: Der konjunkturelle Abschwung 2007/2008 hat sich in der zweiten Jahreshlfte 2008 durch die Finanz- und Immobilienkrise dramatisch verschrft. Der
weltweite Einbruch der Konjunktur belastete die deutsche Wirtschaft in starkem
Mae, weil Deutschland mit einer Exportquote von 40 % von weltwirtschaftlichen
Entwicklungen besonders betroen ist. Die Exporte sind im Jahresdurchschnitt
2009 gegenber dem Vorjahr um 14,2 % zurckgegangen. Das reale Bruttoinlandsprodukt schrumpfte im Jahr 2009 um 5% gegenber dem Vorjahr (Forschungsinstitute, Gemeinschaftsdiagnose Frhjahr 2010).
Die Erwerbsttigkeit hat 2009 im Jahresdurchschnitt nur wenig abgenommen,
und zwar um 14 000 Personen auf 40,265 Millionen Personen. Die Anzahl der
Arbeitslosen stieg jahresdurchschnittlich um 155 000 auf 3,423 Mill. (2009).
Die Arbeitslosenquote (Arbeitslose in % aller zivilen Erwerbspersonen) erhhte
sich im Jahr 2009 von 7,5 % auf 7,9 % (Forschungsinstitute Frhjahr 2010).
383
Dass es trotz des massiven Produktionseinbruchs geringe Beschftigungsverluste

gab, ist wie folgt zu begrnden: Abbau von berstunden und Arbeitszeitkonten;
exiblere Arbeitszeitgestaltungen; Ausweitung von Kurzarbeit: jahresdurchschnittlich 2009 in Hhe von 1,11 Mill. Kurzarbeiter gegenber 101 540 im Jahr 2008,
Halten von qualizierten Mitarbeitern und hohe Transaktionskosten bei Entlassungen und Einstellungen.
Die weltweite konjunkturelle Abkhlung und die realwirtschaftlichen Folgen
der internationalen Finanzmarktkrise stellen aktuell groe Herausforderungen an
die deutsche Wirtschaftspolitik dar.
Konkret geht es heute um folgende wirtschaftspolitischen Aufgaben:
Kurzfristig ist das erreichte Beschftigungsniveau bei einem konjunkturellen
Einbruch mglichst zu halten bzw. die konjunkturelle Arbeitslosigkeit nicht stark
anwachsen zu lassen. Ferner mssen die massiven staatlichen Eingrie und Sttzungsprogramme in der Realwirtschaft und im Finanzsektor rechtzeitig wieder auf
ein normales Ma zurckgefhrt werden. Es handelt sich hierbei um eine Gratwanderung, denn einerseits ist die Konjunkturlage noch fragil, anderseits ist aus
ordnungspolitischer Sicht und nicht zuletzt auch wegen der hohen Staatsverschuldung eine Exit-Strategie erforderlich.
Mittel- bis langfristig ist ein spterer Beschftigungsaufbau zu frdern, bei
welchem auch die Problemgruppen auf dem Arbeitsmarkt partizipieren knnen.
2. Charakterisierung des deutschen Arbeitsmarktes
Zur Problemanalyse sollen einige ausgewhlte Fakten zum deutschen Arbeitsmarkt dienen.
Seit Grndung der Bundesrepublik Deutschland hat der Arbeitsmarkt drei Phasen durchlaufen. In der Wiederaufbauphase der fnfziger Jahre des letzten Jahrhunderts konnte die anfnglich hohe Arbeitslosigkeit sukzessive abgebaut werden.
Im Zeitraum von 1960 bis eine Vollbeschftigungsphase. Im Jahr 1974 begann die
Phase der Massenarbeitslosigkeit, welche sich in zur ersten lkrise 1973 war in
Westdeutschland Stufen immer mehr erhhte. Der Anstieg des Sockels an Arbeitslosigkeit belegt, dass die Arbeitslosigkeit weniger konjunkturell, sondern vielmehr
strukturell bzw. wachstumsdezitr bedingt ist. Die Arbeitsmarktentwicklung war
im Jahr 2009 trotz weltweiter Konjunkturabschwchung, der Krise auf den internationalen Finanzmrkten und dem starken Wachstumseinbruch relativ moderat.
384
Hartmut Ler
Bei der registrierten Arbeitslosigkeit wird jedoch die Unterbeschftigung nicht

komplett erfasst. So ermittelte der Sachverstndigenrat zur Begutachtung der
gesamtwirtschaftlichen Entwicklung fr das Jahr 2009 eine verdeckte Arbeitslosigkeit von rund 1,5 Mill. Menschen. Geschtzt werden alle arbeitslosen Personen, die
aufgrund arbeitsmarktpolitischer Instrumente oder sonstiger staatlicher Leistungen
nicht registriert sind. Rechnet man die oene und die verdeckte Arbeitslosigkeit
zusammen, dann waren 2009 fast 5 Mill. Menschen arbeitslos. Dies entspricht
einer Arbeitslosenquote von 12 %.
Eine detaillierte Arbeitsmarktanalyse ergibt fr Deutschland folgendes Bild:
Unter regionalen Aspekten gibt es ein Sd- Nord- Geflle sowie ein Geflle
zwischen den alten und den neuen Bundeslndern. Die jahresdurchschnittliche
Arbeitslosenquote lag 2009 in Ostdeutschland bei 13 %, in Westdeutschland bei
6,9 % (Bundesdurchschnitt 8,2 %).
Im Jahr 2009 wirkte sich die Wirtschaftskrise vor allem in den wirtschaftlich
strkeren Regionen aus: In Westdeutschland stieg die Arbeitslosigkeit jahresdurchschnittlich um 176 000 auf 2,32 Mill. Menschen, whrend sie sich in Ostdeutschland um 20 000 auf 1,103 Mill. verringerte. Von allen Bundeslndern stieg
die Arbeitslosigkeit 2009 in Baden-Wrttemberg (+ 24 %) und in Bayern (+ 16 %)
am meisten.
Der jahresdurchschnittliche Anstieg der Arbeitslosen betrit allein Mnner. Die
Arbeitslosigkeit der Mnner stieg im Jahresdurchschnitt um 200 000 auf 1,868
Mill., whrend die Arbeitslosigkeit der Frauen um 44 000 auf 1,556 Mill. gesunken ist. Nach dem Kriterium Geschlecht wurden Arbeitslosenquoten, bezogen auf
alle zivilen Erwerbspersonen, im Jahresdurchschnitt des Jahres 2009 fr Frauen von
7,9 % und fr Mnner von 8,4 % ermittelt. Mnner sind huger als Frauen in
Branchen beschftigt, die von der Wirtschaftskrise besonders betroen sind.
Dierenziert man die Arbeitslosen nach dem Kriterium Alter, dann ist festzustellen, dass im Jahr 2009 die Zunahme der Arbeitslosigkeit in der Altersgruppe der
15- bis 25-Jhrigen mit 11 % relativ am strkten war. Ihre Zahl stieg um 37 000 auf
377 000 und ihre Arbeitslosenquote um 0,7 Prozentpunkte auf 7,8 %. Die Quote
der Jngeren liegt aber gleichwohl unter der Gesamtarbeitslosenquote von 8,2 %.
Fr die lteren Menschen von 50 bis 65 Jahren stieg die Arbeitslosigkeit um 6 %
oder 55 000 auf 916 000. Mageblich fr deren Anstieg ist auch das Auslaufen von
Vorruhestandsregelungen zum Ende 2007.
385
In der Entwicklung nach der Staatsangehrigkeit gibt es im Jahr 2009 keine

Unterschiede. Generell sind Auslnder von der Arbeitslosigkeit strker betroen
als Deutsche. Ihre Arbeitslosenquote war im Jahresdurchschnitt 2009 mit 16,6 %
mehr als doppelt so hoch wie die der Deutschen mit 7,5 %.
Betrachtet man das Kriterium Qualikation der Arbeitslosen, dann nimmt das
Beschftigungsrisiko mit zunehmendem Ausbildungsniveau ab. Im Jahr 2009 hatte
43 % der Arbeitslosen keine, 51 % eine betriebliche oder schulische und 5 % eine
akademische Ausbildung. Nach den letzten Berechungen des Instituts fr Arbeitsmarkt- und Berufsforschung aus dem Jahr 2005 lag die Arbeitslosenquote der
Ungelernten bei 26 %, bei Personen mit abgeschlossener Berufsausbildung bei 9,7
% und bei Akademikern bei 4,1 %. Diese Relationen drften auch fr die letzten
Jahre zutreen.
Ein wichtiges Kriterium fr die Chancen des Wiedereinstiegs in ein Beschftigungsverhltnis ist neben der Qualikation die Dauer der Arbeitslosigkeit. Deshalb
ist es besonders problematisch, dass der Anteil der Langzeitarbeitslosen an allen
Arbeitslosen bei rund 30% liegt. Als Langzeitarbeitslose gelten Personen, die lnger
als ein Jahr arbeitslos gemeldet sind.
Der deutsche Arbeitsmarkt ist schlielich durch eine sog. Mismatch-Arbeitslosigkeit gekennzeichnet. Das Arbeitsangebot entspricht vor allem bezglich der
Qualikation nicht der Nachfrage nach Arbeitskrften. Trotz hoher Arbeitslosigkeit besteht ein gravierender Mangel an qualizierten Mitarbeitern, insbesondere
an Akademikern.
3. KONJUNKTURELLE UND STRUKTURELLE ARBEITSLOSIGKEIT
3.1 Konjunkturelle Arbeitslosigkeit
Die wirtschaftliche Entwicklung in marktwirtschaftlichen Systemen ist durch

Unstetigkeiten und zyklische Schwankungen geprgt, die wiederum unterschiedliche Arten von Arbeitslosigkeit zur Folge haben. So kommt es durch natrliche
bzw. vom Menschen geschaene Faktoren in bestimmten Branchen (Land- und
Forstwirtschaft, Fremdenverkehr/Tourismus, Bausektor, Feiertage) zu jahreszeitlichen Produktionsschwankungen (Saisonzyklen) und damit zu saisonaler Arbeitslosigkeit. Konjunkturzyklen sind ein gesamtwirtschaftliches Phnomen, es sind
also viele Branchen einer Volkswirtschaft betroen. Das gesamtwirtschaftliche Angebot und die gesamtwirtschaftliche Nachfrage stimmen kurzfristig nicht berein.
386
Hartmut Ler
So kann es beispielsweise zu einem konjunkturellen Abschwung kommen, da Unternehmen bereits im Aufschwung ihre (induzierten) Investitionen reduzieren, weil
die Nachfragezuwchse abnehmen. Die Ursachen fr Konjunkturschwankungen
knnen auch im Ausland liegen. Durch die Globalisierung der Gter- und Finanzmrkte entstehen Interdependenzen, welche Konjunkturbertragungen zur
Folge haben. Indikatoren fr die Konjunkturschwankungen sind entweder die
Vernderungsraten des realen Bruttoinlandsprodukts oder der Auslastungsgrad des
Produktionspotenzials im Zeitablauf. Konjunkturelle Arbeitslosigkeit entsteht durch mangelnde gesamtwirtschaftliche Nachfrage in der Abschwungphase und in
der Rezessionsphase. Der Tiefpunkt der schwersten weltwirtschaftlichen Rezession
seit dem 2. Weltkrieg lag im Herbst 2009. Die Lage auf den Weltnanzmrkten
hat sich etwas entspannt, die Stimmungsindikatoren zeigen nach oben, die Auftragseingnge und die Produktion sind gestiegen und der Welthandel hat bereits im
Sommer 2009 eine deutliche Zunahme zu verzeichnen.
Fr das Jahr 2010 wird mit einer Zuwachsrate der Exporte von 7,1 % gerechnet. Fr das reale Bruttoinlandsprodukt wird im Jahr 2010 eine Zuwachsrate von
1,5% prognostiziert (Gemeinschaftsprognose der Forschungsinstitute Frhjahr
2010; 14. 04. 2010).
Im Lndervergleich ist kein klarer Zusammenhang zwischen der Strke des
Produktionseinbruchs und dem Ausma des Anstiegs der Arbeitslosigkeit festzustellen. Der Anstieg der Arbeitslosigkeit in Japan und Deutschland war relativ gering, obwohl der Produktionseinbruch jeweils besonders ausgeprgt war. Der Anstieg der Arbeitslosigkeit war hingegen in den USA (5 %-Punkte) und in Spanien
(10 %-Punkte) besonders hoch.
Da der Arbeitsmarkt jedoch mit Zeitverzgerungen (time lags) auf die Produktionsentwicklung reagiert, haben der konjunkturelle Einbruch und die realwirtschaftlichen Folgen der Finanzmarktkrise erst in diesem und in den kommenden Jahren Auswirkungen auf das Beschftigungsniveau. Grnde fr die time lags
auf dem Arbeitsmarkt sind: Institutionelle Rahmenbedingungen (Kndigungsschutz) und Transaktionskosten (Kosten bei der Entlassung und Einstellung von
Mitarbeitern). Unternehmen sind auch bemht, ihre Stammbelegschaft wegen der
erfolgten Humankapitalbildung (betriebsinternes Wissen der Mitarbeiter, Kosten
fr Fort- und Weiterbildung) mglichst im Unternehmen zu halten. Aus diesen
Grnden reagieren sie auf Beschftigungsschwankungen mit berstunden und mit
Kurzarbeit.
387
Nach der Prognose des Sachverstndigenrates zur Begutachtung der gesamtwirtschaftlichen Entwicklung vom Herbst 2009 wurde fr das Jahr 2010 eine
Arbeitslosenquote von 9,4 % erwartet. Die wirtschaftliche Entwicklung nahm
jedoch einen wesentlich gnstigeren Verlauf. Die Forschungsinstitute rechnen in
ihrem Frhjahrsgutachten 2010 fr das Jahr 2010 mit einer Arbeitslosenquote von
7,8% im Vergleich zu 7,9 % im Jahr 2009.
3.2 Wirtschaftlicher Strukturwandel und strukturelle Arbeitslosigkeit
Sektoraler, regionaler und faktoraler Strukturwandel sind stndige Prozesse.

Verursacht wird der sektorale Wandel, also die Vernderung der Bedeutung einzelner Wirtschaftssektoren und Branchen, durch eine Vielzahl von Determinanten
von der Angebotseite und/oder von der Nachfrageseite her.
Auf der Angebotsseite verndern sich die Faktorausstattungen und die Faktorpreisrelationen. Es kann zu Engpssen im Faktorangebot kommen. So knnen
heute in manchen Bereichen der Wirtschaft die Produktionsmglichkeiten mangels qualizierter Arbeitskrfte nicht ausgeschpft werden (Fachkrftemangel).
Eine weit verbreitete These ist auch, dass in Deutschland Innovationen nicht umgesetzt werden knnen, weil es an Krediten bzw. an Risikokapital fehlen wrde.
Eine weitere Ursache fr strukturelle Anpassungsprobleme liegt in der Unstetigkeit
des technischen Fortschritts. Innovationsschbe lsen massive Strukturwandlungen
aus. Insbesondere Basisinnovationen verbreiten sich in vielen Geschftsfeldern und
initiieren eine neue Wirtschaftsdynamik (Kondratie-Zyklen). Im Vordergrund
der heutigen Diskussion stehen die Erhhung der Wettbewerbsintensitt auf den
internationalen Mrkten im Gefolge der Regionalisierungs- und Globalisierungsprozesse und durch neue Anbieter (aufstrebende Lnder). Hinzu kommen vernderte nationale und internationale Rahmenbedingungen (z.B. EU-Erweiterungen,
Freihandelszonen).
Der Strukturwandel wird auch von Nachfragestrukturvernderungen aufgrund
von Einkommens-, Preis- und Prferenznderungen verursacht. Mit steigendem
Einkommen verndert sich die Struktur der Nachfrage nach Gtern und Dienstleistungen. Zunchst verlagerte sich die Nachfrage von der Deckung des Bedarfs
an Nahrungsmitteln zu standardisierten Massenproduktionsgtern und schlielich
zu einem hherwertigen Bedarf von Industriegtern. In einer weiteren Stufe wendete sich die Nachfrage den gehobenen Produkten der Dienstleistungsbereiche zu.
Bei Grundbedrfnissen kommt es zu Marktsttigungen. Die Konsumgternach-
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Hartmut Ler
frage verschiebt sich zu gehobenem Bedarf und insbesondere zu Freizeitbedarf. Der

Strukturwandel in der Konsumgternachfrage hat entsprechende nderungen in
der Investitionsgternachfrage zur Folge, denn diese ist weitgehend eine abgeleitete
Nachfrage. Bei der originren Nachfrage nach Investitionsgtern, also bei Produktund Prozessinnovationen, spielen Standortberlegungen und der internationale
Wettbewerb eine entscheidende Rolle. Folgen der Angebots- und Nachfragestrukturvernderungen sind eine stndige Reallokation von Ressourcen sowie eine unterschiedliche Beschftigungs- und Wachstumsdynamik einzelner Sektoren und
Wirtschaftszweige.
Der empirisch besttigte Trend der Beschftigtenentwicklung in der sektoralen Makrostruktur nach dem Clark-Fourastie-Modell, einer Verlagerung vom
primren Sektor (Landwirtschaft) und vom sekundren Sektor (warenproduzierendes Gewerbe) zum tertiren Sektor (Dienstleistungen), lsst sich mit dem Zusammenwirken von Nachfrageverschiebungen und Produktivittseekten erklren.
Da die Einkommenselastizitt der Nachfrage nach Dienstleistungen grer ist als
diejenige nach Industriegtern, werden im Wachstumsprozess immer mehr Dienstleistungen und relativ immer weniger Industriegter nachgefragt. Als Folge der
Produktionsstrukturvernderungen ergeben sich nderungen in der Beschftigtenstruktur. Die Hypothese von Produktivittsvernderungen sagt aus, dass der Produktivittsfortschritt im industriellen Sektor hher ist als im Servicesektor, weil bei der
industriellen Produktion mehr Mglichkeiten zur Kapitalintensivierung und zum
Einsatz von neuen Technologien bestehen. Insofern kann die Industrieproduktion
bei einem gleichzeitigen Rckgang der Beschftigung gesteigert werden.
Betrachtet man die Beschftigtenentwicklung in den drei Makrosektoren, dann
kam es in den Volkswirtschaften zu einem Abbau der Beschftigung im primren
und auch im sekundren Sektor. Gleichzeitig wurden im Dienstleistungssektor Arbeitspltze geschaen. Die dauerhaft hohe Arbeitslosigkeit in Deutschland
seit Mitte der siebziger Jahre ist nicht nur durch den sektoralen Strukturwandel
und das Produktivittswachstum (technologischer Wandel) verursacht, sondern
vielmehr durch ein vergrertes Arbeitsangebot (verndertes Erwerbsverhalten der
Frauen) zu erklren. Der sektorale Strukturwandel wirkt sich auch auf die Qualikationsanforderungen an die Mitarbeiter (faktoraler Strukturwandel) und auf
die Regionen (regionaler Strukturwandel) aus und hat Mismatch-Arbeitslosigkeit
zu Folge. Die Strukturwandelschwche von Westdeutschland in der Beschftigung deutet einerseits auf arbeitsmarktbedingte Anpassungsprobleme und andererseits auf eine relativ geringe Bedeutung von Branchen mit groem Wachs-
389
tumspotenzial hin. Die Strukturprobleme Ostdeutschlands ergaben sich aus dem

Systemtransformationsprozess.
Aus diesem Befund lassen sich fr Deutschland folgende Schlussfolgerungen
ziehen:
Erstens mssen die eher kurz- bis mittelfristigen Anpassungsprobleme, die vielfach konstatierten Reformstaus, beseitigt werden.
Zweitens sind Manahmen bzw. Anreize erforderlich, damit der deutsche Strukturwandel strker in Richtung solcher Wirtschaftsbereiche verluft, die mit groem
Wachstumspotenzial verbunden sind (Innovationsoensive). Mgliche Zukunftsbereiche sind u.a. die Umwelttechnik, Biotechnologie, Energietechnik und nach
wie vor die Informations- und Kommunikationstechnologie. Das tragende Prinzip der industriellen Revolution bestand in der optimalen Zerlegung komplexer
in weniger komplexe Arbeitsvorgnge, in der Arbeitsteilung. Ein grundlegendes
Prinzip heute ist ferner die Wissensteilung. Wir stehen heute erst am Beginn einer
Entwicklung, in welcher das sog. intangible Kapital (Wissen, Talent, intellektuelles
Potenzial, Netzwerke, Marke) eine neue Plattform fr erfolgreiche Unternehmen
bildet.
Drittens ist der Aufholprozess in Ostdeutschland durch verbesserte Angebotsbedingungen zu beschleunigen.
3.3. Strukturwandel auf dem Weltmarkt: Globalisierungsprozess
Der Beschftigungsstand wird sowohl von der Lohnpolitik und den institutionellen Rahmenbedingungen auf dem Arbeitsmarkt als auch wesentlich von der
Wachstumsdynamik einer Volkswirtschaft geprgt. Zwischen der Wachstumsdynamik als wirtschaftlichem Kernprozess und den strukturellen Vernderungen
in den Wirtschaftssektoren bestehen interdependente Beziehungen. Strukturelle
Disproportionalitten und Ungleichgewichte sind sowohl Ursache als auch Folge
der Wachstumsdynamik. Insofern kann man zwischen zwei Kausalittsrichtungen unterscheiden: Der Strukturwandel induziert Wirtschaftswachstum und das
Wirtschaftswachstum hat einen Strukturwandel zur Folge.
Insofern knnen ein zu geringes Wirtschaftswachstum und die damit verbundenen Beschftigungsprobleme auf einen verzgerten Strukturwandel zurckgefhrt werden. Vernderte Nachfrage- und Produktionsstrukturen wirken sich
auf das Beschftigungssystem aus und es kommt dann in einer Volkswirtschaft zu
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Hartmut Ler
strukturellen Anpassungsproblemen und zu struktureller bzw. wachstumsdezitrer Arbeitslosigkeit, wenn es nicht gelingt, sich auf die stndig verndernden Marktund Rahmenbedingungen einzustellen. Der gesellschaftliche, technologische und
(welt)wirtschaftliche Wandel hat vor allem mit dem Industrialisierungsprozess
eingesetzt, er beschleunigt sich aber in jngster Zeit durch den Globalisierungsprozess. Bei einer Analyse der deutschen Arbeitsmarktprobleme ist es wegen der
engen weltwirtschaftlichen Verechtung der deutschen Wirtschaft angezeigt, den
Globalisierungsprozess nher zu betrachten.
Die internationale Verechtung war vor 1914 ausgeprgter als nach 1945, damals
allerdings zwischen einer relativ geringen Anzahl von Lndern. Nach einer Phase
des Wiederaufbaus bis 1960 und einem Zeitraum der Internationalisierung bis etwa
1980 entstanden in den achtziger Jahren neue Mechaniken in der internationalen
Arbeitsteilung, die mit dem Begri Globalisierung umschrieben werden. Der Begri wurde in der Marketing-Literatur fr die Globalisierung von Marken (Weltmarktprodukte) eingefhrt. Inzwischen umschreibt man mit diesem Begri den
Vorgang einer sich beschleunigenden internationalen wirtschaftlichen Verechtung
bzw. Marktintegration. Manche verbinden mit dem Globalisierungsprozess ngste
und Sorgen. Globalisierungsgegner in Nicht-Regierungs-Organisationen (NGOs)
sehen in dem historischen Prozess einer weltweit zunehmenden wirtschaftlichen
und gesellschaftlichen Interdependenz mehr Nachteile als Vorteile. Globalisierung
wird als Ursache fr eine Vielzahl von Problemen gesehen. Mit Aktionen und Demonstrationen anlsslich internationaler Konferenzen (IWF, Weltbank, G7 bzw. G8)
machen ATTAC und andere Gruppierungen auf sich aufmerksam. Diese Bewegungen fr einen neuen Protektionismus bzw. gezgelten Globalisierungsprozess
gehen von folgenden Thesen aus: Die staatliche Wirtschaftspolitik sei ohnmchtig
gegenber den global players und den Weltmrkten. Die Demokratie wrde von
den Interessen des Kapitals ausgehhlt. Der gesellschaftliche Zusammenhang ginge verloren und die Nationalstaaten knnten in eine Vielzahl von Liliput-Staaten
zerfallen. Auch wenn man den einzelnen Szenarien kritisch gegenber steht, so
zeigt doch die aktuelle Finanzmarktkrise, dass internationale Rahmenbedingungen
und Regelungen, einschlielich deren Durchsetzung, zur Zgelung des Globalisierungsprozesses dringend angezeigt sind.
Wie kann der Globalisierungsprozess aus konomischer Sicht charakterisiert
werden?
391
Zunchst kam es um 1980 zu einer ersten Globalisierungswelle in der Triade (Nordamerika, Japan, Europa), welche zustzlich durch das Aufkommen von
Hochtechnologie geprgt war.
Der Beginn der zweiten Globalisierungswelle ist mit den neunziger Jahren anzusetzen. Es kommt insofern zu einer Verbreiterung und Vertiefung der internationalen Wettbewerbsarena, als alle Industrielnder (OECD-Staaten) und aufstrebende
Lnder von diesem Prozess erfasst werden und auch die Dienstleistungsmrkte
zunehmend globaler werden. Waren 1990 etwa 20 bis 25% der Wertschpfung
Weltmarktprodukte, so drften diese im Jahr 2015 etwa 60 bis 70% des WeltBruttoinlandsprodukts ausmachen.
Die hoch entwickelten Triade-Lnder (USA, Japan, Westeuropa) als kapitalund humankapitalreiche Lnder haben internationale Wettbewerbsvorteile bei
Produktionsverfahren und Produkten hherwertiger Technologie. Sie sind in hohem Mae Trger von Prozess- und Produktinnovationen und konzentrieren sich
auf die Produktion von sog. Schumpeter-Gtern. Bildlich spricht man hier von
einem Wettbewerb von oben. Die Wettbewerbsintensitt zwischen den traditionellen Industrielndern hat sich in jngster Zeit verschrft.
Aufstrebende Lnder nutzen ihre komparativen Kostenvorteile (niedrigere Arbeitskosten) und die Verfgbarkeit von Rohstoen und von Arbeitskrften (Ricardo-Gter, Heckscher-Ohlin-Gter) und zwingen die Lnder mit hherem Lohnniveau zu strukturellen Anpassungen. Von den aufstrebenden Lndern, welche humankapitalintensive Gter anbieten, geht der Wettbewerb von unten aus.
Ein Indiz fr den Globalisierungsprozess ist, dass das Wachstum des Welthandels
wesentlich schneller steigt als die Weltproduktion. Dabei kommt dem intra-industriellen Handel ein groer Stellenwert zu. Der globale Wettbewerb ndet nicht mehr
nur in einem reinen Gteraustausch statt. Der Anteil der Dienstleistungsexporte am
Welthandel steigt. Durch die Informations- und Kommunikations-Technologie ist
technisches Wissen zu einem international mobilen Produktionsfaktor geworden.
Es ergeben sich neue Formen der internationalen Vernetzung der Produktion durch
neue Kommunikations- und Transporttechnologien. Die rumliche Trennung von
Forschung, Entwicklung und Produktion ist bei den neuen Schumpeter-Gtern
(hoher Kapitaleinsatz bei Forschung, Entwicklung und Produktion, hohes Know
how der Mitarbeiter) mglich geworden. Die Industrielnder knnen bei dieser
Gterkategorie nur mit einer dierenzierteren Produktpalette konkurrenzfhig
bleiben. Bei nicht mobilen Schumpeter-Gtern ist der Wettbewerbsdruck geringer,
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Hartmut Ler
da hier die Trennung von Forschung, Entwicklung und Produktion weniger leicht mglich ist. Die internationale Arbeitsteilung drckt sich zunehmend auch in
einem Produktionsverbund zwischen Hoch- und Niedriglohnlndern aus.
Der deutsche Welthandelsanteil konnte in den letzten 30 Jahren mit durchschnittlich 9 bis 10 % gehalten werden. Deutschland war von 2003 bis 2008 im
Warenhandel Exportweltmeister. Im Jahr 2008 exportierte die deutsche Wirtschaft
bei einem Welthandel von 15 800 Mrd. US-$ Waren im Wert von 1 470 Mrd.
US-$. China lag mit einem Warenexport von 1 430 Mrd. US-$ auf Platz zwei
(WTO). Im Jahr 2009 ist China Exportweltmeister geworden sein. Fasst man den
Waren- und Dienstleistungshandel zusammen, dann war Deutschland in den letzten Jahren hinter den USA Vizeweltmeister.
Grnde fr die internationale Wettbewerbsfhigkeit der deutschen Firmen sind
vor allem die Produktqualitt, der Kundenservice und die Liefertreue. Auerdem
entwickelten sich die Lohnstckkosten relativ gnstig. Durch eine Erhhung des
Importgehalts der Exportgter, also den Einkauf von Vorleistungen im Ausland,
konnte die deutsche Wirtschaft ihre Position halten. Hans Werner Sinn spricht
in einer kritischen Wertung von einer Basarkonomie. Dieses Bild ist berzogen, zumal nach Angaben des Statistischen Bundesamts immer noch etwa 60%
der Wertschpfung unserer Exportgter in Deutschland hergestellt werden. Die
Reduzierung des inlndischen Wertschpfungsanteils fhrte zu einem positiven
Mengeneekt und wirkte sich somit frdernd auf den Beschftigungsgrad aus.
Zusammenfassend kann der Globalisierungsprozess somit durch folgende Merkmale gekennzeichnet werden:
Weltweite Beschaungs- und Absatzmrkte fr die Unternehmen.
Lnderbergreifende Produktionsprozesse.
Internationale Informations- und Kommunikationsnetze.
Entstehung von Global Players durch Unternehmenszusammenschlsse
und geschftliche Allianzen.
Enge Verechtung internationaler Finanzmrkte.
Internationaler Wettbewerb um die Produktionsfaktoren Arbeit und Kapital.
Treibende Krfte sind insbesondere fnf Parameternderungen:
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(1) Ein schneller Technologiewandel, insbesondere in der Informationsund Kommunikationstechnologie und der Trend zu wissensbasierten
Geschften.
(2) Die Deregulierung von Mrkten und Industrien, z.B. die Liberalisierung
der Telekommunikations-, Strom- und Verkehrsmrkte. Sinkende Kosten
der Informationssammlung, der Informationsverarbeitung und der Informationsvermittlung sowie verringerte Transportkosten.
(3) Abbau von tarifren und nicht-tarifren Handelshemmnissen durch GATT/
WTO und geringere Mobilittshemmnisse.
(4) Das Wachstum der aufstrebender Lnder und die nung ihrer Mrkte.
(5) Die Globalisierung der internationalen Finanzmrkte.
Als Folgen des Globalisierungsprozesses sind vor allem anzufhren:
Durch die Intensivierung der internationalen Arbeits- und Wissensteilung entstehen internationale Handelsgewinne; es knnen Massenproduktionsvorteile
(economies of scale) und gnstige Importmglichkeiten genutzt werden. Wir
stehen heute erst am Beginn einer Entwicklung, in welcher intangibles Kapital (Wissen, Talent, intellektuelles Potenzial, Netzwerke, Marke) eine neue
Plattform fr erfolgreiche Unternehmen bildet.
Produkte, Produktinnovationen und der technische Fortschritt verbreiten sich
international schneller. Humankapital entwertet sich schneller und Wissensvorsprnge knnen schneller aufgeholt werden.
Produktionsprozesse werden in einzelne Komponenten zerlegt, so dass der
Handel mit Vorprodukten gegenber dem Handel mit Fertigprodukten an
Bedeutung gewinnt.
Horizontale und vertikale internationale Direktinvestitionen sind Ursache
bzw. Folge verstrkter Kapitalverechtungen.
Der Wettbewerb auf Gter- und Dienstleistungsmrkten wird intensiver.
Die ausgeprgte Interdependenz der Wirtschaftsprozesse erhht die Stranflligkeit in der Weltwirtschaft. Nationale Fehlentwicklungen bzw. Krisen
knnen sich leichter und schneller auf andere Volkswirtschaften bertragen.
Es handelt ich hierbei vor allem um Dominoeekte bei Whrungs- und Fi-
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Hartmut Ler
nanzkrisen (systemische Risiken), um Inationsimport, Import von Arbeitslosigkeit und um Konjunkturbertragungen.

Vielfach werden die Arbeitsmarktprobleme in Deutschland als negative Folgen
des Globalisierungsprozesses angesehen. Wie sind diese Einschtzungen zu bewerten? Von der Globalisierung gehen Arbeitsmarktwirkungen ber zwei Kanle
aus.
1.Kanal: Inlndische Arbeitskrfte knnten durch Migration unter einen Wettbewerbsdruck geraten. So wird vielfach die These vertreten, dass der Globalisierungsprozess die Migration erhhen wrde und dass dadurch ein Druck auf die Lhne
der einheimischen Arbeitnehmer entstehen wrde. Zuwanderungen wrden das Arbeitskrfteangebot erhhen und die Lohn-Zins-Relationen auf den Faktormrkten
verndern. Auerdem wrden einheimische Arbeitskrfte aus dem Arbeitsmarkt in
die Erwerbslosigkeit gedrngt. Mgliche Verdrngungseekte durch Zuwanderungen knnen nicht ausgeschlossen werden, aber im Kern ist die Immigration nicht
die Ursache der Arbeitslosigkeit, sondern sie ist die Folge mangelnder beruicher
und rumlicher Mobilitt und Flexibilitt der einheimischen Arbeitskrfte. Zudem
sorgt heute die nationalstaatliche Wirtschaftspolitik durch Einwanderungskontrollen dafr, dass die Arbeitsmrkte der einzelnen Volkswirtschaften segmentiert bleiben. Die Arbeitsmrkte sind also weitgehend abgeschottet. Selbst auf liberalisierten
gemeinsamen Arbeitsmrkten, wie z.B. in der EU, nden die Wanderungsbewegungen in einem verhltnismig geringen Umfang statt. Von den Wirtschaftsfreiheiten des EU-Binnenmarktes wird die Freizgigkeit der Arbeitskrfte am geringsten realisiert. Die EU-Personenfreizgigkeit wurde von weniger als 1,5 % der
EU-Bevlkerung wahrgenommen. Auch die zu erwartenden Migrationen von den
neuen mittel- und osteuropischen Mitgliedslndern in die EU 15 verteilen sich
ber einen lngeren Zeitraum und drften quantitativ in einem relativ geringen
Umfang bleiben. Schlielich ist zu bedenken, dass durch neue Kommunikationsund Transporttechnologien die Transaktionskosten im internationalen Handel von
Gtern und Dienstleistungen heute so niedrig geworden sind, dass Migrationen
im Gegensatz zu frher aus wirtschaftlichen Grnden unattraktiv geworden sind.
Es ist wirtschaftlich ezienter, die Arbeitspltze und damit das Kapital in Form
von Direktinvestitionen zu den Menschen zu bringen, anstatt die Arbeitskrfte zu
den Produktionsstandorten zu holen. Dies trit insbesondere fr standardisierte
Produktionen und fr weniger qualizierte Arbeitskrfte zu. Damit ist bereits der
2. Kanal von Arbeitsmarkteekten angesprochen.
395
2. Kanal: Es handelt sich hierbei um den Druck auf die Wettbewerbspositionen

segmentierter, nationaler Arbeitsmrkte von auen. Da sich durch den Globalisierungsprozess die Entscheidungen ber Produktionsstandorte vllig neu stellen,
konkurrieren die Arbeitskrfte trotz getrennter Arbeitsmrkte weltweit miteinander. Aus dieser Sicht hat sich die Verfgbarkeit weniger qualizierter, kostengnstiger Arbeitskrfte besonders stark erhht. Auf der anderen Seite ist die Nachfrage nach qualizierten Spezialisten und Fhrungskrften weltweit angestiegen.
Bei steigender Nachfrage erhhen sich fr diese Gruppe die Lhne und es kommt
weltweit zu einer greren Lohnspreizung zwischen den Einkommen der High
Potentials und den Lhnen der weniger qualizierten Arbeitskrfte. Von den Fachund Fhrungskrften wird eine steigende Mobilitt erwartet (global citizens). Als
neue Migrationsform hat sich die innerbetriebliche Mobilitt von Fhrungskrften
in multinationalen Unternehmen herausgebildet. Sie sind Business Migrants, die
aber im Regelfall nicht umziehen. Sie pendeln zwischen ihrem Wohnort und ihren
projektbezogenen Einstzen.
Zusammenfassend ist festzuhalten, dass der international verschrfte Wettbewerb zu einem Druck auf die Reallhne fr einfache Arbeit fhrt. Der Faktor Arbeit
ist rumlich weit weniger mobil als der Faktor Kapitel. Insofern sind und bleiben
die Arbeitsmrkte segmentiert. Gleichwohl verengt der globale Wettbewerb ber
den Wettbewerbsdruck von auen die Verteilungsspielrume.
Die hohen Auenhandelsberschsse der deutschen Wirtschaft stehen im Widerspruch zu der These, dass unsere Arbeitsmarktprobleme von der Globalisierung
verursacht seien. Fr die Arbeitsmarktmisere Deutschlands sind also vorwiegend
interne Ursachen verantwortlich, eine mangelnde Strukturan-passungsexibilit.
Fr die hohe strukturelle Arbeitslosigkeit sind vielfltige Ursachenkomplexe verantwortlich, einerseits sind es weltwirtschaftliche Grnde, andererseits sind es
hausgemachte Ursachen, insbesondere Rigiditten des Arbeitsmarktes, der Reformbedarf in den Sozialleistungssystemen, im Bereich der Bildung und beim
Steuersystem. Die Strukturproblematik der deutschen Wirtschaft im Gefolge des
Globalisierungsprozesses hat zwei Dimensionen.
Die Probleme durch den Wettbewerb von unten bewirkten die sog. Kostenkrise. Bei der Kostenkrise handelt es sich darum, dass sich die Wettbewerbsposition
der deutschen Wirtschaft in den traditionellen Industriefeldern Maschinenbau,
Automobilindustrie, Elektrotechnik und Chemie teilweise verschlechtert hat. Technologisch ist Deutschland in diesen Geschftsfeldern nach wie vor fhrend. Die
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Hartmut Ler
Wettbewerbsstrke basiert auf einer Clusterbildung, welche durch das Zusammenwirken von Firmen-Know How und Standortqualitt entsteht (M. E. Porter). Um
die Hersteller von Automobilen gruppieren sich Zulieferer, Werkzeugmaschinenbauer und die elektrotechnische Industrie. Um den exportorientierten Maschinenbau bildeten sich Ringe von Zulieferern und Abnehmerindustrien. Diese miteinander verbundenen Cluster im Automobilbau, im Maschinenbau und in der elektrotechnischen Industrie waren bis Ende der siebziger Jahre das Erfolgsrezept fr
eine berlegene internationale Wettbewerbsposition. Durch neue Wettbewerber
auf dem Weltmarkt kam es zu einem Kostendruck, der zu einer Verringerung der
internationalen Wettbewerbsfhigkeit fhrte. Im Vergleich zu den neuen Wettbewerbern, die mit hnlicher Technologie produzieren, hatte die deutsche Wirtschaft
mit Kostentreibern wie hohe Arbeitskosten (Lohn- und Lohnnebenkosten), Lohnnivellierungen, niedrige Arbeitszeiten, Inexibilitt der Arbeitszeiten, niedrige und
inexible Betriebsnutzungszeiten, Energie - und Kommunikationskosten, Steuerbelastungen und staatliche berregulierungen zu tun. Die Anpassungsprobleme,
die sich aus dem Wettbewerb von oben ergeben, wurden als Technologie- bzw.
Innovationskrise bezeichnet. Mit dem Begri Technologiekrise soll ausgedrckt
werden, dass Deutschland insbesondere im Vergleich zu den USA und zu Japan
in der Hochtechnologie unter Druck geraten ist. So sei es beim bergang von
den Technologien des 19. Jahrhunderts (Mechanik, Elektrotechnik) zur Hochtechnologie des 21. Jahrhunderts (Informationstechnik, Biotechnik, neue Werkstoe,
Energietechnik, Luft- und Raumfahrttechnik, Umwelttechnik) zu Anpassungsschwierigkeiten gekommen. Gerade in den groen Wachstumsindustrien, die zum
Teil Schlsseltechnologien sind, wie z.B. die Informationstechnik, sei Deutschland
zum Teil nicht mehr vertreten bzw. im Rckzug begrien (B. Nussbaum; K. Seitz).
Demgegenber ist aber festzustellen, dass Deutschland in der letzten Dekade aufgeholt hat. In manchen Feldern, z.B. in der Umwelttechnik, ist Deutschland an der
Spitze der technologischen Entwicklung.
Als Ergebnis kann festgehalten werden: Die deutsche Wirtschaft geriet in ihren
traditionellen Industriefeldern immer mehr unter einen Kosten- und Wettbewerbsdruck und im Hochtechnologiebereich hat sich der Konkurrenzdruck verschrft.
In beiden Fllen konnte die deutsche Wirtschaft ihre Position strken. Insofern
wird Deutschland bei einer guten Konstitution auch die aktuelle Wirtschaftskrise
meistern knnen. Diese Einschtzung wird durch eine Befragung von 1 100 europischen Managern zur Wettbewerbsfhigkeit der Lnder im Jahr 2009 besttigt:
Knapp die Hlfte der Befragten bewerteten die Wettbewerbsfhigkeit Deutschlands
397
mit sehr gut oder gut. In der Durchschnittsbewertung lag Deutschland hinter
China auf Platz 2, vor der Schweiz, Japan, USA, Frankreich, Grobritannien und
Italien.
4. ALTERNATIVE STABILISIERUNGSPOLITISCHE STRATEGIEN ZUR LSUNG
DER BESCHFTIGUNGSPROBLEME
Die Schrfe und Tiefe der gesamtwirtschaftlichen Strungen als Folge der internationalen Wirtschafts- und Finanzkrise hat die Diskussion um das strategische
Vorgehen der staatlichen Wirtschaftspolitik wieder neu belebt. Einerseits sehen die
Keynesianer in kurzfristigen Konjunkturprogrammen zur Belebung der Nachfrage
den adquaten Lsungsansatz. Andererseits warnen die Neoklassiker bzw. Angebotstheoretiker angesichts der Unsicherheiten ber die weitere wirtschaftliche Entwicklung vor zu viel Aktionismus und vor Fehlsteuerungen.
Die Keynesianer sehen in der gesamtwirtschaftlichen Nachfrage den wichtigsten
Bestimmungsgrund fr die Beschftigung und den Auslastungsgrad der Produktionskapazitten. Die theoretische Ausgangposition ist wie folgt zu kennzeichnen:
Die gesamtwirtschaftliche Nachfrage (privater Konsum, private Investitionen,
Staatsnachfrage und Auslandsnachfrage) bestimmt das gesamtwirtschaftliche
Angebot auf den Gter- und Dienstleistungsmrkten und dieses den Beschftigungsgrad einer Volkswirtschaft.
Insbesondere wegen der Lohn- und Preisstarrheiten nach unten koordiniert
der Marktmechanismus zwar Angebot und Nachfrage auf den Gter- und
Dienstleistungsmrkten, aber nicht in jedem Falle bei Vollbeschftigung
(Marktpessimismus).
Im privaten Wirtschaftssektor sind endogene Strfaktoren (z.B. Multiplikator- und Akzeleratorprozesse) wirksam, welche eine unstetige
Wirtschaftsentwicklung in Form von Konjunkturschwankungen herbeifhren (Instabilittsthese).
Aufgrund dieser Hypothesen sehen die Keynesianer einen stndigen
wirtschaftspolitischen Handlungsbedarf des Staates. Sie empfehlen eine kurzfristige, antizyklische, diskretionre (fallweise) Nachfragesteuerung. Die auf den ersten Blick einleuchtende Konzeption ist insbesondere in ihrer Umsetzung sehr
problematisch: Nachfragepolitik ist nur wirksam, wenn auch die Ursachen gesamtwirtschaftlicher Spannungen auf der Nachfrageseite liegen. Nachfragepolitik
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Hartmut Ler
versagt bei strukturellen Fehlentwicklungen und bei Strungen, die von der Angebotsseite her kommen. Diagnose- und Prognoseprobleme, Koordinationsprobleme
bei den wirtschaftspolitischen Entscheidungstrgern und Schwerflligkeiten im
Entscheidungsprozess sind fr Fehlsteuerungen und fr time lags verantwortlich.
Da die quantitativen Wirkungen der Instrumente nicht genau bekannt sind, entstehen Dosierungsprobleme.
Die Ezienz der Nachfragesteuerung wird durch Antizipation der Stop- and
Go-Manahmen seitens der Wirtschaftssubjekte verringert, es kann sogar zu Zyklusverstrkungen kommen. Wie die Erfahrung zeigt, fhrt die Nachfragesteuerung,
da zumeist im Boom nicht gespart wird, zu einer Erhhung der Staatsverschuldung. Schlielich hat antizyklisch gedachte Nachfragesteuerung vor allem der time
lags wegen eher prozyklisch gewirkt.
Die Forderungen nach Konsumgutscheinen und einzelne Elemente der Konjunkturprogramme der Regierung ( z.B. Abwrackprmie von 2500 fr mindestens 9 Jahre alte Autos; einmaliger Bonus fr ein Kind von 100 ) entsprechen
der Nachfragesteuerungskonzeption. Die Ezienz dieser Manahmen ist sehr umstritten, da sie nicht nachhaltig sind und lediglich ein Strohfeuereekt entfacht
werden drfte. Angesichts der weltweiten Absatzkrise auf dem Automobilmarkt erscheint die Abwrackprmie fr Altautos angezeigt. Gerade Baden-Wrttemberg ist
ein Zentrum der deutschen Automobilindustrie, in welchem rund ein Drittel der
Beschftigten in dieser Branche ttig sind. Im Jahr 2007 waren in 245 baden- wrttembergischen Unternehmen knapp 235 000 Mitarbeiter beschftigt. Gleichwohl
ist diese branchenbezogene Manahme aus ordnungspolitischen und kologischen
Grnden nicht unproblematisch. Kritiker sehen in dieser Manahme deshalb einen industriepolitisch motivierten Aktionismus.
Die Forderungen nach hheren Lhnen, durch welche mehr Kaufkraft, mehr
Konsumgternachfrage, mehr Produktion und damit mehr Beschftigung erreicht
werden soll, ist kontraproduktiv, weil dadurch die Kosten steigen und die Wettbewerbsfhigkeit eingeschrnkt werden wrde. Wenn der Staat die Steuern senkt und
dafr ein hheres Budgetdezit in Kauf nimmt, dann wird sich das Konsumverhalten nicht oder nur sehr wenig ndern. Die Steuerzahler rechnen wegen der Staatsverschuldung mit knftigen Steuererhhungen. Insofern trit die These, wonach
sich Steuersenkungen durch ein dadurch ausgelstes hheres Wirtschaftswachstum
zum groen Teil selbst nanzieren, nicht zu. Steuersenkungen sind nur dann zu
befrworten, wenn als Gegennanzierung Ausgabenkrzungen erfolgen. Im Ko-
399
alitionsvertrag (26. 10. 2009) werden steuerliche Entlastungen von 24 Mrd. versprochen, ohne auf die Finanzierung einzugehen. Wegen des erheblichen Anstiegs
der Staatsverschuldung und von Finanzierungssalden im Jahr 2009 in Hhe von
-72 Mrd. (3 % des BIP) und im Jahr 2010 in Hhe von -125 Mrd. ( 5,1 % des
BIP) steigt die Schuldenstandsquote (Anteil des Bestands von Staatsschulden am
BIP) von 71,8 % (2009) auf 75,3% (2010). Staatsverschuldung bedeutet eine Lastenverschiebung auf sptere Generationen, verringert die Handlungsspielrume des
Staates und hat ein geringeres Wirtschaftswachstum sowie negative Beschftigungseekte zu Folge. Insofern ist eine Haushaltskonsolidierung, auch aus rechtlichen
Grnden (Schuldenbremse; Art 109, Abs.3 GG), dringend angezeigt. (Jahresgutachten des Sachverstndigenrates zur Begutachtung der gesamtwirtschaftlichen
Entwicklung 2009/2010).
Erfolgversprechender sind die Senkung der Lohnnebenkosten und zustzliche
Ausgaben des Staates in die Infrastruktur, in Bildung und in Forschung. Derartige staatliche Ausgabenprogramme wirken aber eher mittelfristig und entsprechen
damit einer Wachstumsstrategie, wie sie von den Neoklassikern vertreten wird.
Die Angebotstheoretiker (Neoklassiker) gehen von folgenden theoretischen
Grundpositionen aus:
Das gesamtwirtschaftliche Angebot bestimmt die gesamtwirtschaftliche
Nachfrage.
Sind die Mrkte funktionsfhig, dann tendiert die wirtschaftliche Entwicklung zu einem Gleichgewicht bei Vollbeschftigung (Marktoptimismus).
Der private Sektor ist von sich aus stabil. (Stabilittsthese). Unvollkommene Informationen knnen allerdings zu Fehlentscheidungen fhren, die
dann wegen der Interdependenz der Mrkte gesamtwirtschaftliche Instabilitten zur Folge haben (Theorie der rationalen Erwartungen).
Die Angebotspolitik setzt strker auf die Marktkrfte, die durch vernderte
Rahmenbedingungen freigesetzt werden sollen. Die Marktkrfte nden dann selbst
den Wachstumspfad. Das Ziel der angebotsorientierten Wirtschaftspolitik besteht
nicht darin, die jeweilige aktuelle Fehlentwicklung zu bekmpfen. Ziel ist ein mittelfristig gewollter Zustand, welcher mit einer Verstetigungsstrategie angesteuert
werden soll. Dabei geht es darum, an marktwirtschaftlichen Spielregeln ausgerichtet, die wirtschaftlichen Erwartungen zu stabilisieren und Vertrauen in die Zukunft
zu schaen.
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Hartmut Ler
Die Struktur- und Beschftigungsprobleme in Deutschland sind letztlich nur

mit einer Wachstumsstrategie zu lsen. Da die Ursachen der aktuellen Beschftigungs- und Strukturprobleme vorwiegend auf der Angebotsseite liegen, ist auch hier
anzusetzen. Gleichzeitig sollte die Nachfrageseite nicht vernachlssigt werden und
auf hohem Niveau stabilisiert werden. Angesichts der massiven Wirtschaftskrise
war eine (einmalige) keynesianische Nachfragesteuerung angezeigt.
5. WACHSTUMSPOLITIK UND ARBEITSMARKTPOLITIK ZUM ABBAU DER
ARBEITSLOSIGKEIT
5.1. Wachstums- und strukturpolitische Manahmen
Neben den allgemeinen makrokonomischen Rahmenbedingungen, wie Geldwertstabilitt, Arbeitsmarktexibilitt und Oenheit einer Volkswirtschaft, sind
Humankapital, privates und entliches Sachkapital sowie die Forschungs- und
Entwicklungsttigkeit zentrale Wachstumsdeterminanten.
Der Beitrag der Europischen Zentralbank besteht aktuell darin, dass bei niedrigen Inationsraten die Zinsen niedrig gehalten werden, um dem negativen Nachfrageschock kurzfristig zu begegnen und um die Ertragslage der Bankensystems zu
verbessern.
Die staatliche Wirtschaftspolitik sollte den eingeschlagenen Reform- und Konsolidierungskurs weiter verfolgen. Durch die internationale Wirtschafts- und Finanzkrise, von der weltweit alle deutschen Absatzmrkte betroen sind, ist bei der
Auslandsnachfrage aktuell mit relativ geringen belebenden Impulsen zu rechnen.
Insofern wird die weitere Konjunkturentwicklung wesentlich von der Binnennachfrage bestimmt. Die niedrige Inationsrate drfte sich positiv auf die private Konsumgternachfrage auswirken. Negativ auf das Konsumverhalten wirkt sich allerdings die ansteigende Arbeitslosigkeit aus. Nach Einschtzung der Forschungsinstitute wird der private Konsum im Jahr 2010 um 0,4% sinken. Die Binnennachfrage
sollte nicht ber weitere antizyklische, kurzfristige Konjunkturprogramme angeregt
werden, sondern ber nachhaltige mittelfristige Manahmen gestrkt werden. In
diesem Sinne spricht der Sachverstndigenrat auch von einer konjunkturgerechten
Wachstumspolitik. Konkret sollte der Staat folgende wachstumspolitischen Manahmen ergreifen:
(1) Eine gut ausgebaute Infrastruktur ist eine wesentliche Voraussetzung fr die
Wachstumsdynamik und das Beschftigungsniveau einer Volkswirtschaft. Deshalb
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sollte der Staat, seine Investitionen im Bereich Infrastruktur (Verkehrsinfrastruktur, entliche Gebude, z.B. Schulen, Hochschulen etc.) deutlich erhhen. In
diese Richtung zielen einige Manahmen des Konjunkturprogramms II. Die Finanzierung von staatlichen Investitionen kann nach der goldenen Regel der Finanzpolitik ber eine Kreditaufnahme (decit spending) erfolgen. Der Bedarf an
Infrastrukturinvestitionen ist insbesondere auch deshalb besonders hoch, weil die
entlichen Haushalte seit dem Jahr 2003 aus der Substanz gelebt haben. Wegen der Konsolidierungsbemhungen der Staatshaushalte lagen seitdem die Abschreibungen ber den Nettoinvestitionen, der staatliche Kapitelstock hat sich
reduziert.
(2) Die Wachstumsdynamik sollte mit hheren Ausgaben fr Bildung und Ausbildung sowie mit staatlicher Frderung von Forschung und Entwicklung angeregt
werden. Dadurch wird die kreative und technologische Leistungsfhigkeit verbessert. Der F&E- Standort sollte durch eine Forcierung der Grundlagenforschung
und eine intensivere Untersttzung von Existenzgrndungen von technologieorientierten Unternehmen vorangebracht werden.
(3) Die drei Stufen einer Steuerreform, bei der zwar nicht alle getroenen
Regelungen berzeugen, waren wichtige Schritte zur Strkung der internationalen
Wettbewerbsfhigkeit und zu einer hheren Standortattraktivitt Deutschlands.
Bezglich der Unternehmensteuern besteht noch Reformbedarf, denn Deutschland
ist immer noch ein Hochsteuerland. Eine Unternehmensteuerreform steht aktuell
auf der politischen Agenda. Die Investitionsgternachfrage kann ferner ber eine
generelle Einfhrung der degressiven Abschreibung fr bewegliche Wirtschaftsgter des Anlagevermgens angeregt werden.
(4) Ein weiterer Reformbedarf besteht nach wie vor bei den Sozialleistungs-systemen. Der umfassende Sozialstaat bedingt hohe Sozialversicherungsbeitrge und
treibt einen Keil zwischen Bruttolhnen und Nettolhnen. Die hohen Lohnnebenkosten verringern Standortattraktivitt und fhren zu Produktionsverlagerungen
ins Ausland. Die hohen Sozialleistungsabgaben in Verbindung mit einer als hoch
empfundenen Steuerbelastung sind die wesentlichsten Grnde fr die Schattenwirtschaft, in welcher ca. 16% des Bruttoinlandsprodukts erwirtschaftet werden.
Eine nachhaltige Sozialpolitik sollte knftig die Finanzierung der sozialen Sicherungssysteme strker vom Arbeitsmarkt abkoppeln (z.B. Aufbau einer kapitalgedeckten Rente; Brgerpauschale im Gesundheitswesen) und insbesondere auch fr
Ezienzsteigerungen in der Leistungserbringung sorgen.
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Hartmut Ler
(5) Als ordnungspolitische Manahme zur Steigerung der Standortattraktivitt

ist ein Brokratieabbau dringend angezeigt. Unntige brokratische Regelungen
verursachen Kosten und schrnken unternehmerisches Handeln ein.
5.2. Arbeitsmarktpolitik
Die Arbeitsmarktpolitik hat aus heutiger Sicht drei Aufgaben zu erfllen:

(1)Sie hat einen Beitrag zu leisten, dass der Beschftigungsabbau durch die aktuelle Wirtschafts- und Finanzkrise begrenzt bleibt. Hilfreich ist hier neben einer
moderaten Lohnpolitik die Verlngerung der Bezugszeiten bei Kurzarbeit.
(2)Die Arbeitsmarktpolitik muss ferner Sorge dafr tragen, dass die Beschftigungschancen gleichmiger verteilt werden. Die Problemgruppen auf dem
deutschen Arbeitsmarkt sind vor allem gering qualizierte Menschen und Langzeitarbeitslose. Die Flexibilitt auf dem Arbeitsmarkt wurde durch eine zunehmende
Ausdierenzierung in Kernbelegschaften und in Randbelegschaften mit atypischen
Beschftigungsverhltnissen erkauft. Solche atypischen Beschftigungsverhltnisse sind befristete und geringfgige Beschftigungsverhltnisse und auerdem
Arbeitsverhltnisse, die in Teilzeit ausgebt werden oder bei denen es sich um
Leiharbeitsverhltnisse handelt. Fast ein Drittel aller abhngig Beschftigten sind
in atypischen Beschftigungsverhltnissen. Die Chancen fr atypisch Beschftigte
werden dadurch erhht, wenn eine Liberalisierung der Normalarbeitsverhltnisse
erfolgt. Einstellungsbarrieren knnen durch einen exibleren Kndigungsschutz
abgebaut werden. So wird vom Sachverstndigenrat vorgeschlagen, dass betriebsbedingte Kndigungen zulssig sein sollen, wenn vorher im Arbeitsvertrag
verbindliche Abndungsregelungen getroen worden sind. Da rund drei Viertel
der Langzeitarbeitslosen und der arbeitlosen Geringqualizierten Arbeitslosengeld
II beziehen, ist dieses bereits ein Kombilohn als Mindesteinkommenssicherung.
Durch eine Verbesserung der Hinzuverdienstmglichkeiten bei einer gewissen
Mindestarbeitszeit wird es attraktiver, das Arbeitsangebot zu erhhen. Dieser Eekt
wird dadurch verstrkt, dass der Regelsatz gesenkt wird, um Nichtarbeiten weniger
attraktiv zu machen. In eine hnliche Richtung zielen weitere Modelle wie beispielsweise die aktivierende Sozialhilfe oder negative Einkommensteuern. Statt fr
diese Personengruppen Lohnersatzleistungen zu zahlen, sollen Lohnergnzungsleistungen gewhrt werden. Staatlich verordnete, chendeckende Mindestlhne sind
eher kontraproduktiv. Wenn mehr Arbeitspltze im Niedriglohnbereich geschaen
werden sollen, dann ist eine strkere Lohnspreizung erforderlich. Fr diejenigen
403
Personen, die mit geringen Lhnen kein sozialvertrgliches Einkommen erzielen

knnen, sollte der Staat Lohnergnzungsleistungen gewhren.
(3)Der Abstimmungsmechanismus auf dem Arbeitsmarkt muss verbessert
werden. In Deutschland ist die Tarifautonomie grundgesetzlich geschtzt (GG Art.
9, Abs. 3). Insofern kann der Staat nicht unmittelbar in die Lohnbildung eingreifen.
Es gibt auch gute Argumente fr einen kollektiven Lohnbildungsprozess. Werden
die Interessen der Arbeitnehmer durch Gewerkschaften vertreten, dann wird ihre
Verhandlungsmacht gestrkt. Fr Unternehmen entfallen Transaktionskosten,
welche bei individuellen Lohnverhandlungen entstehen. Es wird auch die These
vertreten, dass bei kollektiven Lohnverhandlungen gesamtwirtschaftliche Folgen
der Abschlsse in Form von Beschftigungseekten und Auswirkungen auf das Preisniveau Beachtung nden. Es gibt aber auch eine Vielzahl von Gegenargumenten,
mit denen eine strkere Dezentralisierung der Lohnbildungsprozesse begrndet
wird. So knnen bei Lohnverhandlungen auf Unternehmensebene betriebsspezische Aspekte (Produktivitt, Ertragslage, Wettbewerbssituation) Bercksichtigung
nden. Bei einer Abwgung der Vor- und Nachteile kollektiver Lohnverhandlungen
spricht vieles fr die Beibehaltung von Flchentarifvertrgen. Allerdings wird mehr
Flexibilitt in den Arbeitsvertrgen gefordert. Dieser Forderung wird bereits mit
nungsklauseln entsprochen: Abweichungen vom Flchentarifvertrag; variable
Lohnkomponenten mit Gewinnbeteiligung; Einsteigertarifvertrge fr Arbeitslose;
Abkommen, bei denen die Arbeitplatzsicherheit bercksichtigt wird. Gesetzliche
nderungen im Interesse einer exibleren Lohnndung sind insbesondere eine explizite Bercksichtigung der Arbeitsplatzsicherheit beim Gnstigkeitsprinzip und
die Aufhebung der Sperrwirkung fr nicht tarifgebundene Unternehmen.
6. INTERNATIONALE WIRTSCHAFTSPOLITIK
Der Globalisierungsprozess ist heute bereits so weit fortgeschritten, dass er unumkehrbar ist. Trotz aller Risiken, die mit der Globalisierung verbunden sind, ist
den Forderungen nach einer Abschottung Deutschlands oder Europas und nach
Kontrollen der Auenwirtschaftsbeziehungen eine Absage zu erteilen. Deutschland
konnte aus der internationalen Arbeitsteilung bislang groen Nutzen ziehen. Der
Wohlstand wurde und wird nicht zuletzt ber den internationalen freien Handel
gesteigert. Eine Intensivierung der internationalen Arbeitsteilung bringt Wohlstandseekte. Bereits 1776 hat Adam Smith in seinem Buch ber den Reichtum der
Nationen ein Bekenntnis zum Freihandel abgegeben. David Ricardo hat mit seiner
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Hartmut Ler
Theorie der komparativen Kostenvorteile den Nachweis gefhrt, dass Freihandel

den Wohlstand aller beteiligten Volkswirtschaften erhht. Die neue Auenhandelstheorie (u.a. Paul Krugman) stellt auch Hypothesen bereit, mit denen man nicht
nur die interindustrielle, sondern auch die intraindustrielle internationale Arbeitsteilung auf unvollkommenen Mrken erklren kann.
In einem forcierten Strukturwandel gibt es Gewinner und Verlierer, aber es
ist kein Null-Summen-Spiel. Bei interindustrieller Arbeitsteilung knnen ganze
Branchen mangels internationaler Wettbewerbsfhigkeit wegbrechen. Bei der
heute vorherrschenden intraindustriellen Arbeitsteilung trit dies u.U. fr einzelne
Firmen, nicht aber fr ganze Branchen zu.
Eine wesentliche Aufgabe der staatlichen Wirtschaftspolitik besteht in der Mitgestaltung des internationalen Ordnungsrahmens fr den Globalisierungsprozess.
Damit sich der globale Wettbewerb nicht ungezgelt entwickelt, ist Global Government erforderlich. Dabei geht es insbesondere um Sozial- und Umweltstandards,
Regelungen einer internationalen Wettbewerbspolitik und um eine internationale
Finanzarchitektur zur knftigen Vermeidung von Whrungs- und Finanzkrisen.
7. SCHLUSSBEMERKUNGEN
Die Globalisierungsdebatte wird bei nherer Betrachtung vielfach zur Durchsetzung von Interessen benutzt. Politiker verlagern die Verantwortung fr Probleme
nach auen. Interne Probleme und der Mangel an eigener Handlungsfhigkeit
werden den anonymen globalisierten Mrkten angelastet. Von der Arbeitgeberseite
wird die Globalisierungsdebatte dazu benutzt, die Gewerkschaftspolitik und die nationalstaatliche Politik auf einen unternehmerfreundlichen Kurs zu zwingen. Es soll
politisches Handeln als Anpassung an die konomischen Weltmarktzwnge oder
aber in Richtung Protektion erreicht werden. Demgegenber ist zu konstatieren,
dass es nach wie vor nationalstaatliche Handlungsspielrume gibt und dass Protektionismus grundstzlich abzulehnen ist. Protektionistische Manahmen, welche
mit dem infant-industry-argument begrndet sind, knnen aus konomischer Sicht als Ausnahme gerechtfertigt sein. Die Wettbewerbsfhigkeit Deutschlands ist
auf Dauer nur zu erhalten, wenn sich die deutsche Wirtschaft der internationalen
Konkurrenz stellt. Insofern muss Globalisierung als Chance begrien werden. Den
weltwirtschaftlichen Herausforderungen ist oensiv zu begegnen. Auch die aktuelle Wirtschafts- und Finanzkrise kann nicht mit nationalstaatlichen Alleingngen
erfolgreich gelst werden. Ihre Lsung verlangt neben den beschriebenen binnen-
405
wirtschaftlichen wachstums- und arbeitsmarktpolitischen Manahmen ein international koordiniertes Vorgehen der Zentralnotenbanken und der Regierungen
weltweit und auf EU-Ebene. Politik, Wirtschaft und Gesellschaft mssen sich diesen Herausforderungen stellen. Bei der insgesamt guten Konstitution der deutschen
Wirtschaft knnen diese auch gemeistert werden.
LITERATUR
1. Bundesagentur fr Arbeit; http://www.Statistik.Arbeitsagentur.de/statistik

2. Wirtschaftsforschungsinstitute, Gemeinschaftsdiagnose Frhjahr 2010 (14. 04.
2010); http://www.cesifo.de
3. Sachverstndigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung,
Jahresgutachten 2009/2010; http://www.Sachverstaendigenrat-Wirtschaft.de
4. Welthandelsorganisation, WTO World Trade 2008; Press release 554.
Alexander Moheit Dirk Wentzel
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FINANCIAL CRISIS 2008 AND THE STABILITY PERFORMANCE

OF EASTERN EUROPEAN EU MEMBERS AND GREECE:
CHALLENGES FOR THE STABILITY OF THE EURO
Alexander Moheit, Dirk Wentzel
Hochschule Pforzheim University
ABSTRACT
The nancial crisis of 2008 is unprecedented and has led to a completely new
situation in the monetary and nancial integration of the EU. Some member states
of the EU are threatened by bankruptcy which could also risk the achievements of
monetary integration and the strong stability performance of the Euro from the last
ten years. The exchange rate of the Euro came under stress because the markets are
nervously observing how the Greek tragedy can be solved without damaging the
credibility of the Euro.
Keywords: Financial Crisis, Stability, Exchange Rate
THE AFTERMATH OF THE FINANCIAL CRISIS 2008:
INTRODUCTORY REMARKS
Since the nancial crisis of 2008, the convergence analysis of the Eastern European EU members has to be regarded from a dierent perspective. The surprising
success of Slovenia and Slovakia who have achieved to gain membership in the
Euro zone through a strong and credible stability policy is not likely to happen
again with the other Eastern European EU members. But also the existing old
members of the Euro zone are under enormous pressure: Next year, a decit procedure will be started against all 16 Euro states. And Greece and Italy might face a
serious test of their ability to regain nancial stability. The nancial markets surely
mistrust the ability of Greece to succeed on this matter which can be easily seen in
FINANCIAL CRISIS 2008 AND THE STABILITY PERFORMANCE OF EASTERN EUROPEAN...
407
the high interest rates for Greek long term government bonds that are almost twice
as high as the interest rates for German bonds (see Beck and Wentzel 2010).
Nevertheless, the nancial crisis has not stopped the existence or changed the
wording of the European Treaties. Even though the nancial and economic situation of 2010 is completely dierent from 1999 when the rst round of Euro states
were selected, the new EU members in the East are obliged to adopt the Euro. So the
eorts to achieve the nancial preconditions to introduce the Euro cannot be interrupted. The opting out clause, which held for Britain, Sweden, and Denmark, is
not available for the new members. This is surely a double-standard, but the matter
of the fact is that the Eastern European governments have signed voluntarily their
commitment to the acquis communautaire and therefore to the introduction of the
Euro. From an economic perspective, a very interesting dilemma occurs: All member states have to adopt the Euro in order to fulll their legal obligations, but they
are only accepted in the Club if they match the criteria. Therefore the strategic
exit option for a country who might not want to adopt the Euro is failing on the
criteria on purpose. This is the strategy of Poland and the Czech Republic right now
who refuse to participate in the European Monetary System II.
The research question of this paper is if any of the new members is ready to follow Slovenia and Slovakia, who were the rst of the new members to introduce the
Euro. Nevertheless, the nal judgment if a country is performing strong enough or
not is never easy: The intensive debate in May 2008 between the European Commission and the European Central Bank regarding Slovakia joining the Euro zone
is a clear expression of this controversial. The European Commission was strongly
supporting Slovakia mainly for political reasons, while the ECB was expressing
serious concerns about the sustainability of the Slovakian stability path. The nal
result of this debate is obvious.
Experts with the best empirical data and knowledge available come to completely dierent conclusions concerning the stability performance. Nevertheless,
there are more and more concerns about the quality of empirical data since the case
of Greece has demonstrated that some countries even work with faked data to convince the European institutions about their stability performance. Recently, rumors
occurred that also Bulgaria did not provide accurate date. But which European or
international institution could force Euro zone members to fulll their obligations
and provide realistic and fair data? When the Western Europeans started their way
towards the Euro in the early 90th, there was a credible threat that non-performing
408
countries were not accepted. This resulted in a lot of pressure on national governments to cut spending and to achieve more solid and balanced budgets. However,
with the introduction of the Euro, this political sanction had disappeared and the
Stability and Growth Pact has never gained any credible authority that violations of
the treaties would be punished (see Wentzel 2005).
In this paper, the eorts of the new member states on their way to fulll the obligations from the European Treaty will be analyzed. In addition to that, this paper
will also analyze the case of Greece who might be the rst country to be expelled
from the Euro zone after continuous and deliberate violations of the nancial rules.
The presented analysis deals with the empirical facts, but considers also additional
factors from the political and institutional environment. Therefore is follows a two
pillar strategy of analysis, combining both empirical and institutional arguments.
1. PERFORMANCE OF ESTONIA
1.1. Convergence criteria
With regards to the government budgetary position Estonia enjoyed a surplus

of 1.1 percent per year since 2000, which has been used to reduce the public debt
(European Commission 2006: 15). Elder forecasts underlined 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). However, the strong impact
of the nancial crisis has turned the annual balance from a surplus into a decit
in 2008 and will turn back into a surplus at the earliest in 2011: The ocial statistics from Estonia predict a surplus of 0,1% in 2011. In contrast to the Estonian
published data, the European commission forecast assume a decit by 3,9% in
2010 instead of 1,0 % (European Commission 2009: 209), which would exceed the
criterion on annual decit.
409
Figure 1: Budgetary developments 2005-2011, Estonia (% of GDP).

2005
2006
2007
2008
2009
2010
2011 Forecast*
Annual government
decit to GDP
-2,3
- 3,4
- 2,7
1,9
1,7
1,0
-0,1
Gross government
debt to GDP
4,4
4,2
3,5
3,7
3,7
3,5
3,0
Source: European Commission 2007: 228; European Commission 2009: 210.
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 non-nancial
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 suered relatively high ination rates, which remain above the reference value. The Estonian
CPI increased approximately up to 10 percent in December 2007. However due
to the strong reforms Estonia needed to run to cope the nancial crisis and the
lack of FDIs, higher unemployment rate and lower public spending the ination
410
rate dropped strongly and turned in 2009 for some months into a deation. Over
2009 it remained round about 1,6%, which fullls criterion on price stability and
currently there is no sign of a soon strong increase since Estonia still suers a hard
recession.
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
Figure 3:
HICP
Estonia
and
Source: http://www.ecb.int/stats/prices/hicp/html/ination.en.html
Euro
area
411
1.2 Current economic situation and recent structure reforms
In terms of the economic structure Estonia is relatively well performed: The

average hours of work per week are with 40,7 above the EU average (Statistisches
Bundesamt 2009: 37.), eective age of retirement is by 65 years (Eurostat 2007: 3),
which is both above the legal age and the EU average with 59,5 years. However the
ancillary labour costs are with 37% too high (Statistisches Bundesamt 2009: 37.)
and Estonia suers still corruption, even if its position in the corruption perceptions index is with 27 the lowest among the new members (Transparency International 2009: 6.). The public spending on health care and pensions are below the
EU average
1.3 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
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).
Moreover according to a survey from the European commission, Estonia is
among the best prepared countries for the future demographic change, which will
have positive impacts on public debt (Tagesanzeiger: 14.10.2009).
412
1.4 Conclusion
To sum up, Estonia currently fullls 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 ination rates will remain low, however there is the danger of a rising
external decit. The prospect does not indicate changing. However, public decit
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 in the short
term and is therefore not yet qualied to join to Euro area. Cutting down decit
will be the central challenge for Estonia on their way into the monetary union.
However, Estonia remains one of the best performing countries among the Eastern
European member states and will be one of the rst to join the Euro area considering the empirical and institutional basis.
2 PERFORMANCE OF LATVIA
2.1 Convergence criteria
By 2006 the general government balance of Latvia realized a surplus of 0.2 percent of GDP due to higher tax revenues than expected in previous governments
drafts. Forecasts of the European Commission predicted smaller but positive balances of annual government decit, which has happened just until 2007 before
the crisis impacted the Latvian economy. 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 10 percent in 2008 (European Commission 2006: 19). However this did not happen: The gross debt to GDP was by 19,4% in 2008 and 32,4%
in 2009. The nancial crisis hit Latvia very strongly and caused both higher public
decit and debt. Therefore, Latvia does not fulll anymore convergence criterion
concerning decit and in the future on debt as well, if the Latvian economy will
not recovery.
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
413
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). However Latvia
enjoyed a strong drop of ination rates in 2009 as consequence of the hard structural reforms Latvia has taken, e.g. salary reduction by 15% for employees in public
sector and the VAT was increased from 5% to 21%, forced by the IMF (International Tax Review: 2008). In average the ination rate still exceeds the criterion on
price stability with 3,3% in 2009.
Figure 4: ECB: Ination and the euro
Source: http://www.ecb.int/stats/prices/hicp/html/ination.en.htm
In the past 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 was not
considered as a primary problem by Latvian government. However the current
414
unemployment rate of 23%, which is also caused due to lay os on the public sector (Auswrtiges Amt. Lettland - Wirtschaft: 2010), will lower pressure on ination
rate in the future.
The prices are still decreasing and Latvia will suer a deation in 2010 if the
economy will not recovery. Both the strong volatility of the prices and the dependency of FDIs, which determine the power of the economy and the way of ination, lead to the conclusion that Latvia is not yet qualied to fulll the criterion on
price stability.
In terms of the economic structure also Latvia is relatively well performed due
to strong reforms in 2009: The average hours of work per week are with 40,6
above the EU average (Statistisches Bundesamt 2009: 37.), eective age of retirement is by 61,6 years (Eurostat 2007: 3), which is both above the legal age and
the EU average with 59,5 years, and the ancillary labour costs are with 28% pretty
low (Statistisches Bundesamt 2009: 37.) . However Latvia suers still corruption:
its position in the corruption perceptions index is with 56 in the middle among
the new members (Transparency International 2009: 6.). The public spending on
health care and pensions are below the EU average
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
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).
2.4 Conclusion
Latvia does not fulll all required convergence criteria. The ination rate is denitely too high and due to the strong dependency with foreign trade the ination
will turn into deation in 2010. Monetary stability is the main precondition for
the membership in the Euro area and denitely not negotiable. The budgetary
415
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.
Latvia may be able to introduce the Euro in the midterm in case the economy
will recover and support the strong institutional reforms and also if Latvia will be
able to take their ination rates under control. Latvia enjoys high credibility among
foreign investors since it started hard reforms early and was able to realize them
quickly.
3 LITHUANIA
The performance of Lithuania regarding the government decit and debt is

quite positive (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). The gross government debt
is currently by around 18 percent and is expected to decrease in 2011. However
forecasts from the European commission predict annual decits by 8% and a gross
debt by 32% in 2011 (European Commission 2009: 231). The forecasts are based on
dierent expectations regarding GDP growth and social spending.
416
Figure 5: Budgetary developments 2005-2011, Lithuania (% of GDP).

2005
2006
2007
2008
2009
2010
2011
Forecast*
Annual government decit

to GDP
0,5
0,5
1,2
2,9
2,1
1,0
0,00
Gross government debt to GDP
18,6
18,2
17,0
15,3
16,9
18,1
17,1
Source: European Commission 2007: 228; European Commission 2009: 210.
The budget for 2007, 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 was to balance budget in 2009. However, social expenditures were
increasing, 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). However the nancial crisis hit the Lithuanian economy
very strongly and the country was close to be bankrupt. The GDP was sinking by
18% in 2009 (Auswrtiges Amt. Lithauen - Wirtschaft: 2010.) The hard reforms
taken in 2009, e.g. increasing the VAT from 19 to 21% (Worldwide Tax 2009) and
further necessary scal consolidation and structural reforms who are intended to be
implemented (New Europe 2009), supported and will support the economy and it
is expected to nd the way back to recovery in 2010 or 2011.
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).
417
Figure 6: 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
area LTIR narrows, which is indicative of market condence in general economic
and scal developments in Lithuania (European Central Bank 2006: 24).
Year
HICP
2003
-1,1
2004
1,2
2005
2,7
2006
3,8
2007
5,8
2008
7,4
2009
-0,6
Figure 7: Measures of ination and related indicators. (Source: Eurostat - Tables, Graphs and Maps Interface
(TGM) table 2010.)
The ination rate has been volatile and increased until 2008. 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 remained 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). Since
418
the Lithuanian economy was hit by the economic crisis and suered a large downturn in their GDP and several salary cuts, layos and tax increases, the danger for
high ination rates has lost its basis and in fact in 2009 Lithuania has experienced
a deation. However along with its Baltic neighbor Estonia, Lithuanian economy
is too dependent on foreign trade and FDIs and take the risk that the ination rate
will increase sharply once the economy recover.
After the strong reforms taken in 2009 the economic structure is better than in
many other Eastern European countries: The average hours of work per week are
with 40,3 above the EU average (Statistisches Bundesamt 2009: 37.), eective age
of retirement is by 63,4 years (Eurostat 2007: 3), which is both above the legal age
and the EU average with 59,5 years. Just the ancillary labour costs are with 41%
high (Statistisches Bundesamt 2009: 37.) . Lithuania has to cope the problem with
corruption, where the country has the position 52 in the corruption perceptions
index in the middle among the new members (Transparency International 2009:
6.). The public spending on health care and pensions are below the EU average.
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.
3.4 Conclusion
With regards to the discussion in and about Greece, Lithuania pointed out that
it is possible to realize strong reforms in a little time to prevent serious problems.
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
419
scal developments. Even the ination rate is below the required reference value
and due to several downward pressures it is expected to further remain stabile 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 public decit and the GDP
growth will increase, 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 the new decit. 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
420
debt, independence of the national Central Bank, political relations to other EUmembers, and EU institutions in Brussels. Poland now accepts its obligations from
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 2008 Poland fullled the criterion concerning price stability, but this cant
be taken for granted and has to be observed strictly in future. The ination rate in
2009 was by 3.4%, which exceeded the requirements on price stability. 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
pick-up 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. Poland was the only country with a
slight plus in GDP growth and therefore didnt experience a sharp fall of ination
rates as the other Eastern European countries did.
421
Figure 8: Poland: Government budget balance and debt. (Source: European Commission 2006: 24)
2005
2006
2007
2008
2009
2010
2011
Forecast*

to GDP
4,3
3,8
2,0
2,7
2,5
2,3
-1,9
Gross government debt to

GDP
47,1
47,6
44.9
45,9
45,8
45,5
44,8
Figure 9: Budgetary developments 2005-2011, Poland (% of GDP). (Source: European Commission 2007:
228; European Commission 2009: 243.).
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
422
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
attitude regarding its monetary policy, but it did not impact its good performance
(European Commission 2006: 25).
Poland enjoys a very good position in terms of its economic structure with
regards to other EU members: The average hours of work per week are with 40,4
above the EU average (Statistisches Bundesamt 2009: 37.), eective age of retirement is by 61,4 years (Eurostat 2007: 3), which is both above the legal age and
the EU average with 59,5 years. Just the ancillary labour costs are with 25% high
(Statistisches Bundesamt 2009: 37.) . Corruption is still a big problem, where Poland has the position 49 in the corruption perceptions index, which is also in the
middle among the new members (Transparency International 2009: 6.). The public
spending on health care are below the EU average, however the spending for pensions is with 11,4% above and needs to be changed.
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).
A survey from the European commission made in 2009 revealed that Poland
is among the second best prepared countries for the future demographic change,
423
which will have positive impacts on public debt (Tagesanzeiger: 14.10.2009), however contains also space for structural reforms.
4.4 Conclusion
Poland does not fulll the required convergence criteria. 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 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.
5 THE CZECH REPUBLIC
Czech ination is volatile but however remained under the reference value in
2009 (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 has picked-up modestly in 2007 and 2008, which
was primarily based on improved economic conditions and higher purchase taxes.
Future developments of Czech exchange rate as well as the Czech tax policy was
supposed to 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 nancial crisis caused a huge drop to 0,36%
in 2009 and is expected to remain low. The Czech Republic currently fullls the
criterion on price stability.
424
Figure 10: Contributions to ination. Year-on-year percentage change (Source: OECD (2007a)).
Concerning public decit and debt the Czech Republic is under the reference
value of annual government decit to GDP by 3.0 percent in 2009, and within
the frame permitted by convergence criteria on gross government debt to GDP by
27,9 percent in 2009 (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 mediumterm prospect does not indicate improvements. Additional social and educational
expenditures have been drafted in budget for 2007 (European Commission 2006:
50). Moreover the additional spending in social measures will increase the decit
up to 4,9% and the gross debt to 37,9% according to a forecast from the European
Commission. The forecasts for both made by the Czech Republic assume lower
values based on higher GDP growth rates for 2010 and 2011.
2005
2006
2007
2008
2009
2010
2011
Forecast*

to GDP
3,5
2,7
1,0
1,2
1,6
1,5
1,2

GDP
30,4
29,4
28,9
28,8
27,9
26,8
25,5
Figure 11: Budgetary developments 2005-2011, Czech Republik (% of GDP). (Source: European Commission
2007: 228; European Commission 2009: 203.).
425
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 Czech Republic shows a dierentiated picture in terms of the economic

structure: On the one side the average hours of work per week are with 41,2 hours
above the EU average (Statistisches Bundesamt 2009: 37.), eective age of retirement is by 62 years (Eurostat 2007: 3), which is both above the legal age and the
EU average with 59,5 years, and the spending in health care is in the middle among
the EU countries. However the ancillary labour costs are with 38% high (Statistisches Bundesamt 2009: 37.). Corruption is still a big problem, where the Czech
Republic has the position 52 in the corruption perceptions index (Transparency
International 2009: 6.) and the public spending for pensions is relatively high with
7,3%.
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).
426
5.4 Conclusion
By 2010 the Czech Republic fullled three of the four required convergence
criteria, but not the exchange rate stability. The budget decit is still a major concern and will worsen, if the economy will not nd back to the way of recovery.
The Czech Republic suers under the consequences of the delay in privatization
proceedings in the 1990s, the nancial sector is small and was also hit strongly
by the Financial crisis. Considering the performance of the economy, the Czech
Republic has made good progress and with regards to the good empirical data and
the remaining problem with the exchange rate there is the assumption that a soon
accession is politically not desired.
6 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.
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 has increased ination rate in 2007
(European Commission 2006: 20). A smooth conversion to a low rate is not likely
right now. Even after the strong impact of the nancial crisis the ination rate remained high with 5,6% in 2009.
427
Year
2003
2004
2005
2006
2007
2008
2009
HICP
4,7
6,8
3,5
4,0
7,9
7,5
5,6
(TGM) table 2010.)
With a gross government debt to GDP by 72,5 percent in 2009 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). However
the emergency credit given by the IMF and the structural reforms Hungary has
started until the election of the new conservative government in 2010, Hungary
could lower the annual decit under 3,0 % and seems to be on a good way to recovery. Further reforms are still needed, since European Commission forecasts predict
a gross debt by 82,9% of the GDP in 2011.
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).
428
Figure 13: Hungary: Government budget balance and debt. (Source: European Commission 2006: 21)
Figure 14: Hungary: General government decit, History and Goals in % of GDP (Source: OECD 2007c: 3).
429
Hungary suers large structural problems due to a lack of needed reforms. Hungarian population wants to enjoy Western European lifestyle which is not backed
up with an according productivity. On the one side the average hours of work per
week are with 40,5 hours above the EU average (Statistisches Bundesamt 2009:
37.). However the eective age of retirement is by 58 years (Eurostat 2007: 3),
and therefore under both the legal age and the EU average with 59,5 years. The
spending in health care is in relatively high. The ancillary labour costs are with 42%
above the EU average of 36% (Statistisches Bundesamt 2009: 37.) . Corruption is
still a big problem (Transparency International 2009: 6.) and the public spending
for pensions is relatively high with 8,5%. In the last year Hungary has increased
their VAT from 20% to 25%, cancelled the subsidies for public transport, energy
cost and health care and reduced both the number of employees and the salary in
the public sector.
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).
A survey from the European commission made in 2009 revealed that Hungary
is along with Poland among the second best prepared countries for the future demographic change, which will have positive impacts on public debt (Tagesanzeiger:
14.10.2009), however contains also space for structural reforms.
6.4 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-
430
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.
7 BULGARIA
The ination rates keep increasing since 2004 but dropped strongly in 2009
to 1,7%. However the ination is very volatile and can pick up every time again.
Currently Bulgaria fullls criterion on price stability, however the data from the
past reveals that Bulgaria is strongly dependent on foreign investments and good
economical circumstances. The danger is that the ination rates will re-pick up
after the economy has recovered and threaten the price stability.
(TGM) table 2010.)
The annual surplus remains stabile by 3,0% and the gross debt is low by 15,2%.
However just with regards to the last 3 years data the exact fulllment leads to
the suspicion, that the gures are well-calculated to fulll the criterion on public
decit. Recently there are incidents that ocial data are wrong and lower than
431
in reality a situation as Greece has experienced (FAZ, 13 April 2010, page 18

Mogelnder Musterschler).

to GDP
GDP
2005
2006
2007
2008
2009
2010
2011
Forecast*
-1,9
-3,0
-0,1
-3,0
-3,0
-3,0
-3,0
29,2
22,7
18,2
15,4
15,4
15,3
15,2
(TGM) table 2010.)
In terms of the exchange rate stability Bulgaria does not participate on ERM II
and therefore does not fulll the required criterion. The long term interest rate is
below the reference value and fullls criterion.
Bulgarias economic structure can compete with neighbor countries: The average hours of work per week are with 41,7 hours above the EU average (Statistisches
Bundesamt 2009: 37.). The eective age of retirement is by 62,4 years (Eurostat
2007: 3), and therefore over both the legal age and the EU average with 59,5 years.
The spending in health care is in relatively low with 4,3% and the ancillary labour
costs are with 25% under the EU average of 36% (Statistisches Bundesamt 2009:
37.) . However corruption is still a big problem (Transparency International 2009:
6.): Bulgaria has the position 71 and is on top along with Romania and Greece
among the EU members. The public spending for pensions is relatively high with
9%. In 2008 Bulgaria introduced a at tax by 10% (SLC Europe: 2008). Anti crisis
package consists generally of higher public expenditures (higher pensions, higher
subsidies etc) (Auswrtiges Amt. Bulgarien - Wirtschaft: 2010.).
The integration of Bulgarian economy with the EU has progressed and the stability performance is not bad. Bulgaria is economically catching up very fast, however institutional reforms are still weak and the central bank independence not fully
achieved.
432
Moreover according to a survey from the European commission, Bulgaria is

among the best prepared countries for the future demographic change, which will
have positive impacts on public debt (Tagesanzeiger: 14.10.2009).
7.4 Conclusion
Decit and debt are very low, the ination low, but volatile. Bulgaria lacks of
stronger structural reforms and the higher social spending can increase decit. An
accession to the Euro area will be at the earliest in 5-8 years.
8 ROMANIA
The original high ination declined to 4% in 2007. However in spite of the impact of the nancial crisis the ination rate remains high and along with Hungary
now one of the countries with the highest ination rate.
Figure: 17. ECB: Ination and the euro. Source: http://www.ecb.int/stats/prices/hicp/html/ination.en.htm

The annual decit continuously exceeded the required criteria. The 2011 forecast with a decit by -2,9% seems to be too optimistic. The forecast from the
European Commission predict an annual decit by -5,6% in 2011. However the
gross debt is with 22% far away from the convergence limit of 60% and therefore
fullls that criterion.
433

to GDP
GDP
2005
2006
2007
2008
2009
2010
2011
Forecast*
1,4
2,2
2,5
5,4
5,1
4,1
-2,9
15,8
12,4
12,7
13,6
18,0
20,8
22,0
(TGM) table 2010.)
In terms of the exchange rate stability Romania does not participate on ERM II
and therefore does not fulll the required criterion. Concerning long-term interest
the value of Romania was in the last three years always around 7,1 % and therefore
above the reference value. Romania does not full the long-term interest criterion
Along with Bulgaria the economy of Romania can compete with its neighbor
countries: The average hours of work per week are with 41,7 hours above the EU
average (Statistisches Bundesamt 2009: 37.). The eective age of retirement is by
64,7 years (Eurostat 2007: 3), and therefore over both the legal age and the EU
average with 59,5 years. The spending in health care is in relatively low with 3,9%,
spending in pension with 6% as well and the ancillary labour costs are with 34%
under the EU average of 36% (Statistisches Bundesamt 2009: 37).
However corruption is still a big problem (Transparency International 2009:
6.): Romania has the position 71 and is on top along with Bulgaria and Greece
among the EU members. Romania has a low pressure on public nances with regards to high retirement age and working hours and comparatively low spending
on pensions and healthcare. The IMF gave Romania a credit over 13 billion Euro,
related to macroeconomic conditions, such as reduction of salaries for employees
in public services, which are supposed to be realized in 2010.
The European enthusiasm in Romania is extraordinary and the economic

catch-up process is very strong. Until the year 2008 the private consumption was
very strong, however decreased with the nancial crisis. On the other side the scal
consolidation is still a major concern for Romania and institutional reforms and
anti-corruption measures are a real
challenge.
434
8.4 Conclusion
Almost on all levels Romania needs to improve. Stronger structural reforms are
pending. However the rst will be realized in 2010 and the European enthusiasm
will help to introduce stronger reforms. Accession to Euro seems to be possible at
the earliest in the long-term (8 years).
9 Greece
Greece suered under continuously high ination since accession to the Euro
area. A strong decrease happened in 2009 due to recession, but picked up again at
the end of 2009. The ination is currently by 3.9% (March 2010). However the
ination increased again due to higher taxes. The impact of the sharp recession and
the consequences of the reform program in order to get support from the EU are
hard to predict.
Year
2003
2004
2005
2006
2007
2008
2009
HICP
4,1
2,7
2,9
3,3
2,6
4,4
1,3
(TGM) table 2010.)
Figure 20: ECB: Ination and the euro. Source: http://www.ecb.int/stats/prices/hicp/html/ination.en.htm
435
Greece admitted in November 2009 to have hided public debt over years: Real
debt by 113% of GDP in 2009 and decit for 2009 was revised (from 3.7%) to
12.5% of GDP (European Commission, 2010: 3). Greece needs to renance debt
in 2010 interest rates went up to 7,5% in April 2010. Up to now, it remains unclear which institution might organize and supervise the help for Greece and their
reform eorts. The analysis clearly shows that Greece does not fulll the criterion
on gross debt and public decit.
Concerning long-term interest the value of Greece is currently by 6.24% (March
2010), from 5.87 in March 2009 and 4.42 in March 2008 (ECB: Long-term interest rate statistics for EU Member States, 2010.). With regards to the current situation it is expected to increase, so that Greece does not fulll the long-term interest
criterion.
Greece suers large structural problems and is worst than almost all Eastern Europe countries who want to join the Euro area: The average hours of work per week
are with 39,9 hours under the EU average (Statistisches Bundesamt 2009: 37.). The
eective age of retirement is by 62.4 years (Eurostat 2007: 3), and therefore over
both the legal age and the EU average with 59.5 years. The spending in health care
is in the middle of all countries with 5,1%, however the spending in pension with
11,5% as well as the ancillary labor costs with 36% (Statistisches Bundesamt 2009:
37.) really needs reforms and to be lowered. The payment reduction in pensions is
one of the goals of the current government to cope scal the problems. Corruption
is still a big problem (Transparency International 2009: 6.): Greece has the position
71 and is on top along with Bulgaria and Romania among the EU members.
The VAT has been increased to 21% (since 15th Mar 2010), tax as well for
higher incomes and even for the Greek church, cancellation of tax reduction for
certain sectors have been done (taxi drivers, layers, doctors, sportsmen) and stronger controls of tax declarations will be eectuated (Der Standard: 14. April 2010.).
The Greek government plans to reduce debt on GDP from currently 12,7% to
8,7% (European Commission 2010: 3).Still this year the government planned to
increase the age of retirement, salary cuts for employees in public sector, reduce
pensions, layos in public sector and further measures
436
The Greek economy is highly integrated with the EU, the trade and FDI relations with other EU are extensive and Greece has a high degree of foreign ownership of nancial intermediaries. Moreover strong shipping and tourism can help
Greek economy to balance negative eects.
However Greece suers inelastic public spending: The Greek economy based
largely on the public sector (40% of GDP) (European Commission, 2010: 3).and a
sudden increase in taxes and cuts in salaries will aect economy very hard.
9.4 Conclusion
Greece proves to be the most problematic case of all EU members. They got
access to the EU on the basis on faked data, they maintained that unfavorable
practice and right now they are on the edge of bankruptcy. The fact that they are
already member of the Euro area makes things even more dicult. In the case of
bankruptcy, the prolongation of Euro membership would surely not be a good solution. But neither favorable is the option to reintroduce the old currency Drachme
because it is hard to imagine how the Greek central bank could avoid the total collapse of the exchange rate against the Euro.
Financial markets clearly demonstrate the main problem of Greece: the lack of
credibility and the enormous structural problems. Economically it should not be
part of Euro zone and needs to run reforms. The next six to twelve months will
decide about Greeces future in Euro the zone.
10 GENERAL CONCLUSIONS
Analyzing the data 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. But it is also not convincing at all to keep Greece in the Euro zone since they perform much worse compared
to other Eastern European members, like the Baltic States, e.g. These 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. They
have developed some kind of a stability culture and they are cooperating very well
with their European neighbors and the European institutions.
437
Eastern European member states are economically very dierently prepared for
the future and can be divided into three groups: The rst group consists of the
Baltic countries Estonia, Latvia and Lithuania who have been hit stronger than the
other countries by the nancial crisis, but also who organized and implemented
credible institutional reforms and have a better basis for the next years once the
world economy recovers again. These countries have a strong commitment to the
Euro, which is mainly based on their experience in the Soviet Union and their deep
wish to be more integrated with Western Europe. Moreover, they have recognized
and enjoyed in the past years the advantages of liberalizations in the economy. Both
facts have led to the situation that their governments were able to suggest hard reforms within one year to face the crisis and are better prepared for the future than
anybody else in Europe.
The second group consists of Poland and the Czech Republic. They have a longer tradition of reforms but were not able to run all necessary changes due to political obstacles. The economies are in fact currently best prepared to adopt the Euro,
however with regards to some missing reforms there are threats for the midterm.
In both countries the advantages of Western Europe are recognized, however they
see both also the advantages of an own currency and also have a modest critical
position to be subordinated under an EU regime. Liberty and national pride is
very important and in fact the commitment towards the United States of America
seemed in past stronger than to Western Europe after the long history and suering
in the socialist block. Since their gross debt is not yet too high, they have no clear
advantage of adopting the Euro to lower their interest rates and maybe devaluate
their currencies in case it is favorable.
The members of the third group are Hungary, Romania and Bulgaria. Romania
and Bulgaria have a totally dierent level of economical prosperity with regards
to Hungary, however they share one common challenge: They all still need to run
deep structural reforms and are not able to adopt the Euro even in the midterm.
Hungary will have the chance to start reforms this year with a new government.
Romania and Bulgaria have got warnings from the European Union to face their
problems with corruption. The commitment to adopt the Euro is very high in both
Romania and Bulgaria, however in Hungary there are strong powers who have a
very critical position towards the European Union and are willing to blame the EU
for internal economical problems. Just deep reforms with a soon recovery of their
economies will be able to overcome that obstacle.
438
Ironically, the nancial crisis has led the countries somehow towards a better
position to adopt the Euro: The crisis hit many countries so strong that a simple
business as usual wasnt able to continue. Baltic tigers passed all other countries in
terms of realized reforms so that they will be best prepared in the midterm. Poland
and the Czech Republic will need to establish reforms and they can hold the nancial crisis responsible for that instead of always blaming the convergence criteria for
home-made problems. This will help to nd support in the population, since the
adoption of the Euro and the corresponding regulatory framework is a free choice,
however the nancial crisis and their consequences are not free to choose.
Hungary was running strong reforms in the last 12 months and the crisis gave
the last political shot to a government which already lost condence after scandals
back in 2006. The strong political swing could help the country to easily introduce
further reforms, but the right-wing parties have a very critical position towards
the EU which raises new concerns. Romania and Bulgaria already have a strong
commitment, but they need to further intensify their eorts in the more dicult
economical environment.
Furthermore, it has to be acknowledged that 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.
The ECB might run into a very interesting application of Greshams law in the
near future: They have to admit that the Visegrad states might not be strong enough
to adopt the Euro but at the same time the Euro is spontaneously taken over by
the economy.
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Economic Survey of Czech Republic, 2008. URL: http://www.oecd.org/dataoecd/61/13/40502165.pdf. Date: 5/4/2008.
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Pensions at a Glance, 2009. http://www.oecd.org/dataoecd/12/60/43098050.pdf
Date: 16/4/2010.
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http://www.slc-europe.com/xist4c/web/at-tax-europa_id_16181_.htm
Date:
16/4/2010.
Statistisches Bundesamt: Lohnnebenkosten im europischen Vergleich (Februar 2007)
http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/DE/Content/
Statistiken/VerdiensteArbeitskosten/ThemenkastenLohnnebenkostenEuropa,prop
erty=le.pdf Date: 16/4/2010
Statistisches Bundesamt: Verdienste und Arbeitskosten 2008: http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/DE/Presse/pk/2009/Verdienste/begleitheft__verdienste,property=le.pdf . Date: 16/4/2010.
Tagesanzeiger.ch (2009): http://www.tagesanzeiger.ch/ausland/europa/EUKommission-fordert-hoeheres-Rentenalter/story/26055237. Date: 16/4/2010.
Transparency International. Korruptionswahrnehmungsindex 2009
http://www.transparency.de/uploads/media/09-11-17-CPI_2009_Pressemappe.
pdf. Date: 16/4/2010.
Weber, Ralf (1995): Auenwirtschaft und Systemtransformation, Schriften zum
Vergleich von Wirtschaftsordnungen, Band 46, Stuttgart und New York.
Wentzel, Dirk (1995): Geldordnung und Systemtransformation, Ein Beitrag zur
konomischen Theorie der Geldverfassung, Schriften zum Vergleich von Wirtschaftsordnungen, Band 50, Stuttgart und New York.
Wentzel, Dirk (2005): Der Stabilitts- und Wachstumspakt: Prfstein fr ein stabilittsorientiertes Europa, in: Wentzel, Dirk und Leipold, Helmut (Hrsg.) (2005):
Ordnungskonomik als Aufgabe, Schriften zu Ordnungsfragen der Wirtschaft,
Band 78, Stuttgart, Jena, New York, S. 311-331.
443
Wentzel, Dirk (Hrsg.) (2006): Europische Integration Ordnungspolitische

Chancen und Dezite, Schriften zu Ordnungsfragen der Wirtschaft, Band 82,
Stuttgart, Jena, New York, 272 Seiten.
Worldwide Tax 2009.
http://www.worldwide-tax.com/lithuania/lit_econonews.asp Date: 16/4/2010.
Abbreviations:
CEE-4
Central and Eastern European EU members: Poland, Hungary,
Slovakia and the Czech Republic
CZK
Czech koruna
EUR
euro
EEK
Estonian kroon
ERM II
European Exchange Rate Mechanism II
FDI
Foreign direct investment
Forint
Hungarian currency
GDP
Gross domestic product
HUR
Hungarian forint
LTIR
Long-term interest rates
LVL
Latvian lats
PLN
Polish zloty
SKK
Slovak koruna
List of tables and charts:
Figure 1
Figure 2:
Figure 3:
Figure 4:
Figure 5:
Estonia: Budgetary developments 2005-2010, Estonia (% of

GDP).
Estonia: Rise in food prices in Estonia compared to the corresponding month of the previous year
Latvia: Growth of gross domestic product in the Baltic countries.
Lithuania: External debt in % to GDP and Real credit growth
2000 to 2005.
Lithuania: Measures of ination and related indicators.
444
Figure 6:
Figure 7:
Figure 8:
Figure 9:
Figure 10:
Figure 11:
Figure 12:
Poland: Government budget balance and debt.

Czech Republic: Contributions to ination. Year-on-year percentage change.
Slovakia: HICP ination.
Slovakia: Components of ination.
Hungary: Components of ination.
Hungary: Government budget balance and debt.
Hungary: General government decit, History and Goals in % of
GDP.
INVESTMENT INCENTIVE POLICIES TOWARD ATTRACTING FOREIGN DIRECT INVESTMENTS:...
445
INVESTMENT INCENTIVE POLICIES TOWARD ATTRACTING

FOREIGN DIRECT INVESTMENTS: THE CROATIAN EXPERIENCE
Josip Romi, univ.spec.oec.
ABSTRACT
National strategies across the world often emphasise the role of foreign direct
investments (FDI) as one of means necessary to increase the overall national competitiveness. The benets that FDI generates are traditionally recognized not only
through acquiring capital but also through patents, knowledge, know-how, ecient
technologies, management skills and the like. Croatia has continuously placed FDI
on the top of the development agenda hoping that their inow would help raise
employment, exports and productivity. According to the EU statistics, Croatia is
ranked rather high among transition economies, even in comparison with those
that have recently become full members of the EU. However, its impact on the
national economy, especially employment, exports and productivity is much less
evident than that in other Central and Eastern European countries.
The purpose of this paper is to theoretically and practically discuss the role
and importance of investment incentives oered by the national policy-makers in
order to attract certain FDI projects. The paper will provide a theoretical overview
of various approaches to investment incentives. Using the Croatian experience,
the paper will provide an analysis of FDI inows in Croatia in terms of numbers,
investment climate and environment as well as it will delineate reasons, i.e. barriers
which prevent Croatia to be more attractive to foreign investors. Particular attention will be given to investment incentive policies promoting FDI in Croatia.
JEL classication: F21, O24
Key words: foreign direct investments, incentives, Law on Incentives, Croatia
1. INTRODUCTION
Foreign direct investments (FDI) start to intensively appear in theoretical and

empirical studies after the World War II. The regulation of the International Monetary Fund has provided the development of trade and international nances. All
446
Josip Romi
forms of nancing have been recorded, from a classic debenture to foreign direct
investments. There has been a great growth of international nancial course during
1980s and 1990s. The reason can be seen in the development of theory and institutional investors in the USA, the growth of networked world nancial markets and
globalisation, liberalisation of the nancial markets.
The purpose of this paper is to theoretically and practically discuss the role and
importance of investment incentives oered by the national policy-makers in order
to attract certain FDI projects. After introductory remarkds, the section 2 provides
a brief overview of the eects of the DDI for the national economy. The denition
of the incentive policies, their role and eects on attracting DSI are discussed in the
section 3. The section 4 analysis the FDI in Croatia: statistics, dynamics, structure,
investing countries as well as legal and institutional framework that deals with FDI.
The paper nishes with concluding remark in section 5 briey summarizing the key
ndings of the paper.
2. THE EFFECT OF FOREIGN DIRECT INVESTMENTS
Due to globalization, FDI have a prominent role in the implementation of

national competitiveness (e.g. Moran, Graham & Blomstrm, 2005, Borozan &
Barkovi, 2004). Foreign direct investment recepient countries are usually motivated by the social benet of the FDI, which is seen through the application of
various technologies, knowledge and management skills as well as their eect on
the rest of economy. FDI has a positive eect on the foreign trade, the growth,
employment and investments into domestic economies. It can improve the quality
of man power and human capital through training of new technologies and the
processes of production.
According to the International Monetary Fund denition, foreign direct investments can be explained as a situation when a certain non-resident investor comes
into possession of 10% or more of residents proprietary stock where foreign investor has a majority interest in reaching decisions concerning company management,
althought he hasnt got majority proprietary stock in the company (Ridgeway,
2004).
Foreign direct investments are dierent from other forms of investments due to
its permanent interest for the target company, active involvement of foreign investitors and reaching decisions regarding company management. Foreign direct investments can be divided into two cathegories (Babi, Pufnik and Stuka, 2001: 25):
447
(i) greeneled investments: foreign direct investments which create new production
property and (ii) browneld investment: (mergers/acquistions investments or take
over investments), the purchase of pre-existing plants and companies as well as taking control over them in order to improve management eciency
In order to attract foreign direct investments, investors have to be provided with
an environment in which they will be able to conduct their business protably
and without unnecessary risk. The present guiding principles originate from the
OEDC Committee on International and Multinational Enterprises 2001-2002
review of incentives-based competition for FDI (OECD, 2002). The conditions
sought by foreign enterprises are equivalent to those that constitute a healthy business environment because foreign investors are responsive to the changes in business environment.
3. THE ROLE AND EFFECT OF INVESTMENT INCENTIVES TO ATTRACT
CERTAIN FDI PROJECTS
Foreign direct investments have greater role in the growth of the developing
countries. Thereby, it can be concluded that it is getting harder to attract foreign
investors and that governments of the developing countries face a hard task of improving elementary economic conditions but they also have to devise other incentives to attract foreign investors into their own country. The policies of attracting
foreign investors are motivated by targeted eorts at improving host countries
environment. Some countries employ low corporate tax rates in order to attract
foreign investors. The aim of policies for attracting FDI is to provide the investors
with the environment in which they will be able to conduct their business protably, and some of the important factors considered by investory as they decide on
investment location are (OECD, 2003):
a predictable and non-diskriminatory regulatory environment and an absence
of undue administrative impediments to business
a stable macroeconomic environment, including access to engaging in international trade
sucient and accessible resources, including the presence of relevant infrastructure and human capital
In order to meet investors expectations and to ensure healthy working environment without greater economic changes, the next steps are necessary (OECD,
2003) :
448
Josip Romi
safeguarding public sector transparency, including an impartial system of

courts and law
ensuring that rules and their implementation rest on the principle of non-discrimination between foreign and domestic enterprises and are in accordance
with international law
providing the right of free transfer related to an investment and protecting
against arbitrary expropriation
putting in place adequate frameworks for a healthy competitive environment
in the domestic business sector
removing obstacles to international trade
redress those aspects of the tax system that constitute barriers to FDI
ensuring that public spending is adequate and relevant
Tax incentives, nancial subsidies and regulatory exemptions which aim is to attract foreign investors are no substitute for pursuing the appropriate general policy
measures. Those incentives may serve either as a supplement to an already attractive
environment for the investment or as a compensation for proven market imperfections. Additional incentives usually consist of relieving of certain scal taxes for a
dened period of time. The governments usually make various demands related to
incentives realisation in order to attract the positive eects of foreign direct investments. Some of these conditions are: setting the minimal amount of investment,
transfer of technology, employment and likewise. The importance and the appropriatness of the FDI incentive strategies should be examined in certain periods
of time. The transparency and the responsibility of the government at all levels
increases the success of these incentives.
Numerous authors have been dealing with theoretical and practical discussion
of FDI incentives (e.g. Blomstrm 2002, Blomstrm & Kokko, 2003, Gergely,
2003, Barkovi, 2002).
FDI incentives can be dened as measures designed to inuence the size, location or industry of the FDI investment project by aecting its relative cost or by
altering the risks attached to it through inducements that are not available to domestic investors. Two cathegories of measures meet this denition:
rule-based approaches that rely on certain norms, discrimination (according
to nationality) of investors to be stipulated by law
449
specic approaches that tailor incentives to individual foreign investors.1

The rule-based approach represents a relatively straightforward selective application of investment subsidies. On the other hand, specic approaches produce a
multitude of dierent incentives, including scal derogations, grants and soft loans,
free land, job training, employment and infrastructure subsidies, product enhancement, R&D support, ad hoc exemptions and derogations from regulations.
FDI incentives are divided into three categories: (i) regulatory, (ii) nancial and
(iii) scal incentives, all of which are nanced by the authorities in the host area.
Regulatory incentives are policies of attracting foreign enterprises by means of offering them derogations from national or sub national rules and regulation. While
authorities may in principle choose to derogate from any regulatory practice, the
responsibility in reality is on easing the environmental, social and labor-market
related requirements placed on investors. Financial incentives refer to nancial
assets to companies for nancing foreign direct investments. They are motivated
by three considerations. First, a host area may be perceived as being disadvantaged
relative to comparable sites elsewhere, e.g. because of the stage development in
that area. In this case authorities assist investors by means of policy of leveling
the playing eld which is construed as a help in infrastructure subsidies (providing physical infrastructure or communication tailored to meet the needs of the
investors) and job training subsidies (the education of working force). Second, the
costs that enterprises incur when relocating, or establishing new subsidiaries at a
distance from previous sites, may hold them back from choosing the most suitable
locations. Because of this, host authorities oer a subsidy toward meeting the relocation costs by means of: relocation and expatriation support (authorities may oer
grants to help meet enterprises additional capital spending and concrete relocation
costs); administrative assistance (it includes preferential treatment by regulatory
authorities whereby administrative impediments such as for example the speed
of obtaining permissions are eased) and temporary wage subsidies (the start-up
phase can be supported through the temporary coverage of part of the new corporate units wage bill). Third, a policy of targeted incentives is used as a supplement
with the rst two incentives by means of: credits to investors (authorities grant
soft loans or interest subsidies to foreign enterprises for the specic purpose of an
investment project; alternatively, they may ease investors nancing costs by issuing
loan guarantees); real estate (selling land or buildings to foreign investors at below
1
See more detailed explication on FDI incentives in Blomstrm & Kokko, 2003.
450
Josip Romi
market values) and cost participation (helping investors cover their start-up costs,
help in marketing and developing costs). Fiscal incentives are most commonly
used by the governments of the developing countries in order to motivate foreign
investors to invest into their country. These are some of the numerous FDI scal
incentives. First, reduced direct corporate taxation. These measures aimed at easing
the corporate tax burden are used to attract foreign direct investors. Those measures
include: reduced rates of corporate income tax (creating investment environment
by lowering of corporate tax rates), tax holidays (newly-established rmsare not
required to pay corporate income tax for a specied time period) and special taxprivileged zones (the creation of areas with low rates of corporate taxation amount
to scal FDI incentives in the cases where foreign-owned enterprises enjoy privileged access to operate in such zones). Second, incentives for capital formation.
Lower taxation to corporate investment used as a method of attracting FDI and
providing them with incentives to invest. The examples include: special investment
allowances (rms are provided with faster write-os for qualifying capital costs by
means of accelerated depreciation or enhanced deductions), investment tax credits
(such tax credits are earned as a percentage of qualifying expenditures and oset
against taxes otherwise payable) and reinvested prots (oering deductions or tax
credits against prots that are reinvested in the host economy). Third, reduced impediments to cross-border operation. Companies are attracted to locations where
the scal system imposes minimal costs on the crossborder transfer of funds, goods
and services and manpower. Some of the incentives on oer are: withholding tax
(reduced rates of withholding tax on foreign-owned enterprises remittances to their
home countries), taxation of foreign trade (reduced import taxes and customs duties) and taxation of employees (lower personal income tax or social security reductions for expatriate executives and employees). Fourth, other tax reductions. The
selective lowering of any tax rate aecting the enterprise sector may be used to
attract foreign enterprises.
4. FOREIGN DEIRECT INTVESTMENTS IN CROATIA
4.1. Brief analysis of FDI in Croatia
Globalization in world economy today brings great structural changes which

have a strong eect on small economies like Croatian. So, it is important to turn every change into benet and progress. Croatian economy has to be open in order to
stimulate domestic growth and development. Here, foreign direct investments play
451
a great role. In the short-run, Croatia, with the help of foreign direct investments,
can acquire new knowledge regarding business in market enterprises, the organization and management of business units. Foreign investments lead to knowledge
of business in market system as well as contribute the rise of competition (for
example, telecommunications and banking) which ensures more eective business
of domestic companies as well as the introduction of new technologies and better
restructuring of the domestic economy.
The analysis of direct investments is an important issue because foreign investments have a signicant role in attracting further investments. Between 1993 and
third quarter of 2009, FDI accumulated to 23,6 milliard EUR (table 1). In this
amount, 13.7 milliard EUR refers to equity investments (around 58% of the total
FDI amount), 6 milliard EUR refers to other investments (26%) and 3.9 milliard
EUR (16%) of a retained prot. The greatest inow of exchange reserves in the
form of equity investments happenned in 2007, in the amount of 2.2 milliard
EUR by the nancial mediation (banking). In 2009, foreign direct investments
according to rst three quartals amount to approximately 1,7 milliard EUR (about
7,2% of the total FDI) which represents the growth in 786,2 million EUR2 in
comparison with the rst six months. The greatest contribution to the foreign
investment growth came from the growth of investments in wholesale and
commerce mediation. From the rst quarter with only 12,8 million, it raised
to 707,5 million EUR and nancial mediation, apart from insurance and pension funds (banking) in the amount of 677,5 million EUR3.
Table 1. Foreign direct investments in the Republic of Croatia (in mil EUR)
1993
1994
1995
1996
1997
1998
1999
2
Equity investments
Claims
Liabilities
0,0
101,0
0,0
92,8
0,0
79,1
0,0
382,1
0,0
325,0
0,0
581,1
0,0
1.208,6
Reinvested
earnings**
n/a
n/a
n/a
n/a
35,9
63,9
43,4
Other capital
Claims
Liabilities
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
-7,1
126,4
-12,8
217,6
-0,2
111,1
Total
101,0
92,8
79,1
382,1
480,2
849,7
1.362,9
Source of data: http://www.vecernji.hr/biznis/izravna-inozemna-ulaganja-kraju-treceg-tromjesecja1-7-milijardi-eura-clanak-78207 (28-02-2010)

Source of data: http://www.liderpress.hr/Default.aspx?sid=93802 (29-02-2010)
452
Josip Romi
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009Q1,Q2,Q3
0,0
0,0
0,0
0,0
-0,2
0,0
-0,1
0,0
0,0
0,0
750,6
910,8
718,3
762,0
319,9
793,0
1.743,5
2.202,4
2.173,9
559,7
86,8
187,9
160,9
587,9
291,7
570,5
717,5
483,3
508,5
147,7
0,7
0,2
-0,3
-1,5
-17,8
0,0
16,6
-2,7
-26,3
-4,3
302,5
368,7
259,0
414,0
356,0
104,4
287,3
987,2
1.534,1
996,1
1.140,6
1.467,5
1.137,9
1.762,4
949,6
1.467,9
2.764,8
3.670,2
4.190,2
1.699,2
TOTAL
-0,3
13.703,9
3.886,0
-55,6
6.064,2
23.598,1
Source: Croatian Central Bank, http://www.hnb.hr/statistika/hstatistika.htm (13.02.2010)
By investigating the foreign direct investments structure, 559, 7 million EUR

referred to equity investments. At the level of whole 2009, FDI will certainly be less
than in 2008 due to fear from risky markets. This year, with the recovery of the euro
zone economy, the growth of foreign investors interest for Croatia can be expected.
The size of interest will depend on structural reform pursuit as well as incentives
policies and overall improvement of investment environment. The structure of equity investments in Croatian economy relates to several activities: 46, 5% of overall
investment relates to nancial mediation except from insurance and pension funds
(banking), wholesale and mediation. The other direct investments refer to chemical
production (6,8%), the production of coke, oil derivatives and nuclear fuel (6,1%),
post-oce and telecommunications (5,4%), real estate business (5,2%), retail sale
(4,5%), oil and natural gas extraction (3,7%), the production of other nonmaterial
mineral products (3,7%), hotels and restaurants (2,6%) and the rest of activities
(15%). In the period from the rst foreign capital inux to the third quarter of
2009, the greatest foreign investments in Croatia came from EU countries. Austria
invested the most with 6,3 milliard EUR or 27% of all foreign direct investments,
the Netherlands with 4,1 millard EUR or 17% of all foreign direct investments
and Germany with 2,7 milliard EUR or 11% of all foreign direct investments. By
investigating transitional countries, the most foreign direct investments came from
Hungary with 2,1 milliard EUR or 9% of all foreign direct investments and Slovenia with 1 million Eur or 4% of all foreign direct investments (Croatian Central
Bank, 2010). Most of foreign investments was in nancial mediation (banking),
wholesale and telecommunications, while in the previous year came to the growth
453
of investment in wholesale and commerce mediation. Picture 2 presents graphic

display of foreign direct investments from 1993 to the third quarter of 2009 and
the relation of Croatia with the transitional countries in 2008. It can be seen there
that Poland attracted the most foreign investments for 2008 with the amount of
11 milliard EUR. Croatia is shoulder to shoulder with Hungary with 4,1 milliard
EUR of foreign direct investments for Croatia and 4,5 milliard EUR for Hungary.
Slovenia was the worst with 1,2 milliard EUR.
4.2. Legal and institutional framework for FDI in Croatia
Promotion of foreign direct investments in Croatia is arranged by the Law on

Incentives that entered into force in July 2000 (National Gazette, no. 73/2000). It
refers to investment incentives of domestic and foreign, legal and natural persons
with the aim od reaching economical growth and stronger competitiveness.
Incentive measures in Croatia are related to scal incentives and consist of tax
and custom privileges and they are dened by the law on incentive investments.
foreign direct investments are encouraged into economic activities if that is the
way to ensure ecologicaly accepted activity and one or more of the stated goals: the
introduction of new technology, new production procedures, higher employment
and employee training, modernisation and improvement of business, the development of production with the higher degree of processing, the rise of export and
economic activities in the parts of Croatia where the economic growth and employment are under state average, the development of new ways of services, energy
savings, improving information technology, cooperation with nancial institutions
outside country, the adaptation of Croatian economy to European standards (Bilas,
2006). Incentive measures represent sale or giving to use of real estates or other
infrastructure objects under commercial or favoured conditions for the opening of
new workplaces and as a help in specialized training or prequalication.
The Agency for Promotion Trade and Investments (abbreviation in Croatia: APIU)
was founded in 2003. Its most important task is to help investors in realization of
investment projects, oering measures for the improvement of investment environment and presentation of Croatia abroad as an attractive investment location, the
creation of positive investment environment, unifying resource data that are used
by investors, the organization of investors visits to potential investing locations,
realization of investment projects and providing with postinvestment services, recommendation of improving legal regulations to stimulate further investments and
454
Josip Romi
to support Croatian exporters (APIU, 2010). The results of the Agencys work are
noticed during 2006. In the rst six months, Trade and Investment Promotion
Agency assisted in initiation of nine investment projects which overall value exceeds 260 million EUR.
5. CONCLUDING REMARKS
Croatia is a small country in comparison with other European countries which

imposed itself as one of the stronger and more developed market economies in the
south east Europe. It has got a medium consumer strength according to GDP per
capita, stable rate of GDP growth, low ination rate, stable exchange rate and a
high rate or unemployment. In order to increase the level of competition, global
trends and strategies of attracting FDI should be followed. Croatia is in the fourth
place among transitional countries according to attracted foreign capital per capita.
But, a disturbing fact is that two thirds of foreign capital is invested into banking,
telecommunication and trade. There are little greeneld investments and production investments and in this part, Croatia is one of the weakest among transitional
countries. And this is of key importance for economic growth. In order to attract
foreign direct investments, it is necessary to use our advantages (natural resources)
and to fortify additional incentives along with already used. Beside those issues,
some other long-term chronic issues have to be solved because they create negative climate. Those issues are: high degree of ineectiveness and corruption, slow
administration, slow export growth, rising decit of extra budgetary funds as well
as high foreign debt.
LITERATURE
1. APIU, Agencija za promicanje izvoza i ulaganja (2010), available at http://www.

apiu.hr/hr/Home.aspx?PageID=89 (13.02.2010.)
2. Babi, A., Pufnik, A., Stuka, T. (2001), Teorija i stvarnost inozemnih izravnih
ulaganja u svijetu i u tranzicijskim zemljama s posebnim osvrtom na Hrvatsku,
Hrvatska narodna banka, listopad.
3. Barkovi, I.: The Red Tape Analysis of the Barriers to Foreign Direct Investment in Croatia, International Conference Transition in Central and Eastern
Europe Challenges of 21st Century, Conference Proceedings, University of
Sarajevo, Faculty of Economics Sarajevo, Sarajevo, Bosnia and Herzegovina, October 17-18, 2002, pp. 41-47
455
4. Borozan, ., Barkovi, I.: The impact of EU enlargement on FDI in the nonaccession CEEC: the case of Croatia, International Conference European
Integration: Local and Global Consequences, Faculty of Business and Economics MUAF Brno, Brno, Czech Republic, 15 19 September 2004, ISBN
80-7157-826-6, pp. 1-15.
5. Blomstrm, M. (2002), The Economics of International Investment Incentives,
OECD, http://www.oecd.org/dataoecd/55/1/2487874.pdf (12.02.2010.)
6. Blomstrm, M. & Kokko, A.( 2003), The Economics of Foreign Direct Investment
Incentives, http://ideas.repec.org/p/nbr/nberwo/9489.html (12.02.2010.)
7. Croatian Central Bank (2010): Statistical indicators, www.hnb.hr
8. Gergely, J. (2003), Trends in Foreign Direct Investment Incentives, The European Communities Studies Association, Working Paper 05.
9. Moran, T. H., Graham, E. M., Blomstrm, M. (2005), Does Foreign Direct Investment Promote Development?, Institute for International Economics,Washington,
D.C., ISBN paper 0-88132-381-0
10. OECD (2003), Checklist for Foreign Direct Investment Incentives, OECD:
Paris, http://www.oecd.org/dataoecd/45/21/2506900.pdf (13.02.2010.)
11. OECD (2002), OECD Guidelines for Multinational Enterprises: 2002 Annual
Meeting of the National Contact Points, OECD, Paris, http://www.oecd.org/
dataoecd/24/4/1956371.pdf (13.02.2010.)
12. Ridgeway, A. (2004), Denition of Foreign Direct Investment (FDI) terms,
issue paper no. 20, IMF COMMITTEE ON BALANCE OF PAYMENTS
STATISTICS AND OECD WORKSHOP ON INTERNATIONAL INVESTMENT STATISTICS DIRECT INVESTMENT TECHNICAL EXPERT GROUP (DITEG), Statistics Canada, November, http:// http://www.
imf.org/External/NP/sta/bop/pdf/diteg20.pdf (13.02.2010.)
13. Zakon o poticanju ulaganja (eng. Law on Incentives), Narodne novine br. 73,
2000.
456
Mladen Vedri
ECONOMIC RECOVERY: POSSIBLE SOLUTIONS WITHIN A

NATIONAL ECONOMY
Prof.dr. Mladen Vedri
Professor at the Chair for Economic Policy
of the Law School of the University of Zagreb
ABSTRACT:
The current major economic crisis, the deepest economic disturbance since the
Great Depression of 1929-1933, with a powerful nancial upheaval in the capital
markets in the United States. In 2008, it quickly expanded into the other parts of
the world, especially in Europe and the Far East, and became a global phenomenon.
Moreover, it is no longer a nancial crisis, but a crisis in the real economic sector.
In this context, the Republic of Croatia has been relatively successful in bridging
the rst phase (the nancial crisis, 2008). The depth of the economic upheaval has
been felt in the real sector (2009-2010), especially in the negative rates of economic
growth and a drastic decline in employment, in particular in the construction sector, in the food processing industry, and to some extent in commerce.
The goal and purpose of this work is to point to new, qualitative possibilities and
solutions for stimulating economic growth by encouraging investment in essential
areas: energy eciency, transportation and complex infrastructure, agriculture and
irrigation, and the tourist industry. The designated new and complex solutions
provide the opportunity and a real basis for a national economy to enter again into
the zone of positive growth rates and to engage nancial capital for investment on
three bases: national potential, the structural funds of the European Union, and the
business interests and capital of private investors.
JEL clasication: D41, F12
Key words: economic crisis, global and national aspects, economic recovery,
preparation and project development, new investments, new areas of investment,
synergy of sources of investment, EU structural funds.
ECONOMIC RECOVERY: POSSIBLE SOLUTIONS WITHIN A NATIONAL ECONOMY
457
INTRODUCTION
The global economic crisis that began in 2008 created new realities almost overnight. These included a fall in consumption, reservation in making investment
decisions, and a preference for security over anticipated earnings. Viewed overall,
a drastic decline in economic activity ensured after a long period of conjuncture of
global proportions. Along with certain common organized actions (EU, OECD,
G-20) for the purpose of establishing new common frameworks of behavior and
the creation of control mechanisms on one hand, and the establishment of a system for stimulating economic growth on the other hand, programs for stemming
the economic crisis and for economic recovery were devised and implemented by
individual countries from the largest and the strongest (the United States, Great
Britain, Germany and France) to the transition countries (Hungary, the Baltic
countries).
The Republic of Croatia has succeeded in halting further development of the
economic crisis of 2008, but in 2009 and 2010 it has been confronted with a crisis
in the real economic sector. Responses must be found, prepared and achieved immediately and in an organized manner.
In this context, the following areas are continually emphasized: energy, energy
eciency, integrated transportation and logistics, agriculture and irrigation, and
the tourist industry, where there is a possibility to situate, prepare and achieve
projects whose realization will make important contribution to long-term positive
rates of growth in GDP, increased employment, and the creation of new goods and
services oriented to exports. With Croatias impending entry into the European
Union (EU), these imperatives seem even more apparent and unquestioned.
1. THE GLOBAL ECONOMIC CRISIS BEGINNING AND CAUSES
1.1. Postwar Growth and Development
With the end of the Second World War a period of economic and general recovery began, rst in the United States and then in Europe. Rapidly and eciently,
the dramatically increased military production potential was shifted to peaceful
purposes, which means construction of civilian facilities, the delivery of investment equipment, and the production of goods intended for broad consumption.
On one side were the requirements related to the reconstruction of a devastated
Europe, on the other side of the ocean there was strong pressure for a rapid growth
458
Mladen Vedri
in the standard of living. That process also began in old Europe at the beginning of
the 1960s, initially associated with the European Common Market. In the United
States the creation of anew social framework began, which may be characterized
(doctrinarily) as democratic capitalism (Reich, R.B., 2008., pp. 46-47). 1 The key
features of this American model are mutually supplemented in a coherent and
complementary system that joins economics and politics. The major American
corporations planned and achieved the production of large quantities of goods,
achieving a signicant economy of scale while also reducing production costs per
unit. Explicitly and implicitly coordinating their activities with other giants in the
same industry, they set prices that were rather high in order to generate signicant
prots. A portion of those prots were re-invested in new plant and equipment.
The other portion was earmarked for compensation of senior and mid-level management, depending on their position in the organization. A portion also went
to employees who had been organized into unions throughout the industry In
return, the organized unions avoided strikes that could endanger an unhindered
production of considerable scale Continuing, Reich (2008) explains that regulatory agencies set prices for communal services, roads, telephones, and aviation
routing to certain destinations through monopolies (even though these could be
oered to the general public under the same conditions and without monopolies).
Legislators devoted special attention to the needs of local communities, while the
federal government set high marginal tax rates for the wealthiest individuals and
companies. Although the declared purpose was dened dierently, a considerable
portion of tax-generated resources went to national defense during the era of confrontation with the Soviet Union.
This spontaneously established system of democratic capitalism to a great extent
corresponded with the phenomenon and appearance of the welfare state that began
to be formed in the economically developed continental part of Europe during
the same time period. On both sides of the Atlantic in a period of two decades
this model was distinguished by extremely high economic and social performance.
Changes began at the end of the 1970s, inspired rst because of the energy crisis,
followed by continued inationary pressures, and then stagation. Then the
beginning of a new epoch, theoretical and then practical, in the form of a new
concept of economic policy the neoliberalism of Ronald Reagan and Margaret
1
Reich, R.B.: Supercapitalism: The Transformation of Business, Democracy, and Everyday Life, 2007,
pp. 46-47.
459
Thatcher that powerfully stimulated the animal spirits of capitalism. The genie
was let out of the bottle, the general economic scene globalized with the sudden and
powerful entry of the Asian tigers, with the strong, rapidly growing economies of
the Far East. The level of their overall competitiveness in production and the export
of these processes was another cause of relentless acceleration. With the fall of the
Berlin Wall in 1989, the level of global political confrontation and the possibility
of an eruption of military conict declined considerably, while at the same time the
possibilities for investment, nance, the international exchange of goods, i.e. the
totality of further economic expansion jumped and quickly grew. The concept of
democratic capitalism and the welfare state gave way to a new concept, with a variety of names but in doctrinal terms with the same content: global capitalism, super
capitalism, and neoliberalism.
1.2. The beginning of the current crisis and categorical determination of economical upheaval
After the deep changes in the character of capitalism as a system, both by its
value orientation and, consequently, also its eectiveness in managing to maintain
the internal balance of society amid accelerated economic growth, a new set of
circumstances appeared that engendered a series of spontaneous events. Finally,
an open crisis appeared whose dimensions have already surpassed all conjunctural
declines recorded in the last half century and whose depth and duration are still
not discernible.
The world today is passing through an economic crisis whose depth is being
measured against the Great Depression of 1929/1933. The possible parallels do
not stop here. Just as the causes of the Great Depression were cited as a direct consequence of the liberal economic concept, capitalism that happens, todays crisis is
closely tied to the reliance on a model of neoliberalism that experienced rst a theoretical conception and then its practical application at the beginning of the 1980s,
powerfully supported in practice by a model of behavior applied by the leading
economic powers of the time, the United States and Great Britain.
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Mladen Vedri
2. Activities of international institutions and organizations and important

referent national economies
2.1. Results stimulated by the activities of international institutions and organizations
The developed countries of the world, and then very soon the broad circle
of countries directly aected by the economic crisis, or as a consequence of its
pandemic expansion, began strong and institutionally synchronized action (EU,
OECD, G-20, etc.) to halt the economic downturn and then to initiate activities
to prevent its spread and deepening (duration, rates of growth). The quality of the
indicators (illustration) as a part of these eorts is apparent in the size of the nancial packages in individual countries.
Table 1. Absolute amount of nancial stimulus packages 2008-10, mln USD

US
Germany
Japan
Canada
Spain
Australia
Korea
United Kingdom
France
Netherlands
Sweden
804 070
107 789
99 992
61 551
56 754
45 673
42 667
38 003
18 568
13 367
13 109
Denmark
Finland
Belgium
Czech Republic
New Zealand
Poland
Austria
Switzerland
Luxembourg
Portugal
Slovakia
8 668
8 575
8 016
6 500
5 404
5 145
4 600
2 486
1 968
1 963
35
Source:/www.oecd.org/document/22/0,3343,en_2649_34269_42913302_1_1_1_37417,00.
html
In summary, it is estimated that the governments of the G-20 countries provided

scal packages in a total value of 2% of their GDP (in 2009) along with continued
investments for this purpose amounting to 1.6% of GDP (in 2010).
A more complex consideration of the type of measures that the governments of
individual countries implemented as government interventionism, with the goal of
stopping a further spread of the crisis can be seen from the following review.
461
Table 2. Initial goals of the program
Armenia
Belarus
BiH
Costa Rica
El Salvador
Georgia
Guatemala
Hungary
Iceland
Latvia
Mongolia
Pakistan
Romania
Serbia
Ukraine
Macroeconomic
stability/ adaptability
x
x
Preparedness
for crisis
Corresponding
nancing
x
x
x
Stability of
nancial sector
x
Fiscal
sustainability
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
Source: Requirements for SBA.

Source: Review of Recent Crisis Programs, International Monetary Fund, Washington D.C.,
September 14, 2009, p. 13.
In general, it is possible to emphasize three important points on the basis of the

measures that were implemented: 2
The goals of the programs were adapted to specic circumstances in individual
countries. The Eastern European countries are trying to resolve external imbalance, especially the problems of liquidity and current account decits.
Because of nancial limits arising from the crisis, the priority focus of policy
and resources is the budget. Because of global economic uncertainty and reduced activity, along with a reduced inow of nancial resources, there has
been an adaptation of program measures.
Source: Review of Recent Crisis Programs, International Monetary Fund, Washington D.C., September 14, 2009, pp. 13-14.
462
Mladen Vedri
The IMF was able very quickly to provide nancial assistance to countries hit
by the crisis. Urgent help was available within 4-6 weeks, as demonstrated by
the cases of Hungary, Iceland, Latvia, Pakistan and the Ukraine.
The other lever that was formulated and quickly applied in anti-crisis policies
according to the circumstances was a strategy to stimulate innovation. Thus, the
assessment of the OECD in 2009 is relevant: Today, when the crisis is continuing
to unfold around the globe innovation will be one of the keys for accelerating recovery and putting countries back on a path to sustainable and smarter growth.
Yet the crisis itself poses a number of serious risks and challenges to the innovation
ecosystem. Getting the policies right is vital. Todays exceptional economic stimulus measures represent a unique opportunity for public policy to foster innovation.
By providing the incentives for innovation-related investments, and accelerating
activities for which barriers may have been otherwise too high, governments can
help lay the foundations for a greener economy and durable growth. If this opportunity is handled eectively, countries could be reaping the benets for decades
to come. 3 Along with material investment, this relates to all forms of creating
and applying new knowledge, which includes research and development, software,
human capital, marketing and organizational concepts as vital factors for increasing the eectiveness of business. Therefore, their share in the GDP of individual
countries is nearly equal to the value of material investment and stands between 5
and 12%.
The current orientations are clear. Dilemmas do exist and are present only around
the concrete modalities of action, the specic situation in individual countries, the
dierences in the approach to the problems of development policy and the possibility that they are carried out and give dierent results while implementing measures
of an anti-crisis policy. These dierences are signicant, which is then both a reason
and an opportunity to choose among examples from reality those that also oer
lessons and actions applicable to one-s own national level.
2.2. Program undertaken in individual countries activities and the degree of
success
Measuring the success of the anti-crisis policies of individual countries ultimately

is not possible and cannot be established accurately because of the great dierences
3
2009 Interim Report on the OECD Innovation Strategy. An Agenda for Policy Action on Innovation. OECD, Paris, 2009. p.3.
463
in the development trends of individual groups of countries. Thus, for example, the
average rate of growth of the Asian countries in the last 20 years was three times
greater than in the developed Western countries. And now in Asia, in contrast
to the expected modest positive rates in Europe, the signs of recovery are visible.
In 2009, China, Indonesia, South Korea and Singapore recorded above average
growth. Despite internal limitations, Japans economic growth is faster that in the
West. The recession hit India less than in some other areas because of its relatively
low share of foreign trade in GDP. Such rapid growth in production and revenues
is partly the result of the large share of the processing industries, with considerable
oscillations in the level of production that is achieved. Because of the easing of the
nancial crisis, exports also began to grow. However, the most important reason
for the recovery is the growth in domestic demand, as a consequence of providing
and directing larger and earlier scal stimuli than those in the West. Government
nances of the Asian countries (except India) from the beginning of the crisis were
signicantly healthier, with large hard currency reserves and a satisfactory balance
of trade. The low indebtedness of the private sector also permitted an increase of
expenditures and a more ecient application of monetary and scal policy.
In general, but primarily in Europe, because of its high degree of integration in
global economic trends, the decline in demand caused by the crisis led to a serious
foreign trade shock. The crisis, however, did not strike everyone equally: the Baltic
countries were most seriously aected, and then Ireland, Spain and Great Britain,
especially because of the collapse of the real estate market and instability in the nancial and banking sector. Large public debt and high foreign trade decits caused
diculties in Greece and Hungary. Several facts illustrate the intensity and depth of
the crisis. Germany, Spain and Great Britain, for example, had the greatest decline
in output per capita in the current crisis, Just as in past crises, Spain experienced a
fall in employment which has been substantially higher than in previous economic
cycles. In this connection there have been signicant dierences in the trends of
productivity: in Spain they grew during the recession, in Great Britain, they mostly
fell, while in Germany this time they fell by the greatest amount to date in the
postwar period. The most frequent explanation for adjustment of the labor market
to shocks is in the exibility of the labor market itself, especially in employment
protection. Great Britain has introduced measures to protect employment. The
unsatisfactory situation in Great Britain is continuing because of how much the
nancial sector was struck by the crisis, which as a rule means a slow recovery. Germany is providing subsidies as compensation for reduced working hours, while at
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Mladen Vedri
the same time because of the production structure (knowledge-intensive products)

companies have an incentive to retain employees. Considering a sectoral overview,
in Spain the crisis struck at the same time as the crash of unsustainable construction boom.4
In addition to their own (national) eorts, European governments also expanded their measures for easing the crisis into surrounding areas. This included acquiring liquid resources from the European Central Bank and the recapitalization of
nancial institutions to scal stimuli to invigorate demand. Several countries in
Central and Eastern Europe also received assistance from the IMF, the EU, and
from other sources.5
France has not intensively participated in international capital markets, and it
does not have the indebtedness of Spain and Italy. But the French government has
increased investment in public companies (post, energy and railways), in strengthening defense, and in strategic areas: sustainable development and pure technologies, education, research and development. It is also assisting local communities
in the construction of hospitals, educational and social institutions, subsidizing
employment in companies, but also health and environmental protection. Through
special measures, it is aiding the domestic automobile industry. France has also
achieved positive results in increasing exports, especially to Asian markets.
The German economy has been helped by a revival of exports, especially investment equipment in the countries of the Far East. Measures under the national economic policy have played an important role in halting the deepening of the crisis.
These include investments in infrastructure: schools and universities, measures to
assist companies in retaining employees, and getting through the crisis by means
Regional Economic Outlook Europe Securing Recovery, World Economic and Financial Surveys, International Monetary Fund, Washington D.C., October 2009, str. 9-12. There exists a certain similarity and correlation of this crisis with some of the causes of the crisis in the Republic of Croatia.
This is the powerful support for economic growth in the past period from two sectors: the tourist
industry and (housing) construction, which are also linked to real estate transactions, especially in
foreign markets. At the same time, there is a very evident decit in the structure of the educational
prole of a generation being educated for the labor market, and the limited reach in stimulating
exports with the appropriate innovative content.
Such an orientation and such practical orientations and solutions of economic policies emphasize
the importance of a presence in organized economic-political associations. Here it is a concrete
matter of membership in the European Union. The stated solidarity arises from an awareness of the
connection to common economic interests for overcoming the crisis.
465
of credit and government guarantees, tax reductions, and contributions to salaries,

reduced income taxes, increased child support, nancial assistance for education
and pre-qualication, nancing for innovation, and research for the development
of new products and technologies. Special measures from the arsenal of vertical
measures of industrial policy have also been applied, such as assistance to the automobile industry.
Spain is in diculties because of a decline in competitiveness in the last three
years the growth of wages has surpassed the growth of productivity, along with
the neglected role of exports and the unsatisfactory situation in the oversized construction sector. Of the stimulus measures, the most important are public works,
tax reductions, credits to companies in diculty, social assistance to households,
and special assistance for the modernization of transportation, energy, telecommunications, and the modernization of public administration. The problem is the
indebtedness of the country, so the possibilities, and the resources, for additional
intervention are limited.
The structural problem of the Italian economy is contained in the fact that
Italian exporters of clothing and furniture do not have the benets of the growth
of Chinese demand for investment goods. At the same time, Italy is among the
most indebted countries in Europe, which limits its room for maneuver in an antirecession policy. In such circumstances, they are being helped by investments in
infrastructure and research and directing social assistance to the poorest households
and pensioners. Special assistance is being provided to the automobile industry and
for investment in environmental protection.6
3. THE CROATIAN CONSTRUCTION SECTOR THE CURRENT SITUATION
3.1. Recession in a national framework essential characteristics
A review of the anti-crisis measures of the preceding countries shows similar

structural characteristics. These primarily involve instruments of Keynesian policies: decit nancing, social outlays and assistance to threatened companies and
branches of an economy. However, the dierence between those in a relatively
satisfactory position and those in an extended crisis is in the size of the scal pack6
Main objectives and targets of budgetary stimulus packages, excluding measures aimed at the nancial
system May 2009. http//www.oecd.org/document /50/0.3343.en 2649_33703_43163698-1-1-1
-1.00html.
466
Mladen Vedri
age and in the accompanying conditions that give a government sucient room
for maneuver for adequate intervention. These include: a healthy nancial sector,
a relatively satisfactory nancial position for the country, export potential, and a
relatively good foreign trade balance.
How does Croatia stand in light of these possibilities and achievements? The
fewest diculties were encountered in terms of preserving the stability of the nancial sector. The restrictive and conservative policy of the Croatian monetary
authorities, especially with the eective control of commercial banks, did not permit the development of casino capitalism. But despite this, problems in the form of
illiquidity spilling over from the real sector are growing, so that there is a possibility
of diculties in the nancial system. The possibilities for using monetary policy in
an anti-recession policy are limited by the need to maintain a stable exchange rate
for the kuna, whose current revaluation, postponed for more than a decade, would
make the position more dicult both because of the high indebtedness of the
country and because of equally indebted enterprises and households, whose credit
usually contains a hard currency clause. The stated macroeconomic frameworks
have drastically narrowed the possibilities for a conjunctural policy of the Keynesian type. Croatia, as a whole, is highly indebted, while at the same time, it is a small
and very open economy. This means that its scal multiplier is very low because
each increase in demand to a great extent would lead to in increased imports. That
is why now, when scal stimuli are the most necessary, instead of increasing government expenditures, it has been necessary to increase taxes (VAT, personal income
taxes) in order to nance vital government needs. And if and when the government
decides or is forced to reduce the burden of government debt, it will have several
years to achieve a budget surplus and thus brake and not stimulate the growth of
demand.
From all of the above, it arises that on the Croatian economy scene there is no
possibility for conjunctural revival only by autonomous action. The impulse for
economic recovery can and must come from several sides beginning with an
increase in exports to acquiring additional capital for new developmental investments that have acceptable potential (i) of nancial return because the degree of
autonomy of a large part of the national economy compared to the specied (created nancial) frameworks is additional conrmation of the inevitability of such
an orientation.
467
Therefore, it is necessary to recognize, to stimulate, and to support structurally

and over the medium term with capital companies and projects that have a powerful multiplier potential. This would include their direct eects and also their ability
to attract other investors and partners. In doing so, it must be kept in mind that the
possibilities for taking on new debt are limited and that it will be necessary to link
them with investments with a strong multiplier eect in the national economy.
Confronting the situation at hand and facing it consequences demands an analysis of activities that individual (transition) countries also have made or are making
in the context of the current crisis, but it will also require a strengthening of the
autonomy of their economic position. The lesson and messages speak of the need
to construct ones own exit strategy that will account for concrete circumstances,
opportunities, and limits, and the experiences of those who were, or are, in a similar
(more satisfactory or less satisfactory) situation, together with, of course, a general
evaluation of the success of those policies.
And it is in just this area that the needs and possibilities for a dierent evaluation and positioning of the national sector of construction, as a partner of vital
importance for achieving several projects in new development areas within the Republic of Croatia. The period before us and the conditions of economic turbulence
is the optimal environment for their realization.
4. THE CONSTRUCTION SECTOR IN THE CROATIAN ECONOMY ROLE AND
IMPORTANCE
Before detailed consideration of the national scene, it might be of interest to

examine the share of the construction sector in the GDP of selected countries and
then in that context also to analyze the position of the Republic of Croatia. The
data below show the extreme importance of the construction sector in the last several years in Spain, Ireland, Greece, and Portugal, with a stable share in Austria.
468
Mladen Vedri
Graph 1.
Source: Eurostat, 2008.
Viewed overall, the Croatian construction sector recorded constant growth n

the period 2000-2008 and it approached the countries that are at the top of the
comparisons above. In roughly the past two decades the number of construction
rms has increased almost 14 times from 819 at the beginning of the 1990s to
11,244 in 2008. In 2008 alone the construction boom increased the number of active companies by 24% (from 8,845 to 11,244).7
In evaluating the competitiveness readiness and an entry into foreign markets,
the relevant qualitative data is that the total number of construction rms that are
considered large by Croatian standards (more than 250 employees) has declined:
from an initial 114 (1990) to 101 (2005) to just 37 in 2008. The mitigating factor
is that in crisis conditions construction companies have adapted and survived with
fewer employees and lower xed costs.
7
In the period November 2008 November 2009 the number of employees in construction rms
declined by 9.3%, which equates to 10,000 fewer jobs; the same number of insurees instead of paying taxes and contributions have become the beneciaries of various forms of social transfers. With
the publication of nancial reports for 2009, it will be possible to quantify changes in the number
of active rms.
469
In analyzing the structure of this sector, it is also important to consider nancial

data regarding business operations in the construction sector and data about the
overall number of those employed in it.8
Table 3. Construction in Croatia structural indicators, 2004- 2008

2004
2005
2006
2007
2008
Number of companies
6,471
7,159
8,084
9,063
11,244
Avg. no. of employees

(end of period)
84,642
89,524
95,249
104,142
110,190
Total revenues
41,327
44,560
53,351
57,951
69,230
Earnings before taxes
1,800
2,386
3,251
3,295
3,559
Source: Financial indicators for construction in Croatia in the period 2004-2008, database of
HGK (Fina)
The number of employees constantly grew from 2004 (84,642) until 2008
(110,190), but there was also a clear decline of 8.3% in the number of employees in
2009 (100,599 at the end of October 2009). In aggregate, small companies (up to
50 employees) participated in total revenues with somewhat more than two-fths
(43.2%) and medium-sized companies (up to 250 employees) had approximately
one-quarter (24.1%). The large companies (more than 250 employees) are present
with a share of nearly one-third (32.7%) of total revenues generated, even though
they represent just 0,1 % of the total number of companies in this sector.
The importance of the construction sector in the Croatian national economy
(consolidated data from 20008) can be seen in the fact that of the total number of
workers in the economy, 11.3% are employed in this sector, while its share of total
revenues in the economy in the same year amounted to 8.8%. It is apparent that
construction is a labor-intensive activity, which from the aspect of the importance
of the recovery of the construction sector represents an important determinant. In
the (still) dynamic year of 2008, total revenues compared to the previous year grew
by 19.5%.
Source: Database of the Croatian Chamber of Commerce (HGK) according to indicators and data of FINA, 2009.
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5. ESTIMATE OF FUTURE TRENDS IN THE CROATIAN CONSTRUCTION

SECTOR
The extremely successful position of the Croatian construction sector until the
end of 2008 has not been possible to maintain on the basis of the same factors as
in the preceding medium-term period: dominated by constantly increased investments in housing construction, business and commercial centers, various types of
road construction, primarily the construction of modern superhighways.
This means that the Croatian construction sector must draw clear lessons and
messages from the current economic crisis and seek to create a new business environment for its activities. This can be found in that area where the construction
sector will appear as an important factor in realizing other program of fundamental
signicance for the overall economic and social development. Such an orientation
and participation in such programs will certainly ensure other and more complex
sources of funding for the overall realization of these programs, which will also
include various types of construction activities. At present, and still more in the
future, these are areas in which the creation of new synergies and cluster eects can
be expected in the framework of energizing national development potential. The
important possible directions of such deliberations, and then orientation and action, are: 9
1) Energy sector new investments in renewable and classic energy sources,
especially keeping in mind the current decit in Croatias production of electrical energy, which to a considerable extent is also an inherited consequence
from the time of the former Yugoslavia, where a signicant portion of energy
investment was allocated to other republic and provinces.
2) Complex investment in energy eciency both in the construction of new
buildings and facilities and in the reconstruction of the huge number of existing ones. Such an orientation today is primarily economically motivated
by savings and it will obtain its formal structure with the adoption of criteria
and possible nancial penalties for irrational use of energy. 10
These areas are listed only as possible areas of action without ranking or evaluating their possible
nancial or investment values.
10
The range that exists for the consumption of a unit of energy to create a unit of GDP in energy and
ecologically developed countries compared to those countries that are just beginning to assess these
categories is from 1 to 10. In this area Croatia has room for signicant improvement.
471
At the same time, there is the important fact that the European Commission is
preparing an action place for the ecient use of energy, part of which is the European Construction Initiative, which will provide incentives for the renewal of 15
million building by 2020. The European Investment Bank would support this initiative. In this way 11 percent of the resources from European Funds that are spent
for energy supply would be redirected to the construction sector. The Commission
estimates that the initiative could create an additional 300,000 jobs in construction and related elds. Those companies involved in the installation of insulation
materials would prot the most. 11
3) Using the remaining, available, and ecologically acceptable hydro potential for the production of electrical power the expert assessment is that
only half of the hydro electrical potential of the Republic of Croatia is being
exploited. The other half is located in medium and larger water courses.12 Its
particular value is the long-term exploitation of this capacity and its character of clean energy. There is also a high degree of inserted domestic content,
beginning with infrastructure and construction works to a signicant share
for equipment.
The existing limitations are the result of uncoordinated physical planning and
the degree of overall preparedness for opening discussions and agreements for the
nancing and construction of new capacity.
4) Infrastructural water and economic investment in agriculture the importance and potential of these investments has been faced by a broad spectrum of countries, from large and small one (the United States and Israel)
to developing countries and highly developed ones (India and the United
States), but especially in the last few decades, when two important questions economic and social crystallized: the protability of production and
production of sucient quantities of agricultural produce to meet current
demographic trends..
11
12
Source: Dobre vijesti za graevinsku industriju: EK eli obnovu 15 milijuna zgrada (Good news for
the Construction Industry: EU wants to renovate 15 million buildings), business.hr, 11 October
2009.
For systematic exploitation of a part of the hydro potential an agreement is necessary and then
concrete contracts on the use of and allocation of costs and revenues with appropriate companies
in neighboring countries.
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Mladen Vedri
The following table and the analysis carried out by V. Stipeti this potential assess this potential as a part of the new Croatian development orientation.
Table 4. Irrigation and its share in cultivated surface area

Country
Denmark
France
Greece
India
Israel
Netherlands
Romania
Spain
Turkey
United States
World
Irrigated (thous. Ha)

1979-1981
1989-1991
1999-2001
389
432
447
1,369
1,980
2.628
950
1,200
1.441
38,448
46,760
55.983
204
202
192
480
554
565
2,301
3,124
3.082
3,028
3,387
3.719
2,712
4,024
4.743
20,582
20,800
22.543
209,657
244,196
275,090
Irrigated cultivated area (%)

1979-1981
1999-2001
15
19
7
13
24
37
23
33
49
46
58
60
22
31
15
20
10
18
12
13
15
18
Source: Stipeti, V.: Kriza u poljoprivredi prioritetnoj djelatnosti budueg gospodarstva Hrvatske
(The Crisis in Agriculture Priority Activities for the Future Economy of Croatia, in the collection of works Kriza i okviri ekonomske politike (Crisis and Frameworks of Economic Policy),
HAZU and the Croatian Institute for Finance and Accounting, Zagreb, June 2009, p.34.
Based on the quantity of freshwater that Croatia possesses, we are ranked at

the top of European countries. One part of a river that ows through Croatia has
the most water in the summer months (because it is lled by melting snow from
the Alps), just at a time when agriculture is begging for water. But until now it has
not been used for irrigation, which is out of step with European and global trends.
Many countries have recognized this and for decades they have been increasing
their agricultural surface area, which they are irrigating, and which provides up to
ve times greater value of their production per hectare (of course, with a dierent
structure of production). The table above illustrates the trend of that expansion.
About 11,000 hectares is now being irrigated in Croatia just 1% of the cultivated
surface area and we are at the bottom of the Mediterranean countries. 13 (emphasis M.V.)
13
Stipeti, V.: Kriza u poljoprivredi prioritetnoj djelatnosti budueg gospodarstva Hrvatske (The Crisis
in Agriculture Priority Activities for the Future Economy of Croatia, in the collection of works
473
It is obvious that the above comparison provides an exceptional area for action
at the national level, where the activity of the construction sector is a necessary
component a platform for creating a considerably higher level of new value in
agriculture and the beginning of the creation of a new network of waterways and
new types of protable logistics...
5) Evaluation of area, environmental protection and waste management. A
widely and indisputably accepted concept of sustainable development, it has
been at the forefront of social and increasingly economic interest. Optimization of the use of space and the coordination between individual purposes is
becoming the basis of urban and overall development planning. The responsibility for protection of the environment and waste removal and halting pollution of an area on various bases in the last several decades achieved a radical
transformation: from the concept of garbage that frequently and in an uncontrolled fashion was dumped in various sites the term and concept of waste,
which is collected and deposited in specic and designated sites, has become
accepted. The modern concept has created the phenomenon of secondary resources that are recycled (glass, plastics, paper, tires, metals, organic matter,
etc.) and which are again becoming an economically relevant category of
renewable use value. On this basis several new technologies, industries, companies and jobs have been created. Market competition is all the more
present between individual locations and destinations for the collected waste
that will then become the foundation of a renewable secondary resource. As
it approaches the standards of the EU, Croatia can reactivate a signicant
portion of its construction and technological capacity in this area.
6) Transportation infrastructure and logistics international transactions in
recent decades have grown at rates that are more than the average rate of
growth of GDP. This trend will continue in future decades, strongly assisted
by new technological solutions that are enhancing the tendencies to integrated transport. From an economic perspective, the constant pressures on
the growth of competitiveness within a national economy and the constant
search for locations with low costs and the possibility of high prots will
support this tendency in the long-term. Therefore, it is completely clear that
Kriza i okviri ekonomske politike (Crisis and Frameworks of Economic Policy), HAZU and the
Croatian Institute for Finance and Accounting, Zagreb, June 2009, p.34.
474
Mladen Vedri
transportation and logistics are also becoming a complex infrastructure and

an unavoidable stimulus to overall economic growth and development...
The Republic of Croatia like its past work and investments possesses public infrastructure that is extremely well positioned in logistical terms, beginning with
the network of airports: Pula, Rijeka (the island of Krk), Split, Zadar, Dubrovnik,
Zagreb and Osijek, as well as some new continental and island destinations. It also
has the potential of its seaports: Pula, Rijeka, Zadar, ibenik, Split, Ploe, and Dubrovnik. It has created a new highway system that links the continental areas with
the sea, coastal areas with other coastal areas, and the continental portion of the
country with countries that are today members of the EU. With the need for and
possibility of continued investment in technological upgrading, increases in capacity, and the creation of economies of scale, two important open questions remain:
the renovation of the existing and the construction of a new railway network and
the construction of a system of waterways that follow river courses. There would
then be the possibility for designing and building parts of a network of canals with
several purposes: irrigation, travel, and ood control.
7) A tourist industry with a new orientation and new aspirations. Viewed on
a comparative basis, Croatia has one of the most attractive coastlines in the
Mediterranean. Currently, the tourist product is formed on two colloquially
named hardware foundations. The rst is hotel capacity, built primarily in
the three decades before 1990. Then there are the frequently uncontrolled
and spontaneously built apartments and a fewer family hotels that have been
built between 1995 and today. There are also a number of auto camps that
have appeared mostly since 1990. Almost all of these forms of tourist infrastructure are characterized by seasonality, which generally allows only for
limited overall revenues and protability.
A tourism of new orientations and new aspirations means investment in the construction of content dominated by congress and health-recreational capacity with
accompanying content with social and entertainment aspects. Such new content is
extremely demanding in terms of capital, construction and overall equipment.
They also require a high degree of investment in new infrastructure: roads, logistics,
IT, a supply system with various inputs, maintenance of wide pedestrian zones,
etc.14 The activation of insufciently exploited land rents is a pre-condition for
14
Since the 1950s, construction of and investment in such zones and content has progressed from
those designed for mass tourism (Spain, part of the Italian coast, Turkey) to larger and more de-
475
investments in new and different content, predominantly but not exclusively in

the coastal regions of Croatia. Under current circumstances it is questionable
whether the level of overall social costs (infrastructure, ecology) are equal to or
more than revenues generated, or more exactly, more than the prots obtained.
It is important to emphasize that linkage of the stated transportation assumptions and the creation of new logistical centers (reception, transshipment, modication, nal processing, customs clearance of goods, storage of goods, corresponding IT systems) can be posited as a project of vital interest to strengthening EU
infrastructure in this area of decit and also in relation to foreign trade with other
parts of the world. At the same time, it is possible also to ensure co-nancing with
public resources for this investment and development purpose but it will also be
attractive to private capital, as an important interest, advisor and partner in the
realization of these projects.
6. THE POSSIBILITIES FOR PROACTIVE ACTION PRESENT
CIRCUMSTANCES AND PROSPECTIVE TIME FRAME
6.1. Initial status and environment
Croatia is a relatively small country with an open economy, subjected to strong

regional, EU and global inuences as the consequence of economic events in these
areas. Therefore, it is instructive and relevant to establish the expected trends in that
environment in the near and medium terms, especially after a period of almost two
years when the construction sector was one of sectors, along with the automobile
industry, hardest hit by the crisis.
manding levels of a tourist oer (Cote dAzure, Sicily, Sardinia), and attractive new destinations
where row is the model of such investment locations (Dubai).
476
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Table 5. Market segment of construction at a global level

Size of market
2009
(in billions
USD)
6353.7
2056.1
2011.7
1124.5
207.5
679.7
2285.9
355.2
449.6
524.7
884.3
106.6
Total
Housing stock
Infrastructure
Transport
Public health
Energy sector
Non-residential buildings
Oce
Commercial
Institutions
Industry
Chemical sector
Electronics industry and
73.5
electronic products
Communications sector
67.4
Maintenance
96.0
Other
304.8
Food processing
95.4
Transport equipment
67.8
Reneries and processing of
72.8
petroleum derivatives
* amount of average annual rates of growth
Real
growth in
2005
USD
2009
-4.7%
-12.2%
4.2%
6.7%
5.5%
-10.5%
-4.3%
-6.2%
-7.5%
4.3%
-6.4%
-6.9%
Real
growth in
2005
USD
2010
0.01%
0.0%
5.0%
4.0%
10.4%
7.5%
-4.4%
-6.9%
-5.1%
-2.7%
-4.1%
-1.8%
-2.5%
Real
growth in
2005 USD
2009-14*
Real
growth in
2005 USD
2009-19*
4.1%
4.4%
4.7%
3.8%
6.0%
6.3%
3.3%
2.8%
3.5%
2.3%
3.9%
5.3%
4.3%
3.9%
4.6%
3.7%
5.3%
5.5%
4.4%
4.5%
4.7%
3.4%
4.7%
5.8%
-0.1%
3.9%
4.7%
-5.5%
5.1%
-4.1%
-3.2%
-11.5%
-2.8%
-2.4%
-5.8%
1.0%
-4.4%
4.4%
2.2%
3.9%
4.6%
4.0%
5.0%
3.6%
4.8%
5.3%
4.5%
-26.5%
-13.9%
2.9%
3.5%
Source: Global Construction Outlook: Executive Overview, Third-Quarter 2009, www.ihsglobalinsight.com
The data presented above point to a global tendency to stagnation this year, but
also with possible positive aspects: the infrastructure sector (growth of 5%), public
health (growth of 10.4%), and energy (growth of 7.5%). At the same time, a decline in investment can be expected, for example in oce space, both business and
public; the food processing industry and transport equipment. The expectations
and estimates of one of the most respectable scientic and research institutions
477
(OXFORD ECONOMICS) laid out in an analysis entitled Global Construction

Perspectives, point to possible important and expected trends:
1) It is assumed that the global economy will grow at an average rate of 3.5 to
4 percent beginning in 2011. This would be 0.5 percent faster than average
annual economic growth between 2001 and 2010, and with the pre-condition of excluding the extremely unsatisfactory growth indicators in 2008 and
2009. A part of that growth will be a consequence of a compensation for the
deep decline in the designated period, but also of the continued accelerated
growth of the economy in general, and especially of the economic boom in
China and India. In these countries this will be conditioned by strong demographic changes that at the same time will be stagnating in North America,
along with possible negative population signs. Examples: Japan, German,
Italy.
2) It can be expected that the scal decits that have been achieved and the
degree of foreign and public debt will also be important determinants in setting the investment possibilities of individual countries in specic parts of
the world.
3) Enhance eorts for environment protection, and ecology in general, will also
be factors that will stimulate economic growth and will have an important
and positive inuence on the degree of growth and the level of activity in
the construction sector. In developed countries today up to 40 percent of
total energy is expended within building structures (private housing, business
space, and public buildings).
4) There was also a pronounced trend of a further important above average
degree of investment in countries whose economies are developing in the direction of raising the level of quality of their transportation systems, portions
of their communal infrastructure, and commercial buildings. Slow growth
(the achieved degree of saturation, scal limitations) is anticipated for areas
of Western Europe and Japan.
5) The growth of investment in and engagement of the construction sector is
anticipated in the area of Eastern Europe, with a special emphasis on Russia
(the growth of revenues from oil and gas) and Poland (economy of scale and
support from EU structural funds).
478
Mladen Vedri
In conclusion, the stated trends represent a summary and a positive developmental synergy that can be expected in the next decade to be the consequence of
several dominant factors: accelerated restructuring of the global economy, strong
demographic changes, and newly-established and accepted postulates related to the
concept of sustainable development and environmental protection.
6.2 Assumed trends of events
What is important to observe in the area closer to home, along with this global
level of positive expectations for the period after 2010, within the joint policy of
the EU, is what soon (and formally) must to be relevant for economic events with
the Republic of Croatia. The Council of the EU not only agrees with the horizontal measures of industrial policy that are aiming at the support of all branches
of industry, but in view of the recently completed analyses of expert groups, it also
agrees with the conclusions for assistance to individual industrial sectors. At the
same time, the Council recognizes that the focused and coordinated measures for
assistance to sectors that have been initiated thus far as measures that can also be
applied in other sectors of an economy that are threatened by the consequences of
the economic crisis. Therefore, the Council welcomes regular monitoring of the
situation in industrial sectors by the European Commission since this will help in
the development of appropriate policies in the context of the European Plan for
Economic Recovery. 15 Along with the clear statement that the EU is stimulating
growth and qualitative changes of its economy by a series of measures and instruments of horizontal (general) industrial policy, it is also possible to state the immediate signicance and interest in the construction sector, which, by its dimensions
and importance, is of special signicance. The revenues generated in 2008 in this
sector amounted to 1.65 billion euros, which was larger than, for exampled, the
GDP of Italy in the same year, and with several other multiplier eects on other
economic sectors. One specic fact is that among the new EU members (Poland,
the Czech Republic, Slovakia, and Hungary) the predominant investment activity
is in general infrastructure and economic content, while in the classic EU 15 investment in various forms of residential buildings and housing makes up almost 50
percent of the overall activity of the construction sector.
15
Source: Council of the European Union: Council Conclusions An integrated approach to a competitive and sustainable industrial policy in the European Union, 2945th competitiveness, Brussels,
28 May 2009, p. 8
479
The following graph conrms the foregoing statements and assessments conrm
that speak about the correlation of the growth of GDP and stimulation of the construction sector in national economy within the EU...
Graph 2. Current and prospective indicators:
works in
The relationship of GDP and the value of construction

western member countries of the EU
Source: 66th EUROCONSTRUCT Conference, Brussels, December 2008; http://www.euroconstruct.org/publications/cr_zurich09.jpg
After the real crisis year (2009), at the level of the EU, the recovery (to the level
of 2008) can be expected in 2010 to continue into 2011 (to the level of 2005). A
new boom in the construction sector (like the one in 2006 and 2007) can be expected at some time in the middle of the upcoming decade.
The EU strategy to establish the stimulation of growth in the business sector
within a common market arises from the ambition to achieve a win-win result,
while protecting employment and the share of this sector in the GDP of individual
national economies. The goal is also to create complementariness with other sectors
(energy, ecology, logistics, and increased competitiveness of individual sectors of
the real economy). All of the designated areas also have to be an important orientation in the establishment of a Croatian strategy, led by the relevancy of the goals,
and not (only) by the realistic expectation that the Republic of Croatia will also
become a formal part of that institutional framework in the next 24 months.
480
Mladen Vedri
7. SOURCES OF FINANCING FOR INVESTMENT PROJECTS EXISTING AND

NEW POSSIBILITIES
Having prepared serious and professionally recognized and designed projects as

important areas for achieving its concept of development, Croatia must seek partners for nancing and realizing them. The possibilities include:
a) Its own (remaining) sources of accumulation in the framework of individually
organized systems, where resources are gather for the maintenance and development of individual vital segments of public infrastructure (roads, water,
energy, ecology).
b) Regional and cohesive policy of the EU is achieved through EU Funds, including Structural and Cohesive Funds and Current and Pre-Accession Funds.
For the Republic of Croatia, the focus is on IPH Pre-Accession Funds, and this
will primarily be until the year 2013, when the current period of EU development policies ends. Since a continuation of the regional developmental policies is
expected, it can be assumed that the main elements of existing solution will also be
transferred into the upcoming period. The goals of nancing are determined by the
Lisbon Strategy, according to which the following have to be achieved:
Convergence in a way that stimulates investment in regions with a per capita
GDP less than 75 percent of the EU average.
The global competitiveness of the developed members and support for the
transition to an information society.
Territorial cooperation dened as cross-border cooperation to resolve development problems of cities and rural and coastal areas.
The strategic goals will be achieved through funds applied within the system
of Structural Funds, including:
European Regional Development Fund (ERDF) - intended for investments
to reduce development disparities between regions and to stimulate regional
development, economic growth, environmental protections, construction of
infrastructure, measure to reduce the risk of a variety of calamities, etc. . . .
European Social Fund (ESF) which focuses on worker development related
to the increased demand for a more adaptable workforce and to equalize the
chances for social inclusion.
481
Cohesion fund for environmental protection and the TransEU network.

For countries with a GDP lower than 90 percent of the EU average.
It is apparent that with the exception of the Cohesion Funds, the level of development that has been achieved plays a main role in achieving the real use of these
funds. Estimating the degree of this development is made at the regional and national level. Regional organization is a national responsibility. Statistical procedures
are to a considerable extent standardized and make up part of the statistical system
of the EU. The classication is carried out according to territorial criteria, within
which there is the possibility for implementing certain local policies.
With this concept in an earlier wave of expansion (Spain, Portugal) and then in
the later one (Poland, the Czech Republic, Hungary, Cyprus, Estonia, Lithuania,
Latvia, Malta, Slovakia, Slovenia) and in the most recent one (Bulgaria and Romania) these countries were ensured of additional nancial potential for co-nancing
several vital projects in their individual regions, and this included all stages and
segments of realization from initial phases of project design and the evaluation
of overall eects to the performance of individual systems and keeping them in
operation. Of special importance is the synergistic role of these resources because
by stimulating regional development they attract private capital as a partner that
for certain types of investments (logistics, the tourist industry) also provides access
to regional, EU and global markets.
a) The group of banks at the European and EU level (EBRD, EIB) that conance these types of development projects.
b) The use of World Bank resources and those of other specialized partners
(IBRD, IFC, UNDP) whose activities also includes investment in those areas that a) stimulate overall development of individual countries; b) provide
room for investment by private investors; c) increase local employment levels;
d) bring regional development into balance.
CONCLUSION
The above facts: the global and domestic economic crisis, the scarcity of capital
and the lack of markets for a continuation of previous trends foreign trade decit,
the growth of foreign and public debt, growth based on imports and outside accumulation on one hand and the fragmented execution of signicant investments
in various forms of infrastructure on the other hand, represent a fundamental di-
482
Mladen Vedri
lemma how to go on? Whether to treat the current situation as an open problem
with unclear prospects and try to maintain the status quoi or to move on but in an
essentially dierent way?
This means take note of the exceptional potential that has been created and to
carry out an evaluation of these investments in the time ahead, and thus to achieve
active eects by the use of the assumptions created in those several designated areas:; energy and energy eciency, ecology and new technologies for environmental
protection and sustainable development, a highly protable agriculture with intensive investment, yields, and new products. It would also include new investments
in and the creation of new types of tourism that are dierent than the current
seasonal (poor) destinations and the creation of clusters of modern logistic centers
on the coast and inland.
The intersection of problems and possibilities is clearly marked; the question is
one of an active and well thought out concept of action. The year 2010 can and
must be the year of a turnaround: from inherited problems to the creation of complex developmental solutions that in the given circumstances demand coherent matrices for elaborating national development possibilities. This would be followed by
complex planning, project design and economic verication and evaluation of the
needed investments, placing those investments in the context of creating synergistic
eects: national, regional, those at the level of the EU, and why not also global? 16
In addition to considering the possibilities and needs within national frameworks for participating in individual types of projects that would bring important
new quality and create new value for investors and partners (shareholders and stakeholders), it is important to consider additional, complementary forms of activating
the construction sector and the national economy as a whole.
This is an analysis of the possible areas (regional, national) where it is possible to
compete (on the basis of respectable references from the past and present) in carrying out all types of construction projects: from housing and road construction to
the construction of capital infrastructure facilities rail networks, ports, airports,
energy capacity, etc. Realistically, it is also necessary to consider entering into part16
During an ocial visit to the Republic of Croatia in June 2009, the President of the People-s
Republic of China state, Croatia is the most important strategic partner in the region, Vjesnik,
21 June 2009. It is almost certain that this formulation addressed the exceptional potential of the
logistical position of Croatia (coastal and continental) in relation to the possible linkage of trade
routes of China and the broader area of Europe.
483
nerships in the form of international consortia, which ensures the required economy
of scale, and, very frequently, the possibility of creating satisfactory nancial conditions that make the overall oer competitive.
It is certain that such an arrangement in opening new possibilities and solutions
can and must lead to new and complex use of the potential of a national economy.
At the same time, it is necessary for its increased competitive capabilities be carried
out within the EU and global environment, and not only as a way to overcome the
crisis, but especially to generate long-term and stable economic growth.
LITERATURE:
1. Reich,
R.B.: Supercapitalism: The Transformation of Business, Democracy, and

Everyday Life, 2007
2. Review of Recent Crisis Programs, International Monetary Fund, Washington

D.C., September 14, 2009.
3. 2009 Interim Report on the OECD Innovation Strategy. An Agenda for Policy
Action on Innovation. OECD, Paris, 2009.
4. Council of the European Union: Council conclusions An integrated approach
to a competitive and sustainable industrial policy in the European Union, 2945th
competitiveness, Brussels, 28 May 2009.
5. Global Construction Outlook: Executive Overview, Third-Quarter 2009, www.
ihsglobalinsight.com
6. Regional Economic Outlook Europe Securing Recovery, World Economic and
Financial Surveys, International Monetary Fund, Washington D.C., October
2009.
7. Stipeti, V.: Kriza u poljoprivredi prioritetnoj djelatnosti budueg gospodarstva
Hrvatske, zbornik radova Kriza i okviri ekonomske politike, HAZU i Hrvatski
institut za nancije i raunovodstvo, Zagreb, srpanj 2009.
8. Main objectives and targets of budgetary stimulus packages, excluding measures aimed at the nancial system May 2009. http//www.oecd.org/document
/50/0.3343.en 2649_33703_43163698-1-1-1-1.00html
484
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9. Restructuring in the construction sector Executive Summary, European Foundation for the Improvement of Living and Working Conditions, 2009, www.
eurofound.europa.eu
10. Vedri, M., Dujin, U.: Mogunosti primjene kejnezijanske koncepcije javnih
radova u Republici Hrvatskoj, Ekonomski fakultet Zagreb i Znanstveno
drutvo ekonomista Zagreb, znanstveni skup s meunarodnim sudjelovanjem
Keynesijanizam i hrvatska ekonomska misao i stvarnost u procesu globalizacije, Zagreb, 7.-8. prosinca 2006., (zbornik pripremljen za tisak, Ekonomski
fakultet Zagreb).
11. Vedri, M., imi, R.: Ekonomska kriza i ekonomska politika Pouke i poruke uspjenih rjeenja, 17. tradicionalno savjetovanje Hrvatskog drutva
ekonomista. Zbornik radova. Ekonomska politika Hrvatske u 2010. Opatija,
11.13. 11.2009.
12. Vedri, M., imi, R.: Kraj globalnog trinog liberalizma reeksije na Republiku Hrvatsku, RIF, Zagreb-Pula, June 2009.
13. 66th EUROCONSTRUCT Conference, Brussels, prosinac
14. http://www.euroconstruct.org/publications/cr_zurich09.jpg
2008:
14. GLOBAL CONSTRUCTION - prognoze do 2020. godine (OXFORD INSTITUTE): http://www.globalconstruction2020.com/

15. Dravni zavod za statistiku; www.dzs.hr
16. Hrvatsko gospodarstvo 2008. godine, HGK, Zagreb, srpanj 2009.
17. Gospodarska kretanja, Hrvatska gospodarska komora, studeni 2009, Zagreb,
www.hgk.hr
18. Hrvatska gospodarska komora, Zagreb, podaci za 2009; www.hgk.hr
19. Analiza stanja u graditeljstvu, radni dokument HGK, Zagreb, 2009, www.hgk.
hr
20. RICS (Royal Institution of Chartered Surveyors), Press release: Emerging markets to lead race for top position in global construction, 17 November 2009.
21. Sustainable construction (EU):
www.ec.europa.eu/enterprise/policies/innovation/policy/lead-marketinitiative/sustainable-construction/index_en.htm
485
22. Dobre vijesti za graevinsku industriju: EK eli obnovu 15 milijuna zgrada;

www.business.hr, 11. listopada 2009.
23. Hrvatsko graditeljstvo, Hrvatska gospodarska komora, Sektor za graditeljstvo i
komunalno gospodarstvo, Zagreb, rujan 2008., www.hgk.hr
24. Torregrossa, M.: European Partners for the Environment, Barriers and Opportunities for Sustainable Public Procurement in Building Construction, presentation for EcoProcura 2009, Session B1 - Sustainable Construction, www.
epe.be
25. Bai, T.: Logistika najvaniji faktor konkurentnosti, Poslovni dnevnik, poseban prilog: Transport i logistika, Zagreb, 16. srpnja 2009, str. 18.
26. www.oecd.org/document/22/0,3343,en_2649_34269_42913302_1_1_1_37
417,00.html
27. Europe 2020, presentation by J.M. Barroso, President of the European Commision to the Informal European Council of 11 February, 21 April 2010.
28. Program gospodarskog oporavka, Vlada Republike Hrvatske, Zagreb, travanj
2010.
FINANCIAL
ECONOMICS
MODELING OF CAUSAL RELATIONSHIPS BETWEEN FOREIGN DIRECT INVESTEMENT ...
489
MODELING OF CAUSAL RELATIONSHIPS BETWEEN

FOREIGN DIRECT INVESTEMENT, EXPORT AND ECONOMIC
GROWTH FOR SLOVENIA1
Ing. Zuzana Gallov, Ph.D. Student
Doc. Ing. Daniel Stavrek, Ph.D.
Silesian University in Opava
School of Business Administration in Karvin
Department of Finance
ABSTRACT
Foreign direct investment is generally considered to be an instrument how to

stimulate economic growth of any country. Just because of this purpose governments of transition countries try to encourage the inow of foreign direct investment by various measures. The aim of this paper is to analyse the relation between
foreign direct investment, economic growth and export in Slovenia. For this purpose we apply cointegration analysis along with the vector error correction model.
The results conrm the existence of a long-term relation between the variables
analysed. We reveal a positive impact of GDP and impact of foreign direct investment on export.
JEL classication: E22, F21, O4
Key words: foreign direct investment, economic growth, export, cointegration,
error correction model
1. INTRODUCTION
The positive eect of foreign direct investment (FDI) on economic growth of

the country is a commonly accepted claim. The main purpose of this article is to
1
Research behind this paper was supported by the Student Grant Competition of Silesian University within the project SGS 25/2010 Financial integration in the EU and its eect on corporate
sector
490
Zuzana Gallov Daniel Stavrek,
examine the relationship between export, FDI and economic growth in Slovenia.
FDI, with other benets, brings also many advantages such as new technologies,
manufacturing processes, know-how and others. Despite this positive feedback,
the theme of FDI and its impact on the economy is being discussed at many levels. There are several theories and approaches to this problem that, on the one
hand, support the claims about the positive eects of FDI on the economy but
on the other hand, they also counter these arguments. The topic that is addressed
often is a causal relationship between economic growth and exports. Not only economic theory, but also empirical studies are trying to prove this relationship. As
an example we may use studies (Dritsaki et al., 2004), (PachecoLopez, 2004),
or (Feridun and Sissoko 2006). Slovenia as a country with a small own market is
heavily dependent on foreign trade and especially on export. Foreign direct investments have ability to contribute directly to the countrys export capacity. Foreign
companies are nancially stronger, larger on scale and in particular are more export
oriented than domestic rms. The aim of this article is to examine whether this
causal relationship is true in terms of economy in Slovenia. This paper is divided
into ve parts. The rst part deals with a brief overview of foreign direct investment
in Slovenia, and the second part deals with specication of the data and models
used. The various stages of research are divided in the third and sixth part of this
article.
2. FOREIGN DIRECT INVESTMENTS IN SLOVENIA
Among the countries of former Yugoslavia, Slovenia is economically and politically the safest country for foreign investors. This state is indicated by the fact that
Slovenia is a member of the European Union since May 1, 2004 and since January
2007 it is also a part of the euro zone. The Western Balkans is a strategic area and
market penetration into Slovenia means to move closer to the other markets of
former Yugoslavia. Other benets that the country oers to foreign investors are
skilled workforce, quality management, experience in the production of dicult
markets, a large number of domestic export-oriented companies and others. In
relation to highly skilled labor force as a positive aspect of the market, there occurs a negative on the other hand, in the form of relatively expensive work force
compared with the countries of Central and Eastern Europe. There are also other
disadvantages present for investors; the Slovenes under-investment in new production facilities, lack of technical experts, and legislation regulating the employment
relationship (high sickness benets, holidays, maternity leave), high taxes, com-
491
plicated administrative procedures (e.g. the obtaining of planning and building

permission - which restricts FDI to start from scratch on the green land), a small
internal market and ultimately not very good payment behavior. By 2001 inow
of foreign direct investment in Slovenia accounted only around 1% of GDP. Boom
of FDI inow occurred in 2002, when the ow of FDI increased to 7.9% of GDP
(FDI inow in each year from 1999 to 2008 is captured in Figure 1). This increase
was due to the privatization of state enterprises and companies. Balance of the FDI
at the end of 2008 represented 11 trillion EUR. In regards to the privatization process a crucial role is played by competent government authorities that decide who
is given a national stake in companies. In most privatization cases, where there
is a large amount of capital necessary and for strategically important enterprises,
privatization is realized by foreign investors. In regards to the privatization of small
businesses, dominant position goes to domestic investors. The privatization has
opened the door to investors, mainly to European Union countries. They even
have a chance to compete with the domestic players to get state assets. Most investments are made in nance and insurance sector (46%), retail sector (15%) and
chemical industry (10%). The countries that invest the most are Austria, Slovenia
(47%), Switzerland (11%) and the third place goes to the Netherlands with France
(7%). The most important foreign investors are Sandoz Group (Novartis Lek) pharmaceutical company, Bosh electronics (employing 562 workers in Slovenia),
Renault (Revoz) the automotive industry. With regards to nancial services, the
signicant investments are made by SanPaolo IMI group, which became a majority
holder in the Koper banks shares in 2002. Raieisen Bank became the majority
owner of Krekova Bank shares (97.05%) in 2002, which has been in 2007 renamed to Raieisen Bank. Another signicant foreign investment in Slovenia was
an entrance of major banking group Socit Gnrale to the Slovenian banking
market and the acquisition of SKB Bank. As for the other services the large investors include: Ernst & Young, DHL, Deloitte, KPMG, PricewaterhousCoopers, and
others. In the eld of telecommunications it is worth to mention companies as
Microsoft, IBM, Mobilkom. Mobilkom Austria became the majority owner of the
rst provider of mobile telecommunications services in Slovenia in February 2001,
in 2006 it gained 100% share in this company.
492
Figure 1: FDI inow in Slovenia, in mil. EUR, 1998 - 2008
2008
1313
2007
1106
2006
FDI inflow in
Slovenia
513
2005
473
2004
665
271
2003
2002
1722
2001
412
149
2000
1999
99
0
500
1000
1500
2000
Source: Bank of Slovenia
3. Data and model specication
For the examination of relationship of the gross domestic product (GDP), exports (EXP) and foreign direct investment (FDI) the quarterly periodic data of
1996 2007 are used. GDP is expressed within the market prices, the FDI captures
inow of foreign direct investment in Slovenia, and exports of goods and services are
expressed at the common prices. All data are drawn from the statistics of the Bank of
Slovenia and are expressed in millions of EUR. Development of the variables is presented graphically in the three graphs below. Data export and GDP are seasonally
adjusted. Subsequently, the individual data calculated the logarithm. Calculation of
the logarithm was designed to achieve a reduction of variance of each time series and
the subsequent protection of stationary. Logarithmic time series are marked with the
letter L before the name of each series. To make a cointegration that helps to test the
causal links between variables, it is necessary that calculated time series with the logarithm are stationary at the rst dierentiation I(1) and non-stationary at their values.
A causal relationship between these variables is studied on the basis of a vector autoregressive model (VAR) in the following form:
EXP = f(GDP, FDI)
(1)
Figure 2: Seasonally adjusted GDP in mil. EUR (1996 2007)

10,000
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1996
1998
2000
2002
2004
2006
2008
Source: authors calculations based on data from Bank of Slovenia
Figure 3: Seasonally adjusted export in mil. EUR (1996 2007)

7,000
6,000
5,000
4,000
3,000
2,000
1996
1998
2000
2002
2004
2006
Source: authors calculations based on data from Bank of Slovenia
2008
493
494
Figure 4 Inow FDI in Slovenia in mil. EUR (1996 - 2007)

800
700
600
500
400
300
200
100
0
1996
1998
2000
2002
2004
2006
2008
Source: Bank of Slovenia
4. UNIT ROOT TEST
An important point of analysis is determination of a unit root by Augmented

DickeyFuller test (ADF test). This test is used in order to show that individual
variables are integrated at I (1) - that means stationary at the rst dierence. As a
proof the following equation is formulated:
k
X t = d0 + d11t + d2 X t 1 + aii X t i + u t
i =1
(2)
ADF test is used to determine a unit root at Xt at all logarithmic variables at

time t. Variable Xt-i expresses the rst dierence of delay and ut nds error of autocorrelation. Coecients 0, 1, 2 and i are estimated. Zero and the alternative
hypothesis for the existence of a unit root in the variable Xt is (Dickey and Fuller,
1979):
H0: 2 = 0
H: 2 < 0
(3)
495
The result of ADF test, which conrms the stationary of all three time series
at the rst dierences, is given in Table 1. The rst part of the table contains of
data showing the value of tested non-stationary time series at their values, and the
second part of the table records data indicating the stationary of time series at rst
dierences. All test results are signiant at 1 % level.
Table 1: ADF Unit Root Tests

levels
1st dierences
Variables
Lagged
Test statistic ADF
Lagged
Test statistic ADF
LEXP_sa
-1,3880*
-5,6926*
LFDI_ows
-0,0282*
-7,7620*
LGDP_sa
-1,7744*
-3,3592*
Note: *, ** denote signicance at 1 % and 5 % respectively

Source: authorscalculations
5. COINTEGRATION JOHANSEN COINTEGRATION TEST
Stationarity of time series at the rst dierentiation is a met prerequisite for

the realization of cointegration. Cointegration can be dened as a long-term equilibrium relationship between economic variables. Each time series, though nonstationary, have common long-term cointegration movement towards equilibrium,
for example, due to various market forces. Even though it is possible that in short
periods of time there is a tilt of such long-term balance (Cipra, 2008). When testing cointegration, it represents the determination of r cointegration relations in
the particular VAR model. Cointegration is conrmed if it is true that r> 0. Most
widely used for testing cointegration in practice nowadays is Johansen Cointegration Test, which was used in this study. In order to design Johansen Cointegration
Test it is necessary to obtain an indication of optimal time delays, which in this
case represents examination of one period. The optimal number of delays was chosen based on Akaike information criterion applied to estimate the undierentiated
VAR model. Then the cointegration link between these variables may be studied
(Johansen, 1988, Johansen and Jeselius, 1990). Cointegration test results are shown
in Table 2. We argue that the existence of long-term relationship was established
between the variables and the cointegration link was found. Cointegration equation has the following form:
496
LEXP = 1,1735 LGDP + 0,0066 LFDI - 2,6763

(0,0913)
(0,0267) (0,7680)
(4)
The above equation shows that if the countrys GDP increases by 1%, there is
an increase in exports of 1.17% and if FDI inow increases by 1%, then there is a
growth in exports of 0.006%.
Table 2: Johansen cointegration test Variables LEXP, LFDI and LGDP

Null
Trace Statistic
Critical Values 0,05
r=0
75,8493
35,1928
r <= 1
26,1499
20,2618
r <= 2
4,9589
9,1646
Null
Max-Eigen Statistic
Critical Values 0,05
r=0
49,6994
22,2996
r <= 1
21,1909
15,8921
r <= 2
4,9589
9,1646
6. ERROR CORECTION MODEL
Cointegration test demonstrated that there is long term dependence between

those variables. However, cointegration is leaving aside the possibility of shortterm uctuations between the two examined variables. The error correction model
is used for detection of these uctuations during cointegration (Error correction
model ECM). Error correction model is an adequate tool to analyze short-term
deviations, necessary to achieve long-term balance between the two variables (Cipra, 2008). Error correction model has the following form:
LEXPt = lagged ( LEXP, LGDPt, LFDIt) + ut-1 + Vt
(5)
where lagged represents a certain number of delays explaining variables. The optimal number of delays is determined by Akaike criteria. means the rst dierence
of the variable, ut-1 is the estimated residual components of the long-term relationship, determined from cointegration test 1 < <0 is the rate of return to long-term
balance and Vt is a random component of white noise. Appropriate adjustment of
the model was tested by several tests of residual components. Specically, it was a
test of autocorrelation (LM - test, which is based on Lagrangers multiplier) test of
497
normality and hetero-scedasticity test. Testing ruled out the existence of all three
events and conrmed that the model is properly chosen. The result of an error correction model is depicted in Table 3:
Table 3: Error Correction Model
LEXPt
LEXPt-1
LGDPt-1
LFDIt-1
LEXPt-2
LGDPt-2
0,146247
-0,839894
-0,009126
-0,117658
-0,250776
(0,16247)
(0,48783)
(0,00443)
(0,16211)
(0,47039)
LFDIt-2
ut-1
Vt
-0.006076
0,009921
0,048941
(0,00331)
(0,00520)
(0,01734)
Note: Values authoritative deviations are in parenthesis

Error correction model, in the investigation of the relationship between variables EXP, FDI, and GDP, explains about 1% rate of convergence to long-term
equilibrium relationship in case of short-term shocks.
7. CONCLUSION
This paper examines the causal relationship between export, gross domestic
product and foreign direct investment in Slovenia. The research used quarterly data
of the years 1996 - 2007. First, the data were adjusted for the calculations. Gross
domestic product and export were seasonally adjusted. Subsequently, they were
used for initial testing and testing for stationarity. Test results showed that all three
time series are stationary up to its rst dierence. This result enabled a continuance
with further research and after nding the time lag the cointegration Johansen test
was carried. The test has demonstrated positive long-term relationship between
variables. Cointegration equation had shown a positive relationship between GDP
and export as well as the inow of foreign direct investment and export. This fact
demonstrates the generally accepted argument that foreign direct investment is a
positive force for the export of the country. After joining the European Union and
euro zone, Slovenia gained an imaginary mark of the safe region in many ways. Despite the existing negatives (legislation, taxation and others) it is interesting territory for the entry of foreign investors into the country. As a last step of research
498
error correction model was carried out. This explains the approximate 1% rate of
convergence to long-term equilibrium relation to formation of short-term shocks.
REFERENCES
1. Cipra, T. (2008). Finann ekonometrie, Ekopress, ISBN 978-80-86929-43-9,

Praha
2. Dickey, D.A. & Fuller, W.A. (1979). Distributions of the estimators for Autoregressive time series with a unit root, Journal of American Statistical Association,
74(366), 427-431.
3. Dritsaki, M., Dritsaki, C. & Adamopoulos, A. A. (2004). Causual Relationship
between Trade, Foreign Direct Investment and Economic Growth for Greece,
American Journal of Applied Sciences 1, 230-235.
4. Feridun, M. & Sissoko, Y. (2006). Impact of FDI on Economic Development:
A Causality Analysis for Singapore, 1976 2002. Paper presented at the 6th
Global Conference on Business & Economics on 15-17 October 2006 at Harvard University, available at < http://mpra.ub.uni-muenchen.de/1054/ >.
5. Johansen, S. (1997). Likelihood-Based Interference in Cointegrated Vector Autoregressive Models. Oxford: Oxford University Press.
6. Pacheco-Lopz, P. (2004). Foreign Direct Investment, Exports and Imports in
Mexico. University of Kent Studies in Economics No. 0404. Kent: University of
Kent, available at <ftp://ftp.ukc.ac.uk/pub/ejr/RePEc/ukc/ukcedp/0404.pdf >.
MANAGING NONINTEREST INCOME AS PART OF BANK BUSINESS STRATEGY
499
MANAGING NONINTEREST INCOME AS PART OF BANK

BUSINESS STRATEGY1
Branko Mati1, Ph.D., Hrvoje Serdarui2, B.Sc., Maja Vretenar3, B.Sc.
1
Full Professor, Faculty of Economics in Osijek, Croatia, matic@efos.hr
2
Teaching Assistant, Faculty of Economics in Osijek, Croatia, hserdar@efos.hr
3
Teaching Assistant, Polytehnic in Slavonski Brod, Croatia, maja.vretenar@vusb.hr
ABSTRACT
In order to obtain constant and stable sources of nance, particularly in the

changed circumstances on the banking market, i.e. the global nancial crisis, credit
institutions in Croatia have changed their business strategy by focusing partly on
the non-interest income segment. By this procedure credit institutions are trying to
impact their market position.
In this paper the authors investigate the role and signicance of non-interest
income and its impact on business policies of credit institutions in the Republic of
Croatia.
JEL clasication: E5, G21, P17
Keywords: management, non-interest income, banks
1. INTRODUCTION
Performance of lending institutions, especially at the time of the global nancial crisis, depends to a great extent on their business strategy and policy. A good
business policy is characterized by well-dened goals and plans and successful adjustment of the policy to the environment. By accepting these principles lending
institutions create preconditions for achieving competitive advantage and at the
same time aect their own market position. In the Croatian banking sector, which
1
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
500
Branko Mati Hrvoje Serdarui Maja Vretenar
is the dominant segment of the loan-providing nancial system, orientation to

non-interest income as a source of funding can be increasingly observed. This can
be explained by the fact that non-interest income is increasingly more present due
to its characteristics, abundance and the way clients respond to it (psychological
reasons).
2. BANK STRATEGY VS. BANK BUSINESS POLICY
Bank strategy is dened as ability and art of utilizing particular bank resources
in order to use advantages to create desired eects. This means that bank strategy
is a means for achieving its essential goals and at the same time it represents the
creative idea by means of which every bank wants to achieve the ultimate, usually
a long-term goal. Bank strategy is closely related to banks business policy. Business
policy is a set of principles and methods for making business decisions. They are
based on scientic achievements, analytical methods and experience, with the aim
of continuous improvement of business operation (Kandija, ivko; 2004, 285).
Business policy denes goals and plans of a bank as well as ways of their realization,
and it is the foundation on which business operations of the bank itself are based.
Thus certain banks direct their business policy mainly to the population segment,
while other banks are oriented to the sector of the economy.
3. MARKET OF BANKING SERVICES IN THE REPUBLIC OF CROATIA
Banking and/or nancial services in the Republic of Croatia are provided by

lending institutions. A lending 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). System of lending institutions in Croatia comprises: banks, savings banks and housing
savings banks.
Among the above listed lending institutions, banks are dominant nancial institutions in the Croatian territory. A bank is a nancial institution that has obtained a banking licence from the Croatian National Bank (HNB) and that was
founded as a joint stock company with the seat in the Republic of Croatia (Bank
Act, Ocial Gazette 84/02, 141/06, Article 2). Banking services include receiving
of deposits or other repayable funds from the public and approving loans for its
own account (Credit Institutions Act, Ocial Gazette 117/08, 74/09, 153/09,
501
Article 4). In addition to banking services, banks can also provide both basic and
additional nancial services.
In terms of ownership structure, the banking system in the Republic of Croatia
consists of: state-owned banks, private domestic banks and foreign-owned banks.
(Table 1)
Table 1: The number of banks in the Republic of Croatia according to ownership structure and the share of
their assets in the total bank assets in the period from 2006 to 2008
GODINA
2006.
2007.
2008.
Number
Share
Number
Share
Number
Share
State owned banks
4,2
4,7
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
UKUPNO
33
100,0
33
100,0
34
100,0
Source: Croatian National Bank, available at http://www.hnb.hr (March 3, 2010)
Based on the data from the Table 1, a conclusion can be made that in the period
from 2006 to 2008 most of the business in the Republic of Croatia was done by
foreign-owned banks and private domestic banks. The largest share of assets in the
total assets in the analyzed period belongs to foreign-owned banks (from 90.4% to
as much as 90.8%).
The number of banks in the stated period, considering their size according to
the classication of the Croatian National Bank (large, medium-sized, small banks),
did not signicantly change. So, in the period from 2006 to 2008 in the Croatian
territory there were 6 large and 4 medium-sized banks. In 2006 and 2007 there
were 23 small banks, while in 2008 this number increased by one.
4. CHARACTERISTICS AND CLASSIFICATION OF BANKING INCOME
Banking income consists of interest income, non-interest income and other

banking income.
4.1. Interest income
According to a denition, interest income comprises active interest rates on

loans as well as commissions and fees, for which calculation basis consists of loans
that are stated in assets in the balance sheet, regardless whether calculation of these
502
commissions or fees is done on a one-o basis or based on a time period (Instructions for application of chart of accounts for banks, National Gazette 115/03,
39/04, 29/06).
Interest expenses include expenses of interest payable and other expenses that
are directly related to received loans and deposits and other instruments through
which banks collect their funding sources (hybrid and subordinated instruments),
and those for which received loans and deposits and other instruments are used as
the basis for calculation, regardless of the time dimension of the calculation, which
can be on a one-o basis or time basis (Instructions for application of chart of accounts for banks, National Gazette 115/03, 39/04, 29/06).
4.2. Non-interest income
The same legal framework (source) denes non-interest income as all income
that a bank generates by providing services to its clients, using human and technical
resources of the bank, but without direct use of funds. By providing these services
the banks placements are not shown in assets. The most important types of noninterest banks income are commissions or fees for:
a) payment transactions,
b) card transactions,
c) issuing warranties and other forms of guarantee, including acceptance of a bill
(acceptance credit), except income from due acceptance credits,
d) loan management on behalf and for the account of other persons (mandated
operations),
e) care about securities and securities transactions on behalf and for the account
of other persons,
f ) other (safe deposit boxes rental service and other o-balance sheet activities of
a bank, other services that are provided without mobilizing bank funds).
5. COMPARATIVE ANALYSIS OF THE CROATIAN MARKET OF
INTERMEDIATION BANKING PRODUCTS
Research included the entire Croatian banking market in the period from 2006
to 2008 and the eciency of interest and non-interest income in the banking system of the Republic of Croatia. (Table 2)
503
Table 2: Eciency of interest and non-interest income in the banking system of the Republic of Croatia
4.
ERSTE & STEIERMRKISCHE BANK d.d.

HYPO ALPE-ADRIA-BANK d.d.
PRIVREDNA BANKA ZAGREB d.d.
RAIFFEISENBANK AUSTRIA d.d.
5.
SOCIT GNRALE-SPLITSKA BANKA d.d.
6.
13.
ZAGREBAKA BANKA d.d.

HRVATSKA POTANSKA BANKA d.d.
OTP BANKA HRVATSKA d.d.
SLAVONSKA BANKA d.d.
VOLKSBANK d.d.
BANCO POPOLARE CROATIA d.d.
BANKA BROD d.d.
BANKA KOVANICA d.d.
14.
BANKA SPLITSKO-DALMATINSKA d.d.
15.
19.
BKS BANK d.d.

CENTAR BANKA d.d.
CREDO BANKA d.d.
CROATIA BANKA d.d.
IMEX BANKA d.d.
20.
ISTARSKA KREDITNA BANKA UMAG d.d.
21.
JADRANSKA BANKA d.d.

KARLOVAKA BANKA d.d.
KREDITNA BANKA ZAGREB d.d.
MEIMURSKA BANKA d.d.
NAVA BANKA d.d.
PARTNER BANKA d.d.
PODRAVSKA BANKA d.d.
PRIMORSKA BANKA d.d.
SAMOBORSKA BANKA d.d.
SLATINSKA BANKA d.d.
TEDBANKA d.d.
VABA d.d. BANKA VARADIN
VENETO BANKA d.d.
1.
2.
3.
7.
8.
9.
10.
11.
12.
16.
17.
18.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
B
B
B
B
B
B
M
M
M
M
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
2006
0,50
0,46
0,56
0,49
0,51
0,53
0,65
0,60
0,56
0,57
0,57
0,60
0,45
0,67
0,64
0,60
0,48
0,53
0,56
0,63
0,46
0,64
0,54
0,65
0,46
0,65
0,53
0,70
0,60
0,51
0,63
0,35
0,72
Eciency od 1 HRK income

net interest income
net non-interest income
2007
2008
2006 2007
2008
0,47 0,42
0,65 0,71 0,71
0,34 0,37
0,81 0,81 0,81
0,52 0,51
0,60 0,64 0,63
0,41
0,40
0,62 0,67 0,67
0,48 0,49
0,78 0,76 0,76
0,50
0,50
0,79 0,83 0,84
0,54 0,49
0,15 0,22 0,29
0,55
0,54
0,63 0,70 0,73
0,46 0,45
0,76 0,80 0,83
0,52 0,50
0,83 0,87 0,79
0,52
0,55
0,85 0,79 0,78
0,57 0,51
0,42 0,39 0,42
0,34
0,33
0,56 0,50 0,73
0,66 0,65
0,41 0,79 0,57
0,65
0,59
0,55 0,59 0,60
0,59 0,52
0,67 0,74 0,75
0,45
0,47
0,78 0,79 0,82
0,51 0,54
0,22 0,28 0,42
0,50
0,51
0,62 0,63 0,67
0,63 0,62
0,61 0,75 0,79
0,52 0,54
0,56 0,59 0,63
0,65
0,60
0,45 0,46 0,49
0,50 0,46
0,35 0,45 0,57
0,66
0,60
0,88 0,87 0,86
0,40 0,20
0,62 0,46 0,22
0,60
0,54
0,59 0,60 0,60
0,56 0,52
0,69 0,69 0,69
0,68
0,62
0,35 0,33 0,09
0,64 0,61
0,27 0,16 0,26
0,53
0,52
0,70 0,71 0,72
0,58 0,58
0,75 0,77 0,80
0,44 0,39
0,21 0,76 0,70
0,50 0,38
0,78 0,71 0,72
504
B-Big banks, M-Meddium banks, S-Small banks

Source: Authors calculation based on banks Annualy Report
Based on the calculation of net prot from interest and non-interest income, a
decrease in the net interest income in the analyzed period can be observed for all
bank groups. At the same time net non-interest income increased. (Table 2)
5.1. Types of intermediary banking products and their participation in noninterest income
The representation structure of non-interest income according to the types of

banking products was analyzed in the researched period. (Table 3)
Table 3: The share of intermediary banking products in the Republic of Croatia and their percentage share in
non-interest income according to the groups/types of banks
payment transaction
credit card services
investment management, brokerage and

consultancy fees,
customer loans, guarantees given, customer
services
other fee and commission income
2006
2007
2008
2006
2007
2008
2006
2007
2008
2006
2007
2008
Big banks %
65,03
71,34
72,61
80,89
81,71
80,16
76,60
81,94
80,92
75,49
61,41
61,44
Middle banks %
27,92
25,07
23,81
13,02
13,44
15,52
6,15
5,17
6,02
16,53
26,40
25,78
Small banks %
3,05
3,60
3,59
6,09
4,85
4,32
17,25
12,89
13,06
7,98
12,19
12,78
Total %
100
100
100
100
100
100
100
100
100
100
100
100
505
Graph 1: Percentage share of non-interest income and expenses and net non-interest income per bank groups
100%
80%
60%
40%
20%
0%
2006
2007
2008
Fee and commission

income
2006
2007
2008
Fee and commission

expense
Big banks
Middle banks
2006
2007
2008
Net fee and commission

income
Small Banka
Sources: Authors calculation based on banks Annualy Report
Based on the data from the Table 3 it can be concluded that the largest share in
non-interest income of large banks is the share of card transactions in the period
from 2006 to 2008 (as much as 80.71% in 2007). The most represented group of
income in the group of medium-sized banks are payment transactions, while in
small banks the largest share in non-interest income was represented by loans to
clients, issued guarantees and client services.
5.1.1. Payment transactions
Considering the pronounced representation of payment transaction as non-interest source of income in banks in the Republic of Croatia in the analyzed period,
the value of payment transactions was analyzed as well as their number. (Table 4)
506
Table 4: Payment transactions in mil. HRK

income
1306
528
146
1979
Big banks
Middle banks
Small banks
2006
expense
352
488
93
933
net
954
40
52
1046
income
1418
498
72
1988
2007
expense
314
441
42
796
net
1104
57
30
1192
income
1489
488
74
2051
2008
expense
285
405
39
730
net
1204
83
34
1321
Graph 2: The number of payment transactions in the Republic of Croatia

350.000.000
300.000.000
250.000.000
200.000.000
150.000.000
100.000.000
50.000.000
0
2006
2007
2008
Source: HNB (Croatian National Bank)
An increase in the number of payment transactions can be observed at the annual level in 2007/2006 and 2007/2008. The same trend can be observed in the
net income from payment transactions, and increase of the net income is especially
pronounced in large banks. (Table 4)
5.1.2. Card transactions
Card transactions have a very large share in the Croatian banking system. Therefore all commercial banks oer this banking product. (Table 5)
507
Table 5: Card transactions in mil HRK

2006
income
expense
Big banks
497
274
Middle banks
80
Small banks
2007
net
income
expense
223
596
328
21
59
98
37
30
614
303
312
2008
net
income
expense
net
268
670
359
311
29
70
130
34
95
35
27
36
28
729
365
365
836
401
435
Growth of income from card transactions can be observed in all bank categories
in the analyzed period. The growth of net income of large banks in 2007 in relation
to 2006 by as much as 45 mil. HRK is especially important as well as the growth of
net income in medium-sized banks in 2008 in relation to 2007 by 25 mil. HRK.
(Table 5)
5.1.3. Fees for property management, brokerage and consulting services, fees for
loans to clients, fees for issued guarantees, fees for client services
Fees for property management, brokerage and consulting services, fees for loans
to clients, fees for issued guarantees and fees for client services are analyzed by profusion for the entire banking system of the Republic of Croatia. (Table 6)
Table 6: The amount of fees for property management, brokerage and consulting services, fees for loans to
clients, fees for issued guarantees, fees for client services in mil. HRK
2006
2007
2008
income
expense
net
income
expense
net
income
expense
net
Big banks
484
30
454
884
40
844
774
44
730
Middle banks
39
34
56
50
58
49
Small banks
109
19
90
139
42
97
125
32
93
UKUPNO
631
54
577
1078
88
991
956
84
872
There are no signicant dierences within all three bank categories in net income trends for these banking products.
508
5.1.4. Other fees and commissions
Due to ocial data presentation methodology is was necessary to include all

other types of non-interest income in this category. (Table 7)
Table 7: Trends in other types of non-interest income and fees by bank categories in the Republic of Croatia
expressed in mil. HRK
2006
2007
2008
income
expense
net
income
expense
net
income
expense
net
Big banks
229
84
145
179
93
86
185
104
81
Middle banks
50
27
24
77
26
51
78
24
54
Small banks
24
20
36
10
26
38
11
27
UKUPNO
303
115
188
291
129
163
301
139
162
Continuous growth of other types of net non-interest income in the analyzed period was observed in medium-sized and small banks, while decrease in such income
was observed in large banks.
CONCLUSION
Based on the conducted research of non-interest income management of commercial banks in the Republic of Croatia in the period from 2006 to 2008, the
following can be observed:
- Non-interest income is becoming an increasingly interesting area for commercial banks;
- Non-interest income management is gaining a growing share in business
strategies and policies of Croatian banks in the rst place as a reaction to the
changed market circumstances (nancial crisis);
- Banks perceive specic qualities of such income, for example, non-elastic demand by banks clients for particular types of banking products, weak or zero
reaction to the changed amount of fees for such services because they are relatively small, but frequent; absence of client reaction to relatively large changes
of commissions; therefore such income is becoming increasingly interesting
for banks;
509
- There is no positive correlation between the size of a commercial bank and

the choice of non-interest income for the purpose of achieving better market
positioning.
REFERENCE
1. Kandija, V., ivko, I. (2004): Poslovna politika banaka, Ekonomski fakultet

Rijeka Mostar, Blicdruck, ISBN 953-6148-40-4 Sarajevo,
2. Lamza-Maroni, M., Glava, J., Bonjak, S. (2008) Contribution to the development of the urban management model, Interdisciplinary Management Research,
Osijek, Faculty of Economics in Osijek, Croatia, vol. 4, ISBN 978-953-253044-5, pp 526-542.
3. Lamza-Maroni, Maja, Glava, Jerko, Mavrin, Igor: Potencials of Osijek (2009)
as a centre of Cultural tourism, Interdisciplinary Management Research V;
Osijek, Ekonomski fakultet u Osijeku, ISSN 1847-0408, ISBN 978-953-253061-2, pp 711-721.
4. Mati, B (2009): Financiranje regionalnog razvitka - nacini i modeli, Ekonomski fakultet u Osijeku, ISBN 978-953-253-073-5, Osijek
5. Mati, B, Serdarui, H. (2008): Models of Including Financially Inactive
Population into the Financial System, Interdisciplinary Management Research
IV pp 296-310.
6. Mati, B.; Vretenar, M.(2009): Gospodarstvo i nancijske institucije Brodskoposavske upanije, Ekonomski vjesnik, vol. 2/2009., Ekonomski fakultet u Osijeku, Osijek, 2009.; ISSN 0350-259X, e-ISSN 1847-2206, pp284-294
7. Uputa za primjenu kontnog plana za banke, Narodne novine 115/03., 39/04.,
29/06.
8. Zakon o bankama, Narodne novine, 84/02., 141/06.
9. Zakon o kreditnim institucijama, Narodne novine 117/08., 74/09., 153/09.
10. http://www.hnb.hr (09.03.2010.)
510
SOVEREIGN WEALTH FUNDS THE ACTIVITY AND ITS

CONSEQUENCES FOR THE GLOBAL ECONOMY
Izabela Pruchnicka-Grabias1, Ph.D.
1
Warsaw School of Economics, Poland
ABSTRACT
The paper aims at discussing the idea of Sovereign Wealth Funds, the range of
their activity, as well as its consequences for the global nancial stability. The author
shows that these funds invest in dierent sectors of the economy and their assets,
according to the predictions, are still supposed to grow in the future. Therefore, the
role of SWFs in the economy is and will be more and more important. If one additionally takes into consideration that they inuence the nancial stability both in
a positive and in a negative way and that there are not unied standards on investment strategies, governance of these institutions as well as transparency issues, it
raises the need to control them globally and to create suitable law regulations.
JEL classication: E01, N3
Keywords: Sovereign Wealth Funds, nancial stability, investments
INTRODUCTION
The purpose of the paper is to pay attention to Sovereign Wealth Funds whose
assets under management are big enough to threaten the stability of global nancial markets. The author argues that these funds invest in dierent sectors of the
economy and their assets, according to the predictions, are still supposed to grow
in the future. Therefore their role in the economy is and will be more and more
important. It suggests that these institutions should be controlled globally.
1. THE IDEA AND THE SIZE OF SOVEREIGN WEALTH FUNDS
There is no generally accepted denition of Sovereign Wealth Funds. For example the US Treasury has dened them as government investment vehicles funded
by foreign exchange assets, and managed separately from ocial reserves (Kimmitt,
SOVEREIGN WEALTH FUNDS THE ACTIVITY AND ITS CONSEQUENCES FOR THE ...
511
2008: 62-71). International Monetary Fund treats sovereign wealth funds as special investment funds created or owned by governments to hold foreign assets for
long term purposes. It also divides them into two groups: the sources of sovereign
wealth, and their policy objectives (Global Financial Stability Report, 2007: 45).
European Central Bank denes sovereign wealth funds as public investment agencies which manage part of the (foreign) assets of national states and gives the following specic features of SWFs (Beck & Fidora, 2008: 6):
are state owned,
have no or very limited explicit liabilities,
are managed separately from ocial,
foreign exchange reserves.
At the end of 2008 Deutsche Bank reported that Sovereign Wealth Funds
assets under management are equal to 3,6 trillion1 dollars and predicted their
further growth of 15% per year, which according to Deutsche Bank will bring the
industry to 5 trillion dollars in 2010 and 10 trillion dollars by 2015 (Kern, 2008:
63). These data are impressing and at the same time, one should be aware that the
funds in question should be taken under scrutiny in order to prevent their owners
from using them as the economic or political force against other countries and their
institutions lacking liquidity during a nancial crisis.
At present there are about 40 Sovereign Wealth Funds, half of which have been
established since 2000. Their assets under management are equal to 2 3 trillion
dollars (McCormick, 2008). The International Monetary Fund instead predicts
that assets under management of Sovereign Wealth Funds will reach 12 trillion
dollars by 2012, which is an even bigger amount (Global Financial Stability Report, 2007: 45). According to Miles and Jen (2007), by 2022 SWFs will reach almost 9% of global assets. By contrast, the total value of foreign reserves is currently
5.1 trillion dollars (Gomes, 2008: 4).
Unfortunately, there is no one reliable source of data on Sovereign Wealth
Funds. Dierent sources give various numbers concerning assets managed by these
subjects as well as investments conducted by them. However, there has been some
research on Sovereign Wealth Funds that helps to understand the core of their
activity. For instance, Bernstein, Lerner and Schoar (2009) identied 2662 investments between 1984 and 2007 by SWFs, including acquisitions, venture capital
1
Twelve zeros. Please note that some countries call it a billion.
512
and private equity investments, as well as structured minority purchases in public

entities. They examined the propensity of funds to invest domestically, the equity
price levels at the time of their investments, the changes in equity prices after their
investments, and the size of the acquired stakes and found several interesting patterns in the data (Bernstein et al., 2009: 3-4):
SWFs are more likely to invest at home when domestic equity prices are higher, and more likely to invest abroad when foreign prices are higher.
On average, funds invest at signicantly lower price-earnings (P/E) ratios
when investing at home and higher P/E levels outside. This result is mainly
driven by Asian and Mid- Eastern funds, while the opposite holds for Western
funds.
Asian groups and, to a somewhat lesser extent, Middle Eastern SWFs, see
the industry P/E ratios of their home investments drop in the year after the
investment, while they see a positive change in the year after their investments
abroad.
SWFs where politicians are involved in governance have a much greater likelihood of investing at home, while those relying upon external managers display
a lower likelihood.
Once we control for the diering propensity to invest domestically, SWFs with
external managers tend to invest in lower P/E industries, while those with politicians involved in the governance process invest in higher P/E industries.
Investments by SWFs with the involvement of external managers tend to be
associated a more positive change in industry P/E in the year after the deal,
while for funds where politicians are involved, the trend goes the other way
round.
Moreover, according to Miracky and Bortolotti (2008: 54) Sovereign Wealth
Funds have invested more new capital into the worlds nancial institutions recently than any other single entity except the United States government. It means
that their role in the global economy is signicant and can not be ignored.
Table 1 depicts 10 Sovereign Wealth Funds that have the highest amount of
assets under management. The biggest fund is Abu Dhabi Investment Authority
with assets of 875 billion dollars, the second big is Government of Singapore Investment Co. possessing assets equal to 330 billion dollars, whereas the third big is
Government Pension Fund of Norway having assets of 300 billion dollars. As far
513
as the transparency of the funds is concerned, data presented in table 2 show that
most of them has medium or low transparency. It puts the global economy under
the risk that these funds will put the global nancial stability in danger. Besides, the
autonomy of SWFs is low or medium, which means that they have been created to
serve the country which is its owner.
Table 1 Top 10 Sovereign Wealth Funds by assets under management

Transparency
Autonomy
Abu Dhabi Investment Authority
Assets under management

(bn USD)
875
Low
Medium
Government of Singapore Investment Co.
330
Medium
Medium
Government Pension Fund of Norway
300
High
Medium
Kuwait Investment Authority
250
Low
Low
China Investment Corporation
200
Low
Low
Temasek Holdings
159
High
High
Qatar Investment Authority
50
Low
Low
Alaska Permanent Fund
40
Medium
Medium
Australian Government Future Fund
40
Medium
Medium
Libyan Investment Authority
40
Low
Low
Sovereign Wealth Funds
Source: Langford, Garcia & Lerman (2008: 2)
Whats interesting, according to E. Truman, the list of the leading sovereign

funds is a little bit dierent than the one presented above (see table 2). These dierences show that the world of Sovereign Wealth Funds is not transparent. However,
it can also be interpreted that the periods taken into consideration when preparing
a list were dierent as one source comes from 2008 and another one from 2007.
Anyway, if we take into consideration that one list gives the value of assets as one
quantity and another gives the range of values for some funds, it proves of the fact
that the market of Sovereign Wealth Funds is not a transparent one and there is no
unied accounting and documentation. It is necessary that one creates the international law (including accounting standards) on the activity of Sovereign Wealth
Funds.
514
Table 2 Leading Sovereign Wealth Funds.

Country
United Arab Emirates
Funds
Abu Dhabi Investment Authority (ADIA)
Size ($ Billion)
500 - 875
Year Created
1976
Singapore
Government of Singapore Investment Corporation (GIC)
100 - 330
1981
Norway
Government Pension Fund Global (GPFG)
308
1990
China
China Investment Corporation, Ltd. (CIC)
200
2007
Kuwait
Future Generations Fund
174
1976
Russia
Stabilization Fund for the Russian Federation
122
2004
Singapore
Temasek Holdings
108
1974
Source: Truman (2007: 1)
2. SECTORAL INVESTMENT STRUCTURE
SWFs invest in dierent sectors of the economy. Their owners aim is to preserve
the capital or to generate positive rates of return. Institutions that use them most
of all need them to provide additional liquidity in the times of nancial distress.
As data depicted in chart 1 show, the sector where the highest amount and value of
investments are made is the nancial sector where 96,2 billion dollars were invested
in 2008 (for examples see also table 3). The second best was the real estate sector
with the value of 10,3 billion dollars invested in it (for some examples see table 4 as
well), whereas the third best was the energy and utilities sector with the investment
value equal to 9,6 billion dollars.
Chart 1. Value and number of SWF Investments by Target Sector in 2008
Source: Miracky & Bortolotti (2009: 13, 17)
515
Calculations made by the author using data depicted in chart 1 show that the
biggest transactions are conducted in the nancial sector where the average transaction value is 3,43 billion dollars. The second sector as far as the value of transactions
is concerned is the industrial one where the average value of the transaction is equal
to 1,75 billion dollars. The third is energy and utilities with the average transaction
value of 0,53 billion dollars. The fourth sector is real estate (0,43 billion dollars)
whereas the last place belongs to other, not specied sector (0,21 billion dollars).
Table 3. Examples of SWFs investments in nancial institutions in 2008.

Date announced
Stycze 2008
Stycze 2008
Grudzie 2008
Grudzie 2008
Grudzie 2008
Listopad 2008
Wrzesie 2008
SWF
Korean Investment
Korean Investment
Temasek Holdings
China Investment Corp.
Government of Singapore
Abu Dhabi (ADIA)
Mubadala (UAE)
Target
Citigroup
Merril Lynch
Merril Lynch
Morgan Stanley
UBS
Citigroup
Carlyle Group
Target
country
USA
USA
USA
USA
Szwajcaria
USA
USA
Amount invested
(mil dollars)
3000
2400
4400
5000
9750
7600
1350
Source: based on Langford, Garcia & Lerman (2008: 3)
As it was emphasized above, real estate is the second major part of Sovereign
Wealth Funds portfolios. Both in the case of the nancial and the real estate sector
they mainly invest in the USA (see table 3 and 4 again). One of the reasons according to the author is probably a well-developed, liquid and competitive nancial
market.
516
Table 4 Examples of SWF Investments in Real Estate in 2008.

Sovereign Wealth Funds
Target
Country
Investment
($ Value USD mil
or % Stake)
Type
Date
September
2008
August
Hotel
2008
August
Oce
2008
August
Oce
2008
August
Oce
2008
June
Apartament
2008
June
Oce
2008
Mubadala Development
Kor Hotel Group
USA
50%
Hotel
Dubai World
MGM Mirage
USA
20%
Kuwait Investment Authority,

JV with Boston Properties
Kuwait Investment Authority,
Kuwai Investment Authority,
Dubai Investment Group,
JV Kennedy-Wilson
125 West 55th St.,

N.Y.
2 Grand Central
Tower, N.Y.
540 Madison
Avenue, N.Y.
USA
444%
USA
427,9%
USA
277,1%
Avalon Bay
USA
81,2%
Abu Dhabi Investment Authority
Chrysler Building
USA
800%
Boston Property, Meraas Capital,

Kuwait Inv. Authority and Qatar
Inv. Authority, Goldman Sachs
NY General Motors
Building
USA
2800%
Oce
Nakheel Co PJSC (Dubai)
Fountainbleau
Resorts
USA
375%
Hotel
Mubadala Development
John Buck Co.
USA
24,9%
Real Estate
Kuwait Investment Authority
Willis Building
UK
582%
Oce
Dubai World
MGM Mirage
Inc./ City Center
Holdings
USA
2700%
Hotel
June
2008
April
2008
March
2008
March
2008
February
2008
Source: Langford, Garcia & Lerman (2008: 4)
It is worth emphasizing that Sovereign Wealth Funds invest not only in unpublic undertakings, but also in public companies. If one analyses the largest SWFs investments in listed stocks (see table 5), it can be concluded that one fund only (Abu
Dhabi Investment Authority) managed to generate a positive rate of return in the
examined period which was from the inception of the investment to 27.03.2009.
If one also takes into consideration that generated losses were extremely large (start-
517
ing from about 49% ending with more than 90% of capital invested), in general
these largest investments must be assessed as unsuccessful.
Table 5 Details of the largest SWF investments in listed stocks.

Acquiror name
Government of
Singapore Investment
Corporation (GIC)
Government of
Corporation (GIC)
Abu Dhabi Investment
Authority
Government of
Corporation (GIC)
Abu Dhabi Investment
Authority (ADIA)
China Investment
Corporation
Target
name
Investment
date
Value of
investment
(mil USD)
Value
27/03/2009
(mil USD)
Holding period return.

Inception to
27/03/2009
Gain or
loss (mil
USD)
UBS
8/2/2008
14400,00
4339,16
-69,87%
-10060,84
UBS
10/12/2007
9760,42
2121,06
-78,27%
-7639,36
Citigroup
Inc.
27/11/2007
7500,00
684,87
-90,87%
-6815,13
Citigroup
Inc
15/1/2008
6880,00
2370,00
-65,55%
-4510,00
7/9/2007
5000,00
5371,40
7,43%
371,40
19/12/2007
5000,00
2545,13
-49,10%
-2454,87
PrimeWest
Energy Trust
of Canada
Morgan
Stanley
Source: Miracky & Bortolotti (2008: 57)
3. THE IMPACT OF SOVEREIGN WEALTH FUNDS ON THE GLOBAL FINANCIAL

MARKETS
One of the biggest advantages of SWFs is that they are a source of liquidity
which makes the market more stable. In the times of unstable economic situation
they can help institutions sustain their activity or even survive. From the point of
view of the whole economy they oer possibilities of risk sharing in the market.
By providing the economy with nancial means when certain participants of the
economic process need it, they contribute to managing capital in the macro sphere.
Apart from positive eects on the economy, the literature presents many concerns
regarding the Sovereign Wealth Funds. Thanks to mainly long term investment
policy, they stabilize the market and prevent it from structural imbalances. Besides,
whats important, their investment strategies are not as risky as those of hedge funds
518
because they do not use as much leverage as the latter do. It cannot be denied that
injections of capital made by SWFs during the last nancial crisis have proved that
they are a signicant tool in ghting against nancial destabilization.
Moving on to drawbacks, the most important of them is the lack of transparency (some examples have already been discussed in the earlier paragraphs), which
means that they cannot be fully controlled globally and what results from it, they
might be used as a tool of political or economic dominance. For more eects of
SWFs on international nancial stability see table 6.
Table 6 Potential stabilizing and destabilizing eects on international nancial stability

Potential stabilizing eects
Potential destabilizing eects
Macroeconomic management of capital ows
Potential to trigger herding behavior
Portfolio diversication and risk sharing
Lack of transparency may cause short-term volatility
Address long-term structural issues
Risk of nancial protectionism due to non-commercial investment motivations
Provision of liquidity
Long-term investment strategy
Monitoring and agency problems
Gradual unwinding of global imbalances
Disorderly unwinding of global imbalances
Source: Gomes (2008: 2)
As far as the destabilizing eect of Sovereign Wealth Funds on nancial markets

is concerned, T. Sun and H. Hesse have examined nancial stability issues that
arise from the increased presence of Sovereign Wealth Funds in global nancial
markets by assessing whether and how stock markets react to the announcements
of investments and divestments to rms by SWFs using a case study approach. On
the basis of 166 publicly traceable events collected on investments and divestments
by major SWFs during the period from 1990 to 2009, the paper evaluates the
short-term nancial impact of SWFs on selected public equity markets in which
they invest. The impact is analyzed on dierent sectors (nancial and nonnancial),
actions (buy and sell), market types (developed and emerging markets), and level
of corporate governance (high and low score). Results, based on these 166 events,
show that there was no signicant destabilizing eect of SWFs on equity markets
(Sun & Hesse, 2009: 1-17).
Another concern relates to the question of whether such funds might distort
asset prices through non-commercially motivated purchases or sales of securities
519
(Beck & Fidora, 2008: 7). The greater transparency of these institutions would
surely help to limit those threats.
Another research that is worth paying attention to is the one done by J. Kotler
and L. Ugur. Thus, after having analyzed 163 sovereign wealth funds investment
announcements between 1982 - 2008, they concluded that the market reactions
were positive (Kotter & Ugur, 2008). Similar ndings can be found in Dewenter,
Han and Malatesta who on the basis of 196 acquisitions and 47 divestitures proved
that there were positive market reactions to acquisitions and negative reactions to
divestitures (Dewenter, Han & Malatesta, 2009).
Another concern is connected with investment strategies of Sovereign Wealth
Funds. As European Central Bank emphasizes, Sovereign Wealth Funds have been
investing governments foreign assets for decades. However, it is only in recent
times that such funds have emerged as managers of large excess reserves and other
foreign assets. A transfer of sizeable amounts of traditional foreign exchange reserves to these investment vehicles may have an impact on the global nancial
landscape since such funds are likely to pursue an investment strategy that diers
considerably from that of central banks (Beck & Fidora, 2008: 24).
The above mentioned research and data prove that Sovereign Wealth Funds
inuence the economy in various ways and suggests that they must be taken under
scrutiny. It is more and more often stressed that some steps must be taken to put
them under control. According to E. Truman, the international standard on government cross-border investments by Sovereign Wealth Funds and other entities
should cover at least the following four topics (Truman, 2007: 7-8):
Objectives and Investment Strategy. The standard should establish the presumption that the international investment activities of governments are based on
clearly stated policy objectives, including how the funds are incorporated into
the investment mechanism (or entity), how earnings and/or principal should
be spent or redeployed, what types of assets are included in portfolios, how the
assets should be managed, where the responsibilities for their management lie,
what investment and risk-management strategies should be followed, and how
these elements can be changed. At the same time, it makes no economic or
political sense to think that an investment strategy should be etched in stone
although principles of sound public policy suggest that it should not be modied frequently or capriciously.
520
Governance. The standard should set out clearly the role of the government
and the managers of the investment mechanism, what entity sets the policies,
how those policies are executed, and the accountability arrangements. To the
extent that the international investment mechanism is making anything other
than passive investments in nancial assets (deposits, notes, bonds, and nonvoting shares), guidelines for corporate governance should be enunciated and
followed. Responsibility for ensuring compliance with those guidelines should
be clearly established. In some countries, there may also be a desire to have
guidelines or a process to deal with ethical issues, for example, types of activities or circumstances in which investments should not be made, as has been
done for Norways Government Pension FundGlobal.
Transparency. The operations of the investment mechanisms should be as
transparent as possible. Transparency promotes horizontal accountability
among the interested parties and stakeholders (domestic and international) as
well as vertical accountability within the policy process. In practice, transparency should involve at least annual reports and preferably quarterly reports.
It would be desirable to have substantial quantitative disclosure about investment strategies, outcomes, and the nature and location of actual investments.
It would also be desirable to subject the activities of investment mechanisms
to published, independent audits.
Behavior. Depending on the type of mechanism, its size, and the scope of its
activities, it would be desirable to establish behavioral guidelines with respect
to its management. For example, the behavioral guidelines might cover the
scale and rapidity with which the entity adjusts its portfolio. They might also
create the presumption of consultation with the relevant countries with respect to the allocation among assets denominated in dierent currencies or
located in dierent countries.
The above mentioned steps would help to limit threats against nancial destabilization and allow to control the activity of these subjects on a wider scale. They
could be treated as money reserves both for governments and other institutions
which need to take advantage of such exceptional nancial means in a certain unpredictable situation that may take place on the nancial market.
521
CONCLUSION
To sum up, there is no one opinion in the literature concerning advantages

and disadvantages of Sovereign Wealth Funds to the global economy. The only
undesputable fact is that their investments are present in dierent sectors of the
economy and their role is signicant.
If one additionally takes into consideration that they can be a money lender of
the last resort during the nancial market turbulences leading to the lack of liquidity in the market, it can be concluded that it is worth developing and preserving
this kind of subjects despite of many threats to the economy and nancial system
itself. However, this process should be followed by the development of suitable regulations, which will result in a better control of Sovereign Wealth Funds activity.
Greater transparency of these subjects is what action taken by governments should
aim at. It would not only contribute to nancial stability but also lower chances of
using them as a tool in a political or economic battle.
REFERENCES
1. Beck R., M. Fidora, (2008) The Impact of Sovereign Wealth Funds on Global
Financial Markets, Occasional Paper Series no. 91, European Central Bank.
2. Bernstein S., J. Lerner, A. Schoar, (2009) The Investment Strategies of Sovereign
Wealth Funds, Harvard Business School, Working Paper 09-112
3. Dewenter K.L., Xi Han, P. H. Malatesta, (2009) Firm Value and Sovereign
Wealth Fund Investments, University of Washington Working Paper
4. Global Financial Stability Report, (2007) Financial Market Turbulence: Causes,
Consequences, and Policies, World Economic and Financial Surveys, International Monetary Fund, Washington DC,
5. Gomes T., (2008) The Impact of Sovereign Wealth Funds on International Financial Stability, Discussion Paper 2008-14, Bank of Canada
6. Kern S., (2008)SWFs and foreign investment policies an update, Deutsche
Bank Research
7. Kimmitt R.M., (2008) In Praise of Foreign Investment. Best practices of the
sovereign wealth funds, International Economy
522
8. Kotter J., L. Ugur, (2008) Friends or Foes? The Stock Price Impact of Sovereign Wealth Fund investments and the Price of Keeping Secrets, Federal Reserve
Board Working Paper
9. Langford G., Garcia D., Lerman A., (2008) Sovereign Wealth Funds: Real Estate
Partners in Growth,
10. Martin M.F., (2008) Chinas Sovereign Wealth Fund, CRS Report for Congress, Prepared for Members and Committees of Congress, Congressional Research Service
11. McCormick D.H., (2008) Testimony before the Joint Economic Committee.,
U.S. Department of the Treasury, 2008, Available at http://www.treas.gov/
press/releases/hp823.htm.
12. Miles D., S. Jen, (2007) Sovereign Wealth Funds and Bond and Equity Prices,
Morgan Stanley Research
13. Miracky W., B. Bortolotti, (2009) Weathering the Storm. Sovereign Wealth
Funds in the Global Economic Crisis of 2008, Monitor Group
14. Sun T. and H. Hesse, (2009) Sovereign Wealth Funds and Financial StabilityAn Event Study Analysis, IMF Working Paper, WP/ 09/239, International
Monetary Fund
15. Truman E., (2007) Sovereign Wealth Funds: The Need for Greater Transparency and Accountabilty, Peterson Institute for International Economics
ACTUARIAL ESTIMATION OF TECHNICAL PROVISIONS ADEQUACY IN LIFE INSURANCE...
523
ACTUARIAL ESTIMATION OF TECHNICAL PROVISIONS

ADEQUACY IN LIFE INSURANCE COMPANIES
Jasmina Selimovi, MSc
School of Economics and Business in Sarajevo, Bosnia and Herzegovina
ABSTRACT:
When considering company doing business quality it is necessary to evaluate the

amount of money that company can operate with. Insurance companies, regarding to all specics of their business, have to evaluate all technical provisions of the
company. Technical provisions, as part of the liabilities in insurers balance sheet,
are basic measure of business operations quality and safety (i.e. they are the basic
guarantee that all obligations to customers will be settled). Technical reserves are
dierent in dealing with the life insurance business and non-life insurance business.
This paper will treat only the means of technical provisions of life insurance. Technical provisions and their requested amount can be determined theoretically by
whole range of actuarial methods, but in practice only few of them are identied as
the most reliable, and those calculation principles are part of regulation institutions
directives. Mentioned directives are dierent from one country to another, but in
this paper special retrospective is given to European Union with appropriate comparisons with other relevant examples. In assessing the quality of insurance business, other that technical provisions level, it is important to estimate the insurers
solvency margin. Solvency margin primary mission is to ensure sucient amount
of funds so that all insurers obligations can be reconciled properly. Solvency margin is the ratio between available and required amount of insurance funds. The
amount of required funds is quantied measure of risk of all insurance contracts
that are active if insurance company portfolio. If technical provision funds are being estimated by reliable actuarial methods, than it is prerequisite that the solvency
margin will be determined properly. Appropriate solvency margin is an indicator of
safety and good business operations of insurer.
JEL classication: G22
Keywords: Life insurance, technical provisions, solvency margin, mathematical
provision, premium
524
Jasmina Selimovi
INTRODUCTION
Insurance is one of the oldest activities in which people were engaged from
the creation of civilization. Of human origin, evident are risks that people, their
health, life or property were exposed. When human society has reached the intellectual level at which they recognize, not only natural, but also the nancial aspects
of protection against risks, they developed the rst forms of business insurance.
In the broadest context, insurance is dened as a form of individual risk management. This claim is justied by the denition of insurance as well. By denition
insurance is the method of risk transfer from the insured to the insurer. Premiums,
paid by the insured, are the prices of risk dened by the insurer. Insurer assumes
the risk that should be the future, an event that is uncertain and independent of the
will of the insured or insurer.
Given the primary determinants of insurance, primary insurance division, according to the criteria of the insured risk, is in the life and general insurance. Classical studies have argued that the life insurance provides only one risk, the risk of
death. If the insured risk is set in the context of (un)certainty, it is obvious that this
was uninsurable risk (the classic statements provide only uncertain, future risks).
The risk of death is sure and certain risk (probability is 1). Uncertainty is at the time
of onset of risk. In this segment there is a space for life insurance. Thus, life insurance ensures the risk of death, precisely the moment of its realization.
Life Insurance distinguishes two types of insurance: insurance annuities (recurring payments) and insurance of one-o payment. By insuring one-o payment,
the risk of death that is being insured can be viewed as a simplied risk of premature death. If the insureds death appears early, it is unlikely that the amount of
premium that is paid is enough to pay all obligations of the insurance company. On
the other hand, by insurance annuities, the insurance risk of death is reduced to a
potentially insureds life is too long. In this case paid premiums are not sucient
to pay the contractual liabilities of insurer. In order to insurance companies could
pay the insured all anticipated contract amounts of assets, it is necessary to form the
provision. Depending on where exactly the type of life insurance is being thought,
dier and reserves.
TECHNICAL PROVISIONS OF INSURANCE COMPANIES
Technical reserves of insurance companies represent the amount of money that

will be a guarantee that all obligations of insurers will be reconciled. Determining
525
the level of technical provisions is very complex job that entrusts the actuaries in
insurance companies. Actuaries are generally responsible for assessing the level of
risk in insurance companies.
Technical provisions are formed from the payment of premium of the insured.
Premiums paid by the insured are calculated to provide risk insurance coverage. Of
each premium paid, insurer is mandatory that part of the money set aside as funds
of the technical provisions. Formation of technical provisions fund und is required
in most national economies, and is dened by legislation. In the countries of the
European Union the means of technical provisions, their composition and treatment are dened by EU directives.
Technical provisions vary depending on the type of insurance. Here you will be
given an explanation for the technical provisions of life insurance. Dierentiation
of reserves is a consequence of the dierent maturity of the contracts in mentioned
types of insurance. Life insurance is a type of insurance that is long-term, and also
reserves that are formed for this business are long-term reserves. Life insurance
technical provisions primarily include mathematical provision of life insurance
(whose integral part is provision for unearned premiums which, if necessary, can
be expressed separately). Also, the life insurance provisions include provisions for
bonuses and discounts in the contract.
Provisions for unearned premiums is formed as the amount of premiums charged
that part which relates to insurance coverage for the period of insurance after the
accounting period for which is the provision calculated. This provision is calculated
by suciently cautious actuarial methods. Legal regulation of the EU does not require separate calculations and display of provisions for unearned premiums.
MATHEMATICAL PROVISION
Mathematical provision is the most important part of technical provisions of

insurance companies engaged in business of life insurance, as well as for companies
whose insurance businesses have savings component.
To understand the essence of the need and importance of the formation of
technical provisions, it is necessary to explain the meaning and the emergence of
mathematical provision. Premiums paid by the insured in insurance reect the
level of risk. If you are considering life insurance premium, then it is regarded as
a reection of the high risk of death that insured are exposed. Risk assessment is
526
Jasmina Selimovi
done on the basis of mortality tables and interest rates provided. According to the
above-mentioned denition of the premium, it was quite logical that over the years
higher premium should be paid. Biological aging body conditions increase the risk
of mortality of the people and in accordance the amounts of pure premiums we pay
should increase with age, which still means that in the last year the highest insurance premiums should be paid. It is known that the intensity of work processes in
the life expectancy decreases with age. In this context reduces the amount of money
at the disposal. Given the nature of cash ows in every human life, the practice of
insurance realized that insurance premiums that at all times properly reect the
level of risk of death where a person is exposed to (natural premium) is neither
practical nor acceptable. It was concluded with the traditional mindset that is most
acceptable to each person paying the same premium over the validity of insurance
contracts. This premium is called the average premium and it is calculated as the
average value of pure natural premium. It is easy to conclude that at the in the
rst years of the obligation the average premium is always higher than the natural
premiums as at the beginning of the obligation the exposure to risk of death is the
smallest (the person is the youngest). After that, the natural premium increases
with the increasing age of insured and slowly approaching the value of the average
premium. In those years, amount of funds is formed by the insured paid premium,
but that fund is currently completely not used to cover the risk. Such is forming
the fund reserves, which are called mathematical provisions. In a period of time
natural premium was increasing so that becomes equal to the average premium,
and after that it becomes even higher. In the second half of the obligation average
premium paid by the insured is often insucient to cover all risk which the insured
is exposed, but for these purposes then is used the funds accumulated in previous
years - means the mathematical provisions.
Thus, out of the total amount of the premiums established insurance company
one part will always be used to cover the risk of death, and the other part, which is
not required to cover the risk, will not be used. The rst part of the premiums used
to cover the risks in this years risk premium while the second part of the premium
is savings. Risk premium increases with age, which is understandable because it
increases the likelihood of death, but will never be as high as natural due to premiums and savings components. The insurance company collects a premium from the
rst year when the contract was concluded, and so form a reserve. So the insurance
company bears the risk of only one part of the sum insured for the remaining part
of the premium collected is no longer at risk. According to the standard denition
527
of the mathematical provision it is the dierence between the present value of all
future obligations of insurance contracts by the assurance of life and the present
value of future policyholder obligations on these contracts1. This denition is based
on the concept of time and is called a prospective denition of the mathematical
provision. Except in this way, the mathematical provision can be dened as the difference between payment of insured and payments of insurer under the assumption
that all payments due is paid in the accounting year and that all payments are made
as to the tables provided2. This denition has an accounting character a name and
a retrospective denition. Another denition of the mathematical provisions said
that provision is to be the sum of the actual, savings premiums with interest rate3.
Each of these denitions may indicate the use of certain methods for the calculation of provisions. Mathematical provisions can be calculated when necessary, and
theoretically it is possible to determine the value of mathematical provision on any
day during the business year.
With regard to determining the value of time during one year term insurance
mathematical provisions can be divided into: the nal, initial or average4. The nal mathematical provision is a reserve at the end of the year during the period of
insurance. Starting or initial mathematical provision is a reserve at the beginning
of the year. Starting backup is obtained as the sum of the nal reserve at the end
of the previous year and annual insurance premiums for the current year. Average
provisions are nite and the average value of initial reserves.
When calculating the mathematical provisions, it is important to note that the
reserve is calculated for each contract concluded separately.
The theory of insurance and actuarial science identies a range of net and
gross, of individual and group methods of calculating mathematical provisions
while the practice and profession adopted the use of only some of which is veried
legislation.
Bylaw on technical provisions, Ocial Gazette of FBiH, number 80/06

Veselinovi V.: Osnovi osiguranja na ivot, kombinatorike i rauna verovatnoe, Prosveta, Belgrade,
1946. p. 94.
3
ain .: Optimizacija i upravljanje premijskom rezervom ivotnog osiguranja, PhD thesis, Ekonomski fakultet u Sarajevu, Sarajevo, 2003. p. 174.
4
urak M., Jakovevi D.: Osiguranje i rizici, RRiF, Zagreb, 2007., p. 266.
2
528
Jasmina Selimovi
Methods of calculating mathematical provisions are based on the principles of

net retrospective and prospective methods. Net based method for calculating take
the net premium (i.e., based solely on data from mortality tables and interest rate).
Another type of method takes into account costs of insurance and thus the basis
for the calculation of gross premiums. Methods based on the principles of the gross
premium are reserve premium method (Zillmer method5) and methods sucient
premium. Of course it is possible to use dierent methods with dierent computational bases of which the most popular Dawsons selection and ultimate methods.
The second division of the mathematical provisions calculation method is on
individual and group ones. Within individual methods is possible to dierentiate retrospective, prospective, accounting or recursive methods. Group methods
of calculation are divided into methods that give an identical result to that which
is obtained using individual methods and the methods by which to obtain the approximate result is compared to that which is obtained using individual methods6.
Retrospective method of calculating mathematical reserves by one insurance
contract is dened as the dierence between the payments made by the insured
) and all payments made by the insurer until then (
). It
until then (
is important to say that both values should be reduced to a moment in time where
the search value of mathematical provision. Can be written that
where expression clearly shows that it is a back view7. So, for
the calculation of mathematical provisions data from the previous period (payment
of the insured and insurer payment) are used. With the retrospective method of
determining the mathematical provision it is necessary to take into account the
time period for which the calculation is done, the premium payment period and
sum insured payment period. With this method of calculation for certain insurance
models can be derived certain rules (the case with the insurance model based on a
single payment of premiums).
Prospective method of calculating mathematical provisions by one insurance
contract is dened as the dierence between all future payments insurance (
) and all future payments the policyholder (
) are reduced to a time when
the mathematical provision is calculated. Can be written that
5
6
7
Mathematical provision calculating method is named by German actuary Zillmer (1831.-1893.)

Ralevi R.: Finansijska i aktuarska matematika, Savremena administracija, Belgrade, 1975. p. 233.
ain .: Ibidem, p. 175.
529
where expression clearly shows that it is a pre-view 8. Calculation of reserves by this method is exclusively based on data from future time period (payment of insurance and payment of the insured). As with the retrospective
method of determining the mathematical provisions, and here is necessary to look
at the time the term for which the calculation is done, the premium payment period and the period of payment of insured amount.
If the same contract shall calculate the mathematical provision at the same time
by these two methods results should be identical.
Accounting or recursive method based on calculating the mathematical provisions in the observed time based on data from the previous year. By this method
a mathematical provisions at the end of the business year is calculated as the sum
of the mathematical provisions of the previous year and all additional premium
charged together discounted by interest rate that is used with data from mortality
tables. From this sum subtract all payments to insured. This method of calculating
mathematical provision is used primarily by insurance where the premium variable
and in situations when the reserve is calculated in advance for the entire duration
of insurance.
Group methods of calculating mathematical provisions are used for the calculation of the premium reserve for a certain group life insurance. Modern business
practices and ways of life imposed by the need for all perform certain tasks faster.
In this sense, the individual methods of calculating mathematical provisions are no
longer acceptable without the support of modern information technology. Group
methods save time by obtaining acceptable results. As already mentioned group
methods can be split into two groups: methods which give identical result to that
which is obtained using individual methods and those that provide approximate
results.
The rst group of methods with an identical score includes Karups method, Altenburgers method (a method of extra numbers), Whitings methods and Fourets
method.
Karups method is based on the principle that the group denes the calculation
of mathematical provision so as not to deviate from the individual calculations.
Therefore, all forms that can be used for individual calculation of mathematical
8
Ibidem, p. 178.
530
Jasmina Selimovi
provision may be by the Karup method used as well with certain adjustments. This
method of calculation is very acceptable and satisfactory accurate and is one of the
most commonly applied group methods for calculating mathematical provision.
Altenburgers method (a method of extra numbers or methods Zillmers extra
numbers) requires that the general forms for the calculation of provisions modify
the way that all elements in these forms, for which is possible, be reduced the age of
insured at the time mathematical provision is calculated. All other parameters are
displayed through the commutative numbers that remain constant for the entire
duration of insurance (this may be a form of insurance, duration of obligation,
duration of payment of premiums ...). Commutative numbers used in this method
are reduced to the age of insured at the expiration of insurance.
Whitings method is very similar to the previous. It is important to mention that
the method gives accurate results as well as individual methods of a commutative
numbers that are used to reduce access to age of insured.
Fourets method (Recurrent method) resembles the accounting method of calculation because the calculation here is based on data from the previous period. Reserves from the previous period are added to the premium paid and the discounted
amount all payments to insured should be deducted. In this method it is necessary
to adopt some of the assumptions such as all the insured are born 01. January when
the start of all contract is, all insurance premiums are annual, age of insured is expresses as whole numbers, payments are made at the end of the year9. Application
of this method also gives satisfactory results but it is important to check some of the
individual methods of calculating mathematical provisions.
Legislation of EU countries and most countries are on track to become EU
members are determined that the mathematical provision is calculated by net prospective method as the dierence between the present value of all future obligations
under insurance contracts dened conditions and the insurance contract, including
contractual amounts and shares in get to the policyholder, either individually or
collectively, have the right regardless of whether the guarantee on the amount of
bonus, and the present value of future net premium payments.
It is envisioned that the calculation of mathematical provisions can often use
other types of actuarial calculations, but only under the condition that they give
the same or greater as a result of individual and the calculation of net prospective
9
Ibidem, p. 185.
531
method. In the calculations it is possible to obtain a negative value of mathematical

provision as in cases where the provisions of the contract pays a premium which is
less than the risk premium, the premium which is not accurate enough to cover the
amount of risk (such as insurance where the risk of infants death in the rst year of
extremely high, therefore a high risk premium, the average premium to be paid is
not sucient to cover the risk). In some legislation this value is taken as negative in
further calculations and somewhere to set the value of zero (0). Such mathematical provision means a loss for insurance because the premium does not cover the
entire risk of the insured and required its own resources to bear uncovered part of
the risk.
Taking into account the fact that the determination of the amount of technical
provision of life insurance is actuarial valuation, it should be noted that, except for
selected calculation techniques, very important elements that are used in calculating are tables of mortality and interest rates. Selection of tables for the calculation
of net premiums and mathematical provisions must take into account the relevant
trends in the experience of companies and insurance industry as a whole, the expected trends in the insurance policy and other changes that could signicantly affect the results. The interest rate used should be reasonably chosen to satisfy certain
conditions which are commonly referred to in sub-act country. The rate should be
no more than 5%.
SOLVENCY OF THE INSURANCE COMPANY
Estimated level of technical provisions aects the assessment of insurer solvency.

Generally speaking, solvency is an indicator of the security of a legal entity, which is
reected in the ratio of assets and liabilities. Solvency of the insurance categories as
expressed through the solvency margin and as such gives us a description of the size
and condition of the capital adequacy of insurers. Solvency margin is the amount
of capital that an insurance company must hold in order to cover expenses that may
occur due to occurrence of unexpected events.
Solvency of the company is one of the most sensitive issues when they consider all the calculations in companies engaged in life insurance. Solvency measure,
amount of capital needed to make all the obligations of insurers could be settled in
their redemption, is calculated as the ratio of the companys credit rating and minimum requirements for solvency. In European countries this ratio is dened as
532
Jasmina Selimovi
Available solvency margin is viewed as a measure of nancial position of the

company. Life insurance policies and determination of the required solvency margin
amounts are dened by Directive 79/267/EC. According to the above-mentioned
approach, Required minimum capital that would represent a solvency margin can
be expressed (with two dierent approaches) as: the amount that is always greater
than the limits set out accurately regardless of the size of the portfolio of the company or the amount, which, over exactly dened limits, expressed as a percentage
of one or more reference size insurers. In life insurance the calculation takes into
account the mathematical provision. By the rst approach basis for calculating is
the mathematical provision. The rst result of high solvency margin is obtained by
the sum of gross mathematical provisions, which are formed on the last day of the
previous business year, multiplied by a factor of 4% (or 0.04). Thus, the obtained
result is multiplied by the ratio of net mathematical provision, which is formed on
the last day of the previous business year (which is the mathematical provision net
of reinsurance) and gross mathematical provision, which is formed on the last day
of the previous business year. The calculating factor in Bosnia and Herzegovina is
4%, while this factor in the Republic of Croatia is 3.6% and 4% in Serbia. The
result is obtained in the ratio should be less than 0.85, and if the smaller set to that
value.
In some life insurance products factor is determined instead of the coecient
of 0.04 at the level of 0.01 (unit-linked policy where the investment risk to the
insured). Thus the amount obtained is not yet a sucient level of capital. This
amount is added to capital ratio and risk ratio for all other potential risks.
With the second results to calculate the solvency margin is taken as the basis
of risk capital. Risk capital (capital exposed to risk) is the dierence between the
insured and the sum collected mathematical provision. Another result is used when
calculating the risk capital is negative. Gross amount of risk capital (risk capital
which is included and the amount covered by reinsurance) is multiplied by a factor
which is the ratio of the net amount of risk capital formed on the last day of the
previous business year and the gross amount of risk capital formed on the last day
of the previous business year. If the ratio of net and gross capital risk is less than
0.5 then set to that value. So obtained is multiplied by the amount of 0.1% (for
contracts in case of death which concluded in the period up to three years), with
533
0.15% (for contracts in case of death which concluded in a period of three to ve

years) or 0.3% (for all other contracts in case of death).
CONCLUSION
Mathematical provision is an essential part of technical provisions of insurance.

Proper calculation of technical provisions is a prerequisite for an adequate assessment of the amount the insurers liabilities, the insurers solvency and capital adequacy. The paper treated only methods for estimating the technical provisions.
In order that level of technical reserves is adequately assessed, but the experienced
actuary, it is necessary to choose an appropriate method as input to the valuation.
In this text, no numerical examples are given, but the comparison is made of all
methods for valuating the provisions adequacy.
References
1. Bowers, N. L. et al.: Actuarial mathematics, The Society of Actuaries, USA,

1997.
2. urak, M., Jakovevi, D.: Osiguranje i rizici, RRiF, Zagreb, 2007.
3. Koovi, J.: Aktuarske osnove formiranja tarifa u osiguranju lica, Ekonomski
fakultet u Beogradu, Belgrade, 2006.
4. Ralevi, R.: Finansijska i aktuarska matematika, Savremena administracija, Belgrade, 1975.
5. ain, .: Optimizacija i upravljanje premijskom rezervom ivotnog osiguranja,
doctoral thesis, Ekonomski fakultet u Sarajevu, Sarajevo, 2003.
534
POISSON PROCESSES AND COMPOUND POISSON

PROCESSES IN INSURANCE MANAGEMENT
Dominika Crnjac Mili, PhD
Assistant Professor
Faculty of Electrical Engineering
J.J. Strossmayer University of Osijek
ABSTRACT
Some assumptions with respect to the number {N(t)}t0 and the amount {Xi}i=1
of damages are introduced in the paper. It will be assumed that the average of the
number of damages is a Poisson process, which leads to a compound Poisson pro
cess {S(t)}t0 for the total damages.
JEL clasication: C53, G22,
Key words: Poisson process, generating functions, moment, distribution,
approximation
1. POISSON PROCESS
Since the behaviour of the binomial distribution is B ( n, p ) , when n

and p 0 , thereby E [ X ] = np = a , where a > 0 is a constant. On the basis of
the fact that
n
n
a
lim ( q + p exp ( it ) ) = lim 1 + ( exp ( it ) 1) = exp a exp ( it ) 1 ,

n
n
n
and
Theorem 11
A sequence of distribution functions x 6 Fn ( x )( n = 1, 2,..., ) converges to the
distribution function x 6 Fn ( x ) for every x \ for which F is a continuous
function only then when the associated sequence t 6 n ( t ) , ( n = 1, 2,...) of
characteristic functions converges to function t 6 ( t ) , which is continuous for
t = 0.
1
eljko Paue, Vjerojatnost, informacija, stohastiki procesi, kolska knjiga, Zagreb, 1978, p. 139.
POISSON PROCESSES AND COMPOUND POISSON PROCESSES IN INSURANCE MANAGEMENT 535
Then t 6 ( t ) is a characteristic function that belongs to the distribution

function x 6 F ( x ) . ,
we conclude that in this case the binomial distribution B ( n, p ) turns into a
discrete probability distribution on the set {0,1, 2,...} , to which there belong a
characteristic function
( t ) = exp {a exp ( it ) 1}
ak a k
e z .
k =0 k !
and a probability generating function G ( z ) = exp a ( z 1) =

P ( X = k ) = pk =
We have
ak a
e , k = 0,1,...
k!
The probability distribution defined by the previously mentioned expression is

called a Poisson distribution with parameter a and it is denoted by Po ( a ) .
It is not difficult to conclude that the expectation and dispersion of a random
variable X are Poisson distributed:
E [ X ] = a, D [ X ] = a,
and it can also be shown that the third and the fourth central moments of the
random variable X are equal to the parameter a ( 3 = 4 = a ) .
One type of discrete-valued stochastic processes with independent stationary
increments called a Poisson process is used for describing many practical
phenomena.
If every t > 0 :
P ( Xt = k ) =
( bt )
k!
exp ( bt ) ; k = 0,1, 2,...,
where b = E [ X 1 ] > 0, a stochastic process

process.
Poisson
law
of
distribution
{X
: t [ 0, )} is called a Poisson
P0 b ( t2 t1 )
also
belongs
to
increment X t X t ( t2 > t1 0 ) , which is a random variable distributed as X t t , so

that
2
536

b ( t2 t1 )
2
exp b ( t2 t1 ) , k = 0,1,...
P X t2 X t1 = k =
k!
Poisson process is an example of a counting process3. We are interested

here in the number of damages resulting from risks. Since damage is counted
over time, the process of counting damages should satisfy the following
conditions:
N ( 0 ) = 0 , i.e. no damage in time 0,

for every t > 0, N ( t ) must be an integer,

for s < t , N ( s ) < N ( t ) , i.e. the number of damages over time is nondecreasing,

for s < t , N ( t ) N ( s ) represents the number of damages occurring in the
interval ( s, t ) .
The process of the number of damages { N ( t )}t 0 is defined as a Poisson process

with parameter if the following conditions are satisfied:
a)
b)
N ( 0 ) = 0 i N ( s ) N ( t ) , for s < t ,
)
P ( N (t + h ) = r + 1 N (t ) = r ) = h + o ( h )
P ( N (t + h ) > r + 1 N (t ) = r ) = o ( h )
P N (t + h) = r N (t ) = r = 1 h + o ( h )
for s < t , the number of damages in the interval ( s, t ] is independent of

the number of damages by the moment s .
Condition (b) says that in a very short time interval of length h the only possible
number of damages is equal to zero or one. Note that condition (b) also implies
that the number of damages in the time interval of length h does not depend on
when the time interval begins.
The reason why the process satisfying conditions (a) to (c) is called a Poisson
process is that for a fixed value of t , the random variable N ( t ) has a Poisson
distribution with parameter t . This is proved in the following way:
Let pn = P ( N ( t ) = n ) . We will prove that
pn = P ( N ( t ) = n )
2
3
(1)
eljko Paue, Vjerojatnost, informacija, stohastiki procesi, kolska knjiga, Zagreb, 1978, p. 167.
Nikola Sarapa, Teorija vjerojatnosti, kolska knjiga, Zagreb, 1987, pp. 382-387.
by deriving and solving a differential-difference equation4.

For4 a fixed value t > 0 and a small positive value h , we write
pn ( t + h ) = pn 1 ( t ) h + o ( h ) + pn ( t ) 1 h + o ( h ) + o ( h )
= hpn 1 ( t ) + [1 h ] pn ( t ) + o ( h )
Hence
pn ( t + h ) pn ( t ) = h pn 1 ( t ) pn ( t ) + o ( h )
(2)
And this identity holds for n = 1, 2,3,...

Now, if we divide (2) by h and if let h towards zero from the right-hand side,
we obtain a differential-difference equation
d
pn ( t ) = pn 1 ( t ) pn ( t ) .
dt
(3)
For n = 0 , an identical analysis yields

d
p0 ( t ) = p0 ( t )
dt
(4)
pn ( t ) is solved by introducing a probability function G ( s, t ) defined by
G ( s, t ) = s n pn ( t ) ,
n =0
such that
d
G ( s , t ) = s n pn ( t ) .
dt
n =0
Let us now multiply (3) by s n and sum over all values n in order to get
n =1
d
pn ( t ) = s n pn 1 ( t ) s n pn ( t ) .
dt
n =1
n =1
If (4) is added to the above identity, we obtain
s
n =0
d
pn ( t ) = s n pn 1 ( t ) s n pn ( t ) ,
dt
n =1
n =0
which can be written as

4
Darko Veljan, Kombinatorika s teorijom grafova, kolska knjiga, Zagreb, 1989, p.220.
538

d
G ( s, t ) = sG ( s, t ) G ( s, t ) ,
dt
or equivalently
1
d
G ( s, t ) = ( s 1) .
G ( s, t ) dt
(5)
Since the left-hand side of (5) is equal to the derivative of log ( s, t ) at t, (5) can be
integrated so that we obtain
log G ( s, t ) = t ( s 1) + c ( s ) ,
where c ( s ) is some function of s . c ( s ) can be identified if we note that for

t = 0, p0 ( t ) = 1 and pn ( t ) = 0, n = 1, 2,3,... Hence G ( s,0 ) = 1 and
log G ( s, 0 ) = 0 = c ( s ) . Therefore
G ( s, t ) = e
t ( s 1)
which is a probability generating function of the Poisson distribution5 with

parameter t. Since there exists a one-to-one relationship between probability
generating functions and distribution functions, it follows that the distribution
N ( t ) is a Poisson distribution with parameter t . We will complete this study of
the Poisson process by considering distribution of the time until the first damage
and the time between damages.
Some random variable T1 denotes the time of the first damage. For a fixed
value t , if none of the damages occurred by the moment t , we have T1 > t . There
follows
P (T1 > t ) = P ( N (T ) = 0 ) = e t
and
P (T1 t ) = 1 e t
so that T1 has an exponential distribution with parameter .

For n = 2,3,... , some random variable Ti denotes the time between the ( i 1) -th
and the i th damage. Then
P Tn +1 > t
n +1
T = r = P T > t + r T = r
i
i =1
i =1
i =1
Ivo Pavli, Statistika teorija i primjena, Tehnika knjiga, Zagreb, 1970, pp. 79-83.
(
)
= P ( N (t + r ) N ( r = 0) N ( r ) = n ).
= P N (t + r ) = n N ( r ) = n
According to condition (2),
P N (t + r ) N ( r ) = 0 N ( r ) = n = P ( N (t + r ) N ( r ) = 0) .
Finally,
P ( N ( t + r ) N ( r ) = 0 ) = P ( N ( t ) = 0 ) = e t ,
since the number of damages in the time interval of length r does not depend on
when the time interval begins. Therefore, the times between events also have the
exponential distribution with parameter .
2. COMPOUND POISSON PROCESS
We will combine the Poisson process of the number of damages with distribution of the amount of damages and in this way we will obtain a compound Poisson
process for the process of the total damages.
We will make the following three important assumptions:

random variables { X i }i =1 are independent and equally distributed,

random variables { X i }i =1 are independent of N ( t ) , for all t 0 ,

random process { N ( t )}t 0 is a Poisson process whose parameter is denoted
by .
It has been shown previously that the last assumption implies that for every t 0
the random variable N ( t ) has the Poisson distribution with parameter t , such
that
( t ) , for
k
P N ( t ) = k = e t
k!
k = 0,1, 2,...
With these assumptions, the total damage average {S ( t )}t 0 is called a compound
Poisson process with Poisson parameter .
It can be easily seen that if {S ( t )}t 0 is a compound Poisson process with Poisson
parameter , then for a fixed value of t 0 , S ( t ) has a compound Poisson
distribution with Poisson parameter t .
540
By making a change from a process to a distribution Poisson parameter

becomes Poisson parameter t .
A common distribution function of X i will be denoted by F ( x ) , and we will
assume F ( 0 ) = 0 , so that all damages are positive.
A probability density function of X i , if it exists, will be denoted by f ( x ) , the k-th
moment about zero of X i , if it exists, will be denoted by mk , so that
mk = E X ik , for k = 0,1, 2,...
Let us mention some properties of sample moments.

Let X be a property with the distribution function F , for which it
holds E ( X ) = m , ( X k ) = mk . Consider a simple random sample ( 1 , 2 ,..., n ) of
size n chosen from variable F .
The sample mean is a statistic that represents the arithmetic mean of the
components of samples;
1 n
X k , whereby X n represents a sample equivalent to mathematical
n k =1
expectation E ( X ) by a theoretical distribution of property X .
Xn =
Note that a simple random sample of size n from the population in which
property X has a distribution function F ( x ) , is a random vector ( X 1, X 2 ,..., X n ) ,
whereby X 1, X 2 ,..., X n are independent random values with the same distribution
function F ( x ) as property X .
The distribution function of a random vector ( X 1 , X 2 ,..., X n ) is
n
F ( x1 , x2 ,..., xn ) = P { X 1 x1 , X 2 x2 ,..., X n xn } = P { X 1 x1} P { X 2 x2 } ...P { X n xn } = F ( xk )

k =1
1 n
Furthermore, an ordinary sample moment of order k is a statistic Ank = xik
n i =1
and it represents a sample equivalent to a theoretical ordinary moment of order

k defined by mk = E ( k ) .
It is not difficult to show that E ( X n ) = m and E ( nk ) = mk .
1
1 n
1 n
X k = E ( X k ) = n m = m,
n
n k =1
n k =1
Indeed, E ( X n ) = E
1
1 n
1 n
E ( nk ) = E X ik = E ( X ik ) = n mk = mk .
n
n
n
i =1
i =1
Whenever there exists a common moment generating function6 of X i , its value at

point r will be denoted by M x ( r ) .
Since for a fixed value of t, S ( t ) has a compound Poisson distribution, it can be
easily shown that process {S ( t )}t 0 has expectation tm1 , variance tm2 and
moment generating function M s ( r ) , where M s ( r ) = et ( M ( r )1) .
x
Conclusion
In addition to some assumptions with respect to the number and the amount of
damages, the paper shows that for a fixed value of t N ( t ) has a Poisson
distribution with parameter t . When a change from a process to a distribution is
made, Poisson parameter becomes Poisson parameter t . Distributions of
the time until the first damage and the time between damages are considered. It
is shown that the times between events have the exponential distribution with
parameter .
REFERENCES
1. Aldous, D. (1989), Probability Approximations Via the Poisson Clumping Heuristic, Springer-Verlag Berlin and Heidelberg GmbH&Co.K, ISBN 3540968997,
Berlin
2. Daykin, C.D., Pentikinen, T. and Pesonen, M. (1994), Practical Risk Theory
for Actuaries. Chapman and Hall, ISBN 0412428504, London.
3. Paue, . (1978), Vjerojatnost, informacija, stohastiki procesi, kolska knjiga,
U-145/2-30606, Zagreb.
4. Pavli, I. (1970), Statistika teorija i primjena, Tehnika knjiga, Znak: 7716 sv,
Zagreb.
5. Sarapa, N. (1987), Teorija vjerojatnosti, kolska knjiga, UDK 519.21(075.8),
Zagreb.
6. Veljan, D. (1989), Kombinatorika s teorijom grafova, kolska knjiga, ISBN
86-03-99091-4, Zagreb.
7. Vrani, V. (1970), Vjerojatnost i statistika, Tehnika knjiga, Znak: 7147 sv,
Zagreb.
PUBLIC
ECONOMICS
ELECTORAL CYCLES IN ROMANIA. CASE STUDY: THE INFLUENCES ON...
545
ELECTORAL CYCLES IN ROMANIA. CASE STUDY:

THE INFLUENCES ON EMPLOYMENT INDUCED BY
MACROECONOMIC GOVERNMENTAL ECONOMIC POLICIES
Flavius Rovinaru, Mihaela Rovinaru, Liviu Deceanu
ABSTRACT
The temporal existence of human societys economic performance, although upward and continuous, cannot be seen as linear because the phases of prosperity are
succeed by economic regression, giving a certain cyclicity to the evolution of the
society.
The causes of cyclicity and economic crisis have endogenous and / or exogenous
origins. In this paper, we want to evaluate only the validity of political endogenous
factors and their inuence on the national economic performance. The case study
is made on Romania, more exactly the post-December-rist election cycles.
This work aims to analyze the eects induced by the measures promoted by
various governments regarding the employment at the macroeconomic level in Romania. Lessons learned will be linked with theoretical issues on economic cyclicity
promoted by Arthur Spietho, endeavoring to nd a possible correlation between
the governmental economic policy and the macroeconomic environment.
JEL classication: E24, J21
Key words: economic cycle, electoral cycle, ination, employment, unemployment
Economic cyclicity diers from accidental, random uctuations of the economic

activity because the induced eects and manifestations are aggregated and cumulative, contraction or expansion in a particular area spreads to others, as a result of the
connection and dependence between variables and actual ows and the monetary
and nancial ows. Its a specic manner of wavy evolution of the economic life,
546
Flavius Rovinaru Mihaela Rovinaru Liviu Deceanu
characterized by temporal regeneration in a given sequence and regularity of its

own features.
The Romanian history was marked in 1990 by a change of political regime,
a shift from a centralized totalitarian regime to a democratic regime. One of the
rules governing democracy is the existence of an electoral process, deployed with a
certain periodicity, which is meant to allow the voting population to express their
free choice on those considered to have the skills to represent its interests.
Generally speaking, the periodicity of the electoral process the induced eects
of it on the economic environment - gave birth to a new type of economic cycle,
known under the title of electoral cycle [Rutherford, D. 1995].
In the particular case of Romania we have identied the following intervals
corresponding to election cycles: 1990 - 1992, 1992 - 1996, 1996 - 2000, 2000 2004, 2004 to 2008.
Although the electoral cycle results from the action of political factors on three
distinct levels: unemployment, ination and taxation, in this paper we shall dwell
only on the rst factor - unemployment future studies will dwell on taxation, a
survey of ination having already been studied, in one of our previous works, in
which we conrmed the causality link between electoral cycles and macroeconomics [Rovinaru et al.; 2009].
Unemployment is dened by the economic theory as an imbalance derived
from an excess of supply over demand for labor force, with levels and evolutive
trends dierent from one period to another or from one country to another. Unemployment means a state of economic inactivity of those who do not have a job, are
looking for a new job, paid, all combined with an obvious decrease in their income
[Dawson, G; 1992].
Unemployment can be characterized by a number of dening issues - size,
intensity, temporal length - but its causes are very complex and even contradictory. In order to demonstrate the previous statement we will dwell on the opinion
which states that unemployment would be the result of trends specic to economic
growth.
In a given period of time economic growth causes the creation of new jobs.
However if the increase of the active population is higher that the increase of the
number of jobs created, we are facing unemployment.
547
Increase of the number of working population, in a national economy is due on

the long-term to endogenous factors increase of the birth rate - and on the short
term to exogenous factors- international migration of labor force.
Moreover, labor productivity growth of those already employed aects the ability
of economic growth to create jobs in an national economy. [Stiglitz, J. E., 1993]
If during periods when the economy is recording growth we talk about unemployment, recession becomes downright biased to extend the macroeconomic
imbalance we are talking about: unemployment.
Enlightening for the recession phase of the economic cycle is the Keynesian unemployment theory. This type of unemployment, explained for the rst time by J.M.
Keynes is determined by macroeconomic imbalances, particularly those arising between aggregated supply and demand. If there is an imbalance between aggregated
demand and supply on the goods markets - due to market rigidities on the short
term the imbalance will gradually transfer to the employment market, manifesting itself through decreases of demand for labor force, dismissals caused by the contraction of the producers activity, ultimately increasing the number of unemployed
[ Keynes, J. M.; 2009].
As noted both economic growth and recession induce adverse eects on employment at macroeconomic level. From this perspective we consider that it is appropriate to use together the terms employment and cyclical.
Accepting the hypothesis of cyclical unemployment in the context of economic
cyclicity we will try to identify a possible correlation between electoral cycles and
the unemployment rate at macroeconomic level in Romania, starting from 1990
up to 2009.
Choosing a timespan of this size is reasonable because if we focus on changes
of the stocks of labor on short time - from one month to another we will have a
false impression of relative stability of the labor market .
From month to month there are usually no dramatic shifts in the structure of
the number of employees and job seekers which could distort the markets dynamic character and even more could blur the overall picture on the macroeconomic
environment.
548
In Romania, determination of the unemployment ratio, according to the methodology of the INS National Institute of Statistics, is made by percentualy reporting the total number of unemployed to the active population.
Ut
Ur =
, Ur- unenployment rate, Ut-Unemployed Ap- Active population
Ap
The unemployed (Ut) dened according to the criteria established by the International Labor Organization are those aged between 15 and 74 who during the
reference period meet all the following conditions: have no job and no activities
generating income, are actively looking a job, are willing to start work within two
weeks from nding a job.
The active population (Ap), from an economic perspective, includes people
from the age of 15 years and over who provide available labor force for production
of goods or services. The category includes the employed and unemployed.
Using the calculation formula presented above, we drafted the temporal evolution of the unemployment ratio in Romania for the 1990- 2009 timespan.
Fig. 1. Unemployment ratio in Romania (1990 2009)

Unemployment ratio 1990-2009
12
11.4
11.2
11.0
10
10.2
10.0
9.3
9.2
8
7.8
7.5
9.0
Unemployment ratio
7.6
6.8
6
5.4
6.3
5.4
4.3
4.0
1.8
19
9
19 1
9
19 2
93
19
9
19 4
9
19 5
96
19
97
19
9
19 8
99
20
00
20
0
20 1
02
20
03
20
0
20 4
05
20
06
20
0
20 7
08
20
09
90
19
5.8
Source: Authors calculations, based on data from ANOFM, http://www.anofm.ro/
Since 1990 Romania has experienced profound and substantial transformations

in the ways in which the national economy has been organized and functioned.
The eects induced by the transition from the centralized management of the
economy to an increasingly and generalized decentralization has certainly incurred
costs, specially to the population.
549
We must underline that the inationist process in Romania was more lasting
and ample then in other transition countries, due to a high number of causes. For
example the xed pricing system that was promoted in Romania until 1989 or the
decision taken in 1990 to establish xed the dollar/leu exchange rate for 21 lei /
dollar, given that on the free market it was about 80 lei / dollar, led to the fall of
exports, with an unprecedented increase in imports.
This has facilitated the depletion of the foreign reserve, the consequence being
the breakout of a major economic downturn, that lasted approximately two years,
between 1990 - 1992, with three-digit ination rates.
Alongside unprecedented ination ratio another macroeconomic imbalance appears on the labor market: unemployment. Until 1989 unemployment was only
accepted as an element of the economic theory, not as a practical reality. The economic system, of Soviet origins, used until 1989 did not accept the idea of unemployed, proof is the fact that in 1990 the unemployment rate noted in ocial
statistics, was 0. Of course the rate was articially calculated.
Liberalization of the national market, its opening for goods and factors of competition, particularly from Western Europe, will demonstrate the economic inefciency characterizing many domestic businesses in the new competitive environment [Colman, D. & Nixson, F. 1994].
The rst heavy activity contraction are registered in those times, in poor areas:
heavy industry, extractive industry (mining), manufacturing industry. Along with
the contraction of the economic activity - mainly in the state companies the rst
rings take place, and thus unemployment begins showing positive numbers.
A simple analysis of the chart above shows us that only within three years 1990
- 1993, the labor market in Romania recorded an unemployment rate of 9.2%,
continuing its upward trend in 1994 when an unemployment rate of 11% was
recorded, highest up to that time.
The evolution of the unemployment ratio for the period studied has a contradictory trend, periods of increase of employment in the national economy alternate
with those in which it decreases. Of course the factors underlying these issues are
varied, but nonetheless we believe that in the specic case of Romania, at least for
the period 1990 2000, they were generated by a period of crisis - recession of the
national economy.
550
The type of unemployment characteristic to that period, in our opinion, is the

structural unemployment. This type of unemployment is caused by: trends of restructuring the economy in dierent business areas, restructuring of the types of
ownership, management restructuring and reorientation, changes of the productive
apparatus, and not least important social and political phenomena.
The transition to the free market economy - of capitalist origin - requires a
deep process of overall structural adjustment to new market conditions, something
which requires the adjustment of labor demand to the real needs of companies
operating in a competitive environment. This adaptation process brings with itself
new economic change: the adaptation of work necessities in volume by dismissals
(rings), intermittent use of labor force, employment contracts on xed periods,
adaptation of economic actors to dierent circumstances.
When talking about transition we can not say that through it we are dealing
with a permanent recesionist macroeconomic trend. As time goes by, the macroeconomic environment has a tendency to improve its performance on the account
endogenous and exogenous factors - foreign investments - which can and have the
ability to provide a new perspective to the economy.
In 1999 we remark an improvement of the general economic climate, that year
being considered the year of the relaunch of the Romanian economy, although
growth has exceeded the GDP by only 1.8%. The process began in 1999 and
continued in 2000, practically this being the beginning of sustainable economic
growth amid ination reduction.
From 2000 until the second period of 2008, following the evolution of unemployment ratio we can say that it has followed a downward trend with only small
interruptions.
The unemployment rate recorded a new unfavorable trend starting late 2008.
The evolving trend of the unemployment rate since late 2008 and up to today,
can be put on the expense of the international economic conjuncture, which has
known a process of degradation caused by the nancial crisis in the United States
and not only.
This brieng on ination for the period 1990 - 2009, coupled with election moments in Romania, aims to establish a possible link between populist policies at the
end of the electoral cycle and the eects induced at macroeconomic level, revealed
(in part) by the unemployment ratio.
551
The mechanism of occurrence and the course of election cycle has a few common, general elements, for all the cases studied but can be subjected to specic
analysis.
The result of the electoral polls is a certain structure of power that is competent
for a given time to govern the country. In a rst phase of the mandate, the governments tend to implement an important part of their election program, specically
a part of the electoral promises that assured their access to governing. They seek to
implement the measures that aect important categories of the population in areas
such as employment, taxation, ination
Usually by applying a package of electoral inspirited measures, in the rst part
of the mandate the general economic situation improves, the positive eects meeting aecting the targeted population.. These packages of measures lead to increased
authority expenditure which will then be corrected through a series of measures
and policies that on the short term will be perceived negatively by the population
(eg falling share of public spending in GDP, review of tax policies to increase taxation, etc.).
However the government seek nothing else but to generate long-term benecial
eects in the economy, eects which are to make their presence felt on the eve of a
new elections, that could help them maintain the position held, if the electorate is
aware of such benec eects.
Based on these considerations we try to establish a correlation between electoral
cycles in Romania and their possible inuence at macroeconomic level, in the unemployment area.
To determine a possible correlation we made a graphical representation to capture the unemployment ratio over the interval 1990 - 2009 and later considered the
beginning or end of electoral cycles in Romania.
552
Fig.2. Electoral cycles and unemployment ratio 1990 2009

Unemployment ratio
12
11.2
11.0
10.2
9.3
10
7.8
6.8
6.3
5.4
5.4
4.0
0
0
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Source: Authors calculations, based on data from INS, http://www.insse.ro/cms/rw/pages/index.

ro.do
During the rst election cycle (of only two years) from 1990 to 1992 we face the
emergence of unemployment and the rst ocial determined unemployment rates.
The emergence of ocial unemployment nds explanation, in the fact that the
period coincides with a reorientation in the way the economy is being organized,
passing from a centralized- planned economy to a free market economy.
We note that the trend of unemployment that does not comply with the theoretical - practical correlation between an election process and a possible distortion
in the unemployment rate, because the unemployment rate keeps growing. However previous studies conducted on the correlation of ination - election cycles have
conrmed the theoretical hypothesis we started with.
For the second election cycle 1992 - 1996, we note that along with the conclusion of the election process a negative trend of unemployment is kept but, instead,
from mid- electoral cycle, during 1994 1996, a shortfall of ( - 3.2) percentage
points was noted.
For a short period before the following elections an increase of employment can
be noticed, in particular because the govern is trying to maintain their position.
However a change takes place at political level, as the election are won by parties of
right, after six years during which left parties have been on governing positions.
Thus, the third election cycle, 1996 to 2000, begins with a slight decrease of the
unemployment rate continued during the year 1997, the dierence in the unemployment rate is less noticeable, of only (- 0.3) percentage points.
553
Since 1997, we note a recurrence of the high unemployment rates that culminate in 1999 with the historic high of 11.4% throughout the studied period. The
explanation can be found in the inability of the government to nd solutions to
increase employment or even to keep the existing jobs in the national economy.
For that matter, on the account of the negative ongoings of the national economy, the left parties are brought back to governing the country and the economy,
after the elections in November 2000.
The fourth cycle studied 2000 2004, validates the correlation between the electoral process and the evolution of the unemployment ratio. During a rst timespan
2000 - 2001 an increase of the occupancy rates is registered, immediately followed
by a decrease of it for the period 2001 to 2002.
The state intervention through policies that were aimed at increasing consumption of products made in Romania, encouraging exports and attracting new investments in the national economy, resulted, for the second half of the electoral cycle,
in a continuous decrease of unemployment. In our opinion, this was possible, as
the general economic climate changed, specially by improvement of the performance of the national economy.
The last complete election cycle studied 2004 - 2008, due to the changing international economic situation, which generated negative exogenous inuences on the
Romanian economy, falls in the general pattern of correlations between the election cycle and unemployment presented. After a period of a decade of almost continuous increase of employment (except 2002), the end of 2008 (election year) is
marked by increase of the unemployment rate, in 2009 the rate was 6.3%, higher
by 2.3 points percentage to the rate recorded for 2008.
An overview over the entire period 1990 - 2009, allows us to establish a possible
link between the electoral process and the development of the national economy,
made visible thru some important factors (phenomena), in the present paper: the
unemployment rate. For the rst three complete election cycles, 1992-1996, 19962000, 2000-2004, the causality relation between the election cycle and unemployment is conrmed.
This relationship is conrmed by the last election cycle 2004 - 2008, but does
not respect the pattern at least in the rst part of the following cycle, 2008 - 2012,
due to the eects of the economic crisis and the corresponding global economic
downturn.
554
We recall that the analysis of the relationship between electoral cycles - induced
eects in the national economy can be complete only by studying several aspects
of labor employment, ination, taxation, budget decits, this paper only capturing
the rst component of the proposed general analysis. Moreover the study already
done on ination conrms the correlation between electoral cycles and the economic environment, the results of all the analysis will be consolidated in a future
paper.
We conclude by saying that in our opinion the analysis of all proposed components: ination, employment (unemployment), taxation, budget decits, will be
responsible for providing us a complete picture of the issue, stating that currently
we have achieved a possible correlation. This study is intended as an intermediate
step in the overall proposed analysis.
BIBLIOGRAPHY
Books
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San Diego, USA
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banilor, Editura Publica, ISBN 978-973-1931-02-9, Bucureti
555
Articles in conference proceedings
1. Rovinaru Flavius, Rovinaru Mihaela (2009). The Economic Crisis Element

of Economic Cycle. Study Case: Electoral Cycles in Romania, Globalization
and Higher Education in Economics and Business Administration (Proceedings), Airinei, D. & al, pp. 270-279, ISBN 978-973-702-711-5, Iai, 22-24
October 2009, Facultatea de tiine Economice i Adimistrarea Afacerilor,
Universitatea Al. I. Cuza, Iai
2. Rovinaru Flavius, Rovinaru Mihaela, Pop Larisa (2009), Economic Crisis in
Modern and Contemporary Periods, The Financial and Economic Crises
Causes, Eects and Solutions (Proceedings), Ciobanu, G (ed.), pp. 101-112,
ISBN 978-606-504-072-4, Cluj-Napoca, 26-28 March 2009, Facultatea de
Stiinte Economice si Gestiunea Afacerilor, Universitatea Babe-Bolyai, ClujNapoca.
556
Boris Sabatti
INSTITUTIONAL SUPPORT SYSTEM IN ISTRIAN COUNTY AS

A FACTOR OF REGIONAL DEVELOPMENT MANAGEMENT
mr.sc. Boris Sabatti
IDA d.o.o. Istarska razvojna agencija
ABSTRACT
The activities and roles implemented by the institutions whether on local, regional, national or European level are necessary and important because they create
an institutional system which generates and accelerates development, increasing
thereby constantly standards of living of the entire population. In order to create conditions for development, national policies involving dierent sectors, such
as education and science, administration system and its barriers, business support
institution system and business infrastructure or regional development need to be
adjusted and strengthened. Institutional framework of regional development in
Croatia still hasnt been clearly dened and regulated by law. This resulted in a lack
of coordinated development planning and in insucient connection and networking between national, regional and local stakeholders, when speaking of development initiatives, information sharing and harmonizing national, regional and local
development goals and priorities with the aim of using in the most ecient way
national development resources. Good leadership has to be able to identify basic
changes in the internal and external environment by creating regional economic
plan and has to create conditions for implementing regional development strategies
through creation of its own institutional support system. In spite of all mentioned
disadvantages, problems and low level of decentralization in the Republic of Croatia, Istrian County developed and created an ecient institutional business support
system, mostly by founding dierent development institutions described in this
contribution; Istrian Development Agency IDA, Agency for the Rural Development of Istria AZRRI, Fund for the development of agriculture and agritourism,
Istria Golf Design, Istrian Tourism Development Agency IRTA, Istrian Region
Energy Agency IRENA, MIH (Made in Histria) public company. Development
and implementation of new models of regional management will lead to better
economic development, thus increasing employment possibilities, promoting in-
INSTITUTIONAL SUPPORT SYSTEM IN ISTRIAN COUNTY AS A FACTOR OF REGIONAL ...
557
vestments, upgrading tourism and rural development. In one word, regions which
apply institutional business support system will become more competitive than the
regions which dont apply it. Accordingly, this article presents systematic approach
as a basis for further research activities and conrming the results in practice.
JEL clasication: R11, R58,
Key words: regional management, regional economic development, institutional support
1. INTRODUCTION
The activities and roles implemented by the institutions whether on local, regional, national or European level are necessary and important because they create an institutional system which generates and accelerates development, thereby
constantly increasing the living standard of the entire population. Creating development conditions asks for well-adjusted national policy covering actions on
dierent elds from science and education, the elimination of administrative barriers and over-regulation to strengthening entrepreneurship support institutions
and business infrastructure as well as regional development. Good leadership has
to recognize changes in both the internal and external surrounding and implement
the knowledge in regional economic planning, creating its own support institutions
and generate conditions to ensure the execution of the development strategy and
enhancing the management of the region. In spite of mentioned insuciencies and
the current low decentralisation level in Croatia, the Istrian County stands out and
succeeded in founding a system of institutions to support entrepreneurship and
development as described in this contribution.
2. NEW INSTITUTIONAL ECONOMY
The neoclasical approach to economy sees the state and its policy as an exogenous factor that has no inuence on the allocation of resources that are guided by
the invisible hand of the market. The evolutionary-institutional approach holds
that economic eciency is also a reection of the invisible hand here being the
institutional and socio-cultural environment. The inuence of state and policy is
inevitable because of its role in creating the institutional framework that enables
and/or accelerates development.
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Boris Sabatti
Institutions are generally dened as rules of the game or deliberately designed

limits that form the interaction of people (North, 1992.; OECD, 2001.). It is
important to distinguish between the formal institutions that include formal rules
(statutes, laws, directives) and organizations (political parties, development agencies, unions, schools, etc.) and informal institutions, which include rules of behaviour - customs, collective habits, values etc. Informal institutions, especially
trust, reciprocity and limited solidarity, constitute the basic socio-cultural capital,
which is the catalyst, glue of institutional changes as the essential basis of socioeconomic progress. Today it is quite clear that social and cultural factors have the
same importance to economic growth as do the traditionally leading but narrower
technological and economical growth factors (Freeman, 2002.). In this context,
the role of the state, the political elite and management in general, plays an important part in economic development and growth.1
In contrast to the neoclassical approach, the evolutionary-institutional economics has oered practical solutions of organization and management of scientic and
research resources aimed at economic growth. These solutions are based on the ability to manage the institutional environment that fosters creation and diusion of
knowledge and innovation. The institutional environment, i.e. the establishment,
organization, interaction and co-evolution of institutions, has a decisive inuence
on the speed and eciency of the transformation of knowledge into innovation.
This makes them essential for economic growth.2
3. THE MANAGEMENT MODEL OF THE ISTRIAN COUNTY
Guided by the basic desire and intention to lead Istria into the 21th century with the best possible preconditions for development and to ensure growing
prosperity, the management of the Istrian County decided at the beginning of the
90-ies to start a system that will know and be able to create, support and if needed,
direct development. The system will be based, primarily on knowledge, then the
cooperation and collaboration of local administration and government, and as such
will provide organizational and nancial support to development projects with the
possibility to, at any time, identify new directions of development.
1
2
Source: Social Research Journal for General Social Issues issue: 3 / 2006, page: 322
Source: Social Research Journal for General Social Issues issue: 3 / 2006, page: 323
559
Years of economic stagnation as a result of the change of economic systems, centralized state controlled economic policy and neglect for regional and technological
development led to a situation in Istria, characterized by low production level of
new products, whilst existing products met no demand on the current market. Taking into account the above-mentioned facts, the management of the Istrian County
decided that the time was right to take concrete actions towards starting a development cycle. With scarce funding possibilities of the local administration, the
County of Istria managed to implement a row of projects such as the 180 million
kuna worth crediting program for entrepreneurs. Through the newly established
agricultural and rural tourism fund, another 6 million kuna has been allocated for
seedlings and the revitalization of inland Istria. Therewith inland Istria was included in Istrian tourism oer. The structure of the Government was no longer able to
keep up with the pace Istria was setting with already implemented and planed projects. By the end of 1998, county vice president Drandi with his team concluded
that a exible system in synergy with local government and authorities, can achieve
much greater eects in the realization of development programs. In addition to the
execution of projects, modelled on similar European systems, the new system predicted the possibility of inclusion and connection with European institutions that
stimulate employment programs, provide social assistance, etc., thus creating the
kind of infrastructure that would prepare Istria for EU programs.
The goal was to create a system that will aect society as a whole, on the economic as well as on the social plan, models for the functioning of the private and
public sectors were also sought for. These specic actions will be known as the IQ
policy, which besides promoting Istrian products and services of high quality it also
promotes the creation of business favourable climate. The basis of this development
lies in sustainable development that protects human, natural and manufactured
capital to secure sucient capital for future generations to be able to exceed prosperity of current generations. The concept of sustainable development thus implies
that the prosperity of future generations is based on current prosperity. Support
institutions to be founded will be aimed to aid in the launching of sustainable
development. This was a unique development system, called Istria 21, with mutually linked and coordinated programs, with a structure compatible with similar
existing systems within the European Union. The system was based on functions
that are being implemented on contract and status (corporate) basis, which are harmonized with each other and act together in synergy. It was a global system, which
includes the public and private sector and assessments of the overall development
560
Boris Sabatti
of the society, based on sustainable development, which was intended to create a

vision of development and to determine the development direction. Structured in
such a way, the development system had the task, in addition to providing support
in certain segments, to take an active role in development where needed.
I am pointing out that this was not supposed to be a parallel system, but a system functioning adaptively to the work of local administration and government
and institutions in Istria participating in economic activity. Moreover, due to scarce
funds, qualitative organization and communication, it was supposed to contribute
to the optimal use of all available resources with the main task - to continually raise
the welfare of citizens of Istria.
4. DEVELOPMENT OF THE ISTRIAN COUNTY THROUGH SUPPORT
INSTITUTIONS
In Croatia, the regional dierences in development continue to increase, due to

the impact of various factors. With the delayed decentralization process, which is
very closely linked to regional policy and the implementation of the principle of
subsidiarity, the level of decentralization in Croatia is currently expressed through
the gure of 6-9% of non-purpose funds of the budget given to the Counties. At
this stage counties should be decentralized to the level of 20-25% up to the nal 50-70%. Currently only sectors of healthcare and education are decentralized.
Also, in Croatia there is still no clear, complete, and legally dened institutional
framework (in terms of institutions) for the implementation of regional policy.
Underdeveloped institutional framework has resulted in a lack of coordinated planning and lack of connections with the central, county and local level regarding
development initiatives, information ow and coordination of national, regional
and local development goals and priorities - with the goal of optimal utilization of
resources and overall development potential of the country. In spite of mentioned
problems, the Istrian County has been known for a successful system of institutions that provide support for entrepreneurship, such as IDA - Istrian Development Agency, AZRRI - Agency for Rural Development of Istria and others, which
will be presented below.
4.1. MIH Ltd. Pore
MIH Ltd. is the rst company that was established by the County of Istria. MIH
is an abbreviation and stands for Made in Histria. The goal of its establishment
561
was to achieve adequate evaluation and recognition of original Istrian products,

and to provide assistance to agriculture in Istria. Istrian County, in the framework
of activities to be implemented within the economic policy of Croatian areas of
agriculture in the part related to the development and promotion of the private agriculture sector as the priority tasks since 1994, was the rst county to implement a
program of incentives to increase long-term crops. The above program has become
recognized not only in the Istrian County, but also in other parts of the Croatian
Republic, while other counties adopted a similar model. In the past eleven years
Istrian County has co-nanced planting material from its budget in the amount of
19,342,317.50 kuna. In addition, county funds, farmers, municipalities and cities
bought 325,430 olive seedlings, 81,370 pieces of fruit seedlings and 1,825,014
pieces of vine plants. With these seedlings 1174.84 ha of olive groves were planted, 162.74 ha of orchards and 456,253.25 ha of vineyards.3 In 2005 production
of olives with geographic origin (ISTARSKA BJELICA, BUA, CARBONERA,
MORAOLA and POREKA ROSULJA) started. Activities and investments to
increase long-term plantation created the precondition of maintaining and developing the existing production and survival of agriculture as an industry in Istria.
4.2. Fund for Agricultural Development and Rural Tourism
The Fund for agricultural development and rural tourism was established by
the Decision of the Assembly of the Istrian County and by opening a special account of the County Government on the 24 th March 1995. The purpose of its
establishment was to establish an eective system of nding and providing nancial
assistance to agriculture in the Istrian County to stop the negative trends in all segments of primary agricultural production and putting into operation all available
food resources, especially agricultural land. From 1995 until the end of 2009 from
the Fund for the Development of Agriculture and Rural Tourism, 918,003,821.17
kuna was invested through 839 projects in the County of Istria.
4.3. Istrian Development Agency - IDA Ltd. Pula
The Istrian Development Agency (IDA) Ltd. is the rst regional and one of
the leading development agencies in Croatia. Established on December 14 th
1999 as an operational body for the implementation of development programs of
the County of Istria, and the consortium for the development of Istria 21. The
3
Source: www.mih.hr
562
Boris Sabatti
founders of the IDA are Istria and nine istrian cities: Buje, Buzet, Labin, Novigrad,
Pazin, Pore, Pula, Rovinj and Umag. Today IDA is an unavoidable factor in the
development of istrian economy. Its primary role is encouraging the development
of small and medium enterprises in Istria, and through the provision of nancial support, and implementation of education, entrepreneurial development of
infrastructure, information and business consulting, providing services to potential
foreign investors andimplementing various interregional and international projects
aimed at creating a favourable entrepreneurial climate in Istria.
4.4. Agency for Rural Development of Istria AZRRI Ltd. Pazin
AZRRI - Agency for Rural Development of Istria Ldt. headquartered in Pazin,

was founded in 2003. The task is connecting the public and private sectors and to
prepare and implement projects in rural areas. It is the rst agency of its kind in
Croatia, with the specic task of coordinating the production activities in the rural
region of Istria. The aim of the agency is initiating economic and development
programs in rural areas of Istria. The founder of the agency is the Couty of Istria,
which ownes 100% of it. 4
AZRRI directs activities and creates development programs in the rural area of
the County of Istria, in order to achieve equal development of the coastal and inner
part of Istria County. AZRRI has an important role in enabling economic operators in rural areas towards creating new jobs and animate the younger generations
to live in rural areas. Activities that AZRRI conducted since its establishment until
today are primarily focused on family farms and providing services, training and
application of modern technology and aid towards them adapting market conditions. Signicant activities were directed at the development strategies of rural
development of the Istrian County, raising long-term plantation, creating projects
that were nominated for international funding as well as training its own sta to
function as assistance in development programs in rural areas of Istria, and to candidate projects to EU pre-accession funds for co-nancing.
4.5. Istrian Tourism Development Agency IRTA Ltd. Pore
IRTA - Istrian Tourism Development Agency was established in 2003. The

Company is 46.30% owned by the County of Istria and 53.70% owned by the
4
Source: www.azrri.hr
563
Istrian tourist enterprises. The basic reason for creating IRTA Ltd. was to enable
the private sector for a competitive market position, ensure faster and more ecient restructuring, harmonize development of tourism, change the situation in the
public sector towards quality service for the private sector, encourage the creation
of new products and actively participate in the process of raising quality level. In
this sense, IRTA Ltd. is the only tourist institutional link between the private and
public sector with the primary aim of creating a synergy of action in resolving and
eciently nding optimal solutions, in accordance with the ndings and settings
of the Master Development Plan for Tourism in Istria.5 Late 2008 the IRTA has
claimed responsibility for the creation of one of the major tourist projects of innovative character in the segment of raising the competitiveness of Istria as a destination. It is a project of establishing a contact and sales centre of Istria.
4.6. Istra Golf Design IGD Ltd. Pore
Istra Golf Design Ltd. was established in 2006 by the Istrian Development
Agency in order to promote the development of golf in the County and work on all
aspects of the development of this form of top tourist oer and to oer service to
investors. From the very beginning the IGD is working hard on the promotion of
golf in Istria through the forests of vague regulations, bureaucratic-administrative
barriers. It is in its plans to form a consortium and to connect future participants
in the realization of the program. IGD expands opportunities for development of
this, for Istria, new product. The number of potential locations for the implementation of golf projects increased to 22. The term golf project involves not only the
construction of golf courses, but also golf centres equipped with multiple complementary and accommodation facilities. In fact, it is about creating a completely
new tourist product, and on the other hand, it means opening new markets, the
arrival of new guests and ultimately creation of a totally new image for the tourist
region of Istria.6
4.7. Istrian Regional Energy Agency IRENA Ltd. Labin
IRENA - Istrian Regional Energy Agency for energy aairs was founded upon
the decision of the founder, the County of Istria, in 2009. IRENA has the task of
examining energy business in Istria dierently than it was done before. The use
5
6
Source: http://www.irta.hr/ZastoIRTA/HR
Source: http://www.istra-istria.hr/index.php?id=273
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Boris Sabatti
of energy on Istrian preninsula in the future and renewable energy sources as well
as environmental protection is the focus of this agency. Its task is to implement a
strategy for EU energy supply, support the transition to sustainable energy systems,
energy management advisory and information role, and so forth. Istria is preparing
a number of alternative energy sources such as the processing of waste oils, biogas
production from olive oil production residue, modern waste disposal, solar energy
and wind power, which is in the design stage. It is also necessary to educate the
population about the use of energy saving building materials.
5. CONCLUSION
In addition to these shortcomings, problems and the current low level of decentralization in Croatia, the Istrian County stands out by having a successful system
of institutions that provide support for regional development. The Istrian County,
cities and municipalities and associations of citizens in the previous period, initiated a series of institutions that provide support for dierent segments and sectors.
Namely those are: Pula Center for Entrepreneurship, Business Incubators in Labin, Pula, Rovinj, Pula Port Free Zone, BPW - Business and Professional Woman
- Pula, Ruralis - a consortium of rural tourism in Istria. In the forthcoming period,
Istrian County plans to establish the following institutions to promote regional
development: Istrian cultural agency - IKA, Business Incubators in Vodnjan and
Buzet, Environmental Protection Agency, Istrian Development Agency - Pore and
the Istrian Fair.
Regional development institutions are the holders of the development of their
counties. Development and application of new models of governance in the region,
will generate and promote economic development, increase employment, encourage investment, promote tourism and rural development, in a word, it will become
more competitive relative to those regions that do not apply such a model. The Assembly of the Istrian County and the President of the County have to, continue on
the basis of successfully implemented projects in the past, to invest in research and
development, human resources, stimulate employment programs, create new jobs,
build a stronger link with universities and regional development agencies from
Croatia and Europe, in order to prepare the Istrian County for EU programs and
EU membership.
565
REFERENCES
1. Bahtijarevi-Siber F. (1994), Entrepreneurship as a Fundamental Lever of Economic Development, Slobodno poduzetnitvo, Zagreb
2. Durham University Business School (1990), Growing Your Own Business, Durham University Business School, Durham
3. Guy Peters, Institutional Theory in Political Science: New Institucionalizam,
translated by Stipeti Davor (2007), Faculty of Political Science, Zagreb
4. Istrian Development Agency (2007), Regional Operational Program of the
County of Istria, Pula
5. Ministry of Economy, Labor and Entrepreneurship (2008), Program for Encouragement of Small and Medium Enterprises 2008-2012
6. National Competitiveness Council (2004), 55 Recommendations to Increase
the Competitiveness of the Croatia
7. Social Research Journal for General Social Issues (2006), Zagreb
8. Vaji, I., group of authors (1994), Management and Entrepreneurship, Center
for Entrepreneurship, Mladost, Zagreb
9. www.azrri.hr (2010-03-02)
10. www.bpw.hr (2010-03-10)
11. www.europa.eu (2010-02-25)
12. www.ida.hr (2010-02-25)
13. www.irta.hr (2010-03-03)
14. www.istra-istria.hr (2010-03-10)
15. www.mih.hr (2010-03-02)
16. www.mingorp.hr (2010-02-25)
17. www.pcp.hr (2010-03-12)
18. www.rovinj.hr (2010-03-12)
19. www.ruralis.hr (2010-03-12)
20. www.sviluppoitalia.it (2010-02-26)
21. www.vodnjan.hr (2010-03-12)
566
Ivana Barkovi
ECONOMIC FREEDOM AS PRECONDITION FOR ECONOMIC

PROSPERITY: CROATIAN EXPERIENCE
Ivana Barkovi, Ph.D., Associate Professor
Faculty of Law in Osijek
Croatia
ABSTRACT
The purpose of this paper is to give a brief theoretical overview of the notion
of economic freedom and discuss it as being a link between economic opportunity
and prosperity. First part of the paper oers denition of the economic freedom,
(basic) arguments for the limited role of the state in the national economy as well
as it discusses one of indexes - Heritage Foundation Index - used worldwide for
measuring economic freedom. Based upon the theoretical overview and presented
index, the second part of the paper will evaluate economic freedom in the Republic
of Croatia and suggest some policy implication how to redene the role of the state
in order to make it more supportive for markets needs.
JEL clasication: Q01
Key words: economic freedom, index of economic freedom, Heritage Foundation, Croatia
1. INTRODUCTION
From classics of economic thought such as Adam Smith (1776-1937) or David

Ricardo (1821-1912) up to modern scholars, theoretical and empirical economic
literature has been emphasizing the link between economic prosperity with the
whole range of elements united in the concept of economic freedom. The most
succinct denition of economic freedom could be simply following: economic freedom is the right of individual to follow his/her own interests through voluntary
exchange of property rights which are ensured to him/her through the rule of law.
In other words, individuals are free to work, produce, consume and invest in a way
they want to and the state must not limit that freedom but to protect it. Empiri-
ECONOMIC FREEDOM AS PRECONDITION FOR ECONOMIC PROSPERITY: CROATIAN ...
567
cal studies, as well as world economic statistics, show that countries with higher
degree of economic freedom have higher rates of economic growth and tend to be
more prosperous (e.g. Gordillo & Alvarez, 2003). Also, countries which are more
economically free have more political and civil freedoms which speaks in favor of
Nobel laureate Milton Friedmans view that economic freedom is a precondition of
political freedom (Friedman, 1962).
The purpose of this paper is to give a brief theoretical overview of the notion
of economic freedom and discuss it as being a link between economic opportunity
and prosperity. First part of the paper oers denition of the economic freedom,
(basic) arguments for the limited role of the state in the national economy as well as
it discusses one of indexes - Index of Economic Freedom by the Heritage Foundation - used worldwide for measuring economic freedom. Based upon the theoretical
overview and presented index, the second part of the paper will evaluate economic
freedom in the Republic of Croatia and suggest some policy implication how to redene the role of the state in order to make it more supportive for markets needs.
2. ECONOMIC FREEDOM AS A LINK BETWEEN ECONOMIC OPPORTUNITY
AND ECONOMIC PROSPERITY
2.1. What is economic freedom?
There are numerous denitions of the economic freedom. For example, economic freedom represents: freedom from regulation or other dictates from government or other authority in economic (business) matters (source: All Business
Glossary, D&B Company); freedom to produce, trade and consume any goods
and services acquired without the use of force, fraud or theft. This is embodied in
the rule of law, property rights and freedom of contract, and characterized by external and internal openness of the markets, the protection of property rights and
freedom of economic initiative (source: Wikipedia); the right of individuals and
organizations to pursue their own interests through voluntary exchange of goods
and services under the rule of law (source: The American Heritage of Dictionary of
Business Terms). The central elements of economic freedom are personal choice,
freedom of exchange, and protection of private property(Gwartney & Lawson,
1997: 2). If economic freedom is constitutionally guaranteed and protected, individuals are more able to make private choices regarding which goods and services
to consume, which economic activities to engage in, and how to use their resources,
including their time.
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Ivana Barkovi
Economic freedom1 is often identied with notions of political and civil liberty.
However, there is a distinction between these notions. Political liberty is related to
the process of political decision-making, i.e. whether citizens are allowed/free to
participate in a political process on an equal basis or not. Civil liberty, on the other
hand, includes varieties of rights such as right of expression, practicing various religions, free assembly, fair trials, etc. In his book Capitalism and Freedom Milton
Friedman (1962: 7-17) argued that economic and political freedom are deeply and
complexly intervened in a way that economic freedom is a mean to the end of the
political freedom, i.e. economic freedom is a necessary condition for political freedom.2 Contemporary research also supports this argument. For example, a study by
de Haan and Sturm titled Does more Democracy Lead to Greater Economic Freedom?
New Evidence for Developing Countries shows that an increase in economic freedom between 1975 and 1990 has been associated with the level of political freedom
(see more de Haan, 2003).
2.2. How to measure economic freedom?
Economic freedom is a concept that is not easy to measure because it involves

both quality and quantity (de Haan, 2003: 395). The most common way of evaluating economic freedom is by using an index of economic freedom which represents
a cumulative indicator calculated based upon greater number of chosen variables
which are aggregated as pondered average values in sub-indexes and than gathered
in the main index. There are three most known indexes that measure economic
freedom across the world: (i) Economic Freedom of the World Index (EFW); (ii) Index of Economic Freedom by Heritage Foundation and (iii) Freedom House Index. All
these indexes try to make a link between the meaning of the economic freedom and
analytical framework of contemporary economics, but at the same time they take
dierent emphasis and approaches in explaining, i.e. evaluating economic liberty
(Keeljevi, 2007). For example, Index of Freedom by Heritage Foundation is focused
1
One can nd the notion of economic liberty instead of economic freedom. Baleti & Budak (2007:
807) describe a ne line between these two terms. The term freedom is associated with the sense of
freedom in the sociological-psychological way while the term liberty refers to guaranteed freedom by
the law in the institutional-legal sense. They use Ludwig von Mises argument that liberty is always
freedom of the government meaning that the freedom guaranteed by the market economy is not
only the economic freedom but it is related to the morality, spirituality and intellect.
Opposite to this argument, Jeremy Bentham, John Mill and Philosophical Radicals considered
political freedom as a means to economic freedom. See more on Benthams and Mills liberalism in
Levi (2007).
569
mostly on the regulatory framework of the country while the Economic Freedom of
the World Index is related mostly to the macroeconomic performance, i.e. macroeconomic indicators.
In this paper we briey present the Index of Economic Freedom which was developed jointly by the think tank Heritage Foundation and Wall Street Journal in
1995. This index measures ten components of economic freedom, assigning a grade
in each using a scale from 0 to 100, where 100 represents the maximum freedom
and the rest as follows: 0-49.9 repressive economy; 50-59.9 mostly unfree; 60-69.9
moderately free; 70-79.9 mostly free and 80-100 free. The ten component scores are
then averaged to give an overall economic freedom score for each country. According to the Heritage Foundation, there are 10 components of economic freedom3:
1. Business freedom is a quantitative measure of the ability to start, operate,
and close a business that represents the overall burden of regulation as well as
the eciency of government in the regulatory process.
2. Trade freedom is a composite measure of the absence of tari and non-tari
barriers that aect imports and exports of goods and services.
3. Fiscal freedom is a measure of the tax burden imposed by government. It
includes both the direct tax burden in terms of the top tax rates on individual
and corporate incomes and the overall amount of tax revenue as a percentage
of GDP.
4. Government spending: This component considers the level of government
expenditures as a percentage of GDP. Government expenditures, including
consumption and transfers, account for the entire score.
5. Monetary freedom combines a measure of price stability with an assessment
of price controls. Both ination and price controls distort market activity.
Price stability without microeconomic intervention is the ideal state for the
free market.
6. Investment freedom, In an economically free country, there would be no
constraints on the ow of investment capital. Individuals and rms would be
allowed to move their resources into and out of specic activities both internally and across the countrys borders without restriction.
3
For more detailed description of each component (e.g. factors used for scoring each component, numerical variables, formulas, data sources, etc.) see Hertage Organization: 2010 Index of Economic
Freedom, available at http://www.heritage.org/index/ (17.03.2010.)
570
Ivana Barkovi
7. Financial freedom is a measure of banking security as well as a measure of

independence from government control. State ownership of banks and other
nancial institutions such as insurers and capital markets reduces competition and generally lowers the level of available services.
8. Property freedom: The property rights component is an assessment of the
ability of individuals to accumulate private property, secured by clear laws
that are fully enforced by the state. It measures the degree to which a countrys
laws protect private property rights and the degree to which its government
enforces those laws. It also assesses the likelihood that private property will
be expropriated and analyzes the independence of the judiciary, the existence
of corruption within the judiciary, and the ability of individuals and businesses to enforce contracts. The more certain the legal protection of property,
the higher a countrys score; similarly, the greater the chances of government
expropriation of property, the lower a countrys score. Countries that fall between two categories may receive an intermediate score.
9. Freedom from corruption: Corruption erodes economic freedom by introducing insecurity and uncertainty into economic relationships. The score
for this component is derived primarily from Transparency Internationals
Corruption Perceptions Index (CPI) for 2008, which measures the level of
corruption in 180 countries.
10. Labor freedom: The labor freedom component is a quantitative measure that
looks into various aspects of the legal and regulatory framework of a countrys
labor market. It provides cross-country data on regulations concerning minimum wages; laws inhibiting layos; severance requirements; and measurable
regulatory burdens on hiring, hours, and so on.
The Index of Economic Freedom by Heritage Foundation (hereinafter: Heritage
Index of Economic Freedom) has become rather popular measure of progress in
market reforms across the world and it has been often consulted by investors since
it gives useful information about business environment, stability and arrangement
of the countrys regulatory system.
2.3. Why is economic freedom important?
Various studies have analyzed the relationship between economic growth and
economic freedom (e.g. Carlosson & Lundstrm, 2002; Pitlik, 2002; Heckelman
& Stroup, 2000; Dawson, 1998). Judging by the number of empirical research, one
571
can conclude that economic freedom is associated with many benets. For example, Gwartney and Lawson (1997) found out that lower level of economic freedom
led to lower unemployment; Grubel (1998) demonstrated positive impact of the
economic freedom on welfare indicators such as life expectancy, income distribution and unemployment; Lawson (2008) interestingly pointed out that that lowincome people in freer countries were better o than their counterparts in less-free
countries; Norton (1998) showed a positive correlation between economic freedom
and the environment, etc. Thus, economic freedom is related to wide ranging array
of desirable economic and social outcomes.
There are some critics of the measurement of economic freedom. For example,
Jim Stanford and the late Margaret Legum strongly condemn the measurements of
economic freedom published by the Fraser Institute and the Heritage Foundation.4
They have argued that the economic freedom is not the only thing that matters. As
Hall (2008) pointed out they indicated correctly that there were other things that
people nd important besides economic freedom. Namely, countries with higher
degrees of economic freedom are given higher scores, but it did not follow directly
that these countries were somehow better. Whether one should prefer more or less
economic freedom is indeed a normative judgment. However, for those who make
their normative judgments on consequentiality grounds, the existence of this measurement makes it possible to test long-standing claims, and counterclaims, that
economic freedom enhances prosperity and other social goals (Hall, 2008: 261).
Still, the critics of the measurement of economic freedom have hard time arguing
against indexes of economic freedom since the body of empirical evidence related
to the link between economic freedom and desirable social outcomes has been
growing in recent years.
3. CROATIAN ECONOMIC FREEDOM: CHALLENGES AND PERSPECTIVE
3.1. Macroeconomic prole of Croatia
Croatia is a small open economy with the population of 4.4 million people
(Census, 2001), has relatively high educated labor force, gross domestic product
(GDP) per capita of 10,682 EUR and the gross domestic product (GDP) structure similar to other industrial market economy. After declaring its independence
4
For more details on their work see more in Stanford (2007) and Legum (2007) as well as a comment
on their work by Hall et al. (2008).
572
Ivana Barkovi
in June
1991, it entered the process of transition aiming to achieve market economy

and political democracy. The comprehensive political and economic reforms of the
country were additionally lumbered by the Homeland War from 1991 to 1995
which caused serious damages of infrastructure and a decline in the countrys economic vitality. Almost two decades later, Croatia has managed to restore its macroeconomic stability and made signicant advances in the structural reforms that
have led the country closer to its goal of developing fully-edged market economy
and becoming a member of the EU.
Table 1 Selected economic indicators for Croatia (2004 2008)

Economic indicators
2004
2005
2006
2007
2008
GDP per capita, current prices (in EUR)
7.380
8.043
8.807
9.656
10.682
GDP, constant prices, annual % change
4.2
4.2
4.7
5.5
2.4
Ination, annual % change
2.1
3.3
3.2
2.9
6.1
Unemployment (according to ILO)
13.8
12.7
11.2
9.6
8.4
Current account balance in % of GDP
-1.434
-1.976
-2.717
-3.238
-4.369
External debt in % of GDP
70.0
72.1
74.9
76.9
82.6
Public Debt, as % of GDP
37.9
38.5
36.0
33.4
29.3
1.467,9
2.764,8
3.670,2
4.190,2
1.699,2
FDI (in million EUR)

Source: Croatian National Bank (2010)
3.2. Croatian performance by the Heritage Index of Economic Freedom
Croatia has been included in the Index of Economic Freedom by Heritage Foundation since 1996. For the last ve years Croatia has been graded as the mostly unfree economy by Heritage Index of Economic Freedom (gure 1). The score of 59.2
in 2010 is the best so far, making Croatian economy the 92nd freest in the 2010
Index.5 Its overall score is 4.1 points higher than last year, reecting signicantly
improved scores for government spending, investment freedom, and protection of
property rights. Croatia has moved up 24 places in the world rankings and from
38th to 37th out of 43 countries in the Europe region. However, its overall score is
still below the regional and world averages.
5
The top ten countries according to the 2010 Index of Freedom are following: Hong Kong (89.7),
Singapore (86.1), Australia (82.6), New Zealand (82.1), Ireland (81.3). Switzerland (81.1), Canada
(80.4), USA (78.0), Denmark (77.9) and Chile (77.2). Source of data: Heritage Organization,
http://www.heritage.org/index/ (17.03.2010.)
573
Figure 1 Croatian overall index of economic freedom 2060-2010

60
59,2
59
58
57
56
55,1
55
54,1
54
53,4
53,6
53
52
51
50
2010
2009
2008
2007
2006
Source: Heritage Foundation (2010)
If components of the Index of Economic Freedom are observed for the period
between 2006 and 2010 (table 2), it can be noticed that Croatia has been scored
mostly free and free in the areas of trade, scal and monetary freedom; moderately
free in the areas of investment, doing business and nances; and mostly unfree and
repressed in the area of property rights, corruption, government spending and labor
market.6
Trade freedom continues to be the best graded area of economic freedom in
Croatia. It would be fully free area if there were no additional custom duties, import licensing for certain goods, burdensome regulations and standards, inecient
customs administration, and weak enforcement of intellectual property rights add
to the cost of trade. Points deducted from the full freedom score account for nontarrif barriers. As far as scal freedom is concerned, Croatia has a high income tax
rate but a low corporate tax rate. The top income tax rate is 45 percent, and the
top corporate tax rate is 20 %. There is also a value-added tax (VAT). In the most
recent year, overall tax revenue as a percentage of GDP was 23.4 %. High scores
6
Following interpretation of scores mostly relies on reports by Heritage Organization that can
be obtained at the ocial website of the Heritage Foundation, www. heritage.com (Accessed
17.03.2010.)
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Ivana Barkovi
in monetary freedom have been attributed to the moderate ination rate that has
been oscillating at the level of 5% in recent years. Even tough the majority of price
supports and subsidies have been removed, the price control remains for some 30
products, mostly basic (food) provisions that require approval by the Ministry of
Economy, Labor and Entrepreneurship, as well as through inuence on prices dictated by the state-owned enterprises.
Investment policy in Croatia treats foreign investors as national one. Despite all
the reforms conducted, inecient bureaucracy remains a problem, as well as corruption. Croatian eorts to become a full member of the European Union (EU)
represent a motivation to increase transparency as well as to adopt EU laws, norms
and practices. Croatian Constitution guarantees the free transfer and repatriation
of prots and invested capital for foreign investments while some capital transactions are subjected to government conditions (e.g. inward portfolio investments),
If a foreign investor want to acquire property, he/she need an approval by the Ministry of Justice, excluding the case when the property is acquired by inheritance or
reciprocity. Financial system in Croatia is rather competitive and ecient, but the
bank system is almost fully in foreign hands (e.g. two national commercial banks
are majority foreign-owned and control almost half of all assets, and foreign banks
own the majority of total assets). Supervisory and regulatory frameworks for the
nancial sector are more ecient, credit is allocated on market terms, and access
to nances for entrepreneurs is not dicult. The stock exchange has been growing
and currently more than 200 companies are listed while securities markets are open
to foreign investors. Also, the Capital Market Act came into force in 2009 with
the aim to secure eective regulation and transparency. Croatian regulatory environment has been rather burdensome and often cited by the business community
as one of the greatest impediment for doing business, followed by the corruption
and inadequate sources of nances. Namely, the Croatian regulatory framework is
encumbered by the red tape, out-of-dated and unnecessary law provisions, and the
like, all of which increase the cost of doing business, create barriers to investments,
as well as it represents a serious source of corruption. Starting business in Croatia
takes 22 days which is lower than the world average of 35 days, but on the other
hand, getting business licenses takes longer than 218 days which is world average.
Closing a business is relatively simple.
Restrictions in property rights, government spending, freedom from corruption and labor freedom remain Croatian Achilles hill. Namely, property rights are
burdened by the ineciency of judiciary system and non-transparency of public
575
administration (e.g. long duration of court proceedings, lack of specialized employees in administration and judiciary system, out-of-date les in cadastres and land
records, etc.). Despite intellectual property rights legislation, piracy of digital media and counterfeiting continue. According to data of the Croatian Central Bank
(CCB), the total government expenditures (including consumption and transfer
payments) are relatively high, amounting to 49% of GDP while the governments
total debt is oscillating at the level of 35 of GDP in recent years. Corruption in
Croatia is still perceived as signicant. According to the Transparency International
(2009), Croatia is ranked 66th out of 180 countries with the Corruption Perceptions Index (CPI) of 4.1. The judicial system is seen as most aected by corruption.
Labor freedom in Croatia is signicantly restricted. The employment protection
legislation in Croatia is among the most rigid in Europe. Termination is dicult
and costly while the non-salary cost of employing a worker is high. Flexible forms
of employment are quite limited. All of stated discourages employers to create new
work places.
Table 2 Components of Index of Economic Freedom of Croatia (2006 2010)

Year
Business
freedom
Trade
freedom
Fiscal
Freedom
Govt
spending
Monetary
freedom
Investment
freedom
Financial
freedom
Property
rights
Freedom
from
Corruption
Labor
freedom
2010
61,5
87,82
70,3
47,1
75,8
65
60
40
44
40,8
2009
59,9
87,6
68,7
31,7
79
50
60
30
41
43,4
2008
58,5
87,6
68,8
28
78,8
50
60
30
34
45,5
2007
54,2
87,8
69,9
24,4
79,3
50
60
30
34
44,5
2006
54,5
78,4
69,6
23,2
81,2
50
70
30
35
44,6
2000
55
67
68,9
41,9
70
50
50
30
50
Note: Labor freedom component was introduced in 2005.

If one observes the period of last ten years, it can be noticed that improvements
in individual components of economic freedom have been made as suggested by
table 3.
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Ivana Barkovi
Table 3 Ten Economic Freedoms of Croatia compared, 2000 and 2010

Labor freedom
0
40,8
50
Freedom from Corruption
44
30
Property rights
40
50
Financial freedom
60
50
Investment freedom
65
2000
2010
70
Monetary freedom
75,8
41,9
Gov't spending
47,1
68,9
70,3
Fiscal Freedom
67
Trade freedom
87,82
55
Business freedom
61,5
10
20
30
40
50
60
70
80
90
100
The most positive change has been made in the area of trade freedom, followed
by the business freedom and investment freedom. Unfortunately, the most negative change happened in respect to the freedom of corruption whereby the index
dropped by 10 points in the period from 2000 to 2010. This comparison serves
well to show that the problems related to the issues such as property rights or government spending are deeply rooted and need (immediate) attention if Croatia
wants to move up on the rang list of economically free countries, which by theory
implies more economic prosperity.
4. CONCLUDING REMARKS: POLICY SUGGESTIONS
If Croatia wants to improve the rank on the list of most economically free countries of the world, it needs to adopt the changes in the role of government in the
national economy. Ensuring greater economic freedom of Croatia calls for rethinking the role of the state in order to be more supportive of the market needs.
Namely, the role of the state in the national economy is multifold: it holds the
executive power and engages in the interaction with the private sector and other
agents in the society; it is a legislator and fundamental warrantor of legal framework
577
and legal safety in which the private sector operates; at the same time, the state inuences the way civil and entrepreneurial rights are respected through its equity
and transparency. Thus, the greatest responsibility of the Croatian government is to
focus on its eciency-enhancing role in the national economy, i.e. to provide qualitative institutional and legislative framework that ensures sustainable growth and
development as well as to lessen its own entrepreneurial activity. In another words,
the government needs to support market-based institutions, i.e. rules, enforcement
mechanisms and organizations supporting market transactions in order to transmit
information eciently, to enforce property rights and contracts and to secure competition which will in turn aect incentives to participate in a market.
Taking into considerations the Heritage Index of Economic Freedom for Croatia, overall and by individual components, advancing economic freedom of Croatia
calls for following: (i) to ensure more professional and ecient public administration which protects public interests of citizens while at the same time work on
reducing the costs of its operations; (ii) to increase the professional competences and knowledge of all employed in public administration as well as to increase
the transparency of public administration work; reduce red tape and bureaucracy
which will in turn reduce the sources of corruption; (iii) to develop the just, efcient and competent judiciary system which work will be harmonized with the
EU law and practice; (iv) to lessen the entrepreneurial role of the state and focus
its work on correcting market failures; (v) introduce the at rate on income, prot
and VAT; (vi) to ensure enforcement of property rights; (vi) to facilitate exicurity
on labor market, i.e. to relax the labor regulations in a way to promote exibility to
employers to adjust to uctuations and changes in society, economy or production
on one side, but to make certain that workers social security is not jeopardized;
(vii) to ensure deregulation of business in order to make it easier for new rms to
enter markets, which increases competition and hence resource eciency; (viii) to
lessen the burden of taxes and contributions; (ix) to adequately determine a size of
governments expenditures in accordance with their eciency; (x) to implement
scal decentralization.7
7
The Adriatic Institute for Public Policy (AIPP) provides numerous suggestions how to improve economic freedom of Croatia. The AIPP is is an independent free market think tank founded in 2004
in Srdoci, Rijeka, Croatia and dedicated to strengthening the rule of law and advancing economic
freedom through advocating market reforms in Croatia and southeast Europe. More details can be
obtained on the ocial web site of the AIPP, http://adriaticinstitute.org
578
Ivana Barkovi
As already mentioned, the Heritage Index of Economic Freedom, as well as

other indexes, is often cited in the business literature and it is increasingly popular
measure of progress in market reforms. However, it has been taken with certain
attentiveness for it can be misleading in certain cases. For example, the index may
be lower in countries in which economic relations are well determined (Balet &
Budak, 2007: 817). Also, many authors point out that indexes of economic freedom cannot be sucient indicators of future prosperity because of following problems: (i) subjectivity problem and institutional shortcomings; (ii) problem of nonconsistent division; (iii) problem of choice and (iv) problem of aggregation.8 Still,
(problematic) issues that such indexes point out - as it is case for Croatia when the
Heritage Index of Economic Freedom is considered - should be taken into consideration by policy makers for they can be very instructive of prescribed but balanced
role of government in fostering economic freedom through its institutional and
legislative framework.
LITERATURE
1. Baleti, Z. & Budak, J.(2007), Indeksi ekonomskih sloboda kao mjerilo institucionalne konvergencije Hrvatske prema EU, Ekonomski pregled, 58 (12), pp.
804-825
2. Carlsson, F. & Lundstrm, S. (2002), Economic freedom and growth: decomposing the eects, Public Choice, 112, pp. 335-344
3. Dawson, J.W. (1998), Institutions, investment, and growth: new cross-country
and panel data evidence, Economic inquiry 36, pp. 603-619
4. De Haan, J.(2003), Economic freedom: editors introduction, European Journal
of Political Economy, Vol. 19, Issue 3, September, pp. 395-403
5. Friedman, M. (1962), Capitalism and Freedom, University of Chicago Press,
Chicago.
6. Gordillo V.M., Alvarez, A.J. (2003), Economic Growth and Freedom: A Causality Study, Cato Journal, Vol. 23., No. 2., pp. 199-215
7. Gwartney, J.D. & Lawson, R.A. (1997), Economic Freedom of the World: 1997
Annual Report, Frasier Institute, Vancouver, B.C.
For more detailed explanation see (Keeljevi, 2007: 236-239).
579
8. Heckelman, J.C. & Stroup, M.D. (2000), Which economic freedoms contribute to economic growth? Kyklos 53, pp. 527-544
9. Hall, J.C., Lawson R.A. & Luther, W. (2008), Economic freedom is negative liberty: A comment on Legum (2007) and Stanford (2007), Real-world
economics review, issue no. 47, 3 October, pp. 261-262 http://www.paecon.
net/PAEReview/issue47/HallLawsonLuther47.pdf (Accessed 12.03.2010.)
10. Keeljevi, A. ((2007), Indexes of Economic Freedom An Outline and
Open Issues, Zbornik radova Ekonomskog fakulteta Rijeka, vol. 25, sv. 2,
pp. 223-243
11. Lawson, R. (2008), Economic Freedom and Property Rights. Making
Poor Nations Rich. Benjamin Powell. Stanford: Stanford University Press.
12. Legum, M. (2007), Should We Aspire to a High Score for Economic Freedom? Post-Autistic Economics Review 42,http://www.paecon.net/PAEReview/issue42/Legum42.pdf.
13. Levi, A.W. (1959), The Value of Freedom: Mills Liberty (1859-1959), Ethics, Vol. 70, No. 1, pp. 37- 46
14. Norton, S. (1998), Property Rights, the Environment, and Economic WellBeing. Who Owns the Environment? Peter J. Hill and Roger E. Meiners.
Lanham: Rowman & Littleeld.
15. Pitlik, H. (2002), The path of liberalization and economic growth, Kyklos
55, pp. 57-80
16. Stanford, J. (2007), A Silly Project, Post-Autistic Economics Review 43,
http://www.paecon.net/PAEReview/issue43/Stanford43.pdf
Internet data sources:
1. Croatian Central Bank: Statistical indicators, http://www.hnb.hr/statistika/

hstatistika.htm
2. Transparency International: Corruption Perceptions Index, http://www.
transparency.org/policy_research/surveys_indices/cpi/2009/cpi_2009_table
Boris Crnkovi eljko Poega Ivo Mijo
580
ANALYSIS OF CROATIAN PRIVATIZATION FUND PORTFOLIO

Boris Crnkovi1, eljko Poega2, Ivo Mijo3
SUMMARY
On the way to full membership in the EU, Croatia must, as soon as possible,
complete before the economic transition. An important part of this process is the
completion of the privatization of state property which is privately owned , in
developed market economies, exclusively due to greater eciency and competitiveness of the economy, higher GDP, and consequently - higher living standards for
all citizens. However, public attitudes toward privatization in Croatia is still very
negative, primarily due to the numerous irregularities which accompanied it and
the fact that there was a disproportion between the expectations created for the
privatization and its pragmatically possible ranges. Today, almost 20 years since
the beginning of the privatization private sector share in GDP of the Republic of
Croatia is still too small, and the Croatian Privatization Fund has in its portfolio
still over 800 companies. The analysis of the entire portfolio of the Croatian Privatization Fund will be made in the paper, with two goals. The rst goal is to provide
guidelines for further privatization steps which are necessary. Another goal is to give
guidelines for the restructuring of the Croatian Privatization Fund in an institution
whose primary goal will not be privatization but eective and active management
of state property.
Key words: EU Accession, Privatization, Croatian Privatization Fund, State
Property, Republic of Croatia
1
mr.sc. Boris Crnkovi, Teaching Assistant, Josip Juraj Strossmayer University of Osijek, Faculty of
Economics, Osijek; 31000 Osijek, Gajev trg 7, tel: +385 31 224 400, fax: + 385 31 211 604 e-mail:
bcrnko@efos.hr
dr.sc. eljko Poega, Assistant Professor, Josip Juraj Strossmayer University of Osijek, Faculty of Economics, Osijek, 31000 Osijek, Gajev trg 7, tel: +385 31 224 400, fax: + 385 31 211 604, e-mail:
zpozega@efos.hr
mr.sc. Ivo Mijo, Teaching Assistant, Josip Juraj Strossmayer University of Osijek, Faculty of Economics, Osijek, 31000 Osijek, Gajev trg 7, tel: +385 31 224 400, fax: + 385 31 211 604, e-mail:
imijoc@efos.hr
581
INTRODUCTION
Throughout the last two decades of implementation of the transformation and

privatization process, and due to aggression and war destruction as well as transition environment, the Croatia had to achieve three incompatible goals - economic,
political and social. The privatization model in Croatia was primarily based on caseby-case method of sale, and partially served as social program, i.e. free allocation of
shares to the social classes that were most aected by war. The privatization itself
was conducted in accordance with the Transformation Act and the Privatization
Act. The rst essential step was the transformation of previously socially-owned
enterprises into state owned enterprises (no ones to someones) followed by privatization. From 1991. to the end of 1999. the privatization process included totally
2.650 previously socially owned enterprises, 667 from industry, from the total of
3000 intended to be transformed and privatized at the beginning of the process.
In 2009., according to Commission of the European Communities (Croatia
2009 Progress Report 2009: 22) the privatization process still progresses slowly.
The privatization of assets held under the State Privatization Fund made only limited progress. The private sectors share in employment has remained at around
70%; the private sector share of GDP is estimated at around 70-80%. Overall, very
limited progress has been achieved in reducing the role of the State in the real sector
of the economy. (Croatia 2009 Progress Report 2009: 23)
privatization and its pragmatically possible ranges.
Croatia needs accelerated privatization and restructuring of state and local enterprises (Ott 2005:1) for which it is necessary to conduct a transformation of Croatian
privatization fund as the key institution in the privatization process, not only the
institution which will have privatization as a primary goal, but also ecient management of the whole state assets. (Strateki okvir za razvoj 2006. 2013. 2006:61)
582
ORGANIZATION OF CROATIAN PRIVATIZATION SYSTEM
The key elements of organization of every system of privatization are legislative

frame of privatization, methods which apply in the privatization process and institutions which conduct the privatization.
Legal Framework
Privatization in the Republic of Croatia is regulated by though basic acts, Transformation Act (1991) and Privatization Act (1993).
Transformation Act establishes the basis for the implementation of the transformation of the ownership of enterprises, meaning that its objective is to nd owners
for socially-owned enterprises. This is a matter of the transformation of legal persons. The goal of transformation is for the enterprise to obtain an owner, while the
change in the form of ownership over what is comprised in the enterprise is simply
a consequence of the change in the enterprises new ownership regime. This is why
the Act speaks of the transformation of enterprises, and not the transformation of
ownership over socially-owned assets in the enterprise. (Legal framework of Privatization in Croatia 2010)
After the transformation of social ownership was largely completed (under the
Transformation Act), the only thing left was for this process to be nalized in the
liberated territories of the Republic of Croatia. Therefore it was necessary to legally
regulate the procedures for the privatization of those assets transferred to the Croatian Privatization Fund in the social ownership transformation process, i.e. those
assets which, pursuant to special regulations and in legally permissible fashion became the property of the state, counties, cities and municipalities. This legislative
task was accomplished with the passage of the Privatization Act, which regulates
the criteria and procedures for the privatization of those assets not privatized during
the transformation process. (Legal framework of Privatization in Croatia 2010).
Privatization methods
Various privatization models in Croatia had to enable the fast transformation

of state entities into the private ones. Throughout the whole process the variations
of almost all methods which are know in theory of privatization, were used, from
worker and manager shareholding, through capon privatization to selling via public oerings.
Methods which are currently used are:
583
Public tendering - privatization of companies of strategic importance where,

beside the oered price, very important are the conditions which relate to the
functioning and the status of the company after privatization. This method is
used most for sale of majority portfolio and real estates.
Sale on Zagreb stock exchange - auction sale of the company shares for cash
at a nominal or discount price up to 25% state portfolio participation in the
capital.
Institutions which conduct the privatization
The Croatian Privatization Fund was established by law and it has the status of
a legal person with the rights and obligations stipulated by Act (Croatian Privatization Fund Act) and the Funds Charter (Charter of the Croatian Privatization
Fund). The Funds registered seat is in Zagreb. The Fund has been established to
implement and complete the privatization of assets temporarily transferred to the
Fund pursuant to the Transformation Act, or assets which became the property of
the Republic of Croatia and were then transferred to the Croatian Development
Fund (the legal predecessor of the Croatian Privatization Fund). (Legal framework
of Privatization in Croatia 2010)
The Fund engages in the following professional and administrative operations (Croatian Privatization Fund Act):
transformation of socially-owned enterprises into public companies;
privatization of shares, interests, property and rights and the transfer of shares
free of charge when stipulated by law;
management of legal entities in which state institutions hold shares and interests, and other operations stipulated by law and the Funds Charter;
management of assets owned by the Republic of Croatia when stipulated by

law or a decision of the Government;
management of legal entities in which the Fund holds shares and interests, and
other operations stipulated by law and the Funds Charter.
584
Picture 1: Croatian Privatization Fund Organization chart
Source: (Croatian Privatization Fund Organization Chart 2010)
Acording to Funds Charter management bodies of Fund, shown on Picture 1,

are (Croatian Privatization Fund Management 2010):
Supervisory Board - Supervises the legality of the CPFs operation, reviews the
nancial plan and annual operational statement and submits the report on
the operation of the CPF to Croatian Parliament (Sabor). It has currently 8
(eight) members appointed by the Croatian Parliament.
Management Board - Manages the CPF, adopts its Charter, determines the
operational policy, makes decisions on the sale of shares, business interests,
things and rights, restructuring, incorporation, purchase and sale of companies, prepares the nancial plan and annual nancial statement of the CPF, as
well as other decisions of key importance for the operation of the CPF. It has
5 (ve) members appointed by the Government of the Republic of Croatia.
Colegium of Department Heads - Makes decisions on the sale of shares i.e.

business interests in individual legal persons with registered capital up to
10.000.000,00 kn, discusses and takes standpoints on all relevant issues in the
operation of the CPF, gives proposals and opinions to the Management Board
585
of the CPF and President of the CPF. The Colegium of Department Heads is
composed of the President, secretary and Vice-Presidents. The Management
Board of the CPF appoints and relieves the Vice-Presidents at proposal of the
President of the CPF. Vice- Presidents report to the Management Board and
President of the CPF.
President - Manages, represents and acts on behalf of the CPF. The President
has a Deputy. The Government of the Republic of Croatia appoints the President and Deputy President.
CROATIAN PRIVATIZATION FUND PORTFOLIO
According to (Croatian Privatization Fund Enterprise Portfolio 2010) Funds

portfolio is comprised of shares and stakes in a total of 1,112 companies, and the
equity base of these companies is HRK 177.6 billion, while the equity of the States
portfolio amounts to HRK 21.8 billion.
The Table 1 depicts the structure of the CPF portfolio and shows that the State
has most shareholder interests - in terms of both company numbers and equity - in
the processing industry, and signicant holdings in the trade, tourism, agriculture
and transport and communications sectors. (Croatian Privatization Fund Enterprise Portfolio 2010)
586
Table 1: Croatian Privatization Funds total portfolio

ACTIVITY
1 AGRICULTURE, HUNTING AND FORESTRY
No. of
companies
83
Equity
State Portfolio
(HRK)
(HRK)
4.154.248.151 2.512.854.115
2 FISHING
41.946.600
9.276.240
3 MINING AND EXTRACTION
52.655.624
5.640.221
28.625.991.615
9.570.495.424
458.800
1.101
4 PROCESSING INDUSTRY
5 ELECTRICITY, GAS AND WATER SUPPLY
374
1
6 CONSTRUCTION
101
1.774.696.075
196.218.442
7 TRADE
179
4.067.704.892
329.073.025
8 TOURISM
153
14.156.272.555
3.876.847.727
9 TRANSPORT, WAREHOUSING AND COMMUNICATIONS
65
6.303.182.855
2.792.861.832
10 FINANCIAL MEDIATION
15
115.085.999.600
1.151.234.433
11 REAL ESTATE, RENTAL AND BUSINESS SERVICES
86
3.054.757.596
1.298.846.827
12 EDUCATION
4.497.000
216.727
13 HEALTH PROTECTION AND SOCIAL WELFARE
15.089.269
468.299
14 OTHER PUBLIC, SOCIAL AND INDIVIDUAL SERVICE ACTIVITES
32
239.174.243
35.757.230
Total:
1112
177.602.545.975 21.803.172.733
Source: (Croatian Privatization Fund Enterprise Portfolio 2010)

It is interesting to compare the structure of ownership of companies in the portfolio and the share of states ownership of the companies in the portfolio. Of afore
mentioned companies, the state has the majority of ownership (more than 50%)
in 109 companies of which 25 companies are 100 per cent owned by the state. Of
companies remaining, the state has signicant ownership share (over 25%) in 103
companies. The Picture 2 shows the number of companies in accordance with state
ownership share, and Picture 3 shows the size of basic capital and share of state
ownership in companies.
587
Picture 2: Number of companies in state ownership share.
Source: Made by the authors according to data (Croatian Privatization Fund Enterprise Portfolio
2010)
From the data listed it is clear that there are a relatively high number of companies in which the state has minority shares and in which the share of state ownership
in fundamental capital is over 2,5 billion Kuna. As the minority shares listed above
do not provide any signicant ownership rights in companies listed, it is necessary
to approach the privatization of mentioned companies as early as possible, primarily because of possibility to achieve signicant revenue out of those privatizations.
The basic capital of companies in which the state owns 25-50 per cent is 3,4 billion
Kuna, and the state ownership in the basic capital is over 1,3 billion Kuna. Approaching the privatization of portfolio mentioned, should be done carefully and
keeping in mind the holding of at least 25%+1 of shares there where it is necessary
because of eventual inuence on key decisions in those companies.
588
Picture 3: The size of fundamental capital and state ownership share in it according to the saner of state ownership in companies.
The size of fundamental capital
Share of state ownership in fundamental capital
Source: Made by the authors according to data (Croatian Privatization Enterprise Portfolio
2010)
By analyzing the portfolio in state majority ownership, it is clear that, although

the number of companies is relatively small, the value of their fundamental capital
of 16, 6 billion Kuna is more signicant than their number. Fundamental company
capital in 100 per cent state ownership is 3, 2 billion Kuna, while the fundamental
capital in of companies in major ownership of the state is 13, 4 billion Kuna. In
the share of the state portfolio of the companies listed, it is shown that the share
in 100 per cent ownership is 3, 2 billion Kuna and the share in major ownership
state companies is 10, 4 billion Kuna. The value of state portfolio in companies in
major or 100 per cent ownership represents more than of the value of the entire
state portfolio.
Privatization of portfolio mentioned should be done as soon as possible and
with full care. Primarily it is necessary to regain the trust of the people in the
process of privatization which was deeply undermined by unsolved aairs which
correlate to the process. With the privatization of portfolio which is in major state
ownership, the numerous factors of privatization should be kept in mind; primarily
because of the signicance which some of the companies have in national economy
(nancial institutions, tourist companies, shipyards). However, privatization shout
not be conducted at any price, but it is necessary to organize Croatian Privatization
Fund as well as an institution whose exclusive goal is privatization, but also ecient
management of mentioned assets.
589
CONCLUSION
privatization and its pragmatically possible ranges. Today, almost 20 years since
the beginning of the privatization private sector share in GDP of the Republic of
Croatia is still too small, and the Croatian Privatization Fund has in its portfolio
still over 800 companies. The analysis of the entire portfolio of the Croatian Privatization Fund will be made in the paper, with two goals. The rst goal is to provide
guidelines for further privatization steps which are necessary. Another goal is to give
guidelines for the restructuring of the Croatian Privatization Fund in an institution
whose primary goal will not be privatization but eective and active management
of state property.
BIBLIOGRAPHY
1. Croatia 2009 Progress Report, Commission Sta Working Document, Commission of the European Communittes, Brussels:, 2009.
2. Croatian Privatization Fund Enterprise Portfolio, Croatian Privatization Fund,
http://www.hfp.hr/default.asp?ID=28&pojam=portfelj, (accessed 23.2.2010.)
3. Croatian Privatization Fund Organization Chart, Croatian Privatization Fund,
http://www.hfp.hr/default.asp?ID=16, (accessed 23.2.2010.)
4. Legal framework of Privatization in Croatia, Croatian Privatization Fund, http://
www.hfp.hr/default.asp?ID=61, (accessed 23.2.2010.)
5. Ott, K.: Croatia and the European Union: accession as transformation; In Ott,
K. (ed.): Croatian Accession to the European Union: Facing the Challenges of
Negotiations, Institute of Public Finance Zagreb:, 2005., 1-29
6. Privatization Act, Ocial Gazette of the Republic of Croatia no. 21/96, 71/97,
73/00.,
590
7. Strateki okvir za razvoj 2006. 2013. Zagreb: Vlada Republike Hrvatske,

2006.
8. Transformation Act, Ocial Gazette of the Republic of Croatia no. 19/91,
83/92, 84/92, 94/93, 2/94, 9/95, 21/96, 118/99.,
MINISTRY OF DEFENSE BUDGET IN THE CONDITIONS OF RECESSION
591
MINISTRY OF DEFENSE BUDGET IN

THE CONDITIONS OF RECESSION
Davor uti
Ministry of Defense Republic of Croatia
Croatia
ABSTRACT
We are witnessing the budget cuts in Year 2009 according to fall of budgetary
incomes due to disturbances in the market and crisis spillover from the world reected in the budget of the Ministry of Defense which based on the Government
directions executed four budget revisions .
In the planning documents and guidelines for drafting the budget of the Ministry of Defense must content installed risk categories which contains the procedures
during the reduction of budget revenues or insucient inow of funds for the nancing of the Ministry of Defense. Within each program there is a categorization
of projects according to priorities, and within the project categorization and priority project steps and activities. In case of insucient funding of the budget of the
Ministry of Defense the management structure is using these tools in the process of
making strategic decisions
The purpose of the paper is to present how the Ministry of Defense in terms
of multiple reducing the state budget shall adjust the Ministry of Defense budget,
applying methods of programming, design and risk management...
JEL clasication: H56, H68,
Keywords: budget, recession, budget revision, risk management
1. INTRODUCTION
1.1. What is a recession?
Recessions are temporary slowdown in economic activity accompanied by a simultaneous deterioration of the countrys general economic climate (decline in real
income, rising unemployment, low utilization of production capacity..).1
1
http://hr.wikipedia.org/wiki/Recesija
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Davor uti
By general accepted denition, economic experts, a national economy is in recession if the two adjacent quarters are stagnating (so-called zero growth quota)
or recorded negative economic growth meaning, if the economic growth rate is
lower than year earlier. As a reference valid are the same quarters a year earlier. In
doing measures the overall economic performance of an economy, or gross national
product.2
1.2. Recession in Croatia
Fall of trade after the collapse of business condence in the nancial stability of
the world market, Europe has entered a deep recession, which in 2009 resulted in
Croatia, where, according to a report of the International Monetary Fund (IMF)
on economic prospects of the region in 2009. marked economic decline of 3.5
percent. The nancial crisis has taken a great toll in developed and in the new European economies. Global crisis reected in the Croatian economy and thus on the
revenues of the central government. The 2009 year the state budget was reduced
and it was necessary to make an adjustment or in accordance with the revised budget estimates of revenue. Consequently the Ministry of Defense as part of the state
administration carried out the revised budget.
Based on the Armed Forces of the Republic of Croatia Long Term Development Plan 2006. 20153. (in continuation as LTDP) and Direction for the Development of State Budget of Republic of Croatia for period year 2009. 2011.
(In continuation Directions) Ministry of Defense developed the Draft of Financial
Plan for period year 2009. to 2011.. LTDP was elaborated with implementation
plans in six functional areas: personnel management, international military cooperation, equipping and modernization, facilities management, strategic communication network and, Ministry of Defense and Armed Forces intranet communication
and research and development. For the purpose of implementation of Plans there
is number of projects and tasks with given priority in accordance with established
criteria .4
http://www.dw-world.de/dw/article/0,,3793744,00.html
DPR, NN br. 81/06

Prijedlog nancijskog plana Ministarstva obrane Republike Hrvatske za razdoblje 2009. 2011.
godine, Uprava za nancijei proraun
593
2. DEFENSE PROGRAM OF THE MINISTRY OF DEFENSE
With the Ministry of Defense of the Republic of Croatia (in continuation

MOD) Defense Program are developed and improved and maintained the military
capabilities which enable the protection of sovereignty and territorial integrity of
Republic of Croatia, defense of Republic of Croatia and its allies; strengthen the
role of Republic of Croatia in euro Atlantic and security integrations as the actor
which contributes to international security and strengthen the role of the Armed
Forces as the actor with performing of untraditional military tasks which contributes to benet of society as whole
According to abovementioned in Defense Program the fallowing goals are
established: armed forces priority capabilities improvement, international defense
cooperation improvement, enlargement of armed forces engagement in performing
untraditional military tasks.
These goals are related to the Strategy of Government programs for triennial
period year 2010. 2012. and its general goals: continued strengthening of international position of Republic of Croatia, and Police and Armed Forces in service
to the citizens, as well as the specic goals; continued proling of the Republic of
Croatia as reliable partner at the international level as full edged NATO member;
Integral system of national security development; Sustainment of international defense and police cooperation and Improvement of the priority capabilities of the
Armed Forces .
The goals are implemented through the activities of Defense Program of the
MOD:
Armed Forces functioning
Administration
Equipping and modernization
Facilities and infrastructure
Training and other activities of the Armed Forces
Education and professional development
Reorganization expenses (transition)
Court orders5
Obrambeni program Ministarstva obrane Republike Hrvatske
594
Davor uti
2.1. Strategic Goals of the Ministry of Defense
Entering NATO and concluding the negotiating process with EU strengthens

the role of the Republic of Croatia at international scene. The development of international defense cooperation improves the strengthening the role of the Republic
of Croatia in euro Atlantic security and defense integrations, through the reforms
and the development of defense system of the Republic of Croatia, improving good
neighborly relations and regional cooperation and strengthening the security of the
Republic of Croatia and international security International cooperation includes
bilateral and multilateral cooperation, participation in NATO, military diplomacy
and the implementation of international agreements.
Development of bilateral cooperation is aimed at the over forty countries. In the
bilateral cooperation the projects already initiated will continue.
Multilateral cooperation is developed in the framework of international organizations, regional defense initiatives, and other forms of cooperation such as participation at international forum, conferences and etc... Participation in initiatives
and work of NATO alliance takes place through the activities of cooperation with
partners Euro-Atlantic Partnership Work Plan (EAPWP), Individual Work Plan
(IWP) program integration, training centers and schools of NATO and the work
of the bodies and committees of NATO.
By joining the NATO alliance military-diplomatic network restructuring is conducted and the abolition of oces in some member states of NATO, considering
that the contacts that are now performed through the oce of military delegates
can perform direct contacts in NATO bodies. At the same time considering the
possibility of opening representative oces in the Mediterranean countries which
currently have no ocial military diplomacy.
Arms Control and implementation of international agreements will be carried
out a series of activities that include participation in meetings, inspections and
evaluation of a series of agreements.
Participation in peacekeeping missions and operations of the Republic of Croatia is fullling the international commitments. Participation of members of Armed
Forces in international peacekeeping missions and operations, both individuals
and units of Armed Forces, is based on the eective preparation prior to sending
the mission, and creating conditions of maximum security of the Croatian Armed
Forces in the execution of missions and operations.
595
Participation in the NATO led peacekeeping operations including International

Security Assistance Force ISAF in Afghanistan, Kosovo Forces (KFOR) in Kosovo,
the NATO Response and Operations of liaison ocers in support of international
peacekeeping operations in the Armed Forces NATO/EU headquarters. Participation in UN led missions and operations, including participation in individual
peacekeeping missions for the military observers, sta ocers and military experts
and the peacekeeping mission UNDOF on the Golan Heights.
2.2. Explanation of strategic goals
Improving the ability of the armed forces, priority is directed to reach the level
of capabilities needed to perform all military peacetime and combat tasks and the
constant adjustment of the defense system in dynamic security environment. The
armed forces must be capable of responding to security challenges and risks the
ability to have control of the territory of the Republic of Croatia, deterrence of
potential aggression and conducting combat operations. The realization of this goal
armed forces gain the ability to protect the sovereignty and territorial integrity of
the Republic of Croatia, and defend the Republic of Croatia and its allies, and it will
be dicult given the nancial resources allocated. The planned size and structure of
the CAF result from a realistic assessment of threats and risks, and anticipated missions and tasks of the CAF, the commitments in the international framework and
resources of the expected RH for the defense budget be set aside. Getting the sta
aims at obtaining the appropriate sta as conducted in accordance with the agenda,
which is improving unfavorable age and qualication structure of sta.
Equipping and modernization of the armed forces, weapons and military equipment and support systems, and command and control is very important in the
coming years. The need for equipping and modernization resulting from existing
and future missions and tasks of the CAF and commitments in the international
defense cooperation, and will be implemented within the resources allocated to the
Republic of Croatia for the defense budget be set aside.
Equipping and modernization projects being implemented in accordance with
the budgetary possibilities, based on priorities established by the LTDP.
In accordance with the allocated funds the training of the MoD and the CAF
is carried out, which meets the need to acquire the required knowledge, skills and
capabilities that will contribute to the development of eective defense system and
fullling its basic mission and tasks.
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Training in the Croatian military college (HVU) is implemented through programs ocer and NCO training, learning foreign languages and program KADET.
Program KADET is an integrated form of civil - military school, which educated
candidates for ocers for the combat service and combat service support and represents the primary form of education for career ocers.
Civil and functional training, as the process of acquiring knowledge, abilities
and skills of employees of the MoD and CAF, achieved through education at civilian educational institutions and is conducted through forms of secondary education, undergraduate, graduate and postgraduate studies, professional specialization,
the specialist training of medical doctors, professional courses and other forms of
vocational education and training.
Education abroad is carried out through education and training of active duty
military personnel and civil servants in the civil and military schools, and implemented through bilateral agreements and international training programs.
Performance of ordinary activities of the support units the and administrative
part of the Ministry and the General Sta of Armed Forces, in terms of allocated
funds, planned prerequisites for the smooth ow of training and the regular peacetime tasks of the armed forces;.6
The proposal of the nancial plan of the Ministry of Defense for year 2009. was
made in accordance with LTDP in the amount of 1.86% of estimated GDP, and
for year 2010. and 2011 up to 2% of estimated GDP, with certain items of income,
expenditures and expenses.
3. DETERMINING THE LEVEL OF PRIORITY PROJECTS FOR THE MOD AND CAF
LTDP implementation plans include the priorities according the levels and priorities of rst level, second and third level although it is possible to have multiple
levels of priority
3.1. Risk management
LTDP implementation plans contain important section that is substantially related to risk management. As the system was prepared for potential shake in the
implementation of projects and activities because the key obstructionist of which
6
Obrazloenje prijedloga nancijskog plana za razdoblje 2010-2012. Ministarstvo obrane, Uprava za

nancije i proraun
597
the most important is the lack of budgetary resources, as stated in the implementation plans of LTDP 2007. 2015. The implementation plan for the development
of individual projects in the medium and long term period barriers can manifest
itself through the reduction of total budgetary resources or through a change in
budget structure. The total reduction of budgetary resources reects to the order
of priority of implementation of projects and activities. Changes in the structure
requiring re prioritization of all programs and activities related to budget, through
which the projects would be able to get a lower level of priorities and thus their implementation would be delayed or canceled. Bearing in mind the possibility of such
developments, the projects are made in stages, which will reduce the risk of cancellation of implementation. Likewise, if there is a change in the budgetary framework
each application will be exposed to revision. The risk can occur as well in the event
of vacancy of the functional areas of personnel with appropriate knowledge and
skills to be the holder of certain activities. The system is continuously implementing the reorganization and adjustment processes, procedures and implementing the
management-structure into functional areas of responsibility.7
3.2. Planning in accordance with LTDP
Income from own activities
Although the MoD is the budgetary user, the system includes the organizational
units that achieve a certain income. MoD in the year 2009. planned to achieve revenue from conducting their own business activities in the market based on services
delivered
Explanation of specic income groups
Institute for research and development of defense systems planned to achieve its
revenue from providing scientic research services.
Aeronautical Technical Institute planned in year 2009. to achieve on the market
their own revenue through the engagement of their own capacity to provide service
to domestic and foreign air carriers and thus achieve some of their own income,
which will direct the training of the Institute for more quality service of Croatian
Air force.
Ministarstvo obrane, Provedbeni planovi DPR-a 2007. 2015
598
Davor uti
Explanation of particular groups of expenditures
The proposal of the nancial plan of the MoD for 2009. in relation to the nancial plan for 2008. was expected to be for 15.2% more, according to economic
classication.
Expenditures for employees
Planned expenditures for employees for year 2009. in salary, contributions to

salaries and other expenditures for the employees as a result the planned increase in
base salary of 6%, the planned number of members who will participate in peacekeeping missions, planned expenditures for severance and planned movement of
personnel in MoD and CAF.
Although expenditures for employees in the plan proposed for 2009. were higher than planned for year 2008. for 2.5% they had a tendency to reduce the share of
the nancial plan of the MoD and in 2009. comprised 47.8% of the overall plan
by 53.8% in year 2008.
Material expenses
Material expenditure plan for year 2009. in the overall nancial plan participated
with 48.2% and included reimbursement for employees, expenditures for materials
and energy expenditures for services and other expenditures not mentioned operations. In the majority of the material expenses consisted of expenses for materials
and energy and the rest of the expenditures on military equipment, expenditures
for materials and parts for current and investment maintenance, oce supplies and
other material and energy expenditure. The planned funding for military equipment
were related to the need for equipping and modernization of branches and units of
the CAF and equipping of troops engaged in international missions.
The planned funding for materials and parts for current and investment maintenance were related to the level of maintenance expenditures accuracy of material resources and maintenance of buildings. Planned expenditures of funds for material
mostly consisted of expenditures for the purchase of associated equipment for the
sta of the MoD and CAF in accordance with the standards and criteria for belonging and training employees. In the expenditure of funds for services the most funds
are planned for the services of current and investment maintenance, and related to
the maintenance of combat systems, naval ships and technical systems, aeronautical
technical systems, non-combat material resources, information and communica-
599
tion systems, facilities and infrastructure in order to preserve the functionality of

combat techniques, combat readiness and maintenance of existing facilities. For
reimbursement for employees 43% were compensation for work in the eld to
members of the Armed Forces dialed in peacekeeping operations and missions.
Financial expenses
Financial expenses were related to the court verdict, penalty interest for late payment of business relationships, banking services and payment and interest for loans
received two contracts on nancial leasing.
Compensation to citizens and households money
Compensation to citizens and households in cash referred to scholarship cadets,

scholarships for employees for undergraduate and postgraduate scholarships and
international scholarships.
Expenditures for the acquisition of produced xed assets
Plan expenditure for the acquisition of produced xed assets in the total amount
included repayment rate by a signed contract for the procurement of aircraft Canadair CL - 415
Expenditures for the repayment of principal received loans
Expenditures for repayment of the loans were related to the repayment installments of principal of loans to the two contracts. Payment of principal nance leasing is done on the Repayment Plan period of 2006. until year 2009..
Although the adoption of the LTDP in the Croatian Parliament formally established the direction the development of the CAF, the obligations of certain elements of the defense system and provides a stable level of spending on defense
needs than 2% of GDP on an annual level from 2010 onwards.
3.3. Planning the implementation of priorities and risk management
MoD is aware of the adverse economic conditions caused by the global recession that condition the amount of the State budget, and thus the defense budget,
and that he must share the burden of the economic crisis along with the rest of
the country. Therefore, the Draft Financial Plan of the Ministry of Defense for
the period 2010-2012. was made with the ultimate rationalization of costs so that
600
Davor uti
activities are structured in a way to contain the minimum amount for the cost of essentials necessary for the functioning of specic activities. Hereby makes the implementation of projects in the LTDP and implementation plans, so it was necessary
to redene the scope and pace of realization of anticipated projects.
Revising the budget is dened by nancing capital projects through the reallocation of costs on multi-year period. Applying the method of risk management which
is an integral part of any implementation plan of the LTDP it is possible to carry
out rescheduling implementation plans. Set priorities in the LTDP enabled prolongation of initiation and completion of certain projects for the next budget period or
until the stabilization of the budget and its growth on completion of the recession
or increase in GDP, which directly aects the scope of the budget of the MoD.
3.4. Budget revision in year 2009
During the 2009 years in accordance with the conclusions of the Croatian Government and the guidelines of the Ministry of Finance, MOD initiated the budget
revision in four budgetary phases. Namely the Ministry of Finance gave the order
to all budgetary users to implement the budget in order to reduce the planned budget and meet the planed budgetary incomes.
MoD conducted a budget reduction of diminishing funds for certain programs,
taking into account that they do not endanger the functioning of the CAF and
fullling the strategic goals and international commitments.
Element of risk management that is built into all implementation plans of
LTDP, make possible that in the circumstances of the recession could easily execute a revision or reduction in the current budget year without endangering the
main functions of the MoD and CAF. In order to manage risks better ts into the
function of management, in September 2009. the Guidelines were adopted for the
process of risk management at budget users who have initiated activities that is develops risk management as a systematic and continuous process within the process
of nancial management and control. Risk Management will cover the determination of business objectives, potential risks aecting the achievement of objectives,
and to carrier out their assessment in relation to the probability of occurrence and
signicance eects, and establish appropriate measures to manage risks.
According the above-mentioned elements during year 2009 MOD perform the
budget revision in four budgetary phase, which ranged from 5,698,233,823 to
5,049,323,053 in the fourth version of the 88.61% initial budget
A545039 COAST GUARD
55.000.000
5.698.233.823
TOTAL MoD
132.518.082
384.401.000
93.823.000
257.543.000
580.446.849
73.931.000
186.687.000
552.606.876
61.885.000
34.831.000
3.284.561.016
Total FP
2009.var 1.
A545038 COURT ORDERS
Authors calculations
12
11
A545037 PEACE MISSIONS

EXPENSES
A245036 RESTRUSCTURING
EXPENCES (TRANSITION)
A545035 FIRE PROTECTION
10
A545029 ADMINISTRATION
A545019 FUNCTIONING
OF CAF
A545031 TRAINING AND
OTHER ACTIVITIES OF CAF
A545023 EDUCATIN
AND PROFESIONAL
DEVELOPMENT
A545025 EQUIPING AND
MODERNISATIN
A545027 FACILITIES AND
INFRASTRUCTURE
A545008 INTERNATIOANL
COOPERATION
Account title
No
100,00
0,97
2,33
6,75
1,65
4,52
10,19
1,30
3,28
9,70
1,09
0,61
57,64
structure
5.119.253.407
54.000.000
121.518.082
349.025.000
43.474.950
216.291.000
537.497.591
57.500.000
165.687.000
473.021.626
56.885.000
20.711.000
3.023.642.158
Total FP
2009. var. 2
100,00
1,05
2,37
6,82
0,85
4,23
10,50
1,12
3,24
9,24
1,11
0,40
59,06
structure
89,84
98,18
91,70
90,80
46,34
83,98
92,60
77,78
88,75
85,60
91,92
59,46
92,06
7=5/3*100
index
5.093.216.397
54.000.000
164.518.082
350.463.991
43.154.950
217.141.000
562.004.441
57.004.400
162.591.400
370.249.135
55.961.500
18.331.000
3.037.796.498
Total FP
2009. var 3
100,00
1,06
3,23
6,88
0,85
4,26
11,03
1,12
3,19
7,27
1,10
0,36
59,64
structure
99,49
100,00
135,39
100,41
99,26
100,39
104,56
99,14
98,13
78,27
98,38
88,51
100,47
10=8/5*100
index
5.049.323.053
54.000.000
201.518.082
332.678.491
43.154.950
217.141.000
548.629.133
54.028.400
159.691.400
363.026.621
55.215.000
15.261.720
3.004.978.256
11
Total FP
2009. var 4
100,00
1,07
3,99
6,59
0,85
4,30
10,87
1,07
3,16
7,19
1,09
0,30
59,51
12
structure
99,14
100,00
122,49
94,93
100,00
100,00
97,62
94,78
98,22
98,05
98,67
83,26
98,92
13=11/8*100
index
5.049.323.053
44.000.000
222.108.082
327.457.271
38.403.092
214.139.230
576.859.600
48.490.900
121.329.400
326.370.621
47.310.740
13.902.220
3.068.951.897
Total FP
2009. konana
var.
14
100,00
0,87
4,40
6,49
0,76
4,24
11,42
0,96
2,40
6,46
0,94
0,28
60,78
15
structure
88,61
80,00
167,61
85,19
40,93
83,15
99,38
65,59
64,99
59,06
76,45
39,91
93,44
16=14/3*100
index
Overview of the relationship variants revised budget MOD Ministry of Defense, Department of Finance and Budget, 2010
years
601
602
Davor uti
In year 2009. the nancial plan of MOD was reduced from the initial amount
of 5,698,233,823 to 5,049,323,053 Kuna, which is the absolute amount of
648,910,770 Kuna, or a decrease of 11.39%. This reduction took place through
three revised budget, while the nal variation caused by amendment of the nancial
plan to ensure funding for salaries and severance pay. the amounts for individual
programs decrease, while the planned amount of restructuring charges (severance
payments) increased by 67.61%, in order to achieve the goal set in the LTDP in the
planned strength, the MOD and General Sta.
3.5. Program explanation
Indicators of success:
Fulll the armed forces to the planned number of soldiers, NCOs and ocers,
the number of exercises held, the number of implemented projects and modernization of equipment, number of implemented programs to help transition of the
surplus sta, the number of participants who completed ocer training and non
commissioned ocers (NCO), learning foreign languages and Program KADET,
at the Croatian military college and the number of participants who completed the
programs of international education
Promotion of international defense cooperation
In support of the objectives of the the Strategy of the Government programs
for the period 2010-2012 overall goal is to further strengthen the international
position of Croatian, strengthening the police and armed forces in the service of
citizens and the maintenance of international military and police cooperation. The
goal is implemented through the activities of the defense program MOD: International cooperation and the costs of peacekeeping missions
Indicators of success:
Number of activities of bilateral and multilateral cooperation, the number of

members of the CAF to positions in the bodies and committees of NATO, the
number of military and diplomatic missions and the number of activities related to
the implementation of international agreements the number of international missions and operations involving members of the CAF, and number of CAF members
in international missions and operations.
603
Increasing the involvement of armed forces in carrying out non-traditional

military tasks
The general objective - the police and CAF in the service of citizens and in
particular - developing an integrated system of national security objective is implemented through the activities of the defense of MOD projects in Fire Protection,
Coast Guard and reghting aircrafts.
MoD and CAF try, in addition to performing traditional military tasks, to be a
factor that will contribute to the betterment of society as a whole. CAF engage in
situations where urgent intervention is necessary to preserve the lives and health of
injured or sick. Fire protection in the coming years will be conducted in accordance
with the program activities in the implementation of special measures for protection from re of interest for the Republic of Croatia, Government conclusions and
the needs on the ground. The CAF for implementation of Fire ghting season is
organizing the task force made up of parts of the Croatian Army, the Croatian Air
Force and Air Defense and the Croatian Navy, with the task of providing assistance
and support re-ghting units in the re extinguishing open space from the air and
ground and sea transportation and water supply re-ghters. The task of the Coast
Guard, formed in the Croatian Navy is protection of the sovereign rights and jurisdiction of the implementation of the Croatian Ecological and Fisheries Protection
zone, epicontinental area and the open sea.
Indicators of success is the number of aircraft involved, number of vessels involved and number of involved members of the Armed Forces
Functioning of the Armed Forces
Personal support for members of the armed forces, including salary, contributions, fees and other expenses for employees, a source of funds for planning the
number of employees by year:
/ 2010th year: 17,849 employees - a total of 2,507,057,000 Kuna;
/ 2011th year: 17,598 employees - a total of 2,481,033,000 Kuna;
/ 2012th year: 17,292 employees - a total of 2,451,036,000 Kuna.
Essentials for the functioning of the armed forces are planning the following
resources:
/ 2010th year: a total of 459,049,000 Kuna;
604
Davor uti

/ 2012th year: a total of 452,332,000 Kuna.
Equipping and modernization
For projects in area of equipping and modernization for capital investment
MoD planned the following funds:
Facilities and infrastructure
In terms of anticipated resources plans consist construction, reconstruction and
renovation of facilities and infrastructure necessary for the implementation of the
deployed forces in order to achieve better conditions for working, living and training members of the CAF and the MoD. Funds were planned for years:
International cooperation
Activities of bilateral and multilateral cooperation activities with NATO, the activities to implement international agreements, the establishment and maintenance
of military-diplomatic missions, and lling positions in commands and the bodies
of NATO, is planning the following: 1. 2010th year: a total of 68,000,000 Kuna;
2. 2011th year: a total of 70,000,000 Kuna; 3. 2012th year: a total of 70,000,000
Kuna.
Administrative and general aairs
Personal support for employees in the administrative part of the MoD and the
General Sta of Armed Forces includes salary, contributions, fees and other expenses for employees, a source of funds for planning the number of employees by year:
1. 2010th year: 2255 employees - a total of 372,787,600 Kuna; 2. 2011th year:
605
2213 employees - a total of 369,881,600 Kuna; 3. 2012th year: 2200 employees - a

total of 369,781,600 Kuna.
In order to ensure general and administrative support to the overall defense system, the administrative part of the plan the following funds: 1. 2010th year: a total
of 153,405,400 Kuna; 2. 2011th year: a total of 155,962,400 Kuna; 3. 2012th
year: a total of 156,348,400 Kuna.
Fire prevention
To support the task forces during the re season, the insurance fee personnel
engaged in re extinguishing and maintenance of vessels and aircraft are planning
the following funds: 1. 2010th year: a total of 63,330,000 Kuna; 2. 2011th year: a
total of 64,550,000 Kuna; 3. 2012th year: a total of 64,550,000 Kuna.
The costs of peacekeeping missions
Planned expenditures in activities to participate in peacekeeping missions comprise mostly benets the participants in peacekeeping missions, logistical support on
site conducting the operation and equipping of military equipment and is planned
for the following funds: 1. 2010th year: a total of 333,403,000 Kuna; 2. 2011th
year: a total of 425,403,000 Kuna; 3. 2012th year: a total of 472,403,000 Kuna.
Fireghting aircrafts
According to contract for the procurement of aircraft Canadair CL - 415 MoD

planned repayment installments and the remaining funds needed to settle the costs
in terms of aircraft in the total amount of: 2010th year: a total of 73,700,000
Kuna8
4 CONCLUSIONS
All users of budget of the Republic of Croatia have duty to prepare plans and
budgeting and budgetary projections include the factor of risk management. This
category forces the management structures of state administration bodies to recognize the possible risks and the possible diculties that may occur during use of the
approved budget. Depending on the specic business a risks may be dierent, and
8
Pregled odnosa planskih proraunskih stavki u periodu 2010 - 2012
606
Davor uti
the state administration for the most part it is the lack of budgetary resources for
the implementation of planned programs. Deciency can be caused by a revision
of the budget which generally remains at the same level but changing priorities, or
there may be insucient budgetary revenues so the expenses must be cut. In the
case of the recession it is about another case where an insucient ow of government revenues revised conditions and therefore any government body or any user of
the state budget must reallocate of funds in accordance with the given guidelines.
Correct planning of the budget and planning individual programs and projects
and programming costs of project implementation with the appropriate denition
of the priority groups can maintain the necessary level of defense capabilities for the
realization of goals. Risk management, which is an integral part of implementation
plans of LTDP is improved by applying appropriate recommendations listed in the
Guidelines for the implementation of risk management processes, and adopting a
risk management strategy which will is to be updated each year, signicant risks for
the entire business.
Central Harmonization Unit has produced the Guidelines for the process of
risk management at budget users to help establish a systematic risk management.
Action Plan for implementation of the Guidelines set out the necessary activities
to establish a process of risk management perspective that will facilitate decisionmaking processes when creating a revised budget.
In the case of reducing the budget of the Ministry of Defense in 2009 through
three rounds of budget reductions have retained the necessary level of defense capabilities for the realization of goals. This was achieved with good and tothfull
planning determining the level of priority of activities within the given category of
program and projects. When the priorities are clear for budget spending given by
strategic goals it is possible to eliminate the projects and activities of lower level of
priorities, and keep the key one and enable the smooth functioning of the Ministry
of Defense and CAF.
607
5. NOTES:
1. Deutche Welle, gospodarstvo, 15.11.2008,

http://www.dw-world.de/dw/article/0,,3793744,00.html
2. Dugoroni plan razvoja oruanih snaga Republike Hrvatske 26 -2015., NN br.
81/06
3. Ministarstvo obrane, Provedbeni planovi Dugoronog planarazvoja oruanih
snaga Republike Hrvatske 2007. 2015
4. Ministarstvo obrane, Uprava za nancije i proraun, Obrambeni program Ministarstva obrane Republike Hrvatske
5. Ministarstvo obrane, Uprava za nancije i proraun Obrazloenje prijedloga nancijskog plana za razdoblje 2010-2012.
6. Ministarstvo obrane, Uprava za nancije i proraun, Pregled odnosa planskih
proraunskih stavki u periodu 2010 2012,
7. Prijedlog nancijskog plana Ministarstva obrane Republike Hrvatske za razdoblje 2009. 2011. godine, Uprava za nancijei proraun
8. Wikipedija, Slobodna enciklopedija, kategorija Makroekonomija http://
hr.wikipedia.org/wiki/Recesija
Slobodan Stojanovi Ivan Penava
608
MUNICIPAL BONDS AS A SOURCE OF REVENUES

FOR BUDGETS OF LOCAL GOVERNMENTS IN CROATIA
Slobodan Stojanovi1, Ivan Penava2
1
Lecturer, University of Applied Sciences Lavoslav Ruika in Vukovar, Croatia
2
High-school of Economics, Vukovar, Croatia
ABSTRACT
Local and regional governments in Croatia are organized in the forms of cities,
municipalities and counties. Each local unit has a legally prescribed responsibilities
and scope of work. At the moment, there are 576 local and regional government
units in Croatia, of which 20 are counties, City of Zagreb has a dual status as a city
and a county, 126 are cities and 429 are municipalities. In order to fulll their tasks,
local governments must have sucient budget revenues at their disposal. Partly
because of a large number of local governments and inecient territorial division,
there is a problem of low scal capacity of many local units that are unable to fund
all the public needs on the local level. Especially dicult for local governments to
nance are investments in long-term capital (development) projects. According to
present legal regulation, local governments acquire budget revenues such as tax and
non-tax revenues, grants and capital revenues. Beside these, local units can borrow
nancial funds from banks and other nancial institution and/or issue debt securities on the market.
This paper examines the role of debt securities, namely municipal bonds issued
by the local governments in the Croatia in order to acquire sucient nancial funds
for nancing long term capital projects on the local level. The main legal regulation
in Croatia and basic criteria and constrains on local government borrowing and
municipal bond issuing will be analyzed. Additionally, the relative contribution of
borrowed funds and municipal bonds in the overall budget structure will be discussed along with possibilities and challenges for their increase in the future. The
paper will present an overview of municipal bonds and their characteristics issued
by local governments in the period to present date. A proper model of nancing
capital investments on the local level is of great importance for development of
MUNICIPAL BONDS AS A SOURCE OF REVENUES FOR BUDGETS OF LOCAL GOVERNMENTS...
609
local communities. Therefore, local governments must nd new ways to acquire

additional nancial funds to nance large capital projects, such as infrastructure,
schools, hospitals, roads and similar. Issuing of municipal bonds by some local governments is certainly one of the models that should be utilized in the future more
often. This paper attempts to indicate main advantages of municipal bonds as a
source of revenues of local government budgets, as well as to point out possibilities
for further developments in the eld.
JEL clasication: H71, H72
Keywords: municipal bonds, debt, local government budget, local capital
investment
1. INTRODUCTION
Organization of local and regional self-governmental units in Croatia has been

determined by the actual Local and Regional Self-government Act (Narodne
Novine, No. 33/01, 60/01, 129/05, 109/07, 125/08 and 36/09). According to the
Act, there are cities and municipalities as local self-governmental units and counties as regional self-governmental units. Each local and regional unit must perform
tasks of local importance within their jurisdiction and scope of work as stipulated
by the Act. In order to implement tasks within their scope of work, such as housing
and settlement development, communal services, child and social care, education
and similar, local units must have adequate source of revenues. Disposable budgetary funds, which local units freely and independently allocate for budgetary expenses, must be in relation with tasks that must be fullled by local units (Markovi
& Stojanovi; 2007, 21). Hence, it is of great importance for any state to create
proper model of local government nancing which will secure sucient nancial
funds for current and developmental needs of local units. Budgetary analysis of revenues and expenses of local units in Croatia indicate problems in nancing of large
investments on local level. One of available tools at disposal is issuing of municipal
bonds. Local units have rarely used this option although legal preconditions for this
sort of nancing have been in existence since 1993. There are many dierent reasons for this situation, which could mostly be explained with inadequate territorial
organization, low scal capacity of local units and some legal constraints.
610
2. LOCAL GOVERNMENTS AND BUDGET REVENUE STRUCTURE IN CROATIA
Legal framework establishes in total 576 local and regional governmental units
in Croatia, of which 20 counties, 126 cities and 429 municipalities with City of
Zagreb which has a dual status as a city and a county. According to data for 2003,
small municipalities (population less than 5,000) make 84.3%, medium municipalities (population of 5-10,000) make 14.1% and large municipalities (population
more than 10,000) make 1.6% of all municipalities in Croatia. Similar situation
could be applied to cities, where even 46% of all cities have population less than
10,000 and 18 cities have population of less than 5,000 (Pavi; 2006, 229). Such a
great number of small and fragmented local units populated by only 4,4 million inhabitants points to the potential problem of nancial self-suciency of local units
with respect to budgetary nancing of their current and developmental needs.
Local units nancing model has been determined by the Local and Regional Selfgovernment Financing Act (Narodne Novine, No. 117/93, 69/97, 33/00, 73/00,
127/00, 59/01, 107/01, 117/01, 150/02, 147/03, 132/06, 26/07 and 73/08). The
Act regulates nancing methods and revenue sources of local units in Croatia. Unfortunately, the level of a scal autonomy, which is dened as a capability of local units to independently ascertain sources of tax and non-tax revenues (Bajo &
Broni; 2004, 448), is very restricted by the central government. The problem of
insucient budgetary resources is at best visible with regards to nancing of long
term projects. Local unit revenues can be divided into several categories, such as
tax and non-tax revenues, grants and capital revenues. According to data of the Finance Ministry, total budgetary revenues of all local units are more than doubled in
period 2002 to 2008, from KN12.43 billion to KN25.94 billion respectively (see
Table 1). The trend of decreasing tax revenues and increasing non-tax and capital
revenues and grants is clearly visible. One of the main reasons inuencing this
trend is a great number of economically weak local units.
611
Table 1. Revenue structure of local budgets, 2002-2008

(in billion KN)
2002.
2003.
2004.
2005.
2006.
2007.
2008.
Tax revenues
6.928
8.381
9.656
10.335
11.926
13.315
14.390
Non-tax revenues
3.494
3.892
4.256
4.990
5.549
6.334
6.868
Grants
1.394
1.504
0.963
1.165
1.200
2.035
2.295
Capital revenues
0.610
0.710
0.852
0.908
0.937
1.483
1.485
Total revenus
12.426
14.488
15.727
17.397
19.612
23.166
25.038
Source: Authors calculation according to data of the Finance Ministry
If capital income and capital spending movements are observed in the same period, an ever increasing gap between two categories can be noticed. According to data
in Table 2, local capital revenues increased 143% along with capital expenditures
growth of almost 180% in the period 2002 to 2008. Therefore, the resulting decit
increased 192%, from KN 1.724 billion in 2002 to KN 5.033 billion in 2008.
Table 2. Capital revenues and expenditures relation in local budgets (in billion KN)
2002
2003
2004
2005
2006
2007
2008
Index
(2008/2002)
Capital revenues*
0.610
0.710
0.852
0.908
0.937
1.483
1.485
243
Capital expenditures**
2.334
3.540
4.067
4.464
5.279
6.312
6.518
279
Decit
-1.724
-2.830
-3.215
-3.556
-4.342
-4.829
-5.033
292
The exact title as stated in the Budgetary Chart of Accounts is Revenues from sales of nonnancial assets.
**
The exact title as in the Budgetary Chart of Accounts is Expenditures for the acquisition of
non-nancial assets.
Source: Authors calculation according to data of the Finance Ministry
The analyzed decit on a local level can be nanced (1) from a surplus of current
operating revenues in relation to current operating expenditures and (2) by borrowing. Although data indicates that current operating revenues are considerably
higher than the current operating expenditures, the situation is much dierent if
grants are eliminated from revenues. Therefore, the existing level of capital spending has been nanced to a great extent with grants by the central government and
612
through various forms of long term debt. The fact that almost 50% of local units
are part of the so called assisted areas receiving additional support and funds from
the state additionally describes the problem of capital investments on a local level.
3. TYPES AND CHARACTERISTICS OF MUNICIPAL BONDS
Municipal bonds, also known as munis, are debt securities issued by local governmental units. Local unit, called issuer, promises to repay to security buyer (investor)
an amount of money borrowed, called principal, along with interests according to a
time schedule and other contractual terms. Generally, maturity dates are anywhere
from one to 40 years from the date they are issued (Wesalo Temel; 2001, 1). The
interests are usually payable semiannually. The principal is usually paid out at the
maturity date or it can be amortized over certain period of time when it is payable
along with the interest. The most developed municipal bond market is the market
in the USA. According to data of the US Federal Reserve, total value of outstanding
municipal bonds in the US was $2.7 trillion at the end of 2008, while the number
of issuers was about 50,000. Municipal bonds represent the most important channel used by local units for nancing local infrastructure on a local level.
There are several characteristics that make munis desirable for investors. First of
all, there is a federal tax exemption status on interest income. This feature is regular
for most municipal bonds and exceptions are few and specied by the central government (Faerber; 2000, 188). Additionally, buyer who resides in issuers area are
exempted of local taxes too. The tax exemption status on interest income is dening
characteristic for investors and issuers alike. Bond buyers can secure higher yields
on their investments if compared to taxable bonds and local units can borrow money under the favorable terms paying lower interest rates. The fact that munis are issued by local units means that the default risk for investors is minimized. Available
data show that rating agencies, like Moodys Investors Service, are giving an investment grade to more than 99% of the evaluated bonds. Additionally, over 50% of
munis are insured by the special insuring companies known as nancial guarantors or bond insurers that guarantee repaying of principal and interests in case issuer defaults. The low default risk contributes to market liquidity. Therefore, along
with attractive tax-exempt interest yields, investors can realize capital gains trading
bonds in the secondary market. Ownership structure shows individuals as the largest category of investors as opposed to other securities where institutional investors
are the key players. According to data of the FEDs for 2006, households own over
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70% of outstanding value of the municipal bonds either directly or through dierent funds such as money market funds, closed-end funds and mutual funds.
There are number of types of municipal bonds depending on criteria of classication. The main classication is (1) according to the length of time to maturity
and (2) according to the revenue type which guarantee the repayment of the principal and interest (Faeber; 2000, 193). According to the maturity, there are shortterm municipal bonds, called municipal notes that mature in less than one year and
that are issued by local units in order to balance cash-ow during one budgetary
year, i.e. overcome temporary problems in liquidity, as well as long-term municipal
bonds that mature in more than one year and are issued to nance capital projects.
By the revenue type which guarantee the repayment, there are general obligation
bonds and revenue bonds (Bajo & Jurlina Alibegovi; 2008, 149). General obligation bonds are munis secured by the full faith and credit of the issuer and usually
supported by the issuers taxing power. Local unit guarantee repayment from all
revenue sources at its disposal. The issuing of this type of munis usually demands
voters conrmation by referendum; hence the name voter approved munis. Due to
regularity of budgetary revenues, general obligation bonds have the lowest default
risk and interests are fully tax exempted. Revenue bonds guarantee debt repayment
by the charges tied to the use of the facilities nanced by the bonds. Such specic
capital projects, that generate revenues from users fees during their economic life
cycle that are used for debt repayment, are roads, bridges, water and sewage systems
and other public investments. Beside basic types of municipal bonds, there are
number of munis with special features adjusted to certain categories of investors,
such as insured municipal bonds, xed rate, oating rate and variable rate munis,
zero coupon bonds, put and call bonds and similar.
4. MUNICIPAL BONDS IN CROATIA
Municipal bonds are nancial instrument not very often used on a local level in
Croatia. Primary reasons for current situation could be found in low scal capacity
of the most local units and in legal constraints imposed on the level of indebtedness of local units by the central government. Local and Regional Self-government
Financing Act from 1993 allows the possibility of borrowing in order to obtain
needed funds for capital investments. According to the Act, local unit can borrow
only if the State Oce for Audit assesses that debt repaying would not jeopardize
nancing of current expenditures. In that case, local unit can get a public loan or
614
issue municipal bonds upon approval of the Finance Ministry. Central government
closely regulates borrowing of local units and guarantee issuing with Budgetary Act
from 2003 and annual budgetary execution acts. Using budgetary constraints, central government secures macroeconomic stability and prevents irresponsible policy
with respect to debt on a local level. On the other hand, limits on borrowing prevent development of new credit instruments and municipal bond market as forms
of capital projects nancing. The basic borrowing condition which must be met by
the local unit in order to get approval of the Finance Ministry is a surplus of current
operating revenues in relation to current operating expenditures in the year preceding the year of the borrowing. Additionally, the borrowed funds must be solely used
for nancing of capital projects.
Since 1998, total annual liabilities arising from the borrowing cannot be higher
than 20% of revenues realized in the year which precedes the year of the new borrowing. Total annual liabilities include annual credit annuities, liabilities deriving
from issued securities and guarantees from previous year as well as unpaid obligations from previous years. As an additional limitation, in 2003 the government
prescribed maximal potential annual amount of borrowing for all local units as a
percentage of total operating revenues realized in the previous year. The limitation
should not be applied to local units that got approval for the borrowing in previous
year, but did not use it, local units in the area of special state concerns and local
units that are receiving loans for capital projects from Fund for Regional Development and Fund for development and employment. Therefore, annual borrowing
of all local units in one year can be higher than the amount calculated on the base
of the additional limitation. Table 3 shows additional budgetary limitations in percentage and absolute amounts in period 2003 to 2008.
615
Table 3. Budgetary limitation on the borrowing amount by local units, 2003-2008

2003
2004
2005
2006
2007
2008
Budgetary limitation in % of total operating

revenues
3.00
3.00
2.00
2.00%
2.30
2.30
Budgetary limitation on borrowing in millions KN
354
413
298
330
430
499
Source: Authors calculation based on budgetary execution annual acts and data from the Finance
Ministry
If the share of funds collected by municipal bonds is analyzed in relation to total

annual borrowing amount of all local units, it can be concluded that munis started
to be used more intensively on a local level only in 2004. With the exception of
2005, the revenues from munis have stabilized between 20% and 30% depending
on the year analyzed (see Table 4).
Table 4. Share of munis revenues in annual borrowing of local units, 2003-2008

2003
2004
2005
2006
2007
2008
Realized annual borrowing (mill.)
587
681
314
487
520
564
Revenues from municipal bonds (mill.)
12
216
117
182
116
2.04%
31.72%
2.55%
24.02%
35.00%
20.57%
Share of munis in %
Source: Authors calculation based on data of the Finance Ministry
Municipal bonds have been issued so far by 8 local units in Croatia, namely
by 1 county and 7 cities. Table 5 gives an overview of municipal bond issues with
their basic characteristics. Issues by Istarska County and City of Opatija had been
fully redeemed, while others have been regularly serviced. The municipal bonds are
listed on the Zagreb Stock Exchange and can be freely traded in secondary market.
Most of the trading takes place in over-the-counter market between institutional
investors. All bond issues have been sold according to negotiated model in which
terms of the sale are negotiated between issuer and underwriter who is purchasing the debt with certain discount and only after sells the bonds further to other
investors or holds them in his possession (Feldstein & Fabozzi; 2008, 56). It is
noticeable that the lowest interest rates were in 2006, just before the outbreak of
the global nancial crisis. Financial funds have been used for purposes of nancing
local infrastructure projects. All issues have been of general obligation bond type.
616
Early bond issues in nineties had shorter maturity dates, while later maturities got
longer. At present, all outstanding munis have maturities between 7 and 10 years.
Bonds are denominated either in euros or kunas with principal amount in range
between KN 25 million and KN 180 million. Interest is payable semiannually and
principal is amortized over duration period according to dierent models, payable
along with the interest. Only City of Zadar issued bonds with principal payable at
the maturity date. As data in the table clearly shows, the situation with respect to
basic characteristics of bond issues have improved signicantly in the period after
2004.
Table 5. Municipal bonds issued by local governmental units, 1995-2008

Local unit
Purpose
Sewage water disposal

system (eco-bonds)
Hospital debts payment
(health bonds series
A)
Istarska County Hospital
debts payment
(health bonds series
B)
Communal infrastrucOpatija
ture (water supply and
sewage system)
Schools, sport facilities,
Koprivnica
roads, sewage system
Istarska County
Zadar
Rijeka
Split
Vinkovci
Osijek
Sports hall, indoor

swimming pool
Indoor swimming pool
complex
Roads, sports hall,
cultural facilities
Indoor swimming
pool complex, cultural
facilities
Communal infrastructure (squares reconstr.)
Issuing Maturity
year (in years)
1995
2.5
1996
Principal
Principal
amount
amount
(in millions) (millions of kn)
DEM 2
Interest
(per anum
in %)
11
4.3
DEM 2.8
1996
5.7
1997
14
8.5
2004
60
6.5
2004
18.5
5.5
2006*
10
25.6
180
4.125
2006**
4.5625
2007
10
42
5.5
2007
10
25
5.5
617
Split
Roads, sports hall,

cultural facilities
2007
8.1
4.75
Split
Roads, sports hall,

cultural facilities
2008
8.2
Total amount of KN 180M was divided into 3 tranches of KN 60M each. First tranche was
issued 2006, second tranche 2007 and third tranche 2008.
**
Total amount of 8M was divided into 2 tranches of 4M each. Both tranches were issued in
2007, 5 months apart.
Source: Authors drafting according to municipal bond prospectuses
5. CONCLUSION
Territorial organization of local and regional self-governments in Croatia determines 576 local units on 4.4 million inhabitants. Such a big number of mostly
small local units strongly inuence their nancial position in terms of their scal
capacity and insucient budgetary revenues. The problem is noticeable especially
in nancing of capital investments. In most cases, local units have not been capable
to nance local developmental and long term projects on their own, without a support of the central state. One of the instruments that local units can use is issuing
of municipal bonds. The so called munis are debt securities issued by the local units
and bought by investors in exchange for interests and principal paid at xed time
schedule and according to contractual terms. Munis are used very often in developed market economies and represent the most important channel for nancing of
infrastructural projects by local units in the USA.
Munis have been hardly noticeable in Croatia until 2004. Due to improved
overall economic situation and scal decentralization, several cities with sucient
nancial strength decided to nance their communal projects with municipal
bonds. Although munis could be more often used, there are some constraints that
prevent their stronger development. Primarily, the low scal capacity, which makes
bonds repayment out of budgetary revenues almost impossible. Also, some legal
and budgetary limitations prevent local units to acquire additional funds for capital investments through munis. Institutional demand exists due to investors legal
obligation to invest part of his portfolio in the bonds. Additionally, professional
and skilled agents and underwriters, mostly big banks, needed for issuing process
are existent. Other factors such as regulated bond market, macroeconomic stability,
additional legal regulations on some aspects of nancial market and certain types of
securities etc. require some ne-tuning, but they could not be seen as an obstacle
618
in the process. Present economic situation in Croatia maybe doesnt seem favorable
for bond issuing by local units. Nevertheless, some shifts can be expected in near
future that would lead to stronger development of municipal bonds, especially if
announced administrative and territorial reform of local and regional self-government results in local units with higher scal capacity.
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8. Zakon o nanciranju lokalne i podrune (regionalne) samouprave, Narodne
novine 117/93, 69/97, 33/00, 73/00, 127/00, 59/01, 107/01, 117/01, 150/02,
147/03, 132/06, 26/07, 73/08
9. Zakon o izvravanju Dravnog prorauna RH za 2003-2008. godinu, Narodne
novine 154/02, 31/04, 171/04, 148/05, 137/06, 28/08
10. Zakon o lokalnoj i podrunoj (regionalnoj) samoupravi, Narodne Novine
33/01, 60/01, 129/05, 109/07, 125/08, 36/09
11. Zakon o proraunu, Narodne novine 96/03
HEALTH,
EDUCATION
AND
WELFARE
APPLICATION OF DOUBLE PYRAMID OF THE LEADERSHIP AND QUALITY...
621
APPLICATION OF DOUBLE PYRAMID OF THE

LEADERSHIP AND QUALITY CIRCLES IN HEALTH CARE
FACILITIES
mr. sc. Mario Bajto
dr. med. Igor Alrevi
ABSTRACT
Around 2500 of our companies and institutions applies standard quality systems i.e. ISO management and decision-making systems. For safer and long-term
future only those unmodied systems are not enough but are the good basis for the
gradual introduction of modied system of total quality management
JEL clasication: I11, I18
Keywords: quality, double pyramid, consensus, teamwork.
In this daily changes that are happening around us and only those companies
and institutions will survive that are able to adapt quickly to changes. C. Darwin
wrote: In the struggle for survival, the ttest win out at the expense of their rivals because they succeed in adapting themselves best to their environment.
If it wants to stay competitive and have a safer future institution (company)
must many things comply with changes. For example it can be:
segmenting the market,
appearance and performance techniques on the market,
choice in this case, services,
reliability and quality of services,
the activities after the given service,
management of changes in human resources, etc.
All too often the change of human resources has been neglected, and therefore
the question why many of the changes are not successful. For change it can be said
622
Mario Bajto Igor Alrevi
that it is managed completion of the old way of behavior and adoption of the new
one.
In discussions about models of leadership in an institution or company in most
cases the conclusion is that the type of model of leaderships is autocratic and that
most decisions are made by an individual. That of course creates consequences not
only for the company but also for the wider community.
In order for the institution (company) be able to achieve the requirements of
the selected modied model, a very thorough knowledge and experience of the
continuous improvement of business in which nearly all employees participate is
necessary. The knowledge and experience in the eld of quality and frequently used
tools of quality control, decision making and management signicantly contribute
to it.
Many of these managers do not know or will not recognize the advice and
suggestions of changes of their closest associates (medical but also non medical),
especially if these change are positive because they are not used to or have learned
to work in a team, that is, to respect other peoples attitudes and opinions.
J. G. Leithauser says: For most people it is hard understanding the usefulness of
some of the things while they are still new. General law of nature laziness, rules also
in the human mind: they often adhere to believes of their fathers and grandfathers.
New, no matter how good it is, does not seam as valuable as the old, no matter how
bad the old one is.
People often resist change because they fear of the unknown i.e. uncertainty,
because they dont have the right information about possible changes, they are
unsure in their knowledge and themselves, do not feel the need for change, have
no interest ....
In general, there are foundations for such human thinking and it is in fact of
the structure inertia i.e. in institutions and companies organization where they
employ people who t into such structure, and then limitation of the scope of
some units within the system, the group inertia where an individual could accept
the change in work and style of thinking, but in that case would jeopardize some
of the individuals in the institution (the company), then the profession would be
also threaten which till the time change worked in one way and with the emerging
changes would likely be compromised. Next the threat to power system where the
emerging changes in redistribution of decision management jeopardize existing
623
power relationships in the core structure of the institution and the vulnerability of
existing sources of funding where the unity or the individual would be left without
sources of funding or with a reduced budget.
W. Churchill says: There is nothing wrong with change if it is in the right direction. To improve is to change; to be perfect is to change often.
Again, on the other side we have institutions (companies) in which part of the
medical and non medical management is for one solution and the second part for
the other. In these institutions a confrontation arises between two main forces of
opposite directions, which in turn creates a bad working atmosphere and working
destruction of those whose solution is not accepted (Figure No.1).
Figure No. 1
This motivated us to develop double-pyramid model of the leadership in total
quality because we believe that the application of quality system with upgrade of
the previous stated model creates the postulate for success, both in nancial as well
as in medical business and develops a team spirit in the collective, in this case the
hospital Magdalena from Krapinske Toplice (Figure No.2) and it is also applicable
in the other systems.
624
Figure No. 2
Model Double pyramid of the leadership (Figure No. 3.) represents
the teams which made decisions jointly or by consensus. The above model
consists of four (A, B, CD) and possibly several more levels of decision making namely several smaller or larger teams (manager team, quality team, professional / medical issues team, team for educational issues, general affairs
team) to make decisions in the hierarchy of facility business:
Decision-making level A - The manager team
Decision-making level B - The quality team
Decision-making level C - teams for Medical issues, Educational issues,
General affairs issues
Decision-making level D - individual decision
625
Figure No. 3.
Simply said Double pyramid of the leadership in total quality consists of a
number of teams which with their joint action makes pyramid.
To Create a balanced manager team (a roof team for decision making) in the
Double leadership of the pyramid means ensuring that people who are selected
have the skills necessary to perform the task but also to have dierent enough education that they can form a strong group dynamics:
QMR - conforms the director and the manager arguments and together with
them make decisions based on facts - the consensus that quality team prepared
for them.
Director - takes care of a medical professional and all medical aspects
Manager - takes care of professional non medical sta and all aspects of the
institutions that are non medical
Manager team brings strategic decisions for each situation and for every problem that they quality team has reported and for which things that are in managers
line of work.
626
Also, the general aairs, medical and teaching issues team its problems and
situation resolves independently or by consensus if there is no need for forwarding it to quality team.
One of the goals of teams is certainly increase of the eciency of the meetings
itself, which may not have adequate eect without good preparation (previously
dened agenda, clearly dened priorities, earlier communication by e-mail, previously dened meeting duration, the presence of other team members and some
other individuals).
Diversity in age, skills, culture, lifestyle and work experience provides dierent
views of team work and decision making. This reects the high level of eciency and innovation, because team members are been educated to look at personal
dierences as something very valuable, and not as a potential threat to its own
personality.
All the problems and situations that are forwarded by the general aairs team,
medical issues team and educational issues team on base of the individual criteria,
to the quality team, they prepare it according to the individual (the interest of the
service, department or even individual) and general criteria (global interest of the
institution) and forward it to the manager team.
It is important to note that the quality team does not make decisions, but on
base of individual criteria, services and departments, with the application of additional i.e. general criteria, provides possible solutions to the manager team, who
must verify or stop them, of course, by consensus, and return them to the above
teams for the renement, i.e. the re-examination.
Achieving consensus requires that the problems are talked openly and long
trough teams, to consider various solutions and all the available options, to try to
take into account the opinions and attitudes of those who disagree with something
and to nd solutions together that will suit everyone. I think that double pyramid
of the leadership includes these segments, where decisions are made based on the
facts at dierent levels.
Very important thing in the above model are criteria which already exist i.e. they
are the starting point for discussion on a possible solution because without criteria
at all levels of decision making in the institution, model does not have its eect and
these criteria must exist in all parts of institution i.e. system (from human resources
627
sta, to team leaders elections up making strategic decisions for the company i.e.
institution).
In order to be members of the manager team, and other teams as well within the
leadership pyramid, its members must meet some of the constituent elements:
get the maximum of positive energy from their managers to raise their
morale
to visit subordinate at their workplace and learn together with them about
their problems
to be good listeners and not to admire his speeches and monologues
humble and open to everyone, regardless of the status and position in the
hierarchy
Do not run away from problems and does not force others to carry out your
duties
Persistent but also tolerant, willing to accept dierent opinion, not impose by
force your own view
submit the facts to members of the manager team on which strategic decisions
are made
do not suer from the formal authority
have the ability to simplify problems
honesty and principle, especially under pressure (very often)
Remove unnecessary control and be ready to solve conicts face to face, not
through any third person or in writing without any explanation
devoted to the institution goals and the willingness to sacrice her welfare,
reluctance to manipulate people
respect the people with the creation and encourage them to constant innovation, etc.
Members of various teams:
Manager team
Quality team,
Medical issues team,
Educational issues team,
General aairs team
628
can be encouraged to work together eectively in a way to implement team

building during the team development, especially during the stages of rush and
nomination.
Created quality team of the leadership pyramid means that the mentioned
team must prepare absolutely all of the individual problems and situations of these
teams, who were forwarded to them and are an integral part of institutions business. Together with all team members adjoin the preparation of possible solutions
given by the general criteria, according to previous experiences, the facts, according
to the mathematical and statistical methods that are used as a monitoring method
etc. and submit them to the manager team who makes the nal decisions based on
their knowledge, experience, facts
The above model is comparable to quality circles or to say some experience are
used for the development of double pyramid of the leadership
Quality circles in principle are groups of a dozen employees who worked on
similar jobs, and met together occasionally in their leisure time to resolve quality
problems of its areas of activity i.e. work.
According to K. Ishikawa quality circles leaders must be competent for a good use
of eight tools of problem analysis, while in the double pyramid of the leadership
team leader must also be person of high quality both personal and professional.
It is very important to mention that aggressive style of performance and autocracy seriously impairs the functioning of the above model than assertive style. It is
the style which in this model has suitable soil and its development is encouraged.
With quality and clearly dened internal and external communication in certain system, quality gets its dimensions i.e. we begin to control it, as the quality
guru W. Edwards Deming said:
Total quality control helps to nd problems easier to express themselves clearly
and inventive and to solve them. It oers a plan, the road map that leads to better
competitive position.
REFERENCES
Books
1. Drljaa, Miroslav: Mala enciklopedija kvalitete V, Zagreb, 2004.
629
2. Druckner, P.: Upravljanje u buduem drutvu, M.E.P. Consult, Zagreb,

2007.
3. Injac, Nenad: Mala enciklopedija kvalitete IV, Zagreb, 2004.
4. Kelly, John: Upravljanje ukupnom kvalitetom, Zagreb, 2007.
5. Osli, Ivica: Kvaliteta i poslovna izvrsnost, Zagreb, 2008.
6. Salvatore, D.: Ekonomija za menadere u svjetskoj privredi, MATE, Zagreb,
2004.
7. ivko Kondi: Kvaliteta i metode poboljanja, Varadin, 2004.
8. ivko Kondi: Kvaliteta i ISO 9000 - primjena, Varadin, 2004.
Standards
1. HRN EN ISO 9000:2000: Sustavi upravljanja kvalitetom Temeljna naela

i rjenik
2. HRN EN ISO 9001:2000: Sustavi upravljanja kvalitetom Zahtjevi.
Internet
http://www.iso.org/iso/ims_alerts-subscribe - 2k (11 January 2010)

http://kvaliteta.inet.hr/ (11 January 2010)
http://www.webring.com/webring?ring=qual&list (19 January 2010)
http://www.iso9000directory.com/links.htm (20 January 2010)
http://www.olkk.nl/ (20 January 2010)
http://deming.eng.clemson.edu/onlineq.html (20 January 2010)
http://www.quality.org/ (25 January 2010)
http://www.raviv.com/links/quality_bookmarks.htm (02 February 2010)
http://www.eoq.org/ (02 February 2010)
http://www.bsigroup.com/en/Standards-and-Publications/ (02 February 2010)
http://www.quality-foundation.co.uk/ (05 February 2010)
http://www.benchnet.com/bppf2003e.cfm (05 February 2010)
http://www.efqm.org/Default.aspx?tabid=336 (05 February 2010)
630
http://www.asq.org/media-room/press-releases/2008/20081201-lern-award.html
(05 February 2010)
http://www.iso.org/iso/home.htm (10 February 2010)
http://www.tuv.hr/MS/kvaliteta.aspx (10 February 2010)
http://www.edukocert.hr/pravilacerticiranjasustava.pdf (10 February 2010)
http://www.oskar.hr/projekti/65.html (10 February 2010)
http://www.king-ict.hr/default.aspx?tabid=3478 (11 February 2010)
http://zdravstvo-kvaliteta.hlz.hr/index.php?option=com_content&task=view&id=
14&Itemid=1(11 February 2010)
DETERMINANTS OF SERVICE QUALITY IN HIGHER EDUCATION
631
DETERMINANTS OF SERVICE QUALITY

IN HIGHER EDUCATION
Legevi Jelena
Faculty of Law
Josip Juraj Strossmayer University in Osijek
ABSTRACT
The purpose of the study is to report on an in-depth exploration of service

quality in a higher education and to evaluate the relative ecacy of two measuring
instruments of service quality (namely Higher Education PERF-ormance (HEdPERF) and SERVPERF within a higher education setting. After a pilot test, data
were collected from 1494 students at University J.J.Strossmayer and were subjected
to factor analysis. Results indicate that students perceptions of service quality are
changing over the period of study, class attendance and faculty achievement. Students on the last years of study, good attendance record and better grades are satised with service quality of higher education. A principal component analysis was
carried out on the total sample, and yielded with another factor structure than the
authors suggested. Further research is required to consider the experience of lecturers in relation to delivering service quality has been highlighted as a vital aspect in
achieving a high-quality service. Research is needed to be extended at graduate students with working experiences who are much more objective in theirs evaluations
of the importance of service quality in higher education.
JEL clasication: I23, L15,
Key words: service quality, tools for measuring service quality in higher education, education, measurement, university, statistical analysis
1. INTRODUCTION
The role of service quality in higher education has received increasing attention
during the last two decades. Higher education institutions should ensure that all
services encounters are managed to enhance consumer perceived quality. While
632
Jelena Legevi
there is a consensus on the importance of service quality issues in higher education, the identication and implementation of the right measurement instrument
is a challenge that practitioners who aim to gain a better understanding of the
quality issues with an impact on students experiences face. In fact, the use of the
most appropriate measurement tool would help managers to assess service quality
provided by their institutions, thus having the ability to use the results to better
design service delivery. A review of the literature reveals that the most popular scales
used to measure service quality are SERVQUAL Service Quality (Parasuraman
et al., 1988) and SERVPERF Service Performance (Cronin & Taylor, 1992).
However, additional dimensions that emanate from the higher education could
be included, as in the case of HEdPERP Higher Education Performance scale
(Firdaus, 2006a).
2. SERVICE QUALITY MEASUREMENT IN HIGHER EDUCATION
A survey of the services marketing literature reveals two main approaches to

measure service quality: SERVQUAL (Parasuraman et al., 1988) and SERVPERF
(Cronin & Taylor, 1992). One of the most popular methods, called SERVQUAL,
has its theoretical foundations in the gaps model and denes service quality in
terms of the dierence between customer expectations and performance perceptions on a number of 22 items. Customer expectations are beliefs about service
delivery that serve as standards or reference points against which performance is
judged, whereas customer perceptions are subjective assessments of actual services experiments through interaction with the providers (Zeithaml et al., 2006). The
SERVQUAL instrument, despite criticisms by a variety of authors, still seems to
be the most practical model for the measurement of service quality available in the
literature and thus expectations should be considered when assessing service quality in higher education (Cuthbert, 1996b; Legevi, 2008; Legevi et al 2006). Regarding the stability of expectations and perceptions of service quality over time, in
the scope of HE, it was empirically concluded that students perceptions of service
experienced proved less stable over time than expectations (Hill, 1995). Due to the
perceived shortcomings in the SERVQUAL approach both at the conceptual and
operational levels (see Butle, 1996, for a review) a performance-based approach to
measure service quality called SERVPERF was introduced. SERVPERF is a variant
of the SERVQUAL scale, being based on the perception component alone. Other
study also concluded that SERVPERF explained more of the variance in an overall
measure of service quality than SERVQUAL (Cronin & Taylor, 1994). Likewise,
633
Boulding et al. (1993) reject the value of an expectation-based SERVQUAL, and

concur that service quality is only inuenced by perceptions. Quester et al. (1995)
perform similar analysis to Cronin and Taylor in the Australian advertising industry,
and their empirical tests show that SERVPERF perform best, while SERVQUAL
perform worst, alhough the dierences are small.
More recently, a new industry-scale, called HEdPERF (Higher Education Performance) it was developed comprising a set of 41 items (Firdaus, 2006a). This
instrument aims at considering not only the academic components, but also aspects of the total service environment as experienced by the student. The author
identied ve dimensions of the service quality concept: (i) Non-academic aspects:
items that are essential to enable students to full their study obligations, and relate
to duties carried out by non-academic sta; (ii) Academic aspects: responsibilities
of academics, (iii) Reputation: importance of higher learning institutions in projecting a professional image; (iv) Access: includes issues as approachability, ease of
contact, availability and convenience; (v) Programme issues: importance of oering
a wide ranging and reputable academic programmes/specializations with exible
structure and health services. The SERVPERF and HedPERF scales were compared
in terms of reliability and validity and concluded for the superiority of the new
purposed measurement instrument (Firdaus, 2006a).
3.1 Research objectives
The primary goal of this research is to assess the perception of the service quality in higher education at the University of Osijek on the sample of students with
the existing instruments SERVPERF (Cronin and Taylor, 1992)) and HEdPERF
(Firdaus, 2006a).
According to the primary goal, the main problem of this research is to:
1. Verify the factor structure and reliability of the instruments SERVPERF
(Cronin and Taylor, 1992) and HEdPERF (Firdaus, 2006a) on the sample of
the students at the University.
2. Verify the statistical dierence concerning the year of study, class attendance
and nal grade on the dimensions of both instruments SERVPERF (Cronin
and Taylor, 1992) and HEdPERF (2006a).
634
Jelena Legevi
Since the goal of this research is not only to examine the perception of the quality of higher education, but also to nd the best ways of measuring quality, it is
useful to check the perception of the students who have better grades instead of the
students with lower grades, or to check the students perception who rarely fail their
classes instead of those who often fail classes.
Hypotheses:
H1: It is assumed that SERVPERF and HEdPERF instruments applied to the
student sample reect the structure that is suggested by the authors.
H2: It is assumed that perception dierences of quality exist among the students
according to their grades.
H3: It is assumed that students who often attend classes (50%-75%) assess the
quality with higher grades.
3.2 Research design
Data were collected by means of a structured questionnaire comprising of three

sections. First section contained eight questions pertaining to student respondent
prole. While second and third sections required students to evaluate the service
components of their tertiary institutions, in which only perceptions data were collected and analyzed. Specically, second section consisted of 22 perceptions items
extracted from the original SERVPRF scale (Cronin and Taylor, 1992), and modied to t into higher education context.
Third section on the other hand is composed of 41 items extracted from the
original HEdPERF (Firdaus, 2006a), a scale uniquely developed to embrace different aspects of tertiary institutions service oering. As the items were generated
and validated within higher education context, no modication was required. All
the items in second and third sections were presented as statements on the questionnaire, with the same rating scale used throughout, and measured on a 5-point,
Likert-type scale that varied from 1=strongly disagree to 5= strongly agree.
Data were collected from students of eight higher learning institutions in Osijek
(Croatia) from the period between October and December 2009. Data has been
collected using the personal-contact approach as suggested by Sureshchandar et
al. (2002) whereby contact persons( registrar or assistant registrar) have been approached personally, and the survey explained in detail. A total of 1 750 question-
635
naires were distributed to eight tertiary institutions, of these 1450 were returned
and four discarded due to the incomplete responses, thus leading to the response
rate of 85,37 per cent. The number of usable sample size of 1494 for the population 12 000 students in Osijek tertiary institutions was in line with the generalized
scientic guideline for sample size decisions as proposed by Kjercie and Morgan
(1970.)
4. RESULTS AND DISCUSSION
The rst step in the analyses was to check the factor structure and the reliability
of the SERVPERF (Cronin and Taylor, 1992) and HEdPERF (Firadus, 2006a)
questionnaires. The factor analysis resulted in a somewhat dierent factor structure
than is suggested by the authors. In other words, 4 interpretable factors were extracted with characteristic roots (Eigen-values) above 1 in contrast to the original 5
values. As it is apparent in Table I , the rst factor includes particles 18 to 21 which
correspond with the original dimension of empathy. Beside the mentioned particles, the rst factor also includes particle 14 (The behavior of the teaching sta gives
the students a feeling of condence). It is possible that the types of behavior and
characteristics of the faculty sta which are described by particles 18 to 21 are also
giving the students a feeling of condence. Therefore, particle 14 had saturation
in factor 1. The second factor includes particles 1, 2, 4, and 22 and matches to
the fullest extent the original dimension of tangibility which refers to the physical
characteristics such as the education equipment and the appearance of the faculty.
Particle 3 (The teaching sta is dressed adequately.) did not have saturation in
this factor which is understandable because it reects the physical appearance of the
sta and not the faculty. Particle 22 had a signicant saturation in the second factor
which can be explained with the fact that the working hours of the faculty are also a
question of physical availability of the equipment and other resources and is therefore connected to this factor. The third factor includes particles 5 to 11, from which
5 to 9 correspond with the original dimension of reliability while particles 10 and
11 were originally intended to measure the dimension of identifying. However,
because of their content (10- The faculty insures the students accurate and timely
information and 11 The teaching sta gives the students required services on
time.) It is not surprising that they had the meaning of reliability to the students
and are therefore in the third factor.
636
Jelena Legevi
The fourth factor includes particles which correspond with the original factor of
Competence and condence(15, 16, 17), except particle 14 which had saturation
in the rst factor. Except the mentioned particles, this factor also includes particle
3 which can be explained with the fact that the physical appearance of the teaching
sta contributes to the impression of professionalism and competence that they
leave on the students. Particles 12 and 13 have also shown the factor saturation
in this factor although they were originally intended to measure the dimension of
identifying. Nonetheless, the questions The teaching sta of the faculty is ready to
help the students. or The teaching sta of the faculty always nds time to answer
the questions of the students. can also reect the opinion of the students about the
competence of the sta and in this way instill trust into their competence.
Although it has become apparent that the factor structure of the SERVPERF
questionnaire is somewhat dierent than it is suggested by the authors, it preserves
the statistically signicant and interpretable factors which show that the questionnaire was applied on our samples. This is also conrmed by the analysis of reliability
which has shown that the majority of particles had a correlation with the overall
result above .50 and the Cronbach Alpha reliability indicators were also satisfactory
(Table I).
In order to check the factor structure of the HEdPERF questionnaire a factor
analysis of the main components with the Oblimin rotation was conducted. The
Oblimin rotation was used for the same reasons as with the factor analysis of the
SERVPERF questionnaire (Table II).
The factor analysis resulted in the extraction of 7 factors which characteristic
roots were above 1. However, such factor structure was not interpretable since
many particles had saturation in more than one factor and 3 factors included one
or two particles. It was then decided, on the basis of a Cattel scree test, to conduct
a factor analysis of the main components with the Oblimin rotation with a restriction on 3 factors which resulted in an interpretable factor solution.
The rst factor includes most particles that were originally intended to measure the non-academic aspects dimension (particles 9-18). Except these, the rst
factor includes particles 31, 32, 34 and 36-41 which were originally intended to
measure the dimension of empathy. Therefore, the rst factor describes the characteristics of the faculty in the sense of teaching equipment, the adequacy of the
conditions for teaching, quality of the program, the ability to contact the teaching
sta and receive return information, health care services, freedom etc.
637
The second factor includes particles 21 to 30 which correspond to the original

dimension of reliability and describe the functioning and the behavior of the administrative services and sta.
The third factor describes the behavior, skills, competence, respect and discretion of the teaching sta and corresponds with the original dimension of academic aspect. The third factor also includes particles 19, 33, 35 which originally
belong to the factors of facility and reliability. However, the following questions
can also represent the opinion of the students about knowledge, experience and
respect of the academic sta: The academic sta is highly educated and has the required knowledge..., The sta of the faculty treats all students the same and with
respectand The faculty sta handles data concerning you with discretion.....
The same as it was in the case of the SERVPERF questionnaire, the factor structure is dierent from the one that is suggested by the authors. It seems that the
students dierentiate between the functioning of the faculty as an institution, the
academic and non-academic sta when describing the quality. This lies at the basis
of the three factors structure of the HEdPERF questionnaire.
One way analyses of the variance were calculated in order to answer to the second problem of the research i.e. to check if the results dier statistically signicant
in the individual dimensions of the SERVPERF and HEdPERF when concerning
the year of study, class attendance and achieved results in the course (Table III).
The F ratios only indicate a statistically signicant dierence in the results between groups of students but do not say between which groups we have a statistically signicant dierence. In order to extract this information it is necessary to
conduct post hoc analyses.
For the variable year of study, Tuckeys HSD has shown that the results in individual factors, when concerning the year of study, are dierent in the following
way:
Empathy (SERVPERF-1) is signicantly higher with students of the rst year
than with students of the third and fourth year, but the results of the students of the
third year are signicantly lower than those of fth year students.
Tangibility (SERVPERF-2) rst year students have lower test results than
third year students but higher than fourth year students. It also became apparent
that the third year had higher results than the second and fourth which suggests
that the third year students have the highest perception of quality (an aspect which
638
Jelena Legevi
is measured by the factor perceptibility) and that the fourth year students have the
lowest.
Reliability (SERVPERF-3) students of the rst year have signicantly higher
estimates than second, third, fourth and fth year students. The second year has
higher estimates than the fourth.
Competence and condence (SERVPERF-4) students of the rst year have
higher estimates than third and fourth year students. Second year students have
higher estimates than fourth year students.
Non-academic aspect (HEdPERF-1) it was shown that the rst year students
have a signicantly higher estimate of faculty work quality than the second and
fourth year students. The results have also shown that the second and third year
estimates are signicantly higher than fourth year. In other words, the fourth year
shows the lowest estimates of this dimension.
Academic aspect (HEdPERF-3) there is a statistically signicant dierence
between the rst, third and fourth year with the rst having the highest estimates.
The dierence is also signicant between the second, third and fourth year with the
second having the highest estimates. To be more precise, the rst and second year
have a signicantly higher estimate of teaching sta work quality than the third
and fourth year.
The results in the individual dimensions of the SERVPERF and HEdPERF
questionnaires indicate that the lower (mostly the rst year) years consistently express higher estimates of higher education quality in all aspects. A possible explanation of the results lies in the fact that the research was conducted in the winter
semester and it was impossible for students of the rst year, who have just started
to attend classes, to create a complete picture of the work of the faculty, the administrative services and academic sta. Since they are between 18 and 19 years of age,
it is possible that in such a short period of time they use services which are available to them more frequently and come into contact with the sta more, whereas
students of higher years have more obligations and nd college more demanding
and because of that estimate the quality not as high. Another possible reason for the
consistently lower quality estimates by fourth year students is that this is the rst
generation of students which enrolled in the masters degree program. It is possible
that amid of all the changes that have taken place when the Bologna process was
introduced, students as well as the academic and non-academic sta had diculties
639
in performing certain tasks and it is therefore possible that certain aspects of higher
education quality are graded lower.
It is useful to point out that the variance analyses of the HEdPERF questionnaire have shown signicant dierences in the 1. and 3. factor bur not in the 2.
which describes reliability. Students of dierent years estimate the faculty and sta
work quality dierently but have similar estimates when it comes to the reliability
of the faculty and its employees (Table IV).
Statistically signicant dierences were determined in all factors between students who attend classes in dierent percentages. For the class attendance variable
Tuckeys HSD test has shown that the results in individual factors, when concerning class attendance, are dierent in the following way:
Empathy (SERVPERF-1) students who attend more than 75% of the classes
have the highest results. Signicantly higher than all other groups (up to 25%, 2550% and 50-75%).
Tangibility (SERVPERF-2) students who attend 50-75% of the classes have
signicantly higher estimates than those who attend less than 25% of the classes.
Reliability (SERVPERF-3) students who attend less than 25% of the classes
have signicantly lower estimates than the students who attend 50-75% and those
who attend more than 75% of the classes.
Competence and condence (SERVPERF-4) the students who attend more
than 75% of the classes have the highest results, signicantly higher than the other
groups (up to 25%, 25-50% and 50-75%).
Non-academic aspect (HEdPERF-1) those who attend less than 25% of the
classes have signicantly lower estimates of faculty work quality than all the other
groups (25-50%, 50-75% and over 75%).
Reliability (HEdPERF-2) students who attend less than 25% of classes have
signicantly lower estimates than all the other groups (25-50%, 50-75% and over
75%). In addition, students who attend 25-50% of the classes have signicantly
lower estimates in contrast to the students who attend more than 75% of the classes. This dierence was not apparent when comparing students with 50-75% and
over 75% attendance. It is possible that the students who have low attendance also
estimate the reliability of the faculty and its employees as low. Those who attend
640
Jelena Legevi
50-75% and more than that do not dier simply because there is no dierence in
the way they view the faculty at which they study.
Academic aspect (HEdPERF-3) students who attend more than 75% of the
classes estimate the quality of the teaching sta signicantly higher than the other
groups (up to 25%, 25-50% and 50-75%).
When taken all in account, we see that the students with high class attendance
consistently give higher estimates of the quality of higher education in all its aspects, higher than the students with lower class attendance.
It is also apparent that group 1 (up to 25%) has lower estimates than the other
groups and that group 4 (more than 75%) has higher estimates than the other
groups but there are no signicant dierences between the groups 3 (50-75%) and
4 (more than 75%). These results are not surprising because students who attend
classes more often are able to give a more realistic estimate of the quality of educational services (Table V).
For the grade variable, Tuckeys HSD test has shown that the results in individual factors concerning grades dier in the following way:
Empathy (SERVPERF-1) Students who dominantly achieve grade E give signicantly lower estimates than those who achieve A or B grades.
Reliability (SERVPERF-2) students who dominantly achieve grades A and B
give signicantly higher estimates than those with the grades D or E.
Competence and condence (SERVPERF-4) those who mostly get the grade
E give signicantly lower estimates than those with the grades A or B.
Non-academic aspect (HEdPERF-1) students who achieve grades E or D and
those with the grade C give signicantly lower estimates than those with the grade
A.
Reliability (HEdPERF-2) those who mostly achieve grade E give lower estimates of the reliability of the faculty and its employees in contrast to those who
achieve the grades A and B.
Academic sta (HEdPERF-3) students who mostly get grade E give lower
estimates of the work of the teaching sta than those who get other grades. Those
who mostly achieve the grade C give lower estimates than those with the grades A
or B. A or B do not dier signicantly.
641
The better grades the students get, the better is their estimate of the quality of
higher education, better than those with lower grades.
The dierences in quality estimates, when taking the grades of students into
account, need to be interpreted with caution. It cant be claimed with certainty
how subjective these estimates are, in the sense that students who get higher grades
are generally more satised with the faculty and college education and thus give
higher quality estimates than the students with lower grades. In addition to that,
it is possible that other factors, such as working habits and the students sense of
responsibility for their own education etc., are at work in the relationship between
the perception of quality and grades. If a student has developed working habits and
is of the opinion that a large amount of the responsibility for his education lies on
him, it is justied to assume that the he will give better grades for the quality of
the work of the faculty. On the other hand, it is possible that students who do not
have developed working habits and achieve lower grades also do not have a sense
of their own responsibility and may think that the faculty and its sta are responsible for their own misdoings and therefore give lower estimates of the quality of
education.
5. CONCLUSION
The main problems of this research were twofold. First to verify the factor structure and reliability of the instruments SERVPERF and HEdPERF on the sample of
the students at the University of Osijek in Croatia. Second to verify the statistically
dierence concerning to the year of the study, class attendance and nal grade on
the dimensions of the both instruments. First hypothesis was rejected because the
factor structures in both questionnaires are dierent than author suggested. Although it has become apparent that the factor structure of the both questionnaires
(SERVPERF and HEdPERF) is somewhat dierent than it is suggested by the authors, it preserves the statistically signicant and interpretable factors which show
that the questionnaires was applied on our samples. This is also conrmed by the
analysis of reliability (SERVPERF and HEdPERF) which has shown that the majority of particles had a correlation with the overall result above .50 and the Cronbach
Alpha reliability indicators were also satisfactory. One way analyses of the variance
were calculated in order to answer to the second problem of the research i.e. to
check if the results dier statistically signicant in the individual dimensions of the
SERVPERF and HEdPERF when concerning the year of study, class attendance
642
Jelena Legevi
and achieved results in the course. The results in the individual dimensions of the
SERVPERF and HEdPERF questionnaires indicate that the lower (mostly the rst
year) years consistently express higher estimates of higher education quality in all
aspects. Students of dierent years estimate the faculty and sta work quality dierently but have similar estimates when it comes to the reliability of the faculty and
its employees.
Another part of the results concerning class attendence are not surprising; students who attend classes more often are able to give a more realistic estimate of
the quality of educational services. The nal part in students estimations is the
better grades the students get, the better is their estimate of the quality of higher
education, better than those with lower grades. The dierences in quality estimates,
when taking the grades of students into account, need to be interpreted with caution. Given that the current study is limited to one service industry, this assertation would need to be validated by future research. Future studies should apply
the measuring instruments in other countries and with dierent types of tertiary
educations in order to test whether the results obtained are general and consistent
across dierent samples.
643
Table I Results of factor analysis of the SERVPERF questionnaire

FACTOR 1
PARTICLE
20
19
21
18
14
1
4
2
22
FACTOR 2
FACTOR 3
FACTOR SATURATION
,824
,773
,671
,525
,446
,339
,841
,788
,733
,303
-,752
-,728
-,692
-,662
-,598
-,551
-,488
-,728
-,692
-,662
-,598
-,551
-,488
-,692
-,662
-,598
-,551
-,488
10
11
5
7
9
6
3
17
16
13
12
15
Cronbach Alpha
FACTOR 4
,488
,442
,328
,328
,387
,80
,70
,84
,604
,510
,460
,419
,396
,684
,83
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Jelena Legevi
Table II Results of factor analysis on the HEdPERF questionnaire

FACTOR 1
PARTICLE
c11
c17
c16
c15
c18
c39
c38
c10
c34
c12
c41
c9
c37
c40
c13
c36
c31
c32
c14
c29
c28
c22
c24
c26
c21
c25
c30
c27
c23
c2
c5
c4
c1
,620
,571
,568
,547
,546
,541
,524
,521
,519
,496
,492
,483
,472
,467
,467
,428
,400
,375
,316
FACTOR 2
FACTOR SATURATION
FACTOR 3
-,327
-,886
-,870
-,827
-,799
-,777
-,776
-,730
-,720
-,717
-,602
-,785
-,774
-,761
-,701
645
c3
c6
c7
c8
c19
c20
c33
c35
,331
Cronbach Alpha
,88
-,679
-,622
-,600
-,599
-,540
-,429
-,413
-,333
-,315
,93
,88
Table III Results of one-way analysis of variance for factors empathy (SERVPERF-1), tangibility
(SERVPERF-2), reliability (SEVPERF-3), competence and assurance (SERVPERF 3), nonacademic aspect (HEdPERF-1), reliability (HEdPERF-2), academic aspects (HEdPERF-3)
concernining the year of study
FACTOR
SERPERF-1
SERPERF-2
SERPERF-3
SERPERF-4
HEdPERF-1
HEdPERF-2
HEdPERF-3
15,0000
13,1285
24,9070
22,2794
65,4053
29,5863
43,6502
14,6365
12,5020
23,0158
21,9448
62,0477
29,9559
42,6747
3
MEAN
13,8824
14,8227
22,5505
21,1606
63,2222
29,1620
40,9393
YEAR OF STUDY
4
14,0882
12,1914
21,7260
20,7294
58,3204
30,4600
40,4630
16,0000
13,1667
21,8214
21,2500
60,7692
30,0000
43,3704
4,941
28,815
17,574
8,073
17,307
,922
10,477
,001
,000
,000
,000
,000
,450
,000
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Jelena Legevi
Table IV - Results of one-way analysis of variance for factors empathy (SERVPERF-1), tangibility
(SERVPERF-2), reliability (SEVPERF-3), competence and assurance (SERVPERF 3), nonacademic aspect (HEdPERF-1), reliability (HEdPERF-2), academic aspects (HEdPERF-3) concerning class attendance
FACTOR
do 25%
SERPERF-1
SERPERF-2
SERPERF-3
SERPERF-4
HEdPERF-1
HEdPERF-2
HEdPERF-3
12,8113
12,2411
20,3761
19,0094
57,9479
26,4074
37,7850
CLASS ATTENDANCE
25-50%
50-75%
MEAN
13,5906
14,1894
12,9211
13,2301
21,8986
22,7983
20,7568
21,2746
62,0205
61,6869
28,4898
29,4971
39,9932
41,1014
preko 75%
14,9221
12,8152
23,4204
22,0737
62,0153
30,8254
43,1523
13,900
2,926
14,500
21,417
3,821
10,683
25,116
,000
,033
,000
,000
,010
,000
,000
Table V - Results of one-way analysis of variance for factors empathy (SERVPERF-1), tangibility
(SERVPERF-2), reliability (SEVPERF-3), competence and assurance (SERVPERF 3), nonacademic aspect (HEdPERF-1), reliability (HEdPERF-2), academic aspects (HEdPERF-3) concerning the grade
GRADE
FACTOR
14,7778
12,8949
23,3426
21,9597
61,8608
30,5765
42,9919
14,8125
12,7550
23,9605
21,9918
63,3000
29,7368
42,9834
4,103
,345
9,515
5,213
2,922
3,235
9,794
,007
,792
,000
,001
,033
,022
,000
MEAN
SERPERF-1
SERPERF-2
SERPERF-3
SERPERF-4
HEdPERF-1
HEdPERF-2
HEdPERF-3
13,7300
13,0383
21,9099
20,7533
60,5160
28,4292
39,9043
14,3679
12,8273
22,3758
21,3082
61,0391
30,3665
41,5660
REFERENCES
1. Boulding, W., Karla, A., Staelin, R., Zeithaml, V.A. (1993), A dynamic process
model of service quality:from expectations to behavioural intentions, Journal of
Marketing Research, Vol. 30 pp.7-27.
647
2. Butle, F. (1996), SERVQUAL: review, critique research agenda, European Journal of Marketing, 30(1): 8-32.
3. Cronin, J. J. and Taylor, S.A. (1992), Measuring service quality: re-examination
and extension, Journal of Marketing, 56(3): 56-68.
4. Cronin, J. J. and Taylor, S. A. (1994), SERVPERF versus SERVQUAL: Reconciling performance-based and perceptions-minus-expectations measurement of
service quality, Journal of marketing, 58(1): 125-131.
5. Cuthbert, P. F. (1996b), Managing service quality in higher education: is
SERVQUAL the Answer? Part 2, Managing service quality, 6(3): 31-35.
6. Firdaus, A. (2006a), Measuring service quality in higher education: three instruments compared, International Journal of Research & Method in Education,
29(1): 71-89.
7. Hill, F. M. (1995), Managing service quality in higher education: the role of
student as primary consumer, Quality Assurance in Education, 3(3): 10-21.
8. Krejcie, R., Morgan, D. (1970), Determining sample size for research activities,
Educational and Psychological Measurement, Vol.30 pp.607-10.
9. Legevi, J.(2008), Measuring Customer Satisfaction and Service Quality:
The Case of Croatia, The Journal of American Academy of Business, Cambridge,
Vol.14, No.1, pp. 123-130.
10. Legevi, J., Muji, N. (2006), Applying a Multiple-item Scale for Measuring
the Quality of the Medical Services of Primary Care Doctors: An Exploratory
Study, South East European Journal of Economics and Business, 2(1), pp.71-79.
11. Parasuraman, A, Zeithaml, V. A. and Berry, L. L. (1988), SERVQUAL: a
multiple-item scale for measuring consumer perceptions of services quality,
Journal of Retailing,64(1): 12-40.
12. Quester, P., Wilkinson, JW., Romaniuk, S. (1995), A test of four service quality measurement scales: the case of the Australian advertising industry, Working Paper 39.
13. Zeithaml, V. A., Bitner, M. and Gremler, D. (2006), Services marketing: integrating customer focus across the rm, McGraw-Hill Irwin
648
Zoran Panda
LIFELONG LEARNING IN CROATIA:

CHALLENGES AND PERSPECTIVES
Zoran Panda, univ.spec.oec.
ABSTRACT
In the time of rapid economic, social and political changes, the lifelong learning
(LLL) is becoming a a necessity and an essential element of any strategy striving for
both the survival and protability of business, industry as well as the entire nation
in the challenging time of the twenty-rst century. The concept of lifelong learning
clearly implies that, while education may formally start during a period of activity
in a compulsory school setting, it will clearly extend far beyond that, continued, extended and developed by experience and activity in a variety of settings, in a range
of other institutions, and following a multiplicity of pathways.
The purpose of this paper is to discuss the challenges and perspectives of the
lifelong learning in Croatia. Being an candidate country for the European union
membership, Croatia is looking up to the lifelong learning programs of the European Union in order to set such a lifelong learning (educational) policy that will enable people to enter the educational system at dierent points as well as to motivate
people to consider education and learning a process that continuously takes place
throughout the lifetime.
JEL classication: D83, I21, I28
Key words: Lifelong Learning, Declaration on Knowledge, European Union,
Croatia
1. INTRODUCTION
Given that Croatia is approaching the end of its negotiation process with the
European Union (EU) which should result in full membership, it is necessary to
acknowledge the political, social and economic advantages, but also recognize the
LIFELONG LEARNING IN CROATIA: CHALLENGES AND PERSPECTIVES
649
disadvantages, in order to fully use the opportunities that arise with the Croatias
acceptance in the EU.
The foundation of Strategic framework for development 2006-2013 of the Government of the Republic of Croatia is based on growth, development, employment,
social involvement and justice which can only be achieved with simultaneous and
coherent action on an array of strategic areas. Those areas are people, knowledge
and education, infrastructure, information distribution and social cohesion, macroeconomic stability and an ecient nancial market, sustainable development
and a balanced regional development. This also includes the country to be able to
convert the ecient services of its citizens and entrepreneurs (Dali; 2006, 3). In
order to accomplish the here-by given goals, it is necessary to have people who are
willing to learn, people who are ambitious, innovative and creative, people who
know how to use information technology in order to increase the number of quality positions which would further the competitiveness of the Croatian economy,
which in term would increase the overall life standard of Croatian citizens. The safest path towards these outlined goals is lifelong learning because creativity, innovation and economic development can only be achieved with people who are willing
to learn throughout the course of their life. That means learning and perfecting
oneself in order to remain competitive on the market of work and, thus, increase
the chances of employment. In the process of lifelong learning should be involved
all categories of the population, especially the highly educated entrepreneurs, managers and other.
It is necessary to point out that lifelong learning is the area where Croatia falls
behind extensively relative to the European average. Most of the population, after
it nishes its formal education, never attends any further professional education
and training. Furthermore, in terms of quality of the workforce Croatia is below
the European average. The share of highly educated population is very small, if
compared to the entire work active population. It is known that education and unemployment are tightly connected, where higher education means higher chances
of employment. With that in mind, if Croatia is going towards a decrease in unemployment and achieving competitiveness on the labor market, it will have to
substantially increase the investments in the process of lifelong learning.
650
Zoran Panda
2. LIFELONG LEARNING: DEFINITION AND TYPES
Lifelong learning includes the acquisition and modernization of all types of

knowledge from pre-school age to retirement, and even later. Knowledge that is
acquired through lifelong learning allows the population competitiveness and exibility on the labor market and allows for permanent employment. Besides the
economic component of the importance of lifelong learning, the social importance
must not be neglected, which allows for a more active inclusion of individuals in
social life. However, the term lifelong education should be distinguished from the
term lifelong learning. Lifelong education encompasses only the organized forms
of learning, while lifelong learning encompasses all the knowledge we gain through
life. The importance of lifelong learning can be observed from the fact that many
international institutions have adopted a series of action plans, declarations, documents, etc. (UNESCO, European Commission, many national educational systems). There are three forms of learning or education:
Formal education - takes place in schools, polytechnics, colleges and universities, where after completing a certain level of education, a student acquires a
diploma or qualication. This type of education generally takes place from 6
to 25 years.
Non-formal education - usually lasts from several hours to 3 months, takes
place independently of the formal education system. Can be organized at the
workplace itself (training and development through work), through the activities of government, unions, political parties, foreign language schools. Completing this type of education, the enroller does not receive a diploma.
Informal education - includes the knowledge that one learns or acquires
through the course of his life, often not perceived as such consciously. Usually achieved through interaction with parents, friends, internet and last a
lifetime.
Scientia potestas est! (Knowledge is power!), says a wise Latin proverb, while
the Greek philosopher Socrates believed that knowledge is a virtue which is learned
and there is no man who knows everything. Socrates interpreted knowledge as a
virtue which is gained through education. This means that one gains knowledge
throughout the course of his life by constant learning, in contrast to being given
the knowledge upon birth.
651
3. LIFELONG LEARNING IN THE EUROPEAN UNION
One of the goals of the European Union is to become the society which learns
or the society of knowledge which testies about the importance of knowledge
today. In March of 2000, the European Council meeting in Lisbon conceived the
Lisbon strategy by which the countries of the European Union should base their
economy on knowledge, thus making the economy capable of a stable growth.
Also, this would result in an increase of better job positions.
At the meeting in Lisbon, it was concluded that the European educational systems should adapt to the requirements of the society of knowledge. Among other
things, it was concluded that it is necessary to improve and adapt the system of
lifelong learning, which should cover all areas of life (environmental protection,
foreign languages, technological culture, entrepreneurship, etc.).Lifelong learning
should allow all citizens of Europe to adapt to social and economic changes, as well
as active participation in creating and designing the future of Europe.
The main objective of the Lisbon strategy is the creation of an economy that
could respond to the growing competitiveness of the United States and Asian countries (China, India, Japan), economy which would be based on knowledge that
would increase the standard of living and a sustainable economic growth with increased employment. European Commission denes the main problems with the
introduction of lifelong learning within the rst chapter of the Memorandum on
Lifelong Learning. In the second chapter it propagates that the advancement of the
active citizenship and the advancement of active employment are equally important and mutually linked objectives in the process of lifelong learning.
The European Union failed to address all the objectives of the Lisbon strategy.
As a result, the Copenhagen Declaration has been devised in 2002 in an attempt
to develop a way to connect educational politics, education itself and the education based on the concepts of lifelong learning. In the European parliament and
Council in 2004 a new action program in the area of lifelong learning has begun
which should encompass general educational programs for high schools, higher
education, vocational education and education of adults, all within the connes of
lifelong learning.1
Proposal for a decision of the European Parliament and of The Council establishing an integrated
action programme in the eld of lifelong learning, Brussels, 14.7.2004
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Zoran Panda
Although the member countries of the EU have dierent politics on the topic of
lifelong learning, all agreed that this is a priority. In the process of lifelong learning
in the United Kingdom, individuals with their demands have a major role, while in
the Nordic countries there is a model of social partnership. In Greece and Portugal
a greater inuence has the government itself (iljak; 2007, 75). European Council,
OECD and EU have dierent opinions on educational politics. From the beginning, EU has insisted on dierent educational systems, but mutual goals. Strategic
goals of EU: (i) availability of education for everyone on the principals of lifelong
learning; (ii) improvement on the quality of education for the society of knowledge
and (iii) improvement of educational systems to the wider surroundings.
It can be said that EU has mutual goals, but dierent national politics of lifelong
learning. According to the available information (Eurostat, 2006.), the expenditure
for education in the period from 2002 to 2004 are not the same for all member
countries. The biggest investments in education have Denmark, Sweden and Norway with over 8% of the GDP. Newer members like Romania, Bulgaria, Czech
Republic and Lithuania invest only 4%.
By the decision of the European Parliament and the Council of EU (num.
1720/2006/EC) from 2006, the Program of lifelong learning has been initiated.
With this program, all that came before were merged into a unied program of
lifelong learning. The goal of the program is encouragement of education and professional training during ones life. It also encourages cooperation of educational
institutions, companies, associations in Europe, mobility of all participants of the
educational process (pupils, students, teachers, professors) and the preparation of
all involved parties in participating on the ever more demanding European labor
market. All 27 member countries of the European Union are involved in the program of lifelong learning. Besides the member countries, Island, Lichtenstein, Norway and Turkey also take part in the program. The program is scheduled for the
period from 2006 to 2013 and the budget is set to 6,9 billion Euros.
Lifelong Learning Programme consists of four subprograms. Comenious (preschool and school education), Erasmus (Higher Education), Leonardo da Vinci
(vocational education and training), Grundvig (education of adults) and the Transversal program (study of languages, development of information-communication
653
technology, e-learning) and Jean Manne program (support to institutions and activities of European integrations).2
Projects related to LLP are encompassed all the factors relevant to the development of lifelong learning. The European Union, with the Lifelong Learning Programme, is trying to balance the development of lifelong learning. New member
countries (BU/RO/LI) are investing signicantly less in the development of lifelong
learning and are falling behind Nordic countries which have a developed system of
lifelong learning.
A European qualication framework has been founded as a tool of translation
and international comparison of qualication of individuals on the international
labor market. Qualication framework also includes instrumental competencies such
as organization and planning, basic and general knowledge, verbal and written
communication on native tongue, knowledge and use of a foreign languages, ets.,
interpersonal competencies such as team work, self-criticism, interdisciplinary cooperation, social skills, etc. and systematic competencies such as application of knowledge in practice, researching skills, leadership, project management, etc. (Vedri &
Jurii; 2007).
Source of data: http://www.mobilnost.hr/?lang=hr&content=56 (20.01.2010.)
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Zoran Panda
Figure
Fi
iguure 1 Participation off the population between 25-65 years in some form
f off education and training (inn %)
%)
Source: EUROSTAT, http://epp.eurostat.ec.europa.eu/tgm/graphToolClosed.do
The percentage of individuals (age between 25-64) who stated that they have
educated or trained themselves four weeks before the given research is shown on
the chart of Eurostat for 2007. Croatia, together with Hungary, Romania and Bulgaria, has the smallest percentage of adult individuals (age 25-64) who participated
in any form of education and training. Sweden, Denmark, Island and Switzerland
have from 26% to 33% individuals who were in some way included in education
of active working population.
4. LIFELONG LEARNING IN CROATIA
Populations education is one of the key conditions for economic growth, and is
tightly connected with competitiveness on the labor market. Higher degree of education means a higher chance of employment. Of course, besides the knowledge
which are gained through regular education, additional knowledge and skills are
also important (IT literacy, knowledge of foreign languages, communication and
organization skills and other). Table 1 shows the educational structure of Croatias
population older than 15 years from the census of 2001.
655
Table 1 Educational structure of Croatian population older than 15 years old according to schooling
EDUCATION
No school
Unnished elementary school
Elementary school
High school
Higher education
Faculty
Unknown
Population
105332
580379
801168
1733198
150167
287867
24715
Percentage (%)
2,86
15,76
21,75
47,06
4,08
7,82
0,67
Source of data: Dravni zavod za statistiku Zagreb
From the Census of 2001, Croatia has somewhere around 22% of individuals who nished elementary school, and almost 16% of individuals who havent
nished elementary school. High school has nished around 47% of individuals.
Only 12% of citizens of the Republic of Croatia can boast about having high or
higher professional qualication. A high number of these highly educated young
experts leave for temporary work in other countries. Because of the economic
situation in Croatia, most of them stay permanently in the countries which oer
better living conditions for work and life alike. Instead of being the ywheel of the
Croatian economy, these young experts spend the best years of their live in foreign
countries. If theres a chance that some of them come back, they are usually quickly
disappointed.
Table 2 Unemployed in respect to professional qualication in 2007

Professional qualication
Unnished elementary school or lower
Elementary school
High School
Higher education
Faculty
Unemployed
18550
65641
161103
8452
10702
Percentage of unemployed
7,01 %
24,82 %
60,92 %
3,20 %
4,05 %
Source: Dravni zavod za statistiku Zagreb (2007)
Nearly 61% of the unemployed citizens in 2007 have nished high school,
however, in order to increase their chances o employment it is necessary to educate
them further. Initially, it is necessary to perform an analysis which would reveal
professions that our economy lacks and then create programs based on that data to
educate the unemployed. Naturally, as technology quickly develops, this generates
the necessity to keep the educational programs up to date. Also, if the unemployed
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want to become competitive on the labor market, they need to be educated constantly to adapt to the new technologies.
According to the Eurostat data, in the period from 2002 to 2007 in the Republic of Croatia, the percentage of the active working population included in some
form of education moves from a discouraging 1.8% in 2003. to 2.4% u 2007.
Nowadays, in developed European countries, when almost a third of the adult
population is included in some form of lifelong learning in order to increase the
chances of employment, they are increasing investments in education and technology to sustain the competitiveness of economy. Croatia, on the other hand, is
far below those standards with little investments in education or encouraging the
concepts of lifelong learning.
Croatia has a long tradition of educating adults, most of which are night schools
(elementary and above) which have been attended by a large amount of students.
Croatian Association For the Education of Adults (CAEA) was founded in 1954
and was accepted into the European Association for the Education of Adults
(EAEA) as a full member in 1996.3
Education of adults in the second half of the 20th century was conducted according to a German model which is still one of the best educational models in
Europe today. The fact stands that the Croatian community college modeled their
programs after German model, education of adults in Croatia does not fall behind
the European standards. Because the quality of the educational system is a key factor in forming a competitive economy, along with the quality of human resources,
it is necessary to develop a concept of lifelong learning.
The goal of Croatia, as of the European Union is to become the society of
knowledge. For that to happen, a reform of the whole education system has begun.
As Croatia strives to join the European Union, that makes the goals of the European Union Croatias goals. Becoming the society of knowledge is no exception.
A new Croatian teaching education program was introduced, along with a reform of the elementary and high school education and a Pedagogical standard. A
country-wide nal examination as an equivalent of American SATs was implemented and universities have adapted the Bologna process. The Government of
3
Source of data: Croatian Association For the Education of Adults,http://www.hzpou.hr

(22.01.2010.)
657
Croatia has brought the Strategy of development and education in 2002., then the
Strategy and proposal of an action plan for the education of adults (2004). CASA
has published the Declaration on knowledge from 2004. and the Agency for mobility and programs of EU was founded in 2007.
CASA, with its Declaration of knowledge from 2002 and Croatia based on
knowledge and application of knowledge from 2004 tries to draw attention to the
Croatias economic backwardness in respect to the developed west. Furthermore,
it necessitates an increase in quality of our education system, especially in secondary and higher education. Declaration on knowledge of 2002 (HAZU; 2004, 8)
has highlighted several main themes: (i) Knowledge has become a major manufacturing force in human society and the main condition for success; (ii) Croatia
needs to improve technological development with knowledge and stop the current
technological backwardness; (iii) in the development of education it is necessary to
set focus on improving the quality of teaching and more adequate content; (iv) in
scientic work, the rst task is to improve the quality and application of international criteria for evaluation; (v) the emphasis should be placed on the application
of knowledge. In further text, these highlights are greatly elaborated, where the
main subject is how to setup a connection between education and science with
economy through which could the learned knowledge be practically applied. With
this declaration comes the foundation for lifelong learning. Also, declaration gives
detailed recommendations for higher and secondary education while on the subject
of lifelong learning there are no specic recommendations.
The Strategy from 2002 has no specic or distinguishable follow-up in the
documents which relate or mention lifelong learning besides the Declaration on
knowledge (CASA, 2004.). New documents are more focused on the education of
adults. It is not dened which institutions and organizations should conduct the
program of lifelong learning. With the Strategy and proposal of the action plan
for the education of adults from 2004 the concept of lifelong learning is accepted
as one of the primary principles of acquiring knowledge in Croatia. Because of its
importance it is marked as the right and obligation of every citizen of the Republic
of Croatia.
With the Strategy from 2004, lifelong learning is accepted as the foundation
of the whole education system. Some of the objectives of the Strategy and action
plan for the education of adults from the 2004 are (Strategy and Action Plan for
Adult Education; 2004, 6): (i) to develop measures, organizational and nancial
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Zoran Panda
conditions for the achieving of lifelong learning as a right and obligation of every
citizen of the Republic of Croatia; (ii) a system for the education of adults that will
give everyone the same conditions for quality learning throughout the whole life;
(iii) adopt measures for the joint and concerted action by the relevant ministries,
social partners and educational institutions; (iv) encourage the use of information
technology in lifelong learning and education.
Government of Croatia has brought the Regulation on the founding of the
Agency for the education of adults, 2006, a year later after the law on the education of adults has been devised. After that, Croatia has started with the preparation
of the Croatian qualication frame (CQF/HKO) which was supposed to insure
international recognition of high school and higher education diplomas.
To make the adoption to the Program for lifelong learning of the European
Union as easy as possible, Government of Croatia founded the Agency for mobility and the programs of the EU at the end of 2007. The agency implements the
following programs: (i) Lifelong Learning Programme; (ii) Youth in Action; (iii)
ERA MORE ( Mobility of researchers in Europe ); (iv) Europass (a collection of
documents with the purpose of transparent qualications); (v) Erasmus Mundus (
the establishment of international joint graduate studies). In late January of 2009,
Agency for mobility and the programs of the EU has signed a Contract with the
European Commission relating to the trial implementation of the Program for
lifelong learning. With the signing of this Contract, the Republic of Croatia has
been granted participation in the Program for lifelong learning. Although, in order
to fully access this Program, it must participate in a Special tender for the Republic
of Croatia.
5. CONCLUDING REMARKS
The Croatian economy has found itself in diculties after the Croatian War for
Independence when the ones successful and powerful socialist economic giants had
to deal with the fall in production and export. There are two basic reasons for that;
the Croatian War of Independence in which some companies have suered heavy
losses because of the war damage and the second one being the failed attempt of
privatization.
While a war was waged in Croatia, the rest of the world developed at a high
rate, especially in the eld of information technology and entrepreneurship. Basically, Croatia was falling behind technologically. In order for the backwardness to
659
be reduced, it is necessary to increase investments in the education system and the

quality of education because investment in human resources is one of the basic conditions for development and competitiveness of economy. Knowledge we acquired
during our education (elementary, secondary school and higher education) dont
last for long and require refreshing. Because of that it is necessary to imprint into
the consciousness of every individual that leaving from high school or a university,
the need for new knowledge does not stop. Quite the contrary, it is necessary to
expand the knowledge continuously in order to remain competitive on the labor
market.
The basic problem of lifelong learning and the education of adults in Croatia,
and the European Union, is the issue of tting in dierent age groups into a single
process. How to t in children which leave secondary education with 16, 17 or
18 years and workers who lose their jobs after 30 or more years of service and can
hardly adapt to new skills which are required for their reinstatement on the labor
market ( computer skills, knowledge of foreign languages, technical knowledge,
quick adaptation to changes and other).
OECDs projections show that by 2010 of all the newly opened working positions only 15% will be reserved for the low qualied work force, 35% for vocational professions, and 50% for those with higher education.
It is not necessary to stress the fact that the individuals with a high level of education are required to be IT literate, able to speak foreign languages and can adapt
to new technologies quickly. For that to work, every individual needs to be ready to
accept lifelong learning and adaptation to the needs of the labor market. The states
job is to make sure that readiness is supported by well-dened by a legislative and
institutional framework.
REFERENCES
1. Bahtijarevi iber F. (1999), Management ljudskih potencijala, Golden marketing, Zagreb

2. Barkovi, I.; Borozan, ., Dabi, M. (2008): Emerging Opportunities and
Challenges for Universities in the Knowledge-Based Economy: the Croatian Perspective, Northeast Business & Economics Association: Proceedings of the 35th
Anual Conference, Rivera-Solis, Luis Eduardo (ur.), New York, The College at
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Old Westbury, 2008., ISSN: 1936-203X, Anual Conference (35, 2008), New
York, SAD, 06-08.11.2008., str. 29-36.
3. Barkovi, I.; Borozan, . Luli, M. (2009), Challenges of Building a KnowledgeBased Economy in Croatia, u: New Approaches to Research in Management,
Barkovi, Draen, Moczadlo, Regina (ur.), Osijek, Faculty of Economics in Osijek,
Hochschule Pforzheim, Pforzheim University, ISBN: 978-953-253-060-5, pp.
17-41.
4. Crnkovi S., Kerovec N., Marui S., Vuji B. (1994), Trite rada u Hrvatskoj,
Zagreb, ISBN 953-6030-07-1
5. HAZU (2004), Deklaracija o znanju - Hrvatska temeljena na znanju i primjeni
znanja, Zagreb
6. Marui S. (2007), Obrazovanje u poduzeu, stav prema uenju i europska
konkurentnost, Ekonomski pregled, Drutva ekonomista Hrvatske / Savez
ekonomista Hrvatske
7. Ministry of Science, Education and Sports (2004), Strategy and Action
Plan for Adult Education, Zagreb, available at http://www.mzos.hr/Download/2004/07/27/Strategija_obrazovanja_odr aslih_i_akcijski_plan.doc
8. Dali, M. (ur.)(2006), Sredinji dravni ured za razvojnu strategiju i koordinaciju fondova EU: Strateki okvir za razvoj 2006-.2013., Zagreb
9. Vedri, M., Jurii, D. (2007), Cjeloivotno uenje i eksigurnost pozicija
Hrvatske, Zagreb
10. iljak, T. (2005), Politike cjeloivotnog uenja u Europskoj Uniji i Hrvatskoj,
vol 1., br.1.
11. http://europa.eu/
12. http://epp.eurostat.ec.europa.eu/
13. http://www.entereurope.hr
14. http://www.mobilnost.hr/?lang=hr&content=56
15. http://www.aso.hr Agencija za strukovno obrazovanje, programi, projekti
16. http://www.hzpou.hr
17. http://www.hok.hr
18. http://www.aoo.hr
19. http://www.hzz.hr
20. http://www.vlada.hr
21. http://www.lisboncouncil.org
22. http://www.oecd.org
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662
Josip upari
CROATIA, KNOWLEDGE SOCIETY AND PERSPECTIVE OF

STATE EMPLOYEES
Josip upari, univ. spec. oec.
ABSTRACT
Globalization, an aging population and accelerated technological change, trends

are encountered by the European Union, which requires adjustment of the society. To respond to these trends in a timely and a quality manner, and without the
accompanying consequences, the European Union put the emphasis on lifelong
learning (in further text as LLL) and creating a knowledge society.
Taking over a number of documents from the European Union, which are directed toward educational reforms, Croatia has clearly decided to follow her in
the formation of a knowledge society, emphasizing the role and importance of the
university, which should have signicant impact on the state service.
Impact of the Bologna process on LLL for civil employees, especially the management of state services, is transparent and is reected above all, through their current status in Croatia. Thereto, we are meeting certain changes of positive signs, but
also certain ambiguities, which indicate the necessity for the adoption of adequate
solutions to perceived problems.
Therefore, it imposes an important nding of quality solutions for perceived
problems and the recognition of the actual status of civil employees involved in
the LLL. This could result in the rst place reducing the outow of skilled and
qualied personnel from government bodies in other Croatian companies and also
companies in other countries. In that way protability of investment in acquiring
knowledge and skills would come to the fore through LLL process.
JEL clasication: I21, O15
Keywords: globalization, the Bologna process, LLL, knowledge society, university management, state employees, protability.
CROATIA, KNOWLEDGE SOCIETY AND PERSPECTIVE OF STATE EMPLOYEES
663
1. INTRODUCTION
According to Bologna process, LLL is one of the most important priorities of

the countries that have accepted it. In order to become a full member of EU, Croatia had put its knowledge and learning in the function of the main starter of growth
and development. Changes at the global level are geting faster, therefore it coming to obsolescence of acquired knowledge and skills, which suggests the need for
superstructure of the existing and acquire new ones. Knowledge economy is a new
reality (Edvinsson, 2003:47). Knowledge and skills that have state employees are
important for the overall quality in the production process of service as a products.
Citizens are its everyday consumers, because human capital is the fact (Edvinsson,
2003:92) and experience of the labour is becoming the main weapon of competition (Thurow,1997:34-35). According to Kotter, globalized economy is causing
everyone higher risk and more options (2009:27).
Such an economy requires continuous upgrading of acquired knowledge and
skills through the LLL process even from the state employees. The nal goal is
achieved in this way, which is reected through the continuous improvement
(Barkovi,1999:32) and optimizing the transformation of available inputs into
outputs.
At the time of a global restructuring of world markets, attention should be paid
to human resources management (Noe, Hollenback, Wright, 2006:55). University
have a signicant role in the society development, which by its constant adaptation
to its users, particularly through researches largely contribute to a better functioning of LLL, implementing the programme of various learning forms towards the
interested buyer.
The purpose of this paper is to contribute to theoretical and practical discussion
about how important is for Croatia to invest in involvement of state employees in
the LLL process (with an emphasis on postgraduate study), then to invest in the
status regulation (relevant legislation) of state employees with an additional, newly
acquired knowledge and skills in order to be transparent mutual investments in
LLL. Therefore, Croatia will need to persevere in the reform of public administration that are focused on knowledge-based institution.
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Josip upari
2. LLL ROLE IN THE CREATION OF MODERN SOCIETY
Society development is based on science. The development of human capital

is closely related to the concept of modern society. In any modern society healthy
competition promotes emphasized eciency of production factors on the basis of
what can be said that capturing a large number of LLL citizens, especially through
well designed research projects, is realistic assumption for meeting the set goal of
economic development, especially if it is known that the greatest learning, often at
a rate greater than 60% occurs in the highly complex tasks in which human inputs
are predominant (Barkovi, 1999:241). In the creation of modern society LLL role
can be recognized by the extent of areas of social services which include. LLL role
takes place at the global level and should cover the entire lifetime of each member
of the community ready for frequent changes in the labor market having an important role in the society development based on modern foundations. Through the
acquirement of knowledge quality, development of LLL process will enable more
citizens who will quickly adapt to new market needs in a particular region, which is
very important for the country that is in transition. Knowledge disposal is in close
connection with economic development, which is very important for the country
that aspires to a modern society. Increased investment in human capital through
LLL process is a necessity and should result in reducing unemployment and rapid
economic development. Technological development forces companies to employ
workers with high levels of acquired knowledge in order to be held on the market
and through rapid development of society in all areas. Most of the developed EU
countries is constantly increasing investment in designing and implementing programs in the elds of science to increase the level of social development based on
quality LLL process. Due to the fact that the establishment of the EU came to the
unication of diverse voice areas and cultures with the exception of adjustment to
technological changes, the need of adjustment and social change is essential. LLL
process must include the development of interest to study foreign languages and
raising the level of knowledge as well as the skills related to information technology. LLL process in Croatia includes pre-school education as the rst organized
form of learning in human life, then the primary, secondary and high education as
well as the adult education which should include the life period after retirement.
Croatia is included in the thematic presentation of OECD high education on the
basis of what can be observed the state of high education in Croatia and achieve
the set goals. Attention should be also paid to knowledge management because it
determines not only the concept of learning, but more and more strategic use of
665
knowledge in order to achieve high levels of customer satisfaction and better market position (Sgetlija, Lamza - Maroni, 2002:235). This will facilitate the path
towards a modern society.
3. CROATIA KNOWLEDGE SOCIETY
During the employment at a time of global change, when market conditions are
often diverting a company to change the activity, the labor market is increasingly
coming to the fore higher level of acquired knowledge and willingness to change
the current interest while the knowledge becomes fundametal capital and leverage
development (Bahtijarevi-iber,1999:717). It is easier and faster to respond to this
challenge if a large proportion of those involved in the process LLL are ready for
changes at the labor market, having additional knowledge, skills and competencies. Recognizing the above, it is important to keep raising the level of knowledge
in society where it is necessary that the process comprises the larger share of the
countrys population which is directed towards a knowledge society. Since the EU
is aimed at creating a knowledge society and Croatia wants to become a full member of EU, Croatia is directed towards knowledge society in which the knowledge
should be accessible to all. Orientation of Croatia towards a knowledge society is
conditioned by the constant increase in the importance of gained knowledge in
order to achieve certain goals. In the time of constant technological change, gain
knowledge is most evident through the amount of time spent to complete the productional process and increasing dierence in the amount of funds. Compared to
conventional manual labor, labour based on knowledge is nanced by these funds.
In order to faster economic development the goal of Croatia as a knowledge society
is to include as many citizens in a particular social processes with a process LLL. In
the process of creating a knowledge society civil service should play an important
role, which reects the determination of the constant development of strategies,
including a large number of employees in the process LLL.
4. INFLUENCE OF BOLOGNA PROCESS AND LISBON STRATEGY TO THE LLL
PROCESS
The concept of LLL, which is used today was founded in 1970 by the European
Council. It is a series of activities aimed at LLL, which have a goal to improve
knowledge, skills and competencies within civil, social and business perspective.
Bologna Declaration (1999), which was signed by Croatia, set a priority to increase
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Josip upari
the level of knowledge through the LLL process. Through the LLL process the EU
recognized the path to development and success in achieving common goals that
are leading to a knowledge society and economy, as indicated in the Lisbon strategy adopted by the EU in the year 2000. Economic development is by the Lisbon
strategy, based on human capital, equalization, and modernization of educational
systems in all EU countries. In the EU the importance and necessity of LLL were
highlighted in the Memorandum of LLL, which is issued by the Commission of
the European Community in 2000. The European Commission has directed the
development of knowledge by the programme for LLL. In 2002 EU Council adopted a resolution on LLL. In December 2007 in Sorbonne, European Universities
Association held a seminar on LLL with the aim of making European Universities
Charter on LLL, which is created in 2008 in Brussels. European budget scheduled
for 2010 had increased by 3% compared to that from 2009, of which 60 billion
euros was intend for programs for employment and education (available at http://
www.mojposao.net/jsecker_wikiName=Cjelozivotno obrazovanjeNasl..., accessed
on January 22, 2009.).
5. LLL ROLE IN THE DEVELOPMENT OF HUMAN CAPITAL
According to Noe, Hollenback and Wright, employee development involves the

acquisition of knowledge, skills and behaviors that improve employees ability to
respond to the challenges of dierent existing or future business (2006:55). LLL
process is the base for economic growth and development of any country, in which
the quality of human capital has the main role that creates a competitive advantage
in modern society.
Knowledge workers are not labor but capital of the company (Drucker, 2007:95).
Progress in technology demand creative employees with high levels of acquired
knowledge and skills because knowledge is a basic prerequisite for higher productivity as well as for better management of available resources. Technically educated and innovative people have become very expensive (Drucker, 2007:178-179).
Poloki Voki and Grizelj have conducted research and found that with modern
organizations, investment in employees by improving their skills and knowledge
and in the same time, using those skills and knowledge could be worthwhile.
(2007:853). In the examples of rapid social development in Finland and Ireland as
well as Sweden, which threatened the primacy of Finland on a scale of competitiveness, we can see the transparency in investment in study and science. Given that
667
the quality of human capital depends on the level of knowledge and achievement of
higher economic growth and social development depends on the quality of human
resources, with the right one can say that the process LLL has the great importance
in the development of human capital.
6. MANAGEMENT IN PUBLIC SERVICES AND THE PROCESS LLL
Managers are the key element of any production system, whose main task is
to manage all its components as well as coordination with other company functions (Barkovi, 1999:18). Changes that occur in all segments of society (technology, labor market etc.) intensely aecting the area of management. Creativity and
inventiveness as well as ability to motivate and humanity in dealing, increasingly
coming to the fore as a characteristics of modern managers some of which require
a high level of expertise, interest, awareness, exibility and objectivity. Teamwork
becomes the mechanism of the overall productivity and one of the important factors to attain objectives of each company. According to Weihrich, Koontz (1994:4),
management is the process of forming and maintaining an environment in which
the individual working together in groups, eectively achieves selected goals. Operational management for civil servants play an important role as it relates to the
management of those business activities that produce or provide services (Barkovi,
1999:4). Selected targets will be achieved successfully with ecient management of
production, nance and marketing as the basic business functions of every company. With the high level of quality control, management in the state service will
directly contribute to the quality of service, which is the product of a state employee directed towards customers. It is a very complex job that in general requires participation in dierent managerial jobs. In every organization and every aspect of the
production process, manager has to make decisions, which are extremely important
for the quality and quantity of nished products. Managers relationship to employees largely aects on the eciency in the state service, which can not be strict.
Managers are important factors in the inclusion of state employees in the process
LLL because in most cases when the additional knowledge have been gained at the
expense of the civil service, they make a decision on to which a state employee has
to be determined. In such cases management should take care to avoid the neglect
of certain state employees with a pronounced tendency towards additional learning
on the one hand, but also need to nd a suitable model to encourage further learning and those civil servants who are not prone to this on the other hand. Therefore
today, they have to devote as much time as they can to the development of employ-
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Josip upari
ees (Poloki, Voki, 2008:728) and to their development as well. To achieve the
above, managers in state services should have obligation to include in the process
LLL. In order to be involve in the process LLL, managers of state services should
with the knowledge and skills, acquire additional competencies in the direction of
nding ecient techniques for hasten development of employees with adjustment
to standards of developed EU countries.
7. STATE EMPLOYEES AND LIFELONG LEARNING LLL
Modern jobs require new competencies which are not important in traditional
way of business (Bahtijarevi, iber, 1999:719). Barkovi emphasises that a computer is important for data acquisition since those data and information are necessary for everyday work (1999:30). Lifelong learning is becoming more vital and
economically favourable as for individual as organization too, since that the same
process is involving more and more people, especially those who tend to improve
their knowledge as well as to get some new skills and competencies (upari,
2009:257). There is a great number of state employees in Croatia, around 114.000,
and they should be included into lifelong learning process. There are also two main
reasons for that way of development of human resources who are state employees. The Lisbon Strategy emphasises that in these times of global competition the
knowledge an innovations are the most precious property of EU. That is where the
rst reason is deriving from. It is based on globalisation because, as it is already
said, its based on competition advantage. Today, in many companies, the brains
represent essential value (Edvinsson, 2003:92). The other reason is also of economy
nature. Beside some other goals, state oces are to manage in the best way possible
the transformation of the resources into the outputs. The management of state
services will benet if they invest in knowledge and skills development of their employees if they want to obtain optimalization and precipitate eciency at the same
time. The possibilities of learning should be accessible for every state employee, no
meters on possible barriers they usually meet (lack of nancial means, lack of free
time, etc.). The management of state employees should develop nancing programs
i.e. investment in employees development, at all position, what will be the prerequisite of state services reform into institutions of knowledge.
669
8. INCLUSION STRATEGIES OF STATE EMPLOYEES INTO LIFELONG LEARNING

PROCESS LLL
Inclusion of state employees into LLL can be directed towards personal development and protability, while on the other side it is directed towards accomplishment of particular aims that one state service has. The state employee strive to
personal development with intention to keep step with rapid technology changes
and keep the status acquired, and its protability is seen in cost eectiveness of investment into skills and knowledge acquire by moving up on working position with
more responsibilities and authority, bonuses on payments etc. Inclusion of state
employees into the LLL process, with the purpose of development and training, is
based on requires of particular state service. State employee trainings and courses
are based on various high school programs with vocational contest, colleges, BA
and BS programs as well as post-diploma studies in accordance with Bologna process. Those trainings and courses result with the diplomas as a proof of particular
knowledge acquire level as well as academy title. Other strategy of state employee
inclusion into LLL process in Croatia is based on various refresher course, advising, symposiums, conferences, etc. and they result with certicates on successfully
acquired knowledge and skills but without any grading of the knowledge level or
any academy title. Considering the speed and constancy of technology changes and
development as part of everyday life, in this strategy, besides vocational themes, the
most important knowledge and skills are on foreign languages and computer usage.
There is also strategy of individual learning of state employee. It is made through
various self-educational programs (e-learning), where the state employee, by his
own will decides to develop his knowledge and skills, so that he would be able to
satisfy growing demands in labour market. In this case the employee is not using
any of mentioned strategy of organizes inclusion into CLLL process.
9. COST EFFECTIVENESS OF INVESTMENT INTO LLL AND PERSPECTIVE OF
STATE EMPLOYEE
Croatia has clearly decided to follow EU on the way to knowledge society and it
is necessary to increase the number of those who are included into LLL process, intensively and constantly. Considering the representation of state employees in the
total amount of the employed people, state employees should have more active role
in the LLL process. Since they are the producers of the services whose nal consumers are citizens of Croatia as well as many foreigners, they should be included into
the LLL process as more as possible. The result will be optimalization of resources
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Josip upari
used and increase of the quality and quantity of the service as the product. In the
process of the goal achievements in these times of constant technology changes, the
most visible is the TIME spent in production process and growing dierence in the
amount of the nancial support given to the knowledge based producing process.
Motivation and satisfaction of the employee should be one of the most important
factors to the modern management, on the way to the goals accomplishment. What
is the perspective of the state employees? Which factors aect the state employees
inclusion into LLL process? Carrier planning includes adjustment of ones ambitions with the opportunities reachable or potentially reachable in the organisation
(Noe, Holenback, Wright; 2006:118).
On one side, essential aim of the management is the optimalization and efciency in the battle with recessive consequences. On the other side, aim of the
state employee is the prot which is mirrored, as already mentioned, in promotion,
moving up to the better position and in the bonus on payment. That bonus would
be compensation for eort, time and education expenses given, if the decision
on knowledge and skills acquire was self-produced. In this part, there are various
obscurities and barriers in protability achievement, which are priory the result
of disharmony of particular regulations in Croatia with Bologna process. Namely,
collective agreement of state employees hasnt predicted stimulation models of additional knowledge and skills acquire, except for the MA or MSc where the payment is increased for 8 % and for the P.H.D. with the increase of 15 % (Collective
agreement, act 44, section 5). Here we have science levels which, after the Act
on academic and professional titles, adjusted to the Bologna process, do not exist
anymore. The Bologna process does not recognize post-diploma scientic studies
but post-diploma specialist study (MA or MSc) and P.H.D. In this case, if a state
employee, through the inclusion into LLL process, reached academic title of Master degree or University specialist, according to the collective agreement, he does
not meet the conditions for the increase of 8% of the payment.
Almost identical situation is with the new position reorder because they are not
predicted even by systematisation. These facts are telling about non-protability
of the individual and personal investments into education of state employees. This
takes the perspective of inclusion of the same into LLL process to the unwished
direction. That will grow negative consequences because people with the potential
will be limited and micro-managed (Kotter, 2009:163)
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10. FINAL NOTICES:
No modern society is possibly imaginable today if there is no awareness in informational and communicational technology, management and knowledge and
skills in other areas which are important for development of living quality. That is
reachable with inclusion into LLL process as many citizens as possible. Transparent
role of LLL in creating and functioning of modern society is visible in the rise of the
knowledge, skills and competency levels, which is again closely related to developing trends, especially economy development.
State employees, throughout mentioned possibilities of protability, are trying
to get investment return for their eort, free time and money they spent in additional education. If that is not possible because of some mentioned reasons,
the consequence is that they will look for the new job in some other service or
some private company. Their protability (cost eectiveness) will be accomplished
throughout the satisfactory working position or higher payment, and their creativity will come out. That is why is very important to make reforms in state services
and to harmonise current acts and laws with Bologna process so that employees
can have their rights given by education accomplished. In that way, motivation
for high eciency levels and optimalization in means available usage will be visible, and the aim would be to stop the outow of quality personnel. Science and
research, which will give results on eciency of LLL process, positions of state
employees after the additional education, academy title, and etc. should be emphasised. It is needed to increase the amount of the nances in the budget predicted
for the additional education to gain wanted results. That model should be adjusted
to the experiences of developed countries in EU because the investment into LLL
process is the investment into future.
REFERENCES
1. Armstrong, M. (2001).Kompletna menaderska znanja, M.E.P. Consult,

Zagreb.
2. Bahtijarevi-iber, F. (1999). Management ljudskih potencijala, Golden Marketing, Zagreb.
3. Barkovi, D. (1999). Uvod u operacijski management, Ekonomski fakultet u
Osijeku.
4. Castells, M. (2000). Uspon umreanog drutva, Golden marketing, Zagreb.
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Josip upari
5. Commission of the European Communities (2000). A Memorandum of Lifelong Learning, working paper, Brussells, 31.10.2000., SEC (2000) 1832.
6. Dilwort, J. B. (1992. Operations management- Design, Planning and Control
for Manufacturing and Services, McGraw- Hill, New York.
7. Drucker, P. (2007). Upravljanje u buduem drutvu, M.E.P. Consult, Zagreb.
8. Edvinsson, L. (2002-prijevod 2003). Korporacijska longituda; Navigacija ekonomijom znanja, Difero d.o.o., Zagreb.
9. European UniversitiesAssociation (2008). European Universities Charteron
Lifelong Learning , Brussels.
10. European Parliament and Council (2008). Recommendation on European Qualications Framework for lifelong learning, Ocial Journal of the European
Communities, (06.05.2008.).
11. Fox, J.J. (2002). Kako postati i biti uspjean direktor, Barka, Zagreb.
12. Knapper, C. and Cropley, A. J. (2000). Lifelong learning in Higher Education,
London, Kogan page
13. Kotter, J. P. (2009). Voenje promjena, Lider, Zagreb.
14. Noe, R., A.-Hollenback, J., R.-Gerhart, B.-Wright, P., M. (2006). Menadment
ljudskih potencijala, Mate, Zagreb.
15. Poloki Voki, N.- Grizelj, H. (2007). Obrazovanje i razvoj zaposlenika u hrvatskim organizacijama, Ekonomski pregled, 58 (12), pp. 851-880.
16. Rifkin, J. (2006). Europski san, kolska knjiga, Zagreb.
17. Robbins, P. S. (1995). Bitni elementi organizacijskog ponaanja, III izdanje,
Mate, Zagreb.
18. Sikavica, P.-Bahtijarevi-iber, F.-Poloki Voki, N. (2008). Temelji menadmenta, kolska knjiga, Zagreb.
19. Thurow, L. (1997). Budunost kapitalizma, Mate, Zagreb.
20. Weihrich, H.-Koontz, H. (1994). Menadment, deseto izdanje, prijevod Mate,
Zagreb.
21. Ziljak, T. (2005). Politike cjeloivotnog uenja u Europskoj uniji i Hrvatskoj,
Politiko obrazovanje, Vol.1. br.1., pp. 67-95.
673
22. upari, J. (2009). The role of universities in promoting lifelong learning: European experience and Croatian perspective, Interdisciplinary Management
Research V, J. J. Strossmayer University in Osijek, Faculty of Economics in
Osijek, Hochschule Pforzheim University, Osijek, str. 255-263.
23. http://www.educentar.net/schoolseeker_wiki.php?wikiName=EducaPlus, 22.
01. 2009.
24. http://www.moj-posao.net/jseeker_wikiName=CjelozivotnoObrazovanjeNas
l...22. 01. 2009.
25. h t t p : / / w w w . o r i v r e d n i . h r / i n d e x . p h p ? o p t i o n = c o m _
content&task=view&idltemid=2, 23. 02. 2009.
26. Zakon o znanstvenoj djelatnosti i visokom obrazovanju,Narodne novine br.:12
3/03,198/03,105/04,174/04,46/07,45/09, Zagreb.
27. Zakono akademskim i strunim nazivima i akademskom stupnju, Narodne
novine br.:107/07,Zagreb.
28. Kolektivni ugovor za dravne slubenike i namjetenike, Narodne novine
br.:93/08,39/09, Zagreb.
674
Kata Ivi
KNOWLEDGE ECONOMY CHANGE MANAGEMENT IN

HIGHER EDUCATION
Kata Ivi, Ph.D.
SUMMARY
Signicant changes are happening daily at all levels of society. Prot-based operations are faced with challenges posed by new events, but this is even more so in
the case of non-prot organizations and institutions. The changes in the academic
community as a consequence of the Bologna process having been introduced into
teaching and overall functioning of the academia have brought about both positive
and negative results. The opposition to the implementation of the new system into
higher education has been caught in the gap between the old education system
which still operates in practice and the necessity to implement new programmes
in higher education teaching. The supporters of the traditional higher education
system rightfully object that the process might become watered down, and that the
European education system is not suciently harmonized.
The Bologna process has introduced direct and indirect changes in the structure
of the teaching process, as well as in new professions, such as knowledge managers, who conduct formal and structural changes of the academic community.
Knowledge time, knowledge industry and the like require also a certain freedom in knowledge management. With the organizational changes the new knowledge manager receives additional tasks of being a real leader in restructuring the
existing traditional organizations. Structural changes imply changes of values, i.e.
changes in the way how business and teaching processes are evaluated. The realization of the Bologna process involves:
- emphasizing quality at all organizational levels of an academic community
- respect for individual creativity (students and teaching sta) and appreciation
of individual contributions
- valuing individual eorts in class, home assignments and intellectual work
KNOWLEDGE ECONOMY CHANGE MANAGEMENT IN HIGHER EDUCATION
675
- devising a new assessment system, etc.

New programmes in business and teaching processes are more or less successful
in following the continuous transformation and autonomy of higher education
institutions. However, the assessment of current organizational changes requires
permanent adaptation of the current situation to new development trends.
JEL clasication: D83
Keywords: knowledge economy, information economy, change management,
Bologna process, higher education
1. INTRODUCTION
Constant progress and discoveries in all scientic elds and other areas of human activity have had a great impact on the academic community as well. Changes
were inevitable and necessary. Universities, faculties, all academic institutions in
Europe have dealt with this system and course of changes gradually, building a new
system of academic education and a new system of organising academic institutions
and universities. Everything that people have to and can know nowadays and
this is hardly little this knowledge lacks synthesis. It remains what it should be:
a fragment, easily acquired, rapidly adjusting, easily forgotten. (Liessmann, K. P.,
2008; 8). The fact is that the system of European academic education did not begin
based on one feature, in one short period of time. Centuries of development and
construction of education system have passed, which continuously contributed to
the development of European culture and civilisation. Neohumanism has formulated the concept of education as a programme of self-formation and the educated
people have lived according to it as well as they could have managed. But the idea
of education has stopped being a goal and a criterion for central factors of production, transfer and adjustment of knowledge.
At present, those mechanisms do not function only marginally along with the
idea of education, but actually emphasize its absence. The fact that no one can
say what education or general schooling should consist of does not present any
subjective disadvantage, but is the result of the opinion that education has to be
reduced to training, and knowledge should be degraded to the recognizable number of the available human capital. (Liessmann, K. P., 2008; 9) Organisational
structure of academic institutions and universities, certain practices in implementation, established ways of organising and implementing education system cannot
676
Kata Ivi
be overlooked and ignored. New ways of organising and structuring curricula involve gradual adapting and introduction of new elements into the existing system.
Overall Education theory nowadays, measured by what has been understood in
European tradition since ancient times as ones possibility of educational forming,
should therefore be the theory of miseducation in the continuation of Adornos
critical programme. Lack of education does not designate simply the absence of
knowledge nor a certain form of non-renement, but sometimes a completely intensive knowledge handling beyond every idea of education. Lack of education today is neither individual failure nor a result of unsuccessful educational policy. It is
our destiny, since it is a necessary consequence of the capitalisation of the mind.
(Liessmann, K. P., 2008; 10). Issues of knowledge and education should be chief
preoccupation of our society in general, i.e. of the academic community, as well
as of each individual with a common goal of accomplishing general development
and shaping ones own identity. A new wave of growth and expansion of scientic achievements continuously accompanies every generation. The acceptance of
new insights, new technical and technological achievements have also inuenced
academic institutions and the system of higher education. These changes are also
recognized in the system of the Bologna process. In a world that is constantly
changing, there is not one subject or a set of subjects that will serve you well for
the foreseeable future, let alone for the rest of your life. The most important skill
to acquire now is learning how to learn. (Switzer, C., 2008; 19). To accept these
changes related to the Bologna Declaration and process that follows was not a
choice for the academic community to make, but an imposed programme and process that was accepted by the European academic community as a whole.
2. THE CHALLENGE OF CHANGES ACCORDING TO THE BOLOGNA PROCESS
Is it possible, from current perspective, to consider the future and prospects of

higher education in our conditions and under our circumstances? The reform of
higher education in the Republic of Croatia has been initiated ve years ago by
introducing a completely new system of education into our academic institutions.
Each innovation, including the Bologna declaration, encountered more or less resistance from the academic community. Nevertheless, by following the demands
of politics for the implementation of the new system in higher education, real
resistance or analysis of what the new system will bring practically did not exist. We
are witnessing the fourth, i.e. the fth generation of students that are being edu-
677
cated according to the Bologna process. The curriculum includes completely new
courses; most faculties have 3+2 years of studies, i.e. three years of pre-graduate
studies and two years of graduate studies. These are formal changes, introduced to
the studying process and into the academic community. However, the transformation of academic and institutional structures is much more complex than it seems
at rst glance. After reorganising, as well as restructuring the curriculum, the following is to be done:
- a real diversication of academic institutions (universities and faculties)
- the function of nancing is considerably changed in practice, so that universities take general control of the nancial function, whereby faculties partly lose
their nancial autonomy.
What is yet to be discussed in academic circles and related activities is:
- the co-operation among universities, i.e. alliances between universities, cooperation with the public sector and corporations
- the international level of higher education.
Surely, the following is bound to occur:
- coordination on national and regional level and a complete reform of university management,
- new organizational models of academic institutions,
- intensifying the cooperation among universities and other representatives of
the civil society,
- decentralisation, regionalisation, and internationalisation of public and private
oer in higher education,
- administration and management based on strategic planning in higher
education
- evaluation and responsibility,
- accreditation and certication of programmes,
- establishment and individual changes,
- new methodology of quality academic education
- exibility of the curriculum
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Kata Ivi
- new educational models focused on learning and orientation of certain academic authority
- student and faculty mobility
- the system of open, long-distance and life-long learning
- competence recycling, etc.
The Bologna process arms: study excellence, competitive spirit, quality in educational process and prot-related aspect of studying. All of the above mentioned
are the qualities that negate and background learning, education and knowledge
acquisition in a specic scientic and vocational area, i.e. discipline.
New professions appear, such as new knowledge manager, knowledge leader. Both
the process and the cycle are changed radically, and consequently the proles of new
professions are required. Upon completion of a programme of studies, students are
awarded the degree of baccalaureate (i.e. bachelors degree), a masters degree, etc.,
depending on the programme completed.
The accepted changes demand a new approach in organizing academic activities, especially in change management. These changes encompass all values of the
educational process. The following are emphasized and underlined:
- quality and not only well-being,
- creativity and initiative of an individual are more important than ex-cathedra
type of learning,
- social and cultural dierences are respected,
- the value system is being changed.
Adjustment to and acceptance of innovation in relation to universities, faculties
and all other academic institutions is not clear-cut and cannot be implemented
by a single decree called the Bologna process. The positive interaction that takes
place among the increasingly knowledge base, productivity, and competitiveness is
generally acknowledged. ..... The social recognition of the importance of making
higher education systems into national models of growth and development and the
value of knowledge and information as factors of productivity and competitiveness has given rise to an increased demand for university education. (Grzinger,
G. & Rodriguez-Gomez, R., 2007; 95). The process of introducing a new system
into higher education learning in Croatia has undoubtedly started by introducing
679
a completely new way of studying, new names for courses, new organisation of
studies. On the other hand, it has proved impossible to abruptly terminate and
abandon everything leading up to this point. The practice shows that, despite new
names and titles, new courses and programmes, there are actually a lot of elements
that are a legacy and practice of the old system.
3. MANAGING CHANGES IN ACADEMIC COMMUNITY
The fact that a large number of new changes at all levels of society and science
are continuously happening is irrefutable; global economy is a reality that inuences both protable and non-protable business sectors. How can one identify on
time what to accept and which changes to implement in everyday life? The complexity of the society, and in our case of the academic society and higher education,
has resulted in a recommendation to introduce a new process into education the
Bologna process. The tradition in the organization of academic institutions and
universities that is characteristic of European universities was a factor of resistance
to introducing and implementing new ways of functioning of the academic community. The Bologna process, as a part of an emerging European Higher Education Area, has already to change the higher education framework in Europe through
the process of the harmonisation of study structures and qualication systems, increased international student and faculty mobility, internationalization of schools
and their study programmes, etc. As a consequence of that process, the competition
between business schools will increase. Professional competence and employability
of graduates are central to this education transformation process. (Jure, M. & Tominc, P., 2008; 18). A thoroughly examined strategy for implementing changes in
European universities and academic institutions started with directing educational
processes towards knowledge management and intellectual capital.
The organisation of universities and other academic institutions is gradually
gaining features of corporation management based on:
- protability
- exibility
- openness to new changes.
The members of the team should possess the knowledge and motivation of others, but also the ability to create new organizational structures aimed at achieving
comparable advantages of academic organisations.
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Kata Ivi
The factor of perpetual competitiveness in educational process is becoming an

important feature of the Bologna process. In the Bologna process, the emphasis is
placed on:
- quality and competitiveness in education
- creativity and individuality in educational process
- respecting social and cultural dierences
- a system of individual values in education
- continuous knowledge assessment by a set of test/exams (test), etc.
All of them are disadvantages and negative elements of implementing the Bologna declaration according to the classical European university system. Many higher education institutions in several European countries, .... are in the middle of a
comprehensive transition process by aligning their curricula and study programmes
with the principles of Bologna process. They will transform their curricula and
teaching approaches from old, traditional model, based on teacher and lecture oriented modes of teaching, toward more pragmatic and student learning modes that
support the development of their professional competences. Therefore, for each of
three study cycles in the new higher education structure, a specic set of competences
should be considered and included in the curriculum development, supported by
appropriate modes of teaching. (Jure, M. & Tominc, P., 2008; 18)
New terms in the process of implementing the new education system become
a recognizable part of that process, adjustment, so that the term the knowledge
economy is used:
protabilisation of the education process and acquisition of competitive advantages, knowledge becomes commodity with usage and transactional value;
which is contrary to free information transfer and knowledge acquisition.
In the long run: the success or failure of academic institution presupposes to be
result of:
- capital based on knowledge,
- a new relationship to the participants of the process (users and consumers),
- new, innovated products and services within the education system, and
similar.
681
Picture 1 shows the importance of quality, i.e. policy that predetermines service
and product quality of the higher education institutions. It is important on the one
hand to determine: what the goal of a research is, i.e. analysis and who the real and
potential service users are. On the other hand, a control system is of importance, as
well as indicators that point to the success or failure of process implementation. In
the centre of the process, a quality management system and a system for monitoring the results of implementing new modes of education process are determined.
The application of ISO standards and the realization of required quality in the process presuppose the implementation of certain procedures and specications.
Picture 1: The Quality Management Systems tools (Sacchetti, L., 2007; 89)
The fact is that at present more and more knowledge creation, guarding, distribution, transfer and implementation are being considered in terms of model of
production of any commodity. Only this can ensure that universities, for example,
boldly show the increase in their research results in percentages. In this case, cognition cannot be included. Contrary to the continuous emphasis of knowledge value,
it is actually not appreciated, since its right to cognition has long been taken away.
(Liessmann, K. P., 2008; 123). The structural change of educational systems of
both European and Croatian universities, although still in progress, is constantly
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Kata Ivi
provoking arguments over the acceptance justiability of those same changes, implemented by the Bologna Declaration. As much as education is characterized by
its reforms, current educational reforms are proving to be paradigmatic of reform
spirit that keeps modern societies in top shape. (Liessmann, K. P., 2008; 138).
The change in management system of Croatian universities, as a challenge, will
only follow the reorganising of faculty management, when a university gradually
accepts management structure of both the teaching process and of all administrative functions (accounting, nances and like).
4. CONCLUSION
The structural change of educational systems of both European and Croatian

universities, although still in progress, is constantly provoking arguments over
the acceptance justiability of those same changes, implemented by the Bologna
Declaration.
In the Bologna process, the emphasis is primarily placed on the teaching process
and educational system (quality of and competitiveness in education, creativity and
individuality in educational process, respect for social and cultural diversity, the
system of individual values in education, continuous knowledge assessment, etc.)
followed by restructuring and complete reorganisation of the management system
of universities as central organisations of higher education. The Bologna process
introduces changes into the existing structure of universities and faculties, both in
teaching process and in life and functioning of universities in general. The cooperation between universities, i.e. alliances between certain universities, cooperation
with the public sector and corporations, the international level of higher education,
as well as student and faculty mobility are yet to become the topic of discussion.
5. References
1. Grtziner, G. & Rodriguez-Gmez, R.,(2007), Managing Higher Education:

Introduction, Management Revue, (2007), Vol. 18., No. 2, str. 95-101, ISSN
0935-9915
2. Jure, M. & Tominc, P. (2008), Professional Competence of a Graduate as Labour Market Mechanism for Aligning Business School Curriculum Reform with
the Bologna Declaration Principles, Management, Journal of Contemporary
Management Issues, (2008), Vol. 13., No. 1., str. 17-36. ISSN 1846-3363
683
3. Liessmann, K. P.(2008): Teorija neobrazovanosti, Zablude drutva znanja, Naklada Jesenski i Turk, Zagreb, ISBN 978-953-222-285-2
4. Saccheti. L., (2007), ISO Quality as a Driver of Continuous Improvement
Performance Measurement and Metrics, (2007),Vol. 8., No. 2., str. 88-97, ISSN
1467-8047
5. Saka, A. (2003): Internal Change Agents View of the Management of Change
Problem, Journal of Organizational Change Management (2003), Vol. 16. No.
5, str. 480-496., ISSN 0953-4814
6. Switzer, C. (2008): Time for Change: Empowering Organizations to Succeed in
the Knowledge Economy, Journal of Knowledge Management (2008), Vol. 12.,
No. 2, str. 18-28, ISSN 1367-3270
LAW
AND
ECONOMICS
TAX EXEMPTION AND TAX RELIEF IN PROFIT TAX SYSTEM OF THE REPUBLIC OF CROATIA
687
TAX EXEMPTION AND TAX RELIEF IN PROFIT TAX SYSTEM

OF THE REPUBLIC OF CROATIA
Renata Peri PhD, associate professor
Faculty of Law
Emina Konji, assistant lecturer
Faculty of Law
Nikola Mijatovi PhD, associate professor
Faculty of Law
University of Zagreb
ABSTRACT
The importance of the analysis of tax exemption and prot tax system of the Republic of Croatia legislation derives from the fact that these have not been regulated
by a single legislation i.e. Prot Tax Act and Prot Tax Ordinance but also other
legal provisions presented in this paper. Extraordinary tax advantages in free trade
areas, highland areas and areas of special state care and tax advantages for investment incentives have been analyzed.
In spite of the current need for retaining particular tax advantages for areas with
low economic potential and other tax incentives for economic potentials stimulation as well as for reducing economic problems that our state has encountered,
these incentives have been gradually reduced so that the legislation in these areas
needs to be well laid out in order to avoid legal insecurity.
JEL clasication: H20, K34
Key words: taxpayer, tax base, tax exemption, free trade areas, special state care,
investment incentives
688
Renata Peri Emina Konji Nikola Mijatovi
1. INTRODUCTION
Based on scal sovereignty a state aects economic power of its citizens. Natural
persons are obliged to pay personal income tax whereas legal persons pay corporate
prot tax. As well as taxation of income and corporate prot tax is familiar with
more than a few exemptions.1 Therefore, free trade areas, hill and mountain areas
and areas of special state concern remain a sort of entrepreneurial oases until 2016.
Entrepreneurs performing business activities in these areas enjoy the right of tax
relief with an aim of achieving certain economic development stage and increasing
employment rates. However, this system has changed in the course of the years and
soon a cut in the system is expected since acquis and the practice of the EU do not
recognise such relief system. Thus in the process of harmonization of our legislation
with the acquis all forms of tax relief will change and all relief shall be categorized as
state incentives the regulation of which shall be subject to strict EU norms.
2. Corporate Prot Tax Benet in Free Areas
The project of founding free trade areas as economic subjects started in Croatia
in 1996. A free trade area is part of the territory of the Republic of Croatia that is
specially marked and enclosed and in which economic activities take place under
special conditions.23 A free trade area can be founded on the grounds of the awarded concession by the government of the Republic of Croatia. The government of
the Republic of Croatia determines the free trade area founding concession rate. 50
% of the rate amounts to the budget and 50% to the district i.e. municipality.
There are numerous reasons for founding a free trade area and the most frequent
are:
-investment incentive
-new technologies and equipment introduction
-business modernisation and improvement
-establishing contact among industries
-production launching
1
Javne nancije u Hrvatskoj (2000.), Institut za javne nancije, Zagreb
Free Trade Areas Act, Ocial Gazette No 44/1996, 78/1999, 92/2005, 85/2008
A free trade area can be founded in the area of harbour, airport, river port, along international roads
and other areas meeting the requirements for its activity. It can consist of a number of separate parts
if the conditions stipulated by the law are met. ( Art. 3)
689
-to stimulate employment

-export of goods
-attracting foreign investments
The businesses that can be performed in free trade areas include goods production, nishing, storage of the whole sale goods, strategic activities of business support, founding technological development-inovation centers for rendering services,
with exception of banking and other pecuniary businesses and services involving
insurance and reinsurance of property and persons.
It should be emphasized that retail trade is not permitted in the area.
There are currently fteen free trade areas in the Republic of Croatia two of
which are not operating.
Table 1. Free Trade Areas in Croatia

Free Trade Area
KRAPINSKO - ZAGORSKA FREE TRADE AREA

FREE TRADE AREA OSIJEK
FREE TRADE AREA KUKULJANOVO
FREE TRADE AREA OF THE RIJEKA HARBOUR
FREE TRADE AREA ZAGREB
FREE TRADE AREA OBROVAC*
FREE TRADE AREA OF THE SPLIT HARBOUR
FREE TRADE AREA OF THE PULA HARBOUR
FREE RADE AREA SPLITSKO - DALMATINSKA
FREE TRADE AREA OF THE PLOE HARBOUR
FREE TRADE AREA BUJE*
FREE TRADE AREA URO AKOVI-SL.
SLAVONSKI BROD
FREE TRADE AREA VARADIN
THE DANUBE FREE TRADE AREA OF VUKOVAR
FREE TRADE AREA RIBNIK
CITY
Krapina
Osijek
Kukuljanovo
Rijeka
Zagreb
Obrovac
Split
Pula
Split
Ploe
Buje
Slavonski
Brod
Varadin
Vukovar
Ribnik
NUMBER OF
AREA USERS
EMPLOYEES
NUMBER
70.000
30.000
270.000 80.000
28.000 1.000.000
1.635.000 570.870
79.860
0
14
4
5
9
125
123
630
73
1.332
225
259.900
73.000
100.000
0
23
19
45
588
2.145.892 1.548.700
1.064
262.493
63.100
27
1.114
600.000
21.080
32.000
0
13.432
10.000
1
20
7
200
123
17
LAND AREA
(m2 )
* the area is not operating

Source: http://zone.mingorp.hr/slobodne/podaciozonamai.htm
FREE LOTS
m2
690
However, due to changes of the law, free areas are no longer so attractive for
investors which resulted in decrease in the proceeds of concessionaires and brought
into question the area furnishing and equipment debt servicing. Numerous prospective investors have desisted among which there are American investors ready
to invest $ 100 Million in the bio-ethanol production. The realisation of concession of the free trade area has become too complicated and bureaucratized and has
resulted in increasing costs for some investors; since announced investments failed
the concessionary income decreased.
One of the main conditions for Croatian accession to the European Union is to
abolish customs free businesses in accordance with the standards of the EU. Starting on 1 January 2009 the clients of free trade areas should pay the full amount of
benet tax instead of a half and additionally VAT after Croatian accession to the
EU. Free trade area as such shall cease to exist and becomes an economic area.
This is exactly what happened in the Free trade area Osijek. This area lost almost
15 of its clients4 until 2010 and they moved to the area of special state concern
where benets are still valid. Besides, in June 2010 the ten-year contract expires
with the biggest client of the area Benetton-Croatia5.
Amendments of the Law on Free Trade Areas, 2008 regulate relief for the area
users until 2008 and in particular for the users that have performed or shall perform activities in the area after the Law of 2008 enters into force.
The area users ( at the same time corporate prot taxpayers) have had twofold
relief. The rst is the lower tax rate -10% or corporate prot tax exemption for
the time of 5 years if they invest more than a million HRK6 in infrastructure area
4
5
There are about 30 of them in the area but few of them are involved in production.
Benetton will remain in the area but has already announced its exit from the free customs operating
system
The Corporate Prot Tax Ordinance (NN 95/05, 133/07) considers that the area user constructs
or takes part in the construction of infrastructure area objects in terms of the provision of Art.
24 section 2 of the Law if he invests in spacial, infrastructure, utility, energetic, security and other
objects necessary for area users activities. These could be buildings that serve for business, administration, supervision and security and also power facilities, halls, hangars, storehouses, objects with
the purpose of environmental protection. Objects can be dened as both equipment and facilities
necessary for object functioning as is the case with signalling security, communication, power and
other facilities and equipment. These objects include also infrastructure objects such as roads, access
roads, entrances, railroads with facilities and equipment, then coast, breakwater, facilities and plants
and other objects with the purpose of putting in, anchoring and protection of ships, loading and
691
objects construction. In the transitional period stipulated rights for the users of
free trade areas paying prot 10% depending on the regional map of the Republic
of Croatia and in particular for those users who invested in the area and by the
amended law gained the status of the bearer of investment incentives.
The area users performing business activities in the area until the day when this
Law entered into force shall pay tax on prot depending on erritorial unit for statistics of the level II in which the area is situated and in accordance with the NKPJNacionalna klasikacija prostornih jedinica za statistiku (National classication of
territorial units for statistics)7 in the following way:
a) The area users in the territorial unit for statistics of level IINorth-Eastern
Croatia (HR 01) shall pay prot tax
- 50% of the stipulated tax rate for the period from 2008 until 2010
- stipulated tax rate starting from 2014
b) The area users in the territorial units for statistics of level IICentral and
Eastern (Pannonian) Croatia (HR 02) shall pay prot tax
- stipulated tax rate starting from 2017
The area users of the City of Vukovar performing business activities in free area
as this Law entered into force shall pay prot tax:
- valid tax rate starting from 2017
reloading of goods, operational areas, objects, facilities, plants, ttings and equipment used for starting, taking o and stay of aircrafts, aircraft and goods reception and equipment, as well as utilities
including water supply system, sewage, sanitation and gas pipeline etc. Exemption and relief for
opearting in the area is established for the prot share realized in the area if the tax payer does not
operate exclusively in the area.
7
Amidi Peroevi, K. (2010.) Porezne olakice u porezu na dobit za poduzetnike koji posluju
u slobodnim zonama, Raunovodstvo i nancije 2/2010
692
It should be also noted that both goods deliveries in the area and deliveries
within the area have been exempted from VAT payment, which ceases the moment
Croatia becomes a full member of the EU.
3. CORPORATE PROFIT TAX BENEFIT IN HILL AND MOUNTAIN AREAS
Special benets in hill and mountain areas8 have been included in the Law on
Hill and Mountain Areas9. In line with this Law the corporate prot taxpayers
involved in agriculture and shery in hill and mountain areas pay corporate prot
tax of 75% of the stipulated tax rate if they employ more than ve employees permanently10 where more than 50% of the employees have residence or are domiciled
in the hill and mountain area or the area of special state concern. This benet ceases
the moment Croatia becomes a full member of the European Union.
The Law provides for special relief in the period from 2008 to 2010 for the corporate prot taxpayers involved in performing business activities other than agriculture and shing in hill and mountain area and employ more than ve employees
permanently where more than 50% of the employees have residence or are domiciled in the hill and mountain area or the area of special state concern pay corporate
prot tax of 75% of the stipulated tax rate. Since the year 2010 has already begun,
it leaves us nothing else but to see whether the legislator shall remain consistent.
4. CORPORATE PROFIT TAX BENEFIT IN AREAS OF SPECIAL STATE CONCERN
The Republic of Croatia has established the Areas of Special State Concern 11 in
order to eliminate the war consequences, enable faster return of the population liv8
The status of hill and mountainareas have the following local self-government units:
- cities/towns: Buzet, abar, Delnice, Imotski, Lepoglava, Ogulin, Orahovica, Senj, Sinj, Trilj, Vrbovsko i Vrgorac,
- municipalities: Bistra, Budinina, Cerovlje, avle, Dicmo, urmanec, Fuine, Graie, Jelenje,
Jesenje, Kalnik, Kaptol, Karlobag, Klana, Klis, Lobor, Lokve, Lovre, Lupoglav, Ljubeica, Matulji,
Motovun, Mrkopalj, Mu, Novi Golubovec, Podbablje, Primorski Dolac, Radoboj, Ravna Gora,
Skrad, Stubike Toplice, estanovac and Vinodol municipality
9
Law on Hill and Mountain Areas, Ocial Gazette No. 12/02, 32/02, 117/03, 42/05, 90/05
10
The taxpayer in section 2 of this Article is considered to have employed an employee permanently
if the employee has spent at least nine months of the scal period at the work of the taxpayer and
has had residence and domicile in the hill and mountain area or the area of special state concern
(Art. 7c).
11
Special State Concern Areas Law, Art. 2, Ocial Gazette No. 86/08
693
ing in this area before the Homeland war and encourage demographic renewal and
economic development so that all areas develop equally. The area of special state
concern can be divided into three groups: the rst and the second group comprise
the areas according to conditions emerging on the basis of occupation state and
consequences of GreatSerbian aggression on Croatia whereas the criteria of the
third group are economic development, structural issues, demographic and special
criteria.
As for tax relief twofold criteria are applied on corporate prot tax in special
state concern areas.
According to the rst, taxpayers performing business activities in agriculture
and shery in the area of special state concern and employing herein more than ve
employees permanently, where more than 50% of the employees have residence
or are domiciled in the area of special state concern for at least nine months pay
corporate prot tax in the following way by the time of Croatias entry into the
European Union:
1. exempted from paying corporate prot tax in the area of the rst group,
2. pay 25% of the stipulated tax rate ( i.e. 5% ) in the area of the second group,
3. pay 75% of the stipulated tax rate (i.e. 15%) in the area of the third group.12
According to the second criterion, taxpayers performing business activities in
the area of special state concern other than agriculture and shery, employing more
than ve employees permanently, where more than 50% of the employees have
residence or are domiciled in the area of special state concern pay corporate prot
tax as follows:
1. prot taxpayer performing business activities in the areas of the rst group of
areas of special state concern13
12
13
The rst group of areas of special state concern comprises areas of cities and municipalities along
the state border occupied in the Homeland war and city/municipal center is not more than 15 km
in the straight line distant from the state border and has not more than 5000 inhabitants according
to the census of 1991 as well as other then occupied areas of cities, municipalities and settlements
of Croatian Danube region. This would include the following cities and municipalities: Antunovac,
Beli Manastir, Bilje, Bogdanovci, Borovo, Cetingrad, Civljane, eminac, Darda, Donji Kukuzari,
Donji Lapac, Dra, Dubrovako primorje, Dragali, Dvor, Erdut, Ernestinovo, Gvozd, Hrvatska
Dubica, Hrvatska Kostajnica, Ilok, Jagodnjak, Jasenovac, Kijevo, Kneevi Vinogradi, Lovas, Majur,
Markuica, Negoslavci, Nijemci, Nutar, Petlovac, Plitvika Jezera, Popovac, Rakovica, Slunj, Stara
694
- exempted from paying corporate prot taxfor the period from 2008 to 2010
- pays 25% of the stipulated tax for the period from 2011 to 2013
- pays the amount of the stipulated tax rate starting from 2017
2. Prot taxpayer performing business activities in the area of the second group of
special state concern areas14:
3. Corporate prot taxpayer performing business activities in the area of the third
group of special state concern areas15:
14
15
Gradika, Stari Jankovci, odolovci, Tompojevci, Topusko, Tordinci, Tovarnik, Trpinja, Vojni, Vrlika, Vukovar i upa dubrovaka as well as the settlements in the cities: Osijek-settlement: Klisa,
Nemetin, Sarva, Tenja; Vinkovci settlement: Mirkovci.
The second group of state concern area comprises cities, municipalites and settlements that had
been under occupation during the Homeland war are not included in the rst group. Accordingly,
these are municipalities and cities of Barilovi, Benkovac, Biskupija, Brestovac, ainci, Drni,
ulovac, Ervenik, Glina, Gornji Bogievci, Gospi, Graac, Grubino Polje, Hrvace, Jasenice,
Josipdol, Kistanje, Knin, Konavle, Krnjak, Lasinja, Lipik, Liane Ostrovike, Lovinac, Mikleu,
Novigrad, Novska, Obrovac, Okuani, Otoac, Pakrac, Petrinja, Plaki, Polaa, Polinik, Posedarje,
Promina, Rui, Saborsko, Sira, Skradin, Stankovci, Ston, Sunja, kabrnja, Tounj, Udbina, Velika,
Velika Pisanica, Veliki Grevac, Voin, Vrhovine i Zemunik Donji. This group also includes settlements in the cities : Daruvar settlement : Markovac, Vrbovac; Dubrovnik settlements : Bosanka,
Brseine, Dubravica, Donje Obuljeno, ajkovica, ajkovii, Gornje Obuljeno, Gromaa, Klievo,
Kneica, Komolac, Ljuba, Mokoica, Mravinjac, Mrevo, Nova Mokoica, Oraac, Osojnik, Petrovo selo, Prijevoj, Pobreje, Roat, umet, Trsteno, Zaton; Karlovac settlements : Banska Selnica, Banski Moravci, Blatnica Pokupska, Brezova Glava, Breani, Broani, Cerovac Vukmaniki,
Donja Trebinja, Donji Sjeniak, Gornja Trebinja, Gornji Sjeniak, Ivankovi Sela, Ivoevi Selo,
Kablar, Kamensko, Karlovac parts of Gornje Mekuje, Sajevac i Turanj, Klipino Brdo, Kljai
Brdo, Knez Gorica, Lipje, Manjerovii, Oki, Popovi Brdo, Ribari, Skakavac, Slunjska Selnica,
Slunjski Moravci, Tuilovi, Udbina, Utinja, Vukmani; Sisak settlements: Blinjski Kut, Klobuak, Letovanci, Madari, Staro Selo; Slatina settlements : Goleni, Ivanbrijeg, Lukavac; Virovitica
settlements : Jasena; Vodice - settlements : ista Mala, ista Velika, Grabovci; Zadar settlements
: Babindub, Crno.
By the Government Decision on conrming the status of the appurtenance of municipalities of the
third group to the area of special state concern(Ocial Gazette No 138/02) the status of appurtenance to the third group of areas of special state concern is given to the following municipalities:
a) on the grounds of economic underdevelopment: Babina Greda, Bebrina, Cestica, Cista Provo,
Dekanovec, Donja Voa, Drenovci, Gornja Rijeka, Gradina, Gundinci, Gunja, Klakar, Levanjska
695
5. TAX BENEFIT BY WAY OF INVESTMENT INCENTIVE
As a special benet we point out the one by way of investment incentive in economic activities in the area of the Republic of Croatia and creating additional jobs
related to these investments. Tax benet is a reduced tax obligation and sometimes
even exemption of corporate prot tax payment depending on investment amount
and number of employees, which we shall deal with furtheron.
If the corporate prot taxpayer invests up to 1.5 million Euro in HRK equivalent value the corporate prot tax rate is reduced by 50% for the period of 10 years
starting from the investment year on condition that within 3 years after gaining
the status of incentive bearer i.e. investment commencement at least 10 new jobs
related to the investment are created.
If a taxpayer invests 1.5 to 4 million Euros in HRK equivalent value the corporate prot tax rate is reduced by 65% of the stipulated tax rate for the period of 10
years starting with the investment commencement on condition that 30 new jobs
related to the investment are created within three years after gaining the status of
incentive bearer i.e. investment commencement.
If a taxpayer invests 4 to 8 million Euros in HRK equivalent value the corporate
prot tax rate is reduced by 85% of the stipulated tax rate for the period of 10
years starting with the investment commencement, on condition that 50 new jobs
related to the investment are created within three years after gaining the status of
incentive bearer i.e. investment commencement.
16
Varo, Oprisavci, Podgora, Podravska Moslavina, Podturen, Pojezerje, Proloac, Punitovci, Satnica
akovaka, Semeljci, Sikirevci, Slavonski amac, Sopje, Trnava, Velika Kopanica, Voinci, Vrbanja,
Vrbje, Zrinski Topolovac; 2) by the criterion of structural diculties: Cernik, Galovac, Kula Norinska, Leevica, Lokviii, Oriovac, Otok (Splitsko-dalmatinska county), Otok (Vukovarsko-srijemska county), Pakotane, Runovii, Starigrad, Suhopolje, Vladislavci, Zagvozd, Zaablje; 3) on the
basis of demographic criterion: Bednja, Berek, Bosiljevo, Brinje, Brod Moravice, Crnac, aavica,
aglin, Generalski Stol, Gronjan, Ivanska, Kraljevec na Sutli, Lanie, Netreti, Oprtalj, Perui,
Pisarovina, Pokupsko, Prgomet, Ribnik, Unei, Zagorska Sela, umberak.
696
If a taxpayer invests more than 8 million Euros in HRK equivalent value the
corporate prot taxrate is reduced by 100% of the stipulated tax rate ( he is completely exempted from tax obligation) for the period of 10 years starting with the
investment commencement on condition that 75 new jobs related to the investment are created within three years after gaining the status of incentive bearer i.e.
investment commencement.
Tax benet total that the bearer of incentives can use in the course of the period
of tax benet utilisation is determined in an absolute total as a balance a) of the
corporate prot tax total received by application of the Corporate Prot Tax Act
and b) amount calculated by application of the Investment Promotion Law taking
into consideration the maximum allowed amount of total incentives referred to in
Art. 2 subsection 8 of the Law17 ( Art. 4, section 5).
If the incentive bearer violates the condition determining creation of new jobs
regulated by preceding provisions, i.e. reduces the number of new jobs determined
by preceding provisions his right to tax benet ceases for the complete period the
benet is allowed with obligation of refunding the means realized by utilising allowed benet increased for the amount of legal default interest ( Art. 4 section 6).
Minimum period of validity of the status of incentive bearer i.e. preservation of
the subject investment and creating new jobs related to this investment is 5 years
but not shorter than the incentive measures utilisation period ( Art. 4 section 7).
6. CONCLUSION
The major issue is the fact that legal matter is diused and hard to be collected
in one place. It has been included in numerous laws amending the Corporate Prot
Tax Act18 overlapping in many areas. However, many issues have remained incomplete. When it comes to the Free Trade Areas Law neither the procedure can be
17
18
Investment Promotion Law Art. 2 subsection 8 stipulates maximum support as gross equivalent of
up to 50% of justied investment costs, increased by 10 gross percentage points in cases of investment incentive of middle entrepreneurs, i.e. increased by gross 20 percentage points in cases of
incentive of small entrepreneurs and in accordance with the map of regional state support and this
is the upper limit of total cummulative support i.e. the sum of justied incentive measures referred
to in Art. 4, 6, 7, 8, 11 and 12 of the Law including the support from other sources. Maximum
support intensity must not excede the upper limit of the allowed intensity established by the map
of regional state supports.
Corporate Prot Tax Act, Ocial Gazette No. 177/04, 90/05, 57/06
697
found in any of the instruments nor has it been dened who controls the application of the Law unlike for the support used by entrepreneurs performing business
activities in areas of special state concern as well as in hill and mountain areas. We
can suppose that this control shall be exercised by the Ministry of Economy, Labour and Entrepreneurship since area users receive their zone entrepreneurial status
conrmation by the very Ministry.
Nevertheless, it should be noted that by the time of Croatian entry into the European Union there will be little space for further changes thus the current way of
doing business and benets will completely change. There will be a period of transition that in certain places has already come into force and in which tax benets
will have gradually be reduced and nally abolished by 2016. Performing business
activities in free zones, hill and mountain areas, in areas of special state concern will
equal to performing business activities in any other area of the Republic of Croatia;
according to current regulations by the time Croatia enters the European Union
the zones will be special customs areas only in reference to the third non-member
states of the EU.
7. REFERENCES
1. Javne nancije u Hrvatskoj (2000.), Institut za javne nancije, Zagreb

2. Amidi Peroevi, K. (2010.) Porezne olakice u porezu na dobit za poduzetnike koji posluju u slobodnim zonama, Raunovodstvo i nancije 2/2010
3. Zakon o porezu na dobit Narodne novine 177/04, 90/05, 57/06- Corporate
Prot Tax Act
4. Pravilnik o porezu na dobit, Narodne novine 95/05, 133/07- Corporate Prot
Tax Ordinance
5. Zakon o slobodnim zonama, Narodne novine 44/1996, 78/1999, 127/2000,
92/2005, 85/2008- Free Trade Areas Law
6. Zakon o brdsko planinskim podrujima, Narodne novine 12/02., 32/02.,
117/03., 42/05., 90/05, 80/08- Hill and Mountain Area Law
7. Zakon o podrujima posebne dravne skrbi, Narodne novine 86/08- Special
State Concern Areas Law
8. Zakon o poticanju ulaganja, Narodne novine 138/06- Investment Promotion
Law
698
8. Odluke Vlade Republike Hrvatske o potvrivanju statusa pripadnosti opina

treoj skupini podruja posebne dravne skrbi, Narodne novine 138/02- Government Decision on conrming the status of the appurtenance of municipalities of the third group to the area of special state concern
9. http://zone.mingorp.hr/slobodne/podaciozonamai.htm (Pristup: 08-03-2010)
HOTEL GUESTS PRIVACY PROTECTION IN TOURISM BUSINESS LAW
699
HOTEL GUESTS PRIVACY PROTECTION IN TOURISM

BUSINESS LAW
mr.sc. Oliver Radolovi
University of Pula
Department of Economics and Tourism
ABSTRACT
In the tourism business law, especially in the hotel-keepers contract (direct,

agency, allotment), the hotel-keeper assumes certain obligations to the guests,
among which, in the last twenty years, the protection of the guests privacy is particularly emphasized. The subject of the paper is hotel guests privacy protection in
the Croatian and comparative tourism business law.
The paper is structured in a way that it analyzes, through the laws of Croatia,
France, Italy, Germany, UK and USA, the hotel-keepers: 1) duties on guests privacy protection (1. respect of the guest room privacy, 2. registration of the guest
under the false name, 3. non-receiving certain guests or persons, 4. discretion of the
hotel sta) and 2) contractual liability for non-proprietary damage to violation of
guests privacy (a. the intrusion of sta in the guest room, b. the release of persons
in the guest room, c. recording, wiretapping or spying and d. giving third parties
information about the guest).
Croatian law does not yet recognize the institute of guests privacy protection
as the comparative law of Euro-Continental and Anglo-American legal system (between which there are dierences in relation to the institute). The conclusion is the
need of adopting unied source at the international law and the European Unions
law level, about hotel-keepers obligation to protect the guests privacy.
JEL clasication: D18, K12,
Keywords: hotel-keepers contract, guests privacy protection, contractual liability, non-proprietary damage, Croatian law, comparative law.
700
Oliver Radolovi
1. INTRODUCTION
Modern tourism business law is facing lately a new institute: an obligation to

protect the privacy of the guest during his stay at the hotel. The obligation to protect guests privacy arises from the direct hotel-keeper contract and all other tourism law contracts concluded between the hotel-keeper and the guest. Hotel guests
right to privacy is especially developed in the laws of the USA and Germany, and
evolved from the obligation to take care of guest person. Protection of guests privacy is an expression of respect for the guest person, its dignity and psychophysical
integrity. Category of privacy protection includes guests safety, amenity, comfort
and respect of his personality and reputation.
Croatian law regulates contracts between the hotel-keeper and the guest mainly
in Special customary practice in the catering industry (1995). It regulates only two
situations in which the hotel-keeper is obliged to take care about the person guest
(Gorenc & mid, 1999, 22): 1) in the event of his illness (custom 47.) or 2) death
(custom 48.). Croatian law, therefore, does not yet recognizes the institute of hotel
guests privacy. However, although no legislation or theory recognizes it, the hotelkeepers obligation to care on person guest may, subsequently, in Croatian law also,
include protection of guests privacy.
Laws of the European continental circuit, accept the institute in a dierent
manner. German law had adopted it by several court decisions and a number of
theoretical backgrounds, where the obligation to protect the guests secret and
privacy is especially emphasized (Donhauser, 2004, 108). French law recognizes
the institute only fragmentary under the obligation to keep the guests security
(Louveaux, 1995, 46), which implies the respect of the house rules (les rgles de
prudence) about guests intimacy (Moret, 1973, 663). Italian law introduced the
institute through the Privacy Act in 2003. (Codice della privacy 196/2003), by
which is formed the body (Il Garante) that protects the privacy of any consumers
data regarding their personal information (Nobbio, 2006, 380-381).
In the Anglo-American legal circle, knowledge of the institute is dierent. In
the USA law, the same is strongly developed in the legislation and precedents of
common law. Therefore legal theory (Sherry, 1993, 198-205) devoted large space
to it. In the UK law it exists (Boella & Panett, 1999, 143) in the context of duty
of reasonable care towards the Occupiers Liability Act (1957/84) and the guests
personal data protection according to the Data Protection Act (1984/98).
701
In the European law the only act that touches the guests privacy is the Directive
on Data Protection (CE 1995/46) from 1995, while in the eld of international
law there is no unied source on privacy protection of the guest.
The subject of the paper is analysis of the hotel guests privacy protection in the
Croatian and comparative tourism business law. Two fundamental questions are
raised: 1. How does the hotel-keeper full the contractual obligation of the guests
privacy protection? 2. How can the hotel-keeper violate this obligation and for
what damages in this case is he liable to the guest?
2. HOTELKEEPERS DUTIES ON HOTEL GUESTS PRIVACY PROTECTION
The basic rule of the hotel guests privacy protection is that the hotel-keeper
must do everything to full the obligation. In comparative law four most frequent
hotel-keeper duties for guests privacy protection have proled: 1) respect of the
guest room privacy, 2) guests registration under the false name, 3) non-receiving
certain guests or persons and 4) discretion of the hotel sta. For violation of the
same duties, a hotel-keeper is responsible for the guests damage.
2.1. Respect of the guest room privacy
Respect of the guest room privacy is a hotel-keepers fundamental duty in the

execution of the guests privacy protection. The same includes a guests right to enjoy the room without interference, undesirable guests and hotel sta intrusion.
The German law goes furthest in respect of guest room privacy, explaining that
by using of accommodation the guest turns a room from the public to the private
facility, where is free to set his pictures or souvenirs (Mundt, 2006, 218).
French law protects the guest room privacy through hotel-keepers duty to oversee and respect the guests intimacy. Within this rule, the guests intimacy shall be
strongest respected during his stay in the room (Moret, 1973, 663-700).
The UK law, on two verdict basis, interprets the duty to respect guest room
privacy: 1) guest has to feel reasonably safe in the room (Maclenan vs. Segar, 1917,
2 KB 325), 2) hotel-keeper has to conduct as a good neighbour towards the guest
in the room (Donoghue vs. Stevenson, 1932, HL ER 562).
In the USA law, respect for guest room privacy means (Jeeries, 1983, 13): 1)
guests peaceful possession of the room, 2) not allowing unregistered and unauthor-
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Oliver Radolovi
ized third parties to gain access to his room and 3) entrance to the guest room only
for routine housekeeping and in the case of an emergency. Hotel-keeper may enter
a guest room only when it is necessary or proper (DeWolf vs. Ford, 1908, 193 NY
397), with reasonable attention (Sherry, 1993, 197).
2.2. Registration of the guest under the false name
Despite the fact that the guest in all laws, by the registration, must report his
true personal data (name, address), sometimes it is necessary, for the protection of
guest privacy, to allow the guests registration under the false name.
The German law is the only one that recognizes such hotel-keepers duty (Dettmer & Hausman, 2006, 164-165). Protection of the guests name is a special hoteliers duty when the guest is a popular person (Mundt, 2006, 218).
The USA law does not recognize the registration under the false name, but it is
forbidden only in case of criminal inquiry obstruction (Goodwin, 1987, 423).
Other laws do not regulate this duty, but it is the usual hotels practice to report
the real name to the authorities, and give the false guests name to the thirds.
2.3. Non-receiving certain guests or persons
For the protection of guests privacy, hotel-keeper has the right not to accept or
expel some guests or persons from the hotel. The same duty applies to: 1) not allowing the person to enter the guest room without the guests consent and 2) not
accepting or expelling guests who might disturb the privacy of other guests.
In German law such hotel-keepers duty has derived from the guests right to
enjoy the hotel without interference and undesirable guests (Mundt, 2006, 218).
French law interprets that the hotel-keeper may, under the duty to oversee and
respect the guests intimacy, expel or refuse certain persons (Moret, 1973, 674).
From absolute right to privacy and reasonably safe principles, the UK law
derives the right to deny accommodation to certain persons (Jones, 2005, 346).
In the USA law, this hotel-keepers obligation is best addressed in syntagm that
hotel-keeper must allow the guest a peaceful possession, and not receive unauthorized and unregistered persons. The hotel-keeper was obliged to expel a drunken
guest from the hotel, because he yelled all night long and disturbed other guests
peaceful possession (USA vs. Rambo, 1986, CA 789 F2d 1289).
703
2.4. Discretion of the hotel sta
The privacy of hotel guest can most often be breached by the hotel sta. Therefore is the discretion of the hotel-keepers sta, in the context of the guests privacy
protection, a special hotel-keepers obligation. It consists of: 1) careful entrance of
the hotel sta into the guest room, 2) prohibiting disclosure of information or data
about the guest, and 3) keeping the guests secrets.
In German law the hotel-keeper is required to keep a secret that he had heard,
seen, found out or witnessed in relation to the guest (e.g. about the guests mistress). Hotel-keeper must pay attention that his sta act discreetly when entering
the guest room and using the information or data about the guests on the internet,
fax, mail, phone, SMS, posters, etc. (Hinterhuber et al., 2004, 47).
In Italian law, hotel sta is obliged to discreetly protect guests private data
through limited access to the cupboard at the reception desk, inserted passwords
on their computers, guests data inaccessibility by the unauthorized persons, avoiding loud pronouncing of the guest room number at key delivery and not revealing
the guests name, address and room number (Nobbio, 2006, 381).
In the USA law, the discretion of the sta refers to routine housekeeping and
respect for guests privacy in extraordinary situations: the sta has no right to intrude the guest room if he clearly indicated the do not disturb sign (McKee vs.
Sheraton, 1959, US 268 F2d 669), when searching for stolen things (People vs.
Minervini, 1971, 20 Cal. App. 3d 832, 98) or due to suspicion that the guest will
not pay for hotel services (People vs. Lerhinan, 1982, 455 N.Y.S. 2d 822), but can
enter and call the police in case of noise or behaviour that interferes with the privacy of other guests (People vs. Gallmon, 1967, 19 NY 2d 389).
3. HOTELKEEPERS CONTRACTUAL LIABILITY FOR NONPROPRIETARY DAM
AGE TO VIOLATION OF HOTEL GUESTS PRIVACY
Violation of the guests privacy implies the hotel-keepers contractual liability for
guests non-proprietary damage by the principle of presumed guilt. By breach of
his privacy the guest may suer numerous forms of non-proprietary damage: a) injuries of feelings (anxiety, discomfort, dissatisfaction, frustration, disappointment)
b) fall vacation and c) mental pain and suering. Most common breaches of the
guests privacy protection obligation are: 1) the intrusion of sta in the guest room,
2) the release of persons in the guest room, 3) recording, wiretapping or spying and
4) giving third parties information about the guest.
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Oliver Radolovi
3.1. The intrusion of sta in the guest room
The hardest violations of the guests privacy are the intrusions of sta into the
room. The prevention of such intrusions using tags indicating that guest is in the
room and does not want to be disturbed represents common practice worldwide.
In German law an intrusion of sta into the room is treated as contractual nonproprietary damage (Braschos, 1979, 39). In one sentence (BGH ZR 103/07), the
German Federal Court found that guests, to whom it is constantly intruded into
the room, have suered non-proprietary damage due to fall vacation.
In UK law, due to unauthorized and negligent sta intrusion into the guest
room, hotel-keeper is liable for anxiety (Salmon vs. Seafarer Restaurants, 1983,
HCJ ER 729) and fall vacation (Rose vs. Plenty, 1976, CA ER 97).
In the USA law, hotel-keeper is liable for the hotel sta intrusion into the guest
room, except in ve eligible cases (Cournoyer et al., 2004, 332): 1. normal maintenance, 2. imminent danger, 3. non-payment, 4. room service and 5. the rental
period has expired. U.S. Supreme Court (Stoner vs. California, 1964, 376 US 483)
founded that sta should not enter the room without guests consent, nor has the
authority to permit the police room search without a search warrant.
3.2. The release of persons in the guest room
The hotel-keeper will violate the guests privacy if he allows the entrance of any
person without the guests explicit permission into his room.
In the German law, hotel-keeper will violate the guests privacy if he breaches his
right to enjoy the hotel without letting third parties into the guest room.
In the USA law, the hotel-keeper is liable for guests non-proprietary damage
due to breaching his duty of not allowing the guests visits by unregistered and
unauthorized persons. U.S. courts have made decisions (Campbell vs. Womack,
1977, La. App. 35 So2d 96; Thetford vs. Clanton, 1992, Al. 605 So.2d 835) that
hotel-keeper is liable for guests dissatisfaction if he gives the key of the guest room
to guests spouse or husband, if the guest did not mark them as his visitors.
3.3. Recording, wiretapping or spying
The hotel-keeper will violate the guests privacy if he, in any way, makes unauthorized records, spies or wiretappes the guest in the hotel. Such violation of
705
privacy is usually dicult to detect, and when it is discovered, the guest feels very
uncomfortable and frustrating.
In Italian law, a special body (Il Garante per la protezione dei dati personali) formed in the Codice della privacy (196/2003) interprets (decision from
29.04.2004.) that the hotel-keeper violates privacy of the guest if he had made
unauthorized records of him (Ghisoni, 2007, 65).
According to the decisions of the U.S. judiciary, hotel-keeper is liable for guests
non-proprietary damage (discomfort) due to breach of his privacy caused by wiretapping of the guests phone call (People vs. Blair, 1979, 25 Cal 3d 640) or spying
of the guest in the room through the peepholes (Carter Vs. Innisfree Hotel, 1995,
Ala. 661 So2d 1174). Moreover, even in the case of knowledge of criminal acts
(People vs. Soles, 1977, 68 Cal. App. 3d 418), a hotel-keeper can not send recorded
conversations to the police without a search warrant.
3.4. Giving third parties information about the guest
Giving third parties information (personal data, name, address, room number,
credit card number) about the guest, represents the violation of guests privacy and
hotel-keepers liability for non-proprietary damage.
In the Italian law, il Garante, with three decisions, determines that hotel-keeper
makes a violation of guests privacy when: 1) he does not return or delete all of the
guests data (Falletti, 2008, 186) at his disposal (decision 12.07.2004.), 2) proles
and stores guests customs (decision 09.03.2006. - vietato prolare le abitudini dei
clienti in modo illecito) and 3) explores and saves the guests touristic interests (decision 31.01.2008. - vietato spiare i gusti dei clienti).
In European law, Directive 1995/46 generally regulates handling of personal
data, that could be used by the authorities without the guests consent only due to
the matter of national security, defence, public safety, criminal procedures, nancial and monetary process of inspection supervision, and protection and rights of
others persons (article 12). In any other case, the hotel-keeper will be liable for the
information (data) about the guests that reached third party.
In the German law the hotel-keeper made such violation when releasing the
entire schedule of the rock star visiting his hotels (Born & Dreyer, 2002, 115), so
non-proprietary damage for discomfort had to be compensated to that singer, who
had to replace the hotel due to the invasion of fans.
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Oliver Radolovi
In UK law, hotel-keeper is liable by Data Protection Act (1984/98) for misuse or

unauthorized use of guests personal data (Boella & Panett, 1999, 328).
In the USA law, such hotel-keepers liability exists if the front-desk personnel
announce the number of the guest room (Goodwin & Gaston, 1992, 377).
4. CONCLUSION
Protection of guests privacy is a modern achievement in the tourism business

law. The same implies hotel-keepers obligation to protect the guests safety, amenity, comfort, reputation and personality during his stay at the hotel.
Comparative analysis stated that hotel-keepers obligation of guests privacy protection usually represents four types of his special duties: 1) respect of the privacy
of the guest room, 2) guests registration under the false name, 3) non-receiving
certain guests or persons and 4) discretion of the hotel sta.
Violation of the guests privacy protection obligation implies the hotel-keepers
liability for guests non-proprietary damage by the principle of presumed guilt. The
most common breaches of the guests privacy are: 1) the invasion of sta in the
guest room, 2) the release of persons in the guest room, 3) recording, wiretapping
or spying and 4) giving third parties information about the guest.
Due to breach of his privacy the guest may suer numerous forms of nonproprietary damage: a) anxiety (e.g. due to leakage of condential data on internet)
b) discomfort (e.g. due to intrusion of the sta in the bathroom while showering)
c) dissatisfaction (e.g. due to sending of third parties in his room) d) frustration
(e.g. for information about the phone tapping), e) disappointment (e.g. the wife
is let, without consent, into the guest room), f ) fall vacation (e.g. due to frequent
intrusions of drunken sta in the guest room) and e) various types of mental pain
and suering (e.g. due to indiscrete behaviour of the sta).
Croatian law does not recognize the institute of hotel guests privacy. However,
the obligation to care about the person guest, as well as a broad term, may include
this institute, but no legislative or theoretical source contain the rule about hotelkeepers obligation for the guests privacy protection. Therefore, in accordance with
applicable examples of comparative laws, the provisions on the hotel-keepers obligation for the guests privacy protection and its liability under the principle of presumed guilt for non-proprietary damage for breach of such contractual obligations
should be included into the Croatian law.
707
Comparative law is few steps ahead of the Croatian law regarding the development of the institute. While in the laws of USA and Germany the institute is
strongly developed in legislation and case law, and in Italy and in the UK it has
the original dimension (Code of privacy, Data Protection Act), the law of France
recognizes it only generally, without special legislation.
On the multilateral forums level, European law contains only one harmonized
sources (Directive 1995/46) on data protection, while in the eld of international
law there is no unied source in terms of the contract between the hotel-keeper and
the guest, let alone in terms of guests privacy protection in such contract.
The conclusion is the need of adopting unied source at the international law
and the European Unions law level, about hotel-keepers obligation to protect the
guests privacy in various types of tourism business contracts (primary of the hotelkeepers contract) concluded between the hotel-keeper and the guest.
BIBLIOGRAPHY
1. Boella, M.J. & Pannett, A. (1999). Principles of hospitality law, 2nd edition,
Cengage Learning EMEA, ISBN 0-82645-273-6, Brighton, London.
2. Born, K. & Dreyer, A. (2002). Die Beschwerde ist ein Geschenk - aber fr
wen? in Bieger-Pechlaner-Bausch, Erfolgskonzepte im Tourismus II, ISBN
978-3-7073-0356-8, Wien, pp. 105-130.
3. Braschos, F.J. (1979). Der Ersatz immaterieller Schden im Vertragsrecht, ISBN
3-4521-8586-9, Kln.
4. Cournoyer, N.G., Marshall, A.G. & Morris, K.L. (2004). Hotel, Restaurant
and Travel Law, 6th edition, Thomson Learning - Delmar Learning, ISBN
0-7668-3599-5, New York.
5. Dettmer, D. & Hausmann, T. (2006). Recht in Gastwerbe und Touristik, Verlag
Handwerk und Technik, ISBN 3-582-04985-X, Hamburg.
6. Donhauser, G. (2004). Vertragsrecht, Schuldrecht, Sachenrecht, Books on Demand, ISBN 3-8334-0737-9, Ravensburg.
7. Falletti, E. (2008). I contratti di viaggio, Wolters Kluwer Italia, ISBN
978-88-13-28291-2, Padova.
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8. Ghisoni, S.M. (2007). Alberghi e strutture ricettive, 2da edizione, Edizioni Fag,
ISBN 978-88-82-33615-8, Milano.
9. Goodwin, J.R. & Gaston, J.R. (1992). Hotel & Hospitality Law - Principles and
Cases, 4th edition, GS Publishers, ISBN 0-942280-60-1, Scottsdale, Arizona.
10. Goodwin, J.R. (1987). Hotel Law - Principles and Cases, Publishing Horizons,
Inc., ISBN 0-942280-34-2, Las Vegas, Nevada & Columbus, Ohio.
11. Gorenc, V. & mid, V. (1999). Poslovno pravo u turizmu i ugostiteljstvu,
kolska knjiga, ISBN 953-0-30332-7, Zagreb.
12. Hinterhuber, H., Pechlaner, H., Kaiser, M. & Matzler, K. (2004). Kundenmanagement als Erfolgsfaktor, Erich Schmidt Verlag, ISBN 3-503-07818-5,
Berlin.
13. Jeeries, J.P. (1983). Understanding Hotel/Motel Law, Educational Institute of
the AH&MA, ISBN 0-86612-015-7, East Lansing, Michigan.
14. Jones, T. (2005). Professional management of housekeeping operations, 4th
edition, John Wiley and Sons, ISBN 0-471-26894-1, Las Vegas, Nevada.
15. Louveaux, B. (1995). Le droit du bail de rsidence principale, De Boeck Universite, Wesmael, ISBN 2-8041-2031-7, Bruxelles.
16. Moret, L. (1973). Le contrat dhtellerie, Revue trimestrielle de droit civil RDC Civil, Volume 71, ISSN 0397-9873, Paris, pp. 663-702.
17. Mundt, J.W. (2006). Tourismus, 3. Auage, Oldenbourg Wissenschaftsverlag,
ISBN 3-486-58123-6, Mnchen.
18. Nobbio, C. (2006). Manuale delle attivit alberghiere, Tecniche Nuove, ISBN
88-481-1563-2, Milano.
19. Sherry, J.E.H. (1993). The Laws of Inkeepers, 3rd edition, Cornell University
Press, ISBN 0-8014-2508-5, Ithaca, New York.
NEW SOLUTIONS OF THE EUROPEAN PRIVATE INTERNATIONAL LAW IN THE FIELD ...
709
NEW SOLUTIONS OF THE EUROPEAN PRIVATE

INTERNATIONAL LAW IN THE FIELD OF INSURANCE
CONTRACTS
Assistant Professor Vjekoslav Puljko, PhD.
Faculty of Law of Osijek
ABSTRACT
Determining the law applicable to contracts, particularly to international contracts, conventions and treaties, has always caused problems to both legal theoreticians and legal practitioners. The prevailing reason for the issue lies in the fact that
a certain type of contract used to be interpreted in various ways. The choice of the
applicable law depended on the choice of the link with the contract content. Due
to the possibility of using dierent links, insurance contracts arose frequent legal
debates and ambiguities, which was additionally complicated by the lack of harmonization and systematization of legal regulations and solutions. It was the European
Union that tried to nd an adequate solution for this complex issue of which one
could hardly make any use in practice. The attempt referred to the adoption of the
Rome I Regulation but the whole thing turned out to be only partially successful.
JEL clasication: K12, K33
Key words: applicable law, insurance contracts, European Union, Rome I
Regulation
1 INTRODUCTION
Insurance business is one of the most important branches of economy. It is the

business that strongly inuences economic development and in the last decade it
has been featured by constant growth and complete internationalisation. These are
the main reasons for the European Union to seek new legal solutions in order to
make this complex area more transparent and its instruments more harmonized,
to bring legal safety and predictability to a higher level and to make the end user
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Vjekoslav Puljko
(particularly when it comes to natural persons) more protected. In terms of internationalisation, collision rules are of the greatest importance for achieving the above
goals. It is inevitable to develop a new, more ecient legal framework which will be
based on harmonized rules since the current one is complicated, non-transparent,
inecient and hardly applicable in practice1. The clearest picture of the current
condition in the area of insurance law can be found in the fact that at the moment
it includes about 40 directives, regulations, conventions and treaties2. This legal
area is, among experts, famous for its complexity while applying a collision rule in
case of dispute may sometimes be an insurmountable obstacle for the parties.
Amendments of the current regulations in the eld of insurance law have been
being prepared for years. The European Commission has pointed at all the prominent legal experts and institutions to take part in the discussions on the amendments. The task is to revise, refresh and, what is the most important of all, simplify
the legal regime of insurance contracts. The new instrument aimed at accomplishing
this task is Regulation of the European Parliament and Council no. 593/2008 on
the Law Applicable to Contractual Obligations (hereinafter: Rome I Regulation)3.
Therefore, this paper is focused on giving a brief overview of the previous instruments, the most relevant directives, conventions and regulations as well as the difculties arising in practice caused by the scatter and numerousness of the former.
However, the main emphasis is put on the Rome I Regulation, its emergence and
comprehensive analysis of Article 7 of the Regulation which represents a new, special rule for insurance contracts. In the end, the paper will indicate the aws that
still exist since, despite detailed preparations and contemplations, they have not
been eliminated by the new regime.
2. SYSTEM OF THE COLLISION RULES APPLICABLE TO INSURANCE CON
TRACTS PRIOR TO THE ADOPTION OF THE ROME I REGULATION
Insurance contracts made after 17 December 2009 are subject to the Rome I
Regulation. It is interesting to monitor its eects in practice, whether or not it is
meeting the expectations of employers and, particularly, of professionals who have
no choice but to apply it in their work. Among the former, the spotlight is directed
to those who anyhow deal with insurance contracts.
Until the adoption of the Regulation, the collision rules and the selection of instruments applicable to a particular insurance contract had depended on the place
of insured risk: if insured risk came from the territory of the EU and was covered
711
by an insurer established within the territory of the same organization, then the
directives were the decisive factor. There are three generations of directives governing the area of life insurance5 and three regulating other types of insurance6. The
regulations were amended in a way that nobody took care of the entire regulated
area nor did anyone think of implications of their application. A hardly applicable
system of rules with no internal logic was created.
If insured risk did not come from EU Member States, the Rome Convention
was the governing document.
All the above facts indicate two problems. The rst one is related to bare application of rules. The entire system was complicated and non-transparent and the rules
were not harmonized, which all caused major diculties when it came to application and, therefore, the system was often exposed to criticism. The second one is
contained in the fact that such a concept of rules did not regulate some situations
common for insurance business. What if an American purchases a life insurance
policy in a Vienna branch oce of an American insurance company? The risk refers
to the European Union while the insurers seat is beyond the borders of the EU.
This context was not regulated by any of the above instruments. Moreover, what if
an Austrian, by means of one policy, insures their property, a at in Vienna and a
country house in Croatia? This means that the insured risk is situated partly inside
the territory of the EU and partly outside its territory. By virtue of Articles 1 and
3 of the Convention, such examples are excluded from the scope of application of
the Rome Convention: The rules of the Convention do not apply to insurance
contracts covering risks situated on the territory of the EU. For the purpose of
determining the place of risk (whether it is situated on the territory of a Member
State or beyond), the court applies its internal rules. In such cases, the court used
to deal with a situation by introducing a directive. However, Article 2 item d of
the Second Directive of the Council on Direct Insurance prescribes that, in case of
insurance of buildings, the place of risk shall be that of the Member State where
the building is located. This implies that the Directive was useless if property was
located outside the territory of the EU. Thus, neither the Rome Convention nor
the Directive was to be applied, so the resolution of this situation was a real issue
and not just a hypothesis of leisurely professors.
Still, various solutions were possible, depending on the creativity of the person
dealing with the issue. Louise Merrett proposed the following solutions:8 regarding
the part of the insurance contract relating to the property situated within the EU
712
Vjekoslav Puljko
to apply the Directive, while concerning the part of the contract in connection with
the property outside the EU to apply the Rome Convention. That way the above
case could have been solved, but what if the risk is indivisible? On particular occasions, depending on where the predominant part of the risk is situated, to implement either the Rome Convention or the directives. Furthermore, she suggested
implementation of the Directive every time when the majority of risk was situated
inside the territory of the EU.
Reinsurance contracts, as a special category, were regulated by the Rome
Convention.
Beside the directives and the Rome Convention, particular contracts were stipulated by national collision rules of Member States.
This short overview of the sources of collision rules covering the eld of insurance is given just to point out the complexity of the entire system whereas the examples can witness its numerous aws and peoples dissatisfaction with it. Having
realized the issue, the European legislation accompanied with distinguished experts
had been preparing the answer for long, but is the result satisfying?
3. FROM THE ROME CONVENTION TO THE ROME I REGULATION
The nal text of the Rome I Regulation was adopted by the European Parliament and Council on 17 June 2008. The Regulation came into force on 17 December 2009 and completely pushed out the Rome Convention which was the
last source of the European Private International Law in the form of international
contracts (treaties and conventions)9. The Convention was not transformed into
the Regulation only since it was obsolete and inadequate for a number of contractual obligations but also since the transformation was necessary for harmonization
of the Convention provisions and the provisions of the Treaty of Amsterdam of 2
October 1997, particularly with Articles 61 to 65 of the latter which built a legal
framework for development of unique legislation within the EU.
4. INSURANCE CONTRACTS AND THE ROME CONVENTION
Article 1 items 3 and 4 of the Convention determined the scope of its application to insurance contracts. The Convention was implemented if insured risk was
found its place outside the EU area and if it came to reinsurance contracts. The
Convention does include an autonomous denition of the place where insured risk
713
is situated but its Article 1 item 3 prescribes that, in order to establish whether the
place of risk is situated on the territory of a member state or not, the court uses its
own internal rules. Since the directives on insurance belong to internal aairs of
Member States, the principle of lex fori should be applied indirectly.
The Convention does not involve a special rule for insurance contracts, so the
general rules for choice-of-applicable law were implemented12 applicable law is
the law selected by the parties13. The will of parties can be explicit and implicit but
implicit choice has to, either due to contractual provisions or due to circumstances,
include the formulation with reasonable certainty, which used to cause trouble
for its ambiguity. Then, the Convention allowed the selected law to be applied to
both the entire contract or to only one of its parts (Article 3 item 1). Item 2 of the
same Article denes that the parties may additionally select applicable law, which
implies the possibility of modication of existing choice. Such a modication must
not have a negative inuence on third parties rights. The Convention also restrains
the freedom of choice-of-law ordering that if all the other segments of the current
circumstances were linked only with one state at the moment of selection, regardless of possible selection of applicable law by the parties with or without jurisdiction of a foreign court, then the choice-of-law by the parties shall not aect the
application of the law of the above state based on mandatory rules that cannot be
excluded by the contract. The next restriction relates to the Convention provision
that the mandatory rules of other states which are in close connection with the
current circumstances may have eect on the interpretation of insurance contracts
if the provisions of those states shall be applied regardless of the law applicable to
the contract (Article 7 item 1). This provision has not been adopted by Portugal,
Ireland, Luxembourg, Germany and Great Britain by virtue of veto foreseen by
Article 22 para 1.a.14. There is also the restriction of autonomy of parties which is
dened by the provision that conventional solutions do not limit the application of
mandatory rules of the state where the competent court is situated (Article 7 para
2). Finally, Article 16 imposes another restriction on the parties: the application
of the selected law may be denied if it is in contradiction with the constitutional
system of the state where the competent court is situated.
If the parties do not choose an applicable law, the institute of the characteristic
performer shall be implemented:
If the parties do not choose an applicable law in accordance with Article 3, a
contract will be subject to the law of the state which is in the closest connection
714
Vjekoslav Puljko
with the contracta state shall be considered to be in the closest connection with
the contract if there the respective party performs an activity characteristic for that
contract and if there the same party, at the moment of contract conclusion, has their
habitual residence, or in case of legal entities, has the main seat or headquarters15
In terms of insurance contracts, an insurer is thought to be the characteristic performer and hence the applicable law would be the law of the state where the insurer
has their seat. However, the Directive species that the applicable law shall be the
law of the place where the insurant has their habitual residence or the place where
the insured risk is situated. 16 One can notice that the same circumstances from the
point of view of both the Convention and the directives do not always derive the
same links, so the choice-of-applicable law can vary since it is interpreted according
to the links.
Under certain conditions (Article 5 para 2), the Convention can qualify insurance contracts as consumer contracts, so it, in order to protect the consumer (insurant if they are natural persons and the policy does not refer to their job), prescribes
that the choice-of.-applicable law cannot deprive the consumer of the protection
provided by the mandatory rules of the state of their habitual residence.17 The directives do not include such dierentiation among insurance contracts, but there is
a signicant dierence between the perception of risks in insurance contracts, i.e.
large and mass (medium and small).
4. 2 Green Paper and Proposal
There are two important instruments regarding the transformation of the Convention into the Regulation the 2003 Green Paper (on transformation of the
1980 Rome Convention on the Law Applicable (Choice-of-Law) to Contractual
Obligations into an Instrument of the Community and Its Modernization) and the
Proposal of the Regulation of the European Parliament and Council on the Law
Applicable to Contractual Obligations which was brought before the European
Commission in 2005.
The European Commission had been preparing the amendments of the Rome
Convention for long. For that purpose and in order to initiate consultations of
a large scale among interested parties on numerous legal issues with respect to
Rome Convention actualization and its transformation into an instrument of the
Community20, it published the Green Paper in January 2003. All the interested
parties were invited to send back their answers to the questions raised by the Com-
715
mission. Pursuant to the answers, the Proposal (Draft) of the Rome I Regulation
was to be drawn up later.
As far as insurance contracts were concerned, the Commission ascertained that
experts for private law often criticised the system of collision rules due to its lack
of transparency - experts for insurance law are able to nd an appropriate law but
others, with less competence, arent21 The question whether the rules for insurance
contracts were satisfying or not was mostly answered negatively. A few Member
States and most businessmen and representatives of consumer associations, respected
institutions (International Chamber of Commerce, European Economic and Social
Council), jurists, legal theoreticians and institutes (Max Planck Institute for Comparative and Private International Law), they all emphasized the need for a clearer
and more harmonized regulation of the issue. Therefore, the Commission proposed
three possible solutions: to supplement the Regulation with a special rule for insurance contracts which would determine the law applicable to insured risks situated
outside the EU and, for the purpose of improvement of the legislation transparency,
to incorporate the directives into the Regulation. The third oered solution was to
improve transparency by enlisting regular amendments into the Annex to the Regulation on Sector Instruments22. The next step towards homogenous codication of
mandatory private international law of the Community was the Proposal drawn
up based on the conducted discussion, but the adoption of the third solution was a
huge disappointment for all the participants. We regret that the Proposal repeats
the overcomplicated collision rules containing the directives of the second generationonce again we point out the need to consolidate the existing collision rules
into a unique simplied rule without causing great substantial changes.23
Then it again came to intensive negotiations at the Parliament and Council,
which resulted in new draft solutions for insurance contracts. The rule on Insurance had been amended several times until 2007. The Commissions nal draft of
the Rule was presented on 19 November 2007 and it became Article 7 of the Rome
I Regulation which was nally adopted on 17 June 2008.
5. NEW REGIME OF INSURANCE CONTRACTS UNDER
THE ROME I REGULATION
National collision rules on insurance contracts and the rules from the directives
and Rome Convention were replaced by a unique, special rule for insurance con-
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Vjekoslav Puljko
tracts integrated into Article 7 of the Rome I Regulation. The replacement really
represented a step forward in relation to the previous status.
Prior to detailed analysis of Article 7, it is important to state that the Regulation
in its Article 1, unlike the Rome Convention, does not exclude insurance contracts
covering risks inside the EU24 from the eld of application of ratione materiae.
Nevertheless, the Regulation in its Article 1 para 2 item h does exclude a certain
type of life insurance contracts from the conventional eld of application. These
life insurance contracts refer only to particular companies.25 One should not also
forget Article 2 which is aimed at conducting application of every right indicated
by the Regulation, irrespective of the fact if it is a law of a Member State or not.
5. 1 Article 7
The rst paragraph of Article 1 of the Regulation state: This Article shall be applied to contracts mentioned in Article 2 (insurance contracts covering large risks)
regardless of the fact whether the risk is situated on the territory of a Member State
or not. It is not to be applied to reinsurance contract. Pursuant to this Article, insurance contracts are divided into those which cover large risks and those covering
non-large risks (the so-called mass risks comprising medium and small risks). The
large risks are stipulated by Article 7 regardless of their place (on the territory of the
EU or beyond), but other risks are only governed by Article 7 if they are situated on
the territory of a Member State. The application of this Article does not also involve
reinsurance contracts, so these two types of contracts are subject to the general rules
of the Regulation.26 Nobody has ever oered a single reasonable argument why reinsurance contracts should be governed in a manner dierent from regulating large
risks. All insurance contracts should be incorporated into Article 7 since this kind
of solutions does not contribute to uniformity and simplication of solutions.27
Article 2 denes the following: in terms of insurance contracts covering large
risks dened by Article 5 (d) of the First Directive of the Council 73/239/EEC of
24 July 1973 on Harmonization of Laws, Regulations and Administrative Provisions Relating to Conducting Direct Insurance Business, except for life insurance,
the applicable law shall be the law of the state where the insurer has their habitual
residence. If all the circumstances in a case indicate a more closely connection
with another state, the law of the other state shall be applied. Insurance contracts
covering large risks do not depend any more on the place where the insured risk is
situated. As this area was regulated by the directives, the place of insured risk was
717
the link to the choice-of-law, which resulted in major problems in determination

of applicable law if the risk was partly inside and partly outside the EU29. These
problems do not appear any more, so the situation considering insurance of large
risks has been improved to a great extent.
Large risks are dened in Article 5 (d) of the First Directive of the Council on
Direct Insurance and in the Annex to the same Directive which was amended by
the Second Directive (for the sake of preciseness this should have been stated in
paragraph 2). Large risks include railway, aircrafts, ships, good in transit etc. What
is also comprised by large risks are credit risks related to insurant business. Fires
and damage on things also belong to large risks if they are connected with a size of
insurant business (criteria can be e.g. number of employees min 250 employees,
total turnover 12,500,000 EUR).
With large risks, the situation is clear we have got a new rule which will certainly simplify determination of the applicable law which will then increase legal
safety and make the work of courts and other interested parties easier, but concerning insurance contracts covering other risks certain problems remain since there is
still a link with the place where insured risk is situated. Paragraph 3 of Article 7 of
the Regulation refers to the insurance contracts covering other risks - insurance
contracts not connected with para 2. Para 1 is aimed at governing other risks
situated on the territory of a Member State. When it comes to such contracts,
the parties are free to choose a law themselves, but only in accordance with this
paragraph. The following choice is permitted: (a) the law of any Member State in
the area where the insured risk was situated at the moment of contract conclusion;
(b) the law of the state of the insurants habitual residence; (c) with life insurance,
the law of the state of the insurants citizenship; (d) in terms of insurance contracts
covering the risks limited to events which can arise in a Member State other than
the Member State where the risk is situated, the parties can choose the law of the
former; (e) if a holder of an insurance policy governed by this paragraph performs
an activity or works as freelancer and the respective insurance contract covers two
or more risks related to those activities or professions and the risks are situated in
dierent Member States, the parties may choose the law of either of the states or
the law of the state where the holder has their habitual residence. The limitation of
the autonomy of choice is, however, mitigated by the following provision: When,
in the cases described under points a, b, or e, the said Member State allows more
freedom of choice for an insurance contract, the parties may take advantage of that
freedom. We are of the opinion that this paragraph, though at rst it does seems
718
Vjekoslav Puljko
so, does not unnecessarily limit the freedom of choice-of-law as many experts believe30, but that it is a welcome compromise between the principle of protecting the
weaker party (this paragraph undoubtedly provides a greater degree of protection
to policy holders)31 and the freedom to choose a law. However, we must admit that
the last provision of this paragraph brings a certain dose of legal uncertainty and
unpredictability and that it seriously compromises the equality and legal certainty
which the Rome I Regulation should establish.32
A very interesting point of view is that of Urs Peter Gruber who holds this rule
to be quite justied, understandable and just33. Namely, he considers this division into contracts insuring large risks (and reinsurance contracts) and as insuring
other risks just according to the criteria of need for protection. In contracts on
insuring large risks (and reinsuring), the insurer and the other contractual party are
equal partners in negotiation, therefore these contracts are subject to the rule on
the choice-of-law which is essentially identical to the ruled insuring other contracts
(general rule for the choice-of-law from Article 3 of the Regulation and the rule
from Article 4 of the Regulation regulating cases when parties do not choose the
law themselves. This is so because the policy holder is strong enough to protect
his interests on his own when negotiating. On the other hand, other risks are, simply put, those occurring in insurances in small and medium-sized enterprises (other
than transport and loan risks) and, accordingly, the other contractual party cannot
negotiate on equal footing, but has to accept typied contracts or pre-imposed insurers conditions, therefore, such a rule should provide special protection for them
even though they are not consumers in the true sense of the word.
It needs to be mentioned that contracts insuring other risks are under certain
conditions placed in the category of consumer contracts.34 In that case, the policy
holder (consumer) is provided with additional protection the prevailing governing law is that of his habitual residence. Article 6 para 2 of the Regulation (regulating consumer contracts) allows indirectly the parties to choose the governing law
themselves, but this governing law cannot diminish the protection provided for the
consumer by the enforcing rules of the state of his habitual residence.
If the parties do not utilise the choice-of-law right, in accordance with para
3, the governing law for such a contract shall be that of the Member State where
the risk was situated at the time when the contract was concluded. This provision
should be brought into connection with para 6 which stipulates the method of
determining the state where the risk is situated: for the purposes of this Article,
719
the state where the risk is situated is determined in compliance with Article 2 (d)
of the Second Directive of the Council 88/357/EEC of 22 July 1988 Harmonization of Laws, Regulations and Administrative Provisions Relating to Conducting
Direct Insurance Business Other Than Life Insurance and laying down provisions
to facilitate the eective exercise of freedom to provide services, and in cases of life
insurance the state where risk is situated shall be the state of commitment within
the meaning of Article 1 (1) (g) of the Directive 2002/83/EC. In case of non-life
insurances place of risk means Member State when the policy holder has habitual
residence, or in case of legal entities, the Member State where they have been incorporated. There are three exceptions to this basic rule; for contracts on insurance
of building, the place of risk is the state where the building is located, for vehicle
insurance contracts, the place of risk is where the vehicle is registered, and for travel
insurances and holiday insurances, the place of risk is the Member State where the
policy holder has habitual residence.
This was a brief analysis of the third paragraph of the Regulation covering other
risks if the risk is situated on the territory of a Member State, however, how can one
determine the governing law if a risk is outside the EU? What about reinsurance
contracts which were previously regulated by the Rome Convention? Experts think
that such cases should be subject to the general rule for the choice-of-law (Article 3)
or Article 4, regulating situations when parties themselves fail to select the law.35
In spite of extensive preparations, there are still situations that are common in
insurance activity, which have not been resolved by the Regulation. It is still questionable as to how to resolve a situation where an insured risk is partially in the EU
and partially outside of it. The preamble under point 33 gives an instruction: if an
insurance contract which does not cover large risks insures more than one risk, at
least one of which is situated on the territory of a Member State, and at least one
on the territory of a third state, the special rule of this Regulation shall be applied
only on risk or risks situated on the territory of the Member State. The solution
is to divide the policy on several separate insurance contracts. This solution can
be immediately objected in the sense that it completely opposes business practice
since insurers encourage such policies by numerous benets for insurers, and collision rules, instead of providing protection to such practice bring uncertainty and
insecurity one states law is applied on one insured risk, and another states law on
another risk, insured by the same policy. This can cause serious problems in practice. Louise Merret asks what about a situation where risk is in two places which is
possible in case of a life insurance policy in a person with a habitual residence both
720
Vjekoslav Puljko
in England and New York36. Ms Merret herself has no answer to this question, and
practice has not resolved it in a satisfying way.
6. CONCLUSION
Until 17 December 2009, insurance contracts with international features had

been governed in the EU by various regulations, three generations of regulations
on life insurance, three generations of regulations on the broad area of other types
of insurance, the Rome Convention on the Law Applicable to Contractual Obligations and by national collision rules of the Member States. This complicated,
non-transparent and almost incomprehensible system for the majority of users was
replaced by the Rome I Regulation on the above day. If nothing else, the fact that
one instrument replaced all the previous ones means improvement.
The Rome I Regulation had been being prepared for long. The European Commission organized a comprehensive discussion and invited all the interested parties,
practitioners, scientists, institutions and all the participants to give their contribution to the meeting in order to improve the situation which had been characterized as intolerable by all. Many of them attended the conference, e.g. respected
scientic institutions, governments and parliaments, prominent legal theoreticians,
non-governmental organizations etc. Among the interested parties there were some
who were on opposite sides, e.g. Federation of German Consumer Associations vs.
German Insurance Association, so the proposals were totally dierent in content.
Such a situation could not bring to anything else but to a compromise, although it
was rather dicult to nd a solution that would satisfy most participants.
To what extent the new solution satises those who apply it is still uncertain
while the theoreticians are unanimous in disappointment. H. Heiss, one of the
leading experts for insurance contracts within private international law, describes
the changes as the latest failure of the European legislation37. Others are not so
radical in their assessments but they mostly depict it negatively. Their reactions are
understandable. It took a long time to prepare the Regulation, the expectations
were great and that is probably why the disappointment is so great, too.
In our opinion, one should see search, collection and organization of scattered
rules and instruments as a step forward towards legal safety, certainty and transparency. As far as the content of the Regulation is concerned, there are some aws.
Before all, every type of insurance contract should have been incorporated into the
Regulation and governed by a special rule, similarly to insurance contracts covering
721
large risks. Risks situated outside the EU and reinsurance contracts are avoided in
the Regulation and they are, like all other contracts, still subject to the general rules
while the combination of Article 3 (choice-of-applicable law), Article 4 (determining the applicable law by an entity other than the parties) and Article 6 (consumer
contracts) is pretty complicated and does not facilitate the application.
In terms of insurance contracts covering mass risks with the risk situated inside
the EU, the freedom of choice-of-law is restrained but such an intervention is, in
our opinion, reasonable and necessary due to the protection of the weaker party.
To conclude with, the solutions of the Rome I Regulations represent, despite all
the remarks, a signicant step forward in determining the complex area of international insurance contracts. Article 27 of the Regulation foresees for the year 2013
submission of a report on the application. The report shall include, if necessary,
amendments of the Regulation. One of the areas which will be subject to evaluations and possible amendments is the area of insurance contracts. That can be
another chance to improve the collision rules for insurance contracts.
_______________________
Konvencija o mjerodavnom pravu za ugovorne obveze, Convention on the law applicable to contractual obligation, 1980, OJ L 266/1
Merret, L., Choice of law in insurance contracts under the Rome I Regulation,
quote, page 51and 52
Bonomi, A., The Rome I Regulation on the law applicable to contractual obligations, Yearbook of the private international law, vol 10, 2008, page 166.
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
Seatzu, F., Insurance in Private International Law: A European perspective, Oxford-Portland Oregon: Hart Publishing, 2003, page 92. 93.
Kramer, X., The new European Conict of Law Rules on Insurance Contract in
Rome I: A complex compromise, quote, page 29.
Da je ta sloboda kamen temeljac ugovornog statuta odreuje i Uredba Rim I u preambuli u toki 11 (The Rome I Regulation in the preamble in item 11 determines
that this freedom is the foundations stone of the contractual statute)
722
Vjekoslav Puljko
Sajko, K., Meunarodno privatno pravo (Private International Law), Narodne

novine d. d., Zagreb, 2005, page 385.
On the institute of the characteristic performer and issues of determining the
characteristic performer regarding complex contracts see more at: upan, M.,
The Closest Connection Doctrine in the Croatian European Private International
Contractual Law, Faculaty of Law of Rijeka, 2006, page 118 and more; Izvjee o
konvenciji o pravu mjerodavnom za ugovorne obveze, Giuliano i Lagarde. Report
on the Convention on the Law applicable to contractual obligation (1) by Mario
Giuliano Professor, University of Milan and Paul Lagarde, Professor, University of
Paris I, OJ C 282 31. 10. 1980
Kramer, X., The new European Conict of Law Rules on Insurance Contracts in
Rome I: A complex compromise, quote, page 30
Ibid., page 30
Green paper on the conversion of the Rome Convention of 1980 on the law applicable to contractual obligations into a Community instrument and its modernization. Commission for the European Communities, Brussels 2003, COM (2002),
654 nal
Proposal for a Regulation of the European Parliament and Council on the law
applicable to contractual obligatios (Rome I) Brussels, 15 December 2005 COM
(2005) 650 nal
Green Paper, page 5.
Ibid., page 21
Ibid., page 22
Max Planck Institute for Comparative and International Private Law, Comments
on the European Commissions Proposal for a Regulation of the European Parliament and the Council on the Law Applicable to Contractual obligations (Rome I),
page 47, available at http://www.mpipriv.de
Article 1 para 1 states: This Regulation is to be applied to contractual obligations
if those obligations are related to the rights of dierent states, concerning civil and
commercial aairs.
Those not mentioned in Article 2 of the Directive no. 2002/83/EC
723
See more at: Heiss, H., Insurance Contracts in Rome I: Another recent failure
of European legislature, Yearbook of the Private International Law, vol. 10, 2008,
page 261.
Article 3 includes the rules on the choice-of-law by the parties. The freedom of
choice is a foundation stone
See chapter 2
Merrett, L., Choice of law in insurance contracts under the Rome I Regulation,
op. cit., str. 60.; Kramer, X., The new European Conict of Law Rules on Insurance
Contract of Rome I: A complex compromise, quote, page 14
Gruber, U. P., Insurance Contracts, u Ferrari, F., Leible, S., Rome I Regulation:
The Law Applicable to Contractual obligation in Europe, page 109-129. Sellier,
2009
Gruber, U. P., Insurance Contracts, quote, page 112-117
If an insurance contract is made between an insurer and a natural person
(consumer).
Merrett, L., Choice of Law in Insurance Contracts under the Rome I Regulation,
quote, page 59
Ibid, str. 54
Heiss, H., Insuraance Contract in Rome I: Another Recent Failure of the European
Legislature, quote, page 261
724
Vjekoslav Puljko
REFERENCES:
1. Ferrari, F., leibe, S., Rome I Regulation: The law applicable to contractual obligations in Europe, Sllier, Munich, 2009
2. Sajko, K., Meunarodno privatno pravo (Private International Law), Narodne
novine d.d., Zagreb, 2005
3. Seatzu, F., Insurance in private international law: A European perspective, Hart
Publishing, Oxford-Portland Oregon, 2003
4. upan, M., The Closest Connection Doctrine in the Croatian European Private
International Contractual Law, Faculaty of Law of Rijeka, 2006
5. Bonomi, A., The Rome I Regulation on the law applicable to contractual obligation, Yearbook of the Private International Law, 10/2008, page 165
6. Heiss, H., Insurance contract in Rome I: Another recent failure of European
legislature, Yearbook of the Private International Law, 1072008, page 261
7. Kramer, X., The new European conict of law rules on insurance contracts in
Rome I: A complex compromise, The Ica University Journal of Insurance Law,
6/2008, page 23
8. Merrett, L., Choice of law in insurance contracts under the Rome I Regulation,
Journal of the Private International Law, 5/2009, page 49
BUSINESS
ADMINISTRATION
AND BUSINESS
ECONOMICS,
MARKETING,
ACCOUNTING
THE IMPACT OF CONSUMERS ATTITUDE TOWARD ADVERTISING ON PRODUCT ATTITUDE
727
THE IMPACT OF CONSUMERS ATTITUDE TOWARD

ADVERTISING ON PRODUCT ATTITUDE
Comiati Raluca
Babe-Bolyai University of Cluj-Napoca
Faculty of Economics and Business
Plaias Ioan
Babe-Bolyai University of Cluj-Napoca
Faculty of Economics and Business
SUMMARY
In the paste decades, marketing researchers tried to understand and determine

the impact of advertising on consumers attitude toward products or brands. The
starting point into the analysis was that the favorable or unfavorable evaluation of
advertisement is transferred or associated with the promoted product or brand.
This paper is aimed to highlight the manner and the grade in which the consumers
attitude toward advertising is inuencing the attitude toward the advertised product. More than evaluating the inuence of attitude toward advertising, we outline
the inuence exerted by the elements of an advertisement. Moreover, we examine
the impact of attitude toward the advertising on the attitude toward various product categories. The results are based on an empirical research that took place in
Cluj-Napoca.
JEL clasication: D11, M37
Keywords: advertising, ad attitude, product attitude, household products, longterm use products
LITERATURE REVIEW
In the last decades, a major concern of the marketing researchers has been to
understand and determine the impact of advertising on consumers attitude toward
the promoted products or brands. The premise behind this was that the favorable
728
Comiati Raluca Plaias Ioan
or unfavorable assessment of an ad is associated with the promoted brand. There

is thus a potential for a direct causal link between the attitude toward an advertisement and attitude and behavior toward the brand promoted in that ad.
The attitude toward the ad is dened as the predisposition to respond (react) in
a favorable or unfavorable manner to a particular ad and has two dierent components: an aective component reecting the emotions evoked by the ad and a
cognitive component reecting how well made and useful the message and the
information in it is considered to be (Shimp, 1981, p. 9-15).
The studies conducted by Mitchell and Olson (1982) were among the rst to
demonstrate that the way consumers assess an ad provides an impact on brand attitude above the ability of the ad to communicate information on brand attributes.
Both the attitude toward the brand and the purchase intention are inuenced,
according to the above authors, not only by beliefs about the brand but also, to a
considerable extent, by the attitude toward the ad.
A primary objective of the research was to identify the mechanisms through
which the thoughts and feelings evoked by an ad lead to a favorable attitude toward the ad and how (and under what conditions) this attitude leads, in turn, to
a favorable brand attitude. Thus, MacKenzie, Lutz and Belch (1986) developed a
model, supported by considerable empirical evidence, by means of which to explain the impact of advertising on consumers attitudes. According to their model,
the consumers exposure to a particular ad triggers aective (feelings) and cognitive (thoughts) responses. These feelings and thoughts inuence the consumers
attitude toward the ad and the cognitions that relate to the brand which also aect
attitude toward the brand. Thus, the attitude toward the ad aects attitude toward
the brand both directly and indirectly through shaping brand cognitions. The reasoning is as follows: consumers with a favorable attitude toward an ad are more
receptive to arguments in favor of the brand. For example, a consumer who likes
the commercial for the Milka chocolate is less likely to consider the disadvantages
of the brand (higher price) but rather s/he will only have in mind its advantages as
the ad contains humor and originality.
In the analysis that LeRoux makes concerning the inuence of the attitude toward the ad on brand attitude, he proposes a model in which the attitude toward the ad can be explained by means of three categories of reactions: reactions
triggered by the execution of an ad, emotional reactions and cognitive reactions
triggered by arguments presented in the ad. Concomitantly, LeRoux elaborated a
729
matrix with reactions triggered by ads, by identifying for each type of reaction a
series of specic perceptual factors: positive cognitive reactions (relevance, credibility, realism, creativity, imagination, familiarity), negative cognitive reactions (confusion, hate), positive aective reactions (entertainment, humor, vitality, activity,
liking, empathy, sensuousness), negative aective reactions (irritation, sluggishness)
(Dobre, 2005, p.172).
Concerning the period of time during which the eect of the favorable attitude
is manifested, some studies claim that this eect persists over time while other studies show that it is short-lived. Thus, it has been suggested that in the case of a likable
ad which draws so much attention to itself that brand attributes in the ad are not
processed by the consumer, after a time lag, the ad liking decays and the consumer
has weaker attitudes to the brand than if the ad had not taken away attention from
brand attributes (Chattopadhyay, Nedungadi, 1992).
The eect of ad liking on brand attitude varies according to the nature of the
promoted product. According to several studies by Brown and Stayman (1992), the
eects are greater for novel and unfamiliar brands than for well-known ones. At the
same time, the eects of ad liking on brand liking are also greatly reduced after the
consumer has tried the brand (Smith, 1993). On the other hand, the brand cognitions, shaped as a result to exposure to the ad, play a deciding role in determining
the brand attitude in the case of familiar products.
The consumers level of involvement in the purchasing decision is another factor which bears on the inuence exerted by the ad attitude on the brand attitude.
According to the elaboration likelihood model, the eect of peripheral cues on
brand attitude is much greater under low-involvement conditions. Consequently,
one can infer that the eect of attitude to the ad on brand attitudes is greater under
low-involvement conditions since the feelings that play a major role in shaping
attitude to the ad are considered to be peripheral cues (Homer, 1990). The results
of the studies conducted on this subject are dierent, which means that the attitude to the ad often contributes to brand attitudes under both high and low
involvement on the part of consumer. This is explained through the fact that the
dierent components of attitude to the ad (evaluation of the ability to entertain
and inform the consumer) require both central and peripheral processing of the
message (MacKenzie, Lutz, 1989). Thus, while under low-involvement conditions
the feelings evoked by the ad are a major contributor to ad liking, under high-
730
involvement conditions both feelings and the ads usefulness jointly contribute to
ad liking (Miniard, Bhatla, Rose, 1990).
To better understand how the ad attitude aects brand attitude it is important
to see what kind of attitude consumers develop toward the ad itself. If the feelings
that the ad creates are positive and if the way the ad is made and the information in
it are evaluated favorably then the ad should elicit a favorable attitude toward itself
(Greene, 1992). An ad can be liked either because it is entertaining or because it is
considered useful, or both. According to Greenes model, the attitude to the ad is
inuenced by the following factors: attitude toward ads in general, attitude toward
the source of the message (advertiser), the mood of the viewer and the feelings
evoked by the ad, the evaluation of the executional characteristics of the ad (the
format of the message), the viewers perceptions of the credibility and believability
of the ad.
On the other hand, Solomon lists the following determining factors which affect the ad attitude: attitude toward advertiser, evaluation of the ads executional
characteristics (the message format), the consumers mood and the feelings evoked
by the ad, the ability of the ad to trigger reactions on the part of the consumer
(Solomon, 2003, p. 230).
One of the key factors shaping the attitude to the ad is represented by the nature
of the executional. Dierent creative strategies may lead to the same overall level of
attitude on the part of the consumers. In this context, the identication of creative
characteristics which make an ad to be likable becomes essential.
RESEARCH PURPOSE
This paper is aimed to highlight the manner and the grade in which the consumers attitude toward advertising is inuencing the attitude toward the advertised product or service. More than evaluating the inuence of attitude toward
advertising, we tried to outline the inuence exerted by the elements of an advertisement: message source (TV stars, professional sportspeople, artists, experts, regular consumers, animated and imaginary characters), message format (life scenes,
demonstrations, testimonials, experts recommendations, animated scenes, ctional
scenes), but, also by the emotions induced by the advertisement.
Because there are researches which show that the impact of attitude toward the
ad on brand attitude varies by the nature of the promoted product, we examined
731
the impact of attitude toward advertising on the attitude toward various product categories (household products, intimate use products, long-term use products, luxury products, banking and nancial services, tourism and entertainment
services).
RESEARCH METHODOLOGY
The data collection was carried out in Cluj-Napoca. The method of data collection was face-to-face interview at respondents home.
The sample frame included 550 people above 18 years old who watch television
programs. We applied the quota sampling because we did not have a database of all
the population in order to apply one of the random sampling techniques, moreover
random sampling would have been more expensive and harder to achieve by our
means.
From our knowledge, a similar study has not been done yet on the Romanian
market, thus no prior information was available regarding the most important variables of interest. From the National Institute of Statistics we have obtained the
structure of the population of Cluj-Napoca by age and gender which was used in
creating the quotas. In the end we obtained a sample of 55% females and 45%
males, 46% with ages 18-34, 19% of 35-44, 21% of 45-55 and 14% over 55 years
old.
RESULTS
The analysis of the way advertising aects consumers attitudes had as starting
point the evaluation of consumers attitude toward advertising. Based on our empirical research, 48.5% of interviewees display a favorable or very favorable attitude
toward advertising whereas only 15.5% of them display an unfavorable or very
unfavorable attitude. Also, the percentage of indierent respondents is quite high,
namely 35%.
Before determining how advertising aects the shaping of the attitude to various
product categories, we deemed appropriate to analyse the role and place of advertising as against the other personal or commercial sources that consumers appeal
to in order to adopt an attitude toward dierent products or brands. The interviewees were thus required to state how often they take into account the opinion of
732
acquaintances, the ads, their experience with the product, the shop-assistants or
brand awareness when they adopt an attitude toward a product, service or brand.
In the ranking of these information sources the ads hold the last position whereas experience with the product and brand awareness are ranked the rst and second,
respectively (more results are available upon request). Thus, only 26.1% of respondents state that they often or very often take account of ads when they form their
opinion about a product, service or brand whereas 44.4% state that they seldom
or very seldom take account of advertising when they adopt a certain attitude (authors calculations).
According to socio-demographic characteristics, sex and occupation are discriminant variables. Women are thus the consumers who more often take account
of ads when they adopt an attitude toward a product, service or brand (Kendalls
tau-b = 15.828, Sig. = 0.003). As for the other information sources, the opinion of
acquaintances (friends, colleagues) and brand awareness are equally important to
the youth segments (Kendalls tau-b = 48.255, Sig. = 0.010).
The attitude toward advertising has a positive and signicant impact as well
(Kendalls tau-b = 0.297, Sig. = 0.000), which reveals that a positive attitude to
advertising as well as to the endorser or format of the ad prompts consumers to
take account of ads when shaping their attitude to a product, service or brand. The
strongest liking is for TV stars (Kendalls tau-b = 0.212, Sig. = 0.000) and experts
(Kendalls tau-b = 0.164, Sig. = 0.000) as well as for demonstration (Kendalls
tau-b = 0.238, Sig. = 0.000) and testimonial (Kendalls tau-b = 0.234, Sig. = 0.000)
formats which means that consumers with a favorable attitude toward the above
endorsers and formats will more often take account of ads when they form opinion
about products and services (authors calculations).
The analysis of advertisings impact on consumers attitude toward dierent
product and service categories (household products, intimate use products, longterm use products, luxury products, banking and nancial services, tourism and
entertainment services) reveal insignicant dierences among statistical averages
(more results are available on request). According to the answers given, over 40%
of interviewees state that they seldom or very seldom take ads into account when
they adopt an attitude toward dierent product and service categories.
It should be noted, however, that the attitude ads most often inuence is toward
household products, long-term use products and intimate use products (clothing,
733
footwear). Within these product categories we set to analyse the existing correlations between how ads aect attitude to household products, long-term use products and intimate use products, and consumers perception of advertising, their
attitude to the endorser and format of the ad and the means used to evoke feelings.
Within this analysis, consumers may be divided into the following categories: 1)
very seldom aected by advertising; 2) seldom aected; 3) neither seldom nor often
aected; 4) often aected and 5) very often aected.
The analysis of the gure 1 reveals that consumers very often aected by advertising when forming opinion about household products perceive advertising as
artistic work, thus preferring ads with animated or imaginary characters, artists
(actors, singers) or professional sportspeople and whose format is represented by
animated or ctional scenes and recommendations. Their preferred means of evoking emotions are humor and positive feelings (joy, pleasure, pride).
Consumers who state they are often aected by ads when forming opinion
about household current use products view advertising as an information source
on products and services and, to a certain extent, a source of entertainment, with
a favorable attitude toward demonstration, testimonial or life scene ads. The preferred endorsers in the ads are experts, TV stars and regular consumers.
734
Figure 1. The ads inuence on attitude to household products and consumers attitude toward the ads
components
In the case of intimate use products, it can be noticed that consumers who very
often take ads into account when forming opinion about this product category
view advertising as artistic work, thus preferring ads with professional sportspeople,
TV stars, animated and imaginary characters and where positive feelings are evoked
(joy, pleasure, pride).
As with household products, consumers who are often aected by advertising
view it as entertainment and a source of information on products and services. The
preferred endorsers are experts and the most liked formats are demonstrations, testimonials and recommendations (gure 2).
735
Figure 2. The ads inuence on attitude to intimate use products and consumers attitude toward the ads
components
The analysis of the long-term use products chart shows that people often aected by advertising when forming opinion about these products view advertising as a
form of entertainment, having strong preference for endorsers such as professional
sportspeople, artists (actors, singers) and imaginary characters. The preferred means
to evoke emotions are humor and positive feelings (joy, pleasure, pride) (gure 3).
Consumers who often take ads into account when forming opinion about
long-term use products view advertising as artistic work, displaying a very favorable attitude toward ads with sexual overtones, or source of information on products and services. TV stars and animated characters are the preferred endorsers
and the preferred formats are represented by animated and ctional scenes and
demonstrations.
736
Figure 3. The ads inuence on attitude to long-term use products and consumers attitude toward the ads
components
From the point of view of socio-demographic characteristics, the signicant

correlations reveal that women more often take ads into account when shaping
attitude toward household current use products (Kendalls tau-b = 0.166, Sig. =
0.000) while the young people more often take ads into account when forming
opinion about luxury products (Kendalls tau-b =- 0.2213, Sig. = 0.000), long-term
use products (Kendalls tau-b = - 0.114, Sig. = 0.000), tourism and entertainment
oers (Kendalls tau-b =- 0.122, Sig. = 0.000), (authors calculations).
CONCLUSIONS AND MANAGERIAL IMPLICATIONS
Based on our empirical research, we can emphasize the following conclusions:

- Ads most often inuence consumers attitude in the case of household products, long-term use products and intimate use products.
737
- Women more often take ads into account when shaping attitude toward household products while the young people more often take ads into account when
forming opinion about luxury products and long-term use products.
- Consumers aected by advertising when forming opinion about household
products assess positively the ads information (content). Therefore, in the case
of this product category, the ads should highlight the benets and performance
of the promoted brands.
- In the case of long-term use and intimate use products, consumers aected by
advertising when forming opinion about brands of this category appreciate
the ads featuring personalities and regular consumers. In the mapping out of
the creative strategy, advertisers could use real or symbolic referents trusted
by the target segment and with whom consumers identify themselves or wish
to identify. Moreover, these consumers expressed their liking for ads that use
humor and sex, these creative strategies being the solution that we recommend
in this instance.
LIMITATIONS
The main limit of the present research consists in using information gained from
quantitative research as it hinders an in-depth analysis of the studied processes and
phenomena.
Moreover, other limits of our empirical research are also represented by the use
of a non-probabilistic sampling method and the fact that the data were collected in
a single city, Cluj-Napoca.
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11. Solomon, M. R., Consumer Behavior. Buying, Having and Being, Sixth Edition, Pearson Education Inc., 2003, ISBN-13: 978-0131404069
MARKETING ASPECTS IN STRATEGIC MANAGEMENT ACCOUNTING
739
MARKETING ASPECTS IN STRATEGIC

MANAGEMENT ACCOUNTING
Dario Dunkovi, PhD
Van Dongen Group
Osijek
urica Juri, MSc
RRiF College of Financial Management
Zagreb
Tereza Nikoli, mag. oec.
PhD candidate Faculty of Econimcs Zagreb
Zagreb
SUMMARY:
Strategic management accounting has an important role to play in providing

information about the major sources of competitive advantage of an enterprise. In
increasingly dynamic environments the provision of strategically relevant information is of paramount importance for the formulation and execution of business
strategies. Management control systems together with traditional management accounting represent a starting point for the development of modern management
accounting concepts. There is a need to look for methods and techniques which
can lead to better relationship between strategy and operational eectiveness. Externally focused on the market, strategic management accounting integrates insights from management accounting and marketing within a strategic management
framework. This article outlines a broad role of marketing activities in management
accounting as they can inuence the relative strategic position and thereby help to
evaluate business performance of customers, suppliers and competitors.
The goal of the paper is to search for marketing aspects which can lead to strategic goals set by organizations. The interdisciplinary approach which is including
accounting and marketing can help executive management and academics in creating strategy framework and performance scorecards.
740
Dario Dunkovi urica Juri Tereza Nikoli

Keywords: management accounting, strategic management accounting,
marketing.
1. INTRODUCTION TO MANAGEMENT CONTROL SYSTEMS
Management accounting needs to be understood as a part of a broader context

of management control systems by which managers make sure that resources are
obtained and used eectively and eciently in the accomplishment of the organizations objectives (Anthony and Govindarayan, 2000). They also put in action a
second, more narrow denition as a process by which managers on all levels ensure
that the people they supervise implement their intended strategies. In their revolutionary Johnson and Kaplan (1987) argued that current management accounting and control systems could not cope with the organizational demands of the
new manufacturing environment and the increased importance of service industries. According to those authors the notion of strategic management accounting is
linked with business strategy and maintaining or increasing competitive advantage.
Strategic management accounting represents the most recent development of management control system and management accounting.
Management control systems encompass both nancial and non-nancial performance management. Its functions are: (i) strategy formulation concerned with
goals, strategy and policies which fed into (ii) management control, which was concerned with the implementation of strategies and in turn led to (iii) task control,
which comprised the ecient and eective performance of individual task (Kaplan,
1984).
Simmons (1990) developed a model of relationship between strategy, control
systems and organizational learning in order to reduce strategy uncertainty. A model is shown in Figure 1. Choice by top managers to make certain control systems
provide some kind of a signal to an organization about what should be monitored
and where new ideas should be proposed. That is what activates organizational
learning.
741
Figure 1. Process model of relationship between business strategy and management control systems
Business strategy
Organizational learning
Strategy uncertainties
Choice of
management
Source: Simmons (1990, 131)
Feedback plays a signicant role in the functioning of the model shown in the
diagram, but, also, in the functioning of other, similar models developed by other
authors. Feedback is the retrospective process of measuring performance comparing it with the plan and taking corrective action. Feedback is a vital subpart of
management control systems where the relevant information acquirement can be
substantially improved if communication network is used in process. Management
accounting is important because it summarizes the feedback eect of organizations
actions which can be expressed in monetary terms, quantitative terms, or terms of
time.
According to these contributions, management control system can be said to
shed light on the control of all business processes, functions and tasks, with the
purpose of achieving the highest possible level of business performance. The preconditions for the creation of new conceptions concerning managerial accounting
have been created by identifying the need for the introduction of the necessary
enhancements in an increasingly inadequate, traditionally designed management
controlling system. The main reasons for the changes were more conditioned by
the state of aairs on the market, uncertainty and the growth of competition, than
by those internal ones. The formulation of organizational learning actually means
that an organization needs to develop its own skills, so as to be able to cope with
the feedback information successfully.
2. DEFINING STRATEGIC MANAGEMENT ACCOUNTING
The general focus of accounting in enterprise is shareholder value increasing

the value of the business to its shareholders through dividends from prot and
through capital growth on stock exchange. Strategy, both, inuences and is inuenced by shareholder value. Strategy is reected in the functional business areas
of marketing, operations and human resources, i.e. intellectual capital, through
742
the actions business wants to take to achieve, maintain and improve competitive
advantage. In terms of strategy it evaluates external environmental opportunities as
well as internal strengths and resources in order to decide on goals as well as a set of
action plans to accomplish these goals (Miles and Snow; 1978).
The key features of an evolving area of accounting practice, comparing features
of traditional management accounting vs. strategic management accounting was
summarized by Collier (2006). He concludes, in reality, strategic management accounting systems will vary between organizations to reect specic characteristics
of the organization. Moreover, such systems will be continually evolving and the
critical consideration in guiding development will be their contribution to the ongoing achievement of business success rather than a comparison to some abstract
model of ideal practice. Table 1 present key features which distinct strategic management accounting from traditional management accounting concept. Emphasis
should be done on marketing aspects like focus and protability analysis.
Table 1. Key dierences between traditional and strategic management accounting.

SCOPE
MANAGEMENT ACCOUNTING
STRATEGIC MANAGEMENT ACCOUNTING
REPORTING UNIT
Whole organisation
Strategic business unit
FOCUS
Internal
External
PROFITABILITY ANALYSIS Products
APPROACH TO COST
ANALYSIS
Ex-post cost control via department/product

costing systems
Period based manufacturing costs and
monthly departmental budgets. Volume the
principal cost driver
Cost analysis set within organisational
boundary
PERFORMANCE
APPRAISAL
Monthly based nancial review
Products, customers and markets

Ex-ante cost control based on targeted,
future, life-long costings set to attain a
required prot level at market set price.
Process/activity costing based on analysis
of multiple cost drivers studied in a specic
context
Cost analysis embraces supplier rms in
value chain
Three/six monthly multidimensional

review
Strategic analysis using multiple models to
INVESTMENT APPRAISAL Financial evaluation with strict criteria
promote decisions based on judgement
Part of a wider MIS with team ownership of
OWNERSHIP
Stand alone under control of the accountant
strategic review process
Source: Collier (2006, 29).
743
The term strategic management accounting was coined by Simmonds in a paper

to a 1981 technical symposium of the UK Institute of Cost and Management Accountants. It was identied as the provision and analysis of management accounting data about a business and it competitors for use in developing and monitoring
the business strategy, particularly relative levels and trends in real costs and prices,
volume, market share, cash ow and the proportion demanded of a rms total
resources (Simmonds; 1981). He argued that management accountants were in a
better position to execute these activities than potential rivals such as marketing
and business planning specialists. In his view management accountants possessed
the necessary skills and concepts to represent changes. Much of the information
that strategic management accounting sought to provide on costs and prices, sales
volumes and market shares, cash ows and resource consumption has been, to a
certain extent, removed from the conventional understanding of management accounting and its strong external nancial reporting underpinnings.
According to what has been previously said, accounting should be integrated in
the business strategy, while it embraces techniques necessary to capture environmental opportunities. Using its conventional cost methods together with modern
cost methods (ABC, target costing, life-cycle costing etc.) and accompanied measuring systems (IC, TQM, VBM, scorecards) it helps to evaluate business performance of customers, suppliers and competitors.
In order to cope with uncertain changes in the market and to follow accepted
strategic goals, contemporary accounting should be more outward looking in a
way to help the rm evaluate its competitive position relative to its competitors by
collecting and analyzing data on costs, prices, sales volumes and market share, cash
ows and resources for its main competitors. Despite, there is no comprehensive
conceptual framework of what strategic management accounting is or how it relates
to corporate strategy. Collier (2006; 48) denes it as provision and analysis of nancial information on the rms product markets and competitors cost structures,
and the monitoring of the enterprises strategies as well as those of its competitors
in these markets over periods. It highlights strategic issues and concerns, and also,
it helps to build the collection of competitor information, it provides management
with cost reduction opportunities and matches the accounting emphasis with the
rms strategic position.
Porter (1985) classied a strategic position of the rm on the following way:
744
The four forces model (the treat of new entrants, the threat of substitutes; rivalry among rms; bargaining power of suppliers and customers) that assesses
industry attractiveness from the perspective of long-term protability.
The value-chain (the linked set of nine inter-related primary and support functions) that compares the prices customers are willing to pay for features with
the costs associated with providing them.
The generic strategies (cost leadership; dierentiation; focus on market segments) that lead to sustainable competitive advantage and the rms relative
position within industry.
For example, in order to pursue a dierentiation strategy, therefore, it is necessary to have a range of reliable information available about customers and oerings,
i.e. about the market in which the rm is operating. The most obvious source of
such information is the marketing function, including the sales function. Management accountants cannot be expected to provide this information. Those two key
functions, marketing and management accounting must cooperate and work most
closely together. According to the Porters approach, which observes the strategic
positioning from three angles, it is important to establish a versatile internal accounting mechanism that would provide the execution and the control of the strategic model implementation. According to this generic approach, the model should
be shaped by management authority.
In order to ensure the long-term protability, much focus should be placed
on gaining the bargaining power which exists only if the position of the other
side can be overcome. Gaining of power is a rather long and demanding process
that requires the knowledge about the market, business intelligence, but, also, the
knowledge about the position of the other side, in order to choose the right direction in terms of the bargaining position. A new problem that occurs is how to put
in the action bargaining power gained in the market. That is most often achieved
by changing the conditions and the ways of cooperation in a supply-chain, and in
favour of the more powerful side, that consequently receives the aliquot part of the
prot.
745
3. DEVELOPING A NEED FOR STRATEGIC AND MARKETING ASPECTS IN

MANAGERIAL ACCOUNTING
The initial phase of accounting for strategic positioning occurred largely in the
later 1980s, immediately following Kaplans expression of concerns about the relevance of management accounting. This phase entailed the identication of a range
of new methods or tools, the most well known being the activity-based costing,
together with strategic cost analysis and quality costing, and later, the non-tangible
asset focused methods, such as balanced scorecard, strategy maps and strategic budgeting. What these methods have in common, is that they were designed to provide
information on the aspects of business performance that Kaplan (1984) identies
as critical to success in the new competitive marketplace and that is strategic positioning. Activity-based costing accounting as a generic approach embraces the activity-based costing method together with the analysis of customer protability and
direct product protability. The common factor within this approach is the search
for operational excellence in the pursuit of delivering superior value to customers.
Like the former approaches, strategic management accounting is interdisciplinary,
incorporating achievements from management accounting and marketing management. The methods associated with strategic management accounting include competitor position analysis, costs of activities and assets used in value-chain analysis,
scorecards, and measures of intangible assets, value-added, target costing and life
cycle costing. Although Stewart (1994) isolates the value-based management from
the framework of strategic management accounting, the same way Lynn (1998)
isolates the intellectual capital management, these two approaches should be included in the context of strategic management accounting, for the purpose of these
methods is to put the added value and the non-tangible asset into the function of
strategic positioning. Furthermore, what facilitated the development of strategic
management accounting is the fast development of the information technology,
and it has become its integral part and a very important factor in its every segment,
from data-gathering to reporting. The creation of database concerning the data
from both, inside and outside the business system on the market, such as data on
the customers, prices, supply-chain network inventory data etc., represent a quality
source of information for generating the multiple models and multi-dimensonal
reports neccesary to support up to date decision making proces.
The development of business strategies typology (Mintzberg; 1973; Porter;
1980; Miles and Snow; 1978), but also of corporate strategies (Porter; 1980), it is
clear that all of them acknowledge the great importance of costs and their manage-
746
ment. Management control system, by all means, monitors the implementation of

the business strategy, simultaneously gathering the data on the costs. If there is a
discrepancy between the costs, in terms of where they occur and how high they are,
and the implementation, the cost method is examined. The cost method is used in
the business process and is replaced when a more suitable one is discovered. This is,
in most cases, the way the modern cost methods came to existence. Porter mentions
the cost management as one of two possibilities for gaining the competitive advantage. Porter commends the strategic cost method to businesses pursuing a strategy
of cost leadership. This involves identifying and investigating the conguration of
both the businesss value chain activities and those of its competitors, in an attempt
to determine how it might be possible to deliver greater value for money. Shank
and Govindarajan (1993) argue that it is necessary for businesses to focus on the
entire value chain of the industry in which it operates.
Since strategy and vision are of signicance to all the stakeholders in the organization, it is necessary to develop performance measurement systems that are
directly meaningful to all stakeholders, hence the necessity for customer, internal
business, and innovation and learning perspectives alongside a nancial perspective, and the dening future orientation (Kaplan and Norton; 1992, 58). The balanced scorecard is viewed as providing the means of linking the long term strategic
objectives of a business to its short term actions. It is enabling mechanism that
translates strategy into action. The balanced scorecard is no longer to be seen as
simply a forward looking means. Strategic management is represented as being
constituted by four processes:
translating the vision;
communicating and linking;
business planning; and
feedback and learning.
A scorecard provides the means of accomplishing these crucial business imperatives. It enables a company to align its management processes and focuses the entire organization on implementation of a long-term strategy (Kaplan and Norton,
1996).
For Kaplan and Norton, the balanced scorecard promises to allow the management accountant to make a crucial contribution to the management of organizations in what they refer to as the Information Age. In this sense it can readily be
747
accepted as an example of a management accounting development that has a strategic signicance.

Based on the previous overview and an attempt to relate the relevant contributions to this topic, it can be concluded that there is a logical need for the managerial
accounting and the phenomenon of strategy to be integrated in one functional
unit. This notion may be used in a broader sense, i.e., every time when we talk about accounting (cost) methods, which are shaped in such a way that they can always
link the competitive advantage, strategy, buyers or the products with managerial
accounting.
The contribution to the development of the strategic and marketing aspect in
management is also visible in the nancial aspect of the management accounting
which is based on the current and the future values of the net cash ow. Investments are made so as to create the conditions for the operational functioning and
generate the cash ow. Strategic investment appraisal is concerned with determining the possible viability of a commercial opportunity in the marketplace. That
represents quite dierent focus from a focus of ordinary investing in capital as in
the conventional capital budgeting model. In the case of strategic investment appraisal, the necessary rst step is to look to the market, at customer requirements
and the capacity of rivals to deliver them, and to be concerned with product/service
attributes and price.
Porter (1985) sees marketing as a business function that aims to understand
customer needs and satisfy those needs more eectively than competitors. Marketing emphasize the importance of adding value through marketing activity. Pricing
of products/services is crucial to business success, in terms of increasing the perceived value so as to maximize the margin between price and cost and to increase
sales volume. Marketing decisions cannot be made in isolation from knowledge
of business costs and the impact that marketing strategy has on operations and on
business protability.
When we talk about the selling price, we can point out one cost method that
plays an important role in strategic management accounting. That method is target
costing. It is primarily focused on upstream costs, on the basis that an increasingly greater part of the costs are committed at the design and development stages
(Monden and Hamada, 1991). Target costing is heavily reliant on the continued
cooperation of a wide range of functional specialists: accountants, including management accountants; process and production engineers; and marketers, including
748
sales specialists. All those specialists are committed to the determination and realization of target costs. Finally, in contrast to most other approaches, target costing
rejects cost plus pricing, substituting in its place logic of market-driven costing. In
target costing there is a very strong link between cost management, marketing and
strategic management issues.
5. CONCLUSION
At the beginning of this paper we were concerned to identify a particular meaning for strategic management accounting, one that provides a means for dierentiating it from more general uses of the term. Having done so, and having, in
turn, identied strategic management accounting as an interesting development of
management accounting, we saw theoretical evidence how it is linked with strategy
and marketing perspective taking into account generic approaches and contributions up to date.
Gathering competitors data will be more eectively accomplished where management accountants and their marketing colleagues, together with others, cooperate fully. The accountant will need to work with marketing sta to evaluate bargaining power and cost position to make price decisions. The need for information
should be served from one place and that is eventually strategic management accounting. With regard to the development and the specialization of management
accounting, it is to be expected that some kind of a new, parallel concept will
occur, some sort of a strategic marketing management accounting concept. Until
recently, management gathered useful information for the management that was
independent from the internal management accounting, especially from marketing. However, the creation of the forms of management accounting will always be
interdisciplinary and directed towards the generic principle of market positioning,
with the purpose of providing for and sustaining of the competitive advantage of
the business.
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10th ed. McGraw-Hill, NY.
2. Bromwich M. and Bhimani A. (1991.) Strategic Investment Appraisal, Management Accounting, 72(9), 45-48.
749
3. Collier, P. M. (2006.) Accounting for managers, 2 ed., John Willey & Sons.
4. Hansen, D. R. and Mowen, M. M. (2006.) Managerial Accounting, 8th ed.
South-Western College Pub.
5. Johnson, H. T. and Kaplan, R. S. (1987.) Relevance lost: The Rise and the Fall
of Management Accounting. Boston, HBS Press.
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Review, LIX(3), 390-418.
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Drive Performance, Harvard Business Review, 70(1), 5863.
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assets into tangible outcomes. Harvard Business Press.
10. Miles, R. E. and Snow, E. E. (1978.) Organizational strategy, structure and
process. McGraw-Hill, NY.
11. Mintzberg, H. (1973). The Nature of Managerial Work. Harper & Row, NY.
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New Tool for competitive Advantage. Free Press, NY.
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18. Simmonds, K. (1981.) Strategic management accounting, Management Accounting (UK), 59(4), 26-29.
19. Simmons, R. (1990.) The role of management control systems in creating competitive advantage: New perspectives. Accounting. Organizations and Society.
(15)1/2, 127-143.
BRANDSPHERE: EXPECTED VALUE VS COGNITION VALUE
751
BRANDSPHERE: EXPECTED VALUE

VS COGNITION VALUE
Dinko Juki1, Boica Dunkovi2
1
School of merchant Davor Milas in Osijek
2
Agency for Development, Osijek-Baranya County in Osijek
ABSTRACT
Brand is a perceptual entity that has begun in its materialization, but is reected into consumer perceptions so is subject to the laws of neuromarketing. The
conict that arises between consumer desires and goal producers overbridge the
emotional branding. Emotional branding is based on the neuromarketing inuence of amygdal on customer choice. The brand is a producers most valuable
property. According to holistic marketing there are three relevant categories for
building a brand: personalization, integration and internalization. Comparing
modern Gobes premise of emotional branding and brand Lindstroms sensibility the brand is transforming into, so-called, living organism. Since the brand
with social validation is connected with consumers identity, it can be seen through
the context of socially responsible marketing. Kellers principle of creating brands,
among other, is based on the systematic and image that reects the product. Consumer brandsphere is the most important category, which includes a corporation,
macro-environment, distribution and competition. The market value of stamps can
be understood through the context of the brand essence, or thanks to the image
and brand cognition. However, the brand as a phenomenological matrix becomes
a psychosocial phenomen, because the 80% of the brand essence is based on the
values of the untouchable.
JEL clasication: M31
Keywords: brand, brandsphere, brand essence, emotional branding, customer
752
Dinko Juki Boica Dunkovi
1. INTRODUCTION
The term brand (Bennet;1995,85) was long observed as a static segment of a

product which, with its integration of image and symbol, surpasses the contemporary, postmodern understanding of brand as a phenotype. Brand, as a phenomenological matrix, is viewed through 4-D, with a special consideration of a perceptive
creation. According to the 4-D model, the perceptive creation of a brand (Brand
Mind Space), includes the functional, social, spiritual and mental dimensions, in
which case, the the social and the mental dimensions contradict the theoretical approach, the so-called vertical marketing (Kotler & Keller; 2007). In such a disproportion, the social dimension, according to the theory of social validation (SznajdWeron;2005,2537-2547), leads the theory of the overall ecacy into a paradox of
consumers desires. According to the modern neuromarketing indicators (Renvoise
&Morin;2005), brand reaches out beyond the deniton of a product and its extended content is no more than the very essence of a product.
The never-ending updating on the consumers needs is an integral part of marketing (Vraneevi;2000,81). Desires dier from needs in that they are far more
relevant for, it is through those desires that the neuromarketing adds the positive
value to the very essence of a product. Irrespective of the Maslows hierarchy or
Murrays classicaton of needs, the modern marketing accentuates the importance
of the expected and cognition value. The expected value, as consumers understanding of a certain brand, is based on a dichotomy of a subjective value and a
general value. However, the very comrehension as such, in a way, becomes a phenomenological category which behaves as a living organism. Emotional branding
(Gobe;2001) highlights consumers sensitivity and the role of the limbic concept
when choosing a brand. A brand with a rm place in consumers conscience can
play a signicant role regarding the expected value.
2. THE FACTORS IN THE BRANDSPHERE
Brandsphere comprises ve categories: distribution, corporation, macro environment, competition and consumers. Consumers are the most important category af all, since the comprehension of a brand is based on consumers perception.
Aaker mentions ve factors which are crucial when we talk about brand, i.e. he
especially highlights the popularity and the percieved quality (Aaker;2004). Unlike
Aaker, Keller takes over the notion of brands market value (Keller;2008) and mentions two elements : brand comprehension and brand image. The phenomenology
753
of a brand is, in fact, the perceptive creation of a brand which is based on the 4-D
approach (Gad;2005). Brand is a dominant, emotional and symbolic category, i.e.
the value (Gobe;2002), and that is what dierentiates it from the classic, generic
product. The decisions made in the very act of purchasing are often emotionallybased (Milas;2007,41). With this kind of shopping, consumers, actually, form a
self image, and the symbolic shopping can be said to overcome the nancial criterion. The purchase of a brand shows a high level of involvment on the part of the
consumers, since it reects their self-awareness, i.e. their perception.
Picture 1. The factors in the brandsphere
Source: the author
However, shopping out of habit is a result of communication which, consequently, inuences the so-called added value of a brand (Keller;2008), which, in
most cases, escapes the consumers conscience, before another brand occurs on the
market. As a certain act of distancing from shopping out of habit, we recognize
BMS (Brand Mind Space) which implies the strategy of positioning, and arbitrarily inuences the decision-making. The correlation between the persuasion and
the overall valuation of a brand does not necessarily inuence the forming of an
opinion about a certain brand. In the process of forming of an opinion, perception and symbolic shopping, consumers integrate their own experience and knowl-
754
edge concerning brands. The opinion about brands is the result of the formula
combining two factors: the power of the salient beliefs and evaluating (Ajzen &
Fishbein;1980).
The formula is expressed as follows:
In which case:
= stance toward the object,
= the power of belief that the object possesses a certain feature,
= evaluation of a feature,
n = number of the salient beliefs about the object.
The multi-characteristic model combines the inuence of knowledge about a
product, that is, conscience about and the recognition of a brand, as well as the
overall valuing of an opinion. From the model we can conclude that the two main
connectors are, in fact, the power and the valuing of the salient beliefs. Brandsphere
can be observed as a sum of the expected and cognition value. The expected value of
a consumer is an idea about in which way will a brand fulll the needs and desires.
When talking about this matter, we have to point out that desires dier from needs
in that they occur as a void in consumers existence (Milas;2007) which needs to
be lled by a certain product. Unlike fullling of the needs, the desires act as some
sort of a driving force which adds positive values to its own existence. The void is
reected in the high level of identication with brands. So, by buying a certain
brand, which come as a result of a desire, consumers expectations are met and
their desires fullled. The expected value (Vraneevi;2000,91) is an assumption
made by consumers and it is the basis for their choosing of certain products.
2.1. The value of a brand
The evaluation of a brand can be twofold: a) the value based on a consumer and
b) the nancial value. Unlike the rst one, which is dominated by BMS, product
image, associations and popularity, the nancial value includes two modules: the
means of familiarization i means of trust. The familiarization means is the information about the way the corporation functions, whereas the trust means include
755
consumers credibility, which is in fact a set of pozitive information. Based on that,

the following formula can be formed:
In which case
= the nancial value of a brand
= means of familiarization
= means of trust
It is important to mention that familiarization means and means of trust complement each other, and thus occurs the proces of the so-called accumulation, reproduction amd creativity (Vicari;1995). According to the resource based management Predovic;2007), we can present the nancial value of a brand. The goal of
lateral marketing (Kotler & de Bes;2003) is to learn all about consumers needs and
about the valuing of a brands inuence in a consumers subconscience. Of course,
marketing wants to value and monitor the level of consumers loyality, i.e. the level
of popularity. However, as Keller says, the value of a brand is placed in consumers
subconscience, that is, it is conditioned by PTM- the emotional component. The
value is shown through the future income, so it is expressed as follows:
In which case
= income over a period of time t
k= discount rate equal to the nancial outlay
From the above mentioned, it follows that the formula for the value of a brand
cannot precisely dene the very phenomenon of brand and its 4-D. Of course, it is
well-known that the expected value is based on the fact that the costs of a shopping/
purchase decision are not based on the general well-being. It is often the case that
consumers act irrationally (Meler;1999). The cognition value falls into a subjective
domain, and as such, it is reected in the unquestionable values where its inuence
756
is the strongest. The most important segment of the unqestionable values is the inuence of a brand. The rst factor that inluences the development of brandsphere
(de Chernatorny;2006,185-222) is corporation. However, the inuence of a corporation takes on paradoxic dimensions, for it is often in contradiction with management in the Republic of Croatia. It is sucient to compare the postulates of the
educational management (Stanii,2006) and the studies which conrm general
happiness among the service providers (Radeka & Sori;2006,165) in non-prot
organizations. According to the survey on the happiness among employees in educational management, the number of those who consider their life standard good is
extremely low (7,36%), very good (0,22%) and 70% percent is unsatised.
Table 1. Brand corporation enhancement methods

METHODS
Co-ordination
Values
Employees understanding
Departments cultures
SYMPTOMS
The lack of communication between employees and some departments
The value of the sta is does not match the
value of a brand.
The employees do not fully understand the
marketing strategy
Cultural, subcultural and the cross-cultural
dierences
INDICATORS
KM
Herzbergs motivation
Communication
Exploration of market
Heritage
Negligence towards traditional values
Communications
A brand develops from a potential product into

an expected one
Sociological and anthropological representations

Re-designing and emotional
branding
Distinctive capabilities
Non-existnce of the added value of a brand
Levitts concept
Unidentied employees with a vision and

brand strategy
Unhappy employees with an inapproriate
stance towards and a bad perception of a
brand
The rivalry among the executives, which damages the image of a brand
Management of the clients

happiness
Employees identication
Brand citizenship behaviour
Relationships with stakeholders
Source: author
Kaizen method, TQM

Chain of values
757
2.2. The emotional component
The paradox between satisfying the needs of both, consumers an employees is

reected in the development of brandsphere. Even though the value of a brand is
expressed through the sum of, both, the value of the relation between a corporation and the current clients and the value of potential relations with potential
clients, the value, mostly depends on the coecient of the consumer loyalty. Of
course, that coecient cannot be expressed through mathemathics, for it is dependent upon consumers emotional component.
So, let us compare the values of the relations:
Wbrand = Wcc + Wpc
In which case:
Wbrand = the value of a brand,
Wcc = the value of current clients,
Wpc = the value of potential clients
From these formulas concerning the nancial and the relational values, we
can conclude that the value of a brand cannot be encompassed eith classical formulas, and, as a result, the model of emotional branding has been introduced
(Gobe;2001, Lindstrom;2005, Pavlek;2008). The notion of emotional branding
is a relatively new and it rst appeared in the works of Aaker (Aaker;1991), Kapferera (Kapferer;2001), Gobea (Gobe;2001, Gobe;2002), Kellera (Keller;2008),
Gada (Gad;2005), Lindstroma (Lindstrom;2005), Kotlera (Kotler & Keller;2007),
and in Croatia, primarily in the works of Pavlek (Pavlek;2008), and a little less in
the works of Vraneevi (Vraneevi;2007). Emotional branding is based on the
principles of symbolic shopping, that is, on the metaphors and objects of a brand
(Karpati;1988). During the process of symbolic shopping, consumers rely on the
emotional criterion, i.e. they form the image about themselves, pay the price of
the symbolic value. Therefore, we are talking about the shopping that includes a
high level of involvement, for it reects consumers self image. Accordingly, we can
conclude that valuing rests upon expected emotions and experiences, which would
be triggered by the consumption of such a product, and the rational criterion is
completely neglected. Why is it so?
758
In the postmodern marketing, symbolic shopping plays a signicant role, but

at the same time, it demands of the market to shift the focus of the expected value.
So, Levitts four-circle model is the best indicator of the modern tendecies of brands
which, from the basic premise develop into expected, extended and, ultimately,
into the potential ones. But, the process can also go in the opposite direction.
That means that a brand can easily, from a potential premise, become extended or
expected, if consumers added values (their desires) are neglected. However, shopping out of habit must not be equated with symbolic shopping. Habit is a form
of a recurrent behaviour which are an inseparable part of consumers partial or
absent-minded seeking for information, and the valuing of other brands. Habit, as
such, is formed through learning, and shopping through reinforcement. Symbolic
shopping represents brands metaphor. In the case of shopping with a high level of
involvement, through a brand, consumers project the source of self-recognition,
and therefore, the notion of similarity, which is, in most cases based on a label,
will not be a decisive factor. In fact, dierences make up the very essence of a brand
(Meler; 2005,279). The other three factors that make up brandsphere (distribution, macro environment and competition) can observed through the concept of
brand identity. Namely, the concept of brand identity are based on the principles
of marketing communications in a broader sense of the word. Kapferers hexagon
of brands identity (Kapferer;2001) gives a contribution to the dening of a brands
essence and its prism. Therefore, we associate the relationship with the clients,
i.e. the sybolic, emotional and the social one (Vraneevi;2007,40) with a brand.
Furthermore, the reection of a brand helps to create consumers perception and
image. In fact, it is self-expression that leads to the self-acknowledgement.
3. THE ESSENCE OF A BRAND
Let us mention the phenomenon of consistent buying of the same brand, which
is a consequence of a positive stance towards that same brand. Here, we are talking
about the loyalty which is reected through repeated purchasing of the same brand
as an indicator of a connection between purchasing and satisfaction, and according
to the theory of learning (Milas;2007), the more frequent the purchasing, the support is greater. The correlation between beliefs and the overall valuing of a brand
does not necessarily condition the taking of a stance towards dierent brands. Over
the process of forming a stance, perception and the symbolic shopping, consumers
integrate their own experiences and the knowledge about brands. Consumers cognitive capacity is limited, and for this reason, only some beliefs will inuence the
759
forming of a stance. The formed, salient beliefs represent the importance of getting
an insight in consumers stances. Such salient beliefs are still, by themselves, when
isolated from the symbolic and metaporic dimension of a brand, not crucial when
it comes to consumers loyalty. In other words, consumers become aware of a brand,
without special eorts, at the same time shutting out cognition, and shaping metaphors passively. Therefore, when analyzing BMS, manufacturer has to consider the
principles of consumers high and low level of involvment, not taking into account
the marketing eorts, because a prototypical consumer is hyperfragmented by the
choice of goods (Kotler & de Bes; 2003). One of the possible ways for nding the
solution is, actually, the creation of brands awareness, for that is what accelerates
the process of identication. The creation of awareness, at the same time, represents
the arbitration between high and low level of involvement, because consumers will
base their perception of brand solely on its popularity.
However, with the acceptance of the behavioral approach to economy, two problems occur: rstly, behaviour does not inuence the free will completely. Secondly,
the stimulative characteristics which come along with an appropriate reward, allude
to the perception of sense and action that is unpredictable and depends on the free
will. It is noteworthy that the largest number of consumers needs and desires are
never satised (Schiman & Kanuk; 2004,70). Consumers response to the entire
environment is based on their perception of that same environment, and not on
the objective state of aairs concerning the environment. In other words, consumers respond to their perception of a brand. The very essence of the perception is
manifested in the mediating between a stimulus and cognition (Kesi; 1997,50).
Buying the same brand represents the high level of involvement on the part the
consumers (Rocco;2000), for it reects consumers perception. By analyzing the
level of consumers involvement, we indirectly evaluate and appreciate brands. In
other words, perception is determined by objective stimuli, i.e., we give them a
meaning based on our previous knowledge, memory, expectations, opinions and
motives. From what has been said, we can conclude that the basis of perception
rests upon automatism and that consumers behaviour can be rational, emotional
or combined (Meler; 2005,70).
Neuromarketing points out the relevance of the limbic concept because of the
emotional component of a brand. The multiple paradigms of the limbic concept
refer to the analysis of consumers memory, emotions, olfactory and visual stimuli
due to the domination of amygdala. Amygdalas inuence is essential in the process
of learning of the so-called safety signals. The eects of these safety signals in a
760
social-emotional behaviour will disbalance consumers perception, and consumers

will follow their emotions instead of cognition, when buying a certain product.
Consumers accomplish the overall ecacy through subjective perception (Gobe;
2001). Brand goes beyond the sole denition of a product and its extended content is the very essence of a product. The decisions made in the process shopping
are often based on emotions, and BMS, which implies the strategy of positioning,
arbitrarily inuences the decision-making. According to the principles of memory
brand (Keller; 2008), the basic principle is derived from the concept of the emotional memory which represent a category of declarative memory, thus sharing
many features with common, unemotional memory. Metaphoric brands have a
starting point in consumers perception. Since the very essence of a brand encompasses the 4-D model (Gad;2005), we analyze perception through the punctum
temporalis matrix (Ponty-Merleau;1990), i.e. the observation mode. According to
the consumers psychology (Solomon et al;2006), perception integrates the process
of choosing, organizing and interpreting of the incoming stimuli. Stimulus, thus,
can be primary (the physical features of a product) and secondary (marketing communication). The power of marketing is placed in this observation mode, within
the emotional component.
4. CONCLUSION
According to the the emotional component, consumer do not always behave

rationally (Meler; 2005,70). Such irrational behaviour is a result of the social
neighbourhood which indirectly inuences their choice. The environment, thus,
becomes a cyclic spiral in which we have consumers and all the cultural and socioeconomic surroundings. So, the symbolism of a brand, its metaphoric dimension,
is not a new concept in economics (Karpati; 1992). However, the role of the very
product which is manifested in its cultural value, is a new one. Since the added
values of brands (Keller;2008) are based on the psycho-social patterns, with the development of neuromarketing, manufacturers can more quickly identify consumers motives or desires. The identity of a brand, its character (Lindstrom;2005) is
formed when a brand acquires its personality. If we accept the structure of the character, we get the insight into consumers awareness, i.e., into modern consumption,
which is a result of desires, and not needs of modern consumers.
The implementation of brandsphere and essence of a brand encompasses two
modules: a) understanding of the factors in the brandsphere and the phenomenol-
761
ogy of brand, and b) observation of brand through BMS. We observe brand as a

part of the added value which facilitates the dierentiation. However, brand simultaneosly becomes a cultural phenomenon. It inuences consumers in terms of
forming of opinions and organization of their lifestiles. 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). Consequently, consumer loyalty is just the initial segment of brand management in brandsphere, because the dialogue between a living organism, i.e., a brand, leads to the evolution
and religion (De Chernatony;2002). Here, we are talking about neuromarketing.
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9536070790, Zagreb
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764
Marcel C Pop Lacramioara Radomir Andreea I. Maniu Monica M. Zaharie Andrei M. Scridon
STRENGTHENING BANK MARKET PRESENCE BY

MONITORING CLIENTS SATISFACTION WITH DISTRIBUTION
CHANNELS
Marcel C Pop PhD, Lacramioara Radomir, Andreea I. Maniu,
Monica M. Zaharie, Andrei M. Scridon
ABSTRACT
This paper aims to highlight the relationship between the customers satisfaction
with the banks distribution channels and customer loyalty, predictors of a banks
position on the market. For this purpose, the authors present the ndings of a
research that tested a model which linkage satisfaction with distribution channels
to repurchase behavior, the intention to recommend the bank services and to the
behavior of having already recommended the bank services. The proposed model
intentionally includes the satisfaction with distribution channels. On the one hand,
customers are now less sensitive to price and accept to pay more if they feel comfortable when using the services of the bank and on the other hand, price can no
longer lead to a competitive advantage since banks practice similar prices. Instead,
customers may be interested in the number of services they may obtain through
dierent distribution channels, in the speed with which services are performed or
in the employees attitude (where the case).
JEL classication: G21, J28
Keywords: Bank services, distribution channels, satisfaction-loyalty linkage
LITERATURE REVIEW
Banks are currently conducting their business in an extremely competitive environment and therefore, it is hardly anything that cannot be stolen or copied by
the competitors. Since there is a real risk to lose customers who may chose the competitors oer, a banks priority should be nothing but developing loyal customers that do not only ignore the competitors products but also adopt a repurchase
STRENGTHENING BANK MARKET PRESENCE BY MONITORING CLIENTS SATISFACTION...
765
behavior and recommend their banks products or services as well. Satisfaction is

acknowledged a driver of loyalty and thus one cannot expect to have loyal customers unless they are satised. If customers are satised, they are more likely to repurchase the banks services and to become the banks spokesmen. What the authors
try to underline with this quotation is that banks should not neglect or minimize
the importance of attitudinal loyalty. Financial services are intangible and refer to
clients nancial resources thus leading to a higher perceived risk. Given these particularities, customers often rely on their reference groups such as family, friends or
work colleagues when deciding for a bank or another. A banks success and a high
level of competiveness can be reached when clients are considered the most valuable resource (Pop & Radomir; 2008).
1.1 Satisfaction-Loyalty linkage
The satisfaction-loyalty linkage has been the subject of many studies, being considered that customers who are satised with a service provider are more probable
to repurchase its services or to recommend them to other persons. Measured either
at a global or at an attribute level, it is widely recognized that satisfaction is one of
the essential factors to predict consumer behaviour (Molina et al; 2007, 257), inuencing behavioural intentions in the form of a predisposition to repurchase the
product or service again (Gustafsson & Johnson; 2004, 125) as well as in the form
of a predisposition to recommend the bank to other persons (Lymperopoulos &
Chaniotakis; 2008). Four relevant studies in the nancial services sector regarding
this issue captured our attention and consider them important to be mentioned.
First, the study conducted by Lenka, Suar and Mohapatra in the Indian banking
sector showed that satised customers are loyal and they choose the same service
provider (Lenka et al; 2009). The same conclusion is made by Sergio Roman who
proved that both customers satisfaction with the provider and satisfaction with the
core service are antecedents of customer loyalty (Roman; 2003). Another relevant
study within the banking sector would be that conducted by Lymperopoulos &
Chaniotakis who concluded that if a bank wants to benet from positive word of
mouth, then it has to increase the customers overall satisfaction (Lymperopoulos
& Chaniotakis; 2008). Durvasula, Lysonski, Mehta and Tang, on the other hand,
reached the conclusion that within the life insurance services in Singapore, satisfaction is not necessarily a predictor of loyalty (Durvasula et al; 2004). While satisfaction was positively associated with repurchase intentions, the linkage with positive
word of mouth intentions was very weak, not guarantying the act of recommend-
766
ing the provider or its services to other persons. Taking into account the fact that
satisfaction is argued to inuence customers loyalty, we are of the opinion that any
bank that wants to benet from the loyalty outcomes (increases in purchases, positive word of mouth and increases in the number of client and hence protability
and an invulnerable market position) has to study the relationship existing between
the two variables and if necessary, take the appropriate actions to improve customers degree of satisfaction.
The main objective of this case study (we call it a case study due to the fact
that results refer to one investigated bank - named in this paper Ro Bank - and to
its customers) is to test if there is any relationship between customers satisfaction
with banks distribution channels and loyalty. To the best of our knowledge this is
the rst research for the Romanian banking market that studies the relationship
between these two variables.
DATA COLLECTION AND RESEARCH METHODOLOGY
The necessary data were collected through direct investigation of Ro Banks customers, with the use of a research questionnaire which was administrated in the
area of Cluj-Napoca. In order to formulate a nal questionnaire, we conducted a
pilot survey with two bank representatives and 25 customers who oered responses
to questioners in ve of the banks main units. After data validation 618 questionnaires were considered out of 650 that had been distributed to gather information
(we excluded 32 questionnaires due to the lack of answers to more than 30% of the
questions). The margin of error obtained under these conditions was 4.7%. Our
decision to collect data in the area of Cluj-Napoca was supported by the fact that
RO Bank was rst intended to be a local bank and a Cluj brand. Moreover, even if
RO Bank is one of the most important banks in Romania (ranked among the rst
ve banks in the country), conducting its activities at a national level, it is known
as The Bank of Cluj with one of two persons living here being its customer.
1.1 Satisfaction Measurement
This study considers customers satisfaction with distribution channels for one
important reason: customers conduct their relationships with a bank either by visiting the banks territorial units or by using its electronic devices. Furthermore, we
know that one could dene services as experiences or benets. Considering this,
one may say that a customer decides whether satised or not with a bank by evalu-
767
ating the experiences he or she lives when visiting a bank or when using the banks
ATM, Internet Banking service, etcetera. Although our questionnaire included several satisfaction indicators depending on the type of channel that RO Bank uses,
we decided to consider for this study the overall satisfaction which was measured
on a single 5 point scale ranging from 1 (not at all satised) to 5 (totally satised),
a measurement procedure that is very often met when considering the general satisfaction. The overall satisfaction has been proved to be a better predictor of customer loyalty because when making an overall evaluation, customers rely on their
entire experience with the bank (Olsen & Johnson; 2003). Bearing in mind the
fact that customers evaluate their experiences in a banks units or those lived when
using electronic devices, we thought that it was best to measure customers overall
satisfaction level separately with territorial units and with electronic devices. We
also have the measures for satisfaction level separately for all three alternative distribution channels used by RO Bank-Call Centre, Internet Banking and ATM. However, we decided to use the variable representing overall satisfaction with alternative
distribution channels, since the regressions of this variable on combinations of the
above mentioned indicators proved to be signicant from statistical point of view,
with high predictive power (i.e. the adjusted R-squared is above 40% and F-test for
overall signicance always reports a p-value of 0.000; the results of these regressions
are available upon request). On one hand, when visiting a bank unit, customers
take into consideration aspects concerning the location, the banks work program,
information condentiality, the waiting time necessary to get in touch with an employee, the banks reliability through surveillance cameras or security guards, sta
courtesy, sta ethical behaviour, sta knowledge level, sta involvement in their
dialog with clients etcetera. On the other hand, when using electronic devices clients decide if satised or not with the view to ease of use, the variety of operations,
the channels reliability or the necessary time to process the data etcetera. Therefore,
the most important element that distinguishes territorial units from other distribution channels would be the direct contact, face to face between bank employees and
customers. While electronic devices imply technology and little or no employee
involvement, territorial units suppose the employees total involvement in the bankclient relationship. Dierent authors have already studied the personnel inuence
on customers overall satisfaction and found a positive relationship between the two
variables (Durvasula et al; 2004; Lymperopoulos & Chaniotakis; 2008; Bergeron
& Laroche; 2009). Thus, we worked under the hypothesis that personnel inuence
customer satisfaction degree with territorial units. We had two dierent scales: one
768
of them measuring the overall satisfaction with territorial units and the other one
the overall satisfaction with alternative distribution channels. In order to measure
customers overall satisfaction with the banks distribution channels, we created a
single common variable, retaining only the answers oered by those respondents
that maintain their relationship with the bank both through territorial units and
alternative distribution channels (526 questionnaires were considered out of 618;
we excluded 92 respondents-90 that use only territorial units and 2 that did not
answer all the necessary questions; we ensured that by excluding observations from
our data set did not induce selectivity bias in the remained sample, by comparing
the main descriptive statistics of the latter sample with the initial one; the results
showed that the 92 questionnaires can be excluded, as the percentages calculated
for the demographic variables changed only insignicantly from those of the entire
sample). Thus, to obtain the new variable we summed the overall satisfaction with
territorial units and the overall satisfaction with alternative distribution channels.
We assigned equal importance for each type of satisfaction as to our knowledge no
empirical study has proved them to be dierent in importance. Moreover, service
quality is considered the overall evaluation of a companys, for example a banks,
delivery system and satisfaction the customers experiences with all these services
(Lenka et al; 2009). Thus, customers obtain the necessary services clients obtain
the necessary services through various distribution channels and their experience
diers depending on them. The new variable ranged from 2 to 10, and the answers
were grouped into three intervals as follows: from 2 to 5, meaning a low level of
satisfaction-coded with 1, from 6 to 8, meaning a medium level of satisfactioncoded with 2 and from 9 to 10, meaning a high level of satisfaction-coded with 3.
1.2 Loyalty Measurement
We consider loyalty as customers likelihood to repurchase the banks services

in the future and to recommend it or its services (intention loyalty) as well as
customers behaviour of having already recommended it. Therefore, we measured
loyalty with the use of three questions. Thus, respondents were asked to indicate
whether they intend or not to buy a service within the next six months. Then, they
were asked to indicate whether they had recommended or not the bank till that
moment. The third question refers to their intention to recommend the bank and
its services in the future. The questions were constructed in such a way that the
individuals were requested an exact answer. Next, we shall indicate the way these
variables were rst constructed as well as the way they were recoded for the statis-
769
tical analysis. The likelihood to repurchase the banks services within the next six
months was obtained by means of a question with ten items representing services
oered by RO Bank. For each item the respondents were asked to express their intention to buy it, by choosing from three possible answers (i) YES; (ii) NO and (iii)
I DONT KNOW. The answers obtained from the respondents were recoded into
a new variable with two possible answers (i) YES and (ii) NO/I DONT KNOW.
The respondents were then asked to express their intention to recommend the bank
in the future and were oered three possible answers: (i) YES; (ii) NO and (iii) I
DONT KNOW. From a banks perspective, it is important to know the exact percentage of the undecided customers, because they represent a segment that could
be inuenced to repurchase or to recommend the bank in the future. Thus, the
bank must determine these customers proles, and depending on the conclusions
it needs to take the necessary actions. However, for the purpose of this study, we
recoded this variable into another one with two responses: (i) YES and (ii) NO/I
DONT KNOW which separate those customers that are convinced that they will
recommend the bank or its services in the future from all the others. The act of having already recommended the bank and its services to other persons was tested by
addressing respondents another question with three possible answers: (i) YES; (ii)
NO, because no one asked for my opinion, and I did not have the occasion to do
it; (iii) NO, because of other reasons. We constructed this variable in order to give
the bank the possibility to obtain an accurate answer from those respondents who
hadnt recommended the bank or its services to other persons. Nevertheless, for the
same reason mentioned before, our interest for this study was to combine the two
negative possible answers into a single one, hence obtaining a new variable with (i)
YES and (ii) NO answers.
1.3 Findings
The relationship between customers overall satisfaction level with distribution

channels and the three variables used for loyalty was tested with the chi square test
and the results are presented in the following table:
770
Table 1: The relationship between customers overall satisfaction with distribution channels and their loyalty
Relationship between overall satisfaction and customers behavior of having already
recommended the bank or its services
Value
Df
Asymp. Sig. (2-sided)
Pearson Chi-Square***
N of Valid Cases
11,788(a)
0,0030
526
Relationship between overall satisfaction and customers intention to recommend
the bank or its services in the next six months
Value
Df
Pearson Chi-Square***
N of Valid Cases
11,788(a)
0,0030
526
Relationship between overall satisfaction and customers intention to buy
the banks services in the next six months
Value
Df
Pearson Chi-Square
N of Valid Cases
2,313(a)
0,3150
526
Remark (Table 1): ***-signicant at a level of 1%. The results of the Pearson
Chi-Square tests are also indicated by the Likelihood Ratio and Linear-by-Linear
Association statistics, at the same signicance level.
As indicated by the results, we can state that there is a linkage between the customers overall satisfaction level with distribution channels and their involvement
in word of mouth actions (WOM). Observing the respondents exact answers, we
can say that there is a growth in the percentage of those who have already recommended RO Bank or its services, as the level of the overall satisfaction with distribution channels is higher (i.e., the percentage of customers who recommended the
bank or its services and scored their satisfaction between 6 and 8, is 27,4% while
that of the customers with a satisfaction score of 9 and 10 is 72,08%; besides, the
dierence between YES and NO percentages have the same monotonicity with the
increasing overall satisfaction levels the crosstabs are available upon request). The
same conclusion also applies for the relationship between the overall satisfaction
with distribution channels and customers intention to recommend the bank or
its services in the future. These ndings come to support the statement that overall
satisfaction is a predictor of customers intention to recommend the service pro-
771
vider. The more a company in general or a bank in particular satises its customers,
the greater the chances that they involve themselves in positive word of mouth.
This statement is also supported by the signicant relationship that exists between
the overall satisfaction with distribution channels and customers involvement in
WOM advertising actions. More specically, this relationship/linkage proves us
that those customers that are satised with RO Banks distribution channels do
recommend the bank and the services that are being oered by the bank. The same
test applied for the overall satisfaction with distribution channels and customers
intention to buy services from RO Bank within the next six months did not indicate a relationship between the two variables. Therefore, our results do not support
the assertion that overall satisfaction is a predictor of customer behavior. However,
in our opinion, this result does not contradict the empirical literature that found
a relationship between overall satisfaction with the service provider and the customers intention to repurchase services from the same provider (Roman; 2003;
Gustafsson & Johnson; 2004; Molina et al; 2007; Lenka et al; 2009). Customers repurchase intention may be inuenced by several other factors (demographic,
social, personal factors and so on). Then, satisfaction is considered just one of the
loyalty predictors, among others like commitment, service fairness, service quality,
trust etcetera (Han et al; 2008). Nevertheless, the most probable explanation of our
negative result resides in the fact that the economic crisis had been felt in Romania
since the end of 2008. The data were collected during the summer of 2009 and
the market economical situation was at that time the main factor that inuenced
everyones buying or indebtedness decisions. People werent any longer that open
to the idea of being indebted and moreover, they started to fear for the safety of
their savings. Thus, the lack of the relationship between the two variables can be
explained through customers reluctance to nancial obligations.
LIMITATIONS AND FURTHER RESEARCH POSSIBILITIES
One of the limitations of our study refers to the fact that the data were collected
in a single urban town, among a single banks customers. Nevertheless, we want to
mention that people living in the suburban or rural areas near Cluj-Napoca come
in this town to work, and thus, part of our sample gathered a signicant number of
persons in this segment. Besides, Cluj-Napoca is an important commercial centre
in our country and the nancial centre of Transylvania. Another limitation lies
in the fact that sometimes it is dicult to avoid peoples reluctance and refusal to
answer to questionnaires. Thus, our sample was comprised of many young persons
772
and a relatively high percentage of persons aging over 55. This situation could be
also explained by the fact that younger and elder persons usually have much free
time to speed for such activities. In addition, we would add that the results may
have been dierent if the study had been conducted within another period of time,
when the economic context does not lie under uncertainty. Furthermore, these results may be valid for a country as Romania where the banking sector is not mature
and where people do not have a bank culture, but results should not be generalized.
However, in our opinion, the mentioned drawbacks of the present study suggest
directions for further research. We consider that it would be interesting to gather
data with the same questionnaire and to test the same relationships for a sample
that is representative for the Romanian banking market, or at least for the rst ve
banks of this market.
CONCLUSIONS AND MANAGERIAL IMPLICATIONS
The existing competitive environment, in which companies (including banks)

must act, makes it necessary for them to concentrate their marketing eorts towards strengthening the relationships with their customers so as to minimize the
switching situations. Ie, banks need to nd whether their customers are loyal or
not and to concentrate their eorts towards customer retention which is acknowledged as a prerequisite of protability (Veloutsou; 2004, 113) and hence a need
for strengthening their market position. Our research focused on the relationship
between overall satisfaction with distribution channels and loyalty (issues that have
been paid considerable attention in the services marketing literature). The ndings
lead us to the conclusion that there is no relationship between overall satisfaction
and intention loyalty (given by both behavioral intentions and likelihood to recommend the studied bank or its services in the future). Still, we found a positive
relationship between customers overall satisfaction with distribution channels and
positive WOM. Thus, customers with a high level of satisfaction desire and express
their intentions to recommend the bank or its services. Moreover, this nding is
strengthened by the positive relationship that exists between the overall satisfaction with distribution channels and customers statements of having already recommended RO Bank or its services. These ndings are of great importance for bank
managers and marketing people. Financial services are intangible and thus most
customers consider them dicult to understand. In addition, nancial services imply customers nancial resources and many of them do not imply the benets of
immediate consumption and sometimes, the buyer does not even enjoy the benets
773
of consumption itself (Radomir et al; 2008). That is why people usually perceive a
higher degree of risk when purchasing them. Bearing this in mind, bank marketing
people should realize the advantages of WOM and try to benet of them. First, it
is much cheaper than mass-media. Secondly, it is a much more reliable source of
information. We feel resentful that we are forced to watch hundreds of ads each
day and their eect has minimized over time due to the fact that they all say how
good the X product or service is. Instead, we tend to rely on our friends, acquaintances, relatives or colleagues opinions. Their words do not try to make us buy a
certain product or to purchase a certain providers services. They just try to oer us
objective information about their experiences with a provider. Thus, positive word
of mouth is perceived to be much trustworthy and is more probable to inuence
our buying decisions, which in turn leads to increases in bank sales, prot and in its
market share. And thirdly, positive word of mouth is a conrmation that the banks
customers are satised. Although this study shows that between customers overall
satisfaction with distribution channels and their repurchase intentions isnt any
relationship, bank marketing people should try to increase customers level of satisfaction with the bank because of the above listed advantages of positive WOM.
Acknowledgements
We thank Mr. Litan Cristian for helpful comments. Any possible error is assumed by authors.
BIBLIOGRAPHY
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08-01-2010)
Thomas Cle Lena Fischer Nadine Walter
776
THE PROVINCIALISM OF GLOBAL BRANDS

AN EMPIRICAL ANALYSIS OF BRAND EQUITY
DIFFERENCES IN MEXICO AND GERMANY
Thomas Cle1, Lena Fischer2, Nadine Walter3
1
Pforzheim University; and Research Associate at the Centre for

European Economic Research (ZEW) Mannheim, Germany
2
Master student at University of Groningen, Netherlands

3
ABSTRACT
The term global brand has become widely used by the media and by consumers. Although media and consumers call these brands global and centralized marketing departments manage these brands globally are these global brands really
global? Can we talk about truly global brand equity? And if there were brand image
dierences between countries, which factors cause them? The authors conducted
an empirical research during May and June 2009 with similarly aged University
students in Germany (n=426) and Mexico (n=296). The goal was to identify if
brand awareness rates dier between Germans and Mexicans, if the brand image
of Apple iPod is perceived in the same way in Germany and in Mexico and what
inuencing factors might have an impact on any brand image discrepancy between
the countries. Results prove that brand recall rates dier between the two countries
as well as brand image attributes vary signicantly, with Mexico showing higher
levels of favorable brand image attributes. Key inuencing factors on the dierent
brand image perceptions are perceived quality, satisfaction and the inuence of
reference groups. The results suggest that so-called global brands are not perceived the same way in Germany and Mexico. As a consequence, brand management
using standardized marketing instruments for its presumable global brands might
be better o with a more dierentiated approach that takes into account a specic
local brand image.
THE PROVINCIALISM OF GLOBAL BRANDS AN EMPIRICAL ANALYSIS OF BRAND...
777
JEL classication: C21, M31

Keywords: Global Marketing; Global Brand; Brand Equity; Brand Image;
Brand Awareness; Brand Analysis; Cross-country Comparison
1. INTRODUCTION
When companies go global, two extreme ways how to handle international marketing are possible: On the one hand, companies customize their brands according
to the special needs and habits of the people living in the marketed country by
using a dierentiation strategy. On the other hand, companies can apply the same
marketing as in their home country in the foreign market following a standardization strategy. However, a company does not have to decide between the both
extremes dierentiation or standardization. Many companies choose a mixed
approach, which means they might follow a standardized strategy for the core elements of their brands; however, when there are evident benets in adapting these to
the local needs, companies do so (Riesenbeck and Freeling 1991, p. 14). Therefore
truly global brands with completely standardized marketing hardly exist. Taking
Coca-Cola as an example, one can see that the company tailors the avor, packaging, price, and advertising to meet consumers taste in specic markets and is successful with this approach. Although Coke commercials are largely standardized, it
makes minor modications to the way it presents itself in each country, even if it
is just a translation to the local language (Keller 2008, p. 600 and Solomon 2008,
p. 669). However, Coca-Cola is regarded as THE global brand by the company
itself, the media and its customers (De Mooij 2005). A customer being on holidays
in another country will nd the Coke he or she is familiar with, even though the
soft drink is sold in a can instead of a bottle and the taste diers a little due to a
dierent recipe or locally sources ingredients. These slight dierences might be unlikely to inuence the image the consumer has of the brand. But even though a local consumer might have a certain image of a brand, does this automatically mean
that a consumer of another country has the same perception of this brand? And if
not, what are the reasons for these dierent brand images? The following article will
try to give answers to these questions.1
This paper has been prepared as part of the How Global are Global Brands project. For the detailed
research report please see: Cle et al. 2010.
778
2. THEORY ON BRAND EQUITY ANALYSIS
The term global brand is broadly used in International Marketing. However,

existing literature lacks a consistent denition of what global brands really are.
An analysis of the recent literature reveals that the main characteristics of global
brands by dierent authors are the following: Global brands are virtually all global
in reach, which means they must be available all over the world. In addition, zsomer and Altaras (2008, p. 1) argue that global brands have widespread regional/
global awareness, availability, acceptance, and demand. Also, the company follows a globally integrated marketing strategy and adopts one brand name around
the world (Johansson and Ronkainen 2005, p. 339 and De Mooij 2005, p. 14).
Consequently, the brand has a consistent positioning, personality, look, and feel in
major markets (zsomer and Altaras 2008, p. 1) enabled through these programs
and beneting from a unique perceived image worldwide. Moreover, status, esteem
and thus equity rise with globality, which means that the globality of a brand is
positively related to perceived quality, prestige and purchase likelihood (Johansson
and Ronkainen 2005, p. 339).
In summary, a global brand may be dened by three criteria. At rst, it needs to
have global awareness and recognition, which requires that the brand has a multimarket reach and is globally available. Second, it requests a global brand image
that means it has to be perceived as the same brand worldwide both by consumers
and other stakeholders owing to its standardization across markets. Third, a global
brand enjoys high brand equity due to its nancial assets, perceived quality and
esteem. Since the Apple iPod fullls all three requirements, it was chosen for the
present brand equity analysis (Cle et al. 2010).
Many authors have engaged themselves in the analysis of the description and
composition of brands and developed implications and strategies for companies
to accomplish a successful brand management. However, a deep literature review
revealed that mainly the authors Kevin Lane Keller, David A. Aaker, his daughter
Jennifer L. Aaker (1997) and Jean-Noel Kapferer (2005 and 1997) have established
the basis for all successive theoretical works and research studies. As many studies
largely refer to one or more of these previous mentioned authors, this study will
also be based on their works and especially on Keller (2008 and 1993) and Aaker
(1996).These two authors have very similar ideas about the elements of a brand according to how they identify and dene them. Even though slight dierences can
be explored concerning the determination of components which contribute to the
779
equity of a brand, the authors dene most of the dimensions in the same way. The
following system of equations shows which dimensions in the brand equity model
the authors of this article have nally decided on, after having compared the dierent denitions stated by Keller and Aaker.
(1) Brand Equity
(2) Brand Awareness
(3) Brand Image
(4) Inuencing Factors
= f(Brand Awareness; Brand Image; Inuencing Factors)

= f(Brand Recall; Brand Recognition)
= f(Brand Attitude; Brand Personality; Brand Association)
= f(Customer Commitment; Usage Rate; Reference
Groups)
(5) Brand Association = f(Functional Association; Emotional Association)
(6) Customer Commitment = f(Perceived Quality; Satisfaction; Purchase Intention; Brand Loyalty)
Moreover, the equations demonstrate the relationships and components of the
dierent brand dimensions which have been taken as a basis for the development
of the survey instrument. For the most part, Kellers (2008, pp.51-59) customerbased brand equity model was utilized as origin, saying that brand knowledge with
its two components brand awareness and brand image is the key to creating brand
equity. However, Kellers brand image model consists of brand associations which
are further sub-divided into attributes, benets and attitudes. This classication
was slightly modied respectively renamed for the purpose of this study. Instead of
attributes, the term brand personality (Mder 2004, pp.3) was chosen to evaluate
human characteristics of the brand. Benets were separated into functional (Low
and Lamb 2000, pp. 352) and emotional (Bullmore 1984) brand associations which
consumers attach to a specic brand and from which they benet. Nevertheless, the
term attitude was kept and only renamed into brand attitude.
The next step was to combine Kellers framework with inuencing factors of
other theoretical models: The factors brand loyalty and perceived quality were extended by two more sublevels of customer commitment namely satisfaction and
purchase intention and two additional inuencing factors, particularly usage rate
and inuence by reference groups (Keller 2008, p. 670; Lee et al. 2008; Jung and
Sung 2008, p. 25). Perceived quality, satisfaction, purchase intention, and brand
loyalty were subordinated to customer commitment. In conclusion, the three inuencing factors on brand equity which were chosen by the researchers were: customer
commitment with its sub-dimensions, customer commitment, usage rate and inuence
780
by reference groups. The system of equations above shows the complete framework
of the study.
3. LITERATURE REVIEW ABOUT THE APPLE IPOD AS A GLOBAL BRAND
Several theoretical papers exist on Apples marketing strategies, brand extensions

and success story. However, they do not include empirical investigations about the
brands image or its globality. All in all, only one relevant empirical research paper, namely The iPod phenomenon: identifying a market leaders secrets through
qualitative marketing research (Reppel et al. 2006) was found, which was taken as
a basis for this study. Since Apple has not been over-investigated so far, the brand
is suitable for further researches studies. In Reppel et al.s (2006) study, the laddering technique was used to identify the preferred attributes of the iPod that German
consumers value by combining quantitative and qualitative research methods. The
objective was to understand how the product is used by the consumer and how attributes are evaluated by them. The ndings revealed that German iPod consumers
prefer attributes as control elements, ease of use and design. Comparing the
two studies The iPod phenomenon: identifying a market leaders secrets through
qualitative marketing research and the present study, the following dierences can
be detected:
First, the present study does not only aim at getting an idea of how the consumers of the brand iPod perceive the brand, but also how the consumers of competitor
products see it. Moreover, a model to explain inuencing factors on brand image,
and hence the measurement of the globalness of a brand should be developed. Second, instead of conducting the survey online through text-based online laddering
chats as in the Reppel et al. study, a self-administered questionnaire was developed
to be conducted. Third, this study is cross-national, thus not only students from
Germany, but also from Mexico built the sample. Fourth, instead of ltering opinion leaders as Reppel et al. did, the easiest sampling process, namely asking business students of two universities was chosen for this study. Fifth, only quantitative
research was done in this study due to a tight time frame.
In conclusion, the research paper of Reppel et al. showed a rst attempt to use
attributes named by consumers of iPod and have respondents rate them afterwards.
This approach formed also the main part in the self-administered questionnaire of
this study with the aim to get an idea of the brand equity which iPod users and
non-users have of the brand.
781
4. THE EMPIRICAL BRAND EQUITY ANALYSIS

4.1. The Sample of the Study
For the conduction of the investigation, the research sample and its size had to
be dened. Due to the fact that the study was conducted in the frame of a research
project of Pforzheim University in Germany in cooperation with Tecnlogico de
Monterrey in Mexico, the authors decided to use German as well as Mexican students for this research study. According to the sample size of other studies taking
students as sample, the number of interviewees being part of the brand analysis of
Apple iPord was dened to be around 300 per country. The sample size of these
studies was about 172 (Foscht et al. 2008), 275 (Lee et al. 2008) and even 400
(Esch et al. 2006) per country.
The selection of students was appropriate due to the following reasons:
First, previous studies have shown that the choice of students as a sample is
highly convenient and very often used. Consequently, the comparison of results between the dierent studies using students as a sample is possible and easy. Second,
research indicates that young people are more open to new ideas and innovation.
Furthermore, they are more similar to their peers worldwide in their wants and
needs than other age groups (Foscht et al. 2008, p. 134). Third, only students were
asked because a comparison of countries should always be based on people with the
same education and occupation. Above all, students are in a certain age range. The
choice of particular majors should further contribute to the homogeneity of the
sample. However, one has to bear in mind, that although the selected German and
Mexican students are relatively homogeneous in terms of important demographics as age and educational background, they still dier in terms of language, social
background and cultural frames of reference. The dierence between the students
and the resulting limited representativeness has to be considered by the later analysis of the results and the comparison of these two countries.
4.2. Operationalisation of Brand Attributes and of the Inuencing Factors
Based on the established model the frame of the questionnaire was built. The
main part of the questionnaire contained attributes which had to be rated by the
students to measure the various brand dimensions. Even though measurement
scales for the dierent brand dimensions were developed by other authors (e.g.
782
Aaker 1997; Keller 2008), these scales are not practical to use in some applied
studies because of their length. Hence, the researchers established their own scales
or used simple scales as Likert type (Cle et al. 2010). The attributes of iPod and
Apple being tested in the survey had been collected by the means of the following
sources:
1. The brand identity of iPod, that means, how the company Apple wants its
brand to be seen by its stakeholders, especially by its customers
2. Recent literature and
3. Other studies about Apple (see especially Reppel et al. (2006))
The assignment of these attributes to the four brand dimensions was accomplished according to their meaning for the consumer. Hence, statements like ll
their owners with pride were subordinated to brand attitude, as they stress consumers opinion and overall evaluation of the brand. In addition, the equal procedure
was done for the allocation of the other attributes to the three remaining dimensions functional and emotional brand associations and brand personality.
4.3. Pretest of the Questionnaire
First of all, a German questionnaire draft was developed and checked by experts, and subsequently tried out with the help of pretests. For the German pretest,
17 students from Pforzheim University who attend higher semesters than in the
real survey were asked, so that the students going to be surveyed do not know
the questionnaire beforehand. In the pretest, the students as representatives of the
sample population got detailed information about the purpose of the study and
the research topic so that they were enabled to make adequate proposals based on
the given background. Students were asked about understanding problems, meaning of particular words, the way they understand the given instructions and their
overall opinion of the questionnaire, e.g. ow of the questions, length, interest and
attention. The rst questionnaire draft contained a large number attributes and
some of them were quite similar. The objective was to eliminate part of them with
the aid of Cronbachs alpha (see Cle et al. 2010).
4.4. The Translation of the Mexican Questionnaire
Instead of developing an English questionnaire which could be conducted in

Mexico and Germany, the questionnaire was generated in the native languages of
783
these two countries. The main reason for this more complex translation was, that
by using English words, especially attributes, one might risk that students from
Mexico interpret them dierently than the German students, thus, the analysis
could include biases. However, the process of translating the questionnaire into
Spanish also entailed possibilities of failures. For the translation of the German
questionnaire into Spanish, the back translation method was used (see Cle 1997,
p. 155 and Kumar 2000, p. 431). Nevertheless, despite the dedicated accuracy, the
back translation cannot guarantee complete reliability that researcher and interviewees will not misunderstand each other regarding the meaning of specic terms.
4.5. The Conduction of the Survey in Germany and Mexico
The survey took place at Pforzheim University and Tecnlogico de Monterrey

during lecture time in May and June 2009. The questionnaires were distributed
at the beginning of the lectures to ensure that the students are concentrated and
have a high motivation to answer them in the best possible way. As the survey was
accomplished with a self-administered questionnaire, it was highly important that
the students had the necessary information of how to answer it correctly. Since the
authors were present to ensure correct conduction of the survey in Germany, it also
had to be ensured that the survey was correctly conducted in Mexico. Therefore, a
manual with essential details was developed to guarantee that Mexican students are
informed in an equal way as the German students. Hence, the best possible initial
position to ensure both an optimal data collection and a fast implementation was
achieved. In total, nG=426 Germans and nM=296 Mexicans participated.
5. RESULTS
5.1. Brand Recall Dierences between Germany and Mexico
Several insights can be gained by the information in this Table 1. First, more female students (in total about 63%) completed the questionnaire in both countries.
Second, the age range respectively the mean of the students age is comparable in
the two countries due to the procedure to ask dierent semesters in each country.
Third, a high number of Mexican students stated that they do not own an MP3
player. However, due to the high market share of MP3 players, especially for iPod,
it can be assumed that these particular students did not want to complete the questionnaire, thus, crossing the answer no, I do not use an MP3 player. Fourth, in
784
Germany are less students who own an iPod compared to Mexican students. Fifth,
an almost equal number of iPod-owners in Germany and Mexico bought an iPod
respectively got an iPod as a gift.
Table 1: Sample Characteristics

Germany
nG
Mexico
nM
65% / 35%
316
59% / 41%
228
Age in years
= 21.5
317
= 20.9
228
Students who own an MP3 player / students who

do not own an MP3 player
99% / 1%
426
81% / 19%
296
iPod-owners / non-iPod-owners
47% / 53%
311
91% / 9%
234
iPod-purchaser / iPod as a gift
76% / 24%
146
81% / 19%
213
Female / Male
1
The rst brand equity component to be analyzed is brand awareness which was
further divided into brand recall and recognition. As the query of both dimensions
would have gone beyond the scope of this study, only brand recall was requested
from the students. Due to the absence of the forms lled in by the 56 Mexican
non-MP3 player-users, brand recall was calculated by considering only the answers
of MP3 player-users in both countries. In Germany, 362 out of 408 MP3 player
owners answered the brand recall question, that means 46 respondents did overread the question, simply did not want to answer it or really could not recall an
MP3 player brand even though they own one. On average about three brands were
recalled by the German students, whereby iPod was recalled by about 62%, Apple
by approximately 27% and in total about 88% recalled at least one of these two
brands.
In Mexico, 231 out of 236 owners of an MP3 player answered the brand recall
question, with an average of 2.6 brands. The brand iPod was recalled by about 78%
and Apple by approximately 19%. It never happened that a student recalled both
brands, that means in total 97% recalled either iPod or Apple.
Table 2 shows that students in both countries are very familiar with iPod as they
recall it to a high extent. Second, the brand recall of iPod is higher among Mexican
students than German students and for Apple it is vice versa. Nevertheless, when
screening the data sets it was detected that 15 German and four Mexican students
actually own an iPod, but nevertheless did not mention either Apple or iPod in the
785
provided space for the recall question. Reasons for this incident could be, that for
the owners of an iPod it is too obvious that they know that brand, thus, they do not
think it is necessary to mention it explicitly. Another factor could be that students
do not see an iPod as an MP3 player, but rather as an individual category of music
players with the result that they do not have an iPod in mind when being asked
about MP3 player brands.
Table 2: Brand Recall of MP3 Player-Users in Germany and Mexico

Germany
Mexico
iPod
61.9%
78.4%
Sony
68.5%
63.6%
Samsung
32.6%
22.9%
Philips
37.0%
14.7%
Apple
27.3%
19.0%
** The Chi-square-test is signicant on the 0.01 level.

Only the most often recalled brands are shown in the table above.
Moreover, the Chi-square test of independence was used to prove whether the
dierences of frequencies are signicant between the two countries. In summary,
as the brand recall of iPod diers signicantly between Germany and Mexico, it
can be concluded that this dimension is dierent between Germany and Mexico.
Consequently, as brand awareness is in turn one brand equity element, the rst part
of it seems to dier. The following analyses will explore whether the second element
of brand equity, namely brand image also diers between the two countries.
5.2. Brand Image Dierences between Germany and Mexico
The parametric t-test of independent samples and the non-parametric MannWhitney U-test were chosen for the comparison of the means / mean ranks for all
attributes belonging to brand image between the two countries. This dimension was
dened as a generic term for its sub-dimensions brand attitude, functional and emotional brand associations, and brand personality (see appendix). Every single attribute
independent of the sub-dimension it belongs to was considered in the two tests:
First, comparing the means for the attributes belonging to brand attitude, the
ndings showed that the means of only one statement, namely are nothing for
followers (=0.91) did not dier signicantly between Mexico and Germany.
786
Second, the cross-national comparison of the functional brand associations

revealed that out of six attributes only exible (=0.08) and elegant (=0.07)
were not signicantly dierent in the two countries. For the emotional brand
associations, it was even detected that complete mean heterogeneity prevails.
Third, the section included human attributes which had to be rated in order
to examine brand personality. This part was the most extensive section as it
included 14 out of 34 attributes, which were analyzed in the four sub-dimensions of brand image. The t-test for independent samples identied that not
cocky (=0.66), American (=0.06) and not sophisticated (=0.21) did not differ signicantly between Mexican and German students. Whereas the MannWhitney U-test revealed that only not cocky (=0.64) and not sophisticated
(=0.28) were not signicantly dierent.
In conclusion, the assumption that Brand image of iPod diers in Germany vs.
Mexico can be armed. Due to the high amount of attributes, a factor analysis had
to be accomplished considering the rated attributes for the brand image sub-dimensions. Table 3 gives an overview of the nine resulted factors used as reduced brand
image dimensions for the following analysis. The brand image sub-dimensions are
meritorious (Kaiser and Rice 1974, pp. 111) for a factor analysis because the
Kaiser-Meyer-Olkin Measure of Sampling Adequacy is equal to 0.822.
Table 3: Factor Analysis of the Brand Image Dimensions

Factors
Attributes
Factor 1: Basics
Factor 4: Apples Core
Elegant; A must-have; Inspirational; Dierent; Innovative; Aesthetic; Cool; Creative

Just need to be loved; Multifunctional; Easy-to-use; Powerful; Time-saving; Are better
than other MP3 players
Are a symbol of liberty; Are a mean of self-expression; Fill their owners with pride;
Are no products for show-os; Are nothing for followers
Intelligent; Stylish; Trustworthy; Unique; Young
Factor 5: Attitude
Full of the joys of life; Passionate; Not sophisticated
Factor 6: Normality
American; Unexaggerated
Factor 7: Exclusiveness
Not mainstream; Not cocky
Factor 8: Convenience
Not too expensive; Flexible
Factor 9: Responsibility
Social responsible
Factor 2: Performance
Factor 3: Esteem
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5.3. Inuencing Factors on Brand Image
The question is which inuencing factors have an impact on brand image? The
inuencing factors were previously dened as inuence by reference groups, usage
rate and customer commitment. The latter one was sub-divided into brand loyalty,
purchase intention, perceived quality and satisfaction. The analysis had to be conducted for each of the nine brand image factors (see Table 3) with every single
inuencing factor. As the Kolmogorov-Smirnov test revealed that the variables to
be tested dier signicantly from a normal distribution, Kendalls Tau rank correlation coecient was used to proof the correlations. Table 4 shows whether there is a
correlation between the variables and if so, the direction of the correlation.
Table 4: Correlation Analysis (Kendalls Tau) of Brand Image and Inuencing Factors
Basics
Tau
Sig.(2-tailed)
N
Performance Tau
Sig.(2-tailed)
N
Esteem
Tau
Sig.(2-tailed)
N
Apple_core
Tau
Sig.(2-tailed)
N
Attitude
Tau
Sig.(2-tailed)
N
Normality
Tau
Sig.(2-tailed)
N
Exclusiveness Tau
Sig.(2-tailed)
N
Convenience Tau
Sig.(2-tailed)
N
Responsibility Tau
Sig.(2-tailed)
N
Perceived
Quality
-,033
,314
539
,315**
,000
539
,082*
,012
539
-,025
,451
539
-,007
,821
539
-,008
,815
539
-,224**
,000
539
-,080*
,014
539
-,045
,170
539
Satisfaction
,101**
,002
539
,556**
,000
539
-,100**
,002
539
,091**
,005
539
,014
,667
539
,000
,982
539
-,070*
,034
539
-,037
,257
539
,062
,060
539
Purchase Brand
Intention Loyalty
,082
-,017
,068
,721
266
274
,427** ,125**
,000
,007
266
274
-,080
-,012
,079
,796
266
274
,086
-,019
,057
,690
266
274
,025
,067
,573
,151
266
274
-,044
-,075
,327
,109
266
274
,120**
,072
,008
,124
266
274
-,061
,020
,177
,668
266
274
,000
,143**
,994
,002
266
274
Usage rate
-,131**
,000
545
-,180**
,000
545
,045
,167
545
-,116**
,000
545
-,044
,176
545
-,032
,326
545
-,102**
,002
545
-,033
,309
545
-,088**
,007
545
Purchase
inuence
,050
,099
494
,262**
,000
494
-,105**
,001
494
,082**
,007
494
,061*
,046
494
,005
,867
494
,087**
,004
494
-,044
,153
494
,018
,560
494
Group
aspiration
,015
,618
494
-,030
,328
494
,155**
,000
494
-,030
,325
494
-,037
,221
494
,000
,995
494
-,020
,514
494
-,010
,741
494
,037
,227
494
788
It can be seen that all of the inuencing factors have an impact on brand image.
Moreover, satisfaction, usage rate and inuence by reference groups show the highest
impact on brand image as each of them correlates with ve of the nine factors dened for this dimension.
Before the test of independent samples and the Mann-Whitney U-test were
conducted to analyze whether the inuencing factors on brand image in Germany
and Mexico dier signicantly, a closer look was taken at the means of these factors to get a rst insight. Table 5 shows an overview of the means of these factors
in both countries. As it can be detected, the means in Germany are always higher,
which means that the German students have a lower degree of agreement with
the attributes or statements than the Mexicans. In addition, usage rate is lower in
Germany with an average of 1.6 hours per day in comparison of 2.6 hours per day
in Mexico.
Table 5: Overview of the Means of the Inuencing Factors

Perceived quality
Satisfaction
Purchase intention
Brand loyalty
Inuence by reference groups
Usage rate
Germany
2.3
2.2
3.6
1.9
4
1.6 hours
Mexico
1.9
1.7
2.1
1.6
3.5
2.6 hours
The t-test for independent samples and the Mann-Whitney U-test both showed
that only the factor group aspiration did not dier signicantly between Germany
and Mexico. Thus, the other six inuencing factors (purchase inuence, usage rate,
perceived quality, satisfaction, purchase intention, and brand loyalty) were signicantly dierent! Therefore, multivariate analysis needs to analyze if these inuencing factors are causing the dierently perceived brand equity or if the single dimensions of brand equity stay signicant (within the brand equity model). The latter
would mean that iPod does not consist of a uniform brand image (and hence not
of a uniform brand equity).
5.4. Validation of the Brand Equity Model by Multivariate Analysis
Due to the high correlation of six inuencing factors, a factor analysis without
splitting the le was done before a logistic regression analysis could be accom-
789
plished. This is to avoid multicollinearity. Table 6 shows which inuencing factors

resulted in a new one (KMO=0.56).
Table 6: Factor Analysis of Inuencing Factors

Factors
Inuencing factors
Factor 1: Usage Inuence
Purchase Inuence & Usage rate
Factor 2: Experience
Perceived quality & Satisfaction
Factor 3: Purchase Pressure
Group Aspiration & Purchase Intention
The analysis was accomplished in order to prove whether a conclusion on the

variable nationality representing the dierence of brand equity in Germany and
Mexico - can be drawn by dierences of the independent variables of the brand
equity model. Equation (1) may be transformed in the following equation (7):
(7) Brand Equity = f( Brand Awareness; Brand Image; Inuencing Factors)
The logistic regression was accomplished with nationality as the dependent variable: Mexico is coded as 0 and Germany as 1, whereby 1 corresponds to the
group for which the probability is measured. In addition, the nine factors for the
brand image attributes and the three factors for the inuencing variables were used
as independent variables.
This approach starts from the assumption that according to the brand equity
model (see equation (7)) potential regionally dierent characteristics of brand equity can be explained by regionally dierent brand dimensions and inuencing
factors.
Figure 1 gives an overview of the factors which have a signicant inuence on
nationality with their according regression coecients. The model was built using
backward stepwise methods, including all of the predictors. In addition, at each
step the predictor that contributed the least was removed from the model, until
all of the predictors in the model were signicant (0.05). The resulted model
showed that seven out of the 12 possible variables whose inuence on nationality should be tested were signicant (see Wald statistic and signicance level in
the regression table of Figure 1). The results remain stable even by using any of
the following stepwise methods: forward conditional, forward LR, forward Wald,
backward conditional, backward LR, or backward Wald. According to the measure of Nagelkerkes R-Square, the proportion of the explained variance is 77.5%.
790
Moreover, the classication table shows that 572 out of 633 cases (90.4%) have
been correctly estimated. The seven signicant factors were basics, performance,
Apples core, exclusiveness, and responsibility, which are part of the brand image, and
usage inuence and experience belonging to the inuencing factors on brand image.
Hence, the ve independent factors purchase pressure, esteem, attitude, normality
and convenience are not able to dierentiate the regional dierent brand equities.
Mexican and German respondents do not dier in their answering behavior for
these ve factors.
Figure 1: Binary Logistic Regression Model

-2 Log likelihood
303,493a
Cox & Snell R Square

,567
Nagelkerke R Square
,775
Classication Tablea
Predicted
Observed
Nationality:
Nationality:
Percentage Correct
Mexican
German
Mexican
195
39
83,3
German
22
377
94,5
Overall Percentage
90,4
a. The cut value is ,500
Variables in the Equation
B
S.E.
Wald
df
Sig.
Exp(B)
Basics
1,688
,203
69,454
,000
5,408
Performance
2,136
,264
65,494
,000
8,468
Apple_core
1,450
,209
48,242
,000
4,262
Exclusiveness
1,815
,208
76,179
,000
6,140
Responsibility
,611
,153
16,031
,000
1,842
Usage_Inuence
,709
,191
13,710
,000
2,031
Experience
-1,075
,208
26,841
,000
,341
Constant
1,129
,159
50,119
,000
3,093
791
According to the above table, the following regression function can be retrieved:
Z = 1.129 + 1.688 Basics + 2.136 Performance + 1.450 Apples core + 1.815 Exclusiveness + 0.611 Responsibility + 0.709 Usage Inuence 1.075 Experience
Six of the seven signicant factors show positive coecients. Due to the coding2,
this proves that with these factors the German respondents have a lower degree of
agreement with the attributes or statements than the Mexicans. As an example, if the
(standardized) brand image factor performance is increased by one standard deviation,
the probability, that a German respondent is involved is eight times higher than for a
Mexican respondent (see the respective odds Exp(B) in the regression table)!
Something similar accounts for the brand image factor basics (around 5 times
higher), Apples core (around four times higher), exclusiveness (around six times higher), responsibility (around two times higher) and the inuencing factor usage inuence (around two times higher).
The German respondents only agree more with the inuencing factor experience
(which consists of perceived quality and satisfaction): an increase of this factor by
one standard deviation increases the probability that a Mexican respondent is involved by double its size (e(1-0,341)).
As a summary it can be concluded, that the iPod manages to generate agreement
for the favored brand image much better in Mexico than in Germany even though
the inuencing factor perceived quality is evaluated worse in Mexico. Controlled for
all inuencing factors, the brand equity in Mexico and Germany is dierent.
6. SUMMARY
The study comprises of a brand equity analysis of the brand iPod comparing the
markets Germany and Mexico. The authors started from the overall hypothesis that
although the brand iPod is seen by media and customers as a global brand the
awareness and perception of the brand in the two countries is dierent. Therefore,
the goal of the study was to compare brand awareness and brand image perception
between Mexicans and Germans. In addition, inuencing factors which might explain brand perception dierences should be identied.
The rst set of results conrmed the majority of the hypotheses of the authors
regarding brand awareness and brand image:
2
Dependent variable: Code=1 for Germany; Independent variable: Likert scale 1=strongly agree
and 5 was strongly disagree
792
Brand recall rates (which measures brand awareness) for the iPod are signicantly dierent in Germany and Mexico: whereas only 62% of the Germans
know the brand and 78% of Mexicans can recall it.
Regarding the key dimensions of brand image brand attitude, functional
brand associations, emotional brand associations and brand personality the
t-test for independent samples and the Mann-Whitney U test showed that
the means of the large majority of the attributes belonging to brand image
dier signicantly between Germany and Mexico. Out of the 34 attributes
analyzed, 28 dier signicantly. However, the overall brand image of the iPod
being an aesthetic, young, stylish and easy to use brand of high-quality
was conrmed in Germany and in Mexico. But the overall strengths of the
certain attributes (not the direction) is seen dierently in Germany than in
Mexico (e.g., both countries perceive the iPod to be intelligent, however the
Germans much less than the Mexicans). In total it can be concluded, that the
Mexican students assigned better scores for the brand image dimensions than
the Germans, which the researcher except in one case correctly predicted.
It was expected that Germans would rate the functional associations more
favorable than Mexicans, however, the contrary was explored.
As explained in the beginning, a global brand by denition needs to have the
same brand image around the world. Nevertheless, the brand analysis of Apple
revealed that the consumers perception of the global brand Apple is at least not
perceived the same by Germans and Mexicans. According to Hsieh (2001), the
extent to which a brand image is perceived similarly across nations can serve as
indicator in measuring the degree of brand globalization. Consequently, due to the
detected dierences between Apples brand-equity in the two countries, it can be
concluded that this brand is not that global as it seems to be. This of course could
have implications on Apples marketing approach for the iPod. The partly less positive brand perceptions in Germany (e.g. seeing the iPod as a much less innovative
and intelligent brand than in Mexico and also as a mainstream brand) might
suggest, that the actual product performance or at least the communication message/tonality needs to consider counter-active measures to improve the brand image overall in these essential dimensions.
The second set of results tried to explain what is causing these dierences in
brand image perception. Foscht et al. (2008) already provided clear evidence that
the same brand is perceived dierently in dierent cultures in spite of its identical
793
positioning (or identical brand identity). In addition, besides culture, the inuencing factors analysis of the iPod revealed that numerous more factors have an impact
on brand image, hence on brand equity. It was proven, that especially the variables
satisfaction, usage rate and inuence by reference groups have a signicant impact
on Apples brand image. The advantage of these inuencing factors is that they can
partly be inuenced by marketing measures of Apple. That means, through inuencing factors like customer satisfaction or recommendations by reference groups,
Apple can indirectly inuence its brand image. An example: Measures to reduce
post-purchase customer dissatisfaction such as thank-you-letters or the encouragement of positive word-of-mouth through buzz marketing campaigns might be recommendable marketing instruments to inuence brand image perception.
In conclusion, if Apple wishes to achieve the same global brand image around
the world, it might be necessary not to apply the same marketing instruments in
every country, but to dierentiate the marketing (at least temporarily) to wipe out
specic brand image weaknesses in specic countries which have been identied.
This study has several limitations that must be addressed in future research.
First, the use of a student sample limits the generalization of the ndings, as students represent only a subset of consumers. Future research should be conducted
with a sample which is more representative of the entire consumer population.
Second, it is highly recommended that the developed main and auxiliary hypotheses are tested with other global brands to generalize the ndings of the study.
Furthermore, besides the already analyzed factors culture, CAA, COO3, customer
commitment, usage rate, and inuence by reference groups, further factors should
be dened and analyzed in the same way as in this study to achieve comparability. Third, this study included only two countries, namely Mexico and Germany.
Besides, the analysis showed that the Mexican students assigned better scores for
about 78% of all Likert-type questions than the Germans did. Hence, it could be
concluded that the Mexicans tend to cross rather extreme responses and that this
special behavior probably increased the dierence of Apples brand image in the
two countries. Consequently, future research should be expanded to consumers in
numerous other countries (e.g. Asian countries) to provide more comprehensive
insights into consumer perceptions towards global brands.
These factors were part of other studies than this one.
794
Appendix: T-Test for Independent Samples and U-Test

1. Brand Attitude
2. Functional Brand Association
795
796
3. Emotional Brand Association
4. Brand Personality
797
798
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RELATIONSHIP BETWEEN ENVIRONMENTAL CONCERN AND GREEN PURCHASING...
801
RELATIONSHIP BETWEEN ENVIRONMENTAL

CONCERN AND GREEN PURCHASING BEHAVIOR
Kasim Tati 1
Merima injarevi 2
ABSTRACT
The aim of this paper was to establish the relationship between environmental
concern and consumers green purchasing behavior. A survey instrument was developed that used scales to measure general environmental beliefs (HEP-NEP general
environmental beliefs questions) and consumers intention to buy environmental
friendly products. Data were collected from a convenient (non-probability sampling method) sample of 150 consumers in the Sarajevo region. The results indicated that signicant positive correlation does not exist between the environmental
concern and consumers green purchasing behavior. Expected gender dierence on
environmental concern scale and green purchasing scale was noticed, conrming
that females scores higher than males. Other demographic characteristics: age, education and income did not generate signicant dierences on the environmental
concern scale and green purchasing scale. The sample size was relatively small (n
=150) and data collection took place only in Sarajevo. The other inuences that encourage consumers intention to purchase environmentally friendly products need
renewed attention. It would be useful to investigate in detail how various inuences
support green purchasing behavior.
JEL classication: M31, Q50, A12
Key words: environmental concern, consumer behavior, green purchasing behavior, environmental responsibility
Associate Professor, School of Economics and Business in Sarajevo, Bosnia and Herzegovina, kasim.
tatic@efsa.unsa.ba
2
Teaching Assistant, School of Economics and Business in Sarajevo, Bosnia and Herzegovina, meri-
ma.cinjarevic@efsa.unsa.ba
802
Kasim Tati Merima injarevi
1. INTRODUCTION
Over the last decades, a number of environmental issues that threaten the environment and human lives have been identied that include global warming, depletion of stratospheric ozone layer, pollution of sea and rivers, noise and light pollution, acid rain and farmland erosion. One of the main causes of these problems is
over-consumption of natural resources. Human behavior is the key source as well
as the main solution to these problems. This situation brought a new awareness
of environmental problems and a new sense of urgency that enabled people to be
mobilized for environmental causes all over the world. Environmental concern has
triggered responses from national governments, community, industry and consumers. Environmental concern and green consumer demand has led to the emergence
of green marketing, which attempts to balance the pursuit of sales and prots
with a concern for the environment and society. In this new world, both business
and the environment can win. Being green is no longer a cost of doing business; it
is a catalyst for innovation, new market opportunity, and wealth creation.
2. LITERATURE REVIEW
Since the early 1970s psychologists, sociologists, environmental scholars and

marketing scholars from around the world have been investigating and attempting
to explain the theoretical and practical signicance of environmental consciousness. The majority of work has concentrated on dening and conceptualizing the
construct of environmental consciousness.
Beginning in the 1970s, Dunlap and Van Liere (1978) developed a scale that
measured a general orientation toward nature and the relationship between people
and the environment. Their conceptualization of what they called the New Environmental Paradigm (NEP) focused on beliefs about humanitys ability to upset
the balance of nature, the existence of limits to growth for human societies, and
humanitys right to rule over the rest of nature. Dunlap and Van Liere discovered,
using a 12- item measure assessing the consumer attitude that a large number of
respondents agreed with this new paradigm. Their scale had a reliability of 0.813
and with it they assured predictive, content and construct validity. High scores on
the NEP scale indicate pro-environmental attitude they indicate that the respondent endorses a worldwide view in which humans adapt to the changing limits
dictated by the environment (Vining and Ebreo, 1992, p. 1582). The NEP scale
was originally designed to be unidimensional. However, empirical results (Bostrom
803
et al., 2006; Scot and Willits, 1994) found that the NEP is multidimensional.
Three distinct underlying factors were identies, labeled as balance of nature, limits
to growth and man over nature.
Progress toward solving environmental problems is likely to depend on environmental behavior more than environmental concern. Although there seem to be
both theoretical and practical interest in knowing the determinants of environmental behavior, there is considerable confusion as to what constitutes this behavior
and how to dene it conceptually. From the consumer perspective, the concept of
environmental behavior has been measured in several ways and through dierent
variables which are also related to each other. This is due to the large amount of
manifestations it involved (buying, use, consumption, reuse, recycling, willingness
to pay more for environmental friendly products, etc.).
Moreover, dierent terms such as green behavior, pro-environmental or proecological behavior, environmentally signicant behavior, or environmentally
friendly behavior are used, often in similar meanings.
A past studies have put focus on examining the relationship between environment concern and environmental behavior in general. However, research has produced mixed results that support both a positive relationship between environmental concern and environmental behavior as well as weak relationships. More
specically it has been suggested that consumers with a higher level of environmental concern will be more likely to engage in green consumer behavior (Antil,
1984; Sheltzer et al., 1991). These claims have been supported by a number of
surveys carried out between 1989 and 1990 which reported a dramatic increase in
the number of consumers expressing environmental concerns and claiming to have
purchased environmental friendly products.
Nevertheless, a number of post 1990 studies have produced results that do not
fully support the above. For example, the 1991 Simmons Market Research Bureaus (SMRB) study reported low correlation between environmental concern and
consumers willingness to change their buying behavior in favor of environmental
friendly products. Such ndings are in line with research carried out by, among
others, Kleiner (1991) and Schlossberg (1991) who concluded that there is little
evidence to suggest that positive attitudes towards environmental issues are manifested in the form of actual purchase behavior.
804
Over the last decades, marketing scholars have tried to answer puzzling question
about why despite concern towards the environment (attitude) consumers fails to
purchase environmental friendly or green products (behavior)?
Despite theoretical eorts, predictive ability of attitude in the domain of environmental consumerism has been debatable. Researchers have attempted to explain
this inconsistency between attitude and behavior by attributing it to a number of
factors: low correlations among environmental behaviors, dierent levels of specicity in the attitude - behavior measures, eects of external variables and lack
of measurement reliability and validity (Mainieri et al., 1997). Past research has
shown that pro-environmental behaviors performed by the same individual are not
signicantly correlated (Tracy and Oskamp, 1983-1984) where an individual who
performs one type of such behavior, e.g. carpooling is also expected to engage in
other similar behaviors such as recycling. Lack of measurement specicity between
attitude and behavior suggests that the inconsistency exists as a result of researchers
failing to measure behavior specic attitude instead focusing on a generalized view
of environmental attitude and behavior (Mainieri et al., 1997). Therefore, it has
been recommended that in order to predict specic behavior, i.e. purchase of green
products, the attitudes measured need to be pointed at a specic environmental
issue. Additionally, personal (knowledge, motivation or attitudes) and situational
(social norms, other attractive choices or economic constraints) factors may also
confound the relationship between environmental attitudes and behavior (Mainieri
et al., 1997).
The green purchasing behavior refers to the consumption of products that are:
benevolent/benecial to environment;
recyclable/conservable; or
sensitive/responsive to ecological concerns (Mostafa, 2007)
Drawing on research from North America, Australasia, and Europe, there is a
wealth of evidence that suggests that a wide variety of factors inuence environmental behavior and, in turn, green purchasing behavior. These factors can be characterized as environmental concern, environmental knowledge, attitudes toward
green products, perceived consumer eectiveness, altruism and skepticism towards
environmental claims.
805
3. Research methodology
The primary aim of this research was to determine the level of consumers environmental concern and to establish the relationship between environmental concern and green purchasing behavior. Based on the literature review, the following
subjects of consideration were dened:
Determine the level of environmental concern and green purchasing behavior

among the consumers in the area of city Sarajevo and whether such attitude is
dierent considering the demographic characteristics (gender, age, education,
income) of respondents;
Determine the correlation between environmental concern and consumers

green purchasing behavior.
3.1. Research methodology
The consumers, who shop in general stores, departmental stores, boutiques,

shopping malls and retail store in the area of city Sarajevo were taken as population
for this study. A convenient (non-probability sampling method) of 150 consumers
was pooled up for this study in which respondents were requested to complete the
questionnaire on voluntary basis. The measuring instrument was structured as follows. The rst part contains the HEP-NEP questions to measure general environmental beliefs. The possible responses were: strongly disagree, midly disagree, midly
agree and strongly agree. The second part included questions about green purchasing behavior, and the range of responses to the question Do you do any of the
following? was: never, sometimes, frequently and always. The third part included
general demographic questions such as gender, age, education and income.
3.2. Research results
Frequency tests were conducted to provide descriptive information regarding

variables, including demographics (Table 1). As can be seen in table, the sample of
respondents included more females (58.3 percent) than males and more respondents with secondary and high education (80.7 percent) than other categories
Moreover, the majority of respondents was between the ages of 26 and 45 (55.4
percent).
806
Table 1 Sample characteristics

Factor
Gender
Age Group
Education
Monthly income
Category
Percentage
Male
Female
34,9
58.3
18-25
26-35
36- 45
46-55
56 and above
Primary school
Secondary school
High school
Masters Degree and Doctorate
18.7
28.7
26.7
13.3
12.6
4.0
50.7
30.0
15.3
600 KM and below

601KM- 1000 KM
1001 KM - 1800 KM
1801 and above
7.3
40.0
28.7
24.0
Source: authors research
The rst topic on the research agenda was to determine the level of environmental concern and green purchasing behavior among the respondents and whether
such attitude diers in relation to demographic characteristics of respondents. An
overview of arithmetic mean and standard deviation indicates a moderate level of
environmental concern (M=4.06; =0.679) among the consumers and the low tendency towards green purchasing behavior (M=2.75; = 0.739). One-way ANOVA
test was conducted to examine whether there were any statistically signicant differences in environmental concern and green purchasing behavior among the respondents with dierent demographic characteristics. Findings indicated that only
one of the characteristics, gender, yielded signicant dierence (p<0.01) in level of
environmental concern and green purchasing behavior (Table 1). Results showed
that compared to male consumers, female consumers scored signicantly higher
in environmental concern and green purchasing behavior. This result implies that
women are generally more concern about environmental issues and have more
positive attitudes towards green purchase than men. Female children are often socialized to be more expressive, compassionate, nurturing, cooperative, independent
and helpful in care-giving role (Davidson and Freudenberg, 1996). These social
values may shape females to become more concerned about environmental threats
807
to health and safety. Moreover, since most environmentally relevant behavior takes
place at home (e.g. saving of electricity, recycling), and most of the household purchase is much more often done by females than by males, green purchasing may be
a concept more relevant to females than males.
Table 2 Means and standard deviation on the environmental concern and the green purchasing behavior scale
Environmental concern
Gender
Male
Female
(F)
Age group
18-25
26-35
36- 45
46-55
56 and above
(F)
Education
Primary school
Secondary school
High school
Masters Degree and Doctorate
(F)
Monthly income
600 KM and below
601KM - 1000 KM
1001 KM - 1800 KM
1801 and above
(F)
a p<0.01
Mean
3.76
4.27
25.532a
0.577
0.670
4.02
4.08
4.12
3.80
4.42
2.281
4.01
4.06
4.14
4.30
0.484
3.79
4.08
4.11
4.18
2,417
Source: authors research and calculations
0.617
0.728
0.643
0.662
0.646
0.692
0.715
0.812
0.753
0.613
0.687
0.595
0.744
Green purchasing behavior

Mean
2.37
3.03
35.161 a
0.744
0.605
2.83
2.63
2.85
2.44
3.00
2.035
0.763
0.692
0.775
0.729
0.661
2.44
2.66
2.78
3.12
1.550
0.685
0.802
0.623
0.877
2.67
2.62
2.89
3.00
1.873
0.569
0.851
0.645
0.680
808
Other demographics characteristics such as age, education and monthly income

did not yield to signicant dierence (p>0.05) in level of environmental concern
and green purchasing behavior. This result supports Hoyer and MacInnis (2004)
arguments that demographics, with the exception of gender, are not a good indicator of environmental attitudes and behaviors.
The second issue has been to determine a correlation between the environmental concern and green purchasing behavior. Correlation analysis was conducted to
examine whether there is a signicant positive correlation between environmental
concern and green purchasing behavior. Results showed that relationship between
environmental concern and green purchasing behavior is positive (r=0.154), but
not statistically signicant (p>0.05). This result implies that there is a gap between
environmental concern and green purchasing behavior, which is commonly referred as the value-action gap. In the other words, what people think is a good idea
does not always predict what they actually do, especially in the case of environmental attitides and behaviors.
4. CONCLUSION
Purpose of the research was to clarify the relationship between environmental

concern and green purchasing behavior. Besides, this research was conducted with
a purpose to nd out whether such attitude and behavior dier in relation to demographic characteristics of consumers. The ndings suggest that consumers level
of environmental concern is relatively high, but the level of green purchasing behavior is still rather low. Correlation analysis did not prove that there is a signicant
positive link between environmental concern and green purchasing behavior. The
research has established that female consumers achieve statistically higher environmental concern scores and green purchasing behavior scores. Other demographics
characteristics such as age, education and monthly income did not yield to signicant dierence in level of environmental concern and green purchasing behavior.
Results suggest several implications for green marketers. First, green marketers need to market their products through gender-based market segmentation. It
would be unwise for green marketers to presume that what works best for the
female consumers also works best for the male consumers. Second, to be eective,
green marketing needs to include information on the benets of the product to
the consumer and product improvements, such as new improved formula and/or
design. Such information would help reduce the gap between attitudes and behav-
809
iors. Finally, green marketers should work on identifying and proling segments of
green consumers.
This study has several limitations that need to highlight. The sample size was
relatively small (n=150) and data collection took place only in Sarajevo. Thus, it
would be interesting to conduct a cross-cultural study to compare the green purchasing behavior in dierent countries presenting dierent cultures and dierent
levels of economic development, and among transition economies. Future research
may also need to examine the impacts of some marketing variables and situational
factors on green purchasing behavior.
REFERENCES
1. Antil, J.A. (1984). Socially responsible consumers: prole and implications for
public policy, Journal of Macromarketing, Fall, pp. 18-39.
2. Bostrom, A., Barke, R., Turuga, R. M. R., OConnor, R. E. (2006). Environmental concerns and the New Environmental Paradigm in Bulgaria, Journal of
Environmental Education, Vol. 37 No. 3, pp. 25-40.
3. Chan, R. (2001). Determinants of Chinese consumers green purchasing behavior, Psychology and Marketing, Vol. 18 No. 4, pp. 389413.
4. Davidson, D.J. and Freudenburg, W.R. (1996). Gender and environmental risk
concerns: a review and analysis of available research, Environment and Behavior, Vol. 28 No. 3, pp. 302-339.
5. Dunlap, R. and Van Liere, K. (1978). The new environmental paradigm: a
proposed measuring instrument and preliminary results, Journal of Environmental Education, Vol. 9, pp. 1019.
6. Gooch, G.D. (1995). Environmental beliefs and attitudes in Sweden and the
Baltic states. Environment and Behavior, Vol. 27, pp. 513539.
7. Hoyer, W. and MacInnis, D. (2004). Consumer Behavior, Houghton Miin,
Boston, MA.
8. Kleiner, A. (1991). What does it mean to be green?, Harvard Business Review,
Vol. 69, pp. 38-47.
9. Mainieri, T., Barnett, E. G., Valdero, T. R., Unipan, J. B., Oskamp, S. (1997).
Green buying: The inuence of environmental concern on consumer behavior,
Journal of Social Psychology, Vol. 137 No.2, pp. 189-204.
810
10. Mostafa, M. M. (2007). Gender dierences in Egyptian consumers green

purhase behavior: the eects of environmental knowledge, concern and attitude, International Journal of Consumer Studies, Vol. 31, pp. 220-229.
11. Schlegelmilch, B. B., Bohlen, G. M., Diamantopoulos, A. (1996). The link
between green purchasing decisions and measures of environmental consciousness, European
12. Journal of Marketing, Vol. 30 No. 5, pp. 35-55.
13. Schlossberg, H. (1991). Green marketing has been planted - now watch it
grow, Marketing News, Vol. 4, March, pp. 26-30.
14. Scott, D., & Willits, F. K. (1994). Environmental attitudes and behavior: A
Pennsylvania survey. Environment and Behavior, Vol. 26, pp. 239260.
15. Shetzer, L., Stackman, R.W. and Moore, L.F. (1991). Business environment
attitudes and the new environmental paradigm, Journal of Environmental
Education, Vol. 22, Summer, pp. 14-21.
16. Tracy, A. P. and Oskamp, S. (1983-1984). Relationships among ecologically responible behaviors, Journal of Evnironmental Systems, Vol. 13, pp. 115-126.
17. Vining, J. and Ebreo, A. (1992). Predicting behavior from global and specic environmental attitudes and change sin recycling opportunities, Journal of
Applied Social Psychology, Vol. 22, pp. 1508-1607.
ORGANIZATIONAL STRUCTURE IN THE FUNCTION OF CREATION OF ADDED VALUE
811
ORGANIZATIONAL STRUCTURE IN THE FUNCTION

OF CREATION OF ADDED VALUE
Boris Marjanovi, univ. spec. oec.*
Klaudio Tominovi, PhD**
* Lecturer on Polytechnic University of Pula
** Professor on Polytechnic University of Pula
ABSTRACT:
The Republic of Croatia is about to enter the European Union, hence its economic system will become more open, and subsequently an integral part of the
European economic system.
The aim of economic development of the European Union is established by
the Lisbon Declaration. This commitment is in line with the development of a
21st Century knowledge-based economy, where intellectual capital is its particular
manifestation.
In parallel with the development of a knowledge-based economy, knowledgebased society is also developing, as with the parallel development of economic organizations based on the concept of learning organization.
The actuality of the current theme arises from the hypothesis that only the organizational structure, in which there is no inhibition to destroy value, is able to
create new value that provides the necessary competitiveness and development in
the harsh conditions of a globalized world.
The paper examines the eciency of a complex business-production system,
which is the key concept in the creation of an organizational structure that contributes to value added creation and that has a key role in raising the businessproduction system eciency, and thus the competitiveness of the economic system
in the world market.
JEL clasication: D46, L22
Keywords: knowledge economy, value added creation, basic resources eciency,
organizational structure, intellectual capital
812
Boris Marjanovi Klaudio Tominovi
Introduction
The quality of products and services is determined by the degree of incorporated

knowledge and creativity into these products and services. That relates especially to
business-production systems exposed to the international market, and thus forced
to introduce modern approaches and methods of systems performance as well as
measurement of value creation (value added) at all levels of business performance
(Drucker, 1995).
Due to its characteristics and characteristics of its nal product, the research in
the part of industry is considered a complex business-production system. The complexity of that system comes primarily from the complexity of many internal and
external causal interactions of all the processes inside the system, but also from interactions of the system and the processes in its surroundings. Research has proved
that value is created in both, internal and external processes, but in some parts of
those processes value is also destroyed.
The application of modern approaches and methods in complex business-production system which is the subject of this article was highly inuenced by
the modern denition of a concurrent product. According to that denition, the
concurrent product is a technical system with high level of information and automation and a high capital value. Due to its specic conditions of exploitation,
it is subject to very rigorous tests of quality. Modern business-production system
requires technologically propulsive preparation and production that also inuences
the development of the stakeholders and requires application of a complementary
development model as a condition for breakthrough on the global market. That creates conditions for a rational enterprise and creation of wealth (Tominovi, 2000).
Value added is measured by business results, the quantity of knowledge and
quality of information incorporated in the product. The newly created value added
also incorporates the work of human capital, and thus raises the companys market
value. Leveraging the market value of a company or a system, value creation, value
creation eciency, assessment of the real value of the business production system,
which includes also intellectual capital these are the basic issues and concerns of
contemporary business reality.
New terms have to be introduced to contemporary business-production system:
intangible assets, intellectual capital, knowledge management, overall development
of business relations, customer satisfaction, or briey, the new economy.
813
Answers to the above problems, demonstrated on the example of a specic business production system, and are closely related to following terms, contents and
solutions to: measurement of intellectual capital eciency, value creating working environment, working and communication culture, transfer and application of
new knowledge. All this implies application of the Learning Organization concept, with all its disciplines.
Basic Conditions for the Application of the Learning Organization and
the Value Creation Eciency Analysis
Applying new approaches and methods is not easy, in spite of the remarkable
eorts of some individuals. First of all, it is necessary to recognize all the potentials
of the basic organizational structures of the system, which interact and thus make
the system work. Those basic structures can be divided into creative, symbolic and
physical ones; whereby the managerial structure is the one providing cohesion,
connecting and aligning through its programs and decisions towards a dened strategic goal that is measurable.
Chosen Approach
The basic concept of the chosen approach comes from the consistent application
of the systems theory and process approach, with an accent on rational performance of business processes and technology, including the Learning Organization concept and its ve disciplines. The eectiveness of the procedure of processes
aects the eectiveness of business technology, and also the eectiveness of the
Learning Organization approach. Basically, the focus is on the proper transfer, application and creation of new knowledge in organizations (Senge, 2001).
The Process of Transfer, Application and Creation of New Knowledge
The process of knowledge transfer from nearer and wider surroundings consists
of ve phases, with built-in managerial and verication interactions. Each phase is
a sub-process with inputs, activities, resources and outputs (results). Each output is
veried from the professional point of view and documented with regard to quality,
working culture and established communication rules (Tominovi, 2000).
In professional problem solving, the optimal solution is searched for through
teamwork. The optimal solution is the best one provided by the expert teams in
given circumstances.
814
A suitable organizational model is vital in order to activate the existing intellectual potential (North, 1998).
The Model of Organizational Structure
Based on an analyses of business eciency and eectiveness of complex business-production systems at the researched part of the industry resulted in the conclusion, that the current systems were not optimally structured and thus do not
achieve the expected synergic eect. The synergic eect can be divided into technological, managerial and psychological eects. The analysis also implied that the
existing managerial structure should be redened in alignment with some up to
date global model, and also the necessity of catching up trends in IT development
as well as the development of knowledge as a determining factor in the most developed and, thus, key systems (Binner, 2004).
Analysis of complex business-production systems of the industry implies that
linear (hierarchical) and matrix structure are not suitable for dynamical measurements of intellectual capital eciency. The former because of insucient lateral
communication, the latter due to conicts at the point of realization, occurring
at the crossroads between the vertical and horizontal line due to dierences in
knowledge application of the Learning Organization and non-synchronized decisions of two professional and organizational structures.
The most suitable model in this case is an organization of interconnected elds
or levels known as Hypertext Organization. It is based on a linear organization
as a new structure of internal business systems, on a project team layer, and a
knowledge-based layer. This knowledge-based layer will be referred to as connecting structure.
The Learning Organization Concept
In this case, the Learning Organization Concept was based on a well dened vision. Created mission statement and measurable strategic goals were worked out by
joint eorts of the entire managerial structure. After dening vision and an according mission, a program for the education of management (time limit) was worked
out, which was to be the base for the realization of the Learning Organization
Concept? The Program included the application of the Learning Organization
Concept at all management levels. The term Learning Organization implies an
organizations in which people continually develop their abilities to create results
815
they truly desire, in which new ways of thinking are developed, in which individual
and shared aspirations are freely stated, in which people continuously learn how to
learn together, or, in short, organizations that constantly increase their ability of
creating their future (Senge, 2001).
Implementation of the Knowledge Economy and new organizational structures in the Technical System with high Capital Value
Intellectual capital is being created in processes inside the system and its value
creation can be measured with the help of modern measurement tools (Tominovi,
2006).
The example of the impact of organizational structure in the creation of new
value is shown through a 9 years research conducted from 1999 to 2007 of the
operation of complex business-production system in industry, whereby an analysis
was carried out of the implementation of dierent types of organizational structures and of their impact on business results and the creation of new value in the
knowledge based economy (Marjanovi, 2009).
The issue of competitiveness in todays markets is extremely important since
the market conditions in the globalized world are extremely harsh. There is an
intense battle between the many competing organizations on the market, which
constantly brings into question the very existence of these organizations. The issue
of eciency of a business-production system and of an economic system as a whole
is closely related to competitive ability. It is dicult to separate eciency from the
competitive ability of the organization. The fundamental competitive advantages:
a satisfactory price, high quality and short product delivery time are dened on the
example of a complex business-production system.
The system that can provide these values to the customer achieves a superior
market position. New value, in this analysis, which is created in the production
process, manifests itself on the market through the reduction of the time required
for the construction and delivery of products or services. The research conducted
indicates at the result of creation of new value in dependent processes, which are
manifested on the market through the reduction of the required eective working
hours (EH) and labor costs for the production of a modern product and therefore
a shorter time of construction.
816
The calculations of the basic factors of creation of new value relevant for this
work have been shown on the example of the analyzed complex business-production system in manufacturing industry. These are: the intellectual capital eciency
(ICE) and the duration of product construction through the required eective
working hours (EH), in other words, the achieved productivity.
The parameter of the intellectual capital eciency ICE was taken as a criterion to determine the operating performance, and for the companys business to
be considered successful, this parameter must have a minimum value of 2.00.
In table 1 ICE and EH values are visible through the stages of implementation of
dierent types of organizational structures in the period from 1999 to 2007.
Table 1: ICE and EH values from 1999 to 2007

Year
Product
ICE
EH
Year
Product
ICE
EH
1999
x1
1,876676
1002531
2003
x11
3,47726
736285
2000
x2
2,126341
873155
2004
x12
2,126372
718188
2000
x3
3,744118
816984
2004
x13
2,45
700000
2000
x4
3,909509
792971
2005
x14
2,6
650000
2000
x5
3,996955
809092
2005
x15
2,75
590000
2001
x6
2,854144
794818
2006
x16
2,72
620000
2001
x7
3,397034
767553
2006
x17
2,79
590000
2002
x8
3,465325
765236
2007
x18
2,87
585000
2002
x9
2,971125
750059
2007
x19
2,92
560000
2003
x10
3,62264
810801
2007
x20
2,95
550000
Resource: Business analysis of a complex business-production system from the years 1999 to 2007
(Marjanovi, 2009)
817
Figure 1: Graphical representation of ICE and EH in relation with the implementation periods of organizational structures for the year period 1999 to 2007
ICE
EH
4,500
1.200.000
4,000
1.000.000
3,500
3,000
800.000
2,500
600.000
2,000
1,500
400.000
1,000
200.000
0,500
0,000
0
x1
year 1999
FOS
x2
x3
x4
x5
x6
x7
x8
x9
x10
x11
x12
x13
x14
x15
year 2000 2004

TFOS
FOS Functional organisational structure

TFOS Combined team-functional organizational structure
POS Process organizational structure
x16
x17
x18
x19
x20
year 2005 2007

POS
ICE Intellectual capital eciency
EH Eective work hours
ICE
EH
Resource: Business analysis of a complex business-production system from years 1999 to 2007
(Marjanovi, 2009)
The rst characteristic phenomenon is that from the moment of implementation of the combined team-functional organizational structure (TFOS) the indicator of operating performance ICE is within the satisfactory limits of performance
exceeding 2.00, while in the period of functional organizational structure (FOS)
the indicator was below this limit. Another characteristic phenomenon is the constant reduction of the eective working hours (EH) starting from the implementation of TFOS toward the process organizational structure (POS), which indicates a
signicant impact of modern organizational structures (MOS) on the eciency of
business and production processes within and outside the system. By shifting from
the functional to the process organizational structure the organizational inhibitions
or barriers were gradually eliminated, the negative characteristics of functional organizational structure, which inhibited the smooth ow of a production process.
818
The raising the eciency of the very process in the organization through the
elimination of inhibition resulted in an increased eciency and reduced labor costs
and eective working hours needed to build the product. Processes have become
faster and therefore economically advantageous. The eect of modern organizational structures on the creation of new value is twofold. Firstly, it is in direct
function of the creation of new value in a way that the cost reduction increases the
value added (VA). Secondly it increases the eciency of use of available resources,
it reduces operating costs and eective working hours, which also shortens the time
of the production process and ultimately, the product delivery time. This manifests
itself as a competitive advantage and secures a superior position on the market.
CONCLUSION
There are many dierent opinions, even controversies, about the true value of
particular business-production systems. Evaluation, based on traditional organizational structures and on traditional indicators only, could lead to wrong conclusions and consequently, wrong decisions, especially if the system has a specic
know-how. Estimates are possible thanks to new organizational structures, new
indicators and new methods of measuring non-tangible values such as intellectual
capital.
The application of the Learning Organization concept in combination with the
new organizational models, as a result of the application of intellectual capital in
the companies, has shown a considerable increase of value added and of competitive advantage that secures a superior position on the market.
REFERENCES
1. Binner, H. F. (2004). Handbuch der prozessorientierten ArbeitsorganisationMethoden und Werkzeuge zur Umsetzung, REFA-Fachbuchreihe Unternehmensentwicklung, Hanser, Darmstadt.
2. Drucker, P. (1995). The Information Executive Truly Need, Harvard Business
Review, 1-2/1995, pp. 54-62.
3. Marjanovi, B. (2009). Organizational structure of the complex business-production system in the function of creation of added value , Ekonomski fakultet
u Osijeku, Osijek.
819
4. North, K. (1998). Wissenorientierte Unternehmensfuhrung Wertschopfung durch Wissen, Gabber.

5. Senge, E (2001). The Fifth Discipline The Art and Practice of the Learning
Organization (in Croatian), Mozaik knjiga, Zagreb.
6. Tominovi, K. (2000). Measuring the Eciency of Intellectual Capital in Fundamental Shipbuilding Processes. Brodogradnja 48(2000)1, 33-40.
7. Tominovi, K. (2005). http://www.vaic-on.net/download/References/REF2.pdf
Accessed 1 December 2009.
8. Tominovi, K. (2006). Knowledge Economy in Technical System with high
Capital Value, Annual 2006 of the Croatian Academy of Engineering , Zagreb,
pp 37-48.
820
Bodo Runzheimer
INTERNATIONALIZATION OF GERMAN ACCOUNTING DO

FAIRVALUE VALUATIONS LEAD TO A HIGHER QUALITY
FINANCIAL REPORTING?
Internationalisierung der deutschen Rechnungslegung Fhrt
die Fair Value-Bewertung zu einer ntzlicheren Berichterstattung?
Bodo Runzheimer, Pforzheim
ABSTRACT
In order to achieve a satisfactory solution to the current problems in reporting

procedures, it would be necessary to conduct intensive discussions and build a consensus on these issues. However, such a discussion should not be focused on value
alone, as the case used to be in the past on the basis of the English concept of fair
value. Admittedly, it is rather dicult to argue against a fair valuation. It is possible that fair value will re-emerge in the future more strongly as current exit value.
It seems indispensable to include the economics of regulation more intensively into
corporate practice and research.
JEL classication: M41-M48
Keywords: internationalization of accounting, corporate nancial reporting,
International Reporting Standards, fair-value valuation, decision making utility,
behaviour control, corporate governance
1. ZEITLICHE PHASEN DER INTERNATIONALISIERUNG DER DEUTSCHEN
RECHNUNGSLEGUNG
Die Internationalisierung der deutschen Konzernrechnungslegung ist in atemberaubendem Tempo vorangeschritten. Diese Entwicklung lsst sich in vier Phasen
unterteilen (vgl. auch Pellens, B./Fllbier, R.U./Gassen, J./Sellhorn, T., 2008, S. 45 .
sowie Pellens, B./Crasselt, N./Sellhorn, T., 2009, S 103 .).
INTERNATIONALIZATION OF GERMAN ACCOUNTING DO FAIRVALUE VALUATIONS...
821
Rmische Vertrge von 1957
In den Rmischen Vertrgen von 1957 haben sich die sechs Grndungsstaaten
der damaligen EG (Europischen Wirtschaftsgemeinschaft) zur Harmonisierung
ihrer Gesellschafts- und Kapitalmarktrechte verpichtet. Die Harmonisierungsbestrebungen, die die zwischenstaatliche Vergleichbarkeit der Rechnungslegung in
den Mitgliedstaaten zum Ziel haben, nehmen in der 4. (Bilanzrichtlinie), der
7. (Konzernrichtlinie) und der 8. EG-Richtlinie (Abschlussprferrichtlinie)
in den 1980er Jahren in der EG konkret Gestalt an. Diese RechnungslegungsHarmonisierungsrichtlinien der EG (europische Vorgaben) wurden 1985 durch
das Bilanzrichtliniengesetz in deutsches Recht transformiert. Die EG-Richtlinien waren ein durchaus hochpolitisches Vorhaben: sehr unterschiedlich waren
die Zielsetzungen der Rechnungslegung in den verschiedenen Mitgliedslndern;
sehr verschieden auch die Relevanz der Mageblichkeit der handelsrechtlichen
Vorschriften fr die steuerliche Gewinnermittlung. Der kleinste gemeinsame
Nenner wurde in einer Vielzahl von Ansatz-, Bewertungs- und Ausweiswahlrechten gefunden. Es verwundert daher nicht, dass der tatschliche Eekt der Harmonisierungsbemhungen auf die zwischenstaatliche Vergleichbarkeit der europischen Rechnungslegungspraxis als begrenzt beurteilt wird (Pellens, B./Crasselt, N./
Sellhorn, T., 2009, S. 103).
Brsengang der Daimler-Benz AG an der New York Stock Exchange 1993
- die US-amerikanische Brsenaufsichtbehrde SEC erkannte den nach

HGB (deutschem Handelsgesetzbuch) erstellten Konzernabschluss nicht an;
die sich daraus ergebende Entwicklung
Die SEC (United States Securities and Exchange Commission) in Washington
D.C. ist gem Exchange Securities Act als unabhngige Behrde fr die Kontrolle
des Wertpapierhandels in den USA zustndig. Den nach deutschem HGB vorgeschriebenen und von der Daimler-Benz AG erstellten Konzernabschluss erkannte
die SEC fr die Brsenzulassung an der New York Stock Exchange (NYSE) nicht an.
Die Daimler-Benz AG musste den Konzern-Jahresberschuss und das KonzernEigenkapital in einer parallelen Rechnungslegung auf die US-Vorschriften (USGAAP = United States Generally Accepted Accounting Principles) berleiten.
Die Daimler-Benz AG hat durch diesen in Deutschland viel kritisierten Schritt
(vgl. z.B. Mandler, U., 1994, S. 171) die amerikanische Brsenaufsichtsbehrde
ein gutes Stck auf ihrem Weg vorangebracht, die angloamerikanischen Rech-
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Bodo Runzheimer
nungslegungsnormen zum Weltstandard zu erheben (Runzheimer, B., 1997, S.

54). Die US-GAAP basieren nicht auf einer gesetzlichen Grundlage (auf kodiziertem Recht), sondern werden von privaten Organisationen entwickelt; allerdings nimmt die SEC erheblichen Einuss auf die Entwicklung der US-GAAP. Die
Unterschiede zwischen deutscher und US-amerikanischer Rechnungslegung waren
damals sehr tief greifend (historisch bedingt beruhten sie auf sehr unterschiedlichen soziokonomischen Systemen; Glaeser/Shleifer zeigen, dass die Grundstze
des englischen Rechtssystems sogar auf die Magna Charta 1215 und die Grundstze des franzsischen Rechtssystems auf die Parlements de Paris aus dem Jahr
1256 zurckgehen; vgl. Glaeser, E.L./Shleifer, A., 2002, S. 1193-1229). Die Rechnungslegungsphilosophie der USA beruht auf der Grundkonzeption des Common
Law (civil law, case law). Das induktive Wesen dieser fallrechtlichen Methode (Sachverhaltsorientierung), das richterliche Gewohnheitsrecht wird wie folgt deutlich:
Das Prinzip ist von Entscheidungen abhngig und nicht die Entscheidung vom
Prinzip (nonlegalistic approach) (Heintges, S., 1997, S. 13).
Das rmische Recht ist die Wurzel des kodexrechtlichen Denkens in
Deutschland; das gesetzte Recht (code law) wurde benutzt, um Unterwerfungen
eingenommener Gebiete exakt zu vollziehen, so z.B. durch Napoleon. Das Gesetz
steht im Vordergrund; die Richter sind entsprechend in Deutschland als rechtsprechende Gewalt dem Gesetz unterworfen (Art. 92, 97 Grundgesetz/GG) (Runzheimer, B., 1997, S. 55).
Fr eine Reihe von Konzernen mit Sitz in Deutschland stellte sich in diesem
Zusammenhang die Frage, ob der mgliche Nutzen einer Brseneinfhrung an
der NYSE mit den damit verbundenen Konsequenzen, u.a. einer doppelten Rechnungslegung nach deutschem und US-amerikanischem Recht sowie der sich daraus
ergebenden Probleme (z.B. mglicher Verlust an Vertrauen in die Aussagefhigkeit
der Rechnungslegung bei dierierenden Ergebnissen) berhaupt eine vorteilhafte
Kapitalbeschaungsstrategie darstellt.
Andere Konzerne mit Sitz in Deutschland wie die Bayer AG (ab 1994) und die
Puma AG whlten zur gleichen Zeit die Rechnungslegungsnormen des damaligen
International Accounting Standard Committee (IASC, vgl. www.ax-net.de), die International Accounting Standards (IAS, vgl. www.ax-net.de), um den Anforderungen eines internationaler werdenden Kapitalmarktpublikums zu entsprechen. Da
dieses Normensystem wie das HGB zahlreiche Wahlrechte enthielt, konnten IAS
und HGB in einem einzigen, dualen Konzernabschluss in Einklang gebracht
823
werden (Pellens, B./Crasselt, N./Sellhorn, T., 2009, S. 104). 1997 hat die Deutsche
Brse AG den Unternehmen im HighTech-Segment Neuer Markt (ein Segment
der Deutschen Brse) die Anwendung der IAS oder der US-GAAP zur Bedingung
gemacht. Damit folgte sie den Internationalisierungsbestrebungen, um informative Konzernabschlsse und damit einen eektiven Anlegerschutz durch Informationsvermittlung zu gewhrleisten (Pellens, B./Crasselt, N./Sellhon T., 2009, S.
104).
nderung des HGB 1998
Das Kapitalaufnahmeerleichterungsgesetz von 1998 brachte den neu

eingefgten 292a in das HGB. Damit sollte den oenkundig bestehenden Anforderungen der Global Player entsprochen werden, indem erlaubt wurde, IASoder US-GAAP-konforme Konzernabschlsse an die Stelle von HGB-Konzernabschlssen zu setzen. Diese Mglichkeit solche befreienden Konzernabschlsse
zu erstellen, war bis 2004 befristet. Das Gesetz zur Kontrolle und Transparenz im
Unternehmensbereich (KonTraG) (vgl. Wolf, K./Runzheimer, B., 2009, S. 243 .)
und das Transparenz- und Publizittsgesetz (TransPuG) brachten die gesetzliche
Grundlage fr die Ausweitung des Konzernabschlusses kapitalmarktorienierter
deutscher Unternehmen auf international blichen Umfang: neben Konzernbilanz, Konzern-Gewinn- und Verlustrechnung mit Konzern-Anhang zustzlich
eine Segmentberichterstattung, eine Kapitalussrechnung und einen Eigenkapitalspiegel. Die Einrichtung des privatrechtlich organisierten deutschen Rechnungslegungsregulierers eine dem IASC nachempfundene Institution wurde
im KonTraG geregelt; 1998 begann das Deutsche Rechnungslegungs Standards
Committee (DRSC, vgl. www.ax-net.de) seine vom Gesetz auferlegten Aufgaben wahrzunehmen. Ursprnglich dazu gedacht, die deutsche Konzernrechnungslegung an die internationalen Rechnungslegungspraktiken anzugleichen,
wandelte sich das DRSC zu einer primr der Interessenvertretung in internationalen Rechnungslegungsgremien verpichtete Organisation (Pellens, B./Crasselt, N./Sellhorn, T., 2009, S. 104).
EU-Verordnung Nr. 1606/2002 betreend die Anwendung internationaler
Rechnungslegungsstandards und Bilanzrechtsreformgesetz (BilReG)
Mehrere EU-Mitgliedstaaten hatten sich bis Anfang 2000 der internationalen

Rechnungslegung nach IAS oder US GAAP genet. Die durch die EG-Richtlin-
824
Bodo Runzheimer
ien ursprnglich angestrebte Harmonisierung der Gesellschafts- und Kapitalmarktrechte war durch diesen Paradigmenwechsel in der EU (Runzheimer, B., 1997, S.
54) gescheitert. Die EU-Kommission unternahm im Jahr 2002 einen erneuten Versuch einer Harmonisierung der Rechnungslegung. Sie verordnete die Anwendung
der zur gleichen Zeit in IFRS (vgl. www.ax-net.de) umbenannten internationalen
Rechnungslegungs-Standards zu verwenden (vgl. Pellens, B./Crasselt, N./Sellhorn,
T., 2009, S. 104). Alle kapitalmarktorientierten Mutterunternehmen wurden ab
2005 verpichtet, die IFRS in der von der EU anerkannten Fassung im Konzernabschluss zu verwenden (sog. IAS-Verordnung). Durch das Bilanzrechtsreformgesetz (BilReG vom 04.12.2004) wurde in Deutschland auch nicht-kapitalmarktorientierten Mutterunternehmen und Einzelunternehmen die befreiende Anwendung der IFRS im Konzernabschluss bzw. Unternehmensabschluss gestattet
(also nicht vorgeschrieben). Fr die Bemessung von Gewinnausschttungen und
fr steuerliche Zwecke ist es dagegen beim Abschluss nach HGB geblieben.
Durch das Gesetz zur Modernisierung des Bilanzrechts (Bilanzrechtsmodernesierungsgesetz - BilMoG) vom 28.05.2009 trat eine der grten Reformen
in Kraft, um das deutsche HGB-Bilanzrecht fr den Wettbewerb mit internationalen Rechnungslegungsstandards und die Rolle des Abschlussprfers zu
strken, aber auch kleine und mittelstndische Unternehmen durch Erleichterungen nanziell zu entlasten. Inhaltlich bedeuten die wesentlichen nderungen in der Bilanzierung nach HGB insbesondere Manahmen zur Deregulierung
und zur Verbesserung der Aussagefhigkeit des Jahresabschlusses. Die neuen Bilanzierungsregelungen beinhalten auch die Umsetzung europarechtlicher Vorgaben
(und zwar der sog. Abschlussprferrichtlinie/Richtlinie 2006/43/EG in Ergnzung
Richtlinie 2008/30/EG sowie der sog. Abnderungsrichtlinie/Richtlinie 2006/46/
EG). Nach BilMoG ( 264 d HGB) muss bei kapitalmarktorientierten Kapitalgesellschaften i.S.d. 264 d HGB mindestens ein Aufsichtsratsmitglied unabhngig
sein (der deutsche Gesetzgeber nimmt im BilMoG allerdings keine Legaldenition des Unabhngigkeitsbegris vor, sondern verweist auf die Empfehlung der
EU-Kommission vom 15.02.2005; 2005/162/EWG). Nach Rn. 5.4.1 des DCGK
(2009) mssen die Mitglieder des Aufsichtsrats ber die zur ordnungsgemen
Wahrnehmung der Aufgaben erforderlichen Kenntnisse, Fhigkeiten und fachlichen Erfahrungen verfgen. Die Intensivierung des Know How erfolgt durch die
Empfehlung in Rn. 5.3.2 des DCGK (2009), wonach der Vorsitzende des Prfungsausschusses sofern dieser gebildet wird ber besondere Kenntnisse und
Erfahrungen in der Anwendung von Rechnungslegungsgrundstzen und internen
825
Kontrollverfahren verfgen soll (vgl. Velte, P., 2009, S. 716). Nach BilMoG mssen die brsennotierten Aktiengesellschaften z.B. auch eine Erklrung zur Unternehmensfhrung entweder auf der Internetseite der Gesellschaft entlich
zugnglich machen (unter Bezugnahme im Lagebericht) oder diese Erklrung in
den Lagebericht integrieren; vgl. 289 a Abs. 1 HGB (damit ist eine Bestimmung des DCGK zur Erstellung eines Corporate Governance-Berichts gesetzlich
reglementiert). Gegenstand dieser Erklrung ist u.a. nach 289 a Abs. 2 Nr. 3
HGB eine Beschreibung der Arbeitsweise von Vorstand und Aufsichtsrat sowie der
Zusammensetzung und Arbeitsweise ihrer Ausschsse. Insofern knnten Teile der
Geschftsordnungen Bestandteile der verpichtenden Erklrung zur Unternehmensfhrung werden (Velte, P., 2009, S. 711).
Die Regelungen des BilMoG sind verpichtend fr die Geschftsjahre ab dem
01.01.2010 anzuwenden.
2. DIE INTERNATIONALISIERUNG DER DEUTSCHEN RECHNUNGSLEGUNG
UND IHRE WESENTLICHEN KONSEQUENZEN
Europaweit sind heute die in den Konzernabschlssen kapitalmarktorientierter Mutterunternehmen anzuwendenden Vorschriften auf der Basis IFRS harmonisiert (weltweit werden aktuell 172 Staaten auf der Internetseite iasplus.com
aufgefhrt, die IFRS ganz oder teilweise erlauben oder vorschreiben/www.iasplus.
com/country/useias.htm). Auch in den USA zeichnet sich eine gewisse Annherung
auf IFRS hin ab (die SEC hat in 2008 den Vorschlag eines Fahrplans (roadmap)
publiziert, und zwar mit dem Ziel bis 2016 allen US-Unternehmen die Anwendung der IFRS-Regelungen vorzuschreiben; internationale US-Konzerne sollen danach schon ab 2010 die IFRS-Regelungen anwenden knnen/vgl. SEC 2008). Ob
diese Harmonisierung der Normensysteme allerdings auch wirklich zu einer
Vereinheitlichung der Rechnungslegungspraxis wie auch immer verstanden und
gemessen gefhrt hat, ist eine in der empirischen Rechnungslegungsforschung
viel beachtete, derzeit aber noch weitgehend oene Frage (Pellens, B./Crasselt, N./
Sellhorn, T., 2009, S. 105). Dobler/Gnther haben den Stand der de facto-Konvergenz von IFRS und US-GAAP in 2008 an Unternehmen der Europischen Union
empirisch untersucht. Sie stellen fest: Die Ergebnisse oenbaren einen bislang
geringen Stand der de facto-Konvergenz und deuten auf international inkonsistente Anwendung der Standards hin. Insbesondere implizieren die parallelen Abschlussgren (bei berleitungsrechnungen nach Form 20-F; B.R.) eine frhere
Gewinnvereinnahmung nach US-GAAP und somit eine vorsichtigere Bilanzierung
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Bodo Runzheimer
nach IFRS, die in common law-Staaten strker ausgeprgt ist als in code law-Staaten (Dobler, M./Gnther, N., 2008, S. 809).
Gegenber den frheren Abschlssen nach deutschem HGB (vor den zwischenzeitlich erfolgten Reformen) sind die heutigen IFRS-Abschlsse dadurch gekennzeichnet, dass zum einen die Rechnungslegungsinformationen erheblich
umfangreicher und detaillierter geworden sind. Dies nicht zuletzt in Form der
vorgeschriebenen IFRS-Anhangangaben. Dabei ist allerdings festzustellen, dass
diese gut gemeinten Informationsangebote dazu gefhrt haben, dass sich vor allem
die Kleinanleger von diesem information overload berfordert fhlen. Sie meiden deshalb den IFRS-Konzernabschluss und weichen auf gelterte (sekundre)
Informationsquellen (z.B. Wirtschaftspresse) aus (vgl. Ernst, E./Gassen, J./Pellens,
P., 2005, S. 21 f. sowie Pellens, B./Crasselt, N./Sellhorn, T., 2009, S. 106). Dieser
unbefriedigende Zustand hat dazu gefhrt, dass neue - den Informationsbedrfnissen der Nutzer besser gerecht werdende - Wege der Informationsbereitstellung
diskutiert werden (vgl. Pellens, B./Gassen, J./Neuhaus, S./Schmidt, A., 2006, S. 31
f.). Zu nennen sind hierzu insbesondere die Bestrebungen der SEC und der IASCF
(International Accounting Standards Committee Foundation) das elektronische
Format XBRL (eXtensible Business Reporting Language) in Zukunft als Standard
fr die Unternehmensberichterstattung vorzuschreiben (vgl. www.xbrl.de sowie
Pellens, B./Crasselt, N./Sellhorn, T., 2009, S. 106).
Weiterhin hat die Rechnungslegung nach IFRS dazu gefhrt, dass der Fair Value
Einzug in die deutsche Rechnungslegung genommen hat. Der Fair Value ist nach
der Denition des International Accounting Standards Board (IASB; vgl. www.iasb.
org/Home.htm ), der Betrag, zu dem ein Vermgenswert zwischen sachverstndigen, vertragswilligen und voneinander unabhngigen Geschftspartnern getauscht
werden knnte (z.B. IAS 16.6.). Er ist mithin ein Zeitwert; er wird als Alternative
zu den Anschaungs- oder Herstellungskosten gesehen. Vor etwa zehn Jahren als
die Bewertungsregeln fr Finanzinstrumente diskutiert wurden - hielt der Fair
Value Einzug in die internationale Rechnungslegung. Der Zeitwert spiegelt idealer
Weise zeitnahe und aktuelle Informationen genau ber den aktuellen Wert oder
die Risiken von Finanzinstrumenten und im Besonderen von Derivaten wider
(vgl. Wagenhofer, A., 2008, S. 186). In der weiteren Folge wurde die Fair Value-Bewertung (aber darber hinaus; B.R.) fr weitere Kategorien von Vermgenswerten,
fr Impairment-Tests und fr die Bewertung bei einem Unternehmenszusammenschluss vorgeschrieben (Wagenhofer, A., 2008, S. 186).
827
Das Vordringen der IFRS-Fair Value-Bewertung wird als Ursache fr erheblich

strkere Schwankungen der Gewinne und verschiedener Vermgenspositionen
in der Bilanz im Zeitablauf verantwortlich gemacht, und zwar dies in einem Ausma, wie es bei einer Bilanzierung nach HGB (vor den Reformen) frher nicht der
Fall war. Nach IAS 16 fr Sachanlagen, nach IAS 38 fr bestimmte immaterielle
Wirtschaftsgter, nach IAS 39 fr nahezu smtliche Finanzinstrumente, nach IAS
40 fr Renditeimmobilien und nach IAS 41 fr biologische Vermgenswerte ist es
mglich oder sogar zwingend vorgeschrieben, nderungen des Fair Value entweder ergebnisneutral im Eigenkapital oder sogar ergebniswirksam (in Gewinn- und
Verlustrechnung/GuV-wirksam) im Periodenerfolg auszuweisen. Die hieraus resultierende verstrkte Ergebnis- und Eigenkapitalvolatilitt ist zum einen Ausdruck
der zugrunde liegenden konomischen Wertentwicklungen in einem unsicheren
Unternehmensumfeld. Zum anderen kann sie realwirtschaftiche Konsequenzen
auslsen, wenn Rechnungslegungsdaten mit regulatorischen bzw. einzelvertraglichen Rechtsfolgen verknpft werden oder sogar nur faktische Konsequenzen nach
sich ziehen (Pellens, B./Crasselt, N./Sellhorn, T., 2009, S. 106). Ob solche unerwnschten Nebenwirkungen als Argument gegen die Fair Value-Bilanzierung
gelten knnen, wird in der Literatur kontrovers diskutiert (vg. z.B. Wagenhofer, A.,
2008, S. 189 sowie Laux, C./Leuz, C., 2009). Um solche unerwnschten Nebenwirkungen knftig zu vermeiden, wird eine berarbeitung und Anpassung der
entsprechenden Governance-Mechanismen empfohlen (vgl. Pellens, B./Crasselt,
N./Sellhorn, T., 2009, S. 110 .).
Das IASB beabsichtigt mit der strkeren Orientierung an der Fair Value-Bewertung die Rechnungslegung informativer zu gestalten. Ebenso strebt dies der
deutsche Gesetzgeber mit dem BilMoG an (zu Handelszwecken erworbene Finanzinstrumente, also Aktien, Schuldverschreibungen, Fondsanteile und Derivate sind
nach 253 Abs. 1 HGB mit ihrem beizulegenden Zeitwert zu bewerten; d.h.
zum Fair Value). Hintergrund dieser Vernderungen ist die theoretisch-normative
Sichtweise, dass mit der Fair Value-Bewertung einzelner Vermgensgegenstnde
der Unternehmenswert in der Bilanz nherungsweise dargestellt wird und die Erfassung der fair value-nderungen in der Erfolgsrechnung zu einer Annherung
an das aus der klassischen Kapitaltheorie abgeleitete Idealkonzept des konomischen Gewinns fhrt. Dieses wrde erreicht, wenn das bilanzielle Eigenkapital zu jedem Bilanzstichtag dem Netto-Unternehmenswert entsprche (Pellens, B./Crasselt,
N./Sellhorn, T., 2009, S. 107). Die aktuelle Rechnungslegungspraxis ist jedoch von
diesem Idealkonzept weit entfernt; die Lcke zwischen der Summe der Fair Value-
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Bodo Runzheimer
Einzelwerte und dem als Gesamtwert ermittelten Unternehmenswert wird nicht

geschlossen. Die hierfr erforderliche Aktivierung und fortlaufende Anpassung
des originren Goodwills wird aus Grnden der mangelnden Objektivierbarkeit
abgelehnt; dies durch Aktivierungsverbote des originren Goodwills sowohl im
deutschen HGB ( 248 Abs. 2) als auch in den IFRS (IAS 38.48). Bisher wird aus
den gleichen Grnden auf eine generelle Fair Value-Bilanzierung aller Bilanzpositionen verzichtet.
Das groe Problem besteht darin, Normen zu entwickeln, die zu gleichermaen
relevanten und verlsslichen Rechnungslegungsinformationen fhren. Wallmeier
ist zuzustimmen, wenn er feststellt: Damit Informationen ntzlich sind, mssen
sie relevant und (hinreichend) zuverlssig sein. Relevante Informationen sind im
Allgemeinen zukunftsgerichtet und damit nur begrenzt zuverlssig (Wallmeier,
M., 2009, S. 214). In der Vergangenheit hat das IASB dieses Problem so behandelt, dass die als relevant erachtete Fair Value-Bilanzierung nur dann vorgeschrieben oder erlaubt wurde, wenn Marktpreise vorhanden oder wenigstens verlsslich
ermittelbar sind. In der jngeren Zeit nden aber auch zunehmend nur schwierig
verizierbare Fair Value-Bewertungen Eingang in die Bilanzierung, so z.B. bei der
Bilanzierung von Management-Aktienoptionen nach IFRS 2, von zahlungsmittelgenerierenden Einheiten im Rahmen des Goodwill-Werthaltigkeitstests nach IAS
36 oder von Renditeimmobilien nach IAS 40 (vgl. Pellens, B./Crasselt, N./Sellhorn,
T., 2009, S. 107).
Die Fair Value-Bilanzierung hat zu einer greren Volatilitt von Bilanz- und
Ergebnisgren im Vergleich zu einer Bilanzierung nach dem Anschaungs-/
Herstellungskostenprinzip gefhrt. Dies insbesondere durch Zuschreibungen auf
Werte, die oberhalb der Anschaungs-/Herstellungskosten liegen. Diese ungewohnten Ausschlge nach oben knnen spter zu deutlich strkeren Ausschlgen
nach unten (Abschreibungen) fhren, wenn die Bilanzwerte wieder unter die Anschaungs-/Herstellungskosten fallen. Zu grerer Volatilitt trgt auch der mit
der Fair Value-Bilanzierung einhergehende Verzicht auf die Periodisierung mancher Bilanzgren bei. So treten Wertberichtigungen des Goodwills seltener, dafr
aber oft in grerer Hhe auf als bei einer planmigen Goodwill-Abschreibung
(Pellens, B./Crasselt, N./Sellhorn, T., 2009, S. 109). Die Volatilitt der Bilanz- und
Ergebnisgren der IFRS-Abschlsse hat bislang kaum beachtete und wohl auch
kaum beabsichtigte Wirkungen, wenn aus solchen Abschlssen Konsequenzen auf
regulatorischer, einzelvertraglicher oder auch nur rein faktischer Basis abgeleitet
829
werden. Hierfr lassen sich Beispiele nennen (vgl. Pellens, B./Crasselt, N./Sellhorn,
T., 2009, S. 109 f.):
1) Variable Bestandteile der Vorstands- und Managementvergtungen. Insbesondere im Finanzbereich knnen die Vergtungen infolge von Kurssteigerungen stark ansteigen. In Zeiten sinkender Kurse bleibt eine Beteiligung an Verlusten
meist aus, so dass im Zeitablauf in der Summe hohe Gewinnbeteiligungen erzielt
werden knnen.
Am 05. August 2009 trat in Deutschland das Gesetz zur Angemessenheit der
Vorstandsvergtung (VorstAG) in Kraft. Verschiedene Regelungen im VorstAG
sollen dafr Sorge tragen, dass knftig bei der Festsetzung der Vergtung von
Vorstnden verstrkt Anreize fr eine nachhaltige Unternehmensentwicklung
gesetzt werden so sollen Aktienoptionen erst nach vier Jahren statt nach zwei
eingelst werden knnen. ber die Gehlter soll das Aufsichtsratsplenum beraten,
nicht nur ein kleiner Ausschuss. Auch soll es mglich sein, Gehlter bei einer Verschlechterung der Lage des Unternehmens zu krzen. Grundlage fr die notwendige Beurteilung sind allemal die Jahresabschlussergebnisse.
2) Tariorderungen der Gewerkschaften. Sie orientieren sich in der Regel an
den nachgewiesenen Gewinnsteigerungen der Unternehmen (auf Basis IFRS-Konzernabschluss). Eine Reduzierung ausgehandelter Lohn- und Gehaltssteigerungen
in Verlustjahren ist kaum durchsetzbar.
3) Das Konzernergebnis ist de facto - wenn auch de jure unerheblich fr
die Dividendenwnsche der Aktionre Ausgangspunkt (vgl. Pellens, B./Gassen, J./
Richard, M., 2003, S. 309 .).
4) Kunden und Lieferanten werden durch hhere Gewinnausweise animiert,
bessere Konditionen durchzusetzen.
5) Durch die im Rahmen der Unternehmenssteuerreform 2008 eingefhrten
Regelungen zur so genannten Zinsschranke ( 4h EStG) kommt dem IFRS-Abschluss auch eine Bedeutung fr die Unternehmensbesteuerung zu.
6) Rechtsfolgen von IFRS-Abschlssen ergeben sich bei der Kreditvergabe, da
Banken die Kreditkonditionen von bestimmten Bilanzrelationen abhngig machen.
Die neuen Eigenkapitalregeln fr die Banken Basel II genannt schreiben vor: je
riskanter eine Kreditvergabe, desto mehr Eigenkapital muss die kreditgewhrende
Bank hinterlegen. Durch diese Regeln sollen die Kreditinstitute dazu gebracht
werden, Kreditrisiken genauer zu prfen. In der Praxis fhrt dies oensichtlich zu
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Bodo Runzheimer
verschrften bertreibungen. In Boomzeiten werden Gefahren unterschtzt; in der

Krise wiederum fehlt das Eigenkapital, weil pltzlich selbst normale Geschfte als
hochriskant eingestuft werden (vgl. www.zeit.de/2009/27/Banken). Hierzu fehlen
aber insgesamt noch Erfahrungen. Erste empirische Ergebnisse deuten darauf hin,
dass eine Bilanzierung nach IFRS dem Mittelstand den Zugang zu Krediten erleichtern kann (vgl. www.kpmg.de/search.asp).
7) Die Investitionsentscheidungen von Investoren knnen de facto durch die
IFRS-Rechnungslegung beeintrchtigt werden, wenn sich diese an Wertrelationen
und Kennzahlen orientieren, welche durch fair value-Schwankungen beeinusst
werden und sich insbesondere durch eine Umstellung von der HGB-Bilanzierung
auf die IFRS-Rechnungslegung rein mechanisch verndert haben (Pellens, B./
Crasselt, N./Sellhorn, T., 2009, S. 110).
3. DIE ENTSCHEIDUNGSNTZLICHKEIT ALS WESENTLICHE RECHNUNGSLE
GUNGSFUNKTION
Das Standardsetting erfolgt zunehmend international und immer strker durch private Vereinigungen. Diese haben sich erklrtermaen zum Ziel gesetzt, die
Finanzberichterstattung mglichst entscheidungsntzlich fr Investoren und andere Adressaten der Rechnungslegung zu gestalten. Hinzu kommt, dass sich diese
Standardsetter immer strker als Trger von Innovationen in der Finanzberichterstattung engagieren (vgl. Wagenhofer, A., 2008, S. 186). Standardsetter sind durch
die Anwendung unterschiedlicher Bewertungsregeln mit den sich daraus ergebenden Inkonsistenzen verstrkt konfrontiert. Diese Inkonsistenzen, die Accounting
Mismatch genannt werden, werden durch Einrumen von Fair Value-Optionen
fr Finanzinstrumente, von Hedge Accounting oder Abweichungen von den blichen Ansatzkriterien im Zuge von Unternehmenszusammenschlssen aufzulsen
versucht. Gleichzeitig wei man natrlich, dass Standardsetting nicht frei von
politischen Interessen ist, so dass auch auf diesem Wege Inkonsistenzen in den
Standards entstehen (Wagenhofer, A., 2008, S. 187).
Im Rahmen der Entscheidungsntzlichkeit (Decision Usefulness) als
Rechnungslegungsfunktion verlangen Investoren fr ihre Anlageentscheidungen
mglichst aktuelle (zeitnahe) Informationen, die ihnen die Mglichkeit bietet, die
knftigen Cashows aus den aktuellen oder potentiellen Investitionen besser abschtzen zu knnen. Nicht zuletzt sollen diese Informationen zukunftsbezogen
sein. Diese liefern ihnen Fair Values an sich konzeptionell unbestritten eher als
831
Anschaungswerte (Wagenhofer, A., 2008, S. 187). Diese Argumentation wird

auch von den internationalen Standardsettern fr die Bevorzugung der Fair ValueBewertung benutzt.
Die Entscheidungsntzlichkeit einer Information hngt aber nicht nur von
ihrer konzeptionellen Relevanz ab, sondern auch von ihrer Verlsslichkeit. Die
Verlsslichkeit wird aber mitbestimmt durch Schtzungsunsicherheiten und bilanzpolitische Spielrume; diese bestehen immer dann, wenn fr die Vermgenswerte
keine Marktpreise existieren. Dadurch werden sehr komplexe Regelungen notwendig. So fllt der neue US-amerikanische Standard 157, der sich alleine der Ermittlung von Fair Values widmet, mit der Basis for Conclusions etwa 100 Druckseiten
(Wagenhofer, A., 2008, S. 187). Es bleibt also festzustellen: Je weniger verlsslich
der Fair Value ermittelt werden kann, umso geringer wird seine Entscheidungsntzlichkeit fr Investoren sein, auch wenn die konzeptionelle Relevanz gegeben ist.
In so genannten Value Relevance-Studien wird versucht, dieses Tradeo (konzeptionelle Relevanz versus Verlsslichkeit) empirisch zu messen. Dabei wird versucht,
die Assoziation von Gren der Rechnungslegung, beispielsweise Gewinn oder
Eigenkapital, mit Marktrenditen oder dem Marktpreis zu messen. Eine hhere
Entscheidungsntzlichkeit der Rechnungslegung sollte sich in einer strkeren Assoziation zeigen (vgl. Danbolt, J./Rees, W., 2007 sowie Wagenhofer, A., 2008, S.
188 f.). Bei diesen Value Relevance-Studien besteht das praktische Problem, dass
in aller Regel keine reine Fair Value-Bilanzierung oder Anschaungskostenbilanzierung verglichen wird, sondern im Prinzip beide Wertanstze im Jahresabschluss
zum Zuge kommen. Es bleibt unklar, wie die Value Relevance empirisch aussehen wrde, wenn tatschlich nur eine der beiden Bewertungsalternativen bekannt
wre (Wagenhofer, A., 2008, S. 189). Rational orientierte Investoren werden die
Relevanz und die Verlsslichkeit bei der Berichterstattung auf Basis der Fair ValueBilanzierung bercksichtigen und entsprechend reagieren. Gegebenenfalls weichen sie auf andere Informationsquellen aus, so z.B. auf das Cash Flow-Statement,
das weniger Spielraum fr Bilanzpolitik bietet als die Fair Value-Bewertung (vgl.
Runzheimer, B., 1991, S. 49 .). Obwohl Standardsetter mit der Fair Value-Bewertung die Entscheidungsntzlichkeit erhhen wollen, knnten sie das Gegenteil
erreichen (Wagenhofer, A., 2008, S. 189).
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Bodo Runzheimer
4. DIE VERHALTENSSTEUERUNG ALS WESENTLICHE RECHNUNGSLEGUNGS

FUNKTION
Historisch betrachtet war die Verhaltenssteuerung die treibende Kraft fr die

Entwicklung der Rechnungslegung. Es stellt sich die Frage, ob die Verwendung
von Fair Values in Vertrgen (z.B. Finanzierungsvertrge, Managementvertrge)
vorteilhaft ist; wrden Vertragsparteien in optimalen Vertrgen eher Fair ValueBewertungen oder Anschaungswerte nutzen?
Die Agency-theoretische Rechnungswesenforschung liefert eine Reihe von Einblicken in die Vor- und Nachteile von Fair Value-Werten gegenber Anschaungswerten. Einerseits knnen Fair Values relevante Informationen liefern, die aber
zustzlich Zufallsschwankungen unterworfen sind. Zufallsschwankungen von
Performancemaen verursachen Risiko, fr das risikoscheue Vertragsparteien eine
Kompensation in Form einer Risikoprmie verlangen (Wagenhofer, A., 2008, S.
190). In kurzfristigen Vertrgen wird das Risiko von Fair Value-Bewertungen relativ
hoch sein; in langfristigen Vertrgen gleichen sich Zufallsschwankungen allerdings
wieder aus; dies wirkt hier risikokompensierend. Die Auswirkungen strategischer
Entscheidungen lassen sich demnach eher mit Fair Value-basierten Informationen
abschtzen. Dennoch kann auch das nachteilig sein, weil die Wirkungen operativer und strategischer Entscheidungen in ganz bestimmter Weise erfasst werden,
was tendenziell zu hohe Anreize fr strategische Aktivitten induziert (Wagenhofer, A., 2008, S. 190). Wallmeier ist zuzustimmen, wenn er argumentiert, dass der
Zuverlssigkeit der Rechnungslegung ein sehr hoher Stellenwert als Zielkriterium
gebhrt; er pldiert dafr, dass Standardsetzer das Kriterium der Zuverlssigkeit
wieder strker in den Vordergrund rcken (Wallmeister, M., 2009, S. 221).
Als Fazit kann festgestellt werden, dass die Ntzlichkeit von Fair Value-Bewerungen fr die Verhaltenssteuerung von einer Reihe von Bedingungen abhngig
ist, so dass sie im Vergleich zur Bewertung auf Basis der Anschaungskosten hher
oder niedriger sein kann.
5. RECHNUNGSLEGUNG UND CORPORATE GOVERNANCE
Ein bedeutender Baustein der Corporate Governance (also einer guten,

verantwortungsvollen und zielgerichteten Fhrung und berwachung von
Unternehmen) ist die Rechnungslegung; die Rechnungslegung hat die Aufgabe,
die wirtschaftliche Lage des Unternehmens/Konzerns transparent zu machen (dies
beinhaltet auch die Frage nach Regulierung und Selbstverpichtungen). Gem
833
Prambel des Deutschen Corporate Governance Kodex bilden die IFRS-Konzernabschlsse neben der Zielsetzung den Kapitalgebern entscheidungsntzliche Informationen zu liefern vielfach die Basis fr weitere Mechanismen des Corporate GovernanceSystems, nmlich rechtlicher und faktischer Ordnungsrahmen fr die
Leitung und berwachung von Unternehmen zu sein (vgl. www.corporate-governance-code.de). Unternehmenssteuerung braucht Ziele, die die Unternehmensplanung, Realisation und Kontrolle prgen. Die Zielsetzung und Umsetzung der Ziele
unterliegt neben unternehmensinternen berlegungen der Einussnahme durch
verschiedene Gruppen von auerhalb des Unternehmens. Damit sind Zielsetzung,
Zielimplementierung und Zielerreichungskontrolle zentrale Felder der Corporate
Governance. Unternehmensfhrer mssen entscheiden, welche Zielsetzung sie
deklarieren, kommunizieren und leben wollen (Ballwieser, W., 2008, S. 93).
Eine Reihe von deutschen Unternehmen hat in den letzten Jahren neben ihrer
Notierung auf dem heimatlichen organisierten Kapitalmarkt auch eine Notierung
in den USA realisiert. Fr diese Entscheidung gibt es mehrere Grnde, aber ein
wesentlicher Grund wird in der akademischen Literatur als Governance Benet
beschrieben. Damit ist gemeint, dass Unternehmen gerade aus Schwellenlndern,
aber auch aus Industrielndern, die sich durch die Notierung in den USA der strikten Regulierung der SEC unterwerfen, eine deutliche Reduzierung ihrer Kapitalkosten erreichen knnen. Anleger sehen demnach traditionell durch die Notierungsaufnahme in den USA ein reduziertes Risiko (Rocholl, J., 2009, S. 121). Wenn
diese berlegung auch fr deutsche Unternehmen in der Vergangenheit ein bedeutender Grund fr eine Notierung in den USA gewesen sein mag, so ist heute diese
Argumentation gerade auch weil der Deutsche Corporate Governance Codex
(DCGK) die Anforderungen an deutsche Unternehmen beachtlich erhht und
verbessert hat nicht mehr eindeutig begrndet. Studien belegen nmlich, dass
dem Finanzplatz New York durch die Einfhrung von Sarbanes-Oxley eine geringere Attraktivitt zukommt und Delistings deutscher Unternehmen belegen dies
oenbar (vgl. McKinsey, 2007; Committee on Capital Markets Regulation, 2007).
Andere Studien kommen allerdings zu dem Ergebnis, dass der Governance Benet bei einer Notierung in den USA weiterhin gegeben sei (vgl. Doidge, C./Karolyi,
G.A./Stulz, R.M., 2007). Holtfrerich vertritt die Meinung, dass eine engmaschigere und nachhaltige Regulierung sich generell als Standortvorteil im Wettbewerb
auswirkt (vgl. Holtfrerich, C.-L., 2009, S. 8). Um die Regulierungsarbitrage und
einen schdlichen Regulierungswettbewerb zu vermeiden, wird vereinzelt fr eine
einheitliche, mglichst sogar weltweit gleiche Regulierung pldiert (vgl. Picot, A.,
834
Bodo Runzheimer
2009, S. 658). Da aber auch die Regulierung ein Lernprozess ist, der von politischen und gesellschaftlichen Meinungs- und Willensbildungsprozessen einschlielich
Lobbying (vgl. dazu Knigsgruber, R, 2009) abhngig ist, die Regulierungsqualitt
also verbessert werden muss, ist eine solche Einheitslsung schon aus diesem Grund nicht unbedingt empfehlenswert. Wenn die Antwort auf diese Fragestellungen
auch oen bleibt, so belegt allein die intensive Diskussion darber die Wichtigkeit
des Aspekts Regulierung (Rocholl, J., 2009, S. 121). Da die regulatorische Durchdringung vieler Branchen aus verschiedenen Grnden stndig fortschreitet, wird
die fundierte Einbeziehung von Regulierungsfragen in die betriebswirtschaftliche
Praxis und Forschung immer wichtiger (Picot, A., 2009, S. 656). Gompers/Ishii/
Metrick weisen in einer Studie nach, dass die Umsetzung von Aktionrsrechten
in den USA stark zwischen den einzelnen Unternehmen variiert. In dieser Studie
wird ein Index von 24 Governance-Regeln (G-Index) fr 1500 groe Unternehmen eingesetzt (vgl. Gompers, G./Ishii, J./Metrick, A., 2003, S. 107-155). Jede
dieser Regeln ist als eine Einschrnkung von Aktionrsrechten anzusehen. Nutzt
ein Unternehmen weniger als sechs dieser Regeln, wird es als demokratisches Unternehmen eingestuft. Wenn ein Unternehmen mehr als 14 dieser Regeln nutzt,
wird es als diktatorisches Unternehmen klassiziert. Das Ergebnis dieser Studie
ist deutlich und bietet eine Grundlage fr eine breite Diskussion: Das Portfolio
demokratischer Unternehmen schneidet pro Jahr um 8,5% besser ab als das Portfolio diktatorischer Unternehmen. Insbesondere fhren strker ausgeprgte Aktionrsrechte zu hherem Unternehmenswert, hherem Gewinn, hherem Umsatzwachstum, geringeren Investitionen und weniger M&A-Transaktionen (Rocholl, J.,
2009, S. 122).
Mithin beeinusst der Corporate Governance-Codex in beachtlichem Umfang die Beziehungen des Unternehmens zu seinen Beteiligten bzw. Anspruchberechtigten/Anspruchsgruppen (stakeholder). Beispiele hierfr sind die Regeln
zur Eigenkapitalhinterlegung bei Banken (Basel II), rechnungswesenbasierte
Vergtungssysteme fr Vorstnde und Aufsichtsrte sowie die oft faktische Orientierung von Dividendenzahlungen an Ergebnissen von Konzernabschlssen. Da
nach Pellens/Crasselt/Sellhorn die sich hieraus ergebenden Auswirkungen teilweise
unerwnscht und problematisch sind, erheben die Autoren die Frage, ob Nachjustierungen im Beziehungsgeecht der Corporate Governance angezeigt sind.
Fehlanreize und Fehlallokationen auf Grund der Fair Value-Bilanzierung mssten durch Korrekturen vermieden werden. Sollen IFRS-Abschlsse auch knftig
Bemessungsgrundlage fr Kreditvolumina, Managementvergtungen, Lohn- und
835
Gehaltssteigerungen sowie Dividendenausschttungen sein, erscheinen solche Anpassungen unumgnglich. Anpassungen sind vor allem dort notwendig, wo die
zunehmende Volatilitt zu ungewnschten Ergebnissen fhrt (Pellens, B./Crasselt,
N./Sellhorn, T., 2009, S. 111).
Pellens/Neuhaus/Schmidt empfehlen, generell eine strkere Trennung zwischen
nachhaltigen und einmaligen Ergebniskomponenten durchzufhren (vgl. Pellens, B./Neuhaus, S./Schmidt, A., 2008, S. 82 .). Befragungen und Positionspapiere
von Finanzanalysten (also den Informationsintermediren fr die Privatanleger, fr
die eine zentrale Informationsquelle die Jahres- bzw. Konzernabschlsse sowie die
vom Management selbst abgegebenen Prognosen bilden) zeigen, dass als Grundlage
fr eine Investmentempfehlung Informationen ber die nachhaltige Ertragskraft
(zur Begrisdenition Nachhaltigkeit vgl. Baetge, J./Kirsch, H.-J./Thiele, S., 2004,
S. 336) bzw. die Fhigkeit des Unternehmens/Konzerns, operative Cashows zu
erwirtschaften, notwendig sind (prognosegeeignete Ergebnisgre steht hier im
Vordergrund/income approach). Demgem sollen die Gewinn- und Verlustrechnungen nur (hinreichend verlssliche) nachhaltige und objektivierbare
Ertrge und Aufwendungen als geeignete Basis fr Prognosezwecke (Ergebnisgren) enthalten. Hier werden die Wertnderungen des Vermgens auf Basis der
historischen Anschaungs- bzw. Herstellungskosten ermittelt. Auerplanmige
sowie nicht objektiv ermittelte Wertnderungen sollten erst nach dieser zentralen
Ergebnisgre erfasst werden (PWC, 2008, S. 88). Diese so genannte Erfolgspaltung ist mithin notwendig, um den Informationsbedrfnissen gerecht
werden zu knnen (vgl. Coenenberg, A.G./Dener, M./Schulze, W., 2005, S. 435 .
sowie Eiselt, A./Mller, S./Wulf, J., 2006, S. 134).
Eine geeignete Ergebnisdarstellung als Basis fr eine mglichst zeitnahe und
tregenaue Auskunft gegenber Investoren sowie als Grundlage fr eine Performancebeurteilung ist ohne eine solche Unterscheidung (Erfolg-/Ergebnis-Spaltung) nicht realisierbar (vgl. Pellens, B./Crasselt, N./Schmidt, A./Sellhorn, T., 2009).
Diese von Finanzanalysten geforderte Unterscheidung der Wertmastbe fr den
Vermgensausweis und den Erfolgsausweis verwundert nicht, spiegelt sie doch
letztlich den Methodenstreit zwischen Eugen Schmalenbach und Fritz Schmidt
wider. 1919 hat Schmalenbach in seiner dynamischen Bilanzlehre dieses Problem bereits erkannt und festgestellt, dass fr einen richtigen Vermgensausweis bei
gleichzeitig richtigem Erfolgsausweis in der Bilanz unterschiedliche Wertanstze
zwingend sind (vgl. Schmalenbach, E., 1919, S. 1 .). Fritz Schmidt hatte versucht,
mit Hilfe seiner organischen Bilanztheorie sowohl den richtigen Gewinn als
836
Bodo Runzheimer
auch den richtigen Vermgensausweis ber die organische Tageswertbilanz

darzustellen (vgl. Fritz Schmidt, 1929). Schmalenbach hat die dualistische Bilanzauassung von Fritz Schmidt schlichtweg als unwissenschaftlich bezeichnet. Adolf Moxter hat diesen Streit wie folgt zusammengefasst: Wer den Gewinn
richtig ermitteln will, muss das Vermgen falsch ermitteln (zitiert nach Pellens,
B./Neuhaus, S./Schmidt, A., 2008, S. 86). Die Bilanztheorie von E. Heinen zeigt,
dass es den Knigsweg nicht gibt. Er geht davon aus, dass der Jahresabschluss eine
Vielzahl mglicher Rechnungszwecke hat. Zunchst stellt Heinen die mglichen
Zwecke zusammen und entwickelt daraus die ergnzte Mehrzweck-Bilanz. Sie
bildet zunchst ein Grundmodell als Entscheidungsmodell, das zugleich mehreren Zwecken mit bestimmtem Anspruchsniveau dient. Der sukzessive Prozess der
Bilanzgestaltung beginnt mit einer hypothetischen Basisbilanz. Erfllt sie den begrenzt formulierten Zweck nicht, wird in einer ergnzten Mehrzweck-Bilanz ein
Rechnungskalkl entwickelt, das in der Nhe der Basisbilanz liegt. Die ergnzte
Mehrzweck-Bilanz zeigt einen methodischen Weg bilanztheoretischer Forschung,
der auch Anregungen und Forderungen einer praxisbezogenen Bilanzdiskussion
bercksichtigt (vgl. Heinen, E., 1986).
Pellens/Crasselt/Sellhorn fordern das IASB auf, eine geeignete Ergebnisdarstellung
fr eine solche Ergebnisspaltung zu erleichtern. Dabei ist auf das fortdauernde,
mehrfach umbenannte Projekt Financial Statement Presentation (ehemals Performance Reporting) zu verweisen, in dem das IASB beabsichtigt, informativere
Berichtsformate zu entwickeln. Potential fr eine standardisierte und nutzerfreundliche Aufbereitung von Rechnungslegungsdaten bietet die Unternehmensberichterstattung auf der Basis von XBRL (Pellens, B./Crasselt, N./Sellhorn, T., 2009,
S. 111). XBRL - eXtensible Business Reporting Language - ist eine frei verfgbare
elektronische Sprache fr das Financial Reporting, also fr den Austausch von
Informationen von und ber Unternehmen (vgl. www.xbrl.de). Werden die hierzu
erforderlichen Daten von den Unternehmen bereitgestellt, bietet diese elektronische Aufbereitung vielfltige und individuell abrufbare Analysemglichkeiten.
6. ZUSAMMENFASSUNG
Eingebettet in die Harmonisierungsbestrebungen der EU (Europischen Union)

hinsichtlich der Unternehmensberichterstattung und befrdert durch die Marktkrfte haben sich die International Financial Reporting Standards (IFRS) als
das international vorherrschende Rechnungslegungssystem der Konzernrechnung-
837
slegung kapitalmarktorientierter Unternehmen etabliert. Mit der bemerkenswert

zunehmenden Fair Value-Bilanzierung im Rahmen der IFRS verfolgt der International Accounting Standards Board (IASB) die alleinige Zielsetzung, die Kapitalmarktteilnehmer zeitnah und umfassend ber die wirtschaftliche Lage des Unternehmens zu informieren, um letztlich die Kapitalallokation an den Finanzmrkten zu verbessern (Pellens, B./Crasselt, N./Sellhorn, T., 2009, S. 111). Ob das vom
IASB angesteuerte Ziel erreicht werden wird, muss die Zukunft aber erst zeigen.
Diese Vernderungen in der Rechnungslegung strahlen auch auf andere Bereiche
der Corporate Governance aus. Die dabei auftretenden Fehlsteuerungen sind nach
Pellens/Crasselt/Sellhorn oenbar darauf zurck zu fhren, dass die soziokonomischen und ordnungspolitischen Rahmenbedingungen der Unternehmensttigkeit
nicht mit dem rasanten Vernderungstempo der Rechnungslegung Schritt halten
knnen. Notwendig erscheint deshalb ein Lernprozess, in dessen Rahmen auch
etablierte Mechanismen der Corporate Governance zu unterziehen sind. Hierbei kann es sich aber nicht nur um eine einmalige Anpassung handeln, da sich die
IFRS stndig weiterentwickeln (Pellens, B./Crasselt, N./Sellhorn, T., 2009, S.
112). Diese (zutreende) Feststellung zeigt das beachtliche Dilemma, in dem sich
die Internationalisierung der Rechnungslegung auch in Zukunft benden wird.
Anstatt die Rechnungslegungsgrundstze ber einen lngeren Zeitraum konstant
zu halten eine essentielle Voraussetzung fr solide Zeitvergleiche wird das von
Pellens/Crasselt/Sellhorn mit Recht beklagte rasante Vernderungstempo der
Rechnungslegung fortgesetzt werden mssen. Immerhin hat die EU-Kommission den IASB vor einer Ausweitung der Fair Value-Bilanzierung im Rahmen einer
Neuausrichtung der Bilanzierungsrichtlinien im November 2009 gewarnt (www.
Unternehmer.de am 11. November 2009). Die Regelungen zur funktionsgerechten Informationsversorgung haben auf verschiedenen Ebenen der Unternehmen in
den letzten 30 Jahren eine beachtliche Mutation erfahren. Theisen ist unbedingt
zuzustimmen, wenn er feststellt: Mit zunehmender Geschwindigkeit wird diesbezglich immer weniger die Fortschreibung des gesetzten Rechts, als vielmehr die
sich wandelnde globale Entwicklung und das hierzu beobachtbare bzw. beobachtete
Marktgeschehen im Wettbewerb zu einer mageblichen Erkenntnisquelle der Rechtsfortbildung verwendet (Theisen, M.R., 2009, S. 546). Es handelt sich hierbei inzwischen um eine Kombination aus von nationalen oder bernationalen
(z.B. europischen) hoheitlichen Institutionen/Behrden gesetzten Spielregeln
und auf privater Basis organisierter Regulierung; der Staat (oder die EU) gibt
die Aufgaben und Ziele der Regulierung vor, die verbindliche Ausgestaltung wird
838
Bodo Runzheimer
aber dem IASB bzw. dem DCGK bertragen. Dieses (zeitweilige, aber noch anhaltende) Nebeneinander von gesetzlichen Vorschriften (HGB, AktG) einerseits
und privatrechtlich interpretiertem Marktgeschehen (IASB/DCGK) andererseits,
fhrt zunehmend zu Verwerfungen und Problemen in der Anwendung, denen
der Gesetzgeber in Deutschland mit immer noch weit reichender, zum Teil aber
nunmehr den jeweils beobachteten Erfordernissen des Marktes und Wettbewerbs
nachvollziehender Rechtssetzung begegnet. Der Methodenmix aus hierarchischen
und marktgeborenen Lsungsanstzen und entsprechenden Interpretationsversuchen knnte systemsprengende Konsequenzen haben (Theisen, M.R., 2009, S.
546). Als Beispiel fr diesen Sachverhalt analysiert Theisen Regelungen aus dem
BilMoG 2009 (vgl. Theisen, M.R., 2009, S. 547). C. Htten (seit 2006 Mitglied
des Standardisierungsrats im DRSC) stellte in seinem Vortrag Bilanzierungsvielfalt vor und nach dem BilMoG auf dem 63. Deutschen Betriebwirtschafter-Tag
(13.10.2009) den zur Zeit absolut unbefriedigenden Zustand der Rechnungslegung in Deutschland dar (vgl. www.schmalenbach.org).
Um zu einer befriedigenden Lsung der aktuellen Bilanzierungsprobleme zu
gelangen, bedarf es noch einer intensiven Diskussion und Willens-/Konsensbildung. Es ist zu hoen, dass die Diskussion nun weiter kommt als in den letzten
100 Jahren und dass sie nicht wertgeladen luft, wie dies anhand des englischen
Begris Fair Value zu vermuten sein knnte. Es ist nmlich nicht leicht, gegen
einen fairen Wertansatz zu argumentieren. Aber vielleicht nden wir den Fair
Value knftig verstrkt als Current Exit Value wieder (Wagenhofer, A., 2008, S.
193 f.). Eine intensive Einbeziehung der konomie der Regulierung in die betriebswirtschaftliche Praxis und Forschung drfte unerlsslich sein.
LITERATUR
1. Baedge, J. & Kirsch, H.-J. & Thiele, S.:(2004.) Bilanzanalyse, 2.A., Dsseldorf
2. Ballwieser, W.: (2009.) Shareholder Value als Element von Corporate Governance, vol 61., pp. 93 101.
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Verwaltungs-/Aufsichtsrats (2005/162/EWG), in: Amtsblatt der Europischen Gemeinschaft L 52 vom 25.02.2005, pp. 51 63.
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Prices, in: Quarterly Journal of Economics, Vol. 118, No. 1, pp. 107-155.
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Bilanzrechtsmodernisierungsgesetz, Wiesbaden
21. KPMG/Zlch, H.: IFRS und HGB in der Praxis Zur Bedeutung von
IFRS-Abschlssen bei der Kreditvergabe von Banken an mittelstndische
Unternehmen, www.kpmg.de/docs/IFRS_und_HGB _in_ der_Praxis,
2008.
22. Knigsgruber, R.:(2009.) Lobbying bei der Rechnungslegungsstandardsetzung, Ein Literaturberblick, Wiesbaden
23. Laux, C. & Leuz, C.: (2009.) The Crisis of Fair Value Accounting: Making Sense of the Recent Debate, CFS Working Paper No. 2009/09,
Frankfurt/M.
24. McKinsey: (2007.)Sustaining New York`s and the US`Global Financial
Services Leadership, New York
25. Pellens. B./Gassen, J./Richard, M.: (2003.) Ausschttungspolitik brsennotierter Unternehmen in Deutschland, in: Die Betriebswirtschaft, vol. 63.,
pp. 309-332.
26. Pellens, B. & Gassen, J. & Neuhaus, S. & Schmidt, A.: (2006.) Die Zukunft
der Unternehmensberichterstattung, in: Brsig, C./Wagenhofer, A. (Hg.):
IFRS in Rechnungswesen und Controlling, Stuttgart, pp. 19 .
841
27. Pellens, B. & Sellhorn, T.: (2006.) Zukunft des bilanziellen Kapitalschutzes, in:
Lutter, M. (Hg.): Das Kapital der Aktiengesellschaft in Europa; in: Zeitschrift
fr Unternehmens- und Gesellschaftsrecht, Sonderheft 17, Berlin, p. 451 .
28. Pellens, B. & Neuhaus, S. & Schmidt, A.: (2008.) Relevanz unterschiedlicher
Wertmastbe fr die Ausgestaltung der Unternehmensberichterstattung, in:
Die Wirtschaftsprfung (WPg), Sonderheft, pp. 8288.
29. Pellens, B. & Flbier, R.U. & Gassen, J. & Sellhorn, T.: (2008.)Internationale
Rechnungslegung, 7.A., Stuttgart
30. Pellens, B. & Crasselt, N. & Sellhorn, T.: (2009.)Corporate Governance und
Rechnungslegung, vol. 61. pp. 102-113.
31. Pellens, B. & Crasselt, N. & Schmidt, A. & Sellhorn, T.:(2009) Fair ValueBilanzierung und Ergebnisspaltung, Wiesbaden
32. PWC (PricewaterhouseCoopers): Measuring, Assets and Liabilities Investment Professionals Views (www.pwc.com/uk/eng/ins-sol/issues; Stand
26.03.2008).
33. Rocholl, J.: (2009.) Korporate Governance und Internationale Kapitalmrkte,
vol. 61, pp. 114123.
34. Runzheimer, B.: (1997.) Neuere Entwicklungen in der Rechnungslegung deutscher Unternehmen, in: Huth, R./Meler, M. (Hg.): XVIII. Wissenschaftliches
Symposium, Osijek, pp. 53-61.
35. Runzheimer, B.:(1991.) Der Cash Flow Ein Finanz-, Erfolgs- und Krisenindikator? in: FHW-Festschrift zum 70. Geburtstag von T. Karpati, Pforzheim,
pp. 49 71.
36. Schmalenbach, E.:(1919) Grundlagen der dynamischen Bilanzlehre, in: ZfhF
, S. 1.
37. Schmidt, F.: (1929.) Die organische Tageswertbilanz, 3.A., Leipzig
38. Securities and Exchange Commission(SEC): SEC Proposes Roadmap Toward
Global Accounting Standards to Help Investors Compare Financial Information More Easily/ 27.08.2008, www.sec.gov/news/press/2008/2008-184.htm.
39. Theisen, M.R.: (2009.) Funktionsgerechte Informationsversorgung des Aufsichtsrats Von der Negation ber die Integration zur Armation betriebswirtschaftlicher Anstze, vol. 61. pp. 530 549.
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40. Unternehmer.de-News: www.unternehmer.de/dj-eu-kommission-warnt-vorausweitung-fair-value-bilanzierung (11.09.2009).

41. Velte, P.: (2009.) Die Corporate Gervernance-Berichterstattung des Aufsichtsrats Eine empirische Untersuchung im deutschen Prime Standard zum Einuss auf die Unternehmensperformance, vol. 61., pp. 702-737.
42. Wagenhofer, A.: (2008.) Fair Value-Bewertung: Fhrt sie zu einer ntzlichen
Berichterstattung?, vol. 60., pp. 185 194.
43. Wallmeier, M.: (2009.) Kapitalmarktwirkungen der Berichterstattung zur Unternehmensleistung, in: vol, 61., pp. 212-223.
44. Winnefeld, R.: Bilanz-Handbuch: (2010.)Handels- und Steuerrecht, Rechtsformspezisches Bilanzrecht, Bilanzielle Sonderfragen, Sonderbilanzen, IFRS/
IAS, 5.A., Mnchen
45. Wolf, K. & Runzheimer, B.: (2009.)Risikomanagement und KonTraG Konzeption und Implementierung, 5.A., Wiesbaden
46. Zyla, M.L.:(2010.) Fair Value Measurements: Practical Guidance and Implementation, Weinheim
843
DIE ABSCHLUSSPRFUNG DEUTSCHER UNTERNEHMEN IM

ZEICHEN DER WIRTSCHAFTSKRISE
Markus Hfele
ABSTRACT
In view of the current economic and nancial crisis, auditing of German companies represents a set of specic challenges. A drop in orders, diculties in obtaining credit, defaulting or insolvent debtors, unforeseeable value declines and rating
declines all pose further uncertainties for annual auditing, which have to be taken
into account in the planning and execution of an audit. In this context, this paper
will discuss the relevant pronouncements of the IDW (Institute of Public Auditors
in Germany), as adherence to these principles seems to be particularly advisable for
auditors at this point in time, if they are to produce a well-founded audit report.
JEL classication: H83, M42,
Keywords: risk assessment, going-concern proposition, auditor
In Zeiten wirtschaftlicher Unsicherheit, die gekennzeichnet sind von schwerwiegenden Ein- und Umbrchen in nahezu allen Teilen des Wirtschaftslebens,
stellt die jhrlich wiederkehrende Abschlussprfung ein Kontinuum dar, an das
sich hohe Erwartungen und Anforderungen gleichermaen knpfen.
Im Folgenden sollen besonders jene Themenbereiche der Jahresabschlussprfung im Mittelpunkt stehen, die mit den vernderten wirtschaftlichen Rahmenbedingungen verbunden sind: Abschlussprfer haben auch und gerade in einer
wirtschaftlich ungewissen Situation die Aufgabe, die ihnen vom Unternehmen
vorgelegten Jahresabschlsse und Lageberichte zu prfen und ihrem sachgerechten
Prfungsurteil zu unterwerfen1. Die wirtschaftliche Situation vieler Mandanten vor
Vgl. 316, 317 HGB
844
Bodo Runzheimer
allem im gewerblichen Bereich stellt sich fr den Betrachter wesentlich prekrer

dar, als es etwa die Stimmung der entlichkeit widerspiegelt. Die zuknftige
Entwicklung der Unternehmen ist ber weite Strecken trotz einer leichten Erholung immer noch fragil und eher instabil.
Ausgangspunkt der Prfung ist der von dem Unternehmen erstellte Jahresabschluss. Dabei ist nicht zu bersehen, dass sich Unternehmen ihrerseits bei der
Abschlusserstellung vor teilweise erhebliche Schwierigkeiten gestellt sehen: Wie die
Krise berblicken und einordnen? Ihre Auswirkungen auf das Unternehmen individuell einschtzen, richtig gewichten in einer von Unsicherheit geprgten Lage?
Wir erleben keine traditionelle Rezession, sondern eine Unsicherheitsrezession.
Die Weltwirtschaft steht unter einem Unsicherheitsschock., so der Chefvolkswirt
der Commerzbank, Jrg Krmer2. In diesem Kontext ordnet Kaus-Peter Naumann,
Vorstandssprecher des IDW, die Abschlussprfung in ein Spannungsfeld ein: Zum
einen drfe nicht der entliche Eindruck entstehen, dass in der Rechnungslegung
bestehende Risiken verschleiert wrden. Andererseits sollte eine Berichterstattung,
insbesondere der Lagebericht, keine Bestandsgefhrdung herbeireden, die nicht besteht und auch nicht zu erwarten ist (Naumann, Klaus-Peter; 2009, 1).
Schwerpunktmig ndet die Wirtschaftskrise in sechs Themenbereichen des
Jahresabschlusses ihren Niederschlag. Dies ist die (1) Risikobeurteilung durch den
Abschlussprfer angesichts der besonderen Erfordernisse der Rezessionsfolgen, sodann (2) die Going Concern Prmisse, sowie (3) die Prfung geschtzter Werte in
Krisenzeiten. Weiterhin ist die (4) angemessene Risikoberichterstattung im Lagebericht zu nennen, (5) die Formulierung der unterschiedlichen Prfungsergebnisse
im Besttigungsvermerk und schlielich (6) die Anforderungen an die Dokumentation in den Prfungsberichten.
1. DIE RISIKOBEURTEILUNG DURCH DEN ABSCHLUSSPRFER
Fr die Risikobewertung geben 317 Abs. 1 Satz 3 und IDW PS 2613 die
Picht des Abschlussprfers vor, die Abschlussprfung so einzurichten, dass Prfungsaussagen mit hinreichender Wahrscheinlichkeit getroen werden knnen.
2
3
http://www.sueddeutsche.de/wirtschaft/1462616/text/.
IDW PS 261 Feststellung und Bewertung von Fehlerrisiken und Reaktionen des Abschlussprfers
auf die beurteilten Fehlerrisiken.
845
Der Prfer hat das Prfungsrisiko seinerseits in Fehlerrisiko und Entdeckungsrisiko unterteilt4 auf ein vertretbares Ma zu reduzieren. Eng mit dem Prfungsrisiko verbunden die Wesentlichkeit, die der Abschlussprfer nach den Regelungen des IDW PS 2505 ermittelt. Entscheidend fr die richtige Identizierung und
Einschtzung von im Unternehmen existierenden Risiken sind die Kenntnisse des
Prfers ber die Geschftsttigkeit sowie ber das wirtschaftliche und rechtliche
Umfeld des zu prfenden Unternehmens, wie sie IDW PS 2306 normiert. Essentiell fr die Beurteilung der unternehmensinternen Risiken ist die kontinuierliche
Sammlung von relevanten Informationen, insbesondere in Zeiten wirtschaftlicher
Unsicherheit7.
Im Rahmen der Finanzkrise etwa wird ein mgliches Risiko darin bestehen,
dass in Kreditvertrgen sogenannte Covenants vereinbart wurden und eine Verfehlung der Kennzahlen mit hohen Kreditzinsen, im Extremfall mit einem auerordentlichen Kndigungsrecht verbunden ist. Im Fall einer durch die Wirtschaftskrise ausgelsten Kreditklemme bildet das Renanzierungsrisiko fr das Unternehmen unter Umstnden ein existentielles Risiko. Komplexe Finanzinstrumente
im Portfolio eines Unternehmens zhlen ebenso zu den Faktoren, die ein erhhtes
Prfungsrisiko mit sich zu bringen pegen. Insbesondere ist hier bei der Prfung
im Auge zu behalten, dass die immanenten Gefahrenlagen von Unternehmen und
Prfer gleichermaen verstanden werden8.
Als Folgen der Wirtschaftskrise seien in diesem Kontext genannt reduzierte
Umsatzerlse, Wechselkursverluste, Verluste aus Absicherungsgeschften aufgrund
gefallener Rohstopreise sowie reduzierte Ertragswerte aus Beteiligungen. Es ist
nicht von der Hand zu weisen, dass durch diese Faktoren erheblicher Druck auf
die Unternehmensleitung aufgebaut werden kann, 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
Convenants einzuhalten9.
4
IDW PS 261, Tz. 6.

IDW PS 250 Wesentlichkeit im Rahmen der Abschlussprfung.
6
IDW PS 230 Kenntnisse ber die Geschftsttigkeit sowie ber das wirtschaftliche und rechtliche
Umfeld des zu prfenden Unternehmens im Rahmen der Abschlussprfung.
7
WP Handbuch Band I 2006 Abt. R, Tz. 186 .
8
IDW Verlautbarung zur Finanzkrise Tz. 6.
9
5
846
Bodo Runzheimer
Der Abschlussprfer seinerseits hat seine Abschlussprfung gem 317 Absatz 1 Satz 3 HGB so auszugestalten, dass Unrichtigkeiten und Verste gegen
gesetzliche Vorschriften, die sich auf die Darstellung der Vermgens- Finanz- und
Ertragslage auswirken, bei gewissenhafter Berufsausbung erkannt werden. Demzufolge sind im Rahmen der Prfungsplanung angemessene (sei es genderte oder
vermehrte) Prfungshandlungen einzuplanen, um ein erhhtes Prfungsrisiko zu
minimieren, wenn und soweit der Prfer aufgrund der angespannten Wirtschaftslage ein erhhtes Risiko zu Versten feststellt. Dabei hebt IDW PS 21010 insbesondere die beruiche Skepsis und die Wichtigkeit von berraschungselementen
in der Abschlussprfung hervor (Hfele & Schmeisky; 2009, 237).
Zugleich wird jedoch klargestellt, dass ein Prfer grundstzlich von der Echtheit
von Dokumenten und Buchungsvorlagen sowie der Korrektheit bergebener Informationen ausgehen darf. 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 kann11.
2. DIE GOINGCONCERNPRMISSE
Die handelsrechtliche Fortfhrungsprognose besteht neben der insolvenzrechtlichen Fortfhrungsprognose im Rahmen einer berschuldungsprfung (Gro;
2010,119). Letztere soll allerdings nicht den Gegenstand der weiteren Errterung
bilden. Der Gesetzgeber ermglicht es Unternehmen durch die Regelung in 252
Abs. 1 Nr. 2 HGB grundstzlich eine Fortfhrung der Unternehmensttigkeit anzunehmen, es sei denn, dieser Annahme stnden tatschliche oder rechtliche Gegebenheiten entgegen. IDW PS 27012 nimmt diese Regelung auf, indem er festlegt,
dass das Unternehmen grundstzlich von einer Unternehmensfortfhrung ausgehen kann, wenn in der Vergangenheit nachhaltig Gewinne erzielt wurden, leicht
auf nanzielle Mittel zurckgegrien werden kann und keine bilanzielle berschuldung droht13. Im Bereich der IAS bestimmen IAS 1.23 und IAS 1.24 die
Going-Concern-Prmisse in hnlicher Weise.
10
11
12
13
IDW PS 210 Zur Aufdeckung von Unregelmigkeiten im Rahmen der Abschlussprfung.

IDW PS 250 Tz. 50.
IDW PS 270 Die Beurteilung der Fortfhrung der Unternehmensttigkeit im Rahmender
Jahresabschlussprfung.
IDW PS 270 Tz. 9.
847
Angesicht der Finanzkrise gilt das gerade ausgefhrte jedoch nicht uneingeschrnkt: Das IDW legt in seiner Verlautbarung zur Finanzkrise dar, dass in der
derzeitigen gesamtwirtschaftlichen Situation nicht mehr uneingeschrnkt von der
oben genannten Annahme ausgegangen werden kann. Trotz positiver Unternehmensvergangenheit sind die Auswirkungen vor allem der momentan nur eingeschrnkt funktionierenden Kreditmrkte kritisch zu beurteilen. IDW PS 270 hebt
hervor, dass erstens die Fortfhrungsprognose bis zum Zeitpunkt der Aufstellung
des Jahresabschlusses substantiiert bestehen muss und zweitens auch keine fundierten Anhaltspunkte feststellbar sein drfen, die dazu fhren, dass die Annahme der
Fortfhrung zu einem nach der Aufstellung des Abschlusses liegenden Zeitpunkt
hinfllig wird14.
Der Abschlussprfer seinerseits berprft die Angemessenheit der vom Unternehmen getroenen Annahmen. Er stellt dabei auch sicher, dass Unsicherheiten
und Risiken hinsichtlich der Unternehmensfortfhrung in Jahresabschluss und
Lagebericht angemessen zum Ausdruck kommen. Der Abschlussprfer kann und
darf sich im Rahmen der Wesentlichkeit auf die Einschtzungen der gesetzlichen
Vertreter des Unternehmens sttzen. Diesen kommt insoweit eine Einschtzungsprrogative zu, die erst dann nicht mehr greift, wenn und soweit dem Prfer stichhaltige gegenteilige Einschtzungen bekannt sind beziehungsweise im Prfungsverlauf bekannt werden. Auf vom Abschlussprfer identizierte bestandsgefhrdende
Risiken ist gem 322 Abs. 2 Satz 3 HGB im Besttigungsvermerk gesondert
einzugehen. In diesem Zusammenhang macht allerdings IDW PS 270 deutlich,
das einzig aus der Tatsache, dass im Besttigungsvermerk nicht auf bestandsgefhrdende Risiken eingegangen wurde, der Adressat nicht berechtigt ist, den Schluss zu
ziehen, es bestehe eine Garantie fr die Fortfhrung der Unternehmensttigkeit.
Hier sei ein Ausspruch von Klaus-Peter Naumann zitiert. Wirtschaftsprfer sind
keine Hellseher. Es knnen nur solche Risiken in den Abschlssen verarbeitet werden, die bis zum Ende der Aufstellung bekannt geworden sind15.
Fr den Abschlussprfer hilfreich knnen sich in diesem Zusammenhang auch
IDW Standard 6, der die Anforderungen an die Erstellung von Sanierungskonzepten behandelt und IDW PS 800, der sich mit der Beurteilung eingetretener oder
drohender Zahlungsunfhigkeit befasst, erweisen. Der Zustand des Unternehmens
muss sich fr den Prfer anhand nachvollziehbarer Fakten realittsgerecht erkenn14
15
IDW PS 270 Tz. 8.

IDW Presseinformation 2/2009.
848
Bodo Runzheimer
bar sein16. Einen wesentlichen Baustein bildet im dieser Betrachtung die Zahlungsfhigkeit des Unternehmens, so dass die Fortfhrungsprognose auch und gerade
durch die Zahlungsfhigkeitsprognose bestimmt wird17.
Einen Prognosezeitraum von zwlf Monaten ab Unterzeichnung des Besttigungsvermerks ist nach IDW PS 27018 im Bereich der handelsrechtlichen Fortfhrungsprognose als angemessen zu betrachten, wobei die betriebswirtschaftlich
berblickbare Zeitspanne von Branche zu Branche und Unternehmen zu Unternehmen durchaus auch unterschiedlich beschaen sein kann19. Allerdings drfen
bis zum Abschluss der Aufstellung des Jahresabschlusses keine fundierten Anhaltspunkte dafr vorliegen, dass die Going-Concern-Prmisse zu einem nach diesem
Zeitraum liegenden Zeitpunkt nicht mehr aufrecht erhalten werden kann20.
3. PRFUNG GESCHTZTER WERTE IN KRISENZEITEN
Die Schwierigkeit der Unternehmen, Zeitwerte von Papieren wie Verbriefungstiteln, etwa Asset Backed Securities, Mortage Backed Securities oder Collateralized
Dept Obligations zutreend zu bewerten, besteht unter anderem in der Tatsache,
dass der Handel in der Subprime-Krise insoweit fast gnzlich zum erliegen kam.
Der Abschlussprfer ist nun seinerseits vor die Aufgabe gestellt, die erfolgte Bewertung auf ihre Unbedenklichkeit hin zu prfen. Im Dezember 2007 hat das IDW
den Abschlussprfern ein Postitionspapier zu Bilanzierungs- und Bewertungsfragen im Kontext der Subprime-Krise, die den Ausgangspunkt fr die nun existente
Rezession bildete, an die Hand gegeben21. Fr die Prfung der vom Unternehmen
ermittelten Zeitwerte kann der Abschlussprfer desweiteren auf IDW PS 315 Die
Prfung von Zeitwerten zurckgreifen. Es sei kurz darauf hingewiesen, dass IDW
PS 315 durch den seit dem 9. September 2009 vorliegenden IDW PS 314 n. F.
Die Prfung von geschtzten Werten in der Rechnungslegung einschlielich von
Zeitwerten abgelst wurde.
16
17
18
19
20
21
Gro, Paul; WPg 3/3010 S. 119 (123).

Gro, Paul; WPg 3/2010 S. 119 (123).
IDW PS 270 Tz. 11.
Gro, Paul, WPg 3/2010 S. 119 (123).
IDW Verlautbarung zur Finanzkrise 2009 S.3 Tz. 11.
IDW Positionspapier zur Subprime-Krise, S.1.
849
Anknpfend an das oben gesagte hat das Unternehmen bei Vorliegen inaktiver Mrkte die Zeitwerte aus aktuellen Transaktionen zu ermitteln. Sollte
dies dem Unternehmen aufgrund komplexer und individueller Produktgestaltung nicht mglich sein, hat es eigene Bewertungsmodelle anzuwenden22. Diese
unternehmenseigenen Bewertungsmodelle zeitigen hug einen hheren Grad
an Schtzunsicherheit, da das Unternehmen selbst die zugrundeliegenden Wertungsmerkmale wie Zahlungsstrme, Bonittsrisiken und Kapitalisierungszins
gewichtet. Mit dem Grad der Schtzunsicherheit erhht sich selbstverstndlich
auch das Risiko wesentlicher Fehler im Jahresabschluss23.
Fr den Abschlussprfer bedeutet dies eine vertiefte kritische Auseinandersetzung mit den vom Unternehmen getroenen Annahmen. Ziel der Auseinandersetzung ist es, die vom Unternehmen getroenen Annahmen auf ihre Stimmigkeit im Hinblick auf die Unternehmensplanung zu beurteilen. Der Abschlussprfer wird oftmals nicht umhinkommen, die Bewertung von Zeitwerten gem
IDW PS 261 TZ 65 als bedeutsames Risiko zu gewichten. Zum einen spricht fr
diese Annahme der Zeitdruck unter dem die unternehmenseigenen Bewertungsmodelle entstanden sind, zum anderen der oft nicht von der Hand zu weisende
Ergebnisdruck, der vielerorts auf den gesetzlichen Vertretern lastet. Insbesondere
hat der Abschlussprfer von den gesetzlichen Vertretern des Unternehmens eine
schriftliche Besttigung ber die bedeutenden Annahmen und deren Vertretbarkeit einzuholen. Darber hinaus besteht die Mglichkeit, Erklrungen ber
Angemessenheit und Stetigkeit der Bewertungsmethoden einzufordern24.
Ergnzend sei noch in diesem Zusammenhang auf die Mglichkeit des Abschlussprfers hingewiesen, Sachverstndige beziehungsweise externe Bewertungsdienste hinzuzuziehen, um komplexen Schtzprozessen fachlich gerecht zu
werden. Deren Ergebnisse sind gem den Vorgaben in IDW PS 32225 kritisch
zu wrdigen. Im Kontext der Finanzkrise weist das IDW ausdrcklich darauf
hin, dass bei der Verwertung der Ergebnisse von Ratingagenturen die Tatsache
in die berlegungen einzuieen hat, dass die Ratingagenturen eher Teil des
Problems, sprich der Krise, sind, als deren Lsung. Die Finanzkrise hat gerade
22
23
24
25

IDW PS 322 Verwertung der Arbeit von Sachverstndigen.
850
Bodo Runzheimer
die Schwchen der von den Agenturen verwendeten Methoden und Modelle
oengelegt26.
4. ANGEMESSENE RISIKOBERICHTERSTATTUNG IM LAGEBERICHT
Der Lagebericht soll dem Leser gem 289 HGB ein zutreendes Bild ber
den Geschftsverlauf einschlielich des Geschftsergebnisses sowie die Lage der
Gesellschaft vermitteln. Auf die Chancen und Risiken der knftigen Entwicklung
ist einzugehen, zugrunde liegende Annahmen sind zu erlutern27. Die bedeutet
selbstverstndlich auch eine Berichtspicht darber, ob und wie das Unternehmen
von der Finanzkrise betroen wird. Dazu gehren etwaige Unwgbarkeiten bei der
Bewertung von derivativen Finanzinstrumenten, die aus der Finanzkrise resultieren, ebenso wie drastische Nachfragerckgnge oder Probleme bei der Beschaung
liquider Mittel aufgrund der Krise28.
IDW PS 350 bildet fr den Abschlussprfer den Leitfaden zur Prfung des
Lageberichts. Die im Lagebericht enthaltenen Prognosen und wertenden Angaben
sind bei den Prfungshandlungen einer besonders kritischen Wrdigung zu unterziehen. Zum einen mssen Prognosen und Wertungen fr den Adressaten des
Lageberichts deutlich als solche erkennbar sein. Sie drfen zum anderen auch nicht
von den internen Erwartungen des Unternehmens abweichen. Der Abschlussprfer hat auf Basis des Jahresabschlusses die Plausibilitt der Angaben im Lagebericht
sowie deren bereinstimmung mit den bei der Prfung gewonnenen Erkenntnissen zu beurteilen.
Was aber, wenn sich die Unternehmen aufgrund der Unbersichtlichkeit der
Krise nicht in der Lage sehen, eine konkrete Prognose ber die zuknftige Entwicklung abzugeben? Eine Berichterstattung hat dennoch zu erfolgen. Allerdings
ist es denkbar, die Aussagen aufgrund der besonderen Rahmenbedingungen allgemeiner und weniger konkret auszugestalten, wie das Deutsches Rechnungslegungs
Standards Committee e.V. (DRSC) in einem Hinweis zur Anwendung des DRS 15
vom 27. Mrz 2009 erlutert. Ebenso denkbar sind mehrdimensionale Trendaussagen unter Angabe der wesentlichen Einussfaktoren29.
26
27
28
29

Vgl. 289 Absatz1 Satz 4, 315 Absatz 1 Satz 5 HGB.
IDW PS 314 Tz. 77 .
851
5. BESTTIGUNGSVERMERK
Ausgangspunkt fr die Abfassung des Besttigungsvermerks bildet 322 HGB,

wonach das Ergebnis der Prfung in eben jenem Vermerk zusammenzufassen ist.
In Zeiten der Krise hat der Abschlussprfer auch und gerade darauf zu achten, ob
etwaige Unsicherheiten ber die Fortfhrung der Unternehmensttigkeit (ausgelst durch die wirtschaftliche Schieage und die entsprechend schwere Prognostizierbarkeit der zuknftigen Entwicklung) auch zutreend und angemessen in Jahresabschluss und Lagebericht Niederschlag fanden. Sollten bestandsgefhrdende
Tatsachen zu Tage getreten sein, sind diese ebenfalls angemessen im Lagebericht
zu erfassen, gegebenenfalls zusammen mit Plnen, wie das Unternehmen gedenkt,
diesen Risiken zu begegnen.
Erweist sich die Berichterstattung des Unternehmens in diesen Punkten als sachlich richtig und vollstndig, steht der Erteilung eines uneingeschrnkten Besttigungsvermerks insoweit nichts im Wege. Allerdings hat der Abschlussprfer gem
322 Abs. 2 HGB auf die Risiken, die den Fortbestand des Unternehmens betreffen, gesondert im Besttigungsvermerk hinzuweisen. Dieser Hinweis ndert nichts
an der Uneingeschrnktheit des Besttigungsvermerks selbst. Solange und soweit
das Unternehmen ein zutreendes (und unter Umstnden auch negatives) Bild
der eigenen wirtschaftlichen Lage zeichnet, wird der Abschlussprfer ein uneingeschrnktes Testat jedenfalls aus diesem Grund nicht verweigern knnen. Entgegen
einer in der entlichkeit durchaus anzutreenden Meinung (sog. Erwartungslcke) bedeutet ein uneingeschrnktes Testat daher nicht, dass der Fortbestand des
Unternehmens zweifelsfrei gesichert ist30. IDW PS 40031 ernet dem Abschlussprfer die Mglichkeit, in einem uneingeschrnkten Besttigungsvermerk zustzlich auf verbleibende wesentliche Unsicherheiten explizit hinzuweisen32.
Enthlt der Lagebericht nach Ansicht des Abschlussprfers keine angemessene
Berichterstattung ber eine tatschlich gegebene Unsicherheit der Fortfhrung der
Unternehmensttigkeit, ist der Besttigungsvermerk einzuschrnken. Eine Versagung des Besttigungsvermerks steht im Raum, wenn der Jahresabschluss unter der
Annahme der Fortfhrung aufgestellt wird, diese aber nach Prfung der Sachlage
nicht gerechtfertigt werden kann.
30
31
32
WP Handbuch Band I 2006 Abt. Q, Tz. 410 .

IDW PS 400 Grundstze ber die ordnungsgeme Erteilung von Besttigungsvermerken bei
Abschlussprfungen.
IDW PS 400 Tz. 75.
852
Bodo Runzheimer
Ein Prfungshemmnis kann vorliegen, wenn und soweit es an einer angemessenen Dokumentation des Nachweises der Unternehmensfortfhrung mangelt oder
aber eine Weigerung der gesetzlichen Vertreter, eine solche Prognose abzugeben,
vorliegt33.
6. PRFUNGSBERICHT
Magebliches fr die Erstellung des Prfungsberichts ndet sich in IDW PS

45034. So sind im Prfungsbericht die wesentlichen Angaben der gesetzlichen
Vertreter im Lagebericht darzustellen, wobei der Prfer zur Angemessenheit der
Aussagen Stellung zu beziehen hat. Einen Schwerpunkt bilden dabei die Themenkomplexe Annahme der Unternehmensfortfhrung und Prognose zuknftiger
Entwicklung. Ein expliziter Hinweis sollte bei erheblichen Unsicherheiten in
der Einschtzung erfolgen. In einem gesonderten Unterabschnitt weist der Prfer
zweckmigerweise auf die Identizierung bestandsgefhrdender oder wesentlicher
die Entwicklung beeintrchtigender Sachverhalte hin35.
Der Abschlussprfer ist gehalten, sich ein eigenes Urteil ber die im Unternehmen vorhandenen Risiken zu bilden, will er seinen Pichten gengen, die in
321, 321a HGB ihren Niederschlag gefunden haben. Ergeben sich unterschiedliche Beurteilungen hinsichtlich der tatschlichen Lage des Unternehmens, wird
der Abschlussprfer nicht umhinkommen, Konsequenzen fr den Besttigungsvermerk zu ziehen. Tritt fr das zu prfende Unternehmen der Insolvenzfall ein,
knnen gem 312a HGB Glubiger und Gesellschafter des betroenen Unternehmens Einblick in die Prfungsberichte der vergangenen drei Jahre erhalten, so
dass auch fr Dritte nachvollziehbar wird, ob und wie der Abschlussprfer seine
gesetzlich vorgeschriebenen Berichtspichten erfllt hat. Nun ist auch fr einen
Abschlussprfer nicht im einzelnen absehbar, wie lange ein Unternehmen von einer Rezession betroen wird oder wie sich (Gro-)Kunden und Glubiger in der
Krise verhalten werden, so dass sich fr den Prfer ebenfalls die Frage stellt, welche
wirtschaftlichen Szenarien bei Prfung und Berichterstattung zu Grunde zu legen
sind. Um diesen Umstnden gerecht zu werden, hat der Prfer auch diese Unsicherheiten und die darauf basierenden Annahmen im Prfungsbericht festzuhalten36.
33
34
35
36
IDW PS 270 Tz. 42.

IDW PS 450 Grundstze ordnungsgemer Berichterstattung bei Abschlussprfungen.
IDW PS 450 Tz. 40.
IDW PS 450 Tz. 33.
853
Betroen von diesen Unsicherheiten beziehungsweise Unwgbarkeiten kann

etwa im Prfungsbericht der Bereich Wesentliche Bewertungsgrundlagen sein.
Die Erluterung der wesentlichen Faktoren fr die Bewertung sowie der Ausbung
von Ermessensspielrumen kommen in Zeiten der Finanzkrise besondere Bedeutung zu. So sind etwa im Abschnitt nderung der Bewertungsgrundlagen diejenigen Faktoren zu schildern, die einen wesentlichen Einuss auf die Gesamtaussage
des Jahresabschlusses haben. Denkbar knnten der Wegfall eines aktiven Marktes
oder das Austrocknen von fr das Unternehmen relevanten Kapitalmrkten und
die damit einhergehende nderung der Bewertungsgrundlagen fr Finanzanlagen
sein.
7. ZUSAMMENFASSUNG
Die Abschlussprfung sieht sich im Zuge der wirtschaftlichen Krise vor besondere Herausforderungen gestellt. Die auf Unternehmensseite bestehenden Unsicherheiten, wie stornierte Auftrge, schwierige Kreditbeschaung, sumige oder
insolvente Schuldner, nicht planbare Wertminderungen und Ratingherabstufungen machen die Prfung komplexer und unbersichtlicher. Bei Prfungsplanung
und durchfhrung sowie der Bildung eines Prfungsurteils hat der Prfer die
Finanzkrise und ihre Auswirkungen genauso im Blick zu haben wie bei der abschlieenden Berichterstattung. Die vorliegende Errterung sollte dabei diejenigen
berufsstndischen Verlautbarungen des IDW besonders ins Blickfeld rcken, deren Anwendung fr den Wirtschaftsprfer in wirtschaftlich schweren Zeiten sachlich und fachlich geboten erscheinen, um zu einem fundierten Prfungsurteil zu
kommen37.
LITERATURVERZEICHNIS:
1. Gro, Paul J. (2010.) Zur Beurteilung der handelsrechtlichen Fortfhrungsprognose durch den Abschlussprfer, Quelle WPg 3/2010 pp. 119
2. Hfele, Markus; Schmeisky, Jan (2009.) Dolose Handlungen in der Rechnungslegung, Quelle: ZIR 5/2009, pp. 237 . (238)
3. IDW PS 201 Rechnungslegungs- und Prfungsgrundstze fr die Abschlussprfung, Quelle: WPg Supplement 2/2008, S. 21 ., FN-IDW 4/2008,
37
IDW PS 201 Tz. 29.
854
Bodo Runzheimer
S. 172 ., WPg Supplement 4/2009, S. 1 ., FN-IDW 11/2009, S. 533 .)

vom 09.09.2009 (Stand)
4. 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)
5. IDW PS 230 Kenntnisse ber die Geschftsttigkeit sowie das wirtschaftliche
und rechtliche Umfeld des zu prfenden Unternehmens im Rahmen der Abschlussprfung, (Quelle: WPg 17/2000, S. 842 ., FN-IDW 9/2000, S. 460 .,
WPg 4/2006, S. 218, FN-IDW 1-2/2006, S. 1) vom 08.12.2005 (Stand)
6. IDW PS 250 Wesentlichkeit im Rahmen der Abschlussprfung (Quelle: WPg
17/2003, S. 944 ., FN-IDW 9/2003, S. 441 .) vom 08.05.2003 (Stand)
7. IDW PS 261 Feststellung und Beurteilung von Fehlerrisiken und Reaktionen
des Abschlussprfers auf die beurteilten Fehlerrisiken (Quelle: WPg 22/2006, S.
1433 ., FN-IDW 11/2006, S. 710 ., WPg Supplement 4/2009, S. 1 ., FNIDW 11/2009, S. 533 .) vom 09.09.2009 (Stand)
8. IDW PS 270 Die Beurteilung der Fortfhrung der Unternehmensttigkeit im
Rahmen der Abschlussprfung (Quelle: WPg 14/2003, S. 775 ., FN-IDW
7/2003, S. 315 .) vom 08.03.2006 (Stand)
9. IDW PS 314 n.F. Die Prfung von geschtzten Werten in der Rechnungslegung
einschlielich von Zeitwerten (Quelle: WPg Supplement 4/2009, S. 23 ., FNIDW 9/2009, S. 415 .) vom 09.09.2009 (Stand)
10. IDW PS 322 Verwertung der Arbeit von Sachverstndigen (Quelle: WPg
13/2002, S. 689 ., FN-IDW 7/2002, S. 337 .) vom 06.05.2002 (Stand)
11. IDW PS 350 Prfung des Lageberichts (Quelle: WPg 20/2006, S. 1293 .,
FN-IDW 10/2006, S. 610 ., WPg Supplement 4/2009, S. 1 ., FN-IDW
11/2009, S. 533 .) vom 09.09.2009 (Stand)
12. IDW PS 400 Grundstze fr die ordnungsmige Erteilung von Besttigungsvermerken bei Abschlussprfungen (Quelle: WPg 24/2005, S. 1382
.,FN-IDW 12/2005, S. 784 ., WPg Supplement 4/2009, S. 1 ., FN-IDW
11/2009, S. 533 .) vom 09.09.2009 (Stand)
13. IDW PS 450 Grundstze ordnungsmiger Berichterstattung bei Abschlussprfungen (Quelle: WPg 3/2006, S. 113 ., FN-IDW 1-2/2006, S. 44 ., WPg
855
Supplement 4/2009, S. 1 ., FN-IDW 11/2009, S. 533 .) vom 09.09.2009

(Stand)
14. IDW Positionspapier zur Subprime-Krise,
15. Besondere Prfungsfragen in der aktuellen Wirtschafts- und Finanzmarktkrise
vom 19.12.2008
16. (Quelle: http://www.idw.de/idw/portal/d587882/index.jsp)
17. IDW Verlautbarung zur Finanzkrise
18. Ergnzung zu den besonderen Prfungsfragen in der Finanzmarktkrise vom
27.01.2009
20. IDW Presseinformation 2/2009
21. Erkenntnisse aus der Finanzmarktkrise - ein Blick nach vorn vom 12.02.2009
23. IDW WP Handbuch Band I 2006,
24. Auage, IDW Verlag GmbH, Dsseldorf
25. Naumann, Klaus-Peter; Abschlsse 2008 als Spiegelbild der Wirtschafts- und
Finanzmarktkrise Abschlussprfer sind auf eine anspruchsvolle Aufgabe vorbereitet, Quelle: WPg 4/2009, pp. I
856
Ishak Mei
INTENSIVE PROCESSES OF RETAIL

INTERNATIONALIZATION
Ph. D. Ishak Mei
University of Zenica - Faculty of Economics
ABSTRACT
Integration and globalization of world market have resulted in trade internationalization, especially in the sector of retailing. Global trade, and in particular
global retail, has become more intensive. Free European market has speeded up
cross border retail expansion within European Union. Retail internationalization,
with increased tempo, has redened relationships in distribution channels on a
global scale.
Even though the speed of retail internationalization is, without a doubt, increased, most of the retailers still make the biggest percent of their turnover in the
domestic markets. Intensive processes of retail internationalization have resulted in
horizontal cooperation and aligning of retailers from dierent European countries
as well, leading to international retail alliances formations.
Despite the fact that trade companies in developed countries enter new markets
mostly for increase in market share and prot, internationalization of trade also
represents a good developing opportunity for transitional countries. Through trade
internationalization, countries in transition will ensure capital and new knowledge,
which they do not have. Besides, trade internationalization will have positive impact on internationalization and development of entire economies of transitional
countries.
Retail sector in Bosnia and Herzegovina has to continuo its deep transformation from traditional, national distributive industry to organized and concentrated
international retail. There are two main ways in retail internationalization of Bosnia
and Herzegovina:
Penetration of international retailers into BiH market
INTENSIVE PROCESSES OF RETAIL INTERNATIONALIZATION
857
Orientation of BiH retailers on international markets in closer region

Yet, more serious movement of BiH retail sector towards the internationalization can be expected after joining European economic integrations. European experience shows that more signicant shift towards the internationalization within
Europe appeared after formation of free European market and EU.
Joining the European economic integrations for BiH would also mean a safer
and easier penetration on BiH market for international companies, which would
lead to more signicant economic growth and increase in consumers potential.
On a global scale, internationalization of trade should lead to more integrated
and uniform development of a whole world trade.
JEL classication: F23
Key words: internationalization, trade, retail, globalization, market
1. INTRODUCTION
The trend of business globalization has actualized the topic about the international retail sale area. Certain problems in working on the home market have had
such an inuence on many retailers that they consider entering the foreign markets,
thinking of it as a viable growth strategy. These problems include: maturity on the
home market, improvement of communication technologies, nancial conditions,
decrease of free trade barriers, changing the retail sale form through joining and
aquisition.
With the process of retail internationalization gaining momentum, retailing is
fast to become a global industry. Indeed, the majority of distinguished world retailers already carries out its major sale part as part of international operations.
(Goldman, 2001, page 221).
Competitive advantages of retail companies in Bosnia and Herzegovina could
be improved by their internationalization, in the way that the country ambience
becomes remarkable for the competitive advantages of foreign companies which
would transfer part of their businesses or develop new ones in our country. Bosnia
and Herzegovina cannot provide a large market but it can be the international business area, because of its favourable position and the competitive advantages which
will need to be developed.
858
Ishak Mei
2. INTENSIVE PROCESSES IN RETAIL INTERNATIONALIZATION
Removing barriers for trade between national markets and forming a free European market, has provided a larger competitive environment and speeded up the
growth rate. The process of retail internationalization was speeded up in Europe,
especially since the late 1980s. The free European market has speeded up the retail
cross-boarder expansion within the European Union. (Gary and Alexander, 1995,
44).
Retail internationalization is usually found on geographic ground of NorthSouth and West-East, in other words retail sale companies from the North part
of the European Union often enter markets from the South part of the European
Union, as well as companies from the West part of the European Union enter
markets from the East part of the European Union. Nevertheless, in 1990 France,
Great Britain and Germany represented two-thirds of international operations in
Europe. (McGoldrick, 1995, 23).
International activities of European retailers can be seen in the following table:
Table 1: Europe: Top 15 Grocery Retailers, 2006

Company
Country of Origin
Carrefour
Metro Group
Tesco
Ahold
Rewe
Casino
Schwarz Group
Aldi
Auchan
Edeka
Leclerc
ITM (Intermarch)
Sainsbury
Tengelmann
Delhaize Group
France
Germany
UK
Neth.
Germany
France
Germany
Germany
France
Germany
France
France
UK
Germany
Belgium
Retail Banner Sales

2006 (USD mn)
122,214
87,360
86,827
77,546
56,448
55,298
55,160
54,104
53,608
48,525
40,435
36,931
36,071
31,566
26,004
Domestic Sales
(%)
47
45
75
18
68
58
54
53
50
93
94
90
100
58
23
Foreign
Sales (%)
53
55
25
82
32
42
46
47
50
7
6
10
0
42
77
Source: Top 30 Grocery Retailers Worldwide, 2006, Planet Retail Ltd - www.planetretail.net Access (22 November 2008).
859
The leading World international retailers in 2007, according to the turnover

tottal and the number of countries they do business in, can be seen in the following
table:
Table 2: Ten leading World international retailers, 2007.

Top 250
Rank
1
2
3
4
5
6
7
8
9
10
Name of
Company
Wal Mart
Carrefour
Tesco
Metro
Home Depot
Kroger
Schwarz
Target
Costco
Aldi
Country of Origin
2007 Retail sales (US$ mil.)
US
France
UK
Germany
US
US
Germany
US
US
Germany
374,526
112,604
94,740
87,586
77,349
70,235
69,346
63,367
63,088
58,487
Number countries of
operation
14
33
13
32
9
25
8
15
Source: Global Powers of Retailing http://www.nxtbook.com/nxtbooks/nrfe/stores_globalpowers0109/ Access (14 March 2009).
On average, the Top 250 retailers operated in 6.8 countries in 2007. In total,
21,3% of sales came from outside retailers home countries. (Top 250 Retailers,
2009, http://www.nxtbook.com/nxtbooks/nrfe/stores_globalpowers0109/).
The leading World grocery retailers in 2006, according to sales percentage in
foreign countries, can be seen in the following table:
Table 3: Worldwide: Top 15 Grocery Retailers, 2006

Rank/
Company
1 Wal-Mart
2 Carrefour
3 Metro Group
4 Tesco
5 Seven & I (2)
6 Ahold
7 Kroger
8 Sears
Country
of Origin
USA
France
Germany
UK
Japan
Neth.
USA
USA
Retail Banner
Sales 2006 (USD mn)
376,430
122,214
87,360
86,827
79,101
77,546
69,549
64,833
Domestic
Sales (%)
78
47
45
75
66
18
100
88
Foreign
Sales (%)
22
53
55
25
34
82
0
12
860
9 Costco
10 Target
11 Rewe
12 Casino
13 Schwarz Group
14 AEON (2)
15 Aldi
Ishak Mei
USA
USA
Germany
France
Germany
Japan
Germany
64,737
62,584
56,448
55,298
55,160
55,157
54,104
80
100
68
58
54
90
53
20
0
32
42
46
10
47
Source: Planet Retail Ltd - http://www.planetretail.net/catalog/bulletin/198/198301.htm Access

06 March 2010.
Although, there is no doubt that the retail internationalization rhytm is speeded

up, the majority of retailers realizes the maximum percentage of its turnover on
the home market. There are still many problems that hinder internationalization,
although many are decreased. Intensive processes of retail internationalization have
brought about a horizontal collaboration and joining of retail from dierent countries in Europe, which resulted in the establishing of international retail alliances.
International retail alliances are a fairly new phenomenon, but regardless of that
they exist in many forms. The Institute of Grocery Distribution 1992 identied
four types of alliances which have developed over recent years:
- Alliances established on development grounds, as an agreement between retailers on cooperation in specic projects, in many ways as a way of enetering the
national market;
- Buying groups, where the members collaborate in buying, which increases
their inuence on the producer;
- Alliances established on knowledge and skills, where retailers engage in cognition and technical sense with others; and
- Multi-functional groups, which combine the elements of the previous three
types of alliances and where individual members can increase strategic advantages by engaging in expertises, such as information technologies and systems.
(Gary and Alexander, 1995, 27).
Advantages gained by many members of international alliances are numerous,
such as: a joint voice in trade politics, increase of buying power by economy of
scale, brand/development, introducing and transfer for paneuropean retail brands,
technology knowledge and systems, knowledge improvement, market entry protec-
861
tion, a great readiness of international growth and geographic market expansion,

competitive position improvement and so on.
International alliances are becoming a more and more present part of the retail
image in the European Union. International alliances are a dominating part of
the European food retail, realizing over 300 billion euros from the total turnover
including over 130.000 retail facilities in all nations of the European Union. (McGoldrick, 1995, 135).
3. RETAIL INTERNATIONALIZATION OF BOSNIA AND HERZEGOVINA
World market integration and globalization resulted in trade internationalization, especially of its retail sector. More intensively coming on the scene is the
global trade, especially its global retail sector.
Bosnia and Herzegovina retail has to continue its great transformation in the
transition from traditional, national distributive industry to an organized and concentrated international retail.
Retail internationalization was expected in the process of state distribution business privatization. Law regulations have ensured an equal participation in privatization for both, the domestic and the foreign clients. However, the privatization took
place on entity levels, and not on the Bosnia and Herzegovina state level and this is
why a unique and eective potential client animation has failed. Moreover, foreign
clients were deterred by an unstable political situation in Bosnia and Herzegovina.
Therefore, an adequate state politics of foreign company attraction has failed,
although we had a positive example of the Czech Republic and Slovakia in which
the government had direct negotiations with foreign companies and provided a
signicant entry of foreign companies in the process of state distribution business
privatization.
From a total of 12.347 state distribution businesses in the Federation of Bosnia
and Herzegovina in 2008, 10.572 (85,6%) are with domestic capital, 948 (7,7%)
with foreign capital, 371 (3%) with mixed capital, and 456 (3,7%) with investments from the former republics of the Socialist Federal Republic of Yugoslavia
(SFRY). (Federal Bureau of Statistics: 2009, http://www.fzs.ba).
862
Ishak Mei
A very low trade internationalization level of Bosnia and Herzegovina can be

seen in the previous data, but also an allusion of a started Bosnia and Herzegovina
trade internationalization process.
Competitive advantages of retail companies for sale in Bosnia and Herzegovina
could be improved by their internationalization, in the way that the country ambience becomes remarkable for the competitive advantages of foreign companies
which would transfer part of their businesses or develop new ones in our country.
Bosnia and Herzegovina cannot provide a large market but it can be the international business area, because of its favourable position and the competitive advantages which will need to be developed.
Foreign partners can nd investment interests in Bosnia and Herzegovina retail
by the following:
- Direct access to the Bosnian and Herzegovinian nal consumption market
through partner or private retail network, so that a direct and eective contact
with the end consumer can be established
- Cutting distribution expenses on the Bosnian and Herzegovinian market;
- Direct distribution function control through existing of a personal distribution canal;
- Acquiring a specic market position by entering a new business area and establishing competetive advantages;
- International retail sale development;
- Economy of scale increase and prot increase.
Bosna and Herzegovina trade interests for retail internationalization are these:
- Providing recent capital for restoration, reconstruction and modernisation of
retail capacities, range completion and inventory nancing;
- Introducing retail sale innovations, especially new management systems and
management skill, development and modernization of information technology and inclusion in the international information system;
- Inclusion in international know-hows;
- Establishing competitive advantages by inclusion in many value chains
which animate foreign companies;
863
- Distribution and promotion canal rationalization can be fullled by international orientation, as well as accomplishing contentment of the high market
demands.
There are two ways of Bosnia and Herzegovina`s retail internationalization and
these are:
1. Internationalization on the existing Bosnia and Herzegovina market by:
a) Direct foreign investments in Bosnia and Herzegovina`s retail sale;
b) Joint investments with foreign companies on Bosnian and Herzegovinian
territory;
c) Licence adoption;
d) Concessions; and
e) Franchise adoption.
2. Internationalization by new market accession in the region an opportunity
for the Bosnian and Herzegovinian companies to adopt and apply a foreign market
orientation, principally in regional proportions by:
a) Investments in personal companies or in personal retail sale formats abroad
through acquisitions or independent start (transnational companies);
b) Investments in a joint company - joint investments abroad (multinational
comanies)
c) Licence sale;
d) Concession; and
e) Giving franchise (Mei, 2007, 372).
Foreign companies can use dierent alternative market entry strategies in Bosnia and Herzegovina`s market. Experiences of retail companies for sale from Great
Britain show that in the period from 1960-1993 internal growth was marked as
being the major entry mechanism which implicates 41,3 % of all actions (379
actions), followed by acquisitions with 23,7 % (218 actions), while franchising
was the third entry mechanism according to scope with 21 % (193 actions). Over
recent years, a signicant franchising as well as favour growth activity has been
noticable, being regarded as a viable management control method (McGoldrick,
1995, 60).
Nevertheless, a serious Bosnia and Herzegovina retail initiation toward internationalization can be expected after Bosnia and Herzegovina entering European
864
Ishak Mei
economic integrations. European experience has shown that a serious initiation toward an internationalization within Europe was marked just after forming the free
European market and the European Union, by which barriers for free goods, labour
force and capital circulation were removed. The Bosnian and Herzegovinian entry
in the European economic integration would bring about a free and safe foreign
company entry in the Bosnian and Herzegovinian market, which would lead to a
remarkable economic growth and consumer potential growth.
By enetering new markets, foreign retail companies analyze the protability of
entering, and for that a specic level of consumer potential is needed. Hence, it is
important to meet the requirements for entering the European economoic area, not
only for retail development and internationalization but for the whole economy.
In that way, Bosnia and Herzegovina would be included into the unitary European
economic area and by specic comparative advantages it would lead to a faster economic development and transition as well as trade, especially its retail sector.
CONCLUSION
World market integration and globalization resulted in trade internationalization, especially of its retail sector. Removing barriers for trade between national
markets and forming a free European market, has provided a larger competitive environment and speeded up the growth rate. The free European market has speeded
up the retail cross-boarder expansion within the European Union.
Nevertheless, when compared to production, retail internationalization remains
partial and marginal. However, an initiation toward internationalization speeds up
and the internationalization rate is growing. Intensive processes of retail internationalization have brought about a horizontal collaboration and joining of retail
sale from dierent countries in Europe, which resulted in the establishing of international retail alliances.
Bosnia and Herzegovina`s retail has to continue its great transformation in the
transition from traditional, national distributive industry to an organized and concentrated international retail sale. There are two ways of Bosnia and Herzegovina
retail internationalization and these are:
1. Internationalization on the existing Bosnia and Herzegovina market foreign
company entry in the Bosnian and Herzegovinian market;
865
2. Internationalization by new market accession in the region an opportunity

for the Bosnian and Herzegovinian companies to adopt and apply a foreign
market orientation, principally in regional proportions.
Nevertheless, a serious Bosnia and Herzegovina retail initiation toward internationalization can be expected after Bosnia and Herzegovina entering European
economic integrations.
REFERENCES
1. Akehurst Gary and Nicholas Alexander (1995). The Internationalization of

Retailing, Franc Cass, ISBN 0-7146-4174-x (paper), London.
2. Federal Oce of Statistich (2009). Statistical Yearbook 2009, http://www.fzs.
ba/Statisticki%20godisnjak%202009.pdf , Access 12 March 2009.
3. Global Powers of Retailing, http://www.nxtbook.com/nxtbooks/nrfe/stores_
globalpowers0109/ Access (14 March 2009).
4. Goldman Arieh (2001). The Transfer of Retail Formats Into Developing Economies, Journal of Retailing, Vol. 77, Issue 2.
5. Mei Ishak (2007). Ttransition of the Trade in Bosnia and Herzegovina, University of Zenica, IBSN 978-9958-639-02-9, Zenica.
6. McGoldrick and Gary Davies (1995). International Retailing: Trends and Strategies, Financial Times, ISBN 0-273-61183-6, London.
7. Top 30 Grocery Retailers Worldwide, 2006, Planet Retail Ltd - www.planetretail.
net Access ( 22 November 2008).
8. Top 250 Retailers, http://www.nxtbook.com/nxtbooks/nrfe/stores_globalpowers0109/ Access (27 March 2009).
9. Worldwide: Top 30 Grocery Retailers, 2006 http://www.planetretail.net/catalog/bulletin/198/198301.htm Access (06 March 2010).
10. Wrigley, Neil (2002). The Landscape of Pan-European Food Retail Consolidation, International Journal of Retail & Distribution Management, Volume
30, Number 2.
866
Zdenko Segetlija
INFORMATION TECHNOLOGY IN THE STRATEGY OF A

RETAIL COMPANY
Prof. D.sc. Zdenko Segetlija
SUMMARY
Technical and technological development is one of the most important external

strategy factors of a retail company. It has been realized that information technology is a critical factor of success. However, this is an area that undergoes rapid
changes. The creation of large business systems has only been made possible thanks
to new technologies. In that sense one must also observe the ecient connecting
of retailers with other participants in the supply chain. Furthermore, these factors
condition new considerations about the formation of retail operating units and the
creation of business concepts and models.
Key words: corporate strategy, information technology, retail company, retail
operating unit, business models
1. INTRODUCTION
This paper brings an attempt to evaluate the role and importance of new technologies (especially information technologies) in the formation of retail operating
units. The point is that only technical and technological developments oer the
possibility of rationalization in the investment of the working process factors, in
the investment of marketing instruments and in the development of the trade functions which increase the market transparency (Segetlija, 2006, p. 400 and 401).
This completes the considerations about the patterns in the development of retail
operating units.
INFORMATION TECHNOLOGY IN THE STRATEGY OF A RETAIL COMPANY
867
2. DEVELOPMENT OF TECHNOLOGY AS AN EXTERNAL STRATEGY FACTOR
When the corporate strategy of a retail company is being developed, this includes the analysis of numerous internal and external factors (Mller-Hagedorn,
1984, p. 36-39). These variables can be controlled or uncontrolled (Kotler, 1984,
p. 72 .). The rm controls marketing mix factors which it develops and through
which it adjusts itself to the respective marketing environment. These are internal
limiting factors of the oer of goods and services as well as other structural factors:
capacities (space, nancial resources, personnel), sale system, relations with manufacturers, position in the distribution channel, licenses, franchises, exclusive sales
rights, etc.).
Uncontrolled variables include external factors to which the retail company
needs to adjust (consumers, technology, economic conditions of doing business,
season factors, legal and other regulations). A special role among these factors belongs to the competition and other business entities, for example banks, professional associations, some organizations headquarters, public institutions, co-operative
partners.
The analysis of internal and external factors certainly includes the analysis of
internal input-output relations (investments of the business process factors and
achieved results) (Mller-Hagedorn, 1984, p. 38). This is where the specic
strengths and weakness of a company are hiding. In identifying external factors
special attention is paid to the analysis of opportunities and risks or threats (Bart/
Hartmann/the Schrder, 2002, p. 130).
Nowadays, anyway, the assumptions of the SWOT-analysis (Strengths, Weaknesses, Opportunities, Threats) combine the analysis of the environment with the
appropriate analysis of the companys strengths and weaknesses and reexamine the
appropriateness of the development of the environment and the strategic orientation of the company (Mller-Hagedorn, 2005, p. 55).
Present day retail companies show vulnerability in relation to their competitors
which have been equipped for the use of new technology, since there have been
some signicant changes in technology on the retail market (Lewy/Waitz, 2007,
p. 149).
So, for example, if a retailer starts from the assumption that in the future information processing will be more and more important (development of the environment) and if he has trained personnel (resources) at his disposal, this can be consid-
868
Zdenko Segetlija
ered as good in the sense of the SWOT analysis. In that case, human resources can
function in harmony with the environment and as the result of all that, there are
chances for success (Mller-Hagedorn, 2005, p. 56).
Therefore, technology as the external factor, needs to be connected with the sales
method as the internal factor. In this context, market analysis by means of Abells
scheme1 (which in the comprehension of marketing strategies results from the understanding that is not enough to simply list the products (objects) on one side
and markets on the other side) suggests that the business elds should be further
divided into: target groups; kinds of existing needs, i.e. functions; and technologies
that will enable the execution of function, in other words the satisfying of the needs
of selected market segments.
There are dierent technologies in the retail trade, such as: (a) technology of
information about the oer and presentation, e.g. traditional catalogs, electronic
media; (b) consulting technologies: in person, through adequate shop formats,
through media; (c) technologies of delivery, self-service, supplies (the Mller Hagedorn, 2005, p. 45).
In recent times there have been many technical and technological innovations
which nd their implementation in trade. It should be noticed that become outdated very quickly; however, this does not mean that they should not be studied
in the interest of making the right choice of strategy. Hereafter we are going to
mention some of these innovations, both on the level of operating units shops,
and on the level of the whole trading company (mostly according to Lerchenmller, 2003, p. 504-517).
Technologies that are of special importance for the trade are identication technologies (bar code, RFID Radio Frequency Identication technology, etc.).
3. NEW TECHNICAL AND TECHNOLOGICAL POSSIBILITIES
ON THE OPERATING UNIT SHOP LEVEL
The use of magnetic cards enables the company to observe the presence of every
employee on his work post according to the sections (functions) in the company.
This can further by connected with the total time spent at work during the years of
service in a particular company, and these data are certainly of use in the planning
1
Abell, D. F. (1980): Dening the Business. The Starting Point of Strategic Planning, Englewood
Clis, N.J., according to. Mller-Hagedorn, 2005, p. 44
869
and rewarding the personnel. Of course, personal computers also allow for the conducting of interactive educational programs for employees, whereby the company
can improve the qualication level of its employees.
However, the new RFID technology can also be used for the purpose of automatic registration of the presence of individuals (v.: Kull/Kamieth, 2004, p. 18).
In the area of market research aimed at obtaining various data about the consumers it is also possible to use type-cards (also known as voucher analysis), as well
as the so-called shopping carts with electronic appliances emitting selected data.
These are data about the frequency of buyers in particular periods of time, about
daily frequencies, about frequencies in single shop areas, etc.
In analyzing the movement patterns of buyers, the so-called PSA Personal
Shopping Assistant method can be used. Shopping carts are equipped with wireless
appliances touch sensitive screens. Various marketing POS-functions are activated with the buyers card. This makes it possible to draw conclusions about the
ecacy of the placement of goods and to introduce dierent procedures of sales
promotion and improvement.
Furthermore, there is also the analysis based on the cashiers voucher. This allows
the company to examine obligatory purchase, the eects of changes in the placement of goods, successfulness of special actions and the distribution of purchase
over time during the day or week.
The above technical and technological achievements can, of course, be used not
only for marketing research, but also for other marketing functions. They make
it possible to organize dierent marketing actions and use dierent approaches
to regular customers, thanks to the data about them (just as, in the past, regular
customers were favored through personal addressing in small local corner shops).
It is also possible to use shopping carts equipped with transmitter and receiver sets
and thus connected with carriers of goods, which makes it easier to organize advertising or sales promotion actions.
Today, many shops use video recordings as means of sales promotion. In addition to that, consumers are oered information on touch screens. In this context
it is possible to combine several interactive media (multimedia systems). There are
also the multimedia terminals kiosk systems which are used not only as information systems, but as selling systems as well.
870
Zdenko Segetlija
Furthermore, the trade marketing of a shop can also use the so-called desktop
publishing in producing wall system pictures with inscriptions, posters, leaets and
the like.
Shop logistics can use the so-called intelligent storage systems with a high level
of automation in the processes of dispatching and receiving goods. Such systems
connect material processes in the warehouse with the supplies management system.
It is equally possible to use integrated packaging systems reducing the multiplicity
in packaging and standardization at a much higher rate than before. Thanks to that,
semiautomatic logistic systems can be introduced.
Self-scanning in the retail trade can revolutionize the cashiers concluding of
purchases because the buyer himself scans the articles he has bought and pays
through cashless transactions. Scanners can be xed or mobile. There are, however,
also the so-called pocket scanners by means of which the buyer scans the purchased
goods at home.
Anyway, it has been suggested already a decade ago that the shops selling and
communicating on a xed location (stationary shop) as shops of the future will
be transformed into intelligent shops (De Care, 2001.).
4. NEW TECHNICAL AND TECHNOLOGICAL POSSIBILITIES OF BUSINESS
MODELS AND CONCEPTS
Development of management information systems (MIS) based on the development of modern information technologies is very important for a company. Such
systems encompass all regionally or nationally separated shops of a trading company and integrate their databases. In that sense the data warehouse means the
combination of supplies management systems and MIS. Here the databank stores
the data for the marketing relating to goods and the data for the organization relating to the logistics. Simultaneously data warehouse can be used as the early warning system for incoming weak spots. Its complex structure requires a high-level
managerial know-how for its successful implementation. The process of creating
complex networks with large amounts of data and with providing prognostics for
the future is also called data mining.
New information and communication technologies have numerous and farreaching eects on marketing activities and on ecient supplies management systems. Written and telephone exchange of information is being increasingly replaced
871
with electronic information exchange. This data exchange is called ISDN Integrated Services Digital Network, as a standardized European communication system for digital ow of information, and, more generally, it is called VANS (Value
Added Network Services), i.e. it is a communication network with additional services for individuals or institutions which demand it.
Here we must mention EDI (Electronic Given Interchange) which starts from
the electronic exchange of documents, such as for example orders and accounts
between dierent economic partners. In the meantime, technologies for transformation of e-mail forms into EDI data sets are being developed.
Connecting of computers and telecommunication equipment into networks
generally provides a free of charge form of improvement of the relations with buyers and of support for the realization of the planned turnover (for example in connection with telephone marketing or with a sales conversation with coworkers of
the outer services for wholesale trade interviewing buyers). As a result of the eorts
to cut telephone costs there was a considerable growth in the number of Call Canters which have the purpose of direct marketing and maintaining contacts with
buyers.
New information technologies used in the realization of turnover are, for example, text on the TV screen and teleshopping, i.e. electronic purchasing from
ones home.
An even more recent sales method with probably considerable development
potential is the Internet or electronic trade. Here the assortment (variety) or its
parts are oered through virtual shops or market places, which buyers can search,
from which they can order goods, and to some extent can also pay for them. In the
Germany, examples of electronic trade are: Quelle and Otto, Metro, Obi, Karstadt,
Kaufhof and Bauhaus.
Internet trade will most certainly continuingly gain on importance and therefore it is a serious option and sometimes even a coercive alternative in marketing
strategy for every trading company. It is equally certain, however, that the Internet
will not completely suppress classic selling ways in the foreseeable future and that,
more or less, markets will be determined by multichannel strategies.
As a complementary strategy to the shop with permanent location, electronic
trade represents multichannel distribution, and as such it is considered to be the
factor of successfulness in the future (E Commerce, 2005, p. 1).
872
Zdenko Segetlija
In payment operations, the POS Banking (Point of Sale Banking banking

transaction, i.e. the consumers paying from the cash desk from the shop terminal) is being developed, within which there are several options. Its development
goes in the direction of creating Chip cards multifunctional cards for payments
for goods and services, for cash withdrawal, for telephoning etc. This development may even result in the creation of a card that would allow for European or
even global networking of payment operations. The card is multifunctional, which
means that it is used not only for the function of payment, but for other functions
as well, since it is the medium carrying data about the purchasing transactions and
about its owner.
Since the usage of contemporary information technologies also enables the connecting of the retail company with dierent market partners, such as manufacturers, wholesalers, and consumers, it is possible to create a special supplies management system that would comprise dierent technologies. Especially important in
this context are innovations in scanning technology, automatic advertisements on
wall systems, electronic data exchange, etc.
The concept of ECR (Ecient Consumer Response) means processes including
not only the logistics and marketing, but also organization and nances. They surpass the boundaries of a single economic level and are formed through the cooperation between industrial, wholesale and/or retail companies.2
Supply chain management (SCM) means the reexamination of merchandise
processes from the manufacturer to the nal consumer and it also includes projects
for their optimizing. According to Barth3 the sub processes of logistic optimizing,
which are used to cross particular economic levels include: Continuous Replenishment, Computer Aided Ordering, Cross Docking, Roll Cage Sequencing.
Continuous replenishment means that the manufacturer or the wholesaler supplies the retail unit with goods in a manner resembling that in the Just in Time
concept, i.e. with quantities that will sell immediately.
ECR is, in fact, a method for ecient forming of a value chain focusing on the benets for the consumers (Corsten/Ptzl, 2004, p. 7).
Barth, H.: Controlling ein Instrument zur Gewinnsteuerung: eine praxisorientierte Einleitung
fr Klein- und Mittelbetriebe, 3. Ed., Stuttgart, 1996, p.362f, according to: Lerchenmller, 2003,
p. 514.
873
Computer aided ordering relates to automatic disposing in the supplies management system; however, here the man is certainly the unavoidable regulatory factor.
Transitional warehousing or cross docking is computer supported direct logistic
joining of consignments in the trade and their delivery directly to outside buyers or
through the rms own branch oces, so that storage and commissioning processes
are avoided to a large extent.
Sequencing of transportation containers or roll cage sequencing means optimal
loading of transportation units (palettes, transportation containers), whereby the
advantages in supply costs of the carrier of goods should achieve more than simply
compensate for the possible lack of eciency in transportation. In overall logistic
processes the advantages of rationalization ought to be realized through the use of
modular standard units from containers to special trays as selling units directed
towards the retail trade.
All this is connected with multi-part transportation chains and with so-called
multimode transport. Systems which connect transport require bar-code marking
and transportation packagings, so that, when mobile data acquisition is used, it
is possible to automatically read out the contents of the these transportation and
packaging units without the need to unpack these goods.
Here the CPFR (Collaborative Planning, Forecasting and Replanishment) concept must be mentioned. It represents the further development of the ECR-idea.
It actually means the cooperation and upholding of the basic ECR principles. Cooperation is based on mutual trust of business entities and it enables them to cross
the borders of particular economic levels, i.e. it concerns the cooperation between
the manufacturer, wholesale businesses and retail trade, and it also concerns the
supply chain organization, as well as the coordinated management of logistics, nances, and marketing and communication processes. CPFR is supported by most
advanced software, it uses the Internet, includes B2B market places, and more
productively and faster forms the entire supply chain including co-suppliers from
the manufacturer.
It is believed that in near future bar-codes will be replaced with RFID technology. RFID- systems consisit of the so-called tag (label, mark, pendant) and the
device for reading and writing and connecting with companys network or its IT
system. In the tiny tag, which is located in or on the object to be identied there
is an integrated chip and antenna. Tags have the function of reading and writing
874
Zdenko Segetlija
and technically they represent the smallest client in the client server information system. By means of these passive or active tags transponders4 using radiofrequency waves goods are identied without touching them. Undoubtedly, the RFID
procedure has numerous advantages in respect to the procedure with bar-codes:
RFID is frequently mentioned in connection with the EPC standard (Electronic Product Code i.e. the standard of the products electronic code for unambiguous identication of objects based on RFID). Among the advantages of RFID
and EPC one should, rst of all, mention the reduction of situations without necessary supplies in the warehouse and on shelves, improved management of warehouse
supplies (including automatic stocktakings) as well as highly successful searching
and nding of goods (Kreimer/Acar/Vogell, 2006, p. 44).
Transponder is a programmable data carrying medium. Its central part is the
mikrochip in which various information are stored. Data are emitted into the surroundings through a coil functionning as antenna if the transponder is located
within the reach of the reading and writing device the interrogator. Transponders are introduced in dierent forms (Kreimer/Acar/Vogell, 2006, p. 44).
In the exchange of data and energy, the passive tag uses the emitted energy of
radio waves and sends stored data in response. These data are further electronically
processed and can be made accessible to authorised persons through online connections. Thus the tag can communicate with reading and writing devices belonging to
dierent users of transponder technology. However the formation of RFID systems requires specic standards (Kreimer/Acar/Vogell, 2006, p. 44).
Readers can be manual (portable) or in the form of RFID-gates (doors) (Dujak,
2006, p. 99).
RFID technology is probably most important for the supply chain management
(Kreimer/Acar/Vogell, 2006, p. 45 ). The other important use of RFID technology in the eld of trade would be the one related to the consumer, to the payment
for goods, gathering information about the needs, etc. So far, there are three development phases that can be distinguished in the introduction of RFID-technology
(Dujak, 2006, p. 102):
(a) pallet and/or container tagging;
4
Transponder, from transmitter and responder, a device that sends data in response to the transmission
of the reader.
875
(b) tagging of boxes and other smaller packages on palettes - case tagging;
(c) tagging of single products (expected to be in use in 5 20 years) item
tagging.
Special technological innovations that must be taken into consideration in the
future development of retail trade include transportation systems that will preserve
human environment, multimode transportation systems, returning distribution
systems etc.
5. INSTEAD OF THE CONCLUSION
Technology is beyond doubt the most important factor of the future development of retail trade and only through the development of technology it will be
possible to develop trade (or generally market) functions as well. But, at the same
time, technological and ecological possibility are the main limiting factors of future
development.
LITERATURE
1. Barth, K.; Hartmann, M.; Schrder, H., (2002): Betriebswirtschaftslehre des

Handels, Fnfte berarbeitete ud aktualisieerte Auage, Verlag Dr. Th. Gabler,
Wiesbaden.
2. Corsten, D.; Ptzl, J (2004): ECREcient Consumer Response, Integration
von Logistikketten, according to http://les.hanser.de/les/docs20040401_244
515431-17562_3-446-21892-0.pdf (from April 10, 2004).
3. De Care, Silver, M. (2001): e-Schock, The New Rules, Palgrawe, New York
4 . Dujak, D. (2006): RFID Technology in Logistics with Special Reference to
the Usage in Retail Trade, in D. Barkovi; M. Lamza-Maroni (2006): Business
Logistics in Contemporary Management, VI Scientic Conference, Book II,
Faculty of Economics Osijek, Osijek, 2006, pp.93 - 108
5. xxx (2005): E Commerce, available at: http://www.handelswissen.net/data/themen/Marktpositionierung/betriebsform/Distanz...(from: December 25, 2005)
6. Kotler, Ph. (1984): Marketing Management: Analysis, Planing and Control, I,
Fifth Edition, Prentice-Hall, Inc., Englewood Clits, New Yersey, Translation,
Informator, Zagreb, 1988
876
Zdenko Segetlija
7. Kreimer, T.; Acar, C.; Vogell, K. (2006): Trends im Handel 2010, KPMG
Deutsche Treuhand -Gesellschaft Aktiengesellschaft, according to: http://www.
kpmg.de (from June 30,2007).
8. Kull, S.; Kamieth, W. (2004): RFID, Segen oder Fluch? Funkchip-basierte Kennzeichnung entlang der Wertschpfungskette, Fachhochschule Oldenbourg
Ostfriestland Wilmhelmshaven, according to: http://www.fh-oov.de/fbw-whw/
downloads/17/arbeitspapier2-rd.pdf (2005)
9. Lerchenmller, M.( 2003): Handelsbetriebslehre, Vierte berarbeitete und aktualisierte Auage, Friedrich Jiel verlag GmbH, Ludwigshafen (Rhein)
10. Levy, M.; Weitz, B.A (2007): Retailing Management, McGraw-Hill Companies, Inc.
11. Mller Hagedorn, L. (1984): Handelsmarketing, Verlag W. Kohlhammer,
Stuttgart
12. Mller Hagedorn, L.(2005): Handelsmarketing, Vierte berarbeitete Auage,
Verlag W. Kohlhammer, Stuttgart
13. Segetlija, Z. (2006): Trgovinsko poslovanje, Ekonomski fakultetu u Osijeku,
Osijek.
MANAGERS MOTIVES FOR TRANSFORMATION OF NON-PROFIT ORGANIZATION INTO...
877
MANAGERS MOTIVES FOR TRANSFORMATION OF NONPROFIT ORGANIZATION INTO A FOR-PROFIT ORGANIZATION

ON THE EXAMPLE OF MICROCREDIT ORGANIZATION
Saa Vuji, M.Sc.
Sarajevo University Economics Faculty
Slobodan Vuji M.Sc.
VB Leasing BH
ABSTRACT
The paper is aimed at establishing managers motives for the transformation

of a non-prot organization into a for-prot organization on the example of micro-credit organization (MCO), as well as managers views on whether the MCO
transformation from a non-prot into a for-prot one will cause problems in the
implementation of the MCOs vision and mission, problems in the cooperation
with Banking Agency, problems in employees adjustment to managers plans.
In B-H, micro-credit organizations operate as non-prot organizations. Pursuant to recent legal solutions in B-H, micro-credit organizations can be transformed
into for-prot organizations. The decision and motive for the transformation include MCO managers expectation that the transformation into a for-prot organization will result both in an increase in the MCOs protability and in an increase
in the market share, the number of clients and the reduction of poverty.
The study will use primary research among MCO managers, other stakeholders,
chambers of commerce, employment agencies, and other bodies related to MCO
operations. Scientic analysis will establish motives for the transformation and
managers expectations related to the MCO protability, market share, number of
clients and reduction of poverty.
JEL classication: D03, D23, L3
Key words: Non-prot organizations, micro-credit organizations, transformation, managers motives.
878
Saa Vuji Slobodan Vuji
1. INTRODUCTION
In B-H, microcredit organizations have been operating as non-prot organizations since late 2006. Microcredit organizations base their goals on the combination of banking and social goals.1 Pursuant to new legal solutions in FB-H and
RS, microcredit activities are regulated in a way that microcredit organizations are
involved in providing microcredits as a for-prot activity. However, the legislator
allows founders to register as a microcredit foundation as well.2
The fundamental goal of both conventional and non-prot marketing is the
satisfaction of individual (or shared) needs. However, the goal derived from the
fundamental one in obtaining a prot in the case of conventional marketing, while
in the case of non-prot marketing it should primarily be obtaining general social
benet, or an appropriate contribution to obtaining it.3 A microcredit organization is involved in the microcrediting activity with the aim of improving the microcredit users nancial position, increasing employment, providing support to the
development of entrepreneurship and gaining prot.4
2. RESULTS OF RESEARCH INTO MANAGERS MOTIVES FOR TRANSFORMATION
The main motive of transforming a non-prot microcredit organization into a

for-prot one is the expectation of better and more successful operation, increased
turnover, increased market share, more protable and economical business, which
will be expressed through increased prot and achieved goals of owners and investors into the for-prot microcredit organization. Prot, as a result of doing business, is a source of investors condence and motivates them to buy shares, which
in turn leads to the increase in their price. This directly opens the possibility of the
organizations faster and easier growth in its striving to achieve future goals. This
view implies that prot is not merely a result, which is a frequently emphasized
marketing view, but also a source of the companys future competitive health and
2
3
4
Vuji mr. Saa, Mikrokreditne organizacije i mikrokrediti, Sarajevo, 2008. god., Ekonomski fakultet Sarajevo, pp. 40. - 42.
Law on Microcrdit Organizations, Ocial Gazette of FB/H, issue 59/06, Art.4.
Marcel Meler, Neprotni marketing, Sveuilite u Osijeku, 2003., p. 62.
Law on Microcrdit Organizations, Ocial Gazette of FB/H, issue 59/06, Art. 15.
879
wealth.5 Organizations that know who they are and which path they are pursuing
make the best business decisions.6
In order to conrm or reject the listed assumptions, we conducted specic primary research. Surveys were conducted with: microcredit organizations managers,
founders, banks and investors, and representatives of the chamber of commerce,
employment bureau and other bodies in charge of microcredit organizations
operation.
2.1. Managers expectations of the eect of MCOs transformation from a nonprot to a for-prot one
Recognition and development of opportunities must be continuously managed. Identifying, understanding and forecasting change in environment must be
focused on recognizing and developing opportunities, which range from evident
to unimaginable and should be brought to the surface.7 MCO managers were
asked questions pertaining to their expectations after the MCOs transformation
from a non-prot to a for-prot in terms of greater freedom of activity, increased
market share, increased credit volume, exibility of product range, protability,
rewarding system and freedom in oer. Responses were provided by twenty-ve
managers of the most important MCO organizations in B-H, and their responses
are summarized in the following table:
V. Babi-Hodovi i M. esti, Marketing menadment, Ekonomski fakultet Sarajevo, 2006, p.

43.
Harding D., Rovit S., Preuzimanje i spajanje poduzea, Harvard Business School Press, Masmedia
d.o.o., Zagreb, 2004, p.46.
Collins Eliza G.C., Mary Anne Devanna, (2002), Izazovi menadmenta u XXI. stoljeu, J. Wiley
& sons, Inc, prevod Mate, Zagreb, p. 341
880
Table 1: DO YOU BELIEVE THAT MCOS TRANSFORMATION FROM A NON-PROFIT INTO A PROFIT ONE WILL
AFFECT:8
No.
QUESTION
STRONGLY
DISAGREE
DISAGREE
NEITHER
AGREE NOT
DISAGREE
AGREE
STRONGLY
AGREE
TOTAL
a.
GREATER FREEDOM
OF OPERATION
12,0%
8,0%
12,0%
32,0%
36,0%
100,0%
b.
INCREASED MARKET
SHARE
0,0%
0,0%
12,0%
40,0%
48,0%
100,0%
c.
INCREASED CREDIT
VOLUME
0,0%
0,0%
8,0%
52,0%
40,0%
100,0%
d.
FLEXIBILITY OF
PRODUCT RANGE
0,0%
0,0%
0,0%
60,0%
40,0%
100,0%
e.
GREATER
PROFITABILITY
0,0%
0,0%
0,0%
36,0%
64,0%
100,0%
f.
BETTER REWARDING
SYSTEM
0,0%
0,0%
8,0%
52,0%
40,0%
100,0%
g.
GREATER FREEDOM
OF OFFER
0,0%
0,0%
0,0%
72,0%
28,0%
100,0%
NOTE: Responses were provided by MCO managers.
Research results are as follows:

a) Managers expect that they will have a greater freedom to act upon the MCOs
transformation from a non-prot into a for-prot one.
b) With respect to the question if they expect an increase in market share upon
the MCOs transformation from a non-prot into a for-prot one, most MCO
managers expect an increase in market share after the transformation has been
completed. The responses are interesting in that not a single manager expects a
decrease in market share.
c) With respect to the questions if the MCOs transformation from a non-prot
into a for-prot one will result in the increase in credit volume, all the managers
forecast an expansion of the credit volume upon the transformation into a forprot organization.
d) With respect to the questions in the exibility of product range will increase
upon the MCOs transformation into a for-prot organization, all managers
responded that the range will become exible.
Vuji S. (2009), Research results, authors data collection.
881
e) For the question if managers expect a greater MCOs protability after the transformation, armative responses, that the MCOs protability will increase,
prevail.
f ) Managers expect a better rewarding system in the new transformed, for-prot
MCO compared to the non-prot MCO. No respondent expects a worsening
in the rewarding system.
g) With respect to the question if they expect a greater freedom in oer after the
MCOs transformation from a non-prot into a for-prot one, all managers
agree that the freedom in oer will increase. 72.0% agree and 28.0% strongly
agree, while no respondent expects that the freedom will decrease after the MCO
has been transformed into a for-prot form.
2.2. Managers views on potential problems upon the MCOs transformation
from a non-prot into a for-prot one
The second group of questions for the surveyed MCO managers pertained to
their view on whether the MCOs transformation from a non-prot into a for-profit one will cause problems in: implementation of the MCOs vision and mission,
its cooperation with the Banking Agency, employee adjustment and adjustment to
managers plans. Responses to these questions were given by MCO managers, and
they are summarized in the following table:
Table 2: DO YOU BELIEVE THAT THE MCOs TRANSFORMATION FROM A NON-PROFIT INTO A FOR-PROFIT ONE
WILL CAUSE PROBLEMS IN:9
No.
QUESTION
STRONGLY
DISAGREE
DISAGREE
NEITHER
AGREE NOT
DISAGREE
AGREE
STRONGLY
AGREE
TOTAL
a.
IMPLEMENTATION OF
MCO's VISION AND MISSION
4,0%
8,0%
36,0%
24,0%
28,0%
100,0%
b.
COOPERATION WITH
BANKING AGENCY
32,0%
16,0%
32,0%
8,0%
12,0%
100,0%
c.
EMPLOYEE ADJUSTMENT
4,0%
12,0%
16,0%
48,0%
20,0%
100,0%
d.
ADJUSTMENT TO
MANAGERS' PLANS
8,0%
12,0%
36,0%
36,0%
8,0%
100,0%
NOTE: Responses were provided by MCO managers.
882

a) To the question if they believe that the MCOs transformation from a non-prot
into a for-prot one will cause problems in implementing the MCOs vision and
mission, MCO managers responded that they expect problems (24.0% agree and
28.0% strongly agree), while 36.0% were undecided. These responses indicate
that the MCOs vision and mission should be re-dened upon its transformation
and adjusted to the newly expected situation and focus on protability.
b) MCO managers responses to the question whether they expect problems in the
cooperation with the Banking Agency after the transformation are as follows:
48% do not expect problems; however, 32.0% neither agree nor disagree, while
only 20.0% surveyed expect problems.
c) After the MCOs transformation from a non-prot into a for-prot one, expectations related to problems with employees adjustment to new business goals
and dierent tasks point to the need for additional discussions, instructions and
employee training aimed at decreasing problems in employee adjustment to operation and business of a for-prot MCO organization.
d) With respect to the question whether there will be problems in adjustment
to managers plans upon the MCOs transformation from a non-prot into a
for-prot one, responses are fairly dispersed, which partly indicates that MCO
managers themselves are not fully aware what they can expect after the MCOs
transformation into a for-prot organization.
3. RESULTS OF RESEARCH INTO TRANSFORMATION IMPACT
3.1. Views of other stakeholders (founders, banks and investors) on the impact of MCOs transformation from a non-prot into a for-prot one
Other stakeholders (founders, banks and investors) were surveyed with the
questions if they believe that the MCOs transformation from a non-prot into
a for-prot one will aect the MCOs successful operation, increase in its market
share, better return on capital, decrease in interest rate, and increase in the number
of clients. Due to the expected increase in the activity volume and a great number
of potential users, it is impossible to satisfy all the users and dierent needs. Ac-
883
cording to Kotler,10 the central topic is making decision on who should be the
target audience (target users), and what kind of behaviour should be produced in
them. Responses to these questions are summarized in the table:
Table 3: DO YOU BELIEVE THAT THE MCOs TRANSFORMATION FROM A NON-PROFIT INTO A FOR-PROFIT ONE
WILL AFFECT FOLLOWING:11
No.
QUESTION
STRONGLY
DISAGREE
DISAGREE
NEITHER
AGREE NOR
DISAGREE
AGREE
STRONGLY
AGREE
TOTAL
a.
SUCCESSFUL
BUSINESS
0,0%
0,0%
0,0%
60,0%
40,0%
100,0%
b.
INCREASED
MARKET SHARE
0,0%
0,0%
0,0%
20,0%
80,0%
100,0%
c.
BETTER RETURN ON
CAPITAL
0,0%
0,0%
40,0%
40,0%
20,0%
100,0%
d.
DECREASED
INTEREST RATE
0,0%
20,0%
40,0%
20,0%
20,0%
100,0%
e.
INCREASED
NUMBER OF
CLIENTS
0,0%
0,0%
20,0%
60,0%
20,0%
100,0%
Note: Responses were provided by founders, banks and investors.

a) Stakeholders expectations after the transformation from a non-prot into
a for-prot organization are favourable, since they expect more successful
operations.
b) Stakeholders expect an increase in market share upon MCO transformation
(80.0% strongly agree, and 20.0% agree that market share will increase).
c) Stakeholders expect better return on capital (40.0% agree, and 20.0% strongly agree). However, as many as 40.0% are unsure, since they responded that
they neither agree nor disagree. In the transformation process, MCO management should clarify, to stakeholders, the issue of return on capital so that
they could also accept the estimate that return on capital will be better upon
the transformation from a non-prot into a for-prot form.
10
11
Filip Kotler i Alan Andreasen, Strategic Marketing For Nonprot Organizations prilagoeno u
knjizi Jurica Pavii, Strategija marketinga neprotnih organizacija, Masmedia, Zagreb, 2003, p.
143.
884
d) With respect to the decrease in interest rate, stakeholders expectations are

fairly dispersed (20.0% disagree that the interest rate will decrease, while
40.0% neither agree nor disagree). It is not completely clear what will happen with the interest rate upon the transformation from a non-prot into a
for-prot organization.
e) Stakeholders expectations with respect to the increase in the number of clients are that the number of clients will increase (80.0% agree or strongly
agree); however, 20.0% neither agree nor disagree.
3.2. Views of chambers of commerce, employment agency and other bodies
related to MCO operations
The next group of questions was intended for chambers of commerce, employment agency, and other bodies related to MCO operations. They were asked ve
questions to which they responded, which pertained to their view on whether
the MCO transformation from a non-prot into a for-prot organization will affect: increase in MCOs protability, more diverse oer, increase in the number of
MCOs clients, decrease in interest rates, and reduction of poverty. Responses to
these questions are summarized in the table:
Table 4: DO YOU BELIEVE THAT MCOs TRANSFORMATION FROM A NON-PROFIT INTO A FOR-PROFIT ORGANIZATION WILL AFFECT FOLLOWING:12
No.
QUESTION
STRONGLY
DISAGREE
DISAGREE
NEITHER
AGREE NOR
DISAGREE
AGREE
STRONGLY
AGREE
TOTAL
a.
INCREASE IN MCO's
PROFIATBILITY
0,0%
0,0%
14,3%
71,4%
14,3%
100,0%
b.
MORE DIVERSE MCO's

OFFER
0,0%
0,0%
0,0%
85,7%
14,3%
100,0%
c.
INCREASE IN THE NUMBER

OF CLIENTS
0,0%
0,0%
14,3%
57,1%
28,6%
100,0%
d.
DECREASED INTEREST
RATES
14,3%
14,3%
57,1%
14,3%
0,0%
100,0%
e.
REDUCTION OF POVERTY
0,0%
0,0%
0,0%
57,1%
42,9%
100,0%
NOTE: Responses were provded by the chamber of commerce, employment agency, and other
bodies related to MCO operation.
12
885
a) Upon the transformation, most respondents responded: that MCOs protability will increase, although 14.3% neither agree nor disagree. No response
forecasts a decrease in protability upon the MCO transformation from a
non-prot into a for-prot organization.
b) This group of respondents expects a more diverse MCOs oer. NO response
expressed a dierent view, i.e. that oer will be less diverse.
c) The respondents expectations after the transformation are: 57.1% expect
an increase in the number of clients, while 14.3% did not dene their view.
No respondent expects a decrease in the number of MCOs clients upon its
transformation.
d) 28.6% disagree with the statement that interest rates will decrease, 57.1% did
not dene their view, 14.3% believes that interest rates will decrease while no
respondent is determined that interest rates will decrease.
e) All respondents replied that they expect poverty to be reduced. No respondent anticipates that poverty will not be reduced.
4. CONCLUSION
Based on our research, the main motive of MCO managers for MCO transformation from a non-prot into a for-prot organization is their expectation that the
market share will increase, since no manager expects a decrease in market share.
Managers expect the credit volume to increase, a greater freedom of operation,
greater exibility of product range, better rewarding system, and greater freedom in
oer, as well as greater protability. As their motive for transformation, stakeholders list the successful MCOs operation upon the transformation, i.e. no founder,
bank or investor expects slower business. They expect an increase in MCOs market share upon the transformation. Research indicated that it is not quite clear to
stakeholders, i.e. that they are uncertain about what will happen with the interest
rate upon the transformation. Besides, they do not expect that the number of clients will decrease, although a high percentage does not have a clearly dened view.
Founders, banks and investors assess the MCOs transformation from a non-prot
to a for-prot form favourably, and their motive includes expectations that new
MCOs of the for-prot form will have successful business, that they will increase
their market share, have a better return on capital, and increase the number of
clients. No response predicts a decrease in protability. With respect to expecta-
886
tions by chambers of commerce, employment agency, and other bodies related to

MCO operations, most of them do not expect a decrease in the number of MCO
clients upon its transformation, but a signicant percentage does not have a clearly
dened view on the number of clients upon the transformation. Most respondents
(chambers of commerce, employment agency, and other bodies related to MCO
operations) are not decided about a decrease in interest rates.
REFERENCES
1. Collins Eliza G.C., Mary Anne Devanna, (2002), Izazovi menadmenta u XXI.
stoljeu, J. Wiley & sons, Inc, prevod Mate, Zagreb.
2. Filip Kotler i Alan Andreasen, Strategic Marketing For Nonprot Organizations prilagoeno u knjizi Jurica Pavii, Strategija marketinga neprotnih organizacija, Masmedia, Zagreb.
3. Harding D., Rovit S., Preuzimanje i spajanje poduzea,(2004), Harvard Business School Press, Masmedia d.o.o., Zagreb.
4. Marcel Meler, Neprotni marketing,(2003), Sveuilite u Osijeku.
5. V. Babi-Hodovi i M. esti, Marketing menadment,(2006), Ekonomski
fakultet Sarajevo.
6. Vuji Saa, Mikrokreditne organizacije i mikrokrediti, (2008)., Ekonomski
fakultet Sarajevo.
7. Zakon o mikrokreditnim organizacijama, Slubene novine FBiH, broj 59/06
HUNGARY AND THE NEIGHBOURING COUNTRIES INNOVATION POSITION ...
887
HUNGARY AND THE NEIGHBOURING COUNTRIES

INNOVATION POSITION BASED ON EUROPEAN DATA
Laszlo Sitanyi
Hungary
ABSTRACT
With the present study I wanted to achieve three goals. Based on the secondary
analysis carried out in summer 2009 - of the data of the European Innovation
Scoreboard between 2000 and 2008 I wanted to point out the importance of
social capital, which among others has a signicant role in establishing the networks necessary to the development of innovation. After that I wished to present
a method. With this method the changes of many years in the relative position of
each country can be demonstrated despite the annually modied indicators. And
nally with the help of this method I wished to dene the position of Hungary and
the neighbouring countries on a relative European innovation plane.
Keywords: Social capital, innovation, relative European innovation plane
INTRODUCTION
Hungary has set out on the path of convergence in the past few years could be read
on page 7 in the 2009-2010 Hungarian Research Development and Innovation
Action Programme (INNOVATIVE HUNGARY PROGRAMME 2009). Is it really like that? Or is it just the usual magic formula, i.e. if we keep saying it, maybe
others will also believe it, and nally it will come true? It is good, if it is so, but if it
is not true and we cherish illusions, it will be a problem in the long run. Because, if
it is not like that, we can deceive only ourselves. The world, and by now our neighbours belonging to Europe (since all our neighbours belong to Europe from an economic point of view, no matter they are members of the European Union or not)
are not interested in our by-gone glory1. Today people buy products and services
1
Between the two World Wars our country set an example to the world in research-development and
in how to put the results successfully into practice after the appropriate selection of focus. (Innova-
888
Laszlo Sitanyi
in an ever accelerating competition, where a few months dierence can determine

the market fate of each product. Revelation and sincere assessment of our position;
these are the bases to initiate all developments. Every student studying regional
development in higher education knows that. Lets take a look at where we are on
this path of convergence and lets be realistic! Let us not compare ourselves to the
worlds most developed countries, but to our neighbours who also do not have
the most developed innovation achievements2 in Europe and worldwide.
As we know innovation systems can be distinguished not only at national, but
also at global, regional levels, and even in the local networks, industrial corporation
groups and clusters of rms. Still, the system needs to be examined at a national
level as well, because the national attributes from a given countrys viewpoint may
have an inuence on the development of other levels (Pap N. Sitnyi L. 2007).
Although the global-local economic and social processes taking eect in parallel
resulted in the weakening of the national level in the past two decades, LUNDVALL (1988) still deems their further analysis important because of the role of
common language and common culture.
The author of this article attempts to draw the relative innovation path of the
six neighbouring countries of In-Between Europe (Figures 15, 16 and 17) and also
to demonstrate their position on the relative European innovation basis. For this
the author has studied the European Innovation Scoreboard, EIS established at
the initiative of the European Union under the Lisbon Strategy year by year, and
its major changes with the help of a graph (Figure 1) as well as the change of the
innovation indicators in a table (Appendix 1 Table 5).
The comparative method dened and demonstrated in the article in full details
can be applied to the demonstration of the relative position of any European blocks
of countries or others outside Europe.
tive Hungary Program 2009 pp.7.)

Obviously we are aware that innovation and the increase of innovation performance itself is not a
goal. However, we also know that corporate innovation improves the rms innovation performance
and eciency. Similarly the countries innovation activities and their support can improve their
economic performance.
889
MEASURING INNOVATION PERFORMANCE IN THE EU
The Organization for Economic Cooperation and Development, OECD has

been developing the system of statistical methodologies, recommendations, and
denitions promoting the measurement of innovation and research, development
(R&D) since the mid seventies. A manual-family is the basis of it, and the manuals were named (OECD 1992, OECD 1993, OECD 1995) after the places where
they had been accepted (Frascati, Oslo, Canberra).
At present forty studies and database can be found on the organizations home
page (OECD 2009). On the one hand they include reports, innovation analyses,
surveys, statistics, and data. On the other hand they are manuals, which recommend research methodologies and questionnaires, indicators. All innovation related writings of today are based on the principles dened in these documents,
which greatly contribute to the measuring of the achieved results in the innovation
improvement of dierent countries, blocks of countries and regions as well as to the
comparison of these data.
The EU innovation statistic system and its database - established based on the
resolution of the Lisbon Strategy of the European Council (European Council,
2000) - are based on the fundamental principles dened in the OECD documents.
At the same time the European Council also established the institution of the European Innovation Scoreboard, EIS, which includes the innovation statistical data
of the EU Member States, associated countries, candidate countries, Japan and the
United States3.
The system has been successful internationally; the preparations of the Italian
National Research Council, (CNR-IRPPS) led to the establishment of the Global
Innovation Scoreboard, (GIS) system, calculated rst in 2006. The innovation performance of the 34 countries, included in the EIS 2006 report (25 EU Member
States and nine more countries4) and beyond that 14 other countries5 spending
the most on R&D were examined. (ARCHIBUGI D. AT. AL. , pp..). In this
global summary, so-called GIS index the number of indicators was decreased to its
third, since some data were not accessible to the extended countries. Thus in 2008
3
4
5
Because of international comparability and to achieve the set goals in Lisbon by the European
Council.
Bulgaria, Croatia, Romania, Turkey, Iceland, Norway, Switzerland, the US and Japan
China, Republic of Korea, Canada, Brazil, Australia, Israel, India, Russian Federation, Mexico,
Singapore, Hong Kong, Argentina, South Africa, and New Zealand
890
Laszlo Sitanyi
calculations were made based on 9 EIS-2008 indicators instead of 29 (EIS6 2008

pp.25). Because of the above mentioned reasons in the present article we will dwell
upon the EIS system since:
1) The Global Innovation Scoreboard (GIS) due to the reduced number of
indicators can show the innovation performance of a given country less
accurately;
2) We have to place our country primarily on the innovation map of Europe,
and within it in the southern part of In-Between Europe7, and to do so the
EIS is a suitable base.
THE CHANGING OF THE EUS INNOVATION STATISTICAL SYSTEM 20002010
Nowadays it has been generally accepted in relating literature that innovation

and the innovation environment, milieu (CAMAGNI, P.R. 1992) is a social and
economic phenomenon, which is hard to be grasped or measured and something
which is also very complex and dependant on numerous factors. This statement is
supported by the fact (and the statistical apparatus destined for measuring it since
2000) that the types of data and their gathering, the method of comparing and analyzing them have been continuously developing, changing and rening (European
Innovation Scoreboard, EIS ).
Not only the measurement, but also the institutions requested to collect
data, make analyses (Community Research and Development Information Service
CORDIS, Trendchart, Pro Inno Europe, UNU-MERIT) changed during the nine
years of EIS. Data used in the present article were available mostly on the homepages of the listed institutions. At present (July 2009) the Pro Inno Europe, the innovation initiation of the Directorate-General for Enterprise and Industry) is taking care of them. The majority of the summary annual reports, partial analyses, and
methodological publications have been carried out by the Maastricht Economic and
Social Research and training centre on Innovation and Technology (UNU-MERIT)
from the very beginning with the help of various partners. A key to the success of
EIS is that in the rst decade of its history it preserved and still sticks to some of
6
Published: EIS, European Innovation Scoreboard (2008) Comparative Analysis of Innovation Performance. Maastricht Economic Research Institute on Innovation and Technology (UNU-MERIT), Luxembourg, p.58
After Pndi Lajos (1995) the geographical strip, the moving border of the modern-age Europe,
stretching from the Baltic Sea to the Aegean Sea is called In-Between Europe. (Pndi L. 1995)
891
its basic principles passed when the institution was established (HOLLANDERS,
H. VAN CRUYSEN, A.).
Simplicity: Only the necessary changes are carried out on innovation indicators, thus they can be compared with previous studies and the number of them
could be limited8 during the years (Figure 1.).
Transparency, publicity: all results can be recalculated, controlled; not only the
annual reports but also methodologies, calculation methods9 are available on
the Internet;
Continuity: Even if there were signicant changes in every 2-3 years, they
have never exceeded by 1/3, therefore the data remained comparable, and the
trends remained veriable (appendix 1, table 3.)
1. Figure: Changes of the EIS indicators and the studied countries, deviations compared to the previous year,
2000-2008
Source: construction by Sitnyi L. (2009) based on EIS (2000-2008) [EIS 2000-2008 and
HU.xls]
For example the FORA Innovation Monitor (FORA, 2007) applies more than 170 indicators, most
of them developed by itself.
Most of the data are published in Excel format and it also supports calculability.
892
Laszlo Sitanyi
Since researchers have been developing the system annually and/or taking new
viewpoints into account, we can get the most thorough picture of EIS if we survey the changes, results one after the other by the short summary of the annual
changes.
EUROPEAN INNOVATION SCOREBOARD, 2001
2. Figure: Summary innovation index and its change in 2001
Source: European Innovation Scoreboard, (2001. pp.12.)
Following the 2000 pilot project the rst entire report was published in 2001.
The report covered 17 countries, the 15 EU member states, the United States, and
Japan. In the rst three years of EIS the analyses were carried out jointly by the
research workers of UNU-MERIT and the Science and Technology policy research
University (SPRU) and were published on the homepage of CORDIS (www.cordis.
lu). The indicators were grouped into four categories:
Human resources;
Knowledge creation;
Transmission and adoption of the new knowledge;
Innovation nancing, output and markets.
893
The Summary Innovation Index (SII) was formed based on 18 innovation indicators (European Innovation Scoreboard10 2001 pp.8). In 2001 trend indicators
and based on their changes given in percentage development directions, average
change in trend indicators (CTI) were dened, from which the determinant trends
in innovation performance of the member states were ascertained. According to
Szendrdi (2003 pp.5) after two years of work this conclusion is rather early.
Even if it is true at that given time, later on the annual value of CTI has become a very signicant aspect of examination, one of the main results of the program. The authors already describe the characteristic, synoptic EIS-graph (Figure
2), which shows the innovation position of the examined countries plotted against
the changes of SII and CTI. Good point is that the position of countries can be
assessed in a blink; countries with identical characteristics can be seen in one
group.
In these years the sources of data originated from Eurostats data for the previous
two years, however, among the indicators characterizing small and medium entrepreneurs there were ve-year-old data (European Innovation Scoreboard, 2001.
pp.20.) therefore conclusions should be drawn carefully.
European Innovation Scoreboard, 2002
In 2002 the examination was extended to three associate11 and 13 candidate

countries12, thus the studied geographical area grew signicantly, extended beyond
the borders of EU. The number of countries (33) nearly doubled (Figure 1), however, there were only minimal changes (3%) in the 17 indicators and their classication13 (European Innovation Scoreboard 2002. pp.5.) compared to the
previous year.
Human resource supporting innovation (5 indicators),
10
11
12
13
14
Published: European Commission, Enterprise Directorate-General, Innovation Directorate, Communication and Awareness Unit, Luxembourg, p.42
Associate countries: Iceland, Norway, Switzerland
Candidate countries: Bulgaria, Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania,
Malta, Poland, Romania, Slovakia, Slovenia and Turkey
Candidate countries: Bulgaria, Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania,
Malta, Poland, Romania, Slovakia, Slovenia and Turkey
Published: European Commission, Enterprise Directorate-General, Innovation Directorate, Communication and Awareness Unit, Luxembourg, p.30
894
Laszlo Sitanyi
Creating new knowledge (3 indicators),

Transmission and adoption of knowledge (3 indicators),
Innovation nancing, output and markets (6 indicators).
Because of the slight change the data could have been comparable with the previous year, however, in the 2002 report the summary innovation index, SII and its
growth were not calculated. The exact reason for this was not described with the
exception of the experimental year it occurred only in that year - the reason for this
probably is that the indicators were not accessible in all of the countries. Because
of this the comparison of innovation performances is dicult, the accurate order
could not be set, however, from the partial data it is clear that Hungary together
with Slovenia and the Czech Republic was amidst the leaders among the candidate
countries from several aspects. The report was completed with six professional dissertations, which are the following:
1) EU member states and associate countries;
2) Candidate countries;
3) EU regions;
4) Indicators and denitions;
5) Thematic scoreboard: Lifelong learning for innovation;
6) Methodological report.
This practice, which is so useful for other research also, has continued in the
coming years; namely to publish separate studies on actual issues, and make them
accessible on the Internet.
In 2003 the number of indicators grew from 17 to 22 and the method of calculating them has also changed signicantly. The complete change compared to 2002
was 34% (Hollanders, H. van Cruysen, A. ). The indicators still werent accessible in each examined country, therefore only two summary innovation indexes
(SII-1 and SII-2) were created that year.
SII-1: The index, made of all 22 indicators is used to calculate the innovation
performance of the 15 EU Member States and the associate countries
(Iceland, Norway, and Switzerland).
895
SII-2: It is calculated based on indicators, which are accessible in each country

(unfortunately it is just a little bit more than half of all the countries:
12 pieces), which is established for all the 33 countries included in the
study.
In the 2003 report it was the rst time when the innovation position of the 33
countries was described together plotted against their summary innovation index
SII-2, Y axis) and their average Change in Trend Indicators, CTI, X axis) (Figure
3.).
According to the 2003 assessment calculated with the reduced SII-2, based on
12 indicators Estonia, the Czech Republic, Lithuania, Hungary and Slovenia are
the most innovative among the candidate countries (European Innovation Scoreboard15 2003 pp.11) and as for CTI three countries, Estonia, Latvia and Turkey
(Turkey at a very low level though) take the lead in the whole of Europe.
3. Figure: Summary innovation index and its change in 2003
The number of countries (33) did not change that year, however their denition did because of the ten new EU Member States. Besides the 25 EU Member
15
Published: European Commission, Enterprise Directorate-General, Communication and Awareness Unit, Luxembourg, p.37
896
Laszlo Sitanyi
States the EIS report showed the innovation performance of Bulgaria, Romania,
Turkey, Iceland, Norway, Switzerland, the United States, and Japan. The main indicator groups did not show any changes, but the number of indicators was reduced
by 2 to 20 (European Innovation Scoreboard16 2004 pp.8) in the following
classication:
Human resource supporting innovation (5 indicators),
Creating new knowledge (4 indicators),
Transmission and adoption of knowledge (4 indicators),
Innovation nancing, output and markets (7 indicators).
4. Figure: Summary innovation index (SII, Y axis) and its change (%, X axis) in 2004
From the usual EIS gure (Figure 4) it is clear that Hungary in the quarter of
catching up countries moved from the mid-list towards the leading countries and
in terms of average change trend indicators Hungary was overtaken only by four
countries (Bulgaria, Iceland, Portugal and Cyprus) in Europe.
16
Published: EIS (2004) Comparative Analysis of Innovation Performance, Commission Sta Working Paper, European Commission, Luxembourg, p.46
897
In 2005 based on half a decade of experiences of EIS, and in close cooperation

with the Joint Research Centre17 of the European Commission, the number of indicators was increased from 22 to 26. The methodological change was considerably
bigger since the number of indicators was not increased by four, but nine new indicators were introduced (European Innovation Scoreboard 200. pp.8.) and
ve redundant indicators, overlapping other indicators were ceased. It can be said
it was the time when the method of calculating SII was restructured to the greatest
extent in its history, the change was 35% compared to the previous year (Hollanders, H. Van Cruysen, A. 2008).
Considering the period of EIS between 2000 and 2007 most indicators were
used in 2005, the summary innovation index describes the innovation performance
and its dynamics of each country based on 26 indicators (Figure 5). It was the year
when the indicators were divided into two main categories, input and output main
themes, and within that ve qualifying dimensions were created (Sajeva, M. At. Al.
).
Input indicators19:
Innovation drivers (5 indicators)
New knowledge, knowledge creation (5 indicators);
Innovation performance of rms (6 indicators);
Output indicators20:
Applying innovation (5 indicators)
Intellectual property (5 indicators)
17
18
19
20
Joint Research Centre (JRC), Unit of Econometrics and Statistical Support to Antifraud (ESAF) of
the Institute for the Protection and Security of the Citizen (IPSC)
On the innovation input side expenses spent on education or R&D expenses can be found
On the innovation output side the number of patents, or the corporate sales coming from new innovative products can be mentioned as examples.
898
Laszlo Sitanyi
Figure 5 shows the position of each country in a coordinates system where the
summary innovation index is the vertical axis and the change of index is the horizontal axis. Again the studied countries can be divided into four groups, such as
leaders, average performers, catching up and losing ground countries. In 2005 the report illustrates their geographical positions on map (Figure 6), from which it is clear
that the leading countries are located in the northern-central part of Europe, while
the countries losing ground can be found in the southern-eastern areas (European
Innovation Scoreboard 2005). A rather obvious fact22 which probably does
not have to be proved, and which is quite apparent is that the examination of the
national indexes and their geographical illustration by countries can only be slipshod, it would be necessary to zoom at least the regional level so that the developed
and undeveloped European areas could be separated (Sitnyi L. 2008).
Figure 5: Summary innovation index (SII, Y axis) and its change (%, X axis) in 2005
21
22
It is enough if we think of the dierence for example between the northern part of Italy belonging
to the most developed part of Europe (blue banana, EU pentagon) and the undeveloped southern
part, which is burdened with economic and social problems.
899
Figure 6: Summary innovation index and groups of countries based on change (%)
Source: European Innovation Scoreboard, 2005
In 2005 a new index number and a graph describing it were introduced. The
graph determines the number of years, which are needed for a country to reach the
EU-25 average with a simple linear extrapolation. The index number was calculated on the basis of the 2005 performance and growth rate of each country and it
clearly shows that based on the 2005 trend-data, and the countries position and
rate of development the convergence of performances could not be expected in the
short run. None of the lagging behind countries had any hopes to reach the innovation average of the EU within ve years. Slovenia, Hungary (and Italy among
the candidate countries) had the chance of it in range of 8-10 years. This type of
prediction forecasts 20 years or more in 2005 for the rest of the countries.
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Laszlo Sitanyi
Figure 7: The number of years needed for each country to reach the EU-25 average
From the aspect of regional development, and generally from the aspect of development policy a very important realization of the year was that negative correlation was found between innovation performance and the variance of certain
characteristics. Data in leading countries were uniformly higher, while among less
developed countries deviance was bigger between the dierent innovation indicator
groups and dimensions.
Figure 8: Negative correlation between SII value and the variance of 7 innovation dimensions
The above statements are remarkable it is particularly interesting to see the

changes, improvements and development policy in the coming years since 2005
was that particular year when Hungary became the leading country in Europe regarding the average growth rate of the summary innovation index after years of
catching up process.
901
As you can see at rst glance from Figure 9, the authors of the EIS report created
a fth group, the very rapidly growing group besides the usual four groups (leader,
follower, catching up, trailing) in 2006. The fth group was made up of
Cyprus, one of the smallest countries of EU and
Romania, which has the highest average growth rate in Europe in 2006, although at a very low SII level.
Luxembourg, Norway and Turkey do not t any of the groups, therefore they
remained separate.
Following the signicant modication in the previous year there was only a
slight 4% methodological change in 2006 (Arundel, A. Hollanders H. 2006).
One indicator was ceased, which was responsible for measuring the university
R&D investments nanced by the business sector. Two indicators were altered,
thus the input side of innovation was measured with 15 characteristics, while
its output was measured with 10; it means a total of 25 indicators. Considering
this slight change it is even more striking how signicant the change was in terms
902
Laszlo Sitanyi
of the average growth rate of SII (Figure 8 and 9, X axis). From the lead Hungary
slides back under the EU average, Cyprus and Romania get so far from the other
countries that researchers have to form a fth group.
Since in the case of four countries the number of available indicators is considerably smaller (Turkey 14, Croatia 13, USA 15, and Japan 16) conclusions referring
to the relative position of these countries compared to the other countries calculating from these data must be drawn very carefully!
In other respects however, there was a change in the attitudes. While in the
2005 report the number of years necessary for a country to reach the EU-25 average was determined with a simple linear extrapolation, in 2006 it was announced
that innovation is not a linear process (European Innovation Scoreboard23, 2006
pp.10.) and no graph illustrating it was published. When comparing the countries
it was concluded that leading countries do better than their weaker counterparts
especially in the elds of new knowledge and knowledge-creation, innovation performance of rms and intellectual property.
A regional innovation scoreboard was published only in 2002 and 2003 for the
same 15 member states of EU. It was done again in 2006 with 25 member states
and 208 regions. In numbers it meant a 20% growth, however, because of the deciencies in the regional data of new member states they had to overcome serious
methodological obstacles. When calculating the regional innovation scoreboard the
previous 13 regional indicators had to be decreased to 7; and these were used to
make calculations and draw conclusions.
It was when the European Commission decided to prepare a regional innovation scoreboard biannually, however, the 2008 publication is still to come.
2007 is the rst year in the history of EIS when no changes were made in the
system of indicators, in the method of index calculation, therefore data can be
well compared with the previous two years between 2005 and 2006 there was
only a minimal, a 4% change thus progressions can be followed more accurately,
23
Published: EIS (2006) Comparative Analysis of Innovation Performance. Maastricht Economic

Research Institute on Innovation and Technology (MERIT) and the Joint Research Centre (JRC,
Institute for the Protection and Security of the Citizen) of the European Commission, Luxembourg, p.46
903
without distorting the methodological changes. However, the number of countries

was increased by three (Australia, Canada, Israel) to 37, and they returned to the
usual classication of four (leader, follower, moderate, catching-up). That year the
two countries possessing the highest and lowest value of SII (Sweden, Turkey) were
not assigned to any groups (Figure 10).
The relative hierarchy changed inside, but passing through among groups was
very rare between 2002 and 2007. Looking over the gures of the subsequent years
it can be said that the innovation leader and the innovation follower groups were
getting closer to each other. However the gap, the separating eld between the two
elite groups and the moderate and catching up countries is clearly perceptible and
the extent of the gap does not diminish noticeably. The 2007 calculations seem
even more reliable since the data of EU Member States, Iceland and Norway were
collected uniformly by Eurostat and 90% of them originate from the previous three
years. The fact whereas leader countries produce excellent performance in all ve
dimensions, and the follower group is also above the EU average in almost every
dimension did not change. This analysis also conrms the experiences of previous
years: lasting results can be achieved only by developing every single element of the innovation system. A visible contrast between the two elites and the two lagging behind
groups is that members of the backward groups do not produce results uniformly
in the dierent dimensions (European Innovation Scoreboard24, 2007).
24
Published: EIS (2007) Comparative Analysis of Innovation Performance. European Commission,

Directorate-General for Enterprise and Industry, Oce for Ocial Publications of the European
Communities, Luxembourg, p.60
904
Figure 11: The number of years for countries to reach the average of EU-25
Laszlo Sitanyi
905
12. Figure: The relative impact of social, economic and regulatory environment on innovation performance
Perhaps it was the reason why the graph illustrating the catching-up years, the
estimated time reaching EU average came back (abandoned in 2006). The graph
was completed with non-linear estimations. A sad fact is that in 2005 Hungary
was (together with Slovenia) in the leader group, in a below-ten-year position, and in
2007 it is next to the last. According to the 2007 linear estimation only Estonia,
the Czech Republic, Lithuania and Cyprus are below ten years. Characteristically
906
Laszlo Sitanyi
the non-linear values are much higher than these, since this model presumes the
decrease of the countries growth rate over time (Figure 11.)
2007 was the year when the impact of social, economic and regulatory environment on innovation performance was examined for the rst time, and there was an
attempt to nd the factors, which help understand they dier so much in the case
of countries and country groups. The analysis establishes that two categories are
in close relationship with the summary innovation performance: social capital and
technology ow (Figure 12).
These two categories also have eect on the level of rms innovation performance, which consists of six indicators25. The results supports that development
policy should be based on growing condence level and developing co-operation,
which can be achieved by supporting innovation networks and innovation cooperations.
It has become clear even on the basis of the brief review of eight years between
2000 and 2007 that the EIS report and its methodical instruments were acknowledged sources of measuring innovation performance of innovation tools, methods
and countries (or regions in certain years) and an ecient indicator of the SII and
CTI. It cannot be withhold though which is not a surprise in the rapidly changing world of innovation - that EIS has been severely criticised due to its inexibility
to changes and due to that it applies not the most suitable statistical indicators for
measuring innovation and leaves out of consideration the dierences in economic
structure of the increasing number of analysed countries. Recognising these, the
researchers modied the EIS methods drastically in 2008 on the basis of collected
criticisms and experiences of previous years. The objective was not to change the
new methodology within three years. Greater attention is paid to Europe than in
previous years; only ve non-EU-27 countries are analysed26. The number of indicators was increased from 25 to 29; which is not a simple increase in the number of
the indicators. Only 15 of them remained unchanged, 9 of them were supervised
and another ve were newly involved (Hollanders, H.van Cruysen, A. ).
25
26
Firm indicators: SMEs innovating in-house, SMEs cooperating in innovation, Innovation expenditures, Early stage venture capital, ICT expenditures, share of SMEs using organizational
innovation
Croatia, Turkey, Iceland, Norway and Switzerland
907
Also the grouping of the indicators changed; the previous ve innovation dimensions changed to seven; while the two major innovation groups (input/output)
were divided into the following three ones (Annex 1 /Table 6):
1) Enablers, that drivers of innovation being external to the rm activities;
2) Firm activities, eorts made by rms in innovation processes;
3) Outputs, which are the results of the rms innovation related activities.
The EIS has undergone several changes over time, mainly in 2003 and 2005
(Figure 1) and only 13 indicators were used across all Scoreboards (Annex 1 / Table
5).
The 2008 year reform addresses the following challenges:
measuring new forms of innovation;
evaluation of overall innovation performance;
improving comparability at national, regional and international levels;
measuring processes and changes over time (Hollanders van Cruysen,
).
Due to innovation processes getting gradually more complicated, new factors
were needed to be considered:
increasing role of formal and informal networks in knowledge transfer;
increasing role of service innovations parallel with the increasing share of service sector in economy;
development of new indicators in order to measure new forms of innovation
(open and user innovation, non-R&D innovations) (Arundel, A. at al. 2008).
Although the change is higher than 30% similarly to that in 2003 and 2005,
the consequence of the measuring method is shown by that the earlier four groups
(innovation leaders, innovation followers, moderate innovators and catching-up
countries) remained almost the same (Figure 13) and only three countries changed
their groups27. The gap between the most innovator and the least innovator groups
is similarly visible to that in 2007 (European Innovation Scoreboard28, 2008 pp.9).
27
28
Leaders (1) remain the same, Iceland fell into the group moderate innovators(2) from followers(3) while Portugal and Greece stepped into the group moderate innovators (3) from catching
up countries(4).
Published by EIS (2008) Comparative Analysis of Innovation Performance. Maastricht Economic
Research Institute on Innovation and Technology (UNU-MERIT), Luxembourg, p.58
908
Laszlo Sitanyi
It is similarly seen in 2008 that had been reported in 2005 (Figure 8) already,
that is, the pattern of innovation performance is more balanced in developed countries. The dierence between the two more and less developed groups is even more
visible across the new indicator and measure system from this aspect, when the
overall variance across the seven dimensions is considered:
the heterogeneity is rather small within the groups innovation leaders and followers (0,14%);
while this gure is higher in case of moderate innovators and catching-up countries (0,65% and 0,63%).
Figure 13: Summary Innovation Index (SII) and its average annual growth (%) in 2008
Source: European Innovation Scoreboard, (2008)
Figure 14 shows the signicant dierences found between the development levels across the dimensions. In addition, this dierence is still visible when the average gures of the country groups were considered; although the use of averages may
have had a balancing eect.
909
Figure 14: Innovation performance in country groups by 7 dimensions in 2008
Source: European Innovation Scoreboard, (2008)
Hungarys performance is very low in three out of the seven dimensions:

Hungary is the one before the last country from the aspect of the output value
of innovation (Innovators),
Only three countries follow us in Finance and support (investment in
innovation),
And in Human resource the country stands at the 28th place followed by
only four countries in the rank order. (European Innovation Scoreboard, 2008
pp.16.)
In addition, considering the CTI, the countrys growth performance is also the
worst in Human resource: it overtakes only two countries on the 30th place (European Innovation Scoreboard, 2008 pp.16.).
GENERAL CRITICS ON THE EIS REPORTS 20012007
Apart from the undoubted positives listed in the EIS reports analyses and consequences and reviewed in Point 3 Paragraph 1 and in the current point as well
several evident mistakes can be found. These can be illustrated, for instance, with
two Hungarian examples:
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Laszlo Sitanyi
Hungary was the rst in 2005 in Europe from the aspect of the average annual
growth rate of SII;
While in the next year it was lower than the EU average;
or:
While the linear estimation for reaching the EU average was 8 years in 2005;
In 2007 it was 34 years.
As because it is not likely that the overall innovation system of a certain country
changes at such speed in such a short time, we assume rightly that the calculation
methods need further renement.
EIS researchers were criticised by experts of other countries as well. These can be
summarised in the following:
Methodology is not exible to changes;
The methodology lacks an underlying theoretical model that describes the
input, transmitting and output parameters of innovation processes;
It applies not the most suitable statistical indicators for measuring
innovation;
It leaves out of consideration the dierences of economic structures of the
increasing number of involved countries;
The ve innovation dimensions been introduced in 2005 (Sajeva, M. at al.) do
not cover several aspects of innovation processes29.
Hariolf Grupp (2006), Adriana van Cruysen s Hugo Hollanders (2008), and
Christian Rammer (2005) mention further interesting aspects in their works; out
of them, the following are the most important:
The use of a single composite indicator and of the growth rate of it leads to the
threat that we miss the complexity of the process behind (Grupp 2006). This
is proven by the examples of Hungary mentioned above;
Too many indicators measure innovation in high-tech industries. This would
bias innovation performance in favour of those countries with industries specialised in high-tech industries, in particular in high-tech manufacturing;
29
Especially it is relevant for non-tech and non R&D innovations, social-economic conditions and
the nancing of innovation activities.
911
Many of the indicators are highly correlated and these indicators may thus
capture and measure the same underlying aspect of the innovation process,
which would thus create a bias towards these aspects;
In case of numerous indicators data for countries are either not available or
old30, which runs the risk of comparing the innovation performance across
countries fairly;
Higher value of the indicator not necessarily reects a better innovation performance31. It is a relating question whether what is the optimal value for
given indicator, which results in the best innovation performance. In addition,
these optimal values may also dier across countries. (Rammer 2005)
SUMMARY
The group of analysed countries
The geographic area analysed from the aspect of innovation is primarily Hungary, therefore, those countries ant their innovation performance and environment
were investigated that are comparable with Hungary in terms of their social, economic and geographic parameters. The author believes that realistic picture on
these South-Eastern European countries can be obtained when their innovation
processes are examined in a comparative environment on the basis of data of similar
countries. Hence, many common social-economic features inuencing the innovation environment of these countries can be found (not diminishing the role of
many other economic, historical and mental dierences):
All of these countries are situated on the Southern part of Middle Europe, in
the moving border zone of the modern history of Europe (Pndi L. 1995)
They have experienced a socialist planned economy of four decades;
In the nineties, they tried to catch up to Europe and create the preconditions
of EU-accession in an environment continuously undergoing privatisation in
ways that are dierent in details but typical as well for the transitional EasternEuropean economy;
30
31
Both of them can be illustrated with examples: the rst one in the EIS 2006, the second in the EIS
2001 reports.
Such an indicator can be for instance the proportional share of enterprises, which are supported
from public funds for innovation purposes.
912
Laszlo Sitanyi
These countries joined to the EU in 200432, their society and economy has
become open and they needed to harmonise their legal system with acquis
communautaire.
Concluding from the above mentioned, it is advisable to analyse six countries:
Bulgaria, Croatia, Hungary, Romania, Slovakia and Slovenia. Of course, it is possible to analyse the relative innovation cycle of any other country group with the
help of the method to be described in the following two chapters.
Illustration of processes of many years
Looking at the typical EIS graphs that illustrates the situation of the countries
in a way that it is visible at rst glance, the reader can gure out what innovation
cycle the countries underwent. However, it is rather dicult to trace more countries; and a very good visual memory is needed in order to assess these countries
comparative situation that changes from year to year. In addition, reviewing the
summary of the EIS reports - which although is not long in time but huge due to
the continuous changes - will show that the calculations would be very complicated
to illustrate the changes on one single graph.
The idea seems to be obvious that it would be good to picture these innovation
paths and draw conclusions from it. Instead of abstract data, a graph provides a
visible picture on the ways how the innovation performance was inuenced by the
government innovation-related activities, and on how the supporting systems of
the national and regional innovation networks operate. This picture may help to
dispel misbelieves, evaluate real situation and foster good development directions.
Analysts of EIS have partly done it ocially: the SII index was annually recalculated according to the new methodology retrospectively for ve years from year
2006. because these recalculations were done according to the applied methodology in the given year33, these recalculated SII gures vary from those published
in earlier EIS reports. In his analysis, the author presuming that the system of data
32
33
Bulgaria and Romania in 2007, while Croatia is actually listed in the group of candidate countries
and their data can be found in the EIS system from 2006. Unfortunately data are not available on
Serbia and Bosnia.
For example: The SII has also been calculated retrospectively using the EIS 2008 methodology
for the last ve years to enable comparability of results; the SII time series is provided in Annex D
(EIS 2008, pp.8 and pp.58)
913
collection and the way of calculation developed considered the SII indices calculated for the last time in years where gures were recalculated.
As the rst year was 2002 when the six countries involved in the analysis appeared in the reports, the countries SII indices in 2002 came from the retrospective
recalculation in year 2006, those for 2003 from the EIS Report 2007, and - considering them to be the newest - those between 2004 and 2008 from the EIS Report
2008, as these data were recalculated retrospectively for ve years according to the
new results and methodology (Table 1).
Table 1: Summary Innovation Index for the six involved countries (SII) between 2002 and 2008
Year of
calculation
SII gures
BG
HR
HU
RO
SI
SK
Min
Max
According
to EIS2002
0.203
0.262
0.263
0.155
0.321
0.236
0.097
0.762
According
to SII-2007
2003
0.201
0.240
0.241
0.156
0.323
0.227
0.093
0.817
According to EIS-2008
2004
0.172
0.278
0.266
0.209
0.388
0.257
0.172
0.612
2005
0.174
0.286
0.273
0.205
0.393
0.273
0.174
0.615
2006
0.178
0.282
0.287
0.223
0.412
0.298
0.178
0.637
2007
0.206
0.289
0.305
0.249
0.429
0.299
0.206
0.661
2008
0.221
0.293
0.316
0.277
0.446
0.314
0.205
0.681
Source: Own construction based on EIS 2006, 2007, 2008; Annex D
Of course, the fact that the later calculated gures are closer to the reality is an
assumption, but as it will be seen in the following it is not necessary to accept
the retrospective calculation method for the relative calculation method, too. Of
course, if anyone disagrees with the retrospective calculations, data for any years
can be produced by relative calculation of the originally published data (by its
nature).
For given year the relative SII can be calculated for i country with the following formula:
SII
rel
i
[%] =
SII SII
SII SII
i
max
min
100
min
where SIImin is the minimum, SIImax is the maximum SII gure and SIIi is the gure
for i country.
914
Laszlo Sitanyi
Table 2: Relative SII (SIIrel) for the six involved countries between 2002 and 2008
Range
SIIrel
BG
HR
HU
RO
SI
SK
0.665
2002
15.96%
24.79%
25.02%
8.73%
33.80%
20.99%
0.724
2003
14.94%
20.30%
20.48%
8.76%
31.80%
18.46%
0.440
2004
0.00%
24.15%
21.25%
8.32%
49.08%
19.35%
0.441
2005
0.00%
25.40%
22.46%
7.00%
49.73%
22.48%
0.459
2006
0.00%
22.52%
23.78%
9.65%
51.00%
26.17%
0.456
2007
0.00%
18.27%
21.81%
9.43%
48.96%
20.54%
0.477
2008
3.44%
18.55%
23.32%
15.18%
50.60%
22.86%
Source: Own calculation based on Table 4
Figure 15: Relative innovation performance (SIIrel) of the involved six countries between 2002 and 2008
6 orszg SIIrel(%) rtke, 2002-2008
SIIrel (%)
BG
60%
HR
HU
50%
RO
SI
40%
SK
30%
EIS (2006-2008
Annex D)
alapjn szerk.:
Sitny i L. (2009)
20%
10%
0%
2001
2002
2003
2004
-10%
2005
2006
2007
2008
2009
vek
The innovation path of the analysed countries is pictured by the graph of the
annual relative SII data (Figure 15). Figure 15 shows that the innovation performances of the analysed countries are varying in the lower quartile of the European
SII level. Except for Slovenia, where the SII gure reaches double of the previous
ones, and since 2004 it has levelled around 50%.
915
Unfortunately, the average CTI indicators (Change Trend Indicators) were not
calculated retrospectively according to the new methodology; but the method of
relative calculation can be used here as well similarly to the case of SII and according to the following formula:
CTI
rel
i
[%] =
CTI CTI
CTI CTI
i
max
min
100
min
where CTImin is the minimum, CTImax is the maximum CTI gure and CTIi is the
gure for i country.
The relative change of trend indicator of the analysed countries is pictured by
rel
the graph of the annual relative CTI (CTI ) data (Figure 16), which show greater
variation than SII paths.
Table 3: Innovation trend indicators in the involved six countries (CTIrel) between 2003 and 2008
CTI
2003
2004
2005,00
2006
2007
BG
8.60%
15.50%
-0.71
0.26
3.48
HR
-0.20
-0.42
HU
19.40%
14.80%
4.32
-0.22
1.69
RO
13.60%
12.50%
-0.25
0.95
4.42
SI
22.40%
14.00%
3.23
0.72
1.96
SK
12.90%
11.50%
0.24
-0.29
2.91
Max.
40.00%
23.10%
4.32
2.11
5.23
Min.
8.20%
1.00%
-4.31
-0.95
-3.01
2008
6.98%
1.53%
2.85%
6.95%
3.28%
3.94%
6.98%
0.00%
Source: Own calculation based on EIS 2003-2008
Table 4: Relative change of innovation trend indicators of six countries (CTIrel) between 2003 and 2008
Range
CTIrel
BG
HR
HU
RO
SI
SK
0,318
2003
1.26%
35.22%
16.98%
44.65%
14.78%
0,221
2004
65.61%
62.44%
52.04%
58.82%
47.51%
8,631
2005
41.73%
100.00%
47.10%
87.45%
52.73%
3,064
2006
39.57%
24.50%
23.83%
62.08%
54.59%
21.44%
8,235
2007
78.84%
31.41%
57.06%
90.24%
60.28%
71.92%
0,070
2008
100.00%
21.97%
40.86%
99.54%
46.97%
56.50%
916
Laszlo Sitanyi
Figure 16: Relative change of innovation trend indicators of six countries (CTIrel) between 2003 and 2008
6 orszg CTIrel (%) rtke, 2003-2008
CTIrel (%)
BG
120%
HR
HU
100%
RO
SI
80%
SK
60%
EIS (2003-2008)
alapjn szerk. :
Sitny i L.(2009)
40%
20%
0%
2002
vek
2003
2004
2005
2006
2007
2008
2009
Source: own construction based on Table 7.
The multi-year changes of SII and CTI graphs published in EIS reports can be
illustrated in a way that the position of each country is marked in each year in a
rectangle of a relative plane. The four boundary lines of this rectangle are assigned
by the highest and lowest gures of the two dimensions, the SII and the CTI indices. The relative position of the countries can be specied compared to these gures. By laying these layers on top of each other and by linking the points assigning
the position of the countries we can draw up the innovation path of the countries
within the relative SII-CTI plane (Figure 17).
917
Figure 17: Innovation paths and third order trend lines of four countries in the relative SII (SIIrel) CTI (CTIrel)
plane between 2003 and 2008
30%
Ngy orszg plyja a relatv SII (%) s relatv CTI(%) ltal adott skon s a plyk
harmadfok trendvonalai (szaggatott) 2003-2008 kztt
SII
2006
25%
2008
2006
2008
2005
2003
2007
2004
20%
2003
2004
2003
2008
15%
HU
SK
RO
BG
10%
2004
2006
2007
2003
2005
5%
2008
2006
2005
2004
0%
2007
EIS (2003-2008) alapjn,
szmtotta s szerk :
Sitnyi L.(2009)
-5%
0%
20%
40%
60%
80%
100%
120%
CTI
Source: own construction based on Table 5 and Table 7
918
Laszlo Sitanyi
CONCLUSIONS
Comparative development paths of innovation
As it can be seen in case of Hungary and Slovakia in Figure 15 and especially

in Figure 16, these curves show wavering performance without any obvious directions. After a relatively better starting position there can be not seen any development even in comparison to Bulgaria and Romania that lack far behind the EU
average.
This can be seen well when the gures34 of the four countries are illustrated in
the relative SII-CTI plane (Figure 17). The similarity of the paths of Hungary and
Slovakia is eye-catching, which paths do not show development and turn back
into themselves. It is especially well visible when the comparison is made to development paths of Romania and Bulgaria, where a well dened development starting
from 2005 can be seen although from a much lower level.
Thus, it can be stated on the basis of data of six years between 2003 and 2008
and the graphs of these data (Figures 15, 16 and 17) that it is an illusion to think
that either Slovakia or Hungary proceeded in their development in the last few
years that was read in the Action Programme for Research-development and Innovation 2009-2010-es (Innovative Hungary Programme 2009 pp.7).
The following deals with the conclusions and recommendations on the basis of
the facts published in the EIS reports.
Denition of directions of innovation development
From the aspect of the regional development policy or more importantly of the
development policies it was a signicant recognition of several EIS reports (2005,
2007, 2008) that negative correlation exists between innovation performance and
the variance of certain parameters (Figure 8 and 14). The gures of the leader
countries represent a high level uniformly; higher variation of various innovation
indicators was typical for less developed countries.
The conclusion seems to be obvious that parallel development of several dimensions is necessary; it is not possible to achieve high level of innovation performance
34
Two countries are left out of the comparison: Slovenia, because it has an SII level double of the
maximum SII gures of the four countries; and Croatia, because its CTI index has been available
since only year 2006.
919
sustainable in the long term if eorts are made on the development of some of the dimensions while others are neglected. From the aspect of dening the development directions, this means that assuming given budget the development policy should
focus on the improvement of less developed areas instead of further fostering the
strengths (which is unfortunately not easy but necessary). Such type of development policy may contribute to the establishment of an innovation environment,
where development, invested money and eorts made can achieve their objectives
and provide high quality and high added value products in a way that it ensures the
nal objective of all developments, that is, the improvement of well-being of local
population.
Innovation catch-up years
The estimated years to catch-up the EU average were calculated in the EIS Reports 2005 and 2007, which was supported by non-linear calculations in 2007. As
it was seen on graphs (7 and 11) on the estimated catching-up years, only Estonia,
the Czech Republic, Lithuania and Cyprus have less than 10 years according to
linear model. Slovenia is at the fth position with 13 years. Hungary, one of the
leaders in 2005 with 10 years, would only reach the EU average in 34 years(!) according to the calculations in 2007. With this gure, Hungary is at the one before
the last position in the EU country rank order. Typically, the nonlinear gures are
higher, longer catching-up periods, because this model assumes a degressive country growth rate over time.
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Laszlo Sitanyi
Linkage of social capital and trust to innovation performance
According to Fukuyama, F. (1995) economic life inseparable from culture: such

irrational values that are in relation with morals, community, family or religion.
Therefore, major task of modern society is to preserve or establish high level of social trust or social capital, because the lack of this is a barrier of economic growth
at an extent at least as the shortage of physical capital. According to Robert D.
Putnam (1993): social capital derives from the characteristics of social organisations such as trust, norms and networks, which may contribute to the eciency of
society by promoting the coordination of actions.
EIS researchers investigated the impacts of the social, economic and legal environment in 2007 in order to nd out hose factors that inuence the innovation
performance. This EIS Report found also that two categories are in close relation
with innovation performance: social capital and technological ow. It was also found
that these categories are determinant to the entrepreneur innovation performance, as
well. The result above proved that development policy should be built on the improvement of social trust and cooperations, which can be achieved by supporting
innovation networks and cooperations. In the same year Esser (2007 pp.21.) demonstrated that the summary innovation index was mostly related to the following:
Control of corruption;
Eciency of government;
Legal regulation.
Balanced development of innovation in Hungary
Hungarys performance is very low in three out of the seven dimensions in 2008:
innovators, nance and support and human resource. This later is especially sad because the leader countries are strong in this dimension, and its maybe not necessary
to prove its long-term negative eect: entering the knowledge-based society of the
future without knowledge seems not to be a good perspective.
In addition, considering the CTI, the countrys growth performance is also the
worst in Human resource: it overtakes only two countries on the 30th place (European Innovation Scoreboard, 2008 pp.16).
Recommendations
On the basis of European experiences, four major areas for intervention of the
government can be envisaged:
921
Area 1: Fostering the industry-higher education cooperations, networking between real sphere and academic sphere
According to the study of the European Commission (2003) it is necessary to
prioritise the cooperations between industry and higher education or industry and
research institutes in the use of R&D funds, because this is the most eective way
of supporting according to their survey. In the course of nancial planning R&D
sector needs to be considered as the major supplier of knowledge for the national
economy.
Area 2: Ecient government models for the eective use of centralised funds and
for the adaptation of the principle value for money
It is not the size of the state that determines the competitiveness of the economy.
The extent of the economic participation of the government and income reallocation and the size of welfare payments i.e. bigger size of the state by themselves do
not refer to unsuccessful economy. The Scandinavian model that operates with
signicant income-reallocation is an excellent example for the ecient and fair
social system. The government model is eective if the government is able to use
centralised funds eciently and to adopt the principle value for money.
Area : Operation of transparent systems in order for eectiveness
Continuous operation of the National Innovation System (NIS), which forms
the framework of the denition and implementation of government policies.
Improvement of eciency of government models
- Cutting back on the ocial corruption, improvement of condence
index;
- Fostering transparency via the implementation of electronic information services of the e-government and local
Area : Appropriate legal background, control, impact-analysis
Innovation and competitiveness should be taken into consideration when shaping or modifying the regulators and legal background; especially the following ones
according to Borsi B. (2004):
Protection of intellectual property;
Finance of project-based research and development (R&D);
Transparent use of money for the previous;
Substantive impact-analysis and accounting of R&D projects
It is an advantage of the listed measures that they do not require signicant infrastructural investments and can be implemented at relatively low costs.
Share of university R&D funded by private sector
Share of SMEs innovating in-house
Share of SMEs co-operating in innovation
Innovation expenditures (% of turnover) (CIS)
Venture capital (% of GDP)
ICT expenditures (% of GDP)
Share of SMEs using organisational innovations
High-tech venture capital
Internet use
Capitalisation of new markets (% of GDP)
Volatility rates of SMEs
11
12
13
14
15
15
17
18
19
20
III. Innovation and entrepreneurship (EIS 2005)
10
Business R&D expenditures (% of GDP)
Share of medium-high and high-tech R&D in

manufacturing
Share of enterprises that receive public funding for
innovation
Public R&D expenditures (% of GDP)
Participation in life-long learning
Knowledge creation (EIS 2005)
Broadband penetration rate
Youth education attainment level
Share of working-age [Population with tertiary

education (% of 25-64 years age class) 2002]
S&E and SSH graduates
II.
Innovation drivers (EIS 2005)
I.
Share of
households
Share of GDP
GERD
BERD
2002
GOVERD +
HERD
Population
aged 20-29
2001
Users per 100

population
Early stage and

expansion stage
Manufacturing sector
BERD
GOVERD only
Share of post
secondary graduates
2000 (pilot)
Share of venture
capital
Using nontechnological
change
Total business
sector
Total business
sector
Total business
sector
2004
2005
Using
organisational
innovation
GOVERD +
HERD
2006
2007
Eurostat OECD
Eurostat (CIS4)
Eurostat
Eurostat
Eurostat CIS4
Eurostat CIS4
Eurostat CIS4
Eurostat CIS4
Eurostat OECD
Eurostat / R&D
statistics, OECD
Eurostat / R&D
statistics, OECD
Eurostat
Eurostat / Labour
Force Survay
Eurostat / Labour
Force Survay
Eurostat/ OECD
Source of Data
ANNEX 1 /TABLE 5
INPUT INDICATORS
Source: EUROPEAN INNOVATION SCOREBOARDS (2001-2009); Construct: Sitnyi L.
Composite indicator for

households and firms
Early stage only
+ Services sector
+ Services sector
+ Services sector
2003
922
Laszlo Sitanyi
ANNEX 1 / TABLE 5
New-to-market products (% of turnover) (CIS)
New-to-firm products (% of turnover) (CIS)
Share of medium-high and high-techmanufacturing

employment (% of total workforce)
Share of high-tech manufacturing value added
Intellectual property (EIS 2005)
EPO patents per million population
USPTO patents per million population
Triad patents per million population
Community trademarks per million pulation
Community designs per million population
High-tech EPO patents per million population
High-tech USPTO patents per million population
23
24
25
26
V.
27
28
29
30
31
32
33
Share of high-tech exports
22
IV. Applications (EIS 2005)

Share of high-tech services employment (% of total
21
workforce)
Percent change
Manufacturing
sector
2000 (pilot)
Share of
value added
2001
2002
2005
2006
2007
OHIM Eurostat
OHIM Eurostat
Eurostat OECD
Eurostat OECD
Eurostat OECD
OECD
Eurostat / Labour
Force Survay
Eurostat
Eurostat
Eurostat
Eurostat / Labour
Force Survay
Source of Data
OUTPUT INDICATORS
Source: EUROPEAN INNOVATION SCOREBOARDS (2001-2009); Construct: Sitnyi L.
Total business
sector
+ Services sector
Manufacturing +
Services sector
2004
Total business
sector
2003
ANNEX 1 / TABLE 5
ANNEX 1 / TABLE 5
923
924
Laszlo Sitanyi
ANNEX 1 / TABLE 6
Table 6: EIS Innovation indicators between 2008 and 2010, changes compared to 2007
Source: Hollanders, H. van Cruysen, A. (2008)
925
ANNEX 2
Country abbreviations:
AT
BE
BG
CZ
DK
DE
EE
IE
EL
Austria
Belgium
Bulgaria
Czech Republic
Denmark
Germany
Estonia
Ireland
Greece
ES
FR
IT
CY
LV
LT
LU
HU
MT
Spain
France
Italy
Cyprus
Latvia
Lithuania
Luxembourg
Hungary
Malta
NL
PL
PT
RO
SI
SK
FI
SE
UK
Netherlands
Poland
Portugal
Romania
Slovenia
Slovakia
Finland
Sweden
United Kingdom
HR
TR
IS
NO
CH
US
JP
IL
CA
AU
Croatia
Turkey
Iceland
Norway
Switzerland
United States
Japan
Israel
Canada
Australia
ANNEX 3
References
1. Archibugi, D.Denni, M.Filippetti, A. (2009) The Global Innovation Scoreboard 2008: The Dynamics of the Innovative Performances of Countries.
Italian National Research Council, http://www.proinno-europe.eu/index.
cfm?fuseaction=page.display&topicID=5&parentID=51 (Letltve: 2009. jlius
12.) p.51
2. Arundel, A.Hollanders, H. (2006) Trend Chart Methodology Report: Searching
the forest for the trees: Missing indicators of innovation. Maastricht Economic
Research Institute on Innovation and Technology http://www.proinno-europe.
eu/doc/eis_2006_methodology_report_missing_indicators.pdf (Letltve: 2009.
augusztus 4.) p.27
3. Arundel, A. at al. (2008) Neglected innovators: How do innovative rms that
do not perform R&D innovate? Results of an analysis of the Innobarometer
2007 survey No. 215, INNO Metrics 2007 report, European Commission, DG
Enterprise, Brussels, p.38
4. Camagni, P.R. (1992) The concept of innovative milieu and its relevance for
public policies in European lagging regions. Paper, presented at the 4th Word
Congress of RSA, Palma de Mallorca
926
Laszlo Sitanyi
5. van Cruysen, A. Hollanders, H. (2008) Rethinking the European Innovation

Scoreboard: A New Methodology for 2008-2010. Maastricht Economic and social Research and training centre on Innovation and Technology (UNU-MERIT),
Inno Metrics, Maastricht, p.43 (Letltve: 2009. jlius 12.) http://www.proinnoeurope.eu/index.cfm?fuseaction=page.display&topicID=437&parentID=51#
6. EIS, European Innovation Scoreboards (2001-2009) Comparative Analysis of Innovation Performance Maastricht Economic and social Research and
training centre on Innovation and Technology (UNU-MERIT), Maastricht
University (Letltve: 2009. jlius 12.) http://www.proinno-europe.eu/index.
cfm?fuseaction=page.display&topicID=5&parentID=51, Maastricht
7. Esser, F.C. (2007) The Link Between Innovation Performance and Governance.
Oce for Ocial Publications of the European Communities, Luxembourg,
p.33
8. European Council (2000) Presidency Conclusions Lisbon Strategy, Lisbon,
p.26, http://www.consilium.europa.eu/ueDocs/cms_Data/docs/pressData/en/
ec/00100-r1.en0.htm
9. FORA (2007) Innovation Monitor 2007, Danish Enterprise and Construction
Authoritys Division for Research and Analysis, Copenhagen, p.225
10. Fukuyama, F (1995) Trust, the Social virtues and the creation of prosperity,
The Free Press, New York
11. Grupp, H. (2006) How robust are composite innovation indicators for evaluating the performance of national innovation systems? University of Karlsruhe
and Fraunhofer Institute for Systems and Innovation Research, Karlsruhe
12. Hollanders, H. (2006) European Regional Innovation Scoreboard. Maastricht
Economic and social Research and training centre on Innovation and Technology (MERIT) Luxembourg, p.41
13. Innovatv Magyarorszg Program (2009) Kutats-fejlesztsi s Innovcis
Cselekvsi Program 2009-2010, Kutats-fejlesztsrt felels trca nlkli
miniszter hivatala, Budapest, p.24
14. OECD (1992) Oslo Manual Proposed Guidelines for Collecting and Interpreting Technological Innovation Data. Paris, Magyar kiads (1994) Oslo
Kziknyv Az OECD irnyelvei a technolgiai innovcis adatok gyjtsre
s rtelmezsre. MeH, Bp.
927
15. OECD (1993) Frascati Manual The Measurement of Scientic and Technological Activities. Proposed Standard Practice for Surveys of Research and
Experimental Development. Paris, Magyar kiads (1996) Frascati Kziknyv
A kutatssal s ksrleti fejlesztssel kapcsolatos felmrsekhez javasolt egysges
gyakorlat, OMFB, Bp.
16. OECD (1995.) Canberra Manual The Measurement of Human Resources
devoted to S&T. OECD GD(95)77, Paris, Magyar kiads (1999) Canberra kziknyv - A tudomny s technolgia (TT) emberi erSource mrse.
OMFB IKU , Bp.
17. OECD (2009) Adatbzisok, statisztikk, felmrsek, indiktorok s kziknyvek
az Interneten (40 db, 2001-tl) http://www.oecd.org/statisticsdata/0,3381,en_
2649_37417_1_119656_1_1_37417,00.html, Letlts: 2009. jnius 23.
18. Pndi L. (1995) Kztes-Eurpa 1763 - 1993, Osiris-Szzadvg Kiad, Budapest. p.798
19. Pap N. Sitnyi L. (2007) Az innovci szerepe a terleti fejlesztsben. Lszl
M. Pap N. (szerk.) Bevezets a terlet- s teleplsfejlesztsbe, Lomart Kiad,
Pcs, pp.115-139.
20. Putnam, R. D. (1993) The Prosperous Community: Social Capital and Public
Life, The American Prospect, 13 (Spring), pp.3542.
21. Rammer, C. (2005) Comments on EIS Improvements for 2005, Centre for
European Economic Research (ZEW), Mannheim,
22. Sajeva, M. at al. (2005) Methodology Report on European Innovation Scoreboard. European Commission, Enterprise Directorate-General, JRC and
MERIT, Luxembourg, p.71
23. Sitnyi L. (2008) A Krpt-Balkn trsg orszgainak versenykpessge az innovcis kszsgek s krnyezet alapjn. Remnyi P.Szebnyi A. (szerk.) V.
magyar politikai fldrajzi konferencia: A nagy terek politikai fldrajza, PTE
TTK Fldrajzi Intzet, Pcs, pp.445-459
24. Szendrdi L. (2003) ves tudomnyos s technolgiai beszmol s jelents. Oktatsi Minisztrium Kutats-fejlesztsi Helyettes llamtitkrsg,
Brsszel, p.54
Liana Stanca Cristina Felea Ioana Pop Chi Sebastian Horea

Grebl Lacurezeanu Ramona Buchmann Robert
928
MATHEMATICAL MODEL OF OPTIMIZING DECISION

MAKING FOR WORK FORCE INTEGRATION IN THE
KNOWLEDGE SOCIETY
Liana Stanca
Faculty of Economic Sciences and Business Management,
Babe Bolyai University
Cristina Felea
Faculty of Letters
Babe Bolyai University
Ioana Pop
Faculty Of Horticulture University Of Agricultural Sciences And Veterinary Medicine
Chi Sebastian
Faculty of Economics Sciences and Business Management
Babes-Bolyai University
Horea Grebl
Computer Science Department
Babes Bolyai University
Lacurezeanu Ramona
Buchmann Robert
Cluj-Napoca, Romania
Abstract:
According to Vygotskian theory, individuals develop within particular cultural

groups. Then, as adults, they are likely to integrate in work groups with features
similar to their original formative group. The Internet has revolutionised social
MATHEMATICAL MODEL OF OPTIMIZING DECISION MAKING FOR WORK FORCE ...
929
organisation and business patterns to bring forth collaboration as a major asset.

Our study draws on theories of collaboration-based learning originally developed
by Lev Vygotsky and aims to extrapolate them to the business environment. Based
on Vygotskian theory and on the stakeholders interest inuence matrix, we will
design a method of developing work groups within a company by means of Web
2.0 technologies. By means of statistical analysis, we will determine the optimum
conguration for grouping interested stakeholders. Finally, we will set up a mathematical model for organising the required relationships for the correct functioning
of a work group that uses Web 2.0 tools to build relationships.
JEL clasication: C02, C61, D83
Keywords: stakeholders interest inuence theory, Vygotskian theory, statistical
analysis, work group, Web 2.0
1.INTRODUCTION
In the second stage of Web evolution, also known as semantic Web, collaboration is the keyword of any activity carried out online and oine. At present, human
labour and activities are governed by collaboration. In our opinion, in a period
when all elds of activity are confronted with important changes on short-term
notice, the human resources development/ training as well as their increasingly
intense professional and social relations need the implementation of Web 2.0 collaborative tools. Our study aims to determine whether the use of a collaborative
tool will stimulate/ enhance the level of activities in employees. We believe that Lev
Vygotskys theory can be applied to this issue, by transferring it from the development area into the sphere of company-based professional and social relations. In
the following, we will present the Vygotskyan learning theory and extrapolate it to
the level of stakeholders interested in adding plus value to a company.
The bases of collaborative learning were laid by Lev Vygotsky, Kurt Lewin
(1947), Morton Deutsch (1920) and David and Roger Johnson. (Lund2008) Collaborative learning theory is closely related to the theory of social interdependence.
In Morton Deutschs view, there are three variants of social interdependence: positive, negative and null (no social relations) (Marin,2004). Collaborative learning
(Marin,2004) is based on the positive interdependence of persons who work/ study
together. Positive interdependence is also known as stimulus-reex or cooperation-
930

stimulation interdependence, in other words the members of a group unite their

forces to attain a common goal. Consequently, the interaction among persons
working together stimulates in a straightforward way everyones success in attaining a common objective. Vygotsky develops the idea in similar terms (Lund2008).
He states that individuals develop socially when collaborating with more capable
peers. (Uwe1999) In this context, individuals learn in accordance with their own
aspirations to reach the social level they initially planned to attain. As early as childhood, each person builds their individual knowledge, trying to bring down to zero
the distance between the level of independent performance and that assisted by the
group or the teacher.(site3)
According to Lev Vygotsky, the denition of the zone of proximal development
(ZPD) (Uwe1999) is the distance between an individuals actual development level
and the potential (probable) development level as determined by the interaction
with more skilled peers or under the guidance of a tutor (teacher, adult). (Vygotsky
1978, p. 94) (Uwe1999) (Lund2008), As individual progress is recorded, the potential
development level becomes actual and other potential developing levels become visible. (site1) Consequently, an individuals culture and social environment play an
important role in the learning process. In Vygotskys view, learning is a process
based on social relations developed between individuals with dierent development
levels (Uwe1999) (Lund2008), namely a more capable individual oers aid/ professional support in acquiring new abilities needed at the work place, a fact that has
a positive inuence on both parties. The recipient of the information will acquire
new knowledge whereas the information provider will gain an enhanced explicit
understanding of own knowledge in meta-cognitive terms (Vygotsky 1978, p. 94).
Vygotsky claims that only by interacting with others can individuals become aware
of their knowledge level and improve on them. He is the adept of direct learning (site1)
(Lund2008), from a teacher/ tutor or more skilled peer and maintains that an adult
should develop reective capacities in order to understand new knowledge better.
(Uwe1999) (Vygotsky 1978, p. 94).
Based on these theories, we will determine whether positive interaction or the
double stimulation concept is achieved during the process of dening relations
between parties engaged in the good functioning of a company and the online collaborative environment. Namely, we will investigate if Web 2.0 technology aimed
at fostering online communities can take over the role of teacher/ tutor or moderator within work groups formed in a company.
931
2. Web 2.0 technologies. Aspects of collaboration
According to Friedman, 1962, Grossman, 2005, Jensen i Wygant, 1990, a

company must provide a stable environment for the activities of its employees.
(Friedman,1962) (Freeman,1984) (Grossman,2005) (Clark,2010) At the same
time, collaboration relations should also exist among stakeholders interested in the
progress of the company such as shareholders, customers, employees, suppliers, etc.
(Clark,2010) (Grossman,2005) Currently, these can be fostered by means of the
Internet, particularly of Web 2.0 tools. The use of the Web 2.0 online tools would
denitely be benecial for maintaining and developing relations among parties interested in a companys welfare. By means of these tools, we can dene relations
between persons who:
1. interact to carry out a certain task. In this case, communities have a provisional character determined by the contract duration. Following such an
action, the researcher can analyse collaboration patterns and if the results
match the expected outcome, then a similar format will be used for carrying
out other tasks. In case of failure, then the history of the relations and the
activities developed within the online community can be analysed to identify
mismatching among participants.
2. interact for continuous training at the work place. Continuous training is
a compulsory requirement of modern society. Companies with Internet access have replaced old training methods involving courses organised at preestablished time intervals at physical locations with online training tools. The
advantages of these tools pertain to material and temporal conditions so a
companys personnel will have immediate access to the needed information.
The shift from Web 1.0 to Web 2.0 has brought about enhanced online training tools that have transformed the learning process in a collective eort perfectly matching, in our opinion, Vygotskys theory.
3. interact to establish social and friendship relations between participants to a
work community, a fact that will benet both the company and the persons
involved.
The setting up of an online community (Dowling,2005)of stakeholders provides
a major advantage to the company because the employer can determine the character of the employees. Based on the history of employees interaction, the company
can dene interaction groups in order to obtain maximum results of their work.
Moreover, it can oer continuous assistance to each employee by a more skilled
932

tutor. We believe that such assistance would be compulsory at all work places, resulting in advantages for all parties. This statement is supported by Vygotskys view
according to which interactions among individuals allow each party to become
aware of their own actual level of knowledge so as to be able to enhance it.
Web 2.0 technology plays a major role in organising stakeholders. The basic idea
of Web 2.0 is dening collaboration patterns among subjects involved in solving
a problem. Currently, any service/ product or activity is assumed to derive from
stakeholders collective eort. Web 2.0 technologies have all the features and characteristics necessary to support collaboration in all elds of activity.
Until the apparition of Web 2.0 technologies, the forming of work groups within
a company was dicult and in many cases, collaboration was not performed at the
level and intensity necessary for successful accomplishment of the task for which
they had been designed. Web 2.0 technologies allow the uncomplicated creation of
groups in accordance to interests/ tasks and compatibilities/ anities.
3. Statistical method and data processing
The stakeholders theory relies on the fact that managerial decisions are developed following the analysis/ projection of their impact on the company and on
the actors involved in its good functioning (Freeman, 1984) (site2). Based on this
theory, we analysed the reactions of a companys stakeholders to the introduction
of Web 2.0 technology meant to foster collaboration by means of online communities. More precisely, according to Vygotskyan theory, online communities will be
able to play the role of teacher/ tutor or moderator within the work groups formed
within a company.
We initiated a questionnaire-based study on a sample of 110 male and female
subjects aged between 25 and 65. They had to answer to the question: Have online
communities enhanced professional relations with stakeholders on all levels (information, quality, time) in comparison with the traditional system of establishing
such relations? The participants answered before entering an online community
and after they performed within an online community dedicated to solving professional assignments.
The null hypothesis is that there is no signicant dierence between the answers
given in the two stages, respectively before and after aliation to an online community. The alternative hypothesis is that there is a signicant dierence between
the responses before and after aliation to an online community.
933
Table 1. Table of contingency - Observed

The 2nd questionnaire
YES
NO
TOTAL
First Questionnaire
YES
NO
45
15
26
24
71
39
Total
60
50
110
Table 1. Authors calculations
The previous table was created based on the following principle: a sample of
N>30 answers to a question with YES and NO twice, namely before and after the
creation of the online community. By this action, we tested whether the number of
YES and/or NO answers given to the rst questionnaire dier signicantly.
Next, we elaborated a theoretical table of contingency based on the previous
step.
Table 2. Contingency Table -Theoretical

The 2nd questionnaire
YES
NO
TOTAL
Primul chestionar
YES
NO
38.7
21.3
32.3
17.7
71
39
Total
60
50
110
Table 2. Authors calculations
Based on the data obtained, we continued their statistical processing. The results are: =0.05; df=1; Chi-square critical value=3,8; p-value=0.01; Chi-square
observed=6.3; Sensitivity=0.42 Specicity=0,62. Note should be made that pvalue<0.05, soothe test is statistically signicant (conrmed by the values of sensitivity and specicity) but p value does not inuence the acceptance or rejection of
the null hypothesis. This is based on the values returned by Chi-square observed as
compared with the Chi-square critical values.
Chi-square critical values<= Chi-square observed rejects the null hypothesis and
accepts the alternative hypothesis, namely that there is a signicant dierence between the answers before and after the set up of online communities presented
in our study. Consequently, in order to increase the quality of task solving, it is
recommended that stakeholder communities (groups) should be created. Such an
eort would result in added value to work assignments performed by a companys
employees.

934
4. Mathematical model of organizing work relations
An ordered set (M, F, ) where M and F are sets and is a subset of the Cartesian product M F is called a relation between the elements of the M and
F sets. If M=F, then the relation is called homogenous; (Purdea,Pop,2003)
(Purdea,Pic,1977) (Rignet, 1976) in the contrary case, it is called non-homogenous.
If M and F are xed, then the relation (M, F, ) equals . Be it X M , Y F ,
(X)={yF|x X,(xy))
1(Y)={xM|y Y,(xy))
where x r y means (x,y) . The relation is called univocal or partial function,
respectively function if (x) contains at most, respectively exactly, one element for
x M . Let M be the set of candidates for admission in the economic tertiary
education in 2009 and F the set of faculties of economic studies. Between the elements of M and F, we dene the relations:
xy x accesses site y
x1y x applies for y
x2y x is enrolled at y
x2y x is enrolled on subsidised places at y
x2y x is enrolled on fee-paying places at y
It results
= M F x M, (x) = F y M, 1(y) = M;
1 =2 y F, card 11 (y) numberofplacesat y
and
2 2 2
And there is equality if and only if 2x 2'x = 0 for any x M .
The relation 1, respectively 2 is univocal if and only if each candidate is enrolled/ is accepted at one faculty only. If 1 respectively 2 is a function, then the
relation
935
1(Y)={xM|y Y,(xy))
((x1, x2) M M | 1(x1) = 1(x2))
respectively
((x1, x2) M M | 2(x1) = 2(x2))
is an equivalence relation on M and the set of Ms subsets, and for i {1,2} , the
correspondence 1(y)|yF}F,i1(y) y carries out a bisections function.
The purpose of mathematical modelling was to exemplify and demonstrate the
accuracy of the organisational pattern of participants to a work group to obtain an
optimum fusion between information and participants. After organising participants in online communities according to the previous mathematical model, we
can determine easily the optimum denition of the relations between parties involved. Thus, the mathematical model is meant to oer a relation pattern necessary
for a work group to function correctly within a company that uses Web 2.0 tools
to develop these relations. In further investigations, we will elaborate a model of
determining/ dening relation patterns within a community whose aim is to solve
various tasks by means of methods derived from the game theory.
5. Conclusions
At present, due to the development of the Internet, collaboration has become

paramount in all elds of activity. Our research has tried to demonstrate the importance of organising stakeholders in work groups. We based our investigation on
Vygotskyan theory, namely on the idea that interaction among persons who work
together stimulates everyones success in attaining a common goal. We believe that
Web 2.0 technologies can foster collaboration in such groups.
Based on the stakeholders theory, we analysed the reaction of stakeholders to
the introduction of Web 2.0 technology dedicated to fostering collaboration by
creating work groups carrying out a part of their activities on Internet/ Intranet
network. Following our statistical study on a sample of 110 subjects, we concluded
that creating stakeholder communities (groups) is highly recommendable because
the result of such an eort would bring added value to collective work in a company. Then, we deemed necessary to create a mathematical model of work relation
936

organisational patterns for the correct functioning of work groups in a company

using Web 2.0 tools.
In our future research, we will elaborate a model of determining/ dening relations within a community whose aim is to solve various tasks by means of methods
derived from the game theory. We will also focus on the design of an online device
prototype meant to assist the decision maker in the process of accepting/ integrating an individual in a particular work group that would oer a social and professional optimum.
REFERENCES
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1571-5736 (Print) 1861-2288 (Online), Volume 167/2005, p. 205-212, DOI:
10.1007/0-387-23572-8_25;
3. (DruganTigan,2005) Drugan T., Achimas A., Tigan S. (2005) Biostatistic,
Editura SRIMA,Cluj-Napoca , ISBN:973-85285-5-0.
4. (Freeman,1984)Freeman, R. E.: (1984), Strategic Management: A Stakeholder
Approach (Pitman Publishing Inc., Marsheld, MA).
5. (Friedman,1962)Friedman, M.: (1962), Capitalism and Freedom (University of
Chicago Press, Chicago, IL).
6. (Fox, Riconscente,2008)Emily Fox, Michelle Riconscente,(2008) Metacognition
and Self-Regulation in James, Piaget, and Vygotsky, Springer Science + Business
Media, Educ Psychol Rev 20:373389, DOI 10.1007/s10648-008-9079-2
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Corporation:The Impact of Corporate Social Responsibility on Shareholder Primacy Theory, Deakin LawReview 10(2), pag:572596.
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wrong task? Match and mismatch between rst and second stimulus in double
stimulation, Computer-Supported Collaborative Learning 3: pag:387412
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man and the era, International Journal of Group Tensions, Vol. 28, No. 3/4,
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de Galois, Bull.Soc.Math.,France,1-4,1948,114-155.
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MA: The MIT press.
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Self-Valuing Theory: A Practical Approach for Business Ethics, Journal of Business Ethics 9(3), 215225.
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ECONOMIC
DEVELOPMENT,
TECHNOLOGICAL
CHANGE
AND GROWTH
PROJECTS FOR PRE-ACCESSION EU FUNDS AS A CONTRIBUTION TO THE DEVELOPMENT...
941
PROJECTS FOR PRE-ACCESSION EU FUNDS AS A

CONTRIBUTION TO THE DEVELOPMENT OF CROATIAN
Sanela Ravli, Ivana Zelenko
ABSTRACT
Croatian path to the EU membership was not and will not be easy. In fullling
the various conditions that we ultimately provide candidate status, were only the
beginning of a long road of transformation and becoming an equal member of the
EU.
The purpose of this paper is to show the chronological sequence of funds, the
possibility of using resources through funds that were oered to Croatia by the
Union, but more importantly, the actual utilization of these funds and the eects
that they caused, both at national and local level.
In the paper was given example for successful application and implementation
of the EU project by the Oce for International Cooperation and Rural Development of municipality Tovarnik, Nijemci, Tompojevci, Lovas and the city of Ilok,
with all its positive sides as well as the challenges faced by the project managers that
they met, in order to conrm or deny the way Croatian public looks at the preaccession EU funds and large nancial resources intended for Croatia.
In the end, we will try to give an overview of the current situation, diculties
that are created on the way to the cohesion and structural funds, and also the challenges that Croatia and its entrepreneural sector still have not found right answer,
as well as ways to successfully solving the long-standing dierences in the ways of
doing business between Croatia and the EU.
JEL clasication: O10, P25
Keywords: EU funds, rural development, cross-border cooperation, Oce
TINTL, knowledge, information
942
Sanela Ravli Ivana Zelenko
1. INTRODUCTION
Awareness of dierences between EU and countries of the East in levels of development and socio economic status, initiated the will to establish funds that will
encourage and accelerate the adaptation of state institutions and businesses in each
country.
Several important factors, such as slowing economic growth in the European
Union in the period 1999-2004, rising unemployment, a growing level of immigration, and aging of population have been considered in the formation of preaccession funds to help potential member countries.
The current unfavorable situation, considering expansion to countries with very
dierent standards, GDP, and many other dierences that existed at that point between Eastern and Western Europe, raised an important question: Who will pay
for the cohesion of the new member states, and what eects will that cause? .
The only right way that will benet to all countries individualy and ultimately
the EU is to encourage change within each country.Initially that was related to
institutional strengthening in the each structure of government institutions (which
can be seen in the structure of the earlier EU funds and their beneciaries), following that the empowerment of all relevant branches and sectors in each country so
that they can compete in the market arena equaly upon entering EU.
2. PRE-ACCESSION FUNDS
Pre-accession funds funds are intended to help candidate countries in political,

economic and institutional reforms necessary to join the EU, while other, lessdeveloped countries (for example, involved in politics for the neighborhood) EU
assigned development assistance. (Belic, et al., 2008; p. 11). They are conducted by
the same principles and rules as well as the Structural Funds and they are considered very good preparation for membership, structural funds and implementation
of development policies of the European Union.
Programs that were available to Croatia, CARDS, PHARE, ISPA and SAPARD
funds were mostly used in the elds of education, vocational education, research,
environmental protection, SMEs, public health and programs for youth.
Participation in these programs continues until the country entres into the EU
when we will be able to use more funds, but before that, Croatia will have to adapt
943
or in some cases have to change radically in order to achieve certain level acceptable
by the European Union.
2.1 CARDS
The CARDS program is a technical and nancial assistance from the European
Union adopted in December 2000. The basic purpose is support to the countries of
Southeast Europe in active participation in the Stabilisation and Association Process
and the implementation of obligations under the Agreement on Stabilization and
Association Agreement for States which have signed such an agreement. Within the
CARDS program for the period 2001-2004 EU approved 113 projects to Croatia
worth 262 million .(http://www.mn.hr/hr/koristenje-sredstava-cards)
2.2 ISPA
Funds for infrastructure projects in the eld of transport and environment, thus
preparing for the use of the Cohesion Fund, but it is possible to nance technical
assistance projects that are directly related to infrastructure projects. The budget
for the seven-year period the fund amounts to 1040 billion .(http.//www.transportenvironment.org/Publications/prep_hand_out/lid/292)
Funds that were available to Croatia for a total of 60 million in 2005. 2006.
From 140 million that Croatia has received from EU funds in 2006. year, the
ISPA has participated with 25%.(http://www.safu.hr/hr/o-programima-pomoci/
ispa)
In Croatia, the ongoing implementation of 3 projects from the ISPA fund, Croatian Railways infrastructure, water supply and sewerage in Karlovac and waste
management in ibenik.(http://www.safu.hr/hr/o-programima-pomoci/ispa)
2.3 PHARE
Croatian government has been very successful in the negotiation of Phare 2005,
when we agreed upon 88.34% of total assets and 2.3 55,548,297, 63 euro. While in
2006 we agreed upon 44.791,525,75 euro. (http://www.safu.hr/hr/o-programimapomoci/phare)
It is important to emphasise cross-border cooperation with Hungary and Italy,
apart from the funds we have received being the projects partners, we had opportunity to gain knowledge in preparation and project management.
944
2.4 SAPARD
The purpose of the program is mainly investment in agriculture and rural infrastructure, creating a competitive and ecient agricultural sector, creating new jobs
in underdeveloped regions, improving the quality of life of rural population and to
assist in the implementation of EU legislation and as such is of great importance
for our country.
Great emphasis is put on rural parts of the Croatia, which will have to make a
big step from its current situation and major eorts must be invested in knowledge, technique and technology in all spheres of business i.e. production of goods
and services, market introduction, ect. if Croatia wants to reach EU standards and
standards of rural areas across Europe.
The ultimate beneciaries of this program are, unlike CARDS,PHARE,ISPA,
outside the public sector. These are farmers - natural and legal persons, private and
family farms. In addition to these users to the extent 3 - Rural infrastructure are
local and regional (regional) government.
2.5 IPA
IPA is designed as a exible instrument consists of ve components, with the

main aim to help build the institutions and the rule of law, human rights, including
fundamental and minority rights, gender equality and non-discrimination, administrative and economic reforms, economic and social development, reconciliation,
reconstruction and regional and cross-border cooperation. (http://www.safu.hr/
hr/o-programima-pomoci/ipa)
The nancial value for the seven-year period amounts to 11.468 billion .(http://
www.strategija.hr/Default.aspx?sec=34)
Table 1: The nancial allocation for the IPA for the period from 2007-2012 (in million EUR)
Components of IPA program
Transition Assistance and Institution Building
Cross-border cooperation
Regional development
Human potential development
IPARD program
TOTAL
2007
49.6
9.7
45.0
11.4
25.5
141.2
Source: http://www.hbor.hr/Default.aspx?sec=1615
2008
45.4
14.7
47.6
12.7
25.6
146.0
2009
45.6
15.9
49.7
14.2
25.8
151.2
2010
39.5
16.2
56.8
15.7
26.0
154.2
2011
39.9
16.5
58.2
16.0
26.5
157.1
2012
40.9
16.9
59.3
16.0
27.3
160.4
945
If was not visible from the data before, now it is evident, that Croatia and its
economy is very unprepared and far from being able to receive substantial funds
and the opportunities it oers. EU makes available a large amount of resources with
very strict rules on how the funds are available, but the criteria that economic sector
is required to complete are to high and all SMEs are facing a big challenge.
The criteria are the common rules in the EU which the public sector already
met, so preparing and managing the project does not represent a major challenge,
while it is a major problem in the private sector because their businesses do not
meet the strict rules of the Union for the possibility of using available funds.
It is obvious that the businessmen are puzzled when it comes to using the funds,
where to start, how to write and report the project and how to make the very submission of the project and to whom. Also, the ultimate beneciaries of the funds
often do not understand the problem and the very functioning of funds.
One of the rst croatian tasks was supposed to be helping the private sector in
writing projects so they can drawdown available funds especially because this year
government deducted most of the stimulation for agricultural and bussines sector
and after our accession to the EU, Croatia will have access from ve to six times
more money in Structural Funds.
Funds that Croatia was able to withdraw each year from pre-accession funds
since 2001. are rising sharply, from 60 to 150 million . In 2010. from the IPA we
could withdraw a total of 590 million . The way the situation is developing we
can not say it is going in our favor when it is known that Croatia had the ability in
2007. to withdraw 141 million , but is utilized only 4.25 million .
3. CROSS-BORDER COOPERATION
Priority of regional policy has been shifting focus from developing countries
to development of the regions. The reason is the impossibility of determining the
precise economic measures, developmental and other policies that would be appropriate for areas of each country.
If we take a look at the shape of any member country, we can see it is crisscrossed with many regions and its population naturally gravitate towards a more
developed area,developed roadways, river and marine infrastructure. Each region
denes its own development priorities, and they must be in accordance with the
guidelines of a country and the Union as a whole.
946
Croatia in the framework of cross-border cooperation has programs with all the
neighboring countries, for the rst time passing on their experience of cooperation with EU members to potential candidates for EU membership. (http://www.
mrrsvg.hr/default.aspx?id=151)
CBC activities are carried out in several beneciary countries in areas where
joint action leads to better and more eective results, contributing to a common
goal and that is the process that leads the regions progress each country and thus
the progress of the Union as a whole in all areas.
4. SUCCESSFUL PREPARATION, APPLICATION AND ENFORCEMENT OF EU
PROJECTS - Oce for International Cooperation and Rural Development of
Tovarnik, Nijemci, Tompojevci, Lovas and Town Ilok (Oce TINTL)
Oce TNTL was established in August 2005. with headquarters in Tovarnik

as non-prot, non-political and independent organization which operates on the
territory of Croatia and also abroad. Three years later, 22 October 2008. town of
Ilok joined the Oce. This was not only about recognizing the importance and the
benets that preparation, application and implementation of important projects
provides to its citizens, but the leaders of the Oce recognized the importance
of rural development as a foundation for further development of the TINTL and
Sirmium county, and it became one of the main activities.
The oce is the result of the will to joint action and share of knowledge, information, thus applying the projects, and cooperation with domestic and international institutions aect the social and economic development of areas mentioned
earlier.
The availability of grant funds from domestic and foreign funds signicantly
directed the Oce main activity towards projects and running for a variety of tenders of common interest TINTL municipalities. In addition to receiving funds, the
importance of these projects is to educate and train local sta for the use of future
structural funds that will be available in the future for restructuring of the economy,
building infrastructure and increasing the social inclusion of the population.
The actual nancial eects and visibility of the Oce in the Vukovar-Sirmium
county, as well as the wider region, showed the justication of the existence of the
Oce. TINTL District with a land area of 327 km comprises four municipalities and one city, which according to the census of 2001. year is populated with
947
21,262 inhabitants. Available at: (http://www.dzs.hr/hrv/censuses/census2001/Popis/H01_01_02/h01_01_02_zup16.html)

The aim is to contribute to the development of regional economic growth and
development of Croatia, in accordance with the principles of sustainable development, creating conditions that will enable all parts of the county to grow and
strengthen the implementation of its own development resources (Law on Regional
Development Croatian, Narodne novine 153/09).
The main activity and objective of the Oce under the Law on Regional Development Croatian is: to establish new and improve existing contacts with international institutions and organizations providing assistance to natural and legal
persons from the local government oce in order to adapt European and global
markets and processes Approximation of Croatian membership in the EU, creating
favorable conditions for the integral development of rural areas, improving quality
of life, preserving existing and creating new jobs in TINTL area.
4.1. Oce results
Oce is preparing projects for all TINTLs municipalities as well as writting

applications and numerous projects for cooperatives and enterprises in the region
together with tenders for Ministries, County and banks.
Implemented projects of the Oce:
1. WINE-DEW - PHARE 2006 in the amount of 166,000.00,
2. E.R.S.P.A.-PHARE 2006 amounting to 200,000.00,
3. READY (in progress)-COMMUNITY PROGRAM worth 60,000.00,
4. EQUIPMENT FOR COW FARMS from SAPARD in the amount of
340,000.00 and the numerous projects nanced by the Ministries and the
World Bank under the project for social and economic recovery.
On going projects :
1. Regional Business Support Centre in the Business RELATED INFRASTRUCTURE total value of 547,595.00,
2. Visitor Centre Program BUSINESS RELATED INFRASTRUCTURE total
value of 476,679.00,
948
3. Cross border wireless economy in the framework of the CBC CROATIASERBIA total value of 132,000.00,
4. Horis Program CBC CROATIA-SERBIA total value of 197,360.00,
5. ERBIS Program CBC CROATIA-SERBIA total value of 157,545.00, ect.
Cross-border cooperation with Italy is clearly seen from the project E.R.S.P.A. Eco-river in Spava and Po area where the project leader is municipality of Nijemci
with partners in Emilia-Romagna region, municipalities Codigoro, Massa Fiscaglia, Migliaro, Migliarino, Formignana, Tresigallo. The project objective is promotion, enhancement, conservation of natural resources and knowledge transfer
gained along the river Po. During the project (18 months) management organized
several study tours to Italy, where they had opportunity, in collaboration with Italian experts, to become familiar with the tourist area of Po river in Italy, and to share
experiences, knowledge and lessons learned for the study of tourism development
in the TINTL area. That was unique opportunity to observe the current situation
and problems in the development of rural tourism in the area TINTL that together
with transfer of knowledge by the Italian partners ultimately resulted in joint study
of tourism development in the Vukovar-Sirmium County.
We also have examples of CBC Croatia-Serbia wireless economy, whose results
are awaited. Project leader is municipality of Tovarnik and municipality of Stara
Pazova is the partner. The objective is to create a wireless network from municipality Stara Pazova to all municipalities in the TINTL area.
These examples testify how cross-border co-operation can achieve common goals
for both sides. Mentioned cases, Croatian and Italian, and Croatian and Serbian
at the same crash barriers such as borders, level of development between countries,
dierent languages, cultures and other dierences in order to obtain benets for
both parties to share knowledge, experiences, good neighborly relations and ultimately contribute to the development in the economic, scientic, cultural eld as
well as increasing social inclusion of all citizens on both sides of the border.
949
5. CONCLUSION
There are numerous challenges in obtaining nancial means from EU pre-accession funds where the biggest challenge is certainly well-prepared project. We
come to the conclusion that without eort, dedication, work, mutual cooperation,
exchange of information and knowledge, neither economic entities nor local and
regional government will be able to achieve desirable common goals. We also need
to suppress individual goals and joint eorts to achieve goals that serve the overall
social progress of Croatia. That is the only way our country can become knowledgebased society where equal opportunities exist for everybody.
Municipality of Tovarnik, Nijemci, Tompojevci, Lovas and Ilok, as part of
the Vukovar-Sirmium County, in the last period recorded signicant economic
growth, including tourism development, based on the realized projects of the Ofce TINTL.
Oce as a unique example of inter-municipal cooperation is proof that joint
eorts can achieve much better results than as individuals. This is an example how
other municipalities, towns and individuals could join together to achieve common
objectives, which are contributing to the development of society as a whole .
The Oce is an example of how successfully apply and implement projects and
can be used as best case practice for a number of organizations, businesses and institutions. This can help all entities in Croatia to be able to work according to the
principles, standards, and patterns that are common in doing business in European
Union. Getting used to preparation, application and project implementation will
contribute to better functioning of the country as a whole, as well as Croatia being
an equal member of the European Union.
REFERENCES
1. Beli, M., et al., (2008). str. 9., EU fondovi vodi kroz europske fondove 2008.2013., Novum d.o.o., Zagreb
2. http://www.dzs.hr/hrv/censuses/census2001/Popis/H01_01_02/h01_01_02_
zup16.html (Accessed on 10 March 2010)
3. http://www.hbor.hr/Default.aspx?sec=1615 (Accessed on 08 March 2010)
4. http://www.mn.hr/hr/koristenje-sredstava-cards (Accessed on 05 February
2010)
950
5. http://www.mrrsvg.hr/default.aspx?id=151 (Accessed on 09 March 2010)

6. http://www.safu.hr/hr/o-programima-pomoci/ispa (Accessed on 15 February
2010)
7. http://www.safu.hr/hr/o-programima-pomoci/ispa (Accessed on 17 February
2010)
8. http://www.safu.hr/hr/o-programima-pomoci/phare (Accessed on 17 February
2010)
9. http://www.safu.hr/hr/o-programima-pomoci/ipa (Accessed on 17 February
2010)
10. http://www.strategija.hr/Default.aspx?sec=34 (Accessed on 05 March 2010)
11. http://www.transportenvironment.org/Publications/prep_hand_out/lid/292
(Accessed on 07 February 2010)
12. Zakon o regionalnom razvoju Republike Hrvatske, Narodne novine 153/09
CHALLENGES OF INTERDISCIPLINARY RESEARCH
951

Draen Barkovi
ABSTRACT
There is no single denition that encompasses the diverse range of activities that
have been described under the heading of interdisciplinary research. The history of
science from the time of the earliest scholarship abounds with examples of the integration of knowledge from many research elds. In recent decades, the growth of
scientic and technical knowledge has prompted scientists, engineers, social scientists, and humanists to join in addressing complex problems that must be attacked
simultaneously with deep knowledge from dierent perspectives. On an individual
basis, studies show that situational factors, such as exposure to ideas outside ones
own discipline, may have a positive impact on researchers in their own discipline.
This article briey reects upon three issues only: (i) managing an interdisciplinary career, (ii) negotiating interdisciplinary collaborations and (iii) supervising interdisciplinary students. Interdisciplinarity is something to be learned and
acquired; it does not arise out of thin air, although today the concept is frequently
used as a magic word.
JEL clasication:O31, O32
Keywords: interdisciplinary research, interdisciplinary education, science, engineering computer science, economics, business administration
1. INTRODUCTION
No one can predict the issues that science and society will consider most pressing in the decades to come. But if we look at some high-priority issues of today
such as world hunger, biomedical ethics, sustainable resources, homeland security,
and child development and learning and pressing research questions such as the
952
Draen Barkovi
evolution of virulence in pathogens and the relationship between biodiversity and

ecosystem functions, we can predict that those of the future will be so complex as
to require insights from multiple disciplines. What research strategies are needed
to address such a future? To what extent will interdisciplinary research and interdisciplinary education be among the strategies? What exactly is interdisciplinary
research?
2. DEFINING INTERDISCIPLINARY RESEARCH
No single denition is likely to encompass the diverse range of activities that

have been described under the heading of interdisciplinary research. Interdisciplinary research is a mode of research by teams or individuals that integrates information, data, techniques, tools, perspectives, concepts, and/or theories from two or
more disciplines or bodies of specialized knowledge to advance fundamental understanding or to solve problems whose solutions are beyond the scope of a single
discipline or led of research practice.
Being interdisciplinary is an old virtue of OR/MS but often forgotten (MllerMerbach, 1984, 83f ). The rationality behind the necessity of an interdisciplinary
approach to problems is simply that problems in general are not ordered according to the scientic disciplines; instead, most real problems (at least the major and
more complex ones) have at the same time physical, chemical, technical, economic,
legal, social, ethical aspects etc., or as R. Acko put it: Disciplines are categories
that facilitate ling the content of science. They are nothing more that ling categories. Nature is not organized the way our knowledge of it is. Furthermore, the
body of scientic knowledge can, and has been, organized in dierent ways. No one
way has ontological priority (Acko, 1973, 667). Therefore, problem solving requires the cooperation of individuals with a wide scatter of scientic backgrounds
and interests such as Miser (1992, 633) characterized his rst interdisciplinary
team. Interdisciplinary teams have to be conducted ideally by an interdisciplinary
generalist.
3. A VISION OF INTERDISCIPLINARY RESEARCH
The history of science from the time of the earliest scholarship abounds with examples of the integration of knowledge from many research elds. The pre-Socratic
philosopher Anaximander brought together his knowledge of geology, paleontology, and biology to discern that living beings develop from simpler to more com-
953
plex forms. In the age of the great scientic revolutions of 17th-century Europe, its
towering geniuses Isaac Newton, Robert Hooke, Edmond Halley, Robert Boyle,
and others brought their curiosity to bear not only on subjects that would lead
to basic discoveries that bear their names but also on every kind of interdisciplinary challenge, including military and mining questions.1 In the 19th century, Louis Pasteur became a model interdisciplinarian, responding to practical questions
about diseases and wine spoilage with surprising answers that laid the foundations
of microbiology and immunology. Today, the proliferation of new understanding
about the molecular and genetic underpinnings of life demonstrates the power of
combining disciplinary knowledge in interdisciplinary ways.
In recent decades, the growth of scientic and technical knowledge has prompted scientists, engineers, social scientists, and humanists to join in addressing complex problems that must be attacked simultaneously with deep knowledge from different perspectives. Students show increasing enthusiasm about problems of global
importance that have practical consequences, such as disease prevention, economic
development, social inequality, and global climate changeall of which can best be
addressed through interdisciplinary research. A glance across the research landscape
reveals how many of todays hot topics are interdisciplinary: nanotechnology,
genomics and proteomics,2 bioinformatics, neuroscience, conict, and terrorism.
All those invite and even demand interdisciplinary participation. Similarly, many
of the great research triumphs are product of interdisciplinary inquiry and collaboration: discovery of the structure of DNA, magnetic resonance imaging, laser
eye surgery, radar, human genome sequencing, the green revolution and manned
space ight. There can be no question about the productivity and eectiveness of
research teams formed of partners with diverse expertise.3
4. PROMOTING INTERDISCIPLINARY RESEARCH
On an individual basis, various studies (e.g. Feist, & Gorman, 1998) show that
situational factors, such as exposure to ideas outside ones own discipline, may have
1
2
3
Robert K. Mertons classic Science, Technology and Society in Seventeenth Century England describes the
work of the remarkable natural philosophers whose reach spanned many of todays disciplines.
Study of all the proteins encoded by an organisms DNA.
A recent editorial in Science notes: The time is upon us to recognize that the new frontier is the interface, wherever it remains unexplored. In the years to come, innovators will need to jettison the
security of familiar tools, ideas, and specialties as they forge new partnerships. (Kafatos & Eisner,
2004, 1257).
954
Draen Barkovi
a positive impact on researchers in their own discipline. Prolic and inuential researchers are more likely to keep up with developments outside their own domains,
and this interdisciplinary curiosity can lead to major breakthroughs on their own
projects. For example, it was Charles Darwins reading of Malthuss An Essay on the
Principle of Population that led to this theory of natural selection.
The academic community has responded to the burgeoning specialization of
knowledge and increased cross-fertilization by creating new hybrid research elds
such as bioengineering, biogeochemistry, and paleoseismology-and innumerable courses of study that explore the interstices between traditional disciplines.
The administrations of many campuses have begun to respond vigorously with
renewed energy and innovative organizational structures. After several decades of
experimentation, interdisciplinary centers, institutes, programs, and other structural mechanisms have proliferated on and adjacent to university campuses; indeed,
these research units often outnumber traditional departments. Despite frequent
tensions over budgets, space, and intellectual turf, many of these centers and institutes are vibrant research and training environments. They do not supersede the
departments but complement them, often generating new kinds of excitement.
5. PROFILE OF AN INTERDISCIPLINARY GENERALIST
According to Mller-Merbach (2008, 495-496), an interdisciplinary generalist

we have mentioned before should (i) be familiar with the basic content of the single
disciplines, (ii) be able to apply his knowledge and (iii) have some passion for the
disciplines, such as:
mathematics: ease with symbolic abstraction and familiarity with mathematical structures of cause-eect as well as means-end- networks; the ability to
design mathematical models of reality and to draw insight into the reality
through the results of mathematical manipulations of the model; delight with
abstraction and value-free logic;
sciences: knowledge of the static states and the dynamic processes of the living
and the inanimate nature; the ability and the will to apply this knowledge
to technical realizations; respect for creation, administration of nature in its
eternal harmony;
engineering: knowledge of technological laws and understanding of technical processes; the ability to design, shape and evaluate technical systems;
955
pleasure with design activities and functionality; admiration for technical

masterpieces.
computer science: familiarity with programming languages and practical experience with information technology; the capability to design information systems; fascination by the division of intelligence between man and computeras well as their cooperation.
economics: familiarity with economic theories and-based upon theories-insight

into economic realities; the ability to analyze and interpret economic structures and processes; pleasure to take responsibility for economic action;
business administration: knowledge of structures of and processes within as

well as between enterprises and micro-economic institutions; the qualication to understand the micro-economic structures and processes as well as to
design and operate man-machine systems; delight to play a responsible role
within a micro-economic institution.;
social sciences: knowledge of sociological theories and understanding of social

structures and processes; acceptance of the value load of any human information processing; consciousness of the manifold criteria of judgment of social
systems; enthusiasm to cooperate with other people and willingness for responsible leadership.
judicature: knowledge of the legal system and the judicial processes; the aptitude to judge structures and processes from the legal point of view; satisfaction
with nding decisions within the legal limits;
ne arts: sensitivity for harmony and tension, aesthetics and beauty; the talent to integrate aesthetic aspects in processes of judgment; satisfaction with
aesthetic beauty.
philosophy: foundations for insight how and why which powers, ideals, values,
and convictions hold the world together; sensitivity for the interdependence
between causality, nality, ethics, and aesthetics; pleasure in studying the roots
of philosophy.
Interdisciplinarity requires high competence in ones own discipline. It does not

mean that one should become a bit of a specialist in another area; rather, it means
that one is open-minded and poses new questions to another eld of study. This is
the only way to arrive at a hypothesis that the other discipline could not develop on
956
Draen Barkovi
its own, since its representatives lack the necessary distance from their own frame
of thinking.
In formulating such hypotheses we need to dierentiate between two most frequent varieties of interdisciplinarity: top-down interdisciplinarity and bottom-up
interdisciplinarity (Folkers, 2010, 33). In the former, there is a central protagonist
who formulates a hypothesis and brings together co-operation partners in order to
test the hypothesis from a dierent standpoint. In the latter case, representatives of
a wide variety of disciplines come together in order to develop a common hypothesis and to decide on adequate procedures to test it.
The second approach required by the networked research in disciplines could be
denoted as transdisciplinarity. In this case, the concepts of ones own discipline are
modied, or sometimes the concepts of other disciplines are adopted. How does
this take place? First, researchers develop tolerance for methods and procedures of
other disciplines in order to examine the common hypothesis, and then synergies
are developed.
There is something that both approaches have in common; namely, they are
exposed to a process which does not work automatically or through its structure
alone. Interdisciplinarity is something to be learned and acquired; it does not arise
out of thin air, although today the concept is frequently used as a magic word.
Inter- and transdisciplinary processes and structures need to be continuously challenged and questioned, especially with regard to unavoidable frictional losses that
arise from translation between disciplines, languages and cultures. Just like with
two particles dissolved in water, which rst have to change, strip o and rebuild
their protective hydrate membrane in order to blend with each other, there are interferences in the interdisciplinary processes by administrative structures, academic
customs and personal prejudices before protagonists come into play.
There will certainly be barriers to overcome along the way and there are several
import issues likely to arise from interdisciplinary research that may require careful
management or troubleshooting (Lyall & Meagher, 2008). Here we reect briey
on just three: managing an interdisciplinary career, negotiating interdisciplinary
collaborations and supervising interdisciplinary students.
957
I. Managing an interdisciplinary research career
An eective interdisciplinary manager needs to be aware that will not always be

straightforward for team members to develop careers based continuous interdisciplinary research. Organizational cultures may not favour interdisciplinary research
which often cuts across the traditional disciplinebased academic structures and
systems of reward and resource allocation found in most university.
People working in academia often regard interdisciplinary research as a risky career move. Interdisciplinary researchers may be considered less productive because
good interdisciplinary research often takes a long time. Also, nding high status
outlets for interdisciplinary publications can be a challenge as interdisciplinary papers may be perceived as having a lower value (e.g. as a result of publication in
lower impact journals).
A permanent, tenured university position (and subsequent promotion) still usually depends on a track record in a single discipline. Interdisciplinary researchers
often have a shifting peer group over time, depending on the current focus of their
research. Furthermore, reviewers of publications, grant applications and promotions boards may lack interdisciplinary expertise themselves.4
II. Negotiating interdisciplinary collaborations
Research managers, like all good interdisciplinary collaborators, are likely to be

open-minded, willing to learn from other disciplines, and have a broad appreciation for the languages, research methods and cultures of dierent disciplines. It is
often said that personality can be a more signicant factor than discipline base and
interdisciplinary collaborations need to be based on trust and knowledge of collaborating partners.
There is no single model for success and interdisciplinary collaborations can
fail because of a lack of understanding, or unrealistic over-expectations, of what an
interdisciplinary approach can deliver. Interdisciplinary research is not a homogeneous approach and does not represent a single research method. Dierent kinds
of interdisciplinarity have dierent goals and challenges.
In broad terms, interdisciplinary research can be geared towards advancing the
knowledge base or tackling practical problem solving. These dierent approaches
4
See more in A Short Guide to Reviewing Interdisciplinary Research Proposals, available at http://
www.rcss.ed.ac.uk/isstiwiki/ISSTI_Interdisciplinary_Wiki (Accessed 12.03.2010.)
958
Draen Barkovi
will vary in terms of what motivates the researchers undertaking the work and will
have dierent intended outcomes. The former model of collaboration is driven
intrinsic, knowledge creation goals (of access to particular tools, techniques and
data). The inputs and outputs and thus the benets of collaborations can be
relatively well-dened at the outset. This kind of collaboration is intrinsically motivated in terms of immediately visible knowledge benets (e.g.. A needs the data
that will be provided by B). Similar knowledge-related motivations may be present
in relation to emergence new scientic domains. However, in the case of complex
(e.g. societal) problems, where the goals or outcomes may be rather more openended and involve a broadening of existing knowledge frameworks, there may be
greater uncertainty about the process and the and point.
Whatever the motivations, it is important to reach a shared understanding of
the purpose and goals of the research amongst the team and to identify agreed project milestones. When negotiating the collaboration, the project leader will need
to conduct an honest assessment of the skills and roles with the team in order to
ensure a fair division of labour: not every team member needs to contribute equally
but they must be able to contribute appropriately and accountably. The research
manager will need to agree a plan for how the team will communicate and the frequency of meeting as this is crucial for an interdisciplinary team, which may well
take longer to gel. As with any team, it is also helpful to explore some of the what
if questions at any early stage, for example, what if there is a change in sta before
the project is completed. At the same time it is still a good idea to build in exibility to cope with any unexpected outcomes wherever possible (it is, after all these
unpredicted outcomes that are among the potential benets from interdisciplinary
research). Depending on the nature of the research, it may be appropriate to negotiate intellectual property rights before the project commences. Even if patenting is
not an issue, research managers should ensure that the team considers, at the outset,
issues such as the ownership and any data and the thorny issue of authorship.
III. Supervising an interdisciplinary PhD
Interdisciplinary research mangers may well have oversight of postgraduates in

their team so it is important to be aware of some of the challenges they face. By
denition, interdisciplinary students will not be specialists in their subject but they
should not therefore feel as if they are failing: they cannot aord to yield to the
temptation of trying to become experts in all elds involved. Interdisciplinary stu-
959
dents can often feel that they are a jack of all trades and master of none and may
feel that they are more open to challenge than their single discipline peers. Openmindedness is critical to eective interdisciplinary studentships; students need to
listen to others, perspectives, talk informally with other students, attend a variety
and learn about the foundations of, and follow developments in, contributing disciplines. But, at the same time, students must for their survival stay focused, knowing what part of which disciplines they will use to answer which research questions.
More planning may well be needed for interdisciplinary projects as, in many cases,
undertaking an interdisciplinary PhD requires more work: the student is likely to
be reading across more than one literature, possibly learning more than one methodology, and certainly grappling with how to integrate it all. Moreover, dierent
disciplines have quite dierent conceptions of what constitutes a PhD thesis and
students need to be given early guidance as to which approach to follow ((Lyall &
Meagher, 2008).
CONCLUSION
Continuous changes in contemporary economy and society has forced academic scholars from a single discipline they are named to expand their research
focus to new elds coming from dierence disciplines. In another words, interdisciplinarity becomes a new imperative in scientic research.
Interdisciplinarity is something to be learned and acquired; it does not arise out
of thin air, although today the concept is frequently used as a magic word. Interand transdisciplinary processes and structures need to be continuously challenged
and questioned, especially with regard to unavoidable frictional losses that arise
from translation between disciplines, languages and cultures.
LITERATURE
1. Acko, R.(1973), Science in the systems age: beyond IE, OR, and MS, Operational Research 21 (3), pp. 661-671
2. Feist, G.J. & Gorman, M. E. (1998), The Psychology of Science: Review and
Integration of a Nascent Discipline, Review of General Psychology 2, no. 1, pp.
3-47
3. Folkers, G. (2010), Interdisziplinr forschen, aber wie?, Schweizerischer Nationalfonds, Horizont .
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4. Kafatos, F.C. & Eisner, T. (2004), Unication in the Century of Biology, Science, 303 (February 27), pp. 1257, available at http://www.sciencemag.org/cgi/
content/summary/303/5662/1257 (17.03.2010.)
5. Klein, J.T. & Newell, W.H. (1987), Advancing Interdisciplinary Studies, in Jerry
Gra & James Ratcli, Handbook of the Undergraduate Curriculum, San Francisco: Jossey-Bass, pp. 393-394.
6. Lyall, C. & Meagher, L. (2008), A Short Guide to Troubleshooting Some Common Interdisciplinary Research management Challenges, ISST Brieng Note
(Number 5),
7. Miser, H.J. (1992), Craft in operations research, Operational Research 40 (4), pp.
633-639
8. Merton, R.K (2002), Science, Technology and Society in Seventeenth Century, England, Fertig, Howard Publisher, ISBN 0865274347
9. Mller-Merbach, H. (2008), The interdisciplinary generalist, Omega, Volume
37, Issue 3, pp. 495-496
10. Mller-Merbach, H.(1984), Interdisciplinarity im Operational Research- in
the past and in the future, Journal of the Operational Research Society 35 (2), pp.
83-89
11. Simonton, D.K. (2004), Creativity in Science: Chance, Logic, Genius, and Zeitgeist. New York: Cambridge University Press
12. Simonton, D.K. (2003), Scientic Creativity as Constrained Stochastic Behavior: The Integration of Product, Person, and Process Perspectives, Psychological
Bulletin 129, no. 4, pp.475-94
URBAN,
RURAL
AND
REGIONAL
ECONOMICS
EUROPEAN UNION TRIPLE HELIX MODEL OF THE NEW INDUSTRY
963
EUROPEAN UNION TRIPLE HELIX

MODEL OF THE NEW INDUSTRY
Vladimir Cini, Associate Professor
J.J. Strossmayer University in Osijek
Nataa Drvenkar, M.A., teacher assistent
J.J. Strossmayer University in Osijek
ABSTRACT
The last few decades have been marked by important political changes, extraordinary scientic and technological improvements, positive growth of global sales,
development of international companies and supranational institutions. However,
the uncertainty and instability on all levels of business activity are increasingly
threatening the world economic growth. European Union, as well as the whole
world economy, is nowadays in a phase of deep structural changes at the crossroads
between the former dominant mass production and the new production model
based on scientic-technological, information and communication activities, infrastructure and services. There is a new economic scene emerging on the horizon,
where uniqueness, innovativeness, creativity and productivity play the key roles. As
the response to these kinds of global changes, the aim of the European Union was
to become the most competitive and most dynamic economy of the world to the
year 2010 according to the guidelines of the document known as Lisbon strategy.
European Union is a community of countries dierent in their size, culture and
economic strength; hence it was essential to strengthen the national programs in
order to increase the total economic strength of the European Union for the aim
of the Lisbon strategy has not been accomplished yet. The current nancial, and
thereby general economic crisis, have just slowed down the progress of the European Union towards the Lisbon aims.
964
Vladimir Cini Nataa Drvenkar
European Union industrial policy has been directed towards the strengthening of the market economy eect by steering of all capital to the segment of new
industry against deindustrialization. The new concept of EU economy development, according to the challenges of the Lisbon strategy, should be based on the
so called informational and innovational society, as well as the society based on
knowledge, in which it could try to face the new challenges of its economic role on
a global economic scene by using innovation policy, policy of encouragement of
small and medium entrepreneurship development, and the policy of research and
development stimulation.
The aim of this paper is to analyze the state of the industry and the current
industrial policy of the European Union in accordance with the guidelines set by
the Lisbon strategy. In order to accomplish that, there is a need to explore those
industrial branches which could be the generator of the future economic growth,
as well as all possible institutional solutions (creation of triple helix model), and
which will have a supporting role.
JEL clasication: L52, L98
Key words: new industry, European Union industrial policy, Lisbon strategy,
Triple Helix
1. INTRODUCTION
EU industry is facing a great challenge. Financial and economic crisis, as well

as regional disproportion in development of all member states of the EU, is slowing down the accelerated economic revival and growth. Intensive development on
new industry becomes a long-term sustainable base. The term new industry
marks the industry based on implementation of solutions and models of scientic
and research projects in all spheres of business activity. In order to redirect the
current state of industry towards the new, innovative solutions, there has to be an
integrated will of three key interest protagonists: business, public and university
sector. For that purpose a triple helix model is made, whose main goal is integrative activity and directing the activity in order to increase competitive advantage
and long-term sustainable economic growth.
965
2. ECONOMIC STRENGTH OF THE EU IN GLOBAL SURROUNDINGS
In 1980 the whole world exported goods and services for 2,032 billion American
dollars in total, and yet only 27 years later that amount was increased by 68%. In
2000 EU exported goods and services of the total value of 2,367 billion American
dollars, and already in 2007 that value almost doubled amounting to 5,115 billion
American dollars in total (UNCTAD, 2008). However, the uncertainty and instability are increasingly threatening the world economic growth. The recession in
the USA which spread to the whole world, as well as mostly unstable food, oil and
metal prices are just some of those menaces. World GDP drop, EU not included,
has slowed down to 4.4% in 2008 compared to 5.2% in 2007 (COM, 2008). The
total world trade marked a signicant fall from 9.5% average in 2006 to 6.8% in
2007. The biggest contribution in making of EU GDP was made by Germany with
3,297.23 billion American dollars, Great Britain with 2,727.81 billion American
dollars and France with 2,562.29 billion American dollars in 2007, which makes
not less than 16% of the world GDP. Euro surroundings make about 25% of the
world GDP (Table 1). EU makes a powerful economy which side by side with the
USA and Japan builds 56% of the world GDP.
The older member states of the European Union like Germany, Great Britain
and France have made good results in global product and service exchange. In 2006
Great Britain exported 34% of high technology products in the total world export,
whereas for example China and the USA by about 30% each. Among newer member states of the European Union Hungary stands out with 24% in the export of
high technology products in the total export (Table 1). If we observe the indicator
of probability for easy setting up of company, the USA occupies the leading position with only 6 days needed for company registration in 2007. EU does not fall
behind all too much in France you need only 7 days for company registration,
in Great Britain 13 days, and in Germany 18 days. Among newer member states
Rumania stands out with 14, Hungary with 16 and Czech Republic with 17 days
(Table 1). Total tax rate as the prot percentage in EU-27 was on the level of average 48% (in Luxemburg 21% or France 65%), whereas Japan has a very high rate
of 55%, and the USA the lowest of 42% (authors according to: Doing Business,
2010). It is possible to conclude that EU has potential towards the further economic growth acceleration through export of VAT goods as the result of application of
high technology and connecting the research potential with industry.
966
However, in order to accomplish the above mentioned, it is necessary to observe

the innovative activities of the EU. EU, compared to the USA and Japan, invests
the least means into research and development. Between 1982 and 1995 in the
USA the share of industries based on knowledge increased from 21 to 27% of GDP.
It was accompanied by corresponding growth of intellectual ownership rights. EU
lagging behind is proved through the research intensity which in 2004 was 1.9%,
while for example in the USA it was 2.59%, and in Japan not less than 3.15%.
The biggest enterprises in the world which invest the most into research and development are undoubtedly Japanese, American and European in almost all most
important sectors of industry (Table 2). In 2008 EU-27 was investing about 1.9%
of GDP into R&D (Scandinavian countries of an average of 2.7% and Germany
2.6%), whereas the USA invested 2.6%, and Japan even 3.4%. The enterprises with
more than 250 employees take up about 1% of all EU enterprises and make 78% of
the total expenditures for research and development (R&D). The biggest percentage of investment into research and development of the EU in 2004 realized the
automotive industry (vehicles and equipment) with 23.8% of all investments into
research and development, then follows pharmacy and biotechnology with 17%
and IT hardware with 12.4% (Maincent and Navarro, 2006).
967
Table 1. Development indicators of selected countries
Selected countries
GDP
Billion $
2007
World
54,347.04
USA
13,811.20
Japan
4,376.70
China
3,280.05
Russia
1,291.01
EURO surroundings 12,179.25
Great Britain
2,727.81
Germany
3,297.23
France
2,562.29
Some EU member states
Hungary
138.18
Czech
168.14
Republic
Slovakia
74.93
Poland
420.32
Rumania
165.98
Bulgaria
39.55
Slovenia
45.45
Croatia
51.28
GDP
per
capita
$
2007
Annual
GDP
growth
rate
2007
Industry
- % of
GDP
2005
Export
% of
GDP
2005
Export of high
technology % of processing industry
export
2006
Import
%
of GDP
2005
Days
needed for
company
registration
2007
8,219
45,790
34,254
2,484
9,115
38,215
44,696
40,078
41,521
3.8
2.2
2.1
5.2
8.1
2.6
3.0
2.5
2.2
28
23
30
48
39
26
24
29
21
27
11
14
37
35
38
27
41
26
20
30
22
30
9
16
34
17
21
27
16
13
32
21
36
30
36
27
44
6
23
35
29
22
13
18
7
13,735
1.3
30
66
24
67
16
16,276
5.6
38
72
14
69
17
13,876
11,044
7,702
5,176
22,500
11,549
10.4
6.5
6.2
6.2
6.1
5.6
32
31
35
29
33
32
77
37
33
60
63
47
6
4
4
6
5
10
82
37
43
76
64
56
25
31
14
32
60
40
Source: the authors have adapted the data according to: World Development Indicators database,
2009
In 2005 the number of patents in European Patent Oce (EPO) has grown
from 65.42 to 112.17 per million inhabitants. In the number of patents EU-27 is
lagging behind Japan which is the leading country according to registered patents
in EPO with 163.69 applications per million inhabitants. The USA is close to EU
with 114.68 applications per million inhabitants (authors according to: Eurostat,
2010). EU-27 investments into human resources have grown from 4.86% of GDP
in 1999 to 5.04% in 2006. Belgium, Denmark, Finland, Sweden and Norway together invest on an average of 6.7% of GDP into human potentials. Despite of a
slight increase of those investments, the USA is with 5.51% still the leading force.
968
Japan is lagging behind with 3.47 % of investments made into human potentials.
The high technology product share1 in the total EU-27 export was in 2006 only
16.6% (in Ireland 29%, Luxemburg 41%, Hungary 20%, Malta 53%, United
Kingdom 27% and Switzerland 26%), while in the USA it was 26% and Japan
20% (Eurostat, 2010a).
Table 2. Top 5 EU enterprises and enterprises outside EU according to the 4 biggest sectors of R&D
Rank
Enterprise
R&D investments
(billion )
Rank
Automotive industry (vehicles, parts)

1
2
3
4
5
Ford Motor
Daimler Chrysler
Toyota Motor
Volkswagen
General Motors
Robert Bosh
Honda Motor
BMW
Nissan Motor
Peugeot
5.9
5.6
4.9
4.1
4,5
2.7
3.2
2.6
2.2
2.1
2
3
4
5
Pzer
GlaxoSmithKline
Johnson&Johnson
Aventis
Roche
AstraZeneca
Novartis
Sano-Synthelabo
Merck Boehringer
Ingelheim
5.7
4.0
3.7
2.7
3.1
2.7
3.0
1.3
2.5
1.2
R&D investments
(billion )
Electronic devices and equipment

1
2
3
4
5
Pharmacy and biotechnology

1
Enterprise
Matsushita Electric
Siemens
Sony
Philips Electronics
Samsung
Schneider
Canon
Alsthom
Sharp
Thomson
4.3
5.5
3.3
2.6
2.4
0.5
1.9
0.5
1.1
0.3
IT hardware
1
2
3
4
5
Intel
Nokia
Motorola
Ericsson
Hewlett-Packard
Alcatel
Hitachi
Inneon Tehnolog.
Toshiba
ST Microelectr.
3.5
4.0
3.0
3.2
2.9
1.6
2.8
1.1
2.5
0.9
Source: authors have adapted the data according to: Maincent, E., Navarro, L., 2006
On the global competitiveness scale Switzerland, Germany, Finland and Sweden

are the most competitive, commercially sophisticated and innovative countries of
1
aerospace, computers, oce machinery, electronics, instruments, pharmaceuticals, electrical machinery and armament.
969
the EU (Table 3.). If we consider that those countries are individual rivals to the
huge USA or Japan, then EU has a remarkable potential for long-term sustainable development based on new industry.
Table 3. Global competitiveness rank of the selected countries according to the World Economic Forum for
2009/2010
Overall Index
Rank
Country
Business sophistication
Rank
Country
Innovation
Rank
Country
Switzerland
Japan
United States
United States
Germany
Switzerland
Singapore
Switzerland
Finland
Sweden
Sweden
Japan
Denmark
United States
Sweden
Finland
Netherlands
Taiwan, China
Germany
Austria
Germany
Japan
Denmark
Singapore
Canada
Finland
Israel
10
Netherlands
10
France
10
Denmark
Source: authors have adapted the data according to: World Economic Forum, 2010
3. EUROPEAN UNION INDUSTRY ANALYSIS
The industry of the European Union is a relatively healthy and dynamic economic sector which constantly marks a growth, and accordingly, opens new workplaces. The industry represents one fth of the European Union output (COM374,
2007). As the centre of innovations, by making 81% of investments into research
and development (private sector) and making of workplaces for highly educated
and professional personnel, the industry plays a key role in transformation of European Union into the economy of knowledge. By strengthening the eect of market
economy and directing all means to the segment of new industry opposed to
deindustrialization, the EU industrial policy has been oriented towards the development and encouragement of the following industries: textile industry, cars and
trains, airplanes, production of new materials (new ceramics and bres), chemical
industry, biotechnology, ship building, telecommunication devices (GSM, 3G and
alike), new technologies for the preservation of environment and alike. These areas
970
can also be introduced as the three key factors for improving the competitiveness of
industry: knowledge, innovations and entrepreneurship (COM714, 2002).
One of the industrial problems of the EU is certainly a non-enviable position
of the ICT production sector and belonging industries of the EU according to the
innovative capacities of the USA and Japan, and cost-ecient industrial processes
in China and Eastern Asia. The structure of accomplished values of ICT sector of
the EU industry only deepens this issue. Namely 80% of the ICT sector value goes
to services, and only 20% to the actual production. Annual growth of work productiveness in the USA industry was in the period from 1995-2001 3.8%, whereas
in the EU15 it was 2.3% (OMahony i Van Ark, 2003). In 2006 the productivity
of workforce per employed person is higher for not less than 44% in the USA than
the average of EU-27. In 2007 the countries with the most productive workforce
were Luxemburg (80%), Norway (50%), Belgium (27%), France (22%), the Netherlands (14%), Switzerland (10%) and Germany (8%) (Eurostat, 2010b).
The new orders for EU-27 industrial products are marked by a fall of 5.9%
in December 2009 compared to the same period in 2005. Some of the members
that have an increase in new orders are Latvia (129%), Poland (56%), Slovakia
(36%), Rumania (31%) and Czech Republic (16%) (authors according to: Eurostat, 2010d). Compared to the decrease in new orders, the industrial production
volume records a fall in 2009 compared to 2005 in most of the EU-27 countries.
Denmark recorded a fall of 14%, France and Great Britain of about 12%, Finland of 8%, Germany and Norway of about 7% and the Netherlands of 3%. The
newer members of the EU have recorded a growth of industrial production volume
of, for example, Slovakia 18%, Rumania 17% and Czech Republic 2% (Eurostat,
2010c). Apart from that, in EU15 the enterprises which employed more than 250
employees made up 43.8% of the employment of processing industry in 2000,
whereas in the USA 48.6%. The highest EU15 employment in processing industry
is made in renement of oil and nuclear energy, production of transport equipment and chemical industry. We nd the similar situation also in the USA, but
still there dominates the production of transport equipment, production of electrical and optical equipment, mechanical engineering, chemical and textile industry
(OMahony i Van Ark, 2003).
According to the Eurostat data (2007), in 2006, 17.9% of the employed persons
were employed in EU industry, whereas ten years earlier the number of employed
persons in industry amounted to 21.2%. In 2004 there were 2,280 registered in-
971
dustrial enterprises or 12.1% of the total number of EU enterprises. The biggest

part, namely 17.5% of the enterprises, form enterprises engaged in metal industry
and products which employ 13.3% of the employed people in industry (Table 2.).
EU makes the positive balance of payments in international exchange of chemical
products, transport equipment, and machines and devices. However, it worries that
the import of electrical machines and optical devices, which stand for high technology products, is bigger than the export.
Table 4. Selected indicators of EU-27 industry

Industrial areas
Production of food and
beverages
Production of textile,
clothes, leather and
footwear
Wood and paper
No. of
industrial
enterprises,
(000), 2004
No. of
employed
in industry
(000), 2004
Industry
export
(billion
), 2006
Industry
import
(billion
), 2006
Balance of
payments
(billion ),
2006
% of the
total EU
export,
2006
296
4,772
54,044
48,169
5,875
266
3,410
45,765
97,493
-51,728
4.2
217
2,060
29,212
21,367
7,846
2.7
100
3,700
194,761
128,952
65,809
18
102
1,600
17,595
10,382
399
4,991
90147
104 480
-14 333
8.3
Machines and devices
164
3,661
171 147
74 717
96 430
15.8
Electrical machines and

optical devices
196
3,600
197 586
267 029
-69 443
18.3
43
3,200
176 297
101 947
74 350
16.3
Chemical products, rubber and plastic

Other nonmetal
products
Metal and metal
products
7 213
2.7
Transport equipment
Furniture and other
products
Mining
227
1,900
29 549
40 692
-11 143
2.7
17
291
13 694
31 812
-18 118
1.3
Energy
21
1,980
56 283
321 230
-264 947
5.2
Source: authors have adjusted according to Eurostat, 2007
972
4. TRIPLE HELIX MODEL OF THE NEW INDUSTRY AND FINAL THOUGHTS
Triple helix model of the new industry is based on the integration of private,
public and university sector with an aim of increasing the competitiveness advantage of the EU. Triple helix model, according to Etzkowitz (2003) represents a
process in which the areas of university - business sector - government overlap with
an aim of increasing benets, bigger than national, regional and multinational systems. That is the new model of promoting the cooperation of business sector, university links and government organizations with an emphasis to commercialization
(Asheim & Coenen, 2004; Leydesdor, 2005; Leydesdor & Etzkowitz, 2001;
Shapira, 2002). Exactly from this form of cooperation results the balance between
the knowledge, social benet and prot (Asheim & Coenan, 2004; Leydesdor,
2005). In triple helix model there must be an internal entrepreneur reorganization
of each of the key factors (scientic sector, business sector and the state) as well
as the mutual inuence of each of the key factors to the making of new level of
trilateral networks for the creation of new ideas and forms of high-tech and hightouch development (Picture 1.). By connecting and cooperation of the public and
educational sector we will get an ecient system of knowledge transfer, and by connecting the educational and private sector entrepreneurship based on knowledge.
The last decade started a process of making of private-public partnerships. Triple
helix enables the best solution of long-term cooperation which permits short-term
intensive experiences (Campbell, 2005; Etzkowitz, 2003). The possible problems
of this kind of cooperation are diculties related to coordination of responsibility,
diculties related to reports on project progress, conicts of interest, as well as possible conicts related to nancial means. Shapira (2002) points to three key reasons
of forming of this model: social benet, economic eciency and sustainability.
973
Picture 1. Triple helix of the new industry
Efficient model for

encouraging the new
industry;
Removal of administrative
barriers;
Making of prosperous
investment climate;
Tax policy; tax
competition of the
regions; competitive
regional policy
Entrepreneurial infrastructure
Clusters;
Efficacy in making of and
implementation of
decisions;
Efficacious solving s key
economic problems;
educational system reform
Transfer of knowledge;
Scientific and research
projects for industrial
purposes;
Foreign cooperation;
Evaluation of scientists
according to the criterion of
actual contribution to the
economic practice;
Patents;
Industrial design;
Certification;
Company as a laboratory
Source: authors
EU denitely must redirect its eorts towards the new industries which make
higher growth rates. The new concept of economy development of the European
Union is based on the challenges of the Lisbon strategy, so there should be relied
on the so called information and innovation society, and the society based on
knowledge in which it will try to face the new challenges of its economic role on
the global economic scene by means of innovation policy, policy of encouraging the
small and medium entrepreneurship development, and the policy of encouraging
the research and development.
REFERENCES
1. Asheim, B.T., Coenen, L. (2004) Knowledge bases and regional innovation systems: Comparing Nordic clusters (online). Research Policy, 34, 1173-1190. Avaliable: http://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B6V774GGXX7V-1&_user=10&_rdoc=1&_fmt=&_orig=search&_sort=d&_
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974
google&_acct=C000050221&_version=1&_urlVersion=0&_userid=10&md5
=a417634420abeacdd0b84de84843bf9c (15.10.2009)
2. Campbell, D.J. (2005) University/Business research networks: new challenges
for knowledge production and advanced innovation systems (online). Bridges,
5. Avaliable: http://www.ostina.org/html/bridges (15.10.2009)
3. COM (2008) Economic Forecast, Spring 2008 (online). Avaliable: http://
ec.europa.eu/economy_finance/publications/publication12530_en.pdf
(20.07.2008)
4. COM374 (2007) Mid-term review of industrial policy Acontribution to the
EUs Growth and Jobs Strategy (online). In: Commission sta working document. Brussels. Avaliable: http://ec.europa.eu/enterprise/enterprise_policy/industry/com_2007/sec_2007_917_en.pdf (10.11.2007)
5. COM714 (2002) Industrial Policy in an Enlarged Europe (online). Brussels. Avaliable: http://ec.europa.eu/enterprise/enterprise_policy/industry/doc/
com714_2002_en.pdf (10.10.2007)
6. Doing Business: Measuring business regulations (online). Avaliable: http://www.
doingbusiness.org/CustomQuery/Default.aspx?excel=false (15.01.2010)
7. Etzkowitz, H. ( 2003) Learning from transition: The triple helix as innovation
system. Paper presented to the Symposium on Knowledge based society: A challenge for new EU and accession countries, Zagreb, Croatia, 23 October.
8. Eurostat (2007) European business: Facts and gures (online). Luxembourg: Ofce for Ocial Publications of the European Communities. Avaliable: http://epp.
eurostat.ec.europa.eu/portal/page?_pageid=1073,46587259&_dad=portal&_
schema=PORTAL&p_product_code=KS-BW-07-001 (10.04.2008)
9. Eurostat (2010a) Statistics Database: Spending on Human Recources (online).
Avaliable: http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&init=1&pl
ugin=1&language=en&pcode=tsiir010 (03.03.2010)
10. Eurostat (2010b) Statistics Database: Labour productivity per person employed
(online). Avaliable: http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&i
nit=1&plugin=1&language=en&pcode=tsieb030 (03.03.2010)
975
11. Eurostat (2010c) Statistics Database: Industry production indeks annual

data (online). Avaliable: http://nui.epp.eurostat.ec.europa.eu/nui/show.do
(03.03.2010)
12. Eurostat (2010d) Statistics Database: Industral new orders indeks (online).
Avaliable: http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=tab&init=18&la
nguage=en&pcode=teiis600&plugin=1 (03.03.2010)
13. Leydesdor, L. (2005) The triple helix model and the study of knowledgebased innovation systems, International Journal of Contemporary Sociology,
42, 1-16.
14. Maincent, E., Navarro, L. (2006) A Policy for Industrial Champions: From
picking winners to fostering excellence and the growth of rms (online). In:
Industrial Policy and Economic Reforms Papers No.2. Brussels: COM. Avaliable: http://ec.europa.eu/enterprise/enterprise_policy/competitiveness/doc/industrial_policy_and_eonomic_reforms_papers_2.pdf (15.04.2008)
15. OMahony, M., Van Ark, B. (ed.) (2003) EU productivity and competitiveness:
An industry perspective Can Europe resume the catcing-up process? (online).
COM. Avaliable: http://ec.europa.eu/enterprise/enterprise_policy/competitiveness/doc/eu_competitiveness_a_sectoral_perspective.pdf (15.04.2008)
16. UNCTAD (2008) Handbook of Statistic (online). New York and Geneva:United
Nations, str.430-451. Avaliable: http://www.unctad.org/Templates/webyer.as
p?docid=10193&intItemID=1397&lang=1 (10.07.2008)
17. World Development Indicators database
18. http://ddp-ext.worldbank.org (10.07.2008)
19. Schwab, K. (2009) The Global Competitiveness Report 2009-2010 (online).
World Economic Forum. Avaliable: http://www.weforum.org/en/initiatives/
gcp/Global%20Competitiveness%20Report/index.htm (15.02.2010)
ula Borozan Anita Frajman-Jaki
976
REGIONAL ECONOMIC DISPARITIES AND CIVIL SOCIETY:

EVIDENCE FROM CROATIA
ula Borozan, Full Professor
Anita Frajman-Jaki, univ.spec.oec.
J. J. Strossmayer University of Osijek
ABSTRACT
This paper discusses the relationships between the dierent aspects of social
capital and regional economic disparities in Croatia. The focus is given not only
to the analysis of the quantitative aspects of civil society, but also to its dierent
qualitative characteristics.
On regional level, there are signicant changes and shifts in the development of
civil society and social capital in Croatia. Although the number of civil society organizations has been increasing, the enhancement of the quality of social capital
is not proportional to its numerical growth. All evidences originated from dierent surveys and researches conducted in the last decade have stressed the very low
level of trust in Croatian executive and legislative power as well in judicial authority. In addition, they documented the trend of reducing the density of social networks and disrespecting the social norms. The regional dispersion of the registered
legal non-prot entities shows agglomeration pattern in the biggest Croatian cities
and their belonging counties. This spatial clustering of civil entities as well of social
excluded group corresponds to the level of regional economic development.
The paper discusses also the case of the National Foundation for Civil Society Development as an example of good practice. The Foundation shows how
social capital, decentralized organizational structures and nancial initiatives as well
as local civil community may stimulate social partnerships, improve administrative
capacity and so help meet its goals.
JEL clasication: P25, R11
Key words: social capital, civil society, regional disparities, Croatia, National
Foundation for Civil Society Development
REGIONAL ECONOMIC DISPARITIES AND CIVIL SOCIETY: EVIDENCE FROM CROATIA
977
1. INTRODUCTION
Croatia, as one of the Central and Eastern European countries, has started its
transformation from a centrally managed economy towards a modern knowledgedriven market economy and pluralism in all areas of its economic and social life
from 1989. This transformation has been followed not only by favorable processes,
such as the strengthening democracy and civil society, but also by many unfavorable processes, such as increasing the regional economic disparities.
There are three NUTS-II regions in Croatia: the North-West Croatia (with the
capital), the Central and East Croatia (Panonian) and the Adriatic Croatia. On the
NUTS-III level there are 21 counties, of which one the City of Zagreb holds
a double status of town and county. Counties are self-governmental regions and
they have their own representatives and executive bodies. Croatias division at the
NUTS-II and III levels is shown in Table 1, Appendix (the rst column). The
problem of regional inequalities in Croatia is a well-known fact (see Borozan, 2009
for a brief review). According to GDP per capita in 2006, the last available year
regarding the ocial statistical data, the most developed region is the North-West
Croatia, while the Central and East Croatia is the least developed region.1 In the
same terms, two most developed counties are the City of Zagreb and the County of
Istria. Two least developed counties are the counties of Brod-Posavina and VukovarSrijem. Their GDP per capita is less than 60% of the national average.
Thisse (2000) stressed that the magnitude of spatial disparities is very sensitive
to the design of the regional borders and that this is true especially for small regions, such as those conned to the limits of a city. This is conrmed by statistical
data for Croatia. At the NUTS-II level, the dierence measured by GDP per capita
between the most and least developed region was 1.82 in 2006 while at the NUTSIII level it was 3.4 times higher. Recent growth trends across Croatian regions have
actually widened, especially after the Homeland war, not narrowed (NCC, 2005).
Among many causes underlying the obvious disparities, the following ones are usually noted: historical knowledge, geographic position and possibilities for capitalizing on spill-over eects, resources allocation, war damages and the absence of
political will, accountability and cooperativeness to minimize this problem, lack of
coherent regional development policy on national level, etc.
Source of data: Croatian Central Bureau of Statistics: Priopcenje, Zagreb, February 24, 2009
978
Answering the question, why regional disparities exist, is a dual approach of

answering the question what the key to the regional growth and development is. A
brief review of answers to that question ranging from the traditional, predominant
mainstream economics to the in part no-mainstream one can be nd in Westlund
and Calidoni-Lundberg (2007). Recently, scholars put emphasis on social capital.
Social capital relates to features of social organization such as networks, norms, and
trust due to their favorable role in facilitating coordination and cooperation for the
mutual benet of all organizations members (Putnam, 1995). It includes ensuring
the development and maintenance of the relations that enable mutual cooperation
and sharing resources. The stock of social capital in a society is proportional to the
number of social networks and to the intensity of social relationships.
The main purpose of this paper is to discuss the relationships between the dierent aspects of social capital and regional economic disparities in Croatia. The focus
is given not only to the analysis of the quantitative aspects of civil society, but also
to its dierent qualitative characteristics. Since the density of social networks, and
active and trustful social relations contribute to reducing the regional disparities, a
case of the National Foundation for Civil Society Development will be presented.
It will be shown that the Foundation through its organization and activities, civic
nance initiatives contributes to the development of civic activism, decentralization
of Croatian society and consequently slightly to reducing the regional disparities.
2. THE ROLE OF SOCIAL CAPITAL IN THE REGIONAL DEVELOPMENT
Social capital, as an intangible asset, has an important role in explaining human

behavior, features of human networks and the society in general. According to Putnam (2000) social capital is a feature of those organizations which networks, norms
and trust are elements that make easier coordination and cooperation for mutual
benet of their members. Taking into consideration the important dierences in
prosperity and social capital between regions, Rutten and Boekema (2007) stressed
that the regions are more adequate level for observing contributions of social capital
to economic development than the whole nations. This is an argument that justies
the existence of regional social capital. Parissaki and Humphreys (2005) underlined
that the regional social capital is important because horizontal cooperation (i) can
bridge the cultural dierences, pace of development and the other regional dierences; (ii) can support global interventions instead of independent isolated activities; (iii) have synergistic inuence.
979
Intangible assets, such as social capital, inuence the eciency of regional innovation networks (Rutten and Boekema, 2007). Norms, values and customs make
easier cooperation of such networks on mutual benets. Innovations increase the
success of networks, and social capital helps in explaining why the network of innovative rms is so successful. In that way, regional dierences in social capital
contribute to understanding the dierences in regional economic development.
This is supported by Harrison (2008) who developed the model in which social
capital is used to describe the structure of relationships that exist in a society. Social
capital is also the by-product of interactions between institutions and processes
developing in a community. In addition, as it is stated in Harrison (2008), it inuences the regional competitiveness and development by creating the changes that
lead to innovation and reputation. Social capital inuences the sustainable local
and regional economic development through facilitating the interactions among
individuals, groups, regions, governments and states. Putnam (1995) stressed that
social capital is a necessary and sucient reason for socio-economic development.
However, nowadays it is not precisely dened if social capital is really a reason of
development or its by-product, or both. Either way, its importance as the indicator and contributor of regional and national development is well-known and conrmed by many researches.
However, social capital can not signicantly inuence community development
if it is not institutionalized into organizations (rstly in organizations of civil society, i.e. in non-government sector). In the democratic society, civil society organizations have an important role in preparation, formulation, implementation and
monitoring of the government policies and the state in general. Nowadays, social
capital is a basis for the civil society development. Civil society is a bridge that
enables interactions between ordinary people and the state in a whole through nongovernment sector. According to Cooper et al. (2005), contemporary researches indicated that the density and scale of local organizations of civil society have critical
role in spreading information that can help in creating the conditions for ecient
and eective management of economic development. Blair and Carroll (2008)
pointed out that if a community does not have enough organizations that create
social capital, it cannot do a lot considering its creation. In Croatia on regional levels, there are signicant changes and shifts in the development of civil society and
social capital especially in the quantitative terms.
980
3. REGIONAL INSTITUTIONALIZATION OF SOCIAL CAPITAL IN CROATIA

3.1. Unbalanced development of civil society
Since the mid-1990s, Croatian civil society has been accepted as a specic kind
of social acting and communication, in which non-government instances try to
achieve their and common interests through a broad specter of associations and
organizations. The notion of civil society organizations refers to associations, foundations, social enterprises, non-prot, professional non-government associations
oriented to services, social movement and trade unions (Cooper et al., 2005). The
existence and scale of formal civil organization memberships in a country or a region is often used as an indicator of the countrys or regions degree of civility (see
for review Hvenmark and Wijkstrom, 2004). Table 1 in Appendix oers a review
of regional dispersion of the registered legal non-prot organizations in Croatia
in September 2001 and 2009. The registered legal entities including institutions,
bodies, associations, funds and organizations belong to non-prot organizations.
The regional dispersion of the registered legal non-prot organizations conrms
the thesis stated in Bezovan et al. (2005) that Croatian organizations of civil society
are still relatively urban phenomenon, the most visible in the biggest cities (Zagreb,
Split, Rijeka and Osijek) and their belonging counties. Namely, approximately 50
percent of the non-prot legal entities are agglomerated there. It is interesting to
note that the level of regional economic development measured by GDP per capita
corresponds to the regional clustering of civil society organizations. In the most
developed regions, the highest number of the non-prot entities per 10,000 inhabitants is registered; in the less developed regions this number is the smallest one.
Furthermore, there is an increasing trend of the number of civil society organizations. However, the trend is under-average in the most underdeveloped region the
Central-East Croatia. The fastest development of non-prot entities in quantitative
term is recorded in the most developed region, the North-West Croatia.
Quantitative aspects of civil society, such as number and shares of organizations and members, of ethnic or religious groups, etc. can indicate the impact
of civil society on spatial development. However, these aspects say nothing on
the degree of interaction and qualitative characteristics between organizations,
or members, i.e. on the norms, values and attitudes within and between these
groups (Westlund and Calidoni-Lundberg, 2007). Although the number of nonprot entities has been increasing in Croatia, Bezovan et al. (2005) stressed there
981
is a small number of those ones that are really active and have employers. For
that reason, the same authors indicated that if some actions exist, they result
in dropping motivation for actively acting in community, in disturbing trust
due to insucient support and understanding of environment, and in reducing
the number of active individuals that, with real and concrete activities, want to
make impact on their better tomorrow.
The Report on social development (2001) documented the negative trends of
(i) mistrust in Croatia (in legal authorities, parliament, daily press, police and
trade unions), (ii) of spreading the culture of cynicism and opportunistic behavior, and (iii) of reducing the density of social networks (reducing the number
of civil association members). The trends have had a negative impact on selforganizing as the way of solving local problems and respecting the social norms.
The ndings of researches conducted in the organization of GfK, the Centre for
Market Research in 2000, 2005 and 2007 on a representative sample consisted
of 1,000 citizens older than 15, conrmed the existence of low level of trust in
Croatia. GfK recorded that citizens have the most trust in people who they socialize with, then in army and police. That (i) conrms the importance of social
capital that develops just among individuals in a community, and (ii) opens a
debate on the strength of social capital in Croatia. The similar research by GfK
from 2006 showed that Croatia shares the same level of trust as 19 European
countries and the USA (in average); doctors, church and army attract the most
trust, but the political parties the less.2 Additional qualitative argument that
supports the importance of civil society development on local and regional
level offered the Pulss research on trust in different levels of government
(Puls, 2006)3. Croatian citizens trusted the most to local structures, i.e. to
citizens and local self-government. The main reasons for trust in local selfgovernment are the feeling of closeness, better knowing of people and greater
concerns for local issues.
More on the methodology of research and the ndings in Poslovna mrea.hr: Uvjerljivo najmanje
povjerenje u politicare, 29.11.2006, available on http://www.poslovnamreza.hr/teme/30/ (accessed
August 10, 2009)
Representative sample consisted of 800 Croatian citizens older than 18. More about research, methodology and ndings in Puls, Marketing and public opinion research agency, 2006, http://isite23.
isite.com.hr/Download/2006/03/14/Report_UI_Hr_v2.ppt (accessed August 10, 2009)
982
In organization of Eurobarometar (European Commission, 2009), a standard

public opinion research is conducted by the end of 2009 on random sample consisted of approximately 1,000 face-to-face interviews in each of the EU27 plus
Croatia and Turkey. Existed mistrust that Croatian citizenship have in the Croatian
executive and legislative power, as well in judicial authority reects to the level of
trust that they have on European bodies. Croatian citizenship stated 10 percent
more tendency not to trust in the European Parliament (43% vs. 33%) and in
the European Commission (44% vs. 32%) than the EU27 in average. The same
number of people is not satised with the way democracy works in the EU27
(44% vs. 32%). However, the most of Croatian citizenships are unsatised in its
own country with the way democracy works than in the EU27 member states
(84% vs. 45%). Therefore, it is not surprising that 71% of Croatian respondents
thought that things are going in the wrong direction in Croatia.
Social exclusion addresses the insuciency of participation in social activities
and the lack of social links and power. Programme of the United Nations Development Programme (UNDP) in its report 2006 under the name Poverty, unemployment and social exclusion (UNDP, 2006) presented the regional distribution
of social exclusion in Croatia. Social exclusion is prevalent in Slavonia, which is
a part of the most underdeveloped Croatian region, and it markedly exceeds the
national average. The reasons for that are not only to be found, as it is stated in
the report, in the regions relatively large share of rural (i.e. predominantly poorly
educated) inhabitants, but also in the living conditions marked by the economic
lagging behind and the huge war direct and indirect damages. The highest degree
of inclusion was found in the most economically developed regions in the Zagreb
area, Primorje and Istria. The professional public in Croatia has considerably failed
to recognize the social exclusion as the important issue. Consequently, the civil
society organizations in Croatia have small success in introducing the interests of
their members and citizens to government representatives. In addition, valuable
knowledge and values following the local and regional changes and shifts in civil
society are partially destroyed.
3.2. A case of good practice - The National Foundation for Civil Society
Development
The National Foundation for Civil Society Development (hereinafter NF) recognized the problem of unbalanced development of civil society in the Croatian
regions and unfavorable consequences of over-centralization in civil organizations.
983
Those problems relate to a great part to the lack of capacity of local and regional
self-government and organization of civil society. Lack of capacities in terms of social capital refers primarily to shortage of people that can not substantially contribute to the development of local and regional community through the social capital
development (rst of all trust) and adequate planning and legislation (including
management capacity). Considering that issue, NF started two programs in 2007:
Decentralization of Grants for Civil Society Development Programme and Regional Development Programme, such as Salter, Step, Mrrak, E-emisija
and Jako (see Picture 1, Appendix). Both programs aim to reduce the regional
dierences and to enable the decentralized system of development nancing although in a dierent way.
Since 2004 NF has invested in development of civil activism on local and regional level by nancing short-run initiatives. In 2007 it made a signicant change
by introducing the decentralized model of grant allocations based on the agreement
of cooperation. Consequently, in the frame of decentralization of nancial support,
NF demoted to regional level the process of announces vacancies and their implementations under the name Our Contribution to the Community. For that purpose, NF signed the agreements with four regional foundations in Croatia. Picture
1 in Appendix shows local/regional foundations, their headquarters and belonging
counties, total given nancial support in HRK in 2009, as well as the names of the
Regional Development Programs.
According to the study Possibilities of Community Foundations Development
in Croatia (2004, p. 10) Community Foundation improves local philanthropy...
and it is a catalyst for social capital activization. New relations among individuals are created, i.e. social networks, norms and trust that enable social activities...
Strengthening the social capital helps disintegrated communities to mobilize available resources and thus overcome the development issues. Regional foundations
partners of NF twice a year announce vacancies for grant allocations to civil initiatives. They are smaller scale than standard projects, but they illuminate inclusion
of many people, i.e. broader community in solving concrete problems they face.
Furthermore, the members of commissions for application evaluation come from
all Croatian counties which are covered by bidding. That is much better approach
than the old one (i.e. decision making in Zagreb). The decentralized model of grant
allocation to citizens initiatives enables nancing initiatives of local associations
and the other non-prot organizations (in which citizens get together to solve different community issues) on their closest local or regional level. Consequently, so-
984
cial and nancial capital of community have been building and strengthening (see
Civilno drustvo, No. 20, 2009). For example, social capital of Slagalica Foundation refers to gathering individuals who own specic knowledge and skills, and
who have good network of personal, professional and social relations. For now, the
programme has had excellent results, and civic initiatives have been very innovative and social benecent. Civil initiatives have enhanced the awareness level of
the importance of civil society and enabled spreading the feelings of collectiveness,
self-actualization and trust by including community in the process of building its
own future.
A signicant disadvantage of civil initiatives refers to inadequate abilities of certain organizations for initiative writing, i.e. in insucient technical support for
grant applications. Therefore, NF has started the second programme called Regional Development Programme and thus, strengthened the abilities of civil society
organizations on local and regional level. Through partnership with ve regional
networks (see Picture 1, Appendix), being specialized as civil society organizations,
NF has contributed to harmonization of regional development in Croatia. It has
also started cooperation with Charles Stewart Mott the process of empowering the
civil society organizations on local and regional level. Consequently, it enables a
systematic support through available, qualitative and professional services on local levels. Regional networks provide the services free of charge considering the
fact that the implementation of these services is nanced by NF. In that way, local
citizenship has a possibility to be involved in the process of creating its future and
improving the quality of life.
4. CONCLUSIONS
Social capital, as intangible assets presented by system of norms, networks and

trust that enables, facilitates and coordinates the collective activities, has an important role in enhancing the eciency of regions, and thus, in reducing the regional
disparities. Communities marked by a high development degree of social capital in
both quantitative and qualitative terms record a fast economic growth. In addition,
in such communities people can be mobilized much easier to activities directed to
common good. However, social capital cannot signicantly inuence community
development if it is not institutionalized into organizations (rstly in organizations
of civil society, i.e. in the non-government sector).
985
In Croatia, there are signicant changes and shifts aim to build social capital and
to implement it through the organizations of civil society. This is supported by data
on the increasing number of the registered legal non-prot entities. However, the
regional dispersion of those entities and its growth rate indicate the regional unbalanced development. Agglomeration of non-prot entities in the biggest Croatian cities (Zagreb, Split, Rijeka and Osijek) and their belonging counties indicate
Croatian organizations of civil society are still relatively urban phenomenon. The
spatial clustering of civil entities corresponds to the level of regional economic
development measured by GDP per capita. In the most developed regions, the
highest number of non-prot entities per 10,000 inhabitants is registered; in the
less developed regions this number is the smallest one. Furthermore, there is an
increasing trend of the number of civil society organizations. However, the trend is
under-average in the most underdeveloped region, the Central-East Croatia. The
fastest development of the non-prot entities in quantitative term is recorded in
the most developed region. Additional issue to the agglomeration, i.e. to spatial
distribution of the civil infrastructure is social exclusion. It is prevalent in the less
developed region while in the most developed one the proportion of excluded is
negligible. Regions of weak community infrastructure and low social capital are
unable to support or appropriately articulate and advocate the needs of excluded
groups in the way that more organized and developed communities can. Considering those ndings, the paper indicates that regional growth and development in
Croatia also tends to be depended upon local specic factors such as social capital not commonly associated with the determinants of regional economic success.
New research should unveil the cause-consequence relation between regional development and social capital.
Since the quantitative aspects of civil society, such as number and shares of organizations and members, say nothing on the degree of interaction and qualitative
characteristics of social capital, we reached for researches and surveys in which the
dierent aspects of social capital had come to expression. It is about trust, civil network and norm respect. All evidences originated from surveys and researchers conducted in the last decade indicate. Croats have a very low level of trust in Croatian
executive power, legislative power and judicial authority. Furthermore, the trend of
reducing the density of social networks (i.e. the number of civil association members), and disrespecting the social norms has been recorded. However, the most of
citizenships are aware of those negative trends; thus, the most of them think things
are going in the wrong direction in Croatia.
986
Weak qualitative elements of social capital present both social and economic
issue. Therefore, it is very important to transform the awareness of negative
trends into the concrete actions. The National Foundation for Civil Society Development presents an example of good practice for that because it has contributed to the development of civic activism, decentralization of Croatian society and
consequently slightly to reducing the regional disparities through its decentralized
model of organization, activities, and civil nance initiatives. Trust and condence,
so necessarily when it comes to the impact of social capital on regional development, can be built and nurture only with concrete actions. Local specic factors
have an extremely important role in that process and therefore, future analysis of
social capital will benet from a more region-specic approach towards examining
its development and impacts.
LITERATURE:
1. Bezovan, G. et al.: Civilno drustvo u procesu stjecanja povjerenja u Hrvatskoj i

izgradnje partnerstva s dravom i drugim dionicima, Zagreb, 2005
2. Blair, J.P., Carroll, M.C.: Social Capital, Economic Development Journal, Vol.
7, No. 3, 2008
3. Borozan, .: Enhancing Regional Competitiveness through the Entrepreneurship Development, International Management Research V, 2009, pp. 731-749
4. Civilno drustvo, Magazine, No, 20, 2009
5. Cooper, L. et al.: Drustveni kapital u Hrvatskoj, Nacionalna zaklada za razvoj
civilnoga drutva, Zagreb, 2005
6. Croatian Central Bureau of Statistics: Priopcenje, Zagreb, dierent issues (February 24, 2009; November 10, 2001; November 14, 2009)
7. European Commission, Public Opinion: Standard Eurobarometar 72, 2009,
http://ec.europa.eu/public_opinion/archives/eb/eb72/eb72_en.htm (accessed
January 4, 2010)
8. GfK Centre for Market Research: Koliko vjerujemo nekim institucijama u
zemlji?, 2007, http://www.gfk.hr/press1/povjerenje1.htm (accessed August 10,
2009)
987
9. Harrison, A.: Social Capital as a Determinant of Regional Competitiveness, National and Regional Economics VII, Educational Centre of TU in Herany, 2008,
pp. 236-240
10. Hvenmark, J., Wijkstrom, F.: The Popular Movement Marinade The dominant civil society framework in Sweden, Stockholm School of Economics in its
series Working Paper Series in Business Administration, No. 18, 2004
11. NCC (National Competitiveness Council): 55 Policy Recommendations for
Raising Croatias Competitiveness, Zagreb, 2005
12. Parissaki, M., Humphreys, E.: Regional Social Capital in Europe, European
Foundation for the Improvement of Living and Working Conditions, 2005
13. Poslovna mrea.hr: Uvjerljivo najmanje povjerenje u politicare, 29.11.2006,
available on http://www.poslovnamreza.hr/teme/30/ (accessed August 10,
2009)
14. Possibilities of Community Foundations Development in Croatia, 2004
15. Puls (Marketing and Public Opinion Research Agency): Prezentacija rezultata istraivanja, 2006, http://isite23.isite.com.hr/Download/2006/03/14/Report_UI_Hr_v2.ppt (accessed August 10, 2009)
Putnam, R.D.: Bowling Alone: Americas Declining Social Capital, Journal of
Democracy 6, 1995
16. Putnam, R.D.: Civic Engagement in America, The Saguaro Seminar, 2000,
www.ksg.harvard.edu/saguaro/faq.htm (accessed June 12, 2008)
17. Report on social development: Hrvatska 2001, N. Starc (ed.), Ekonomski institut Zagreb, 2001
18. Rutten, R., Boekema, F.: Regional Social Capital: Embeddedness, Innovation
Networks and Regional Economic Development, Technological Forecasting &
Social Change 74, 2007, pp. 1834-1846
19. Thisse, J.F.: Agglomeration and Regional Imbalance: Why? And is it Bad?,
EIBPapers, Vol 5, No. 2, 2000
20. UNDP: Poverty, Unemployment and Social Exclusion, N. Starc (ed.), Zagreb,
2006
21. Westlund, H., Calidoni-Lundberg, F.: The Creative Class and Social Capital
Civil Society, Regional Development and High-Tech Employment in Japan,
988
Royal Institute of Technology, CESIS, Working Paper Series in Economics and

Institutions of Innovations, No. 112, 2007
Picture 1: The Regional foundations with belonging counties and the Regional Development Programs
989
Table 1: Regional dispersion of registered legal non-prot entities in Croatia
Region / county
NORTH-WEST CROATIA
City of Zagreb
Zagreb
Krapina-Zagorje
Varazdin
Koprivnica-Krievci
Medjimurje
Total/avarage
CENTRAL-EAST CROATIA
Poega-Slavonia
Brod-Posavina
Osijek-Baranja
Vukovar-Srijem
Bjelovar-Bilogora
Virovitica-Podravina
Karlovac
Sisak-Moslavina
Total/avarage
ADRIATIC CROATIA
Primorje-Gorski kotar
Lika-Senj
Zadar
ibenik-Knin
Split-Dalmatia
Dubrovnik-Neretva
Istria
Total/avarage
CROATIA - Total
September 2001
Number of non-prot entities
Share
in each per 10000 in total
county inhabitants number
(in %)
September 2009
Number of non-prot entities
Share
in each per 10000
in total
county inhabitants number
(in %)
6315
1988
1156
1509
1135
977
13080
81.05
64.19
81.16
81.67
91.19
82.50
78.85
17.08
5.38
3.13
4.08
3.07
2.64
35.38
11286
2990
1599
2156
1419
1343
20793
144.85
96.55
112.26
116.69
114.01
113.40
125.34
20.03
5.31
2.84
3.83
2.52
2.38
36.91
78.72
50.40
38.32
42.88
25.02
37.46
58.97
734
1236
2743
1431
1327
85.52
69.92
82.99
69.88
99.71
1.99
3.34
7.42
3.87
3.59
1057
1777
4134
2163
1743
123.15
100.53
125.08
105.63
130.97
1.88
3.15
7.34
3.84
3.09
44.01
43.77
50.71
51.15
31.35
896
95.94
2.42
131.81
2.18
37.39
1279
1821
11467
90.21
98.23
84.85
3.46
4.93
31.02
1231
1903
2586
16594
134.22
139.49
122.78
3.38
4.59
29.45
48.79
42.01
44.71
2752
601
1350
953
3368
1401
1998
12423
36970
90.08
111.97
83.31
84.42
72.64
114.02
96.83
87.06
83.31
7.44
1.63
3.65
2.58
9.11
3.79
5.40
33.60
100.00
4171
889
1943
1491
5204
2128
3128
18954
56341
136.53
165.62
119.90
132.07
112.23
173.19
151.59
132.82
126.97
7.40
1.58
3.45
2.65
9.24
3.78
5.55
33.64
100.00
51.56
47.92
43.93
56.45
54.51
51.89
56.56
52.57
52.40
Growth
rate
(in %)
Source of data on the number of non-prot entities: Croatian Central Bureau of Statistics, Priopcenje, Zagreb, November 10, 2001; November 14, 2009
Note: the number of non-prot entities per 10,000 inhabitants was counted on the basis of the
number of inhabitants according to the Census 2001.
Goran Marijanovi Draen ui Gabrijela alac
990
ROLE OF DEVELOPMENT AGENCIES IN THE REGIONAL

DEVELOPMENT OF THE REPUBLIC OF CROATIA
PhD Goran Marijanovi
MSc Draen ui
Gabrijela alac,B.Sc.Econ.
Vukovar-Srijem County
Department for International Cooperation and Capital Investments
International Cooperation and European Integrations Division
ABSTRACT
The regional development issue is a relatively new area of public policy, which
was not developed in many countries, especially the transition countries, such
as the Republic of Croatia. The regional development policy represents one of
the EU policies, known as Cohesion policy, and provides nancial support, through
the EU Structural Funds, to EU Member States (hereinafter: MS), in particular the
so-called cohesion ones and the new MS, in order to stimulate economic growth
and sustainable development of certain EU regions that are below certain GDP
standards or are in a transition phase. The absorption capacity of EU funds requires that the administrative system of a particular MS is in the position to receive
and manage eectively, as well as evalute the use of the EU funds and ensure that
they will be used in a transparent and cost eective manner by the nal beneciaries. This requires institutional building and capacity building, in particular in the
new MS.
In recent years, the Republic of Croatia invests considerable funds in the development of its institutional framework for an ecient regional development, as
well as in human resources development, and it can be said that currently it exists a
certain number of development agencies which have acquired know-how in the development programming and planning through EU funds experiences and relevant
ROLE OF DEVELOPMENT AGENCIES IN THE REGIONAL DEVELOPMENT OF THE REPUBLIC...
991
practises that they have shared with the EU. However, it is evident that problems in
the identication of real development projects still exist. It can be said that past
projects that are applied and implemented did not obtain the desired results on
regions development.
Therefore, possible models of action and the role of development agencies in the
future regional development of Croatia, as key actors for the countries economic
development in this pre-accession period and their inevitable impact on increased
absorption capacity of EU funds will be presented in this article. These proposals include assumptions under which County Development Agencies (hereinafter:
CDAs) will be nanced and accredited, as well as their action supervised, and
could be applicable in the second half of 2010 after the adoption of the National
Strategy for Regional Development (hereinafter: NSRD).
JEL clasication: O1, R58
Key words: regional development, National Strategy for Regional Development, County Development Agency, strategic planning, human resources
1. INTRODUCTION
Regional policy in Croatia in the recent years was implemented through dierent, unrelated measures. Such fragmentation of regional policy was due to the absence of legislation related to the topic of regional development. In addition to the
new Act on Regional Development, approved in December 2009, there are a few
acts focused on the specic regional problems mainly on dierent type of regions
lagging far behind (regions aected by war, islands, border regions, mountainous
regions and areas of special state concern).
The NSRD will be a unique document focusing on the regional policy of the
entire country. The EU has supported regional development, mainly through preaccession programmes, which helped to progress in capacity building in the eld of
regional development. Croatias regional policy cannot be only oriented on regions
lagging behind, but should follow a guiding principle of balanced development of
all regions in order to reinforce their ability to compete in an open single market
with other regions across Europe, when Croatia will become a full EU member
state.
992
2. REGIONAL DEVELOPMENT IN CROATIA
Economic development on the state level is implemented by the stimulating of

economic development on regional and local level respectively investments promotion, innovation, improving of knowledge and skills, eectiveness and competitiveness. Therefore regional and local economic development are according to Borozan
(Borozan et al.; 2009, 21) in the focus of interest in the EU MS as well as the others
developed western countries and also in Croatia. (ulabi; 2007, 17)
In the year 2008, EUROSTAT (Jurlina Alibegovi; 2009, 23-42) approved 3
NUTS II regions Pannonian, North-Western and Adriatic Croatia. These regions
are not identical with administrative self-governing regions at NUTS III level
- counties. At NUTS III level county level, the Regional Development Agencies are established and operational. Also regional development documents called
Regional Operational Programmes are prepared and some of them are already
upgraded into County Development Strategy (hereinafter: CDS) at this level. (Vukovar-Srijem County; 2007, 6)
Important milestone for regional development was the process of scal decentralization which started in the year 2001(Bajo; 2007, 53-74). At present, some
aspects of scal decentralization have to be more ne-tuned to harmonize competence of regional self-governments units with their nancial resources. In this moment the counties are not in position to fully nancially cover their competences
and are still, in some degree, dependent on central government.
Till now, a centralised approach prevails when referring to regional development
issues. However, the quite big dierences in regional development at the county
level and the specic problems of particular counties require also reinforcement of
a bottom-up approach. (Davey; 2003, 153)
The implementation of regional development in practise requires the denition of
a strategy for regional development, to establish and develop the institutions able to
act as driving forces of regional development, at national and regional level (NUTS
II and NUTS III), to train the sta of the above mentioned institutions, to start
coordination of all signicant activities within particular regions, with the coordinating role of the line ministry.(Halkier et al.; 2002, 26)
A preliminary analysis of the regional development in Croatia, highlights the
following goals for 2010:
fully adjustment with the EU system
993
strengthening of regional policy and better absorption of EU funds for regional development
3. NATIONAL STRATEGY FOR REGIONAL DEVELOPMENT CONNECTION
WITH THE EU STRUCTURAL FUNDS
NSRD is a necessary strategic document for regional development which establishes the most important pre-conditions for successful implementation of the
Structural Funds concerning regional development in Croatia. Now, after adoption
of Act on Regional Development by government, the situation in regional development and the preparation for Structural Funds should be improved mainly in three
elds:
Legislation Act on regional development will provide, in parallel with the
Strategy, legal framework for regional development and implementation of
new measures including funding from Structural Funds.(Ott; 2003, 1-23)
Institutional framework and management structure will be established at national and regional level, which is very important for capacity building and partnership. The Act also denes the role of newly established National Agency
for Regional Development (hereinafter: ARD) and the roles of line ministries,
regional self-government units and CDAs.
Planning and programming at national and regional levels SWOT analysis
and priorities at NUTS II level and development of instruments for county
and NUTS II regions development, for cross-border cooperation and also for
assisted area development will be in focus. This should enable the creation of
multiannual programming and planning which is vital needed for absorption
of Structural Funds. (Filipi et al.; 2007, 7-16)
4. ROLE OF THE COUNTY DEVELOPMENT AGENCIES
The draft NSRD and Law for Regional Development envisage that CDAs will
become the key economic development institutions at regional (NUTS 3 and
where appropriate NUTS 2) level and will play a key role in delivering the CDS,
the NSRD, and eventually European Structural Fund programmes at county and
inter-county level. This vision for the CDAs is agreed between the Ministry of Regional Development, Forestry and Water Management (hereinafter: MRDFWM)
and other relevant Ministries who have an interest in regional and economic deve-
994
lopment. It is therefore crucial that all CDAs have the capacity to fully play their
role in the NSRD and future European funded development programmes, and
that the various Government Ministries cooperate in developing this capacity and
supporting the agencies in their work. (Malekovi; 2002, 143-174)
Picture 1: Piramid of the main institution in charge for regional development

GOVERNMENT OF THE REPUBLIC
OF CROATIA
MINISTRY OF REGIONAL DEVELOPMENT,
FORESTRY AND WATER MANAGEMENT
PARTNERSHIP COUNCIL FOR
REGIONAL DEVELOPMENT
COUNCIL FOR REGIONAL

DEVELOPMENT
NATIONAL AGENCY FOR REGIONAL DEVELOPMENT

NUTS II PARTNERSHIP COUNCIL
COUNTY
COUNTY PARTNERSHIP COUNCIL
COUNTY DEVELOPMENT AGENCY
Source: Draft NSRD, February 2010
All 21 counties in Croatia, including Grad Zagreb have now established a CDA.
In most cases the main role of the CDA is to implement the CDS, although some
also have a wider function in coordinating economic development in the county,
using local, national and international resources. There is a wide variation in the
capacity of the CDAs measured by the number and expertise of sta, and the nancial resources available for their running costs.
This article sets out proposals for developing the role of CDAs to enable them
to play their part in the economic development of the country. These proposals
include the arrangements under which the agencies will be accredited and funded,
and their performance monitored.
5. TASKS OF THE COUNTY DEVELOPMENT AGENCY
The draft of the NSRD sets out 3 categories of tasks for which CDA will be
responsible. The rst category includes functions that the CDA will be legally required to perform by the Law on Regional Development as part of their responsibility under the NSRD. To secure and maintain accreditation the CDA will be
995
expected to recruit and maintain sucient qualied and trained sta to carry out
these tasks eectively. The second category of tasks covers other economic development activity that a CDA may perform by arrangement with the County or other
client institutions. The third category of tasks are commercial activities that a CDA
can again with the agreement of the County undertake in order to generate income
but not prot. The 3 categories of tasks are summarised below.
5.1. Tasks required by the Law on Regional Development
CDA will give the assistance to the County in the preparation of the CDS.
The CDS will be the main planning document for the sustainable socio-economic
development of the county. The rst CDS under the NSRD should be completed
in 2010 and cover the period 2010-2013. To align with the next EU Financial Perspective, it should then be revised in 2013 with the updated version covering the
period 2014-2020. The CDA may assist the County in the preparation of the CDS,
in close correlation with the County Partnership Council. Upon agreement with
the Council the CDA might be responsible for the preparation of the CDS. The
CDS should be fully in line with the National Sectoral Investment Guidelines.
5.2. Tasks related to economic development in the County
CDA will promote the county as a place for private investment, business development and tourism, give support to entrepreneurs and SMEs, will work on investment promotion to attract targeted foreign and domestic investments. Also it will
be information point on national and international information funding service,
securing SME/innovation funding through guarantee fund and venture capital and
important issues also will be institutional capacity building, networking of public,
business and scientic research sectors, technology transfer, commercialisation of
innovation and development of business-related infrastructure.
5.3. Tasks related to commercial activities for the benet of the County that
the CDA undertakes in order to generate income
undertaking feasibility studies or project development work for project promoters and other stakeholders as long as this will not lead to conicts of interests regarding other tasks of the CDA
preparing applications for nancial support from national or international
funding sources
996
organizing business events, conferences, etc. in county venues

promote and implement projects either at county level or on behalf of a group
of adjoining counties including neighbouring countries where appropriate
In order to avoid conict with EU State Aids policy following accession, the
CDA must carry out any commercial activities at market rates, charging the full
economic costs of sta time as well as realistic charges towards the organisations
overheads. In addition, as the CDA will be a non-prot organization, it should
ensure that any surplus income is invested in the development activities of the
CDA.
6. THE ACCREDITATION PROCESS FOR CDAS
The MRDFWM through the ARD will be responsible for accrediting CDAs in
consultation with other Ministries. Only one CDA will be accredited per county.
Accreditation is not an end in itself but will be an ocial recognition that the organisation meets the required institutional standards and will take on certain responsibilities in return for nancial and other practical support from the government.
In particular accreditation will mean that Government Ministries will recognise
that CDA as the ocial CDA for that county and will cooperate with it, and no
other development agency in the county, for all matters concerning the NSRD and
any of the Ministries own programmes that are locally delivered. The CDA will be
eligible for nancial support from the MRDFWM, according to the arrangements
set out below, will be responsible for carrying out the tasks set out in the NSRD in
its county and will be required to continue to meet the accreditation benchmarks
to retain its status.
The accreditation process will be as follows :
The ARD on behalf of the MRDFWM will write to each County to propose
one CDA for accreditation.
The County will provide the evidence required by the ARD to enable that
CDA to be assessed according to the following criteria:
That the CDA is established as a public-owned non-prot company at county level;
997
That the regional self-government unit (in conjunction with local

self-government units from the same region if appropriate) has
established the CDA or has approved its establishment;
That the regional self-government is committed to providing nancial support to the CDA to complement any grant from the
Ministry;
That the County Partnership has been consulted by the regional
self government unit about the establishment of the CDA and its
views taken into account;
That the CDA is adequately and competently staed and
equipped. This means that the CDA will have a minimum of 6
posts in order to carry out Category 1 tasks above.
The County will also provide information on the qualications of the existing
CDA sta and a 3 year budget plan for the CDA in a format to be provided by the
ARD. The stang capacity requirements will be applied exibly in the rst year.
The ARD will organise training and support to address any particular issues identied in the assessment process. The ARD also reserves the right to issue a provisional
accreditation whose continuance is dependent on certain conditions being met by
a specied deadline. For instance if the initial assessment shows that a CDA does
not meet the required standard in any respect, the ARD will discuss the issue with
the CDA and County and agree a plan of action that will enable the CDA to reach
the required standard.
Once the CDA is judged to have successfully met the benchmarks, the ARD
on behalf of the Ministry will send a letter of accreditation to the CDA and to the
County Administration conrming the CDAs accredited status and setting out the
arrangements for continued accreditation and nancial support.
7. FINANCIAL CONTRIBUTION TO CDAS
In order to assist the development of the CDAs and ensure that they can contribute to the goals of the NSRD, the government will provide nancial support
to their annual running costs and certain initial set up costs. This support will be
available for the period 2010-2013. The inter-Ministry Working Group has agreed
that the MRDFWM through the ARD will be responsible for funding these ope-
998
rational costs, leaving the other Ministries to support CDA activities through their
programme budget.
The Ministry has allocated a budget for support to the CDAs. Particular amount
will be held back to co-nance the cost of external consultancy to assist in the
preparation of the CDSs, and to fund any systematic training and development
needs identied for the CDAs. This money will be allocated under a separate arrangement. The Ministrys nancial contribution to the CDA running costs will
be made in accordance with a formula based on the Development Index of the
County, and will reduce over time. It will be important to direct resources not only
to where they are needed, but in sucient amount to provide a real incentive to the
CDA to seek accreditation.
CONCLUSION
While national-level policies are the domain of central government departments, CDAs are established as autonomous bodies on regional level. The latter organisational set-up is perceived as having many advantages. A regional institution is
better placed to develop strategies tailored to the specic problems of the individual
regions, especially if economy is becoming increasingly localised and dierentiated.
This represents indeed a crucial point of the role of the CDAs.
This bottom-up approach to regional policy requires sta capable of dealing
with new challenges. The autonomous position of CDAs limits direct political
interference and, hence, allows the adoption of a long-term perspective capable of
tackling structural weaknesses of the regional economy that could not have been effectively addressed within the short-term horizon of party political manoeuvring.
And nally, compared with the more discrete impact of national-level policies, a
separate regional institution like the CDA not only may enhance the regional clout
of the political sponsors in relation to other public bodies, but also may function as
a visible symbol of party political commitment to the development of the region.
REFERENCES:
1. Bajo A. (2007). Fiskalna decentralizacija, Javne nancije u Hrvatskoj, Institut za

javne nancije, Zagreb, ISBN 978-953-6047-91-8, Zagreb
2. Borozan .(2009). Suvremeni izazovi u upravljanju ekonomskim razvojem,
Ekonomski fakultet u Osijeku, ISBN 978-953-253-055-1, Osijek
999
3. Davey K. (2003). Investing in Regional Development: Policies and Practices

in EU Candidate Countries, Budapest: Local Government and Public Service
Reform Initiative/Open Society Insitute
4. ulabi V. (2007). Rgionalizam i regionalna politika, Drutveno veleuilite u
Zagrebu, ISBN 978-953-7083-11-3, Zagreb
5. ulabi, V. (2005) Treba li Hrvatska zakon o regionalnom razvoju? Izvjetaj
radne skupine za pravni okvir izraen u okviru CARDS 2002 projekta Strategija
i jaanje kapaciteta za regionalni razvoj
6. Filipi P. (2007).Strategija razvoja Hrvatske u procesu pristupanja EU , Hrvatska
i EU - Izazovi integracije, Ekonomski fakultet Split ; Studentski zbor Sveuilita
u Splitu, Europski pokret Split, ISBN 953-6024-89-6, Split
7. Final Report (2009) Regional Development Capacity Building Facility in Croatia Final report. Zagreb, ECORYS & MRDFWM
8. Halkier H. (2002). Regional Development Agencies in Europe, Jessica Kingsley
Publishers Ltd.,Library of Congress Cataloging in Publication Data, London,
ISBN 1 85302 602 6, London
9. Jurlina Alibegovi D. (2009) Regionalizacija u Hrvatskoj: Iskustva i otvorena
pitanja, Izazov istine : glasilo mladih hrvatskih dominikanaca evropskih integracija. asopis za pravo i ekonomiju evropskih integracija (1820-9459)
10. Malekovi S. (2002) Lokalni akteri razvoja i neka iskustva s lokalnim razvojnim
agencijama u Hrvatskoj, Institut drutvenih znanosti Ivo Pilar, Zagreb, ISBN
953-6666-25-1, Zagreb
11. Ott K. (2003) Pridruivanje Hrvatske Europskoj uniji : izazovi ekonomske i
pravne prilagodbe, Institut za javne nancije ; Zaklada Friedrich Ebert, Zagreb,
ISBN 953-4076-27-6
12. Vukovar-Srijem County (2007), County Development Strategy 2007. 2013.,
Vukovar
13. www.strategija.hr (04-02-2010)
14. www.mrrsvg.hr (07-02-2010)
15. http://ec.europa.eu/index_en.htm (10-02-2010)
16. http://ec.europa.eu/regional_policy/index_en.htm (11-02-2010)
1000
17. www.eurada.org (10-03-2010)

18. http://www.regio-hr.com/politikarh.php (12-03-2010)
19. http://books.google.hr/books?id=ebB-BDSTRmIC&printsec=frontcover&
dq=regional+development+agencies+in+europe&source=bl&ots=Bh1577E9
AO&sig=vq_k9eqr0Yj7WEhcWB3IwXew8H8&hl=hr&ei=Z9OeS9rHK9S
J_Aa7ttT7CQ&sa=X&oi=book_result&ct=result&resnum=2&ved=0CA4Q6
AEwAQ#v=onepage&q=&f=false (13-03-2010)
20. http://www.google.hr/#hl=hr&source=hp&q=regionalna+politika+eu&me
ta=&aq=0&aqi=g6&aql=&oq=regionalna+politik&fp=c7da48a1f522b56f
(14-03-2010)
21. http://www.google.hr/#hl=hr&source=hp&q=razvojne+agencije+u+hrvatskoj
&meta=&aq=0&aqi=g3&aql=&oq=razvojne+agencij&fp=c7da48a1f522b56f
(15-03-2010)
Laws
1.Zakon o regionalnom razvoju, Narodne novine 153/09

2. Zakon o podrujima posebne dravne skrbi (NN, 26/03 proieni tekst,
42/05,
90/05)
3. Zakon o brdsko-planinskim podrujima (NN, 12/02, 32/02, 117/03, 42/05,
90/05)
4. Zakon o otocima (NN, 34/99, 149/99, 32/02, 33/06)
5. Zakon o obnovi i razvoju Grada Vukovara (NN 44/01, 90/05)
6. Zakon o ustrojstvu i djelokrugu sredinjih tijela dravne uprave (NN 199/03.,
30/04., 136/04., 22/05., 44/06. 5/08. i 27/08.)
7. Uredba o unutarnjem ustrojstvu Ministarstva regionalnog razvoja, umarstva i
vodnog gospodarstva (NN 34/08)
ENVIRONMENTAL DEVELOPMENT PROBLEMS IN THE MOST DISADVANTAGEOUS...
1001
ENVIRONMENTAL DEVELOPMENT PROBLEMS IN THE MOST

DISADVANTAGEOUS HUNGARIAN MICROREGIONS
Bernadett Glosi-Kovcs1 Norbert Pap2 Zsuzsanna M. Csszr3 Pter Remnyi4
ABSTRACT
The Hungarian government and the regional development institution system

has worked out an own development programme for the improvement of so-called
most disadvantageous or MD micro-regions. Micro-regional environmental development has a double role: on the one hand, it should plan activities which in their
realisation actively contribute to the solution of environmental problems which are
considered a priority on national and regional levels; on the other hand it must be
an ecient device for the treatment of local problems which are regarded as most
important by the micro-region in question.
The Government gives an emphasis to the micro-regions in the worst position
for the sake of dierentiated utilisation of regional development supports; and it
contributes to the realisation of their development programmes to an increased
degree
JEL clasication: N5, O13, P28, R11
Key words: regional development, micro-regions, topological opportunities,
environment
Dr. Bernadett Glosi-Kovcs assistant professor, UP NS Faculty, Department of General and

Applied Environmental Geography
Dr. Habil Norbert Pap associate professor, Head of Department, University of Pcs, Faculty of
Natural Sciences, Department of Political Geography and Regional Development; professional
leader of the LHH Development Programme of the Transdanubian Region in 2008-2009.
Dr. Zsuzsanna M. Csszr associate professor , UP NS Faculty, Department of Political Geography and Regional Development
Dr. Pter Remnyi assistant professor, UP NS Faculty, Department of Political Geography and
Regional Development
1002
Bernadett Glosi-Kovcs Norbert Pap Zsuzsanna M. Csszr Pter Remnyi
I. INTRODUCTION
Despite the oversized regional development institutions and multiplied development resources, regional dierences in development have further been increased
in the last two decades. Certain micro-regions have dropped behind the average in
the highest degree concerning the indicators and liveability; in certain places the
conditions suggest the level of Third World countries. These are the so-called most
disadvantageous or MD micro-regions. Facing this problem, the Hungarian government and the regional development institution system has worked out an own
development programme for the improvement of these regions. It is questionable
whether the regional policy shaped after the European patterns is suitable for the
solution of these problems.
Micro-regional environmental development has a double role: on the one hand,
it should plan activities which in their realisation actively contribute to the solution of environmental problems which are considered a priority on national and
regional levels; on the other hand it must be an ecient device for the treatment
of local problems which are regarded as most important by the micro-region in
question. The programme itself is a means inuencing and facilitating decisions, by
which grant resources may be involved in order to realise the target conditions, and
it is especially true in case of the realisation of environmental development plans of
MD micro-regions, where the improvement of the circumstances and maintaining
the values of the area are provided with favourable tendering conditions.
II. CHARACTERISTICS OF THE RECENT REGIONAL DEVELOPMENT POLICY IN
HUNGARY
The legal foundations have been created by the Act of 1996/21. and its modications, which have developed an EU-compatible institution and implementation
system of the development policy. Its main characteristics are the following:
- value-neutral
- average-approach
- bureaucratic
- paternalist (partnership and co-operation is only accepted verbally)
- wasteful and operates at high costs
1003
- it deprives rural settlements of local resources, which cannot take advantage of

the principles of concentration and additionality, therefore they come out of
the developmental process in a disadvantageous position.
Basic geographical questions of regional development in Hungary
Today it is mainly Europe that oers itself as a macro-regional developmental

framework. It is essential to observe the processes within the former; one of our
main tasks is adaptation, while there is only a minimal opportunity for inuencing.
Planning and developing can be considered ideal within our real areal community,
that is, in the Carpathian Basin.
Upper Hungary, Transdanubia, the Great Plain, Transylvania and the Partium,
Slavonia, Vajdasg (Vojvodina), Tengermellk (a historic region called Austrian Littoral), etc. span the Basin as historical regions possessing their own identities, but
the course of these adjacent areas have been drawn away from each other in the last
90 years. In the deepest structures, such as agricultural civilisations, the characteristic of the settlement-network, the (areal) community still exists, because these can
change slowly, and it is the hardest to inuence these ones. In many places already
existing dierences have been increased signicantly concerning the organisation
of society, economic features, institutional and legal systems, customs, the ethnic
constitution of the population, and especially the social-cultural issues. Concerning these, Euro-regional co-operations oer a solution for the problem within the
framework of sub-national organisation units.
The pitfall to be avoided is that co-operation is dumped into hopeless tactical
limitariness in many cases, which is unable to produce results concerning realities.
Co-operation must explore its real geographical dimensions. Due to the characteristics of the basin, hydrological engineering, collective ood-protection, soil destruction, organisation of tourism, common town-network development, mutual
contribution to the cultural activities of ethnic minorities, migration processes to
inuence the region signicantly in the future, the common cause of environmental protection are all oering several junction points.
To some degree the great change had even preceded the political and economic
changes. The emergence of demographic decrease in Hungary (in the 1980s), especially the increasing depopulation of certain rural regions, then the rapid change of
concentration-urbanisation processes triggered by the conditions of market econo-
1004
my, suggestions and requirements of the European Union have demanded and still
demand changes in areal organisation.
The development of the NUTS system of the European Union has oriented the
development of a new areal organisation system. The sub-national system of the
regions of NUTS II. and the macro-regional system of NUTS IV. have constituted
the basis of the areal organisation structure since 1994.
The Hungarian Central Statistical Oce conducted researches on vicinity between 1991 and 1993. The resulting micro-regional data-collection and processing system was introduced on 01. January, 1994. 138 micro-regions were dened,
which covered the area of the whole country altogether. Due to local endeavours
and compromises, this system was modied in 1997, and 150 micro-regions were
dened. Although other opportunities were also mentioned in the original conception, the micro-regions did not cross county borders in the end. During their
denition these original administrative boundaries were taken into account.
The micro-regional system was modied again in 2003, so that the number of
micro-regions increased to 168. Today they amount to 174, and it can be presumed
that the system will be subdivided again; the number of its units will increase. This
can be partly related to the fact that several settlements have gained the title of
towns. The establishment of autonomous micro-regions was urged by minor municipalities in order to gain the title of towns, and by small towns in order to
conrm their regional position.
Concerning NUTS I. level, the recent seven-region model has been established
after long debates. The basic principle was the numerologic three; so that three
counties make up a region, except for one case. However, none of these constitutes an unquestionable regional unit. Harmonious relationship and co-operation
between the counties (i.e. the general assemblies of the counties) and cities have
developed in none of these cases. Neither an identity related to the newly established region nor a co-ordinated transport system has been emerged. The newly
established regions as an obligate spatial framework for receiving European Union
monetary sources are rather voluntaristic formations.
The county system having been developed during a long period provided sucient framework for administrative, regional development, etc. problems by an increasing population. Natural depopulation and migrational decrement, especially
present in rural areas, and especially the loss of active, productive population is
1005
steadily increasing the costs of maintaining the establishment system per capita.
Transport exposition can only be maintained by increasing costs as well. Establishing greater regional units, modifying the frameworks by a complex aspect system
have become urgent by today. Central administration and government shall play a
greater role in this. Reconsidering the areal organisation of the state is cogent both
at settlement and at medium levels. The establishment of larger and stronger counties would satisfy the needs of administration.
Considering the characteristics of the already existing settlement structures and
transport system, it would be worth to develop a more ecient medium level by
merging and correcting the existing counties. By decreasing the number of counties to ten, a more ecient but organically developed system could be established,
preserving the historical heritage as well.
III. MICROREGIONS AND TOPOLOGICAL OPPORTUNITIES
The space for local co-operation is the level of the former prefectures, today
that of micro-regions. Micro-region as a geographical unit has been dened by
Blint Csatri in the most appropriate way. He denes it as an areal unit with a constant attribute, as a micro, that is, small region (small in measures). Furthermore:
a micro-region is an areal unit dened by the spatial relationships between village and
village or village and town; primarily by those which satisfy the everyday needs of the
population. The signicance of homogeneity, functionality and identity is emphasised as its characteristic features (Csatri ). We can only agree with these
observations even after fteen years.
The beneciary regions of the national regional development system in Hungary are dened at the NUTS IV. regional statistical level, in contrast with the
general European Union practice, where this happens at the NUTS II. or NUTS
III. levels.
Position and characteristics in the regional structure
The operational condition system of micro-regional associations varies signicantly depending on their position in the regional system. Dierent principles and
strategies are required depending on what functions the place functioning as a
regional centre can full, how eciently it is able to full structuring and mediumlevel functions in organising micro-regional associations. Four basic situations are
1006
presumed in the following, on the basis of which four basic micro-regional categories can be dened.
Micro-regions are located in the vicinity of cities (e.g. Pcs, Gyr, Miskolc). In this
case the determinant relation system of the co-operating settlements of the microregions is not the village-town or the village-village relationship. Suburbanisational
progress surrounding the city makes the relations of the village to the city the determinant force of the areal structure. In this case no co-operation is evolved between
cities and villages due to the huge dimensional, and in several cases intellectual
gap. A town functioning in the shadow of a major city is unable to become a real
regional organising factor. A particular asymmetric position develops between the
city and its suburban zone. Villages and towns in the suburban zone are exposed to
the processes of the city. The eciency of the micro-regional development means
the observance of sub-urban processes, and relying on the resources oered by the
city.
Micro-regions are located on the limitary periphery. In this case the relations of
the micro-region are mainly determined by the asymmetries and trends rooted
in its limitary position. The evolution of outer periphery-type micro regions is
based on the conscious discrimination of the last decades. This process has actually
been in eect since 1920, and it was strengthened during the Cold War. Deprival
of resources from the settlements located on the enemy borderlines (i.e. on the
southern and western border zone) and isolation (due to the low number of border
checkpoints) have created the type of declining limitary regions. Cut-o regions
have deformed and hindered the development of both central locations and vicinal
settlements. At these places the existence of border checkpoints and the strengthening of CBC relations are determinant. The key element in the development of these
micro-regions is enhancing communications in a broader sense.
Micro-regions located on the inner periphery represent areas in need of towns that
have been formed on the peripheries of countries or regions. The developments of
the last decades preferred the major towns of the counties. Micro-regions having
been formed around municipalities with weak and insucient central functions,
lying in a distance from the major town, on the borders of two or three counties,
are struggling with the lack of regional structuring forces. The lack of a clear hierarchy of the municipalities can lead to rivalry. The region is lacking all those enterprises, institutions and human resources which an ecient developmental strategy
could be based on. The main task is to improve human resources.
1007
The real suburban-type micro-region is actually the ideal type of micro-region.

A close and symbiotic relationship evolves between a town and the neighbouring
villages. The town assumes the problems of the vicinity. Town establishments also
function for the benet of the region. Its central role is unquestionable, local governments communicate with each other. Town developments, such as industrial
parks, economic or human resource development projects serve the whole region.
Salient regions typed by sectors or demographic capabilities:
Touristic or recreation area type micro-regions build their developmental activity on remarkable tourist attractions, or emerge as recreational zones near urbane
areas.
Industrial areas are regions of industry, heavy industry, mining or energy supply.
They are partly identical to the regions of industrial structural change.
Rural developmental target areas are strongly rural, characterised by small villages,
an aging population and lack of services. Arable lands and agriculture provide the
most important, or even the only resource in these areas.
Micro-regions within the agglomerations of cities especially of Budapest
structure their lives in connection with the suburbanising processes of the cities.
Micro-region types also can be dened characteristic ethnic properties (or identities). Areas characterised by a large proportion of Roma population, or partly of
German or Szkely ethnicity can possess peculiar features among micro-regions.
Micro-regions can be typed by the structure of the settlement as well. The following can be dened:
1. small-village,
2. plain-type with homesteads and large connes,
3. proportionally structured,
4. and urbane micro-regions.
Structural dierences have dierent consequences regarding infrastructural development and organisation of (public) services.
The question of minimum size
Micro-regional associations can be typed on the basis whether the nancial
power and human resources of the local governments involved in the association
1008
are able to grant functionality. Concerning the minimum size, the number, qualications and age proportions of the population of the local government is crucial
as well. Enterprises functioning in the area of the association may mean the third
factor. Their number, capital force and social embedding are an essential part of the
critical mass of the association.
How the problem of critical mass emerges in case of these three factors? The
budget of the associations is crucially determined by the membership fee paid by
the local governments, which is based on the number of the local population. The
endurance of local governments is limited. Providing a sucient management and
an own resource for applications and tendering imposes an unbearable burden on
the government below a certain capitation.
The qualication and work capacity, and thereby the amount of local taxes and
income taxes determine the nancial opportunities of local governments. Local
economical development, enterprise development activity, the attracting force of
the functioning capital is in a close relation with the availability of a sucient,
qualied and hard-working work-force. The requirement of communication and
partnership with the local society presumes a certain level of organisation of this
society. The presence of NGOs and the social groups embraced by them all make
up a part of the critical mass.
The role of enterprises is signicant in providing employment, local tax payment, reformation and innovation. They are regarded as the most important partner group for micro-regional management. Due to their capital force, they can play
a remarkable role in tendering activity.
Those micro-regional associations which cannot reach the minimum size/ critical mass will be eliminated after a period of stagnating, due to unrealised hopes.
Classication according to the number of centres
In a signicant proportion of micro-regions there is not only one natural centre,

but two, three or even more. According to the experience of the past years, a cause
of the establishment of new micro-regions and micro-regional associations was rivalry between the centres. In this case the two basic types are the micro-region with
an obvious and accepted centre, and the other type with two or more competing
centres.
1009
IV. BENEFICIARY MICROREGIONS
Regarding the fact that GDP is not calculated at the micro-region level, the
social-economic underdevelopment of micro-regions had to be shown by other
indicators. A complex indicator serves this purpose, which involves demographic, employment, economic and infrastructural and other factors as well. In eect,
this indicator reects on the degree of social-economical underdevelopment under
Hungarian circumstances better than any GDP-index (Faluvgi A. , ).
The Government gives an emphasis to the micro-regions in the worst position
for the sake of dierentiated utilisation of regional development supports; and it
contributes to the realisation of their development programmes to an increased
degree. CSO (Central Statistical Oce) districts function not only as statistical
units, but they also have signicance in regional development; they are the basic
units of beneciary regions regarding the distribution of decentralised development
resources.
In Hungary, micro-regions can be either beneciaries, that is, receivers of extra
subsidies, or they can have better economic conditions than the average these do
not belong to beneciary micro-regions. Hungarian regulations dened four, then
later three types of beneciary regions in 1997: socially-economically underdeveloped
regions, regions of industrial structure change, regions of agricultural and regional
development. Regions aicted with permanent unemployment constituted an own
group until 2000; this category was omitted later, since the problem of unemployment cannot be involved fully in the framework of grantee regions. These beneting
region types are considered during the utilisation of two nancing funds:
1. regional development targets
2. developmental nancing support for regional equalisation
In 1997 the number of grantee micro-regions amounted to 72. The indicator
system for classifying has changed four times since then. First the change in the
number of micro-regions accounted for supervision in 1998; nearly 800 settlements got into another statistical micro-region (however, the number of microregions remained the same), so that the number of beneting areas increased to 88.
The next classication was announced by the Government in the Act of 91/2001
(15.06.), this aected 82 micro-regions. The 1997 classication was carried out by
32 indicators, in 1998 by 26, in 2001 by 19 indicators (Buzs 2009). In 2007,
the Parliament passed the parliamentary decree concerning regional development
subsidies and decentralisation principles and the condition system of classifying
1010
beneciary regions, which simultaneously abrogated the parliamentary decree of

24/2001. Categories are classied by the denition of a so-called complex indicator (32 markers) developed from ve indicator groups (economy, infrastructure,
social, societal and employment). According to the 2007 regulations, 94 out of 174
micro-regions (54%) is qualied as underdeveloped, that is, beneciary regarding
the distribution of resources.
According to the 2007 regulations, disadvantaged micro-regions, including the
most disadvantaged micro-regions are regarded as beneciary micro-regions5. The
new parliamentary decree6 provides an opportunity for a more appropriate denition of the development level of micro-regions because 5 indicator groups are to
be observed instead of the previous 4, since the complex societal-social indicator
group has been replaced with two distinct indicator groups. Thus, the social conditions of micro-regions have become a more dominant aspect.
Disadvantaged micro-regions, including the most disadvantaged micro-regions
are qualied as beneciary micro-regions. Those micro-regions qualify as disadvantaged that have a lower complex indicator than the average of the complex indicators of all micro-regions in the country. Within disadvantaged micro-regions, those
are the most disadvantaged that possess the lowest complex indicator value, and
their population does not exceed 15% of the average population of the state.
Chart 1. Classication of beneciary micro-regions the number of disadvantaged and the most disadvantaged micro-regions, including the most disadvantaged micro-regions with the lowest complex
indicator values to be supported by complex programmes (Source: 2. Annex for the 311/2007.
(17.11) Act of Government)
Disadvantaged
Subtotal of the most
disadvantaged:
Total of the most disadvantaged:
Total of the disadvantaged:
TOTAL:
5
6
Most
disadvantaged
Most disadvantaged to be supported by

complex programmes
14
33
47
47
94
311/2007. (17.11.) Government decree about the classication of beneciary regions

67/2007. (28.06.) Parliamentary decree concerning regional development subsidies and decentralisation principles and the condition system of classifying beneciary regions
1011
For the development of the most disadvantaged micro-regions that have the
lowest complex indicator values and the population of which does not exceed 10%
of the population of the state, a complex programme shall be processed, essentially
based on EU resources.
In those regions where the population of the most disadvantaged micro-regions
does not reach 30% of the population of the region, further regionally disadvantaged micro-regions can be selected from the development ranking based on the
complex indicator by regional development boards, for the sake of development of
the micro-regions within the regions.
No change occurred concerning beneciary settlements. The settlements included in the list of Government Act 240/2006. (30.11.) as socially-economically and
infrastructurally underdeveloped, or aicted with a level of unemployment exceeding the average to an extreme degree, are in the same legal disposition as beneciary
regions. Socially-economically and infrastructurally underdeveloped settlements or
those aicted with serious unemployment are treated as disadvantaged, while those
which are socially-economically and infrastructurally underdeveloped and aicted
with serious unemployment are treated as the most disadvantaged micro-regions.
For the classication of micro-regions based on regional development except
for micro-regions with a county authority city a complex indicator developed
from indicators of economy, infrastructure, society, sociality and employment (ve
indicator groups) shall be observed.
Beneciary micro-regions in Dl-Dunntl (Southern Transdanubia)
According to the 2007 regulations there are 9 disadvantaged micro-regions here:

4 in Baranya and Somogy counties each, and 1 micro-region in Tolna county falls
into this category. 9 micro-regions are among the most disadvantaged, including
8 to be supported by a complex programme. According to the indicators 3 microregions in Baranya, 1 in Tolna and 4 in Somogy belong to this category.
The governmental agship programme No one will be left behind
In the summer of 2007 the government selected 33 micro-regions which are the
most underdeveloped and in which 10% of the population live, based on the clas-
1012
sication according to the survey of the CSO and the complex indicator7 created
by the latter. 12 such micro-regions are located in Northern Hungary, 8 in szakAlfld (the North of the Great Plain), 5 in Dl-Alfld (the South of the Great
Plain), and 8 in Dl-Dunntl (Southern Transdanubia). Regarding the chosen
micro-regions the New Hungary Equalising Developmental Programme was announced with the motto of No one will be left behind.
Due to planning and project generating work, the micro-regions have developed the project package within the centrally prescribed frameworks for the entire
sum retained for the 33 micro-regions respecting the population and the number
of settlements. The chosen areas are characterised by a peculiar settlement structure
(disintegrated, lacking towns), a generally high rate of unemployment, a low capability for the absorption of resources, decient lineal and human infrastructure,
and a high proportion of the Roma population. The choice for nancing may have
been inuenced by political aspects as well.
The aim of the programming is on the one hand the initiation of sustainable
development processes that, according to the expectations, may slow down or stop
dropping o and may enhance standards of living, environment and services, thus
the general welfare of the population, and therefore it may strengthen the capability
of settlements to retain their population. Thus the programme is aimed at targeted
human resource improvement, regional economic development, environmental
and infrastructure development in the micro-regions.
Statistical data used: income tax, rate of permanent employment-seekers, activity rate, number of functioning enterprises, number of school classrooms, number of completed school grades, number of persons
with a secondary school leaving exam, number of recipients of social benets, number of GP visits, rate
of population per the number of General Practitioners, mortality rate, basic access, drinking water supply
rate, sewage rate, waste collection rate.
1013
Fig.1.: The most disadvantaged micro-regions in Hungary (MD)(Source: www.nfu.hu)

The basic principles of the agship programme for subsidy were the following:
resource-based development (advantage in accessing resources)
only plans developed together with local participants can be successful
it is not enough to develop infrastructure, it must be lled up with
meaning
no investments only for the sake of prestige!
social integration of the Roma
planning in accordance with local needs
These principles were realised in a rather contradictory way:
resource-based development resources were collected on the basis of the
residual principle,
1014
only plans developed together with local participants can be successful partnership is exclusively formal, marketing-viewed, actual local co-operation was
not needed, indicators were only quantitative,
it is not enough to develop infrastructure, it must be lled up with meaning locals were not able to cope with this otherwise advised principle, they
did not need it, they attempted to satisfy it to a minimal degree, without any
enthusiasm,
no investments only for the sake of prestige! the meaning of these prestigeinvestments was not dened,
social integration of the Roma the leaders of the Roma community participated in the programme only to a very small degree,
planning in accordance with local needs but there was not enough time nor
any way to survey local needs, and the NFU (National Development Agency)
has specied the directions of development.
Criticism of the programme
Those who dreamed up and realised the programme ignored several questions
that could have an essential inuence on the realisation and success of the programmes. The rst of these questions is the geographical character of the area, that
is, the fact that typically limitary regions are in question, the problems of which are
strongly connected to the questions of an isolated vicinity. The other one is that the
leaders of the programme at the national level did not comprehend the peculiar culture of the developmental target areas. This situation cannot be interpreted merely
by quantitative, extrinsic indicators. The development method adapted from Western Europe (resource-based planning) had been developed for social conditions
with a high level of qualication, a well-developed, characteristically middle-class
society. However, the society of MD regions is not characterised by this. So even
the most essential problems cannot be faced with the help of this method.
Spatial structural aspect
15 out of 33 MD micro-regions are directly on the border of the state, and only
6 are located in a distance more than 50 kms away from the borders. Thus, more
1015
than 80% of the area involved in the programme is in a limitary position. Therefore
it would be a mistake to plan development ignoring international dimensions that
span over the borders at the arrangement. Consequently, the main aspects to be
assessed are the following:
assessment of former and recent vicinity relations
the question of depopulation
conditions of trac and transport
relying on a strong relationship system extending over the borders
Based on the above typology, the following can be stated about MD regions:
small-village, plain-type,
typically rural,
ocated on the inner and outer peripheries,
characterised by centres with a low capacity of attraction,
do not possess even the minimum resources for getting through,
regional development target areas,
which have a distinct ethnical character in several cases.
V. THE OUTCOME OF OUR RESEARCH
We have conducted research regarding the improvement of the developmental

work of the 8 Transdanubian MD micro-region in order to summarise the experience of the development programme. These were characteristically empirical
observations.
Summarising the experience of planners (based on the opinions of cca.20
planners)
Conducting a survey by questioning local partners (250-300 persons/50
respondents)
Evaluation of the nature of the projects that had been accepted
1016
We examined in the following sections:

Method of planning
Communication
Principle of equal opportunities
Has co-operation been achieved?
Relationship with micro-regional centres the question of village-town
relationship
Innovations
Chances for recovery
Evaluation of emerging programmes
Chart 2. sums up the most important results of the survey.
Chart 2.: Classication of problems in the order of the need of modication concerning the region
Problem
1.
2.
3.
4.
5.
6.
7.
Unemployment
Lack of employers, new employment, enterprises with a strong balance sheet, industrial rms and industrial areas
Underdeveloped, decient infrastructure
Unfavourable trac options (decient access, high rate of dead-end settlements, low
level of public transport)
Low level of qualication, high rate of unqualied work force
Low, decreasing number of enterprises/will to venture, lack of capital, lack of investors,
entrepreneurs lacking capital, weak enterprises
Deep poverty, low income level, dropped-o classes and settlements
8.
Value
363
252
194
169
165
131
121
Unfavourable demographic conditions (ageing, migration)

Unfavourable educational conditions lack of infrastructure and vocational training,
9.
decreasing standards of training
10. Deepening moral crisis, social disintegration
117
11. Social and ethnic problems, segregatums
60
12. Low standards of healthcare and social services
44
96
71
1017
Settlement-geographical characteristics (locality, peripheral location, small-village

structure)
14. Lack of nancial subsiding, decient nancial condition of local governments
13.
15. Lack of touristic developments, weak tourism

Diculties in sales, low engross price for agricultural products, extremely low prot16.
ability of economic activities
Problems in management and decision making (lack of information for local manage17. ment, weak capability for enforcement of interests, self-interest of lobbying forces, lack
of will of government)
Lack of quality public services, cultural , educational and sports facilities and public
18.
scenes
19. Low level of co-operation
43
40
33
32
28
28
27
20. Lacking conceptions for enhancing economy
22
21. Lack of equal opportunities

Lack of a young, creative intelligentsia, and experts able to manage programmes; lack
22.
of forcefulness in the civic sphere, low participation rate in public aairs
23. Politics (political disintegration, lack of dierentiated policies)
12
11
24. Draining eect of cities with a municipal/county authority strongly felt
10
Ed.: B. Glosi-Kovcs. N. Pap
In our opinion, local persons have an appropriate impression of their own conditions and problems. It is interesting that in spite of the fact that they perceive the
phenomena of the social and moral crisis, and that its predominance is unquestionable, these phenomena can be found in a cluster in answers 7-12., following the
economic diculties. This fact indicates that the weight of local problems has not
been recognised at its whole extent.
Finally we evaluated the projects which had been accepted for support. Despite
the fact that limitariness is a general feature of MD regions; their problems were in
a decisive relation with the cutting-o of the relationship system across the borders,
there is only one out of the hundreds of accepted projects which deals with this
problem utterly (Kurilla. Orosz Pap, 2009). Human programmes potentially
contributing to social integration had come out rather weak. Almost none of the
innovative programmes able to compensate for social disintegration had been accepted (e.g. the Micro-regional Universitas programme developed exclusively for
this purpose).
1018
VI. EXPECTATIONS AND OPPORTUNITIES IN THE FIELD OF ENVIRONMENT

AND DEVELOPMENT
Programming involved 8 micro-regions of Dl-Dunntl: the micro-regions of

Barcs, Csurg, Kadarkt, Tamsi, Lengyeltti, Ssd, Sellye, Szigetvr. The following
areas related to environmental development can be subsidized in the framework of
the regional operational programme from the presumable resources of the microregions: economic development (business infrastructure), settlement development
(function-expanding settlement development), environmental development (sewage, water management).
Each micro-region had to observe the rates of investment (ROP) resources. Indicative rates had been calculated on the basis of the above mentioned statistical
data, by the calculation of the Department of Strategy and Evaluation of the National Development Agency (NDA). According to the indicative allocation, microregions had to concentrate resources into the development of the assigned areas;
these areas needed more investment than proportionate.
Micro-regional MD Planning Documents are based on the analyses presenting
the social-economic-environmental conditions of the respective micro-region in
every case. A condition for success in case of subsidy programmes is that the microregion in question should regard it as its own and consider it applicable, therefore it
is very important for any intervention to be built on the micro-regions own evaluations and programmes. During programming local decision makers acknowledged
the frameworks given by directed planning, but in most cases they disagreed with
them; the concepts of the local management was dierent from the focus given by
the NDA. Since indicators mark the results of development processes not in the
whole range and in temporal delay, it may be reasonable to deviate from the indicative allocations dened above; actually micro-regions have taken advantage of
this opportunity. Micro-regions dened their directions of development this way
(Chart 3.).
1019
Chart 3. Development concepts of environmental development included in MD Action Plan Documents in

Dl-Dunntl.
Settlement development
Settlement development (Ssd)
Environment and development
Micro-region of
Sewage management (Felsegyerszeg)
Ssd
Development of interior meteoric water o-take system (Szgy, Alsmocsold)
Economic development
Establishing a waste processor in the industrial area of Ssd
Environment and settlement development
Micro-region of Town rehabilitation (Sellye)
Sellye
Interior and exterior zone water management, rainwater discharge (Sellye, Hegyszentmrton, Baranyahdvg, Vajszl)
S Micro-region
of Szigetvr

Interior and exterior zone water management (Szigetvr, Nagydobsza, Csert, Vsrosbc, Vrad)
Initiating conditions for commuter bicycle transport (Hobol-Szigetvr)
Function-expanding town rehabilitation (Szigetvr)
Sewage improvement, establishing sewer system and sewage woks (Dencshza, Hobol,
Somogyhrsgy, Vsrosbc, Magyarlukafa)
Development of economy and employment

Expanding the bio-briquette rm (Industrial Park, Barcs)
Micro-region of
Town centre rehabilitation (Barcs)
Barcs
Environment and development
Interior zone water management (Barcs, Kastlyosdomb, Darny, Bolh, Heresznye,
Szulok, Babcsa)
Micro-region of
Town centre rehabilitation Csurg)
Csurg
Rainwater discharge and utilisation of water-base (Csurgi micro-region)
1020

Town centre rehabilitation (Nagybajom)
Interior zone water management (Cskly, Rinyakovcsi, Szenna, Brdudvarnok, KaposMicro-region of szerdahely, Szilvsszentmrton)
Kadarkt
Establishing reservoir for decreasing ood summits, exterior zone water management
(Kaposszerdahely, Szenna),
Drainage management along the river Kapos, establishing embankments and a rainfall
reservoir (Kaposmr)
Environmental infrastructure development
Interior zone water management (Lengyeltti)
Micro-region of
Establishing sewage system, water management (Somogyvmos, Gyugy, Pamuk)
Lengyeltti
Town development
Function-expanding town development (Lengyeltti)
Environment development
Interior zone water management (Regly, Disberny, Tamsi, Pri, Nagyknyi)
Micro-region of
Sewer system and sewage disposal (Varsd, Szakadt, Ozora, Magyarkeszi)
Tamsi
Town centre rehabilitation (Simontornya, Tamsi)
Dl-Dunntl (South Transdanubia) Operational Programme Action Plan

2009-2010. dening resources in the framework of application procedure
Developments in each region involved are realised within the framework of action plans for the 2. year of regional operational programmes. The Dl-Dunntl
Operational Programme Action Plan 2009-2010. presents the above conceptions in
the form of the following priorities and constructions. Favourable tendering conditions are provided in order to allocate resources to the micro-regions involved.
1. priority: establishment of a competitive economy based on the development of urbane regions
This priority provides assistance for developing business environment, improvement and establishment of industrial parks and areas, incubation houses and depots. The development of a methodology and the realisation of a sample project
will be subsided in the most disadvantaged region.
1021
- DDOP-2009-1.1. /F Business infrastructure development in most disadvantaged

micro-regions to be assisted by complex programmes
The aim of the component is the improvement of infrastructure and services of
existing industrial parks and areas in the region, in order to promote the ow of
additional functioning capital, increasing additional value and therefore to improve
competitiveness of local enterprises. Amount of subsidy: 70%. In total, 19 applicants have received subsidy.
4. priority: Contributing to integrated town development actions
This priority is to strengthen the town network of the region by strengthening

business and service functions of the towns, contribution to the social-environmental renovation of deteriorated urbane areas and settlements populated by Roma
communities, supporting initiations of community and social functions.
- DDOP-2009-4.1.1.B Supporting integrated urbane development actions in MD33 micro-regions
The aim of the construction is enhancing the attraction of the settlement by
sustainable function-extending development of the urbane and urbane district areas, strengthening functions extending over the surroundings of towns, developing
central areas compatible with the needs and expectations of the age. Amount of
subsidy: 85%. In total, 8 applicants have received positive evaluation.
5. priority: Improving access and environment development
The aim of this priority is to improve access to environmental protection infrastructure and environmental safety in favour of sustainable environment
utilisation.
- DDOP-2009-5.1.4/B Development of sewage in small settlements in MD-33
micro-regions
The main target is to improve access to sewage system and disposal system for
the population and institutions of small settlements with a population of less than
2000 in the region. Subsidy amount: 95%. 2 applicants have gained subsidy.
- DDOP-2009-5.1.5.C Interior and exterior zone water management in MD-33
micro-regions
1022
The aim is to improve environmental safety, to decrease exposition to ooding

and drainage and to reduce contamination in regionally signicant water-catchment areas, to prevent hazardous landslides and breaks of banks by Lake Balaton
and River Danube. Subsidy amount: 95%. Only 1 application has been accepted.
It is essential for the programmes to have an appropriate eect on the region.
The amount of money for the micro-regions is a remarkable one, but regarding
micro-regions, it is only suitable for generating processes. Subsidy is favourable in
comparison with other DPOP-constructions; 70-95%. Tendering has been closed
down, the time-limit was December 2009. 01.03.2010. At the moment evaluation is in progress, the details of accepted subsidies can be seen on the website of
NDA.
VII. RECOMMENDATIONS
1. The utilisation of targeted resources is a simple and welcome method.

2. The perspective of an economic rise is illusory; nearly all conditions are lacking
in case of MD micro-regions the aim can be ensuring liveability.
3. Each micro-region should thread an own path at its peculiar rate.
You cant x in 1-4 years what have gone wrong in 200 years
4. Local societies recognised only partly that their integrity has been damaged seriously; they are disintegrated, so-called wrecked societies.
5. The philosophy of development should be placed on a moral basis, on completely dierent social and individual motivation.
VIII. REFERENCES
1. Csatri, B. (1995): A kistrsg fogalma. In.: Csefk, F. (ed.): Kistrsgeknek

kistrsgekrl. Dunaholding City Menedzser Kft., Budapest pp. 11-15.
2. Faluvgi, A. (2001): A statisztikai kistrsgek szerepe a magyar kzigazgatsban,
a terletfejlesztsben s a statisztikai informcirendszerben. In: Szigeti, E. (ed.):
Rgi, kzigazgats, nkormnyzat. Magyar Kzigazgatsi Intzet, Budapest,
pp. 301-326.
3. Faluvgi, A.. (2002): A terleti statisztikai adatbzisok kialakulsa, helyzete, fejlesztsi lehetsgei Terleti Statisztika, Vol. 5.(42.) /4., pp. 321-341.
1023
4. G. Fekete, . Bodolai, . (1995): Kistrsgi szervezdsek megjelense a terletfejlesztsben. MTA RKK szak-magyarorszgi Osztlya, Miskolc.
5. Hajd, Z. (2001): Magyarorszg kzigazgatsi fldrajza. Dialg Campus, PcsBudapest, 334 p.
6. Glosi-Kovcs. B Pap, N Remnyi, P. (2009): Kistrsgi tervezsi tapasztalatok Dl-Dunntl.
7. Kurilla, A Orosz, Pap, N, (2009): Httal a hatrnak. Nemzetkzi konferencia, Debrecen
8. Nemes Nagy, J. (1997): Rgi, regionalizmus. Educatio, Vol. VI./3., p. 409.
9. Pap, N. (2003): Geographic Aspects of Regional Development Policy. Development and Finance, 3.issue, pp. 81-87.
10. Pap, N. (2004): A kistrsgek helye, szerepe Magyarorszgon a 21. szzad els
vtizedben. Tr s Trsadalom Vol. XVIII./2., pp. 23-36.

Interdisciplinary Management Research - IMR VI

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