Professional Documents
Culture Documents
Interdisciplinary Management Research - IMR XIV
Interdisciplinary Management Research - IMR XIV
IMR 2018
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
INTERDISZIPLINÄRE MANAGEMENTFORSCHUNG XIV
THE JOSIP JURAJ STROSSMAYER UNIVERSITY OF OSIJEK
FACULTY OF ECONOMICS IN OSIJEK - CROATIA
HOCHSCHULE PFORZHEIM UNIVERSITY
_____________________________________________________________
Opatija, 2018
Published by:
Josip Juraj Strossmayer University of Osijek, Faculty of Economics in Osijek Croatia,
Postgraduate Doctoral Study Program in Management
Hochschule Pforzheim University
Croatian Academy of Sciences and Arts
Editors:
Dražen Barković, Ph.D., Faculty of Economics in Osijek,
Boris Crnković, Ph.D., Faculty of Economics in Osijek,
Karl – Heinz Dernoscheg, Ph.D., International Business School Styria, Austria,
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
Technical editor:
Jerko Glavaš, Ph.D., Editor, Faculty of Economics in Osijek, Croatia
Aleksandar Erceg, Ph.D., Editor, Faculty of Economics in Osijek, Croatia
Design:
Krešimir Rezo, graf.ing.
Krešendo, Osijek
Print:
Studio HS internet d.o.o. Osijek
ISSN 1847-0408
Previous proceedings are indexed in: Web of Science, EBSCOhost, RePEc, EconPapers,
Socionet
Program Committee:
Željko Turkalj, Ph.D., Faculty of Economics in Osijek, chair
academician Vlasta Piližota,
academician Brano Markić,
Zoran Jašić, Ph.D., Former Ambassador of the Republic of Croatia to the Republic of Austria,
Gordana Deranja, Croatian Employers’ Association,
Luka Burilović, Croatian Chamber of Economy,
Ljubo Jurčić, Ph.D., Croatian Economic Association,
Mladen Vedriš, Ph.D., Faculty of Law, University of Zagreb
Ivan Miloloža, Ph.D., Faculty of dental medicine and health,
Vedrana Jelušić Kašić, EBRD
Thomas Cleff, Ph.D., Pforzheim University, Germany
Organizational Committee:
Jerko Glavaš, Ph.D., Chair
Ivana Barković Bojanić, Ph.D., deputy chair
Antun Biloš, Ph.D.
Davorin Turkalj, Ph.D.
Martina Briš Alić, Ph.D.
Nataša Drvenkar, Ph.D.
Ivan Kristek, Ph.D.
Aleksandar Erceg, Ph.D.
Ivan Kelić, Ph.D.
Martina Harc, Ph.D.
Jelena Legčević, Ph.D.
Katica Križanović, univ.spec.oec.
Tin Horvatin, mag.oec.
Jelena Franjković, Ph.D. student
Dina Liović, Ph.D. student
Ana Pap, Ph.D. student
Ana Trusić, Ph.D. student
Ivana Unukić, Ph.D. student
Zvonimir Savić, Croatian Chamber of Economy
CONTENTS
VORWORT........................................................................................................................... XV
FOREWORD........................................................................................................................ XVI
Management
Dino Bruža and Andreja Rudančić
INFLUENCE OF INFORMATION-COMMUNICATION TRENDS
ON BUSINESS COMMUNICATION IN HOTEL INDUSTRY..................................3
Nemanja Milanović, Lena Đorđević and Nela Milošević
IMPLEMENTING SPREADSHEETS IN MANAGEMENT ACCOUNTING
COURSE: AN EXAMPLE OF BUDGETING AND SCENARIO ANALYSIS.... 23
Željka Kadlec, Josip Hetrih and Mladena Bedeković
ATTRACTING INVESTMENTS IN THE ENTREPRENEURIAL ZONES
OF SMALL TOWNS BY CREATING PRECONDITIONS FOR THE
DEVELOPMENT OF SMALL AND MEDIUM ENTERPRISES...............................44
Zlatko Barilović
EMPLOYER PERCEPTION OF THE DEVELOPMENT OF PROJECT
COMPETENCIES IN PROJECT MANAGEMENT GRADUATES.........................64
Ivana Šandrk Nukić and Blanka Gigić Karl
IMPORTANCE OF STRATEGIC PLANNING IN CULTURE:
THE CASE OF MUSICAL EVENTS..................................................................................80
Kristina Brščić, Tina Šugar and Drago Ružić
TOURISTS’ PERCEPTIONS OF DESTINATION – EMPIRICAL STUDY
OF DESTINATION POREČ................................................................................................97
Igor Pureta and Tanja Pureta
THE ROLEs OF LEADERSHIP STYLES AND ENTREPRENEURIAL
ORIENTATION IN DISTINGUISHING MORE FROM LESS
UCCESSFUL ORGANIZATIONS................................................................................... 112
Branimir Dukić, Goranka Majić and Stojanka Dukić
STRUCTURAL MODEL OF THE FORMS OF BUSINESS
ORGANIZATION IN THE REPUBLIC OF CROATIA.......................................... 131
Aleksandar Erceg and Vice Gulam
IMPORTANCE OF ALIGNMENT OF ORGANIZATION’S STRATEGY
AND PROJECT MANAGEMENT................................................................................. 155
Martina Briš Alić, Martina Harc and Dino Vida
PATIENT’S WILLINGNESS TO CO-FINANCE HIGHER
LEVELS OF HEALTHCARE............................................................................................ 172
Dijana Kozina, Vedrana Vukadinović and Marko Tadić
THE IMPORTANCE OF MANAGEMENT AND COST
ESTIMATION IN MANAGERIAL DECISION MAKING...................................... 184
V
Dina Đelmo Smajlović
AN ANALYSIS OF THE STATE OF ATTITUDES OF THE
LOCAL COMMUNITY TOWARDS TOURISM DEVELOPMENT
IN THE CITY OF RIJEKA.................................................................................................. 208
Dejan Balić, Kristijan Šimičić and Vinko Samardžić
STRATEGIC POTENTIAL OF THE OSIJEK ZOO FOR CONTINENTAL
TOURISM OF THE REPUBLIC OF CROATIA........................................................... 228
Nataša Rupčić and Domagoj Švegar
DETERMINANTS OF CONFLICT MANAGEMENT BEHAVIOR:
DOES THE CHOICE OF MAJOR AND STUDY PROGRESS
PLAY A ROLE?....................................................................................................................... 244
Emina Bačevina, Zrinka Malešević and Domagoj Pavić
EUROPEAN SOCIAL FUND IN THE REPUBLIC OF CROATIA,
GOOD GOVERNANCE - RESULTS ACHIEVED AND PLANS AHEAD......... 264
Ante Orlović
POLICE MANAGEMENT– POLICE OFFICERS’ PERCEPTION OF THE
STATUS (QUALITATIVE LEVEL) OF FUNDAMENTAL FUNCTIONS OF
MANAGEMENT IN THE POLICE ORGANIZATION........................................... 286
Waldemar Osmólski, Adam Koliński and Davor Dujak
METHODOLOGY OF IMPLEMENTING E-FREIGHT SOLUTIONS
IN TERMS OF INFORMATION FLOW EFFICIENCY............................................ 306
Ivana Nobilo, Ivan Herak and Dejan Laninović
THE MARKETING ORGANISATIONAL STRUCTURES TOWARDS
THINK-FEEL-DO MODEL.............................................................................................. 326
Bahtijar Berisha and Ivan Kristek
THE DEMAND FOR AUDIT SERVICES FROM NON-GOVERNMENT
ORGANIZATIONS: EVIDENCES FROM THE KOSOVO.................................... 340
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
Edvard Badurina
KNOWLEDGE ACQUISITION FROM DATA IN BUSINESS
INTELLIGENCE MODELS AS A SOURCE OF COMPETITIVE
ADVANTAGE
O+C14F COMPANIES........................................................................................................ 353
Anna Borucka
FORECASTING OF FIRE RISK WITH REGARD TO READINESS
OF RESCUE AND FIRE-FIGHTING VEHICLES...................................................... 373
Martina Bienefeld, Zrinka Stanić and Helena Štimac
THE IMPORTANCE OF ESTABLISHING HUMAN RESOURCE
OFFICES IN CROATIAN HEALTHCARE INSTITUTIONS –
A KEY TO THEIR SUBSISTENCE................................................................................ 396
Zdenko Prohaska, Bojana Olgić Draženović and Ivan Uroda
VALUATION OF ZERO COUPON BONDS IN EXCEL........................................ 409
VI
Zorislav Kalazić, Damir Butković and Andreja Hašćek
FROM CAMERA OBSCURA TO IPHONE: WHAT IS THE
FUTURE OF DIGITAL STOCK PHOTO INDUSTRY?........................................... 420
Mario Dadić, Ante Bačić and Iva Mihanović
THE ROLE OF MOTIVATION IN HUMAN
RESOURCES MANAGEMENT....................................................................................... 440
Maja Šimunić, Ljubica Pilepić Stifanich and Marina Perišić Prodan
THE LEVEL OF HOTEL RESERVATION SYNCHRONIZATION
PROCESSES USING INFORMATION TECHNOLOGY TOOLS........................ 451
Ivan Miloloža, Aleksandar Včev and Damir Šebo
MARKET SUCCESS OF CROATIAN ENTERPRISES:
IMPACT OF LEADERSHIP STYLES............................................................................. 471
Joško Dvornik, Vice Mihanović and Ante Mihanović
MARITIME POTENTIALS OF THE REPUBLIC OF
CROATIA WITH THE PARTICULAR EMPHASIS ON THE
CITY OF SPLIT..................................................................................................................... 493
Ivan Miškulin, Boris Crnković and Maja Miškulin
TYPES OF LEADERSHIP IN MANAGEMENT BOARDS OF
UNIVERSITY CONSTITUENT UNITS AND THEIR IMPACT ON
KNOWLEDGE MANAGEMENT................................................................................... 504
Ante Belamarić, Goran Ledinščak and Željko Holik
FINANCIAL BENCHMARKING OF CROATIAN OFFSET
PRINTING INDUSTRY..................................................................................................... 523
Željko Vojinović, Sanja Živković and Dragan Vojinović
THE CONCEPT OF INTEGRATED MARKETING
COMMUNICATIONS OF FINANCIAL INSTITUTIONS OF
BOSNIA AND HERZEGOVINA IN THE FUNCTION OF
MANAGING RELATIONS WITH CONSUMERS.................................................... 544
General Economics
VII
Microeconomics, Macroeconomics and Monetary Economics
International Economics
Dražen Holmik
ECONOMIC DIPLOMACY IN THE TIME OF GLOBALIZATION.................... 685
Magdalena Klopott
HOW BREAKING THE INTEGRITY OF THE COLD CHAIN MAY
CONTRIBUTE TO GLOBAL WARMING?................................................................. 703
Financial Economics
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
VIII
Marina Stanić Šulentić, Tin Horvatin and Milan Stanić
COMPARATIVE FINANCIAL ANALYSIS OF RAILWAY WORKSHOP........... 796
Markus Hafele and Sarah Katharina Stiegeler
DIE BEHANDLUNG VON KONZERNUMLAGEN –
PROBLEME IN DER PRAXIS........................................................................................... 806
Public Economics
Tena Čačić
CONCEPT OF EDUCATIONAL INSTITUTIONS AS SUSTAINABLE
ORGANIZATIONS............................................................................................................. 867
Suzana Obrovac Lipar
THE ECHOES OF GLOBALIZATION AT THE UNIVERSITIES IN
CROATIA: THE ANALYSIS OF WEB SITES AND TRENDS IN THE
STUDENT EXCHANGE.................................................................................................. 881
Tihana Škojo and Renata Jukić
THE LEADS’ OF ART ENSEMBLES PERCEPTION OF NECESSARY
COMPETENCES.................................................................................................................. 897
Ivana Barković Bojanić, Dajana Džeba and Mate Perišić
SILVER ECONOMY AND AGING POPULATION: MYTHS,
REALITIES AND BUSINESS OPPORTUNITIES................................................... 912
Agneza Aleksijević
PUBLIC PERCEPTION OF PRIMARY HEALTH CARE QUALITY
IN THE REPUBLIC OF CROATIA................................................................................ 927
Sanja Španja and Sara Pejaković
EDUCATION FOR HANDLING CONFLICT IN THE ORGANIZATION..... 953
Mirko Pešić, Sanja Pešić and Marija Baban Bulat
FREE MOVEMENT OF WORKERS: THE CASE OF HEALTH
CARE WORKERS MIGRATING WITHIN THE EU................................................ 969
IX
Law and Economics
Emina Jerković
REDUCING THE TAX COMPLIANCE GAP BY IMPROVING
TAX ADMINISTRATION................................................................................................. 983
Nenad Rančić, Winona Wenning and Ozren Pilipović
ECONOMIC ANALYSIS OF ECJ JUDGEMENT IN JOINED
CASES C-503/13 & C-504/13: PRODUCT RECALLS REGARDING
MEDICAL DEVICES.........................................................................................................1001
Vesna Škare Ožbolt and Igor Bojanić
THE EFFICIENCY OF THE CRIMINAL PROCEDURE AND
POSSIBILITIES OF ITS IMPROVEMENT..............................................................1018
Dubravka Klasiček
DIGITAL INHERITANCE..............................................................................................1050
Pavao Gagro, Duško Ljuština and Ante Baran
DATA MANAGEMENT AND KNOWLEDGE MANAGEMENT
IN NOTARY PUBLIC SERVICE..................................................................................... 1069
Jose Vargas-Hernández
INTERCULTURAL BUSINESS MANAGEMENT DEVELOPMENT A
ND EDUCATION PROGRAMS IN BUSINESS SCHOOLS..............................1099
Urban Bacher and Torsten Winkler
AMAZON – GESCHÄFTSMODELL UND SWOT-ANALYSE........................... 1130
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
Marketing
X
Thomas Cleff, Laura Marie Hansmann and Nadine Walter
The Quantified Self – A Theoretical Framework and
Empirical Study on Marketing Opportunities within
the Self-Tracking Environment..............................................................1198
Željko Turkalj, Tihomir Vranešević and Tajana Marušić
SOCIAL MEDIA AND IT`S IMPACT ON CLASSICAL MARKETING
CHANNELS OF COMMUNICATON......................................................................... 1225
Žarko Stilin, Jasen Mesić and Ivan Ružić
THE INFLUENCE OF E-MARKETING ON VOTERS.......................................... 1244
Lidija Nujić, Tonina Palić and Martina Herak
THE IMPACT OF SOCIAL MEDIA INFLUENCERS ON
TOURISM INDUSTRY..................................................................................................... 1258
Ivana Lacković and Eugen Ferenček
THE ROLE OF DIGITAL MARKETING AND MARKETING
AGENCIES IN MODERN BUSINESS......................................................................... 1276
Zlatko Rešetar, Zdravko Tolušić and Nikolina Pavičić Rešetar
IMPACT OF CONSUMER PREFERENCES ON PRODUCT
AND PRODUCT................................................................................................................. 1290
Kenan Mahmutović
IMPACT OF E-MARKETING ORIENTATION ON MARKETING
PERFORMANCE: CASE OF EUROPEAN REAL ESTATE
BROKERAGE INDUSTRY............................................................................................... 1308
Accounting
Bodo Runzheimer
DER NEUE STANDARD IFRS 16 DER EUROPÄISCHEN UNION
ZUR LEASINGBILANZIRUNG.................................................................................... 1337
Ivo Mijoč, Marija Ileš and Biljana Brocić
THE ROLE OF INTERNAL AUDIT IN INCREASING QUALITY OF
BUSINESS OPERATIONS OF INSURANCE COMPANIES................................ 1358
Ivana Dražić Lutilsky, Dina Liović and Matej Marković
THROUGHPUT ACCOUNTING: PROFIT-FOCUSED COST
ACCOUNTING METHOD............................................................................................. 1382
Dubravka Pekanov Starčević, Ana Zrnić and Emil Mihalina
ENVIRONMENTAL ACCOUNTING IN CROATIA:
A REVIEW OF CORPORATE REPORTING PRACTICES................................... 1396
XI
Economic Development, Technological Change, and Growth
Katarina Marošević
REGIONAL IMBALANCE OF THE REPUBLIC OF CROATIA
THROUGH A DEMOGRAPHIC FRAMEWORK: STATE AND TRENDS..... 1571
XII
Branislav Peleš, Nedeljko Knežević and Krešimir Starčević
THE IMPACT OF TOURISM ON RETAIL TRADE IN FOODSTUFFS
MAINLY, IN THE REPUBLIC OF CROATIA, COMPARED FOR THE
PERIOD 2010-2016.............................................................................................................1586
Radmila Tatarin, Ana Gavran and Ivana Deže
THE CURRENT POSITION OF FAMILY FARMS IN CROATIA-
ORGANIC VS. CONVENTIONAL PRODUCTION............................................... 1600
Karolina Gwarda
SELECTIVE MUNICIPAL WASTE COLLECTION AS PART OF
THE ZERO WASTE CITY CONCEPT.......................................................................1616
Anamarija Delić and Dora Perić
INFLUENCE OF BUSINESS ECOSYSTEM ON RURAL
TOURISM DEVELOPMENT.......................................................................................... 1636
Davorin Turkalj, Antun Biloš and Ivan Bogović
IMPLICATIONS OF COASTAL CROATIA TOURIST ATTRIBUTES ON
THE DEVELOPMENT POTENTIAL OF CONTINENTAL CROATIA........... 1652
Ivan Kelić, Sofia Turjak and Ivana Unukić
GLOBAL AGRICULTURAL ENVIRONMENT AND CROATIAN
AGRICULTURAL CHALLENGES – CAN BRANDING HELP?.......................... 1667
Mirela Kljajić-Dervić, Šemsudin Dervić and Selma Gutlić
MOTIVATION AND SATISFACTION OF EMPLOYEES:
A CASE OF BOSNIA AND HERZEGOVINA PUBLIC SECTOR........................ 1681
Miscellaneous Categories
XIII
Vorwort
Als Herausgeber dieses Bandes hoffen wir, dass diese Reihe auch weiterhin Akade-
miker und Profesionelle dazu bewegen wird, in Forschung und Beruf die höchsten
Standards zu beanspruchen, und dass es weiterhin als Ansporn zu weiteren Formen
von Zusammenarbeit unter Teilnehmern dieses Projektes dienen wird.
XV
Foreword
authors. The success of former editions has echoed beyond the traditionally partici-
pative countries and authors.
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.
XVI
Management
INFLUENCE OF INFORMATION
COMMUNICATION TRENDS ON
BUSINESS COMMUNICATION IN
HOTEL INDUSTRY
Abstract
Hotel management needs to follow world trends, in order to be capable of meet-
ing all the challenges that appear on a global scale and to be ready for adjust-
ments and permanent investments. For a hotel system, to be integrated into the
global market, there must be an informational and communicational system
that will successfully link all elements, absorb all data, filter out useful informa-
tion and deliver them to hotel management at the right time. Today’s busi-
3
municational trends on the level of development and quality of business com-
munication of hotel employees. By analyzing the level and quality of business
Dino Bruža Andreja Rudančić: INFLUENCE OF INFORMATION-COMMUNICATION TRENDS ON BUSINESS COMMUNICATION IN HOTEL INDUSTRY
1. INTRODUCTION
The foundation of good business cooperation is based on successful com-
munication, which is of crucial importance for the efficiency of the enterprise
organization. Adversely, poor communication, which promotes interpersonal
conflicts, creates problems for the positive business climate of the company,
whether it is internal or external. This is precisely the point of business psy-
chology or psychology of work, whose role is also the role and significance of
psychology in business communication. Communication is nothing but the
process of transferring information, i.e. exchange of information and data from
sender to recipient. It is important to emphasize that there must be feedback
in the process, that is, that the recipient becomes the sender, and the original
sender becomes the recipient, thus creating a communication system. The ba-
sic types of communication are divided into two-way and one-way, oral and
written, verbal and non-verbal. The basic communication model is divided into
several elements. The first element is the sender, or the person who directs the
information and sends the message to the recipient or the receptor. Then, there
is the message itself, which includes the entire system of symbols that convey
the meaning of the information that the sender places on the communication
channel. This system consists of a series of pronounced words, written words
and sentences or simply displayed. Then, it comes to the recipient, or the re-
ceptor, the person to whom the message was sent. The last link of the basic
communication model is a return link. In expert terminology, it is referred to as
the original English word “feedback”. It plays a major role, as it serves to check
the success of a sent message or information, but it also means transmitting a
new message and changing the status of the original participants in the entire
system, so the receptor becomes the sender or emitter while the original sender
4
becomes a receptor. In this section, it is important to note that a message sent
as feedback, or a kind of feedback, does not represent what the sender sent at
the beginning of the communication process, but what the receptor received
or understood by the receipt of that message. Described elements can also be
graphically displayed, and for the purpose of this paper and research, a descrip-
tion of communication interaction in the hotel company is shown in figure 1.
5
munication. In this regard, the importance of the role of a psychologist in vari-
ous companies is understood. Business psychologists specifically observe the
Dino Bruža Andreja Rudančić: INFLUENCE OF INFORMATION-COMMUNICATION TRENDS ON BUSINESS COMMUNICATION IN HOTEL INDUSTRY
body language, the expression and colour of the face, tone and colour of voice,
various movements and other behaviours that reveal the real situation in which
the interlocutor is located. Therefore, in order for business communication to
be successful and even more to be successfully completed, it is necessary to con-
sider all of these aspects and elements and implement them in the analysis of
business communication. But the ultimate outcome of business communication
interaction is not always successful, and the main reasons are identified in two
causes. Communication is a complex process whose success, despite the best in-
tention of the participant, is not always guaranteed: the sent and received mes-
sages are never identical; the form and content of the message depend on the
skill of the sender and the recipient (Fox, 2001, p. 15). Sent and received mes-
sages are never identical, which in fact reflects that the significance and impor-
tance attached by the interlocutors are not always the same, which is why there
is a misunderstanding in communication and problems in the communication
channel. In addition, the form and content of the message largely depend on
the skill of the sender, which transforms his message into the communication
symbols, but also the skill of receiving that message, and interpreting all com-
munication symbols. The role and significance of psychology in business com-
munication are visible in the way of understanding of communication, based on
and achievable by various means. From the aspect of resources all communica-
tions can be divided into (Cerović, 2003, p. 717):
- verbal communication
- nonverbal communication
- written, visual communication.
Verbal communications are characterised by the fact that in this type of
communication the main and only meaning is a word, which can indicate a
number, a character or set of letters, and a combination of words, consisting
of a sent message or information. It covers many forms, such as face-to-face
conversation, group interviews, and telephone conversations, broadcast mes-
sages via television, radio, or voice. Non-verbal communication represents the
process of transmitting the message without words, and it actually appears as
the incidental effect of verbal and written communications. At the same time,
it represents a two-way transmission of messages, comprising the behaviour
6
of the interlocutor’s body, mimicry, views, gesturing, touching, dressing, outer
circumstance, and spatial behaviour, where it is important to know that a cer-
tain inter-party intimacy zone is defined between 0.80 and 1 meter distance
between the interlocutors. Written or visual communication is the transmission
of information in a written word, which includes written and graphic messages,
sentences, text, tables, pictures and sentences.
7
be aware of his technical skills, and then be capable of working with employees,
and to apply acquired knowledge to the development program of the company
Dino Bruža Andreja Rudančić: INFLUENCE OF INFORMATION-COMMUNICATION TRENDS ON BUSINESS COMMUNICATION IN HOTEL INDUSTRY
he is employed in. During the research and conceptualising of content for de-
termining the subject of this work, one thought has been recorded, which is as
follows (Rijavec, 1994, p. 7): “Do not start thinking about people when they
become a problem.”
3. INFORMATIONCOMMUNICATION
TECHNOLOGY ICT AS A TOOL OF BUSINESS
COMMUNICATION
.. Definition of information management
In order for the information to arrive from the sender to the recipient, it
is necessary to collect and process the data in a timely and valid manner, after
storing it in the form of information and passing it in the right way to the end
user. This process of collecting, processing and delivering information today is
elaborated through the information system. Information has existed since the
beginning of mankind, but in modern business, it is more important than ever.
That is precisely why there are different perspectives, hence more definitions
of the term information, depending on which context is mentioned. The word
information comes from the Latin word for information, which means inform-
ing (Galičić, Šimunić, 2006, p. 14). The purpose of information management
is precisely to provide timely and accurate information for a specific end-user,
and minimising costs. This can recognise the value of information as a very
important resource, whose use in business increases value, reduces the risk of
decision making and directly affects the business’s own economy. If the manage-
ment information is able to identify and process user data and transform them
into useful information and then forward them to the right recipients, this will
make the strategic decisions made more effective to better align goals. This same
information may, to a lesser or greater extent, affect a certain direction of execu-
tion of particular tasks, so it is essential to carry out cyclic analysis and checks
and to collect feedback that will serve as useful data for analysis, processing
and thus provide new information with added value. As was mentioned earlier,
information is one of the major resources in decision-making, and with technol-
ogy, knowledge and man, it should be considered on both sides. By its existence
8
and implementation in the business of the company, it is directed towards the
enterprise and beyond the company. When looking at the impact of company
orientation, it needs to be integrated at all levels, networked with all depart-
ments and have the freedom of flow of internal information. At the same time, if
the focus is on the influence of direction outside the enterprise, it should involve
collecting data and information from the entire market, i.e. from competitors
on the one hand and from customers on the other, and moreover, as well as the
information that indirectly affects the market. Today’s management of the hotel
industry has its own distinctiveness, which can be distanced from the general
approach of management’s understanding, and this is in support of the next
definition. Hotel management is a system of processes of creating, directing
and harmonising all factors, affecting the status of hotel services, and in which
individuals efficiently realise the predetermined objectives of hotel business
(Cerović, 2010, p. 82). Management information has evolved and improved in
the course of business development, especially in the hotel industry, which con-
tributed greatly to the collecting, processing and distribution of information
from and to the right place at the right time. Information is the most important
managerial resource (Cerović, 2010, p. 786). As the data represent a set of facts
about a particular occurrence, their transformation into information is the area
of information management. It is well known that there is a large number of
data on the market. Therefore, the role of the information management is to ob-
tain these data and to filter them, in order to obtain valid information that will
be used for further business. Today, there are business intelligence models that
support this part to maximise the use of all the data, obtained and thus become
9
modern demand. For a rational application and development of information
technology in hotel businesses, several preconditions need to be met (Galičić,
Dino Bruža Andreja Rudančić: INFLUENCE OF INFORMATION-COMMUNICATION TRENDS ON BUSINESS COMMUNICATION IN HOTEL INDUSTRY
10
rary challenges. In addition, the specificity is also in the way of communicating
with the market, which is changing faster and more frequently. By implement-
ing information management in the hotel industry’s business, competitiveness
is achieved. A large number of information and data is collected, which can be
processed and exploited in the best possible way with the help of up-to-date IT
decision support systems. This is also supported by Bakarić (2010) research,
who states that “modern information systems and web portals include all rel-
evant information updated on time” and that “the next step in creating a tourist
destination is networking various tourist, services, manufacturing, cultural and
historical tourism sources through information technology and information
systems” (Bakarić, 2010, p. 32).
11
ism spending is a kind of process that begins before the act of buying a tourist
product. When a potential consumer decides to purchase a particular product,
Dino Bruža Andreja Rudančić: INFLUENCE OF INFORMATION-COMMUNICATION TRENDS ON BUSINESS COMMUNICATION IN HOTEL INDUSTRY
that product has to fulfil all his needs and wishes. So, in the first stage of the
process, an enterprise can influence on a potential guest, by taking care of busi-
ness communication, so one part of the job will be focused on modifying the
existing product range, and in the same time using all the available information
and communication technology, in order to offer everything that a guest needs.
When a consumer develops his awareness of desire and need, he decides to en-
ter the market, whether it is a service or a commodity, and he starts searching for
the satisfaction of his inner wishes. There is a need to differentiate the degree of
consumer engagement on the market. There are consumers with a high level of
involvement that will explore all the information that is available on that mar-
ket. Then there are those with a low level of involvement, which means they are
not exploring at all, showing little interest in what they are buying and receiving
the only information from the first bidder. Regardless of which market segment
it is and what level of consumer it is, it is important to discern consumer atti-
tudes. Attitude is a relevant segment when profiling tourists since it plays a part
in marketing research and practices (Bruža, Lugarić, 2017, p. 126). Attitudes
are adaptive abstractions or generalisations of the functioning of the environ-
ment, which are expressed as predispositions for the assessment of an object,
concept, or symbol (Foxall, et al., 2007, p. 103). According to this definition, it
can be said that a consumer acquires an attitude based on the perception of the
environment and also represents a set of symbols that help in the organisation
of psychological and physical activities. The concept of consumer attitudes is
essentially related to the likes or dislikes in relation to the product, whether
it is a commodity or a service. These attitudes are important for marketing, as
they predetermine consumer intentions and behaviour toward marketing while
providing certain information that a marketing expert or a psychologist uses in
marketing strategy. Attitudes are also important to managers because of their
expected impact on behaviour, as attitudes are just used to segment the market,
develop new products, and predict their success, market power rating, or the
failure of a product placed on the market. This results in the importance of
successful communication and use of technology because no manager can find
the true desires and needs of consumers in the market if they do not use mod-
ern communications technology and quickly access key information. The fact is
that psychologists are employed in marketing departments in North America
because it is the segment where the knowledge of the reaction in business com-
12
munication and connection with the market is more important than financial
analysis. It should be emphasised that neither business psychology nor finan-
cial management can actually function without one another when it comes to
the tourist market. If the company does not look after its employees, business
partners, suppliers, and potential consumers, then it cannot be expected to ex-
perience success because it will turn the market away precisely on the basis of
psychological manipulation. To achieve this, information technology has to be
implemented, which will facilitate and speed up communication, both inside
and outside the hotel system.
13
and 3.8% are employed on part-time basis in their hotel. Most of the respon-
dents live with their partner: 48.8% of them. 22.5% live with their parents, 15%
Dino Bruža Andreja Rudančić: INFLUENCE OF INFORMATION-COMMUNICATION TRENDS ON BUSINESS COMMUNICATION IN HOTEL INDUSTRY
live in a community with the whole family, and 13.8% of respondents live alone.
When looking at household size, 36.3% of respondents live with 2 to 3 members,
31.3% with 3 members and more, 18.8% with one member and 13.8% are single.
Looking at their household income, the biggest number of households is in the
income group 7,000-8,500, 40% of them, followed by households with 8,500-
10,000 kuna and over 10,000 kuna, 21,3% and 11,2 % are in the income group
of 5,500-7,000 kuna. 6.3% have revenues of less than 5.500 kunas. Of the total
number of respondents, 67.5% live in a city with 100,000 inhabitants and more,
25% in the city are in the size of 50 to 100,000 inhabitants, 5% in towns with
less than 50,000 inhabitants, and only 2, 5% live in the village. Looking at the
level of education, 45.5% of them have high qualifications, 37.9% have secondary
education (high school degree) and 16.7% have a postgraduate specialist degree.
Based on the collected data, an analysis was carried out, resulting in interest-
ing results, which are in favour of the stated hypothesis, which will be outlined
below. The respondents were offered a total of 16 questions with the offered
answers, and at the end of the survey was a set of questions with short answers
of yes or no. 62.5% of respondents said they preferred the official email as a
business communication tool, while the lowest preference was for the use of a
private email for business communication purposes - only 6.3%. The most com-
mon form of business communication is directly or face to face, which depends
on the workplace and position in the hotel. But in this survey, 71.3% said that
they commonly communicate directly or face to face, while 7.5% of the others
communicate via private email. In regards to the use of official email, as a means
of business communication, 66.3% of them report it. 53.8% of the respondents
argued that without direct contact face to face they would not be able to com-
municate, while the least-used are written messages on the paper, 2.5%. Table 1
below shows the percentages of respondents’ responses in three questions, with
8 offered responses, with the possibility of choosing more answers in each ques-
tion. The preferred and most common business communication in the hotel is
done directly, face to face, while the hotel’s business needs the official email. The
least used and preferred are written messages on paper and private email. How
much the information and communication technology trends have influenced
the change of preferences and ways of business communication is visible.
14
Table 1. Frequency of Business Communication Attributes
Necessary
Frequently Preferred to
Atribute for business
used (%) use (%)
communication (%)
Private email 7,5 6,3 6,3
Official or public email (shared email used by
66,3 62,5 56,3
two and / or more employees at the hotel)
text and / or voice messages via cell phone 22,5 23,8 28,7
social network (chat, video calling, combined) 42,5 40 42,5
call (phone, cell phone) 53,8 50 46,3
directly face to face (live or via video link) 71,3 60 53,8
written messages on paper 8,8 7,5 2,5
mixed (depending on the time, place, mode,
51,2 38,8 32,5
type and content of business communication)
Source: Authors’ analysis according to research
As the respondents were able to choose more answers, 2/3 of total respon-
dents, most frequently selected official email and face to face for all three ques-
tions. The third group of attributes chosen by the frequency are social networks
and mixed (depending on the time, place, mode, type and content of business
communication). There is a visible progress in the usage of modern technology
for information transfer. In the way of means of business communication, ICT
has the most impact on official email and social networks. 57.5% of the respon-
dents indicated that information and communication trends mostly affect the
usage of official email as a means of business communication, which confirms
the percentage of responding.
15
Out of the total number of respondents, 56.3% selected social networks as
the second most common attribute that is subject to information and commu-
Dino Bruža Andreja Rudančić: INFLUENCE OF INFORMATION-COMMUNICATION TRENDS ON BUSINESS COMMUNICATION IN HOTEL INDUSTRY
nication trends. It has the least impact on written messages, which is under-
standable. Graph 2 shows the degree of selection of social network attributes
for business communication purposes.
It is still the most important personal contact, that is, employees in hotel
systems still mostly communicate via business directly by face to face. For each
asked question, this attribute was chosen by more than 50% of the respondents,
and the third graph shows the relationship with the frequency of usage, the pref-
erence for business communication in this way and by importance in general.
16
For analysing the intensity of usage of some means of business communica-
tion, the answers are weak intensity (1-3 hours), average intensity (half-time)
and intense intensity (full-time). The same attributes are offered as in the pre-
vious questions. In general, SMS and MMS on mobile and smart phones are
used with the least intensity as a mode of business communication. With the
strongest intensity, most of the respondents selected official email, which they
use for most of their working hours. Upon completion of the analysis of the
responses, it was concluded that more than 75% of respondents use most com-
monly official emails, which they prefer and most often use this for the purpose
of business communication. The least of usage are written messages on paper.
What is interesting in this part of the survey is the fact that 42.5% of respon-
dents use social networks when communicating in the hotel where they work.
40% prefer such business communication, and 42.5% think social networks are
necessary for business communication at the hotel. It also contributes to the
tested hypothesis. It may be expected that in the forthcoming researches this
percentage will be significantly higher, assuming that information and commu-
nication technology continues to develop and that trends are also present in
these areas.
Part of the questions is related to the quality of business communication, in-
fluenced by information and communication trends. To the question how satis-
fied are they with the quality of business communication in their hotel, thinking
about information and communication performance, 55% of respondents said
they were satisfied, 27.5% were very satisfied, but 13.7% were neither satisfied
nor dissatisfied. 3.7% of respondents are not satisfied with the quality of busi-
ness communication in their hotel. Furthermore, 46.3% of respondents stated INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
that business communication in their hotel was of high quality, meaning that
most information was received and sent in a time. 27.5% of respondents agree
that it is of the highest quality, while 20% think that the level of business com-
munication is average. 6.3% are dissatisfied with the quality level. Of the total
number, 58.2% of respondents said that most of the information received was
true and 31.6% of respondents believe to all received information and consider
them true. Still, 10.1% thinks that half of the information received is untruth-
ful. This is an indication that employees in hotel systems are somehow sceptical
and the truth of information is affected by trends in information and communi-
cation technology. The next question was about knowing the types and ways of
business communication at the hotel, to which 44.3% of respondents said they
17
knew all kinds and trends, but used only certain types of business communica-
tion. 22.8% state that they do not know all trends and types of business com-
Dino Bruža Andreja Rudančić: INFLUENCE OF INFORMATION-COMMUNICATION TRENDS ON BUSINESS COMMUNICATION IN HOTEL INDUSTRY
munication, but of those who know, 20.3% know all trends and all types of use,
and 12.7% do not know all the trends or use all kinds of business communica-
tion they use in their hotel. Looking at the overall impression of knowledge of
information and communication trends, 42.5% know most trends, 21.3% know
half of the trends, 20% are fully aware of all trends, 15% do not know enough
trends, and 1.2% of respondents do not know what the trends are.
Also, there was a question of what type of communication is more suscepti-
ble to changes and impacts on ICT trends, i.e. in which percentage respondents
think that ICT trends in their hotel have the most influence, given the type of
communication. 52.5% of respondents think that both oral and written com-
munications are equally subject to the influence of ICT. 27.5% think that ICT
has more to do with writing communication, while 20% believe that oral com-
munication is more susceptible to changes in ICT. Further, in this part of the
survey are analyzed elements that are important of maintaining quality busi-
ness communication. The possibility of multiple responses was given. 61.3%
of respondents stated that it is important for them to get all information about
the products and services their enterprise offers to guests. For 48.8% of respon-
dents is also important the implementation and development of information
and communication technology at the hotel, while the least important element
to maintain quality communication is knowing general information from all
departments, which is confirmed by 33.8% of respondents.
18
Graph 4. Importance of receiving information regarding the type of information
At the end of the survey, there was a set of questions, with short answers to
yes or no, regarding the correlations of information and communication trends
and business communication. Given the readership of the hotel bulletin, 34.2%
read most of the year, 21.1% of respondents read each bulletin, and 22.4% read
some newsletters. 13.2% of them do not read newsletters at all, which is also
an indication of how closely they are attending events in their hotel. The re-
maining 9.2% read very few bulletins throughout the year. With regard to com-
19
communication. An equal number of positive and negative answers related to
the question of whether people have talked to someone in the last half of the
Dino Bruža Andreja Rudančić: INFLUENCE OF INFORMATION-COMMUNICATION TRENDS ON BUSINESS COMMUNICATION IN HOTEL INDUSTRY
year about learning and using modern information and communication trends
to improve business communication at the hotel.
The above-mentioned indicators and results imply the conclusion that busi-
ness communication systems subjects to information-communication trends,
i.e. ICT significantly affects the quality of business communication. Employees
are not fully educated about new trends, nor are their superiors. But there is
intent of expanding knowledge in this area to achieve better quality lf business
communication, creating a positive business image of their hotel. As a main
conclusion, it is a positive fact that almost half of the respondents want to re-
ceive accurate and timely information on the implementation and development
of information and communication technology in the hotel they work, as can be
seen in the previous graph.
5. CONCLUSION
Communicating is felt by the attitudes and relationships of the interlocutors
and it causes various consequences, which can be manifested positively or nega-
tively. Business psychology specifically observes the movement of the body, the
expression and colour of the face, tone and colour of voice, various movements
and other behaviours that reveal the real situation in which the interlocutor is
located. Management communication is far more complex, so it needs to be
specifically explained. Namely, it obtains all forms and types of communication,
and various ways and styles of communication management in the enterprise,
whose activities and outcomes are accompanied by business psychology. A man-
ager in the hotel system should first of all be aware of his technical skills, then
be capable of working with employees, and apply the acquired knowledge to
the development program of the company in which he is employed in. Busi-
ness psychology has the task of seeing all phenomena, defining and classifying
them, carrying out professional analysis, which can explain how hotel work-
ers can solve, reduce or completely eliminate all communication interference in
business communication in the future. As it is well known that tourism con-
sumption begins before the act of buying a tourism product, it is important
to have a quality information system. It serves as support to hotel marketers,
as well as to all hotel workers who will have access to important information
20
through it, and efficiently navigate all the needs and provide hotel guests with
everything they expect and want. As the tourism market develops following
globalisation trends, especially in the area of information and communication
technology, it is important to systematically develop a culture of business com-
munication among hotel workers. Today’s trends in this regard show that guests
dictate what kind of communication they want. In addition, it is necessary to
nurture the development of communication culture and the improvement of
communication levels among employees. For the purpose of this paper, research
was conducted among employees in hotel companies. The aim was to deter-
mine the level of influence of information-communication trends on the level
of business communication, with the aim of pointing to the importance of the
quality of business communication quality of employees in the hotel system,
without which the information system would not have any sense. The main hy-
pothesis of research is that information and communication trends have a sig-
nificant impact on the business communication. According to the results of the
research, the conclusion is that information and s trends and technologies have
a significant influence on the manner and quality of business communication.
Without the quality of business communication, it is impossible to implement
new trends. This is pointed out by the results, obtained by examining which
type, means and medium of business communication are most commonly used,
which are preferred, and which are necessary for communication in a modern
business world. It is also evident that there is still not a serious awareness of the
need of expanding the knowledge in ICT. This represents the bearer of success-
ful and high-quality business communication, since most respondents have not
21
REFERENCES
Bakarić, T. (2010). Information system in tourist offices as a tool for better coordination
Dino Bruža Andreja Rudančić: INFLUENCE OF INFORMATION-COMMUNICATION TRENDS ON BUSINESS COMMUNICATION IN HOTEL INDUSTRY
between public and private sector. 7th International Scientific Conference, Management in the
Function of increasign the Tourism Consumption. Perić, J. (ur.). Opatija, Croatia. 7 October
2010, p. 23-35
Brajša, P. (1993). Management Communication, Discussion, Problems and Conflicts in the
Enterprise, Society for the Development of Information Literacy, ISBN 953-636-3011,
Zagreb
Bruža, D., Lugarić, A. (2017). Special city programs in the function of growth and develop-
ment of tourism and hospitality offer, Interdiscplinary Management Research XIII, Barković,
D. & Runzheimer, B. (ur), str. 121-137, ISSN 1847-0408, Opatija, 19-21. May 2017, Eko-
nomski fakultet u Osijeku & Hochschule Pforzheim University of Applied Sciences, Osijek.
19 May 2017, p. 121-138
Cerović, Z. (2003). Hotel management, Faculty of Tourism and Hotel Management in
Opatija, ISBN 953-619-8347, Rijeka
Cerović, Z. (2010). Hotel management, 2nd edited edition, Faculty of Tourism and Hospi-
tality Management in Opatija, ISBN 978-953-6198-76-4, Rijeka
Vujić, V. (2005). Human Capital Management, 2nd Edition, Faculty of Tourism and Hospi-
tality Management in Opatija, ISBN 953-6198-44-4, Rijeka
Fox, R. (2001). Business communication, Croatian University Fee, ISBN 953-169-055-3,
Zagreb
Foxall, G.R., et. al. (2007). Marketing Psychology in Marketing, Naklada Slap, ISBN 953-
191-330-7, Zagreb
Galičić, V., Šimunić, M. (2006). Information Systems and Electronic Business in Tourism
and Hospitality, Faculty of Tourism and Hospitality Management in Opatija, ISBN 953-
6198-57-6, Rijeka
Nierenberg, J., Ross, I.S. (2005). The secrets of successful bargaining, an effective strategy
for improving your negotiating abilities, Školska knjiga, ISBN 978-953-0-60822-1, Zagreb
Rijavec, M. (1995). A Successful Manager, Everyday Management Methods, MEP Consult,
ISBN 953-96029-0-4, Zagreb
Stipanović, C. (2006). Concept and development strategy in tourism, Faculty of Tourism
and Hospitality Management in Optija, ISBN 953-6198-90-8, Rijeka
22
IMPLEMENTING SPREADSHEETS
IN MANAGEMENT ACCOUNTING
COURSE: AN EXAMPLE OF
BUDGETING AND SCENARIO
ANALYSIS
Abstract
23
of What-if analyses and Scenario Manager technique are described. Evidence
gathered and literature analysis suggests that implementation of spreadsheets
Nemanja Milanović Lena Đorđević Nela Milošević: IMPLEMENTING SPREADSHEETS IN MANAGEMENT ACCOUNTING COURSE: AN EXAMPLE ...
and spreadsheet modelling in this course provides students with more com-
prehensive insight into real-world, problem-solving and applicative business
environment.
Key words: management accounting education, spreadsheet modelling, sce-
nario analysis
JEL Classification: M41, M49
1. INTRODUCTION
In the last few decades, the accounting profession has received the immense
attention from both scholars and practitioners in the field. Nowadays, because
of technological progress and globalization, the world economy decreased the
information costs and increased the competition among different market play-
ers (Kavanagh & Drennan, 2008). Consequently, the Pathways Commission
(2012) pointed out a need for education improvement in line with the present-
day environment and growing demands on accounting professionals. Necessary
competencies of accounting professionals include quantitative methods, ana-
lytical thinking and problem solving. Technology competencies comprise high-
level skills in the development and use of spreadsheet models (Lawson et al.,
2014).
In today’s business environment, spreadsheets (e.g. Excel) are widely applied
standard calculation engine. Leong and Cheong (2008) point out that spread-
sheets have a very important role in business modelling, analysis, and decision
support. As a result, educators and students in the field of accounting today
are faced with the pressure of employers seeking a various range of skills and
competencies of new accounting graduates. Kavanagh and Drennan (2008)
examined perceptions and expectations of two major stakeholders: accounting
students and employers. Their research showed that students know what em-
ployers expect from them: good way of communication, analytical skills, team-
work orientation, as well as business awareness and real-world problem-solving
skills. In order to reconcile expectations of students and the requirements of
employers, universities should develop accounting programs that prioritize and
deliver additional skills and attributes to their students. Additionally, leading ac-
counting associations and standard setters (American Accounting Association
24
– AAA, the Association to Advance Collegiate Schools of Business – AACSB,
the American Institute of Certified Public Accountants – AICPA) invites uni-
versities to incorporate different accounting technologies used in practice into
accounting curricula in order to enhance students’ skills necessary when they
enter the accounting profession (Willis, 2016). There are many contentions
that technology is one of the prime drivers of an education paradigm change
(Polly et al. 2010). Although technology facilitates learning and teaching, there
is still an ongoing debate on the key factors of effective technology application
in education. However, there is the broad body of evidence that technology can
positively affect education efficiency when the right conditions are met (Honey,
Culp & Carrigg, 2000).
Spraakman et al. (2015) pointed out that “the role of the management ac-
countant has shifted from capturing and recording transactions to analyzing
business issues”. Nowadays, preparing financial ledgers and comprehensive re-
ports are almost impossible without information technology and spreadsheet
solutions. Spreadsheets are a very important tool for planning, budgeting, fore-
casting as well as decision-making processes (Bradbard et al, 2014). Other top-
ics within accounting those could benefit from spreadsheet solutions are “target
costing, economic order quantity, profit planning, cost–volume–profit relation-
ships, linear programming, audit sampling, and standard costing” (Togo, 2004).
Since 1979 and introduction of VisiCalc, the spreadsheet has been used
in capturing, analyzing and presenting data in accounting (Moussalli, 2005).
France (2010) investigated practices within management accounting job adver-
25
in the process of making decisions (Moncarz & O’Brien, 1988; Powell & Baker,
2004; Howcroft, 2006; Sentence, 2008).
Nemanja Milanović Lena Đorđević Nela Milošević: IMPLEMENTING SPREADSHEETS IN MANAGEMENT ACCOUNTING COURSE: AN EXAMPLE ...
26
2. INCORPORATING SPREADSHEET
MODELLING IN MANAGEMENT ACCOUNTING
COURSE GUIDELINES
Some of the main issues of incorporating spreadsheet modelling in educa-
tion consider domain knowledge and implementation guidelines. Authors of
the paper argue domain planning and spreadsheet implementation based on
the cash budget and capital budgeting case studies. Often spreadsheet users,
especially novices, start spreadsheet modelling directly in a spreadsheet without
verbal, graphical and mathematical model or any plan. Consequently, relevant
facts underlying the problem can be missed out. Even more, for a student who
lacks sufficient understanding of the subject matter, it could easily become the
bane. If student misinterprets or is unable to interpret the problem assigned,
even if it is developed, his spreadsheet model will be certainly erroneous. In
order to overcome this problem, modelling should start with a verbal model.
The verbal model includes a verbal description of the model elements and their
relations. Next step of problem understanding is a graphical model (flow dia-
gram, block diagram, influence diagram etc.). Drawing diagram or picture of
the transaction should make easier recognition of all facts relevant for problem
modelling. A graphical model is followed by a mathematical model, represent-
ing transformation rules of elements by mathematical relations. Finally, based
on mathematical formulas students should create spreadsheet formulas. Even
more, in the beginning, it is desirable for students to solve the assigned problem
as homework, using only pencil and paper, and in that manner prepare them-
27
provide visibility and understanding of model results. Some authors suggest
cascade design, where input, calculation and output sections do not appear in
Nemanja Milanović Lena Đorđević Nela Milošević: IMPLEMENTING SPREADSHEETS IN MANAGEMENT ACCOUNTING COURSE: AN EXAMPLE ...
the same row or column. In this way adding or deletion of a row or a column
in one section does not affect other sections. Furthermore, students should pay
attention to absolute and relative references and order of arguments in func-
tions. Creation of functions can be facilitated by using of Insert function block
with described functions and their arguments. Data Validation and Conditional
Formatting techniques, also, have potential to reduce the possibility of error.
Described steps and guidelines represent just a small portion of recommen-
dations and rules related to spreadsheet modelling. However, usually, students
are not familiar with them. Furthermore, they are considered difficult to ap-
ply. In order to facilitate spreadsheet best practice adoption, students should
be given a step-by-step checklist for a model creation or a template for solving
the problem. The completed template, that demonstrates good spreadsheet de-
sign, can be used for exercise. Changing of inputs and observing of resulting
outputs should enable students to understand the logic behind visible spread-
sheet model elements. Another exercise for students includes deconstruction
of a final spreadsheet solution, in accordance with the model creation checklist.
After analysis of inputs, calculation (algorithm) and output sections, conclu-
sion or business decision should be made as a result of this analysis. Next level
of spreadsheet modelling exercises includes a blank template, where students
should insert the correct formula to solve the problem. This exercise is aimed at
practicing of rules about absolute and relative cell references, hard coding in a
formula and functions, Insert Function block etc. The simple testing procedure
includes a comparison of a spreadsheet model output with independently calcu-
lated results (for example, test data from a textbook). If students enter numbers
form textbook example in the model and outputs matching, that will provide
positive feedback about spreadsheet accuracy. When the model is finished stu-
dents can perform simulation in order to compare different strategies and make
a decision.
28
flows on the regular basis. Available cash takes into account the beginning cash
balance and all collections made during the period. The primary source of cash
in any type of business is related to sales activities, where companies use past ex-
perience to define the percentage of credit sales. The cash disbursement part of
cash budget lists all planed cash outflows for the period. It is worth mentioning
that depreciation is never included as a cash disbursement. Companies strive
to keep the lowest amount of cash on hand, but minimum cash balance allows
them to make unplanned purchases or to solve unexpected financing hurdles.
On the other hand, in case of cash surpluses, there is an opportunity for repay-
ing loans or making some investments. The lack of cash will force a company to
consider borrowing the necessary amount. The last line in every cash budget is
the ending cash balance.
The example presented below has specific learning objectives, enabling stu-
dents to:
1. Make a well-designed cash budget in Excel based on the business situation;
2. Calculate an expected ending cash balance and see whether there is a need
for a short-term loan;
3. Use What-if analyses and the Scenario Manager to make a decision about
the month when capital investment should be made;
4. Know how to make a scenario summary of a cash budget.
The example used for this study is based on the one presented in Chapter
3 in Mayes (2012), dealing with the creation of a cash budget at “Mark&Co”, a
small manufacturer of barbecue grills. In order to create the proper spreadsheet,
the first step is to understand the verbal model. The firm’s employees have the INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
following set of assumptions and expectations which will be valuable for the
cash budgeting process.
• Real and assumed sales for October are presented in Table 1.
• 40% of sales clients pay in cash. Remaining 60% of sales are described
as follows, 75% is collected in the next month and 25% is collected two
months after the purchase has been made.
• Costs for raw materials inventory are 50% of the sales which will be made
in following month (e.g., July costs are 50% of expected August sales).
60% of costs are realized in the month after the purchase has been made,
and the rest is paid next month.
29
• Wages are assumed to be 20% of expected sales.
• Monthly costs of leases for equipment are $20,000.
Nemanja Milanović Lena Đorđević Nela Milošević: IMPLEMENTING SPREADSHEETS IN MANAGEMENT ACCOUNTING COURSE: AN EXAMPLE ...
30
where ECB stands for Ending cash balance, BCB for Beginning cash balance,
TC for Total collection, TD for Total disbursements, UCB for Unadjusted cash
balance and CB for Current borrowing.
Before scenarios development, it is necessary to create the best possible tem-
plate for cash budgets in Excel spreadsheet. Creating a cash budget template
enables students to learn how to use general functions, how to organise their
plan in order to get better results, and to understand how different variables
impact future decisions. An unstructured template may lead to the wrong direc-
tion and unexpected results. The case presented in this study takes into account
collections and payments as inputs, and the expected ending cash balance at
the end of each month as the first output. Additionally, it considers short-term
loan obligations. Step-by-step checklist or instructions for template (Figure 1)
creation can be given as follows:
• Input section
- The starting point for a cash budget is the sales forecast which is usually
received from the marketing department. For most firms, at least a por-
tion of sales is made on credit. In the presented example, 45% (= 0.60
× 0.75) of total sales, regardless the month when it happened, will be
collected during next month, and 15% (= 0.60 × 0.25) will be collected
in next two months.
- The row Collections presents all collections from the sales made in cash
or within instalments. Collections from the sales made in the previous
month are indicated in row First instalment, while row named the Sec-
ond instalment indicates collections on sales made two months earlier. INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
- The next input refers to the payments made for inventory purchases.
The attention on credit purchases must be paid because they are not
cash outflows. Treatment of purchases and payments is based on the
same logic as collections.
- The last section of inputs does not require building complex relation-
ships between the cells besides entering remaining labels and numbers
which represent disbursements.
• Calculation section
- After completion of the input section, the problem solving proceeds
with calculating how much cash to borrow using IF formula in Excel.
31
That calculation can be defined as follows (2): “If the unadjusted cash
balance is less than the minimum, then an amount equal to minimum
Nemanja Milanović Lena Đorđević Nela Milošević: IMPLEMENTING SPREADSHEETS IN MANAGEMENT ACCOUNTING COURSE: AN EXAMPLE ...
32
Figure 2. Cash budget worksheet template
cally. Scenario manager dialog box (Figure 3) shows four scenarios which man-
agers should use in order to make this capital investment decision. Step-by-
step checklist or instructions for What-if and Scenario analysis can be given as
follows:
- To find this tool, go to the “Data tab”.
- In “Data Tools” group there is the “What-If Analysis” button and within it
“Scenario Manager”.
- When the dialog box is displayed, scenarios should be developed.
- For the beginning, choose the “Add button”.
33
- In the next dialog box write “Expenditure in June” for the “Scenario name”.
- The “Changing cells” will have different numbers for each scenario.
Nemanja Milanović Lena Đorđević Nela Milošević: IMPLEMENTING SPREADSHEETS IN MANAGEMENT ACCOUNTING COURSE: AN EXAMPLE ...
- Because in the first scenario the expenditure should be made in June, enter
200.000 in the first box and 0 in all other cells.
- After creating scenarios, the “Scenario Manager” dialog box will appear
(see Figure 3).
- In order to present a particular scenario, one should just choose it from the
list and press the “Show button”.
- It’s important to have in mind that Excel always shows the last selected
scenario.
The most important benefit of the “Scenario Manager” is its ability to show
the results of all possible scenarios. This procedure has the following steps:
1. Go to the “Scenario Manager” and click on the “Summary button”. It is
important to use “Result cells”, which is a cell (or several cells) that shows
the end result of each scenario.
34
2. Press “OK button” and a spreadsheet will create a new worksheet that
summarizes the scenario results. The report is generated immediately and
can be found in a sheet named “Scenario Summary” (see Figure 4).
35
value of capital investment is too high, it will increase depreciation costs. On
the other hand, if there are not enough investments, the competitors will have
Nemanja Milanović Lena Đorđević Nela Milošević: IMPLEMENTING SPREADSHEETS IN MANAGEMENT ACCOUNTING COURSE: AN EXAMPLE ...
the upper hand and the company risks losing not only position on the market
but also customers’ satisfaction. Effective capital budgeting is crucial for making
a quality investment in a new asset at the right time. Usually, it is very hard to
choose the best possible investment, as large amounts of money are not avail-
able automatically and, finally, every decision should be supported by strong
arguments.
The crucial thing for comparing investments is to understand cost classifica-
tion. There is a big difference between relevant and irrelevant costs within man-
agement accounting literature. Relevant costs are future costs that will make a
difference in a decision. Moreover, those costs will differ among alternatives.
Irrelevant costs are historical, sunk costs, that already exist and that would not
change the investment outcome. The purpose of the case study 2 explained in
this paper is to fulfil learning objectives presented in the diagram below:
The verbal model of this case study is based on Chapter 11 in Mayes (2012)
and is given as follows: The Ecco Shoe Company discusses the purchase of an
automated machine to change a one which is manually operated. The five years
old machine that is replaced originally had an expected life of 10 years. It is
depreciated using the straight-line method from $50,000 down to $0 and now
has the price of $25,000. It needs one person to operate the machine and his
salary is $19,000 per year.
Annual maintenance and defects costs for the old machine are $8,000 and
$6,000, respectively. The new machine has a price of $95,000 and an expected
salvage value of $15,000 and it is expected to be used for five years. Shipping
and installation expenses are $5,000. The new machine will be more efficient,
36
investment in net working capital would increase by a total of $3,000. The com-
pany expects that annual maintenance costs for the new machine will be $3,000
and defects cost will be $1,000. Before taking into account this project, the com-
pany runs an analysis of current facilities to define whether other changes will
be required by the putting new machine into operation. The cost of the analysis
was $5,000 and it showed that current facilities could support this new ma-
chine without any modifications. In order to buy the new machine, the compa-
ny would have to take $30,000 debt with 10% of interest rate. This will increase
interest expense for $3,000 on the annual base. The required rate of return for
this project is 12% and the company’s marginal tax rate is 30%. Furthermore,
management has required that in maximum three years the investment should
be paid back. The most important question in this case study is: Is this project
acceptable? A simple diagram of factors which influence profitability index, a
method for ranking projects, is shown in Figure 6.
37
built-in five functions for calculating depreciation: straight-line (SLN),
double-declining balance (DDB), fixed-declining balance (DB), the
Nemanja Milanović Lena Đorđević Nela Milošević: IMPLEMENTING SPREADSHEETS IN MANAGEMENT ACCOUNTING COURSE: AN EXAMPLE ...
38
• Calculation section
- Having in mind all inputs, we can continue with cash flow in order to
evaluate the potential investment. The initial outflow consists of the
new machine’s price, the shipping and installation costs, and the salvage
value of the old machine and all sales taxes.
- Further on, we can calculate the annual after-tax cash flows for the
project.
- The depreciation tax benefit stands for the savings in taxes because of
the extra depreciation expense. Additionally, depreciation is a non-cash
expense, so the effects of increasing depreciation are decreased taxes
and increased cash flow.
- The terminal cash flow is defined through non-operating cash flows
that will happen in the final period of the project. Usually, there will
also be operating cash flows that come during this period, but for the
simplification, in this example, these flows are defined as the final pe-
riod after-tax cash flows. The terminal cash flow will consist of the
expected salvage value of the new machine, taxes associated with the
sale, recovery of any investments in net working capital, and potentially
some shut-down costs.
Output section
- Once when annual after-tax operating cash flows is prepared, profit-
ability index method can be applied to make a decision about a par-
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
ticular investment.
- There are five key methods that can be used in order to decide whether
or not the project should be accepted: (1) payback period, (2) discount-
ed payback period, (3) net present value (NPV), (4) internal rate of re-
turn (IRR), and (5) profitability index. In this example, we are focused
on profitability index and its usage.
- The profitability index (PI) provides a measure of the dollar benefit per
dollar of cost. An alternative name for this ratio is a benefit-cost ratio.
This ratio consists of the present value of future net cash flows and the
initial cash outflow. It can be expressed through mathematical formula
(3) such as:
39
(3)
Nemanja Milanović Lena Đorđević Nela Milošević: IMPLEMENTING SPREADSHEETS IN MANAGEMENT ACCOUNTING COURSE: AN EXAMPLE ...
where PI stands for profitability index, CF for cash flow and ICO for initial
cash outflow. If the PI is greater than or equal to 1, the project should be ac-
cepted because the benefits are higher or, at least, equal to the costs. Otherwise,
the project should be rejected. In order visualize output value of PI students
should use Conditional formatting technique in accordance with the described
rule. In our case study profitability index is 1.4396, indicating that the project is
acceptable. Profitability index considers the time value of money and takes into
account the entire life span of the particular asset. Nevertheless, it is very hard
to define proper discount rate which could be considered as the main limitation
of this ratio.
Through the capital budgeting case study, students learn how to analyse in-
vestments and come to better decisions following particular criteria. It improves
students’ knowledge and abilities and prepares them for the real-world prob-
lems. In addition, students have a guidance and support from instructors which
40
leads to more independent work and opportunities to learn faster, not only
the subject matter but also tools and functions in Excel. Nowadays, business
is becoming a very dynamic field which fosters changes and improvements in
education. Usage of spreadsheets in class provides students with active learning
experiences which will motivate them to give their best and make a difference
in the job market.
3. CONCLUSION
This paper presents spreadsheet assignment projects, which can be imple-
mented in reasonable class time and provide students with the basics of spread-
sheet usage in the field of management accounting. Furthermore, the paper pro-
vides a step-by-step checklist for spreadsheet models creation and a template
for problem solving. The template and the checklist are aimed at improvement
of spreadsheet best practice adoption. By the time students complete described
assignments, they will have acquired knowledge in management accounting and
improved their basic spreadsheet skills.
Spreadsheets could be considered as an added value in financial manage-
ment and accounting, not only for practitioners but also for students. Usually,
students find that scenario analysis is simple and understandable, but at the
same time challenging because they need to know how to use data, interpret
conclusions and come up with different decisions. Moreover, they should know
what inputs and outputs are necessary for the analysis, as well as how to de-
sign understandable and logical worksheets. In addition, most students from
business schools will have numerous opportunities to consider different asset INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
41
well-developed universities. The previous educational experience is encouraged
to bring more insight into how faculties should enhance their curricula with
Nemanja Milanović Lena Đorđević Nela Milošević: IMPLEMENTING SPREADSHEETS IN MANAGEMENT ACCOUNTING COURSE: AN EXAMPLE ...
REFERENCES
Bradbard, D. A., Alvis, C., & Morris, R. (2014). Spreadsheet usage by management accoun-
tants: An exploratory study. Journal of Accounting Education, 32(4), 24–30. doi:10.1016/j.
jaccedu.2014.09.001
Brigham, E. F., & Houston, J. F. (2012). Fundamentals of financial management. Cengage
Learning.
Convery, S. P., & Swaney, A. M. (2012). Analyzing Business Issues—With Excel: The Case
of Superior Log Cabins. Inc. Issues in Accounting Education, 27(1), 141–156. doi:10.2308/
iace-50095
France, A. (2010). Management accounting practices reflected in job advertisements. Journal
of new business ideas & trends, 8(2), 41-57.
Frownfelter- Lohrke, C. (2017). Teaching good Excel design and skills: A three spread-
sheet assignment project. Journal of Accounting Education, 39, 68–83. doi:10.1016/j.
jaccedu.2016.12.001
Hansen, D. R., & Mowen, M. M. (2006). Management accounting: the cornerstone for business
decisions. Instructors Edition. Mason, OH: Thomson South-Western.
Honey, M., Culp, K. M., & Carrigg, F. (2000). Perspectives on technology and education re-
search: Lessons from the past and present. Journal of Educational Computing Research, 23(1),
5-14.
Howcroft, D. (2006). Spreadsheets and the financial planning process: a case study of
resistance to change. Journal of Accounting & Organizational Change, 2(3), 248–280.
doi:10.1108/18325910610690081
Hyvönen, T., Järvinen, J., & Pellinen, J. (2006). The role of standard software packages in
mediating management accounting knowledge. Qualitative Research in Accounting & Man-
agement, 3(2), 145-160.
Kavanagh, M. H., & Drennan, L. (2008). What skills and attributes does an accounting
graduate need? Evidence from student perceptions and employer expectations. Accounting &
Finance, 48(2), 279–300. doi:10.1111/j.1467-629x.2007.00245.x
Lawson, R. A., Blocher, E. J., Brewer, P. C., Cokins, G., Sorensen, J. E., Stout, D. E., … Wout-
ers, M. J. F. (2014). Focusing accounting curricula on students’ long-run careers: Recommen-
dations for an integrated competency-based framework for accounting education. Issues in
Accounting Education, 29(2), 295–317
42
Madahar, M. (2011). Spreadsheet use for strategic decision-making: An analysis of spreadsheet
use and associated risk (Ph.D. thesis). Cardiff School of Management, University of Wales
Institute Cardiff, Cardiff.
Moncarz, E., & O’Brien, W. (1988). Teaching Financial Management with Electron-
ic spreadsheets. Cornell Hotel and Restaurant Administration Quarterly, 29(2), 62–66.
doi:10.1177/001088048802900223
Moussalli, S. (2005). Accounting for the Journal’s First 100 Years: A Timeline from 1905 to
2005. Journal of Accountancy, 200(4), 43.
Pathways Commission. (2012). Charting a National Strategy for the Next Generation of Ac-
countants.Available at:
http://commons.aaahq.org/files/0b14318188/Pathways_Commission_Final_Report_
Complete.pdf
Powell, S. G., & Baker, K. R. (2004). The art of modeling with spreadsheets, Hoboken.
Ramachandran Rackliffe, U., & Ragland, L. (2016). Excel in the accounting curriculum: per-
ceptions from accounting professors. Accounting Education, 25(2), 139–166. doi:10.1080/0
9639284.2015.1126791
Ringelstein, D. (2009). An Activity-Based Costing Assessment Task: Using an Excel Spread-
sheet. E-Journal of Business Education & Scholarship of Teaching, 3(1).
Sentence, B. (2008). A New Approach to Spreadsheet Analytics Management in Financial
Markets. arXiv preprint arXiv:0802.2932.
Spiceland, C. P., Spiceland, J. D., & Schaeffer, S. J. (2015). Using a course redesign to address
retention and performance issues in introductory accounting. Journal of Accounting Educa-
tion, 33(1), 50–68. doi:10.1016/j.jaccedu.2014.12.001
Spraakman, G., O’Grady, W., Askarany, D., & Akroyd, C. (2015). Employers’ Perceptions of
Information Technology Competency Requirements for Management Accounting Gradu-
ates. Accounting Education, 24(5), 403–422. doi:10.1080/09639284.2015.1089177
Togo, D. F. (2004). Risk analysis for accounting models: A spreadsheet simulation approach.
43
ATTRACTING INVESTMENT IN
THE ENTREPRENEURIAL ZONES
Željka Kadlec Josip Hetrih Mladena Bedeković: ATTRACTING INVESTMENT IN THE ENTREPRENEURIAL ZONES OF SMALL CITIES BY CREATING...
Abstract
The primary goal of this paper is to explain interdependency of small and
medium enterprises (SMEs) and the importance of creating an investment-
friendly environment for the development of small towns. The paper describes
the types of investment with the focus on direct foreign investment and its im-
portance for the development of small towns as well as the development of
the Croatian economy in general. The entrepreneurial infrastructure, which
includes entrepreneurial zones and supporting institutions, plays a significant
role in the development of small towns and the improvement of the investment
climate. A large number of factors, location being the most important, helps
investors make a decision in which city to invest. This paper describes ways
44
of improving the investment climate by combining these different factors. The
connectedness and quality of coordination between the national and local level
is important for creating the conditions in which SMEs can further develop
in small towns, which is the reason why the incentives and measures that help
attract investment have been described in the paper. Strategy is a document
that provides guidelines for the longterm progress of cities so the analysis of
the investment environment as well as advice for its improvement have been
made on the basis of the strategic documents of Slatina and Ivanec. This paper
helps understand the definition of small towns and gives basic guidelines for
the development of a stimulating environment for the development of SMEs,
which affects the economic and social growth of small towns and their local
communities.
Key words: small and medium enterprises, investment, small towns, entrepre-
neurial infrastructure
JEL Classification: D25, L26
1. INTRODUCTION
Small and medium-sized enterprises (SMEs) act as a main generator of de-
velopment in almost every economy of the world. The focus of the economic
policy of the European Union, as well as of the Republic of Croatia is the devel-
opment of SME sectors. Small Croatian cities are often faced with the problem
of poor traffic connection and poor economic development. Good entrepre-
neurial infrastructure is therefore extremely important for creating precondi-
tions for the development of SMEs. Since SMEs can easily adapt to changes INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
and since they are the main generator of new employments and economic devel-
opment, small cities base their strategies precisely on that sector.
The main issue of this work is directed towards the development of mea-
sures and incentives of small cities towards SMEs, with a goal of creating pre-
conditions for the development of SME sectors and attracting investment, with
the focus on direct foreign investment. The approach to this work is focused on
the development of a stimulating investment environment which is based on
“soft” measures that do not pose a great financial weight for the budget since
they come from small cities. Furthermore, the work is also focused on the well-
established coordination in all levels, from national to local, which is important
for utilizing the opportunities offered by national, as well as European funds.
45
This work is thematically divided into three main parts, the first one of which
refers to the definition and classification of investments, entrepreneurial infra-
Željka Kadlec Josip Hetrih Mladena Bedeković: ATTRACTING INVESTMENT IN THE ENTREPRENEURIAL ZONES OF SMALL CITIES BY CREATING...
2. INVESTMENT, ENTERPRISE
INFRASTRUCTURE AND SUCCESSFUL
EXAMPLES OF CREATING THE
PRECONDITIONS FOR THE DEVELOPMENT
OF SMALL AND MEDIUMSIZED ENTERPRISES
Investments play an important role in the business of every enterprise and
city, but their contribution to the development of Croatia is even greater when
complemented by foreign investment. According to the Ministry of Economy
(2014:7), “direct foreign investment encompasses all investment into domestic
enterprises (residents) where the foreign investor (non-resident) gains 10 or
more per cent of property over ordinary stocks of the enterprise (incorporated
or unincorporated), or an equal amount of voting rights”1. By creating the pre-
conditions for the development of SMEs in entrepreneurial zones, small cities
are able to attract such investments, but it is of a great importance to establish
a set of measures and a communication strategy in order for foreign investors
to select precisely the entrepreneurial zone of that city for their investment.
Buretin and Belčić (2013) state that foreign investment has an impact on the
increase of liquidity and balance sheet, but they also note that this impact is
1
Ministry of Economy (2014). https://www.google.hr/url?sa=t&rct=j&q=&esrc=s&sour
ce=web&cd=2&cad=rja&uact=8&ved=0ahUKEwjg2OOg4JXVAhWPSxoKHR8UBX
cQFggrMAE&url=https%3A%2F%2F1.800.gay%3A443%2Fhttp%2Fwww.mingo.hr%2Fpublic%2Fdocuments%2FSTR
ATEGIJA%2520POTICANJA%2520INVESTICIJA%2520U%2520RH%2520ZA%2
520RAZDOBLJE%25202014-2020.docx&usg=AFQjCNF20Sj49KyJhvwzfaCa58Ckb
zx_Fg (Aug 10 2017)
46
short-term. A long-term and medium-term impact can mostly be seen in terms
of innovativeness, competitiveness and the restructuring of the economy.
According to the definition of the Ministry of Economy (2014)2 greenfield
investment usually presents direct foreign investments and these can be the
establishment of new companies, investment in the establishment of mixed-
ownership companies or the opening of a new branch. According to its charac-
teristics, this investment is characterized by the management of the company by
the investor who gains control over the company and actively implements this
control. A poor intensity of greenfield investment is attributed to the lack of a
strategic frame, as well as the lack of measures and policies for a good stimu-
lation of such investments. Greenfield investment is the most desired invest-
ment due to its characteristics since it creates new production facilities, working
places and is the best driving force of the development of economy, most often
with the help of the capital that comes from foreign investors. Small cities have
certain advantages over big cities due to the great amount of the space available
in their entrepreneurial zones. In most cases, the zones of small cities are free
and can be subject to greenfield investment since big cities have expanded due to
their growth, and they lack the space available for the investment. The responsi-
bility of small cities is to influence the improvement of the investment climate in
cooperation with the country and national, as well as European non-refundable
funds, but also to influence the act of attracting greenfield investment, which is
export-oriented and which stimulates the economic growth, with the help of
concrete measures in their own strategic documents.
2
Ministry of Economy (2014). https://www.google.hr/url?sa=t&rct=j&q=&esrc=s&sour
ce=web&cd=2&cad=rja&uact=8&ved=0ahUKEwjg2OOg4JXVAhWPSxoKHR8UBX
cQFggrMAE&url=https%3A%2F%2F1.800.gay%3A443%2Fhttp%2Fwww.mingo.hr%2Fpublic%2Fdocuments%2FSTR
ATEGIJA%2520POTICANJA%2520INVESTICIJA%2520U%2520RH%2520ZA%2
520RAZDOBLJE%25202014-2020.docx&usg=AFQjCNF20Sj49KyJhvwzfaCa58Ckb
zx_Fg (Aug 10 2017)
47
of Economy (2014)3, direct foreign investment is mostly directed towards the
brownfield investment due to the insufficient elaboration of incentives and mea-
Željka Kadlec Josip Hetrih Mladena Bedeković: ATTRACTING INVESTMENT IN THE ENTREPRENEURIAL ZONES OF SMALL CITIES BY CREATING...
sures. One of the measures of the Act on Strategic Investment for the Republic
of Croatia until 2020 for achieving a positive effect of such investment is a plan
for the realization of brownfield investment through putting state property into
function. Croatia has an abundance of tourist, industrial but especially military
facilities that have a potential to be placed into function for carrying out an
economic activity. The stimulation of such investment will have an impact on
the revitalization of the infrastructure of settlements and towns, but also on the
protection of extremely valuable spaces that were not in function of carrying out
economic activities. According to CNB data4, the total amount of direct foreign
investment in Croatia was 26.465,1 Million Euros, 4.053,8 Million of which
was attracted in 2008, followed by a decrease in the intensity of investment,
which was best seen in 2010 when only 370,0 Million Euros were attracted.
The lowest overall intensity of both types of investment was seen in 2013 due
to the world economy crisis, while the greatest individual decrease of brownfield
investment was recorded in 2010 and the greatest individual decrease of green-
field investment in 2012.
The focus of this work is to give a review for attracting (foreign) investment
in entrepreneurial zones by ensuring the preconditions for the development of
SMEs. Since this work compares the cities of Ivanec and Slatina, what the au-
thors consider relevant is the research of one of the world’s most renowned
business magazines – the Financial Times – under the name of “Cities and Re-
gions of The Future 2016/2017”, which categorizes cities into five categories ac-
cording to the number of inhabitants (Major cities, large cities, mid-sized cities,
small cities and micro cities)5. According to the mentioned categorization, the
cities of Ivanec and Slatina belong to the category of micro cities. The Act on
Regional Development of the Republic of Croatia6 categorizes the cities into
3
Ministry of Economy (2014) https://www.google.hr/url?sa=t&rct=j&q=&esrc=s&sourc
e=web&cd=2&cad=rja&uact=8&ved=0ahUKEwjg2OOg4JXVAhWPSxoKHR8UBX
cQFggrMAE&url=https%3A%2F%2F1.800.gay%3A443%2Fhttp%2Fwww.mingo.hr%2Fpublic%2Fdocuments%2FSTR
ATEGIJA%2520POTICANJA%2520INVESTICIJA%2520U%2520RH%2520ZA%2
520RAZDOBLJE%25202014-2020.docx&usg=AFQjCNF20Sj49KyJhvwzfaCa58Ckb
zx_Fg (Auf 10 2017)
4
https://www.hnb.hr/statistika/statisticki-podaci (Sep 7 2017)
5
FDI Magazine (2016). http://www.ivanec.hr/download/1947 (Sep 1 2017)
6
https://www.zakon.hr/z/239/Zakon-o-regionalnom-razvoju-Republike-Hrvatske (Sep 9
2017)
48
two categories – larger urban areas and smaller urban areas. Larger urban areas
are described as cities with more than 35,000 inhabitants and smaller urban
areas are cities with more than 10,000 inhabitants in their centers, which have
less than 35,000 inhabitants and/or which are the center of a county.
The Act on Promoting Entrepreneurial Infrastructure7 defines the entrepre-
neurial infrastructure in a wider sense, which implies the totality of undertak-
ing the entrepreneurial activities which are the result of developmental concepts
of local or regional self-government units or the Republic of Croatia. In a nar-
row sense, it implies the entrepreneurial infrastructure as a system of entre-
preneurial zones and entrepreneurial support institutions of the Republic of
Croatia. Funda (2011) defines the entrepreneurial infrastructure as a regulated
space whose main aim and function it is to aid small enterprises in the phase of
development and formation. The role of the entrepreneurial infrastructure is to
provide prompt information which enable a faster growth and development of
small enterprises. According to the Ministry of Entrepreneurship and Crafts8,
the term entrepreneurial support institution implies development agencies (lo-
cal and regional), business incubators, technology parks and entrepreneurial
centers. According to Glojnarić (2017:26), “the essence of entrepreneurial sup-
port institutions is to offer support to entrepreneurs in all phases of the devel-
opment of the enterprise, and the greatest part of services that these institutions
offer to entrepreneurs encompasses educations on topics of their interest in the
field that this institution covers.” Oberman Peterka, Delić, Perić (2016) also
classify the institutions in charge of decision-making in the sector of SMEs
as entrepreneurial infrastructure and they emphasize the Government of the
Republic of Croatia, the Ministry of Economy, Entrepreneurship and Crafts, INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
HBOR, HAMAG-BICRO, HUP, HGK, HOK and CEPOR as most signifi-
cant institutions. Establishing the infrastructure in terms of entrepreneurial
zones and support institutions in cities shows their focus on sustainable devel-
opment and their readiness to ensure the preconditions for the development of
SMEs and the attraction of new investment.
When it comes to successful examples of attracting investment in entrepre-
neurial zones by creating the preconditions for the development of SMEs, we
can certainly take into consideration the example of the borough Antunovac.
7
http://narodne-novine.nn.hr/clanci/sluzbeni/2013_07_93_2072.html ( Jun 12 2017)
8
Ministry of Entrepreneurship and Crafts (2013): http://www.europski-fondovi.eu/sites/
default/files/dokumenti/Strategy-HR-Final.pdf (Aug 10 2017)
49
According to Slijepčević (2016), the year 2013 saw the establishment of the
Agency for sustainable development of borough Antunovac, which in a very
Željka Kadlec Josip Hetrih Mladena Bedeković: ATTRACTING INVESTMENT IN THE ENTREPRENEURIAL ZONES OF SMALL CITIES BY CREATING...
9
http://www.opcina-antunovac.hr/opcini-antunovac-dodjeljena-odluka-za-izgradnju-po-
duzetnickog-inkubatora-i-akceleratora-u-osjecko-baranjskoj-zupaniji/ (Sep 1 2017)
10
EZ – entrepreneurial zone
50
activity in the business of local and regional development agencies and other
support institutions is carried out in cooperation with the local self-govern-
ment. The incentives and measures for attracting the investment outlined in
the Strategy of investment incentive are the most significant factors for a suc-
cessful business and occupancy of entrepreneurial zones, whose formulation
is again dependent on the local self-government as the main stakeholder. Ex-
cellent cooperation and coordination with entrepreneurial support institutions
and a good management of entrepreneurial infrastructure present a successful
formula for the growth of small cities.
11
Ministry of Economy (2014). https://www.google.hr/url?sa=t&rct=j&q=&esrc=s&sour
ce=web&cd=2&cad=rja&uact=8&ved=0ahUKEwjg2OOg4JXVAhWPSxoKHR8UBX
cQFggrMAE&url=https%3A%2F%2F1.800.gay%3A443%2Fhttp%2Fwww.mingo.hr%2Fpublic%2Fdocuments%2FSTR
ATEGIJA%2520POTICANJA%2520INVESTICIJA%2520U%2520RH%2520ZA%2
520RAZDOBLJE%25202014-2020.docx&usg=AFQjCNF20Sj49KyJhvwzfaCa58Ckb
zx_Fg (Aug 10 2017)
51
well as the proximity of institutions of higher education, but also the local self-
government that acts proactively when it comes to attracting the investment.
Željka Kadlec Josip Hetrih Mladena Bedeković: ATTRACTING INVESTMENT IN THE ENTREPRENEURIAL ZONES OF SMALL CITIES BY CREATING...
Location is certainly one of the main factors that have an influence on the
investment decision. According to Paliaga and Strunje (2011), a broad range of
criteria are taken into consideration when it comes to investment decisions in
terms of location. These factors include the ratio of price and quality of work-
ing force, transport expenses, custom duties and the measures fro inciting the
investment. The investors expect that the location or infrastructure that they
invest into possesses all the concepts required for business in one location with
an affordable price. This can be achieved by a range of measures and stimuli
that imply, e.g. affordable marketing prices, as well as affordable rent, account-
ing, educations and alike, either for beginner entrepreneurs in an incubator or
for developed entrepreneurs in an accelerator or a technological park. The en-
trepreneurs inside one entrepreneurial zone can thus strengthen their offer by
means of a joint market performance and the reduction of expenses (Glojnarić,
2016). According to Investment Promotion and Development of Investment
Climate Act12, the attraction of investment is influenced by the advancement
of the investment environment which implies pre-investment, investment and
post-investment activities that influence the successfulness and the deadline of
the investment.
The Proposal of the Strategy of investment incentive in the Republic of
Croatia for the period from 2014 until 202013 defined four areas of priority for
inciting the investment: the advancement of the investment environment, the
promotion of the Republic of Croatia as an attractive investment destination,
targeted attraction of the investment and the support with the realization of
investment projects. What is crucial for this work is the targeted attraction of
the investment, more precisely the measures of production and implementation
of the Plan for attracting greenfield investment in the assisted areas of the Re-
public of Croatia. This measure is of a great importance for the city of Slatina
which is located within the assisted area, although we also have to mention
12
http://narodne-novine.nn.hr/clanci/sluzbeni/2012_10_111_2391.html ( Jun 12 2017)
13
Ministry of Economy (2014). https://www.google.hr/url?sa=t&rct=j&q=&esrc=s&sour
ce=web&cd=2&cad=rja&uact=8&ved=0ahUKEwjg2OOg4JXVAhWPSxoKHR8UBX
cQFggrMAE&url=https%3A%2F%2F1.800.gay%3A443%2Fhttp%2Fwww.mingo.hr%2Fpublic%2Fdocuments%2FSTR
ATEGIJA%2520POTICANJA%2520INVESTICIJA%2520U%2520RH%2520ZA%2
520RAZDOBLJE%25202014-2020.docx&usg=AFQjCNF20Sj49KyJhvwzfaCa58Ckb
zx_Fg (Aug 10 2017)
52
that the city of Slatina belonged to the group II of self-government units until
12/31/2017, with the development rate between 50% and 75% of the average
in the Republic of Croatia14. Since 01/01/2018, the city of Slatina belongs to
the group IV of self-government units and it finds itself in the first quarter of
units ranked below the average according to its index value15. The proposal of
the Strategy cites that the attraction of new investment in the assisted areas
is of a great significance since it encourages recovery and economic develop-
ment, while export-oriented sectors are being emphasized as targeted sectors.
The measure is directed towards connecting the investors and self-government
units, which will be realized by adjusting the activities to the developmental
strategies of the county. The focus of this measure is put on defining the po-
tential investors, informing them about the advantages of investing into the as-
sisted areas and, finally, on the realization of campaigns with the goal of con-
necting the representatives of self-government units with national and foreign
investors. In order for all goals outlined in these strategic documents to be put
into practice, what is important is the cooperation of all stakeholders that were
identified in these documents with various ministries as starting points. The
Ministry of Economy, Entrepreneurship and Crafts is undoubtedly one of the
crucial stakeholders for the realization of the strategy of investment incentive.
4. COMPARISON OF INVESTMENT
ENVIRONMENTS OF CITIES OF IVANEC AND
SLATINA
By comparing the investment environment of two cities with roughly iden- INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
tical number of inhabitants and numerous similarities in their characteristics
– the city of Ivanec and the city of Slatina – the authors will define the invest-
ment environment and its potentials. Slatina is located in Virovitica-Podravina
county and it consists of 15 settlements16. “This area is bounded by the river
Drava in the north, and by the ridges of Papuk and Krndija mountains in the
south. Slatina has a role of the central settlement of the region according to
14
https://narodne-novine.nn.hr/clanci/sluzbeni/2013_12_158_3313.html ( Jan 20 2018)
15
https://narodne-novine.nn.hr/clanci/sluzbeni/full/2017_12_132_3022.html ( Jan 20
2018)
16
http://www.slatina.hr (Sep 1 2017)
53
many characteristics.”17. Ivanec is located in Varaždin county and it comprises
of 29 settlements18. “The city of Ivanec is located in the north-western part of
Željka Kadlec Josip Hetrih Mladena Bedeković: ATTRACTING INVESTMENT IN THE ENTREPRENEURIAL ZONES OF SMALL CITIES BY CREATING...
Croatia in Varaždin county. It stretches along the upper flow of the river Bed-
nja. It lays 20 km away from the Slovenian border, 28 km away from the in-
ternational border crossing Macelj and 60 km away from the border crossing
Goričan which is located on the border between Croatia and Hungary19. Table
1 illustrates the comparison of basic information on the cities of Slatina and
Ivanec, which are significantly similar in the number of inhabitants, the area and
population density.
Forest potentials and agricultural lands are the most significant natural re-
sources that are of interest to entrepreneurs. According to the data from 2003,
Ivanec has a total of 3,846.81 ha of agricultural lands available, 1,991.47 ha
of which is utilized for agricultural production (51.77%). Agricultural parcels
make up an average of 0.16 ha20. Slatina has a total of 6,090.94 ha of agricultural
lands, 92.04% of which is used for agricultural production. The remaining part
of uncultivated land is made up of meadows, pastures, vineyards and orchards21.
The area of Ivanec has 4,061 ha of forest potentials, 84% of which is private
property and 16% of state property22. The city of Slatina has a slightly larger
forest area of 5,769.91 ha and the owner structure is reversed, with 94.78% of
17
City of Slatina (2016). http://www.slatina.hr/wp-content/uploads/2016/11/Strategija-
razvoja-Grada-Slatine.pdf (Sep 1 2017)
18
http://www.ivanec.hr/ (Sep 1 2017)
19
City of Ivanec (2014). http://www.ivanec.hr/download/1256 (Sep 1 2017).
20
City of Ivanec http://www.ivanec.hr/download/1256 (Sep 1 2017).
21
City of Slatina (2016). http://www.slatina.hr/wp-content/uploads/2016/11/Strategija-
razvoja-Grada-Slatine.pdf (Sep 1 2017).
22
City of Ivanec (2014). http://www.ivanec.hr/download/1256 (Sep 1 2017).
54
state-owned forests and 0.24% of privately-owned forests. The remaining por-
tion of 4.98% is of unknown ownership23.
Location factors were already mentioned as some of the most significant
factors considering the investment decision, so it is of a great importance to
describe the infrastructure, traffic connection and other factors that influence
the attractiveness of this city for investors. According to the data of local de-
velopment strategy24, Ivanec has a dense road network due to the city’s dense
population. According to the data, the road infrastructure does not meet the
needs of the economy, which makes the city’s attraction weaker when it comes
to attracting investment. The need of the construction of a two-lane expressway
is emphasized as a solution for that problem. When it comes to the railroad
infrastructure, there is a single-section railroad passing through Ivanec with
trains operation in the direction of Ivanec (7 times a day) and in the direction
of Varaždin (8 times a day). According to the data from 2012, the railroad in-
frastructure, more precisely the transport of goods, was used by 7 companies.
When it comes to information and communication infrastructure, it is impor-
tant to emphasize that Ivanec has introduced a broadband infrastructure in all
its settlements, which is of a great significance to business subjects and which
put Ivanec one step forward when compared to a great number of cities. Con-
sidering the traffic infrastructure in the city of Slatina, there is one bypass and
one mini-bypass which helped to move all cargo traffic away from the city cen-
ter and increased the security and quality of life in the city. The bypass passes
through several entrepreneurial zones, which had a significant impact on the en-
trepreneurial activity of the city. However, the distance of Slatina and the whole
Virovitica-Podravina county from two-lane expressways and highways presents INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
a great problem in terms of traffic connection. The solution of this problem is
attempted through the construction of Podravina’s two-lane expressway that
will connect Slatina to Osijek and Zagreb, which is the strategic project of the
city of Slatina until 2020. When it comes to railroad infrastructure, Slatina
also has a single-section railroad. Telecommunication, i.e. low-speed Internet is
another problem of Slatina. The problem of telecommunication infrastructure
will be solved through the project of introducing a broadband infrastructure,
which is in progress at the time. Air traffic is another problem due to the great
23
City of Slatina (2016). http://www.slatina.hr/wp-content/uploads/2016/11/Strategija-
razvoja-Grada-Slatine.pdf (Sep 1 2017).
24
City of Ivanec (2014) http://www.ivanec.hr/download/1256 (Sep 1 2017)
55
distance of airports. The nearest airport – the one in Osijek – is located 96 km
away from Slatina, while the Zagreb airport stands at 186 km distance from
Željka Kadlec Josip Hetrih Mladena Bedeković: ATTRACTING INVESTMENT IN THE ENTREPRENEURIAL ZONES OF SMALL CITIES BY CREATING...
Slatina. The nearest international airport is located near Pecs at the distance of
75 km from Slatina. According to the data from the official Internet page of the
city of Ivanec25, there is a much smaller distance to nearest airports – 22 km to
the Varaždin airport and 81 km to the Zagreb airport.
Considering the entrepreneurial infrastructure, the cities of Ivanec and Sla-
tina have both entrepreneurial zones, as well as entrepreneurial support institu-
tions. Ivanec has established two entrepreneurial zones, while Slatina has seven
entrepreneurial zones. Each zone is fully equipped when it comes to infrastruc-
ture. When it comes to entrepreneurial support institutions, Ivanec has estab-
lished a Project office and Slatina has established a City development agency.
Slatina also started the project of building a business incubator which will have
a great contribution to the development of small and medium-sized enterprises.
The unemployment rate of these cities differs significantly. Ivanec has the
unemployment rate of 6.84%, which is considerably below the Croatian average,
while the year of 2015 in Slatina saw the unemployment rate as high as 31.9%,
which is much above the Croatian average. Human resources, more precisely
the incompatibility of education with the needs of the market, are described as
one of the problems of development in strategic documents of both cities. Both
cities try to solve this problem by means of public open universities which offer
retraining in accordance with the needs of local entrepreneurs26.
Slatina and Ivanec created the measures for inciting the development of
small and medium-sized entrepreneurship and the measures for inciting the
investment in entrepreneurial zones which will serve for the purpose of com-
parison of the successfulness of certain measures in creating a favorable invest-
ment climate. For the analysis of measures and incentives, the authors of this
work used the data that is publicly available on the Internet pages and official
documents of both cities: Strategy for the development of the City of Slatina
for the period from 2014 until 202027; Strategy for the development of the City
25
http://www.ivanec.hr/ (Sep 1 2017)
26
City of Slatina (2016). http://www.slatina.hr/wp-content/uploads/2016/11/Strategija-
razvoja-Grada-Slatine.pdf (Sep 1 2017) and City of Ivanec (2014). http://www.ivanec.hr/
download/1256 (Sep 1 2017)
27
City of Slatina (2016). http://www.slatina.hr/wp-content/uploads/2016/11/Strategija-
razvoja-Grada-Slatine.pdf (Sep 1 2017)
56
of Ivanec for the period from 2014 until 202028; official web pages of the City of
Slatina29; official web page of the City of Ivanec30. The analysis of the data that
answer the question of why the potential investor should decide to invest in one
of these cities, Slatina has a fairly little amount of data available, while Ivanec
has a great number of specific information that can serve each investor. When
Slatina is taken into consideration, it can be seen that there are no information
in form of brochures available (there are several brochures that originate from
more than 4 years ago) and no information on entrepreneurial zones and alike.
There are several documents of public calls for the purchase of the land in en-
trepreneurial zones at the price of 4 and 5 Euros per square meter. The City of
Ivanec has a great amount of information that are of interest to investors such
as property prices, conditions of construction, privileges and reliefs available, as
well as the emphasized advantages of investment in their entrepreneurial zones.
The home page already shows a column for investors, where the potential inves-
tors can find all the information – from the entrepreneurial infrastructure to
various guides regarding the construction, as well as the base of business enti-
ties, prices, fees, expenses, etc.
Ivanec is without doubt one of the best examples from practice when com-
paring the transparency, openness and proactivity of self-government units in
the availability of information and “soft” measures for inciting the investment.
In the case of Ivanec, the entrepreneur can be informed about all the conditions
that are important for the start of the investment even before the first meet-
ing with the representatives of self-government units. Such approach not only
attracts the potential investors but also shortens the time that is required for
both sides to be informed about the investment possibilities. The availability of INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
information decreases the number of the meetings needed and shortens their
duration since both side have already been informed about all details that are
important for the investment. This led us to conclude that the representatives
of self-government units and their support institutions in Slatina still need to
invest a lot in order to take a step forward in the direction Ivanec has made.
What is needed is the change in the approach and a greater openness to poten-
tial investors who often lack the time for a great number of business meetings
or writing official e-mails and letters. Especially this approach is important for
28
City of Ivanec (2014). http://www.ivanec.hr/download/1256 (Sep 1 2017)
29
http://www.slatina.hr (Sep 1 2017)
30
http://www.ivanec.hr/ (Sep 1 2017)
57
attracting the direct foreign investment, since the investors who do not come
from Croatia find it fairly hard to find the data which are important for their de-
Željka Kadlec Josip Hetrih Mladena Bedeković: ATTRACTING INVESTMENT IN THE ENTREPRENEURIAL ZONES OF SMALL CITIES BY CREATING...
cision about the investment. Table 2 shows the comparison of a series of direct
measures and incentives for the investors that invest in the two cities.
Table 2. Comparative view of measures and incentives for attracting the invest-
ment on the example of Slatina and Ivanec
Slatina Ivanec
Exemption from tax payment (partly)
Exemption from paying the fee for connection to communal infrastructure for
wastewater and rainwater drainage and the fee for connection to communal
infrastructure for gas supply
Exemption from paying the conversion of land for obtaining a building permit
Lower price of communally equipped land
Land purchase service with the settlement of property-legal relations
Communally equipped land
Subsidy of 2 – 3 % of interest in entrepreneurial credits
Professional help and cooperation in the development and realization of the
investment
Aid for investors in connecting to local and regional institutions, business advisors
and communal and infrastructural companies
Source: adjusted according to City of Slatina: http://www.slatina.hr (Sep 1 2017) and Of-
ficial web page of the City of Ivanec http://www.ivanec.hr (Sep 1 2017)
Slatina has not regulated the exemptions from paying the conversion of land
for obtaining a building permit, the land purchase service, the settlement of
property-legal relations or subsidies for credits. Communal exemptions, de-
crease of land price and the settlement of property-legal relations can be high-
lighted as some of the most significant measures. One positive measure that
needs to be introduced is the help of the local self-government in obtaining the
permits and documentation for potential investors, which makes the new in-
vestment much easier and incites the attraction of new investments. In addition
to the measures shown in table 3, we must not omit the priorities and measures
for inciting the development of SMEs and a more favorable investment environ-
ment which are stated in the strategic documents of both towns.
The strategy for the development of the City of Ivanec highlights the fol-
lowing priorities and measures for the development of SMEs and the invest-
58
ment environment: Priority 1.2. Identification of economic and developmental
potentials and removal of administrative obstacles, which is connected to the
Measure 1.1.1. Investment in key sectors and activities. Another priority that
directly influences the development of SMEs is the Priority 1.2. Increasing the
competitiveness of small and medium-sized entrepreneurships. It encompasses
three measures – the Measure 1.2.1. Establishing the infrastructure content
according to economy needs, Measure 1.2.2. Promotion of economic zones
and Measure 1.2.3. Encouraging the implementation and development of high
(contemporary) technologies, innovation and knowledge in entrepreneurship31.
The strategy for the development of the City of Slatina includes the follow-
ing priorities of measures that are important for the development of SMEs and
the investment environment: Development Priority 1.2. Consolidation of the
economic successfulness of entrepreneurs, which includes the Measure 1.2.1.
Development of small and medium-sized entrepreneurships and the Measure
1.2.2. Consolidation of the administrative and financial environment for the
development of entrepreneurship. Another development priority that is of a
great importance for the improvement of the investment environment is the
Development priority 1.2. Attracting investment based on contemporary tech-
nologies, which includes the Measure 1.3.1 Intensifying the use of renewable
sources of energy and ecologically efficient technologies and the Measure 1.3.2.
Encouraging the investment of private entrepreneurs in activities that abound
with knowledge and technologies. What is also significant for this topic in addi-
tion to previously mentioned priorities and measures in the strategy for the de-
velopment of the City of Slatina are the priorities connected to the development
of traffic connection, as well as the business and communal infrastructures, but INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
also the priority of availability and the implementation of a broad-band Inter-
net access.
Finally, it can be concluded that the cities of Ivanec and Slatina have a failry
similar size, number of inhabitants, natural resources, traffic connection and
entrepreneurial infrastructure. Their strategic documents until 2020 mention
similar priorities and measures planned to incite the development of small and
medium-sized enterprises and the investment environment. The key discrep-
ancy between these two cities can be seen in the proactivity of the local self-
government and the implementation of the strategy for development. As it was
31
City of Ivanec (2014). http://www.ivanec.hr/download/1256 (Sep 1 2017)
59
already mentioned in this work, the creation of the strategic documentation is
only the start of changes and it has to be followed by the activities and projects
Željka Kadlec Josip Hetrih Mladena Bedeković: ATTRACTING INVESTMENT IN THE ENTREPRENEURIAL ZONES OF SMALL CITIES BY CREATING...
that will lead to the accomplishment of the planned ideas. When capital proj-
ects are contrasted, it can be concluded that Slatina has made a step forward in
terms of the entrepreneurial infrastructure since it has a greater number and
area of entrepreneurial zones and a business incubator whose adaptation proj-
ect already started. Moreover, when it comes to traffic and communal infra-
structure, Slatina has bypasses that influenced the provision of favorable con-
ditions for entrepreneurial activities and its zones are fully equipped, as is the
case with the City of Ivanec. The greatest discrepancy between these two cities
is a series of measures that the authors of this work named “soft” measures –
the approach to potential investors through openness, information availability,
transparency and proactivity of the local self-government. On the grounds of
this, the City of Ivanec is certainly one of the most outstanding examples of
European small cities that insured almost all preconditions for the growth and
development of SMEs, as well as for the attraction of direct foreign investment.
The evidence of that is the Financial Time research “Cities and Regions of The
Future 2016/2017 that put Ivanec in the first place on the scale of small (micro)
cities in Europe.
5. CONCLUSION
The greatest challenge that small cities face is ensuring the preconditions for
the development of the economy and the increase in the employment rate in
their entrepreneurial zones since a great number of entrepreneurial zones is still
insufficiently filled. The definition of the key terms such as small and medium-
sized enterprises, investment and small cities led to the comprehension of their
mutual connection and their significance for the development of the economy
of small cities, but also the economy of the Republic of Croatia generally. All
the great economies of the world base their development policies on small and
medium-sized enterprises, which are remarkably adaptive to changes and which
are a generator of new employments. The task of small cities is to develop their
strategies for attracting investment which they will implement successfully in
coordination with and with the support of the regional and national levels.
Based on initial definitions and assumptions of this work, the authors have
indicated the most attractive measures and incentives for inciting the invest-
60
ment environment in the entrepreneurial zones of small cities through the
analysis of successful examples from practice. Furthermore, they also defined
main preconditions that need to be fulfilled by small cities when it comes to
the equipment of the infrastructure and privileges for small and medium-sized
enterprises. By comparing the investment environments of the two cities, the
authors have defined the measures and incentives that have the greatest impact
on the recognition of small towns among investors.
The first step towards the development of an enticing investment environ-
ment in the entrepreneurial zones of small cities is creating a good strategy for
the development of the city. When planning an investment, small and medi-
um-sized entrepreneurs expect good entrepreneurial infrastructure in terms of
entrepreneurial zones and especially in terms of entrepreneurial support insti-
tutions which can facilitate their business, especially in early stages of develop-
ment. By the help of business incubators, beginner entrepreneurs are offered a
great number of privileges and services that influence their quick growth and
facilitate their business, which in the end influences the development of the
small city. A good cooperation of small cities with the regional and local levels
facilitates the access to non-refundable resources both for entrepreneurs, as well
as for small cities, which benefits the development of self-government units and
SMEs, but in the end the development of the Republic of Croatia as well. It can
be concluded that successful small towns differ from less successful ones mostly
in terms of the proactivity of the representatives of self-government units, as
well as in terms of “soft” measures that are the best attracting factor for foreign
investors since the investors are offered all the information needed for making
their decisions about the investment. This work provides examples of the cit- INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
ies that were successful in attracting direct foreign investment which offers the
possibility of improving the approach in terms of the methods for inciting the
investment and thus provides a positive turning point in the development of
small cities.
REFERENCES
Buretin, D. & Belčić, M. (2013). Učinci izravnih stranih ulaganja u Hrvatsku, Zbornik
Veleučilišta u Rijeci Vol.1. No.1., p. 133-149.
CEPOR (2016). Izvješće o malim i srednjim poduzećima u Hrvatskoj − 2015. [available at:
http://www.cepor.hr/wp-content/uploads/2016/06/Cepor-izvjesce-2015-HR.pdf
access June 11, 2017]
61
FDI Magazine (2016). fDi European Cities and Regions of The Future 2016./2017. rankings.
[available at: http://www.ivanec.hr/download/1947 access September 01, 2017]
Željka Kadlec Josip Hetrih Mladena Bedeković: ATTRACTING INVESTMENT IN THE ENTREPRENEURIAL ZONES OF SMALL CITIES BY CREATING...
62
Official web page of the City of Ivanec. [available at: http://www.ivanec.hr/ access Septem-
ber 01, 2017]
Stojanović, S., Mrvica Mađarac, S. & Glavota, M. (2016). Financiranje poduzetništva iz fon-
dova Europske unije, Obrazovanje za poduzetništvo, Vol.6. No.2., p. 161-175.
Zakon o poticanju investicija i unapređenju investicijskog okruženja, NN 111/2012. [avail-
able at: http://narodne-novine.nn.hr/clanci/sluzbeni/2012_10_111_2391.html ac-
cess June 12, 2017]
Zakon o regionalnom razvoju Republike Hrvatske, NN 147/14. [available at: https://www.
zakon.hr/z/239/Zakon-o-regionalnom-razvoju-Republike-Hrvatske access Septem-
ber 09, 2017]
Zakon o unapređenju poduzetničke infrastrukture, NN 93/2013. [available at: http://
narodne-novine.nn.hr/clanci/sluzbeni/2013_07_93_2072.html access June 12, 2017]
63
EMPLOYER PERCEPTION OF THE
DEVELOPMENT OF PROJECT
COMPETENCES IN PROJECT
Zlatko Barilović: EMPLOYER PERCEPTION OF THE DEVELOPMENT OF PROJECT COMPETENCES IN PROJECT MANAGEMENT GRADUATES
MANAGEMENT GRADUATES
Abstract
In today’s modern market the growth and development of any organisation are
based on continuous project execution. For the successful execution of a project,
it is essential to develop specific project competences in individuals participat-
ing at any stage of the project. Even though it is possible to develop project com-
petences in a number of different ways, it is the higher education system, i.e.
specialist study programmes focusing on the area of project management that
should have the key role in this. Currently, the number of such higher education
programmes in the Republic of Croatia is still insufficient but has an upward
trend. The aim of this paper is to establish how much importance employers
generally attach to individual elements of project competences and explore to
what extent these competences are developed in project management graduates
they are hiring. The research was conducted using a purposive and convenience
sample of 30 organisations hiring project management graduates. Research
results suggest a generally high level of significance that project competences
have for such employers. The expected level of knowledge corresponds to the
estimated level of the students’ competence, while the expected level of experi-
ence is statistically much higher compared to the students’ estimated level of
competence. The results of this research can be used primarily as guidelines for
further development of the given study programme and its alignment with the
current needs of the labour market in the Republic of Croatia. Furthermore,
this research may also serve as the basis for any future research in this field.
Key words: project, project management, project competences, higher educa-
tion, labour market
JEL Classification: : J21, M51
64
1. INTRODUCTION
In today’s business world, organisations daily face challenges such as rapid
and constant change, competitiveness, globalization, global strategic crises etc.
Under the conditions imposed by the modern business operation, they have to
find new solutions every day in order to maintan and increase their competiti-
veness, which is the basis of any organization’s success or failure (Porter, 2009;
Hauc, 2007; Thompson et al. 2008). Organizations that strive to outperform
their competitors in their field of activity need to come up with measures to
achieve it on a daily basis.
These measures have to be related to quality, minimum costs, minimum du-
ration, maximum or sufficient output (Hauc, 2007:12). It is necessary to re-
spond to changes that need to be taken into account (if they represent a threat)
or need to be made use of (if they represent an opportunity) by some non-
standard activities or processes (i.e. by something that is not done very often or
continuously), and these are projects (Vrečko, 2007; Hauc, 2007; Uhlir 2011;
Vrečko & Barilović, 2009). It is fair to say that successful business operation of
any organization in today’s modern market needs to be based on efficiently and
successfully executed projects.
One of the key elements of a project’s success should be competent individu-
als who run projects or participate in them in any role. Even though the need
for competent individuals to participate in projects has long been recognized,
in the Republic of Croatia there is still an insufficient number of educational
institutions (particularly in higher education) that offer specialized study pro-
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
grammes that might contribute to the development of such competences. In the
Republic of Croatia, the first study programme at tertiary level that is supposed
to develop project competences was launched in 2005 at the University of Ap-
plied Sciences Baltazar Zaprešić This programme is Project Management - a
specialist professional graduate study programme. The aim of this paper was
to find out how much importance employers generally attach to the level of
development of individual elements of project competences in their employees
and to explore how they perceive the level of development of such competences
in Project Management graduates they hire. Research results should help get
a better insight into specific project competences required by employers in the
Republic of Croatia who hire project management graduates. This might, in
turn, help create educational programmes that would match the current needs
65
of the labour market and would provide specific guidelines for further develop-
ment of the study programme referred to in this paper.
Zlatko Barilović: EMPLOYER PERCEPTION OF THE DEVELOPMENT OF PROJECT COMPETENCES IN PROJECT MANAGEMENT GRADUATES
2. PROJECT COMPETENCES
There is an increasing number of authors who are concerned with the im-
portance of developed project competences in individuals who work on proj-
ects. Despite the large number of such authors (e.g. Crawford, 2005; Chen et
al., 2008; Clarke, 2010; Buganza et al., 2013; Ahsan et al., 2013; Barilović et
al., 2014; Jalocha et al., 2014; Stretton & Crawford, 2014; Takey & Carvalho,
2015; Nijhuis et al., 2015; Vlahov et al., 2016; Miterev et al., 2016; Ekrot et
al., 2016), it is essential to highlight that the importance of such competences
is also emphasized by all the leading world organizations involved in project
management. They include, for example, the following: International Project
Management Association (IPMA, 2018), Project Management Institute (PMI,
2018), Association for Project Management, UK (APM, 2018), Australian In-
stitute of Project Management (AIPM, 2018), Project Management Associa-
tion of Japan (PMAJ, 2018).
All the listed organisations, either directly or indirectly, describe through
their documents and/or standards the most important areas, i.e. competences
that individuals who participate in projects in any way should have. In this pa-
per, we are going to focus primarily on project competences according to Inter-
national Project Management Association (IPMA), i.e. its document entitled
IPMA ICB 3.0 (2006). According to this document and IPMA requirements,
international certification of project managers is currently being conducted.
Certification is carried out by the Croatian member of IPMA, Croatian As-
sociation for Project Management (CAPM, 2018).
IPMA ICB 3.0 integrates all elements essential to the field of project man-
agement into the so-called “Eye of Competences”, which consists of three key
areas with a total of 46 associated elements (Table 1). These areas are the fol-
lowing (IPMA, 2006:9): Technical competence range – describe the fundamental
project management competence elements. This range covers the project man-
agement content, sometimes referred to as the solid elements. The ICB contains
20 technical competence elements. Behavioural competence range – describe the
personal project management competence elements. This range covers the proj-
ect manager’s attitudes and skills. The ICB contains 15 behavioural competence
66
elements. Contextual competence range – describe the project management com-
petence elements related to the context of the project. This range covers the
project manager’s competence in managing relations with the line management
organisation and the ability to function in a project focused organisation. The
ICB contains 11 contextual competence elements.
Table 1. IPMA ICB 3.0 elements put into three key competence areas
Technical competences Behavioural competences Contextual competences
1. Project management success 1. Leadership 1. Project orientation
2. Stakeholders 2. Engagement & motivation 2. Programme orientation
3. Project requirements & 3. Self-control 3. Portfolio orientation
objectives
4. Risk & opportunity 4. Assertiveness 4. Project programme &
portfolio implementation
5. Quality 5. Relaxation 5. Permanent organisation
6. Project organisation 6. Openness 6. Business
7. Teamwork 7. Creativity 7. Systems, products &
technology
8. Problem resolution 8. Result orientation 8. Personnel management
9. Project structures 9. Efficiency 9. Health, security, safety &
environment
10. Scope & deliverables 10. Consultation 10. Finance
11. Time & project phases 11. Negotiation 11. Legal
12. Resources 12. Conflict & crisis
13. Cost & finance 13. Reliability
14. Procurement & contract 14. Values appreciation INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
15. Changes 15. Ethics
16. Control & reports
17. Information & documentation
18. Communication
19. Start-up
20. Close-out
Source: IPMA ICB – International Competence Baseline Version 3.0 (2006)
Research for this paper was conducted in accordance with the previously
presented IPMA model. The aim of the research was to establish the key ele-
ments of project competences that are generally required by Croatian employers
67
and to find out the extent to which, according to employer perception, these are
developed in Project Management graduates.
Zlatko Barilović: EMPLOYER PERCEPTION OF THE DEVELOPMENT OF PROJECT COMPETENCES IN PROJECT MANAGEMENT GRADUATES
3. METHODOLOGY
In order to achieve the main aim of the research, the one-off survey was
conducted on a purposive and convenient sample of 30 organizations that hire
Project Management graduates. To facilitate subsequent processing of the re-
sponses, all questionnaires were created using a Google Forms online tool for
creating and conducting surveys, which allows online access to the questionnaire.
The sample (Table 2) included only those organizations where the gradu-
ates’ jobs matched their qualifications (degree in project management) to make
the obtained results as objective as possible. Such a sample was chosen as it is
expected that such organizations are most of the time more project-oriented
and are thus more realistic in assessing the need for specific elements of proj-
ect competences in their business. Also, they are more objective in assessing
the level of development of specific elements of project competences in their
employees (Project Management graduates) as opposed to those organizations
where those graduates are engaged mostly in continuous activities rather than
in projects.
68
Fully or predominantly owned by Croatian private 9 53
individuals
Ownershio of organization
Fully or predominantly owned by foreign private 7 41
(enterprises only N=17)
individuals
Fully or predominantly owned by the state 1 6
up to 10 12 40
10 – 49 1 3
Number of employees
50 – 249 5 17
250 and more 12 40
2 – 5 years 5 17
6 – 10 years 4 13
Age of organization
11 – 15 years 4 13
16 and more years 17 57
Finance and insurance 6 20
Education 4 14
Professional, scientific and technical activities 4 13
ICT 4 13
Other services 4 13
Area of activity
Wholesale and retail, repair of motor vehicles and 3 10
motorcycles
Art, entertainment, and recreation 2 7
Agriculture, forestry, and fishery 2 7
Construction 1 3
1
In order to make sure that the employers have full understanding of the competence ele-
ments, they were additionally described for the purposes of the research.
69
ence, while the assessment of the level of development of specific competences
in the graduates will be expressed only through an overall “competence” grade.
The questionnaire was created in such a way due to the fact that employers
sometimes find it difficult to assess the experience aspect realistically (particu-
Zlatko Barilović: EMPLOYER PERCEPTION OF THE DEVELOPMENT OF PROJECT COMPETENCES IN PROJECT MANAGEMENT GRADUATES
larly in cases when the employee has worked in the organization for a short
period of time).
The results of the part of the survey that investigated the elements of tech-
nical competences (Table 3), with the total mean grade for the knowledge of
all the related elements of M=4.21 and for the experience of those elements
of M=4.50, suggest that employers find technical project competences in PM
graduates highly important. At the same time, they assess the overall compe-
tence (in terms of technical competences) of PM graduates who work for them
with the mean grade of M=4.17 (Table3). Employers also attach a high level of
importance to elements of behavioural competences (Table 4) having assessed
the knowledge aspect with an overall mean grade of M=4.12 and the experience
aspect with M=4.54. In this category, employers assessed the competence of
PM graduates with a mean grade of M=4.16 (Table 4). Also, the results indi-
cate a high level of importance of contextual competences, which were assessed
with a grade of M=4.19 for knowledge and M=4.47 for experience (Table 5).
In terms of elements of contextual competences, the competence of employees
was assessed with a mean grade of M=3.99 (Table 5).
70
Table 3 General importance of individual elements of technical competences
and employer perception of the competence of Project Management
students
Employee
Knowledge Experience
competence
Std. Std. Std.
Technical competences N mean mean mean
dev. dev. dev.
1.01. Ambition to achieve project management
30 4.20 0.66 4.53 0.68 4.33 0.61
success
1.02. Identification of project’s stakeholders 30 4,17 0.53 4.40 0.56 4.23 0.68
1.03. Project requirements and objectives
30 4.30 0.70 4.50 0.63 4.33 0.71
management
1.04. Identification and management of project risks
30 4.30 0.70 4.60 0.56 4.23 0.73
and opportunities
1.05. Project quality management 30 4.20 0.61 4.67 0.48 4.13 0.73
1.06. Definition and maintenance of project
30 4.03 0.76 4.53 0.63 4.17 0.87
organisation
1.07. Project team management and leadership 30 4.47 0.63 4.73 0.45 4.27 0.83
1.08. Definition of tasks and problem resolution on
30 4.20 0.66 4.60 0.56 4.33 0.71
the project
1.09. Co-ordination of various project structures 30 3.97 0.67 4.37 0.61 4.03 0.72
1.10. Definition of project scope and deliverables 30 4.27 0.58 4.50 0.73 4.30 0.65
1.11. Definition of project time and phases 30 4.13 0.73 4.43 0.68 4.17 0.79
1.12. Planning. identification and resource allocation
30 4.23 0.63 4.57 0.57 4.17 0.65
on the project
1.13. Project cost and finance management 30 4.30 0.79 4.57 0.68 4.07 0.78
1.14. Identification and definition of procurement
30 4.20 0.89 4.37 0.76 3.73 1.05
and project contract management
1.15. Project change monitoring and management 30 4.17 0.83 4.43 0.68 3.97 1.03
71
Table 4 General importance of individual elements of behavioural competences
and employer perception of the competence of Project Management students
Employee
Knowledge Experience
competence
Zlatko Barilović: EMPLOYER PERCEPTION OF THE DEVELOPMENT OF PROJECT COMPETENCES IN PROJECT MANAGEMENT GRADUATES
72
Table 5 General importance of individual elements of contextual competences
and employer perception of the competence of Project Management students
Employee
Knowledge Experience
competence
Std. Std. Std.
Contextual competences N mean mean mean
dev. dev. dev.
3.01. Project orientation (ability to
conceive and manage a project 30 4.27 0.69 4.50 0.57 4.07 0.83
successfully in different situations)
3.02. Programme orientation (ability to
30 4.27 0.64 4.57 0.50 3.93 1.05
run a set of related projects successfully)
3.03. Portfolio orientation (ability to
manage projects and programmes 30 4.27 0.64 4.40 0.62 3.87 1.04
successfully within the organisation)
3.04. Successful management of the
implementation of major improvements
30 4.33 0.71 4.63 0.49 3.87 1.11
in the project. programme and portfolio
management
3.05. Management of the connections
between permanent and project parts of 30 4.13 0.68 4.57 0.50 3.87 1.04
the organisation
3.06. Directing the development
of project management process in 30 4.23 0.63 4.37 0.56 3.80 1.03
accordance with business requirements
3.07. Successful project management
related to the application or development
30 4.20 0.66 4.43 0.63 4.00 1.02
of the system. product and/or
technology management
3.08. Project related human resources
30 4.13 0.90 4.60 0.72 4.17 0.99
management
73
Elements of technical competences that employers find most developed in
PM graduates (assessing them with highest mean grades) include ambition to
achieve project management success (M=4.33), project requirements and ob-
jectives management (M=4.33), definition of tasks and problem resolution on
Zlatko Barilović: EMPLOYER PERCEPTION OF THE DEVELOPMENT OF PROJECT COMPETENCES IN PROJECT MANAGEMENT GRADUATES
74
As can be seen in Table 6, the statistically significant difference in the as-
sessment of knowledge, experience, and competence has been confirmed for
elements of technical competences (F=3840.75; df=29; p<0.01). Post hoc test-
ing applying the Bonferroni test confirmed a statistically significantly higher
result in the assessment of required experience compared to knowledge (Bon-
ferroni=0.29; p<0.05) and the assessment of competence (Bonferroni=0.34;
p<0.05) in technical competences. A statistically significant difference was also
found in the assessment of knowledge, experience and competence for the ele-
ments of behavioural competences (F=3732.74; df=29; p<0.01). Post hoc test-
ing applying the Bonferroni test confirmed a statistically significantly higher
result in the assessment of required experience compared to knowledge (Bon-
ferroni=0.42; p<0.05) and the assessment of competence (Bonferrroni=0,38;
p<0,05) in behavioural competences. A statistically significant difference was
also found in the assessment of knowledge, experience and competence for the
elements of contextual competences (F=3628.82; df=29; p<0.01). Post hoc
testing applying the Bonferroni test confirmed a statistically significantly higher
result in the assessment of required experience compared to knowledge (Bon-
ferroni=0.28;<0.01) and the assessment of competence (Bonferrroni=0.48;
p<0.01) in contextual competences.
As a general conclusion, we may suggest that the expected level of knowl-
edge, as assessed by the employers, matches the assessed level of PM graduates’
competence (no statistically significant difference has been confirmed). How-
ever, the expected level of experience, as assessed by the employers, was sta-
tistically significantly higher compared to the assessed levels of PM graduates’
competence. This is why the Project Management study programme should (for INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
further development and competitiveness of PM graduates in the labour mar-
ket) include more activities that would provide students with more practical
experience.
75
Table 6 Statistical significance of the assessment of the general importance of
knowledge and experience according to specific elements of project competenc-
es and the assessment of the competence of employees who have completed the
Project Management study programme
Zlatko Barilović: EMPLOYER PERCEPTION OF THE DEVELOPMENT OF PROJECT COMPETENCES IN PROJECT MANAGEMENT GRADUATES
Degrees of Statistical
N MEAN Std. dev. F-ratio
freedom significance
Technical competences
Knowledge (general) 30 4.21 .52
Experience (general) 30 4.50 .39
Competence 30 4.17 .60 3840.75 29 .00**
(employee)
Behavioural competences
Knowledge (general) 30 4.12 .61
Experience (general) 30 4.54 .38
3732.74 29 .00**
Competence
30 4.16 .58
(employee)
Contextual competences
Knowledge (general) 30 4.19 .55
Experience (general) 30 4.47 .40
3628.82 29 .00***
Competence
30 3.99 .75
(employee)
5. CONCLUSION
The success of any organization in today’s dynamic business environment
undoubtedly depends on the successful and efficient execution of projects. One
of the main prerequisites for successful execution of projects are certainly indi-
viduals who need to have project competences developed to a certain degree in
addition to their expertise in their field. This is true of all employees, regardless
of how often they participate in projects (as members of project teams), and
particularly if they assume the role of project managers.
The importance of project competences in more developed countries of the
world has long been recognized, special emphasis being placed on them by the
**
Statistical significance at a risk which is less than 1% (p<0,01)
**
Statistical significance at a risk which is less than 1% (p<0,01)
***
Statistical significance at a risk which is less than 1% (p<0,01)
76
leading project management organizations in the world. Following such global
trends, the Republic of Croatia will also have to start taking account of the de-
velopment of such competences throughout the educational system, particularly
when it comes to higher education. The research conducted for the purposes of
this paper suggests that Croatian employers, too, consider project competences
to be essential regardless of which specific elements of the three areas of compe-
tences (technical, behavioural or contextual) are involved.
Unfortunately, for the time being, the Republic of Croatia lacks specialized
higher education study programmes that develop this type of competences.
The results of the survey have confirmed that graduates of one such specialized
study programme (in this case the referred to specialist graduate professional
study programme in Project Management at the University of Applied Sciences
Baltazar Zaprešić) have been welcomed by their employers, who have assessed
their project competences as very well developed. The results of the survey also
indicate that students of Project Management have an excellent theoretical ba-
sis (knowledge assessment), while there is certainly plenty of room for improve-
ment in terms of their practical application of competences acquired during
their studies. This certainly suggests that study programmes need to expose
students to as much work on specific projects as possible, which is quite pos-
sible to achieve through establishing better connections between employers and
students even in the course of their studies.
The results of this survey can certainly serve not only as guidelines for fur-
ther development of the given study programme in the field of project manage-
77
REFERENCES
Ahsan, K.; Ho, M.; Khan, S. (2013) Recruiting Project Managers: A Comparative Analysis
of Competencies and Recruitment Signals from Job Advertisements. Project Manage-
ment Journal. Vol. 44, No. 5, 36–54.
Zlatko Barilović: EMPLOYER PERCEPTION OF THE DEVELOPMENT OF PROJECT COMPETENCES IN PROJECT MANAGEMENT GRADUATES
78
Project Management Institute. https://www.pmi.org/ [25. 3. 2018.]
Stretton, A. M. & Crawford, L. H. (2014). Bodies of Knowledge and Competency Stan-
dards in Project Management. In P. C. Dinsmore & J. Cabanis-Brewin (Eds.), The
AMA handbook of project management 4th ed., New York: AMACOM
Takey, S. M. i Carvalho, M. M. (2015) Competency mapping in project management: An
action research study in an engineering company. International Journal of Project Man-
agement, Volume 33, Issue 4, May 2015, Pages 784–796.
Thompson, A. A.; Strickland, A. J.; Gamble, J. E. (2008) Strateški menadžment: U potrazi za
konkurentskom prednošću. Zagreb: MATE d. o. o.
Uhlir, Ž. (2011) Utjecaj procesa certificiranja projektnih menadžera na razvitak projektnog
menadžmenta u Republici Hrvatskoj. Magistarski rad: Ekonomski fakultet Zagreb
Vlahov, R. D.; Mišić, S.; Radujković, M. (2016) The influence of cultural diversity on project
management competence development – the Mediterranean experience. Procedia – So-
cial and Behavioral Sciences, 226 (2016) 463–469.
Vrečko, I. & Barilović, Z. (2009). Osposobljenost projektnih menadžera u Republici
Hrvatskoj i Republici Sloveniji. In: Skledar, Nikola (ed.) Zbornik radova. Zaprešić:
Visoka škola za poslovanje i upravljanje, s pravom javnosti “B. A. Krčelić”, Zaprešić,
pp. 403–429.
Vrečko, I. (2007) Obvladovanje poslovnih in strateških kriz s projektnim managementom.
Projektna mreža Slovenije, 10 (3), 17–23.
79
IMPORTANCE OF STRATEGIC
PLANNING IN CULTURE: THE CASE
OF MUSIC EVENTS
E-mail: [email protected]
Abstract
Strategic planning has always been a historically important activity. In ancient
times, strategic planning was primarily a task taught of and accomplished by
military leaders. In modern times, more or less same principles apply for stra-
tegic planning done by managers in business context. It is always about thor-
ough environment analysis followed by goals setting, that would transfer the
organization from the current state of existence to the willing one in the future.
As such, strategic planning enables growth and development through gaining
competitive advantage. Recent literature provides insight into use of strategic
planning principles in managing culture events, too. However, the findings are
still scarce so with the wish to build on that body of knowledge, authors of this
paper formulated their initial research question as: What are the benefits of
strategic planning of culture events, primarily musical events. For the purpose
of theoretical framework we have done a relevant literature review. In the em-
pirical part of the paper we considered all major musical events in the city of
Osijek and have finally chosen „Osijek’s musical wednesday“ as a representative
event for our case study and SWOT analysis. As with many other case studies,
our findings have a limitied ability of generalization so future studies might re-
search a bigger sample of events. However, our findings could help both scholars
80
to gain the new perspective on the topic as well as practicioners running these
events, to be more efficient in ther work.
Key words: strategic planning, music events, SWOT
JEL Classification: O21
1. INTRODUCTION
.. Concept and historical development of strategy
Strategos is a word that originates from ancient Greece, and in translation
means a person with a high military rank, who leads the military in military
exhortations. Due to this, until mid-18th century, the word strategy referred to
the skill of organizing and conducting wars (Vrgoč; 2017).
Many of the factors have influenced the development and role of the strategy
throughout history, so in the 20th century, the word strategy is beginning to
be applied in the business context, too. In the 1960s, the strategic plan repre-
sented a business idea and a corporate identity. According to Skubik (1959),
everyday use of the word strategy refers to a kind of overall plan that a military
commander, football team or a corporation can apply when executing a specific
program. It also means dealing with something that can not be foreseen.
During 1970s the strategic plan underwent an analysis of market advan-
tages, while 1980s witnessed implementation of strategy and introduction of a
holistic approach to strategic planning. The stand of the 1980s illustrates G.C.
81
.. Culture policies
Culture policy integrates government actions, laws and programs that regu-
late and support (financially and otherwise) activities related to the culture and
creative sectors, such as music industry. It entails a large, heterogeneous set of
individuals and organizations engaged in the creation, presentation, distribu-
tion, and preservation of heritage, entertainment activities and/or culture prod-
ucts (Wyszomirski; 2002).
Ivana Šandrk Nukić Blanka Gigić Karl: IMPORTANCE OF STRATEGIC PLANNING IN CULTURE: THE CASE OF MUSIC EVENTS
82
and culture events are directed towards establishing a traditional ethnic culture
system.
France has developed a model of culture policy focused on image and pres-
tige in the world. Through culture programs, events and big projects they give
importance to culture tourism. Such a way of thinking achieved that their cul-
ture policy affects not only the neighboring countries, but also the culture policy
of the European Union as a whole. This model has been called a state prestige-
enlightenment model (Stojković & Milojević; 2018).
Despite of the nation or a particular model, governments’ culture policy ini-
tiatives generally have two aims: supporting excellence in the arts and broaden-
ing access to the arts by citizens. These aims are often trade-offs, as any increase
in emphasis on one policy objective typically has an adverse effect on the other
goal. We find that an important argument for necessity of strategic planning in
arts domain (Throsby; 2010).
83
In this paper we assume that the long-term systematic plan i.e. strategic ori-
entation of music events is needed.
The first reason for such a presumption is to achieve economic stability.
Namely, systematic planning and realization of the planned bring about con-
tinuity and create habits of the audience, which provides the musical events’
organizers the opportunity to collect more significant financial resources. Addi-
tionally, the planned activities of continuous music events are given the epithet
Ivana Šandrk Nukić Blanka Gigić Karl: IMPORTANCE OF STRATEGIC PLANNING IN CULTURE: THE CASE OF MUSIC EVENTS
of the festival or “season”, which becomes an integral part of the identity of the
culture scene. This raises their reputation from the aspect of financiers, both
public and private. Taken together, all of this provides a better financial posi-
tion, enabling the organizers to evaluate available opportunities and choose the
best alternative (Narayanan & Nando; 2007).
Another reason is to achieve the highest quality program. The quality of
the program and the established scene is important for the artists because it
increases the value of their personal references, which makes it easier to engage
the most prominent artists. Consequently, in the long run, i.e. from the strategic
perspective, organizers are in the position to more easily engage better quality
musicians.
Last but not least, the importance of strategic planning also stems from
avoiding the collision of culture events, in terms of reducing the likelihood of
simultaneous events holding, which would result in public dispersion.
84
event as it wants to be, why it exists at all, what it serves and how it intends to
achieve a defined vision. The mission is characteristic of every event, especially
if a particular manifestation is performed for a long time continuously.
After Stevena Langley’s definition (Dragičević Šešić & Stojković; 2013, 73-
74) mission of culture institutions integrates 4 basic goals:
1. „The fundamental philosophy of a culture event should be outlined in one
concise sentence or a short section.
2. Mission must be unique and recognizable.
3. Mission should be exciting and inspirational to the public.
4. Mission must demonstrate the fundamental aims of the event so that its
success and progress is measurable. „
After defining the mission of a culture manifestation, the desired goals are
set as more concrete statements about what wants to be achieved by the pro-
gram of the culture manifestation in the next three to five years. Of course, the
goals should focus on the most important effects, improvements and results
that are by their nature measurable.
The great interdependence of vision, mission and goals is one of the basic
characteristics of their interrelationships. This connection is the reason that re-
cently some authors observe the vision, mission and goals as a whole and refer
to it as to “strategic intent”. Hamel and Prahalad have used the term first (after
Buble; 2005) and defined it as a “heart” of the strategy, as a possible and an
animing dream for the future.
85
jskog do inteligentnog grada 2014 – 2020.). That strategy defines vision of the
city as follows: “The City of Osijek is a desirable place to work, live and enjoy a
landscaped green city where citizens can meet their educational, cultural, social
and sports needs” (Strategija razvoja grada Osijeka od industrijskog do inteli-
gentnog grada 2014 – 2020., 32). Strategy of Cultural Development of the City
of Osijek 2014.-2020. (p. 21) specifies that vision from a cultural point of view
and says: “Citizens of all ages create identity as artists and culture workers, or
as an interested audience ... Osijek is a safe and comfortable city to the extent
Ivana Šandrk Nukić Blanka Gigić Karl: IMPORTANCE OF STRATEGIC PLANNING IN CULTURE: THE CASE OF MUSIC EVENTS
of man, which also enables the realization of different, even very brave artistic,
intellectual and entrepreneurial potential “.
The mission that is intended to achieve such a vision states: “As far as culture
is concerned, the City of Osijek is responsible for the constant efforts and ad-
vancement of cultural-artistic creativity not only because of its citizens whose
culture is a part of urban content and not just because of the necessity of con-
tinuity in relation to binding cultural-historical heritage. The mission of the
City of Osijek is to develop and implement the cultural policy of promoting art,
creativity, innovation, artistic education and ensuring conditions for the devel-
opment of creative industries and public communications. It is also the task of
editing and suspending the cultural heritage and providing for its sustainable
use. The City of Osijek will encourage the networking and development of col-
laborative cultural relations between different social and cultural participants so
that culture becomes a significant developmental power of Osijek.” (Strategija
kulturnog razvitka, p. 22)
3. RESEARCH METHODOLOGY
After analyzing the relevant literature, for the empirical part of this case
study all the established music events of the city of Osijek were chosen: the
memorial “Franjo Krežma”, the memorial “Darko Lukić” and the concert cycle
“Osijek’s musical wednesday”. All these manifestations have the task of refining
the environment, developing the public, creating jobs related to culture and ul-
timately increasing the GDP.
The memorial “Franjo Krežma” has a representative, international character.
Performances are done by young talented violinists and the memorial has been
held biennally since 1968 in honor of the world famous violinist Franjo Krežmi.
The memorial includes multi-day program and has a national significance in the
86
promotion of Croatian cultural heritage. It Gathers top-class violinists from
high school age to graduated artists. The concept of the memorial consists of
three concert nights through which audience have the opportunity to hear the
best students from Croatia and abroad as well as one or two featured young
violinists in the final evening.
Memorial “Darko Lukic” has been held since 1977 in a memory of the great
pianist Darko Lukić. It gathers young talents from all over Croatia and Europe,
and brings a music-quality weekend with top artists. As the previous one, this
memorial works through three concert nights, too.
Both memorials are held every other year and are permanently sponsored by
the City of Osijek. Although all mentioned music events have an international
component and are important cultural manifestations, the third one, „Osijek’s
musical wednesday“, significantly differs from the memorials because it is the
concert cycle which functions continuously throughout the year, for the last six
years. Therefore, it was selected for a more detailed analysis in the remainder of
this paper.
Method of SWOT analysis was selected for a more detailed study of the
music event „Osijek’s musical wednesday“. With respect to the aims of this pa-
per, SWOT analysis is considered a suitable method of situational analysis of
cultural manifestations, because based on its results it is possible to generate
strategic guidelines of those manifestations.
SWOT analysis combines internal and external environmental analysis. In-
ternal analysis detects the strengths and weaknesses of the music manifestation
at the present moment, while opportunities and threats relate to external fac- INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
tors that affect the manifestation and which can not be treated in the short term
but should be exploited or removed. Experienced managers say that internal
strengths and weaknesses change slowly while external opportunities change
rapidly and threats typically remain (Antolović; 2009)
Previous studies identified by Dragojević and Dragičević Šešić (2008) sug-
gest that the internal analysis starts from different strengths and weaknesses,
such as the program, its quality, information and financial resources, the quality
of the organizational process, and the like, while external analysis suggests look-
ing at areas relevant to the music event and its operation, such as:
1. European frameworks of international cultural cooperation
87
2. Regional and local cultural policy
3. The state and degree of development of the area of art and culture in
which it operates
4. State of the cultural market (cultural consumption trends, cultural mod-
els, audiences)
5. Functioning and development of the media system
In order to avoid subjectivity as the most common disadvantage of this method,
Ivana Šandrk Nukić Blanka Gigić Karl: IMPORTANCE OF STRATEGIC PLANNING IN CULTURE: THE CASE OF MUSIC EVENTS
in the course of this case study the SWOT analysis has been conducted through a
series of individual interviews with the organizers and initiators of „Osijek’s musi-
cal wednesday“. Therefore its results and the proposed strategic guidelines suggest
the consensus of all relevant stakeholders in the Osijek music scene.
88
3. the concert activity should be expanded to other places in the region (co-
operation with the County).
4. Through the cycle of concerts, efforts should be made to foster the devel-
opment of continental cultural tourism in cooperation with tourist com-
munities of the City and the County.
89
J.J.Strossmayer University of Osijek conducted several interviews and surveys
which have revealed how well the citizens of Osijek were acquainted with the
existence of the concert cycle „Osijek’s musical wednesday“. That research was
carried out on the occasion of the artistic-cultural Colloquium on the 5th an-
niversary of the concert cycle „Osijek’s musical wednesday“. Its results showed
that citizens were not well informed about the existence of this music event but
at the same time showed interest in future concerts.
Ivana Šandrk Nukić Blanka Gigić Karl: IMPORTANCE OF STRATEGIC PLANNING IN CULTURE: THE CASE OF MUSIC EVENTS
Problems also appear regarding financing the cycle. Namely, „Osijek’s musi-
cal wednesday“ does not exist as a legal entity, so there is no possibility of direct
and autonomous funding through the Structural Funds of the European Union
so the cycle currently depends on financing from the local budget of the City,
the budget of the Ministry of Culture and several local sources of funding.
.. Strenghts
„Osijek’s musical wednesday“ is the only concert cycle in Slavonia and offers
a quality and diverse art program. It shows persistence and consistency of the
concept of work and continuity in concerts. Every year 14-16 concerts are held,
which are free for the audience.
Persistence in the development of artistic standards and criteria in the field
of music culture, largely based on a positive attitude towards cooperation with
new associates and partners.
A recognizable image of „Osijek’s musical wednesday“ as a positive factor
in public, social and cultural life of the city. However, this local component has
been transformed into international through collaboration with musicians from
abroad. Since 2012, there have been 180 musicians from 12 countries (Ukraine,
Australia, Japan, Russia, Azerbaijan, Israel, USA, Serbia, Slovenia, Bosnia and
Herzegovina, Czech Republic and Hungary). International cooperation is of
utmost importance culturally, touristically and financially.
.. Opportunities
By leveraging on their own strengths, opportunities are actually the basis for
defining strategic guidelines or opportunities that can be utilized in the future.
90
Certainly, there is the possibility of expanding activities, ie holding concerts
in other town of the Osijek-Baranja County and in the region. This opportunity
is achievable through even more intense cooperation at national and interna-
tional level.
Strengthening cooperation with state institutions in culture could result in
more intensive financial support from the Ministry of Culture. At the same
time, it is an opportunity to improve the financial position and find ways to use
sources of funding from various European programs.
The development of cultural tourism is of equal importance for „Osijek’s
musical wednesday“ as well as for the realization of the mission statement of
the city of Osijek.
.. Threats
Among other, the unstable economic situation in the country causes the un-
defined cultural policy. There is an underdeveloped culture of following cultural
events.
A small number of sponsors at the local level supports cultural activities. In
the absence of financial resources that would continuously fund the concerts it
is possible to stop the concert cycle for good.
Strategic guidelines must go in the direction of avoiding such threats.
91
solely on the local and central budget, but solutions could be sought through
various programs within the European Union, such as Creative Europe.
Creative Europe is such a program whose aim is to support the cultural and
audiovisual sector. It provides financial and logistical support to the optimal
development of the cultural and creative sector. As such, creative Europe is pri-
marily interested in providing support to initiatives that have a real impact on
the music sector, initiatives that promote new skills within the cultural sector
Ivana Šandrk Nukić Blanka Gigić Karl: IMPORTANCE OF STRATEGIC PLANNING IN CULTURE: THE CASE OF MUSIC EVENTS
itself, and initiatives that promote international co-operation within the sector.
Consequently, the Creative European Program for the period 2014-2020 was
created, a document that facilitates access to finance for the realization of proj-
ects and cultural events (European Comission).
As a second strategic guideline, a public development strategy is proposed,
which is based on a long-term, systematic engagement regardless of whether
it focuses on non-public animation, the development of a young audience, or
retaining the existing audience with a new cultural program. Organizers of
„Osijek’s musical wednesday“ are already trying to offer a more attractive and
popular program for all types of public in every new season, and such a public
development strategy should be continued in the future.
The strategy of education and transfer of knowledge is the third recommen-
dation, as it supports the development of the reputation and market position
of the music event. Given that the „Osijek’s musical wednesday“ is backed by
the Academy of Arts in Osijek, it would be possible to promote the artistic
and educational value of this event through the Association of European Con-
servatoires (AEC). The primary goal of AEC is music education and it brings
together more than 300 different cultural institutions in 55 countries. However,
as this goal is being pursued through the strengthening of communication be-
tween the music-educational institutions and the cultural-creative industry, this
is certainly a good course of long-term development for events such as „Osijek’s
musical wednesday“ (Association of European Conservatoires).
Given the SWOT analysis results, a decentralization of action is recom-
mended as another strategic guideline. It implies expanding activities to other
areas. „Osijek’s musical wednesday“ performs its concert program only in the
city of Osijek at the moment. In respect of its continuity and artistic quality, the
desire and the need to have concerts elsewhere in the Osijek Baranya county
emerged. This would enable the wider audience to attend the organized con-
92
certs. In this way, this music event would be popularized, especially if decen-
tralization would be followed by intensified marketing activities. In addition,
decentralization contributes to the realization of other goals, too, especially the
strenghtening of cultural tourism.
As far as cultural tourism is concerned, the activities that unite the areas of
tourism and culture in fact present an inter-sectoral connection. Such inter-
disciplinary activities normally generate a significant developmental impulse.
Therefore, inter-sectoral linkage strategy is also recommended. Possibly, this
could be carried out through the cooperation of „Osijek’s musical wednesday“
and the Tourist Bord.
„Osijek’s musical wednesday“ became the brand of the city of Osijek in the
area of music culture. The concerts are very well attended, and even the lack of
a specialized concert venue generated the added value: since concerts are held
at different locations in the city, certain spaces that have not been intended and
initially used for concert purposes are being popularized. Therefore, final rec-
ommendation regarding strategic guidelines is certainly the strategy of develop-
ing recognizability and public visibility.
6. CONCLUSION
Musical events are a valuable part of the cultural offer, meaning much to the
public, to the performing musicians, but also to all the inhabitants of a city and
region, as their purpose is to gather talented artists and thus promote the city
93
participates in certain manifestations, if it sponsors them and enables cultural
events. This tasks is important because the influence of culture on the economy
is evident, while funds for such events are often hardly available or their raising
is uncertain. Given that the effect of a one-time event is small, and a long-term
periodic recurrence needs a stable financial structure, it is necessary to specify
the financial structure and ensure partnerships for each project.
Although support from local government structures is a valuable resource,
Ivana Šandrk Nukić Blanka Gigić Karl: IMPORTANCE OF STRATEGIC PLANNING IN CULTURE: THE CASE OF MUSIC EVENTS
new trends in managing events in culture are more similar to project manage-
ment postulates. In the context of funding, this means providing the financial
resources necessary for the realization of the project / manifestation for each
project separately, arguing the justification for using the funds for the very pur-
pose. At the same time, relying on the budget as the sole source of funding is no
longer sustainable, but with the demonstration of the justification of the event,
financial support should be sought on various sides such as international, state
or EU funds, private companies, various agencies, crowd-founding and the like.
Even performing additional activities, such as renting public space, can serve as
a source of funding for individual projects.
Of course, even though in real life the management of music events is mostly
limited to ensuring financial sustainability, it should not be forgotten that music
manifestations nevertheless belong to the world of art whose value is not only
financial but, above all, spiritual. Art and music enrich everyday life by pointing
us to others, to beauty, to nobility. That is why it is essential for our society to
ensure music events where young virtuosos show their talents, and the audience
rightly expects quality programs.
The results of the case study of „Osijek’s musical wednesday“ conducted by
SWOT analysis and presented in this paper suggest that achieving simultane-
ous financial and artistic prosperity of music manifestations are the main ben-
efits of strategic planning of such events, and in the same time the response to
the initial research question of this study.
94
LITERATURE
Antolović, J. (2009). Menadžment u kulturi, Hadrian, ISBN: 978-953-55288-2-1, Zagreb
Association of European Conservatoires, https://www.aec-music.eu/
Pristup: (27.03.2018.)
Božičević, J. (2000.) Strategija i taktika, Glasnik Akademije tehničkih znanosti 7,
Dostupno na: http://www.hatz.hr/hrv/glasnik/0154.htm
Pristup (30.03.2018.)
Buble, M. & Cingula, M. & Dujanić, M. (2005). Strateški menadžment, Sinergija
nakladništvo, ISBN: 953-6895-23-4, Zagreb
Dragojević, S. & Dragičević Šešić, M (2008). Menadžment umjetnosti u turbulentnim vre-
menima, Naklada Jesenski i Turk, ISBN: 978-953-222-282-1, Zagreb
Dragojević, S. & Žiljak, T. (2008). Organizacijski razvoj i strateško planiranje u kulturi,
Pučko otvoreno učilište Zagreb, ISBN: 978-953-254-013-0, Zagreb
Dragićević Šešić, M. & Stojković, B. (2013). Kultura: menadžment, animacija, marketing,
Kulturno informativni centar, ISBN: ISBN 978-953-7356-40-8, Zagreb
European Comission, https://ec.europa.eu/programmes/creative-europe/news/20170602-
music-moves-europe-8-selected-start-ups-midem-2017_en
Pristup: (27.03.2018.)
Narayanan, M.P. & Nando, V.K. (2007). Financije za strateško odlučivanje, Mate, ISBN:
978-953-246-022-3, Zagreb
Schulz Vugrin, Z. & Forčić, G. (2010). Strateško planiranje: put ka održivosti neprofitnih
organizacija, Udruga za razvoj civilnog društva SMART, ISBN: 978-953-7447-10-6,
Rijeka
Stacey, R. D. (1997). Strateški menadžment i organizacijska dinamika, Mate, ISBN: 978-
953-6070-35-9 Zagreb
Stojković, B. & Milojević, A. (2018) Uvodno predavanje u kulturnu politiku; http://prob-
ni.fpn.bg.ac.rs/studije-ii-i-iii-stepena/master-studije/master-akademske-studije-
kulturologije-master-teorije-kulture-i-studija-roda/kulturna-politika/
95
Vrdoljak Raguž, I. & Jelenc, L. & Podrug, N. (2013). Izvor konkurentne prednosti u XXI
.stoljeću, Sveučilište u Dubrovniku, ISBN: 978-953-7153-26-7, Dubrovnik
Vrgoč, D. (2017). Strategos – vojskovođa, general, strateg, Strategos 1, str. 121-124, ISSN:
2459-8771,
Dostupno na: https://strategos.morh.hr/wp-content/uploads/2017/03/Dalibor-
Vrgoc-Jezicni-savjetnik.pdf
Pristup: (30.03.2018.)
Wyszomirski, M. (2002). Arts and Culture. In: The State of Nonprofit America. Lester M.
Salamon (ed.). Washington D.C.: Brookings University Press
Ivana Šandrk Nukić Blanka Gigić Karl: IMPORTANCE OF STRATEGIC PLANNING IN CULTURE: THE CASE OF MUSIC EVENTS
96
TOURISTS’ PERCEPTIONS OF
DESTINATIONS EMPIRICAL
STUDY OF DESTINATION POREČ
Abstract
Tourism is a very important industry in Croatia and globally, and as is indi-
cated in the WTTC report for 2017, travel and tourism is a key sector for
economic development and job creation throughout the world. Tourist destina- INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
tions are invited to take account of the social, cultural, economic and environ-
mental challenges as important aspects of sustainable tourism development. In
order to measure the impact of tourism activity in relation to sustainability, the
European Commission has developed a “European Tourism Indicators Sys-
tem” (ETIS), as a management and information tool and monitoring system.
The aim of the paper was to evaluate how tourists’ perceptions of a destina-
tion are used as a management tool for the planning of sustainable tourism at
the destination level. The instrument of the research was a survey developed
according to the Visitor survey suggested by ETIS (2016), with additional
questions regarding the satisfaction level of different aspects of destinations.
The survey was carried out on the beaches in the City of Poreč, from July until
97
September 2017. The surveys were offered to the respondents in the English,
German, Italian, Russian, Slovenian and Croatian languages and in total 510
questionnaires were collected from beach users from 27 countries. The research
was performed within the Interreg Mediterranean MITOMED+ project and
the results can be useful as an information tool for future planning of sustain-
Kristina Brščić Tina Šugar Drago Ružić: TOURISTS’ PERCEPTIONS OF DESTINATIONS – EMPIRICAL STUDY OF DESTINATION POREČ
1. INTRODUCTION
Tourism in Croatia is the main fast growing industry and in 2017 achieved
the highest results of tourist arrivals and overnights. The direct contribution of
travel and tourism to GDP in 2017 is one of the highest in Europe. Given the
above, it is extremely important to develop sustainable tourism in the future
to protect the resources, to ensure the well-being of the local population and a
high level of tourist satisfaction with the destination.
On the official website of the Ministry of Tourism is mentioned, referring to
the Croatian information system for tourism e-Visitor, that from January to the
end of December in 2017 there were 18.5 million tourist arrivals and 102 mil-
lion tourist overnight stays and that most of the overnight stays were realised
in Istria County (28 million overnight stays). The largest number of overnight
stays were made by tourists from Germany (20.7 million overnights), Slovenia
(10.1 million overnights) and Austria (7.6 million overnight stays). According
to the number of overnight stays the top destinations in Croatia are Dubrovnik,
Rovinj, Poreč, Medulin, and Umag.
Since 2017 was the International Year of Sustainable Tourism for Develop-
ment sustainability in tourism has been in focus and especially issues related
to fast-growing tourism destinations around the world. WTTC (2018) points
out that according to the number of international visitors compared to the local
population, which is one of the indicators of the impact tourism may have on the
destination, Croatia was in the second place in 2016 (3.3 to 1). In the first place
is Iceland (5.1 to 1) and in the third place is Montenegro (2.6 to 1) (WTTC,
2018). According to the indicator of tourism intensity, the most popular tour-
98
ist destinations in the Mediterranean in 2016 were Malta, Croatia, and Cyprus
(EUROSTAT, 2016). It is known that as tourist arrivals grow, destinations can
be faced with social and environmental problems. Also, these can damage tour-
ist satisfaction, which is not in the interests of the destination. Tourist satisfac-
tion is recognized as one of the main indicators in the destination management
and overall satisfaction with the destination is one of the suggested indicators
by the European Commission in the indicators list “European Tourism Indica-
tors System for sustainable management of destination” (ETIS).
2. METHODOLOGY
The aim of the research was to contribute to the measurement of social indi-
cators relating to tourist perceptions of the destination Poreč in order to facili-
tate the management of the destination in the direction of sustainable tourism.
Considering the satisfaction with the destination and preferences of tourists,
the data can be also used as a tool to improve certain aspects of the destination
for the upcoming seasons. Due to the available information at regional and na-
tional levels, they are of little help in planning future activity in a tourism des-
tination. Empirical research will help to test the usefulness of the indicators of
tourist satisfaction at the local level in the planning of the tourism destination.
The research was carried out within the project Interreg Mediterranean MI-
TOMED+ (Models of Integrated Tourism in the MEDiterranean Plus) and
the main objective of the project is to enhance sustainability and responsibility
in Maritime and Coastal tourism.
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
As secondary data the official data of tourist arrivals and overnight stays in
the period from 2007 to 2017 for destination Poreč was used, which is pub-
lished on the website of the Istrian County Tourist Board. The data from the e-
Visitor information system we requested directly via e-mail and we used official
data from Eurostat and the Ministry of Tourism.
The survey was created according to the questionnaire “Visitor survey”, sug-
gested by the “European Tourism Indicators System” (2016). The survey was
conducted on the beaches in the City of Poreč by interviewers (students) who
were properly educated and controlled in the field. The surveys were offered to
the respondents in the English, German, Italian, Russian, Slovenian and Cro-
atian languages. The survey was carried out from July until September 2017
99
and, in total, 510 questionnaires were collected from tourists on the beach. The
questions were the closed-ended type with the possibility to mark one or more
answers. The questions were related to general information about their journey
and the main reasons and purpose of their visit to the destination. To assess the
satisfaction of certain aspects of the destination and overall satisfaction with the
Kristina Brščić Tina Šugar Drago Ružić: TOURISTS’ PERCEPTIONS OF DESTINATIONS – EMPIRICAL STUDY OF DESTINATION POREČ
destination, a 5- point Likert scale was used where grade 1 signified completely
dissatisfied, and grade 5 signified completely satisfied with the aspects. The data
were analyzed using SPSS (22) and the results were presented with descrip-
tive statistics and Principal Component Analysis (PCA) in order to explain the
difference in the level of satisfaction according to the different attributes of the
destination.
. LITERATURE REVIEW
The World Tourism Organisation UNWTO defined sustainable tourism
as: “Tourism that takes full account of its current and future economic, social
and environmental impacts, addressing the needs of visitors, the industry, the
environment and host communities” (UNWTO, 2005). As such, sustainable
tourism is highlighted to be the best way for the long-term sustainability and
preservation of natural and human resources (Bramwell & Lane, 1993). In the
last 30 years, there have been researchers dealing with the topic of sustainable
tourism (Zolfani et al., 2015) and lots of them emphasized the importance of
using sustainable tourism indicators as a tool for sustainable tourism (Miller,
2001; Tanguay et al., 2011). The reason for this is to have an evidence base
on which it can make informed decisions about the future management of the
destination. Also, by using the indicators, everybody in this set of information
is informed about the need for sustainable tourism and indirectly its influence
on the behavior towards issues of sustainable tourism. It is known that the tour-
ism industry needs to encourage positive changes in tourist behavior towards
sustainable and responsible tourism through education and the use of different
tools and strategies (Budeanu, 2007). Also, different stakeholders in the tour-
ism sector could influence tourist behavior towards sustainable tourism (Bram-
well et al., 2008).
In the paper was analyzed tourist perceptions and satisfaction as a social
indicator and as a tool in helping the destination with managing sustainable
tourism. There is extensive literature about consumer satisfaction and tourist
100
satisfaction and there are many different approaches to examining satisfaction
in tourism; for instance: “satisfied with…; pleased with…; delighted about …;
quality of the stay was…; positive to return in the future…; enjoyed myself;
feel good about…; the choice to attend was a wise one; made the correct deci-
sion; exactly what I needed;…” (Dolincar et al., 2013). In practice stakeholders
in tourism use the different tools for measurement of satisfaction levels. For
instance, some web platforms offer the possibilities to tourists to evaluate their
stay in the accommodation and destination by leaving their comments to the fu-
ture tourist and to rate their stay. Generally, tourism satisfaction as an indicator
is used very often and in many different situations. It is well known that tourism
satisfaction is important for destinations as well as consumer satisfaction as a
business goal because it is assumed that satisfied customers would buy more.
Different elements in the destinations can be involved in the formulation of
tourist satisfaction and, since attribute satisfaction affects destination loyalty,
directly and indirectly, its measurements and improvement are critical to des-
tination managers (Chia & Qub, 2008). It is evident that tourist satisfaction is
important and Buhalis (2000) emphasized that “delight visitors by maximizing
their satisfaction” needs to be in the strategic management and marketing objec-
tives of destinations.
. TOURISM IN POREČ
The city of Poreč is one of the most popular destinations in Istria County
and one of the strongest tourist centers in Croatia. Poreč is situated on the west
coast of the Istrian Peninsula. The urban area of Poreč extends over 139 km2 INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
of surface and has 16,696 inhabitants. The main economic branch is tourism,
considering that Poreč has the widest range of tourist offers for different target
groups of tourists. Due to its favourable natural and cultural tourist attractions
which include geographic position, the number of beaches and the indented
coastline, the favourable climate, number of cultural and historic monuments
and cultural events, good gastronomic offer, hospitality of hosts and the large
number of accommodation capacities, makes Poreč one of the most chosen and
visited tourist destinations in Istria County.
According to the official data of the Croatian information system for tour-
ism e-Visitor, the average duration of tourist stays in Poreč, in 2017, was 6 days.
The number of nights in commercial and non-commercial accommodation for
101
2017 was 3,392,400 (3,199,276 in commercial accommodation and 193,124
in non-commercial accommodation) and the number of tourist arrivals was
567,062. The occupancy rate for commercial accommodation in Poreč, for the
year 2017, was 31%, and the highest occupancy rates were in August (94.4%),
July (90.3%) and June (61.3%) which is expected considering the peak of the
Kristina Brščić Tina Šugar Drago Ružić: TOURISTS’ PERCEPTIONS OF DESTINATIONS – EMPIRICAL STUDY OF DESTINATION POREČ
summer season.
The largest number of overnight stays were made by tourists from Germany
(1,012,900), Austria (546,155), Slovenia (315,351), Italy (269,613), United
Kingdom (171,847), Netherlands (141,583), Russia (139,794) and Croatia
(124,687).
The number of tourist arrivals in the destination Poreč increased from the
year 2007 until 2017 and in 2017 it registered 567,062 arrivals. As the number
of tourist arrivals increases, there is also an increase in the number of overnight
stays at the destination. In the year 2017, it registered 3,392,400 tourist over-
night stays in destination Poreč, which is an increase of 718,439 overnights,
compared to the year 2007. (Figure 1.)
Figure 1. Tourist arrivals and overnights in Poreč from 2007 until 2017
102
5. RESULTS
.. CHARACTERISTICS OF THE SAMPLE
In the survey, most respondents came from Germany (31.76%) followed
by respondents from Croatia (13. 92%), Italy (13.33%), Austria (12.55%) and
others as mentioned in table 1. In total, the opinions of respondents from 27
countries were collected.
In the sample were more women (56.19%) than men (43.81%). The sample
had representatives from all age groups and most of the respondents were from
the group of 25 - 54 years old (51.29%). According to the type of residence,
most of the respondents were tourists (82.05%) and most of them stayed in
private accommodation (43.84%) and hotels (37.15%) (Table 2.).
103
Table 2. Characteristics of respondents
Gender (n=509) Share (%) Number
female 56.19 286
male 43.81 223
Age group (507)
Kristina Brščić Tina Šugar Drago Ružić: TOURISTS’ PERCEPTIONS OF DESTINATIONS – EMPIRICAL STUDY OF DESTINATION POREČ
104
.. WAYS OF OBTAINING INFORMATION ABOUT THE
DESTINATION
On the question about how they found out about the destination most of the
respondents answered that they had previously visited the destination (48.71%);
the second most mentioned answer was from friends or family (35.79%) and in
the third place was the Internet (29.22%). Other offered answers were tour-
ist brochures/flyers (4.37%), newspapers/magazines (3.18%), social network
(2.39%) and tourist information centers (1.39%). On the question about the
purpose of their visit to the destination, 90.98% of the respondents answered
that the purpose of their visit was a holiday, free time and recreation. Other
answers were: visiting friends and family (7.06%), shopping (4.9%), health
and medical care (1.57%), education and training (1.18%) or something else
(5.10%).
105
Table 3. The main features for which respondents had chosen to visit the des-
tination (n=509)1
Value Share (%) Number
Beach 67.19 342
Clean sea 60.71 309
Kristina Brščić Tina Šugar Drago Ružić: TOURISTS’ PERCEPTIONS OF DESTINATIONS – EMPIRICAL STUDY OF DESTINATION POREČ
As can be seen from table 3, the main features for visiting the destination
were the beach, clean sea, nature and peace and quietly followed by the hospital-
ity of the host, accommodation quality and accessibility.
106
From table 4 it can be seen that on average all the scores are very high and
that overall satisfaction with the destination has the best score compared to
the other features of the destination. The second best scores of the destination
are destination cleanliness, local cuisine and accommodation quality. The worst
scores, but also in the range of satisfied, were facilities for children or the elderly,
nightlife and cultural events.
In order to further explore the dimensions of tourism satisfaction, PCA was
conducted with 11 variables considering the different level of tourist satisfac-
tion in the destination. From the calculation was excluded the variable “Infor-
mation available at the destination” because the obtained results showed that it
could not be explained by the obtained components. In the final factorial design
10 variables were included (Table 5).
Two components (KMO=0.894, Bartlett’s Test χ2 sig. 0.000, satisfactory
reliabilities, Cronbach alpha >0.877) emerged with eigenvalues greater than 1,
satisfactorily explaining 60.25% of total variance.
107
From the results, it is possible to see that the PCA has shown that the tour-
ist satisfaction with the destination can be explained through two components.
The first component, which can be described as a destination offering, has the
following elements: sports activities, facilities for children or the elderly, tour-
ist attractions, nightlife and cultural events. The second component can be de-
Kristina Brščić Tina Šugar Drago Ružić: TOURISTS’ PERCEPTIONS OF DESTINATIONS – EMPIRICAL STUDY OF DESTINATION POREČ
6. CONCLUSION
In the presented research most respondents came from Germany, Croa-
tia, Italy, Austria, Great Britain and Slovenia. A large number of respondents
had already visited the destination or had been informed about the destina-
tion through their friends / family or the Internet and most of the respondents
stayed at the destination for several days. This is very good for the research
because tourists already knew the destination. The most common way to travel
to Poreč destination is by car and car is the most often used method of trans-
portation at the destination. The destination was chosen by tourists as their va-
cation destination mostly due to the following features: beach, clean sea, nature
108
and landscape, peace and quiet. Most respondents noticed initiatives focused
on sustainability at the destination and it can be assumed that they approved of
them. One of the indicators of that was overall satisfaction with the destination
which is the best-rated attribute from all the offered attributes to rate tourist
satisfaction.
The question is if destinations used only the overall satisfaction level as an
indicator, then maybe they will not have enough information for the improve-
ments in the future planning of the destination. Empirical research has shown
that the respondents in Poreč destinations rated their overall satisfaction with
the highest grades. This was to be expected but all other elements of the desti-
nation were, in principle, evaluated with lower grades. It can be concluded that
for destination planning it is useful to divide questions about satisfaction into
different questions regarding different strategic objectives of the destination. In
that case, this indicator is very useful. Also, it is important to measure tourism
satisfaction at the destination level because, if it is used at regional and national
levels, then the results are dispersed and in these cases for destinations, tourist
satisfaction as an indicator is a less useful tool for future planning.
By conducting the PCA it is evident that offered attributes for measuring
tourist satisfaction with the destination can be explained through two com-
ponents. The first component, “destination offer”, has the following elements:
sports activities, facilities for children or the elderly, tourist attractions, night-
life and cultural events. The second component, “destination quality”, consists
of the elements: destination cleanliness, local cuisine, overall satisfaction with
109
of the destination. As the results show, tourists are generally satisfied with the
destination Poreč and, in order to obtain a high level of tourist satisfaction in the
future, destinations have to take care of the social, cultural, economic and envi-
ronmental challenges as important aspects of sustainable tourism development.
Kristina Brščić Tina Šugar Drago Ružić: TOURISTS’ PERCEPTIONS OF DESTINATIONS – EMPIRICAL STUDY OF DESTINATION POREČ
FUNDING
The research was carried out as part of the project Interreg Mediterranean
“Models of Integrated Tourism in the MEDiterranean Plus” - MITOMED+.
REFERENCES
Bramwell B. & Lane B. (1993). Sustainable Tourism: An Evolving Global Approach. Journal
of Sustainable Tourism, 1(1), p. 1-5.
Bramwell B., Lane B., McCabe S., Mosedale J. & Scarles C. (2008) Research Perspectives on
Responsible Tourism, Journal of Sustainable Tourism, 16(3), p. 253-257.
Budeanu A. (2007). Sustainable tourist behaviour – a discussion of opportunities for change,
International Journal of Consumer Studies, 31, p. 499-508.
Buhalis D. (2000). Marketing the competitive destination of the future, Tourism Manage-
ment, 21(1) p. 97-116
Chia, C. G. Q., Qub H. (2008). Examining the structural relationships of destination image,
tourist satisfaction and destination loyalty: An integrated approach. Tourism Manage-
ment 29, 624–636
Dolnicar, S., Coltman, T., Sharma, R. (2013). Do satisfied tourists really intend to come
back? Three concerns with empirical studies of the link between satisfaction and be-
havioural intention. Journal of Travel Research, 54 (2), p. 152-178
ETIS Surveys (2016). Sample Visitor Survey [available at file:///C:/Users/tina/Down-
loads/ETIS%20Surveys%2019.2.2016.pdf access March 28, 2018]
EUROSTAT (2016). Tourism statistics [available at http://ec.europa.eu/eurostat/statis-
tics-explained/index.php?title=Tourism_statistics access April 5, 2018]
e-Visitor, Information system for check-in and check-out of tourists (2018) [accessed Febru-
ary 16, 2018]
Miller, G. (2001). The development of indicators for sustainable tourism: Results of a Del-
phi survey of tourism researchers. Tourism Management, 22, p. 351-362.
Ministry of Tourism (MT) 2018 (2017) [available at http://www.mint.hr/vijesti/rekordna-
2017-turisticka-godina-ostvareno-102-milijuna-nocenja/11589 access April 9, 2018]
Tanguay G. A., Rajanonson J. & Therrien M. C. (2012). Sustainable tourism indicators:
selection criteria for policy implementation and scientific recognition. Journal of Sus-
tainable Tourism, 21, p. 862-879.
110
The European Tourism Indicator System, ETIS toolkit for sustainable destination man-
agement (2016) [available at file:///C:/Users/tina/Downloads/ETIS%20toolkit%20
2016%20150316%20(2).pdf access March 28, 2018]
UNWTO, Making Tourism More Sustainable - A Guide for Policy Makers, UNEP and
UNWTO, 2005, p.11-12 [available at http://sdt.unwto.org/content/about-us-5, ac-
cess April 13, 2018]
Official tourist portal of Istria [available at http://www.istra.hr/hr/pr/statistika/arhiv, ac-
cessed March 28, 2018]
Zolfani S. H., Sedaghat M., Maknoon R. & Zavadskas E. K. (2015). Sustainable tourism:
a comprehensive literature review on frameworks and applications. Economic Research,
28(1), p. 1-30.
World Travel & Tourism Council (WTTC) (2018). Travel & Tourism Global Economic
Impact & Issues 2017, [available at: www.wttc.org, accessed February 13, 2018]
111
THE ROLES OF LEADERSHIP
STYLES AND ENTREPRENEURIAL
ORIENTATION IN
Igor Pureta • Tanja Pureta: THE ROLES OF LEADERSHIP STYLES AND ENTREPRENEURIAL ORIENTATION IN DISTINGUISHING MORE FROM ...
Abstract
112
specific characteristics that the organization should nurture if it wants to be suc-
cessful and that less successful organizations can be distinguished from the ones
that are more successful according to leadership style they use.
Key words: competitive advantage, entrepreneurship orientation, organiza-
tional performance, leadership style
JEL Classification: L26, L29
INTRODUCTION
In the contemporary, increasingly more open and integrated global econo-
my, competitiveness is central to economic strategies, of both developed and
developing countries. Competitiveness based on innovations, relation of price
and performances, reduced product returns and creative destruction of existing
competencies characterises the intensive and dynamic markets of today (San-
tora et al., 1999, Venkataraman, 1997).
The OECD (2011) defines competitiveness as a measure of the country’s
ability to, under market conditions, produce goods and services that pass the
test of the international market, while maintaining and increasing the long-
term real income of the population. On the other hand, Krugman (1996) ad-
vocates an extreme view that the concept of competitiveness is not applicable to
the countries, but only to the enterprises.
In terms of the enterprise, the market share is most often used as an indica-
tor of competitiveness at a particular point of time or its change over time. Oth-
er significant indicators include profitability, sales trends on the domestic and INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
international markets and the ability of the enterprise for a long-term sustain-
ability and development under the conditions of growing global competition.
Leko-Šimić (1999) states that the international competitiveness of a country
is also a reflection of the ability of its economic entities to successfully engage
in the above-mentioned global processes. Therefore, we can say that in creat-
ing a productive and competitive economy, public and private sectors are inter-
connected. The country is in charge of establishing a good fiscal and monetary
policy, an efficient legal system and stable democratic institutions necessary for
a successful economy. At the microeconomic level of the economy (Bezić, 2008,
p. 31), wealth arises from the quality of the microeconomic business environ-
ment and operational practices and strategies at the enterprise level. Although
113
the public and private sectors differ in their basic roles, they are interconnected
in creating a productive and competitive business. Therefore, competitiveness is
a multidimensional phenomenon - necessarily present at the level of the enter-
prise, sector and country as a whole.
Igor Pureta • Tanja Pureta: THE ROLES OF LEADERSHIP STYLES AND ENTREPRENEURIAL ORIENTATION IN DISTINGUISHING MORE FROM ...
114
who are able to inspire us with their ideas, i.e. the ones who are able to, thanks
to their attractive vision, lead us to the right direction, awaken in us passion and
other powerful constructive emotions such as love, optimism, and hope as well
as direct the entire group’s energy towards achieving a common goal.
Leaders can positively inspire organisational creativity and entrepreneurial
orientation, which are prerequisites for achieving desired results. When mem-
bers of the organisation feel secure, or when they are approached with confi-
dence, the leader has the ability to stimulate their best characteristics and mo-
tivation for the devoted accomplishment of goals (Schein, 1993). Accordingly,
many authors argue that successful managers should know how to recognise
and efficiently take into account three interdependent activities that need to be
continually reviewed for the organisation to succeed (Veljić, 2011). These are:
• determining the direction of the organisation,
• designing the organisation and
• encouraging culture dedicated to excellence and ethically correct behaviour.
The interdependence of these three activities is obvious. Most failures in
today’s organisations can be attributed to the fact that the aforementioned three
activities are not viewed equally. Successful leaders will probably create such an
organisational culture that will enable rapid adaptation of the organisation to
its ever-changing environment. Such a culture requires individuals in the organ-
isation to be innovative, i.e. to constantly look for ways to improve their work as
well as positive trends from the outside. (Romero, 2012).
115
create those which will enable a unique way of organisation’s functioning based on
creativity, innovation and a whole new set of abilities (Meredith, 2011).
Igor Pureta • Tanja Pureta: THE ROLES OF LEADERSHIP STYLES AND ENTREPRENEURIAL ORIENTATION IN DISTINGUISHING MORE FROM ...
LEADERSHIP STYLES
Leadership style consists of a series of aligned activities and procedures that
make a specific, distinctive way to lead a group. Different leaders implement dif-
ferent leadership styles in line with their personality, education, but also nature,
i.e. tasks characteristics of the group they lead, so each of them has their own,
dominant leadership style. Additionally, the most successful leaders use a wide
range of leadership styles as needed, depending on the characteristics of the
specific situation and the competence level of the people they manage.
In the mid-seventies of the last century, it was noticed that many organisa-
tions have no response to the problems arising from the implementation of rad-
ical changes that should have been achieved in the short term. It was shown that
the implementation of such changes has only been successfully carried out in
organisations under the leadership of highly capable leaders. Leaders are change
agents. Their success is measured by the way they strategically implement vision
and mission.
Based on these findings, a whole series of research has been conducted with
the aim to determine which leadership styles exist and how they affect the be-
haviour of people in the organisation and consequently organisational effect.
Taking into account all the leadership styles known so far, Bass and Avolio
(1999) united them into a unique model of Full Range Leadership Develop-
ment. In it, based on the results of the research, they describe each of them in
details, in terms of characteristics used to influence people and the ability to
achieve the desired organisational effect.
In that model, the most significant ability to achieve positive influence on
people and organisational impact have transformational leadership styles.
Transformational leaders have a vision which they personally live, the ability
to inspire followers to constantly outdo themselves, i.e. they can encourage en-
trepreneurial orientation in them. In addition, they understand the need for
change, expansion, or complete transformation of organisational factors, in or-
der to lead the organisation towards a vision that others may sometimes not
even be able to imagine.
116
The transformational leadership style is related to the way a leader connects
to the members of his team, creating a relationship that increases the level of
motivation and morality both in the leader and team members. The leader takes
care of the needs and motivations of the team members and tries to help them
achieve their goals. The transformational leader has the ability to stimulate self-
actualisation, i.e., motivate the reporting members of the group to help them
to achieve more than what is expected of them. To achieve the desired goal,
transformational leaders constantly use their personal vision and energy. This
leadership style is represented by the following scales (Avolio and Bass, 2004):
• Idealised impact - attributed
• Idealised influence - behaviour
• Inspirational motivation
• Intellectual stimulation
• Individualised care
Leaders who apply transformational leadership styles to the employees in the
organisation act in a way which encourages them to achieve full potential and
more than what is expected of them. Thus, they become motivated to overcome
their own interests for the good of their organisation, because they understand
that the welfare of the organisation is also a prerequisite for their long-term
benefit. By applying this approach to leadership, an atmosphere of cooperation
is created in the organisations. This is extremely desirable because in such a way
the organisation, through engaging employees in all major activities, achieves its
maximum efficiency.
Burns (1978), in addition to the transformational form of leadership be- INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
haviour, also points out the transactional form, which found its place in the
Full Range Leadership Development model. Transactional leadership style is
based on a set of different leadership theories, which focus on the interchange
between leaders and reports. Transactional leadership is reflected in tasks of a
leader who decides what the reports should do so that the goals of the organisa-
tion could be achieved and in the allocation of these tasks to the reports and,
encouragement and motivation of the reports to reach the goals set.
By paraphrasing Burnes (1978), Bass (1985a, 1985b) described transaction-
al leaders as the ones who:
117
• recognise what the subordinates want to get from their work and leaders
ensure they get it if they deserve it with respect to their efficiency
• exchange rewards and promises of rewards for the appropriate levels of
effort
Igor Pureta • Tanja Pureta: THE ROLES OF LEADERSHIP STYLES AND ENTREPRENEURIAL ORIENTATION IN DISTINGUISHING MORE FROM ...
• respond to the wishes and needs of the reports as long as they complete
their tasks.
The final revision of the Full Range Leadership Development model (Bass
and Avolio, 2004) speaks of two transactional styles that also make its scale:
• Conditional rewarding
• Active management by exceptions
Passive/avoidant leadership style, according to the latest revision of the Full
Range Leadership Development model (Avolio and Bass, 2004), was intro-
duced as the third leadership style, which is the most passive out of all in the
model. According to the definition (Avolio and Bass, 2004), transformational
styles are more active and more efficient than transactional, and transactional
are more active than passive/avoidant leadership style. In the model of the full
range of leadership passive/avoidant management represents the so-called non-
leadership factor and consists of a scale:
• Passive leadership by exceptions and
• Laissez-faire, or the complete absence of leadership
In modern organisations, it is certainly better to use transformational than
transactional leadership, because as described previously, transformational lead-
ership results in higher efficiency (Bass and Avolio, 1994). Transactional leader-
ship results in expected outcomes and the outcomes of transformational lead-
ership exceed the expected outcomes. The leader who uses transactional lead-
ership in modern organisations can only slightly encourage people to achieve
organisational goals because their engagement will depend on the reward they
have been promised to get if they achieve their goals. The transformational
leader has the ability to encourage people to understand that the biggest reward
lays in the constant pursuit of achieving goals which are meaningful for all em-
ployees and which accomplish a mission in which everyone wants to participate.
With such an attitude, employees are eager to accept any changes because they
understand that they need to constantly adapt to new market demands to con-
stantly achieve the desired results.
118
This leadership style matches contemporary working groups that want to be
motivated and empowered for success in times of uncertainty. Transformational
leadership is a process that changes people and includes continuous work on
emotions, values, ethics, norms and long-term goals, as well as an assessment
of the reports’ motives to meet their specific needs and to treat them as the
unique human beings, what they are indeed. Transformational leadership is a
process that describes the very essence of charismatic and visionary leadership
(Northouse, 2010).
Effective leadership is seen as a source of development of governance and sus-
tainable competitive advantage for improving organisational performance (Avo-
lio, 1999; Lado et al., 1992; Rowe, 2001). Zhu et al. (2005) indicate that visionary
leadership will result in a high level of connectivity, commitment, confidence, mo-
tivation, and thus in the performance in changing organisational environments.
Buble (2010) argues that effective leadership of a growing company requires pos-
session of skills such as self-awareness, teamwork, the ability to motivate others,
empower and delegate, stimulate communication, and lead and manage positive
changes. Each of these skills requires a combination of theory and practical action,
as well as a well-designed action plan that helps the organisation react quickly but
thoughtfully in the environment of rapid growth and uncertainty.
Mehra et al. (2006) argue that it is necessary to focus on improving leader-
ship effectiveness in situations when organisations are looking for ways to be
better than others. Team leaders are believed to play a key role in shaping collec-
tive norms, assisting with dealing with the environment and coordinating col-
119
decision-making. It promotes entrepreneurial initiatives through all levels of
management in formulating and implementing entrepreneurial strategies. So,
it is not a creation or something that top management can impose. Instead, it
represents the strategic attitude of all levels of management.
Igor Pureta • Tanja Pureta: THE ROLES OF LEADERSHIP STYLES AND ENTREPRENEURIAL ORIENTATION IN DISTINGUISHING MORE FROM ...
120
gerial structure fills out questionnaires or conducts an interview with the re-
searchers, which results in the research being reduced to the managerial percep-
tion of business operations. It is obvious that some quantitative parameters are
not examined in such a way, but organisational culture or business climate, all of
which are common variables of organisational psychology (Tonković Grabovac
and Morić Milovanović, 2015). The interest for this construct is undoubtedly
supported by the findings that there is a positive relationship between entrepre-
neurial orientation and business performance (Wiklund and Shepherd, 2003).
Engelen et al. (2012) have conducted research on 760 small and medium-
sized enterprises in six countries, and they concluded that there is a strong link
between entrepreneurial orientation and the organisation’s performance. In ad-
dition, they found that four transformational styles of management significantly
influence entrepreneurial orientation: the idealised influence - attributed and
behaviour, inspirational motivation and individualised care, regardless of the
country in which the organisation operates.
They also found that this effect is greater if the highest level of managers
behaves constantly in a transformational way, which contributes to cascading
or so-called domino effect of transferring the transformational leadership style
(or a new system for making meaning in the organisation) from the higher to
the lower managerial levels and consequent expansion of the transformational
organisational culture (Kunhert, 1994, and Bass et al., 1987). A large number
of examples of cascading transmission of transformational leadership have been
recorded in various organisational environments. The consistent logic behind
121
Croatia, the problem of entrepreneurial orientation is that the employees are
much more focused on achieving their own vision of their business role and
dedicated accomplishment of their own goals than to align with their colleagues
about the common vision and goals (Pureta and Pureta, 2017). This necessarily
Igor Pureta • Tanja Pureta: THE ROLES OF LEADERSHIP STYLES AND ENTREPRENEURIAL ORIENTATION IN DISTINGUISHING MORE FROM ...
leads to poorer results of the organisation, because the individual efforts of the
employees in their joint work are mutually weakened, rather than multiplying
their strength through a synergistic effect.
In today’s uncertain and turbulent environment, organisations need to be-
have in an entrepreneurial fashion if they want to survive on the market. In-
creasingly faster development of new technologies and increasingly shorter pro-
duction cycles force organisations to innovate to develop new ideas, products
and processes and readiness to take certain risks because that is the only way
for them to cope with the changes mentioned before. Also, increasingly larger
competition (domestic and foreign) highlights the need for proactive market
performance. The literature clearly states that increase of competition, rapid
technological changes, growing globalisation and various other dynamic forces
have a strong impact on increasing the importance of entrepreneurial orienta-
tion (Morić Milovanović, 2012).
RESEARCH
This research aimed to determine if more and less successful organisations
in Croatia differ in terms of leadership style and entrepreneurial orientation.
The hypothesis that more successful organisations have better represented
transformational leadership styles and more developed all three dimensions of
entrepreneurial orientation than those of less successful was set in accordance
with the aforementioned previous research. If this hypothesis proves to be right,
it will be another relevant proof of the importance of developing transforma-
tional leadership styles and entrepreneurial orientation in organisations so that
they and the whole Croatian economy could become more competitive.
A whole set of measuring instruments has been drafted to measure the per-
formance of an organisation, as it is an important indicator of the quality of
work of an organisation. For this paper, the Organisational Performance Ques-
tionnaire was drafted, based on the results of Dess et al. (1984) and (1997),
who found that it was possible to use performance measures based on the per-
ception of the managers. Namely, according to the results of the research, it
122
was found that subjective performance measures correlated considerably with
the objective ones, thus confirming their validity and reliability in this context
(Dess and Robinson 1984, Venkatraman and Ramanujam 1987). For example,
Chandler and Hanks (1993) claimed that estimates of business owners or ex-
ecutives (such as earnings, business volume, and sales growth) highly correlate
with real data.
This measuring instrument of subjective assessment of organisational per-
formance is designed so that the results obtained by its application could be
compared to organisations with different industrial characteristics. It comprises
of three elements that describe the performance of an organisation in relation
to competitors in the same activity. These are growth indicators, financial indi-
cators and indicators of overall business operation. The instrument consists of
a total of 9 items researching the organisational performance of the enterprise.
Respondents are asked to compare the behaviour of their organisation with the
behaviour of other organisations of similar activity over the past three years in
the following categories:
Growth indicators
• Sales growth
• Growth of the number of employees
• Market share growth
• Financing growth from own resources
Financial Indicators
123
The entrepreneurial orientation questionnaire is based on the above-men-
tioned research and comprises of three dimensions - proactivity, innovation
and risk-taking, each of which is described with three items. The respondents
are asked to compare the behaviour of their organisation with the behaviour
Igor Pureta • Tanja Pureta: THE ROLES OF LEADERSHIP STYLES AND ENTREPRENEURIAL ORIENTATION IN DISTINGUISHING MORE FROM ...
of other similar organisations over the past three years, given the following
statements:
Proactivity
• In each situation, it tries to take the initiative (e.g. in relation to competi-
tors, in projects, while working with others, etc.)
• It launches activities that competitors then follow
• It is often first to launch new products, services, processes, administrative
techniques, etc.
Innovation
• It actively introduces improvements and innovations into its business
operation
• It encourages employees to develop ideas to improve business operation
• It dramatically changes or introduces new products and/or services
Risk-taking
• It encourages employees to introduce new ideas and to take controlled
risks
• It is very prone to high-risk projects
• Usually, it takes a firm, aggressive attitude to achieve its goals and elimi-
nate competition
These statements are evaluated in a 5-level scale, from the “I do not agree”
response, which is marked by number 1, to the “I completely agree” response,
which is marked by number 5.
In addition to these two instruments, MLQ-5X (Avolio and Bass, 2004),
a newer version of the questionnaire, was used which was based on the Bass’
Full Leadership Range model. It consists of nine scales, five of which refer to
transformational leadership style, two to transactional leadership style, and two
to passive/avoidant leadership style.
The questionnaire consists of 45 items. Each component of the manage-
ment is represented by 4 items, while the other items are intended for measur-
124
ing organisational efficiency (satisfaction, effectiveness and motivation, or extra
effort). All items are assessed through a Likert’s 5-range scale, which reflects
self-assessment of the frequency of individual behaviour ranging from 0 (not at
all) to 4 (often).
The data was collected in June 2017 using the method of an online survey,
and respondents are invited to participate via e-mail. The sample was suitable.
The participants first got the instruction in which the research goal was de-
scribed and it was emphasized that the survey was voluntary and anonymous,
that there was no time limit or time limit for completing the questionnaire. In
the instruction, the participants were also asked to respond to the questions
as honestly as possible. Data were collected from 866 persons, and after the
incomplete responses and the responses of those who were not in managerial
positions were excluded, the final sample was obtained. It was made up of per-
sons in managerial positions in Croatian organisations (N=761). The study
involved 273 female and 483 male participants. Table 1 contains descriptive
data on participants.
N %
Age
Under 25 2 0.30
25-34 112 14.70
35-44 317 41.70
45-54 270 35.50
55-64 54 7.10
65 or above 6 0.80
125
RESULTS
In order to determine the difference between more and less successful organ-
isations, they are divided according to the obtained results on the scale of the
organisational efficiency. Those with arithmetic mean lower than the average
Igor Pureta • Tanja Pureta: THE ROLES OF LEADERSHIP STYLES AND ENTREPRENEURIAL ORIENTATION IN DISTINGUISHING MORE FROM ...
are classified as less successful, and those with arithmetic mean higher than the
average are ranked as more successful. Multivariate analysis of variance was sub-
sequently performed, which showed that more and less successful organisations
differ statistically significantly with respect to the prevailing leadership styles, as
well as the general development of all three factors of entrepreneurial orienta-
tion (Wilks’ λ = 0.80; F (12.748) = 15.41; p<0.01).
Thereafter, a discriminatory analysis was carried out, in which a signifi-
cant function was obtained (Function 1 – Wilks’ λ= 0.80; Chi-square (12)
= 166.39; p<0.01) that makes a clear distinction between these two groups
of organisations. Table 2 shows the matrix of the structure of the function
obtained.
Function 1
Proactivity 0.94
Inovation 0.77
Risk-taking 0.77
Inspirational motivation 0.77
Idealized Impact (Attributed) 0.77
Conditional reward 0.77
Intellectual stimulation 0.77
Individualized concern 0.31
Idealised Impact (behaviour) 3.00
Active management by exceptions 0.22
Laissez-faire -0.21
Passive control by exceptions 0.01
The results shown in Table 2 show that the function obtained is most satu-
rated by factors proactivity, innovation and risk-taking as dimensions of entrepre-
neurial orientation and then inspirational motivation, idealised influence (attribut-
ed), intellectual stimulation, individualised care and idealised influence (behaviour)
126
as the dimensions of transformational leadership style. This means that the
combination of transformational leadership styles and entrepreneurial orienta-
tion is an important factor in the success of the Croatian organisations as well.
In addition to these transformational leadership styles, it can be seen that more
successful organisations use one transactional style more, which is a conditional
rewarding system, which is also mentioned in the literature as a factor of success
if combined with the transformational leadership styles, which is also the case
here. This function is the least characterised, in relation to all of the above-men-
tioned factors, by another transactional leadership style, which is active man-
agement by exceptions. This is also logical because it is an active form of work-
ing with people, but it is the least effective among all the aforementioned. In the
overview of the matrix of the structure of the obtained discriminating factor it
can be seen that passive management by exception is not related to the function
obtained. Also, the laissez-faire leadership style, which represents complete ab-
sence of management, is in a negative relationship with the obtained function,
meaning that it is a more common characteristic of the less successful organisa-
tions. Such a result suggests that any management of people is more efficient
than lack of management, which can only cause a negative business result.
As it can be seen in Table 3, on the basis of subsequent classification of or-
ganisations more or less successful in accordance with this discriminatory func-
tion, 74.3% of successful organisations, or 65.8% of those less successful, were
accurately identified, further confirming its strength and validity.
Anticipated belonging to the group
Less successful More successful
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
organisations organisations
Real belonging to the group n % n %
Less successful organisations 235 65,8 122 34,2
More successful organisations 104 25,7 300 74,3
CONCLUSION
The results of this research show that there is a statistically significant dif-
ference between more and less successful organisations, given their dominant
leadership styles and development of all dimensions of entrepreneurial orienta-
127
tion. This leads to a firm recommendation that any organisation that wants to
succeed must necessarily understand the concept of entrepreneurial orientation
and make a systematic plan to develop and maintain it. It is also important to
consider the importance of the development of all transformational leadership
Igor Pureta • Tanja Pureta: THE ROLES OF LEADERSHIP STYLES AND ENTREPRENEURIAL ORIENTATION IN DISTINGUISHING MORE FROM ...
REFERENCES
Antoncic, B. and Hisrich, R. D. (2003). Clarifying the Intrapreneurship Concept. Journal of
Small Business and Enterprise Development, 10, p. 7-24
Avolio, B. J. (1999). Full Leadership Development: Building the Vital Forces in Organisations.
Thousand Oaks: CA Sage
Avolio, B. J., Bass, B. M. (2004). Multifactor Leadership Questionnaire. Manual and sampler
set. (3rd ed.) Redwood City, CA: Mind Garden
Bass, B. M. (1985a). Leadership and performance beyond expectations. New York: Free
Press
Bass, B. M. (1985b). Good, better, best. Organizational Dynamics, 13, p. 26-41
Bass, B. M., Avolio, B. J. (1994). Improving Organizational Effectiveness Through Transfor-
mational Leadership. Thousand Oaks, CA: Sage
Bezić, H. (2008). Tehnološka politika i konkurentnost. Rijeka: Ekonomski fakultet, p. 31.
Buble, M. (2010). Menadžerske vještine. Zagreb: Sinergija nakladništvo
Burns, J. M. (1978). Leadership. New York: Harper & Row
Carpenter, M. A., Sanders, W. G. (2007). Strategy Management: A Dynamic Perspective.
New Jersey: Pearson Practice Hall.
Dess, G. G. and Robinson Jr., R. B. (1984). Measuring Organizational Performance in the
Absence of Objective Measures: The Case of the Privately-Held Firm and Conglomer-
ate Business Unit. Strategic Management Journal, 5(3), p. 265-273
Dess, G. G., Lumpkin, G. T. and Covin, J. G. (1997). Entrepreneurial Strategy Making and
Firm Performance: Test of Contingency and Configurational Models. Strategic Ma-
nagement Journal, 18(9), p. 677-695
128
Engelen, A., Vishal, G., Strenger, L., Brettel, M. (2012). Entrepreneurial Orientation, Firm
Performance, and the Moderating Role of Transformational Leadership Behaviors.
Journal of Management. 41. 1069-1097. 10.1177/0149206312455244
Frese, M. (2009). Towards a Psychology of Entrepreneurship: An Action Theory Perspec-
tive. Foundations and Trends in Entrepreneurship, 5, p. 435-494
Galbraith, N. S., Tushman, C. and Quinn, E. (2002). Diagnosing and Changing Organiza-
tional Culture. Addison Wesley
Guzzo, R. A. and Dickson, M. W. (1996). Teams in Organizations: Recent Research on
Performance and Effectiveness. Annual Review of Psychology, 47, p. 307-338.
Judge, T. A. and Piccolo, R. F. (2004). Transformational and Transactional Leadership: A
Meta-Analytic Test of Their Relative Validity. Journal of Applied Psychology, 87(4),
p.797-807.
Judge, T. A., Bono, J. E., Ilies, R. and Gerhardt, M.W. (2002). Personality & Leadership: A
Qualitative & Quantitative Review. Journal of Applied Psychology, 87(4), p. 765-780
Keller, R. T. (2006). Transformational Leadership, Initiating Structure and Substitutes for
Leadership: A Longitudinal Study of Research & Development Project Team Perfor-
mance. Journal of Applied Psychology,91(1), p. 202-210.
Krugman, P.R. (1996). Making Sense of the Competitiveness Debate, International Com-
petitiveness. Oxford Review of Economic Policy, 12(3), p. 17–25.
Lado, A. A., Boyd, N. G.and Wright, P. (1992). A Competency-Based Model of Sustainable
Competitive Advantage: Toward a Conceptual Integration. Journal of Management,
18 (1), p. 77-91.
Leko-Šimić, M. (1999). Međunarodna konkurentnost hrvatskog gospodarstva u okruženju
tranzicijskih zemalja srednje i istočne Europe. Tržište, 11(10), 69-81, p. 77.
Lumpkin, G. T., Dess, G. G., (1996). Clarifying the Entrepreneurial Orientation Construct
and Linking It to Performance. Academy of Management Review, 21, 135-172
Lyon, D.W., Lumpkin, G.T. and Dess, G.G. (2000). Enhancing Entrepreneurial Orientation
Research: Operationalizing and Measuring a Key Strategic Decision Making Process.
Journal of Management, 26, p. 1055-1085
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
McGrath, J. E., Arrow, H. and Berdahl, J. L. (2000). The study of groups: Past, Present and
Future. Personality and Social Psychology Reliew, 4(1), p. 95-105
Mehra, A., Smith, B., Dixon, A. and Robertson, B. (2006). Distributed Leadership in Teams:
The Network of Leadership Perceptions and Team Performance. Leadership Quar-
terly, 17, p. 232-245.
Meredith, B. (2001). Great Leaders Are Constantly Searching For Challenge. Available at:
www.bluepointleadership.com. [aproached: February 10th, 2019]
Meyer, G. D. and Heppard, K. A. (2000). Entrepreneurial Strategies: The Dominant Logic
of Entreprenenurship. New York: Irwin University Books
Morić Milovanović, B. (2012). Moderatorni utjecaj okoline na odnos između poduzetničke
orijentacije i poslovne uspješnosti hrvatskih malih i srednjih proizvodnih poduzeća.
Poslovna izvrsnost, 6(2), p. 9-24
Morris, M. H., Kuratko, D.F. and Covin, J.G. (2008). Corporate Entrepreneurship and In-
novation. Thompson, OH: South-Western College Publishers
Northouse, P. G. (2010). Vodstvo: teorija i praksa. Zagreb: Mate
129
OECD. (2011). Lessons from PISA for the United States, Strong Performers and Success-
ful Reformers in Education. OECD Publishing. str. 159. Available at: http://dx.doi.
org/10.1787/9789264096660-en. [approached: February 16th, 2018].
Pureta, I. and Pureta, T. (2017). Poduzetnička orijentiranost zaposlenika u hrvatskim orga-
nizacijama. Interdisciplinary Management Research XIII, J. J. Strossmayer University
Igor Pureta • Tanja Pureta: THE ROLES OF LEADERSHIP STYLES AND ENTREPRENEURIAL ORIENTATION IN DISTINGUISHING MORE FROM ...
130
STRUCTURAL MODEL OF THE
BUSINESS ORGANISATION FORMS
IN THE REPUBLIC OF CROATIA
Abstract
According to positive legal regulations, the Republic of Croatia does not allow
any unregistered business activities. However, when it comes to legal grounds
referring to types of business entities, it becomes clear that there is a broad regu-
latory frame for business activities in Croatia. That variety, however, becomes INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
an issue when defining business forms and business models which can further
complicate any result of scientific research as well as the official statistics. For
example, the term company has become frequently used in journalism and re-
search, when it has not been made clear neither what the business model is nor
has it been specified what business activities the term itself covers. Furthermore,
various research results often use the terms micro, small, medium and large
business entities, which is, according to the positive legal regulations, accurate
only for some business entities, i.e. only for some types of business entities in
the Republic of Croatia. Finally, research results often display the total sum of
business activities in Croatia, without considering non-profit organisations or
public and non-business organisations. In order to solve this confusion, a clear
131
system of terms for the forms of business organisation following ontological
principles should be determined. The structural model of the business organisa-
Branimir Dukić Goranka Majić Stojanka Dukić: STRUCTURAL MODEL OF THE BUSINESS ORGANISATION FORMS IN THE REPUBLIC OF CROATIA
1. INTRODUCTION
The Republic of Croatia is a relatively young state that gained its indepen-
dence less than 20 years ago and during that process it has gone through a dif-
ficult homeland war and a complex transition from a socialist autarchic social
order to an open market capitalist society. Apart from the war and the transi-
tion, the economic circumstances in the Republic of Croatia are burdened by
a number of issues, among those that should be noted are the high dynamism
and instability of the relatively underdeveloped social reproduction system that
has difficulties coping with global competition and even more difficulties with
the influence of global economic and political circumstances. There is a general
assessment that the economy of the Republic of Croatia is in an almost perma-
nent state of crisis, and that there are great disparities in the system of social re-
production, which are even at risk of an economic collapse of the system. Some
of the major issues stem from unstable and inconsistent regulatory frames that
lead to the problem of adjustment and understanding of the framework for
the functioning of the social reproduction system. Given such conditions, both
natural persons and legal entities that wish to operate in the Republic of Croatia
have an extremely hard time to navigate, understand and adjust to the regu-
latory framework, and when taking into account the inertia of the system of
red tape that implements the same regulatory framework, it becomes clear why
both foreign and domestic natural persons and legal entities show little interest
in doing business in the Republic of Croatia. It is clear that, in the long-term,
the model for the functioning of the social reproduction system in the Republic
of Croatia will have to be modified in terms of simplification and stabilisation in
order to avoid the economic collapse scenario, but until then, specifically for the
purposes of professional and scientific circles, it is necessary to form a consistent
ontological model of a social reproduction system from the massive regulatory
framework that will unambiguously define the underlying structure and pro-
132
cesses in the social reproduction system. In that sense, it is first necessary to
research and determine the structural model of a social reproduction system,
i.e. to define which business organisations forms are present in the Republic of
Croatia, and what sort of mutual relationship they have, as well as their position
and impact on the totality of social circumstances in the Republic of Croatia.
In accordance with the stated need for initial efforts that science should
make in terms of defining the structural model of the social reproduction sys-
tem, research on regulatory and practical business organisations forms in the
social reproduction system of the Republic of Croatia was conducted and the
results of the conducted research offered a structural model of a standardised
vocabulary of terms for structural organisational business forms in the Republic
of Croatia. The purpose of the model is to eliminate the inconsistency in un-
derstanding the structure of the system of social reproduction in the Republic
of Croatia. Specifically, due to inconsistent definitions of the terms referring
to the structure of the social reproduction system in the Republic of Croatia,
the comparability and therefore the validity of all research results, both at the
professional and the scientific level, are questionable. An example of this is the
concept of an enterprise that is in regular use both in professional and scientific
circles. Specifically, it is a concept that has no consistent meaning, therefore, dif-
ferent authors use it from different perspectives, so that the research involving
the concept of enterprise as the entity for which the information was collected
is incomparable or inconsistent. One of the possible interpretations of the term
enterprise is to identify this concept with the legal personality of a company.
Furthermore, any business entity or natural person oriented towards achiev-
ing a positive operating result, either in the form of profit or revenue, may be INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
observed as an enterprise. Among the more important interpretations of the
concept of enterprise is the one which views the concept of enterprise from the
perspective of the root of that word, i.e. enterprise can be seen as a result of
entrepreneurial activity because the word enterprise is at the root of the word
“entreprendre/entrepreneur”. However, when looking at the concept of enter-
prise through the prism of entrepreneurship, the focus is usually on business
entities concentrated on earning a profit or an income, while at the same time
neglecting the fact that entrepreneurship is also present in the non-profit part
of the social reproduction system, where the primary motive for doing business
is not achieving a positive business result but the production of socially benefi-
cial effects. There are more examples such as these and they indicate the pres-
133
ence of an anomaly in the form of inconsistency in the definition of the basic
structural terms related to the social reproduction process in the Republic of
Branimir Dukić Goranka Majić Stojanka Dukić: STRUCTURAL MODEL OF THE BUSINESS ORGANISATION FORMS IN THE REPUBLIC OF CROATIA
Croatia, which all brings into question the relevance of the research results both
in the professional and the scientific sphere of activity. By solving this problem,
that is, by unambiguously defining the fundamental structural elements of the
social reproduction system, the explained inconsistencies would be eliminated
and the conditions for further construction of a stable and consistent business
model in the Republic of Croatia would be created.
2. RESEARCH METHODOLOGY
The thesis, which defines the nullity of the research results if the initial pa-
rameters are incorrectly defined or defined with insufficient precision, is axiom-
atically acceptable. It is precisely this issue that the professional and scientific
circles whose focus of study is the system of social reproduction in the Re-
public of Croatia have to deal with. The inconsistency in defining the initial
parameters of the structural model of the social reproduction system in the
Republic of Croatia is mostly a consequence of the dynamic and turbulent his-
tory through which the Republic of Croatia has gone through over the past
twenty years as well as of complex, massive, inconsistent and unclear regulatory
frameworks defining the structure of the social reproduction system of the Re-
public of Croatia. To avoid a complete collapse of the economic system of the
Republic of Croatia, the entire regulatory framework will certainly be changed
in the foreseeable future, but until these changes take effect, at the ontological
level it is necessary to define the structure of the social reproduction system of
the Republic of Croatia in a relevant and consistent manner. In accordance with
the above-mentioned issue, the aim of this research was to explore and define a
structural model of the business organisation forms in the Republic of Croatia.
The results of the research are presented in this paper. For the purpose of de-
fining the structural model of the business organization forms in the Republic
of Croatia, the regulatory framework of business organisation in the Republic
of Croatia was explored, and the pragmatic forms as well as their properties,
which are accepted by the business practice in the Republic of Croatia, were ex-
amined. In the course of the research, a considerable number of scientific meth-
ods was used, among which the following should be highlighted: the method
of deduction, the method of analysis and synthesis, the method of causal in-
134
ference, the method of abstraction, the method of classification, the method
of specialization, the method of composition, the method of abrogation, the
method of analogy, the historical method as well as the method of descriptive
inference. The results of the research are presented as a model of the business
organisation form in the Republic of Croatia based on ontological principles.
135
• occasionally performing activities for which it is under a special act not
obligatory to register the activity with the competent authority and report
Branimir Dukić Goranka Majić Stojanka Dukić: STRUCTURAL MODEL OF THE BUSINESS ORGANISATION FORMS IN THE REPUBLIC OF CROATIA
136
that operate with a positive business result are, as a rule, efficient. By contrast,
non-economic entities survive by virtue of their effectiveness, or positive so-
cially beneficial effects for which the efficient part of the community is willing to
give up part of their positive results in order for business entities that generate
positive socially beneficial effects to survive. Therefore, while economic entities
that are part of the economic subsystem are oriented towards creating a positive
business result, business entities in the non-economic subsystem are oriented
towards meeting social needs. However, these days it is not easy to differentiate
business entities according to this criterion, as more and more business enti-
ties are oriented towards creating socially beneficial effects, while an increasing
number of non-economic entities are oriented towards doing business with a
positive business result. The reason for this lies in the change of fundamental
business paradigms in the second half of the twentieth century, when the sphere
of the economy less often strives to maximize positive business results, but is
rather focused on the long-term optimal business result with socially respon-
sible operations being in the function of sustainable development. On the other
hand, non-economic entities are expected to have greater autonomy and more
rational conduct, which among other things, implies participation in business
activities that lead to positive business results. If we wanted to differentiate the
business entities on a symbolic level in the economy and outside the economy,
then the principle division might look like the one in Figure 1.
Figure 1 Symbolic division of the social reproduction space in regulated busi-
ness conditions
137
The driving force of business activities in a healthy social reproduction sys-
tem is entrepreneurship. According to Kružić: “Entrepreneurship is the ability
Branimir Dukić Goranka Majić Stojanka Dukić: STRUCTURAL MODEL OF THE BUSINESS ORGANISATION FORMS IN THE REPUBLIC OF CROATIA
to initiate certain actions, to take action aimed at achieving the desired goal,
while at the same time presuming readiness to counteract the obstacles, includ-
ing readiness for uncertain outcomes and risk.” (Kružić, 2007, 168) According
to Drucker, the essence of entrepreneurship is contained in: “the creation of a
new organisation capable of profitable business and the possibility of self-sus-
tainability”. (Kružić, 2007, 172) Therefore, entrepreneurship in the full sense of
the word implies the establishment of one’s own business entity as well as the
business operation of that business entity in such a way as to ensure its survival
through doing business. The motives for entrepreneurial behaviour in people
are most commonly linked, on the one hand, to the need to ensure their own
survival with minimal loss of freedom and, on the other hand, the need for so-
cial valorisation, i.e. the need for power. However, what also should not be over-
looked is the psychological profile of the entrepreneur who carries his entre-
preneurial “talent” with him and draws it from differentiated views of business
compared to people who do not have entrepreneurial drive. Even though entre-
preneurship is commonly associated with the existence of an entrepreneurial
idea as the primary driver of entrepreneurial activity, it should be borne in mind
that the motive for earning a profit which would not only secure survival of the
entrepreneur, but also provide him with power and social valorisation, to say the
least, is not negligible. An entrepreneur may or may not be a manager, therefore,
an entrepreneur may or may not manage his own entrepreneurial venture. In
many cases, entrepreneurship is linked to a differentiated approach to growing
capital, where it is emphasized that the entrepreneur is a person willing to invest
capital, instead of into safe capital growing systems such as interest in a bank or
a foundation, in a more risky, but in case of a return more lucrative, investment
in business ventures that return an adequate profit on the invested capital, i.e. in
the Republic of Croatia, an appropriate profit or income. But such an approach
and view of entrepreneurship ignores the fact that entrepreneurship is present
outside the economic subsystem of the social reproduction system that does
not secure a return on capital investment. Accordingly, entrepreneurship must
primarily be viewed as a tendency of people to embark on business ventures and
thus participate as an active factor of the economic subsystem in particular, but
also outside the economic subsystem of the social reproduction system. Figure
2 shows the relationship between entrepreneurship and management.
138
Figure 2 The relationship between entrepreneurship and management
139
Figure 3 Ways for the individual to participate in the social reproduction system
Branimir Dukić Goranka Majić Stojanka Dukić: STRUCTURAL MODEL OF THE BUSINESS ORGANISATION FORMS IN THE REPUBLIC OF CROATIA
140
as Republican Acts (Narodne novine 53/91). Due to the general similarity of
the regulatory frameworks that defined the concept of an enterprise and later a
company, there is also the view that enterprises may be called companies.
The issue of non-uniform understanding of the concept of enterprise is not a
trivial issue because its use, especially in professional and scientific circles, leads
to inconsistencies in understanding the subject matter of research, and thus
to incomparable and incorrect research results. The problem is that, without a
concrete definition of the concept of enterprise, the term is used even in official
statistics research in the Republic of Croatia. For this reason, it is of utmost
importance that the experts and scientists are decisively determined towards
the contents and the official terminology when it comes to organising business
activities in the Republic of Croatia.
As far as the economic subsystem and the non-economic subsystem of the
social reproduction system are concerned, the basic legal organisational forms
of business organisation are the following: (Pejić, n.d.)
1. Companies: Simple Limited Liability Company (j.d.o.o.), Limited Liabil-
ity Company (d.o.o.), Joint Stock Company (d.d.), Limited Partnership
(k.d.)
2. Crafts and Liberal Professions
3. Cooperatives, Partnerships, Family Farms (OPG), Associations, Institu-
tions, Trusts, Foundations
It should be noted that this division of companies is somewhat different
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
from the current one because it is made according to the earlier provisions of
the Companies Act. A contemporary division will be presented in further con-
siderations. It should also be noted that these are not the only business entities
involved in doing business that are defined by the process of social reproduc-
tion. The division of business entities into those which are profit-oriented, as
well as income-oriented or mainly do business within the framework of eco-
nomic activities, and those which mainly do business in the domain outside
economic activities, reflect the division into types of accounting. Taking into
account the positive legal regulations in the Republic of Croatia, there are four
types of accounting or four accounting systems: (Belak, 2006,3)
1. accounting for entrepreneurs
2. accounting for non-profit organisations (fund accounting)
141
3. state budget and budget beneficiaries accounting
4. accounting for crafts and liberal professions
Branimir Dukić Goranka Majić Stojanka Dukić: STRUCTURAL MODEL OF THE BUSINESS ORGANISATION FORMS IN THE REPUBLIC OF CROATIA
142
to this Act, a company is a trader, regardless of whether it is engaged in
economic or other activities.
• Sole proprietors as natural persons who independently perform economic
activities in accordance with the regulation of crafts and is registered in
the court registry as a sole proprietor. Specifically, a natural person doing
business pursuant to the crafts regulations may apply to be entered in the
court registry as a sole proprietor if their annual income exceeds HRK 2
million and is obligated to request that entry if their annual income ex-
ceeds HRK 15 million.
The focus of the Companies Act are companies whose forms are: (Zakon o
trgovačkim društvima, n.d.)
• General partnership
• Limited partnership
• Joint Stock Company
• Limited Liability Company and
• Economic Interest Association
Furthermore, pursuant to the Companies Act, a general partnership, a lim-
ited partnership and an economic interest association are partnerships, while a
joint-stock company and a limited liability company are share-capital compa-
nies. The basic motive for establishing and operating capital companies is to
grow the invested capital through the achievement of positive business results
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
in the form of profit.
Apart from the Companies Act, in the sphere of economic activities there
is also independent business performed by natural persons whose activities
are registered pursuant to the Crafts Act (Zakon o obrtu, Narodne novine
143/2013), and are registered with the competent state administration offices
in the counties according to local affiliation, i.e. crafts from the area of the City
of Zagreb are registered at the competent office of the City of Zagreb. Pursuant
to the Crafts Act, crafts can have the following forms: (Zakon o obrtu, 2013)
1. liberal crafts for which a qualification or master’s examination is not re-
quired as a condition
143
2. associated crafts for which an examination of professional qualification
is required, associated crafts for which secondary school education is re-
Branimir Dukić Goranka Majić Stojanka Dukić: STRUCTURAL MODEL OF THE BUSINESS ORGANISATION FORMS IN THE REPUBLIC OF CROATIA
144
agriculture and its related ancillary activities in the territory of the Republic of
Croatia.
Among the previously mentioned forms of organisation and doing business
predominantly in the subsystem of economic activities, where the business of
legal and natural persons is clearly differentiated, and where the derived objec-
tive of business operations is to ensure business efficiency by achieving positive
business results in terms of profit or income, there are great similarities but also
great differences. Table 1 shows a comparison of the properties of crafts and
companies.
145
Expenditures-liabilities (costs) Recognised as expenditures at the Recognised as costs at the moment
moment of payment of sale of products, performance of
service, and use of reserves
Branimir Dukić Goranka Majić Stojanka Dukić: STRUCTURAL MODEL OF THE BUSINESS ORGANISATION FORMS IN THE REPUBLIC OF CROATIA
146
maintain their business books according to the enterprise accounting principles,
i.e. the accounting of crafts and liberal professions, economic operators from the
non-economic subsystem maintain their business books according to the prin-
ciples of accounting for non-profit organisations that are defined in the Act on
the Financial Operation and Accounting for Non-Profit Organisations (Zakon
o financijskom poslovanju i računovodstvu neprofitnih organizacija, Narodne
novine 121/14). Pursuant to Article 2 of this Act, the following economic
operators are included in the group of non-profit organisations: (Zakon o fi-
nancijskom poslovanju i računovodstvu neprofitnih organizacija, n.d.)
1. domestic and foreign associations and their federations, trust funds,
foundations, institutions, art organisations, chambers, trade unions, as-
sociations of employers, and all other legal entities whose main goal of
establishment and activity is not to acquire profit and whose non-profit
nature follows from special legislation
2. political parties
3. religious communities
4. units of local and regional self-government and other budgetary users
5. institutions founded by natural persons and other legal entities
As evident from the list above, and as derived from the Act on the Financial
Operation and Accounting of Non-Profit Organisations, the implementation
of this act depends on the source of financing of a non-profit organisation. Ac-
cordingly, we should differentiate between the following:
- non-profit organisations mostly funded from the state budget, and INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
147
businesses are funded from the state budget and whose from the budget of local
government and self-government. Article 4 of the aforementioned Ordinance
Branimir Dukić Goranka Majić Stojanka Dukić: STRUCTURAL MODEL OF THE BUSINESS ORGANISATION FORMS IN THE REPUBLIC OF CROATIA
148
ness books in accordance with the Ordinance on Non-Profit Accounting and
the Accounting Plan.
It is a common feature of economic operators from the non-economic sub-
system within the social reproduction system, regardless of the group to which
they belong, that they are oriented towards effectiveness as the derived goal of
their business, i.e. towards satisfying a certain set of social needs of the popu-
lation. We should point out that there is no clear distinction, in terms of the
form of organisation, whether a non-economic operator belongs to the group
of budgetary or non-budgetary economic operators, but that this depends on
their business organisation. For example, certain art associations are funded in
full from the state budget, while others are funded from non-budgetary sources.
This situation creates a confusing situation and leads to possible corruption in
the system of state finances, and this is one of the issues making it impossible to
create a clear ontological differentiation between the forms of extra-economic
organisation of business in the Republic of Croatia.
The classification into two major groups of economic operators that enables
business and, consequently, the social reproduction process does not exhaust
all forms of business organisation possible in the Republic of Croatia. The next
instance in the structure of business organisation in the social reproduction
system in the Republic of Croatia are the co-operatives that are established and
that operate pursuant to the Co-operatives Act (Zakon o zadrugama, Narodne
novine 34/11, 125/13, 76/14). The co-operatives are established and they op-
erate as “a voluntary, open, independent, and autonomous company that is ad-
149
the co-operative and its member that co-operatives and members actually form
a single economic entity that rests precisely on the work of its members. The
Branimir Dukić Goranka Majić Stojanka Dukić: STRUCTURAL MODEL OF THE BUSINESS ORGANISATION FORMS IN THE REPUBLIC OF CROATIA
150
Figure 4 Structural model of business organisation in the social reproduction
system in the Republic of Croatia
151
3. CONCLUSION
If we listen to the persons participating in business activities in the Republic
Branimir Dukić Goranka Majić Stojanka Dukić: STRUCTURAL MODEL OF THE BUSINESS ORGANISATION FORMS IN THE REPUBLIC OF CROATIA
of Croatia, we soon realise that one of the most significant issues is the one re-
ferring to enormous, complex, and incomplete legislation that blocks entrepre-
neurship and opens the door to corruption and intensive meddling of political
elites in the social reproduction process. The research conducted, which focused
on the structure of business organisation in the social reproduction system,
confirmed the aforementioned position taken by pragmatic practicing business
circles. The defined model shows all the complexity of legislative frameworks
that define the forms and content of business activities in the Republic of Croa-
tia as well as the inconsistencies that prevent consistent and unambiguous clas-
sification of all forms of organisation of economic operators into appropriate
classes and grades. If the intention is to generate an affirmative climate for ef-
ficient business of economic operators in the social reproduction system in the
Republic of Croatia, it is necessary to proceed with the overall scientific analy-
sis and reorganisation of the legislative frameworks for business organisation.
In that sense, inter alia, it is necessary to scientifically define an ontologically
consistent and unambiguous model for regulating the system of social repro-
duction that could serve as the basis for re-engineering legislative frameworks
connected with business practices in the Republic of Croatia.
In such conditions, the business practice would not employ generic names,
such as “enterprise” or “firm”, whose ambiguity further complicates the under-
standing of what is already a complex and inconsistent system of legislative
business organisation in the Republic of Croatia. Instead of generic terms, un-
til clear legislative frameworks for new organisation of the social reproduction
system in the Republic of Croatia are defined, it is necessary to differentiate
between economic business systems and non-economic and mixed, i.e. hybrid
business systems. Within the economic subsystem of the social reproduction
system, we should primarily differentiate the legal from the natural forms of
business organisation, and within the legal forms of business organisation we
should differentiate between the share-capital companies and other organisa-
tional forms. In that sense, share-capital companies could be called enterprises
because, in pragmatic terms, such companies are most frequently identified
with this generic term. In the domain of non-economic business, it will be ex-
tremely important to make a clear distinction between economic operators that
152
are financed from state and local budgetary funds and those systems funded
from extra-budgetary sources.
The results of this research have, on the one hand, defined the platform for
further attempts at modelling the structure and processes in the social repro-
duction system and, on the other, showed that it is necessary to undertake sig-
nificant actions to define the social reproduction system in a simpler and bet-
ter fashion. In that sense, a large number of issues was raised that should be
resolved through interdisciplinary efforts of social sciences in the period ahead.
REFERENCES
Belak, V. (2006.): Profesionalno računovodstvo prema MSFI i hrvatskim poreznim propi-
sima, Zagreb: Zgombić&Partneri, p. 3
Dukić, S. (2012) E-Marketing humanitarnih i vjerskih organizacija , Ekonomski fakultet u
Osijeku, Osijek
Oporezivanje djelatnosti slobodnih zanimanja (n.d.) Porezna uprava , https://www.porez-
na-uprava.hr/HR_publikacije/Prirucnici_brosure/173%20zanimanja%20za%20
WEB.pdf [12.5. 2017]
Kružić, D. (2007): Poduzetništvo i ekonomski rast: restrukturiranje uloge poduzetništva u
globalnoj ekonomiji , Ekonomska misao i praksa , God XVI, No. 2, Zagreb.
Pejić, M. (n.d.) Pravni oblici poduzetništva , http://www.ekonos.hr/porezi/pravni-oblici-
poduzetnistva-i-dio/ [15.2.2018]
Pravilnik o utvrđivanju proračunskih i izvanproračunskih korisnika državnog proračuna i
proračunskih I izvanproračunskih korisnika proračuna jedinica lokalne i područne (re-
gionalne) samouprave te o načinu vođenja registra proračunskih korisnika proračunskih
i izvanproračunskih korisnika (2009), Narodne novine, https://narodne-novine.
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
nn.hr/clanci/sluzbeni/2009_10_128_3152.html [25.3. 2018]
Što je zadruga i kako je osnovati?, n.d.), Hrvatski centar za zadružno poduzetništvo, http://
zadruge.coop/hr/o-zadrugarstvu/sto-je-zadruga-i-kako-je-osnovati/1 [26.3.2017]
Zakon o financijskom poslovanju i računovodstvu neprofitnih organizacija (n.d.), Za-
kon.hr, https://www.zakon.hr/z/746/Zakon-o-financijskom-poslovanju-i-
ra%C4%8Dunovodstvu-neprofitnih-organizacija [25.5.2017]
Zakon o obrtu (2013), Narodne novine, https://narodne-novine.nn.hr/clanci/sluzbe-
ni/2013_12_143_3065.html [11.5.2017]
Zakon o obveznim odnosima (2018), Zakon.hr, https://www.zakon.hr/z/75/Zakon-o-
obveznim-odnosima [25.3.2018]
Zakon o trgovačkim društvima-pročišćeni tekst zakona (n.d.), Zakon.hr, https://www.za-
kon.hr/z/546/Zakon-o-trgova%C4%8Dkim-dru%C5%A1tvima [20.3.2018]
Zakon o zabrani i sprječavanju obavljanja neregistrirane djelatnosti, Narodne novine,
61/2011 [21.3.2018]
153
Petrović, S. (2006) Pravni oblici pravnih osoba za obavljanje djelatnosti – pretpostavke i
posljedice Zbornik PFZ, 56, Poseban broj, 87-127, pp. 87-127 https://hrcak.srce.hr/
file/9734 [1.2.2018]
Branimir Dukić Goranka Majić Stojanka Dukić: STRUCTURAL MODEL OF THE BUSINESS ORGANISATION FORMS IN THE REPUBLIC OF CROATIA
154
IMPORTANCE OF ALIGNMENT
OF STRATEGY AND PROJECT
MANAGEMENT
Abstract
Traditional project management starts from the assumption that each pro-
posed project is in line with the organization’s strategic goals and contributes
in a certain way to the achievement of the goals and positive results of the
organization. However, some projects entirely support the organization’s stra-
tegic goals, some support only in some parts, and some do not support them at
all. The problem arises when the organization’s strategic goals are not clearly
expressed or measurable or because a certain number of managers do not un-
derstand them or do not understand them in the correct way. INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
155
agement on the example of the Zagrebački holding. Finally, we will present the
research results and propose further research to understand the importance of
alignment project management with fulfilling organization’s strategy.
Key words: strategy, project management, alignment, Zagrebački holding.
JEL Classification: M10, M19
1. STRATEGIC MANAGEMENT
Management as a process is a very complex term, consisting of five main
functions: planning, organization, human resources management, management,
Aleksandar Erceg Vice Gulam: IMPORTANCE OF ALIGNMENT OF STRATEGY AND PROJECT MANAGEMENT
and control. Every organization should also have a strategy as a part of those
functions.
Strategic management creates an overall view which directs decisions, ac-
tions, and people in the organization. The goal itself (Kadec, 2013) of the stra-
tegic management is to determine missions and goals, without neglecting means
necessary for success.
Sikavica et. al. (2008) said that strategic management can be defined as the
art of guiding or managing the development of a company, i.e. several manage-
rial decisions and actions that determine long-term business performances of
an organization.
According to Buble (2009) strategy is a term that was studied by different
authors throughout the history, and the most common term could be that it
comes from the word strategus, an ancient Greek term describing a person with
a high ranking.
All this together according to Buble (2009) brings several essential charac-
teristics of strategy:
- that strategic management is a consistent process, which means it has con-
tinuity, even though some activities are more and some less in focus
- manager’s engagement in the strategic management must come in a series
of stages which begin with the analysis of the environment, setting the or-
ganization direction, forming and implementing the strategies, concluding
with control and evaluation
- managers bring many decisions and take a whole range of actions that help
them in reaching the goals they have set
156
- strategic management must enable the company to organize and prepare
so that it can respond to challenges of a dynamic, complex and unpredict-
able environment, any given moment
- strategic management is iterative, which means it begins with the first
stage and ends with the last and continues in these cycles.
Although the definition of the strategic management seems simple, static
and clear at first sight, the real integration of the strategic management is com-
plicated, complex and dynamic, which is confirmed by following tasks per-
formed by strategic managers.
According to Thompson et. al., (2006) it is a process of bringing decisions
and performing activities through which it is endeavored to coordinate abilities
and possibilities of a company with the circumstances of the environment and
thus gain advantage i.e. a better result.
In this process managers should identify their internal and external strategic
factors (elements) which are crucial for the business, because they determine
internal and external environment whose interaction shapes the business envi-
ronment. A good knowledge of this environment and successful management of
all the important factors can result in a more successful business.
Managers can in most cases influence the forming of internal factors and
business environment, however they usually are not able to influence the exter-
nal factors and environment. However, by planning, following and analysing,
managers can timely observe different business risks and threats, thus by good
157
usually includes suppliers, creditors, buyers, shareholders, employees, competi-
tors etc, while the general environment includes geographical, demographic,
cultural, infrastructural, political, economical legal and all other frameworks.
Through the analysis of the environment the managers should determine (plan)
and conduct the strategy through which they intend to complete the set goals.
Strategic planning is quintessential for the defining and successful comple-
tion of the strategy. A strategy is a long-term plan for better use of their own
resources, unlike the tactics which are primarily focused on conducting the
strategy. Just like any other plan, strategy is a decision, and completing every
decision is susceptible to the risk of not completing it. Those managers who
choose a strategy should have necessary knowledge and skills, so that the risk is
Aleksandar Erceg Vice Gulam: IMPORTANCE OF ALIGNMENT OF STRATEGY AND PROJECT MANAGEMENT
158
The winning strategy is in tune with the circumstances of the external situ-
ation and the internal resource powers and computing skills of the company,
builds competitive advance and enhances the effectiveness.
The making and conducting of a strategy are basic managerial functions.
Victory or defeat on the market depends directly upon the quality of a company
strategy and in the skill of conducting it, i.e. the ability of management to react
timely and correctly any given moment.
2. PROJECT MANAGEMENT
The largest number of activities in a company is performed within the frame-
work of projects, so the success of a company depends upon the success of each
individual project or a program.
According to Omazić and Baljkas (2005: 52), regardless of a situation, a
project is something which has its defined beginning and end, given goals that
should be achieved, a budget that shouldn’t be exceeded and quality that should
be satisfied. Successful project is the one that meets all expectations of a client
or a principal, i.e. the one that met all the criteria (Reveal, 2014):
1. completed on time
2. goals met
3. quality achieved
4. budget not exceeded
159
Kerzner (2009) state on the phase of initiation a project, apart from the
evaluation of a project, one must define volume and goals planned, tasks to be
done to reach the goal, realistic time frame, means, risks, limitations and obsta-
cles which can influence the success of a project. Internal and external interested
sides are identified, who will be actively involved in the project. Initial financial
means are being alloted and a project manager is being assigned.
Buble (2010) said that planning includes detailed planning of the volume
of the project, detailed defining of goals of the project, planning of all neces-
sary activities and defining of their schedule. This phase also includes prepara-
tion of the complete documentation necessary for performing the project. All
necessary work and tasks are assigned to certain team members who have to
Aleksandar Erceg Vice Gulam: IMPORTANCE OF ALIGNMENT OF STRATEGY AND PROJECT MANAGEMENT
execute them in a certain framework, using available resources and tools. Plan-
ning improves understanding of goals and tasks of the project, and increases the
effectiveness taking into consideration distribution of work. Planning considers
volume, time, costs, resources, quality and risks of the project.
Through the phase of performing the project all planned activities are being
performed. Specific resources necessary for performing tasks are being defined,
as well as their schedule and coordination according to planned activities. The
expected time frame of a certain activity is being defined, with the exactly de-
fined beginning and the end. During the performance it is necessary to control
whether everything goes according to the plan, so that all possible irregularities
can be corrected, all specifications of the project are satisfied, and the project
finished on time and with planned costs.
Supervision and controlling continuously measures and follows a progress
of the project, which enables the project team a constant insight into the state of
the project. Deviations from the plan are being identified and corrective activi-
ties are being suggested. As previously mentioned, the most part is conducted
in the performing phase.
Closing phase means formal acceptance of the project and closing of all ac-
tivities. Throughout the phase of closing the project, the whole project is being
evaluated as well, so that the evaluation becomes the source of information and
knowledge for the upcoming projects.
Every project marks a new beginning, in every phase of the project the total-
ity of knowledge, skills, methods, tools and techniques is being applied, but it
is also very important that on every new project one applies knowledge gained
160
throughout the previous project. Phases of managing a project follow one after
another, except for the process of supervision and control which happen along
with all other phases.
The project begins with creating an idea about its performance and defining
goals, as well as with beginning of the performance planning. During planning
strategies of performance are being analysed, calculations are being drawn, as
well as researches and checks, risks are being estimated, analyses prepared, and
grounds are being made for a successful implementation.
In this phase goals are being determined and set, through which activities
are simultaneously connected, which will bring to achieving goals. Depend-
ing upon the complexity of the project, activities are being divided into special
tasks, which are then distributed to team members. Such a procedure in com-
posing a project and planning the performance also enables timely planning of a
necessary team of experts and other team members of certain profiles who will
enable a successful implementation of every single task and phase. After the dis-
tribution to individuals and teams, timing of tasks and phases is being planned.
There is a difference between strategic and tactic planning, however both
should receive necessary attention. To put it simply, strategic planning will set
higher and lower goals, while tactic planning will bring methods for its fruition,
and do its best to neutralize any possible risks, through special measures.
It is an unwritten rule that those who will take part on the project should
also be actively included in the process of its planning. The next rule of an ef-
ficient planning is that there should always be readiness to change these plans.
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
During the process of planning a project it is always advisable to reverse in every
step and thus control the compatibility of all planned resources and necessary
time to fulfill every one of these tasks.
It is necessary to manage the project from several segments; the most im-
portant ones are: managing time of performing a project, managing costs of a
project, managing quality of a project, managing human resources, managing
communication on a project and managing risks of a project.
Starting a project in organizations or in surroundings without any formal
procedures or frameworks for handling a project can often go unnoticed. Ab-
sence of certain documents in the later phases can cause problems, ranging from
non-existing dana on done and planned costs to spending resources on feasible
projects or those who serve no purpose to an organization.
161
3. PROJECT STRATEGY ALIGNMENT
Mankins and Steel (2005) found in their research that 63% of companies
realize the potential value of their strategies while Johnson (2004) conclude
than 2/3 of corporate strategies were never implemented. While the process of
strategy implementation was neglected in research in relation to strategy for-
mulation (Moriss and Jamieson, 2005), its importance can be seen in the fact
that is it more difficult to implement strategy than to formulate it (Hrebiniak,
2006). The idea of alignment is not new in literature and there are more than
several studies which examined alignment idea. (Table xx) Fonvielle and Law-
rence (2001) state the alignment is a crucial effort for the success of the orga-
nization. For them, alignment is an agreement between all three strategy levels
Aleksandar Erceg Vice Gulam: IMPORTANCE OF ALIGNMENT OF STRATEGY AND PROJECT MANAGEMENT
162
Table 2 Alignment of project management with business strategies
Field Researchers
The link between business strategy with project
Hartman, 2000
management and project selection
Ensuring strategic alignment of business strategy and
Turner & Simister, 2000
project management
Choice of business strategy which drives project
Cooper et. al., 1998
portfolio management
Project portfolio management which aligns the project
Cooper et. al., 1998
with the business strategy
Managing rough-cut resource capacity Harris & McKay, 1996
Project balancing with business strategy Archer & Ghasemzadeh, 1999
Source: customized according to Milošević and Srivannaboon, 2007
According to Shenhar et. al., (2007) there is a major challenge in the process
of alignment of project management and business strategy - a missing link and
according to authors, this is a project strategy (Figure 1).
Figure 1. Missing link
Shenhr et. al. (2007) state that carefully defining and evaluating project ac-
complishment is a significant strategic management concept that can help in
aligning the project efforts with the organizations’ short- and long-term goals.
Due to the increasingly rapid changes and growing global competition com-
panies need to be quick in responding to be more competitive on the market.
Thus, projects should be perceived as strategic weapons that were created to
maintain and increase competitiveness. Authors also state that project man-
agers need to become a strategic leader by taking accountability for business
results of projects. With this project are becoming driving force for new di-
163
rections of strategy. Aubry et. al. (2007) found several models for alignment
between strategy and projects but there is no in-dept studies of the corporate
strategy implementation down to the project management level throughout the
project execution. Project portfolio management literature encourages choos-
ing and ranking projects in accordance with the companies’ strategy (Marinsuo
and Lehtonen, 2007). Approach to project portfolio selection should be ad-
justed to the organization’s environment characteristics and strategy (Englund
and Graham, 1999; Stawicki and Müller, 2007). This was confirmed by Müller
et. al. (2008) who found a positive correlation between portfolio project selec-
tions and company’s strategy. Meskendahl (2010) examined the effect of stra-
tegic orientation on business success and its correlation with project portfolio
Aleksandar Erceg Vice Gulam: IMPORTANCE OF ALIGNMENT OF STRATEGY AND PROJECT MANAGEMENT
structuring and success. According to Killen et. al (2008), the strategic method
could result in the improved alignment of projects and business strategy. An-
sari, Shakeri and Raddadi (2014) proposed framework and processes for proj-
ect strategy alignment which is based on a model created by Srivannaboon and
Milošević (2006). (Figure 2)
Figure 2. A theoretical framework for aligning project management with busi-
ness strategy
164
For establishing and maintaining alignment of business strategy and project
management elements, Milošević and Srivannaboon (2007: 50) proposed that
companies use strategic planning and project portfolio management at the strategic
level to interpret their business strategy in the context of project management. In
addition to the framework, Ansari, Shakeri and Raddadi (2014: 4) identified
five main processes of the framework: i) strategy formulation, which manages the
development of a sound strategy; ii) strategy implementation, which provides the
subprocesses needed to achieve organizational goals, including in the areas of op-
erations and logistics; iii) project portfolio management, which provides the sound
composition of projects; iv) project management, which deals with the completion
of operations needed to achieve goals; and v) alignment evaluation between project
management and organizational strategies. (Figure 3)
Figure 3. Framework main processes
165
according to the demands of the competition business, with stimulating techno-
logical advancement and raising general quality of its services.
In market circumstances of a strong competition, globalization, technologi-
cal innovations and quick social changes, a successful company must have a clear
vision and goals of development, defined development programs and projects
to perform these goals, as well as indicators of performance od these set goals
through which it will follow the efficiency of program and project activities. For
the strategic development and projects that Zagreb Holding is planning to per-
form it is necessary that they are synchronized with the superior strategic docu-
ments of the Republic of Croatia, especially concerning the fact that Zagreb
Holding is counting on the financial aid at least partially from the EU funds.
Aleksandar Erceg Vice Gulam: IMPORTANCE OF ALIGNMENT OF STRATEGY AND PROJECT MANAGEMENT
166
In the making of Strategy, in all tasks and activities, all representatives of
relevant stakeholders have been taking part, so the performing of the project
enabled raising competence of officers in Zagreb Holding for the strategic plan-
ning of development.
Zagreb Holding is currently preparing for the application of more than 20
projects for financing through grants of EU funds. Internal educations and
trainings for employees are being put into action, and about a hundred of them
have completed it.
Apart from that, a Team for managing the projects financed by grants of
EU has been formed, consisting of 15 employees who oversee development and
projects in their subsidiaries. Their task is to follow EU policies on waste man-
agement, environment protection, sustainable development, traffic and suggest
projects in tune with the national and EU directions and experiences.
Projects started for candidating for EU funds include areas of traffic infra-
structure, water supply and drainage, gas supply, light distribution network,
waste management, ecology and energetic efficiency. Zagreb Holding in the
project Zagreb on the Sava river takes part as one of the partners, and currently
there is a phase of adjustment of a spacial plan documentation.
Along with the large infrastructure projects, Zagreb Holding is also active
on following projects:
• promotion of environmentally friendly driving in communal companies
and reaching the level of responsible behavior of the communal companies
167
crease of parts of renewable sources of energy using biological waste). Further-
more, it takes part in 3 EU projects as the partner on the projects:
• Project Clean Fleets – project from the program CIP IEE 2011, together
with 12 more partners from 9 countries. The program is based on the
„Clean Vehicles Directive“. The goal of the project is to help public trans-
port companies in choosing the ecologically friendliest and energetically
most efficient vehicles (criteria being energetic consumption of a vehicle
and CO2 emission and other harmful gases). Subsidiaries ZET (public
transport company) and Čistoća (waste management company) are active.
The European Commission has granted 20 000 Euro to Zagreb Holding,
through the mentioned project. According to the development strategy
Aleksandar Erceg Vice Gulam: IMPORTANCE OF ALIGNMENT OF STRATEGY AND PROJECT MANAGEMENT
168
ters – 5% air pollution reduction and 3-5 decibels noise reduction. Zagreb
Holding received about 1,200 000 Euro on this project.
The key driver of ongoing transformation is adapting strategy to active proj-
ects and to create a more flexible and efficient system that will be long-term
sustainable and competitive. The key risk of each project is the evaluation of
the project’s efficiency, its success or failure, which implies whether the target
will be achieved or whether it will be in line with the predefined strategy. In
Zagreb Holding is in the process of fulfilling the goals set out in the Develop-
ment Strategy 2015-2020. Currentle the most successful parts of the strategy
are ones connected to the corporate sustainability strategy (socially responsible
business and social, economic and ecological aspect) participatory management
(cooperation with users and citizens, co-operation with the local community)
and environmental protection (improvement of environmental parameters of
existing products and provision of services, introduction of new green business
technologies). By the end of 2020, most of the Strategy project will be launched,
which will be completed in the period of the Strategy for the Development of
the Zagreb 2020-2025, which is already being prepared.
5. CONCLUSION
Development of project management as a special management discipline
brings new concepts of managing, among which strategic project management
has a special role. The essence of strategic project management is balancing be-
tween the development strategy of a company and correct choice of projects. It
is necessary to establish a strong relationship between the clearly set business INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
169
Zagreb Holding is a good example of a successful balancing, where clear
development strategy of a company and correct choice of projects following the
strategy gets results which improve the quality of life of Zagreb inhabitants. For
further development of the City of Zagreb and Zagreb Holding it is necessary
to continuously ensure new projects and perform all the projects set out by the
Development Strategy of Zagreb Holding in the period from 2015 to 2020.
For understanding the need for project strategy alignment, we propose fur-
ther research in Zagreb Holding to continue following influence of project ex-
ecution on fulfillment of strategy in Zagreb and the alignment is being done.
Aleksandar Erceg Vice Gulam: IMPORTANCE OF ALIGNMENT OF STRATEGY AND PROJECT MANAGEMENT
REFERENCES
Ansari, R., Shakeri, E. and Raddadi, A. (2014) Framework for Aligning Project Manage-
ment with Organizational Strategies, Journal of Management in Engineering, vol. 31,
no. 4, pp. 1-8.
Aubry, M., Hobbs, B. and Thuillier, D. (2007) A new Framework for Understanding Or-
ganisational Project Management through the PMO, International Journal of Project
Management, vol. 25, pp. 328-336.
Buble, M. (2010) Projektni Management, Minerva – visoka poslovna škola, Dugopolje
Buble, M. (2009) Menagement. 2. izdanje. Split: Ekonomski fakultet
Buble, M., Cingula, M., Dujanić, M., Dulčić, Ž., Gonan Božac, M., Galetić, L., Ljubić, F.,
Pfeifer, S. and Tipurić, D. (2005) Strateški menadžment. Singergija, Zagreb
Dietrich, P. and Lehtonen, P. (2005) Successful management of strategic intentions through
multiple projects — reflections from empirical study, International Journal of Project
Management, vol. 23, no. 5, pp. 386–391.
Englund, R. L. and Graham, R. J. (1999) From experience: Linking projects to strategy, Jour-
nal of Product Innovation Management, vol. 16, no. 1, pp. 52–64.
Fonvielle, W. and Lawrence, P. (2001) Gaining Strategic Alignment: Making Scorecards
Work, Management Accounting Quarterly, vol. 3, no. 1, pp. 4-14.
Hrebiniak, L. G. (2006) Obstacles to effective strategy implementation, Organizational Dy-
namics, vol. 35, no. 1, pp. 12–31.
Johnson, L. K. (2004) Execute your strategy — without killing it, Harvard Management
Update, Vol. 9, no. 12, pp. 3–6.
Kerzner, H. (2009): Project Management: a systems approach to planning, scheduling, and
controlling, 10th edition, USA
Killen, C. P. and Kleinschmidt, E. J. (2008) Project portfolio management for product in-
novation, International Journal of Quality & Reliability Management, vol. 25, no.1,
pp. 24–38.
Mankins, M. C. and Steele, R. (2005) Turning great strategy into great performance¸ Har-
vard Business Review, vol. 83, no. 7, pp. 64–72.
170
Martinsuo, M. and Lehtonen, P. (2007) Role of single-project management in achieving
portfolio management efficiency, International Journal of Project Management, vol.
25, no. 1, pp. 56–65.
Milošević, D. Z. and Srivannaboon, S. (2007) A Theorethical Framework for Aligning Proj-
ect Management with Business Strategy in Shenhar, A. J., Milošević, D. Z., Dvir, D.,
Thamhain, H. (eds,) Linking Project Management to Business Strategy, Project man-
agement institute, pp. 35-56.
Morris, P. W. G. and Jamieson, A. (2005) Moving from corporate strategy to project strategy,
Project Management Journal, vol. 36, no.4, pp. 5–18.
Müller, R., Martinsuo, M. and Blomquist, T. (2008) Project portfolio control and portfolio
management performance in different contexts, Project Management Journal, vol. 39,
no. 3, pp. 28–42.
Omazić, M. A. and Baljkas S. (2005) Project Menagment, Sinergija nakladništvo, Zagreb
Rajduković, M. et. al. (2012) Planing and control of project, Sveučilište u Zagrebu,
Građevinski fakultet, Zagreb
REVEAL (2014) Raising Effectiveness of Volunteering in Europe through Adult Learning,
available at: http://www.revealvolunteering.eu, accessed on March 20, 2018
Shenhar, A.J., Dvir, D., Guth, W., Lechler, T., Milošević, D., Patanakul, P., Poli, M. and
Stefanović, J. (2007) Project strategy: missing link, in Shenhar, A. J., Milošević, D.
Z., Dvir, D., Thamhain, H. (eds,) Linking Project Management to Business Strategy,
Project management institute, pp. 57-75
Sikavica, P. Bahtijarević-Šiber, F. and Pološki Vokić, N. (2008). Foundations od manage-
ment. Zagreb, Školska knjiga. pp. 2-24
Srivannaboon, S. (2006) Linking project management with business strategy, paper pre-
sented at PMI Global Congress 2006—North America, Seattle, available at https://
www.pmi.org/learning/library/linking-project-management-business-strategy-8076,
accessed on February 20, 2018
Stawicki, J. and Müller, R. (2007) From standards to execution: Implementing program and
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
portfolio management, Poland IPMA World Congress
Thompson Jr. A. A., Strickland III. A.J. and Gamble, J.E. (2006) Strateški menadžment - u
potrazi za konkurentskom prednošću, Zagreb: MATE
171
PATIENT’S WILLINGNESS TO CO
FINANCE HIGHER LEVELS OF
HEALTHCARE
E-mail: [email protected]
Abstract
The existing financing system of the healthcare of the Republic of Croatia poses
challenges to all stakeholders involved in the process of treatment. Modern
medicine develops daily and offers new, better, more efficient and less unpleas-
ant procedures for diagnosis and treatment. The development also influences
on increased costs of healthcare. Healthcare providers at the primary, second-
ary and tertiary levels are scarcely paying and thus generate financial losses in
the health sector. Public health financing in the Republic of Croatia is imple-
mented according to the Bismarck model based on the principles of solidar-
ity and reciprocity and is collected through compulsory contributions to health
insurance paid to the Croatian Health Insurance Fund. Partial co-financing is
collected through a complementary health insurance system. It is anticipated
that the current gap between the available financial resources and the cost of
health services will continue to increase in the future. In order to reduce the
existing gap, one of the possible solutions is voluntary co-financing of higher-
172
level of healthcare within the patient’s own resources. The aim of this paper is to
investigate whether patients treated at the Našice County General Hospital are
willing and interested to co-finance an additional - a higher level of healthcare
than the one available from existing health insurance. The study was conducted
on an example of 206 patients treated at the Našice County General Hospital
during January and February 2018. Survey questionnaires were set for 206
patients. According to the financial situation in the micro-region that gravitates
to hospitals, the level of services provided by the hospital, the habits of patients
(consumers), age etc., expected results of the research point at unconcerned co-
financing of treatment by most of the patients.
Key words: healthcare, public health, financing of healthcare, treatment
JEL Classification: I13, I18
1. INTRODUCTION
Over the last few decades, the overall health status of people around the
world has significantly improved. On average, people live longer than ever be-
fore, regardless of their income level. According to World Health Organization,
the life expectancy at birth (LEAB) has increased for 20% in last few decades,
precisely, 71.4 years was the average life expectancy at birth of the global popu-
lation in 2015. In Croatia 81. 2 years was the average life expectancy at birth
of the female population in 2015 and 74.7 of the male population. Further,
the global population aged 60 years could expect to live another 20 years on
average in 2015. According to Fujii (2017) in high-income countries, the life
expectancy at birth has increased from about 70 years in 1970 to around 80 INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
in 2010. During the same period, low-income countries and middle-income
countries have achieved an even larger increase in the life expectancy at birth
(see more at World Health Statistics 2017, WHO life expectancy). Similarly,
the under-five mortality rate has dropped substantially. This improvement is
particularly apparent in low income and middle-income countries. The author
emphasizes few (plausible) reasons for this remarkable improvement. First, the
advancement of medicine has enabled the prevention and treatment of diseases
that were previously not possible. Second, higher standards of living have also
contributed to the improvement in health, people can get more and better food
and clean and safe drinking water. According to Pritchett and Summers (1996),
richer people tend to be healthier and live longer on average. Moreover, richer
173
people and people in richer countries also tend to enjoy better public health and
sanitation and receive a better education, which in turn help people to avoid
contracting preventable diseases and live a healthier life overall. Undoubtedly,
according to the World Health Organization (WHO), there are considerable
variations in health across individuals and countries even at a similar level of
income.
Healthcare is financed through different sources. Most typically are pub-
lic health insurance and private health insurance. Both sources have different
Martina Briš Alić Martina Harc Dino Vida: PATIENT’S WILLINGNESS TO CO-FINANCE HIGHER LEVELS OF HEALTHCARE
174
financial resources and the cost of health services will continue to increase in the
future. In order to reduce the existing gap, one of the possible solutions is volun-
tary co-financing higher-level of healthcare within the patient’s own resources.
With this model patients will be offered to co-finance better, more efficient and
less unpleasant procedures for diagnosis and treatment and, of course, more
expensive service. By patients co-financing healthcare, the health care providers
would be able to reduce or even completely avoid negative financial performance
at the end of the business year. This paper analyzes whether patients treated at
the Našice County General Hospital are willing and interested to co-finance
an additional - a higher level of healthcare than the one available from existing
public health insurance.
After the introduction, Section 2 provides a brief overview of the related
literature and stresses the importance of public and private health insurance. In
Section 3 we present the data and introduce the methodology adopted. Section
4 displays results. Finally, the concluding remarks are presented in Section 5.
2. LITERATURE OVERVIEW
Health insurance refers to insurance against financial loss caused by illness,
body injury and birth or death of the insured person. Individuals with health in-
surance are provided with social security against uncertainty if an insured event
occurs. Healthcare is a fundamental component of European welfare state. Al-
though the EU Member States regulate this area differently, all regulations have
a common feature of pursuing the universal access to healthcare, which is based
on the principle of solidarity (Nikolić, 2015). According to Kirillova (2016), the INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
175
six main lines of actions. Achieving universal health coverage lies at the cen-
ter of Sustainable Development Goals. According to WHO, making progress
towards UHC is an ongoing process for every country aiming to ensure that
all people receive the health services they need without experiencing financial
hardship (World Health Statistics 2017, Monitoring health for the SDGs).
The main models of a healthcare, based on the source of their funding are
usually defined by four models: the Beveridge model, the Bismarck model,
the National Health Care Insurance and the Out of Pocket model. Beveridge
Martina Briš Alić Martina Harc Dino Vida: PATIENT’S WILLINGNESS TO CO-FINANCE HIGHER LEVELS OF HEALTHCARE
176
tia in a group of countries belonging to the Bismarck model. The contribution
rate is calculated on the salary and is 15%. The same rate was at the beginning
of the 1990s, back then it was shared between workers and employers. In the
later years, there is a rise in the rate (for example, 18% in 1998), and then its
declining (declaratively because of the need to reduce labor costs) and the re-
distribution of contributions (where contributions for pension insurance are
calculated from wages and contributions for health and employment on wages).
Also, since 2002, contributions are no longer collected by the Croatian Health
Insurance Fund (HZZO), but they are collected through the state budget and
then are passed on to the HZZO, which partly changes the original charac-
ter of the autonomous social security system. In May 2012, the contribution
rate for health insurance was down to 13%, and in 2014 the rate was increased
and returned to the previous 15% rate. On the first day of 2015, the Croatian
Health Insurance Institute has emerged from the State Treasury and the funds
are collected independently. This way allows better management of healthcare
resources in the Republic of Croatia. According to Smolić (2014.) less than a
20% of the total Health spending in Croatia comes from private sources, and
the share of public financing Healthcare is one of the largest in Europe. Despite
a challenging economic context and major fiscal pressures on health expendi-
ture, Croatia has kept publicly funded health services accessible to its popula-
tion. Although health expenditure per capita is among the lowest in Europe, the
share of public expenditure is comparable to the EU average and the benefits
package is broad, including most health services. According to European Com-
mission, Croatia has pursued a number of important health reforms in recent
177
health care system has several reasons: increasing the quality of medical servic-
es, a substantial gap in the incomes of people, high cost of technological medi-
cal care, the increase of the life expectancy at birth, the need for healthier life
and breaking up the monopoly of the state system of health care. The research
indicated the necessity to increase the volume of money for the development of
healthcare on the higher level. The lack of the state financial resources should
be compensated through the mechanisms of attraction the additional financial
resources aimed at the development of paid medical services and widening the
Martina Briš Alić Martina Harc Dino Vida: PATIENT’S WILLINGNESS TO CO-FINANCE HIGHER LEVELS OF HEALTHCARE
range of medical services. Finally, the author concluded that widening the range
of paid services could be viewed as a strategy to improve the efficiency of health
care. Paid medical services could become a premise to increase medical services
quality through increasing the income of the medical personnel in order to create
an effective health care system. Fujii (2017) analyzed whether and how different
sources of health spending affect health outcomes. Although, health spending
affect and poor and rich countries, because neither of them can not afford to
waste health resources and efficient provision of health-care service, is critical
for both rich and poor countries. The author found that health expenditure on
average tends to have a higher health-promoting effect when it comes from a
private source than when it comes from a public source. Results indicate that
taking advantage of private sources of health expenditure is important. Further,
the author also found that the differential health impacts of private and public
health expenditure depend on the quality of the government because main re-
sults are driven by the presence of countries with ineffective governments. With
a restricted sample of a set of countries with effective governments, the author
found no evidence that private sources have a higher health-promoting effect
than public sources. Therefore, results indicated that a larger involvement of
private sector in health is desirable particularly in countries with an ineffective
government.
Finally, Bassani et al. (2018) analyzed healthcare crowdfunding as one of
the alternative sources of raising money by using websites to raise money from
donors to pay for medical care or related expenses. Authors also analyzed the
success of healthcare crowdfunding platforms (as measured by the number of
successfully funded healthcare projects) in relation to the state-level health ex-
penditure of countries where these platforms are based. Crowdfunding is an
open call on the Internet for the provision of financial resources in the form
of donations, a future product, service, or some other reward, or exchange
178
for shares or debt securities of a company. There are, therefore, three types of
crowdfunding: donation-, reward-, and investment-based crowdfunding. Au-
thors revealed several figures. The United States counts the highest number
of successfully funded projects in healthcare. Up to October 2017, 76 medical
crowdfunding platforms have operated worldwide and raised over $132 million
13,633 health projects with the domination of donation-based crowdfunding
focused only on healthcare projects. Further, the number of successfully funded
health projects is higher in those platforms based in countries where financial
resources allocated to health are high, but at the same time where the pub-
lic health coverage is lower, suggesting a substitution effect between medical
crowdfunding and public health insurance.
179
Figure 1. Age groups among interviewed patients
AGE Frequency Percent Valid Percent Cumulative Percent
<= 35 42 20,4 20,4 20,4
36 - 51 44 21,4 21,4 41,7
52 - 58 38 18,4 18,4 60,2
59 - 68 42 20,4 20,4 80,6
69+ 40 19,4 19,4 100,0
Total 206 100,0 100,0
Martina Briš Alić Martina Harc Dino Vida: PATIENT’S WILLINGNESS TO CO-FINANCE HIGHER LEVELS OF HEALTHCARE
Further, 39,3% of interviewed patients were male, while 60,7% were female,
the average age of 52, where 67 % of them were married, while 15% were un-
married and 11,2% of theme were widowed persons. Furthermore, among in-
terviewed patients, 44,7 were employed, while 19,4% were unemployed and
35% were pensioners.
From Figure 2 is visible that 50 employed patients are willing to pay for par-
ticular medical service or an earlier appointment for a medical service in Našice
County General Hospital, while 42 of them are not. It is interesting to note that
majority of pensioners are not willing to pay extra money for particular medical
service or an earlier appointment for a medical service. Finally, 47% of patients
are willing to pay an extra money for particular medical service or an earlier ap-
pointment for a medical service, while 53% are not.
Note: Q11: Are you willing to pay for particular medical service or an earlier appointment
for a medical service in Našice County General Hospital?
Source: Authors’ Survey
180
Figure 3. Rating the willingness to co-finance specific services
Note: Q12. If you are willing to pay for particular medical service or an earlier appoint-
ment for a medical service in Našice County General Hospital, which medical service are
you willing to pay and in which intensity? (1-completely not ready to pay, 2- not ready to
pay, 3- neither ready nor willing to pay, 4- willing to pay, 5- completely prepared to pay, I can
not evaluate)
Source: Authors’ Survey
Those patients who answered positively on the prior question are asked to
answer, which particular medical service among offered are willing to pay, and in
which intensity. Most of the examined patients are not at all willing to extra pay
for any treatment in either of offered medical service, meaning that another (not
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
offered) medical service would be more interesting for extra payment. Treat-
ment and examination at specialist are willing to pay 26% of patients, although
not completely prepared to pay. Minor surgery is willing to pay 28% of patients
but not also completely prepared to pay. The most of patients (17,7%) are com-
pletely prepared to pay for anesthesia for some procedures beyond the current
funding system, which is expected as the anesthesia reduces the inconvenience
of the procedure and for endoscopic examination (16%). Before any necessity
for paying an extra money for an extra medical service, patients are questioned
to evaluate the satisfaction with the service provided at the General County
Hospital in Našice. Figure 4 shows that 120 of 206 patients are fully satisfied
with the expertise of medical personnel, and 118 of patients expressed full sat-
isfaction with medical service. A minority expressed complete dissatisfaction.
181
Figure 4. Patient’s satisfaction with the services provided in the General county
hospital Našice
Martina Briš Alić Martina Harc Dino Vida: PATIENT’S WILLINGNESS TO CO-FINANCE HIGHER LEVELS OF HEALTHCARE
Note Q16: Provided medical service at Našice General Hospital, please rate 1-5, where the
grade 1 indicates complete dissatisfaction, and the grade 5 is full satisfaction (1 completely
dissatisfied, 2- partial dissatisfaction, 3- neither satisfaction nor dissatisfaction, 4- partial
satisfaction, 5- full satisfaction – 5)
Source: Authors’ Survey
5. CONCLUSION
According to the conducted survey, most interviewed patients are not inter-
ested in additional service charges. Within more detailed analysis of the survey
responses, we can conclude that reasons are primarily in patient’s satisfaction
with the services provided in the General county hospital Našice and weak finan-
cial status among the interviewees. However, it is clearly visible that a part of the
patients (46.9%) are willing to invest their own financial resources to get a better
service or earlier term in the process of diagnosis and treatment. If qualitative
pricing and value-for-money healthcare systems would be provided, additional
funding would be provided to improve the financial image of the business and
open the way for a possible increase in the quality of services. Most patients are
willing to pay anesthesia for some of the procedures beyond the current fund-
ing system, which is expected as the anesthesia reduces the inconvenience of the
procedure. Specialist examination and treatment do not record higher willing-
ness rates, hence we can conclude that the waiting lists are in acceptable waiting
timeframes. Also, special diet and special health care recorded lower rating.
This form of financing brings some risks that can potentially be achieved:
extending the waiting list for those who are not willing to co-finance, reducing
investment into a basic medical service package as well as increasing the gap in
182
the quality of the public health sector relative to the co-financed form. Prior to
the introduction of the mentioned model, further research is needed as well as
the definition of the price level of certain medical services.
REFERENCES
Wallace, L. S. (2013). A view of health care around the world. The Annals of Family Medi-
cine, 11(1), 84-84.
Lameire, N., Joffe, P., & Wiedemann, M. (1999). Healthcare systems—an international re-
view: an overview. Nephrology Dialysis Transplantation, 14(suppl_6), 3-9.
World Health Organization (2018.) Health financing for universal coverage. available at:
http://www.who.int/health_financing/topics/financial-protection/out-of-pocket-
payments/en/ (March 23, 2018)
World Health Organization (2018.) available at http://www.who.int/gho/mortality_bur-
den_disease/life_tables/en/ (March 2018)
World Health Organization (2018.) available at http://apps.who.int/gho/data/node.
main.688 (March 2018)
World Health Organization (2018.) available at http://www.who.int/gho/mortality_bur-
den_disease/life_tables/en/ (March 2018)
Zrinščak, S. (2007). Zdravstvena politika Hrvatske. U vrtlogu reformi i suvremenih
društvenih izazova. Revija za socijalnu politiku, 14(2), 193-220.
Smolić, Š. (2014). Razvojni potencijali i izazovi za javno zdravstvo u Hrvatskoj. EFZG Oc-
casional Publications (Department of Macroeconomics), 1, 289-306.
Pritchett, L., and L.H. Summers (1996) `Wealthier is healthier.’ Journal of Human Re-
sources 31(4), 841-868
Fujii T. (2017). Sources of Health Financing and Health Outcomes: A Panel Data Analysis.
available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3047674 (March
183
THE IMPORTANCE OF
Dijana Kozina Vedrana Vukadinović Marko Tadić: THE IMPORTANCE OF MANAGEMENT AND COST ESTIMATION IN MANAGERIAL DECISION MAKING
Abstract
The topic that’s been chosen is one of the top of the reasons that some people
in management business are successful or unsuccessful. It’s about the power of
the acknowledgement, education and, of course, the experience. Cost analysis
and its estimation, is major role in making managerial decisions and is closely
related to the price of the products themselves. The costs are trivial to manage
to achieve long-term benefits from the expense they have incurred to achieve the
manager’s business at a lowest cost without long-term negative consequences on
the business result and competitive position. Most commonly, companies are
faced with a combination of different cost management models, which will be
discussed in final paper.
Key words: cost management, strategy, planning, managing, upgrading, pro-
fessional satisfaction
JEL Classification: M10, M20
184
1. INTRODUCTIONCOSTS
Modern companies are operating in very complicated conditions. Due to
major global business changes, they meet the demands for high profitability,
environmentally friendly products and higher quality, as well as the pleasure
of all business participants. Because of the large global changes, the companies
are based on efficient use, knowledge, information and managerial skills for the
purpose of gaining profit and creating new value (Rupčić, 2016,2)
It is very important to follow the justification of the costs incurred during
the performance of the management assignments. For the beginning, it is neces-
sary to consider that the costs cannot be completely eliminated, but should be
learned to manage them, using models and methods to optimize costs. Making
all decisions, first and foremost, using various methods of managing and al-
locating costs. For a successful business, companies need to spend their human
resources and others, while paying attention to the costs to gain profitability.
Costs allow a realistic assessment of the company’s performance. Costs repre-
sent resource of consumption for product development. As everyone can spend
and make the money, we look at it as a central economic category, which is an
important factor in managerial decisions. The demands of business processes
that cause the costs are reflection of the overall intent, goals and relationships
in running the business in the company. Costs should always be controlled as it
cannot be avoided but can be successfully managed. In order to make cost esti-
mates and analyses as efficient as possible, it is necessary to focus at the area of
resource cost management. The company should focus on cost control in order
185
2. Distribution of costs by production site (Belak,1995,148):
Dijana Kozina Vedrana Vukadinović Marko Tadić: THE IMPORTANCE OF MANAGEMENT AND COST ESTIMATION IN MANAGERIAL DECISION MAKING
186
.. Labour costs
Work is the ability of a man to produce the useful value. For completed work
a worker receives a salary and it represents the labour cost for the employer.
The labour cost is the most important element of assessment and management
according to the elements of the work process. To perform any economic activ-
ity it’s necessary to wear the three fundamental elements of the work process:
labour, objects of labour and means of work.
These items are consumed and their value is the cost of production.
Their wear can be expressed in neutral or money - based indicators (financial
indicators).
A neutral indicator is the consumption that represents the physical expres-
sion of the wear of individual elements (hours of machine operation, quantity
of consumed materials, etc.) The financial statements of the individual work
process elements are the costs. They are also referred to as natural costs because
they appear in each product.
Labour costs are of huge affection to total costs and their size changes due to
the influence of: pay rates, employee qualification structure, labour productivity
and others. The salary level is a fundamental factor of labour costs.
Huge role in the function of the economy has the factor - labour. The divi-
sion into natural types of costs are considered fundamental division of the costs
to which belongs and the cost of work on which will be written in the remain-
der of this paper. Labour costs include compensation of employees (including
187
• Direct labour costs (direct variable production costs) - can be directly
Dijana Kozina Vedrana Vukadinović Marko Tadić: THE IMPORTANCE OF MANAGEMENT AND COST ESTIMATION IN MANAGERIAL DECISION MAKING
associated with cost bearers. Only that works up is directly related to the
production of the product
• Indirect labour costs (indirect production costs) – can take on the char-
acteristics of the fixed and variable costs. They are deployed through ac-
counting methods to cost carriers but cannot be directly linked to them.
These include tasks of workers who do not work on the production line
itself but in the manufacturing departments of the subject.
2.The second group includes the costs of non - productive labour - there
are salaries and allowances and other benefits that the employer provides to
employees who are not working in the production departments of the business
entity. They decline over the expense of the period and are included in the ex-
penditures in the period in which they were incurred.
Following figure gives clear picture of how labour costs are structured.
Figure 1. Components of labour costs
Source: Eurostat
(http://ec.europa.eu/eurostat/statistics-explained/index.php/Wages_and_labour_costs/hr
(15.03.2018.)
188
bour costs per hour range from EUR 4.40 in Bulgaria to EUR 42.00 in Den-
mark. The average was even higher in (50.20 EUR) in Norway.
Labour costs consist of salaries and wage costs, such as social contributions
of employers. The share of expenditures on salaries in total labour costs was
2016 in the EU-28 group of 23% and in the euro area by 26.0%. The share
of costs accruing on wages has also varied considerably among EU member
states. The highest share of wage billing was recorded in France (33.2%), Swe-
den (32.5%), Belgium (27.5%), Lithuania (27.8%) and Italy (27.4%, with the
lowest share recorded in Malta (6.6%), Luxembourg (13.4%), Ireland (13.8%),
Denmark (13.9%) and Croatia (14.9%).(Eurostat,2018)
Figure 2. An estimated hourly labour costs, 2016 (EUR)
Source: Eurostat
http://ec.europa.eu/eurostat/statistics-explained/index.php/Wages_and_labour_costs/hr
(15.03.2018.)
189
Aiming at better economic policy coordination, it focuses on competitiveness,
Dijana Kozina Vedrana Vukadinović Marko Tadić: THE IMPORTANCE OF MANAGEMENT AND COST ESTIMATION IN MANAGERIAL DECISION MAKING
190
Graph 1. Public expenditure on labour market policies, by type of action
(source: DG EMPL)
% of GDP
Source: http://ec.europa.eu/eurostat/tgm/graph.do?tab=graph&plugin=1&language=en
&pcode=tps00076&toolbox=type (23.03.2018.)
191
• forecasting, planning, budgeting and cost control;
Dijana Kozina Vedrana Vukadinović Marko Tadić: THE IMPORTANCE OF MANAGEMENT AND COST ESTIMATION IN MANAGERIAL DECISION MAKING
• analysis that show the behaviour of the cost, depending on the changing
circumstances in which they were incurred;
• analysis of the cause deviations from the predicted values;
• keeping costs within acceptable limits;
• providing information to managers so that they can choose between alter-
natives in order to achieve optimal economic results
It is also of worth to mention the cost accounting that provides the most
important information for cost management to be successful. Namely, cost ac-
counting provides information needed to manage costs using cost - accounting
methods.
There are numerous of models, or different procedures and methods that
management companies provide information necessary for making different de-
cisions for cost optimization based on fact (Factual approach to decision mak-
ing) (Hele, 2003, 36-40):
• methods of traditional management of production costs
• the model of cost management based on processes
• the model of cost management based on activity
• the model of target costs
• activity - based budgeting
• the achievement balance model
• “Kaizen” costs,
• value analysis
• cost-control model of quality
In managing costs, each model can be used separately, but also in combina-
tion with two or more models.
It should be noted that the cost management should not be seen only from
the traditional approach, share costs only on fixed and variable, and ignore other
costs such as the costs of the activities and products that they have generated.
Such a method could lead to completely misguided routing and allocating costs.
To ultimately reach managers positive outcomes, or succeed in positively
and successfully manage their costs, they need to know the existing overall cost
192
structure of the enterprise in order to know which management models should
be applied. It should be emphasized that the goal of the manager is to optimize
costs (maximizing volume high quality effects to minimize total costs).
193
– production of burned dolomite
Dijana Kozina Vedrana Vukadinović Marko Tadić: THE IMPORTANCE OF MANAGEMENT AND COST ESTIMATION IN MANAGERIAL DECISION MAKING
194
consumers are primarily a construction industry, which uses these products
from exploitation as a final product, but also agricultural and chemical industry,
which mostly use products from exploitation as a reproductive material for fur-
ther processing or production of final products with increasing value.
195
Dijana Kozina Vedrana Vukadinović Marko Tadić: THE IMPORTANCE OF MANAGEMENT AND COST ESTIMATION IN MANAGERIAL DECISION MAKING
196
Table 1. List of all companies from the group 08.1 per set criteria (in HRK)
197
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
Dijana Kozina Vedrana Vukadinović Marko Tadić: THE IMPORTANCE OF MANAGEMENT AND COST ESTIMATION IN MANAGERIAL DECISION MAKING
Research methods which were used here for data processing are comparison
and monitoring.
.. Hypotheses
Main hypotheses which were controlled by this research are the following:
a) Share of the annual gross work cost in respect of annual income is less
than 15% of income
b) Average annual net salary is lower than average net salary in Croatia for
2016
c) The lowest income level per employee which ensures profit in business
operations is HRK 100.000,00 HRK annually or more
d) Entrepreneurs from controlled group with more than 30 employees are
certainly profitable
These hypotheses are tested further in the paper and certain conclusions
were drawn.
198
3. RESEARCH RESULTS
In this chapter research results for each hypothesis will be presented.
199
Dijana Kozina Vedrana Vukadinović Marko Tadić: THE IMPORTANCE OF MANAGEMENT AND COST ESTIMATION IN MANAGERIAL DECISION MAKING
200
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
Based on this analysis, it can be concluded that the hypothesis is confirmed.
Namely, all entrepreneurs from the sample had in 2016 total work cost in
the amount of HRK 127,5 million, and share of work cost in the total in-
come was 13.05%. Moreover, it can be noticed that entrepreneurs with higher
income from the upper half of the Table no. 2 have generally lower share of
work cost in the total income than entrepreneurs from the lower half of the
Table, due to better organization and equipment which enables them to realize
more income with the same or less cost.
201
.. Average annual net salary is lower than average net
Dijana Kozina Vedrana Vukadinović Marko Tadić: THE IMPORTANCE OF MANAGEMENT AND COST ESTIMATION IN MANAGERIAL DECISION MAKING
202
Table 3. View of controlled entrepreneurs per profit per employee
203
The Table shows that a profitable entrepreneur with the smallest income per
Dijana Kozina Vedrana Vukadinović Marko Tadić: THE IMPORTANCE OF MANAGEMENT AND COST ESTIMATION IN MANAGERIAL DECISION MAKING
employee realized income in the amount of HRK 54.681 per employee, and
other six entrepreneurs were profitable and had income per employee less than
HRK 100.000,00. This means that the hypothesis was not confirmed.
Furthermore, the Table shows that there is no some general or proportional
rule (e.g. several entrepreneurs with over 1 million incomes per employee oper-
ated with a loss), which is understandable since there are many other factors
(and costs) which have influence on profitability of a company, besides work
costs. By analysing profitable entrepreneurs, their average income per employee
amounts to HRK 533.792,00, and average income per employee amounts to
HRK 78.988,00 (profit margin of 14.8%) which shows that profitable entre-
preneurs realize significantly higher profit margin than risk free interest rate in
Croatia.
4. CONCLUSION
Costs are normal consequence of producing effects. In situations when costs
are seriously approaching realised profits, the company management begins to
resort to various methods of cost reduction.
Cost management has a tremendous impact on managerial decision - mak-
ing. In order to be productive and deliver successful management decision, it is
necessary to be minutely coped as well as informed with the existing structure
204
of the organization’s total costs. Cost estimation and management is possible
to realise with different methods. Of course, an accent should be based on cost
optimization. Costs are supposed not to be eliminated, but therefore to be op-
timised. The best combination of costs will enable the highest quality and the
highest production at the lowest possible cost. When the manager draws a line
at last, the most important is the business outcome, that is considered as an ob-
jective benchmark for the company’s success is the relationship between mana-
gerial decision – making.
Planning - adequately structured system - paying attention to the costs
are of the greatest importance to success for each manager. Cost managing of
work is perhaps the most demanding task for entrepreneurs because it influenc-
es to many factors (legal, social, location, traditional, etc.) and one of the must
constantly seek balance between these factors even on a daily basis. Successfully
balanced system definitely assures successful entrepreneurial venture.
Although the costs of labour in some industries are below 15% of revenue
(where the studies have shown for group 08.1 - Extraction of stone, sand and
clay). The fact is, without workers and human capital there is no income, nor
any other costs. Human capital is the starting point for every entrepreneurial
venture, but also for its completion. Likewise, labour costs are the first cost of
every venture, but also its last expense before liquidation.
No matter the fact, how technology intensively changes, production process-
es faster than ever and it is certain that, in the next few decades, it will/would
be possible to eliminate human labour from the cost structure of a branch. Of
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
course, there will always be possibility for this scenario, but maybe it never hap-
pens. The things are quite clear. The area of research was taken to extract stone,
sand and clay in Croatia, because an average person would say that it was a safe
work-intensive activity, and actually the share of labour costs according to the
latest available data for 2016 “only” 13.05%. Certainly, 30 years ago, the share of
work was closer to 50%, but the time for technology development would not
be repeated. One thing is for sure, an entrepreneur must be more closely moni-
tored and respond to market changes because without that “tomorrow” can do
business with loss and it is well known that a profitable company is “easy” to
make a loser, but it is difficult for a loser to make a successful firm.
205
REFERENCES
Dijana Kozina Vedrana Vukadinović Marko Tadić: THE IMPORTANCE OF MANAGEMENT AND COST ESTIMATION IN MANAGERIAL DECISION MAKING
Books:
Belak, V. (1995): Menadžersko računovodstvo, RRiF, Zagreb
Cingula, M. ,Klačmer M.(2003):Pregled nekih metoda i postupaka upravljanja troškovima,
RRiF, Broj 8, Zagreb
Drljača, M.(2003)Karakteristike troškova kvalitete, Kvaliteta, , Infomart, Zagreb
Gulin, D., Janković, S., Dražić Lutilsky, I., Perčević, H., Peršić, M., Vašiček, V. (2011):
Upravljačko računovodstvo, HZRFD, Zagreb
Hele, J.(2003) :The eight Quality Management Principles – a practical approach, ISO Man-
agement System, Vol. 3, No. 2, Geneva, Switzerland
Kolar, I., Koletnik, F. (2005): Dugoročno upravljanje troškovima poduzeća, RRiF, Vol. 9,
Zagreb
Markovski, S. (1983): Troškovi u poslovnom odlučivanju, Informator, Zagreb
Potnik Galić, K., (2015): Primjena modela ciljnih troškova u analizi upravljanja troškovima,
RRiF, Vol. 7, Zagreb
Rupčić,N.(2016):Upravljačka ekonomija-teorija i praksa,Ekonomski fakultet,Sveučilište u
Rijeci
Trcović, E. (2012): Primjena dodatne kalkulacije u proizvodnji, RRiF, Vol. 7, Zagreb
Živković S., Vrkljan D. (2002.): Površinska eksploatacija mineralnih sirovina, Rudarsko-
geološko-naftni falultet Zagreb
Scientific articles:
Barnard, C. (2012) The financial crisis and the euro plus pact: A labour lawyer’s perspective.
Industrial Law Journal 41(1): 98–114.
de la Porte, C., & Heins, E. (2015). A new era of European Integration? Governance of La-
bour market and social policy since the Sovereign debt crisis. Comparative European
Politics, 13(1), 8-28. DOI: 10.1057/cep.2014.39
Laws:
Zakon o rudarstvu, članak 4., NN 75/2009 iz 30.06.2009.
Objava Državnog zavoda za statistiku, NN 21/2017, broj dokumenta 506, iz 10.03.2017.
Internet site:
https://e-obrt.minpo.hr/dokumenti/nkd2007_s_objasnjenjima.pdf.(08.03.2018.)
https://www.bisnode.hr/proizvodi/bisnode-smart-vision/ (08.03.2018.)
206
Eurostat: http://ec.europa.eu/eurostat/statisticsexplained/index.php/Wages_and_la-
bour_costs/hr#Dodatni_podaci_Eurostata)(15.03.2018.)
http://ec.europa.eu/eurostat/statistics-explained/index.php/File:Estimated_hourly_la-
bour_costs,_2016_(EUR)_YB17.png) (15.03.2018.)
http://ec.europa.eu/eurostat/statistics-explained/index.php/Wages_and_labour_costs/
hr (15.03.2018.)
http://ec.europa.eu/eurostat/tgm/graph.do?tab=graph&plugin=1&language=en&pcode
=tps00076&toolbox=type(23.03.2018.)
207
AN ANALYSIS OF THE STATE
OF ATTITUDES OF THE LOCAL
Dina Đelmo Smajlović: AN ANALYSIS OF THE STATE OF ATTITUDES OF THE LOCAL COMMUNITY TOWARDS TOURISM DEVELOPMENT IN THE CITY...
Abstract
Starting from the hypothesis that tourism is an economic activity, but also a
way of life in a city, the city of Rijeka, thanks to its historical and cultural sights,
architecture of industrial heritage, recognisable cultural and sports events, can
be grouped among cities that develop urban tourism. In addition to cultural
and historical heritage, Rijeka prides itself on its rich industrial heritage that
needs to be valorised, preserved, transformed, and incorporated in the tourist
offer of the city. Nowadays, this destination is at a specific developmental turn-
ing point and its inhabitants are aware of the opportunities that high-quality
and planned tourism development might bring. Apart from meeting the needs
of tourists, tourism development must at the same time meet ever more com-
plex needs of the domicile population and have a positive impact on the quality
of their lives. Furthermore, in the planning of tourism development in a desti-
nation, it has become common practice to determine the attitudes of the local
population towards its development. Where tourism is not supported, popu-
lation’s resistance to such investments is to be expected. On the other hand,
hospitable hosts are one of the key factors in the forming of overall satisfaction
with the visit, by which they indirectly contribute to word-of-mouth advertising
and encourage revisiting. In view of the above, this paper presents the research
conducted by a survey on the attitudes of the local community regarding tour-
ism development in the city of Rijeka. This analysis of the conducted research
provides an opportunity to discover the strongest positive and negative impacts
of the level of tourism development on the quality of life in the destination of
Rijeka.
208
Key words: tourism, tourism development, tourism policy, city of Rijeka
JEL Classification: Z32, Z38
1. INTRODUCTION
Rijeka has been positioning itself as a city of events and a recognisable desti-
nation of urban tourism. Urban tourism has been gaining significance, because
cities benefit from tourism both economically and socially; it helps preserve cul-
ture and contributes to raising people’s awareness of the need for environmental
protection. Namely, urban tourism is anything that makes the experience beau-
tiful and the stay in the city pleasant. Except for typical tourist infrastructure
such as hotel accommodation, complementary offer or transport, urban tourism
also consists of many interrelated details such as, for example, cleanliness of
the city, decorated facades, marked cultural sights, quality brochures, traditional
cuisine, and enjoyable public spaces. Rijeka is a port, an industrial city, but its
specific combination of the sea and the hills stretching from the Učka mountain
over the hills of Gorski Kotar to the Velebit makes Rijeka one of the most in-
teresting tourist destinations in the world. To the west of the city is the Opatija
Riviera, the oldest and the most elite tourist region of this part of the Adriatic,
and Gorski Kotar nearby provides Rijeka top-quality fresh mountain water and
air. In the vicinity of Rijeka is Platak, the favorite destination of skiers from Ri-
jeka during the winter months. Rijeka is also very close to the Kvarner islands,
Krk, connected with land by a bridge, as well as Cres, Lošinj, and Rab. Rijeka is
very well-connected with the islands and cities along the Adriatic coastline; it
has a bus station, a railway station, and the Rijeka Airport located on the island INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
of Krk. Rijeka is on its way to create a recognisable tourist product due to its
historical and cultural sights, architecture of industrial heritage, recognisable
cultural and sports events. To achieve improvement, current facilities and events
should also include the offer of the entire Rijeka area so that all resources – eco-
nomic, cultural, social – could be economically valorised and have an impact on
the improvement of quality of life in all segments of the city.
209
2. CHARACTERISTICS OF RIJEKA AS A
DESTINATION
Dina Đelmo Smajlović: AN ANALYSIS OF THE STATE OF ATTITUDES OF THE LOCAL COMMUNITY TOWARDS TOURISM DEVELOPMENT IN THE CITY...
210
Mediterranean climate, growing inclusion of the local population, their kind-
ness and hospitality, more and more tourists have recognised Rijeka’s potential
as a future tourist destination (Dujmović, 2014, p.133).
The arrivals and overnights in the City of Rijeka have been continuously
increasing. Numerous events taking place in the city all year round, better trans-
port connections, reconstruction of current accommodation facilities and in-
crease in accommodation quality, as well as opening of new accommodation
facilities, especially in private accommodation, have surely contributed to this
trend. An important factor is also Rijeka’s re-orientation towards urban tour-
ism. Development of accommodation facilities in the City of Rijeka is the basis
for achievement of positive tourist results year after year. In 2016, the City of
Rijeka had 2.680 average available beds. In comparison with 2013, when there
were 2.141 average available beds, the increase is 25,18%. (https://www.rijeka.
hr/ accessed on 15/03/2018).
Table 1. Overview of the number of beds according to structure for the City of
Rijeka in the period 2013-2016
No. CATEGORY 2013 2014 2015 2016
1. HOTELS 554 554 554 554
2. HOSTELS 448 429 424 467
3. PRIVATE ACCOMMODATION 411 573 739 1263
4. CAMP 350 350 350 -
5. GUESTHOUSES 370 378 392 396
6. STUDENT COMPLEX - 116 - -
In 2016, four hotels opened with 554 beds, two guesthouses with 396 beds,
16 hotels with average 467 beds and private accommodation with 325 accom-
modation facilities and 1263 beds. In the past four years, stable progress has
been made in increasing the number of beds, and there is noticeable continua-
tion of trends of structural changes in accommodation facilities. The largest in-
crease in the number of beds was recorded in the category of private accommo-
dation, which grew over 3 times in the observed period in relation to the base
year 2013. Private accommodation also holds the largest share of 47,13% and
211
has become a predominant type of tourist accommodation in the City of Ri-
jeka. Hotels hold the share of 20,67% in the total number of beds, followed by
Dina Đelmo Smajlović: AN ANALYSIS OF THE STATE OF ATTITUDES OF THE LOCAL COMMUNITY TOWARDS TOURISM DEVELOPMENT IN THE CITY...
hostels with 17,43% of the share, while guesthouses kept their share of 14,78%.
The performance of each tourist destination is monitored primarily through
realised tourist arrivals and overnight stays. These are the indicators represent-
ing a combination of factors such as current tourist offer and accommodation
infrastructure, and it is an important indicator of current trends followed by
domestic and foreign visitors. The achieved annual results in the City of Rijeka
indicate growth trends and exceptional resilience of tourism as an economic
activity.
The number of overnights is closely related to the number of arrivals of do-
mestic and foreign tourists and also shows a positive multi-annual growth trend
for the City of Rijeka.
Table 2. Overview of the realised arrivals of domestic and foreign visitors for
the period 2013-2016
ARRIVALS INDEX
YEAR
Foreign Domestic Total Foreign Domestic Total
2013 58646 17653 76299 111 106 108
2014 69541 21176 90717 118 120 119
2015 82288 23768 106056 118 112 123
2016 90233 24514 114747 110 103 121
Source: Rijeka Tourist Board data (information on tourism indicators in the City of Rijeka
and investment of the City of Rijeka in the development of the tourist destination
from 2013 to 2016)
Every year in the observed period, foreign tourists realised an increased num-
ber of overnights in relation to the previous year. Annual percentage growth in
foreign tourists’ overnights ranged from 10% to 26%. An identical trend is evi-
dent in case of domestic tourists whose number of overnights increased from
33.521 in 2013 for as much as 56,90% to 52.595 realised overnights in 2016.
The cumulative result of positive trends indicates that the growth rate of the
total realised number of overnights in Rijeka area was at very high 21,58% per
year in 2016, which clearly indicates increased attractiveness of the city as a
tourist destination. The total number of overnights increased from 146.177 to
260.558 overnights (78,24%).
212
.. Advantages of tourism development in Rijeka
The idea of connecting mountain and sea tourism of the Kvarner and its hin-
terland appeared already in 1960. A study had been made according to which
the plan was to connect the Kvarner Riviera, Grobnik Field, Platak, Snježnik,
that would connect the region of Gerova through Lazac (Matejčić, 2007, p.33).
The plan was also to connect the Risnjak National Park through this project,
and this concept was called “Planimor”, derived from “Platak-Rijeka-More”
(Cro. more = sea) or Platak_Risnjak-More or “Platak-Lazac-Risnjak-More”
with other possible combinations. (Tumara & at.al.; 2000, p.335-345). The
world-famous Carnival of Rijeka attracts many visitors to Rijeka. It is one of the
five most famous carnivals in the world, attracting growing number of domestic
and foreign tourists every year. Rijeka has lately been developing congress tour-
ism with the accompanying offer. Congress tourism is a specific form of tourism
in which the main travel motive is not vacation, but participation of individuals
in different kinds of conferences. Although congress tourism travels are in the
domain of business travels that are often obligatory and conditioned by a work-
place, a task or a project, all tourist countries gladly group these travellers among
tourists, adding revenues from congress tourism to total tourism revenues. By
developing urban tourism, the City of Rijeka aims to improve the city’s tour-
ist offer, encourage development of a variety of tourist products and services,
increase employment and prolong the tourist season, by which also improve
the development of congress tourism. Except for congress tourism, Rijeka has
also positioned itself as a cruise destination (Lukežić, 2005, p. 131). By build-
ing and arranging the Rijeka’s passenger terminal, Rijeka placed itself on the
map of cruising destinations; the first cruise ships arrived at the port in 2011. INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
Another advantage is also the traditional “Fiumanka Regatta” taking place in
the Kvarner Bay on the occasion of celebration of the patron saint of the city,
St. Vitus. The regatta has become a sort of a brand over the years, the so-called
„sea and sailing holiday “. Rijeka is also famous for its races at the Grobnik Field.
Growing number of racers, tourists from Europe and all around the world visit
the “Grobnik Automotodrome”, at which trainings, tests or special events take
place on a daily basis. This destination is marked by its rich cultural and histori-
cal heritage, different architecture, religion, sports, culture, and urban lifestyle.
While its cultural and historical heritage has not been adequately presented nor
valorised through tourism, the City of Rijeka presents its industrial heritage
in a very valuable and unique manner (Lukežić, 2009, p.86). The first Rijeka
213
industries, such as the Torpedo factory, paper factory, and sugar factory are only
some of them. There have been attempts lately to present industrial heritage
Dina Đelmo Smajlović: AN ANALYSIS OF THE STATE OF ATTITUDES OF THE LOCAL COMMUNITY TOWARDS TOURISM DEVELOPMENT IN THE CITY...
in a new way; it has become a significant element of the city’s tourist offer. In
the period of deindustrialisation of cities, the tertiary sector has grown, entre-
preneurship has become stronger, and cities have entered a new development
cycle of significantly different characteristics than typically industrial. In this
transition phase, a strong shift towards tourism cannot be expected, because
of the barriers – objective factors, i.e. lack of tourism supra-structure, but also
subjective factors, i.e. lack of awareness of the population that tourism may be
important for economic and social development of the city.
214
Table 3. SWOT analysis of the City of Rijeka
STRENGTHS (+) WEAKNESSES (-)
Rich cultural and historical heritage Lack of accommodation facilities and low quality of the
Offer of traditional events existing ones
Quality gastronomy Lack of parking spaces
Authenticity of the city Arranged beaches and promenades
Geo-traffic position, accessible by land, sea, air Insufficient promotion
Preserved tradition, historical heritage Lack of amenities that would increase consumption
Variety of offer Destination management
Unique event locations
Good transport connections
Industrial heritage
Climate
Human resources
Hospitality
Attractive natural resources
The above SWOT analysis of the City of Rijeka identifies strengths and
weaknesses of the current state of the City of Rijeka, i.e. its current business
activities and management. It also presents opportunities and threats that could
occur in future business activities of the city. Urban tourism has become a very
significant motive of arrival to a certain destination in the modern tourist offer.
Research have confirmed that various events attract mass arrivals of tourists,
which has motivated tourist destinations to organise growing number of fes-
tivals, mega-spectacles, sports events, especially those related to tradition, local
customs and culture. The existence of tourism resources and attractions is no
longer sufficient; they should be linked with recognisable storytelling events,
i.e. something that will attract attention and raise expectations and make this
215
cultural, entertaining, sports, or another event a priority in their travel itiner-
ary. The City of Rijeka offers such events. It can be concluded that the City
Dina Đelmo Smajlović: AN ANALYSIS OF THE STATE OF ATTITUDES OF THE LOCAL COMMUNITY TOWARDS TOURISM DEVELOPMENT IN THE CITY...
216
the offer and make it available year-round, to increase booking of accommoda-
tion facilities and develop new forms of the offer such as congress tourism and
improve the existing services. The main weaknesses of the City of Rijeka are
reflected in shortage and low quality of accommodation facilities and lack of
parking spaces, especially during events. Threats that cannot be influenced are
recession and bad weather that is often a problem during the summer months
when open-air ambience events are organised. Environmental issues that could
happen could be for instance problems with LNG-terminal Krk gas hub for
Central and South-eastern Europe.
217
questionnaire is related to the assessment of the mentioned impacts of tourism.
The personal interview method was mostly used in the collection of data. Since
Dina Đelmo Smajlović: AN ANALYSIS OF THE STATE OF ATTITUDES OF THE LOCAL COMMUNITY TOWARDS TOURISM DEVELOPMENT IN THE CITY...
starting points are based on real issues and modern trends, the results of this
research should provide users a theoretical background, but also relevant practi-
cal answers, which will ensure higher level of effectiveness in tourism activities.
The results of this research should also encourage tourism policy makers to im-
prove the organisation of tourism in the city of Rijeka as well as create the best
destination image possible. Attitudes of the local population can surely change
the current image of Rijeka as a tourist destination, i.e. help in the creation of a
recognisable offer and to stand out on the highly competitive market.
218
Chart 1. Occupations of the interviewed population
'LUHFWO\ HPSOR
R\HG LQ WRXULVVP
(P
PSOR\HG LQ RWKHU
R DFWLYLWLHHV
8QHPSOR\HG
3HHQVLRQHU KRX
XVHZLIH
6WWXGHQW SXSLO
The analysis has shown that only 6% of the population is directly employed
in tourism, while 56% is employed in other activities. The rest of the inter-
viewed population are students and pupils (17%), the unemployed (16%), and
pensioners and housewives (5%). The data show that only 62% are working-age
population, while 38% are students, the unemployed and pensioners. The oc-
cupation analysis is important, because people in different occupations have a
different understanding of tourism phenomenon.
219
most responsible for the quality of tourism management (56%), followed by
state administration (23%), commercial management (15%), and other (6%).
Dina Đelmo Smajlović: AN ANALYSIS OF THE STATE OF ATTITUDES OF THE LOCAL COMMUNITY TOWARDS TOURISM DEVELOPMENT IN THE CITY...
220
tion is threatened by the construction of apartments and flats, which is not
in line with the general image and perception of this problem in the public.
Whether due to industry or some other negative factors that the destination
is trying to improve, as much as 57% of the population thinks that Rijeka has
not exceeded its carrying capacity during the summer months, while 17% of the
population believe the contrary. 26% of the population think that the destina-
tion is partially overcrowded with tourists during the summer months, which
affects the quality of their stay. The population is unsatisfied with dissemina-
tion of information and inclusion in decision-making in tourism. Since they are
an important factor in tourism activities, they have to be the imperative factor
in decision-making. Destination development must be based on the synergy of
the tourist destination and local population. As much as 66% of the popula-
tion believe they need to be informed and included in decision-making, 33%
believe that they should be partially included, and only 1% believe the contrary.
Local population has a positive attitude towards tourism development and the
destination (70%), negative attitude (29%), and neutral attitude (1%). It can be
concluded that, except for positive attitude towards tourism development in Ri-
jeka, a large part of the population has no opinion on tourism development, i.e.
has a neutral attitude. The population should be included in public activities in
the function of tourism, be informed and included in the making of important
decisions in tourism to form a positive attitude in the future, without negative
and neutral attitudes.
Survey of the local population indicated strengths and weaknesses of the
tourist offer of Rijeka. The population provided their opinion by marking 1 as
the worst to 7 as the best the following elements: space, resources and the envi- INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
ronment, facilities, destination organisation, recognisability, safety and informa-
tion level, population, and employees.
221
Table 5. Satisfaction of the population with elements of the tourist offer of the
City of Rijeka
Dina Đelmo Smajlović: AN ANALYSIS OF THE STATE OF ATTITUDES OF THE LOCAL COMMUNITY TOWARDS TOURISM DEVELOPMENT IN THE CITY...
10 elements of the tourist offer with which 10 elements of the tourist offer with which the
the population are satisfied the most population are satisfied the least
1. Beautiful landscape 6.10 1. Parking spaces 3.14
2. Climate 5.55 2. Crowded beaches 3.14
3. Historical and cultural heritage 5.21 3. Health tourism facilities 3.41
4. Local gastronomy 5.08 4. Price-quality ratio 3.79
5. Cleanliness of the sea 5.04 5. Foreign language skills of employees in tourism 3.80
6. Arrangement of the destination 4.96 6. Souvenirs 3.82
7. Preserved environment 4.94 7. Facilities for children 3.86
8. Events 4.90 8. Conferences and congresses 3.88
9. Shops 4.87 9. Tourist signalisation in the destination 4.02
10. Kindness of employees in tourism 4.77 10. Arrangement and cleanliness of beaches 4.04
Source: Data processing according to filled-in questionnaires
The table shows 10 elements of the tourist offer of the City of Rijeka with
which the population are satisfied the most and 10 elements with which the
population are satisfied the least. The table shows that the population are most
satisfied with the beautiful landscape, climate, and historical and cultural heri-
tage. The population are very unsatisfied with parking spaces and crowded
beaches; these two elements were rated lowest, i.e. identically, but health tour-
ism facilities were also rated lowest. It can be concluded that the elements rated
highest by local population should be pointed out and that their potentials
should be recognised, while the elements rated lowest should be improved and
great efforts should be made to correct these weaknesses. Destination devel-
opment should be based on the synergy of the tourist destination, all tourist
suppliers, and local population. Furthermore, tourism significantly changes the
life of the local population, whether in a positive way, by improving the quality
of life in the destination, or negative, by negative impacts on the quality of life
of the population. The total assessment of the local population of the level of
tourism development consists of 30 indicators. These criteria can be classified
into positive and negative impacts.
Theses of the a positive impact of tourism on the quality of life of the lo-
cal population are: current tourism development has significantly improved
the population’s standard, local population should be included in the adoption
of tourism development plans, tourism development has increased the level of
kindness of the population, benefits from tourism exceed the accompanying
222
negative aspects, tourism development has increased the construction and qual-
ity of recreational facilities also available to the local population, tourism has a
positive impact on the arrangement of roads and parking spaces, tourism has
encouraged investment in infrastructure, tourism development has improved
the appearance and arrangement of the destination, the population are satis-
fied with the manner of planning of tourism development of the destination,
the interest of tourists has encouraged revitalisation of customs and traditional
activities of the local population, tourism influences changes in the behaviour of
the population, tourism helps preserve cultural identity and heritage, tourism
significantly changes traditional culture of the population and system of val-
ues, encounters with tourists promote intercultural exchange, by creating jobs
and generating income, tourism has an impact on the improvement of social
welfare of the population, the population changes occupations and becomes
more oriented to tourism-related occupations, tourism has already significantly
improved the state of economy in the destination, the population has been ad-
equately informed of the possibilities of entrepreneurial activities in tourism.
Theses of a negative impact of tourism on the quality of life of the local
population are: the population’s safety has been jeopardised by tourism devel-
opment, increase in tourist traffic will cause traffic jams, growing number of
tourists will cause animosities between the local population and tourists, con-
tacts between the population and tourists are a potential health hazard, tourism
will encourage increase in taxes and other levies, tourism has an impact on the
rise of organised crime, tourism significantly increases traffic problems in the
destination, the destination records significant increase in noise, tourism has
caused more waste on the streets, Few inhabitants enjoy economic benefits from INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
tourism.
223
Table 6. The population’s assessment of the level of tourism development and
its impact on quality of life
Dina Đelmo Smajlović: AN ANALYSIS OF THE STATE OF ATTITUDES OF THE LOCAL COMMUNITY TOWARDS TOURISM DEVELOPMENT IN THE CITY...
224
A majority of the local population agrees the most with the following positive
impact of tourism development on quality of their life: interest of tourists has
encouraged revitalisation of customs and traditional activities of the local popu-
lation (5.71), tourism development has improved the appearance and arrange-
ment of the destination (5.64), local population should be included in adop-
tion of tourism development plans (5.33). The following were assessed worst
elements: the population has been adequately informed of the possibilities of
entrepreneurial activities in tourism (3.66), the population is satisfied with the
manner of planning of tourism development of the destination (4.20), the pop-
ulation changes occupations, and becomes more oriented on tourism-related
occupations (4.38). The local population agrees the most with the following
theses on the negative impact of tourism on quality of life of the local popula-
tion: tourism significantly increases traffic problems in the destination (4.99),
increase in tourist traffic will result in crowds at significant facilities (4.43), the
destination has recorded a significant increase in noise (4.28). The population
agrees the least with the following negative elements: contacts of tourists and
the population are a potential health hazard (2.48), growing number of tourists
will cause animosities between the local population and tourists (2.65), tourism
development has jeopardised the population’s safety (2.95). Local population
differently assessed the level of tourism development and its impact on quality
of life in the tourist destination of Rijeka. The analysis provides the opportunity
to identify which positive and negative impacts of the level of tourism develop-
ment on quality of life are most pronounced in the tourist destination of Rijeka.
The population’s assessments on the level of tourist development and its impact
225
4. CONCLUSION
Through tourism development, the City of Rijeka has established recogni-
Dina Đelmo Smajlović: AN ANALYSIS OF THE STATE OF ATTITUDES OF THE LOCAL COMMUNITY TOWARDS TOURISM DEVELOPMENT IN THE CITY...
226
REFERENCES
Dujmović, M. (2014). Kultura turizma, Sveučilište Jurajn Dobrile u Puli, Pula, ISBN
978-953-7320-17-1
Lukežić I. (2005). Nebo nad Kvarnerom, Izdavački centar Rijeka, ISBN 953-6939-06-1
Lukežić I. (2009). Robert Whitehead-engleski tvorničar torpeda iz rijeke, Izdavački centar
Rijeka, ISBN 978-953-6939-41-1
Matejčić R. (2007). Kako čitati grad: Rijeka jučer, danas, Adamić, Rijeka, ISBN
9789532193480
Rijeka Tourist Board data (information on tourism indicators in the City of Rijeka and in-
vestment of the City of Rijeka in the development of the tourist destination from 2013
to 2016)
Tumara M., Matić B., Zdunić S. (2000). Hotel 2000, Valorization of the Kvarner Hinter-
land: New tourism product, Faculty of Tourism and Hospitality Management, Opati-
ja, ISSN 1330-7533
https://www.rijeka.hr/ accessed on 15/03/2018
227
STRATEGIC POTENTIAL OF THE
ZOOLOGICAL GARDEN OF OSIJEK
AS AN IMPORTANT DETERMINANT
OF CONTINENTAL TOURISM IN
Dejan Balić Kristijan Šimičić Vinko Samardžić: STRATEGIC POTENTIAL OF THE ZOOLOGICAL GARDEN OF OSIJEK AS AN IMPORTANT...
Abstract
Zoological Garden of the City of Osijek has a sixty-year-old tradition. In the pa-
per is presented the strategic tourist potential of the zoological garden and its sig-
nificance in tourism of the Republic of Croatia, especially for its poorly developed
continental tourism. Moreover, it also analyses the fact of how much the Osijek
Zoo has used a positional advantage over the long-standing competitors: Zagreb,
Sarajevo, Belgrade, and Budapest Zoo, all of which are placed in the city and have
no expansion possibility as oppose to the Osijek Zoo. By completing the C5 traffic
route, new markets are opening in Osijek when it comes to one-day tourists. In this
paper, by using systematic analysis and projection, it is shown how many visitors
gravitate towards the Osijek Zoo, i.e. if it is economically justified to invest in.
Key words: strategy, potential, tourism, zoological garden (zoo)
JEL Classification: Z30, Z32
228
1. INTRODUCTION
Over its sixty-year-old tradition, Osijek Zoo has had its ups and downs ac-
cording to the situations in its immediate surroundings (economic growth, war,
etc.). Previous and current functioning has been relying on the visitors from
its close surroundings. The particularity of Osijek Zoo with regard to the rival
ones – Zagreb, Belgrade, Sarajevo, Budapest – is that this zoo is situated near
the city which gives it the possibility of expansion as oppose to the competitors
which are limited by their zoo location in the city.
Over the last 20 years, except the existing competition in Hungary, new
competitors are emerging who, with their serious work and the use of European
Union funds, are building high-quality zoological gardens with a large number
of species and individuals. If we observe a good connection of Hungarian and
Croatian strong traffic routes toward northeast and northwest of Croatia, do
the given zoological gardens represent a new challenge to the Osijek zoo posi-
tion or not? Does Osijek Zoo use the potential of their micro region and how
much does it exploits the potential of their macro region?
This paper gives the answers to the afore-mentioned questions, but it also
affirms today’s position of the Osijek Zoo with regard to the competitors and
the number of potential visitors, and it puts it into the context of Croatian con-
tinental tourist offer. When we talk about continental tourist offer, it is crucial
to point out that it has been recognized over the last few years, which has been
manifested through the number of newly-opened family run farms which, in
addition to the natural wealth, also provide a rich gastronomic offer. Day after
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
day, they attract more and more visitors from Croatia, but also from neighbour-
ing countries. By comparing the continental tourism in Eastern Croatia, i.e. in
Slavonia and Baranya County, we can conclude that the number of visitors is
still negligible as oppose to the tourism in Istria and Dalmatia.
Inductive and deductive method is used throughout this paper, as well as
the method of analysis and synthesis, and the comparative method for the com-
parison of “desk research” derived secondary data with the global results and the
results from the surroundings.
229
2. OSIJEK THE GEOPOLITICAL CENTER OF
REGION
The city of Osijek has good transport connections with road, railway, river,
and air traffic. In the last 50 years, it has not used its influence inside the region
Dejan Balić Kristijan Šimičić Vinko Samardžić: STRATEGIC POTENTIAL OF THE ZOOLOGICAL GARDEN OF OSIJEK AS AN IMPORTANT...
230
being raised which has resulted with longer life span of animals in zoological
gardens than in the nature. In recent years, the special focus has been put on the
education of visitors about biological diversity.
In the work of zoological gardens, there are trends like joint cages for pri-
mates and birds who are separated by this merely noticeable net or like popu-
larity of meerkats or warthog after the animated movie “The Lion King” etc.
Therefore, the offer of a zoological garden during the years also has had to adapt
to the visitors’ wishes, of course, by taking care of the wellbeing of animals which
they are looking after.
Nowadays, zoological gardens are also present in new shapes like, for ex-
ample, safari-park where visitors travel through them in their own vehicles or
organised transport with the aim to admire the big animals like lions, tigers,
giraffes, and similar from the nearest perspective.
231
tent for tourists. Besides, the conditions for animals were also improved, but the
concept of the zoo has not changed for the last 40 years. The number of visually
attractive animals such as an elephant has been reduced, there is also a smaller
number of big animal individuals like bison etc. A new, less demanding species
have been added, with whom they tried to maintain attractiveness for the visi-
Dejan Balić Kristijan Šimičić Vinko Samardžić: STRATEGIC POTENTIAL OF THE ZOOLOGICAL GARDEN OF OSIJEK AS AN IMPORTANT...
232
Table 1. Overview of zoological gardens in the region
(1 – Distance in kilometres, 2 – Country, 3 – Established, 4 – Size in hectares, 5 – Number
of species, 6 – Number of animals, 7 – Visitors in 100,000/year, 8 – Visit duration in hours,
9 – Budget in million euros/year)
Name 1 2 3 4 5 6 7 8 9
ZOO Osijek 0 HR 1955. 11 100 650 1.00 2.00 0.51
Pécs ZOO 70 HU 1960. 3.5 199 1,037 1.00 2.00
ZOO Palić 104 RS 1949. 10 50 450 1.60 0.75 0.71
Szeged ZOO 135 HU 1989. 45 140 600 1.80 1.50 0.80
Zoološki vrt grada Beograda 160 RS 1936. 7 211 2,000 3.50 2.00 0.27
Kittenberger Kalman Noveny-Es
184 HU 1958. 6 86 3.20 1.50
Vadaspark
ZOO Sarajevo 187 BA 1996. 8.5 38 2.50
Budapest ZOO 221 HU 1866. 18.4 1 072 11.00 1.50 4.16
Zoološki vrt Zagreb 222 HR 1925. 7.0 275 2,225 2.60 2.00 3.87
Jaszbereny ZOO 233 HU 1979. 4.5 138 2.50 0.01
ZOO Gyor - Xantus Janos Allatkert 251 HU 1967. 2.0 68 1.50 0.52
Tierwelt Herberstein 291 AT 1960. 23.0 83 722 2.26 2.00 2.70
AVERAGE: 1953. 12.2 205 1,098 3.11 1.8 1.51
TOTAL: 145.9 7,684 27.96 13.55
Source: created by authors based on (Tportal.hr; 2016) (Budapest Zoo & Botanical Gar-
den; 2018) (Cairns; 2018) (Eberhard; 2018) (Google LLC; 2018) (Hungarian Tourism
Agency; 2018) (IRK Kereskedelmi Kft.; 2018) ( Jászberényi Vagyonkezelő; 2018) (Kami-
cová; 2018) (Kantonalno javno komunalno preduzeće “Park” d.o.o. Sarajevo; 2018) (ORF
Steiermark; 2018) (Pécs Zoo; 2018) (SUCOM Media Subotica; 2018) (Szegedi Vadaspark
Nonprofit Kft.; 2018) (Tierwelt Herberstein Steirischer Landestiergarten GmbH.; 2018)
(Veszprémi Állatkert turisztikai honlapja; 2018) (Xantus János Állatkert; 2018) (Zoološki INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
vrt grada Beograda; 2018)
233
Picture 1. Location of zoos and distance from the city of Osijek
Dejan Balić Kristijan Šimičić Vinko Samardžić: STRATEGIC POTENTIAL OF THE ZOOLOGICAL GARDEN OF OSIJEK AS AN IMPORTANT...
Source: created by authors based on (Budapest Zoo & Botanical Garden; 2018) (Eberhard;
2018) (Google LLC; 2018) (IRK Kereskedelmi Kft.; 2018) ( Jászberényi Vagyonkezelő;
2018) (Cairns; 2018) (Kamicová; 2018) (Kantonalno javno komunalno preduzeće “Park”
d.o.o. Sarajevo; 2018) (ORF Steiermark; 2018) (Pécs Zoo; 2018) (SUCOM Media Sub-
otica; 2018) (Szegedi Vadaspark Nonprofit Kft.; 2018) (Tierwelt Herberstein Steirischer
Landestiergarten GmbH.; 2018) (Veszprémi Állatkert turisztikai honlapja; 2018) (Xantus
János Állatkert; 2018) (Zoološki vrt grada Beograda; 2018)
Shown are those zoological gardens which are owned by the local self-
governments who finance them, while in the case of Hungarian and Austrian
zoological gardens they use EU funds for preservation of animal species. The
information has mostly been downloaded from their websites where they usu-
ally have annual financial reports too.
234
The overview of zoological gardens on the map shows that south of the Zo-
ological Garden of Osijek, there is only the Sarajevo Zoo, which is the smallest
zoological garden in the region. Therefore, all the inhabitants south of Osijek
naturally gravitate to the zoological garden of Osijek. There is only one question
left, the question of opportunity cost. The Zoological Garden of Osijek cannot
be the only reason for coming to the destination. There is a need for co-operation
between tourist board of the city, county, and state in order to take advantage
of mutual positive effects and other content on the destination (Nature park
Kopački Rit, Bizovacke Toplice Spa, Museum of Slavonia, Croatian National
Theatre Osijek, branded eno-gastronomic destination, „shopping“ centres, etc.)
235
In Croatia, there are also three smaller private zoological gardens: Zoologi-
cal garden of the family Bizik, Zoological garden of the family Milec, and The
Križevci tiger conservation which are questionable whether they can be classi-
fied in the same group as public zoological gardens in Croatia.
Dejan Balić Kristijan Šimičić Vinko Samardžić: STRATEGIC POTENTIAL OF THE ZOOLOGICAL GARDEN OF OSIJEK AS AN IMPORTANT...
236
Below, we will give an overview of the number of inhabitants in the observed
regions and the potential number of zoological garden visitors in one year.
Table 2. The number of inhabitants in the observed regions and the potential
number of zoological garden visitors
Population Potential Zoo visitors
Region
(in millions of people) (in thousands of visitors)
City of Osijek 0.11 21
Osijek-Baranya County 0.31 60
Osijek-Baranya County + three neighbouring
0.63 122
counties
Surrounding area 100 km around Osijek 2.87 555
Surrounding area 200 km around Osijek 11.63 2 250
Surrounding area 300 km around Osijek 24.83 4 805
Source: created by authors based on (European commission, 2018)
The authors estimate the surrounding area of 200 km around Osijek as the
zone of potential visitors who can easily visit the Osijek Zoo for a one-day
visit (up to three hours driving in one direction). The distances greater than
those mentioned above are interesting for several-day tourist visits, but are
then related to additional tourist attractions which is not the author’s subject
of observation.
When we compare the potential number of visitors with the actual number
of zoological garden visitors in one year, it can be seen that in the surrounding
of 200 km from Osijek there are one million visitors (table 3) who have not yet
visited the zoo but were prone to.
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
Table 3. The comparison of potential and actual number of zoological garden
visitors in the region around Osijek
Zoo visitors Potential Zoo visitors
Region
(in thousands of visitors) (in thousands of visitors)
Surrounding area 100 km around Osijek 200 555
Surrounding area 200 km around Osijek 1,210 2,250
Surrounding area 300 km around Osijek 2,796 4,805
Source: created by authors based on (European commission; 2018)
237
One third of realized visits are the ones to the Zoological Garden in Buda-
pest – 1.1 million tourists (table 1). Budapest is visited by four million tourists
annually (Hungarian Central Statistical Data, 2018) who increase the number
of potential visitors up to 770 thousand. When we take into account that the
average visit time lasts 1.5 hours, the question which then arises is how many
Dejan Balić Kristijan Šimičić Vinko Samardžić: STRATEGIC POTENTIAL OF THE ZOOLOGICAL GARDEN OF OSIJEK AS AN IMPORTANT...
of the Budapest Zoo visitors are the actual zoo enthusiasts, and how many just
found themselves visiting the Hungarian metropolis.
238
cal Garden of Osijek should be regarded as an important determinant of the
Republic of Croatia’s continental tourism.
The Zoological Garden of the City of Osijek could use the vicinity of the
nearby Zoological Gardens of Pécs, Szeged and Palić to exchange animal spe-
cies, as well as to improve the educational-ecological content and to maintain
the interest of local visitors.
The challenge of today’s zoos is to provide educational content to visitors
who mostly come for fun, but when they are offered educational content that
can be consumed independently, they acquire knowledge as much as the visi-
tors whose primary purpose of visit was – education. (Ballantyne & Packer &
Hughes & Dierking; 2007, p. 378). In this direction, the Zoological Garden
of Osijek should actively cooperate with neighbouring zoos, therefore their ac-
tions are not competition and they can achieve better results working together,
with synergy, than with individual efforts.
Maintaining the interest of visitors for the zoo depends on new content,
which are primarily new animal species. For the same reason successful coop-
eration between neighbouring zoos could be reflected in the periodic exchange
of animal species in order to maintain the interest of visitors.
Joint participation in cross-border cooperation projects would enable bet-
ter use of European funds participating in the development of the previously
mentioned programs.
The Zoological Garden of the City of Osijek can activate the potential with
239
Picture 2. Quintuple helix model
Dejan Balić Kristijan Šimičić Vinko Samardžić: STRATEGIC POTENTIAL OF THE ZOOLOGICAL GARDEN OF OSIJEK AS AN IMPORTANT...
9. CONCLUSION
The Zoological Garden of Osijek has a strategic potential to be a continental
tourist destination in the Republic of Croatia. Given that the zoological gar-
den is not a financially independent legal entity, it should be seen as a way to
raise tourist competitiveness of the Slavonia and Baranya region, and also as an
240
important positive addition when choosing destinations for a family vacation,
socializing, and education.
From the example of Budapest, where they achieve 1.1 million visits to the
zoological garden and stay in it only hour and a half, we can see that zoological
garden is both the additional content and a reason of arrival.
In todays’ ecologically aware society, zoological gardens can represent an ex-
ample of excellence which will be recognized by the visitors only if they provide
good animal conditions and attractive educational content.
In the current strategy for the development of continental tourism in the
city, county, or perhaps state, zoological garden is not at all recognized as a stra-
tegic potential even though it provides a growth potential in the number of
tourist of 510% for Slavonia and Baranya County. With such a rise in the num-
ber of tourists, it would have the positive effect on the other activities too, which
would also trigger a new wave of employment in Slavonia and Baranya County.
The challenge in activation of the existing potential of the Osijek Zoological
Garden (location, possibility of expansion…) is in the need for a new infra-
structure, content and construction changes which also need to have a closed
financial model in order to use EU funds as well. Local and state policy should
be able to recognize that co-financing of a well-organized zoological garden is
restored by the increased turnover of local businessmen.
In branding of Slavonia and Baranya County the Osijek Zoological Garden
could be helpful with its new, international character as a focal point which
REFERENCES
Moss, A.& Jensen, E. &Gusset, M. (2014). Global Evaluation of Biodiversity Literacy in
Zoo and Aquarium Visitors, Retrieved from: http://www.waza.org/files/webcon-
tent/1.public_site/5.conservation/un_decade_biodiversity/WAZA%20Visitor%20
Survey%20Report.pdf Accessed: (01-03-2018)
Ballantyne, R. & Packer, J & Hughes, K. & Dierking, L.D. (2007). Conservation learning in
wildlife tourism settings: Lessons from research in zoos and aquariums, Environmen-
tal Education Research , Vol 13., No 3, pp. 367 – 383, ISSN 1350-4622
Budapest Zoo & Botanical Garden (2018) Retrieved from: http://www.zoobudapest.com/
en Accessed: (01-03-2018)
241
Carayannis, E.G. & Barth, T.D.& Campbell, D.F.J. (2012). The Quintuple Helix innovation
model: global warming as a challenge and driver for innovation,
Retrieved from: https://innovation-entrepreneurship.springeropen.com/articles/
10.1186/2192-5372-1-2 Accessed: (01-03-2018)
Cairns, J. (2018). Szeged Zoo Retrieved from: http://www.livinginhungary.info/visit-mora-
Dejan Balić Kristijan Šimičić Vinko Samardžić: STRATEGIC POTENTIAL OF THE ZOOLOGICAL GARDEN OF OSIJEK AS AN IMPORTANT...
242
ORF Steiermark (2018). Herberstein: Two million visitors in eleven years Retrieved from:
http://steiermark.orf.at/news/stories/2876073/ Accessed: (01-03-2018)
Pécs Zoo. (2018). Retrieved from: http://pecszoo.hu/ Accessed: (01-03-2018)
Strategija razvoja turizma Republike Hrvatske do 2020. godine, Narodne novine 55/2013
SUCOM Media Subotica (2018).160.000 poseta Zoo vrtu na Paliću tokom 2012. godine.
Retrieved from: https://www.subotica.com/vesti/160.000-poseta-zoo-vrtu-na-pali-
cu-tokom-2012.-godine-id14169.html Accessed: (01-03-2018)
Szegedi Vadaspark Nonprofit Kft. (2018). Retrieved from: http://www.zooszeged.hu Ac-
cessed: (01-03-2018)
Tierwelt Herberstein Steirischer Landestiergarten GmbH. (2018). Retrieved from: https://
www.tierwelt-herberstein.at/ Accessed: (01-03-2018)
Tportal.hr (2016). Prva faza modernizacije Zagrebačkog ZOO-a završena. Retrieved from:
https://www.tportal.hr/lifestyle/clanak/prva-faza-modernizacije-zagrebackog-zoo-a-za-
vrsena-20161003 Accessed: (01-03-2018)
United Nations (2018). World Population Prospects. Retrieved from: https://esa.un.org/
unpd/wpp/DataQuery/ Accessed: (01-03-2018)
Veszprémi Állatkert turisztikai honlapja. (2018.). Retrieved from: http://www.veszprem-
zoo.hu/ Accessed: (01-03-2018)
Prijedlog godišnjeg izvještaja o izvršenju proračuna Grada Osijeka za 2016. godinu, Osijek:
Gradsko vijeće.
Xantus János Állatkert. (2018). Zoo Győr. Retrieved: http://www.zoogyor.com/index.php/
en/ Accessed: (01-03-2018)
Young, D.R. & Searing, E.A.M & Brewer, C.V. (2016). The Social Enterprise Zoo: A Guide
for Perplexed Scholars, Entrepreneurs, Philanthropists, Leaders, Investors, and Policy-
makers, Edward Elgar Publishing, 978-178-471-606-6, Cheltenham
Zoološki vrt grada Beograda. (2018). Retrieved from: http://www.beozoovrt.rs Accessed:
(01-03-2018)
243
DETERMINANTS OF CONFLICT
Nataša Rupčić Domagoj Švegar: DETERMINANTS OF CONFLICT MANAGEMENT BEHAVIOR: DOES THE CHOICE OF MAJOR AND STUDY PROGRESS ...
Abstract
The main goal of this study was to examine the differences in employing con-
flict management strategies with regard to the study program and the study
progress. In total, 437 students from two faculties from the University of Ri-
jeka, Croatia participated in the research. Dutch Test for Conflict Handling
(DUTCH) was used to measure students’ conflict management preferences.
The results showed that students of both majors used strategies of compromis-
ing and problem solving the most. Analysis of variance (ANOVA) revealed the
main effect of the study program on the students’ preferences for compromising.
It was found that the students of psychology reported using compromising more
often than the students of economics and business. The interaction of the study
program and the study progress on compromising was also significant. It was
found that the seniors of psychology preferred compromising significantly more
than the seniors of economics and business. Another ANOVA showed that the
main effects of the study program and the study progress on forcing were sig-
nificant with no interaction: preferences for forcing were higher among senior
students than among freshmen as well as among the students of economics and
business than among the students of psychology. The results provide guidelines
for the future design of study programs relative to the needs of the labor mar-
244
ket and social needs for integrative solutions and inclusiveness. Despite the
validity of our findings, the results cannot serve as an accurate predictor of the
student behavior in the workplace. It is possible that college students would use
a combination of conflict management strategies once they enter the workforce.
In addition, our results are based on self-report data. That is why we suggest
that future studies include experimental design as a more accurate way of data
collection.
Key words: conflict management strategies, Dutch Test for Conflict Handling
(DUTCH), study of psychology, study of economics and business
JEL Classification: D74, H83
1. INTRODUCTION
Human behavior is manifested in a wide variety of behavioral patterns and
social scientists are continuously trying to identify its determinants. Special em-
phasis is given to investigating human behavior in social relations. Behavior in
social relations is especially important due to an increase in the importance of
teams, which are formed to find solutions for various social problems. Members
of teams can encounter conflicting situations regarding goals that should be ac-
complished, means and methods necessary to accomplish them, distribution of
workload and responsibilities as well as benefits and rewards (Wageman, 1995).
Teamwork is also a context for emergence of intrapersonal conflicts. Work in
virtual teams poses a special challenge. A survey by the Garther Group showed
that at the beginning of the century more than 60 percent of professional em-
ployees worked in virtual teams (Kanawattanachai & Yoo, 2002). Furumo INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
(2008) found a correlation between deadbeats and those who deserted the vir-
tual team and the intensity of conflict. Those respondents were found to experi-
ence more conflict and less trust, group cohesion and satisfaction when working
in teams. It can be concluded that a more effective conflict management could
prevent members from deserting teams and result in greater teamwork satisfac-
tion and progress.
A widespread concern for economic and social sustainability is accompa-
nied by discussions regarding university efforts in shaping student behavior. It
is undisputed that universities play a significant role in shaping student behav-
ior and personal preferences. When studying adolescent peer conflicts, Opotow
(1991) found that the surveyed students lacked skills to manage conflicts in
245
constructive ways and were generally limited to two extreme reactions - fight
Nataša Rupčić Domagoj Švegar: DETERMINANTS OF CONFLICT MANAGEMENT BEHAVIOR: DOES THE CHOICE OF MAJOR AND STUDY PROGRESS ...
or flee (Opotow 1991). Longaretti & Wilson (2006) found that the surveyed
students had an inadequate level of conflict management skills. They also found
that teachers did not enact constructive conflict management. Research regard-
ing student conflict management behavior relative to their study program and
study progress is lacking. To fill this research gap, we explored what role the
choice of the study program or major and study progress play in shaping the
behavior of university students. We focused our research efforts on revealing
behavioral preferences of students majoring in psychology and economics and
business at the beginning and near the completion of their studies. We believe
that the efforts of the university staff to model the behavior of students has a
substantial influence on their later work and social engagements.
We used the Dutch Test for Conflict Handling (DUTCH) as a proxy to ex-
amine behavioral preferences of students of two different majors. In this work,
we had several objectives: (1) to identify in which areas of life university stu-
dents experience conflicts the most; (2) to examine if students differ in experi-
encing conflicts in certain areas of life with regard to their major; (3) to look for
differences in the frequency of experiencing conflicts in students relative to their
study program; (4) to identify which conflict management strategies students
employ the most relative to the study program and the study progress; (5) to
examine if there are differences in employing conflict management strategies
with regard to the study program and the study progress.
In light of the current developments in the social and economic sphere, our
research falls within the scope of the contingency view, which regards certain
conflict management approaches as more effective that others (Rahim, 1997).
In that way, our research integrates the micro level (psychological) with the
macro level (sociological) along with the economic view and the process of ne-
gotiations (Lewicki et al. 1992). In addition, approach to social relations and
conflict management depends on the value system of a specific society. Under-
standing conflict management in different contexts and cultures has become
increasingly important. In this regard, our study aims to fill the gap regarding
student conflict management behavioral preferences in general and in the spe-
cific cultural context.
246
2. EXPLAINING HUMAN BEHAVIOR
Students majoring in economics and business are under the strong influence
of the standard economic model which states that people are “rational utility
maximizing beings” (Paton & Wilson, 2001, p. 289) whose behavior is aimed at
maximizing their own self-interests. That is why it is expected that economics
and business curricula emphasize the rationality assumption reflected in the
maximization of self-interests as the desired economic behavior. Some previ-
ous studies seem to confirm this assumption. For example, Frank & Schulze
(2000) found that German students of economics were more likely to recom-
mend a plumber that charged higher prices if they had a financial incentive to
do so, compared to other students. Brown et al. (2010) have also found that
business students are more driven by self-interests compared to other gradu-
ates. Consistent with previous findings, it is expected that the behavior of eco-
nomics and business majors is more competitive. Competition can be defined
as “mutually exclusive goal attainment”, where the one party’s success implies
the other party’s failure (Kohn, 1986). In order to pursue competitive interests,
these students are more likely to force their views on others. The study progress
in economics and business is likely to exacerbate these behavioral tendencies,
which our study tries to explore. Frank (2004) found that students of other ma-
jors showed an increase in cooperative behavior as they reached the end of their
studies, contrary to the economics majors. In this regard, it is interesting to note
that Frank et al. (1993) found an increase in self-interested behavior measured
by a decline in honesty even after taking an introductory course in economics
compared to students taking an introductory course in astronomy. This finding
is consistent with the conclusion by Sims (1993) who demonstrated that busi- INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
ness students learn selfish behavior through the course of their studies. In this
study, we wanted to discover whether students of economics and business dif-
fer with regard to their behavior preferences from their colleagues majoring in
psychology measured at the beginning of the studies and by approaching their
completion.
Little is known about the characteristics of students who choose to enroll
in psychology, which was also the motivation for our research. However, some
information is available about the characteristics of professional psychologists.
Goodyear et al. (2016) surveyed counselling psychologists in eight countries
and asked them to rate the extent to which each of suggested values guide their
work. The results showed that values could be clustered in three groups. The
247
highest rated cluster was related to the focus on clients’ strengths and assets,
Nataša Rupčić Domagoj Švegar: DETERMINANTS OF CONFLICT MANAGEMENT BEHAVIOR: DOES THE CHOICE OF MAJOR AND STUDY PROGRESS ...
248
who value self-transcendence prefer intervention of a third party. In addition,
this approach often has a high probability of being unethical.
Obliging (yielding) reflects a low concern for self and a high concern for oth-
er. It is also referred to as the accommodating (Paul et al., 2014), nonconfron-
tational, obedient and losewin style (Song et al., 2006). The party employing
this approach purposefully decides to neglect their interests and focuses on the
interests of the other party. The obliging party also puts emphasis on areas of
agreement instead of conflicting aspects of the interaction in order to smooth
over differences. That is why information mostly flows in one direction. Such
behavior can occur in situations characterized by high power imbalance (Rahim,
1983). However, change in likely to occur once the power imbalance is no longer
present. This approach is also sometimes referred to as exercise of generosity,
selflessness, charity (Song et al., 2006) and self-sacrifice (Rahim et al., 2000).
Avoiding is an approach in which a party shows a low concern for both the
self and the others. The party in a conflicting situation tries to withdraw from
the situation and refrain from action, which could be achieved by ignoring the
problem. It has been associated with passing-the-buck or “see no evil, hear no
evil, speak no evil” attitude. By choosing avoiding, an individual could signal
that a certain problem should not be dealt with or that it is not yet time to deal
with the situation. An individual might also pretend the problem does not exist.
Avoiding is often associated with situations characterized by power imbalance.
In this regard, it was found that managers use avoiding less frequently than oth-
ers (Rahim, 1983). Huang (2010) found that conflicts could not be resolved by
249
In compromising, parties exhibit moderate concern for both the self and the
Nataša Rupčić Domagoj Švegar: DETERMINANTS OF CONFLICT MANAGEMENT BEHAVIOR: DOES THE CHOICE OF MAJOR AND STUDY PROGRESS ...
others and are interested in reaching the so-called “middle ground” or a com-
mon and mutually acceptable outcome. In the process, parties resort to trad-
eoffs and give up some of their interests (give-and-take) to reach a solution that
addresses everyone’s interests. Compromising usually does not bring a lasting
solution due to partial mutual dissatisfaction with the solution. However, this
approach is suggested when resources, including time, are scarce, when the issue
under dispute is complex and when perspectives show significant divergence. In
these circumstances, parties agree to maintain the mutually acceptable solution
for a certain period of time. Further negotiations regarding the matter of dis-
pute often follow on another occasion. It is interesting to note that Gobeli at al.
(1998) found that compromising was ineffective at the project level but it was
effective at the organizational level.
Usage of conflict management strategies could either solve the problem or
further exacerbate the situation and cause additional disputes. It is especially
problematic when ethics-related issues are handled by forcing or dominating
and even avoiding. In accordance with the two dimensions, conflict manage-
ment strategies can be divided in two groups – cooperative and competitive
(Tjosvold & Chia, 1989). Strategies that presume moderate to high levels of
concern for others can be classified as cooperative. Such strategies are obliging
(yielding), compromising and integrating. Collaborative approach to conflict
management has been found to favorably affect group performance (Farmer
& Roth, 1998; Miranda & Bostrom, 1993/94). Similar results were found for
the performance of virtual teams (Montoya-Weiss et al., 2001). More precisely,
Chen & Tjosvold (2002) found on the sample of MBA student respondents
that the cooperative approach to conflicts leads to distributive, procedural and
interactive forms of justice, which promotes team effectiveness. On the other
hand, avoiding was found to be a determinant of distributive, procedural, and
interactive injustice as well as team ineffectiveness. However, a competitive ap-
proach was not related to injustice as consistently as avoiding. It is interesting
to note that the employment of conflict management strategies is related to the
types of conflicts. Conflicts can be constructive or destructive. Song et al. (2006)
found that the greater the use of integrating and accommodating conflict-han-
dling strategies, the higher the level of constructive conflict would be. On the
other hand, the greater the use of forcing and avoiding, the higher would be the
level of destructive conflict. In addition, the greater the use of compromising,
250
the lower would be the level of destructive conflict. With regard to the previous
argumentation, we posit the following research hypotheses:
H1: There are statistically significant differences in experiencing conflicts in cer-
tain areas of life between students majoring in psychology and economics and
business.
H2: There are statistically significant differences in the frequency of experiencing
conflicts between students majoring in psychology and economics and business.
H3: There are statistically significant differences in employing conflict manage-
ment strategies between students majoring in psychology and economics and
business.
H4: There are statistically significant differences in employing conflict manage-
ment strategies between students majoring in psychology and economics and busi-
ness with regard to the study progress.
4. METHODOLOGY
.. Sample and procedure
The study was conducted at a public university in Croatia. In total, 437 stu-
dents from two faculties from the University of Rijeka, Croatia participated in
the research. The subjects were volunteers enrolled in the study programs of
psychology and economics and business. The sample consisted of 87 psychol-
ogy students and 350 students majoring in economics and business. 61 stu-
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
dents of psychology were enrolled in the first and 26 in the last year of study.
Our sample consisted of 243 freshmen and 107 senior students of economics
and business, respectively. In total, 321 respondents were female (75.7%). The
response rate for students of economics and business was 63.7%, while the re-
sponse rate for students majoring in psychology was 69.6%. First year students
were surveyed prior to the introductory lecture in order to make sure they had
no significant information regarding the course content. Seniors were surveyed
during the last week of their last semester, prior to working on their final thesis
( January 2017). Data collection was performed in class on paper by permis-
sion of the instructors and included those students who attended the class and
were willing to participate. The participants did not receive any extra credit for
participating in the research. Participants were asked to state their opinion and
251
were instructed that there were no right or wrong responses. Participants were
Nataša Rupčić Domagoj Švegar: DETERMINANTS OF CONFLICT MANAGEMENT BEHAVIOR: DOES THE CHOICE OF MAJOR AND STUDY PROGRESS ...
.. Measures
To examine student behavior relative to two dimensions – concern for
self and concern for others, we used the Dutch Test for Conflict Handling
(DUTCH), which was updated and revised by Carsten et al. (2001). This par-
ticular measurement instrument was selected due to its excellent psychometric
qualities, which was verified in previous research. The questionnaire consists of
20 items grouped in five sections pertaining to five independent conflict man-
agement factors, as verified by Carsten et al. (2001): problem solving, yielding,
forcing, avoiding, and compromising. Questions were presented in random or-
der. Respondents were asked to rate each statement on the five-point Likert
scale where one indicated “not at all” and five “absolutely yes”. Scores on each
of the factors could range between 5 and 20. The questionnaire started with a
series of introductory questions examining respondents’ demographic profile in
terms of their study program, career ambition, areas in life in which they expe-
rience conflicts and the frequency of experiencing conflicts. The latter ranged
from “almost daily”, “several times a week”, “several times a month”, “several times
a year” to “almost never”. Career ambition as a control variable was measured on
the single-item scale ranging from one to five, with five signifying the highest
degree. Research instrument was pilot-tested with a group of students to ensure
that the wording of the items were aligned with the researchers’ intent. As a
result of their feedback, the wording of some items was revised.
.. Analyses
Structure of DUTCH questionnaire was evaluated by using exploratory
factor analysis (principal component analysis, PCA) with Varimax rotation and
eigenvalue>1 extraction criteria along with scree plot to determine the number
of factors. Internal consistency of DUTCH factors was determined via Cron-
bach’s alpha coefficients. Hypotheses were tested by using Chi-square tests
(Hypothesis 1), t-test (Hypothesis 2) and two-way between-subject analyses
of variance accompanied with partial eta squared coefficients (Hypotheses 3
and 4). Newman-Keuls tests were used to explore significant interactions. T-
test was also applied to examine if the students of two majors differed relative
252
to the career ambition. Analyses were performed by using software packages
STATISTICA 7 and IBM SPSS 21.
5. RESULTS
The majority of respondents indicated “family” as the area of life in which
they experienced conflicts the most, followed by “friends”, “emotional relation-
ships”, “faculty”, and “work” (Table 1). In order to examine differences in the
frequency of experiencing conflicts within specific areas of life of the surveyed
students, five Chi-square tests with continuity correction were performed. Chi-
square analyses revealed that students of psychology and economics and busi-
ness significantly differed in experiencing conflicts in only one area of life. It was
found that significantly more students of economics and business compared
to their counterparts majoring in psychology experienced conflicts at work. In
other areas of life, there were no significant differences between the surveyed
students of psychology and economics and business (Table 1). Hypothesis 1
was therefore confirmed.
Table 1. Differences between students of economics and business (N=350)
and psychology (N=87) in experiencing conflicts with respect to con-
flict areas
253
Independent samples t-test was conducted to examine differences in the ca-
Nataša Rupčić Domagoj Švegar: DETERMINANTS OF CONFLICT MANAGEMENT BEHAVIOR: DOES THE CHOICE OF MAJOR AND STUDY PROGRESS ...
reer ambition with respect to the study program. No differences in career ambi-
tion were found (t=.20; df=435; p>.05) between the students of economics and
business (M=3.92; SD=.82) and students of psychology (M=3.94; SD=.89).
Differences in the frequency of experiencing conflicts with respect to the
study program were also analyzed by calculating independent samples t-test.
The analysis revealed no significant differences (t=1.13; df=435; p>.05) be-
tween the students majoring in psychology (M=3.30; SD=.92) and those
majoring in economics and business (M=3.15; SD=1.12). Hypothesis 2 was
therefore not confirmed.
Factor analysis (principal component analysis, PCA) was conducted by us-
ing Varimax rotation in order to inspect the structure of DUTCH. According
to scree-plot criterion (Cattell, 1966) as well as eigenvalues criterion (Kaiser,
1960), DUTCH questionnaire was found to have the five-factor structure.
Scree-plot indicated five dominant factors and in conformity to that finding,
there were five eigen-values greater than 1 that explained 55.7 percent of the
total variation in the data set. It can be concluded that the five-factor solution
constitutes a good representation of the interrelations among 20 items of the
DUTCH model. These results are consistent with the previous research con-
ducted by using the Croatian version of the DUTCH questionnaire (Rupčić
& Švegar, 2017) as well as with empirical results of some other studies (e.g.
Rahim & Magner, 1994; Carsten et al., 2001).
Internal consistency for the five DUTCH scales was determined by calcu-
lating reliability coefficients (Cronbach’s alpha). Cronbach’s alpha for problem
solving, yielding, forcing, avoiding, and compromising was 0.77, 0.69, 0.67,
0.48, and 0.70, respectively. Only the scale referring to obliging had the alpha
coefficient bellow the benchmark established by Nunnally (1978). However,
this result is consistent with the research results by Song et al. (2006).
Means and standard deviations for each conflict management strategy with
respect to the study program and study progress are shown in Table 2.
254
Table 2. Means and standard deviations for each conflict management strategy
with respect to the study program and the study progress
First year students Last year students
Strategy Study Program
Mean (SD) N Mean (SD) N
Economics 11.93 (3.01) 243 12.30 (2.63) 107
Yielding
Psychology 11.77 (3.47) 61 12.19 (2.71) 26
Economics 15.93 (2.55) 243 15.30 (2.65) 107
Compromising
Psychology 15.97 (2.50) 61 16.65 (2.08) 26
Economics 12.62 (2.81) 243 13.83 (2.89) 107
Forcing
Psychology 12.30 (2.89) 61 12.58 (2.97) 26
Economics 15.79 (2.69) 243 15.32 (2.62) 107
Problem solving
Psychology 15.80 (2.76) 61 16.46 (2.25) 26
Economics 13.35 (2.55) 243 13.43 (2.62) 107
Avoiding
Psychology 13.07 (2.64) 61 13.19 (3.16) 26
Source: authors’ calculations
Effects of the study program and the study progress were tested via five be-
tween-subject two-way analyses of variance (ANOVA) one for each of conflict
management strategies (Table 3). In all analyses, test scores regarding conflict
management strategies were set as the dependent variable. Partial eta squared
(part. η²) coefficients were calculated to determine the effect size.
As presented in Table 3, neither the study program nor the study progress af-
fected yielding, problem solving and avoiding. The main effect of the study pro-
gram on the use of the strategy of compromising was significant (F1,433=4.42;
p<.05). It was found that the students majoring in psychology (M=16.17;
SD=2.39) reported using compromising more often than the students ma-
joring in economics and business (M=15.73; SD=2.59). Hypothesis 3 was INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
therefore confirmed. Furthermore, two-way interaction between the study pro-
gram and the study progress on compromising (Figure 1) was also significant
(F1,429=3.91; p<.05). Newman-Keuls post-hoc tests revealed that freshmen of
economics and business (M=15.93; SD=2.55) did not significantly differ from
their counterparts studying psychology (M=15.97; SD=2.50) in their prefer-
ences for compromising. However, 5th year economics and business students
(M=15.30; SD=2.65), preferred compromising significantly less than 5th year
psychology students (M=16.65; SD=2.08), according to Newman-Keuls post-
hoc analysis (Figure 1). This finding is consistent with Hypothesis 4.
The main effect of the study program (Figure 2) on the use of the strategy
of forcing was significant (F1,429=4.52; p<.05). It was found that the students
255
of economics and business (M=12.99; SD=2.88) reported employing forcing
Nataša Rupčić Domagoj Švegar: DETERMINANTS OF CONFLICT MANAGEMENT BEHAVIOR: DOES THE CHOICE OF MAJOR AND STUDY PROGRESS ...
18.0
17.5
17.0
Compromising
16.5
16.0
15.5
15.0
14.5
First Last
Year of study
256
Figure 2. Effects of study program (economics: black solid line; psychology:
grey dotted line) and study progress (1st and 5th study year) on forcing
(N=437). Vertical bars denote 0.95 confidence intervals.
15.0
14.5
14.0
13.5
Forcing
13.0
12.5
12.0
11.5
11.0
First Last
Year of study
257
which was unexpected. The reason for such behavioral preference could be ex-
Nataša Rupčić Domagoj Švegar: DETERMINANTS OF CONFLICT MANAGEMENT BEHAVIOR: DOES THE CHOICE OF MAJOR AND STUDY PROGRESS ...
plained by the confidence they gained by mastering the study program. How-
ever, further studies are needed in this regard. It is interesting to note that senior
adolescents were found to perceive conflicts as beneficial. In her examination of
adolescent peer conflicts, Opotow (1991, p. 420) got an interesting statement
from a student: “Without conflicts and fights you will never find out who you
are and what type of person you like and what you want out of life.” In enticing
conflicts for that purpose, forcing could be found beneficial.
The fact that the students majoring in economics and business decreased
their preference for compromising and increased their preference for forcing by
reaching the end of their studies shows that they were under the influence of the
postulates of the neoclassical economic theory based on the rational choice the-
ory, which encourages behavior based on self-interests and competition. How-
ever, the complexity of business operations often calls for inter-organizational
cooperation based on negotiations and dialogue. The business model that can
enable survival and competitiveness by integrating partially conflicting interests
of competitors is called coopetition, which is based on simultaneous competi-
tion and cooperation (Kotzab & Teller 2003). Kohn (1992) showed that coop-
erative environment produces better results than competition in all aspects of
business and social interactions. It is therefore suggested that course holders of
economics and business put emphasis on identifying various perspectives and
their integration during problem solving exercises. Course holders should stim-
ulate scenario and contingency planning and stakeholder analysis in various
business situations and encourage students to identify consequences of specific
actions on the stakeholders’ interests. This approach could have beneficial ef-
fects on the students’ future ethical and socially responsible behavior. Davidson
& Versluys (1999) found that training in cooperation and problem solving leads
to the increased expectations of win-win solutions in students. In this regard,
it is beneficial to introduce the term “concern”, instead of the term “interests”
(Davidson & Wood, 2004), which indicates the intention to approach the nego-
tiations and dialogue more comprehensively. This approach is beneficial for all
study programs. In addition, it is interesting to note that Rahim and Psenicka
(2002) found that motivation is positively associated with the subordinates’ use
of problem solving conflict management strategy.
Our results confirmed that five-strategy model is a useful framework for
investigating conflict management and that a simpler conceptualization would
258
not be able to reveal the nuances of human behavior relative to perceived incom-
patibilities. However, the results in our study raise concerns about common-
method bias or common-method variance (Podsakoff et al., 2003) due to the
fact that data were obtained by using self-report measures. We tested for that
problem by conducting a post hoc Harman’s one-factor analysis in which the
unrotated solution to an exploratory factor analysis is examined. The problem
of common method bias may be present if a single factor emerges from the
analysis or when one factor accounts for the majority of the variance of the da-
taset. The analysis revealed that one factor accounted for only 25 percent of the
total variance. In addition, the five-factor solution obtained with eigenvalue>1
extraction criterion accounted for 55.70 percent of the total variance. While
Harman’s single-factor test has its limitations, these results indicate that com-
mon method variance should not be considered an issue in this study. In addi-
tion, other research indicated that self-reported data do not show significant
limitations (e.g. Spector, 1994).
Despite the validity of our findings, our results cannot serve as an accurate
predictor of student behavior in the workplace. It is possible that college stu-
dents would use a combination of conflict management strategies once they
enter the workforce. The most important reason is power asymmetry that the
students as future workers would encounter. Depending on the role of the op-
ponent/other party (supervisor, a colleague or a subordinate), they may find
themselves switching between styles. It has been found that people use differ-
ent conflict management strategies relative to the level of authority that they
encounter in the other party (Rahim, 1992; Holt and DeVore, 2005). In the
context of large power distance, employees are more likely to use the strategy INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
of yielding (obliging); the superiors are more likely to force their views on em-
ployees, while peers usually resort to compromising. That is why future research
could focus on the behavior of interns and new recruits to gain more accurate
results regarding the student actual behavior once they enter the labor market.
In this regard, it is interesting to note that Drory & Ritov (1997) found that
experienced subjects showed considerable sensitivity to the potential power of
their opponents, while subjects without work experience did not tend to adjust
their tactics to the opponent’s power condition. They found that the reaction
of inexperienced subjects under both conditions was similar to experienced
subjects to low opponent power. They concluded that experienced subjects are
more familiar with organizational dynamics and therefore acknowledge the per-
259
sonal risk associated with their dependence on a powerful opponent. Experi-
Nataša Rupčić Domagoj Švegar: DETERMINANTS OF CONFLICT MANAGEMENT BEHAVIOR: DOES THE CHOICE OF MAJOR AND STUDY PROGRESS ...
enced subjects therefore perceive higher risk, which has an intimidating effect
and urges them to be less dominating and more obliging. However, any conclu-
sions regarding actual future conflict management behavior of our respondents
may be premature.
Along with previously stated limitations, our results are based on self-report
data. Our respondents stated their subjective perception of their employment
of conflict management approaches, while that may be different from how the
other party may have perceived their behavior. That is why we suggest that fu-
ture studies include experimental designs as a more accurate way of data col-
lection. For instance, individuals could be assigned to dyads to participate in
negotiation exercises followed by assessments of each other’s behavior. Other
variables could be included in such research designs such as time pressure, re-
source availability, likelihood of future interactions, short-term vs. long-term
orientation, previous personal history etc. We believe that these future studies
could elucidate students’ behavior even further and provide valuable insight that
could be used in the future design of study programs.
REFERENCES
Brown, T. A., Sautter, J. A., Littvay, L., Sautter, A. C. & Bearnes, B. (2010). Ethics and Per-
sonality: Empathy and Narcissism as Moderators of Ethical Decision Making in Busi-
ness Students, Journal of Education for Business, 85(4), p. 203–208.
Carsten, K., De Dreu, W., Evers, A., Beersma, B., Kluwer, E. S. & Nauta, A. (2001). A The-
ory-Based Measure of Conflict Management Strategies in the Workplace, Journal of
Organizational Behavior, 22(6), p. 645–668.
Cattell, R. B. (1966). The Scree Test for the Number of Factors, Multivariate Behavioral
Research, 1(2), p. 245–276.
Chen, G. & Tjosvold, D. (2002). Conflict Management and Team Effectiveness in China:
The Mediating Role of Justice, Asia Pacific Journal of Management, 19(4), p. 557–572.
Davidson, J. & Wood, C. (2004). A Conflict Resolution Model, Theory Into Practice, 43(1),
p. 6–13.
Davidson, J. A. & Versluys, M. (1999). Effects of Brief Training in Cooperation and Problem
Solving on Success in Conflict Resolution, Peace and Conflict, Journal of Peace Psychol-
ogy, 5(2), p. 137–148.
Deutsch, M. (1973). The Resolution of Conflict, New Haven, CT: Yale University Press.
Drory, A. & Ritov, I. (1997). Effects of Work Experience and Opponent’s Power on Conflict
Management Styles, International Journal of Conflict Management, 8(2), p. 148–161.
260
Edwards, C. & Walton, G. (2000). Change and Conflict in the Academic Library, Library
Management, 21(1), pp. 35–41.
Farmer, S. M. & Roth, J. (1998). Conflict-Handling Behavior in Work Groups: Effects
of Group Structure, Decision Processes, and Time, Small Group Research, 29(6), p.
669–713.
Frank, B. & Schulze, G. G. (2000). Does Economics Make Citizens Corrupt?, Journal of
Economic Behavior and Organization, 43, p. 101–113.
Frank, R. H. (2004). What Price the Moral High Ground, Princeton, NJ: Princeton Univer-
sity Press.
Frank, R. H., Gilovich, T. D. & Regan, D. T. (1993). Does Studying Economics Inhibit Co-
operation?, Journal of Economic Perspectives, 7(2), p. 159–171.
Furumo, K. (2008). The Impact of Conflict and Conflict Management Style on Deadbeats
and Deserters in Virtual Teams, Proceedings of the 41st Hawaii International Conference
on System Sciences, p. 1-10.
Gobeli, D. H., Koenig, H. F. & Bechinger, I. (1998). Managing Conflict in Software De-
velopment Teams: A Multilevel Analysis, Journal of Product Innovation Management,
15(5), p. 423–435.
Holt, J. L. & DeVore, C. J. (2005). Culture, Gender, Organizational Role, and Styles of Con-
flict Resolution: A Meta-Analysis, International Journal of Intercultural Relations, 2(2),
p. 165–196.
Huang, J.-C. (2010). Unbundling Task Conflict and Relationship Conflict, International
Journal of Conflict Management, 21(3), p. 334–355.
Kaiser, H. F. (1960). The Application of Electronic Computers to Factor Analysis, Educa-
tional and Psychological Measurement, 20(1), p. 141–151.
Kanawattanachai, P. & Yoo, Y. (2002). Dynamic Nature of Trust in Virtual Teams, Journal of
Strategic Information Systems, 11(3), p. 187–213.
Kohn, A. (1992). No Contest: The Case Against Competition, New York, NY: Houghton Mif-
flin Company.
Kotzab, H. & Teller, C. (2003). Value-Adding Partnerships and Co-Opetition Models in the INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
Grocery Industry, International Journal of Physical Distribution and Logistics Manage-
ment, 33(3), p. 268–281.
Lewicki, R. J., Weiss, S. E. & Lewin, D. (1992). Models of Conflict, Negotiation, and Third
Party Intervention: A Review and Synthesis, Journal of Organizational Behavior, 13(2),
p. 209–252.
Longaretti, L. & Wilson, J. (2006). The Impact of Perceptions on Conflict Management,
Educational Research Quarterly, 29(4), p. 3–15.
Miranda, S. M. & Bostrom, R. P. (1993). The Impact of Group Support Systems on Group
Conflict and Conflict Management, Journal of Management Information Systems, 10(3),
p. 63–95.
Montoya-Weiss, M. M., Massey, A. P. & Song, M. (2001). Getting it Together: Temporal
Coordination and Conflict Management in Global Virtual Teams, Academy of Man-
agement Journal, 44(6), p. 1251–1262.
261
Morris, M. W., Williams, K. Y., Leung, K. & Larrick, R. (1998). Conflict Management Style:
Nataša Rupčić Domagoj Švegar: DETERMINANTS OF CONFLICT MANAGEMENT BEHAVIOR: DOES THE CHOICE OF MAJOR AND STUDY PROGRESS ...
262
al Scientific Symposium, The Economy of Eastern Croatia – Vision and Growth, Mašek
Tonković, A. (ed.) Ekonomski fakultet u Osijeku, Osijek, p. 405-414.
Sims, R. L. (1993). The Relationship Between Academic Dishonesty and Unethical Busi-
ness Practices, Journal of Education for Business, 68, p. 207–212.
Song, M., Dyer, B. & Thieme, R. J. (2006). Conflict Management and Innovation Perfor-
mance: An Integrated Contingency Perspective, Journal of the Academy of Marketing
Science, 34(3), p. 3417–3356.
Soutar, G., McNeil, M. M. & Molster, C. (1994). The Impact of the Work Environment on
Ethical Decision Making: Some Australian Evidence, Journal of Business Ethics, 31, p.
327.
Spector, P. E. (1994). Using Self-Report Questionnaires in OB Research: A Comment on
the Use of a Controversial Method, Journal of Organizational Behavior, 15, p. 385–392.
Tjosvold, D. & Chia, L. C. (1989). Conflict Between Managers and Workers: The Role of
Cooperation and Competition, Journal of Social Psychology, 129(2), p. 235–247.
Wageman, R. (1995). Interdependence and Group Effectiveness, Administrative Science
Quarterly, 40, p. 145–180.
Xie, J. X., Song, X. M. & Stringfellow, A. (1998). Interfunctional Conflict, Conflict Reso-
lution Styles, and New Product Success: A Four-Culture Comparison, Management
Science, 44(12), p. 192–206.
Acknowledgements
The authors wish to thank Edita Gaica for her invaluable help in coordinating students dur-
ing the pursuit of data collection and Petra Guberina for her technical assistance. This
work has been fully supported by the University of Rijeka under the project number
13.02.1.3.06.
263
EUROPEAN SOCIAL FUND IN
THE REPUBLIC OF CROATIA,
Emina Bačevina Zrinka Malešević Domagoj Pavić: EUROPEAN SOCIAL FUND IN THE REPUBLIC OF CROATIA, GOOD GOVERNANCE - RESULTS...
Emina BAČEVINA, MA
Ministry of Labour and Pension System, Head of Department
Faculty of Economics in Osijek, PhD student of Management
E-mail: [email protected]
Abstract
The Republic of Croatia joined the European Union on 1st July 2013, and has
become 28th Member State. In last five years of membership, the country has
the access to Structural and Investment funds of European Union, which have
been largely contributing to many programmes that have become available by
using various grant schemes. This paper analyzes programmes that the Repub-
lic of Croatia has used so far within the European Social Fund, which finances
4 thematic objectives - high employment and labour mobility, social inclusion,
education and lifelong learning, good governance - and the benefits it gained
from it. It is an ongoing process of programing, implementation and monitor-
ing, but the added value is substantial. The paper presents the results achieved
264
in the area of good governance and the impact the European Social Fund in
Croatia had so far as well as it discusses future plans.
Key words: Good governance, European Social Fund, Structural and Invest-
ment funds of European Union, EU membership, Croatia
JEL Classification: M10,M19
1. INTRODUCTION
The Republic of Croatia implemented a number of European Union’s pro-
grammes during the pre-accession period of becoming a Member State of the
European Union (EU). The main aim of those programmes was to prepare the
country for EU membership, and to fulfil all the criteria required. During the
pre-accession decade, prior to 1st July 2013, Croatia was using pre-accession EU
funds, in total around 750 million euros, and some of the projects from that pe-
riod are still being implemented. The benefits of the funding are major and they
contributed to the development of the country in all important areas and fields,
but they are only an introduction to the funds that became eligible to Croatia
with the beginning of EU membership.
European Structural and Investment funds (ESI funds), available for all EU
Member States, include numerous thematic funds, adjusted for the needs of
each specific country, and are set for the seven year period. The last financing
period was for the years 2007-2013, and the Republic of Croatia gained the ac-
cess to the part of the funds of that period as its EU membership covered last
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
six month of the period. However, Croatia gained the access to major funds in
the current financing period of 2014-2020 in which the EU membership covers
the whole seven year period.
The European Social fund (ESF) is European Union’s main fund that aims
to create more and better jobs for all EU citizens, to improve their job opportu-
nities and to create socially inclusive society. The goals of the ESF have basis in
the Europe 2020 strategy, which is EU’s agenda for generating smart, sustain-
able and inclusive growth in the EU, for improvement of the EU competiveness
at the global market. The ESF priorities are enhancement of the adaptability of
workers through development of required skills, improved access to employ-
ment and lifelong learning opportunities, helping people integrate better into
society and everyday life (EUROPE 2020, p. 17). The ESF is funding many
265
local, regional and national employment-related projects in the EU, from small
projects run by charities to help local disabled people find suitable work, to
Emina Bačevina Zrinka Malešević Domagoj Pavić: EUROPEAN SOCIAL FUND IN THE REPUBLIC OF CROATIA, GOOD GOVERNANCE - RESULTS...
projects on a national level that promote vocational training among the whole
population. Its main focus is on people.
European Union is based on a democratic principles where civil society and
good governance are at its core. Therefore one of the priority axes of the ESF
finances primarily programmes and projects whose aim is contribution to the
development of the good governance, at the national and local level. Priority
axis 4: Good governanace, that this paper analyses, finances programmes and
projects that are focused on improving the institutional capacity of public au-
thorities and stakeholders and an efficient public administration.
266
increasing the coverage of the young, long-term unemployed and older workers.
Measures for the improvement of the labour market relevance and quality of
education outcomes also had to be taken.
Croatia was recommended to reorganize tax administration, strengthen the
effectiveness and transparency of the social protection system, and to improve
the effectiveness and adequacy of social assistance benefits through their better
targeting.
Complex regulatory framework for doing business in Croatia was continu-
ously being a high burden on businesses. Hence, Croatia was recommended
to take further measures to improve the business environment, offer more e-
services to taxpayers, set targets for considerably lowering administrative re-
quirements, including para-fiscal charges and improvement of the administra-
tive capacity and strategic planning of units entrusted with the management
of European Structural and Investment Funds and ensuring adequate level of
educated human resources and its continuity and stability.
The Council also recommended strengthening the transparency and effi-
ciency of public procurement and reviewing tax expenditure and the tax and
benefits system, ensuring that management of the companies under state con-
trol is performed in a transparent and accountable manner. Recommendations
were also given for the improvement of the efficiency and work of the Croatian
judicial system.
267
• Good governance.
The major issues that investment priorities are derived from are following:
Emina Bačevina Zrinka Malešević Domagoj Pavić: EUROPEAN SOCIAL FUND IN THE REPUBLIC OF CROATIA, GOOD GOVERNANCE - RESULTS...
• Croatian employment and activity rates are amongst the lowest in the EU,
particularly for young and elderly people;
• High unemployment and low labour market participation;
• The public finances are not able to cover the public budget needs;
• Despite many initiatives to improve the process of the public administra-
tion reform and the effectiveness of the justice system, further substantial
investments in HRD and business processes are needed.
268
el), efficiency (delivering results on time) and coherency (between politics and
activities performed). (Bežovan, 2004, p. 90).
One of the priority axes of the ESF is primarily foreseen for programmes
and projects whose aim is contribution to the development of the good gover-
nance, at the national and local level.
Priority axis 4: Good governanace finances programmes and projects of the
specific target 11 - Enhancing institutional capacity of public authorities and
stakeholders and an efficient public administration.
There are two investment priorities that are financed: investment in insti-
tutional capacity and in the efficiency of public administrations and public ser-
vices at the national, regional and local levels with a view to reforms, better
regulation and good governance (11i), and capacity building for all stakeholders
delivering education, lifelong learning, training and employment and social poli-
cies, including through sectoral and territorial pacts to mobilise for reform at
the national, regional and local levels (11ii).
This paper analysis both investment priorities, stating their goals, objectives,
planned results, result indicators, and the current sitution with contracting and
implementation of the projects. It is important to stress that, although the ab-
sorbtion of funds within this priority axis is still not substantial, real program
results will be messured at the end of the 2023, which is the end of this pro-
gramme’s period.
Public administration is one of the most important strategic areas and mod-
ern governance must reflect the harmonization of the Croatian and European
legal system, as well as adoption of European administrative standards.
269
took place during the accession period, but also thanks to Croatia’s inclusion
in the EU strategic planning exercise organized within the framework of the
Emina Bačevina Zrinka Malešević Domagoj Pavić: EUROPEAN SOCIAL FUND IN THE REPUBLIC OF CROATIA, GOOD GOVERNANCE - RESULTS...
1
The Global Competitiveness Index (GCI) tracks the performance of close to 140 countries
on 12 pillars of competitiveness. For more details visit: www.weforum.org
270
Table 1. Most problematic factors for doing business in Croatia
Inefficient government bureaucracy 21.8
Policy instability 13.4
Tax regulations 12.4
Corruption 11.5
Tax rates 11.0
Insufficient capacity to innovate 5.2
Access to financing 5.0
Restrictive labour regulations 5.0
Inadequately educated workforce 3.7
Government instability/coups 3.3
Poor work ethic in national labour force 3.2
Crime and theft 2.4
Inadequate supply of infrastructure 1.4
Foreign currency regulations 0.3
Poor public health 0.3
Inflation 0.0
Source: made by author based on data found at The Global Competitiveness Report 2017-
2018, p. 98 available at www.3.webforum.org (accessed 15.03.2018.)
2
https://ec.europa.eu/info/sites/info/files/2017-european-semester-country-report-croa-
tia-hr.pdf
3
The Sustainable Governance Indicator (SGI) combines analysis of policy performance, de-
mocracy and governance for 41 EU and OECD countries. Executive capacity includes fac-
tors such as strategic capacity, inter-ministerial coordination, societal consultation, policy
communication, effective implementation, adaptability, and organisational reform capacity.
Executive accountability includes factors such as citizens’ participation, legislative actors’ re-
271
In the context of EU funds, it is said that upon EU accession, Croatia has al-
located significant part of the ESF for the period 2014-2020 for improving the
Emina Bačevina Zrinka Malešević Domagoj Pavić: EUROPEAN SOCIAL FUND IN THE REPUBLIC OF CROATIA, GOOD GOVERNANCE - RESULTS...
quality and efficiency of its public administration. In order to create the prereq-
uisites for the allocation of these funds, a very ambitious Public Administration
Development Strategy for the period 2015-2020 was adopted, but it was subject
to several revision of the Action Plan for its implementation, which was finally
adopted in December 2016. The Action Plan for the period 2017-2020 covers
three very important areas of policy: developing an efficient public administra-
tion system, depoliticizing and effectively managing public resources in the public
sector and digitalization of public services. The European Commission considers
that the success of this reform will depend significantly on the extent of the politi-
cal will as well as on the administrative capacity for its implementation.
Member States set targets at the national level and the European Commis-
sion evaluates progress and makes recommendations for each member state. The
European semester, known as the process of aligning economic policy with objec-
tives and provisions defined at EU level, as a key instrument of the EU economic
governance, is a framework for policy implementation and integrated supervision,
including supervision and assessment of the implementation of the General Eco-
nomic Policy Guidelines and Employment Guidelines. Participation in the Eu-
ropean Semester is the responsibility of each EU Member State, and the main
obligations are the development of the annual National Reform Programs and the
Convergence Program, i.e the Stability Program for the Eurozone Member States.
The Republic of Croatia fully participates in the European semester process
since 2014. In April 2015, Croatian Government has accepted its second Na-
tional Reform Program 2015 which adopted three packages of measures that
are in line with the measures foreseen in the Public Administration Develop-
ment Strategy for the period 2015-2020.
The European Commission’s recommendations to Croatia especially em-
phasize need to development an effective public administration. In this respect,
the European Commission follows the efforts of the Republic of Croatia to
strengthen administrative capacity and recommends reform and modernization
of public administration.
sources, the role of media, political parties and interest associations for more details visit:
Bertelsman Stiftung, 2016.
272
The European Commission’s recommendations were also taken into account
during the process of developing the Operational Programme Efficient Human
Resources 2014-2020 which in particular emphases development of quality
systems, e-government and human resource management.
4
The Europe 2020 Strategy is a ten-year European Union Strategy for Growth and Employ-
ment, for more details visit: www.vladagov.hr/Europa-2020
273
fective law enforcement and create transparent, user-oriented, rational, profes-
sional, efficient and efficient public administration whose scope of public law
Emina Bačevina Zrinka Malešević Domagoj Pavić: EUROPEAN SOCIAL FUND IN THE REPUBLIC OF CROATIA, GOOD GOVERNANCE - RESULTS...
covers almost all segments of community life and has an impact on effective
business environment, social and economic development, and it is a base for
democratic processes.
Action Plan for the Implementation of the Strategy for Development of Pub-
lic Administration 2015-2020, was adopted by the Croatian Government in De-
cember 2016, and it is contains all implementation activities starting or ending by
the end of 2020. Envisaged measures foresee rules simplification and speeding up
the work of public administration, increasing legal certainty, digitalization of all
processes with aim to extend e-services to citizens and entrepreneurs, connecting
all government administrative bodies and well as establishing a unified communi-
cation method between citizens and government administrative bodies.
For the implementation of previously mentioned activities, Action plan con-
tains indicative list of 24 projects (IPA/TF 2012 /ESF 2014-2020. /EFRR
2014-2020), of total value for financing 894.4 million HRK. Eighteen (18)
project will be financed in the amount of 580.4 million HRK of which from
European Social Fund in the amount of 493.3 million HRK.
e-Croatia 2020 Strategy was adopted by the Croatian Government in May
2017, presenting an overview of the development of informatization and e-servic-
es in public sector as also presenting goals towards further development. e-Croatia
2020 Strategy was prepared according to the Digital Agenda for Europe (DAE)
and in cooperation with all relevant public sector bodies and representatives of the
academic community, ICT industry and citizens through public survey.
According to e-Croatia 2020 Strategy, the Internet of Things5, the vision of
today, the reality of tomorrow, the fourth industrial revolution, the goal is to
ensure that public administration functions within the framework of the future.
The purpose of the Strategy is to create strategic framework for a coherent, logi-
cal and efficient information system of the state by providing high quality and
cost-effective electronic services at both national and European level. Activities
will be implemented according to Action Plan for the implementation of the
5
The Internet of Things (IoT) is a concept which describes the incorporation of microelec-
tronic circuits and programming support into devices which are not computers by nature,
in such a way to ensure the possibility of interconnection and communication with other
devices. e-Croatia Strategy 2020, Ministry of Public Administration, May 2017. (page 1.)
274
e-Croatia 2020 Strategy, and funds allocated for implementation of the activi-
ties are in the amount of 2.6 billion HRK, of which 1.8 billion HRK from EU
funds and 800 million HRK from national budget. Financing from ESF funds
is in the amount of 435.5 million HRK.
275
work for solving the issues in two main areas, which are supported by European
Structural and Investment funds, change of hierarchically organized services
Emina Bačevina Zrinka Malešević Domagoj Pavić: EUROPEAN SOCIAL FUND IN THE REPUBLIC OF CROATIA, GOOD GOVERNANCE - RESULTS...
276
values expressed by indicators: number of courts supported that developed/
upgraded business processes and/or case management techniques in view of
improving their efficiency (22), number of judiciary staff participating in train-
ing related to quality and efficiency of justice (1 400), number of continuous
training schemes supported for development voluntary alternative dispute reso-
lution mechanisms supported for development and implementation (7). Indica-
tors are expected to be achieved by the end of the year 2023.
Table 2 and 3 presents the total number of project approved for financing
from ESF funds and from State Budget funds, regards Specific objective 11.i.1
and 11.i.2, in the period from December 2016 until April 2018.
Table 2.
Investment priority Good governance –
Specific objective 11.i.1.
Beneficiary Total amount (ESF &
No. Name of the operation
Institution State Budget funds)
Technical training on tools, monitoring and monitoring Ministry of finance –
1 6,846,832.00 HRK
of e-commerce and procurement of equipment and tools Tax administration
Strengthening knowledge and skills of human resources Croatian firefighting
2 9,901,637.81 HRK
of the firefighting organizations in the Republic of Croatia association
Ministry of
Modernization of the Customs Administration’s business
3 Finance – Custom 14,401,633.00 HRK
in the Republic of Croatia
Administration
Central State Office
Establishment of the Integrated System for Management
4 for the Development 12,856,124.93 HRK
of Official Documentation of the Republic of Croatia
of the Digital Society
Development of a competence framework for public Ministry of Public
277
Table 3.
Investment priority Good governance –
Emina Bačevina Zrinka Malešević Domagoj Pavić: EUROPEAN SOCIAL FUND IN THE REPUBLIC OF CROATIA, GOOD GOVERNANCE - RESULTS...
Table 4 present planned amount allocated for Specific objective 11.i.1 and
11.i.2, in the period 2014-2020., vs total amount approved for financing in the
period from December 2016 until April 2018.
Table 4. Planned amount allocated for Specific objective 11.i.1 and 11.i.2, in
the period 2014-2020.
278
months, is Shared Service Centre worth 305,0 million HRK (www.uprava.hr,
2018).
279
widespread volunteering, positive results are gained – for individuals, for local
society and for civil society of the country as such.
Emina Bačevina Zrinka Malešević Domagoj Pavić: EUROPEAN SOCIAL FUND IN THE REPUBLIC OF CROATIA, GOOD GOVERNANCE - RESULTS...
Volunteering, one of the tools of the healthy civil society, is still underde-
veloped in Croatia. Law on Volunteering (NN 58/07, 22/13) defines rights
and duties of volunteers and volunteer organizers, benefits and values gained.
Volunteering leads to the improvement of the quality of life, development of so-
cial capital, personal development, inclusion of individuals in society, in general
development of a more humane and more equitable democratic society.
In order to ensure contribution of CSOs to public policy development and
to create preconditions for durability of reforms in key policy areas related to so-
cio-economic growth, strategic long term approach to investments in strength-
ening capacities and sustainability of CSOs needs to be formed and maintained.
Investment priority 11.ii of Good governance is used to increase capacities
of CSOs in effectively using data provided by public administration, with par-
ticular focus on building their advocacy, analytical, monitoring and evaluation
skills, training programmes for civil servants and officials on conducting timely
and effective multi-stakeholders policy dialogue. Projects and programmes fi-
nanced through this priority primarily focus on capacity and partnership build-
ing, innovative measures to enhance CSOs potential for mobilizing citizens and
volunteers, reinforcement of local, regional and national structures for open dia-
logue of CSOs, social innovation models for solving local problems, civil-public
partnerships, fighting corruption and conflict of interest, strengthening the role
in civic education programmes, helping citizens in accessing their rights, im-
proving recognition of CSOs and other stakeholders as valuable partners in
shaping and implementing policies at all levels, contributing to increase of trust
and transparency of public administration.
Structural reforms undertaken by the Government require general consen-
sus of social partners on the implementation of reforms and continuous so-
cial dialogue in all spheres of economic and social development, from regional
and local social partners and stakeholders to the dialogue on the national level.
Quality participation of social partners in European social dialogue and in de-
cision making processes is highly important for the long term results of ESF
agenda.
Results of the investment priority 11.ii will be messured by following indica-
tors: number of CSO implementing successfully projects contributing to the
280
socio-economic growth and democratic development (target number 950) and
by number of social partners organizations that have increased their capacities
in the specific area (target value 70). Indicators are expected to be achieved by
the end of the year 2023.
This investment priority therefore supports funding of the following actions:
• Actions supporting capacity building of CSOs, supporting the establishment
of national, regional and local structures, actions for cooperation between
civil society and public administration in order to build citizen orient-
ed public services, capacity building for local (community based) CSOs,
actions supporting balanced regional socio-economic growth through
the development of capacities of CSOs in islands and in less developed
regions;
• Transparency and Active Citizenship - public, business and civic partner-
ships for improved transparency, openness, accountability and effective-
ness of public administration, innovative re-use of public sector data, ca-
pacity building of CSOs for effective mobilization of volunteers and citi-
zens in policy development processes at local, regional and national levels,
promotion of innovative forms of philanthropy as a support mechanism
to the sustainability of CSOs
• Education - CSOs effective involvement in implementing civic education
programmes that include topics related to introducing concepts of active
citizenship, democratic decision-making, engagement for public good,
human rights protection, social skills development, fight against preju-
dice and stereotypes, intercultural dialogue, entrepreneurship skills, ac- INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
tive involvement of children and youth in sustainable development; Fight
Against Corruption and Antidiscrimination Activities of CSOs - thematic
networking of CSOs and other socio-economic partners for fighting any
form of discrimination, addressing fight against corruption and conflict
of interest at different levels of administration, strengthened capacities of
CSOs for providing free legal aid, stakeholders education in Alternative
Dispute resolution (ADR);
• Dialogue, partnerships and capacity building of social partners - promotion of
social dialogue, research and analytical projects on subjects like industrial
relations and working conditions in Croatia; capacity building of social
partners related to specialisation according to different areas, developing
281
standards for enhanced cooperation among social partners and building
their capacities for partnerships; trainings, workshops, seminars, public/
Emina Bačevina Zrinka Malešević Domagoj Pavić: EUROPEAN SOCIAL FUND IN THE REPUBLIC OF CROATIA, GOOD GOVERNANCE - RESULTS...
282
27,000,000 HRK. The implementation of projects under this operation started
in March 2018. It is expected that 1,785 students will be involved in the imple-
mentation of project activities, the capacities of 192 civil society organizations
will be strengthened and 369 volunteers will be involved in the implementation
of the projects with 19,673 volunteer hours.
The aim of the Call is to increase the number of students with acquired prac-
tical knowledge and skills to address specific social problems and for commu-
nity development. The Call emphasizes the importance of cooperation between
higher education institutions and civil society organizations in the education of
socially responsible and active citizens, which affects the overall development
and improvement of the community.
Within the framework of the Call for Proposals „Culture in the Centre -
Support for the development of public-civil partnership in culture”, which is in
the process of evaluation (April 2018) and its preparation and implementation
in the charge of the Ministry of Culture, is intended to support the activities of
strengthening the capacities of target groups in the area of participatory man-
agement culture and of raising public awareness of good governance in culture,
as well as to support development and establishment of participatory manage-
ment model in culture, preparation and implementation of cultural and artistic
programmes, and development of co-operation and networking in the field of
participatory management in culture.
The size of the envelope for this Call is 50,000,000 HRK and the applicants
and partners are not required to provide co-financing from their own resources,
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
given the fact that the share of funding is 100%. Potential applicants are civil so-
ciety organizations working in the area of culture and art, local self-government
units with a population of less than 10,000 and a public institution in culture
founded by local or regional self-government units.
The general objective of the operation is the development of good gover-
nance in culture by strengthening cooperation between civil society organiza-
tions and the public sector. The call is based on the recommendations of the
Council of the EU aimed at encouraging participatory governance and empow-
ering civil society organizations in the management of culture.
The implementation of 15 projects under the “Social Dialogue Phase III” Call
for Proposals started in March 2018. The projects under this Call should contrib-
ute to increase of the efficiency, sustainability of results and the continuity of social
283
dialogue in Croatia, as well as to improving the quality of social dialogue through
the development and strengthening of administrative and professional capacity of
Emina Bačevina Zrinka Malešević Domagoj Pavić: EUROPEAN SOCIAL FUND IN THE REPUBLIC OF CROATIA, GOOD GOVERNANCE - RESULTS...
7. CONCLUSION
Taking into account the fact that the basis point for a systematic and com-
prehensive public administration reform was set up in June 2015 by adopting
the Public Administration Reform Strategy, after several revision of the Public
Administration Reform Action Plan, finally adopted in December 2016, ab-
sorption of funds allocated for financing project from the ESF, can be seen in
the frame of small but strong steps.
However, in order to achieve real progress and fulfilment of the objectives
envisaged within the relevant programmes and strategies, and on the basis of
all previously mentioned analyses and recommendations, for more effective and
efficient achievement of further results, the thesis is confirmed that for the suc-
cess of the reform of public administration as well as enhancing the efficiency
of the judiciary, strong political will and support is of outmost significance as
well as clear orientation towards the strengthening of administrative capacities,
the holders of the implementation of the activities envisaged in following years.
Also, developing sustainable capacities of civil society organisations, especially
NGOs and social partners, and enhancing social dialogue is of utmost impor-
tance for good governance. Both investment priorities together contribute to
the good governance in the Republic of Croatia.
284
REFERENCES
EUROPE 2020, A European strategy for smart, sustainable and inclusive growth, available at
http://ec.europa.eu/eu2020/pdf/COMPLET%20EN%20BARROSO%20%20%20
007%20-%20Europe%202020%20-%20EN%20version.pdf (accessed 17.3.2018)
Operational Programme Efficient Human Resources 2014-2020
Bežovan, G.: „Civilno društvo“, Zagreb, 2004
Analitička podloga za izvješće o napretku provedbe sporazuma o partnerstvu između Re-
publike Hrvatske i Europske unije, Institute for Development and International Rela-
tions – IRMO, 2017, available at https://www.weforum.org/reports/the-global-com-
petitiveness-report-2017-2018 (accessed 27.03.2018)
Croatia Report Sustainable Governance Indicators 2017, Bertelsmann Stiftung, 2017
Council Recommendation of 8 July 2014 on the National Reform Programme 2014 of
Croatia and delivering a Council opinion on the Convergence Programme of Croatia,
2014, available at http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%
3A32014H0729%2810%29 (accessed 18.3.2018.)
The Strategy of the Development of the Judiciary for 2013-2018, Narodne novine 44/12
Law on Volunteering, Narodne novine 58/07, 22/13
https://udruge.gov.hr/vijesti/svecana-dodjela-ugovora-za-projekte-iz-esf-poziva-podrska-
organizatorima-volontiranja-za-unaprjedjenje-menadzmenta-volontera-i-provedbu-
volonterskih-programa/4127 (accessed 21.3.2018)
http://www.esf.hr/27-milijuna-kuna-iz-europskog-socijalnog-fonda-za-podrsku-razvoju-
partnerstava-organizacija-civilnog-drustva-i-visokoobrazovnih-ustanova-za-proved-
bu-programa-drustveno-korisnog-ucenja/ (accessed 21.3.2018)
http://www.esf.hr/natjecaji/dobro-upravljanje/kultura-u-centru-potpora-razvoju-javno-
civilnog-partnerstva-u-kulturi/ (accessed 21.3.2018)
http://www.esf.hr/uruceni-ugovori-o-dodjeli-bespovratnih-sredstava-za-jacanje-socijal-
nog-dijaloga-faza-iii/ (accessed 21.3.2018)
https://vlada.gov.hr/europski-semestar/19453 (accessed 30.3.2018)
285
POLICE MANAGEMENT POLICE
OFFICERS’ PERCEPTION OF THE
Ante Orlović: POLICE MANAGEMENT– POLICE OFFICERS’ PERCEPTION OF THE STATUS (QUALITATIVE LEVEL) OF FUNDAMENTAL FUNCTIONS...
Abstract
The efficiency of the police organization substantially depends on police management
and its characteristics. There are five fundamental functions of management – plan-
ning, organizing, human resource management, leading and controlling. Each of these
functions has its role and specific significance in the managing process or management
system. Functions of management include a series of sub-functions. This paper deals
with and explains three sub-functions within each of indicated functions. Evaluation
of fundamental functions and sub-functions of management by the police officers (with
significant professional knowledge and work experience) is of great heuristic relevance.
Empirical research was carried out with regard to the above-mentioned, using the
method of survey, by means of a Questionnaire on Fundamental Functions of Man-
agement in the Police Service. The research included students (respondents) of the Pro-
fessional Graduate Study of Criminal Investigation (128 police officers). Respondents
evaluated the status (qualitative level) of fundamental functions of management and
their sub-functions in the police service by giving certain grades. The grading instru-
ment was a rating scale with a five-level range – from bad to excellent. Research results
indicated the existence of almost unanimous – extremely negative – police officers’
perception of a qualitative level of all fundamental functions of management in the
police service, as well as their sub-functions. When it comes to respondents’ perception,
almost all functions and sub-functions of management in the police service are at a very
low qualitative level, i.e. at a “satisfactory” level (level 2, on a scale from 1 to 5). Within
286
indicated (extremely negative) level, the function of human resource management was
rated as the worst, while the least bad function was the function of controlling. The aim
of this research was to obtain a preliminary diagnosis of the status of the police manage-
ment, as well as to emphasize its relevance and the necessity of prompt development of
all its functions and sub-functions.
1. INTRODUCTION
The efficiency of the police system depends on different factors and circum-
stances that can be internal and external. When it comes to internal factors, the
most important factor is human resources (police officers and police executives)
and when it comes to internal circumstances, the most important circumstances
are police organization and police management. Management is a process which
consists of a series of system, standard and mutually independent managing ac-
tivities that are usually called fundamental functions of management. All speci-
fied functions have its own role and significance in the process of management
and each of them consists of several essential and typical components – sub-
functions of management.
This paper deals with and explains three sub-functions within each of in-
dicated management functions. Strategic planning, tactical planning, and opera-
287
Fundamental Functions of Management in the Police Service. A sample of re-
spondents was appropriate since the respondents were police officers (128 of
them), who are currently attending the Police College in Zagreb, Profession-
Ante Orlović: POLICE MANAGEMENT– POLICE OFFICERS’ PERCEPTION OF THE STATUS (QUALITATIVE LEVEL) OF FUNDAMENTAL FUNCTIONS...
288
dents/respondents are active police officers (employees of the Ministry of the
Interior). They are employed at different organizational units – police stations,
police administrations or General Police Directorate.
The questionnaire asked the respondents on their demographic character-
istics, which are relevant in the context of expressing respondents’ opinions/
attitudes regarding the issues of this research. Indicated respondents’ character-
istics are shown in Table 1.
289
The relevance of the sample is based on its biological dimension (respondents’
average age is 31.95 years of age), empirical dimension (respondents’ average
length of service in the police is 11.32 years) and on the educational dimension
Ante Orlović: POLICE MANAGEMENT– POLICE OFFICERS’ PERCEPTION OF THE STATUS (QUALITATIVE LEVEL) OF FUNDAMENTAL FUNCTIONS...
290
Regarding the fundamental functions of management (planning, organizing,
leading, human resource management, controlling) and their sub-functions – the
respondents were offered a rating scale with a range of grades on five levels (bad,
satisfactory, good, very good, excellent). Respondents expressed their opinion on
the status (qualitative level) of fundamental functions and sub-functions of
management in the police service by circling the corresponding number.
291
basis for the interpretation of the Constitution (Constitution of the Republic
of Croatia, Article 3). Police efficiency should correlate to the importance of the
police in the society and in the country.
Ante Orlović: POLICE MANAGEMENT– POLICE OFFICERS’ PERCEPTION OF THE STATUS (QUALITATIVE LEVEL) OF FUNDAMENTAL FUNCTIONS...
Survey results showed that police officers’ perception of the efficiency of the
police system is at an average level (Mo = 3; Me = 4; M = 3.76). If grade 1 stands
for minimum efficiency (0%) and grade 7 for maximum efficiency (100%) - it
can be concluded that respondents perceived police efficiency as average. They
considered it is at a level of about 50% of its actual or hypothetical capability1.
1
Relevant perceived level of the efficiency of the police system of 50% cannot be directly
related to the coefficient or percentage of solved criminal cases referred to in the police sta-
tistics. Assessment of the efficiency of the police service in this survey was general and pre-
292
Level of police efficiency perceived in this way is ambivalent. On one hand, it
implies insufficient or inadequate efficiency of the police system while, on the
other hand, it explains the existence of a relatively significant room for improv-
ing the police efficiency. Police efficiency primarily depends on police officers
(their knowledge, abilities, skills, motivation, and responsibility), but also on
police management (the qualitative level of fundamental functions and sub-
functions of management in the police service).
liminary. It included all police tasks and the opinions referred to the general impression of
the efficiency of performing these tasks. In addition, data on percentage of solved individual
criminal cases or types of crime in the official statistics of the Ministry of the Interior (Sta-
tistical Overview of Fundamental Safety Indicators and Work Results in 2016 http://stari.mup.
hr/main.aspx?id=180991, accessed on 15 March 2018) require a special methodological
approach in terms of analysis and explanation. For instance, the rate of solved criminal cases
or types of crime for 2016 are as follows: aggravated theft (22.1%); robbery (38.2%); motor
vehicle stealing (34.8%); economic crime (97.6%); criminal offences of corruption (99.7%);
drug abuse (99.7%); organized crime (97%).
293
3.2.1 Planning
Apart from reacting, the police service also tries to act proactively. Both ap-
Ante Orlović: POLICE MANAGEMENT– POLICE OFFICERS’ PERCEPTION OF THE STATUS (QUALITATIVE LEVEL) OF FUNDAMENTAL FUNCTIONS...
proaches include the performance of police tasks in a way that objectives and
ways of their achieving are set ahead. Planning anticipates the future and op-
timization of spending limited human and material resources that are harmo-
nized with it (Buble, 2006:88).
General Police Directorate assesses the status of safety, anticipates the prob-
able development of safety situation, assesses the risks, defines the priorities
of action, and plans measures, actions, and needed resources, based on which
Strategic Assessment as a fundamental document from the police scope at the
national level is made. Strategic Plan of the Police Work is made based on the
Strategic Assessment (Police Act, Article 9, paragraph 1, items 1 and 2). The
same act similarly defines strategic planning of police administrations (Article
11), whereby in this situation it is tactical police planning since the strategic
plans of police administrations are subordinated to the strategic plans of the
General Police Directorate. Operational planning is carried out within the
scope and context of tactical and strategic planning. It includes plans for imple-
mentation of specific operational activities of the police service at a level of a
police station or police administration (for example, securing public gatherings
and conducting criminal investigations).
Survey results regarding respondents’ perception of planning as a function of
management in the police service are shown in Table 3.
Table 3. Planning as a fundamental function of management– police officers’
perception of the status (qualitative level) of planning in the police
service
Mo Me Mean SD
Planning 2 2 2.14 0.792
Strategic planning 2 2 1.94 0.829
Tactical planning 2 2 2.27 0.801
Operational planning 3 3 2.57 0.953
294
dominant presence of improvisation and inactivity in the system functioning
(institutional factors).
Strategic planning (long-term plans, top management, and General Police Di-
rectorate) is seen as the worst in terms of quality, while operational planning
(short-term plans, operational management, and police stations) is rated with the
highest mean grade and is seen as good (M = 2.57). Tactical planning (medium-
term plans, middle-level management, and police administrations) is perceived to
be worse than operational planning, but somewhat better than strategic plan-
ning and is rated as satisfactory.
An important influence on this perception of respondents can result from
the fact that the clear majority of them (83%) are employees of police stations.
They are familiar with operational planning and find it specific, while they are
not familiar with strategic planning and find it complex. They participate di-
rectly and actively in operational planning, as well as in the implementation of
operational plans. On the contrary, they are only indirectly related to strategic
planning and it only has a periodic and minor impact on their everyday work.
3.2.2 Organizing
The police service is a central service of the Ministry of the Interior. It per-
forms tasks prescribed by law and other regulations (Police Act, Article 2,
paragraph 1). The Ministry of the Interior has about 25,000 employees, out of
which about 20,000 police officers and about 5,000 governmental employees
295
trations and Police Stations, Ordinance on the Internal Order of the Ministry
of the Interior.
Ante Orlović: POLICE MANAGEMENT– POLICE OFFICERS’ PERCEPTION OF THE STATUS (QUALITATIVE LEVEL) OF FUNDAMENTAL FUNCTIONS...
3.2.3 Leading
The police system is based on the work of police officers and police execu-
tives, as well as on their interaction. Leading is the most important function of
management in the police service because it includes interpersonal communica-
tion and mutual motivation between leaders (police managers) and their follow-
ers (police officers who are ranked below managers).
Police Act (Article 43) stipulates classification of the police officers’ posi-
tions. Depending on tasks complexity, education, personal vocation, degree
296
of responsibility and authority to make decisions, as well as independence in
performance of tasks, the police officers’ positions are classified into three cat-
egories as follows: 1. executive police officers’ positions; 2. upper-level police of-
ficers’ positions; 3. lower-level police officers’ positions. Executive police officers’
positions are the ones that include planning, organizing, leading and supervising
of work processes in the police service, as well as directing, coordinating and su-
pervising of the police officers.
Survey results regarding respondents’ perception of leading as a function of
management in the police service are shown in Table 5.
Table 5. Leading as a fundamental function of management – police officers’
perception of the status (qualitative level) of leading in the police
service
Mo Me Mean SD
Leading 1 2 1.69 0.782
Following 2 2 2.14 0.986
Motivation 1 1 1.56 0.761
Communication 2 2 1.88 0.819
297
3.2.4 Human resource management
Human resources are the highest value of the police organization. They are
Ante Orlović: POLICE MANAGEMENT– POLICE OFFICERS’ PERCEPTION OF THE STATUS (QUALITATIVE LEVEL) OF FUNDAMENTAL FUNCTIONS...
security service providers, which the police provide to the citizens (Bahtijarević-
Šiber, 2014:6). Human resource management is an extremely important func-
tion of management in the police service. It includes securing an optimal num-
ber of employees of the appropriate professional profile and with adequate mo-
tivation, which is sufficient for successful performance of police tasks or for the
effective functioning of the police system (Marčetić, 2007: 101-102).
Human resource management (Police Act, Article 44) enables harmoniza-
tion of police officers’ knowledge and skills with the required knowledge and
skills necessary for the performance of tasks of a certain position. It also enables
development and cooperation between services and hierarchical levels in the
Ministry, as well as the promotion of professional values in the performance of
service. Human Resource Management is based on professionalism and sup-
port for officers and on career development according to the principle of compe-
tency management (Sikavica, Bahtijarević-Šiber and Pološki Vokić, 2008: 596).
Survey results regarding respondents’ perception of human resource manage-
ment as a function of management in the police service are shown in Table 6.
298
recruitment and selection of candidates (attracting and selecting appropriate per-
sons) is also rated rather poorly. Sub-function of education and career develop-
ment (professional education, gaining of tasks and positions) is also rated nega-
tively, but slightly better than the rest (between bad and satisfactory levels).
With respect to the function of human resource management, which was
perceived as the worst of all function of management in the police service re-
garding the qualitative level - Mann-Whitney U test was used to see if there is
a difference in perception among the police officers, regarding their length of
service in the police. Test results are shown in Table 7.
Up to 10 years 54 46.80 1
–.967
Human resource
.334
10 years and more 43 51.77 2 1042
management
Total 97
299
3.2.5 Controlling
Controlling is the last of five fundamental functions of management. It has a
Ante Orlović: POLICE MANAGEMENT– POLICE OFFICERS’ PERCEPTION OF THE STATUS (QUALITATIVE LEVEL) OF FUNDAMENTAL FUNCTIONS...
300
= 2.31). Given the range of possible ratings, qualitative level of controlling in
the police is relatively low. Although controlling is evaluated with the least bad
grade - this function, the last in the management process, is also rated quite
negatively and does not significantly differ from the negative grading of other
functions of management.
Respondents rated sub-functions of controlling equally low (satisfactory).
Sub-functions and their brief explanations in the questionnaire were as follows:
managerial (direct) control – control of employees by executives, hierarchical (pro-
fessional) control - control of lower organizational units by higher organization
units and specialist (internal) control - control of professionalism and legality of
work.
301
Table 9. Fundamental functions and sub-functions of management – police
officers’ perception of the status (qualitative level) of management in
the police service
Ante Orlović: POLICE MANAGEMENT– POLICE OFFICERS’ PERCEPTION OF THE STATUS (QUALITATIVE LEVEL) OF FUNDAMENTAL FUNCTIONS...
Rank M SD
PLANNING (4) 2.14 .792
Strategic planning 6 1.94 .829
Tactical planning 11 2.27 .801
Operational planning 15 2.57 .953
ORGANIZING (3) 2.06 .852
Division of work and specialization 8 2.07 .924
Rationalization and coordination 7 2.04 .788
Hierarchy and responsibility 9 2.07 .974
LEADING (2) 1.69 .782
Following 10 2.14 .986
Motivation 3 1.56 .761
Communication 5 1.88 .819
HUMAN RESOURCE MANAGEMENT (1) 1.59 .732
Recruitment and selection of candidates 2 1.52 .710
Motivation and awards 1 1.45 .697
Education and career development 4 1.76 .885
CONTROLLING (5) 2.31 .876
Managerial (direct) control 13 2.43 .848
Hierarchical (professional) control 12 2.38 .843
Specialist (internal) control 14 2.45 .912
AVERAGE RATING – TOTAL --- 2.02 .838
302
ceived are operational planning (as already pointed out) and specialist (internal)
control (the average grade of which is a border between a “satisfactory” level and
a “good” level).
Research has shown that motivation is essentially the most negative factor of
management in the police service – both system or institutional (which should
be achieved through the function of human resource management), as well as
individual or personal (which should be achieved through the function of lead-
ing) (Bahtijarević-Šiber, 1999: 555).
4. CONCLUSION
Management is important for every organization in terms of meeting or-
ganizational objectives, in a way in which human and material resources of an
organization are utilized optimally. The dominant holders of organizational
values in all organizations are human resources. They are divided into execu-
tors and executives. The success of an organization depends on both (as well as
on their interaction), but with the responsibility of management being primary
and the highest.
Police officers’ perception of police management, i.e. the qualitative level of
fundamental functions of management in the police service - is the essential
part of this research, the results of which may be indicated in terms of diagnos-
ing the status of police management, but also stimulating in terms of initiating
prospective for development of its functions and sub-functions.
Research results indicated the existence of almost unanimous - extremely INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
negative – police officers’ perception of the qualitative level of all fundamental
functions of management in the police service, as well as their sub-functions.
According to respondents’ perception, almost all functions and sub-functions
of management in the police are at a very low qualitative level – “satisfactory”
level. This level is just above “bad” level, which is the last on the scale (from 1 to
5). The reasons for this status of management in the police are primarily institu-
tional (inactivity, complexity, extensiveness, and inflexibility of the system), but
also personal (lack of education, incompetence, and the inability of managers).
The qualitative deficit of police managers and police management implies the
existence of significant limitations in achieving objectives of the police orga-
nization. The negative repercussions of the above-mentioned are not only of
303
an intra-institutional character. They are directly or indirectly reflected on the
entire social community (situation related to safety).
Ante Orlović: POLICE MANAGEMENT– POLICE OFFICERS’ PERCEPTION OF THE STATUS (QUALITATIVE LEVEL) OF FUNDAMENTAL FUNCTIONS...
REFERENCES
Bahtijarević Šiber, F. (1999). Human Resource Management, Golden marketing, Zagreb
Bahtijarević-Šiber, F. (2014). Strategic Human Resource Management: Contemporary
Trends and Challenges, Školska knjiga, Zagreb
Buble, M. (2006). Fundamental Management, Sinergija nakladništvo, Zagreb
Jurina, M. (2008). Organization and Management, “Baltazar Adam Krčelić” Accredited Col-
lege of Business and Management, Zaprešić
Marčetić, G. (2007). Human Resource Management in Public Administration, College of
Social Sciences in Zagreb, Zagreb
Orlović, A., Labaš, D., Gudelj, A. (2015). Stress in the Police – Perceived Sources of Stress
of the Police Officers (Profession, Organization, Management), 10th International Sci-
entific and Professional Conference Management and Safety – Proceedings, pp. 106-
118, The European Society of Safety Engineers, Zagreb
Orlović, A., Velić, A., Harambašić, S. (2015). Perception of Individual and Formal Charac-
teristics of Police Management from the Point of Police Officers, Proceedings, 4th In-
ternational Scientific and Professional Conference “The Police College Research Days
in Zagreb”, pp. 534-553, Ministry of the Interior, Police Academy, Zagreb
304
Sikavica, P., Bahtijarević-Šiber, F. i Pološki Vokić, N. (2008). Foundations of Management,
Školska knjiga, Zagreb
Sikavica, P. (2011). Organization, Školska knjiga, Zagreb
Turkalj, Ž., Orlović, A., Milković, I. (2016). Motivation for Work – Perceived Sources of
Work Motivation of Police Officers (Profession, Organization, Management), Inter-
disciplinary Management Research XII – Proceedings, pp. 404 – 415, University of
Osijek – Faculty of Economics and Pforzheim University – Business School, Opatija
Ministry of the Interior of the Republic of Croatia, Statistical Overview of Fundamental
Safety Indicators and Work Results in 2016, (website: http://stari.mup.hr/main.
aspx?id=180991)
Ordinance on the manner of conducting internal control and supervision of work of offi-
cers and organizational units of the Ministry of the Interior, Official Gazette 141/11,
146/11
Ordinance on the Internal Order of the Ministry of the Interior, document classified as “re-
stricted” – not publicly available
Civil Servants Act, Official Gazette 92/05, 140/05, 142/06, 77/07, 107/07, 27/08, 34/11,
49/11, 150/11, 34/12, 49/12, 37/13, 38/13, 01/15, 138/15, 61/17
Police Act, Official Gazette 34/11, 130/12, 89/14, 151/14, 33/15, 121/16
Act on Police Tasks and Police Power, Official Gazette 76/09, 92/14
Regulation on Job Classification of Police Officers, Official Gazette 129/11, 82/12, 140/13,
32/15, 40/15, 115/15, 11/17, 102/17, 129/17, 5/18
Regulation on Areas, Seats, Types and Categories of Police Administrations and Police Sta-
tions, Official Gazette 117/11, 50/14, 32/15, 11/17
Regulation on the Internal Organization of the Ministry of the Interior, Official Gazette
70/12, 140/13, 50/14, 32/15, 11/17, 129/17, 5/18
Constitution of the Republic of Croatia, Official Gazette 56/90, 135/97, 8/98, 113/00,
124/00, 28/01, 41/01, 55/01, 76/10, 85/10, 05/14
Website of the Ministry of the Interior of the Republic of Croatia (website: https://www.
mup.hr/ministarstvo/)
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
305
METHODOLOGY OF
IMPLEMENTING EFREIGHT
Waldemar Osmólski Adam Koliński Davor Dujak: METHODOLOGY OF IMPLEMENTING E-FREIGHT SOLUTIONS IN TERMS OF INFORMATION...
SOLUTIONS IN TERMS OF
INFORMATION FLOW EFFICIENCY
Davor DUJAK
Faculty of Economics in Osijek,
Josip Juraj Strossmayer University of Osijek, Croatia
E-mail: [email protected]
Abstract
In today’s markets around the world, in the face of rapid changes, it is neces-
sary to accelerate the flow of information streams generated by communication
between enterprises, public utility entities or business organizations, based on
both applied and newly developed standards. For this reason, in recent years,
many EU-funded research and development projects have dealt with informa-
tion and communication technologies in various spheres of the economy, and
especially in the area of public administration. Based on the solutions created
there, a program was launched that would address exactly the same topic but
in the area of logistics. One of the initiatives taken by the European Union has
been the launch of the e-Impact project, aimed at leveraging e-Freight solutions
and, in particular, the definition of common frameworks that contain the defi-
nitions the package of messages supporting the exchange of business documents
between several entities in the logistics and transport industries. This approach
306
required a rigorous procedure method for implementing the standard, which
would make it possible to deploy solutions in a flexible manner and allow ant
user to apply the same path. This article presents a methodology for imple-
menting the e-Freight standard in terms of the scientific research into the ef-
ficiency of the information flow process.
Key words: e-Impact, e-Delivery, Access Point, communication standards,
implementation methodology
JEL Classification: D80, G14
1. INTRODUCTION
The constantly changing market and competitive conditions of companies
force the management staff to continuously search for new projects optimizing
the process of end-customer service. Therefore, one of the most important fac-
tors determining the competitiveness of companies is an efficient and respon-
sive decision-making process, in a short time and based on current data. The
managerial decision-making process is directly dependent on the effectiveness
of information flow in the company. An effectively prepared information flow is
aimed at supporting the decision-making process, which will directly affect the
speed and accuracy of the decisions being made, also in economic terms. To this
end, IT systems are developed in companies, which together with the develop-
ment of IT and communication technologies, as well as globalization, are sup-
ported by IT tools and systems supporting company management.
307
purposes new research methodology framework was developed and analysed in
chapter 2. The purpose of the e-Impact project is to implement the e-Freight
standard and e-Delivery infrastructure developed in EU funded projects like
Waldemar Osmólski Adam Koliński Davor Dujak: METHODOLOGY OF IMPLEMENTING E-FREIGHT SOLUTIONS IN TERMS OF INFORMATION...
e-Freight and iCargo in real operations along 3 corridors of the TEN-T Core
Network: The Atlantic, Mediterranean, and Baltic / Adriatic corridors. As a re-
sult of research methodology framework, propositions for efficient implemen-
tations of e-Freight actions are stated. The final chapter concludes by giving
implementation benefits of proposed research methodology for the company
and its supply chain.
308
This methodology provides for a multi-criteria analysis of the issues at stake,
taking into account both a review of literature and observations of business prac-
tice, as well as research and development works carried out by other research
institutions in Europe. The research was of a long-term nature and presented
the Authors’ long-term research work on information integration in the supply
chain and efficiency of logistic processes taking place in them. This research
process was aimed at developing a methodology for the implementation of e-
Freight solutions taking into account their impact on the efficiency of logistics
and information processes in supply chains in terms of strategic management.
3. SPECIFICITY OF COMMUNICATION
STANDARDS IN LOGISTICS PROCESSES
.. Literature review
Effective information flow in a company directly affects the accuracy of deci-
sions made by management staff. The specificity of the information flow process
hinders the already complex efficiency issue. The concept of efficiency has not
yet been clearly defined. In the reference literature, there are different interpreta-
tions and approaches to the efficiency of company processes (Rummler, Brache,
1995) and supply chains (Mishra 2012; Lichocik and Sadowski 2013; Geunes
et al. 2016; Brandenburg 2016; Sohrabpour et al. 2016). The presented defini-
tions and concepts of efficiency do not usually exclude one another but con-
stitute a complementary whole or inclusion of another analytical aspect. This
causes not only a scientific problem but also a problem in economic practice.
IT tools supporting company management and supply chain management are INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
309
These considerations are confirmed by the Author’s research concerning,
among other things, the identification of key functionalities necessary for the
comprehensive analysis of the efficiency of logistic processes (Bigaj, Koliński,
Waldemar Osmólski Adam Koliński Davor Dujak: METHODOLOGY OF IMPLEMENTING E-FREIGHT SOLUTIONS IN TERMS OF INFORMATION...
310
tization and innovation. The electronization of the processes taking place in
enterprises requires a holistic approach to the construction of IT systems or
common data exchange platforms, connecting each other through the structure
of Access Points. Such solutions can increasingly be found in the area of data
exchange, applied by public or social institutions, as well as private companies.
An example may be the logistics industry, which covers tens of millions of enti-
ties operating worldwide. If we tried to consolidate at least some of them into
smaller industry organizations, focusing on the selected area of activity (vehicle
parts handling, refrigerated food products, cosmetics, etc.) or the geographical
area of the selected transport corridors, the number of electronic messages sent
would appear to be very high. Apart from their number, attention should also
be paid to the variety of standards used in the exchange of electronic messages
(GS1, SMDG, ODETTE, etc.).
This state of affairs very often implies the occurrence of differences in in-
terpretation in the selection or use of electronic data exchange messages used
by the parties to the process. In particular, this affects the logistics industry,
which is forced to use a wide range of communication standards in the area
of services for companies from multiple industries. They are thus required to
be highly advanced in the IT infrastructure. The result of this measure is nar-
rowing down the potential group of service providers with sufficient financial
resources to develop IT infrastructure, thus restricting access to the market for
small and medium-sized enterprises. Increasingly, a significant number of large
companies involved in the conventional data exchange process also find them-
selves in a similar situation. Despite many attempts to standardize some of the
messages in the form of standards, such as ISO/IEC 19845, which covers the INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
standardization of documents flows in intermodal transport services, it has to
be said with an utmost firmness that the vision of dominance of one type of
communication over another is becoming unimaginable. For this reason, it has
become justified to build an IT infrastructure that would enable interoperable
communication based on a set of various electronic messages, thus enabling en-
terprises to combine their IT systems at different stages of development of their
IT infrastructure.
311
4. ANALYSIS OF THE APPLICATION OF ACCESS
POINTS IN BUSINESS PRACTICE
Waldemar Osmólski Adam Koliński Davor Dujak: METHODOLOGY OF IMPLEMENTING E-FREIGHT SOLUTIONS IN TERMS OF INFORMATION...
The first step towards achieving the goal was a detailed analysis of the solu-
tion developed, based on an electronic message exchange infrastructure, which
does not require any centralized management or authentication of the informa-
tion sent by users. This solution was inspired by the results of the PEPPOL (
Pan-European Public Procurement On-Line)1 research and development proj-
ect, whose essence was the creation of an IT infrastructure for the exchange
of electronic messages related to procurement, exchange of product catalogues
and invoices in the area of public procurement. This was extremely important
from the point of view of public institutions and companies as regards the pro-
cess of opening up the European market to the public procurement sector. The
transition from the process of local actions, in this scope, to international ac-
tions, required a completely different system approach. In order to streamline
and facilitate the electronic circulation of messages, the PEPPOL project fo-
cused on two areas:
a) The area I – the development of a common standard for the exchange
of public procurement information (including e-catalogs and e-invoices).
These electronic documents were created in UBL 2.1 standard and are
now included in ISO/IEC 19845.
b) Area II – the establishment of an electronic information exchange in-
frastructure with the possibility of ensuring interoperability between na-
tional standards applicable in different European countries.
As a result of the works carried out, an IT infrastructure was created based
on the SOA (Serwice Oriented Architecture) model (Łagowski, 2009), con-
necting with its users via Access Points. They operate in a manner that is very
similar to the functioning of e-mail servers, so the exchange of messages is
based on similar principles as in the process of sending and receiving e-mail
messages. Their security mechanisms and protocols ensure a reliable exchange
of information, and their functional structure allows them to handle structured
documents and provide value-added services, such as e.g. converting documents
from one format to another. The accessibility and openness of the Access Point
specification mean that everyone can develop its structure in a way that suits
1
www.peppol.eu
312
their requirements and, after the software has been verified in terms of applica-
ble standards, connect it to the existing infrastructure. It should be emphasized
here that the Access Points specification is strictly regulated by the OpenPEP-
POL organization, and the only central network resource, which is the Access
Point directory called SML (Service Metadata Locator), as well as the elements
of the central structure, are supervised by the European Commission. This does
not change the fact that the openness and the possibility of functional changes
give the author an opportunity to sell Access Point software as a service or as a
finished product.
The first project to develop a specific solution for the application of Access
Points in the logistics industry, developed in the PEPPOL project, was the e-
Freight project which defined communication standards based on the following:
a) the e-Freight structure – a reference model for transport and logistics
that describes the processes supporting the electronic exchange of mes-
sages between the parties in all types of transport;
b) the e-Freight platform – a comprehensive software infrastructure, re-
flecting the e-Freight framework and facilitating the development and
implementation of e-Freight solutions. This platform has three options:
• provides a repository (set) from which e-Freight solutions and e-
Freight services can be downloaded;
• acts as a run-time environment that supports the operations and inter-
actions of e-Freight solutions;
313
and Stena Line in Sweden. During the implementation of this project, it was
concluded that:
a) a booking process is a synchronous object, i.e. requiring immediate feed-
Waldemar Osmólski Adam Koliński Davor Dujak: METHODOLOGY OF IMPLEMENTING E-FREIGHT SOLUTIONS IN TERMS OF INFORMATION...
back from the party receiving the message (e.g. message confirming the
reservation);
b) the time needed to obtain the appropriate certificates (security certifi-
cates) connecting to the network was too long.
These actions are not acceptable in logistic processes because of the need to
obtain information on real-time process implementation. The PEPPOL archi-
tecture is an asynchronous structure, which means that the generation of an
immediate return message cannot be guaranteed. For this reason, it was neces-
sary to introduce necessary modifications of PEPPOL Access Points in order
to support the required response times. As a result of the actions undertaken,
necessary modifications have been made to enable the achievement of the as-
sumed objectives. It has also been concluded that the functioning of logistic
companies, some of which are medium-sized and small enterprises, differs from
the activities taking place in entities involved in the public procurement process.
It is, therefore, necessary to create a structure that will ensure the proper func-
tioning of the logistics industry.
314
cols based on a security policy. It also provides a basis for direct communication
between participants without the need to create closed, bilateral data exchange
channels. This type of solution helps to overcome the barriers to the technical
integration of computer systems, thereby accelerating the exchange of informa-
tion between companies, while reducing their operating costs. This can be seen
above all in international communication, where a huge amount of data requires
fast and reliable ways of redistribution. The structure of the standard is shown
best in Figure 2, which shows the so-called 4-Corner model.
315
is a format that uses the entity for electronic data exchange. If the sender and
receiver use different formats of electronic documents, the information from
the sender is converted by the Access Point to which it is connected into the
Waldemar Osmólski Adam Koliński Davor Dujak: METHODOLOGY OF IMPLEMENTING E-FREIGHT SOLUTIONS IN TERMS OF INFORMATION...
e-Delivery infrastructure standard and then sent to the recipient’s Access Point,
where it is converted to the standard format it uses. Figure 3 shows the conver-
sion of LOGINK standard to other formats (e.g. SMDG).
In recent years, many EU-funded R&D projects have dealt with informa-
tion and communication technology issues in transport and logistics (Pedersen,
2012). One of these projects is e-Freight, and one of its results was defining a
common framework with definitions of a package of messages supporting the
exchange of business documents between several entities in the logistics and
transport industries.
316
a) e-Freight defines extensions in UBL v2.1 by itself, both in terms of exist-
ing UBL messages and additional messages, as not all common frame-
works are included in UBL v2.1.,
b) simultaneously, the e-Freight messages contained in UBL v2.1 are a sub-
set of corresponding messages in UBL v2.1, because not all elements of
the standard are used in e-Freight,
c) the definitions of e-Freight are difficult to apply in practice, mainly in
terms of the actual process of data exchange, lack of knowledge or experi-
ence in the process of adopting standards and limited resources.
To address these problems, one of the goals of the e-IMPACT project
(INEA, 2015a; INEA, 2015b) was to develop a set of tools and methods to
implement standard information exchange messages. Thanks to this, an e-
Freight user is able to use the proposed solutions contained in the toolkit to the
extent it deems convenient. One of the solutions identified is a set of rules and
recommendations that will help users cope with the wide range of possible ap-
plications of e-Freight. This methodological approach will enable participants
of the information exchange chain, both existing and new, to implement strictly
defined rules of conduct enabling an identical understanding of the applied so-
lutions by all process users.
Another objective is to provide additional elements for the process of ex-
change of messages. These elements facilitate the interpretation of message
content mainly in “dialog situations” and allow the use of effective procedures
for processing incoming messages. An example could be the fact that in Trans-
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
portStatus messages both UBL v2.1 and e-Freight contain an element used to
identify the TransportStatusRequest file, but its use is optional. This can be
useful for a requester (“inquirer”) to be able to easily identify the context used
for the status obtained, without having to go through the entire content of Traf-
ficStatus program.
317
An analysis of the contents of the e-Freight toolkit, taking into account its
implementation, is a very important aspect (Figure 4).
Waldemar Osmólski Adam Koliński Davor Dujak: METHODOLOGY OF IMPLEMENTING E-FREIGHT SOLUTIONS IN TERMS OF INFORMATION...
318
d. Position evaluation questionnaire – this tool contains a list of questions
grouped by category (e.g. technical, process, business, etc.), aimed at po-
tential users to indicate the point where they are currently in the process
of implementing a given solution. It is also necessary from the point of
view of determining the path to be taken in order for the implementa-
tion to succeed. The questionnaire shall be supplemented by evaluation
criteria for each category. They set out the exact progress of the user’s uti-
lization of e-Freight solutions (examples: ready-to-use e-Freight, minor
changes required before the adoption of e-Freight, etc.).
e. Access Point – specification – this tool illustrates the specification ad-
opted in the e-Impact project for Access Point, guidelines for the develop-
ment of Connectors and how they interact with Access Point.
2. Examples, that aim to present practical applications of the solution on the
example of individual cases developed in the e-IMPACT project and by the
history of a hypothetical company implementing a given solution in practice.
Tools in this group include:
a. Map Templates, designed to help each user with the process of exchange
of messages within e-Freight in the context of their own business. In brief,
the templates present the data structure of e-Freight messages and their
components, organized in a tabular layout. Rows contain data elements,
while columns have a different structure (characteristics/data definitions,
notes, the quantity of set, application and source/destination of data),
b. Access Point – software, a tool being a part of the software that pro-
vides interconnection between internal applications of interested entities INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
and the e-Freight infrastructure and enables connections between Access
Points based on messages based on the e-Freight structure. The structure
of Access Point is based on the implementation of the source code of
the open e-SENSE4 structure called Domibus. The source of this im-
plementation is made available under a public license of the European
Union V1.1,
c. Principles and Recommendations, containing a set of instructions that
define the rules of conduct within e-Freight and instruct the user what
is needed to use e-Freight for existing or new processes. In addition, it
contains a description of recommended practices in the implementation
of e-Freight or descriptions of changes to the current use of e-Freight,
319
including recommendations for mapping messages between users based
on e-Freight rules.
d. Connector – a software that connects internal applications of users or
Waldemar Osmólski Adam Koliński Davor Dujak: METHODOLOGY OF IMPLEMENTING E-FREIGHT SOLUTIONS IN TERMS OF INFORMATION...
320
concepts and definitions used in specific areas of logistics and data exchange,
such as:
• Role in logistics and transport,
• Set of e-Freight principles and its use
• Definitions of e-Freight messages
• Specification of Access Points and their application
• The applied standards and relations between e-Freight and ISO 19845
(UBL v2.1)
The second step should be to complete the Position Evaluation Ques-
tionnaire. Using this tool will help the user to determine the exact position of
their organization in the implementation process of e-Freight solutions, and in
particular:
• define the role of the organization in the area of logistics, taking into ac-
count e-Freight implementation requirements
• specify the type of messages that can be used in data exchange between
participants in the area of e-Freight framework requirements,
• determine a list of codes they can use, etc.
The third step is to analyze the Map Template for maps included and de-
scribed in the e-Impact Mapping Template Manual. This will give the user the
opportunity to familiarize oneself with templates, composites and business ele-
ments enabling them to:
• map the e-Freight data elements to their own data structures of the ap-
plications used, INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
• analyze the data structure, which elements of e-Freight are actually re-
quired in a given information exchange process,
• analyze the data structure, in terms of eliminating some e-Freight
components,
• make several working copies of selected mapping templates.
The fourth step is to use tools allowing to obtain guidance and recommen-
dations on the use of message types, as well as the exchange process.
The fifth step is to use tools verifying the usability of an already existing and
classified Access Point model, supporting interoperable data exchange between
different systems. This solution is represented by the implementation of the
321
e-SENS4 source code called Domibus, made available by the European Com-
mission under the public license V.1.1.
The sixth step is to develop a module called Connector, which acts as the
Waldemar Osmólski Adam Koliński Davor Dujak: METHODOLOGY OF IMPLEMENTING E-FREIGHT SOLUTIONS IN TERMS OF INFORMATION...
intermediate server between the user’s IT system and Access Point. It will be
used to convert a message coming out of the user’s application to an e-Freight
framework consistent message standard and then it will be sent to the end user
via Access Point.
The seventh step is the process of installing and testing Access Point on the
user’s server. This can be done on the basis of the methodology contained in the
Access Point Installation Guide.
The last, eight step is verification of the Connector’s structure in terms of
functionality and compliance with e-Freight standards. These actions will indi-
cate whether a message modification is required or the implemented structure
is sufficient to communicate with external IT systems.
6. CONCLUSION
The aim of this article was to present the possibilities of using the e-Freight
standard as a factor significantly affecting the efficiency of information flow in
the supply chain. The efficiency of information flow depends directly on the
communication standards applied by individual links in the supply chain. Ap-
plying the presented framework of the procedure methodology in the process of
implementing e-Freight solutions will allow:
• precise determination of the company’s IT advancement level for the im-
plementation of messages consistent with the e-Freight standard,
• the appropriate choice of communication protocols responsible for data
exchange,
• seamless and functional transition through all stages of implementing the
solution,
• universal and standardized approach to developing information exchange
solutions in the logistics industry, based on international standards,
• unification of business processes,
• improving the functioning of enterprises, shortening the service time and
reducing the costs of business activity,
322
• creating an integrated ecosystem based on the transparency of processes
taking place between the entities involved,
• merging various business applications created as a set of independent
components into one ecosystem.
In this article, the authors focused on the conceptual assumptions of using
the e-Freight standard and this, at the same time, presents main research limita-
tion. As part of the realization of the e-Impact project, the implementation of
a practical application of the proposed solution in business practice is currently
in progress. Further research of the Authors is aimed at presenting the analysis
of the implementation of the e-Freight standard and its impact on the efficiency
of implementation of logistic processes.
Acknowledgments:
This work has been fully supported/funded by Connecting Europe Facility
TRANSPORT under Grant No. 2014-EU-TM-0686-S “e-Freight Implemen-
tation Action (e-Impact)”.
REFERENCES
Adamczak M., Domanski R., Hadas L., Cyplik P. (2016). The integration between the pro-
duction-logistics system and its task environment-chosen aspects. IFAC-PapersOn-
Line, 49(12), 656-661.
Bigaj Z., Koliński A. (2017). The analysis of the effectiveness of the cold supply chain with
323
Cyplik P., Hadas L., Adamczak M., Domanski R., Kupczyk M., Pruska Z. (2014). Measur-
ing the level of integration in a sustainable supply chain. IFAC Proceedings Volumes,
47(3), p. 4465-4470.
Waldemar Osmólski Adam Koliński Davor Dujak: METHODOLOGY OF IMPLEMENTING E-FREIGHT SOLUTIONS IN TERMS OF INFORMATION...
Dujak D., Zdziarska M., Koliński A. (2017). GLN standard as a facilitator of physical loca-
tion identification within process of distribution. LogForum, 13 (3), p. 247-261.
Geunes J., Romeijn H. E., van den Heuvel W. (2016). Improving the efficiency of decentral-
ized supply chains with fixed ordering costs. European Journal of Operational Research,
252 (3), p. 815-828.
Golinska P., Fertsch M., Pawlewski P. (2011). Production flow control in the automotive
industry–quick scan approach, International Journal of Production Research, 49(14), p.
4335-4351.
INEA (Innovation and Networks Executive Agency), (2015a). Project: e-Freight Implemen-
tation Action (e-Impact), Connecting Europe Facility, [available at: https://www.eim-
pactproject.eu/ , access January 21, 2018]
Innovation and Networks Executive Agency, (2015b). Project: e-Freight Implementation
Action (e-Impact), Connecting Europe Facility; [available at: https://ec.europa.
eu/inea/en/connecting-europe-facility/cef-transport/projects-by-country/multi-
country/2014-eu-tm-0686-s, access January 21, 2018]
Lichocik G. & Sadowski A. (2013). Efficiency of supply chain management. strategic and
operational approach, LogForum 9 (2), 119-125.
Łagowski, J. (2009). SOA–Ideologia nie technologia. 15th PLOUG Conference, Kościelisko.
Maiga A. S., Nilsson A., Ax C. (2015). Relationships between internal and external informa-
tion systems integration, cost and quality performance, and firm profitability. Interna-
tional Journal of Production Economics, 169, p. 422-434.
Mishra R. K. (2012). Measuring Supply Chain Efficiency: a Dea Approach. Journal of Opera-
tions and Supply Chain Management, 5 (1), p. 45-68.
Nakatani K., Chuang T. T., Zhou D. (2006). Data synchronization technology: standards,
business values and implications. Communications of the Association for Information
Systems, 17(1), p. 44.
Nam T. & Yeom K. (2011). Business-aware framework for supporting RFID-enabled ap-
plications in EPC Network. Journal of Network and Computer Applications, 34(3), p.
958-971.
OASIS Standard (2013), Universal Business Language Version 2.1; [available at: http://
docs.oasis-open.org/ubl/UBL-2.1.html, access January 21, 2018].
Pedersen J. T. (2012). One common framework for information and communication systems
in transport and logistics: Facilitating interoperability. In Golinska P., Hajdul M. (eds),
Sustainable transport, Springer Verlag, Berlin Heidelberg, p. 165-196
Ramos A., Lazaro A., Girbau D., Villarino R. (2016). RFID and Wireless Sensors using Ultra-
Wideband Technology, Elsevier.
Ross, D. F. (2011). The Introduction to Supply Chain Management Technologies, 2nd Edition,
Boca Raton, FL, United States of America: CRC Press, Taylor & Francis Group.
324
Rummler G. & Brache A. (1995), Improving performance: how to manage the white space
on the organization chart, Jossey Bass Business and Management Series.
Shi, X., & Chan, S. (2007). Information Systems and Information Technologies for Supply
Chain Management. in Waters, D. & Waters, D. (Ed.), Global Logistics - New Direc-
tions in Supply Chain Management, 5th Edition, The Chartered Institute of Logistics
and Transport, Kogan Page Limited, p. 177-196.
Silva R. S. & Carvalho M. F. (2013). Evaluation of Information Integration in Supply Chain:
A Case Study of Automotive Sector. IFAC Proceedings Volumes, 46(24), p. 65-70.
Sliwczynski B., Hajdul M., Golinska P. (2012). Standards for transport data exchange
in the supply chain–pilot studies. In KES International Symposium on Agent and
Multi-Agent Systems: Technologies and Applications. Springer Berlin Heidelberg, p.
586-594.
Sohrabpour V., Oghazi P., Olsson A. (2016). An Improved Supplier Driven Packaging De-
sign and Development Method for Supply Chain Efficiency. Packaging Technology and
Science, 29 (3), p. 161-173
Trojanowska J., Varela M.L.R., Machado J. (2017). The Tool Supporting Decision Making
Process in Area of Job-Shop Scheduling. In: Rocha Á., Correia A., Adeli H., Reis L.,
Costanzo S. (eds) Recent Advances in Information Systems and Technologies. World-
CIST 2017. Advances in Intelligent Systems and Computing, vol 571, p. 490-498.
Varela M.R.L, Trojanowska J., Carmo-Silva S., Costa N.M.L., Machado J. (2017). Com-
parative simulation study of production scheduling in the hybrid and the parallel flow,
Management and Production Engineering Review, 8(2), p.69-80.
325
REDESIGN OF THE MARKETING
ORGANIZATIONAL STRUCTURES
Ivana Nobilo van Herak Dejan Laninović: REDESIGN OF THE MARKETING ORGANIZATIONAL STRUCTURES TOWARDS THINK – FEEL – DO MODEL
Abstract
The authors wanted to present the Think - Feel - Do management model as a
potentially appropriate base for a new model of managing tasks and produc-
tion processes in a marketing - oriented companies that operate in accordance
to the digital age market demands, where the user‘s experience has become a
centre of business, and the speed of the reaction has become the key to the busi-
ness survival. Internet and accompanied technology have accelerated this pace
of doing business, so the place of doing business is no longer important because
the global market is available from every corner of the world and imposes
virtual skills when managing tasks, projects and in organizations in general.
All this requires a rapid flow of information’s, quick adaptation, and also
multiplying channels of communication and participation in the execution of
326
various tasks. The key to the success lies in the people, so the successful team
management has become an obligate task to follow.
Key words: think – feel – do model, management, team management, busi-
ness optimization.
JEL Classification: M00, M20
INTRODUCTION
The digital world exists everywhere around us. The use of social networks is
growing daily. Their impact on the marketing and the businesses is enormous. A
whole new set of channels has shifted from the focus of communicating of such
messages towards a balanced mix of cross – channel dialogue, where listening,
inclinations and data for the key users are of the most importance. For market-
ing, such evolution represents a tremendous opportunity, but also a great chal-
lenge. Dialogue and content now have an endless stream. People will talk about
the product or a brand name, as they always do, but on the Internet, anyone can
see them or read about them permanently. People can choose whether to dis-
seminate such information without having to engage in a dialogue or still they
want to talk about them. They can choose whether they’ll stay anonymous or
they want to reveal their identity. Now, time and place do not matter anymore.
Internet users actively create and share relevant contents and information. Be-
cause people prefer to share their information’s with others via direct contacts
or via their social networks, they’ll become an integral element of the marketing
327
consumer - oriented business strategy, which is directly focused on achieving
the entire customer satisfaction, and it represents the final stage in the string
Ivana Nobilo van Herak Dejan Laninović: REDESIGN OF THE MARKETING ORGANIZATIONAL STRUCTURES TOWARDS THINK – FEEL – DO MODEL
ORGANIZATIONAL STRUCTURE
The name ‘organization’ comes from an ancient Greek word organon that
stood for a tool, instrument or a musical instrument. The word ‘structure’ comes
from the Latin verb struere which denotes concordance or concurrence. Accord-
ing to Drucker, the organizational structure represents a unique system of all
organizational parts that make the company.
The organization allows the realization of the most complex tasks and the
realization of the effects of synergy; shortens the time of their execution and
rationalizes the utilization of the necessary production factors.
The classical organizational theory dates back to the beginning of the twen-
tieth century, the neoclassical theory to the mid - twentieth century, and the
contemporary organizational theory belongs to the end of the twentieth cen-
tury. Classical organizational models certainly have their own advantages but
usually carry on problems, such as a distorted flow of information’s due to pro-
found hierarchical set - up, because of the lack of accountability, low degree of
introduction of innovation, and hard and slow introduction of changes. The
types of classical or traditional organizational structure are recognised as linear,
functional, semi - linear and divisional.
Neoclassical organizational theory or the theory of interpersonal relation-
ships is characterized by the dominance of sociological and psychological ap-
proaches when shaping organizational theories. Social theories its centre of
gravity usually set from formal to informal aspects of the organization (March
and Cyert, 1963). When mentioned the formal character of the organisation,
328
the greatest number of people and, above all, the laymen, thinks of the hier-
archy. But when mentioned the informal organisational aspects, people often
thought of the spontaneous interaction of people that is formed by itself as that
form of relationships in such a way contributes to the organizational structure.
Neoclassical organizational structures are semi - compliant and, above all, here
we think of the matrix of the organizational structure, and also that applies to
the modern organic structures.
Hierarchy is mostly linked to a vertically placed organizational structure
that coordinates relationships and tasks based on formal superiority that makes
such chain. The depth of the hierarchy is expressed by the number of instances
in that chain. If the horizontal coordination was not carried out at the same
level in width, we are talking about a centralized organizational structure, with-
out control of superiors in the hierarchical structure, but if the horizontal co-
ordination exists, we are talking about a decentralized organizational structure.
The organizational structure is usually associated with the organization,
which is wrong, because the organizational structure is narrower than the or-
ganization, and, along with the organizational tools and organizational proce-
dures, makes the constituent elements of the organization (Dabić et al., 2013).
The essential aspects of the organizational structure are differentiation that can
be horizontal, vertical, simple and complex, as well as an integration and chain
of command. Integration refers to the lines of responsibility, the formal com-
munication channels, formal work groups, and relationships towards authority
and responsibility, while at the same time the chain of command refers to the
329
The quality structure must reflect corporate goals and plans; they must de-
fine management competencies, and ensure effective performance of jobs and
Ivana Nobilo van Herak Dejan Laninović: REDESIGN OF THE MARKETING ORGANIZATIONAL STRUCTURES TOWARDS THINK – FEEL – DO MODEL
BUSINESS OPTIMIZATION
In today’s rapidly changing market environment, management and leader-
ship have become increasingly difficult and demanding, and from the managers
have been asked to fulfil more goals in increasingly short terms. Due to increas-
ing competition, the companies need to optimize their businesses. Each day
the new tools, methods, and approaches arise that allow for increasing business
efficiency and profitability. One such approach is also focused on the business
processes, the symbol of modern doing business (Hernaus, 2006). Since this
era does not belong to the era of the great inventions, but technological progress
is more ‘cosmetic’ and commercially oriented, the only difference is possible to
draw if you constantly keep with the training and posses good reflexes. Today
win those who can manage the cycles of procurement and implementation of
information’s, services, materials, and products during the shortest period of
time (Nobilo, 2017). One of such approaches is also aforementioned orienta-
tion on business processes that today require such decisions which have to be
taken at the level of work i.e. the occurrence of the problems, because the com-
petition destroys organizations that think they have the ability to make deci-
sions managing through a deep hierarchy (Tenner and De Toro, 1996, p.14).
The company should be organized in such a way that allows the vertical and
horizontal flow of information’s necessary for the achievement of organizational
goals (Daft, 2004, p.88).
If we want to understand the important concept in, above all, traditional,
classical organizations, and also in all other forms of organizations - is the un-
derstanding of hierarchy. The hierarchy gives them structure ‘which is a form
of a protection that keeps them away from the dangers of the outside world’
(Leavitt, 2003, p.102). New and more efficient, control concepts are constantly
sought for, but any model would hardly survive without the organization. The
hierarchy becomes shallower, and the most successful practices are even com-
330
pletely abolished or the vertical organization becomes the horizontal one and
sets a completely new view of the management itself.
People are the key constituents of the project and/or organization success.
They bring knowledge, innovation, and competence, and they are the source of
competitive advantage on the basis that it is then possible to distinguish suc-
cessful from unsuccessful organizations (Galetić, 2011, 103). Human potential
influences on determining the profile of the organization with their knowledge
and ability. With their actions, they bring to life the formal organization, but
they also shape the informal organization (Žugaj, Šehanović and Cingula,
2004, p.154).
INTELLECTUAL CAPITAL
The most developed economies in the world, more than half of their gross
domestic product based on knowledge. High tech industries have almost dou-
bled their share in their output over the last twenty years, while the services
based on knowledge and innovation has beed growing even faster.
Unfortunately, there is no single and accepted the definition of intellectual
capital as an economic, untouchable value. Nevertheless, one group of authors
and prof. Sundać who is also among them defines intellectual capital as one of
the three essential components of which synergies can result in solid intellectual
capital i which can then become a source of competitive advantage:
Human capital - skills, knowledge; skills and accumulated experience of the
company’s employees and managers reflect dynamics of intelligent organization INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
activities when applied in the competitive environment.
• Structural capital – offer support to the human capital, which includes
systems of information technology, corporate images, owners databases,
organizational concepts, documents, patents, licenses, and copyrights.
• Consumers’ capital - interrelation of the company and its clients.
People are the key element of a project’s and/or organization’s success. They
are the carriers of knowledge, innovation, and competence, and they are also a
source of competitive advantage on the basis that it is possible to distinguish
successful from unsuccessful organizations (Galetić, 2011, p.103). Human re-
sources influence the organization with their knowledge and ability. With their
331
activities, they bring to life the formal set organization, but they also shape the
informal organization (Žugaj, Šehanović, Cingula, 2004,p.154).
Ivana Nobilo van Herak Dejan Laninović: REDESIGN OF THE MARKETING ORGANIZATIONAL STRUCTURES TOWARDS THINK – FEEL – DO MODEL
332
Figure 1: Think - Feel - Do Model explained.
THINK FEEL DO
The focus on data and analytics The focus on inclusion and Focus on content and production
consumer experience
Source: Author
Eminent authors, like Ordanini, Dedrick and Kraemer point out that is a
better relationship ‘orchestra – conductor’ but ‘subordinate – superior’. This
model is called ‘The Orchestrator Model’ and it doesn’t categorize roles in mar-
keting by the job name, but instead classifies them into three major groups as
follows, to ‘think’ marketing, ‘feel’ and ‘do’ marketing. In the ‘thinking’ group
there are people involved with analytical skills for the purpose of taking over
of tasks, such as the analysis on optimizing the return on investment, or the
analysis of the personal data safety policy. In the ‘do’ group are those individuals
with the skills to develop working content, while the third, ‘feel’ group is focused
on the interaction with the consumers, as they usually do in customer services
on social networks. Depending on the task, the proportion of participation of
each of the three groups is subjected to changes, as can be seen in Figures 2 and
3. The formation of teams with regard to the task uses the best companies, such
as Google, Amazon, Nike or the Red Bull but it requires a specified culture in
which the central leadership has been convinced that local teams understand
their strategy and they are willing to cooperate in order to execute the job. It
works well only when everyone in the team is inspired by the purpose and clear-
ly understands the previously set goals.
333
Figure 2. De Swaan Arons-Van den Driest-Weed Case: An example of using
Think – Feel – Do model in the company Liberty Global when re-
Ivana Nobilo van Herak Dejan Laninović: REDESIGN OF THE MARKETING ORGANIZATIONAL STRUCTURES TOWARDS THINK – FEEL – DO MODEL
334
Figure 3. De Swaan Arons-Van den Driest-Weed Case: An example of using
Think – Feel - Do model in the company Liberty Global to resolve
problems when installing converters.
335
they could determine the personality type of one person based on the differ-
ent proportions of his or her body fluids. Today we know that this part of his
Ivana Nobilo van Herak Dejan Laninović: REDESIGN OF THE MARKETING ORGANIZATIONAL STRUCTURES TOWARDS THINK – FEEL – DO MODEL
theory that encompasses bodily fluids was inaccurate, but his observations of
the behaviour of an individual were so accurate that they formed the foundation
for many personality theories of today.
Based on the work of Hippocrates, the Swiss psychologist Carl Jung has
defined the four temperaments that he characterized by the following colours:
cold blue, earthy green, sunny yellow and fiery red. Each individual has embed-
ded in his personality the energies of the entire colours, but presented in differ-
ent proportions.
Source: Bradway, K. (1964), “Jung’s Psychological Types”, The Journal of Analytical Psychol-
ogy, Vol. 9, No. 2, pp. 129-135.
336
gives cheerful and witty character which lifts and inspires, and the red hot co-
lour is positive, determined and persistent. Hence, this would be some of the
characteristics of each of the four groups of characters: blue suggests cautious,
precise people who care for formality, green colour describes a caring and re-
laxed people who like to share; yellow describes dynamic, persuasive people that
are easy to excite and the red colour accordingly competitive minded, demand-
ing people of the strong will. Of course, here are not listed all of the features, but
this brief overview will serve us to easier connect theory and practice, as well as
a mini - guide for the constitution of formation depending on our needs, i.e. for
the task for which the same has been formed.
CONCLUSION
In today’s digital, globally networked world, all processes have accelerated.
This acceleration has not overlooked marketing but it is clearly seen in the mar-
keting. Not only is there a multitude of available information’s, but all the infor-
mation’s are coming to us through the multiple channels; it is more proper to
say that they are breaking through and constantly testing our time and curiosity.
Although more messages and contents are produced than ever before, thought
peoples interest in them actually falls. All people can almost find and know all
requested facts. We can say that general knowledge is available and therefore
less appreciated in the business world. That is not enough. The secret of success
lies in the specialization. We are constantly looking for ways to ‘be better than
other’ and to come up with the different approaches. Today, many tactics and
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
tools that have recently been considered as ‘the latest and experimental’ are now
common practice. Neither the marketing departments have been bypassed as
they see a clear need for the redesign of the organizational structures that can
go hand in hand with today’s business requirements.
Let’s imagine, for a moment, in today’s world of social networks and on-
line media, the situation of a traditional organizational structure, considering
a deep hierarchy, whose public relations department should properly respond
to an income crisis situation, respond to the provocation from the competition
campaign, design and realize any marketing, sales or improvement action, but
need agreement of five or even more people who were positioned higher in the
company’s hierarchical order. Today, for the abovementioned to consider more
than one person can be too much.
337
Modern approaches to the management cited approach based on the charac-
teristics, access based on skills and style, situation access and team leadership as
Ivana Nobilo van Herak Dejan Laninović: REDESIGN OF THE MARKETING ORGANIZATIONAL STRUCTURES TOWARDS THINK – FEEL – DO MODEL
a possible model of leadership and Think – Feel – Do model has been derived
from the individual characteristics of each of these approaches. Some individual
authors like Debellis indicate the fourth, yellow colour that is lacking in the
basic Think – Feel – Do model that would form a ‘Create’ group and accord-
ingly, it would be responsible for developing the new products, improving exist-
ing products and general planning and innovation development. The authors of
this study agree with the need for the introducing of this fourth category beside
other groups, which would represent the characteristics of the ‘sunny yellow’
temperament, but the more appropriate name would be ‘inspire’ or ‘innovation’,
so the members of this category would be, in addition to the abovementioned,
in charge for the new ideas, to promote innovation and inspiration of consum-
ers outside the company, or for the members of the team within the company.
When creating teams of specialists in accordance with the particular task, and
once we’ve involved them in sufficient numbers, but also in a way that is best for
the given situation, they will produce the best results during the shortest period
of time. The ‘orchestra’ that consist of the blue, red, green and yellow colours is
the future model that has already begun today.
Authors of this paper think that Think Do Feel Inspire Model alone or com-
bined with some other techniques may also be a possible good tool for recruit-
ment and help in the personal development plan of employees run by human
resource departments. A possible way of researches may focus on proving that
personality can help or aggravate doing the job because there is small chance
that Sunny Yellow can enjoy working in Research and Development Depart-
ment or to find out that caring Earth Green is great for customer support. A
great team is made of all “four colours” but on the right spot for them.
REFERENCES
Bradway, K. (1964). Jung’s Psychological Types. The Journal of Analytical Psychology, [online]
9(2), pp.129-135. Available at: http://onlinelibrary.wiley.com/doi/10.1111/j.1465-
5922.1964.00129.x/full [Accessed: 13.02.2017].
Cyret, R.M. and March, J.G. (1963). A Behavioural Theory of the Firm. New Jersey:
Prentice-Hall.
Dabić, M., Potočan, V., Nedelko, Z. and Morgan, T. R. (2013). Exploring the use of 25
leading business practices in transitioning market supply chains. International Journal
338
of Physical Distribution and Logistics Management, [online], 43(10), pp.833-851. Avail-
able at: https://doi.org/10.1108/IJPDLM-10-2012-0325 [Accessed: 03.03.2017].
Daft, R. L. (2004). Organization Theory and Design. Mason, OH: Thompson, p.88
Debellis, M. (2014). Think, feel, do – the new pillars for marketing success. CUInsight,
[online]. Available at: https://www.cbinsight.com/think-feel-do-the-new-pillars-for-
marketing-success.html [Accessed: 01.03.2017].
De Swaan Arons, M., Van den Driest, F. and Weed, K. (2014). The Ultimate Market-
ing Machine. Harvard Business Review, [online] pp.55-63. Available at: https://hbr.
org/2014/07/the-ultimate-marketing-machine [Accessed: 03.03.2017].
Galetić, L. (2011). Organizacija velikih poduzeća. Zagreb: Sinergija, p.103
Heineman, P. (1995). History of Temperament and Temperament Theory. [online] Person-
ality Project. Available at: http://personality-project.org/others/heineman/HISTO-
RY.HTM [Accessed: 16.02.2017].
Hernaus, T. (2006).Transformacija klasične organizacije u organizaciju orijentiranu na poslovne
procese. MPhil. Faculty of Economics Zagreb. Available at: http://web.efzg.hr/dok/
OIM/thernaus/HERNAUS%20-%20Transformacija%20klasicne%20organizaci-
je%20u%20organizaciju%20orijentiranu%20na%20poslovne%20procese.pdf [Ac-
cessed: 04.03.2017].
Kolaković, M. (2003). Teorija intelektualnog kapitala. Ekonomski pregled, [online], 54 (11-
12) pp. 925-944. Available at: https://www.google.com/url?sa=t&rct=j&q=&esrc=s
&source=web&cd=1&ved=2ahUKEwjn7o2I-fPaAhXM16QKHQwGC58QFjAA
egQIABAn&url=https%3A%2F%2F1.800.gay%3A443%2Fhttps%2Fhrcak.srce.hr%2Ffile%2F40500&usg=AOvVa
w2ZBINlrmEw7gkNrbMNY4A4 [Accessed: 08.03.2017.]
Leavitt, H. J. (2003). Why Hierarchies Thrive. Harvard Business Review, [online] Vol. 81,
3, pp.102. Available at: https://hbr.org/2003/03/why-hierarchies-thrive [Accessed:
06.03.2017].
Nobilo, I. (2017). Marketing je žensko?! In Magazin, [online]. Available at: http://www.
inmagazin.net/ivana-nobilo-marketing-je-zensko/ [Accessed: 19.03.2017].
Ordanini, A., Dedrick, J. and Kraemer, K.L. (2006). Medion: The “Orchestrator” Business
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
Model. [online] UC Irvine: Center for Research on Information Technology and Organi-
zations. Available at: http://escholarship.org/uc/item/3m7659m2#page-8 [Accessed:
05.03.2017].
Tenner, A.R. and De Toro, I.J. (1996). Process Redesign: The Implementation Guide For Ma-
nagers. New Jersey, NY: Prentice Hall, New Jersey, p.14.
Žugaj,M., Šehanović, J. and Cingula,M.(2004). Organizacija. Varaždin: TIVA Tiskara
339
THE DEMAND FOR AUDIT
SERVICES FROM NON
Bahtijar Berisha Ivan Kristek: THE DEMAND FOR AUDIT SERVICES FROM NON-GOVERNMENT ORGANIZATIONS: EVIDENCE FROM THE KOSOVO
GOVERNMENT ORGANIZATIONS:
EVIDENCE FROM THE KOSOVO
Abstract
This paper aims to identify the factors that determine the demand for audit
services from NGO-s in Kosovo. From a theoretical point of view, the main
purpose of auditing of financial reports is to provide an opinion on the ac-
curacy, reliability and whether the financial position and performance of the
organization materially represent a true and fair view of the organization, so
that this opinion is available for interested parties.
From this view, the audit can be treated as an added value of the organization
that goes through the audit process and makes the audited financial reports
available to the interested parties. Although in most countries, including Koso-
vo, the audit is mandatory and regulated by law, voluntary audits should be
the requirement of each organization, so that the audited financial statements
increase transparency and credibility of stakeholders for this information and
so would indirectly increase the value of the organization.
Therefore, the main purpose of this paper is to measure the factors that affect
the demand and supply of audit services for NGOs in Kosovo. In our study,
we have chosen the NGO sector in Kosovo, because they are among the first
340
organizations that have gone through the audit process in Kosovo. The authors
investigated this topic but did not find any research that covered this issue.
The study is generally based on data collection through a questionnaire, de-
signed to collect relevant data about the qualitative assessment of the impact of
the factors theoretically known such as; legal obligation, the obligation to donors
and voluntary choice to audit the financial statements of NGOs in Kosovo.
From the results of the analysis, related to the importance of the variables of the
model, it resulted that the legal obligation and the obligation from the donors
prevail over the voluntary choice to audit the financial reports of NGOs in
Kosovo.
Key words: NGO-s, External Audit, Financial Reports, Kosovo.
JEL Classification: J20, L00
1. INTRODUCTION
Financial and audit services are quite essential to the life of any business that
involves the use of financial and human resources. NGOs as part of business
life, as heterogeneous groups possessing varying size, age, sector, location, with
non-profit target, driven by motivations for creating of values benefited from
business, government and other social and economic sectors in form of dona-
tions, grants, other revenues from economic activities, revenues in kind, etc. for
distributing them to different public beneficiaries in different time and location
in the form of humanitarian aid and services.
341
These financial reports are usually prepared by management, but due to dif-
ferent interests among stakeholders, these reports may not represent properly
Bahtijar Berisha Ivan Kristek: THE DEMAND FOR AUDIT SERVICES FROM NON-GOVERNMENT ORGANIZATIONS: EVIDENCE FROM THE KOSOVO
the financial position of the organization and the results of its operations, one
of the reasons why the board of directors and the management of NGOs en-
gage a third party auditor, which through the methodical, professionally and in-
dependently verifies the accuracy of these financial statements and thus provide
to the audience with a higher level of assurance.
According to the theoretical concepts, the audit is generally defined as, a
planned and documented activity performed by qualified persons and that
through investigation, examination or evaluation of objective evidence, determi-
nation of suitability and compliance with pre-established procedures, or docu-
ments applicable and the effectiveness of their implementation, a definition that
can refer to auditing in accounting, financial reporting, internal control, quality
management, project management, human resource management, operations
etc.
Whereas, according to American Accounting Association, auditing is a sys-
tematic process of objectively obtaining and evaluating the evidence regarding
assertions about economic actions and events to ascertain the degree of corre-
spodence between those assertions and established criteria and communicating
results to interested users (Auditing Concepts Committee, 1971).
In Kosovo, audit as an economic activity is considered relatively as a new
field, its experience and development are generally related to the stages of birth
and development of the state of Kosovo after the last war of the dissolution of
the former Yugoslavia.
Therefore, our aim is focused on practices and audit development after the
year 1999, and specifically, our research will focus on the research and impact of
factors affecting the demand of audit services and as well audit benefits with in
NGO sector in Kosovo.
Given the fact that in Kosovo as a new State with emerging economy, audit
and assurance services are a new area, in our knowledge, it hasn’t been done any
research study regarding the demand for audit services within NGO sector.
Many scientific types of research and publications have been made in this
area, most of the possible factors that have an impact directly or indirectly to
the determination of the demand for audit and assurance services have been af-
342
fected and discussed, depending on the social circumstances, structure and level
of economic development of different countries of the world.
The external audit of publicly owned companies may be viewed as a public
good in that each party may use the audited information in the financial state-
ments without either contributing to its cost or reducing it’s availability to other
users.
The outcome of the audit is informative to suppliers of capital and credit, as
well as to all other current and potential stakeholders in a company (Dedman
E. at al.,2014, 1–23 ).
From this view, the audit can be treated as an added value of the organiza-
tion that goes through the audit process and makes the audited financial reports
available to the interested parties, so in this paper our focus will be on analysing
the perceptions of accounting professionals and auditors on the issue of how
NGOs are interested in making voluntary audits of their financial statements.
In a word in this study we specifically pursued two main objectives: (1) as-
certain the determinants of demand for audit services among NGO-s in Koso-
vo and (2) to determine whether audit services have a significant effect on the
success of NGO-s.
The remainder of this paper proceeds with a general overview of accounting
practice and audit services in the Republic of Kosovo and institutional regula-
tion regarding financial reporting and auditing with in NGOs in, legal frame-
work of NGOs in the Republic of Kosovo continuing with literature review and
343
porting and auditing system applied by most developed countries of the world.
These countries in the economic literature of this field are considered the birth-
Bahtijar Berisha Ivan Kristek: THE DEMAND FOR AUDIT SERVICES FROM NON-GOVERNMENT ORGANIZATIONS: EVIDENCE FROM THE KOSOVO
344
After the war of the dissolution of the former Yugoslavia, NGOs have played
one of the key roles in reconstructing the social life and economy in Kosovo.
Under the legal framework, NGO means a non-governmental organization
registered in accordance with the provisions of the legislation in force. NGOs
operating in the territory of the Republic of Kosovo may be local and interna-
tional NGOs.
The functioning and reporting of NGOs in Kosovo were initially regulated
by UNMIK Regulation No. 1999 / 22, on the year 2009 this regulation was re-
placed by Law No. 03 / L - 134. In generally NGO should implement internal
accounting and administrative procedures necessary to ensure the transparent
and proper use of its financial and other resources.
According to the applicable law, the NGOs that hold the status of the public
beneficiary are obliged to keep proper books of accounts and other records in
relation to its operations and report annually on their activities as well prepare
the financial statements and submit to the NGO Liaison Office.
The financial statements are comprised of the balance sheet and the state-
ment of income, while the annual activity report should describe the aims and
objectives set by the organization, and the strategies and activities are under-
taken to achieve them, the report may also, where relevant, explain how the
objectives set for the year relate to longer term strategies and objectives set by
the organization.
Those NGOs having the public beneficiary status with an annual income
over 100,000.00 Euro the financial statements prepared and submitted, should
include an opinion signed by an independent audit as for whether the financial INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
statement presented fairly in all material respects, the organization financial po-
sition for the year ended.
We mention that NGOs in Kosovo may be considered the backbone of an
economy as they are a major contributor of job creation and play an important
role as efficient providers of intermediate goods and services between govern-
ment activities, commercial societies, and general public benefit.
3. LITERATURE REVIEW
Since our focus has to do with the financial reporting and the demand for
auditing of the financial statements of the business society, part of which is
345
the NGOs as well, we have reviewed the existing literature in this area and
we found a lot of research on this matter where we find the conclusions that
Bahtijar Berisha Ivan Kristek: THE DEMAND FOR AUDIT SERVICES FROM NON-GOVERNMENT ORGANIZATIONS: EVIDENCE FROM THE KOSOVO
from the audit of the financial statements the companies have many benefits,
such as Auditing is one of the control mechanisms to reduce problems arising
from the separation of ownership and control ( Jensen & Meckling, 1976, 305-
360), audits affect the reliability of financial information by reducing the risk
of investments (Fallatah, 2008), the audit encourages management to engage
in internal monitoring by improving the internal control system (Ghosh, 2007,
1-15), the audit gives credibility to financial statements by reducing uncertainty
and risk (Broadley, 2006), the audit enables error correction in financial state-
ments (Hylas & Ashton’s 1982, 751-765), According to (PCAOB, 2013) some
business benefits from the audited financial statements are as the following: Re-
liable financial statements, including related disclosures, assurance about inter-
nal control, going concern warnings, robust audit committee communications.
As a summary from the reviewed literature we can understand that, a finan-
cial statement audit provides numerous benefits to the long-term health and
continued success of companies, especially non-profit organizations, a fact that
from promoting such an environment for the government, current and prospec-
tive donors and as well the general public, assures the establishing and main-
taining adequate processes of the organization.
According to Hayes, it is existing four audit theories (Ittonen, 2010):
Policeman Theory – An auditor’s job is to focus on arithmetical accuracy
and on the prevention and detection of fraud,
Lending Credibility Theory – Audited financial statements are used by
management to enhance the stakeholder’s faith in management’s stewardship,
Theory of Inspired Confidence - The demand for audit service is the direct
consequence of the participation of outside stakeholders in the company. These
stakeholders demand accountability from the management, in return for their
contribution to the company. Since the information provided by the manage-
ment might be biased, becouse conflict of interests, an audit of this information
is needed,
Agency Theory – A company is viewes as the result of contracts, in which
several groups make some kind of contribution to the company. A reputable au-
346
ditor is appointed not only in the interest of third parties but also in the interest
of management.
From previous studies and based on the Hayes theories, we may read that
the demand for an audit of NGO financial statements is incentive under agen-
cy and contracting theory, assurance, and organizational control. The findings
from the literature and the critical incidents obtained from the interviews have
served us to develop the following hypotheses:
H1 – NGOs perform an audit to meet contractual requirements with
donors.
H2 - NGOs perform an audit to meet law requirements.
H3 - NGOs perform a voluntary audit even when not required by law or
donors.
The concept that audited NGOs have more credible financial statements,
where auditing encourages improvement of internal control, enables error cor-
rection and increases transparency, helps on fund raising and receiving govern-
ment grants, etc., is our main objective in this paper to test the perceptions of
accountants and auditors regarding the fact that how much NGOs are inter-
ested to perform voluntary audit of their financial statements.
347
(SCAAK), the delivery of the questionnaire as well as received responses are
managed electronically, the selected sample consists of Statutory Auditors (61),
Bahtijar Berisha Ivan Kristek: THE DEMAND FOR AUDIT SERVICES FROM NON-GOVERNMENT ORGANIZATIONS: EVIDENCE FROM THE KOSOVO
Certified Auditors (106) and Certified Accountants (232). From the group of
respondents, we received a total of 73 valid answers or 18.29%, while from legal
auditors 24, certified auditors 19 and certified accountants 30.
The data collected by the respondents reflect critical assessments and their
behaviour on the core issues addressed in this paper, which provide us with an
empirically significant and sufficient basis to explain the phenomenon. We will
analyse the data through a descriptive method that enables us to measure the
impact of the attributes influencing the request and determine the type of audit
of NGO financial reports.
For data analysis, we use the EXCEL software package. The data is consis-
tent with the literature findings and preliminary interviews. Descriptive data
analysis shows that the hypotheses put forward are supported by data obtained
from empirical research.
Regarding the identification and qualitative assessment of the factors affect-
ing the demand for voluntary audits of NGO financial statements, respondents
are asked to respond declaratively to one of the following questions:
Based on your experience as an auditor and accountant, which of the fol-
lowing factors have an impact on the decision-making of NGOs to audit or not
their financial reports:
- Size, complexity, and nature of the operations,
- Improving internal control,
- Improve the wealth structure and increase of funds,
- Increasing credibility of financial reports,
- Increase the transparency of performance and financial reporting,
- Other
348
Table 1. Analysis of datas on identifying factors that affect voluntary audits of
NGO Financial Reports
Influencing factors Incidents Percentage
Size, complexity and nature of the operations 2 2.74%
Improving internal control 13 17.81%
Improve the wealth structure and increase of funds 3 4.11%
Increasing credibility of financial reports 23 31.51%
Increase the transparency of performance and financial reporting 31 42.47%
Other 1 1.37%
Total 73 100.00%
Source: (the authors’ calculation)
The analysis of empirical data from the field, related to the impact of factors
related to the demand of NGOs for the voluntary audits of their financial state-
ments, deriving from the respondents’ responses reflected in Table-1 consists of
the following findings:
- From the 73 respondents, 31 or 42.47% of them think that the voluntary
audits of NGOs financial statements will increase their transparency of
performance and financial reporting.
- From the 73 respondents, 23 or 31.51% of them think that the voluntary
audits of NGOs financial statements will increase credibility and financial
reporting.
- From the 73 respondents, 13 or 17.81% of them think that the voluntary
audits of NGOs financial statements will impact on improving internal
349
Table 2. Analysis of data’s on identifying the type of audit and assurance ser-
vices is usually required from NGOs
Bahtijar Berisha Ivan Kristek: THE DEMAND FOR AUDIT SERVICES FROM NON-GOVERNMENT ORGANIZATIONS: EVIDENCE FROM THE KOSOVO
The above results show that 27 or 62.79 % of respondents think that NGOs
performs the audit for the donor needs, while only 13 or 30.23% think that
NGOs performs an audit of their accounts for the internal needs and their
publication.
5. CONCLUSION
Consistent with our findings and the previous findings, the motive of the
demand for audit turns out to be closely connected with the legal requirements,
agreement with donors and provision of funds by NGOs, concluding that com-
pulsory audits of NGO financial statements and audits to meet the donors re-
quirement prevail over voluntary choice to audit the financial reports of NGOs
in Kosovo.
As a summary, the results do not support the explanation for voluntary au-
diting in this setting. Among the findings with special emphasis from this paper
we highlight:
Although the findings on this paper related to the factors which support
the concept that audited NGOs have more credible financial statements, au-
diting encourages improved of internal control, facilitates error correction and
increases transparency, helps raise funds and all of these presuppose voluntary
auditing, they do not do this, which in our opinion represents a hypothetical
condition and we consider it to be studied in the future.
6. STUDY LIMITATIONS
This study is based on the analysis of the data collected through the survey
conducted with auditors and accountants, we conducted interviews with them
350
and we have taken their perceptions and views regarding the reasonableness of
the audit of the financial reports of the NGOs. However, regarding the infor-
mation presented in the audited financial reports, many other stakeholders such
as state institutions, donors, board, management, broader members, workers,
analysts and others are also interested, so it would be very important to study
their perceptions and perspectives on this issue.
REFERENCES
Abdel-Khalik, A.R. (1993). Why Do Private Companies Demand Auditing: A Case for
Organizational Loss of Control, Journal of Accounting, Auditing and Finance. 34(1), p.
31-52.
Chow, C.W., (1982). The Demand for External Auditing: Size, Debt and Ownership Influ-
ences, The Accounting Review. 57(2), p. 272-291.
DeAngelo, L. E. (1981), Auditor Size and Audit Quality, Journal of Accounting and Econom-
ics, 3(3) p. 183-199.
Dedman E., Kausar A. & Lennox C. (2014), The Demand for Audit in Private Firms: Re-
cent Large-Sample Evidence from the UK, European Accounting Review, 23(1), p. 1
– 23.
E. R. & Ashton H. R. (1982), Audit Detection of Financial statement Errors, The Accounting
Review, 7(4), p. 751-765.
Firth M. (1980), A note on the impact of audit qualifications on lending and credit decisions,
Journal of Banking & Finance, 4(3), p. 221-313.
Ghosh S. (2007), External Auditing, Managerial Monitoring and Firm Valuation: An Em-
pirical Analysis for India, International Journal of Auditing, 11(1), p. 1-15.
Hay, D. & D. Davis (2004), The voluntary choice of an auditor of any level of quality, A
351
Broadley D. (2006). Auditing and its role in Corporate governance FSI Seminar on Corpo-
rate Governance for Bank [available at http://search.oecd.org/daf/ca/corporategover-
nanceprinciples/37178451.pdf, access March 15, 2018]
Bahtijar Berisha Ivan Kristek: THE DEMAND FOR AUDIT SERVICES FROM NON-GOVERNMENT ORGANIZATIONS: EVIDENCE FROM THE KOSOVO
Fallatah Y. (2008), “The role of asset reliability and auditor quality in equity valuation”, 8th
Global Conference on Business & Economics, Florence, Italy [available at http://www.
gcbe.us/8th_GCBE/data/confcd.htm, access March 18, 2018]
Kim I., (2010), A Theoretical Examination of the Role of Auditing and the Relevance of
Audit Reports, University of Vaasa 2010 [available at https://www.univaasa.fi/mate-
riaali/pdf/isbn_978-952-476-298-4.pdf, access March 10, 2018]
SCAAK (Society of Certified Accountants and Auditors of Kosovo [available at https://
www.scaak.org/ access March 3, 2018 access March 25, 2018]
Unmik/reg/2001/30 [available at http://www.unmikonline.org/regulations/unmikgazette/02
english/E2001regs/RE2001_30.pdf access March 5, 2018]
Law no.04/l –014 On Accounting, Financial Reporting and Audit [available at https://gzk.
rks-gov.net/ActDocumentDetail.aspx?ActID=2755 access March 4, 2018]
PCAOB (Public Company Accounting Qversigh Board) [available at https://pcaobus.org/
news/events/documents/05152013_sagmeeting/audit_quality_indicators.pdf, access
March 31, 2018]
352
KNOWLEDGE ACQUISITION FROM
DATA IN BUSINESS INTELLIGENCE
MODELS AS A SOURCE OF
COMPETITIVE ADVANTAGE OF
COMPANIES
Abstract
Today, in the 21st century, the main resources to be utilised are timely informa-
tion and knowledge obtained based on this information, because knowledge
well-used can lead to innovation, the main competitive advantage, i.e. what
the market demands and wants, and thus positioning on the market consid-
ering the expressed aspiration and determined objective. Information in the
right place at the right time is in this electronic business era one of the most
important resources that could mean the difference between company surviv-
al or failure. Strategic advantages of companies are no longer based solely on
physical resources or good management, but on the company’s knowledge and
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
information that the company acquires from the market. This information has
to be processed to become part of the company’s knowledge or the basis for
decision-making in the company. Companies need to rely more on business
intelligence systems to be able to keep up with the competition. The emphasis
in this paper is the presentation of knowledge acquisition from data in busi-
ness intelligence models. The two main knowledge acquisition models are data
mining and OLAP (OnLine Analytical Processing) which will be the main
subjects of analysis. The aim of the paper is to point out the importance of busi-
ness intelligence that is, along with benchmarking, focused on the competition
and visions of the future. The starting point of the paper is to point out the
objective of business intelligence directed to the collection and processing of data
and information on current and future activities of the competition in order to
353
optimise concept of development and improve protection of one’s own data, all
in order to create competitive advantage in the economic market.
Edvard Badurina: KNOWLEDGE ACQUISITION FROM DATA IN BUSINESS INTELLIGENCE MODELS AS A SOURCE OF COMPETITIVE ADVANTAGE...
Key words: business intelligence, data mining, OLAP tools, competitive ad-
vantage of companies
JEL Classification: I80, M15
1. INTRODUCTION
The essence of business intelligence is data – information – knowledge
transformation process. Data processing provides information. In order for a
datum to become information, it needs to have a new meaning for the recipi-
ent i.e. it must have an impact on increasing the recipient’s knowledge. Thus,
information is a result of analysis and data organisation aiming to provide new
knowledge to the recipient. Information is a variety of messages from sender to
recipient. It becomes knowledge when interpreted, i.e. placed into a context, or
when it is added meaning. Knowledge represents information and data linked
with the process of insight and experience, i.e. ability to use the information. At
the end of this process is intelligence that represents the ability to use knowl-
edge in a certain context. Thus, business intelligence represents strategic ori-
entation of a modern company that synthesises tools for collection, analysis,
transformation, and distribution of information about the competition and this
should, as a rule, be the beginning of business decision-making to increase busi-
ness performance.
354
the interpretation of the true meaning of this term. It is an irrefutable fact that
the phenomenon of business intelligence can be approached from two points of
view: macro aspect and micro aspect (Panian, Klepac, 2003, p.21).
From the point of view of the macro aspect, business intelligence is a com-
plex category that is created or built by systematic collection of data on mac-
roeconomic trends in a certain geopolitical environment, their organised and
structured recording, i.e. storing, querying, and logical or computer data pro-
cessing in order to detect macroeconomic trends or tendencies or predict and
forecast processes and events in macroeconomic systems and their future states.
An organisation may create business intelligence about its own environment,
but will nevertheless most often refer to other environments, i.e. narrower or
broader parts of geopolitical environment. This is why the process of business
intelligence creation in the macroeconomic sense sometimes has some elements
of conspiracy, so at a first glance, it seems like espionage, but identifying mac-
roeconomic business intelligence with espionage is an inappropriate simplifica-
tion, even vulgarisation of this phenomenon, because motivation and objectives
are in this case exclusively related to the strengthening of economic position of
a certain geopolitical community in a competitive environment. In this context,
methods used to create macroeconomic business intelligence have almost no
elements of conspiracy; they are usually generally well-known.
355
The fact that it is based on personalisation means that it applies technolo-
gies in the sense of proactive collection, organisation and delivery of informa-
tion to individuals. For example, public weather service will publish information
Edvard Badurina: KNOWLEDGE ACQUISITION FROM DATA IN BUSINESS INTELLIGENCE MODELS AS A SOURCE OF COMPETITIVE ADVANTAGE...
that are especially important to boaters, and public health service will publish
information about possible pollution of potable water in a town or a region.
Business intelligence automatizes delivery of information to the recipients us-
ing special terms and deviations from planned activities as motivation for such
communication (Panian, Klepac, 2003, p.28). Traditional decision-making sup-
port systems do not personalise information; this is why they should be altered
or edited to some extent in each new application. Business intelligence paves the
way for the so-called „new wave of decision-making support system “, i.e. knowl-
edge management systems, by functioning according to the model that consists
of five main components (Panian, Klepac, 2003, p.26):
a) information
b) analysis and segmentation
c) personalisation
d) information delivery through a multitude of channels
e) action, interaction and transaction.
356
the information should be used in modelling of the development concept of the
company as a response to changes in demand and activities of the competition
on the turbulent market of the 21st century.
d) Decision on the best solution – finding the best solution includes the fol-
lowing criteria: cost-effectiveness of the results, availability of strengths
and resources, ratio between advantages and risks.
e) Practical implementation of the decision – the decision that is according
to the location of the adoption closest to the enforcers will be best ac-
cepted, while strategic decisions are made in a centralised manner. The
employees need to be informed about the essence of the decision, so they
would accept it more easily and implement it more effectively.
357
Effectiveness of business decision-making is influenced by decision-mak-
ing principles implemented in successful companies and ventures (Stipanović,
2006, p.63):
Edvard Badurina: KNOWLEDGE ACQUISITION FROM DATA IN BUSINESS INTELLIGENCE MODELS AS A SOURCE OF COMPETITIVE ADVANTAGE...
358
a) Working conditions influencing a business decision, because the com-
pany lives and operates in these conditions.
b) Quality of decision makers on development reflected in expertise and
professional conduct of decision makers and their capacity and knowl-
edge on deciding and organising effective preparation and implementa-
tion of the decision.
c) Quality of preparation of a decision on development reflected in time
and quality of collection of information and their analysis, and study and
analysis of company development and development effects (various so-
lutions are considered, and several alternatives are proposed to decision
makers).
d) Quality of implementation of decision on development, because even the
best decision may lose its value if it is poorly implemented, and selection
of employees who will implement company development policy is also
important.
A business intelligence model has a purpose only if it contributes to com-
pany business. Potential benefits of this model are (Panian, Ćurko, 2010, p.63):
a) Increase in revenues
b) Increase in profit
c) Improvement of clients’ satisfaction
d) Savings
e) Increase in market share
3. OLAP TOOLS
The name of this group of tools for knowledge acquisition from data –
OLAP – originates from an acronym of the full English name On-Line Ana-
lytical Processing. The term was “invented” by the British mathematician E. F.
Codd, who had set up the basics of the so-called Relational Calculus and in
1970 presented the Relational Data Model. This data model is the basis of to-
day’s most popular type of databases – relational databases. The name was not
selected randomly, because the name and its acronym point out the difference
in relation to previously known on-line transaction processing tools, i.e. OLTP.
359
In 1993, Codd defined a broad set of criteria to which databases in which or on
which OLAP tools will be applied should adapt (Panian, Ćurko, 2010, p.65).
Software vendors soon realised the potentials and possible revolutionary im-
Edvard Badurina: KNOWLEDGE ACQUISITION FROM DATA IN BUSINESS INTELLIGENCE MODELS AS A SOURCE OF COMPETITIVE ADVANTAGE...
360
structure. Theoretically, the number of dimensions according to which
relevant phenomena can be analysed is unlimited, and in practice there
are often cases when in sophisticated analyses this number rises to ten or
even more. This exceeds even cognitive abilities of an average human, so it
is fair to say that quality OLAP tools to some extent represent an expan-
sion or complementation of human intelligence. Budget possibilities of
OLAP tools allow men, business analysts, to write simple formulas that
will be applied through a multitude of dimensions, and they only have to
write a few simple programme instructions, i.e. code lines.
Therefore, OLAP tools encompass a wide spectrum of possibilities, from
simple search and browsing through budget (calculations) to more serious
analyses such as time series analysis and complex modelling. In this way, they
can „cover“ the entire hierarchical chain, which is a basis for informed deci-
sion-making – a chain that starts with data, continues with information, and
ends with business intelligence. A typical OLAP infrastructure consists of the
OLAP server placed between the user and data warehouse who relates to them
on-line as presented on Image 2.
361
c) Top-down view – using this technique, it is possible to observe the values
of the same measure at the lowest level of hierarchy, i.e. aggregation. This
provides a more detailed view of the data.
Edvard Badurina: KNOWLEDGE ACQUISITION FROM DATA IN BUSINESS INTELLIGENCE MODELS AS A SOURCE OF COMPETITIVE ADVANTAGE...
362
and town. Or, time dimension may include a hierarchy with differences
for a year, a quarter, a month and a day. In a pivot table report or a pivot
chart report, each hierarchy becomes a set of fields that can be expanded
and summarised for detection of higher or lower levels.
f ) Hierarchy – a logical tree structure organising members of dimensions
in such a way that each member has a superordinate member and zero or
more subordinated members. A subordinate member is a member in the
next lower level of hierarchy that is directly connected with the current
member. For example, in the time hierarchy containing levels Quarter,
Month, and Day, January is a subordinate member of Quarter 1. A su-
perordinate member is a member in the next higher level of hierarchy
directly linked with the current member. Superordinate value is usually
consolidation of values of all subordinate values. For example, in the time
hierarchy containing the levels Quarter, Month and Day, Quarter 1 is a
superordinate member to January.
g) Level – data in a hierarchy can be organised in more or less detail, such as
level of year, quarter, month, and day in the time hierarchy.
363
that procurement is to be analysed according to products and according to sup-
pliers. This requirement can be figuratively presented by a three-dimensional
geometric shape, and the most suitable shape in this respect is cube, as shown
Edvard Badurina: KNOWLEDGE ACQUISITION FROM DATA IN BUSINESS INTELLIGENCE MODELS AS A SOURCE OF COMPETITIVE ADVANTAGE...
in Image 3. The observed area is procurement, and the three relevant axes, i.e.
dimensions are: product, supplier, and time.
Source: http://www.ealliancebusinessintelligence.com/using_oracle_olap11g_with_obiee.
php (accessed on 16/03/2018)
The dimension of time has not been mentioned yet, but it is considered a nec-
essary dimension in each analysis and it is always relevant. This means that the
procurement process may be analysed according to products and suppliers over
time. Each element of the cube (or „mini-cube“) contains the value (or quantity)
of procurement of a certain product from a certain supplier in a certain point
in time. Multidimensional matrix (cube) from Image 3 shows procurement as
a functional area with three possible dimensions of analysis. It should be noted
that there are no limitations regarding the number of model dimensions. In
terms of dimensional data analysis, its basic methods are layering and intersect-
ing. Multidimensional data sets can be analysed horizontally (layering) and ver-
tically (intersecting). The basic quality of the layering and intersecting method
is that people can easily understand it. Modern OLAP tools perform layering
and intersecting very fast and usually offer users attractive and easily compre-
hensible graphical interfaces, which show data relations by cubes or star-shaped
diagrams. This is why they are common and very popular among business users.
The possibility of gaining a practically momentarily and intuitively easily com-
prehensible perspective, i.e. data display, is their main advantage.
364
.. Hierarchical Structures of OLAP
OLAP systems enable organisation of data into hierarchical structures so
that detailed data could be aggregated into new data of higher levels of ab-
straction. For example, data on daily proceeds can be summarised into data on
weekly proceeds, and they again into data on monthly proceeds. Similarly, data
on sales of an item in individual shops can be summarised according to sale
areas, countries, continents, etc.
365
organised multidimensional data represent an intuitively acceptable and com-
fortable manner of analysis of a multitude of data offered by systems for on-line
transaction processing, i.e. OLTP systems. The mechanisms offered by OLAP
Edvard Badurina: KNOWLEDGE ACQUISITION FROM DATA IN BUSINESS INTELLIGENCE MODELS AS A SOURCE OF COMPETITIVE ADVANTAGE...
systems through user application interfaces, and this primarily refers to drill-
ing down possibilities mentioned earlier, provide very fast analyses. This opens
new horizons for managers in decision-making processes – possibilities of
conducting occasional or ad hoc analyses besides routine and periodic analyses
conducted earlier. Periodic and routine analyses, usually based on conventional,
paper reports that managers receive „on their desk“ are usually rather limiting
and do not allow managers to completely exhibit and utilise their creativity and
resourcefulness. People who prepare analytical reports try to guess or anticipate
what kind of information the managers will need or managers tell them them-
selves in advance. However, in a dynamic business environment, neither experts
nor managers can foresee everything the future brings, and therefore, these pe-
riodic, routine analytical reports in time become limiting and inadequate for
new situations. They thus become insufficiently informative. Occasional or ad
hoc analyses do not have such limitations or disadvantages, because (Panian,
Klepac, 2003, p.243):
a) A good OLAP system can generate a response to practically any query in
real time. It takes only a few seconds or minutes of drilling down.
b) Virtually any report can be adequately formatted or presented graphically
by applying the rotation or pivoting function.
c) Virtually any company employee, including managers at all levels, but also
executive employees, can learn quickly and easily how to conduct ad hoc
analyses and use them in performance of their tasks.
A good design of OLAP cubes, i.e. good decisions on which dimensions
to include, how detailed information to extract from the OLTP system, how
to define hierarchies, etc., will have a positive impact on the acceptance of the
OLAP system among users and its utility in practical application. Most OLAP
systems usually use one or more of the following three types of OLAP for stor-
ing to support multidimensional analysis. These three types of OLAP are: RO-
LAP, MOLAP, HOLAP, and DOLAP. In MOLAP, the letter M refers to mul-
tidimensionality; it is thus called multidimensional OLAP. Multidimensional
OLAP (MOLAP) stores aggregate value into multidimensional structures on
the OLAP server. Aggregate value is calculated in advance using a cell within
the OLAP cube, defined according to the definition of multidimensionality.
366
Aggregates are data summary calculated in advance that shorten the time of
response to the query by keeping responses ready before questions are posed.
For example, when a data warehouse contains hundreds of thousands of lines,
and data in question are, for example, total weekly sales of a certain product, if
the fact is not ready, the response can take a long time because of scanning of
all data.
Source: http://thebusinessintelligence.blogspot.com/2009/12/online-analytical-process-
ing-olap.html (accessed on 16/03/2018.)
One of the ways to better understand MOLAP is, for example, to consider
the request for sales of organisation database. This type of database often con-
tains key information on the client. These information can include items such as
names of contacts, physical address, type of goods and purchased services, dates
of purchase, etc. By using MOLAP, sales manager can create a report sorted by
manager account, sorted by client names, and recognise all the realised revenues
linked with a specific seller from account to account in the given period. Ac- INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
cording to the same logic, MOLAP can generate a list of clients based on cer-
tain location, which can be helpful in preparing meetings when the seller makes
plans for a specific area. Basically, MOLAP can catch and sort data according
to any area contained in the database. The most successful vendors of OLAP
tools based on this model are companies Applix, Cognos, Comshare, Hyperion
Solutions, Microsoft, Oracle, and SAS.
367
Image 6. MOLAP
Edvard Badurina: KNOWLEDGE ACQUISITION FROM DATA IN BUSINESS INTELLIGENCE MODELS AS A SOURCE OF COMPETITIVE ADVANTAGE...
Source: http://thebusinessintelligence.blogspot.com/online-analytical-processing-olap.
html(accessed on 18/03/2018).
Source:http://thebusinessintelligence.blogspot.com/online-analytical-processing-olap.
html (accessed on 18/03/2018.)
368
ceeded (for example, Applix, Microsoft, and Oracle), so this hybrid version of
OLAP is the most commonly used tool. The combination used by HOLAP is
more comprehensible by Image 8.
4. DATA MINING
Data mining implies organisation of databases by data cleaning to gain ac-
cess to knowledge and acquire knowledge based on existing data in databases.
Development of technology, computers, the Internet, significantly contributes
to easier data organisation, but in order for them to become useful, they need
to be transformed into information and knowledge. The term mining is often
identified with two different processes: detection and prediction of knowledge. INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
369
surely gain such popularity in the future that they will become standard data
mining methods. On the one hand, research in this field are directed towards
seeking original methods for solving specific problems, and on the other hand,
Edvard Badurina: KNOWLEDGE ACQUISITION FROM DATA IN BUSINESS INTELLIGENCE MODELS AS A SOURCE OF COMPETITIVE ADVANTAGE...
new methodological solutions for improvement of the existing and used meth-
ods are proposed as research results. It is interesting that in many cases, in-
exhaustible source of inspiration for scientific research in this area are papers
by mathematicians from earlier periods, from the 16th century onwards. These
papers were mostly based on processing a large number of data to obtain a solu-
tion. Such solutions were presented declaratively as an idea, and there was no
deeper elaboration due to physical impossibility of processing of such a large
quantity of data in earlier periods. The central point of interest of scientists
of that period was avoiding processing of large quantities of data, and finding
more elegant methods that could be used to avoid this type of activity. The areas
in which data mining can be successfully applied: economics, mechanics, medi-
cine, genetics, data micromining regardless of the area of application, biology,
pharmaceutics, economics, telematics, marketing (creation of a client’s profile,
segmentation, retaining clients, price optimisation, placing products on shop
shelves), in banking (predictions of slow payers of loan interest rates, predic-
tions of value of shares), insurance (predictions of numbers and values of dam-
age compensations, predictions of malversations). Data mining is applicable in
all areas where there is a great mass of data from this domain and if the aim is
to detect certain regularities, relationships and laws based on these data. Taking
into consideration that there are numerous factors that might affect the out-
come of an event, the task of data mining is to detect the most significant factors
and their characteristics considering target conditions. Regardless of the area of
application, well-used data mining methods are capable of detecting regularities
from a large mass of data, so the area of application becomes secondary. The
power of the application of data mining methods also originates from the fact
that data mining is independent from area of application, because emphasis
is placed on data, not on analyses. Research have shown a great need for data
mining experts. The position in companies to which they are employed is not
identical, but the most common positions are manager (20%), data mining ex-
pert (16%), statistician or operation explorer (12%), marketing analyst (10%),
and software engineer/architect (10%).
370
5. CONCLUSION
The purpose and goal of this paper is to open theoretical aspects of the busi-
ness intelligence model, its appearance as well as the meaning, as the expanding
expansion of information technology and the emergence of globalization are
constantly changing in the business market.Business intelligence is very im-
portant in business decision-making, because if a decision is made based on a
quality information, it is more likely that this decision will offer the very best
solution, i.e. some of the above-mentioned potential benefits of the business
intelligence model and further successful development in the conditions of risky
and turbulent market. Companies need to rely more on business intelligence
systems to be able to keep up with the competition. Business intelligence users
started demanding business intelligence in real time, i.e. data analysis in real
time. Fresh information originating from data processing need to be available
at any moment. Furthermore, strategic advantages of companies are no longer
based solely on physical resources or good management, but knowledge that
exists in the company and information the company obtains from the market.
This information need to be processed to become part of company knowledge,
or to be the basis for decision-making in the company. Some of these decisions
could be ordinary, for example, increasing or decreasing the production of a
product, and they are made on the basis of simple information that can serve
as inputs to such decisions in unchanged form, like information on last week’s
sales of this product or stocks in an outbound warehouse. The companies will
need to change business processes in order to use business data flows, because,
unfortunately, many companies do not perceive business intelligence as a tool
that will help them achieve successful business performance in the future. INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
According to some researches, there are still some resistance to the applica-
tion of new technologies in Croatian companies. What remains an open ques-
tion for thinking is the following, to what extent and how much the Croatian
companies and companies use some of the business intelligence models, ie why
do Croatian companies no longer use business intelligence as a modern tool for
quick market responses, or are they all available resources and potentials used
to achieve their competitiveness?
371
LITERATURE:
Panian, Ž., Klepac, G.: Poslovna inteligencija, Masmedia, Zagreb, 2003
Edvard Badurina: KNOWLEDGE ACQUISITION FROM DATA IN BUSINESS INTELLIGENCE MODELS AS A SOURCE OF COMPETITIVE ADVANTAGE...
Panian, Ž., Ćurko, K.: Poslovni informacijski sustavi. Element, Zagreb, 2010.
Stipanović, C.: Koncepcija i strategija razvoja u turizmu - Sustav i poslovna politika, Fakultet
za menadžment u turizmu i hotelijerstvu u Opatiji, Opatija, 2006,
http://www.ealliancebusinessintelligence.com/using_oracle_olap11g_with_obiee.php (ac-
cessed on 16/03/2018)
http://office.microsoft.com/hr-hr/excel-help/pregled-mrezne-analiticke-obrade-olap-
HP010177437.aspx (accessed on 16/03/2018)
http://www.ealliancebusinessintelligence.com/using_oracle_olap11g_with_obiee.php (ac-
cessed on 16/03/2018)
:http://thebusinessintelligence.blogspot.com/2009/12/online-analytical-processing-olap.
html (accessed on 16/03/2018.)
372
FORECASTING OF FIRE RISK
WITH REGARD TO READINESS
OF RESCUE AND FIREFIGHTING
VEHICLES
Abstract
Fire protection is an extremely important element of the State security system.
It consists of undertakings, which implementation is aimed to protect human
life and health, as well as property and natural environment against the danger
of fire, natural disaster or other local threat. In Poland, the National Fire and
Rescue System operates on three functional levels, corresponding to the admin-
istrative structure of the country. The lowest is executive level. Next, there is a
voivodeship level, and the highest is central (national) level. Fire risk analyses
are conducted at the central level in the scale of entire country and concern
mainly forest fires. Data covering other fires (also national) are compiled by
the Headquarters of the State Fire Service. They also have an aggregated form.
However, there are no specific studies on the phenomena occurring at the lowest INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
functional level, for individual entities. Their implementation would allow not
only for description and analysis of occurring fires but also for forecasting and
capturing the relation that affect them. Thus commanders of individual units
would be able to assess their resources, both human and technical, estimate
their own capabilities in relation to existing phenomena and make necessary
modifications by adapting their base to predicted threats. In this way, the readi-
ness of such a unit would increase, and as a result the chance for the quick and
effective rescue operation.
The article proposes a mathematical model for forecasting fire risk on the ex-
ample of selected rescue and fire-fighting unit. The presented model will enable
to appropriately shape the readiness of primarily available transport means and
373
human resources, which is particularly important in systems where the safety,
health, and life of people depend on the efficient and timely execution of tasks.
Key words: forecasting, multiple regression models, fire risk
JEL Classification: D81, C53
1. INTRODUCTION
The strength and scale of the phenomenon of fires are enormous. Losses
Anna Borucka:FORECASTING OF FIRE RISK WITH REGARD TO READINESS OF RESCUE AND FIRE-FIGHTING VEHICLES
caused by them and number of victims taken every year are terrifying. There-
fore new solutions are constantly sought to combat this situation. They concern
the organizational sphere in which the most important is the fast detection of
danger, immediate alarming and effective extinguishing action, as well as techni-
cal sphere associated with searching for new materials with high fire resistance,
the introduction of modern rescue and firefighting equipment or equipment of
fire brigade units.
Development of computer systems is also intensive, which allow for analysis
of the causes of threat and mechanisms of its development. These issues are
difficult to investigate due to the complicated course of the phenomenon and
multidimensional nature of the processes occurring in it and their mutual per-
meation. Simulation techniques aimed to describe a fire in many dimensions
also provide a very useful tool. The possibility to carry out complex calculations
taking into account the influence of various factors allows to obtain precise cal-
culations concerning e.g. danger level, its intensity, changes taking place in the
place covered by the fire, as well as to describe parameters directly related to
situation, such as the range of visibility, temperature, concentration of flamma-
ble gases, safety of the structure, which is important during the fires of objects,
especially if they are occupied by people.
Such models also allow for simulation of large-area fires, especially forests.
Using the detailed information on air temperature and humidity, atmospheric
pressure, wind direction, and strength, as well as terrain topography, location
and type of vegetation, and general characteristics of the forest complex, it is
possible to determine potential directions of threat development. Thanks to
this, they significantly facilitate firefighting operations, but also have an impor-
tant preventive role, as they are able to identify fire hazard spots, which enable
374
for their more effective protection and optimization of forces and means neces-
sary to carry out rescue operations.
The literature analysis shows that most of the scientific research activities
undertaken in the field of fires concern prevention, detection, and prediction
issues, but mainly the issue of occurrence and spread of the phenomenon in
relation to a specific area or object. Although there are carried out statistical
analyses concerning the number of existing hazards, their aim is a quantitative
and qualitative analysis of fires on the national scale, presented primarily for
information and prevention purposes.
Data on the scale of threat in Poland are collected independently by the Head-
quarters of the State Fire Service and the State Forests, which makes their
analysis difficult. Reports and statements are not used for forecasting purposes,
because such a summary forecast would not be useful. On the other hand, se-
lective research on specific groups of problems or on a specific territory is also
not useful for fire brigades, as it does not describe the phenomenon evolution.
And such an analysis, which indicates the shape, nature, and development of
danger in the future, would be valuable information for firefighters, who must
be constantly prepared for the rescue operation. Their readiness to take action
is recognised by the public as a kind of status quo, but in order to guarantee an
adequate security level, it is necessary to undertake certain measures. First of
all, spatial accessibility is important, adequate to the number of threats arising
in a given area, influencing above all the most important parameter of action,
i.e. time of arrival. People and vehicles must also be prepared and available. This
375
2. CHARACTERISTICS OF FIRES IN POLAND
Fire is a spontaneous and uncontrolled spread of fire, causing material dam-
age (Hołyst, 1962, p. 7), which occurs against the will of man or goes beyond
the boundaries of mankind (Grzywaczewski, 1951 p. 114). It is one of the big-
gest natural disasters on earth. This makes it an issue of particular concern in
many countries, including Poland, where although the total number of fires has
decreased over the last two years, it still remains at around 125 000 per year,
of which around 400 are very large and large, with disastrous consequences.
Anna Borucka:FORECASTING OF FIRE RISK WITH REGARD TO READINESS OF RESCUE AND FIRE-FIGHTING VEHICLES
The number of fires recorded in Poland between 2010 and 2017 was shown in
Figure 1.
Source: Own elaboration based on statistical data of the Headquarters of the State Fire
Service
Differences in the number of fires occur not only over the years but also over
the months, as this is a phenomenon characterized by high seasonality, deter-
mined by the season and metrological conditions that shape it. Diagram of fires
occurring in individual months in 2010-2017 was presented in Figure 2.
376
Figure 2. Total number of fires in 2010-2017 with the division into months
Source: Own elaboration based on statistical data of the Headquarters of the State Fire
Service
As can be seen, there are months when the number of fires is much higher
and this correlation is repeated throughout the presented period. The highest
risk occurs in early spring, March, and April (Figure 3).
Source: Own elaboration based on statistical data of the Headquarters of the State Fire
Service
377
The characteristic of fires is also important, depending on the phenomenon
scale. According to this criterion we distinguish :
Very large fires, which occur as a result of burnt or destroyed objects or its
parts, movable property, material storage sites, machinery, equipment, raw ma-
terials, fuels, etc., covering an area of more than 1001 m2 or a volume of more
than 5001 m3, as well as forests, crops, grasses, peat bogs and wastelands, with
an area of more than 101 hectares. Furthermore, such fires are characterized by
the application of over 37 firefighting jets.
Anna Borucka:FORECASTING OF FIRE RISK WITH REGARD TO READINESS OF RESCUE AND FIRE-FIGHTING VEHICLES
Large fires, which occur as a result of burnt or destroyed objects or its parts,
movable property, material storage sites, machinery, equipment, raw materials,
fuels, etc., covering an area of between 301 and 1000 m2 or a volume of between
1501 and 5 000 m3, as well as forests, crops, grasses, peat bogs and wastelands,
with an area of more than 10 hectares, but not more than 100 hectares. Such
fires are characterized by the application of 13 up to 36 firefighting jets.
Average fires, which occur as a result of burnt or destroyed objects or its
parts, movable property, material storage sites, machinery, equipment, raw ma-
terials, fuels, etc., covering an area of between 71 and 300 m2 or a volume of be-
tween 351 and 1500 m3, as well as forests, crops, grasses, peat bogs and waste-
lands, with an area of more than 1 hectare, but not more than 10 hectares. Such
fires are characterized by the application of 5 up to 12 firefighting jets.
Small fires, which occur as a result of burnt or destroyed objects or its parts,
movable property, material storage sites, machinery, equipment, raw materials,
fuels, etc., covering an area up to 70 m2 or a volume up to 350 m3, as well as
forests, crops, grasses, peat bogs and wastelands, with an area up to 1 hectare.
Such fires are characterized by application up to 4 firefighting jets.
In Poland, small fires dominate, which are the most common in the whole
phenomenon scale (Fig. 4). However, regardless of the intensity and extent of
each fire, they cause specific economic and environmental losses and require the
intervention of the fire brigade, which must be ready to respond to any type and
intensity of the phenomenon.
378
Figure 4. Number of fires in 2012-2012 with the division into phenomenon
scale
Source: Own elaboration based on statistical data of the Headquarters of the State Fire
Service
The fire risk in Poland is mainly associated with forest fires, which represent
almost 30% of the country’s area and grow on an area that is over 9.2 million
hectares (Directorate-General of National Forests 2016). The number of fires
in forests is strongly determined by the geographical location of forest and pre-
vailing meteorological conditions. It is influenced by air temperature, precipita-
tion intensity, litter moisture, relative air humidity, cloudiness, the presence of
379
second most important period is spring, and the time before the beginning of
forest vegetation development when it is dominated by a large number of flam-
mable materials. It is estimated that in these periods about 80% of all fires in the
forest occur (Piwnicki, Szczygieł 2018). Therefore, in a period from the begin-
ning of April to the end of October, the fire hazard is monitored particularly
carefully and the measurements of pine litter moisture are conducted on a daily
basis and in situations of increased risk the results are reported to the radio and
television along with the forest fire hazard level.
Anna Borucka:FORECASTING OF FIRE RISK WITH REGARD TO READINESS OF RESCUE AND FIRE-FIGHTING VEHICLES
Source: Own elaboration based on statistical data of the Headquarters of the State Fire
Service
On the other hand, it turns out that forest fires constitute only a small per-
centage of all fires recorded in the country (Fig. 5). Of course, their scale is of-
ten very large and their effects drastic for the functioning of forest ecosystems.
However, for the readiness of individual fire brigades, every threat is important
and requires a proper and quick response. Therefore, analyses carried out at
the national level, or only on selected risks, such as forest fires are not suffi-
cient for such units. Geographical diversity and specificity of individual Polish
regions require an individual approach at the lowest level of intervention. This
article proposes a method of forecasting the number of fires for a selected rescue
and firefighting unit, defining a model that will allow for forecasting events and
thus adjusting the available resources, both technical and human, to potential
hazards.
380
3. RESEARCH SUBJECT
The subject of study is an organizational unit of the State Fire Service, which
operates in the south-western part of Poland. It consists of two rescue and fire-
fighting units. Each of them has three shifts. In total, it has about one hundred
firefighters. It covers 9 municipalities with an area of 628 km2 and more than
60,000 inhabitants. The agricultural land in the studied area constitutes about
38%, while forests and forest land constitute over 45%. Such high forest cover
is conducive to fires, especially in periods of drought. The undoubted advantage
of the analyzed area is its tourist attractiveness, which arouses great interest due
to rich offer and possibilities not only in the field of hiking but also in gliding,
paragliding, canoeing, cycling or mountain climbing. Increased tourist traffic,
especially in summer, is unfortunately also conducive to fires.
4. RESEARCH METHODOLOGY
The analysis of selected fire rescue unit begun with the analysis of a total
number of fires in 2012-2016. It turns out that this characteristic differs from
indications for the whole country, where a significant decrease has been record-
ed over the last two years, while here the number of fires increases (Fig. 6).
Already at this stage, it can be seen that there is a justification for conducting
detailed analyses, as they may differ from the national trends. Firefighters from
the studied area explain that such a tendency is connected with a significant
number of small fires resulting from the deliberate action of the man. They
381
shape appropriate habits and attitudes conducive to both fire prevention and
proper behaviour at the time of threat occurrence.
382
- organize and conduct rescue operation during the fire-fighting and liqui-
dation of local threats,
- support rescue activities,
- identify fire hazards and other local threats,
- personnel management for the purposes of the State Fire Service and fire
protection,
more detailed forecasts would be more useful for proper preparation of equip-
ment and necessary human resources for the fight against fire. Therefore, for the
next study, detailed monthly data collected over 2012-2017 were used, which
was shown in Figure 7. Once again, the analysis begins with a visual inspection
of the diagram showing the number of fires in each month of 2012-2016, which
took place in the studied area of rescue and firefighting unit. This time there is a
noticeable analogy to the diagram drawn on the basis of information from the
whole country. There is also a clear seasonality related to the increased risk in
spring months, confirmed by boxplot (Fig. 8).
383
usually the result of problems with heating devices or improperly maintained
electrical or ventilation infrastructure in buildings, e.g. (soot fires in chimney
ducts). Early spring fires are caused by the wind-dried soil layer, which is not
yet protected by the protection provided by plant growth. Moreover, this is a
period in which fires of grasses, forests, and wastelands near them predominate,
associated with the start of the season for the careless and thoughtless burning
of grasses. At the time of writing this article on only one Sunday, 11.04.2018,
on the studied area of rescue and firefighting unit there were as many as 10 fires.
Anna Borucka:FORECASTING OF FIRE RISK WITH REGARD TO READINESS OF RESCUE AND FIRE-FIGHTING VEHICLES
384
Figure 9. 3-term moving averages
385
Figure 11. 12-term moving averages
Anna Borucka:FORECASTING OF FIRE RISK WITH REGARD TO READINESS OF RESCUE AND FIRE-FIGHTING VEHICLES
387
Corrected coefficient of determination, which determines what percentage
of variability of the dependent variable (Y – explanatory) is explained by inde-
pendent variable (X – explanatory), is satisfactory and it is almost 99%, errors
of estimated parameters are small, only for the time amount 12%, which is also
not too great value and therefore fully acceptable. Moreover, the quality of the
model is provided by the fact that all estimated parameters are statistically sig-
nificant, which is satisfactory also due to the model’s substantive interpretation
and lack of the need to remove insignificant explanatory variables. The standard
error of estimation was 2.2684, which means that the predicted values for the
Anna Borucka:FORECASTING OF FIRE RISK WITH REGARD TO READINESS OF RESCUE AND FIRE-FIGHTING VEHICLES
number of fires differ from the empirical values by an average of 2.3‰. Diagram
of empirical and predicted values was presented in Figure12.
6. MODEL DIAGNOSTICS
The analysis of differences between empirical and theoretical values, known
as model residuals, is the basis for assessment of the adjustment accuracy
of theoretical function to empirical data. Therefore, in order to confirm the cor-
rectness of regression model, it is necessary to check the basic assumptions con-
cerning residuals, which include the analysis of outlier observations, the nor-
mality of residuals distribution and the existence of significant correlations of
the autocorrelation functions. In regression analysis, it is important to eliminate
388
the influence of individual observations in the estimation process, which values
are different from those typical for the sample.
Figure 13. Scatter diagram of model residuals
This ensures that the model is not overly conditioned by untypical observa-
tions, which could significantly distort the calculation results and lead to incor-
rect conclusions. Although there are no observable outliers in boxplot (Figure
8), precise knowledge about their existence and impact on the estimated model
can be obtained by studying its residuals, which is definitely a better and more INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
elaborated tool, as they reflect inconsistencies between observed values and pre-
dicted by the model.
In a correctly estimated model, the residual values should be small. The op-
posite results are obtained by untypical observations, which are easy to detect
with diagnostics of the model residuals. Such observations may significantly
disturb the regression equation, due to the fact that their influence on the equa-
tion coefficients values is significant. It is assumed that if a given residual value is
more than 3 standard deviations from the average value, then such observations
may be considered as outliers. Then it is necessary to remove it, re-estimate and
diagnose the model. In the estimated model, all the residual values are within a
range of 3 standard deviations from the average value, and therefore it was con-
389
cluded that there are no significant outliers that affect the observation model.
The next stage of model diagnostics is to check the normality of its residuals
distribution. Analysis of the scatter diagram in Figure 13 shows that distribu-
tion is close to normal distribution, confirmed by the histogram in Figure 14
and calculated statistics of Shapiro-Wilk test, which calculation value is 0.9468
and the test probability p=0.0629. This means that there are no grounds for
rejecting the H0 hypothesis at the significance level of alpha=0.05, which in-
dicates that distribution of our variable is close to normal. Similar results were
obtained for the Lilliefors test, for which the calculated value is 0.0782259, with
Anna Borucka:FORECASTING OF FIRE RISK WITH REGARD TO READINESS OF RESCUE AND FIRE-FIGHTING VEHICLES
390
Figure 15. Charts of the autocorrelation function
391
Another factor determining the correctness of this model is lack of correla-
tion between all the residual values, i.e. confirmation that there are no unex-
plained dependencies. For this purpose, the diagrams of autocorrelation and
partial autocorrelation functions, presented in Figure 15 and Figure 16, were
provided with the study. It turns out that all values of functions are statistically
insignificant, which confirms the correct construction of the model.
Satisfactory results of the model diagnostics enabled to move to the last
stage of verification, which is to check its reliability in forecasting.
Anna Borucka:FORECASTING OF FIRE RISK WITH REGARD TO READINESS OF RESCUE AND FIRE-FIGHTING VEHICLES
7. FORECASTING
The model estimated on the basis of a set of empirical observations from
the time interval [0, T] has positive forecasting properties if the forecasts deter-
mined on its basis are satisfactorily reliable for t>T.
In order to check the accuracy of the proposed regression function, the Janu-
ary and February 2018 observations will be used as test observations. They were
not involved in the model construction. Despite a small set of test observations,
the prediction can be considered satisfactory. The relative error of forecast for
January was 7% (forecast was overestimated by 1.5 fire), while the relative error
of forecast for February was 0.9% (Table 2).
The average forecast error is 4.2765, which allows the estimated model
to be considered satisfactory. It is highly probable that the number of fires will
occur in consecutive months (Fig. 17).
392
Figure 17. Diagram of empirical values and forecasts according to the regres-
sion model
393
renovations in accordance with the requirements, at the right time and in the
right scope. In organizations aimed to protect human life and health, as well
as property, it is important that such operations are carried out with a view
to maintaining a certain level of preparedness, preferably at the lowest risk of
occurring danger. The definition of such a term again promotes the presented
prediction method.
The model presented in this article is based only on a temporary analysis
of the studied phenomenon. However, it can be improved and supplemented
Anna Borucka:FORECASTING OF FIRE RISK WITH REGARD TO READINESS OF RESCUE AND FIRE-FIGHTING VEHICLES
8. CONCLUSIONS
There are many definitions of fire, but in each of them, it is identified with
unintended and uncontrolled threat of damage, economic, environmental and
social loss and the need for emergency services to intervene. Therefore, it is not
surprising that the aim of the fight against fire is to undertake multidirectional
actions. They concern mainly preventive actions aimed to shape appropriate
attitudes and behaviors among the society. It also involves research to develop
new solutions for early and reliable fire detection, to implement the right stan-
dards in rescue tactics and to search for effective technical solutions. It is also
important to implement necessary legislative changes, and finally to constantly
acquire and train personnel ensuring not only proper knowledge and physical
condition of firefighters, but also appropriate psychological resilience.
In this difficult struggle against the unpredictable situation, what counts is
every possibility that is conducive to its success. That is why mathematical tools
and methods are equally important to describe and analyze such phenomena,
and the probability of their occurrence, course, and determination of fire risk.
394
The method presented in this article becomes a part of this last group. It al-
lows describing the phenomenon of fires in a mathematical way, based only on
information from the past concerning their number. The fact that it does not
require any additional data is its undoubted advantage. In this form, it can be
successfully used in the operational planning of rescue forces. It is also a devel-
opment method that allows for taking into account additional factors that may
influence the number of fires and thus increase the reliability of predictions that
are one of elements of the fight against a powerful and very dangerous situation.
REFERENCES
Grzywaczewski, Z. (1951). Fight against fires on ships, Gdańsk, Naval Publishing Company.
Holtys, B. (1962). Forensic fire issues, Warsaw, Publishing Company of the Forensic
Department.
Regulation of the Minister of Environment of 22 March 2006 on detailed principles for the
fire protection of forests Journal of Laws No. 2006.58.405 of 2006.04.07
Act on the State Fire Service of 24 August 1991, Journal of Laws No. 18.138 of 2018.02.01
Strawiński, P. (2007). Quality and discreet variables in the regression model [available at
http://coin.wne.uw.edu.pl/pstrawinski/notatki/dummy.pdf access March 16, 2018]
Directorate-General of National Forests (2016). Polish forests 14.07.2016 [available at:
https://www.lasy.gov.pl/pl/nasze-lasy/polskie-lasy access March 16, 2018]
Piwnicki, J. & Szczygieł, R. (2018). Effect of fires on forests
https://www.ibles.pl/documents/17150/28287/pozary-2015-2016.pdf
Piwnicki, J. & Szczygieł, R. (2015). Effect of fires on forests – Poland 2015
https://www.ibles.pl/documents/17150/28287/pozary-2015-2016.pdf
395
THE IMPORTANCE OF
ESTABLISHING HUMAN
RESOURCE OFFICES IN CROATIAN
HEALTHCARE INSTITUTIONS A
Martina Bienenfeld Zrinka Stanić Helena Štimac: THE IMPORTANCE OF ESTABLISHING HUMAN RESOURCE OFFICES IN CROATIAN ...
Abstract
A number of highly educated specialists who have left the Republic of Croatia
since it entered the European Union, is growing rapidly. Well-trained special-
ists such as medical doctors, dentists, pharmacists, nurses, etc. are moving to
other European countries in search of better working conditions. In the main
receiving countries, it is normal that each hospital, healthcare centre, pharmacy
store or even home for elderly has their own human resource office with the
primary task of keeping their employees happy and taking care that the work-
ing conditions are good. The main reason for Croatian “Brain-Drain” isn’t low
salaries, but the lack of human resource specialists who could improve the work-
ing conditions and help in the social development of the healthcare institutions
in Croatia. Notably, a high salary appears to have a lesser relevance compared
to the quality of working conditions. Investments into the social sector of health
396
institutions in Croatia and investment into Human Resource Management
carry the potential to decrease the number of leaving specialists and to increase
their productivity in managing their tasks as well as increasing their inner
satisfaction and motivation.
Key words: Human Resource offices, Croatian healthcare institutions, Croa-
tian “Brain-Drain”, Human Resource Management
JEL Classification: O15, H51
1. INTRODUCTION
Since the Republic of Croatia entered the European Union, more and more
people are moving to other EU countries in search of better jobs and better
living conditions. Medical doctors and medical staff are one of the most signifi-
cant categories in this social phenomenon. According to the Croatian Medical
Chamber (CMC), 1 468 medical doctors have filed a request to leave CMC
and to move abroad. (Croatian Medical Chamber, 2018, The number of doctors
who are leaving). Since the Republic of Croatia entered the EU on 1st July 2013,
518 nurses (Kukovec, D., et. al., 2017, 3) and 525 doctors have left the country
to work abroad (Croatian Medical Chamber, 2018, Demographic Atlas). The
research done in the Demographic Atlas of Croatian medicine states that there
are 14 394 medical doctors in the Republic of Croatia from which almost 4 000
will be retired in the next 10 years. At the same time, there will be the highest
numbers of graduated medical doctors in the past decade. According to Trpi-
mir Goluža, president of CMC, if the trend of growing retired population and
growing brain-drain population continues, serious problems will ensue in the INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
Croatian healthcare system. In the research done in 2016, from 1 531 partici-
pants, 58% said that they would leave Croatia and go to work abroad if they had
a chance to do that. Participants’ average age was 32 years (29 to 35) and most
of them were young medical professionals who were residents or young special-
ists with less than 5 years of experience working as a specialist (Babacanli, A.,
et.al., 181).
397
Image 1. Leaving the Republic of Croatia in search of a career abroad.
:RXOG\\RXOHDYHWKKH5HSXEOLFRI&URDWLDDQGVWDUWDFFDUHHUDEURDDGLI
RIIHUHGWWKHRSSRUWXQQLW\"
Martina Bienenfeld Zrinka Stanić Helena Štimac: THE IMPORTANCE OF ESTABLISHING HUMAN RESOURCE OFFICES IN CROATIAN ...
Ed
WZE
'
WZ
ZEd
WZ
ZEd '
'
'
'
Source: Babacanli, A., et. al., Satisfaction of young doctors in Croatia: Are we heading in the
right direction? Liječnički Vjesnik, 2016 (138), p. 180
398
to some other hospital, regardless whether in Croatia or abroad, they need to
repay high sums to the hospital.
Moreover, the Croatian Constitutional Court expressed its opinion that
those kinds of contracts are against the Croatian Constitution. Nevertheless,
the contracts are still in force, violating one of the four freedoms given to the
citizens of the European Union, namely the freedom of movement for work-
ers. The Constitutional Court in Croatia has decided in its decision from 2015
that Minister of Health isn’t authorized to regulate the obligations between the
resident and the hospital, the length of the obligation for the resident to stay
and work for the hospital after becoming a specialist, the amounts which are
applicable for resident or young specialist to pay to the hospital, the amounts
which are applicable for hospital to pay for young specialist coming from a dif-
ferent hospital neither is he authorized to determine costs of the specialization
which specialists need to repay to the hospital (Constitutional court in Croatia,
decision U-II-187/2015 - U-II-4649/2016). It is important to emphasize that
only medical doctors, residents or young specialists, are in the category of work-
ers whose fundamental right has been violated.
The research done by the authors of this paper states that the main reasons
why medical doctors and medical staff are leaving are bad working conditions
in Croatian healthcare institutions, bad inter-personal relations at healthcare
institutions, feeling of dissatisfaction and depression at workplace, low sala-
ries, the unsustainability of the Croatian healthcare system, no possibilities for
practical or scientific progress, questionable pension funds, no opportunities for
399
Image 2. Reasons for leaving the Republic of Croatia (multiple-choice response)
ϰϮϱͬϴϱй
ĂĚǁŽƌŬŝŶŐĐŽŶĚŝƚŝŽŶƐŝŶƌŽĂƚŝĂŶ
ŚĞĂůƚŚĐĂƌĞŝŶƐƚŝƚƵƚŝŽŶƐ
ϯϴϬͬϳϲй
ĂĚŝŶƚĞƌƉĞƌƐŽŶĂůƌĞůĂƚŝŽŶƐŝŶƌŽĂƚŝĂŶ
ŚĞĂůƚŚĐĂƌĞŝŶƐƚŝƚƵƚŝŽŶƐ
Martina Bienenfeld Zrinka Stanić Helena Štimac: THE IMPORTANCE OF ESTABLISHING HUMAN RESOURCE OFFICES IN CROATIAN ...
&ĞĞůŝŶŐƵŶƐĂƚŝƐĨŝĞĚĂŶĚĚĞƉƌĞƐƐĞĚĂƚ
EƵŵďĞƌŽĨƋƵĞƐƚŝŽŶĞĞƐсϱϬϬ
ϴϬͬϭϲй ϴϱͬϭϳй
EŽŽƉƉŽƌƚƵŶŝƚŝĞƐĨŽƌƚŚĞŝƌĐŚŝůĚƌĞŶ
s>h ͬϭϭй
KƚŚĞƌ
s>h ͬϯй
Source: Authors
400
Precisely because of the complexity of inter-personal relations between work
colleagues, the HR-offices are giving their best to avoid and prevent conflicts
by organizing teambuilding events each month, talking to each employee once
a month, doing many personality tests and conversations with potential new
employees and then deciding on the team set-up of every working community
of the Department (Barković Bojanić, Gugić; 2017, 375). If an employee’s per-
sonality does not match the rest of the team at the Department and employing a
particular candidate might cause consequences such as disrupted working rela-
tions at that Department, the HR-office will decide not to employ that person
no matter how excellent expert he/she is.
How come that all the developed countries such as Sweden, Norway, Den-
mark, Germany, etc. realised the importance of human capital management
while Croatia still fails to comprehend the value of this management practice?
According to Mujić and Legčević, by specializing professionals of different pro-
files for coordination and harmonization of human resources and by efficient
planning, organizing, coordinating and managing of human capital, it is pos-
sible to achieve a significant contribution to the development of the country.
The development of the human capital needs to be looked upon as the develop-
ment of a new wealth of the whole nation (Mujić, N., Legčević, J.; 2008, 201).
This transition from the industry-based society to informatics-based society is
the key difference between developed countries and countries in the transition.
Only after realising and starting to implement this knowledge in the Croatian
society, will we start to move towards becoming a developed country in which
people are satisfied to live and want to stay here? The modern phenomenon of
Croatian “Brain-Drain” can be slowed down or perhaps even entirely stopped INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
if we invest in our human capital and join the list of developed countries in the
world.
1
The translation of the Swedish word Personalavdelning is “Department for HR-specialists”
401
jurists and economists and they need to collaborate with one another so that ev-
erything functions well. The Swedes understood a long time ago that the wealth
of a country lies in its human capital. In Sweden, the biggest part of GDP is in
the services they provide, and not in natural resources, agronomy, industry, etc.
A total of 65% of GDP comes from services, while 33% comes from industry
Martina Bienenfeld Zrinka Stanić Helena Štimac: THE IMPORTANCE OF ESTABLISHING HUMAN RESOURCE OFFICES IN CROATIAN ...
and the rest from agronomy and other sectors (Repecki, M.; 2018). They apply
Total Quality Management (TQM) which implies taking initiatives to achieve
better results in today’s business surroundings. Those initiatives, same as work-
ing force, became main tools in fulfilling organizational concurrency, strategic
routing, innovations, adaptability and maximum utilization of human capital
available to the organization ( Jurčević, J.; 2007, 100). It seems that employ-
ers in Sweden follow Richard Branson’s recommendation to “take care of your
employees and they will take care of your business. It’s as simple as that. Loyal
Employees are Assets – Not Liabilities.”2
2
Sir Richard Charles Nicholas Branson is an English business magnate whose wealth is estimated
at US$ 5.1 billion in Forbes magazine in November 2017. He founded the Virgin Group and was
knighted for his services to entrepreneurship.
402
J.; 2017, 1). The situation in Croatia is a little bit different. Regarding the num-
ber of doctors per 100 000 people, Croatia is below EU average. The reason
why the WHO estimated the minimum of medical staff per 1.000 people is be-
cause of the fact that doctors do intellectual work and need to dedicate a specific
amount of time to each patient giving the patient an opportunity to feel secure
and taken care for. They also need time for themselves to think about patient’s
case, research and maybe consult with their colleagues. This pressure can be
lowered by employing more specialists and residents in hospitals, closing all the
small hospitals which are, generally speaking, in surplus, opening more General
Practice offices where those smaller hospitals were closed and investing savings
into different measures to improve conditions at workplace (new devices and
equipment, further education of their employees, renovation of departments,
etc.). By doing so doctors, medical staff and patients would be much happier
with service provided because the waiting lists would be much shorter, patients
would feel more secure and would be more patient, doctors would not bear the
constant feeling of rushing and working off their limits. It is expected that 4.000
Croatian doctors, from the current 14.394, will retire in the next 10 years which
will make the working conditions of Croatian doctors and medical staff even
more unbearable (Demographic Atlas of Croatian medicine, Croatian Medical
Chamber, 2017). Croatian health care system cannot allow further losses of hu-
man capital within its institutions. It is urgent to satisfy the number of needed
doctors in each department so that doctors and patients are satisfied.
It would also be good to start the preparedness when being on duty. There
are many departments where there is no need for 24 hours shifts at the hos-
pital and could be replaced with preparedness in which doctor is at home and INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
prepared to come to the hospital in a short time if needed (Antti, N., Köhler,
J.; 2017, 37). This possibility would also increase the satisfaction of medical
professionals at their workplace.
After undertaking those measures, the healthcare institutions can continue
with improving the working conditions for their employees by investing in the
further education of their employees, by taking them to seminars, congresses or
workshops around the world or even organize such events in their own health-
care institution, organizing teambuilding activities and monthly communica-
tion with each department. This is a good way to make the hospital administra-
tion familiar with the current situation at each department, with their needs
and level of satisfaction. The doctors participating in such events would feel
403
much happier, confident and eager to use all the new knowledge they receive in
their department.
404
extra money for the healthcare institutions. The importance of medical tour-
ism is growing. HR offices can help the healthcare institutions to promote its
services to some foreign markets and attract foreigners who are in need of spe-
cific healthcare procedures. That is also a very good way for Croatian healthcare
professionals to learn about the functioning of foreign healthcare systems and
at the same time implement all more advanced ideas directly onto the Croa-
tian system. A yet another opportunity is to start online doctor services which
are very popular in Scandinavian countries, United Kingdom and Germany.3
Online doctor services give patients the opportunity to get the medical advice
about his/her health condition without coming to the hospital. The hectic way
of life leaves us too little time and each minute is very important. Many people
are hence ready to pay more money for more effective service and the medical
advice they need right away. These are just some of the tasks which HR offices
in healthcare institutions can perform. There is a wide variety of opportunities
and benefits that establishment of HR offices can have for healthcare institu-
tions in Croatia.
4. CONCLUSION
According to the research done in 2006, there was a shortage of various
specialists in Croatian health care system. This included a shortage of 328 inter-
nists, 319 surgeons, 209 gynaecologists, 69 paediatricians and 179 general prac-
titioners (Bagat, M., Sekelj Kauzlarić, K., 2006, 376-382). In the past 12 years,
that shortage of specialists has grown additionally and there is a lack of even
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
higher number of doctors of different specialties. For example, the standard
time which a General Practitioner should dedicate to each patient is around
20 minutes per patient. It means that a GP in Croatia should not have more
than 35 visits in a day if he/she wants to keep his satisfaction at workplace and
patients satisfaction with service provided. With the current number of GPs
in Croatian health care system, this is not possible. Croatia would need many
more GPs to reach the above-mentioned standard (Croatian Medical Chamber,
Minister Nakić’s speech, 2018). Croatia is not only lacking specialists in pri-
mary health care segment but in other specialties as well. According to the De-
3
Some of the examples of online doctor sites is MediCheck web site, there you can get oral or
written advice about some health problem you have. Link: https://medicheck.se/doctor-online/,
pristup: (23-03-2018)
405
mographic Atlas of doctors in Croatia, 525 doctors left the Republic of Croatia
by December 2017. There are 14.394 doctors currently working in the Croatian
health care system. It is expected that at least 4.000 doctors will be retired in
the next 10 years. Counting on a current deficit of specialist doctors in Croatia,
rapidly growing “Brain-drain” trend and future retirements, the subsistence of
Martina Bienenfeld Zrinka Stanić Helena Štimac: THE IMPORTANCE OF ESTABLISHING HUMAN RESOURCE OFFICES IN CROATIAN ...
Croatian health care system is seriously in question. More than 50% of doc-
tors employed in the Republic of Croatia had more than 250 overtime hours
in a year and the number of doctors who stay to work after retirement has also
increased significantly (Croatian Medical Chamber, 2018, Demographic Atlas
of doctors in Croatia).
When talking to residents and young specialists they have dissatisfied with
health care system overall, especially with bad working conditions, bad inter-
personal relations at the workplace, low salaries, no possibilities for practical
and scientific progress, etc. The measures which would keep residents and
young specialists in Croatia are regulations of the health care system, better
salaries, better working conditions, better education and the possibility for fur-
ther education, better programs of specialist training and mentoring systems
(Babacanli, A., et.al., 2016, 183).
By starting HR offices in the health care institutions in Croatia all these dis-
satisfactions could be decreased or even eliminated and the further shortage of
doctors would be prevented. We are living in a period when there are a lot of
young doctors graduating from Medical faculties and it is the task of the system
to keep them in Croatia instead of allowing them to be a part of the Croatian
“Brain-Drain”. Each person counts and each person contributes to the effective
functioning of the country as a whole. Giving the opportunity to young doc-
tors to choose a specialization which they prefer instead of limiting their op-
tions, as well as improving the management strategies, would have an impact on
them and would keep them in Croatia. Improving the whole health care system
with various reforms, which could be carried out by HR offices and giving them
more time to each patient are the first steps towards success. If these strategies
are maintained, there is a good chance of stopping the Croatian “Brain-Drain”
of health care specialists.
406
REFERENCES
Antti, N. & Köhler, J. (2017) Varför tar Sveriges läkare emot så få more patient? Tre empiris-
ka studier om läkare som har svaga eller inga gränser, Luleå Technical Faculty – Insti-
tute for Economy, Technology and Society, 2017, p. 1–95. [Available at: http://www.
diva-portal.org/smash/get/diva2:1110565/FULLTEXT02 , access: 20-03-2018]
Babacanli, A., et. al. (2016) Satisfaction of young doctors in Croatiain the Republic of Croa-
tia: Are we going in the right direction?, Liječnički Vjesnik Vol.138, p. 179–188 [Avail-
able at https://hrcak.srce.hr/index.php?show=clanak&id_clanak_jezik=255096, ac-
cess: 12-03-2018]
Bagat, M. & Sekelj Kauzlarić, K. (2006) Physician Labor Market in Croatia, Croatian
medical journal, Vol.47 No.3, p. 376-384 [Available at https://hrcak.srce.hr/index.
php?show=clanak&id_clanak_jezik=6605, access: 23-03-2018]
Barković Bojanić, I. & Gugić, Z. (2017) Theory and practice of Human Resource Manage-
ment: The case of medical staff recruitment in the Kingdom of Sweden, Ekonomski
vjesnik: Review of Contemporary Entrepreneurship, Business, and Economic Issues, Vol.30
No.2, .p.371-382
Constitutional Court in Croatia, Decision U-II-187/2015, U-II-2180/2016, U-II-
3654/2016, U-II-4440/2016, U-II-4523/2016, U-II-4649/2016, July 11th, 2017.
[Available at: http://upuz.hr/file/files/Odluka%20Ustavnog%20suda%2C%20
Pravilnik%20o%20specijalisti%C4%8Dkom%20usavr%C5%A1avanju%20dokto-
ra%20medicine.compressed.pdf , access: 13-03-2018]
Croatian Medical Chamber (2017), “Demographic Atlas of doctors in Croatia” [Available at
https://www.hlk.hr/EasyEdit/UserFiles/priop%C4%87enja/priopcenje-demografs-
ki-atlas.pdf, access: 10-03-2018]
Croatian Medical Chamber (2018) Ministar Nakić: “Family doctors should devote the nec-
essary amount of time to every patient and not approximately 20 minutes to every
patient” [Available at https://www.hlk.hr/ministar-nakic-obiteljski-lijecnici-svakom-
pacijentu-trebaju-posvetiti-vremena-koliko-treba-a-ne-tocno-20-minuta-svakom-
407
Vrcić Keglević, M. & Daus Šebeđak, D. (2015) Differences in organization and function-
ing of family medicine in the Brodsko-posavski district compared to the Republic of
Croatia, Medicina familiaris Croatica: journal of the Croatian Association of Family medi-
cine, , p.30-38 [Available at https://hrcak.srce.hr/index.php?show=clanak&id_cla-
nak_jezik=219712, access: 22-03-2018]
World Health Organization, The World Health Report (2006) [Available at http://www.
Martina Bienenfeld Zrinka Stanić Helena Štimac: THE IMPORTANCE OF ESTABLISHING HUMAN RESOURCE OFFICES IN CROATIAN ...
408
VALUATION OF ZERO COUPON
BONDS IN EXCEL
Abstract
The valuation of zero coupon bonds, or bonds which are paying no coupons or
interests and are selling at a discount, is a straightforward discounting problem.
To analyze zero coupon bonds, it is necessary to determine their present value,
yield to maturity and duration. Since zero coupon bonds do not pay any interests
the yield to maturity and present value are calculated by discounting the nominal INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
value of such a bond. The duration is a measure of the average life of a bond and can
be defined as the weighted average of the times until each payment is made,
with weights proportional to the present value of the payment. To solve this valuation prob-
lem for annual and semiannual compounding of zero coupon bonds new models
were developed and a special spreadsheet programmed using only plain vanilla
Excel with its basic financial functions.
The reason for using only plain vanilla Excel is a better compatibility and
portability of such spreadsheets, for students and other users, on different plat-
forms or computers.
Key words: valuation, bonds, zero coupon, Excel
JEL Classification: Q51, M15
409
The presented results are part of the research project Development and Per-
spectives of Institutional Investors in the Republic of Croatia, financially sup-
ported by the University of Rijeka, for the project ZP UNIRI 3/17.
1. INTRODUCTION
Educational software is often used in finance courses for students, so they
could better understand the investment process in securities, like bonds. It is
also necessary to apply the methods of calculating prices, rates of return of fixed
income securities in everyday practice. Because students at Universities espe-
cially at faculties of economics are trained to use Excel, it is possible to use such
a spreadsheet program and its built in financial functions to calculate and evalu-
Zdenko Prohaska Bojana Olgić Draženović Ivan Uroda: VALUATION OF ZERO COUPON BONDS IN EXCEL
ate interest rate risk in bond investments in general and especially in the case of
zero coupon bonds. Besides that, very good books about Using Excel in Finance
and Business do exist. (Benninga, 2014) (Underdahl, 1996)
For valuation of zero coupon bonds (zero bonds) in this article, the basics of
ordinary or coupon bearing bonds will be presented first and after that the case
of zero coupon bonds will be illustrated. After these theoretical considerations
an Excel spreadsheet with examples is elaborated and the results are discussed
like in an article published earlier. (Prohaska, Olgić Draženović & Šarić, 2013)
410
given the price of the bond. In the case of annual compounding the formula or
equation is: (Bodie, Kane & Marcus, 2009)
C C C FV
PV = + +…+ + (1)
(1+y) (1+y)2 (1+y)n (1+y)n
where:
PV - present value of the bond
C - coupon
n - number of years
y - yield to maturity/rate of return
FV - future value of the bond
where:
PV - present value of the bond
C - coupon
n - number of years
y - yield to maturity/rate of return
FV - future value of the bond INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
411
In an Excel spreadsheet presented later and developed especially for zero
coupon bonds, the present value of coupon bonds can also be determined at the
rate of return selected by the student. It is necessary to prepare basic input data,
like the nominal interest rate and other necessary financial information on the
bond. After that the present value can be calculated, but coupon bearing bonds
are not in the focus of this article.
N N
ݐC NF C F
.D = + ൩ : + ൩ (3)
ሺ1+yሻ ሺ1+yሻ
t N ሺ1+yሻt ሺ1+yሻN
t=1 t=1
where:
D - duration of a bond
N - maturity in years
C - coupon
F - face value
y - rate of return/yield to maturity
t - year when the payment is made
Using duration instead of maturity it is possible to minimize interest rate
risk affecting investments in bond portfolios. In the Excel spreadsheet (ZBonds.
xls) presented later, duration can be calculated not only for zero coupon bonds,
but also for coupon bearing bonds, both for annual and semiannual payments
of interests.
With semiannual payment, interests on bonds are paid out faster than with
annual payments, so duration of the bond has to be a smaller number.
However, any change in the size of y, i.e. the rate of return or yield to maturi-
ty, in the denominator of equation (3), e.g. by dividing by 2 in order to calculate
the interest payment on a semiannual basis, would mean essentially a reduction
in the rate of return or yield to maturity, which would increase the duration of
the bond, what is not true.
412
Therefore, quite the opposite has to be done. To get the correct solution for
the duration of coupon bonds paying interests semiannually, Macaulay’s duration
formula has to be corrected, namely: (Prohaska, 1994)
D
D'= (4)
1+0,5y
where:
D’ - duration corrected for semiannual payment of coupons
D - duration according to equation (3) for annual payment of coupons
y - yield to maturity/rate of return
413
.. Yield to maturity and present value of zero coupon
bonds
Since zero coupon bonds do not pay any interests, the yield to maturity and
present value are calculated by discounting the future value or nominal value of
this bond. In the case of annual compounding equation (1) has to be reduced
to the following form:
FV
PV= (5)
(1+y)n
where:
PV - present value of the bond
n - number of years
Zdenko Prohaska Bojana Olgić Draženović Ivan Uroda: VALUATION OF ZERO COUPON BONDS IN EXCEL
According to equation (6) it is evident, that in the present value calculation the
number of periods used for discounting is not the number of years to maturity of
the bond, but rather double the number of years. The discount rate had also to
be corrected and is now one half of the yearly yield to maturity or rate of return.
Examples for both cases, i.e. for zero coupon bonds with annual and semi-
annual compounding will be presented in the Excel spreadsheet section of this
article.
414
.. Duration of zero coupon bonds
It was already stressed that duration is a measure of the average life of a bond
or in different terms a time- and value- weighted measure of a bond`s maturity.
By using duration instead of maturity it is possible to minimize interest rate risk
affecting investments in bond portfolios.
In the case of zero coupon bonds with annual compounding, duration in
equation (3) can be transformed and according to relevant literature reduced
to the fact that duration for zero coupon bonds is always exactly equal to the
maturity of zero coupon bonds or: (Chance, 1990) (Wilmott, 2001)
D=N (7)
where:
D - duration of a bond
N - maturity in years
Concerning zero coupon bonds with semiannual compounding illustrated
in equation (4) above, it can easily be seen that by inserting 0 for variable y in
this equation, the corrected duration D’ is equal to duration with annual com-
pounding or D:
D D
D'= = =D (8)
1+0,5y 1
415
otherwise similar coupon bearing bond. With the zero coupon bond nothing is
paid or received until maturity, while in the case of a coupon bond the present
value or the price is a function of both the periodic coupon interest payments
and the bond`s nominal or par value.
Second, the longer or shorter the maturity of the zero coupon bond, the
more or less the percentage price changes as market interest rates fluctuate. This
is also obvious since the duration of shorter maturity zero coupon bonds is less
than the duration of zero coupon bonds of longer maturity.
For determining the value and duration of zero coupon bonds, both for an-
nual and semiannual compounding, an ordinary or plain vanilla Excel spread-
sheet was developed applying custom made formulas by authors and standard
financial functions built in Excel. (Holden, 2014) For explanation of the models
two examples are presented below.
416
Figure 1 Spreadsheet screenshot of a zero coupon bond with annual
compounding
The results show that the present value or market value of the zero coupon
bond is kn 76.88 and the duration is 5 years. That means that the duration of a
zero coupon bond with annual compounding equals the maturity of this bond
in years.
417
Figure 2 Spreadsheet screenshot of a zero coupon bond with semiannual
compounding
Zdenko Prohaska Bojana Olgić Draženović Ivan Uroda: VALUATION OF ZERO COUPON BONDS IN EXCEL
418
5. INSTALLATION OF THE EXCEL SPREADSHEET
Since all mentioned procedures and calculations are implemented in one Ex-
cel spreadsheet (ZBonds.xls), it is recommended to copy this file in the working
directory of the PC where Microsoft Excel program can access it. Of course,
Excel Analysis Toolpak Add-In can be installed to speed up eventually some
specific financial functions or calculations, but is not necessary.
6. CONCLUSION
In this article the valuation of zero coupon bonds (zero bonds) was elabo-
rated both for annual and semiannual compounding. For this purpose, an Excel
spreadsheet was developed using only plain vanilla Excel, i.e. by using only cus-
tom-made formulas developed by authors and usual financial functions already
integrated in basic Excel.
The theoretical models of present value or market price and duration of zero
coupon bonds implemented in the Excel spreadsheet (ZBonds.xls) show that
even more sophisticated discounting problems can be solved efficiently using
Microsoft Excel program. In addition, it should be emphasized that by using
only plain vanilla Excel, better compatibility and portability of such a spread-
sheet, on different platforms or computers is also provided.
REFERENCES
Benninga, S. (2014). Financial Modeling, Cambridge: MIT Press
419
FROM CAMERA OBSCURA TO
IPHONE: WHAT IS THE FUTURE
Zorislav Kalazić Damir Butković Andreja Hašček: FROM CAMERA OBSCURA TO IPHONE: WHAT IS THE FUTURE OF STOCK PHOTOGRAPHY ...
Andreja HAŠČEK1
Hanfa
E-mail: [email protected]
Abstract
The first 150 years of photography were marked by analog photography. The
visible product - analog photograph on paper was preceded by a complicated,
delicate and time-consuming procedure, which required specific knowledge, feel-
ing and skill. In the last 20-some years, photography has been undergoing a
digital revolution where both the technology and the concept of doing business
are completely changing. In addition to the technological procedure of creation
of photographs, the entire photo industry has changed, and one of the derivates
of the newly created digital economy is digital stock photography, which has
grown into a global business with a gross turnover of about US$ 5 billion
annually.
1
Andreja Hašček is an employee of the Croatian Financial Services Supervisory Agency. The views
expressed in this paper are those of the author and do not necessarily reflect the views of the Croa-
tian Financial Services Supervisory Agency.
420
However, stock photography today is faced with difficult challenges, because
with low price and high quality of cameras, modern technology has made pho-
tography extremely popular and readily accessible, literally to everyone. With
high technical quality of digital photographs, amateurs have seriously endan-
gered the existence of professional photographers.
This paper will try to answer the question whether digital stock photography
will survive the latest challenges of the future and the trends in the visual media
market.
Key words: Creative industry, Stock image market, Digital stock photography,
Digital visual media, Digital image
JEL Classification: L82, L69
1. INTRODUCTION
Even Aristotle mentions the camera obscura that can be considered a precur-
sor to the photographic camera, and on whose principle of operation, basically,
works every photographic camera, even the most modern ones. It was used by
the Arabs in the 11th century to observe stars and Leonardo da Vinci described
this device in detail. Since then, painters have been using it more and more in
order to achieve a more faithful representation of reality. In 1826, with the aid of
a camera obscura, the first permanent photograph was created, when Nicephore
Niepce used multi-hour exposure and recorded the View from the window at
Le Gras. Afterwards, the pioneers of photography tried various photographic
421
• 1st creators of images (photographers, cameramen, graphic designers),
• 2nd intermediaries – agencies that enable the sale of usage rights in ex-
Zorislav Kalazić Damir Butković Andreja Hašček: FROM CAMERA OBSCURA TO IPHONE: WHAT IS THE FUTURE OF STOCK PHOTOGRAPHY ...
2. MACROSTOCK PHOTOGRAPHY
Miller (2003) describes how the macrostock business model was known
since the end of the 19th century, when the American company Underwood
& Underwood, which sold photos to printed media, was founded. It did not
422
take long for competitors to enter this growing market. One of them was H.
Armstrong Roberts, who offered his clients a new solution in the form of a
printed catalog. This catalog, published in 1920, is considered the beginning of
the stock photography business model and Roberts’ agency still does business
under the same rules as on day one. In the beginning, the term ‘agency’ was not
used. The first companies which sold rights to use the pictures from their cata-
logues in the early 20th century were called picture libraries. They were often
private collections of photographers and collectors.
The macrostock agencies and traditional photobanks were at ground zero
of the online photo-selling industry. Such giants as Corbis or Getty Images offer
a variety of images but prices start at several hundred dollars and might reach
thousands. For these prices, customers who buy images from such agencies buy
exclusive rights to use these files, i.e. a right managed license (RM).
Stock agencies in the beginning of the 1970s decided to reduce costs and
sought alternative technological and business solutions, which leads to the ap-
pearance of a distinct industry defined as producing pictures for advertising.
The recognized generic stock image, which can be used in various industries,
was also established. The year 1990 is the beginning of the modern digital phase,
characterized by drastic changes in business activity of the industry, tied to fi-
nances, organization and technology. The market prices, however, were still very
high. Uchańska (2015) writes that picture prices ranged from a couple hundred
to even 700 hundred dollars: this was the price of professionalism. Despite the
growing number of agencies, the demand for generic stock images was high,
3. MICROSTOCK PHOTOGRAPHY
Until the 70s, the stock photo industry was not aware of its existence. There
were numerous small agencies on the market that offered various image catego-
ries, e.g. for publishing, historical, scientific, educational, geographic, journalistic
and commercial. These agencies acted independently, without a common vision,
and would usually take rejected images that the original purchaser did not want.
However, they had the idea to categorize these images and offer them to other
423
buyers, along with the payment of a small fee to the author of these photographs.
Photographers gladly accepted the new business model because it meant sell-
ing existing images which were left as unnecessary for the second time. With
Zorislav Kalazić Damir Butković Andreja Hašček: FROM CAMERA OBSCURA TO IPHONE: WHAT IS THE FUTURE OF STOCK PHOTOGRAPHY ...
the mass usage of digital photography after the year 2000, an interesting niche
was identified on the stock image market, comprised of advertising agencies,
publishers, graphic designers, entrepreneurs, and bloggers. On the other hand,
the creative potential of amateur photographers was recognized, since they had
access to relatively cheap, yet technologically powerful equipment.
According to Schmieder (2015), the German stock photo agency Plainpic-
ture, for example, was one of the first stock agencies in the new millennium to
recognize the value of amateur photography. Roman Haerer and Astrid Her-
mann, directors and founding members of the photo agency, attributed the in-
clusive approach to the demand for more personal-looking photographs, which
can be used for illustrative and creative purposes. Frosh (2002) somewhat ironi-
cally comments on the amateurs in the stock photo business: “However, they
stressed that they do differentiate between high and low picture quality. Thus,
the amateur partly blends into the large pool of standardized stock photographs
and becomes almost invisible.”
Microstock photography was created through the crowdsourcing business
model that uses the idea of networking, and that initially had the form of a
platform for image exchange within the existing community. Stock photogra-
phy fits perfectly into the crowdsourcing business model because it can cover a
large number of creative people who work remotely, do not have to be employed
full-time, and anyone interested can become an associate. Smith (2015) writes
about crowdsourcing as the best business model in the digital age. Selling im-
ages on the web has become, for amateurs, a relatively simple way of achieving
extra profit. Uchańska (2015) writes that the recipe for an efficient and suc-
cessful agency was to observe three rules: the high quality of pictures, the best
photographers, and the ability to create a professional image. The Image Bank
added one more component: global orientation.
Using resources of photo agencies based on the microstock model is now
becoming the standard source of image contents in media and the advertis-
ing industry. The images are good, cheap, and can be used in various contexts.
Initially, this model caused criticism in the photography industry because it
forced traditional photo agencies to drastically lower their prices. A common
424
complaint is that images are often unoriginal, generic, and clichéd, or, as Frosh
(2002) writes repeatedly produced and performed as ordinarily familiar and
ordinarily desirable. Microstock agencies sell files provided by their contribu-
tors for prices starting as low as 0.10–0.15 USD per image. Files offered by
microstock agencies are sold under a so-called royalty-free license (RF), and
the customers do not get exclusive rights to use them. Microstock changed the
perception of amateur photography. Taking pictures is not just a pleasure now,
it is business. The winning strategy is to best recognize the expectations of cus-
tomers and adjusts one’s pictures says Uchańska (2015).
Four basic categories keep their popularity in microstock: lifestyle, health/
healthy lifestyle, and beauty & spa. The appearance of microstock photography
can be considered a natural consequence of the development of modern media.
It is difficult to imagine digital media, as well as the advertising industry, with-
out microstock photographs.
425
to be processed using an application and forwarded to a stock image agency that
will take care of its sale. This way, a completely new expression is created for the
movement of smartphone creators of digital visual content – mobiography.
Zorislav Kalazić Damir Butković Andreja Hašček: FROM CAMERA OBSCURA TO IPHONE: WHAT IS THE FUTURE OF STOCK PHOTOGRAPHY ...
5. IPHONEOGRAPHY AS A PART OF
MOBIOGRAPHY
Digital technology brought a revolution to photographs. A photograph, as a
medium, has become democratized and available to the largest number of peo-
ple ever. Digital cameras become high quality devices that enable their users to
shoot technically acceptable photographs in most cases. This reality encourages
owners of digital cameras to acquire more expensive and more sophisticated
cameras. Since the appearance of the first commercial digital cameras in the
90s, the increase in sales has been constant until 2011. According to CIPA data,
115,500,000 cameras were sold worldwide in 2011. (Graph 1)
Jeffries (2013) says that hotography has never been so popular, but it’s get-
ting destroyed. There have never been so many photographs taken, but photog-
raphy is dying.
However, in 2012, the sales fell below 100 million. The prevailing opinion at
the time was that the cause of the fall was a devastating earthquake and tsunami
in Japan. However, sales fell in the following years as well: in 2013. they were
63 million, in 2014. they were 44 million, and in 2015. only 35 million digital
cameras were sold. The year 2016. seems the worst so far for the digital camera
market, with a total decrease in sales of an astonishing 81% compared to 2010.
The question that arises is how to explain the sudden recession that started in
the digital camera market in 2011.
426
Graph 1, Worldwide digital camera shipments by CIPA members
Source: http://www.businessinsider.com/iphone-7-plus-digital-camera-sales-chart-2016-9
The answer lies in the fact that during 2011, the mobile phone called iPhone
4S became available. A resolution of 8 megapixels along with a high dynamic
range of the image made the iPhone 4S an object of desire. Additionally the
iPhone 4S recorded video in Full HD resolution at 1080p. The mighty camera
of this smartphone led to the conclusion that users no longer needed a sepa-
rate camera. Jeffries (2013) wrote that Annie Leibovitz helped put the nails in
the coffin of such middle-market cameras by saying that the iPhone was the
snapshot camera of today. How could it come to pass that a device for mobile
communication, whose camera is one of its additional features, enters the digital
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
camera market niche, becomes a competitor and seriously endangers produc-
tion and survival? It seems that the main advantage of the iPhone was a good
and simple way of transferring content over the Internet. Apple presented a
product that people really wanted and that encouraged the growth of social
networking. It seems that this was of crucial importance for the success of the
product. From a marketing perspective, smartphone manufacturers like Apple
adopted the old Kodak’s philosophy, focusing on capturing the moment and
recording experiences, instead of shooting a technically perfect photograph. You
press the button, we do the rest was the old Kodak marketing slogan. Thanks
to similar smartphones, more images are shot than ever before (Graph 2.). The
new iPhone uses circuits, software and algorithms to create images that look as
if they were shot using advanced DSLR cameras. According to Apple’s senior
vice-president of marketing, Phil Schiller, iPhones perform one hundred billion
427
operations in twenty-five milliseconds; he described it as a supercomputer for
photos.
Zorislav Kalazić Damir Butković Andreja Hašček: FROM CAMERA OBSCURA TO IPHONE: WHAT IS THE FUTURE OF STOCK PHOTOGRAPHY ...
Source: https://www.statista.com/chart/10913/number-of-photos-taken-worldwide/
428
write that that social media is a hybrid element of the promotion mix because
in a traditional sense it enables companies to talk to their customers, while in
a nontraditional sense it enables customers to talk directly to one another. The
content, timing, and frequency of the social media-based conversations occur-
ring between consumers are outside managers’ direct control. As a consequence
of the sudden development of Iphoneography and the global phenomenon of
using social networks, influencer marketing emerges. Today, the digital market-
ing landscape is more complex than ever. The following social networks can be
considered the most significant marketing channels in the field of visual media.
.. Instagram
Hird (2013) wrote that social media has turned to one of the most favored
marketing strategies used by business people around the world. The point that
makes Instagram different from other social media is that Instagram is applying
a visual based strategy. Using images is a natural way of attracting attention. It
is the perfect motivational force that encourages visitors to follow and explore
content in more detail. Instagram quickly became a popular way for individu-
als and companies to share images with their audience and it is growing more
quickly than Twitter and Facebook grew in their beginnings. In September
2017, Instagram has 800 million users (Diagram 3). This network of social
media has an undeniable influence on our culture, which influences the photog-
raphy industry as well. Instagram changes the way in which people produce and
consume visual media.
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
429
Diagram 3, Number of montly active Instagram users from January 2013 to
September 2017 (in millions)
Zorislav Kalazić Damir Butković Andreja Hašček: FROM CAMERA OBSCURA TO IPHONE: WHAT IS THE FUTURE OF STOCK PHOTOGRAPHY ...
Source: https://www.statista.com/statistics/253577/
number-of-monthly-active-instagram-users/
The concept is creative and fun, with a high level of interaction between
companies and consumers. It is also the perfect tool for building customer rela-
tions by giving them first insight into the company and its employees. Including
consumers in a marketing campaign is an excellent way to establish loyalty and
build promoters of a certain brand. This makes it an ideal tool for low-budget
marketing.
.. Pinterest
Pinterest’s success is largely based on its simplicity and aesthetic attraction.
Instead of an abundance of text, it focuses on a clear, bright background with
images. Pinterest mostly revolves around the exchange of ideas using visual con-
tent and does not have a lot of interaction with other users. Publishing content
is simple, which makes it perfect for connecting to like-minded people. About
70 percent of users are female. This makes Pinterest perfect for companies
whose niches are home décor, fashion, food industry, art and crafts.
430
.. Tumblr
Tumblr is a web-location for microblogging used mostly by artists and cre-
ative people. The main content is visual, it has a simple interface and is very
popular with younger people older than 25, which makes it ideal for companies
trying to reach a young audience. Its minimalist look eases management and
navigation is very intuitive. Since it is the platform of choice for many trendset-
ters, it is also useful to update on current trends. Tumblr is not completely satu-
rated with competition and is still below the radar of many marketing experts.
(Facebook has been left out since, apart from visual content, textual content is
largely represented on it.)
.. Snapwire
Snapwire introduces a completely new business model to the market of digi-
tal visual content. Aside from the agency model, it sells stock photographs that
.. Scoopshot
Scoopshot has its own specific business model where, instead of photos,
its database offers hundreds of photographers from all over the world, along
431
with their portfolios. The buyer chooses a certain photographer through their
portfolio and sends them a briefing as precise as possible so they could deliver
their offer. The usage license is usually exclusive – RM. It is visible from this
Zorislav Kalazić Damir Butković Andreja Hašček: FROM CAMERA OBSCURA TO IPHONE: WHAT IS THE FUTURE OF STOCK PHOTOGRAPHY ...
8. DISCUSSION
Analysis of the market of cultural goods by Whatley (2014) presents some
key dimensions that have an influence on the distribution of photography as a
digital cultural good:
• development of the ICT sector (information and communication
technologies);
• development of an economy of knowledge;
• globalization
The appearance of available digital cameras oriented toward consumers
introduced several technological innovations for amateur photographers that
contributed to drastic changes in practicing photography. The first digital cam-
era with a digital display enabled viewing the photograph before it was taken,
and the digital camera also received a delete button, which enabled deletion of
unwanted photographs from the memory. With these two innovations, digital
technology overcame two significant obstacles for greater engagement of ama-
teur photographers:
1. delay between shooting and the visible result
2. high costs of development of photography.
Digital innovation completely changed the process of learning because it is
now possible to improve skills faster using the method of trial and error, which
leads to smaller differences between professionals and amateurs.
Professional photographers, especially form the older generation, are often
embittered by the appearance of digital photography because it took away their
432
key competitive advantages over amateur photographers: the skill of selecting
the optimal frame, managing depth of focus, and the precise selection of screen
and exposure. The technical quality of the photograph depends on these as-
pects. Amateurs try to compensate the lack of expert competences with a large
number of shots, which increases the chance of shooting a successful one. Other
skills, like chemical processing of negatives and positives or the skill of manipu-
lation in dark chambers, that photographers developed for years, seem like they
have become forever unnecessary.
433
enable combination of more than one object recorded in this way in multiple
places at a different time, but in a way that these images would ultimately seem
completely natural, as if they were actually recorded in the same moment. All
Zorislav Kalazić Damir Butković Andreja Hašček: FROM CAMERA OBSCURA TO IPHONE: WHAT IS THE FUTURE OF STOCK PHOTOGRAPHY ...
this will take us to a new visual culture with expectations that far surpass simple
documentation. The results of editing in Photoshop today can still seem un-
natural to an experienced eye and can therefore cause an opposite effect. Today,
most problems in editing appear due to different perspectives of shooting ob-
jects that will alter be combined, due to different types of lighting, resolutions,
image file formats… All these problems appear because those photographs were
initially not meant to be combined. Insufficient education of users should also
not be neglected, nor should imperfection of the application itself.
Multidimensional way of shooting would, as a consequence, have great
savings of all resources. There would be no need to travel to a certain area for
shooting, because multidimensional records would already exist in stock agency
databases. If, for example, we needed the photograph of one lemon, one perfect
multidimensional shot would be sufficient, and could be edited as necessary. In
this way, lighting conditions would be changed from daylight to artificial light,
color temperature and characteristics from hard light to soft light, and shading
would be added or diminished in a digital image. Managing depth of focus of
an image, as an important element of composition, could be taken over by a
graphic designer instead of the photographer. Therefore, designers will be able
to compose their perfect image according to the customer’s ideas.
434
stock photography only contains the word in the term, while financial principles
of a stock exchange are not applied. Instead, agencies determine the price they
believe buyers would be willing to pay. An exchange should create a platform
through which the end buyers would buy directly from the author, and where
more valuable photographs would have higher prices. Stock agencies today se-
lect images editors consider to have the best commercial potential. The current
model is inefficient because it wastes the time of potential buyers on agency
websites and is of no use to anyone. Moreover, the price is similarly arbitrary,
which is also inefficient. Online sales of digital files today do not ensure equal
status for photographers and it seems that amateurs are better of at the moment
due to the law of large numbers.
435
tion, as well as production of visual content for newest social networks, the
comparison and analysis is both possible and necessary.
Zorislav Kalazić Damir Butković Andreja Hašček: FROM CAMERA OBSCURA TO IPHONE: WHAT IS THE FUTURE OF STOCK PHOTOGRAPHY ...
Opportunities Threats
Quick and simple uploading of images to a network Inability of simultaneously saving on two memory cards
Shooting several seconds of video, with the option of for backup
using the optimal moment from it The camera can lose power in a critical moment due to
The newest iPhone has the option to manage depth of low battery capacity
field using digital algorithms There are not many smartphones that use the RAW
Simple shooting of HDR photographs format, which gives great possibilities of subsequent
editing and development of large format photographs,
Processor and RAM performance are better in
as well as better cropping
smartphones than in DSLR cameras – main advantage
Optical characteristics of the lens are limited by
An abundance of applications for editing on the device
smartphone dimensions
itself
Large full frame sensors can not be incorporated into
today’s smartphones due to size
Even though the DSLR camera is much better in many segments, it seems
that the day is nearing when the difference will completely disappear or become
so minor that the only people investing into DSLR equipment will be people
who live from photography. Abbot (2018) says “that the toughest question in all
of this is whether it really matters that smartphone image quality is inferior to
436
DSLRs and mirrorless cameras...It’s often said that the best camera you have is
the one you have with you.
9. CONCLUSION
Technological development leads to dramatic consequences in terms of ef-
fectiveness and efficiency, that thoroughly change organization and business
models of the visual product market. A combination of technology and the
speed with which new applications spread among consumers creates hyper pro-
duction of applications, as well as new business opportunities. The economy
of knowledge, greatly enabled by sudden technological development, signifies
a new dynamic relationship between the physical product (a photograph on
paper) and its virtual content (a photograph as information). Digitalization of
photography also defines new forms of consuming and delivering visual content
on the web, which do not imply sale of property, but enable use through pay-
ment for usage rights – licensing.
Technological progress enables very small buyer segments to express their
wishes and service providers to serve their needs through business. This phe-
nomenon is visible in the development of stock photography when buyers find
very specific or rare content at a lower price than would be possible using the
on demand model, where the buyer would need to pay significantly more. This
business model has important implications in the digital cultural field because
it enables a greater business potential to bridge supply and demand for certain
content. Thus, both professional and amateur photographers will continue to
coexist in the stock image market side by side. The group of mobiographers be- INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
comes more significant and better equipped with each passing day. The iPhone,
due to its advanced photography options, creates a symbiotic relationship with
social networks such as Facebook, Twitter and especially Instagram. The ques-
tion that arises is how long people will want to shoot using large, heavy, ex-
pensive, and complicated DSLR cameras when they have a super high quality
smartphone camera as an alternative.
Will amateurs and professionals ultimately use the same shooting tools in
the future? Will photographers completely disappear at the end of the evolu-
tionary development of photography, because every object will be constantly
recorded and transformed into a new virtual reality Matrix world? The answer
remains to be seen in the not too far future.
437
REFERENCES
Abbot J. 2018., Smartphones vs cameras: do you still need a DSLR?, https://www.techradar.
com/news/smartphones-vs-cameras-do-you-still-need-a-dslr, access Mart 09, 2018]
Zorislav Kalazić Damir Butković Andreja Hašček: FROM CAMERA OBSCURA TO IPHONE: WHAT IS THE FUTURE OF STOCK PHOTOGRAPHY ...
Bergstrom, T. & Backman, L. 2013. How the utilization of Instagram builds and maintains
customer
relationships. Marketing and PR in social media. Retrieved from http://urn.kb.se/resolve?u
rn=urn:nbn:se:su:diva-90410, access Januar 07, 2018]
Chaffey, D. (2016,), Global Social Media Research summary[available at: http://c.ymcdn.
com/sites/www.productstewardship.us/resource/resmgr/Phone_Books/Global_So-
cial_Media_Statisti.pdf, access Januar 12, 2018]
Cook J. (2016), How the photo-sharing app EyeEm is staying relevant in an Instagram world,
http://uk.businessinsider.com/interview-with-eyeem-ceo-florian-meissner-2015-2, access
Januar 11, 2018]
Flusser V., Filozofija fotografije, Scarabeus naklada, 12/2007., ISBN 9789537387037
From creativity to content: The Role of Visual Media in Impactful Brand Storytelling, CMO
Council 2015.
Frosh, P 2002, ‘Rhetorics of the overlooked: on the communicative modes of stock advertis-
ing images’, Journal of Consumer Culture, vol. 2, no. 2, pp. 171-196.
Glückler J., Panitz R., (2013) Survey of the Global Stock Image Market 2012. Part I: Players,
Products, Business. Heidelberg: GSIM Research Group
Glückler J., Panitz, R., 2016., Unpacking social divisions of labor in markets: Gen-
eralized blockmodeling and the network boom in stock photography, Social
Networks, Retrieved from: https://www.sciencedirect.com/science/article/pii/
S0378873316302714?via%3Dihub
Gómez-Cruz E., Meyer E., Creation and control in the photographic process : iPhones and
the emerging fifth moment of photography, Photographies 2012: pp. 1–19, ISSN 1754-
0763 © 2012 Taylor & Francis
Hird, C. 2013. Social media marketing: A best practices analysis of selected destination mag-
azines. [available at: http://digitalcommons.calpoly.edu/rptasp/54/, access Januar 15,
2018]
Hochman, N., Schwartz, R. (2012). Visualizing Instagram: Tracing cultural visual
rhythms. In Proceedings of the Workshop on Social Media Visualization (SocMed-
Vis) in conjunction with the Sixth International AAAI Conference on Weblogs and
Social Media (ICWSM–12) (pp. 6-9).
Jeffries S. (2013), The death of photography: are camera phones destroying an artform?
https://www.theguardian.com/artanddesign/2013/dec/13/death-of-photography-
camera-phones, access Januar 09, 2018]
Kalazić et al.,(2015) “The Stock Photography As A Part Of Cultural And Creative Indus-
tries Of The Digital Age,” Interdisciplinary Management Research, Josip Juraj Stross-
mayer University of Osijek, Faculty of Economics, Croatia, vol. 11, pages 189-203.
438
Oringer J. (2016), Opinion: Will the iPhone 7’s Dual-Lens Camera Change Photography as
We Know It, https://www.shutterstock.com/blog/apple-iphone7-dual-lens-camer, access
Januar 11, 2018]
Smith M. (2012), Crowdsourcing: The Best Business Model In The Digital Age, https://www.
nasdaq.com/article/crowdsourcing-the-best-business-model-in-the-digital-age-
cm185040, access Januar 06, 2018]
Malik O., (2016), With the iphone7 apple changed the camera industry forever, https://www.
newyorker.com/business/currency/with-the-iphone-7-apple-changed-the-camera-
industry-forever access Januar 14, 2018]
Mangold W., Faulds D., Social media: The new hybrid element of the promotion mix, Busi-
ness Horizons (2009) 52, 357—365
Miller J., Pictures for rent. From stereoscope to stereotype, in Design. Writing. Research, ed.
E. Lupton, London 2003, p. 120–124.
Schmieder K. (2015), The sourcing of amateur photographs in the professional news media, PhD
Thesys, The Swinburne Institute of Social Research
Sontag, Susan. On Photography. Penguin Books Ltd., London, 1977. Print.
Sukhdial A., Aiken D., Kahle L., Are You Old School?, Journal of Advertising Research, 2002,
42 (4) 71-81; DOI: 10.2501/JAR-42-4-71-81
Uchańska A., Photography in media and advertising - new trends, Media Studies, 2015, Vol.
60 Issue 1, p28-40. 13p.
Whatley S. (2014), Europeana Space - Spaces of possibility for the creative reuse of Europeana’s
content , CIP Best practice network , project number 621037
http://www.europeana-space.eu/wp-content/uploads/2014/04/
EuropeanaSpace-D5-1-Market-Analysis-v2.1.pdf
439
THE ROLE OF MOTIVATION
IN HUMAN RESOURCES
MANAGEMENT
Mario DADIĆ
Department for professional studies University of Split
E-mail: [email protected]
Abstract
This paper shows the role of motivation in human resource management. Hu-
man resources, their knowledge, skills, abilities are the key factor in successful
business operations and the creation of the competitive advantage of each or-
ganization. Nowadays, one of the most important business functions of each
organization is the management of human potentials and motivation and the
perception that people are of the highest value to every organization. Manag-
ers are a human resource link between people and organizations, and their
function is to achieve an effective system of mutual satisfaction and fulfill the
company’s established plans and goals. Communication between managers and
employees is the key to understanding the wishes and plans of managers and
the possibilities for achievement by the workers themselves.
One of the most important tasks and factors of human resource management
is motivating employees, encouraging employees to achieve their personal goals
and the goals of the organization. A motivated employee is the most valuable
440
part of each organization, and we will demonstrate the importance of motiva-
tion in human resource management in our work.
Key words: human resources, organization, management, motivation
JEL Classification: E24, O15
1. INTRODUCTION
Human Resource Management consists of several related activities and
tasks of management and organizations aimed at ensuring the adequate num-
ber and structure of employees, their knowledge, skills, interests, motivations,
and forms of behavior necessary to achieve the current, developmental and
strategic goals of the organization. (Obradović et al., 2015, p.13.) The human
resource management is an essential segment of any organization because it
makes the organization’s advantage over the competitor. With ever-increasing
competition among organizations, today’s particular emphasis is on quality
human resource management. High-quality Human Resources Management
system with the focus on motivation makes the selection among organiza-
tions. Today’s cadre is one of the fundamental values of every organization, it
is a fundamental resource, but it is also a vital resource for every organization.
Therefore, the primary activity of the manager should be directed to the proper
selection of staff, and to encourage and maintain a high level of motivation of
staff within the organization, which in fact means a better practical effect of
the same, and then the contribution to the organization’s business goals. The
441
man resource management needs to be taken care of and to take care of em-
ployee satisfaction and motivation in order to make the best of your employees.
Employees. Employee motivation is one of the human resource management
techniques for achieving company goals and which methods will be applied de-
pends on a manager’s decision with the aim of reaching organizational plans
and goals. Everyone is different and does not act on any of the same motivation
techniques, and not all employees have the same work and life goals.
Motivation is every effect that triggers, directs and maintains the target be-
havior of people (Buble, 2006, p. 485). It can be said that motivation is an incen-
tive for people to fulfill their personal goals, and then at the same time meeting
the goals of the organization. Individual goals, as well as their needs, are subject
to constant change and constant progress. Their behavior and character show
differences between people and the necessity of applying various motivational
factors to maximize their reasons for successful work performance. Managers
should be primarily good psychologists and manage staff by choosing the right
people for a particular job, then appropriately motivating the same people and
then letting them do the job they are in charge of doing. Therefore, managers
should devote themselves to creating a natural motivational system that would
affect all dimensions of the workforce’s performance and thus make the staff
more productive and more successful. Motivation is influenced by numerous
factors, in particular: individual characteristics, job characteristics, and organi-
zational characteristics. Personal characteristics indicate the needs, values, at-
titudes, and interests that individuals have. They differ from person to person,
because money motivates someone, and someone is competent to do business,
etc. Characteristics of the job are certain job attributes, such as complexity, au-
tonomy, complexity, and so on. Organizational characteristics of rules and pro-
cedures, personnel policy, management practice, and a system of awards that
contribute to the company’s efficiency. (Buble, 2006, p. 336). The interaction of
motivational factors occurs and includes three elements mentioned, and manag-
ers should guide it when developing the appropriate motivation system in the
organization.
442
3. THEORY OF MOTIVATION
Since motivation is a complex concept, numerous theories are included in its
explanation, which can be divided into two groups: content theory and process
theory. In content theory, the emphasis is placed on the behavior and needs of
individuals as motivating people to work, and when it comes to the process
theory focus is on the reasons that affect and lead to such behaviors of individu-
als. It can be said that today the three theories are predominant: Maslow’s hier-
archy of needs; Victor Vroom’s Expectancy Theory of Motivation and Theory
of Value (McClelland’s Motivation Theory).
Theory of needs is the most popular theory in management practice. The
complexity of the human personality and the needs that Maslow ranked and
grouped into five categories was the basis:
1. Physiological needs mean meeting the basic needs of every human being
for air, food, drinks, a roof over the head;
2. Requirements for security means meeting the need for work, safe retire-
ment, and effective health care;
3. Need for love means making friends, getting in love relationships and
connection;
4. Need for respect means empathy, extremely high self-esteem and respect
for others.
5. Self-actualization needs mean personal development, realization, and ful-
fillment of individual potentials in full.
443
types of behavior. In that election, it also valorizes the effects and significance
of these effects for him, by resorting to one, while avoiding other alternatives.
Therefore, Vroom makes the main problem an explanation of individual choic-
es, i.e., the answers to the reasons for the commitment to a particular alterna-
tive, and the rejection of the other. Therefore, Vroom develops the concept of
valence, the concept of expectation and idea of instrumentality.
The concept of valency means that deciding motivational power is the mean-
ing that an individual attaches to that effect. The concept of expectation means
that an individual will choose the alternative he can expect to achieve his de-
sired goals. The concept of instrumentality means that the chosen alternative
assumes the expected connection between the various effects. Vroom’s theory
Mario Dadić Ante Bačić Iva Mihanović: THE ROLE OF MOTIVATION IN HUMAN RESOURCES MANAGEMENT
holds that the environment has a significant impact on the behavior of individu-
als alone, ie on the successful fulfillment of all goals, whereby the individual’s
attention is primarily focused on the determination of the main goal and then
on the sub-targets for which value means and instrumentality, and actually de-
termines whether the goals and the performance enforceable.
The value theory contains three types of needs: the need for achievement,
the need for power, the need for connectivity. It is considered that the first need
is related to the need for success, and individuals who have an intense fear of
failure. The other will need to be satisfied when individuals have complete con-
trol or influence on other individuals or things as long as they are in need of
harmony, love, and care (Certo, 2008, p. 387-388). However, this theory is more
relevant to managers than to task executives.
444
various education and seminars where the importance of the motivational role
for employees and their satisfaction lies. Managers should also be aware that
attitudes of their subordinates and those of themselves about what motivates
them are probably very different. If you set up a beacon the question of what
drives his employees, he will most likely say that it is decent and good pay, the
ability to progress and the job security itself, as well as right working conditions.
If you are addressing the subordinates with the same question, there is a possi-
bility that they will respond to their praise and acknowledgment for the job, es-
pecially for employees who are passionate and loyal to their work, participation
in decision making, as well as high-quality interpersonal relationships within
the enterprise and empathy from strangers.
The first task of the manager is to effectively select the staff, then raise the high
level of motivation within the staff, and then maintain such a level of motivation.
Therefore, managers should use primarily good knowledge of human psychol-
ogy and thus draw from each employee individually the best quality to achieve
maximum performance. Today, most managers are very aware of and attached
to the importance of finding the right people and the quality of their motivation.
The basic task of human resources management becomes, after finding the “right
people”, to make them capable of common and successful work or to successfully
“carry” the problems that are ahead of them on and that their power is effective
and weaknesses irrelevant. A capable person must not become weak or insecure,
because weakness and insecurity are a constant source of dissatisfaction and a
direct threat to the people employed by the organization if the organization itself.
445
speak of direct material compensation. While indirect material compensation is
what those employees receive in the form of benefits, not directly in cash. Direct
compensation is always in cash, while indirect ones may be different from pen-
sion to social and health insurance, and so on to paid annual leave and sick leave
or various benefits when raising a housing loan and the like. Material benefits
that employees receive for their work in the organization may be related to the
outcome of the work and membership of the organization itself.
These are generally the following three forms of compensation: salaries, al-
lowances, benefits.
The basic salary as the primary form of compensation is usually determined
Mario Dadić Ante Bačić Iva Mihanović: THE ROLE OF MOTIVATION IN HUMAN RESOURCES MANAGEMENT
using a work evaluation process that continues to analyze the job and its re-
sults - job description and job specification. Job evaluation is carried out using
two sets of methods, one focusing on quality work analysis and the other on
job classification. By combining these methods, there are up to four job evalua-
tion procedures. In the case that the goal of using a job evaluation process is to
improve the organization’s work, not just evaluation, then more complex pro-
cedures and methods will be used. For example, whether a ranking procedure
with a single ranking list was used without a systematic analysis of some partial
business features or a more complex pointing procedure for determining the
relative value of each business in the company expressed in the points, comes to
a common goal, which is the basic wage makes the foundation for most other
parts of the salary. (Buntak, et al., Material Motivation in the Function of Hu-
man Potentials, Technical Gazette 7, 1 2013, Zagreb, page 61.) The stimulus
part of the salary is a stimulating and stimulating incentive to optimize the busi-
ness and to achieve the business results of the organization both as a whole and
individually. This is part of the salary that always depends on the performance,
savings and the like. Fees often depend on the practice of the organization itself
and the collective agreement applicable to the industry, and we will mention
only some remunerations such as wages paid during the period of sick leave,
compensation for the use of annual leave, reimbursement of transport costs and
so on. Amounts paid are paid when under certain conditions, and are entitled to
an increased base. Considering the different conditions under which we work,
we will list only a few more important things: a supplement for shift work, a
nighttime supplement, a surplus for overtime work, a supplement for work on
public holidays and holidays and others. The share of the profit that can be real-
ized most often at the end of the year’s business for good business and financial
446
results. If managers opt for the system of material rewarding and motivating ef-
fects on the pay system, some general guidelines and assumptions of action that
warn of process motivation theory are expressed and which managers should
know to be able to serve them appropriately. In fact, it is decided to follow the
setting of the material factor’s impact on the efficiency of the work effect, in
the way: material rewards must be linked to those performance indicators that
an individual can affect, and working standards must be feasible. Furthermore,
there must be a clear link between the results of the work and the rewards, the
reward system must be based more on the positive than on the negative conse-
quences of working behavior, the increase in the material reimbursement must
be large enough to justify the additional effort invested, the salary increase must
be direct and immediate to follow increasing work performance and improving
work performance, material benefits must be adequate to invested work and fair
compared to others, the pay gap between good and bad workers must be signifi-
cant in order to stimulate good work. (Buntak, et al., Material Motivation in the
Function of Human Potentials, Technical Gazette 7, 1 2013, Zagreb, page 60.)
The share of the profit that can be realized most often at the end of the
year’s business for good business and financial results. If managers opt for the
system of material rewarding and motivating effects on the pay system, some
general guidelines and assumptions of action that warn of process motivation
theory are expressed and which managers should know to be able to serve them
appropriately. In fact, it is decided to follow the setting of the material factor’s
impact on the efficiency of the work effect, in the way: material rewards must be
linked to those performance indicators that an individual can affect, and work-
ing standards must be feasible. Furthermore, there must be a clear link between INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
the results of the work and the rewards, the reward system must be based more
on the positive than on the negative consequences of working behavior, the in-
crease in the material reimbursement must be large enough to justify the ad-
ditional effort invested, the salary increase must be direct and immediate to
follow increasing work performance and improving work performance, material
benefits must be adequate to invested work and fair compared to others, the pay
gap between good and bad workers must be significant in order to stimulate
good work. (Buntak, et al., Material Motivation in the Function of Human Po-
tentials, Technical Gazette 7, 1 2013, Zagreb, page 60)
As far as non-material motivation is concerned, managers are using the im-
material strategies of Immaterial Strategy of Motivation are strategies that are
447
stimulating for the work of an individual because they meet the hierarchical
higher order needs such as the need for environmental approval, the need for
personal development and the realization of personal potentials, achievement,
respect, and status, need for power, connectivity. So far, many intangible strat-
egies have been developed such as flexible working hours, goal-management,
career development and development, feedback delivery, and more. Flexible
working hours are the most well-known and most relevant strategy for working
hours. It is about the ability of employees to set their working hours within the
given frames for themselves. Weekly working hours are required, but a com-
bination is allowed in one day to work less, and another day more. In fact, the
employees themselves choose when they will come to work and when they will
Mario Dadić Ante Bačić Iva Mihanović: THE ROLE OF MOTIVATION IN HUMAN RESOURCES MANAGEMENT
448
the aim of the management is a maximum contribution to the achievement of
successful and productive performance and the organization’s business. Con-
temporary human resources trends are primarily based on the assumption that
human resources are the decisive factor in the organization’s business success,
which makes the difference between successful and unsuccessful organizations.
More successful organizations are those that bring human resources to a strate-
gic, long-term and planned way. Such a way and dedication to managing human
resources means a competitive advantage.
Secondly, there is a significant degree of outsourcing of human resources
management, i.e., a single volume of management tasks entrusted to external
associates, or organizations that are just specialized in such affairs. Of course,
only strategic decision-making should not be the subject of such co-operation,
while the recommendation is to use such co-operation when it comes to highly-
specialized jobs when there is no adequate staff available in the organization
itself. Furthermore, the increasingly significant contribution and importance of
human resource management have line managers who, through their manage-
ment, make an effective contribution to the achievements of the organizational
goals themselves and thus perform a significant part of the work, while the
staffing within the organization strives for all the specialization of business. Of
course, according to the company’s computerization, human resources manage-
ment is also present in the trend of using information technology, which enables
progress in efficiency, but also in the quality of human resources management,
of course, the increasingly specialized staffing services that focus on more cre-
ative jobs and the progressive performance of the tasks obtained.
In Croatia, the contemporary trends of human resources management are INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
still in its infancy, actually, make them yet to be raised to a level that will ad-
equately respond to the demands posed by modern discourse situation in the
business world. In particular, it is emphasized in large organizations. Large or-
ganizations are mostly engaged with destroyed and destroyed personnel depart-
ments that mainly carry out administrative tasks, especially in areas where their
creativity and creative way of doing business should be most pronounced. It
is, in fact, necessary to strategically define and form staffing departments and
to coordinate and link the fragmented parts of the personnel. Exceptions are
foreign multinational companies that have branches in Croatia and which suc-
cessfully operate by modern trends of human resources management.
449
6. CONCLUSION
A satisfied and motivated employee is the foundation of every organization’s
success nowadays. This paper shows how much motivation means to every em-
ployee and ultimately leads to better performance for each company. Despite
the recession, the competition is growing every day, by entering the European
Union, trade borders have disappeared, and the door to EU-wide competition
companies is open wide. Competitive advantage is the key to success, and em-
ployees are just that factor that separates successful firms from unsuccessful.
Though relatively late, the impact of human resources has entered the focus of
science and every promotion of man as a key factor contributes to the better
Mario Dadić Ante Bačić Iva Mihanović: THE ROLE OF MOTIVATION IN HUMAN RESOURCES MANAGEMENT
REFERENCES
Buble, M. (2000). Menagement, Ekonomski fakultet u Splitu, ISBN 953-6024-81-0, Split
Buntak, et al (2013) Materijalna motivacija u funkciji upravljanja ljudskim potencijalima,
Tehnički glasnik 7, 1; str. 56 -63, Zagreb dostupno na: https://hrcak.srce.hr/101178
pristup (03-03-2018)
Certo, S. C. & Certo, S. T. (2008). Moderni menadžment, Zagrebačka škola ekonomije i
managementa Mate, ISBN 978-953-246-062-9, Zagreb
Goić, S. (1998). Suvremeni trendovi u organizaciji upravljanja ljudskim resursima, Ekonom-
ski fakultet u Splitu, ISBN 953-6024-24-1, Split
Jambrek I. &. Penić (2008) Upravljanje ljudskim potencijalima u poduzećima : ljudski fak-
tor, motivacija zaposlenika kao najbitniji čimbenici uspješnosti poslovanja poduzeća,
Zbornik Pravnog fakulteta Sveučilišta u Rijeci, 2 ; str.1181-1206 dostupno na: http://
hrcak.srce.hr/file/63808 pristup (03-03-2018)
Marušić S. (2006). Upravljanje ljudskim potencijalima, Adeco, ISBN 953-97228-7-X,
Zagreb
Obradović et al (2015) Menadžment ljudskih potencijala u poslovnoj praksi, Plejada, ISBN
978-953-7782-32-0, Zagreb
450
THE LEVEL OF
HOTEL RESERVATION
SYNCHRONIZATION PROCESSES
USING INFORMATION
TECHNOLOGY TOOLS
Abstract
The purpose of this paper is to research hotel reservation synchronization process-
es if the reservation is made throughout a hotel website or if it is booked through
the online travel agency (OTA) distribution channels. The subject of the research
will certainly be the individual sales channel whose growth directly affects online
booking and has a direct impact on the hotel sales revenue growth. The purpose
of this paper is also to try to answer the question whether the real-time booking
in the hotel sales is at all possible and which information technology tools hotels in
Croatia commonly use to connect to different hotel reservation platforms. Empiri-
cal research based on the level of hotel synchronization reservation process was
451
carried out on a sample of 130 hotels in the Republic of Croatia belonging to one
of the 11 renowned hotel chains. In the processing and analysis of the data de-
scriptive statistics were applied. The results clearly show that 100% real-time syn-
Maja Šimunić Ljubica Pilepić Stifanich Marina Perišić Prodan: THE LEVEL OF HOTEL RESERVATION SYNCHRONIZATION PROCESSES USING...
chronization has not yet been achieved when reservations download to the hotel
property management system (PMS), including sending a booking confirmation
and special wishes listing information of guests. This research offers an overview
of the available modern channel management systems offered in today’s hotel
market and provide a better link between PMS’s with the central reservation
system, hotel websites and various online distribution channels such as the global
distribution system and OTA partners. The limitations of the conducted research
can be seen in the spatial restriction as the research was conducted in Croatia and
includes hotel chains, so the obtained results do not refer to the complete Croatian
hotel industry but to the best practice in the hotel industry in Croatia. Thus, the
previous limitations are of no significance as they can represent guidelines and
challenges for future scientific research.
Key words: hotel reservation systems, data synchronization, hotel property
management systems, hotel website, booking engine, channel
managers, OTA
JEL Classification: L83, Z39
1. INTRODUCTION
The online travel sales worldwide have increased by double digit every year
and the online booking market reached the scale of $189.62 billion USD in
2017 (eMarketer 2017). The hotel industry is developing new ways of accom-
plishing their missions by leveraging the power of information and applying
network-centric concepts (Chawta 2013, 754). A new challenge for hotel man-
agers in the 21st century is how to integrate the new, complex and varied ser-
vices and IT systems into their existing business operations (Law & Jogaratnam
2005, 178).
Developing a new web application to handle online booking from many
marketing channels such as OTAs, GDSs, social networks and walk-in to
check-in. In the market, there are various hotel reservation platforms with an
integrated interface for different distribution channels and two-way communi-
cation for entering and processing reservations with hotel websites in the PMS
452
system. The main categories of information that need to be distributed are: ho-
tel rates (frequency changing, dynamic), hotel availability (frequency changing,
dynamic), hotel information such as room types, package types, amenities, loca-
tion, contact information, meeting space (infrequency changing, static), and rich
contents such as photos and videos (some dynamic and some static), which is a
category that is growing in importance. According to Forgacs (2010), Guillet &
Mohammed (2015), Schütze (2008), dynamic pricing means that a hotel will
change its room rates daily or even within a day if up-to-the-minute market
information reveals the need for adjustments. It is based on the recognition that
the right rate to charge for a room night is what the customer is able and willing
to pay.
Effective and high-speed ICT infrastructure and software applications in
the hotel industry are crucial for tourism development. Management within
tourism companies uses ICTs to undertake a range of tasks that enhance the ef-
ficiency of employees in the workplace, notably online reservations (ILO 2010,
41). The hotel industry implements the latest in IT to improve productivity,
the services offered to clients and to increase customer satisfaction (Werthner
& Klein 1999). The use of an information system is indispensable to deal ef-
ficiently with the high competitiveness of the market and offer the high quality
services demanded by the clients of a hotel (Caro et al. 2003).
Reservation systems are a particularly interesting area of information tech-
nology in hospitality. Their first feature is the importance they have for the hotel
as the aim of each hotel is to fill accommodation capacities, in order to increase
453
The subject of this paper is the information related to the processing and
confirmation of reservations through hotel websites and OTA portals. The
authors researched and followed how the information is entered in Property
Maja Šimunić Ljubica Pilepić Stifanich Marina Perišić Prodan: THE LEVEL OF HOTEL RESERVATION SYNCHRONIZATION PROCESSES USING...
2. LITERATURE BACKGROUND
The development of ICT technology in tourism and the hotel industry and
its application has a long history since the first reservation system has emerged
and continues in to the future. According to Pease & Rowe 2005, Bilgihan &
Bujisic 2015, Law & Jogaratnam 2005, Murphy & Chan 2014, three major
waves of technological development have established ICT in hotel companies:
(1) the development of Computer Reservation Systems (CRS) in the 1970’s;
(2) development of Global Distribution Systems (GDS), 1980’s and (3) Inter-
net development in the 1990’s of the last century. Chronological overview of
previous research focused on the development and use of ICT in hotel compa-
nies is presented in Table 1.
454
Table 1. An overview of current research on ICT application in tourism and
hotel industry
Authors Research focus
Law, R. & Jogaratnam, G. (2005) A study of hotel information technology applications
Users’ perceptions of two types of hotel reservation
Morosan, C. & Jeong, M. (2008)
Web sites
Crnojevac, I.H., Gugić, J. & Karlovčan, S. (2010) eTourism: A comparison of Online and Offline Bookings
Bilgihan, A., Okumus, F., Nusair, K.K. & Kwun, D.J.-W. IT applications and competitive advantage in hotel
(2011) companies
Estis Green, C. & Lomanno, M. (2012) Distribution Channel Analysis: a Guide for Hotels
Gulmez, M., Ajanovic, E. & Karayun, I. (2014); Cloud technology in hotels, cloud based PMS vs.
Seresceanu, R. & Rus, R.V. (2014) classical PMS,
Smartphone’s Application Adoption Benefits Using
Anuar, J., Musa, M. & Khalid, K. (2014) Mobile Hotel Reservation System (MHRS) among 3 to
5-star City hotels in Malaysia
Murphy, H.C., Chen, M.M. (2014) Online information sources used in hotel bookings
Bemile, R., Achampong, A. & Danquah, E. (2014) Online Hotel Reservation System
The progress of information and communication
Law, R., Buhalis, D. & Cobanoglu, C. (2014).
technology (ICT) in tourism and hospitality industry
Multiple devices and information sources in the hotel
Murphy, H.C., Chen, M.-M. & Cossutta, M. (2016)
booking process
IT-enabled customer service systems on service
Piccoli, G., Lui, T.-W. & Grün, B. (2017) personalization, customer service perceptions, hotel
information systems, direct and intermediated channels
Source: author’s research
The hotel industry is very competitive, and customers are become increas-
ingly sophisticated and discerning, demanding a high level of quality and value.
According to Piccoli et al. (2017), IT-enabled service personalization creates
455
Based on a review of papers published in tourism and hospitality journals
between 2009 and 2013, Low et al. (2014) provide an overview of current re-
search in the field of ICTs in hospitality and tourism from the perspectives of
Maja Šimunić Ljubica Pilepić Stifanich Marina Perišić Prodan: THE LEVEL OF HOTEL RESERVATION SYNCHRONIZATION PROCESSES USING...
consumer and supplier. Content analysis showed that hospitality and tourism
industries use ICT in different functional units and for different applications.
Of 107 journal papers, there are very few papers dealing with the problem of
online hotel booking and its synchronization through rate and revenue manage-
ment using modern ICT tools.
In raising its competitiveness, the hotel must invest in the development of a
modern reservation system. The Central Reservation System (CRS), the reser-
vation system on hotel’s websites, the mobile version of the online reservation
system must enable customers to book for whatever they need from wherever
location they are before lodging into the hotel (Bemile et al. 2014, Anuar et al.
2014).
The CRS Mobile Version automatically identifies if the guest to connects to
the system via a mobile phone, and adjusts the CRS interface to mobile view-
ing. US mobile travel sales will total $75.85 billion in 2017, up 16.7% over the
2016 year. On the flip side, desktop and laptop travel sales will decline 1.6% this
year to $113.77 billion. Meanwhile, desktop/laptop’s share of all digital travel
sales will shrink to 60.0%. And by 2021, mobile will represent nearly half of all
digital travel sales (eMarketer 2017).
The smart phone market has also enabled the creation of a smartphone ap-
plication market that creates value for customers in a number of areas, includ-
ing the hotel industry (Vigar-Ellis & Bredican 2014). The mobile application
allows the guest and hotel staff to interact and offers a variety of hotel facilities
using a digital platform. Hotel guests are therefore offered the ability to create
a digital mobile key for entering the room and other areas in the hotel, opening
parking ramps, accessing additional amenities such as saunas and swimming
pools, booking excursions, ordering transportation, purchasing items from
the hotel’s web services etc. At the same time, the hotel can track guest habits
through the use of mobile apps, and then monitor the efficiency of the hotel
employee’s work and with targeted marketing to increase service sales and hotel
partner products (Ćosić 2017).
The use of cloud technology has not stalled hotel business either. Cloud
based PMS has many advantages over desktop PMS, such as: developing per-
456
sonalized service awareness; its features can be developed or improved easily
high security control; more open to the end users (enhanced CRM); online
reservations received are directly connected to the PMS and easy follow up on
online reservation. Even though keeping up with the modern developments in
IT sector is crucial for the success and competitiveness of a hotel, it is usually
very hard for new technologies to be accepted and implemented (Gulmez et al.
2013, Sereseanu et al. 2013).
Using Web solutions, the booking sales cycle often includes various interme-
diaries on the path from the hotel to the customer, resulting in the emergence
of the negative aspects of increased technological capabilities. In some cases,
the number of intermediaries between a hotel room and guest would climb up
to five, making the distribution more complex and expensive (Crnojević et al.
2010). Therefore, hotels have to carefully choose distribution channels or com-
bination of booking channels, and by that not ignoring hotel websites and direct
online marketing. Many hotels rather choose reservations through their own
website because they primarily save money on agency fees and commissions.
Guests booking through hotel web sites are more loyal, generate more rev-
enue and are in the habit of travelling more often. This is the way how it is sup-
posed to work, but because of OTA’s investment in marketing campaigns, ho-
tels are forced to spread their rates and inventory to third party websites to drive
volume to their hotel. Morosan & Jeong (2008) evaluate users’ perceptions of
two different channels for hotel online reservations – hotel websites and third-
party websites. Overall, users had more favourable attitudes and higher inten-
457
related changes from GDS and Internet sites back to the hotel central reserva-
tion system (CRS) so that the hotels can service the business (Estin Green &
Lomanno 2012, 49).
Maja Šimunić Ljubica Pilepić Stifanich Marina Perišić Prodan: THE LEVEL OF HOTEL RESERVATION SYNCHRONIZATION PROCESSES USING...
Some individuals hotels have direct relationships with OTAs by using con-
nections with some manual intervention, such as an extranet, or there is still
widespread use of email or fax. Some OTAs also store rates and inventory and
then send a message to the hotel CRS for booking only. Many hotel groups or
independents use a third party reservation company, such as iHotelier, Micros-
Fidelio or Synxis, to provide most connections, but they may still maintain a
few extranets to OTA’s for which the updating is often streamlined by the use
of a channel management tool, often incorporated into the reservation system
(Pilepić et al. 2015).
3. EMPIRICAL RESEARCH
In the following part of the paper research methodology and the results are
described.
458
well as entering special guest wishes. The last part of the questionnaire contains
questions related to the type of system used.
The results were analysed by using the software package SPSS (Statistical
Package for the Social Sciences). The data were analysed by using the method
of descriptive statistics. The research was conducted in the period from March
2015 to January 2016 and included 130 hotels throughout Croatia belonging
to one of 11 reputable hotel chains. The research was conducted by Sales Man-
agers, Reservation department or in Revenue Management department. In the
sample of 130 hotels, the hotels of the hotel chain Valamar Hotels & Resorts
(32.3%) have the largest share, followed by the Maistra Hotels & Resorts hotel
chain with 13.8% and Remisens Hotels & Villas with 13.1% (Table 2).
The sample consists of hotels of all categories, while the most prominent are
4 stars hotels (49.2%), followed by 3 stars (28.5%) and 2 stars (11.5%) hotels.
The smallest share is made up of 5 stars hotels (9.2%).
459
Table 3. Average number of rooms in a chain by hotel category
Number of hotel rooms Min Max Mean Std. Deviation
Number of rooms in 5stars 0 655 191.75 201.820
Maja Šimunić Ljubica Pilepić Stifanich Marina Perišić Prodan: THE LEVEL OF HOTEL RESERVATION SYNCHRONIZATION PROCESSES USING...
Hotel chains have on average 831 4 stars category rooms, while category 5
stars on average 192. In addition, hotel chains have on average 638 category 3
stars and 259 category 2 stars.
The subject of the research is the individual sales channel, which has a signif-
icant growth in the appearance of the Internet and OTA distribution channels,
and which directly influences hotel revenues for higher / higher rates. Individ-
ual sales channels are on the average occupancy rate of 47.27%, with the low-
est occupancy rate being 15% and the highest average occupancy rate of 64%.
Looking at the occupancy rate of individual channels in the period from 2012
to 2014, the increase in average occupancy rate from was 31.28% to 38.11%.
Additional benefits of individual channel sales are: functionality (possibility
of comparing a larger number of hotels and rates, viewing of guest comments –
incentive for booking or not, the possibility of dynamic service creation, greater
market reach – visibility on a large number of markets); efficient marketing
channel (fast response to market change, distribution support and know-how,
result-based collaboration, monitoring and reporting on performance, co-exis-
tence with corporate reservation systems) and the cheapest distribution channel
(business control is on the side of the hotel because pricing policy, brand iden-
tity and direct customer relationship, and thus controlling profitability).
460
3.2.1. Contemporary department organization of receiving and processing of
reservations – subsegment hotel website
Booking methods will be clearer through the results of the research that
follows and show how to make online reservations from the web site by steps.
The following table shows ways of entering information in the PMS from the
website of the hotel.
Table 4. How information is entered in PMS from hotel website and type of
system used
Number of
Hotel website to PMS %
hotels
Person 4 3.1
System 120 92.3
Person and system 6 4.6
Total 130 100.0
Name of system
PHOBS 41 31.5
Trust 8 6.2
My Fidelio 8 6.2
Opera /Valhalla 6 4.6
Sabre / SynXis 54 41.6
No answer 13 10.0
Total 130 100.0
Source: author’s research
461
Sabre is one of the world’s largest software companies. What started as a
joint initiative between American Airlines and IBM to create the world’s first
computerized airline reservation system in 1960 has since evolved into a tech-
Maja Šimunić Ljubica Pilepić Stifanich Marina Perišić Prodan: THE LEVEL OF HOTEL RESERVATION SYNCHRONIZATION PROCESSES USING...
nology ecosystem that touches almost every stage of your travel experience (Sa-
bre 2018). Their most famous product SynXis Central Reservations (CR) is
the most robust, flexible, easy-to-use rate and inventory management SaaS ap-
plication. These tools enable hoteliers to support a multitude of rate, inventory
and distribution strategies to achieve their business goals. In addition to direct
channels, SynXis delivers rates and inventory to all major GDS systems (Sabre,
Amadeus, and Travelport), as well as online travel agencies through direct con-
nections and switch partners.
Myfidelio.net is a business unit of Oracle Hospitality Ireland Ltd, which is
a subsidiary of MICROS Systems Inc. MICROS is the only full systems solu-
tions provider for all market segments with a global distribution and service
network in place for major chains, regional chains, local independents, table
service, and the quick service market. FIDELIO Software offering software sys-
tems and specializing in the development of Property Management Systems.
Myfidelio.net offers Software as a Service business model for hotels and hotel
groups as an alternative business option to purchasing licenses. Myfidelio.net is
based on OPERA Reservation System (ORS) and hosted in a MICROS data-
centre environment in Frankfurt am Main, Germany. It helps to generate hotel
revenue by enabling consumers to conveniently book hotel reservations online
through the most cost effective and successful channel, the hotels’ website It
provides real time direct access to the 4 major GDS and over 500.000 travel
agencies globally. It links directly to a number of important Internet portals and
online travel agencies (Myfidelio.net 2018).
Trust International is now part of Sabre Hospitality Solutions, providing
the industry’s leading technology for hotels around the world (Trust-Sabrehos-
pitality 2018).
According to del Rio (2016), a former SVP of Technology Solutions for
Starwood, Valhalla is a highly customizable hotel modern Reservation, Call
Center, eCommerce Web, Property Management and Revenue Management
systems integrated with the Loyalty system via SOA interfaces and open system
frameworks.
462
The following table shows how hotel reservation confirmations are down-
loaded from the hotel website and system types.
Table 5. Ways of reservation confirmation sending from hotel website and
name of the system used
Number of
Hotel website to guest %
hotels
Person 1 0.8
System 129 99.2
Total 130 100.0
Name of system
Synxis* 17 13.1
PHOBS 40 30.8
Trust 8 6.2
My Fidelio 8 6.2
Sabre 37 28.5
CRS 6 4.6
WBE** 4 3.1
No answer 10 7.7
Total 130 100.0
* Synxis and Sabre are the same software, Sabre is the company name, Synxis is a program.
** WBE – product of the company wbe.travel, web booking expert – an innovative travel book-
ing software providing reliable booking engines to travel agents tour operators and hotel service
providers (Web booking expert 2018).
Source: author’s research
In almost all hotels in the sample booking confirmation from the hotel, web-
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
site is sent to the system. To send a booking confirmation from the hotel website
system PHOBS (30.8%) and Sabre (28.5%) - Synxis (13.1) are the most com-
monly used.
463
Table 6. Ways of downloading special wishes from hotel website and name of
the system used
Number of
Maja Šimunić Ljubica Pilepić Stifanich Marina Perišić Prodan: THE LEVEL OF HOTEL RESERVATION SYNCHRONIZATION PROCESSES USING...
Name of system
Synxis* 17 13.1
PHOBS 23 17.7
Trust 8 6.2
My Fidelio 8 6.2
Sabre 37 28.5
MISH** 4 3.1
CRS/Valhalla 6 4.6
No answer 27 20.8
Total 130 100.0
* Synxis and Sabre are the same software, Sabre is the company name, Synxis is a program.
** MISH – the product of ISTRA TECH Pula, Hotel System and Catering Modular Informa-
tion System, a software package for the entire business of hotel and catering companies, represent-
ing ERP (Enterprise Resource Planning) solution (Istra Tech 2015).
Source: author’s research
In almost 90% of hotels in the sample, the special wishes of guests with
hotel websites are entered through the system. Hotels have well-developed res-
ervation systems but still all guest wishes entered the hotel website have to be
processed further by processing all comments in online reservations within 48
hours, depending on the day of arrival.
In the case of selling extra services/costs (upgrade, extra beds, additional ser-
vices), and if the guest confirms it – the person (hotel reservation agent must, in
any case, enter the information in the PMS through the note in the reservation.
The special wishes of the guests from the hotel website are most often down-
loaded through the Sabre system (28.5%) – Synxis (13.1) and PHOBS (17.7%).
464
Table 7. Ways of downloading information from OTA portals and name of the
system used
OTA portals to PMS Number of hotels %
Person 4 3.1
System 126 96.9
Total 130 100.0
Name of system
Synxis-XML-MISH* 17 13.1
PHOBS 41 31.5
Trust 8 6.2
My Fidelio 8 6.2
Valhalla 6 4.6
Sabre 37 28.5
No answer 13 10.0
Total 130 100.00
* Synxis-XML-MISH –direct two-way XML connections between Synxis software and the
PMS. This provides constant updates and availability to the OTAs.
Source: author’s research
Name of system
OTA 95 73.1
PHOBS 5 3.8
Trust 8 6.2
No answer 22 16.9
Total 130 100.0
Source: author’s research
465
The results in Table 8 show that 90% of the hotels use the system to send
a reservation confirmation from OTA portals. The OTA’s software (73.1%) is
most often used to send a reservation confirmation from OTA portals.
Maja Šimunić Ljubica Pilepić Stifanich Marina Perišić Prodan: THE LEVEL OF HOTEL RESERVATION SYNCHRONIZATION PROCESSES USING...
Table 9. Ways of downloading special wishes from hotel OTA portals and
name of the system used
OTA portals to PMS Number of hotels %
Person 66 50.8
System 64 49.2
Total 130 100.0
Name of system
Synxis-XML-MISH 17 13.1
PHOBS 28 21.5
Trust 8 6.2
Valhalla 2 1.5
No answer 75 57.7
Total 130 100.0
Source: author’s research
466
tel website or OTA that reflect the level of synchronization of the reservation
process of today’s hoteliers. Today, every serious hotel company has its own
reservation center, which is part of centralized sales, which is responsible for
individual sales channel, especially for its subsegment – Online. As far as the
online segment is concerned, it is the largest subsegment of the individual sales
channel. Hotel reservation agents are responsible for receiving and process-
ing online (OTA) and web reservations and requests, receiving and processing
coupon reservations and requests, and placing and contracting coupon bids. In
addition to the above mentioned responsibilities, reservation centers provide
support to guests in providing information about facilities, services, and offers.
Reservation center deals with OTA booking entry in PMS, checking the
accuracy of reservations entered through the interface, and processing reserva-
tions in terms of special conditions or answering comments – guest requests.
Agent manually enters the PMS reservation of those non-WML-related por-
tals to PMS. Reservations are entered directly into the PMS according to the
parameters of the OTA confirmation received. If the OTA portals and the hotel
website are interfaced with the PMS, reservation is automatically downloaded
to the PMS via the interface, and such booking agents do not enter. Modifica-
tions are made directly to the PMS when portals are not interfaced with the
PMS.
In hotels in Croatia, the information from the hotel website in PMS is most
commonly entered through the PHOBS and Sabre systems. In almost all hotels
in the sample booking confirmation from the hotel, the website is sent by the
467
other, similar or different destinations in the world. Furthermore, the research
carried out only covers hotel chains, and the results obtained do not refer to the
complete Croatian hotel industry but only to the best business practice in the
Maja Šimunić Ljubica Pilepić Stifanich Marina Perišić Prodan: THE LEVEL OF HOTEL RESERVATION SYNCHRONIZATION PROCESSES USING...
hotel industry in Croatia because the results are based on the characteristic ICT
equipment of hotel chains in Croatia.
It should be noted that hotel software takes over people’s work due to au-
tomatization of processes, and hotel business continues to struggle since hos-
pitality in the hotel business is the most important thing that no software can
provide.
REFERENCES
Aggarwall, B. & Aggarwall, A. (2010). From Hotels to HTMLs, A Complete Guide to Internet
Marketing for the Lodging Industry, third edition, AHLEI, AH&LA.
Anuar, J., Musa, M. & Khalid, K. (2014). Smartphone’s Application Adoption Benefits Us-
ing Mobile Hotel Reservation System (MHRS) among 3 to 5-star City hotels in Ma-
laysia, Procedia – Social and Behavioral Sciences, 130, pp. 552-557.
Bemile, R., Achampong, A. & Danquah, E. (2014). Online Hotel Reservation System, IJI-
SET - International Journal of Innovative Science, Engineering & Technology, 1(9), pp.
583-588.
Bilgihan, A. & Bujisic, M. (2015). The effect of website features in online relationship mar-
keting: a case of online hotel booking, Electronic Commerce Research and Applications,
14(4), pp. 222-232.
Bilgihan, A., Okumus, F., Nusair, K.K. & Kwun, D.J.-W. (2011). Information technology
applications and competitive advantage in hotel companies, Journal of Hospitality and
Tourism Technology, 2(2), pp. 139-154.
Caro, J.L., Guevara, A., Aguayo, A., Galvez, S. & Carrillo, A. (2003). Formal workflow speci-
fication applied to the hotel management information systems, Information and Com-
munication Technologies in Tourism 2003, Conference Proceedings, (Eds.), Frew, A., Hitz,
M. & OConnor, P., pp. 220-226.
Chawla, N. (2013). Online information monitoring for utilize hotel occupancy rate, Proceed-
ings of ICCT2013, 15th IEEE International Conference on Communication Technology,
November 17-19, 2013, Guilin, China, pp. 751-758.
Crnojevac, I.H., Gugić, J. & Karlovčan, S. (2010). eTourism: A comparison of Online and
Offline Bookings and the Importance of Hotel Attributes, Journal of Information and
Organizational Sciences, 34(1), pp. 41-54.
Ćosić, K. (2017). Aplikacija One Suite Hotel, Otključavanje hotelske sobe s mobitelom,
[available at:
http://www.mobil.hr/operateri/otkljucavanje-hotelske-sobe-s-mobitelom, access February
21, 2018]
468
Sel Rio, I. (2016). The Marriott/Starwood “Back to the Future” Technology Decision, HT
Hospitalitynet, [available at:
https://www.hospitalitynet.org/opinion/4078764.html, access February 25, 2018]
eMarketer (2017). Mobile Drives Growth of Online Travel Bookings [available at:
https://www.emarketer.com/Article/Mobile-Drives-Growth-of-Online-Travel-Book-
ings/1016053, access March 1, 2018]
Estis Green, C. & Lomanno, M. (2012). Distribution Channel Analysis: a Guide for Hotels,
an AH&LA and STR Special Report [available at:
http://www.hsmai.org/trends/Book.cfm?ItemNumber=5016, access October 25, 2017]
Forgacs, G. (2010). Revenue Management: Dynamic Pricing, Hospitality.net
[available at https://www.hospitalitynet.org/opinion/4045046.html, access February 15,
2018]
Guillet, B.D. & Ibrahim Mohammed, I. (2015). Revenue management research in hospitality
and tourism: A critical review of current literature and suggestions for future research,
International Journal of Contemporary Hospitality Management, 27(4), pp.526-560.
Gulmez, M., Ajanovic, E. & Karayun, I. (2014). Cloud technology in hotels: comparison
with the current software solutions, Proceedings of the International Conference Entre-
preneurship in the Hospitality Industry, third edition, Trends in Hospitality, October 9-11,
2014, Cluj-Napoca, România, pp. 98-104.
Ham, S., Kim, W.G. & Jeong, S. (2005). Effect of information technology on performance in
upscale hotels, Hospitality Management, 24, pp. 281-294.
ILO (International Labour Organization) (2010). Sectoral Activities Programme, Develop-
ments and challenges in the hospitality and tourism sector, Issues paper for discussion
at the Global Dialogue Forum for the Hotels, Catering, Tourism Sector, 23-24 No-
vember 2010, Geneva [available at:
http://www.ilo.org/wcmsp5/groups/public/@ed_norm/@relconf/documents/meeting-
document/wcms_166938.pdf, access October 5, 2017]
469
Murphy, H.C., Chen, M.-M. & Cossutta, M. (2016). An investigation of multiple devices
and information sources used in the hotel booking process, Tourism Management, 52,
pp. 44-51.
Maja Šimunić Ljubica Pilepić Stifanich Marina Perišić Prodan: THE LEVEL OF HOTEL RESERVATION SYNCHRONIZATION PROCESSES USING...
Murphy, H.C. & Chen, M.-M. (2014). Online Information Sources Used in Hotel Book-
ings: Examining Relevance and Recall Hilary, Journal of Travel Research, 55(4), pp.
523-536.
Myfidelio.net (2018) [available at:
http://www.myfidelio.net/mf/micros.html, accessed January 12, 2018]
Pease, W., Rowe, M. & Cooper, M. (Eds.) (2007). Information and Communication Technolo-
gies in Support of the Tourism Industry, Idea Group Publishing.
PHOBS (2018) [available at:
http://www.phobs.net/en/index.php, access February 1, 2018]
Piccoli, G., Lui, T.-W. & Grün, B. (2017). The impact of IT-enabled customer service sys-
tems on service personalization, customer service perceptions, and hotel performance,
Tourism Management, 59, pp. 349-362.
Pilepić, Lj., Šimunić, M. & Car, T. (2015). Online hotel’s sales strategies with emphases on
web booking, Journal of Technology Research, 6, pp. 1-12 [available at:
http://www.aabri.com/jtr.html, accessed December 10, 2017]
Sabre (2018) [available at:
https://www.sabre.com/about, accessed January 12, 2018]
Trust – Sabrehospitality (2018) [available at:
https://www.sabrehospitality.com/trust-now-sabre, accessed January 23, 2018]
Schütze, J. (2008). Pricing strategies for perishable products: the case of Vienna and the
hotel reservation system hrs.com, Central European Journal of Operations Research, 16,
pp. 43-66.
Sereseanu, R. & Rus, R.V. (2014). The Hotelier in the clouds, Proceedings of the International
Conference Entrepreneurship in the Hospitality Industry, third edition, Trends in Hospital-
ity, October 9-11, 2014, Cluj-Napoca, România, pp. 75-81.
Šimunić, M. (2017). The synchronization of hotel reservation process through rate and revenue
management using information and communication technology, doctoral disertation, Uni-
versity of Rijeka, Faculty of Tourism and Hospitality Management, Opatija.
Valhalla [available at:
https://www.hospitalitynet.org/opinion/4078764.html). access December 12, 2017]
Vigar-Ellis, D. & Bredican, J. (2014). Smartphone Applications – Idea sourcing, and app de-
velopment: Implications for firms, South African Journal of Economic and Management
Sciences, 17(3), pp. 232-248.
Web booking expert (2018) [available at:
https://www.wbe.travel access January 8, 2018]
Werthner, H. & Klein, S. (2010). ICT and the Changing Landscape of Global Tourism
Distribution, Electronic Markets, 9(4), pp. 256-262.
470
MARKET SUCCESS OF CROATIAN
ENTERPRISES: IMPACT OF
LEADERSHIP STYLES
Abstract
Clients represent one of the key factors of an enterprise success, especially those
clients that are loyal to the enterprise. When designing and manufacturing
new products/services, it is important that enterprises are guided by their cus-
tomers’ requirements and desires. However, the leadership of the enterprise INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
often affects the process of discovering, tracking, and fulfilling the customers’
needs. The goal of this research is investigation of the impact of different lead-
ership styles to market success of Croatian enterprises, measured by the non-
financial indicators.
Key words: leadership style, market success, survey, linear regression
JEL Classification: A11, L32
471
INTRODUCTION
The market perspective implies defining strategic goals in accordance
with answering customer requests, all with a goal to achieve financial success
(Osmanagić Bedenik, 1993). In this way, by achieving goals of the clients’ per-
spective, the goals of the financial perspective will be achieved as well.
Ivan Miloloža Aleksandar Včev Damir Šebo: MARKET SUCCESS OF CROATIAN ENTERPRISES: IMPACT OF LEADERSHIP STYLES
Despite top technology and product quality, success will not be attained if
the needs of key clients are not satisfied. What is most important is the value
provided to clients, which consists of a new product/service, price, image and
advertising (Rašić, et al., 2016; Terzieva et al., 2016). An enterprise can achieve
competitive advantage if it is differentiated from the competition and achieves
success through one of three possible strategies: operational excellence, custom-
er engagement, or product leadership (Ženko et al., 2017).
The market perspective focuses exclusively on customers and the relation-
ship they have with the enterprise. Aside from high-quality product/service
and favourable price, customers also expect other benefits. If an enterprise re-
ally wants to be a market leader, it must define key customers and its own role
in satisfying their needs.
A leader is a person who has the ability to influence others not by controlling
them, but by approving and accepting their associates. The main goal of a leader
is to help their team achieve enterprise’s goals by encouraging team members to
use their own competencies and potentials. A successful leader must align the
three H (Head, Heart, Hand), i.e. achieve the balance of head, heart, and hands
(Nicholls, 1994).
The role of a leader is to accomplish tasks of an enterprise by creating high-
quality interpersonal relationships within the team (Giessner et al., 2013). In
order for a leader to be efficient when performing tasks as well as when working
with their associates, they have to harmonize three areas of activity: (i) perform
a task, (ii) harmonize needs of their associates with tasks, and (iii) build and
maintain a team spirit.
Previous research has shown that leadership styles have a different impact
on enterprise success in the area of knowledge management (Miloloža 2015a,
2015b, 2015c). The contribution of this research will be to explore the impact
of leadership styles on enterprise’s market success.
472
MEASURING MARKET SUCCESS
Measuring market success is extremely important because in this way enter-
prises can improve their relationship with clients. Enterprises gather informa-
tion on customer satisfaction by complaints, repeated orders, the frequency of
new orders, and clients’ attitude. Indicators of customer attractiveness are cus-
tomer satisfaction, customer complaints, number of new customers, customer
profitability, lost customers, order delivery time, number of delays in delivery.
A key factor in any business strategy is the value proposition to a customer,
which is made of a product/service, client relationship, and the image that the
enterprise has in the public. In this way, enterprises can differentiate among each
other, attract new customers, as well as maintain and deepen their relationship
with existing customers. A value proposition is based on selecting one of the
following strategies: performance excellence, product leadership, or customer
engagement (Treacy, 1995). In most cases, enterprises specialize in one of the
three strategies, while achieving standard performance in the other two areas.
Enterprises focusing on the operational excellence strategy must be leaders
in the following business segments: (i) competitive prices, (ii) product quality,
(iii) fast order execution, and (iv) deliveries within a given period. Enterprises
focusing on the customer engagement strategy must be leaders in the following
business segments: (i) high-quality relationship with clients, (ii) high level of
service and (iii) completeness of product/service offering. Enterprises focus-
ing on the product leadership strategy must be leaders in the following busi-
ness segments: (i) functionality, (ii) features, and (iii) overall product/service
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
performance.
Within the area of market perspective, enterprises must focus on a double
perception of the analysis of their business and customer relationship. The first
part refers to clients and their opinion of the enterprise, i.e. the attitude of a cli-
ent towards the enterprise, while the other part refers to the enterprise, namely
how the enterprise thinks about its clients, i.e. in which way the relationship
with the clients could be improved. In order to collect data on customer percep-
tion, a customer survey is conducted, with the number of complaints and the
number of new orders being analysed.
Below are described three ways in which benefit can be provided to custom-
ers: operational excellence, product leadership, and customer engagement.
473
Operational excellence
Enterprises trying to ensure operational excellence are constantly trying
to eliminate inefficiencies from their business, in other words, to increase ef-
ficiency. The offer of these enterprises is based on low price, standard products
that are constantly available, orientation towards a larger segment and not only
towards individual customer and satisfying individual needs.
Ivan Miloloža Aleksandar Včev Damir Šebo: MARKET SUCCESS OF CROATIAN ENTERPRISES: IMPACT OF LEADERSHIP STYLES
Product leadership
Enterprises trying to secure competitive advantage using product leader-
ship strategy must provide their customers constantly with new and innova-
tive products/services that they cannot get from the competition (Meler and
Turkalj, 1997a, 1997b). The goal of these enterprises is to create a product/
service that will meet customer requirements.
Customer engagement
Enterprises focusing on customer engagement try to provide their custom-
ers with complete service in every business segment in order to maximize the
benefits of using the product/service. Indicators of the customer engagement
strategy are the following: customer knowledge, offering a complete product,
number of products and long-term relationship management (Niven, 2007).
Parmenter (2010) cites the following measures in order to manage custom-
er’s perspective successfully: (i) Customer satisfaction and customer loyalty, (ii)
Customer complaints, (iii) Customer retention, (iv) Hours spent with a cus-
tomer, (v) Brand identity, (vi) Number of clients, (vii) Customer service costs,
(viii) Quality adjustment costs, (ix) Number of orders per day/month.
The goals for a customer’s perspective, that is, the importance of market suc-
cess depends on who the target customers are and what value has been added to
meeting the requirements of the targeted customers. Benefit to customers dif-
ferentiates an enterprise from the competition. It is important to emphasize that
there are three categories of benefit: (i) operational excellence, (ii) product lead-
ership, and (iii) customer engagement (Niven, 2007). Each enterprise will choose
one category in which it will be the best, while the other two will remain within
standard values. The first category of benefit in meeting customer requirements
refers to operational excellence. Enterprises focusing on the first category must
meet the following criteria: low prices, excellent selection, error elimination, and
474
growth in the chosen market. The second category of benefit in meeting custom-
er requirements refers to product leadership. Enterprises focusing on the second
category must meet the following criteria: offering the best product/service on
the market, and constant work on the innovation of products/services. The third
category of benefit in meeting customer requirements refers to customer engage-
ment. Enterprises focusing on the third category are striving to ensure long-term
relationships with customers in order to satisfy their needs.
RESEARCH METHODOLOGY
The Leadership Styles Questionnaire, taken from the book Introduction to
Leadership by Northouse (2012) was used as a research instrument. In addi-
tion, a questionnaire for measuring enterprise success in terms of four dimen-
sions of success was used. Table 1 shows the market success of all companies
together. It can be noticed that respondents from all enterprises believe their
enterprises to be more successful than competitors on average, as measured by
items T1. Customer satisfaction and T3. Quality of a product/service within
dimension Market success (average rating 4,200). Item T2. Market share has a
475
somewhat lower average rating of 3.883. Cronbach’s alpha is greater than 0.7,
which indicates that the market success indicators are consistent.
RESULTS
Impact of leadership styles on all enterprises together
Table 2 shows a regression model with the dependent variable Market suc-
cess. All items of measuring leadership styles, which refer to the autocratic,
democratic and laissez-faire style, were used as independent variables. Step-
wise multiple regression analysis was used to form the model. A model with a
determination coefficient of 0.370 was established, indicating that the selected
model implied 37.0% deviation from the dependent variable.
There are four statistically significant independent variables in the model that
reflect the autocratic style – L1. Employees need to be supervised closely, or they are
not likely to do their work (statistically significant at 1% level), L4. It is fair to say
476
that most employees in the general population are lazy (statistically significant at 5%
level), L10. Most employees feel insecure about their work and need direction (statis-
tically significant at 1% level) and L13. The leader is the chief judge of the achieve-
ments of the members of the group (statistically significant at 5% level). Variables
L1 and L13 have a positive impact on the dependent variable Market success in
all enterprises, while variables L4 and L10 have a negative inpact.
There are two statistically significant independent variables in the model
that reflect the laissez-faire style – L9. As a rule, leaders should allow subordi-
nates to appraise their own work (statistically significant at 5% level) and L12.
Leaders should give subordinates complete freedom to solve problems on their own
(statistically significant at 10% level). Variable L9 has a positive impact on the
dependent variable Market success in all enterprises, while variable L12 has a
negative impact.
Table 2. Regression model with the dependent variable: Market success and
the independent variables: items of leadership styles – all enterprises
together
Non-stand. Standard Standardized
Market success t P-value
coefficients error coefficients
Constant 3,424 0,565 6,062 0,000***
Autocratic style
L 1. Employees need to be supervised closely, or
0,207 0,074 0,384 2,801 0,007***
they are not likely to do their work.
L 4. It is fair to say that most employees in the
-0,195 0,077 -0,313 -2,529 0,014**
general population are lazy.
477
IMPACT OF LEADERSHIP STYLES ON SMALL AND
MEDIUMSIZED ENTERPRISES
Table 3 shows a regression model with the dependent variable Market suc-
cess in SME enterprises. All items of measuring leadership styles, which refer
to the autocratic, democratic and laissez-faire style, were used as independent
Ivan Miloloža Aleksandar Včev Damir Šebo: MARKET SUCCESS OF CROATIAN ENTERPRISES: IMPACT OF LEADERSHIP STYLES
variables. Step-wise multiple regression analysis was used to form the model. A
model with a determination coefficient of 0.742 was established, indicating that
the selected model implied 74.2% deviation from the dependent variable.
There are five statistically significant independent variables in the model that
reflect the autocratic style – L1. Employees need to be supervised closely, or they
are not likely to do their work (statistically significant at 1% level), L4. It is fair to
say that most employees in the general population are lazy (statistically significant
at 5% level), L10. Most employees feel insecure about their work and need direc-
tion (statistically significant at 10% level), L13. The leader is the chief judge of the
achievements of the members of the group (statistically significant at 10% level)
and L16. Effective leaders give orders and clarify procedures (statistically signifi-
cant at 5% level). Variables L1, L4 and L16 have a positive impact on the depen-
dent variable Market success in SME enterprises, while variables L10 and L13
have a negative impact.
There are three statistically significant independent variables in the model
that reflect the democratic style – L2. Employees want to be a part of the decision-
making process (statistically significant at 10% level), L11. Leaders need to help
subordinates accept responsibility for completing their work (statistically significant
at 5% level) and L17. People are basically competent and if given a task will do a
good job (statistically significant at 1% level). Variables L2, L11 and L17 have a
positive impact on the dependent variable Market success in SME enterprises.
There are three statistically significant independent variables in the model
that reflect the laissez-faire – L6. Leadership requires staying out of the way of
subordinates as they do their work (statistically significant at 5% level), L9. As
a rule, leaders should allow subordinates to appraise their own work (statistically
significant at 10% level) and L18. In general, it is best to leave subordinates alone
(statistically significant at 5% level). Variables L6 and L9 have a positive impact
on the dependent variable Market success in SME enterprises, while variable
L18 has a negative impact.
478
Table 3. Regression model with the dependent variable: Market success and the
independent variables: items of leadership styles in relation to the size
of the enterprise SME
Non-stand. Standard Standardized
Market success – SME t P-value
coefficients error coefficients
Constant 0,429 1,108 0,387 0,703
Autocratic style
L 1. Employees need to be supervised closely,
0,238 0,071 0,516 3,352 0,004***
or they are not likely to do their work.
L 4. It is fair to say that most employees in the
0,352 0,127 0,522 2,771 0,013**
general population are lazy.
L 10. Most employees feel insecure about their
-0,151 0,076 -0,316 -1,983 0,063*
work and need direction.
L 13. The leader is the chief judge of the
-0,391 0,186 -0,554 -2,105 0,050*
achievements of the members of the group.
L 16. Effective leaders give orders and clarify
0,213 0,081 0,512 2,617 0,017**
procedures.
Democratic style
L 2. Employees want to be a part of the
0,216 0,107 0,301 2,010 0,060*
decision-making process.
L 11. Leaders need to help subordinates accept
0,403 0,173 0,473 2,325 0,032**
responsibility for completing their work.
L 17. People are basically competent and if
0,309 0,106 0,539 2,932 0,009***
given a task will do a good job.
Laissez-faire style
L 6. Leadership requires staying out of the way
0,250 0,094 0,434 2,669 0,016**
of subordinates as they do their work.
L 9. As a rule, leaders should allow subordinates
0,161 0,077 0,298 2,096 0,051*
to appraise their own work.
L 18. In general, it is best to leave subordinates
479
wise multiple regression analysis was used to form the model. A model with a
determination coefficient of 0.477 was established, indicating that the selected
model implied 47.7% deviation from the dependent variable.
There are two statistically significant independent variables in the model that
reflect the autocratic style – L4. It is fair to say that most employees in the general
population are lazy (statistically significant at 5% level) and L13. The leader is the
Ivan Miloloža Aleksandar Včev Damir Šebo: MARKET SUCCESS OF CROATIAN ENTERPRISES: IMPACT OF LEADERSHIP STYLES
chief judge of the achievements of the members of the group (statistically significant
at 1% level). Variable L4 has a negative impact on the dependent variable Mar-
ket success in large enterprises, while variable L13 has a positive impact.
There are two statistically significant independent variables in the model
that reflect the democratic style – L2. Employees want to be a part of the decision-
making process (statistically significant at 5% level) and L8. Most workers want
frequent and supportive communication from their leader (statistically significant
at 5% level). Variable L2 has a positive impact on the dependent variable Mar-
ket success in large enterprises, while variable L8 has a negative impact.
There is only one statistically significant independent variable in the model
that reflects the laissez-faire style – L9. As a rule, leaders should allow subordinates
to appraise their own work (statistically significant at 5% level). Variable L9 has
a positive impact on the dependent variable Market success in large enterprises.
480
Table 4. Regression model with the dependent variable: Market success and the
independent variables: items of leadership styles – large enterprises
Non-stand. Standard Standardized
Market success – Large t P-value
coefficients error coefficients
Constant 1,471 1,223 1,203 0,241
Autocratic style
L 4. It is fair to say that most employees in the
-0,245 0,098 -0,405 -2,490 0,020**
general population are lazy.
L 13. The leader is the chief judge of the
0,524 0,156 0,520 3,349 0,003***
achievements of the members of the group.
Democratic style
L 2. Employees want to be a part of the
0,330 0,149 0,348 2,211 0,037**
decision-making process.
L 8. Most workers want frequent and supportive
-0,295 0,161 -0,306 -1,836 0,079*
communication from their leader.
Laissez-faire style
L 9. As a rule, leaders should allow subordinates
0,293 0,113 0,409 2,586 0,016**
to appraise their own work.
Model fit
R2 0,477
Adjusted R2 0,368
Source: Author’s research, May, 2014.
Note: * 10%, ** 5%, *** 1% probability
Table 5 shows a regression model with the dependent variable Market suc-
cess in enterprises in the growth and maturity phase (leaders). All items of mea-
suring leadership styles, which refer to the autocratic, democratic and laissez-
faire style, were used as independent variables. Step-wise multiple regression
analysis was used to form the model. A model with a determination coefficient
of 0.694 was established, indicating that the selected model implied 69.4% de-
viation from the dependent variable.
There are three statistically significant independent variables in the model
that reflect the autocratic style – L4. It is fair to say that most employees in the
general population are lazy (statistically significant at 1% level), L10. Most em-
481
ployees feel insecure about their work and need direction (statistically significant at
1% level) and L13. The leader is the chief judge of the achievements of the members
of the group (statistically significant at 1% level). Variables L4 and L10 have a
negative impact on the dependent variable Market success in market leader en-
terprises, while variable L13 has a positive impact.
There is only one statistically significant independent variable in the model
Ivan Miloloža Aleksandar Včev Damir Šebo: MARKET SUCCESS OF CROATIAN ENTERPRISES: IMPACT OF LEADERSHIP STYLES
that reflects the democratic style – L14. It is the leader’s job to help subordinates
find their “passion” (statistically significant at 10% level). Variable L14 has a
positive impact on the dependent variable Market success in market leader
enterprises.
There are four statistically significant independent variables in the model
that reflect the laissez-faire style – L6. Leadership requires staying out of the way
of subordinates as they do their work (statistically significant at 5% level), L9. As
a rule, leaders should allow subordinates to appraise their own work (statistically
significant at 10% level), L12. Leaders should give subordinates complete freedom
to solve problems on their own (statistically significant at 10% level) and L18. In
general, it is best to leave subordinates alone (statistically significant at 1% level).
Variables L6 and L9 have a positive impact on the dependent variable Market
success in market leader enterprises, while variables L12 and L18 have a nega-
tive impact.
482
Table 5. Regression model with the dependent variable: Market success and
the independent variables: items of leadership styles in relation to the
growth phase of the enterprise – Enterprises in the growth and matu-
rity phase (leaders)
483
were used as independent variables. Step-wise multiple regression analysis was
used to form the model. A model with a determination coefficient of 0.900 was
established, indicating that the selected model implied 90.0% deviation from
the dependent variable.
There are five statistically significant independent variables in the model that
reflect the autocratic style – L1. Employees need to be supervised closely, or they are
Ivan Miloloža Aleksandar Včev Damir Šebo: MARKET SUCCESS OF CROATIAN ENTERPRISES: IMPACT OF LEADERSHIP STYLES
not likely to do their work (statistically significant at 1% level), L7. As a rule, em-
ployees must be given rewards or punishments in order to motivate them to achieve
organizational objectives (statistically significant at 1% level), L10. Most employ-
ees feel insecure about their work and need direction (statistically significant at 1%
level), L13. The leader is the chief judge of the achievements of the members of the
group (statistically significant at 1% level) and L16. Effective leaders give orders
and clarify procedures (statistically significant at 10% level). Variables L1, L7 and
L13 have a positive impact on the dependent variable Market success in market
follower enterprises, while variables L10 and L16 have a negative impact.
There are two statistically significant independent variables in the model
that reflect the democratic style – L8. Most workers want frequent and supportive
communication from their leader (statistically significant at 5% level) and L14. It
is the leader’s job to help subordinates find their “passion” (statistically significant at
1% level). Variables L8 and L14 have a negative impact on the dependent vari-
able Market success in market follower enterprises.
There are five statistically significant independent variables in the model that
reflect the laissez-faire style – L3. In complex situations, leaders should let subor-
dinates work problems out on their own (statistically significant at 1% level), L6.
Leadership requires staying out of the way of subordinates as they do their work
(statistically significant at 5% level), L12. Leaders should give subordinates com-
plete freedom to solve problems on their own (statistically significant at 5% level),
L15. In most situations, workers prefer little input from the leader (statistically
significant at 1% level) and L18. In general, it is best to leave subordinates alone
(statistically significant at 5% level). Variables L6 and L12 have a negative im-
pact on the dependent variable Market success in market follower enterprises,
while variables L3, L15 and L18 have a positive impact.
484
Table 6. Regression model with the dependent variable: Market success and
the independent variables: items of leadership styles in relation to the
growth phase of the enterprise – Enterprises in the stagnation phase
(followers)
Market success – Enterprises in the stagnation Non-stand. Standard Standardized
t P-value
phase (followers) coefficients error coefficients
Constant 1,428 0,729 1,958 0,076*
Autocratic style
L 1. Employees need to be supervised closely, or
0,295 0,051 0,771 5,743 0,000***
they are not likely to do their work.
L 7. As a rule, employees must be given rewards
or punishments in order to motivate them to 0,411 0,095 0,717 4,335 0,001***
achieve organizational objectives.
L 10. Most employees feel insecure about their
-0,432 0,068 -0,847 -6,313 0,000***
work and need direction.
L 13. The leader is the chief judge of the
0,656 0,165 0,966 3,979 0,002***
achievements of the members of the group.
L 16. Effective leaders give orders and clarify
-0,166 0,081 -0,412 -2,036 0,067*
procedures.
Democratic style
L 8. Most workers want frequent and supportive
-0,273 0,107 -0,294 -2,540 0,027**
communication from their leader.
L 14. It is the leader’s job to help subordinates find
-0,464 0,122 -0,632 -3,809 0,003***
their “passion”.
Laissez-faire style
L 3. In complex situations, leaders should let
0,356 0,070 0,762 5,049 0,000***
subordinates work problems out on their own.
L 6. Leadership requires staying out of the way of
-0,203 0,065 -0,353 -3,101 0,010**
subordinates as they do their work.
L 12. Leaders should give subordinates complete
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
-0,225 0,081 -0,467 -2,786 0,018**
freedom to solve problems on their own.
L 15. In most situations, workers prefer little input
0,306 0,068 0,611 4,465 0,001***
from the leader.
L 18. In general, it is best to leave subordinates
0,213 0,096 0,429 2,213 0,049**
alone.
Model fit
R2 0,900
Adjusted R2 0,792
Source: Author’s research, May, 2014.
Note: * 10%, ** 5%, *** 1% probability
485
IMPACT OF LEADERSHIP STYLES ON
ENTERPRISES ORIENTED TOWARDS DOMICILE
MARKETS
Table 7 shows a regression model with the dependent variable Market suc-
cess in enterprises oriented predominantly towards domestic market. All items
Ivan Miloloža Aleksandar Včev Damir Šebo: MARKET SUCCESS OF CROATIAN ENTERPRISES: IMPACT OF LEADERSHIP STYLES
486
IMPACT OF LEADERSHIP STYLES ON
ENTERPRISES ORIENTED TOWARDS
INTERNATIONAL MARKETS
Table 8 shows a regression model with the dependent variable Market suc-
cess in enterprises oriented predominantly towards foreign market. All items
of measuring leadership styles, which refer to the autocratic, democratic and
laissez-faire style, were used as independent variables. Step-wise multiple re-
gression analysis was used to form the model. A model with a determination
coefficient of 0.951 was established, indicating that the selected model implied
95.1% deviation from the dependent variable.
There are five statistically significant independent variables in the model that
reflect the autocratic style – L1. Employees need to be supervised closely, or they
are not likely to do their work (statistically significant at 1% level), L4. It is fair to
say that most employees in the general population are lazy (statistically significant
at 1% level), L10. Most employees feel insecure about their work and need direc-
tion (statistically significant at 1% level), L13. The leader is the chief judge of the
achievements of the members of the group (statistically significant at 1% level) and
L16. Effective leaders give orders and clarify procedures (statistically significant at
1% level). Variables L4, L7 and L13 have a positive impact on the dependent
variable Market success in enterprises oriented predominantly towards foreign
market, while variables L10 and L13 have a negative impact.
There are four statistically significant independent variables in the model
that reflect the democratic style – L2. Employees want to be a part of the deci-
sion-making process (statistically significant at 10% level), L5. Providing guidance INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
without pressure is the key to be a good leader (statistically significant at 1% level),
L8. Most workers want frequent and supportive communication from their leader
(statistically significant at 1% level) and L14. It is the leader’s job to help subordi-
nates find their “passion” (statistically significant at 1% level). Variables L5, L8
and L14 have a positive impact on the dependent variable Market success in
enterprises oriented predominantly towards foreign market, while variable L2
has a negative impact.
There are three statistically significant independent variables in the model
that reflect the laissez-faire style – L3. In complex situations, leaders should let
subordinates work problems out on their own (statistically significant at 1% level),
L6. Leadership requires staying out of the way of subordinates as they do their work
487
(statistically significant at 1% level) and L18. In general, it is best to leave subordi-
nates alone (statistically significant at 5% level). Variable L6 has a negative impact
on the dependent variable Market success in enterprises oriented predominantly
towards foreign market, while variables L3 and L18 have a positive impact.
Table 8. Regression model with the dependent variable: Market success and
the independent variables: items of leadership styles in relation to the
Ivan Miloloža Aleksandar Včev Damir Šebo: MARKET SUCCESS OF CROATIAN ENTERPRISES: IMPACT OF LEADERSHIP STYLES
488
DISCUSSION AND CONCLUSION
Table 9 shows the impact of different leadership styles on the aggregate mar-
ket success variable. The last three lines of the table show the dominant impact
of a particular leadership style.
their size, as well as on enterprises in the maturity phase and the same goes for
variable L3 and enterprises in the stagnation phase (followers) and enterprises
oriented towards international market. On the other hand, variable L12 has a
negative impact on all enterprises together, as well as on enterprises in the stag-
nation phase and enterprises in the maturity phase.
489
Table 9. Impact of different leadership styles on the aggregate variable of mar-
ket success
Growth and Stagnation
All All
SME Large maturity phase phase International Domicile
together together
(leaders) (followers)
L1 1% 1% 1% 1%
L4 -5% 5% -5% -1% 1%
Ivan Miloloža Aleksandar Včev Damir Šebo: MARKET SUCCESS OF CROATIAN ENTERPRISES: IMPACT OF LEADERSHIP STYLES
L7 1%
L10 -1% -10% -1% -1% -1% -1%
L13 5% -10% 1% 1% 1% -1%
L16 5% -10% 1%
L2 10% 5% -10%
L5 1%
L8 -10% -5% 1%
L11 5%
L14 10% -1% 1%
L17 1%
L3 1% 1%
L6 5% 5% -5% -1%
L9 5% 10% 5% 10%
L12 -10% -10% -5%
L15 1%
L18 -5% -1% 5% 1%
Autcr.s. ∅ + ∅ - + + -
Demo.s. ∅ + ∅ + - + ∅
Laiss.s. ∅ ∅ + + + + ∅
Source: Author’s research, May, 2014.
Note: The table shows the levels of significance and the direction of impact of independent
variables
CONCLUSION
The research results point to the following differences in market success.
For the purpose of the conclusion, only the difference taken together variable
of market success will be analysed. The impact of the autocratic style is as fol-
lows: (i) a negative impact is present in enterprises in the growth and maturity
phase, as well as in enterprises oriented predominantly towards domicile and
international markets; (ii) a neutral impact is present in large enterprises; (iii) a
positive impact is present in small enterprises and enterprises in the stagnation
phase. The impact of the democratic style is as follows: (i) a negative impact is
present in enterprises in the stagnation phase; (ii) a neutral impact is present
490
in large enterprises and enterprises oriented towards domicile markets and (iii)
a positive impact is present in small enterprises, enterprises in the growth and
maturity phase and enterprises oriented towards international markets. The
impact of the laissez-faire style is as follows: (i) a negative impact is present in
enterprises in the growth and maturity phase; (ii) a neutral impact is present
in small enterprises, as well as in enterprises oriented towards domicile mar-
kets and (iii) a positive impact is present in large enterprises, enterprises in the
stagnation phase and enterprises oriented towards international markets. It can
be concluded that: (i) small enterprises are more successful market-wise in the
presence of the autocratic and the democratic style, while laissez-faire style has
a positive impact on large enterprises; (ii) enterprises in the stagnation phase
are more successful in the presence of the democratic style, while the autocratic
and the laissez-faire style have a positive impact on enterprises in the growth
and maturity phase; (iii) enterprises oriented towards international markets are
more successful market-wise in the presence of the democratic style and the
laissez-faire style, while enterprises oriented towards domicile markets are less
successful market-wise when using the autocratic style.
REFERENCES
Analoui, B.D., Hannah Doloriert, C., Sambrook, S. (2012). Leadership and knowledge
management in UK ICT organisations. Journal of Management Development, 32(1),
pp. 4-17.
Griffin, D. (2002). The emergence of leadership: Linking self-organization and ethics. Lon-
don: Psychology Press.
491
Miloloža, I. (2016). Leadership Differences: Internationalization, Size and Development,
Proceedings of the ENTERNOVA - ENTerprise REsearch InNOVAtion Conferece
/ Baćović, M.; Milković, M.; Pejić Bach, M.; Peković, S. (ur.). - Zagreb: Udruga za
promicanje inovacija i istraživanja u ekonomiji, 2015, Kotor, 10-11.09.2015. pp. 339-
346. ISSN: 1849-7969.
Nicholls, J. (1994). The “heart, head and hands” of transforming leadership. Leadership &
organization development journal, 15(6), pp. 8-15.
Ivan Miloloža Aleksandar Včev Damir Šebo: MARKET SUCCESS OF CROATIAN ENTERPRISES: IMPACT OF LEADERSHIP STYLES
492
MARITIME POTENTIALS OF THE
REPUBLIC OF CROATIA WITH THE
PARTICULAR EMPHASIS ON THE
CITY OF SPLIT
Abstract
Every economy wants to improve their competitive advantage in the world
493
impact on the economy of the city. The paper will offer several policy proposals,
suggesting what the ports should do in order to make a greater influence on the
relevant economic development.
Joško Dvornik Vice Mihanović Ante Mihanović: MARITIME POTENTIALS OF THE REPUBLIC OF CROATIA WITH THE PARTICULAR EMPHASIS ...
Key words: maritime economy, blue growth, ports, Republic of Croatia, Split
JEL Classification: F43, O00
1
The list defined in early 2000s by the Hydrographic Institute conforms to IHO categorization of
all landforms surrounded by water, according to their surface area. Rocks are defined as landforms
smaller than 0.1 km², islets are between 0.1 and 1.0 km² and islands are larger than 1.0 km².
494
the ports of Omišalj, Bakar, Rijeka and Split. The data referring for the years
2015 and 2016 are presented in Table 1.
495
imous in their opinion that it is essential to establish and implement an inte-
grated management system with the purpose of achieving maximum benefits
from the maritime domain, while protecting maritime resources at the same
Joško Dvornik Vice Mihanović Ante Mihanović: MARITIME POTENTIALS OF THE REPUBLIC OF CROATIA WITH THE PARTICULAR EMPHASIS ...
496
Table 2. Traffic of goods in Croatia’s seaports in December 2016.
Indices
Total traffic of goods, in tonnes XII 2016
XII 2015
Omišalj 847,961 315.6
Bakar 338,788 119.4
Rijeka 219,677 110.5
Ploče 152,891 86.8
Split 143,089 102.9
497
2. Basin of Vranjic-Solin is primarily used in national and international
cargo shipping, for mooring laid-up ships and other services. The total length of
the quay is around 1854 metres, allowing the maximum ship’s draught of 10.3
Joško Dvornik Vice Mihanović Ante Mihanović: MARITIME POTENTIALS OF THE REPUBLIC OF CROATIA WITH THE PARTICULAR EMPHASIS ...
498
Graph 2. Traffic of vehicles 1990 – 2016.
Cruise ships have been increasingly calling at the port. Their arrivals are
shown in Graph 4.
499
Graph 4. Cruise ship arrivals 2002 – 2016.
Joško Dvornik Vice Mihanović Ante Mihanović: MARITIME POTENTIALS OF THE REPUBLIC OF CROATIA WITH THE PARTICULAR EMPHASIS ...
500
be noted that almost all major cruise companies called at Split, including Car-
nival Cruises, Royal Caribbean Cruises, MSC Cruises, Costa Crociere, Cunard
Line, Radisson Cruises, Celebrity Cruise, Fred Olsen Cruise Line, Club Med
Cruises, Thomson Cruises, P & O Cruises and others. In addition to all the
above discussed activities, the Port of Split handles the growing nautical tour-
ism traffic. In 2016 Croatia reported the total 769 million kuna in revenues from
nautical tourism industry, of which 539 million kuna, or 70.1%, were earned by
yacht accommodation and berth rental. When compared to the previous year
(2015), the total revenues increased by 2.1 %, while the berth rental revenues
increased by 3.8 % (Croatian Bureau of Statistics, 2017b). In 2016 the entire
Split-Dalmatia County experienced growth in all segments of nautical tourism.
2
In 1990s there was a line running to the ports of Patras and Igumenitas in Greece and the book-
ing was good. More in: Spatial-traffic elaborate of the wider urban area of the Split City / Prostorno-
prometna studija šireg područja grada Splita (2010: 60).
501
from the junction at Bilice to the marina at Žnjan, which would allow to shift
the ferry line to Supetar on Brač Island from the city core to the suburban area
of Žnjan during summer season. This would considerably disburden the traffic
Joško Dvornik Vice Mihanović Ante Mihanović: MARITIME POTENTIALS OF THE REPUBLIC OF CROATIA WITH THE PARTICULAR EMPHASIS ...
within the City Port, as the Split-Supetar line makes up to 50% of the overall
national liner traffic (Perović, 2016: 49).
4. CONCLUSION
A well designed traffic system is one of the major prerequisites for the ef-
ficient economic development and represents an important factor of inter-
state connections and international bonds. Maritime shipping makes part of
the overall transport system and is considered to have great strategic value for
coastal countries. Therefore it is important to enable a consistent and high-
quality development of the maritime traffic and transport aimed at valorisation
and benefiting from the favourable geographical position and unobstructed ac-
cess to the sea.
The fundamental premise of the maritime development is the network of
port systems; hence, their design and growth is of national interest. The estab-
lishment of the Port of Split Authority was one of the legal and institutional
measures aimed at efficient maritime domain management. This has resulted in
the continuous growth of maritime development indicators as well as develop-
ment indicators in other maritime-related industries.
The findings of this study have produced several guidelines for increasing
the economic effects of the maritime traffic and transport:
• To follow global trends in maritime affairs and sea-related industries;
• Planned and sustainable growth of port capacities, in line with the needs
of the seaport traffic and transport;
• To develop communication among all traffic stakeholders, especially in
maritime sector;
• To encourage the diversification of maritime traffic;
Strong state support;
• Growth of sea-borne passenger traffic contributes to the development of
tourism;
• Investments in port infrastructure and superstructure.
502
REFERENCES
Kundih, B. (ur) (2013). Upravljanje i gospodarenje pomorskim dobrom - kako dalje, Hrvatsko
prometno dobro, http://www.pomorskodobro.com/aktualno/412-kako-dalje-si-
jecanj-2013.html
Perović, K. (2016). Opće geografske odrednice razvoja splitske luke, Sveučilište u Zadru, Odjel
za geografiju Jednopredmetni diplomski sveučilišni studij primijenjene geografije,
Zadar
Mihanović, V. (2018), The economic impact of maritime traffic and transport in service of eco-
nomic development, (Doctoral Thesis), Josip Juraj Strossmayer University of Osijek,
Faculty of Economics in Osijek, Croatia
Strategija pomorskog razvitka i integralne pomorske politike Republike Hrvatske za razdo-
blje od 2014. godine do 2020., http://www.mppi.hr
Nakić, J., Pomorsko dobro - opće ili javno dobro, znanstveni rad, http://www.pomorskodobro.
com/fokus-nakic-kolovoz-2016.html
Program državnih potpora za razvoj luka otvorenih za javni promet Republike Hrvatske za
razdoblje 2017. - 2020. godine, Zakon o pomorskom dobru i morskim lukama (NN
br. 158/03, 141/06, 38/09, 56/16), http://arhiva.strukturnifondovi.hr
Dundović, Č, Kolanović, I., (2016), Morske luke-činitelji logističkog i prometnog razvitka Re-
publike Hrvatske, Rijeka
503
TYPES OF LEADERSHIP IN
MANAGEMENT BOARDS OF
UNIVERSITY CONSTITUENT
Ivan Miškulin Boris Crnković Maja Miškulin: TYPES OF LEADERSHIP IN MANAGEMENT BOARDS OF UNIVERSITY CONSTITUENT UNITS AND...
Abstract
Knowledge management is the process of creating, sharing, using and manag-
ing the knowledge and information of an organization in order to achieve or-
ganizational goals. Universities and its constituents as organizations are quite
unique and because of that, they require special approach in institutional man-
agement as well as in leadership that becomes even more important. The aim
of this study was to identify types of leadership in management boards of uni-
versity constituent units of Croatian universities and their impact on knowl-
edge management within these institutions. This cross-sectional questionnaire
study was conducted from June to September 2015 among 80 members of
management boards of university constituents of two Croatian universities.
504
The study showed that among all study participants there were 98.8% of par-
ticipants who practiced one out of five possible leadership roles (21.5% edgy
catalyser, 16.5% visionary motivator, 6.3% measured connector, 12.7% tena-
cious implementer and 43.0% thoughtful architect) while there was 1.2% of
those who did not practice any leadership role during his/her work within the
management board of university constituent. Unique characteristics of each
previously mentioned leadership role strongly influence the knowledge manage-
ment in Croatian universities. Taking into account that in different phases of
knowledge management process, a leader performs different tasks it is neces-
sary for him or her to adjust his/her individual leadership role to the particular
ongoing phase of this process. In order to be able to do that each member of
university constituent management board needs additional education about
leadership in general as well as about possible leadership roles and also needs
to be aware of his/her dominant leadership role. Only by following all that,
Croatian universities and its constituents will surely be prepared for all pos-
sible challenges and changes that can affect such organizations and be sure that
constant and continuous growth and development can be certainly achieved.
Key words: leadership role; knowledge management; university; leadership;
Croatia
JEL Classification: D80, D83
1. INTRODUCTION
Successful management is a source of comparative advantages of the mod-
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
ern, rapidly changing organizations such as today’s universities (Miškulin et al.;
2016, 261). Considering the unique characteristics which distinguish universi-
ties from most of the other organizations they certainly require a different ap-
proach in institutional management, governance, and administration (Miškulin
et al.; 2017, 368-369). Along with the change management, the leadership has
become one of the two key areas of today’s modern management (Nilakant &
Ramnarayan; 2006, 19). For leadership, which majority of experts describe as
highly complex, it has been emphasized that it is needed for successful manage-
ment of change and that leadership requires a large number of skills and com-
petences (Miškulin; 2016, 133). It is especially interesting to point out the huge
difference between management and leadership where it is said that to manage
means to help the realization of what is supposed to happen anyway, while,
505
by contrast, to lead means to accomplish what was never supposed to happen
(Green; 2007, 228). In the context of above mentioned unique characteristics
of universities as organizations, the leadership becomes even more important.
Ivan Miškulin Boris Crnković Maja Miškulin: TYPES OF LEADERSHIP IN MANAGEMENT BOARDS OF UNIVERSITY CONSTITUENT UNITS AND...
506
76,2%. Sociodemographic and occupational characteristics of the participants
– management board members of scientific and teaching constituent units, or
artistic and teaching constituent units of Josip Juraj Strossmayer University of
Osijek and Juraj Dobrila University of Pula, were determined by means of the
anonymous questionnaire that contained questions about age, sex, the length of
work experience within management board of university constituents, respec-
tive scientific field of the university constituent unit at which the participants
are employed, as well as existence of formal education and work experience of
the participants in the field of organization and governance. Within the ques-
tionnaire, there was also leadership role part of the questionnaire developed
by Cameron and Green that has been used for the identification of the type
of leadership of each management board member of university constituents
(Cameron & Green; 2008, 129-135).
All the collected data were analyzed using appropriate statistical meth-
ods. Descriptive statistical methods were used for the description of the
frequency distribution of the investigated variables. All the variables were
tested for normality of distribution using the Kolmogorov-Smirnov test.
Mean values of continuous variables were expressed as mean and stan-
dard deviation for normally distributed variables and as the median and
interquartile range for variables which are not distributed normally. The
categorical variables were described in absolute and relative frequencies.
The 2-test was used for comparison of categorical variables between the
groups. The level of statistical significance was set at p<0.05. Statistical
analysis was done using the statistical package Statistica for Windows
2010 (version 10.0, StatSoft Inc., Tulsa, OK, USA). INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
507
field of social sciences, 17.5% (14/80) of participants from the field of technical
sciences, 13.8% (11/80) of participants from the field of biotechnical sciences,
12.5% (10/80) of participants from the field of humanities, 5.0% (4/80) of
Ivan Miškulin Boris Crnković Maja Miškulin: TYPES OF LEADERSHIP IN MANAGEMENT BOARDS OF UNIVERSITY CONSTITUENT UNITS AND...
participants from the interdisciplinary field of science and 6.3% (5/80) of par-
ticipants from the artistic field.
The study participants have been further divided into two large groups:
STEM group (natural sciences, biomedicine, and health, technical sciences,
biotechnical sciences) and non-STEM group (social sciences, humanities, in-
terdisciplinary field of science, artistic field). According to described division,
there were 52.5% (42/80) participants in STEM group and 47.5% (38/80)
participants in the non-STEM group. According to the length of work experi-
ence within management board of university constituents, there were 41.3%
(33/80) of participants with shorter (1-4 years) and 58.7% (47/80) with lon-
ger (5 or more years) work experience within management board of university
constituents.
According to the existence of formal education of the participants in the field
of organization and governance among all of them, there were 17.5% (14/80)
of those who had formal education in the respective field and 82.5% (66/80) of
those who didn’t have such education. Considering the existence of work expe-
rience of the participants in the field of organization and governance there were
36.3% (29/80) of participants who had such experience and 63.7% (51/80) of
participants who didn’t have work experience in the field of organization and
governance.
Using leadership role part of the questionnaire developed by Cameron and
Green each participant according to his/her type of leadership has been clas-
sified in one out of five possible leadership roles that are: edgy catalyzer, vi-
sionary motivator, measured connector, tenacious implementer and thoughtful
architect.
The edgy catalyzer focuses on creating tension between what is and what
could or should be and sees the process of facing uncomfortable truths as a pre-
cursor to healthy change. The key characteristics of this type of leaders are: they
ask the difficult, penetrating questions; they spot dysfunction and resistance;
they create discomfort and unease when things aren’t improving; they focus on
“discomfort”. The edgy catalyzer spends his or her time to go and see the people,
to talk to the people on the phone, to analyze the facts, to walk somewhere near
508
the front line, to have fierce conversations, and to be frank. The situations where
edgy catalyser achieves best leader results are the situations when something
difficult needs to be faced when there is a lot of pressure to change quickly, when
traditions are getting in the way or when there is a crisis (Cameron & Green;
2008, 35-46).
The visionary motivator focuses on harnessing the human resources and tal-
ent around the organization. He or she inspires, motivates and engages people
in the organization’s future by employing emotionally charged language and
using metaphor to create a vibrant and collective sense of potential. The key
characteristics of this type of leaders are: articulates a compelling picture of
the future; energizes groups of people and engages them; holds the vision long
enough and strong enough for others to step into; focuses on the “buy-in”. The
visionary motivator spends his or her time in groups, talking energetically, with
friends and colleagues, having dinner with people. The situations where vision-
ary motivator achieves best leader results are the situations when there is a big
transition to make: cultural and strategic, when growth and risk-taking are
needed or when morale is low (Cameron & Green; 2008, 47-59).
The measured connector believes that people in successful and responsive
organizations are constantly communicating with each other, rather than wait-
ing for directives from above. He or she pays attention to connectivity by bring-
ing people together and helping the organization to understand its sense of pur-
pose and important ground-rules. The key characteristics of this type of leaders
are: reinforces what’s important and establishes a few simple rules, calmly in-
509
the project. The tenacious implementer spends his or her time in studying the
plan, asking people where they are on the plan, coaching people (fairly forcibly),
re-planning (reluctantly), calling teams together to discuss progress or influ-
Ivan Miškulin Boris Crnković Maja Miškulin: TYPES OF LEADERSHIP IN MANAGEMENT BOARDS OF UNIVERSITY CONSTITUENT UNITS AND...
encing the key customer. The situations where tenacious implementer achieves
best leader results are critical projects, legislation and compliance challenges or
technology-led change (Cameron & Green; 2008, 72-83).
The thoughtful architect focuses on creating the concepts that lie behind
strategic plans and designing new processes and operating models. This type of
leader is principal architect and designer of strategies. He or she crafts seem-
ingly disparate ideas into a way forward scan the environment, see what’s hap-
pening in the environment and create an organizing framework and focus on
“the design”. The thoughtful architect spends his or her time thinking, reading,
talking one to one with trusted confidants, sketching out designs, musing over
options, occasionally presenting a grand plan that is carefully prepared. The
situations where thoughtful architect achieves best leader results are complex
organizational change, long-range strategic change and difficult process change
(Cameron & Green; 2008, 84-94).
The experts believe that good leader needs to have an ability to play each of
above mentioned leadership roles in different volume in situations when they
are faced with significant changes in institutions that they are leading (Cameron
& Green; 2012, 174).
This study showed that among all study participants there were 98.8%
(79/80) participants who practiced one out of five above mentioned leadership
roles while there was 1.2% (1/80) participant who did not practice any lead-
ership role during his/her work within the management board of university
constituent. When analyzing the frequency of practiced leadership roles among
study participants this study revealed that among all of them there were 21.5%
(17/79) of those who dominantly were in the role of edgy catalyzer, 16.5%
(13/79) of those who dominantly were in the role of visionary motivator, 6.3%
(5/79) of those who dominantly were in the role of measured connector, 12.7%
(10/79) of those who dominantly were in the role of tenacious implementer
and 43.0% (34/79) of those who dominantly were in the role of thoughtful
architect.
Further analyzes determined the average value of certain leadership role
(which can range from 0 to 120 points) where values of 0-9 suggest that the
510
particular role in certain person is very poorly developed, values of 10-19 sug-
gest that the particular role in certain person is poorly developed, values of 20-
29 suggest that the particular role in certain person is moderately developed,
values of 30-39 suggest that the particular role in certain person is very well
developed while the values of 40 or more suggest that the particular role in cer-
tain person is exceptionally well developed. Following that Figures 1-5. shows
the level of development of each leadership role within the group of participants
who dominantly used this role during their work in the management board of
university constituent.
Figure 1. The level of development of edgy catalyzer leadership role within the
group of participants who dominantly used this leadership role
ϳϬ͕Ϭ
ϲϰ͘ϴ
ϲϬ͕Ϭ
ϱϬ͕Ϭ
ϰϬ͕Ϭ
ϯϬ͕Ϭ
ϭϳ͘ϲ ϭϳ͘ϲ
ϮϬ͕Ϭ
ϭϬ͕Ϭ
Ϭ͕Ϭ
DKZ
d>z s
sZzt>>s
s>KW y
yWd/KE>>zt>>
s>K
KW s>KW
WƌŽƉŽ
ŽƌƚŝŽŶŽĨƉĂƌƚŝĐŝƉĂŶƚƐ;йͿ INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
511
Figure 2. The level of development of visionary motivator leadership role with-
in the group of participants who dominantly used this leadership role
ϳϬ͕Ϭ ϲϵ͘Ϯ
Ivan Miškulin Boris Crnković Maja Miškulin: TYPES OF LEADERSHIP IN MANAGEMENT BOARDS OF UNIVERSITY CONSTITUENT UNITS AND...
ϲϬ͕Ϭ
ϱϬ͕Ϭ
ϰϬ͕Ϭ
ϯϬ͕Ϭ Ϯϯ͘ϭ
ϮϬ͕Ϭ ϳ͘ϳ
ϭϬ͕Ϭ
Ϭ͕Ϭ
DKZ
d>z s
sZzt>>s
s>KW y
yWd/KE>>zt>>
s>K
KW s>KW
ϭϬϬ
ϭϬϬ͘Ϭ
Ϭ
ϵϬ
ϴϬ
ϳϬ
ϲϬ
ϱϬ
ϰϬ
ϯϬ
ϮϬ
ϭϬ
Ϭ
sZ
Zzt>>s>K
KW
512
Figure 4. The level of development of tenacious implementer leadership role
within the group of participants who dominantly used this leadership
role
ϲϬ ϲϬ͘Ϭ
ϱϬ
ϰϬ
ϯϬ͘Ϭ
ϯϬ
ϮϬ ϭ
ϭϬ͘Ϭ
ϭϬ
Ϭ
DKZdd>z sZzt>>s>KW y
yWd/KE>>zt>>
s>KW s>KW
ϰϬ͕Ϭ
ϯϬ͕Ϭ
ϭϳ͘ϲ ϭϳ͘ϲ
ϮϬ͕Ϭ
ϭϬ͕Ϭ
Ϭ͕Ϭ
DKZ
d>z s
sZzt>>s
s>KW y
yWd/KE>>zt>>
s>K
KW s>KW
513
In further analysis of our data in Tables 1-5. we had firstly showed the so-
ciodemographic characteristics of each group of participants who dominantly
practiced one out of five leadership roles during their work within the manage-
Ivan Miškulin Boris Crnković Maja Miškulin: TYPES OF LEADERSHIP IN MANAGEMENT BOARDS OF UNIVERSITY CONSTITUENT UNITS AND...
514
Table 3. The sociodemographic characteristics of study participants (members
of the managerial board of university constituents) who dominantly
practiced measured connector leadership role
Number of
Sociodemographic characteristics
participants (%)
Male 3 (60.0)
Sex
Female 2 (40.0)
Younger (30 - 49 years) 1 (20.0)
Age group
Older (50 - 69 years) 4 (80.0)
STEM group 3 (60.0)
Scientific field
non-STEM group 2 (40.0)
Shorter (1 - 4 years) 2 (40.0)
Length of work experience
Longer (5 or more years) 3 (60.0)
Yes 0
Formal education in the field of organization and governance
No 5 (100.0)
Yes 2 (40.0)
Work experience in the field of organization and governance
No 3 (60.0)
Source: Author’s calculations
515
Table 5. The sociodemographic characteristics of study participants (members
of the managerial board of university constituents) who dominantly
practiced thoughtful architect leadership role
Ivan Miškulin Boris Crnković Maja Miškulin: TYPES OF LEADERSHIP IN MANAGEMENT BOARDS OF UNIVERSITY CONSTITUENT UNITS AND...
Number of
Sociodemographic characteristics
participants (%)
Male 14 (41.2)
Sex
Female 20 (58.8)
Younger (30 - 49 years) 23 (67.6)
Age group
Older (50 - 69 years) 11 (32.4)
STEM group 14 (41.2)
Scientific field
non-STEM group 20 (58.8)
Shorter (1 - 4 years) 23 (67.6)
Length of work experience
Longer (5 or more years) 11 (32.4)
Yes 14 (41.2)
Formal education in the field of organization and governance
No 20 (58.8)
Yes 23 (67.6)
Work experience in the field of organization and governance
No 11 (32.4)
Source: Author’s calculations
516
The study revealed that there was no statistically significant difference in
dominantly practiced leadership role according to the age group of study par-
ticipants (χ2=2.177; df=1; p=0.171). There was also no statistically significant
difference in dominantly practiced leadership role according to the scientific field
of work of study participants (χ2=0.001; df=1; p=1.000). The study showed
that there was no statistically significant difference in dominantly practiced
leadership role according to the length of work experience of study participants
(χ2=0.135; df=1; p=0.819). Finally, the study demonstrated that there was no
statistically significant difference in dominantly practiced leadership role ac-
cording to the existence of formal education of study participants in the field of
organization and governance (χ2=0.133; df=1; p=0.769), as well as that there
was no statistically significant difference in dominantly practiced leadership role
according to the existence of work experience of study participants in the field
of organization and governance (χ2=3.703; df=1; p=0.062).
By analyzing the leadership skills of the members of the board of scientific-
teaching or art-teaching constituents of the university, this study showed that
among all participants 98.8% of participants were practicing some type of the
leadership role and 1.2 % of participants weren’t practicing any of these roles in
their work and as members of the management board of university constituent
didn’t act as leaders. The most frequent leadership role practiced by the study
participants was the role of the thoughtful architect (43.0%) while all other
roles practiced 57.0% of participants.
The present study showed that males still prevails as members of the man-
517
sity management board members, whereby most of them belong to younger age
group (30-49 years). Later, itself represents the power of university manage-
ment structures and great potential for further progress and the introduction
Ivan Miškulin Boris Crnković Maja Miškulin: TYPES OF LEADERSHIP IN MANAGEMENT BOARDS OF UNIVERSITY CONSTITUENT UNITS AND...
of changes in these institutions that are unusually resistant to change and are
largely resisted by the same (Brown; 2013, 89). On the other hand, the nega-
tive aspect is the fact that this study has shown that as many as 41.3% of the
participants had more than eight years of work experience within the manage-
ment board of university constituents, that points to the rigidity of the higher
education system which is why the implementation of changes at universities is
one of the most intimidating challenges that high-level management is facing in
today’s organizations (McMurray; 2001, 74).
When analyzing the existence of formal education of members of manage-
ment boards of scientific-teaching or art-teaching constituents of the university
in the field of organization and governance (completed undergraduate or gradu-
ate study, postgraduate study, a course of continuous training for at least one
month at a higher education institution in Croatia or abroad) this study showed
that among all participants there were only 17.5% of those who had some form
of formal education in organization and governance. This information is par-
ticularly troubling given the fact that experts agree that formal education in
the field of organization and governance is the foundation of managerial skills
necessary for all those who are in the real world facing the challenge of manage-
ment or leadership, in which circumstances they need to teach when and how to
apply the acquired basic knowledge in performing their everyday duties (Kintu;
2002, 18).
Regarding the competences and the previously acquired knowledge and ex-
perience in the field of organization and governance of the management board
members of the scientific-teaching or art-teaching constituents of the universi-
ties participating in this study, it is important to point out that today there is
difference between the term of managerial education and the term of manage-
rial development which represent two different entities (Ahonen; 2012, 7). Bur-
goyne and Reynolds emphasize that managerial education is the term primarily
related to the education provided by the faculties of economics and schools of
management within the university, while the managerial development is a set
of knowledge and skills that a person acquires through work, by attending vari-
ous forms of lifelong education and trainings organized by the human resource
department with the support of various consultants, whether individuals or
518
companies specializing in training and education in this area that serves as a
way for the development of managerial skills (Burgoyne & Reynolds; 1997, 21).
Because of the concept of lifelong education that has nowadays lived in all uni-
versities in the world, it is clear that the boundary between the aforementioned
informal forms of education (provided by individuals or companies specializing
in training and education in the area of organization and governance) and for-
mal education from these areas that can be acquired through various university
programs and its scientific-teaching constituents are actually very foggy (Aho-
nen; 2012, 7). Concerning the latter, it is important to point out that this study
revealed that 36.3% of participants had managerial experience before they were
employed as management board members of a particular university constituent.
When analyzing the interdependence between the gender of the partici-
pants and their dominant leadership role, the latter being divided into two
groups (a group of those who dominantly use the role of thoughtful architect
and a group of those who dominantly use one out of four possible leadership
roles), this study showed that there was a statistically significant difference be-
tween males and females in terms of the leading role they are predominantly
practiced in their work, where females have more often practiced the role of a
thoughtful architect. Possible reason for this lies in the fact that the leading role
of the so-called thoughtful architect (Cameron & Green; 2008, 84-94) is the
most appropriate transformational form of leadership, whereby this form of
behavior of a transformational leader is in line with female gender role, which
is characterized, among other things, by the need for support and considerate
behavior (Nica; 2013, 191). In this light, it is particularly important to point
out that some studies conducted at universities have shown that the practice INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
of transformational leadership is particularly well-received and thus successful
within the academic community (Yusuf et al.; 2015, 280), which the majority
of higher education institutions in Croatia and abroad had somehow find out,
and accordingly, there is an increasing number of females in such leadership
positions. The main reason for this is the fact that, according to some studies,
females as executives often lead organizations in a way that specialists dealing
with this area find particularly effective, which is the way of transformational
leadership (Nica; 2013, 191).
Skyrme (2001) defines knowledge management as the explicit and system-
atic management of vital knowledge – and its associated processes of creation,
organization, diffusion, use an exploitation in pursuit of business objectives.
519
The process of knowledge management is completed through phases and it is
disseminated through the whole organization. The experts emphasize seven
phases of management learning process, and these are identification, storing,
Ivan Miškulin Boris Crnković Maja Miškulin: TYPES OF LEADERSHIP IN MANAGEMENT BOARDS OF UNIVERSITY CONSTITUENT UNITS AND...
sharing, using, learning, improving and creating (Evans et. al.; 2014, 91). To
fully use each of mentioned phase of knowledge management and to achieve
ultimate goal leader needs to adjust its behavior and act i.e. leadership role to
the ongoing phase of knowledge management. Considering the unique char-
acteristics of universities as organizations it is clear that the usage of different
leadership role is not only desirable but necessary in order to manage knowl-
edge adequately and to ensure the continuous growth and development of uni-
versities in today’s world.
4. CONCLUSION
In conclusion, one can say that unique features of each analyzed leadership
role most certainly strongly influences the knowledge management in Croatian
universities. Bearing in mind that in different phases of knowledge management
process, a leader performs different tasks it is necessary for him or her to have
adequate characteristics, skills, and abilities. Moreover, it is also clear that each
phase of knowledge management demands a different approach and because
of that, the successful management board of university constituents needs to
be able to adjust individual leadership roles of its members to the particular
ongoing phase of this process. To be able to do that each member of university
constituent management board needs to have adequate knowledge about lead-
ership in general as well as about possible leadership roles and needs to be aware
of his/her dominant leadership role. Following all that, university constituent
will surely be prepared for all possible challenges and changes that can affect
such organization and be sure that constant and continuous growth and devel-
opment can be certainly achieved.
REFERENCES
Ahonen, M. (2012). Non-formal Management Education: Some Evidence from Manage-
ment Training Businesses Websites in Estonia, Problems of Management in the 21st
Century, 4, ISSN 2029-6932, 7-20
Brown, S. (2013). Change management in higher education: an empirical approach, Pro-
ceedings of the International Conference on Information Communication Technologies
520
in Education, Morris, L. & Tsolakidis, C. (ed.), p. 89-98, ISBN 978-99957-0-533-6,
Crete, Greece, 4.-6.7.2013., Southampton Solent University & The Justice Institute of
British Columbia, Crete
Burgoyne, J. & Reynolds, M. (1997). Management Learning Integrating Perspectives in Theory
and Practice, Sage Publications, ISBN 978-0803976443, London
Cameron, E. & Green, M. (2008). Making Sense of Leadership. Exploring the Five Key Roles
Used by Effective Leaders, Kogan Page, ISBN 978-0749450397, London/Philadelphia
Cameron, E., Green, M. (2012). Making Sense of Change Management, 3rd edition, Kogan
Page, ISBN 9780749464356, London/Philadelphia/New Delhi
Drucker, P. E. (1995). The information executives truly need, Harvard Business Review,
ISSN 0017-8012, 54-62
European Commission. (2013). She Figures 2012 – Gender in Research and Innovation, Publi-
cations Office of the European Union, ISBN 978-92-79-27642-2, Luxembourg
Evans, M., Dalkir, K. & Bidian, C. (2014). A Holostic View of the Knowledge Life Cycle:
The Knowledge Management Cycle (KMC) Model, Electronic Journal of Knowledge
Management, 12 (2), ISSN 1479-4411, 85-97
Green, M. (2007). Change Management Masterclass. A Step by Step Guide to Successful Change
Management, Kogan Page, ISBN 978-0749445072, London/Philadelphia
Kintu, E. (2002). Top Management Teams and Total Shareholders Returns: the Association
Between Top Management Team Education and Heterogeneity and Total Shareholders
Returns in the North American Insurance Industry, Webster University, ISBN 978-
1581121537, Saint Louis
McMurray, D. W. (2001). The importance of ‘goodness of fit’ between organisational culture
and climate in the management of change: a case study in the development of online
learning, Association for Learning Technology Journal, 9 (1), ISSN 0968-7769, 73-83
Miškulin, I. (2016). Značaj upravljanja promjenama u visokom obrazovanju u razvoju kom-
parativnih prednosti sveučilišta, Ekonomski fakultet u Osijeku, [doctoral thesis], Osijek,
available at https://urn.nsk.hr/urn:nbn:hr:145:543580 (accessed 21-01-2018)
Miškulin, I., Legčević, J. & Crnković, B. (2017). Managerial Education of Governing Struc- INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
tures of University Constituent Units and Quality Assurance in Higher Education,
Book of papers of the Interdisciplinary management research XIII, Barković, D. & Run-
zheimer, B. (ed.), p. 367-378, ISSN 1847-0408, Opatija, 19.-21.05.2017., Faculty
of Economics in Osijek, Josip Juraj Strosmayer University in Osijek & Hochschule
Pforzheim, University of Applied Sciences, Osijek
Miškulin, I., Turkalj, Ž. & Crnković, B. (2016). Change management and developmental
strategies of Croatian universities, Book of papers of the Interdiscplinary Management
Research XII, Barković, D. & Runzheimer, B. (ed.), p. 255-262, ISSN 1847-0408,
Opatija, 20.-22.05.2016., Faculty of Economics in Osijek, Josip Juraj Strosmayer Uni-
versity in Osijek & Hochschule Pforzheim, University of Applied Sciences, Osijek
Nica, E. (2013). The Importance of Leadership Development within Higher Education,
Contemporary Readings in Law and Social Justice, 5 (2), ISSN 1948-9137, 189-194
521
Nilakant, V. & Ramnarayan, S. (2006). Change management. Altering Mindsets in a Global
Context, Response Books, ISBN 978-0761934684, New Delhi/Thousand Oaks/
London
Quintas, P., Lefrere, P. & Jones, G. (1997). Knowledge Management: a Strategic Agenda,
Ivan Miškulin Boris Crnković Maja Miškulin: TYPES OF LEADERSHIP IN MANAGEMENT BOARDS OF UNIVERSITY CONSTITUENT UNITS AND...
522
FINANCIAL BENCHMARKING OF
CROATIAN OFFSET PRINTING
INDUSTRY
Abstract
Benchmarking is a tool that can be used by any company to compare its perfor-
mance against another company and to identify key areas in which the business
can improve. Our hypothesis is that the benchmarking is a powerful business
tool that isn’t used enough which can enable companies to measure their own INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
performance to others and to draw conclusions on the direction in which a
company’s management strategy should go. In this paper, we offered the meth-
odology for drafting a financial benchmarking analysis of a chosen company. In
that context, we presented the choice of a relevant sample, data sources used for
comparison and we suggested key indicator groups. The purpose of the paper is
to establish key measures and the extent used for the comparison of the indus-
try against the accomplishments achieved by our company. After we determine
the range for every chosen indicator, as well as the best practices, we want to
establish if there is room for improvement in terms of each parameter. By look-
ing at the picture of the industry in its entirety, we distance ourselves from the
subjective assessment of our own company’s business and we form our opinion
523
according to the position that we take in relation to what is achieved by our
competitors on the market.
We tested our research by forming benchmarking model of the offset printing
industry in the Republic of Croatia, and the subject of observation is the com-
pany Radin Print. The choice of a relevant sample was based on the size and
primary type of the print. All data was compiled from annual financial state-
ments of chosen companies. The time period of monitoring is 5 years, which
should be long enough to monitor the trends of used indicators. The chosen in-
Ante Belamarić Goran Ledinščak Željko Holik: FINANCIAL BENCHMARKING OF CROATIAN OFFSET PRINTING INDUSTRY
dicators represent only part of key performance indicators and the analysis can
be further elaborated in accordance with the methodology presented, depending
on the users’ needs.
Key words: Benchmarking, competitor analysis, KPI
JEL Classification: E44, G00
1. INTRODUCTION
Benchmarking is ‘the process of learning from others’ and involves compar-
ing one’s own performance or methods against other comparable operations. It
is a broader issue than setting performance targets and includes investigating
other organizations’ operations practice in order to derive ideas that could con-
tribute to performance improvement (Slack at al; 2009., 433).
One of earliest books on benchmarking was written by Robert C. Camp:
The Search for Industry Best Practices That Lead to Superior Performance is-
sued in 1989. by Quality Press. As an approach to benchmarking he propose
twelve step methodologies:
• Select subject
• Define the process
• Identify potential partners
• Identify data sources
• Collect data and select partners
• Determine the gap
• Establish process differences
• Target future performance
• Communicate
524
• Adjust goal
• Implement
• Review and recalibrate
There are many types of benchmarking and different authors are giving dif-
ferent classification. For instance, types of benchmarking can be classified as
Internal, External, Non-competitive, Competitive, Performance and Practice
(Slack at al; 2009., 433-434). Another classification is suggested as Internal,
Competitive, Functional, Generic (Halevi, 2001,73). Our intention is to build
up the model in a field of performance benchmarking, specifically in financial
benchmarking. We will try to answer if this tool is used in Croatian business
environment, and if there is preferred or unique model and methodology used
in benchmarking process.
By choosing the company from the industry, when building financial bench-
marking model, we can practically talk about the competition analysis. If the
companies we choose for comparison are our biggest competitors that will basi-
cally form one segment, we can obtain trends and the extent of all relevant key
indicators within that segment for chosen indicators. The companies often only
observe themselves and, by doing so, they potentially subjectively assess their
own performance. In addition to that, even when the performance is above the
average performance within the industry, we may potentially ignore the fact that
the market warns us about the decline and that it is time to diversify the prod-
uct portfolio. Finally, even if we are the market leaders, there’s a great possibility
that we could further develop certain segments of our business.
525
for any financial benchmarking. During the drafting of the benchmarking it is
necessary to choose the relevant sample because by choosing the inadequate
sample, we can create a distorted picture of key indicators and subsequently
make wrong conclusions. Apart from the relevant sample, the time period can
also have an impact on the research conclusions. If we use a longer time period,
we will more easily distinguish trends from extraordinary events that could
impact the results obtained by the research. In that regard, we took over data
from annual financial reports from the portal Fininfo for chosen companies and
Ante Belamarić Goran Ledinščak Željko Holik: FINANCIAL BENCHMARKING OF CROATIAN OFFSET PRINTING INDUSTRY
we set the time period of monitoring for 5 years. That period should be long
enough for adequate monitoring of trends of used indicators. The chosen in-
dicators represent only part of key indicators, and the analysis can be further
elaborated in accordance with the proposed methodology, depending on the us-
ers’ needs. The greater analysis should certainly consist of the structure of assets
and liabilities, more detailed liquidity indicators, leverage and activity ratios in
terms of a turnover of certain asset categories.
2. RESEARCH METHODOLOGY
We tried to offer a simple solution for usage because of specifics of Croatian
business environment. The concept is simplified so it can be used by any compa-
ny with scares resources. By researching if benchmarking is used in Croatia, we
found out that research was conducted in 2017. by Meter M. The results where:
526
Figure 1. is showing usage of strategic controlling tools measured by a Lick-
ert scale from 1 to 5 where 1 represents the lowest grade and 5 highest grade.
Research conducted in 2017. showed that Benchmarking is most used strategic
tool for controlling (3,2). This wasn’t surprising as the author indicates because
this is tool demands least effort and methodologic preparation. But, as is stat-
ed before it should be carefully treated because of potentially different aspect
among selected competitors. Although this research shows that benchmarking
is used in Croatian business environment, we believe that the sample is to small
(104 participants) and also oriented on companies with controlling department.
This means that if the company has a controlling department, it will mostly use
this tool. But looking from the perspective of companies without controlling
department (mostly SME) than results would be different.
When we tried to build up our financial model, we found out, that although
the methodology is more or less used in a way defined by R. Camp, types of
benchmarking and models build around this methodology are various and con-
stantly changing. Usually benchmarking is looking at the wider picture and is
not connected solely to financial benchmarking. As a very strong industry in
Croatia, Tourism has it’s own indicators. For instance: Capacity utilization,
the share of foreign guest nights, duration of season and seasonality (Štoković,
2004., 66-84). Other authors are connecting production cost of software with
working hours based on a sample of different projects in the banking industry
(Pereira & Teixeira, 2017.). For instance, indicators of efficiency in operational
processes could have common weight, but also one can make it flexible if it’s as-
sumed that individual circumstances are different (Cook at al; 2016., 901-910).
We conducted financial benchmarking in several stages, and we followed INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
527
the average of the industry with their achievements. If a chosen sample is not
relevant in terms of the size of the sample, the conclusions may not be adequate
because the motion on certain companies does not picture the real state of the
line of business that we work in. The abovementioned can lead us in a direction
that will not bring adequate business results in the long term.
After choosing the sample, it is necessary to choose the data sources and the
time frame. We suggest financial statements as the basis for financial bench-
marking analysis. The said statements are available on various financial portals,
Ante Belamarić Goran Ledinščak Željko Holik: FINANCIAL BENCHMARKING OF CROATIAN OFFSET PRINTING INDUSTRY
and for this research, we used the database from the Fininfo portal. For a qual-
ity research, it is essential to establish a monitoring period that is long enough.
When the monitoring period is longer, the model is more “immune” to single
extraordinary events. Namely, if we choose longer time periods, we will have
bigger opportunity to identify anomalies that can happen at certain companies
on an annual basis.
After that, we need to choose key indicators that will enable us to exam-
ine how the company operates in relation to other companies within the same
segment.
There is no unique definition how the model should be introduced, but
we choose indicators based on the ones explained in books “Analiza poslovne
uspješnosti” (Belak, 2008.) and on a 5C model developed internally by Cinnoti
Revizija (Cinnoti, 2011.). The literature, of course, mentions a great number
of indicators, but we chose a dozen that we think should be included in every
financial benchmarking. Of course, the larger the number of indicators included
in the benchmarking, the higher the possibility of obtaining adequate and rel-
evant conclusions. Every company should make a decision on the scope of the
benchmarking for itself, depending on the number of resources and on the pur-
pose of such process.
528
such it complies with the needs of other industries it relies on. This industry is
characterized by a specific production process in all its segments, from the pro-
duction planning to the delivery of finished products. The development of other
industries, subject to external business factors, constantly imposes the need for
the development of new products, use of new materials and use of technologi-
cally developed work instruments with the purpose of satisfying numerous re-
quests of buyers.
The printing industry today shares the destiny of the rest of processing in-
dustry, both in the country and abroad. The economic crisis that occurred at the
end of the last decade caused some intense transformation processes within the
publishing industry and the advertising industry, which are closely linked to the
printing industry. The imperative for rational business operations of business
entities caused a drastic reduction of prices of advertising space in printed me-
dia with the parallel migration to electronic media, which led to the reduction
of editions and the decrease in quality of printed editions. The abovementioned
changes led to express rationalization in terms of costs for the publishers, adver-
tisers, as well as for other users of printing services, which subsequently led to
cost reduction of graphic services. In such circumstances, the printing industry
was forced to answer with a new management strategy, which is extremely im-
portant for the business sustainability and growth.
The offset printing represents the printing technique because of the simple
preparation process, quality print, and low printing prices. Considering the fact
that it is currently the most used printing technique in the Republic of Croatia,
529
revenue growth does not follow the revenue growth of the entire industry and in
that case, despite the revenue growth, the company actually loses its market share.
In the reverse situation, if the revenue of the industry decreases, we can talk about
a potential problem in the future and it is necessary to think about the diversifica-
tion of the portfolio. The company does not have to notice the decline in the rev-
enue straight away, because maybe some inferior competitors left the market race,
and the company took over a part of their potential. However, such situation only
slows down the fact that the potential to generate revenue declines.
Ante Belamarić Goran Ledinščak Željko Holik: FINANCIAL BENCHMARKING OF CROATIAN OFFSET PRINTING INDUSTRY
The depiction of the market share according to the sales revenue shows sta-
bility for our subject company, but it can be noticed that other competitors still
managed to take over a part of potential that was created with the decline of
revenue of the company Vjesnik.
530
Figure 3. Market share
531
By looking at our line of business we can establish that the trends are posi-
tive for most of the companies, and the only company that has a negative busi-
ness result is the company Vjesnik (although the loss declines every year).
percent). It maintains the turnover profitability. Each growth in the value of this
indicator is assessed as a favourable movement, and the decrease in the value
indicates the existence of difficulties in the company’s operations and can be
one of the indicators of business crisis. The basis for the calculation of the gross
profit margin is the profit and loss statement.
In the context of the calculation, we compare the difference between the rev-
enue and the purchase price of goods and the total revenue. That means that if
our gross profit margin is lower than the one from our competition or our line
of business, we have problems either with the prices under which we sell the
goods (which can easily be compared in terms of the market) or our procure-
ment is not efficient enough.
From the abovementioned information, we can conclude that the line of
business average varies, but that it is also in a three-year positive trend. What
needs to be additionally pointed out is that part of the companies has signifi-
532
cantly better average than the line of business, so it would surely be recom-
mended for our subject company to check the procurement requirements, that
is the check of the product portfolio in which the focus obviously could be on a
significantly more profitable segment.
This is also an indicator of how much room a company has for covering all
other business expenses. If in this part the company does not generate enough
profit, even if it is cost-effective, it may not be enough to obtain positive (or
satisfying) business results.
533
pany. The average rate of the EBITDA margin realised within the line of busi-
ness is 13% and it indicates a growing trend. In 2016, the observed segment
shows a wide range of achieved EBITDA margin. We can also conclude that
our subject company falls behind the line of business and the leading competi-
tors, but the backlog is not as important as in the observation of the indicators
of the gross profit margin. This means that the company has a satisfying cost
efficiency and that the discrepancy occurs during the forming of the purchase/
selling price of the product or in the product that is being sold.
Ante Belamarić Goran Ledinščak Željko Holik: FINANCIAL BENCHMARKING OF CROATIAN OFFSET PRINTING INDUSTRY
.. ROE
The return on equity shows how much revenue a company generates for
each unit of equity in the company.
Figure 7. ROE
534
a certain amount of debt capital bring to their owners a higher return on their
investments. That kind of policy is also riskier (interest rate risk and foreign ex-
change risk) because it is not only important to assure the return for the owner,
but also to pay back the borrowed amount along with the interests, and it can
make a problem for a company in case it comes to a significant drop in revenues.
The line of business itself shows the recovery of this indicator during the last
two years, and the situation varies depending on each company. This indicator
also shows that the best companies still manage to maintain stability, that is, the
adequate return on invested capital.
The company Kerschoffset has the highest rate of return, because of the
extremely low level of its own capital. As mentioned before, this approach is
risky because a company is extremely susceptible to negative market effects. In
this context, by maintaining the profit every business year, and due to positive
trends of the industry in last three years, the company managed to achieve the
higher level of capital adequacy and the lower business stability risk level. This
was surely an example of company development based on the use of borrowed
assets.
535
Figure 8. BCG Matrix
Ante Belamarić Goran Ledinščak Željko Holik: FINANCIAL BENCHMARKING OF CROATIAN OFFSET PRINTING INDUSTRY
Depending on the quadrant in which the company operates, the theory cites
four types:
536
Question marks – companies that are growing rapidly but have a lower rate
of profit or a loss. They try to generate profit using the economy of scale. There
is not a lot of such companies because almost no company generates the profit
from the turnover but from the price difference. In our line of business, there is
practically no such company.
Stars – high-growth companies with high rates of profit.
Most of the observed companies are in this category. By comparing the
graph for 2015 and 2016, it is obvious that the companies that had the star sta-
tus maintained that status. The difference is in the deceleration of the growth,
but with a bit higher rate of sales profitability. Overall, the picture is vertically
flattering, but also slightly moved to the right, which means that the companies
from the border areas-initiated growth in 2015 with an eventual light growth of
sales profitability, and the companies that grew already in previous periods now
slowdown that growth and the focus are on the profitability growth.
Cash cows - mature, low-growth companies with high rates of profit.
The company Tiskara Zagreb, which had a revenue decline in relation to the
previous year with a slightly positive rate of sales profitability, is located in this
category. Considering the indicators, this company shows a tendency to move
to the dog segment.
Dogs – companies in weak positions because they also have low profits. The
company can consider its withdrawal from the market or to invest even more in
the aggressive breakthrough of new profitable investments. The business result
537
.. Net working capital
The new working capital is the difference between current assets and cur-
rent liabilities. It is used to mark a part of the working capital financed from
long-term sources. The net working capital is a requirement for liquidity and
financial stability of the company and it reflects the number of liquid assets at
the company’s disposal for maintaining and expanding the business. The value
of net working capital depends on the asset structure and debts of the company.
The companies that have a higher level of net working capital are considered
Ante Belamarić Goran Ledinščak Željko Holik: FINANCIAL BENCHMARKING OF CROATIAN OFFSET PRINTING INDUSTRY
to operate better in the long-term since they are capable to expand, improve or
change their business at any time. The working capital also directly shows the
efficiency ratio of the company’s business, since the assets that are tied up in
inventory, or production in process and claims from the buyers, cannot be used
by the company to pay off its liabilities. In the short term, the company can
have positive business even with the negative working capital, but to establish
the long-term business stability it is necessary to actively manage the working
capital and get him to the positive value.
538
maintain the positive working capital, even with the worsening situation. Only
Tiskara Zagreb and printing house Znanje managed to maintain the high level
of liquidity throughout the entire observation period. Other companies have
either negative working capital or they show a trend that indicates that in the
near future the negative working capital will occur if the business continues to
be the same.
By looking at the entire segment we can conclude that, at the level of the
sample, the line of business is situated in the longer term at the border line of
the companies that are in the bankruptcy zone. But, by looking at individual
companies, it is clear that except the company Vjesnik, most of the companies
depict a healthy company, namely the companies that have growing rations to-
wards the zone of healthy and stable companies during the last three years.
539
Unfortunately, according to this indicator, our subject company shows the trend
that indicates, in the long term, the high risk of the unstable business. Consider-
ing the rest of the line of business, the assumption is that there is still potential
for the business stability of this line of business and that it is necessary to initi-
ate changes that will bring the business stability in the future.
The line of business as a whole shows a slight decline in revenue per em-
ployee. However, most of the observed companies show relative stability of this
ratio. The highest revenue per employee, with the stability through the entire
observation period, is shown by our chosen company.
540
.. Staff costs per employee
The average monthly staff costs per employee for the observed line of busi-
ness are continuously and slightly growing in the period from 2012 to 2016.
This indicator informs us on the expected range of salaries. Also, if the specific
industry is in question, we can assume which competitors in the line of business
can offer more attractive conditions for our employees. We can also observe
which competitors have lower staff costs and can potentially be the source of
the quality work force during new employment. In the end, if we significantly
stand out from the average of the line of business (positively or negatively), we
still need to question if the policy of determining the level of personal revenue
is adequate.
As with the previous indicator, it is clear that we are practically at the top in INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
terms of the costs per employee, meaning that, on average, our employees have
revenues which are higher than those of the rest of competitors in the line of
business. That means that we are probably one of the most desired employers
within the line of business in terms of the personal revenue.
4. CONCLUSION
After the conducting research on financial benchmarking, we can confirm
the hypothesis cited at the beginning of this paper. Even simplified financial
benchmarking can be a good starting point for determining how is our com-
pany doing, comparing it to other competitors. However, it is clear that deeper
541
analysis varies from industry to industry, and apart from financial benchmark-
ing every industry has it’s own specific indicators. Furthermore, although the
methodology is pretty much the same, models are different in dependence to
chosen industry and are dynamically changing. Our hypothesis that tool isn’t
used enough wasn’t confirmed. Research showed us that, among other control-
ling tools, benchmarking is business tool most often used by the company
With a suggested model for analysing the industry, we got some valuable
insight on how the entire industry operates and what are the positions taken by
Ante Belamarić Goran Ledinščak Željko Holik: FINANCIAL BENCHMARKING OF CROATIAN OFFSET PRINTING INDUSTRY
the subject company within that industry. The industry still maintains the sta-
ble revenue level and that most of the competitors show signs of a better busi-
ness in the last three years. That means that the industry is still characterized by
sustainable business. In terms of operative costs, the subject company operates
more efficiently that the competition despite higher costs per employee. On the
other hand, the higher revenue generated per employee implicates the most ef-
fective use of that resource in the industry. The biggest problem is in the gross
profit margin, where the company generates a significantly lower margin in rela-
tion to the rest of the competitors. Unfortunately, that also impacts the overall
performance of the company, which eventually leads to the low level of overall
profit and liquidity problems. It will surely be recommended to the manage-
ment to check if there is any room for the correction of sales prices, that is the
correction of input prices of raw materials. If there are no significant deviations
in both parameters in relation to the market, then the problem is probably re-
lated to the portfolio of buyers and products. If we are oriented towards the
“big” buyers, then we enable the generation of high revenue per employee, but
we sacrifice the margin. By increasing the number of small buyers, the efficiency
per employee decreases according to the revenue per employee measure, but the
latter would clearly be compensated with a significantly higher profit margin.
Market leaders, despite the lower revenue per employee, still make higher profit
margins. In the end, a more detailed research analysis would show if it would be
necessary to change the product portfolio and navigate towards more profitable
product lines.
The abovementioned conclusions based on financial benchmarking confirm
our theory that the benchmarking can be used as an excellent tool to analyse
the business performance, of not only one company, but also of the industry.
Except obtaining valuable information on the positioning and performance of
the companies based on historical data, the benchmarking represents a great
542
tool to make business decisions, by providing the management with possible
business guidelines.
REFERENCES
Belak, V. (2014). Analiza poslovne uspješnosti, Zagreb: RRIF plus
Camp, R. (1989), The Search for Industry Best Practices That Lead to Superior Performance,
Quality Press
Cinotti K. (2011). Što poduzetnici moraju znati o financijama. Zagreb: Tile financije
Cook at al, (2016), Within-group common Benchmarking using DEA, European Journal
of Operational Research, 256, p901-910
Halevi, G. (2001), Handbook of Production Management Methods, Oxford; Butterworth-
Heinnemann, p73
Slack at al, (2009), Operations and Process Management, Essex: Pearson Education Limited,
p433.
Meter, M. (2017), Kontroling u praksi: Instrumenti kontrolinga; Zagreb: Poslovna učinkovitost,
p13-14
Pereira L. & Teixeira C., (2017), Benchmarking of software production costs: Results & Rec-
comendations, International conference on Engineering, Technology, and Inovation
Šćepanović B. (2016). Biblija controllinga. Beograd: MCB Edukacija
Štoković, I. (2004), Benchmarking u turizmu., Journal Ekonomski pregled, p66-84
Žager K., Sačer Mamić I., Sever S. & Žager L (2008). Analiza financijskih izvještaja. Zagreb:
Masmedia
https://www.fininfo.hr/ (access March 5, 2018.)
Valdes-Perez, R. (2015). Smart Benchmarking Starts with Knowing Whom to Compare
Yourself To [available at https://hbr.org/2015/10/smart-benchmarking-starts-with-
543
THE CONCEPT OF INTEGRATED
MARKETING COMMUNICATIONS
Željko Vojinović Sanja Živković Dragan Vojinović: THE CONCEPT OF INTEGRATED MARKETING COMMUNICATIONS OF FINANCIAL INSTITUTIONS...
OF FINANCIAL INSTITUTIONS OF
BOSNIA AND HERZEGOVINA IN
THE FUNCTION OF MANAGING
RELATIONS WITH CONSUMERS
Sanja ŽIVKOVIĆ
Erste Bank AD Novi Sad
E-mail: [email protected]
Abstract
Business of the entities in the sector of financial services is determined by the
intensity of market changes and the specifics of financial institutions determine
behavior and attitude towards their clients, who already have the knowledge,
power and skill of choice according to their personal preferences and affilia-
tions. Selection and development of communication strategies with clients in-
stitutions should conceiv on total synergistic effect, which should be greater than
the sum of the effect of certain elements. Communication targets of financial
institutions are equally directed towards the outside and internal environment
and are related to the development of the brand and image, achieving competi-
544
tive advantage, stimulating of demand, capacity management, services reposi-
tioning, informing, training and motivating of the consumers. The aim of this
study is to determine the impact of marketing communications of financial
institutions to many different customer segments in the process of long-term
relationships built through two-dimensional research that defines the proce-
dures for the supply and application feedbacks from the customers/consumers.
Research shows diversification of selected market segments toward marketing
communications and their impact in managing of relationships with consum-
ers. On the B&H financial market, there is a small but still insignificant prog-
ress regarding investment in communications, which usually result in absence
of the most important positive effects when it comes to managing of relation-
ships with consumers.
Key words: banks, integration, communications, insurance, synergies.
JEL Classification: D18, M31
1. INTRODUCTION
Looking at the trends on the financial market manifested in globalization,
strong competitive relations, technological innovations, uncertainties and busi-
ness risks, radical changes in attitudes and behavior of customers, constant
striving for growth and development, shorter life span of products and services
and the speed of decision making, marketing orientation of financial institu-
tions inevitably involves the creation of an effective and efficient communica-
tion concept based on the optimum level of planned and feasible business goals.
Successful operations of financial institutions are determined by the ability to INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
anticipate needs and desires of targeted market segments and the level of their
satisfaction, by creating and delivering products and services of expected value.
In communication with the environment, financial institutions are oriented
on determining and defining the consumers’ needs, desires and motives likewise
the possibility to reach maximum of their satisfaction. For financial institutions
it is not a matter of choice whether or not to communicate (promote) with their
current and future clients, since there are not many products that can survive on
the market without effective promotion (Lamb, Joseph, McDaniel, 2013; 246),
but what to say/promise, whom to say/promise, in which manner, through
which channels, how often and when.
545
Optimal integration of marketing communication becomes more important
(Batra, Keller; 2016). The communication mix is represented by instruments
Željko Vojinović Sanja Živković Dragan Vojinović: THE CONCEPT OF INTEGRATED MARKETING COMMUNICATIONS OF FINANCIAL INSTITUTIONS...
546
ers need or are interested in, including products or services as potential holders
of future messages. Furthermore, IMC uses all forms of communication rel-
evant to consumers and potential customers, which are acceptable (Kesić 2003;
29). Integrated marketing communications can produce both greater message
consistency and productivity. Accordingly, the optimum, that is, an ideal setting
of communication elements is that the efficiency of the elements are to be inte-
grated in their joined effect that is to be larger than the sum of their individual
effects (Vasiljiev, Vojinovic 2016; 88). A synergetic effect in sales efforts, is also
obvious in Totten and Block research which shows that only a promotional
price reduction led to an increase in sales by 15%, while the integration with
advertising led to a 24% of increase (Totten, Block 1994; 69). Finally, the IMC
process begins with consumer or potential buyer and is directed backwards to
determine and define forms and methods through which a persuasive commu-
nication process will be developed.
The quality of services is difficult to separate from customer satisfaction
(Lovreta et al., 2010; 121; 121) and it represents an unavoidable, we can say the
most important determinant of achieving the basic business objectives of finan-
cial institutions; market participation, productivity, conquest of new consum-
ers (Cui et al., 2003, p. 191), customer value management (Fos, Stone 2008;
214), achieving unattainable competitiveness achieved by price, capability,
meeting customer needs in short term, including quality ( Juran, Gryna 1999;
240). Consumers often judge product quality based on a variety of informa-
tion indicators linked with the product (Schiffman, Kanuk, 146). Services as
non-material products provide education, accommodation, financial, medical
and public needs (Heizer, Render 1999,). Without going into a deeper analysis INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
of the quality service components-functional and technical (Gronroos, 1984;
1-36), we will try to determine that integrated marketing communications sig-
nificantly influence the expected and perceived quality of services.
2. RESEARCH METHODOLOGY
According to the nature and importance of the topic, our goal is to analyze
the implementation of the IMC concept in Bosnia and Herzegovina, and its
efficiency in achieving quality of services towards clients’ attitudes. The real-
ization of this study ranged in two directions. The first was to define attitude
of financial institutions towards this issue through the expression of the com-
547
munication channels structure, their value and degree of integration in survey
research. At the same time, throughout a questionnaire survey of consumers of
Željko Vojinović Sanja Živković Dragan Vojinović: THE CONCEPT OF INTEGRATED MARKETING COMMUNICATIONS OF FINANCIAL INSTITUTIONS...
financial services (physical and legal entities) by the method of direct, personal
contact, it was tried to conclude that determines this topic. Although the re-
search was carried out in the financial market of B&H, we can say that the same
principles apply to the wider, European market, because the European financial
institutions in bank and insurance sector have dominant role, applying the prin-
ciples of doing business to their home offices.
Research of the use of integrated marketing communications of financial
institutions was carried out by personal interview and sending questionnaires
via e-mail addresses. Questionnaires were delivered to a total of 33 financial
institutions, 18 banks and 15 insurance companies. Studies did not provide an
adequate amount of data, because only 6 institutions (2 insurance companies
and 4 banks) submitted a response. Because of that, the sample of the survey is
considered as random. Due to insufficient volume, data analysis was not carried
out by statistical methods. Those kinds of researches in Bosnia and Herzegovi-
na are complex. There is a lack of interest for these types of researches, so we can
only assume whether it is a result of ignorance, distrust, or simply an attitude
of business policy. Basic information about the surveyed institutions (manag-
ing staff, people responsible for marketing, their names and surnames, phone
numbers and emails) were taken from their website. Although the content of
questionnaire did not disturb business confidentiality, some institutions replied
that there is no consent of managers for respond, or that they cannot answer
due to discomfiting the principle of a business secret.
The paper presents the results and conclusions of the analysis of financial
institutions service consumers’ attitudes towards the communication activities
of the supply sector in the financial market of B&H.
The research with the aim to establish or to refute the hypothesis that in-
tegrated marketing communications have the appropriate level of impact on
establishing and maintaining relationships with customers was conducted with
clients of financial institutions in Bosnia and Herzegovina. The aim of this
study was to determine whether there is a difference in the reactions of con-
sumers of financial services toward addressed messages and ways of performing
the communication process depending on sex differences, level of education and
source of income.
548
Communications of financial institutions are oriented towards their clients,
so we tried to determine the attitudes and opinions of users of financial services
by a study based on the survey. The research was conducted with the help of
the interviewer volunteer, and the survey contained 16 questions referred to
the way of communication and establishing business relations, type of media,
sources of information, criteria that prevail in decisions of clients and to whom
clients trust.
Empirical research related to attitudes of 235 financial institution clients. It
is being confirmed that the portfolio of financial institutions clients represents
the totality of the population. There was no respondent (without considering
the biological inadequate persons) who does not consume financial servic-
es. The complexity of market relationships and characteristics of consumer be-
havior, which is in the domain of research and other fields such as sociology and
psychology, initiated the importance of the role of perception of the financial
services quality and the impact of sociodemographic characteristics of clients
on communication channels to be emphasized in the research.
Research of clients’ attitudes towards the quality of financial services, which
is the basis of long term relationships and trust and/or distrust is based on
the use of a modified SERVQUAL model (Parasuraman 1988). The original
model is based on the dimensions of tangibility, reliability, responsibility, secu-
rity and empathy, while relevant research is designed on tangibility, reliability,
safety and communication. In the past, model was subjected to criticism (Buttle
1996), but it has already been applied in a number of research in the financial
3. RESEARCH RESULTS
Based on modified SERVQUAL model, respondents answered the ques-
tionnaire consisting of 22 pairs of statements and defined quality characteristics
of institution services, in accordance to their own perception, with the help of
scale rating attitudes from 1 (not important) to 5 (completely important).
549
Table 1. Sample structure
Željko Vojinović Sanja Živković Dragan Vojinović: THE CONCEPT OF INTEGRATED MARKETING COMMUNICATIONS OF FINANCIAL INSTITUTIONS...
N (%)
Male 128 (54,5%)
Gender
Female 107 (45,5%)
SS 162 (68,9%)
The level of education UD 63 (26,8)
Other 10 (4,3%)
Employment 183 (77,9%)
A source of income Retirement 35 (14,9%)
Other 17 (7,2%)
Source: Autors’ research
550
To verify that the data set is suitable for factor analysis, we have done KMO
and Bartlett’s Test. As the Kaiser-Meyer-Olkin Measure of Sampling Adequacy
is greater than 0.6 and is 0.921 and the Bartlett’s Test of Sphericity value is sta-
tistically significant (p = 0.000), the factor analysis is being justified.
According to the Kaiser-Guttman criterion there are four factors having
characteristic value greater than 1. These four components explain 61.69%
of variance (cumulative% = 61.69). The first principal component explains
45.08% of the total variance, the second principal component explains 7.36% of
the variance, the third major component of variance explained 4.9%, while the
fourth component explained 2.63% of the variance.
The rotated factorial matrix shows good factorial organization of the items
in the questionnaire. The first factor is related to questions with ordinal num-
bers 1 to 6. This is the Palpability factor. The second factor is related to ques-
tions from 7 to11 - reliability factor. The third factor is related to questions
from12 to15, - factor of security and the fourth factor is related to questions 16
to22, - a factor of communication.
551
When conducting a transaction, the privacy of clients and the obligation to store
information and their unauthorized use by employees and other persons is -,427
Željko Vojinović Sanja Živković Dragan Vojinović: THE CONCEPT OF INTEGRATED MARKETING COMMUNICATIONS OF FINANCIAL INSTITUTIONS...
respected
Working time is adapted to the needs of clients -,839
Employees consider the interests of clients -,837
The employees provide clients with timely and accurate information about
-,772
services
All complaints are being received and answered -,738
They provide all clients with due, personalized attention, regardless of the value
-,721
of the transactions they perform
Technological equipment enables clients to communicate without the spatial and
-,497
temporal limits
Services are always performed with the same level of quality -,473
Source: Autors’ research
We investigated whether the quality of the received services vary on the bas-
es of gender, level of education and income. Tangibles, as a dimension of service
quality is significantly different for men and women (p <0.01). Women have a
better perception of the tangibility than men, the gap between perceived and
expected quality is lower.
Reliability is significantly different for men and women (p <0.05) and with
respondents who are employed and retired (p <0.05). Women and employees
have better assessment of reliability.
Employees and retired are statistically significantly satisfied with safety (p
<0.05). Employees are also more satisfied with this dimension.
552
Satisfaction with communication is significantly different for men and wom-
en (p <0.01) and the employees/retirees (p <0.05). Again, employees are more
satisfied with this aspect of service in relation to pensioners.
By Linear regression analysis, we examined which of the independent vari-
ables are previously being determined as statistically significant predictors of
quality services dimensions. Gender proved to be the only statistically signifi-
cant predictor. Namely, the gender affects the tangibles (p <0.01), explain-
ing 15% of variance of the dependent variable. Gender affects the reliability
(p <0.05), explaining 11% of dependent variable, while explaining only 4% of
communication. However, it affected it significantly (p <0.01).
Security is the only dimension in the quality of services which is not influ-
enced by any of the tested variables.
In addition to the presented result of research we give a description of the
observed characteristics and processes in the communication of financial insti-
tutions and their clients. According to the degree of utilization, the most com-
mon services are:
- bank services, with 58%;
- services of insurance companies, 26%;
- services of microcredit organizations, 7%;
- services of leasing companies, 6%;
- services of investment funds, 3%.
553
This kind of relation on financial market is realistic and expected. Banks are
holders of payment transactions and credit policy, having legislation on their
Željko Vojinović Sanja Živković Dragan Vojinović: THE CONCEPT OF INTEGRATED MARKETING COMMUNICATIONS OF FINANCIAL INSTITUTIONS...
554
which is a determining factor for choosing the media, we were interested in the
level of use of certain type of media by clients of financial institutions.
According to the attitudes of users of financial services, the highest level of
use has the:
- Internet, which participates with 57%;
- radio with 16%;
- TV with 15%;
- newspapers with 8% and,
- magazines with 4%;
The orientation of the promotional efforts and resources of the institutions,
with mandatory definition of the target groups, should be built on the above-
mentioned client attitudes. Users of financial services make decisions based
on information collected from various sources. That can be only one source or
combination of more.
Users opting for the following:
- combined sources use 50% of clients;
- commercial sources, 24% of clients;
- recommendations of family and friends, 12% of clients;
- information from public sources, 7% of clients;
- recommendations of business partners, 5% of clients;
- opinion of an expert, 2% of clients;
Such a commitment of the clients confirms the assumption that the inte- INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
555
technology to perform transactions, while 78% of them do it in a physical, di-
rect contact with employees.
Željko Vojinović Sanja Živković Dragan Vojinović: THE CONCEPT OF INTEGRATED MARKETING COMMUNICATIONS OF FINANCIAL INSTITUTIONS...
556
fied customer who closed his account. Bank procedures require the client clos-
ing account to answers the questions in the questionnaire and explain reasons
for closing his account. Six clients answered: ‘If you were previously interested
in what I think about you, we would not get to the questionnaire.’
3. CONCLUSION
IMC were created because of the application of various forms of communi-
cation with current and potential customers in different periods of time, with
the aim of direct channeling of their behavior and actions. It can be said that,
in their creation, the largest contributions had the marketing communications
agencies started to coordinate their activities in the effective promotion of prod-
ucts and services for their clients. On the other hand, the structural approach
of financial institutions to the development of new products and services shows
their strategic adjustment to the client via marketing functions, where commu-
nication plays a key role, which should provide a two-way flow of information
in the relationship between the institution and the client. The success or failure
of financial institutions directly depends on the attitude of the environment
towards them, but we can say that investing in effective and efficient messag-
ing and marketing communication is the key of profitable relationships with
customers.
The concept of IMC has been adopted by most of the institutions in the fi-
nancial market of Bosnia and Herzegovina, with bigger or less success depend-
ing on their capacities, aptitudes, skills and tremendous influence of manage-
ment structures. Establishing a market position and customer relations requires INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
not only financial resources, but also the art of using marketing tools, business
experience and a good knowledge of its customers. In communication with the
market, all the elements of communication mix are being used, but mostly they
rely on advertising or paid advertisement, and to a less extent on personal sales,
PR, sales promotion and sponsorship.
Financial institutions are burdened by generating as much revenue as pos-
sible and with a smaller amount of costs in the balance sheet positions, so we
have to conclude that the premise on the role of the client in the asset has not
yet found its place, and whether it is a “marketing short-sightedness” or a wrong
business policy of a Management should be defined by shareholders and own-
ers. Clients have their own needs, requirements, attitudes, choices and deci-
557
sions. In the survey of attitudes and relationships of clients towards financial
institutions, full cooperation with respondents was achieved. All respondents
Željko Vojinović Sanja Živković Dragan Vojinović: THE CONCEPT OF INTEGRATED MARKETING COMMUNICATIONS OF FINANCIAL INSTITUTIONS...
REFERENCES
Amstrong, J. S. (2007) „Significance tests harm progress in forcasting“, International Journal
of Forecasting
Anderson, D.R., Burnham, K.P. and Thompson, W.L. (2000) „Null hypothesis testing:
problems, prevalence an alternative“, Journal of Wildlife Management
Bateson, J.E.G. I Douglas Hoffman, K., (2012) Marketingservices, Beograd, Data Status
558
Carver, R.P. (1978) „The case against statistical significance testing“, Harvard educational
Review
Gummesson, E. (2008) Total Relationship Marketing, Oxford, Butterworth Heinamann.
Hadživuković, S., Zegnal, R., Čobanović, K. (1982) „Regression Analysis“, Privredni pregled
Beograd.
Jobber, D., John, F. (2006) Based marketing, Beograd, Data Status
Jonson, D.H. (1999) „The insignifance of statistical significance testing“, Journal of Wildlife
Management
Kalakota, R. i Robinason, M. (2002) E-business 2.0, Zagreb, Mate.
Kesić, T. (2003) Integrated marketing communications, Zagreb.
Kotler, P., Keller, K.L. (2006) Marketing management, Beograd, Data Status.
Lovrić, M., Komić, J., Stević, S. (2006), Statistical Analyis – methods and applications, Banja
Luka, Ekonomski fakultet Univerziteta u Banjoj Luci.
Mann, S. (1955) „Statistics for business and ekonomics – solution manual“, John Wiley and
Sons, New York, USA.
Maričić, B. (2005) Consumer behavior, Beograd, Ekonomski fakultet u Beogradu.
McCloskey, Deirdre (2008) „The Cult of Statistical Significance“.
Ognjanov, G. (2013) Integrated marketing communications, Beograd, Ekonomski fakultet u
Beogradu.
Parasuraman, A., Zeithaml, V.A. and Berry, L. SERVQUAL - A Multiple Item Scale for
Measuring Consumer Perceptions of Service Quality, Journal of Retailing, Vol. 64, No.
1. 1988
Petz, B. (1981) Basic statistical methods for non-mathematicians, Zagreb, Liber.
Smit, P.R. (2002) Marketing communications, Integrated approach, Beograd, Clio.
Stephens, P.A., Buskirk, S.W., Hayward, G.D., and Martinez del Rio, C. (2005) „Informa-
tion theory and hypothesis testing: a cal for pluralism“, Journal of Applied Ecology.
559
General
Economics
EDUCATION AS A FACTOR OF
SUCCESS IN AGRICULTURAL
PRODUCTION OF TOBACCO
Abstract
Agricultural production has a very significant share on Croatian economy. As
in most developed countries of the world, it is of strategic importance to encour-
age and stimulate agricultural producers to achieve the maximum added value.
Alongside other crops in Croatia, tobacco has, for several decades, occupied an
important position in terms of added value, concerning the income it generates
for its producers and for the processing tobacco industry. Despite the harmful
effects of cigarettes on human health, tobacco is still a very important crop, and INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
all forecasts predict that it will remain so for a long time.
To maintain competitiveness in the production of cigarettes and other products,
processing tobacco industry in Croatia must pay full attention to the quality of
produced raw materials and yields, to be able to compete with the most devel-
oped countries of the world. With the application of modern techniques such as
crop protection, fertilizing and modern irrigation systems, another important
element in the production of tobacco is the human factor, i.e. the knowledge
and expertise of the producers. Knowledge of production methods and new
technologies cannot be possible without a certain level of education every to-
bacco producer should attain to be able to follow current trends and achieve a
satisfactory level of production.
563
The aim of the paper is to investigate the interrelationship between the quantity
and quality of produced products and the level of education of tobacco produc-
ers in the cooperative base of Croatian tobacco Inc. Since it is one of the largest
tobacco buyers in Croatia, it will be investigated how, and to what extent, the
education of agricultural producers has an impact on their production volume
and quality. The influence of this factor on the overall agricultural production
of tobacco in Croatia will be analyzed, showing its high importance for the
entire national economy.
Damir Ribić Nikolina Pleša Puljić: EDUCATION AS A FACTOR OF SUCCESS IN AGRICULTURAL PRODUCTION OF TOBACCO
1. INTRODUCTION
In the modern economic environment, education and lifelong learning are
the foundation of modern agricultural production. It is precisely on these foun-
dations that we can build a competitive agri-business that must follow trends
in industry development and sustainable development. Agricultural production
in the Republic of Croatia occupies a significant share of the national economy,
while tobacco production has occupied an important position for more than a
decade regarding added value but also the income it generates to its producers
and to the processing tobacco industry. Although various health campaigns are
trying to raise awareness among people about harmfulness of cigarettes on hu-
man health, the tobacco industry is still a significant agricultural culture in the
Republic of Croatia. To maintain its importance in the economy, the tobacco
industry must constantly pay attention to tobacco quality and yields. In addi-
tion to the more significant use of modern technologies in tobacco production,
human capital is also relevant to the knowledge, skills and experience of tobacco
producers. Such human capital is generated by raising the level of education,
continuous training and education, by which we can follow modern trends and
achieve a satisfactory level of production.
Since 2015 company Croatian tobacco Inc. is part of a multinational British
American Tobacco company as one of the leading multinational tobacco com-
panies in the world. The power of the global BAT Group ensures to Croatian
tobacco producers a step forward from the domestic market, and through sys-
tem of Croatian tobacco it provides safe exports to the very demanding western
markets. Namely, Croatian tobacco Inc. deals with the contracting of tobacco
564
production with agricultural holdings, and thus manages this production, all
with the aim of obtaining the finest finished product with the least cost of pro-
duction. All the data used in the thesis were obtained from Croatian tobacco
Inc., and were used solely for this research. Specifically, these are the current
data for 2017, that include the base of the producers for the year 2017, their
yields and the quality of the tobacco itself. Accordingly, the thesis shall inves-
tigate whether the degree of education of the producers of Croatian tobacco
Inc. influence the quantity of produced products and their quality. It shall also
explore to what extent these factors influence the total agricultural production
of tobacco in the Republic of Croatia, how important are they for the national
economy, and in which direction the efforts of Croatian tobacco Inc. must go to
achieve the most efficient business that is reflected in higher returns and main-
taining competitiveness on the demanding world market.
565
tional, so-called, natural or spontaneous learning, and organized learning which
is also base for education and training. According to the level of education or-
ganization, it is possible to distinguish education from non-school education/
upbringing that can be formal and non-formal. Such conceptualization of the
core concepts of lifelong education and upbringing is now generally accepted”
(Pastuović, 1999, according to Dohmen, 1996). For people to have the oppor-
tunity to learn out of compulsory education, they must first and foremost have
the desire and willingness to adopt knowledge. This thesis focuses on the educa-
Damir Ribić Nikolina Pleša Puljić: EDUCATION AS A FACTOR OF SUCCESS IN AGRICULTURAL PRODUCTION OF TOBACCO
566
Similarly, the National program for agriculture and rural areas (2003)1 em-
phasizes the need to improve the educational structure of rural and agricultural
populations and to create a larger supply of vocational education and training
programs for adult education, especially the agricultural population (Svržnjak
et al., 2006). Namely, according to 1991 data, the secondary school had only
8.6%, while higher or college education had only 0.6% of active farmers. Also,
among the peasants there are many who have completed high school, but for
non-agricultural occupations. Educational structure of active farmers is unfa-
vorable compared to other groups of population. This problem, although from
1991, is still present in the agricultural education structure of the Republic
of Croatia, thus directly affecting the lower utilization of scientific and tech-
nological achievements in agriculture, especially in peasant economies, as evi-
denced by the census of 2011 according to the educational characteristics of the
population.
According to the 2011 census, there is a noticeable difference in the educa-
tional structure of the population, which is most pronounced in primary and
higher education. First, we can observe the scale of the education structure of
primary schools. In urban settlements, 27.3% of women and 16.2% of men have
completed only elementary school, while in other settlements it is noted that
50.1% of women and 33.0% of men base their education only on elementary
school. Observing data for high school in urban settlements there are 49.5% of
women and 60.9% of men with secondary education, while in other settlements
the percentage is slightly lower, i.e. 41.3% of women and 58.9% of men. And
ultimately, the key to this thesis is that 23.1% of women and 22.8% of men who
finished high school live in urban areas, while in other settlements only 8.4% of INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
women and 7.9% of men have higher education. From the above data we can
notice a significant difference between primary and higher education. In con-
clusion, we can say that the educational structure in urban settlements is more
favorable than in the other, which is a real indicator of the need to work on en-
couraging education especially in the agricultural population. Moreover, to keep
pace with developed countries, we need to work on improving human capital,
i.e. to encourage farmers to engage in formal/informal education systems or life-
long learning programs. This change shall impact on more successful business
results, increased competitiveness, increased involvement of modern machining
systems on working surfaces and ultimately economic growth.
567
The lifelong learning program is a relatively new term in the literature but is
also increasingly used and emphasized in public speaking. At its general assem-
bly, in the 1970, UNESCO made a proposal to member states on accepting the
concept of lifelong education as a necessary educational reform. Subsequently,
in 1973, the International Commission for the Development of Education pro-
duced a series of recommendations for corrective actions in the area. Since then,
the concept of lifelong education and upbringing has been theoretically elabo-
rated and gradually introduced into the practice of education and is regarded as
Damir Ribić Nikolina Pleša Puljić: EDUCATION AS A FACTOR OF SUCCESS IN AGRICULTURAL PRODUCTION OF TOBACCO
568
ness as a part of the multinational British American Tobacco company as one
of the leading multinational tobacco companies in the world with over 200 of
their own brands present in almost all markets. We can say that this event had a
significant impact on the small “local” company Croatian tobacco Inc. and posed
challenges and risks to leading managers.
Namely, company Croatian tobacco Inc. deals with the contracting of tobac-
co production with the farms and manages this production, all with the aim of
obtaining the finished product with the least cost of production. The purchased
tobacco from Croatian fields is processed at a tobacco processing plant in Vi-
rovitica, after which it is placed to tobacco manufacturers throughout Western
Europe, but also to a domestic factory in Istria, more precisely Kanfanar. Based
on the production contract, the farms have permanent support from the pro-
fessional services of Croatian tobacco Inc. and are funded and supplied with
reproductive material. It is of importance that the company constantly invests
in improving technology and optimizing business processes, increasing produc-
tivity, cost management, employee care, community relationship, and require-
ments for sustainable development.1 Also, due to the above-mentioned merge,
Croatian tobacco Inc. must constantly monitor and implement BAT standards
to be as successful as possible. Following the procedures of the largest leaders in
the production of tobacco, they adopt new knowledge, examine the possibilities
of applying them and refer them to the farms of their tobacco producers. These
methods can accumulate the knowledge and experience of the largest leaders
in tobacco production and provide the same knowledge to domestic farmers
engaged in tobacco production.
When we talk about tobacco production or any other agricultural activity, INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
we can find that for good results, we certainly need excellent weather conditions
that unfortunately cannot be affected. Additionally, we have two of the most
important problems facing the tobacco producers of Croatian tobacco Inc.,
which is the lack of labor force for harvesting and illegal tobacco trade. Also, we
are witnessing today that every other vegetation year is dry or extremely rainy,
and in tobacco production this is an unfavorable factor. However, when it comes
to drought, the use of irrigation systems can cope with this problem. Because of
the instability of key performance factors, we need to work on those factors that
we can influence. For this reason, it is necessary to continually educate tobacco
producers about the benefits of irrigation and other mechanization and to use
569
incentives for such a type of investment to achieve the key of sustainability that
is primarily reflected in the quality of tobacco.1
The survey covered all tobacco producers of “ Flue Cured Virginia”who con-
cluded a contract with Croatian Tobacco in 2017 and had certain quantities of
tobacco produced. In the year 2017, there were a total of 356 tobacco producers.
The producers are widespread in the whole of Eastern Croatia, i.e. in 6 counties.
The total surface area of the tobacco planted in the observed year of 2017
was 2,951.08 hectares representing 0.22% of the total agricultural production in
the Republic of Croatia. On these surfaces, a total of 6,604,806 kilograms of to-
bacco was produced, generating income to the amount of HRK 84,799,787.06
at an average price of HRK 12.84 per kilogram.
The average size of the land on which the tobacco is planted is 8.29 hectares,
which is quite significant, since the average size of the farm in the Republic of
Croatia is only 5.6 hectares. These are farmers whose total surface area is big-
ger, because it is not possible to grow obacco on all available surfaces every year,
since it is important to take care of crop rotation. The average size of the farm is
28 hectares, which shows that they are agricultural producers that handle larger
areas even from the European average, which currently stands at 14.3 hectares
per single producer.
According to data for 2017 out of the total number of producers, 207 of
them have secondary vocational qualifications, qualified workers, with complet-
ed secondary school 71, unskilled workers with elementary school or without
elementary school 69, while producers with completed higher or high school
- 9. This relation shows a very low level of education among agricultural produc-
ers, which is a low level of awareness of the importance of education in agricul-
ture, the legacy of socialism and the long-term intellectual devastation of rural
areas, and the consequences of poor education systems and labor market needs
with education system can be seen.
570
Figure no. 1: Educational structure of tobacco producers in 2017
250
200
150
100
50
69 71 207 9
0
Unskilled worker Skilled worker High school University
Source: authors
Average yield of tobacco per hectare in dry farming in years without extreme
weather conditions ranges from 2,100 kg to 2,500 kg. If land is irrigated, yields
can grow up to 3,000 to 4,000 kg per hectare of surface. Despite the high dif-
ferences in yields and quality of tobacco, there is still a very small number of
irrigation areas in the Republic of Croatia, primarily due to the high costs of
investing in irrigation systems. However, it is impossible to exclude the possi-
bility of correlating the level of education of farmers with the awareness of the
571
tems. The awareness of the mentioned can also be correlated with the degree of
education of the holders of agricultural holdings.
Table no. 1: Educational structure of tobacco producers, and crop yield per
hectare in 2017
EDUCATION Number of Total number of Total produced Average yield per
producers hectares (ha) amount (kg) hectare (kg)
Unskilled worker 69 574,18 1.197.364 2.085,35
Skilled worker 71 618,76 1.408.915 2.276,62
Damir Ribić Nikolina Pleša Puljić: EDUCATION AS A FACTOR OF SUCCESS IN AGRICULTURAL PRODUCTION OF TOBACCO
Source: authors
If the average yield per hectare of the area is observed according to the quali-
fication, significant differences and deviations are observed. Agricultural pro-
ducers with secondary education and skilled producers (level of education at
the same level as high school) generally have a similar level of yield, close to the
average for the observed period. However, producers educated at elementary
school level and lower realize yields far below the average of all other producers.
It should not be neglected the fact that these producers account for 19% of the
total number of producers and handle 19% of total surface area with tobacco.
On the other hand, in case of producers who have higher education and higher
education levels, they also noticeably deviate more than the average because
they have a yield of 2,422.76 kilograms per hectare. This is by 159.5 kg more
than the average of all manufacturers together, and even 337.41 kg more than
the average producer with lower level of education.
572
Figure no.2: Average yield per hectare and degree of education in 2017
2.500,00
2.400,00
2.300,00
2.200,00
2.100,00
2.000,00
1.900,00
Unskilled worker Skilled worker High school University
Source: authors
One of the benchmarks for the success of tobacco production, and perhaps
the most significant, is the quality of the leaf of cured tobacco. When purchas-
ing, considering the quality, tobacco is sorted into 6 classes. Depending on the
tobacco class, there is a different purchase price for each class, and in 2017 it
ranged from HRK 5.61 for the lowest sixth grade, up to HRK 19.67 for the
highest first class. The average price achieved for all producers in all classes to-
gether in 2017 was HRK 12.84 per kilogram. The aim of each producer should
be as much as possible the amount of tobacco in the highest classes, and the less INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
possible in the lowest classes, i.e. the fifth and sixth class. Also, the percentage,
i.e. the amount of tobacco that has been rejected and which is classified in out-
grade is also important and is not suitable for further processing.
According to the data obtained in 2017, the average quantity per hectare of
tobacco produced in the first four best classes was 2,210.51 kilograms of cured
tobacco. On the other hand, the average amount of fifth and sixth grade was
52.75 kilograms of tobacco. If we look only at the fifth and sixth grade of to-
bacco, deviations from the level of education are not very significant and are very
close to the average. However, when looking at the first 4 classes, which gener-
ate the highest profit, the differences are significant. For farmers with a higher
or high qualification, production per hectare in the first 4 classes of tobacco is
573
higher by 159.22 kg than average, but it is higher by 333.52 kg than the farmers
with the lowest level of education or with completed elementary school. This
ratio is significant when compared with farmers who have qualification “skilled
worker” and is higher by 190.17 kg per hectare, and compared to farmers with
high school, the production of the first four classes is higher by 173.49 kg per
hectare.
The number of farmers with a qualification at primary or lower level is ex-
Damir Ribić Nikolina Pleša Puljić: EDUCATION AS A FACTOR OF SUCCESS IN AGRICULTURAL PRODUCTION OF TOBACCO
tremely significant, and such farmers are also processing large areas. By raising
the level of education for only one level, i.e. to the level of high school, with
the average realized price of tobacco in 2017, we reach the amount of HRK
1.264.108 per annum of lost profits on only a small part of agricultural produc-
tion in the Republic of Croatia.
Table no. 2: Average amount of tobacco produced per hectare and class in 2017
average quantity per average percentage
average quantity per hectare
EDUCATION hectare in the classes 5-6 of out-class per
in the classes 1-4 /in kg
/in kg manufacturer
Unskilled worker 2.036,22 49,13 3,88%
Skilled worker 2.226,39 50,23 3,87%
High school 2.209,71 58,63 3,87%
University 2.369,74 53,02 3,85%
AVERAGE 2.210,51 52,75 3,87%
Source: authors
The average percentage of rejected tobacco was 3.87%, which is not insig-
nificant. If we look at the absolute figures, a total of 260,543 kilograms of to-
bacco has been rejected, which is rejected to the producers and is not paid for,
because of the high level of impurities, fragmentation, quality and the like. If
this amount is multiplied by the average price realized, we reach the amount of
HRK 3.3 million of lost profit by agricultural producers in just one year. Ac-
cording to this indicator, unskilled farmers deviate 0.01% of the average, and
0.03% of farmers with a higher or high education level or, in absolute terms, a
lost profit of HRK 100,360 per year. This is a production segment that all pro-
ducers should do regardless of the degree of education, as significant savings can
be made, and reducing one-off deductions in each of them can make a difference
between profitable and unprofitable production.
If we look at the data on the realized average price per kilogram of tobacco,
this data shows something better for unskilled agricultural producers. The av-
574
erage price achieved among the farmers with the lowest level of education was
the highest and amounted to HRK 13.10 per kilogram of submitted tobacco,
while for the highest educated farmers amounted to HRK 12.45, which makes
a difference of only HRK 0.65 per kilogram in favor of the unskilled agricul-
tural producers. However, when these prices are in relation to the total amount
of tobacco produced in 2017, the quality of tobacco delivered and the differ-
ence in the quantity per hectare, the differences are more than obvious. Namely,
per hectare of tobacco production, the average farmer with the lowest level of
education earns revenue of HRK 27,321.40 while the farmer with the highest
level of education achieves significantly higher HRK 30,156.16 per hectare of
tobacco. This is the difference of HRK 2,834.76 per hectare of planted area,
which is very much and makes the difference between profitable production and
production that is by no means profitable. When the data is shown graphically,
the difference becomes even more pronounced.
Table no. 3: Total revenue and average revenue per hectare in 2017
Average
realized
Total number Average
price for total Total produced Total revenue
EDUCATION of hectares revenue per
delivered quantity (kg) / in kn
(ha) hectare / in kn
quantity /
in kn
575
Figure br. 3: Average income per hectare of tobacco production in 2017
30.500,00
30.000,00
29.500,00
29.000,00
28.500,00
Damir Ribić Nikolina Pleša Puljić: EDUCATION AS A FACTOR OF SUCCESS IN AGRICULTURAL PRODUCTION OF TOBACCO
28.000,00
27.500,00
27.000,00
26.500,00
26.000,00
25.500,00
Unskilled worker Skilled worker High school University
Source: authors
From all the above, it is very easy to conclude to what extent the impact of
level of education has on the producers of tobacco in the Republic of Croa-
tia, and especially in the part of Podravina and Slavonia. It is well known that
generations of families built up economies and maintained families of farm-
ers in prosperity, which meant good and pleasant life on earth and from the
land. Modern technology, the pressures of the global economy, cheaper overseas
transport costs have led to competition being global, and survival means steady
investment in education, application of new knowledge and maximum savings
in all business segments. The agricultural producer as one of the key factors in
the economic progress of the country can no longer be uneducated and with-
out knowing the most modern methods of soil cultivation, monitoring trends
in mechanization, irrigation and plant protection. A modern farmer must be a
highly trained expert who follows technology, is familiar with all current trends
in the development of agricultural production, and is ready for lifelong learn-
ing and the changes that are brought to it by the challenges of globalization.
Croatian tobacco company, if it wants to maintain the level of raw material pro-
duction, or to increase it, must select the base of the producers, and to invest in
their education, exchange of knowledge and experience on a global scale, which
through linking with the BAT that took place in 2015, surely can.
576
5. CONCLUSION
By researching and analyzing the data obtained, it is quite clear that the de-
gree of education of the agricultural producer is directly correlated to its success
and the added value it generates. The conducted research has clearly shown the
direction of Croatian tobacco’s efforts in the selection of producers, but also in
their orientation and strategic efforts to achieve as efficiently as possible, higher
yields, better quality and to maintain competitiveness in an increasingly de-
manding world market.
This is the first research of this kind carried out in company Croatian to-
bacco Inc. and during the collaboration with the company it was concluded that
after this research the management recognized this as an important fact and
that it shall continue to be relevant and significant and shall be considered in
further strategic considerations in the business segment with producers. This is
the way to prompt the state institutions, particularly Ministry of Agriculture, to
further develop policies that shall contribute to the development of agriculture,
and thus the development of the entire economy of the Republic of Croatia.
The analyzed data considered the total number of tobacco producers of Cro-
atian tobacco Inc. in 2017, so the data obtained is relevant, and leaves no room
for statistical errors. Research of one segment of agricultural production can be
significantly mapped to other segments of agricultural producers. Given that
only 0.22% of the total agricultural area in the Republic of Croatia is concerned,
and the differences in revenues and lost profits are huge, we can only speculate
how the agricultural production in the Republic of Croatia would look like if
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
the education level of all agricultural producers processing 1,3 million hectares
of agricultural land would be raised only by one level. GDP growth rates would
surely be more numerous, and emigration would not be the main topic of daily
political debate.
Education has no alternative, and only education is a way to lead to eco-
nomic growth and prosperity of the entire territory of the Republic of Croatia.
LITERATURE:
Delors, J. (1996). Learning: The treasure within. Paris: UNESCO. Croatian translation: De-
lors, J. (1998). Learning: Treasure in us. Zagreb: Educa
National program for agriculture and rural areas, Zagreb, 2003., Available on: www.mps.hr
Access: (11/2/2018)
577
National Competitiveness Council (2004): 55 Recommendations for increasing Croa-
tia’s competitiveness, editors Mira Lenardić et al., Zagreb Available on: http://
konkurentnost.hr/wp-content/uploads/2018/01/NVK-55-Preporuka.pdf Access:
(13/2/2018)
Pastuović, N. (1999). Educology, Zagreb: Znamen, ISBN 953-6008-04-1, Zagreb
Population, Household and Housing Census 2011. Population by educational characteris-
tics Available on: https://www.dzs.hr/Hrv_Eng/publication/2016/SI-1582.pdf Ac-
cess: (10/2/2018)
Svržnjak, K. (2006): Informal education of beekeepers. Croatian bee, year 124, no.1
Damir Ribić Nikolina Pleša Puljić: EDUCATION AS A FACTOR OF SUCCESS IN AGRICULTURAL PRODUCTION OF TOBACCO
Svržnjak, K., Kamenjak, D., Kantar, S. (2006): Education of farmers through specialist sem-
inars. Agriculture, Vol.12, No.2 December Available on: https://hrcak.srce.hr/index.
php?id_clanak=7701&show=clanak Access: (12/2/2018)
Škrtić, M., Mikić, M. (2011): Entrepreneurship, Zagreb: Sinergy, ISBN 978-953-6895-43-
4, Zagreb
Štambuk, M. (1977): Attitudes about the need for professional education of farmers. So-
ciology and space, Sociology of the village Available on: https://scholar.google.hr/
scholar?hl=en&as_sdt=0%2C5&q=6.%09%C5%A0tambuk%2C+M.+%281977%
29%3A+Stavovi+o+potrebi+stru%C4%8Dnog+obrazovanja+poljoprivrednika&bt
nG Access: (12/2/2018)
Vajić, I. (1994): Management and entrepreneurship, 1000 investment programs for small
and medium-sized enterprises, Zagreb: Mladost, ISBN 953-96161-0-7, Zagreb
INTERNET SOURCES
http://www.monitor.hr/clanci/agropedija-wikipedija-hrvatske-poljoprivrede/162722/
(6-2-2018.)
http://www.vpz.hr/2017/11/05/zlatko-plesa-direktor-hrvatskih-duhana-d-d-virovitica-
duhan-ove-godine-losije-kvalitete-zbog-nepovoljnih-vremenskih-prilika/ (6-2-2018)
578
GOVERNMENT SPENDING
BEHAVIOUR: HOW BIG PUBLIC
SECTOR DO WE REALLY NEED?
Abstract
The size of the “state” or the public sector is discussed among theoretical econo-
mists, practical economic politicians, lawyers, philosophers and other profes-
sions, but also among common people. Some advocate for the minimum role of
the state, while others support a greater role of the state in social and economic
development. Between these two extremes, there are many other, different,
opinions, theories, models and ideologies.
The size of public spending, the state budget deficit, the size of the public debt,
579
The efficiency of the public sector and public enterprises is not measured by the
size of their profits, but by the growth rate of the economy, full employment,
real income growth and its even distribution among the citizens, low inflation,
budgetary equilibrium in the long-run, export and import balance and negli-
gible external debt. The state is efficient, as far as it can efficiently organize the
public sector in accordance with social goals.
Key words: public sector, structure of government expenditure, Croatia, EU
JEL Classification: E60, H00
Ljubo Jurčić Anita Čeh Časni: GOVERNMENT SPENDING BEHAVIOUR: HOW BIG PUBLIC SECTOR DO WE REALLY NEED?
1. INTRODUCTION
The modern state cannot be successfully developed without an efficient and
successful public sector, or, in other words, a successful state. Within the public
sector, financial and non-financial public companies that meet the public needs,
whether for public goods, building a physical or institutional infrastructure,
market regulation and its deficiencies, nature protection, or otherwise creating
conditions for a safe life of its citizens, are known as stable and developed econ-
omies. The efficiency of the public sector and public enterprises is not measured
by the magnitude of their profits, but by the growth rate of the economy, full
employment, real income growth and its equal distribution among the citizens,
low inflation, budgetary equilibrium, export and import balance and negligible
external debt. The state is efficient, as far as it can efficiently organize the public
sector in accordance with the social goals, and within that, the public compa-
nies. The inevitable condition for achieving the efficiency of public companies is
the automatic, invisible, day-to-day control of their business.
The role of the state in history has spread and increased. Measured by its
catching up in GDP growth rate, its size has risen from about 12% at the begin-
ning of the last century to an average of 45% today, in most developed European
countries. Its role has expanded from the classic functions such as administra-
tion, external and internal security, and economic and social development. The
welfare state, which began to emerge in the early sixties of the last century, be-
came more involved in health and social protection, education, protection of
labour rights and the building of physical and institutional infrastructure. For
(sustainable) development in the long- run, its functions extend to nature pro-
tection, climate change, demographic development, new technology develop-
580
ment and new manufacturing sectors. Considering all this, the state remains,
even in this 21st century, the most dominant political institution.
581
The quality of life of millions of people in modern states depends on knowl-
edge, skills, efficiency, loyalty and moral, based on which the public administra-
tion carries out its duties and achieves the goals entrusted to it with the pursuit
of public interests and the promotion of the common good. Over the last half
century, the role of public administration has been increasingly reaffirmed as
the driving force behind various policies that address specific social problems.
Public administration is defined as the body that has received political author-
ity and resources needed to meet general interests and whose ultimate purpose
Ljubo Jurčić Anita Čeh Časni: GOVERNMENT SPENDING BEHAVIOUR: HOW BIG PUBLIC SECTOR DO WE REALLY NEED?
is the general interest or, rather, the promotion of the common good. Thus, the
notion of public administration is not limited to state administration, which is
a very powerful part of it but also applies to regional and local self-government,
state-owned companies and so on.
Modern societies and states are developing, inter alia, based on the indus-
trial and technological revolution. The structure of society, the structure of the
economy and the structure of the state are interrelated and dependent. Devel-
opment of one structure encourages the development of others. Their relation-
ship and development are co-dependent. Stopping development in any of these
structures limits the progress of other structures, and hence the development of
the whole society or the state.
By observing the development of society in general, economically speaking,
it is dependent on the complexity of the product. Greater complexity means
higher added value in production and higher gross domestic product of the
country. The greater complexity of products allows for innovations and newer
technologies and, of course, the education that is a precondition for them. If we
observe this process through a physical product, this complexity increased in
the visible area and was dominant since the beginning of the industrial revolu-
tion in the eighteenth century until the mid-sixties of the last century. Com-
plexity continued to develop even after this period, but dominance overcome
complexity in the intangible area (digital, semiconductor, nano and software
technology) and today that gives the largest contribution to the newly created
value. This is the result of education and technological development.
Increasing the complexity of a product changes the product structure, but
not only its structure but also the structure of the overall economy. These
changes must also be accompanied by changes in the social and state structure.
Sometimes, it is necessary to make changes in state and social structure to align
582
with technological progress and create space and other conditions for changes
in the economic structure. At times, it is necessary to make changes in the state
structure in order to generate the conditions for creating and producing more
complex and “more technological” products thus boosting the progress of the
economy and the development of the society.
The task of the public administration, the public sector or the state, is to cre-
ate the conditions for the quality of life of people, or of society as a whole, but
also to constantly increase that quality. The emphasis is on the quality of life
for all people, not just some of them. Some individuals, some families or busi-
nesses, can increase their wealth and offer the high quality of their lives even in
a deprived society. The task of the private sector is not to ensure a better quality
of life for everyone. It is not even the goal of their activities. Creating a better
life for all people in society is the goal and task of the public administration, or,
more generally speaking, the public sector that the state organizes.
The market mechanism does not allow for the creation of all the necessary
goods. The goal of the private sector is not in producing everything that society
needs. The private sector is led by its own interests, as Smith described it. The
market mechanism does not always give optimal economic and social results.
The market mechanism by automatism does not prevent or regulate negative
market extensions. Market inefficiency requires government intervention with
the goal of achieving potentially feasible, maximum income, and its constant
increase.
The efficiency of the overall economic activity depends on the efficiency of
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
allocation of both private and public goods. The private sector is more efficient
in allocating private, and public sector in allocating public goods. Tax policy
is a mechanism for collecting revenues for financing public goods. Taxes are
a linkage between the state and public goods. Taxes and public goods are the
purposes of the public sector.
Pressures for the “minimal” role of the state to reduce public spending and
taxes, uttering that taxes and public spending hinder the economic and social
development of the country, and public spending and public debt as a source of
financial, economic and political crises, come from the social group of the capi-
tal owners. Namely, dividends, interest, salaries, taxes, subsidies and such are
paid out of the “gross value added”, which is to a large extent the gross domestic
product. Thus, it is about the distribution of the gross domestic product (GDP)
583
between labour, capital, and state (public interest). In the struggle for the larg-
est share of GDP, capitalists are organized into (business) associations and give
support to “theoreticians-scientists”, lobbyists, journalists and other people with
the potential of public appearance and influence on “general opinion”. Those
should promote the idea of “minimal state” as a magical solution to economic,
social, and all-inclusive social progress, in the interests of all members of society.
The minimum state, according to their ideology, means that the state must
withdraw from health, education, social activities, and infrastructure. The result
Ljubo Jurčić Anita Čeh Časni: GOVERNMENT SPENDING BEHAVIOUR: HOW BIG PUBLIC SECTOR DO WE REALLY NEED?
of such withdrawal of the state from these activities would be lower taxes and
contributions, which are paid from the gross value added. Reducing taxes and
contributions leaves a bigger part of the gross value added for capital. The final
goal is to create opportunities for higher profits, dividends and other capital
gains. The second direction of capitalist activity, in promoting the policy of de-
velopment and realization of national interests, is the reduction of wages and
salaries. Every worker should deal with the costs of healthcare, education, pen-
sion investments, etc. Such a policy, a policy of complete privatization, which
often has no economic justification, fits in with the narrow interest, the acquisi-
tion of a monopoly or renting position, or an additional profit without a great
deal of work or development. The same policy of privatization, in their politics,
has been transformed into orthodox ideology, practically the religion, where its
invincible and undisputable positive effects cannot be questioned.
A minimum state policy would, in the medium term, lead to the collapse of
the economy and the repression of society, with unforeseeable consequences.
In the chaos that would arise, ultimately, capitalists would not earn, but would
completely disappear. The development of the modern state cannot be based on
the principles of “minimal state”. The modern state can only develop as a state
of well-being, which ensures and improves the conditions for the functioning
of a fair market economy, producing public goods without which the economy
and society cannot function or develop. Technological progress, climate change,
social structure changes, and the change of geopolitical relations are the roles
and functions of the state, but they do not minimize it.
The state is not only efficient in performing its service. Its efficiency depends
on the knowledge and abilities of people who are organizing and managing it.
As mentioned earlier, there is no standard, or model, which would be equally
effective for all states. The organization and policies of an efficient state are sys-
584
tematized and confirmed by history. The experience of different states in dif-
ferent circumstances, a good knowledge of the specifics of their own society
arising from geography, climate, tradition, religion, culture, customs, economic
and social structure, the levels of economic and social development, the geo-
political environment, the system of international institutions and rules, etc.
With a good knowledge of all aforementioned and other unobserved factors,
with clearly defined long-term and short-term social goals, political leaders can
organize the process of state building and development.
Social needs, economic and demographic structure, determine the size and
structure of public spending. Today, it is far clearer than a few decades ago, that
social and economic functions should be left to the market and to the state.
Again, it is important to realize that this distribution between the market and
the state is not the same for all countries. Science, confirmed by experience, has
many recommendations for this.
So it is not the real question how big the state should be, but what kind of
the state do we actually need?
585
If one begins with the equation of the domestic product:
Y = C + I + G + (E –M),
Where: C denotes personal consumption, I is investment spending, G de-
notes budget spending, E is export and M is imported, and if:
C = α+ β (Y – T),
Where: β is the marginal propensity to consume, T is tax and T = tY, is
Ljubo Jurčić Anita Čeh Časni: GOVERNMENT SPENDING BEHAVIOUR: HOW BIG PUBLIC SECTOR DO WE REALLY NEED?
the limited tax rate, and M = mY, where the m is marginal propensity to im-
port, then the final consumption multiplier or any of its components can be
expressed by:
ΔY/ ΔG=1/(1-β)+βt+m.
Many researches deal with a fiscal multiplier and its value in these analyses
ranges from less than zero to plus four, depending on the assumptions set, the
type of fiscal policy, the economic structure, the country’s expenditure structure,
and the country size. The main challenges in assessing the size of a multiplier
arise from the problem that discretionary fiscal policy is usually used during
the recession with many other instruments, so the impacts of the stimulants are
easily confused with the influence of other factors.
Another challenge is the fact that the fiscal multiplier produces effects over
several quarters. Measuring these dynamic effects is an additional problem. The
fiscal multiplier is most often estimated if the instruments of other policies are
kept constant, which is almost never the case.
In the economic crisis, fiscal policy has a key role in stabilizing demand and
production. The strongest response to the crisis is expected from discretionary
fiscal policy measures in the form of fiscal stimulus, more specifically fiscal aid
to help various parts of the economy and society. In addition, there is another
source of fiscal expansion in the economic crisis, which is the function of an
automatic stabilizer. The automatic stabilizer is usually defined as such an ele-
ment of the fiscal policy that reduces fluctuations in output without govern-
ment discretionary measures. When economic growth is achieved, revenues are
high, and in the period of recession and crisis, they are smaller. The same is true
for imports, which are increasing in times of economic growth, and in periods
of recession, they are decreasing. Such a shift in taxes and imports through the
multiplier slows down the growth of the economy in the wake of the slump but
also slows down the downturn in the recession and crisis.
586
Transfers also have a stabilizing effect. Expenses for unemployment benefits
increase during the recession, which is why there is no reduction in income and
the demand for a proportional reduction in employment. State expenditures,
such as government spending in that section, are automatically increasing in
the recession phase and are automatically diminishing in the economic growth
stage. If income reductions are understood as transitory, and current consump-
tion is based on fixed income, and consumers have the option of borrowing,
their spending will not be reduced. In this case, the influence of the automatic
stabilizer on the current consumption will be zero. The situation is different
if households have limits on borrowing. In this case, current consumption de-
pends on disposable income and the automatic stabilizer begins to play its role.
587
Table 1. Government expenditure in selected OECD countries (% of GDP)
Country 1910 1920 1940 1960 1980 1990 2000 2010 2016
Austria 17,0 14,7 20,6 35,7 48,1 38,6 52,2 53,0 51,0
France 17,0 27,6 29,0 34,6 46,1 49,8 51,6 56,4 56,5
Germany 14,8 25,0 34,1 32,4 47,9 45,1 45,1 47,3 44,3
Italy 17,1 30,1 31,1 30,1 42,1 53,4 46,1 49,9 49,6
Ljubo Jurčić Anita Čeh Časni: GOVERNMENT SPENDING BEHAVIOUR: HOW BIG PUBLIC SECTOR DO WE REALLY NEED?
Japan 8,3 14,7 25,4 17,5 32,0 31,3 39,0 38,0 36,8
Netherlands 9,0 13,5 19,0 33,7 55,8 54,1 44,2 48,1 44,3
Norway 9,3 16,0 11,8 29,9 43,8 54,9 42,3 44,1 50,2
Spain 11,0 8,3 13,2 18,8 32,2 42,0 39,1 45,6 42,7
Sweden 10,4 10,9 16,5 31,0 60,1 59,1 55,1 50,2 49,1
Great Britain 12,7 26,2 30,0 32,2 43,0 39,9 36,6 44,9 39,4
SAD 7,5 12,1 19,7 27,0 31,4 33,3 33,9 40,0 35,2
Average 12,9 18,3 22,4 28,0 43,1 44,7 43,0 47,0 45,4
Source: Tanzi, V., Schuknecht, L., (2000), Public Spending in the 20th Century: A Global
Perspective, OECD Factbooks, IMF Fiscal Monitor (April 2017).
588
This is maintained through the increase in public spending in absolute terms,
but also by an increase in gross domestic product (Figure 2)
The functions of the modern state are perhaps best described by the struc-
ture of public spending. Table 2 shows the structure of public consumption in
OECD countries.
589
Table 2. Structure of government expenditure in OECD countries (% of GDP)
in 2015.
+RXVLQJDQG 5HFUHDWLRQ
*HQHUDOSXEOLF 3XEOLFRUGHU (FRQRPLF (QYLURQPHQWDO 6RFLDO
'HIHQFH FRPPXQLW\ +HDOWK FXOWXUHDQG (GXFDWLRQ
VHUYLFHV DQGVDIHW\ DIIDLUV SURWHFWLRQ SURWHFWLRQ
DPHQLWLHV UHOLJLRQ
$XVWUDOLD
$XVWULD
%HOJLXP
&]HFK5HSXEOLF
'HQPDUN
(VWRQLD
Ljubo Jurčić Anita Čeh Časni: GOVERNMENT SPENDING BEHAVIOUR: HOW BIG PUBLIC SECTOR DO WE REALLY NEED?
)LQODQG
)UDQFH
*HUPDQ\
*UHHFH
+XQJDU\
,FHODQG
,UHODQG
,VUDHO
,WDO\
-DSDQ
.RUHD
/DWYLD
/X[HPERXUJ
1HWKHUODQGV
1RUZD\
3RODQG
3RUWXJDO
6ORYDN5HSXEOLF
6ORYHQLD
6SDLQ
6ZHGHQ
6ZLW]HUODQG
8QLWHG.LQJGRP
8QLWHG6WDWHV
2(&'
Sources: OECD National Accounts Statistics (database); Eurostat Government finance sta-
tistics (database).
According to table 2, in 2015, social protection represented the largest share of govern-
ment expenditure across OECD countries, averaging 32.6%, ranging from 44.9% in Fin-
land to 19.4% in Korea. Health care represented the second highest share reaching 18.7%
of government expenditures on average for the same year, ranging from 24.2% in the United
States to 6.5% in Switzerland. Public services –which include debt servicing– accounted for
13.2% of government expenditure, while education represented 12.6%. In addition, defence,
together with public order and safety, represented an average 9.4% of government expendi-
ture among OECD countries.
5. CONCLUSION
The role of the state in history has spread and increased. Measured by its share in GDP,
its size has grown from about 12% at the beginning of the last century to an average of 45%
today, in most developed European countries. Its role has expanded from the classic func-
tions: administration, external and internal security to economic and social development.
590
For (sustainable) development in the long- run, the roles of the state extended to nature pro-
tection, climate change, demographic development, new technology development and new
manufacturing sectors. Ultimately, the state remains in this 21st century the most dominant
political institution.
Finally, it is no longer the question how big state do we need, despite all the pressures to
minimize its role, but the real question that imposes is what kind of the state do we need?
REFERENCES
Baletić, Z. (2005). Ekonomski liberalizam i ekonomska znanost, Hrvatska akademija
znanosti i umjetnosti.
Baletić, Z. (2009.). Kriza i antikrizna politika, in the book: Kriza i okviri ekonomske poli-
tike, Zbornik radova, Razred za društvene znanosti, Hrvatska akademija znanosti i
umjetnosti Hrvatske i Hrvatski institut za financije i računovodstvo, Zagreb, srpanj
2009.
Barr, N. (2004). Economics of the Welfare State, Fifth ed., Oxford University Press.
Beck, U. (2005), Power in Global Age, Polity Press, Cambridge.
Jurčić, Lj. (2010).Financijska kriza i fiskalna politika. Ekonomski pregled, no. 5-6.
Jurčić, Lj. (2011).Država blagostanja., Made-In, ožujak, 2011.
Jurčić, Lj. & Teodorović, I. (2011). Global Crisis, recovery and the Changing World. Eko-
nomski pregled, no. 5-6.
Jurčić, Lj. & Vojnić, D. (2011).Latentna kriza kapitalizma, Zbornik radova, Ekonomska
politika Hrvatske u 2012. godini, Hrvatsko društvo ekonomista.
Perko-Šeparović, I. (2006). Izazovi javnog menadžmenta - Dileme javne uprave, Gold-
en marketing - tehnička knjiga, Zagreb.
Internet sources:
Eurostat (http://ec.europa.eu/eurostat/data/database)
Eurostat Government finance statistics (database)
IMF (2017), Fiscal Monitor (April 2017), (http://www.imf.org/en/Publications/FM/
Issues/2017/04/06/fiscal-monitor-april-2017)
591
OECD (2017). Government at a glance (https://www.oecd.org/gov/government-at-a-
glance-2017-highlights-en.pdf )
OECD Factbooks (2017) (http://www.oecd.org/daf/ca/corporate-governance-factbook.
htm)
OECD National Accounts Statistics (database)
Ljubo Jurčić Anita Čeh Časni: GOVERNMENT SPENDING BEHAVIOUR: HOW BIG PUBLIC SECTOR DO WE REALLY NEED?
592
Microeconomics,
Macroeconomics
and Monetary
Economics
NEW ECONOMIC POLICY
MACROECONOMIC REFORMS
FOR ACCELERATED ECONOMIC
GROWTH OF BOSNIA AND
HERZEGOVINA
Faruk HADŽIĆ
Independent bloc
E-mail: [email protected]
Dino HADŽIALIĆ
Indirect Taxation Authority of Bosnia and Herzegowina
E-mail: [email protected]
Abstract
Unemployment is one of the main macroeconomic problems in Bosnia and
Herzegovina, whose solving can lead to accelerating economic growth.
The neoclassical economic concept, whose influence is still significant in B&H,
has not delivered expected results in the period since the end of the war (1992-
595
the lowest in Europe, an unattractive real sector burdened with high tax fees,
and low level of investment activity.
Faruk Hadžić Dino Hadžialić: NEW ECONOMIC POLICY – MACROECONOMIC REFORMS FOR ACCELERATED ECONOMIC GROWTH OF BOSNIA...
The situation in B&H has its similarities with the economic situation in the
United States after the coming of the Great Depression in 1929, which was
heavily influenced by classical economic thought at that time, where unemploy-
ment was at a record level for the US, over 25% of the working population.
Through paper, we will focus on the comparison of today situation of B&H
with the situation of the United States in time around and after the Great
Economic crisis, analysing some of the economic indicators, and offering pos-
sible solutions for B&H, which would be similar with solutions that the United
States implemented to stimulate its economic activities.
Key words: Economy of B&H, GDP, Unemployment, Economic Growth,
Macroeconomic Reforms.
JEL Classification: E24, E60
1. INTRODUCTION
Unemployment is one of the major macroeconomic problems in B&H,
whose resolution can lead to accelerated economic growth. The depth of this
problem is so great that according to the latest reports, B&H is among the
countries with the highest rate of the unemployment in the world.
The situation in the labor market is very similar to the situation in the Unit-
ed States during the Great economic crisis (1929) when at the top, the regis-
tered unemployment rate was around 25%.
Through this paper, we will explore the situation in the United States during
the Great economic crisis, show economic indicators, and see what measures
have been done with US economic policy to reduce unemployment and increase
its economic activity.
Although there are a lot of differences between the economies of B&H and
the US and the reasons that lead to such macroeconomic indicators, we have
found similarities in terms of implementation of measures in the domain of
economic policy.
In the second part of the paper, we will investigate how the economy of
B&H currently is functioning, and propose macroeconomic reforms similar to
596
those that have been done by the United States to reduce unemployment and
increase economic activity but respecting the special conditions of the B&H
economy today.
In preparing this paper, we found a significant number of papers and re-
searches, mostly by American and European authors who were researching the
effects of fiscal policy on reducing unemployment.
On the other hand, from domestic authors from the territory of the former
Yugoslavia, very few of them (Stojanov & Drašković, 2010, 248-256), (Hodžić,
2012, 5-19) treated this matter, which is also a limiting factor, if we want to
compare our results, that were colected from secondary data. One of the objec-
tives of this paper is to contribute to our research to areas that have not been
significantly investigated so far.
597
In the absence of official statistics, researchers estimated unemployment
rates in the United States during the 1930s (Margo, 1993, p. 41-59). According
Faruk Hadžić Dino Hadžialić: NEW ECONOMIC POLICY – MACROECONOMIC REFORMS FOR ACCELERATED ECONOMIC GROWTH OF BOSNIA...
Table 2. The unemployment rate during the Great economic crisis in the USA
Year Unemployment rate
1929 3.2%
1930 8.9%
1931 16.3%
1932 24.1%
1933 24.9%
1934 21.7%
1935 20.1%
1936 16.9%
1937 14.3%
1938 19.0%
1939 17.2%
1940 14.0%
Source: https://www.shmoop.com/great-depression/statistics.html
598
3. CAUSES OF THE GREAT DEPRESSION
In 1929, the classical economic theory suggested that situations such as the
Great Depression could not happen - the economy possesses balancing mecha-
nisms that would quickly lead to full employment (Froyen, 1990, p. 51). For
example, a high level of unemployment should lead to pressure on wages, en-
couraging firms to increase their employment. Prior to Great Depression, most
economists urged governments to focus on running a balanced budget. Since
tax revenues have inevitably fallen during the recessions, governments have
often increased tax rates and thus reduced spending. Taking money from the
economy, such policies have accelatered the fall, although the impact is likely to
be small.
As depression went on, many economists advised federal governments to in-
crease their spending and to increase employment. Economists have also sought
theoretical justifications for such policies. One group of them thought that de-
pression was due to overproduction and consumers simply did not want to buy
everything that was produced. Others were again worried about the drop in the
number of investment opportunities. Often, these arguments were expressed in
apocalyptic terms: Great Depression was seen as the ultimate crisis of capital-
ism, a crisis that required significant institutional restructuring. Others pointed
to technology and suggested that Great Depression reflected the entrepreneur’s
failure to create new products. He felt that depression was only temporary and
that recovery would eventually happen (Schumpeter, 1939, p. 355).
John Maynard Keynes in 1936 put forward his theory claiming that the
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
amount that individuals want to save can exceed the amount they would like
to invest (Keynes, 1973, p. 59 - 64). In such a case, they would necessarily con-
sume less than they had produced (since, if we neglect foreign trade, the total
income must be spent or saved, while total production represents the sum of
consumer goods and investment goods). Keynes was skeptical with the power
impact of market-based balancing mechanism (Keynes, 1973, p. 32.), shocking
many economists who believed in the ability of the market system to automati-
cally manage itself. Nevertheless, within ten years, economists have largely ac-
cepted its approach because it has enabled them to analyze the shortage of con-
sumption and demand for investment without directing the crisis of capitalism.
Keynes has even argued that governments could correct the state of insufficient
599
demand by spending more than tax revenue, as part of the revenue was used for
taxes and production, including government services (Keynes, 1933, p. 5).
Faruk Hadžić Dino Hadžialić: NEW ECONOMIC POLICY – MACROECONOMIC REFORMS FOR ACCELERATED ECONOMIC GROWTH OF BOSNIA...
600
4. THE RESULTS OF TAKEN MEASURES DURING
GREAT DEPRESSION
Consumption of the federal government in 1929 amounted to 1.5 percent of
GDP, but 7.5 percent in 1939. Not only has the government taking on new re-
sponsibilities, such as providing public works, but has established mechanisms
of presence in segments such as social security (pensions and unemployment
insurance), social protection, financial regulation and deposit insurance as well
as a number of other areas. Some researchers (Bordo, 1998, p. 155-181) argue
that there are such effects, where state expenditures increased during the crisis,
but they do not return to their original level. The result of this measures based
on Keynes’s thinking that fiscal policy and interventionism stimulate consump-
tion led to the recovery of the US economy, as can be seen in the table below.
Source: https://www.shmoop.com/great-depression/statistics.html
601
5. ECONOMY OF B&H TODAY
In recent years, Bosnia and Herzegovina have encountered a number of eco-
Faruk Hadžić Dino Hadžialić: NEW ECONOMIC POLICY – MACROECONOMIC REFORMS FOR ACCELERATED ECONOMIC GROWTH OF BOSNIA...
nomic problems that can treat macroeconomic stability in the long term. Al-
though economic indicators in recent years show GDP growth of few percents
yearly, as well as a decline in unemployment, on the other hand, indicators such
as the growth of the number of pensioners, annual debt repayments and the
outflow of the population are the tendencies that worry many economists in
B&H (Hadžić, Džafić, Hadžialić, Hodžić, Čavalić).
GDP growth, as an indicator, alone is not enough. Growth rates, related to
the previous accounting periods, from the quantitative aspect, can show a sig-
nificant GDP growth rate with small changes in economic activity if the base
is low.
In addition to the economic indicator of GDP, it is important for each coun-
try to know its potential GDP as well. Under potential GDP, this is the degree
of economic activity, ie GDP, when all available resources such as the labor force
are engaged. This indicator can also show when the economy is “overheated” and
thus signals the economic policy makers to apply the appropriate measures and
policies (Samuelson, 2000, p. 7-12).
For the simplicity of presentation, the following table shows results for Fed-
eration of B&H only, one of the state entities, period 2009-2016.
The Table 4. above shows indicators such as GDP, potential GDP, the differ-
ence (GAP) between potential and real GDP, unemployment, total labor force,
and the percentage of unemployment.
What can be noticed is that the registered unemployment rate, despite the
attempts to show controversial growth, still remains above 45%. If we include
the share of the black market economy, then we would have unemployment of
about 30%, which is still a very high unemployment rate. One of the reasons
that we still have high unemploymet rate is connected with our state monetary
policy. The central bank of B&H, that operates as Currency board, has targeted
long term goal of the low inflation rate, close to zero. We have made from statis-
tical data graph that is shown below.
602
Table 4. Macroeconomic indicators through a period
Unem- Total
Potential GDP GDP GAP Unemployment
Year GDP (KM) ploy- labour
(KM) (KM) rate (%)
ment force
2009 15.277.726.000 26.276.724.218 10.998.998.218 354.577 792.078 40.1
2010 15.712.296.000 27.336.275.125 11.623.979.125 364.929 803.878 42.5
2011 16.401.821.000 28.700.875.780 12.299.054.780 371.090 811.837 43.0
2012 16.554.140.000 29.565.719.931 13.011.579.931 384.852 822.183 44.0
2013 17.012.874.000 30.720.877.981 13.708.003.981 391.942 827.055 46.1
2014 17.374.572.000 31.101.998.520 13.727.426.520 392.265 835.852 44.8
2015 17.813.292.000 31.579.548.156 13.766.256.156 389.856 839.977 43.9
2016 19.537.092.000 33.873.464.663 14.336.372.663 377.854 835.828 43.0
Our contribution consists on the basis of the data of the Agency for Statis-
tics of BiH, on period 2007. – 2017., on a monthly basis. We observed price
changes, i.e. inflation/deflation, compared to the registered unemployment rate.
Tendencies are in line with the Phillips curve (Figure 1.), where you can see a
direct link between registered unemployment versus the price level (Blanchard,
2006, p. 167-172).
What can be noticed is that as a state, we have high registered unemploy-
ment rates, targeting low inflation rates, which in recent years often went into
deflation.
The collected data show that when we had a monthly increase in prices dur-
603
Figure 1. The unemployment rate in B&H through a period
Faruk Hadžić Dino Hadžialić: NEW ECONOMIC POLICY – MACROECONOMIC REFORMS FOR ACCELERATED ECONOMIC GROWTH OF BOSNIA...
Source: https://tradingeconomics.com/bosnia-and-herzegovina/unemployment-rate
604
in 1929. The main reason is that the US economy at that time was on a level of
full employment and close to its limits of production potential, unlike B&H,
which is deep within its borders. The consequence of the economic crisis in
B&H after these years is that, in relation to 2008, indebtedness increased by up
to 10 times, which did not follow economic growth and recovery.
The neoclassical concept of economic activity, which primarily reflected in
privatisation and deregulation, as part of Washington Consensus, did not pro-
vide expected results for the economy of the B&H, in fact, it increased the prob-
lems in the B&H economy (Stojanov, 2010, p. 250).
In order to reduce unemployment, which is the main macroeconomic prob-
lem of B&H, macroeconomic policies need to stimulate market consumption,
which would lead to an increase in aggregate demand through effects of the
multiplier, and again to the growth of production (Gordon, 1993, p. 67-71). In
the US example, stimulating government spending, through fiscal policy mea-
sures, led to an economic recovery. Some authors support this thesis in times
of crisis (Rendahl, 2016, p. 1189-1224). It can be shown schematically in the
following Figure 3.
Given that in B&H entities are active in fiscal policy, except in the area of
collecting indirect taxes and because B&H does not have an active monetary
policy as an instrument of economic policy, the focus should be on the activities
through fiscal policy measures and income policy.
In B&H, the active fiscal policy is led by entities and cantons, and the focus
will be on presenting the situation in the Federation of B&H as one and the
more developed part of B&H. Particularly concerning is the fact that the unem- INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
ployment rate is always more or around 40%, as previously mentioned, and the
government’s current measures did not produce the expected economic results.
Reasons should primarily be sought in the Pension - Disability Insurance
Law and in the Health Insurance Law, where high contribution rates are im-
posed, which significantly burdens the business and economic subjects. The
valid contribution rates in the Federation of B&H amount to 41.5% in wages.
605
Figure 3. A schematic way for economic growth
Faruk Hadžić Dino Hadžialić: NEW ECONOMIC POLICY – MACROECONOMIC REFORMS FOR ACCELERATED ECONOMIC GROWTH OF BOSNIA...
606
market, is a high labor burden (contributions), which greatly jeopardizes the
financial position of the companies, draws resources, and can not, because of
these rates, employ new workers.
If we look at the aspect of the state, due to the high unemployment rate, a
large number of beneficiaries of budget and out of the budget funds, the state
has introduced high labor contributions so that existing employees take a sig-
nificant part of the income to finance various budget expenses. If we take a look
at all the burdens, employers prefer to provide a minimum wage for employees
as well as the maximum non-taxable amount of other incomes to lower its li-
abilities to the state on the one hand but also maintain their business on the
other. Part of the employers also employs workers on the black market and they
give part of the pay for workers in an envelope.
Although many of the entity’s authorities announced that reform of the la-
bor legislation would be part of the Reform Agenda, whereby the contributions
would be reduced, where all the actors would benefit, employers through lower
contributions, workers through an increase in wages and the state through the
introduction of more users in the system. Unfortunately so far there have been
no reforms in this sector.
A measure that was most and often used by entity governments for financ-
ing employments is co-financing for companies to hire workers for a certain
period of time, which in most cases results in employee returning to the bureau
after the expiration of the agreed time. This results in short-term effects raise in
employment, while there are no long-term effects on employment growth due
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
to the structural problems facing employers.
Amendments to the Federation of B&H legal regulations, which would have
to come into force, would reduce the burdens of the contribution to income,
but the tax base will be expanded, by other non-taxed income. Ultimately, this
will cause that workers who have lower income, will pay more to the state in the
name of the contribution, thereby reducing the available income, that will shift
spending from the individual to the state. Most of the minimum incomes (up
to 800.00 KM – 400 EUR), including the non-taxable part, are significantly
involved in total income, and by extending the base with the contributions (even
they will be now 33%) will lead to a higher tax burden than it is currently.
If we want to achieve the goal of accelerated economic growth, it is necessary
to introduce a stimulating contribution rate that would not exceed 25% of the
607
gross wages. In the opinion of many economists, the reduction of contributions
and income tax would have long-term positive effects.
Faruk Hadžić Dino Hadžialić: NEW ECONOMIC POLICY – MACROECONOMIC REFORMS FOR ACCELERATED ECONOMIC GROWTH OF BOSNIA...
608
to an increase in annual consumption of up to 276 million EUR, which would
lead to the additional collected VAT only for Federation of B&H close to 47
million EUR1. Indirect effects will be far greater. Growth in spending of work-
ers, which now have higher disposable income, will also lead to rising demand
in the market itself (Blanchard, 2006, p. 144). Increased demand, with lower
operating costs, will lead to new businesses being opened up, but also recruiting
new workforce in existing companies, but introducing people into the system
currently working black market. Only to this extent, through the growth of con-
sumption, the economy can grow by almost 2% per year.
When it comes to income tax, it is necessary to make a modification of the
existing model of taxation, by specifying a minimum monthly net income of
500 EUR.
Income tax would be taxed monthly at a rate as shown in the following table.
In this case, the personal deduction would be 6.000,00 EUR per year, and all
income above this level should be taxed. Thus a person with an annual income
of 12,000 EUR will pay an income tax of 50,00 EUR per month and a person
1
When a worker with low income gets an increase, in this case 10 EUR, he is forced to spend the
entire additional income because he can not afford to save because of low income and high living
expenses. At the stage, the consumption multiplier is calculated according to the formula 1/1-mpc
(Blanchard, 2006, p. 52), where the mpc means marginal propensity to consume. In our case, we
will consider that “mpc” for additional income is 0.9, and that means that he will spend 9 out of 10
EUR of his increase (90%). When we enter the data in the formula, we get the spending multiplier
in this case 10. This means that 10 EUR that the worker gets extra as increase in wage, and con-
sumes, this amount is multiplied in the market by spending growth 10 times! So we get the amount
of 276 million EUR (10 EUR x 12 months x 230,000 workers x 10 (multiplier)). By taxing this
state get the amount of approximately 47 million EUR of additional VAT collected through this
additional growth of consumption.
609
with a 24,000.00 EUR, income tax of 225,00 EUR per month. In this way,
most of the workers would receive additional disposable income, while a smaller
Faruk Hadžić Dino Hadžialić: NEW ECONOMIC POLICY – MACROECONOMIC REFORMS FOR ACCELERATED ECONOMIC GROWTH OF BOSNIA...
part (citizens with a wage over 1,000.00 EUR pm) would have to pay a higher
income tax. This proposal is also in line with many thinkings that the incomes
should not be taxed to the amount of consumer basket for a four-member fam-
ily, because they include basic living expenses in a month, such as food, clothing,
running cost. Any way of taking money below this amount leads to even more
difficult living of the population. This type of taxation in the short run has a
positive effect on the economy (negative for the budget), but in the long run, it
is also positive for the budget.
It can be concluded that the increase in disposable income, in addition to
the growth of consumption, also leads to the reduction of unemployment, but
also the reduction of the budget deficit, as well as the reduction of total debt,
thus solving fundamental economic problems: unemployment, population de-
parture, and debt reduction.
610
7. REDUCTION AND ELIMINATION OF
PARAFISCAL CHARGES
When we take a look at this segment, the ultimate goal should be to reduce
parafiscal charges and this can be done through:
• Systematization of parafiscal charges
• Introduction of order by topping maximum amounts for certain charges
• The abolition of the federal and cantonal levies, and the introduction of
maximum conversion rates on annual and three-year terms
The exact number of various parafiscal charges has been recently determined
and amounts to over 3,400 in B&H. Unlike other neighboring countries, B&H
has up to 20 times more parafiscal charges than Croatia and 10 times more
than Serbia. The parafiscal charges include various fees and charges that burden
employers. They make up to 5% of the financial allocation of employers from
their business.
Employers are burdened with various parafiscal charges, which burden the
business by transferring funds to the municipal budgets, instead of helping to
improve the company’s business. Knowing that companies in B&iH operate
with many difficulties, abolishing or reducing unnecessary fees, such as fees
for a prominent firm, would contribute to business and improve the business
environment.
One of the measures that would help to improve the business of companies
611
8. DEVELOPMENT OF ENTREPRENEURSHIP
WITH THE IMPROVEMENT OF THE
Faruk Hadžić Dino Hadžialić: NEW ECONOMIC POLICY – MACROECONOMIC REFORMS FOR ACCELERATED ECONOMIC GROWTH OF BOSNIA...
612
tain annual, or monthly sum, as part of its contributions, and they would have
like that social and healt insurance and be part of the legal system.
The aim is to register a larger number of small companies and crafts through
this measure, where older workers with lower vocational education will be em-
ployed. A lot of these workers are working black market and through registra-
tion and a certain annual or monthly sum, more money will be collected in
the budgets, registered unemployment will be reduced, consumption would in-
crease, and this would give the stimulus to the economy. A lot of people can not
register because of strict inspection controls, high legal obligations for paying
contributions and allocating most of the money earned to meet their obligations.
The time for establishment of legal entities should be significantly reduced,
and for this purpose the One Procedure for New Economy should be initiated,
where the official will receive a request for establishment of a legal entity and
through the linked system will complete the complete registration, which in-
cludes obtaining a court order, tax and statistical numbers, and opening a bank
account for several days, as well as obtaining various permits such as a building
permit, whose time for issuing should be significantly reduced up to 30 days.
In this way, in addition to time savings, the time spent visiting the institutions
is also being saved, and facilitating establishing the company, which is very im-
portant for domestic as well as for foreign investors, which significantly avoid
B&H, precisely because of the rigid procedures of establishing companies and a
long period obtaining building permits.
613
even more difficult, because it will need to return 650 milion EUR, with tax
revenue growth being lower than the growth of debts.
Faruk Hadžić Dino Hadžialić: NEW ECONOMIC POLICY – MACROECONOMIC REFORMS FOR ACCELERATED ECONOMIC GROWTH OF BOSNIA...
614
11. CONCLUSION
If we look at economic indicators such as GDP growth, unemployment, ag-
gregate consumption, it can be concluded that B&H is in a similar position
where the US was during the Great Depression of 1929-1933. Of course, the
main reasons that led to the Great Depression are different than the problems
in the B&H economy.
An economic system based on the thoughts and ideas of classical economists
has led the market position not to be able to respond to the effects of the Great
Depression, which economically destroyed the United States, and today similar
neoclassical thoughts are destroying the B&H economy. The emergence of state
interventionism, as a way to stimulate economic activity in an economically de-
stroyed country, mainly by stimulating aggregate consumption and launching
investment, leads to economic recovery.
Looking at the current economic situation in B&H, we can notice a low level
of economic activity, a low base for GDP, a high level of unemployment and lim-
ited economic growth rates that are insufficient for the progress of the economy
in order to convergence with neighbour and EU countries.
Unemployment in B&H should be tackled by fiscal policy measures, as well
as by various procedures for facilitating establishments of business, thus creat-
ing a business environment for simpler and more favorable job creation for both
domestic and foreign investors.
As a country, we should target annual growth of 5-6% which is very achiev-
615
REFERENCES
Abel, A. & Bernake, B. (1998): Macroeconomics. Addison-Wesley Publishing Company, Inc.
Faruk Hadžić Dino Hadžialić: NEW ECONOMIC POLICY – MACROECONOMIC REFORMS FOR ACCELERATED ECONOMIC GROWTH OF BOSNIA...
Barnard, R. (1995): The Great Depression and the Culture of Abundance: Kenneth Fearing, Na-
thanael West, and Mass Culture in the 1930s. New York: Cambridge University Press.
Bernanke, S. (2000): Essays on the Great Depression. Princeton, N.J.: Princeton University
Press.
Bernstein, M. (1987): The Great Depression: Delayed Recovery and Economic Change in Amer-
ica, 1929–1939. New York: Cambridge University Press.
Blanchard, O. (2006): Macroeconomics. Pearson Prentice Hall.
Bordo, M., Claudia G., & Eugene W., (1998): The Defining Moment: The Great Depression
and the American Economy in the Twentieth Century. Chicago: University of Chicago
Press.
Delong, B. J. & Summers, H. L. (2012). Fiscal Policy in a Depressed Economy, Brookings
Papers on Economic Activity: Spring 2012, p. 233-297.
Ekelund, R. & Hebert, R. (1997): Povijest ekonomske teorije i metode. Zagreb: MATE.
Froyen, R. (1990): Macroeconomics, Theories and Policies. New York: Macmillan Publishing
Company.
Friedman, M. & Schwartz A. (1963): A Monetary History of the United States, 1867–1960.
Princeton, N.J.: Princeton University Press.
Gordon, R. (1993): Macroeconomics. New York: HarperCollins College Publisher.
Hall, T. & Ferguson, D. (1998): The Great Depression: An International Disaster of Perverse
Economic Policies. Ann Arbor: University of Michigan Press.
Keynes, J. (1933): An Open Letter to President Roosevelt. Oxford: New Deal Documents.
Keynes, J. (1973): The General Theory Of Employment, Interest, and Money. (Translate by Ivo
Bićanić) Zagreb: Cekade.
Margo, R. (1993):”Employment and Unemployment in the 1930s.” Journal of Economic Per-
spectives 7, no. 2, p. 41–59.
Mankiw, G. (2003): Macroeconomics. New York: Worth Publisher.
Monacelli, T., et al (2010). Unemployment fiscal multipliers, Journal of Monetary Econom-
ics, Volume 57, Issue 5, July 2010, p. 531–553.
Roll, E. (1956): Povijest ekonomske misli. (Translated by Slobodan Štampar), Zagreb: Ogn-
jen Prica.
Rosenbloom, J. & Sundstrom, W. (1999): “The Sources of Regional Variation in the Severity
of the Great Depression: Evidence from U.S. Manufacturing 1919–1937.” Journal of
Economic History 59, p. 714–747.
Rosenof, T. (1997): Economics in the Long Run: New Deal Theorists and Their Legacies, 1933–
1993. Chapel Hill: University of North Carolina Press.
Samuelson, P. A., & Nordhaus, W.D. (2000): Ekonomija. Zagreb: MATE.
Schumpeter, J. (1939): Business Cycles: A Theoretical, Historical, and Statistical Analysis of the
Capitalist Process. New York: McGraw-Hill.
616
Stojanov, D. (2014): Makroekonomske teorije i politike u globalnoj ekonomiji: Dometi i izazovi,
Sarajevo.
Szostak, R. (1995): Technological Innovation and the Great Depression. Boulder, Colo.: West-
view Press.
Rendahl, P. (2016). Fiscal Policy in an Unemployment Crisis, The Review of Economic Studies,
Volume 83, Issue 3, 1 July 2016, p. 1189–1224
Temin, P. (1976): Did Monetary Forces Cause the Great Depression? New York: Norton.
617
CONSUMER ENTNOCENTRISM ON
GLOBAL FOOD MARKET
Ružica LONČARIĆ
University of J. J. Strossmayer in Osijek,
Faculty of Agriculture, Osijek, Croatia
E-mail: [email protected]
Tihana SUDARIĆ
Ružica Lončarić Tihana Sudarić Jadranka Deže: CONSUMER ENTNOCENTRISM ON GLOBAL FOOD MARKET
Jadranka DEŽE
University of J. J. Strossmayer in Osijek,
Faculty of Agriculture, Osijek, Croatia
E-mail: [email protected]
Abstract
The aim of paper is to give review of scientific researches about consumer eth-
nocentrism as highly exploited theme in current situation of globalization and
loss of ethnic identity. Consumer food ethnocentrism is kind of aversion that
consumers feel towards all food products from export. There is strong correla-
tion between economic development and consumer ethnocentrism with con-
sequence of GDP increase, unemployment decrease and balancing of foreign
trade deficit. Several factors have been identified that determine or are closely
related to consumer ethnocentrism and can be divided into four categories:
socio-psychological (cultural openness, patriotism, animosity, dogmatism),
economic (consumers´ income, economy development, price and income elas-
ticity), political (political propaganda, political history etc.) and demographic
(age, gender, education). The research results confirm that the level of consumer
ethnocentrism differs from country to country, but also between country´s re-
gions and that level changes over time, as the factors that determine ethnocen-
618
trism changes. Consumer ethnocentrism can be one of the drivers of agriculture
and food processing industry development in Croatia, but it is not enough,
especially in conditions of low purchasing power and unemployment. In such
circumstances, consumers pay more attention to the price than to the country
of origin. Therefore, the price competitiveness of Croatian food products should
be increased in relation to prices of foreign food products.
Key words: consumer ethnocentrism (CET), food, globalization, Republic of
Croatia, price competitiveness
JEL Classification: F01, L66
1. INTRODUCTION
As a result of the world market globalization, there is a need to preserve
its own economy and the aspiration towards ethnocentrism increases. Con-
sumers with strong ethnocentrism are confident in the rightness and morality
of buying domestic products, but at the same time, they refuse to buy foreign
products because they consider it will harm the national economy and cause
unemployment. Modern market practice goes in favor of the existence of mar-
keting information management on the country of origin. The fact is that large
retail chains in Croatia aspiring to get the most out of it and they have nothing
against the sale of cheap import products and, consequently, we are exposed to
a large number of imported products that are equally competing for the cus-
tomers´ preferences with domestic products. Domestic products, however, are
more represented in domestic trade chains.
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
The aim of paper is to give a review of scientific results about consumer
ethnocentrism concept, measuring of CET, factors that affect CET as well as
Croatian situation in global context of high import and weak economic status,
what certainly affects level of CET in Croatia.
2. LITERATURE REVIEW
.. General concept of ethnocentrism
The term consumer ethnocentrism comes from the terms “ethnic” meaning
group and “centrism” which means directed, focused (Usunier & Lee, 2005).
Consumer ethnocentrism refers to the consumer’s focus on purchasing products
619
from their own group. The main goal of introducing consumer ethnocentrism is
the analysis of emotional reactions in consumers when purchasing products of
foreign origin, especially in countries where economy is underdeveloped.
Ethnocentrism was the primary sociological concept in which Sumner de-
scribed the conflicts of individuals “in the group” and “out of group” (Shimp &
Sharma, 1987). In marketing literature from the seventies of the 20th century,
consumer ethnocentrism is a concept that embraces consumer beliefs about
the superiority of products of domestic origin over products of foreign origin
( Jacoby, 1978). In the early eighties of the 20th century, Crawford & Lamb
(1981) found that buying foreign products can cause high emotional involve-
Ružica Lončarić Tihana Sudarić Jadranka Deže: CONSUMER ENTNOCENTRISM ON GLOBAL FOOD MARKET
620
is a relevant variable that modifies the preference for domestic origin products.
Many times, consumers balance their personal well-being with their sense of in-
group identity, particularly when their preference for domestic products above
foreign ones is expected. His study demonstrates that perceived vulnerability
to a threat such as damaging one’s personal well-being is a relevant factor when
consumers express their preference for domestic products (Figure 1).
Figure 1. Expected links of patriotism and perceived vulnerability with ethno-
centric tendencies
SDWULRWLVP
DEVROXWH
FRPSDUDWLYH
SHUFLHYHG
YXOQHUDELOLW\ &RQVXPHU
(WKQRFHQWULVP
6FRUH
DJH
JHQGHU LQFRPH
HGXFDWLRQ
621
sumers in many smaller countries throughout Europe, and thus important for
marketing managers to understand (Watson & Wright, 2000, p. 1149).
Balabanis & Diamantopoulos (2004, p. 80) used a multidimensional un-
folding approach to examine the preference patterns of U.K. consumers for do-
mestic products and those originating from specific foreign countries for eight
product categories. Results indicate that the observed variability in preferences
is linked to consumer ethnocentrism. However, the latter’s capability in explain-
ing consumer bias in favor of domestic products is dependent both on the spe-
cific country of origin and the particular product category.
As new vistas emerge for furthering international trade in goods and servic-
Ružica Lončarić Tihana Sudarić Jadranka Deže: CONSUMER ENTNOCENTRISM ON GLOBAL FOOD MARKET
622
er ethnocentrism and the attitudes of Czech customers towards foreign beer
brands while paying special attention to whether demographic variables alter
the ethnocentric tendencies of the Czech customers. The results revealed that
the ethnocentric tendency of consumers is negatively correlated with the favor-
able attitudes of customers towards foreign beer brands in Czech Republic and
also that highly ethnocentric customers hold less favorable attitudes towards
foreign brands.
Similarly, Kreckova et al. (2012, p. 271) examine consumer tendencies
within the economic crisis, to examine consumer ethnocentrism (CE) among
CEE consumers and its character and influence on buying domestic and for-
eign products. The analyzed sample consisted of 199 Czech respondents. The
results confirm effect of CE on buying behavior as well as national identity in-
fluence on CE. In the Czech context, CE significantly and positively influenced
domestic purchase behavior. Alternatively, there was only a marginal influence
of CE supported its negative effect on foreign purchase behavior. Cosmopoli-
tanism did not affect CE in the Czech context. Therefore, the research findings
suggest a prevalent influence of CE on buying behavior under conditions of
economic crisis. The paper concentrates on ignored area that was very hard hit
by economic crisis in Central and Eastern Europe. The findings provide useful
information to marketing specialists in designing their marketing strategies for
local “made-in” communication campaigns.
623
Table 1. Standard 17-item CETSCALE version
No Item
1 American people should always buy American-made products instead of imports
2 Only those products that are unavailable in USA should be imported
3 Buy American-made products. Keep American working
4 American products, first, last, and foremost
5 Purchasing foreign-made products is un-American
6 It is not right to purchase foreign products
7 A real American should buy American-made products
8 We should purchase products manufactured in America instead of letting other countries get rich off us
9 It is always best to purchase American products
10 There should be very little trading or purchasing of goods from other countries unless out of necessity.
Ružica Lončarić Tihana Sudarić Jadranka Deže: CONSUMER ENTNOCENTRISM ON GLOBAL FOOD MARKET
Americans should not buy foreign products, because this hurts American business and causes
11
unemployment
12 Curbs should be put on all imports
13 It may cost me in the long-run but I prefer to support American products
14 Foreigners should not be allowed to put their products on our markets
15 Foreign products should be taxed heavily to reduce their entry into the USA
16 We should buy from foreign countries only those products that we cannot obtain within our own country.
American consumers who purchase products made in other countries are responsible for putting their
17
fellow Americans out of work
Souce: Shimp & Sharma (1987)
However, as previous studies over the last 20 years have used adapted ver-
sions of the original CETSCALE, which differ in terms of how many and what
items are included, the results have varied substantially, thereby questioning the
unidimensional of the scale. The CETSCALE is a 17-item scale (Table 1) de-
veloped by Shimp & Sharma in 1987. It was initially designed to represent the
beliefs of American consumers about the appropriateness of purchasing for-
eign products. In Shimp and Sharma’s original work, the CETSCALE explains
consumers’ beliefs, attitudes, purchase intention and consumer choice. Never-
theless, as Shimp & Sharma (1987, p. 281) point out, the scale is “a measure
of ‘tendency’ rather than ‘attitude’, because the latter term suggests more object
specificity than the CETSCALE is intended to capture. ‘Attitude’ is used most
appropriately in reference to the consumer’s feeling towards a specific object”.
Since 1987, the CETSCALE has been used widely by numerous studies
analysing aspects related to the individual’s ethnocentric tendencies in different
countries and for many different product categories ( Jiménez-Guerrero et al.,
2014). In many of the works using CETSCALE (Netemeyer et al., 1991; Good
and Huddleston, 1995; Durvasula et al., 1997; Luque-Martínez et al., 2000;
624
Orth and Firbasova, 2003; Saffu and Walker, 2005; Nadiri and Tümer, 2010),
the CETSCALE exhibits a high degree of reliability.
Socio-psychological factors
Some of the socio-psychological factors are cultural openness that is deter-
mined by the readiness to interact with people from other countries and cul-
tures (Altintaş & Tokol, 2007). Group members who spend several years in
contact with other cultures, according to some studies, show high ethnocentric
or even nationalistic tendencies. This can be explained by the fact that person
who is in contact with other cultures trying to preserve his own identity, em-
phasizing cultural differences.
Patriotism is one of the direct drivers of actual purchase behavior. The con-
cept of patriotism had been demonstrated in political science, literature and in-
ternational business (Rezvani, et.al., 2012). This concept concluded that patrio-
tism is an emotional feeling that people have about their own country, and that
it does not mean that they ignore other countries. Research has shown both a
positive relationship varying from culture to culture (Vassella, et.al., 2010) and
there is a straight relationship with consumer’s insight about purchase intention INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
(Rezvani, et.al., 2012).
Conservative people (conservatism) tend to nurture the tradition and social
institutions that are held through time and accept changes only occasionally.
In its extreme form, conservatism can be manifested through religious intoler-
ance, insistence on strict rules and punishments, and an anti-hedonistic view
of the world. Research finds a positive correlation between conservatism and
consumer ethnocentrism. Che et al. (2015) gave guides to marketers as well
as policy makers on the current state of ethnocentrism and patriotism among
Malaysian consumers. They said that promotional campaign should be empha-
sis to increase ethnocentrism and patriotism among Malaysian as it will effect
consumer buying intention of homemade products and services.
625
Animosity or antipathy associated with previous or current military, politi-
cal or economic events is also one of the socio-psychological factors responsible
for consumer ethnocentrisms affecting consumer behavior on the international
market. Animosity, as opposed to consumer ethnocentrism, does not concern
all foreign countries, but only the individual countries we are feeling repulsive
(Klein & Ettenson (1999), Klein et al. (1987), Ishii (2009). These are often
neighboring countries (for example, Croatia-Slovenia, Croatia-Serbia, etc.).
Dogmatism is defined as a feature of a person by which a person around the
world is watching black and white. Shimp & Sharma (1987) in their research
finds a positive relationship between dogmatism and consumer ethnocentrism.
Ružica Lončarić Tihana Sudarić Jadranka Deže: CONSUMER ENTNOCENTRISM ON GLOBAL FOOD MARKET
Economic factors
Economic factors affect consumer ethnocentrism as well. Different econo-
mies create different consumer preferences for imported products. In transi-
tional countries, western products will be assumed as desirable for quality and
innovation. However, as the country’s economy develops, nationalist motives be-
come more dominant and consumers adopt a form of ethnocentric purchasing.
According to Shoham & Brenčič (2003), more wealthy consumers tend to
be less ethnocentric in their consumption than less wealthy consumers. Several
other studies have reported that consumers with higher levels of income exhibit
significantly fewer ethnocentric tendencies than consumers with lower levels of
income in various countries (Sharma et al. 1994; Keillor et al. 2001).
Political factors
Rosenblatt (1964) posited political propaganda as one of the antecedents
of ethnocentrism. He argued that leaders can increase group ethnocentrism
by raising the bogey of threat by out-groups. To what extent such propaganda
influences CET in a society is an empirical question. It might be fruitful to
look into the moderating role of “political freedom” or “democracy” in the re-
lationship between political propaganda and CET. In other words, the issue
is whether consumers belonging to democratic countries are less likely to be
swayed by political propaganda than those living in authoritarian environments.
Besides government propaganda, political histories of different countries also
determine the level of CET in a society. In line with that, Good & Huddleston
626
(1995) explained higher CET scores in Poland compared to Russia by arguing
that consumers belonging to countries with a long history of oppression (such
as Poland) tend to be more ethnocentric than those belonging to countries that
were conquerors (such as Russia). However, it can be argued that consumers of
conquering nations will tend to view the “in-group” products as more superior
and preferable compared to those of conquered nations that will crave for “out-
group” products. Two other political variables worth exploring empirically are
perceived proximity, size and power of “out-groups” and leader manipulation
(due to Rosenblatt, 1964).
Demographic factors
According to Shimp (1984), consumer demographics determine consumer
ethnocentrism. In this regard, previous studies have investigated the influence
on consumer ethnocentric tendencies of such demographic characteristics as
age, gender, education level, and income (Sharma et al., 1994; Keillor et al.,
2001; Nadiri & Tümer, 2010).
The ethnocentric tendencies of consumers depending of their gender. Fe-
males, in general, according to Han (1988) and Sharma et al. (1994) tend to
be more conservative, more conformist, more patriotic, less individualistic, and
more concerned about preserving social harmony and promoting positive feel-
ings among group members, or domestic products. On this basis, Sharma et al.
(1994) suggested that females would be more likely to exhibit greater ethnocen-
tric tendencies than males. Also, Balabanis et al. (2001) reported that gender
had an effect on ethnocentricity in a Turkish sample of consumers, but not in INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
a Czech sample. As a result of these studies, Bawa (2004) contended that the
dominant view is that females are more consumer ethnocentric than males.
Although the evidence between relationship of age and ethnocentrism is
mixed, there does seem to be more support for the contention that older people
have more ethnocentric tendencies than younger people. That was confirmed
by Sharma (1984), Bawa (2004) and Imbert et al. (2003). At the other hand,
some researches gave us a variable of mixed results. For example, Sharma et
al., 1994. denied positive relations between age and ethnocentric tendencies,
whereas Balabanis et al. (2001) found that age did have an effect in a Turkish
sample of consumers (but not in a Czech sample).
627
When speaking regarding effect of education on level of ethnocentrism, Ray
(1990), stated that people with a higher level of education tend to be less con-
servative. This suggestion confirmed Sharma et al. (1994) as well, who found
that consumers with higher levels of education exhibited significantly fewer
ethnocentric tendencies than consumers with lower levels of education. How-
ever, Keillor et al. (2001) did not find any differences in ethnocentric tendencies
among consumers who had different levels of education. Nevertheless, accord-
ing to Bawa (2004), there is something of a consensus that a higher level of
education is associated with a lower level of consumer ethnocentrism.
At the other hand, Wanninayake & Chovancová (2012, p. 15) revealed that
Ružica Lončarić Tihana Sudarić Jadranka Deže: CONSUMER ENTNOCENTRISM ON GLOBAL FOOD MARKET
there are no significant differences between consumer ethnocentrism and all the
demographic variables of Czech customers.
628
tariff rates. So, the changed terms of trade after Croatian joining EU, expect-
edly changed trade level with CEFTA because Croatia must adopt EU trade
regulation. Croatia faced the worsening sale conditions with CEFTA countries.
Considering Bosnia & Herzegovina and Serbia have signed Stabilization and
Association Agreements with the EU, their agricultural products are more pro-
tected by the EU, including Croatian products as well (Loncaric et al., 2017).
Export to the EU countries rise from 41 to 50% of total food export, while the
export to the CEFTA group decreased from 45 to 39%. Speaking about import,
situation is even more pronounced because import to EU rise from 68% (2011)
to 835 (2015). At the same time import from CEFTA decreased to 7% (2011)
compared to 11% in 2015.
Such exposure to foreign products certainly affects consumers and their feel-
ing about foreign products, especially because Croatia is transitional country at
the bottom of the EU development.
Some Croatian marketing scientists researched impact of country of origin
and consumer ethnocentrism to Croatian food consumers.
Anić (2010) examine the differences in consumers’ attitudes towards domes-
tic and foreign retailers in Croatia. It segments the consumers based on their
attitudes and examines the differences among the attitude segments relative to
their retail patronage behavior, consumer spending and consumer attitudes to-
wards buying Croatian-made products. The results show that consumers per-
ceive domestic retailers as being similar to foreign retailers on three out of four
store attribute factors. Cluster analysis produced three consumer segments: (1)
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
consumers who prefer domestic retailers (28%); (2) consumers who prefer for-
eign retailers (17%); and (3) indifferent consumers (55%). The significant dif-
ferences across segments exist in retail patronage, but not in consumer spend-
ing behavior and the attitudes towards buying Croatian-made products. It may
be concluded that consumers’ attitudes towards domestic and foreign retailers
might predict retail patronage behavior.
Dmitrovic & Vida (2007) wanted to contribute to the existing body of
knowledge on the role of country of origin (COO) information in consump-
tion behavior, the link between perceived saliency of product origin information
and consumer ethnocentrism, the role of product specificity in this relationship.
Analysis of data collected on a sample of adult consumers suggests that saliency
of country-of-origin information is a function of consumer ethnocentrism, and
629
that the strength of this relationship is indeed mediated by a product/service
type. Moreover, age and income were significant discriminators of consumers
characterized by ethnocentric and polycentric purchase orientation. At the
other hand, Kesic et al. (2002) found that there is no relation between gender
or education to the ethnocentricity levels of their urban sample of Croatian
consumers.
Vida et al. (2008) intended to research the effects of ethnic affiliation on eth-
nocentrism and domestic purchase bias, and to test a model of consumer eth-
nocentrism antecedents and outcomes in a multi‐ethnic transitional economy
in the increasingly dynamic ethnic composition of nation states in Europe and
Ružica Lončarić Tihana Sudarić Jadranka Deže: CONSUMER ENTNOCENTRISM ON GLOBAL FOOD MARKET
elsewhere.
Vida et al. (2015, p. 49) investigate consumer ethnocentric tendencies and
brand name familiarity as potential antecedents of actual purchase behav-
ior of domestic vs. foreign goods within product categories recently subjected
to foreign competition. Empirical results confirmed most of the postulated
relationships.
In very comprehensive paper, Renko et al. (2012) examine the effects of
consumer ethnocentrism on purchase intentions towards domestic and foreign
products, and also provides useful information on marketing implications de-
rived from the obtained results. The purpose of this study was to determine the
impact of consumers’ ethnocentric tendencies on purchase intentions towards
domestically produced goods and products from former Yugoslavia and Euro-
pean Union in a developing country such as Croatia. The first part of ques-
tionnaire consisted of Cetscale with a total of 17 statements that will define
the degree or intensity of ethnocentric tendencies of Croatian consumers. In
the second part of the questionnaire, a total of nine statements were used to
determine the purchase intention of Croatian consumers towards domestical-
ly produced goods and products from the countries of former Yugoslavia and
from the European Union. The third part of the questionnaire summarized
basic demographic characteristics, including age, gender, education and house-
hold monthly income that will be presented in the paper as the sample char-
acteristics. The researchers obtained their results on random sample of 1000
Croatian respondents. In general, it can be concluded that Croatian consumers
showed a weak but significant preference towards domestically produced goods,
on the other hand, it was evident that there are moderately strong ethnocentric
630
tendencies towards products from countries of former Yugoslavia and EU. The
study reveals that consumer ethnocentrism generally plays an important role
in determining the purchase intentions of Croatian consumers towards foreign
products. Although consumer ethnocentrism is generally a result in developed
countries, according to survey results of this paper, the presence of that concept
is clearly shown in Croatia. The findings of this research have implications for
marketers who want to preserve domestically produced goods against foreign
competition as well as marketers who want to introduce foreign products into
Croatian market.
Matić et al. (2013) aims to determine the difference in animosity and ethno-
centric tendencies with regard to a particular region, county, and type and size
of settlements in Croatia. Moreover, the objective of the paper was to assess the
direction and size of the impact of consumer animosity towards the countries
of former Yugoslavia on consumer ethnocentric tendencies. The research was
conducted on a sample of 1000 respondent in the Republic of Croatia. Analysis
of variance has showed that there are significant differences in the consumer
animosity and ethnocentric tendencies between counties and different types
of settlements, but not between individual regions. The results also confirmed
the correlation between consumer animosity towards the countries of former
Yugoslavia and consumer ethnocentric tendencies in Croatia. Examining the
influence of consumer animosity on the ethnocentrism tendency there was find
significant connection in positive direction.
Tomić (2016) researched consumer ethnocentrism at the level of specific
631
3. CONCLUSION
Consumer ethnocentrism is highly exploited and current theme in mod-
ern marketing researches as a result of globalization and loss of ethnic identity.
Several factors have been identified that determine level of CET and can be
divided into four categories: socio-psychological, economic, political and demo-
graphic. The research results confirm that the level of consumer ethnocentrism
differs from country to country, but also between country´s regions and that
level changes over time, as the factors that determine ethnocentrism changes.
As a small EU country, Croatia is very exposed to EU and other foreign prod-
ucts and it certainly affects consumer and their feeling about foreign products,
Ružica Lončarić Tihana Sudarić Jadranka Deže: CONSUMER ENTNOCENTRISM ON GLOBAL FOOD MARKET
REFERENCES
Acikdilli, G., Ziemnowicz C. & Bahhouth V. (2017). Consumer Ethnocentrism in Turkey:
Ours are Better than Theirs, Journal of International Consumer Marketing, p. 1-12.
Adorno, T. W., Frenkel-Brunswik, E., Levinson, D. J., & Nevitt Sanford, N. (1969). The
Authoritarian Personality. New York: W. W. Norton & Company.
632
Altintaş M. H. & Tokol T. (2007). Cultural openness and consumer ethnocentrism: an
empirical analysis of Turkish consumers. Marketing Intelligence & Planning, 25(4), p.
308-325.
Balabanis, G. & Diamantopoulos, A. (2004). Domestic country bias, country-of-origin ef-
fects, and consumer ethnocentrism: A multidimensional unfolding approach, Journal
of the Academy of Marketing Science, 32, p. 80.
Balabanis, G., Diamantopoulos, A., Mueller, R. D. & Melewar, T. C. (2001). The impact
of nationalism, patriotism and internationalism on consumer ethnocentric tendencies,
Journal of International Business Studies 32(1), p. 157–175.
Batra, R., Ramaswamy, V., Alden D. L., Steenkamp, J. E. & Ramach, S. (2000). Effect of
brand locan and nonlocal origin on consumer attitudes in developing countries. Jornal
of Consumer Psychology, 9(2), p. 83-95.
Bawa, A. 2004. Consumer Ethnocentrism: CETSCALE validation and measurement of ex-
tent. VIKALPA 29(3), p. 43–57.
Che A., Che W., Syed S. A. & Nor A. O. (2015). The Effect of Ethnocentrism and Pa-
triotism on Consumer Buying Intention. Proceedings of Int’l Conference on Business,
Marketing & Information System Management (BMISM’15), Nov. 25-26, 2015, Paris
(France), p. 1-5.
Chesler, M. & Schmuck, R. (1964). Student reactions to the Cuban missile crisis and
public dissent. Public Opinion Quarterly 28, p. 467-482.
Crawford J. & Lamb C. (1981). Source preferences for imported products. Journal of Pur-
chasing and Materials Management 17, p. 28-33.
Dmitrović, T. & Vida, I. (2007). Saliency of product origin information in consumer choices.
Management, 12(2), p. 1-23
Durvasula, S., Andrews, J.C. & Netemeyer, R.G. (1997). A cross-cultural comparison of
consumer ethnocentrism in the United States and Russia. Journal of International Con-
sumer Marketing, 9, p. 73-79
Good, L.K. & Huddleston, P. (1995). Ethnocentrism of Polish and Russian consumers: are
feelings and intentions related? International Marketing Review, 12 (5), pp. 35-48. INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
FaoStat (2017): http://faostat.fao.org/ (15.3.2018.).
Han, C. M. (1988). The Role of Consumer Patriotism in the Choice Domestic versus For-
eign Products. Journal of Advertising Research, 28, p. 25-32.
Herche J. (1992). A note on the predictive validity of the CETSCALE, Journal of the Acad-
emy of Marketing Science 20 (3), p. 261-264.
Huddleston P., Good L. K. & Stoel L. (2001). Consumer ethnocentrism, product necessity
and Polish consumers’ perceptions of quality, International Journal of Retail & Distribu-
tion Management, 29(5), p. 236-246.
Imbert, G., Jiddou, K., Kumar, S., Murillo, A. & Zhao, P. (2003). Analysis of Russian val-
ues. a directed study at Wayne State Univerity [available at: http://www.gerardimbert.
com/files/mkt7995_research.pdf, access March 13, 2018.
633
Ishii K. (2009). Nationalistic Sentiments of Chinese Consumers: The Effects and Determi-
nants of Animosity and Consumer Ethnocentrism. Journal of International Consumer
Marketing, 21(4), p. 299-308.
Jacoby, J. (1978). Consumer Research: A State of the Art Review, Journal of Marketing 42,
p. 87-96.
Jiménez-Guerrero, J. F., Gázquez-Abad J. C. & Linares-Agüera E. C. (2014). Using standard
CETSCALE and other adapted versions of the scale for measuring consumers’ eth-
nocentric tendencies: An analysis of dimensionality. BRQ Business Research Quaterly,
17(3), p. 174-190.
Jordan, A., (1904). The Bias of Patriotism. International Journal of Ethics, 15, p. 1-27.
Keillor, B D., D’ Amico, M. & Horton, V. (2001). Global consumer tendencies. Psychology
and Marketing 18(1), p. 1–19.
Ružica Lončarić Tihana Sudarić Jadranka Deže: CONSUMER ENTNOCENTRISM ON GLOBAL FOOD MARKET
Kesic, T., Ljubic F., Pavlovic, I. & Markic, B. (2002). Ethnocentric tendencies in purchasing
behavior in the Republic of Croatia and Bosnia and Herzegovina. In Bigne
& Johar (Eds) Proceedings of 2002 Multicultural Marketing Conference. Valencia,
Spain: Academy of Marketing Science.
Klein, J. G. & Ettenson, R., (1999). Consumer Animosity and Consumer Ethnocentrism:
An Analysis of Unique Antecedents. Journal of International Consumer Marketing, 11,
p. 5-24.
Klein, J. G., Ettenson R. & Morris M. D. (1998). The Animosity Model of Foreign Product
Purchase: An Empirical Test in the People’s Republic of China. Journal of Marketing,
62(1), p. 89-100.
Levinson, D. J. (1957). Authoritarian personality and foreign policy. Journal of Conflict Reso-
lution 1, p. 37-47.
Loncaric, R., Jelic, S. & Tolusic, Z. (2017). Joining EU: Reflections on Croatian food foreign
trade relations. European Scientific Journal, May 2017, p. 1-12.
Luque-Martínez, T., Ibáñezz-Zapata, J.A. & del Barrio-García, S. (2000). Consumer etho-
centrism measurement. An assessment of the reliability and validity of the CETSCALE
in Spain. European Journal of Marketing, 34, p. 1353-1373.
Matić, M. (2013). Intenzitet i utjecaj potrošačkog animoziteta i etnocentrizma u Hrvatskoj.
Ekonomski vijesnik, 26(1), p. 39-56.
Murdock, G. P. (1931). Ethnocentrism. Encyclopaedia of the Social Sciences. Macmillan,
New York.
Nadiri, H. & Tümer, M. (2010). Influence of ethnocentrism on consumers’ intention to buy
domestically produced goods: An empirical study in North Cyprus. Journal of Business
Economics and Management, 11(3), p. 444-461.
Netemeyer, R.G., Durvasula, S. & Lichtenstein, D.R. (1991). A cross-national assessment
of the reliability and validity of the CETSCALE. Journal of Marketing Research, 28,
pp. 320-327.
Orth, U. & Firbasova, Z. (2003). The role of consumer ethnocentrism in food product
evaluation. Agribusiness, 19, p. 137-153.
634
Renko, N., Crnjak Karanović, B. & Matić, M. (2012). Influence of Consumer Ethnocentrism
on Purchase Intentions: Case of Croatia. Ekonomska misao i praksa 21(2), p. 529-544.
Rezvani, S., Dehkordi G. J., Rahman M. S., Fouladivanda F., Habibi M. & Eghtebasi S.
(2012). A Conceptual Study on the Country of Origin Effect on Consumer Purchase
Intention. Asian Social Science, 8(12), p. 205-215.
Saffu, K., Walker, J. & Mazurek, M. (2010). The role of consumer ethnocentrism in a buy
national campaign in a transitioning country. International Journal of Emerging Markets,
5, p. 203-226.
Shankarmahesh, M. N. (2006). Consumer ethnocentrism: an integrative review of its ante-
cedents and consequences, International Marketing Review, 23(2), p.146-172.
Sharma, S., Shimp, T. & Shin, J. (1994). Consumer ethnocentrism, a test of antecedents and
moderators. Journal of the Academy of Marketing Science 23(1), p. 26–37.
Shimp, T. A. 1984. Consumer ethnocentrism: the concept and a preliminary empirical test,
in T. C. Kinnear. Advances in Consumer Research, Provo, UT, Association for Con-
sumer Research, 11, p. 285–290
Shimp, T. A. & Sharma S. (1987). Consumer Ethnocentrism: Construction and Validation
of the CETSCALE, Journal of Marketing Research, 24(3), p. 280-289.
Tomic, M. (2016). Application of theory of planned behaviour in ethnocentric buying be-
haviour. Doctoral thesis. University of Zagreb, Faculty of agriculture, Zagreb, pp. 164.
Usunier, J. C. & Lee, J. A. (2005). Marketing across cultures. Prentice Hall.
Vassella, M. C., Fountain P. D. & Fountain U. K. (2010). Consumer Ethnocentrism, Patrio-
tism, Global Openness And Country Of Origin Effect: A Literature Review.” Proceed-
ings of American Society of Business and Behavioral Science (ASBBS), 17 (1), p. 362-363.
Vida, I., Dmitrović, T. & Obadia, C. (2008). The role of ethnic affiliation in consumer eth-
nocentrism. European Journal of Marketing, 42(3/4), p.327-343.
Wanninayake W.M.C.B. & Chovancová M. (2012). Consumer Ethnocentrism and Atti-
tudes Towards Foreign Beer Brands: With Evidence from Zlin Region in the Czech
Republic. Journal of Competitiveness, 4(2), p. 3-19.
Watson J. J. & Wright, K. (2000). Consumer ethnocentrism and attitudes toward domestic INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
and foreign products, European Journal of Marketing, 34(9/10), p.1149-1166.
Wise, J. A. (2017). Perceived Vulnerability in Consumer Ethnocentrism. International Jour-
nal of Business and Social Research, 7(11), p. 21.-30.
635
ARCHITECTURE OF
Zvonimir Savić: ARCHITECTURE OF INSTITUTIONAL FRAMEWORK FOR EU COHESION (REGIONAL) POLICY IMPLEMENTATION IN SLOVENIA, HUNGARY...
INSTITUTIONAL FRAMEWORK
FOR EU COHESION REGIONAL
POLICY IMPLEMENTATION
IN SLOVENIA, HUNGARY AND
SLOVAKIA ROLE MODELS FOR
CROATIA?
Abstract
The purpose of this paper is to observe some examples of the institutional setup
for the EU Cohesion (Regional) Policy that could serve the Croatian govern-
ment as a base for the comparison of institutional frameworks (systems) for the
programming and implementing of EU Cohesion Policy funds. Thus, the insti-
tutional frameworks of countries comparable to Croatia can be used/consulted
in the case of remodelling or adjusting the national institutional framework.
Namely, national systems, which enable a smooth management and an effi-
cient implementation of EU Cohesion Policy funds, are crucial for a successful
use of the EU Cohesion Policy in different countries. However, various institu-
tional frameworks for the EU Cohesion Policy exist in practice. Therefore, the
experiences of countries differ due to a number of factors, such as the intensity
and the type of EU financing, the coherence of priorities for EU financing, the
relative strength of national and regional administrations, national economic
and regional traditions… Due to that, implementation systems can vary sig-
nificantly between countries and the institutional framework existing in one
country does not have to be fully applicable to another country. Thus, the gath-
ering and processing of information related to the national implementation
systems across the EU is troublesome. In order to have a clear overview of the
636
implementation systems in the selected countries, within the scope of this paper
the same approach has been used for each selected country. Namely, the same
elements of the implementation and management systems have been analysed:
the number of programmes and EU funds allocation, the architecture of the
programme, the funds allocated to the operational programmes, the overview of
the operational programmes, management authorities and intermediate bod-
ies. Such a structured approach makes comparison between countries much
more transparent. For the analysis of the institutional frameworks (systems) of
the EU Cohesion Policy implementation, several countries have been chosen:
Slovenia, Slovakia and Hungary, due to their relative similarities with Croa-
tia: size, the level of development, the number of regions, economic strength and
the allocation of EU funds.
Key words: Cohesion policy, institutional setup, institutional system, EU
funds
JEL Classification: F55, F59
1. INTRODUCTION INSTITUTIONS IN
THE EU FUNDS MANAGEMENT AND
IMPLEMENTATION SYSTEM
The purpose of this paper is to look at the various models of the institutional
setup for the Cohesion Policy that could serve the Croatian government as a
base when deciding on which institutional framework could be the role model
regarding the Structural and Cohesion funds management. In the paper, the
examples of the institutional setups of Slovakia, Slovenia and Hungary are pre- INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
637
• Certifying Authority (CA, functions may be carried out by MA) – should
Zvonimir Savić: ARCHITECTURE OF INSTITUTIONAL FRAMEWORK FOR EU COHESION (REGIONAL) POLICY IMPLEMENTATION IN SLOVENIA, HUNGARY...
638
2. INSTITUTIONAL FRAMEWORK FOR THE
IMPLEMENTATION OF OPERATIONAL
PROGRAMMES IN CROATIA
After the accession to the European Union, the following EU Cohesion pol-
icy instruments are available to the Republic of Croatia:
• European Regional Development Fund (ERDF);
• European Social Fund (ESF);
• Cohesion Fund (CF).
For the Cohesion Policy funding to be targeted at priority areas, each mem-
ber state shall have programming documents that identify investment priorities,
i.e. Operational Programmes. In the Republic of Croatia, for the 2014 – 2020
period, two Operational Programmes have been determined:
1. Operational Programme Competitiveness and Cohesion – OP “Com-
petitiveness and Cohesion” (OPCC);
2. Operational Programme Efficient Human Resources – OP “Efficient
Human Resources” (OPEHR).
The European Commission adopted the OPCC on 12 December 2014, un-
der which the Republic of Croatia has at disposal EUR 6.881 billion, of which
EUR 4.321 billion from EFRD and EUR 2.559 billion from CF. In addition
to the mandatory co-financing of the Operational Programme implementation
from the state budget of the Republic of Croatia, its total worth rises to EUR
8.095 billion. INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
639
• Intermediate Bodies first level: MEC (Ministry of Entrepreneurship and
Zvonimir Savić: ARCHITECTURE OF INSTITUTIONAL FRAMEWORK FOR EU COHESION (REGIONAL) POLICY IMPLEMENTATION IN SLOVENIA, HUNGARY...
640
Picture 1: Scheme - EU funds management and control system
The national systems that ensure a smooth management and an efficient im-
plementation of the Cohesion Policy funding are crucial for a successful use of
the Cohesion policy in a country. However, there is room for a variety of differ-
ences to exist in the implementation and management of the Cohesion Policy.
National experiences differ due to numerous factors, such as the intensity and
the type of EU funding, the coherence of the areas targeted by EU funding, the
relative strength of the national and regional administration and the national
economy and regional tradition. For the above reasons, implementation systems
may vary significantly between countries.
641
In order to give a comprehensive overview of the implementation systems in
Zvonimir Savić: ARCHITECTURE OF INSTITUTIONAL FRAMEWORK FOR EU COHESION (REGIONAL) POLICY IMPLEMENTATION IN SLOVENIA, HUNGARY...
the selected countries (Slovakia, Slovenia and Hungary), in this paper, an iden-
tical approach is applied for each of these countries to achieve transparency and
facilitate comparison. The same thematic areas are addressed, which, as a rule,
include the introductory information, the number of operational programmes
in the country, the system architecture (i.e. the management system for Cohe-
sion policy funds in the country – managing authorities and intermediate bod-
ies and their functions), the resources allocated to operational programmes, the
main priorities and the status of absorption of EU funding.
Such a structural approach facilitates comparison between the countries and
drawing conclusions.
The overview of the implementation system in this paper covers three coun-
tries, with the following selection criteria (See: Table 1):
• Countries from the latest wave of EU enlargement;
• Countries of the size comparable to Croatia (surface and population);
• Countries with the number of NUTS 2 regions comparable to Croatia;
• Countries of Cohesion Policy funding allocation comparable to Croatia
(2014 – 2020, in total amount);
• Countries of Cohesion Policy funding allocation comparable to Croatia
(2014 – 2020, per capita – PC);
• Countries beneficiaries of the Cohesion Fund;
• Countries of the development level comparable to Croatia (in pre-crisis
2008 and in 2016)
642
Table 1: Criteria for country comparison in a view of EU funds implementation
system12
Criteria HR SK SI HU
Countries from the latest wave of EU enlargement (year of enlargement) 2013 2004 2004 2004
Countries of the size comparable to Croatia (000 km2) 57 49 20 93
Countries of the size comparable to Croatia (population in millions, 2015) 4.2 5.5 2.0 9.8
Countries with the number of NUTS 2 regions comparable to Croatia 2 4 2 7
Countries of Cohesion Policy funding allocation comparable to Croatia
8.6 14.0 3.1 21.9
(for 2014 – 2020, billion EUR)
Countries of Cohesion Policy funding allocation comparable to Croatia
2.5 2.8 1.9 2.5
(for 2014 – 2020, per capita, 000 EUR)
Countries beneficiaries of the Cohesion Fund1 DA DA DA DA
Countries of the development level comparable to Croatia (GDP PC,
63 / 59 71 / 77 90 / 83 62 / 67
2008/2016)2
Criteria met/total number of criteria 8/8 8/8 7/8
Source: Eurostat regional yearbook, 2016 edition; Eurostat, European commission; author’s
calculation.
In the table showing the criteria for the selection of countries for the purpose
of comparison of EU funds implementation systems it is important to note
that the countries listed in the table do not differ significantly from Croatia.
This primarily refers to the similar allocation of the Cohesion Policy funds per
capita, the level of development and the similar number of NUTS 2 regions.
This is the basis for assumptions for the preparation and implementation of the
analysis that covers the essential elements of the EU funds management and
implementation system for each country.
Therefore, an analysis was conducted for each country with the aim to ob- INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
tain the following data for the 2014 – 2020 budget period:
• Number of (operational) programmes in each country (national and
regional);
• Cohesion Policy funding available by funds;
• Programme architecture, i.e. titles and thematic areas of the operational
programmes;
1
For the 2014 – 2020 period, the countries beneficiaries of the Cohesion Fund include Bulgaria, Croa-
tia, Cyprus, Czech Republic, Estonia, Greece, Hungary, Latvia, Lithuania, Malta, Poland, Portugal,
Romania, Slovakia and Slovenia. http://ec.europa.eu/regional_policy/en/funding/cohesion-fund/
2
http://ec.europa.eu/eurostat/tgm/table.do?tab=table&init=1&language=en&pcode=tec00114
&plugin=1
643
• Funds allocated to the operational programmes;
Zvonimir Savić: ARCHITECTURE OF INSTITUTIONAL FRAMEWORK FOR EU COHESION (REGIONAL) POLICY IMPLEMENTATION IN SLOVENIA, HUNGARY...
3
The European structural and investment funds are: European regional development fund (ERDF),
European social fund (ESF), Cohesion fund (CF), European agricultural fund for rural develop-
ment (EAFRD), European maritime and fisheries fund (EMFF).
644
4. SLOVAKIA4
For the 2014 – 2020 financing period, the Slovak Republic has at disposal EUR
13.7 billion for the implementation of the EU Cohesion Policy (See: Table 3).
An additional EUR 1.5 billion is allocated for the development of the agri-
cultural sector and rural areas from the European Agricultural Fund for Rural
Development (EAFRD). The allocation for the European Maritime and Fish-
eries Fund (EMFF) amounts to EUR 15.8 million (See: Table 3, Table 4).
The whole territory of Slovakia, except the area of the capital, Bratislava,
belongs to the less developed NUTS 2 regions, i.e. the regions below 75% of the
average development of the EU. Having in mind the significant interregional
differences in the area of Bratislava and its importance in the country (particu-
larly in R&D), Slovakia decided to increase the allocation for Bratislava to EUR
329 million, through the transfer of a maximum of 3% than the less developed
regions.5
With regard to NUTS regions, it is worth noting that the examples of the
division into NUTS 2 regions in the countries of central and eastern Europe
show that their regions with the capital are mostly separated and much more
developed than the other regions in the country. For example, in the Czech Re-
public (standing at 88% of the EU 28 average development according to the
Eurostat data for 2016) the Prague region stands at 182% of the EU 28 average
development and is among the 10 (of the total of 276) most developed NUTS
2 regions in the EU 28. Hungary is at 67%, the region with Budapest (NUTS
2 region of Central Hungary) at 102%, and Budapest itself at 136% of the aver-
age development of the EU 28. Poland is at 68%, the region of Mazowieckie at INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
109%, and Warsaw, which is in that region, at 196%. Romania is at 58%, the
region of Bucuresti-Ilfov at 139%, and the city of Bucharest at 151%. Slovakia
is at 77%, and the Bratislava area (that belongs among the 10 most developed
NUTS 2 regions in the EU 28) is at 184%.
4
“Management System of the European Structural and Investment Funds for the 2014 – 2020 Pro-
gramming Period”, prepared by the Government Office of the Slovak Republic, which carries out
the function of the Central Coordinating Committee. The document was adopted in November
2014.
The central online portal for ESI funds in Slovakia: http://www.partnerskadohoda.gov.sk/
domov/. ITMS2014 website in the Republic of Slovakia: https://www.itms2014.sk/.
5
EUROPEAN COMMISSION, Brussels, 20 June 2014; Summary of the Partnership Agreement
for Slovakia, 2014 – 2020.
645
Table 3: Number of programmes and EU funds allocation
Zvonimir Savić: ARCHITECTURE OF INSTITUTIONAL FRAMEWORK FOR EU COHESION (REGIONAL) POLICY IMPLEMENTATION IN SLOVENIA, HUNGARY...
6
EUROPEAN COMMISSION, Brussels, 20 June 2014; Summary of the Partnership Agreement
for Slovakia, 2014-2020
646
• three national OPs co-funded by the ERDF (OP Research and Innova-
tion, Integrated Regional OP, OP Technical Assistance);
• two national OPs co-funded by the ERDF and CF (OP Integrated Infra-
structure, OP Quality of Environment);
• one national OP co-funded by ESF and ERDF (OP Human Resources);
• one national OP co-funded by the ESF (OP Effective Public
Administration).
In addition, there is a Rural Development Programme (funded by EAFRD) and a Fish-
eries Programme.
647
.. Management system
Zvonimir Savić: ARCHITECTURE OF INSTITUTIONAL FRAMEWORK FOR EU COHESION (REGIONAL) POLICY IMPLEMENTATION IN SLOVENIA, HUNGARY...
Source: http://ec.europa.eu/regional_policy/en/atlas/managing-authorities//?search=1&
keywords=&periodId=3&countryCode=SK&typeId=NAT++
7
Comparative analysis of ESI funds management and implementation systems, Plavi partner, June
2016.
648
It carries out the tasks prescribed by the General EC Regulation, and in
more detail, the national Financial Management System.
A notable difference compared with the ESI funds management and imple-
mentation system set up in Croatia is in the fact that in Slovakia the Intermedi-
ate Body (IB 2) level is not defined, and most of the OPs (five out of seven) do
not have the Intermediate Body first level (IB 1) defined.
5. SLOVENIA
For the 2014 – 2020 budget period, Slovenia has at disposal a total of EUR
3,011,899,768 of the EU Cohesion Policy funding (See: Table 7), of which
EUR 895,370,363 from the Cohesion Fund, EUR 1,390,392,899 from the
European Regional Development Fund and EUR 707,713,434 from the Eu-
ropean Social Fund.8
The above funds are programmed through a single operational programme
“Operational Programme for the Implementation of the EU Cohesion Policy
in the period 2014 – 2020”.
An additional amount of EUR 837.8 million is allocated for the develop-
ment of the agricultural sector and rural areas from the European Agricultural
Fund for Rural Development. The allocation for the European Maritime and
Fisheries Fund amounts to EUR 24.8 million (See: Table 7).
Slovenia is divided into two NUTS 2 regions: the more developed Western
8
http://ec.europa.eu/regional_policy/sl/atlas/programmes/2014-2020/slovenia/2014si16maop001
9
EUROPEAN COMMISSION, Brussels, 30 October 2014, Summary of the Partnership Agree-
ment for Slovenia, 2014-2020
649
Table 7: Number of programmes and EU funds allocation
Zvonimir Savić: ARCHITECTURE OF INSTITUTIONAL FRAMEWORK FOR EU COHESION (REGIONAL) POLICY IMPLEMENTATION IN SLOVENIA, HUNGARY...
10
EUROPEAN COMMISSION, Brussels, 30 October 2014, Summary of the Partnership Agree-
ment for Slovenia, 2014-2020
650
.. Management system
Source: http://www.svrk.gov.si/en/about_the_office/
11
http://www.svrk.gov.si/en/
651
Leadership Organizational units
Zvonimir Savić: ARCHITECTURE OF INSTITUTIONAL FRAMEWORK FOR EU COHESION (REGIONAL) POLICY IMPLEMENTATION IN SLOVENIA, HUNGARY...
In the 2014 – 2020 period, there is only one programme financed from the
resources of several funds for the implementation of the Cohesion Policy in
Slovenia, reflecting on the decision on the appropriate management structure.
The latest adjustment of the management system came into force in mid-2016.
Namely, the Decree on Use of European Cohesion Policy in Slovenia in the 2014
– 2020 programming period for the Investment for Growth and Jobs (Uredba
o porabi sredstev evropske kohezijske politike v Republiki Sloveniji v programskem
obdobju 2014–2020 za cilj naložbe za rast in delovna mesta, 1. sprememba12) came
into force on 21 May 2016 in Slovenia. This document regulates the manage-
ment and control system and the bodies in the system as well as their rights and
obligations in the programming period from 2014 to 2020.
In the case of Slovenia, the institution carrying out the task of the Managing
Authority is the Republic of Slovenia Government Office for Development and
European Cohesion Policy (Služba Vlade RS za razvoj in evropsko kohezijsko
politiko13), headed by the minister.
12
http://www.eu-skladi.si/sl/ekp/zakonodaja
http://www.pisrs.si/Pis.web/pregledPredpisa?id=URED6816
13
http://www.svrk.gov.si/si/ i Operativni program za izvajanje Evropske kohezijske politike v ob-
dobju 2014-2020, Str. 438.
652
The Certifying Authority is the Ministry of Finance, Department for Man-
agement of EU Funds/CA (Ministarstvo za finance, Sektor za upravljanje s sred-
stvi EU/PO14) headed by the head of sector.
The function of the Audit Authority in Slovenia is carried out by the Minis-
try of Finance, Budget Supervision Office (Ministarstvo za finance, Urad RS za
nadzor proračuna (UNP))15, headed by the Director.
The above Decree also defines the Intermediate Bodies, i.e. ministries re-
sponsible for the following areas16:
- labour, family, social affairs and equal opportunities,
- economic development and technology,
- culture,
- public administration,
- justice,
- infrastructure,
- environment and physical planning,
- education, science and sports and
- health care.
The Decree precisely defines the role of intermediate bodies, referring to
Regulation 1303/2013/EU, which essentially defines the core tasks of manag-
ing authorities, and each country, beneficiary of EU funds, can define which of
the tasks it can delegate to intermediate bodies.
6. HUNGARY
In the 2014 – 2020 budget period, Hungary was allocated about EUR 21.9
billion for the Cohesion Policy (ERDF, ESF and CF), which includes EUR
49.8 million for the Youth Employment Initiative and EUR 361.8 million for
territorial cooperation. An additional EUR 3.45 billion from the European Ag-
14
http://www.svrk.gov.si/si/ i Operativni program za izvajanje Evropske kohezijske politike v ob-
dobju 2014-2020, Str. 438.
15
http://www.svrk.gov.si/si/ i Operativni program za izvajanje Evropske kohezijske politike v ob-
dobju 2014-2020, Str. 438.
16
http://www.eu-skladi.si/sl/ekp/zakonodaja
http://www.pisrs.si/Pis.web/pregledPredpisa?id=URED6816
653
ricultural Fund for Rural Development is allocated for the development of the
Zvonimir Savić: ARCHITECTURE OF INSTITUTIONAL FRAMEWORK FOR EU COHESION (REGIONAL) POLICY IMPLEMENTATION IN SLOVENIA, HUNGARY...
agricultural sector and rural areas (See: Table 13). The allocation for the Euro-
pean Maritime and Fisheries Fund amounts to EUR 39 million (See: Table 12).
It is worth mentioning that the whole territory of Hungary, except the region
with the capital, Budapest, belongs to less developed regions.17
* Total amount of EU sources for the programme European territorial cooperation in which
country participates.
Source: Brussels, 14.12.2015 COM(2015) 639 final, COMMUNICATION FROM THE
COMMISSION, Investing in jobs and growth - maximising the contribution of
European Structural and Investment Funds.
17
EUROPEAN COMMISSION, Brussels, 26 August 2014, Summary of the Partnership Agree-
ment for Hungary, 2014-2020
18
EUROPEAN COMMISSION, Brussels, 26 August 2014, Summary of the Partnership Agree-
ment for Hungary, 2014-2020
654
• two national operational programmes co-funded by ERDF and CF (Inte-
grated Transport OP, Environment and Energy Efficiency OP);
• one national OP co-funded by ESF and CF (Public Administration and
Services OP);
• two territorial OPs co-funded by ERDF and ESF: one covering all of
the less developed regions, and the other covering more developed regions of
central Hungary.
In addition, there is a Rural Development Programme (funded by EAFRD)
and a Fisheries Programme (financed from the EMFF).
655
.. Management system
Zvonimir Savić: ARCHITECTURE OF INSTITUTIONAL FRAMEWORK FOR EU COHESION (REGIONAL) POLICY IMPLEMENTATION IN SLOVENIA, HUNGARY...
Source: http://ec.europa.eu/regional_policy/en/atlas/managing-authorities//?search=1&
keywords=&periodId=3&countryCode=HU&typeId=NAT++
19
http://ec.europa.eu/regional_policy/en/atlas/programmes ; http://ec.europa.eu/regional_poli-
cy/en/atlas/managing-authorities//?search=1&keywords=&periodId=3&countryCode=HU&
typeId=NAT++
656
• “Economic Development and Innovation Operational Programme”
The Ministry of Human Resources is the Managing Authority for the
following:
• “Human Resources Development Operational Programme”
The Prime Minister’s Office (PMO) is the Managing Authority for the
following:
• “Public Administration and Civil Service Development OP”.
In the 2014 – 2020 period, the coordination of the use of resources from
the European Structural and Investment Funds is centralised to a large extent.
Five Cohesion Policy programmes are financed from several funds in which the
use of ERDF, CF and ESF is combined. In order to facilitate coordination and
ensure consistency among programmes, in addition to individual programme
monitoring committees, a monitoring committee at the level of the Partnership
Agreement will be set up.
It is worth noting for Hungary that the absorption capacity of the reformed
management system for the 2007 – 2013 period has been considered consider-
ably higher than the system that functioned in the 2004 – 2006 period, and the
transparency of the system has also improved.
Nevertheless, after the change of government in 2010, the centralised struc-
tures were under pressure from sectoral ministries, and the National Devel-
opment Agency (NDA) faced conflicting situations. In addition, the political
importance of development with regard to other economic policies (e.g. tax re-
form, fiscal stabilisation, etc.) weakened gradually. Consequently, the National INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
Development Agency also weakened. The management system did not change
at the time, but subsequently it was decided to carry out the management sys-
tem reform for the 2014 – 2020 budget period, which implied, as follows:
• The National Development Agency was disbanded from 1 January 2014;
• The competences for coordination were incorporated in the Prime Min-
ister’s Office20;
20
Also confirmed in: Hungarian Partnership Agreement for the 2014 – 2020 programme period,
2nd July 2013, Budapest, p. 169.
657
• Managing Authorities were reallocated to relevant sectoral ministries with
Zvonimir Savić: ARCHITECTURE OF INSTITUTIONAL FRAMEWORK FOR EU COHESION (REGIONAL) POLICY IMPLEMENTATION IN SLOVENIA, HUNGARY...
7. CONCLUSION
The examples of the institutional setups of Slovakia, Slovenia and Hungary
could serve the Croatian government as a base when deciding on which institu-
tional framework could be the role model regarding the Structural and Cohe-
sion funds management in the future.
The debate about the basic institutional setup for the Cohesion policy – for
political reasons – tends to be about which ministry should be in charge of co-
ordination, including programming and the elaboration of the legal framework.
This question is indeed unavoidable. However, it is far from being the most
important one.
What counts more is the answer to the following two questions:
• Whether the overall setup of institutions is a rather centralised or a decen-
tralised system (or a mix between the two);
• How the responsibilities between managing authorities (MAs) and inter-
mediate bodies (IBs) are shared.
As regards the first question, looking at the examples of the recently acceded
member states – the basic institutional options are, as follows:
658
• A centralised structure, as practised in the Baltic States, where a single
managing authority is established, with the implementation delegated to
line ministries and their agencies, which has been the case of Slovenia.
• A decentralised structure, where managing authorities are situated in line
ministries, with a relatively weak coordination function – such as the sys-
tems in Bulgaria, or in the Czech Republic.
• A mixed structure, where all or most of the managing authorities are – al-
though separate administrative units – part of one and the same ministry
or agency, such as in the case of Hungary 2007 – 2013.
The first solution definitely fits rather small countries, with relatively small
administrations and could be stressed as the one which could bring most ben-
efits to Croatia as well. Strong coordination system of the European Structural
and Investment Funds, like in Slovakia, also serves as a potential role model.
However, its overall philosophy of a strong coordination function can also be
applicable to larger member states. These are the Hungarian and Polish cases.
The theoretical advantage of a decentralised system could be a strong synergy
between sector policies and the use of EU funds. However, the good coopera-
tion of EU funds management units and sector policy units in line ministries
should not be taken for granted.
REFERENCES
Act on the Establishment of an Institutional Framework for the Implementation of Euro-
659
Development levels of countries (available at: http://ec.europa.eu/eurostat/tgm/table.do?ta
Zvonimir Savić: ARCHITECTURE OF INSTITUTIONAL FRAMEWORK FOR EU COHESION (REGIONAL) POLICY IMPLEMENTATION IN SLOVENIA, HUNGARY...
660
Savić, Z. et al. (2015) “Kohezijska politika Europske unije i Hrvatska 2014. – 2020. – Vodič
kroz strateški okvir i pregled mogućnosti financiranja“, Zagreb, Croatian Chamber of
Economy.
Savić, Z. et al. (2014) “Institutional framework for Cohesion Policy – Options for Montenegro”,
Podgorica, UNDP.
Savić, Z., S. Bukovac and R. Gelo (2013): “Ususret fondovima kohezijske politike u Hrvatskoj
– Kohezijska politika, Strukturni fondovi, Kohezijski fond i primjeri”, second edition, Za-
greb, Croatian Chamber of Economy.
Savić, Z., S. Bukovac and R. Gelo (2013): “Ususret fondovima kohezijske politike u Hrvatskoj –
Kohezijska politika, Strukturni fondovi, Kohezijski fond i primjeri”, first edition, Zagreb,
Croatian Chamber of Economy.
661
UNEMPLOYMENT DYNAMICS:
THE CASE OF THE SEE5
COUNTRIES
Abstract
The countries of the SEE5 or the Western Balkans countries, Bosnia and Her-
zegovina, Albania, Macedonia FYR, Montenegro and Serbia, are less devel-
oped European countries. Per capita GDP of the EU economies is a few times
higher than in the Western Balkans. Furthermore, the most challenging issues
in the SEE5 countries is still high unemployment rate which may be a reflec-
tion of the ongoing transition process. This article investigates the direct effect
of the real GDP, productivity and population growth on unemployment by
using of time series cross-section (TSCS) regressions with 5 countries for the
time period 2000-2016. Feasible generalized least squares (FGLS) and panel-
corrected standard error (PCSE) techniques are used to analyze the panel data
for measuring group effects and time effects while exploring the relationship
between unemployment rates, economic, productivity and population growth.
The regression coefficients demonstrate inverse but the weak impact of GDP,
positively impact of productivity and the negative impact of population growth
on unemployment. Therefore, it could be concluded that current levels of eco-
nomic growth can’t create enough new jobs to support employment and popula-
tion growth.
662
Key words: Unemployment, Okun’s Law, SEE5 Countries, Productivity, Economic
Growth
1. INTRODUCTION
Economic growth and unemployment remain important problems of every
SEE5 country. Labour markets in the SEE5 countries are characterized by high
unemployment rates, which are either reaction to ongoing transition processes,
or reflection of labor market rigidities, or consequence of weak economic growth.
Enduring unemployment and substantial informal sector activities have become
a basic feature of the region’s labor market. The higher levels of unemployment
in the SEE5 countries should result in higher labor supply elasticities and one
would expect an intense growth-employment relationship. However, analyzed
data show no such relation for the SEE5 countries. Although countries direct
their economic policies towards establishing the economic growth and reduced
unemployment, almost the entire region is facing with an aging and shrinking
population due to low birth rates and high emigration. That is, the discouraging
labor market performance and political instability of the region cause low GDP
growth, excessive emigration and threats the economic and political integration
of the region in the EU. Bearing in mind that the transition to modern market
economies is not yet complete in the SEE5 countries, this suggests that these
countries are not yet in a position to create enough number of jobs to decrease
the current level of unemployment. According to WB (2017), the jobs chal-
lenge in the SEE5 countries is also structural, and growth alone will not be INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
sufficient to create the number and types of jobs needed in the labor market.
The overall performance of the economy is closely related to the productivity
growth. The productivity, as the amount of output generated by a unit of labor,
varied across the SEE5 countries. Although the relationship between produc-
tivity and unemployment is complex, economists mostly agree on the long run
positive effects of labor productivity, but the debate on the relationship between
productivity and unemployment in the short run.
The objective of this paper is to provide a new challenging theoretical frame-
work, new empirical results as well as policy implications evidence on the na-
ture of the timescale relationship between GDP, productivity and population
growth in the SEE5 and the unemployment rate during the 2000-2016 period.
663
This paper analyses the specific area of Europe, which despite many positive
developments during the last two decades, may still face an image problem. The
analysis of unemployment trends before and after the financial crisis shows that
the impact of growth on unemployment was low before as well as after the fi-
nancial crisis. The relationship between unemployment and output changes in
the SEE5 countries depends on the growth rate of the economy, as well as on
the achieved degree of functioning of the market economy and labor market.
We find the inverse relationship between labor unemployment and real output
which means that any percentage increase in GDP will be percentage decrease
in unemployment. Furthermore, we find the analyzed time horizon that labor
productivity and population are increasing unemployment.
The paper is structured as follows: literature review in section II, model
Amir Fejzić Jasmina Osmanković: UNEMPLOYMENT DYNAMICS: THE CASE OF THE SEE5 COUNTRIES
2. LITERATURE REVIEW
The thesis that real GDP growth can have the important positive effects on
employment is a well-studied subject in the economics literature. Low level of
unemployment and stable economic growth are main objectives of every econ-
omy. That is, a persistently high unemployment rate decreases the economic
well-being of individuals and the SEE5 countries’ budget. One thing that con-
cerns economists for a reduction in the unemployment rate is how close current
output growth is to an economy’s potential output growth? According to a rule
of thumb known as Okun’s law, the growth rate in real output determines the
speed of improvement in the unemployment rate. That is, if output gap rises 2
percent of potential output, unemployment rises 1 percent. Okun’s law is an im-
portant macroeconomic concept from a theoretical and an empirical viewpoint.
From a theoretical point of view, Okun’s law connects the curve of the aggregate
supply and the Phillips’s curve. Empirically, Okun’s law could be used in predic-
tion and in the formulation of the economic policies. Studies that investigating
Okun’s law could be grouped into two. First group of studies, that recognizes
the importance of economic growth itself as an important determinant of un-
employment, establishes a symmetrical tie between these two variable (Hamada
and Kurosaka, 1984; Sögner and Stiassny (2002) Christopoulos, 2004; Ga-
brisch and Buscher, 2006; Villaverde ve Maza, 2009; Huang and Yeh, 2013;
664
Podgórska and Leśniowska-Gontarz, 2016, among others), generally supports
the inverse relationship between economic growth and unemployment, but
when it comes to the strength of this relationship, the opinions are quite het-
erogeneous. Another group of studies proposes an asymmetrical relationship
between economic growth and unemployment (Harris and Silverstone, 2000;
Vougas, 2003; Cuaresma, 2003, Marinkov and Geldenhuys, 2007; Tang and
Bethencourt, 2017, among others).
However, the estimates of Okun’s coefficient vary substantially across coun-
tries and regions. Following the crises in Turkey, Tiryaki and Özkan (2011)
investigate the asymmetric case for the Okun’s law for Turkey and conclude
that, although there is a strong and quick recovery in economic activity, the same
recovery is not seen in employment and in the reduction of the unemployment
rate. Stadtmann and Ruelke (2009) using yearly data from 1989 to 2007 for G7
countries find a significant negative relationship between the expected change in
the unemployment rate and the expected growth rate of real output. This result
may reflect in that, while empirical evidence in support of the classic linear ver-
sion of Okun’s law is robust, empirical evidence of asymmetries in Okun’s law
over the business cycle is less clear-cut and often involves difficult economet-
ric issues concerning the appropriate specification and testing of an empirical
model (Stadtmann and Ruelke, 2009). Using quarterly data for 16 European
countries from 1984 to 2009, Jardin and Stephan (2011) strongly support that
effect of growth on unemployment is higher when the economy is contracting
than when the economy is expanding. Ibragimov et al. (2013) using quarterly
data and rolling regressions for 2003-2009 in Russia, and for 2003-2011 in
Kazakhstan, find that Okun’s coefficients for these countries at different time INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
periods are statistically indistinguishable. Sadiku et al., (2015) estimate the re-
lationship between economic growth and unemployment rate in FYR of Mace-
donia covering the period 2000-2012 and conclude that the empirical results
from all models do not indicate robust evidence and do not confirm an inverse
linkage between the unemployment rate and economic growth.
In contrast to these results, Moosa (1996) tested Okun’s law for G7 coun-
tries and conclude that the estimated coefficient seems to be the highest for
North America and the lowest for Japan. Malley and Molana (2008) use quar-
terly data for G7 countries between the years of 1960 to 2001 and they find
evidence of Okun’s law across a wide range of countries and time and they also
conclude that relationship between economic growth and unemployment is
665
more significant in the case of Germany. Özel et al. (2013) also agree that job-
less growth implementations are not valid for G7 countries both in economic
expansion and economic crisis period. Kargi (2014) for 34 OECD countries
and for a period of time from 1987 up to 2012 concluded that a long-term
relationship between unemployment and growth exist suggesting the validity
of Okun’s Law. Ball et al. (2017) examine how well Okun’s Law fits with the
short-run unemployment movements in the United States since 1948 and in
20 advanced economies since 1980 and conclude that Okun’s Law has a strong
relationship in most countries. Izyumov and Vahaly (2002) divided 25 of the 27
transition economies members of the European Bank for Reconstruction and
Development (EBRD), into groups of “reform leaders” and “reform laggards” on
the basis of their candidacy status with the European Union (EU). For each
Amir Fejzić Jasmina Osmanković: UNEMPLOYMENT DYNAMICS: THE CASE OF THE SEE5 COUNTRIES
group, they tested the presence of Okun’s Law for an early 1991–94 period and
a later 1995–2000 stage of transition and conclude that Okun’s Law is stronger
in reform leaders than in reform laggards.
These variations of Okun’s coefficient across countries and regions may raise
a question are there common factors that determine the magnitude of Okun’s
coefficients? Okun’s law is more accurately called “Okun’s rule of thumb” due
to the fact that this rule is more an empirical observation than a result derived
from a theory. That is, Okun’s law is approximate because there are common
factors that determine the magnitude of Okun’s coefficients other than unem-
ployment, such as productivity. According to Lee (2000) due to the difference
in the type of unemployment and output growth, the values of coefficient vary
from country to country. Owyang et al. (2013) for the US analyze whether the
size of the coefficient was related to industrial factors, labor market composi-
tion (demographics) and/or state policies, and conclude that Okun’s coefficient
may vary depending on a region’s industrial composition. Savulea (2008) also
pointed out that the Okun’s Law is only valid to a small extent due to the fact
that the growth rate of the GDP only partly explains the evolution of the un-
employment rate. Gabrisch and Buscher (2006) for transition economies sug-
gest that the transition of labor markets can be regarded as completed since
unemployment responds to output changes and not to a changing institutional
environment that destroys jobs in the state sector. Due to the high trend rate of
productivity and a high unemployment intensity of output growth, they con-
clude that labor market rigidities do not play an important role in explaining
high unemployment rates. However, GDP growth is dominated by productiv-
666
ity progress and the employment-relevant component of aggregate demand is
too low to reduce the high level of unemployment substantially (Gabrisch and
Buscher, 2006). Gallegati et al. (2014) decompose the US time series post-war
data in different time scale components and consider co-movements of pro-
ductivity and unemployment over different time horizons and conclude that
productivity creates unemployment in the short and medium terms, but em-
ployment in the long run.
In equation (1) UNEMPLOYMENTit above is unemployment, total (% of INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
total labour force) and Yit is real GDP (annual %). Xit is PRODUCTIVITY
(annual growth of labour productivity per person employed, %) as an output
per employed person growth and lit represents POPULATION as population
growth (annual %). uit represents error and coefficients β0, β1, β2 and β3 refer to
the intercept and to the slope parameters respectively.
667
variable in the model will be traded as a dependent variable together with a
matrix of the control variables. This variable is presented as the log (total la-
bor force, %). The real GDP growth represents annual percentage growth rate
of GDP converted to international dollars using the purchasing power parity
rates. The GDP variable is log (GDP growth annual, %). The labor productivity
variable is log (growth of labor productivity per person employed, %). The total
population is based on the counts of all residents regardless the legal status or
citizenship. The values shown are midyear estimates as the log (annual popula-
tion growth, %).
There is a considerable cross-country variation in data. For instance, un-
employment in SEE5 countries grew by about 294,500 unemployed, from an
estimated 1.2 million in 2000 to 1.5 million in 2010. However, after 2010 up
Amir Fejzić Jasmina Osmanković: UNEMPLOYMENT DYNAMICS: THE CASE OF THE SEE5 COUNTRIES
668
The relationship between economic growth and unemployment dynamics is
among the most challenging issues in the SEE5 countries. The GDP in SEE5
countries between 2000 and 2008 continuously grew from 124 to 190 billion
US$. The international financial crisis in 2008 hit these economies. The GDP of
the SEE5 contracted between 2008 and 2010 by 0.46 percent. The post-reces-
sion period, 2011-2016, was shaped by GDP growth that recovered slowly and
strengthened slightly from 2012 by 1.8 percent on average. As shown in Figure
1, in Albania the GDP started to grow continuously from 17 billion US$ in
2000 to 33 billion US$ in 2016. The maximum GDP growth rate in Albania of
7.94 percentage was in 2001 and the minimum of 1.11 was in 2013. The GDP
of Bosnia and Herzegovina grew from 2000 to 2008 by the average growth rate
of 5.6 percent. The decline of GDP had already started in 2009 with a nega-
tive growth rate of -2.8 in 2009 and -0.9 in 2012. Following a decline in 2009
and 2012, as a consequence of the financial and economic crisis, thereafter GDP
growth started to recover. Serbia recorded a decline of GDP in 2009, 2012 and
2014. The GDP of Montenegro also grew from 2000 to 2008 and declined in
2009 and 2012. The post-recession period in the SEE5 countries was shaped by
GDP growth that recovered slowly and strengthened slightly from 2013.
669
Labor productivity developments varied across the SEE5 countries. The pro-
ductivity in the SEE5 countries between 2000 and 2016 varied across the coun-
tries with the highest average productivity growth rate at 5.4 percent recorded
in Albania over given period of time. A significant increase in labor productiv-
ity after 2012 took place in Bosnia and Herzegovina and after 2013 in Mace-
donia, FYR, though at a lower rate. Serbia’s continuing productivity growth
between 2000 and 2011 was interrupted in 2012. Negative productivity rates
were recorded between 2012 and 2015 with an average rate of -1.63 percent-
age. Productivity growth in Montenegro declined in 2009 and 2012, thereafter
productivity growth started to recover. The driving force of those productivity
trends differs among countries. Labor productivity growth in Albania, Bosnia
and Herzegovina and Serbia has been driven by shrinking employment com-
Amir Fejzić Jasmina Osmanković: UNEMPLOYMENT DYNAMICS: THE CASE OF THE SEE5 COUNTRIES
bined with a higher GDP growth, while in FYR Macedonia and Montenegro it
has been driven by higher GDP than employment growth.
The region of the SEE5 countries is facing either a demographic contraction
or stagnation, driven by high outward migration and declining birth rates. Since
2000, the population of the SEE5 countries has declined by about 857,500
persons, standing at 16.15 million in 2016. The population growth in the SEE5
countries between 2000 and 2016 varied across countries with the highest pop-
ulation growth rate at 0.51 percent recorded in Macedonia, FYR and lowest
population growth rate at -1.18 percent in Bosnia and Herzegovina.
670
tion of what emerges through time or space but the variation of these two di-
mensions simultaneously (Podestà, 2002). However, the use of OLS procedure
and pooled data tend to generate several econometric problems. First, the GDP
growth variable is assumed to be endogenous. Because causality may run in
both directions, from unemployment to growth and vice versa, these regressors
may be correlated with the error term. Second, time-invariant country charac-
teristics (fixed effects), such as geography and demographics, may be correlated
with the explanatory variables. The fixed effects are contained in the error term,
which consists of the unobserved country-specific effects and the observation-
specific errors. Third, because the serial correlation in linear panel-data models
biases the standard errors and causes the less efficient results, it is necessary to
examine the serial correlation in the idiosyncratic error term in a panel-data
model. Fourth, the problem of heteroscedasticity where the variance of the er-
ror term is different across observations, the model uncertainty varies from ob-
servation to observation.
While pooled OLS based methods adequately deal with violations of as-
sumptions of homoscedasticity, non-autocorrelation and cross-sectional in-
dependence, they have two shortcomings (Hoehn at al., 2014). First, pooled
OLS treats the data set as a pure cross-section where each N-T observation is
effectively seen as a separate observation. Second, pooled OLS based estima-
tion critically depends on the assumption of strict exogeneity. The most widely
used models for addressing these shortcomings are random effect(s) model, also
called a variance components model (RE) and a fixed effects model (FE). The
main difference between these two models is their treatment of the unobserved
N-specific effect. Before any econometric estimation technique is applied, we INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
tested whether to use FE or RE. In the panel model data, we found both signifi-
cant fixed and random effects. To decide between fixed or random effects, we
ran a Hausman test where the null hypothesis is that the preferred model is ran-
dom effects vs. the alternative the fixed effects (see Green, 2008). The null hy-
pothesis of the Hausman test is that unique errors (uit) are not correlated with
regressors. We do not reject the null hypothesis (Prob>chi2 =0.3171), and we
may conclude that individual effects (uit) are not correlated with regressors in
the model and thus the random effect model is preferred. The Breusch and Pa-
gan Lagrangian (LM) multiplier test for random effects helps to decide between
a random effects regression and a simple OLS regression. The null hypothesis
in the LM test is that variances across entities are zero. This means, no signifi-
671
cant difference across units (i.e. no panel effect). Here we failed to reject the null
hypothesis (chibar2=334,67 andProb>chibar2 =0.0000) cand concluded that
random effects are appropriate. This is, the evidence of significant differences
across countries, and therefore we can run a random effects regression. Using
the Pesaran CD test, we tested model for cross-sectional contemporaneous cor-
relation. The Pesaran CD test is used to test whether the residuals are correlat-
ed across entities, which can lead to so called contemporaneous correlation. The
null hypothesis is that residuals are not correlated. The Pesaran’s test of cross
sectional independence yield results= 0.243,Pr = 0.8084, which means there
is no cross-sectional dependence. The Wooldridge test in panel-data models
implements a test for serial correlation in the idiosyncratic errors of a linear
panel-data model discussed by Wooldridge (2002). The Wooldridge test for
Amir Fejzić Jasmina Osmanković: UNEMPLOYMENT DYNAMICS: THE CASE OF THE SEE5 COUNTRIES
Table 2. The results of the unit roots or stationarity tests in panel datasets
\ S
ܸ݈ܾܽ݁ܽ݅ݎ ̴݉݁݊ݑ ̴݃݀ ̴ݕݒݐܿ݀ݎ ̴
݄݀ݐ݁ܯ
ݐ݀݁ݐݏݑ݆݀ܣ ܲ݁ݑ݈ܽݒ ݐ ݀݁ݐݏݑ݆݀ܣ ܲ ݁ݑ݈ܽݒ ݐ ݀݁ݐݏݑ݆݀ܣ ܲ ݁ݑ݈ܽݒ ݐ݀݁ݐݏݑ݆݀ܣ ܲ ݁ݑ݈ܽݒ
/HYLQ /HYHO
/LQ
)LUVW
&KX 'LIIHUHQFH
ܹെݐ
ܹെݐ ܲ݁ݑ݈ܽݒ ܹെݐ ܲ ݁ݑ݈ܽݒ ܹെݐ ܲ ݁ݑ݈ܽݒ ܲ ݁ݑ݈ܽݒ
,P െ ܾܽݎ െ ܾܽݎ െ ܾܽݎ െ ܾܽݎ
3HVDUDQ /HYHO
6KLQ
)LUVW
'LIIHUHQFH
݄݅ܿ݁ݏݎ݁ݒ݊ܫ ܲ݁ݑ݈ܽݒ ݄݅ܿ ݁ݏݎ݁ݒ݊ܫ ܲ ݁ݑ݈ܽݒ ݄݅ܿ ݁ݏݎ݁ݒ݊ܫ ܲ ݁ݑ݈ܽݒ ݁ݑ݈ܽݒ ܲ ݄݅ܿ݁ݏݎ݁ݒ݊ܫ
݀݁ݎܽݑݍݏሺͳͲሻ ݀݁ݎܽݑݍݏሺͳͲሻ ݀݁ݎܽݑݍݏሺͳͲሻ ݀݁ݎܽݑݍݏሺͳͲሻ
)LVKHU
/HYHO
W\SH
)LUVW
'LIIHUHQFH
672
The common unit root processes have been carried out using the panel unit
root test of Levin, Lin and Chu’s (2002). Using the Im, Pesaran and Shin’s
(2003) test, the unit root process for each unit (country) has been tested. Dick-
ey-Fuller unit root test method (ADF) performs the test that a variable follows
a unit-root process. The analysis indicates that almost all of the variables are
stationary in levels. However, once differenced, they all became stationary.
The panel cointegration techniques to test the presence of long-run rela-
tionships among integrated variables with both a time-series dimension, T, and
a cross-sectional have received much attention recently. One of the most im-
portant reasons for this attention is the increased power that may be gained
by accounting not only the time-series dimension but also the cross-sectional
dimension (Persyn and Westerlund, 2008, p.232). Westerlund (2007) devel-
oped four new panel cointegration tests with the idea to test the null hypothesis
of no cointegration. That is, to indicate whether the error-correction term in
a conditional panel error-correction model is equal to zero. When testing for
cointegration between the unemployment and individual explanatory variables,
we fail to reject the null hypothesis of no cointegration.
ݐܩǡ ܽܩǡ ݈ܲ݀݁݅ݕܽܲ݀݊ܽݐǣ ݁ݑ݈ܽݒെ ͲǤͷͲͺǡ െͲǤʹʹͶǡ െʹǤͺͲǡ െͲǤͺǢ ݖെ ʹ݁ݑ݈ܽݒǤʹ͵ǡ ʹǤͳǡ ͲǤͲͷǡ
ͳǤʹ͵͵Ǣ െ Ͳ݁ݑ݈ܽݒǤͻͻǡ ͲǤͻͻǡ ͲǤͷʹ͵ǡ ͲǤͺͻͳǡ ݕ݈݁ݒ݅ݐܿ݁ݏ݁ݎሻ
Since all the variables in the models change among countries and periods the
basic question is whether or not the data can be pooled together. Chow test is
used in order to identify whether the coefficients estimated over one group of
the data are equal to the coefficients estimated over another. The null hypothesis
673
To solve possible problems of contemporaneous correlations, heteroscedas-
ticity, and serial correlation, several models have been developed to deal with
these complications. Parks (1967) proposes a feasible generalized least squares
(FGLS) based algorithm developed to account for heteroscedasticity, as well as
for temporal and spatial dependence in the residuals of TSCS models method
that Kmenta (1986) made popular. However, the Parks-Kmenta method could
be inappropriate for use because of at least two reasons. First, this method is
infeasible if the panel’s time dimension, T, is smaller than its cross-sectional
dimension, N, and second, Beck and Katz (1995) show that the FGLS produc-
es coefficient standard errors that are underestimated. They report on Monte
Carlo experiments in which the panel-corrected standard error (PCSE) estima-
tor produces an accurate standard error or little loss in efficiency compared to
Amir Fejzić Jasmina Osmanković: UNEMPLOYMENT DYNAMICS: THE CASE OF THE SEE5 COUNTRIES
the FGLS. On the other hand, Reed and Webb (2010) were able to reproduce
Beck and Katz’s results when they used the same experimental parameters that
Beck and Katz employ and they found that the PCSE estimator fell short of
the claims made by Beck and Katz. According to Reed and Webb (2010), the
PCSE estimator could be less efficient than FGLS.
4. ESTIMATION RESULTS
Tables 3 and 4 show two different regression results, which are carried out
on TSCS data by use of two regression analysis techniques: FGLS and PCSE
regression.
The estimation of the relationship between the unemployment, GDP, pro-
ductivity, and population has been shown in Table 3. The results show that all
the variables have a significant impact on the unemployment for SEE5 coun-
tries. GDP showed the significant negative impact on unemployment. The
inverse relationship between the GDP and the unemployment indicated an
interesting relationship. That is, when the economy grows, employment oppor-
tunities are enhanced and the unemployment rate falls and vice versa. In Table
3, the FGLS and PCSE report negative GDP coefficient -0.0601 and -0.0720
respectively. Considering that both the outcome variable and predictor variables
are log transformed, this means that any percentage increase in GDP, the ex-
pected ratio of the two-geometric means for unemployment will be percentage
increase to the power of regression coefficient. In other words, we expect about
0.12 and 0.14 percentage increase in unemployment when GDP decreases by 2
674
percent respectively. Although the impact is weak, it can be concluded that eco-
nomic growth rate in SEE5 countries influences indirectly the unemployment
rate evolution. First difference regression, as FGLS and PCSE level regression,
reports fast the same negative GDP coefficient -0.063 and -0.0742 respectively.
Izyumov and Vahaly (2002) concluded that countries with inflexible labor mar-
kets and high average unemployment levels the trade-off between unemploy-
ment and output is relatively weak. That is if the labor market is characterized
as rigid, Okun’s ratio is low to moderate and unstable.
The two other variables (labor productivity and population growth) show
the interesting results. Productivity has a complex relationship with unemploy-
ment. Depending on circumstances the productivity can either support the cre-
ation of new jobs or act to reduce the current employment. These changes are
often associated with changes in the market conditions of the modern world
realities. In the medium run, new technology is likely to be labor reducing, and
thus adding to unemployment, in the long run, however, new technology re-
placing labor (process innovation) increase productivity and makes firms and
the economy more competitive and may reduce unemployment (Gallegati et
al., 2014). The parameter estimates of productivity have a positive and signifi-
cant effect on unemployment in the context of SEE5 countries across different
specifications. The coefficient of productivity estimated by FGLS and PCSE
amounts to a value of 0.0665 and 0.0883 respectively. That is, we expect about
0.064 and 0.085 percent increase in unemployment, whereas the productiv-
ity increase by 1 percent. A positive correlation between unemployment and
labor productivity is also found in the study of Gallegati et al. (2015). For the
US post-war data, they concluded that productivity creates unemployment in INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
the short and medium terms, but employment in the long run. Nikulin (2015)
estimated relative wage changes with regard to relative productivity and unem-
ployment changes for Poland and other 5 new EU members: Estonia, Hungary,
Slovak, Czech Republic and Slovenia and concluded that the trajectory of wage,
productivity, and the unemployment rate in new EU member countries is di-
versified. Population growth is significant and has a negative sign. A negative
and statistically significant coefficient estimate -0.236 and -0.262 of the popu-
lation growth in FGLS and PCSE regressions, implies that population-level
decrease of 1 percent causes unemployment growth of 0.22 and 0.25 percentage
respectively. First difference regression, as FGLS and PCSE level regression,
reports also negative population growth coefficient -0.301 and -0.331 respec-
675
tively. Given that SEE5 countries are characterized by the continuous decline of
population, while on the other hand are characterized by rising of unemploy-
ment, it can be concluded that we are dealing with a serious phenomenon to
the labor market. World Bank (2017) for Western Balkan countries concluded
that no significant impact of economic growth on employment growth is cur-
rently observed in the Western Balkans, and the impact of growth on unem-
ployment is small. Therefore, the Western Balkan countries are not yet in a
situation whereby the current levels of economic growth guarantee a return to
job growth; the transition to modern market economies is not yet complete, and
many structural issues remain to be addressed (World Bank, 2017). That is, the
inability of SEE5 countries to create new jobs result in rising unemployment
and shrinking of the population.
Amir Fejzić Jasmina Osmanković: UNEMPLOYMENT DYNAMICS: THE CASE OF THE SEE5 COUNTRIES
Observations 85 85
R-squared 0.903
Standard errors in parentheses; *** p<0.01, ** p<0.05, * p<0.1
676
Table 4. Empirical results of FGLS and PCSE first difference regression
Dependent Variable: First difference of annual unemployed individuals (2000-2016)
(1) (2)
VARIABLES FGLS PCSE
Observations 80 80
R-squared 0.434
Standard errors in parentheses; *** p<0.01, ** p<0.05, * p<0.10
5. CONCLUSION
This paper has provided additional evidence for the explanation of the rela-
tionship between unemployment GDP, labor productivity and population and
their impact on the SEE5 countries labor market. This has been carried out
on the basis of the real panel data set for the period 2000-2016, for 5 observed
677
changes, which will, in turn, promote the urgently needed increase of produc-
tion, productivity, population and employment in the SEE5 countries.
For the SEE5 economies as a whole, this paper finds that there is a statisti-
cally significant connection between GDP growth and unemployment. Long-
term co-integration is valid for the SEE5 countries and variables are long-term
related. Although the impact is weak, the inverse relationship between the GDP
and the unemployment indicated that economic growth rate in SEE5 countries
influences indirectly the unemployment rate evolution. Despite the fact that the
significance of the inverse correlation between real output and unemployment
is widely accepted, there is no consensus on exact intensity rate of this correla-
tion. That is, different countries and country groups have different institutional,
industry, labor, capital structure and policy implemented which consecutively
Amir Fejzić Jasmina Osmanković: UNEMPLOYMENT DYNAMICS: THE CASE OF THE SEE5 COUNTRIES
678
REFERENCES
Green, W. H. (2008). Econometric Analysis, 6th ed., Upper Saddle River, N.J.: Prentice Hall.
Kmenta, J. (1986). Elements of Econometrics, 2nd ed., New York, Macmillan Publishing
Company.
Wooldridge, J.M. (2002). Econometric Analysis of Cross-Section and Panel Data, 2nd ed.,
Cambridge, Massachusetts, London, England, MIT Press.
Ball, L., Leigh, D. and Loungani, P. (2017). Okun’s Law: Fit at 50?, Journal of Money, Credit
and Banking, 49: 1413–1441.
Beck, N. and Katz, J. (1995). What to Do (and Not to Do) with Time-Series-Cross-Section
Data, American Political Science Review 89: 634-47.
Choi, I. (2001). Unit Root Tests for Panel Data, Journal of International Money and Finance
20, 249–272.
Christopoulos, D. (2004). The Relationship between Output and Unemployment: Evidence from
Greek Regions, Review of Economic Design. 83.
Cuaresma, J. C. (2003). Okun’s Law Revisited, Oxford Bulletin of Economics and Statistics,
65: 439-451.
Gabrisch, H. and Buscher, H. (2006). The Relationship between Unemployment and Output in
Post-Communist Countries, Post-Communist Economies 18 (3), 261–276.
Gallegati, M., Gallegati, M. Ramsey, J. B. and Semmler, W. (2015). Productivity and Unem-
ployment: a Scale-by-Scale Panel Data Analysis for the G7 Countries, Studies in Nonlin-
ear Dynamics & Econometrics.
Hadri, K. (2000). Testing for Stationarity in Heterogeneous Panel Data, Econometrics Journal
3, 148–161.
Hamada, K. and Kurosaka, Y. (1984). The Relationship between Production and Unemploy-
ment in Japan: Okun’s Law in Comparative Perspective, European Economic Review 25
(1), 71–94.
Harris, R. and Silverstone, B. (2000). Asymmetric Adjustment of Unemployment and Output
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
in New Zealand: Rediscovering Okun’s Law, Department of Economics Working Paper
Series, Number 2/00, Hamilton, New Zealand: University of Waikato.
Hoehn, B., Schuberth, F. and Steiner, M. (2014). Dealing with Heteroskedasticity, Autocorrela-
tion and Endogeneity in German Audit Fee Panel Data - Comparing Approaches, Social
Science Electronic Publishing, Inc.
Huang, H. and Yeh, C. (2013). Okun’s Law in Panels of Countries and States, Applied Eco-
nomics, Taylor & Francis Journals, vol. 45(2), pages 191-199.
Ibragimov, M., Karimov, J. and Permyakova, E. (2013). Unemployment and Output Dynam-
ics in CIS Countries: Okun’s Law Revisited, EERC, Working Paper Series, No.13/04.
Im, K.S., Pesaran, M.H. and Shin, Y. (2003). Testing for Unit Roots in Heterogeneous Panels,
Journal of Econometrics 115, 53–74.
Izyumov, A. and Vahaly, J. (2002). The Unemployment-Output Tradeoff in Transition Econo-
mies: Does Okun’s Law Apply?, Economics of Planning 35, no. 4(2002): 317-31.
679
Jardin, M. and Stephan, G. (2011). How Okun’s Law is Non-Linear in Europe: A Semipa-
rametric Approach, Working Paper, CREM, Université de Rennes 1, Rennes, France.
Kargi, B. (2014). Okun’s Law and Long-Term Co-Integration Analysis for OECD Countries
(1987-2012), International Research Journal of Finance and Economics, ISSN 1450-
2887, Vol. 119, pp. 77-85.
Lee, J. (2000). The Robustness of Okun’s Law: Evidence from OECD Countries, Journal of
Macroeconomics. 22: 331-356.
Levin, A., Lin, C.F. and Chu, C. (2002). Unit Root Test in Panel Data: Asymptotic and Finite
Sample Properties, Journal of Econometrics 108, 1–25.
Malley, J. and Molana, H. (2008). Output, Unemployment and Okun’s Law: Some Evidence
from the G7, Economics Letters, Volume 101, Issue 2, pp. 113-115.
Marinkov, M. and Geldenhuys, J. (2007). Cyclical Unemployment and Cyclical Output: An
Estimation of Okun’s Coefficient for South Africa, South African Journal of Economics
75 (3), 373–390.
Amir Fejzić Jasmina Osmanković: UNEMPLOYMENT DYNAMICS: THE CASE OF THE SEE5 COUNTRIES
680
Savulea, D. (2008). Particularities of the Correlation Between the Unemployment Rate and the
GDP in the Dynamics of the Romanian Economy, European Research Studies, Volume
XI, Issue (4).
Sögner, L. and Stiassny, A. (2002). An Analysis on the Structural Stability of Okun’s Law-A
Cross-Country Study, Applied Economics, No.14, pp. 1775-1785.
Stadtmann, G. Ruelke, J. and Pierdzioch, C. (2009). Do Professional Economists’ Forecasts
Reflect Okun’s Law? Some Evidence for the G7 Countries, Applied Economics, Taylor &
Francis (Routledge).
Stimson, J.A. (1985). Regression in Space and Time: A Statistical Essay, American Journal of
Political Sciences, 29(4).
Tang, B. and Bethencourt, C. (2017). Asymmetric Unemployment-Output Tradeoff in the Eu-
rozone, Journal of Policy Modeling.
Tirkayi, A. and Özkan, H. N. (2011). Economic Activity and Unemployment Dynamics in
Turkey, Eskisehir Osmangazi Universitesi IIBF Dergisi, 6, pp. 173184.
Villaverde, J. and Maza, A. (2009). The Robustness of Okun’s Law in Spain, 1980-2004 Re-
gional Evidence, Journal of Policy Modeling, Volume 31, Issue 2, March-April 2009,
pp. 289-297.
Vougas, D. V. (2003). Unemployment in Greece, Journal of Policy Modeling 25 (2), 107–112.
Westerlund, J. (2007). Testing for Error Correction in Panel Data, Oxford Bulletin of Econom-
ics and Statistics 69 (6): 709–48.
World Bank (2017). Western Balkans Labor Market Trends 2017, The Vienna Institute for
Internationale Economic Studies, Report Number: 113922.
Gallegati, M., Ramsey, J. and Semmler, W. (2014). Does Productivity affect Unemployment?
a Time-Frequency Analysis for the US. In M. Gallegati & W. Semmler (Ed.). Wavelet
Applications in Economics and Finance. Springer International Publishing, pp. 23-46.
681
International
Economics
ECONOMIC DIPLOMACY IN TIMES
OF GLOBALIZATION
Abstract
Technological progress has changed the geopolitical image of the world, but
the fundamental relations between countries remain unchanged and are still
based on diplomacy and trade. Diplomacy represents negotiation and persua-
sion skills, and primarily focus is on relations with other states. Trade, on the
other hand, has always been a driving force that has crossed the barriers by
its action. Diplomacy and trade have always been mutually complementing
and enhancing each other. Over the last few decades, especially after the end
of the Cold War, the political diplomacy has been giving more and more place
to economic diplomacy. Under the conditions of globalization, economic diplo-
macy has become more propulsive, intensive and multifunctional. Therefore,
the states are increasingly using economic diplomacy to maintain or further
strengthen their economic position in a globalized world. The aim of this paper
is to present the elements and mechanisms of diplomacy under the conditions
of globalization with a special emphasis on economic diplomacy and Republic
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
of Croatia’s economic diplomacy activities.
Key words: diplomacy, economic diplomacy, globalization
JEL Classification: F60, F69
1. INTRODUCTION
Over the last few decades, under the influence of globalization, there has been
a significant change in the global economic prospects. Economic changes have
exerted a strong influence on the social-political relations between countries by
increasing the complexity of mutual relations. The borders between states have
become more permeable, enabling a greater flow of capital, goods, and services,
685
leading to the emergence of new global market participants. Throughout merg-
ers and acqvisitions, multinational companies have become significant players
on international markets, striving to strengthen their position further by adding
a political course of action to their strong economic impact.
Classical diplomacy, which had played a particularly important role in the
recent history during the Cold War, relies increasingly on economic diplomacy
in the globalized world. Although the concept of diplomacy was introduced for
the first time in the 15th century, both the classical and economic diplomacy, are
inseparable elements of the human society’s development. The beginnings of
using diplomacy in interpersonal relationships can be found at the very begin-
ning of the human interpersonal interaction, long before the written history
and the emergence of states traditionally associated with the idea of diplomacy.
Diplomacy represents an art of communicating, negotiating and informing
aimed at reducing the possibility of intolerance or conflict’s occurrence. Ber-
ridge (2015: 1) argues that diplomacy is a fundamental political activity and,
together with resources and skills, is the main ingredient of power. Bull (2012:
156) states that several levels of diplomacy should be differentiated between.
In the broadest sense, diplomacy represents the relations that a state creates
with other states or other subjects in world politics by utilizing official agents
and peaceful means. In the narrow sense, diplomacy means the relationships
Dražen Holmik: ECONOMIC DIPLOMACY IN TIMES OF GLOBALIZATION
established by official diplomats on the basis of their subjective traits and skills
of finding the right moment.
In the context of modern states, diplomacy seeks to establish communica-
tion between state leaders and other global politics players. Without commu-
nication, international cooperation would not be possible and a whole set of
international institutions and systems based on international communication
would not exist. Diplomacy is also in charge of negotiating within the frame-
work of various agreements. Negotiations seek to find points of common inter-
est in order to reduce the number of controversial points. At the same time, the
function of diplomacy is to assign its diplomats to gather intelligence about the
country in which they are serving. States behave rationally, just as individuals,
trying to present themselves in the best possible light, and the purpose of diplo-
macy is to collect inofficial information in order to compare it with the official
information. At the same time, diplomats allow to other countries an access to
the selected data and information that a certain state wants to share.
686
Diplomacy is considered to be an activity that helps to reduce intolerance
and to avoid conflicts, but even during a conflict, diplomacy activities are very
important. Truces, exchanges of prisoners and armistices are achieved by dip-
lomatic activities. It is therefore difficult to set a limit and indicate when a
diplomatic activity is of greatest importance – in times of peace, in times of
intensified intolerance or during conflicts. In each of these phases, the role of
diplomacy is of strategic importance.
687
diplomacy to adapt. Interests are mostly promoted through international com-
panies and non-governmental organizations that communicate with the target
audience in real-time by using different technological solutions which enabled
the disappearance the once solid borders between domestic and international
news and information. A very harsh term such as “propaganda” was replaced
by a softer marketing concept such as “branding”, and concepts like “soft power”
were introduced. Communication between the participants became more di-
rect, reaching a larger number of people.
Table 1. The Impact of Globalization on Public Diplomacy
Basic Characteristics Public Diplomacy Then Public Diplomacy Now
Participant in international
State/country Country, companies, institutions
relations
Radio and TV, daily newspapers and Satellites, Internet, real-time news, mobile
Technological environment
magazines, fixed telephony telephony
A clear border between international No clear border between domestic and
Media environment
and domestic news international news
Political advocacy and propaganda
Type of approach Branding and network theory
theory
One participant and up, one-way Multiple participants to multiple participants,
Level of approach
approach multidirectional approach
Scope of approach Less information with more attention More information with less attention
Terminology “international image”, “prestige” “soft power”, “branding of nations”
Top-down access of participants to
Dražen Holmik: ECONOMIC DIPLOMACY IN TIMES OF GLOBALIZATION
The new way of public diplomacy’s functioning of entails a vague and hazy
background when it comes to the state’s involvement. A large number of non-
governmental organizations, international offices or multinational companies
operate in different countries around the world, and their connectedness and
the source of influence generating the information outputs in the time of glo-
balization is much less clear and unambiguous.
688
tion of certain diplomatic activities. Elements that did not exist or were mar-
ginal became the carriers of essential activities over time. Some of the elements
of diplomatic activities will be shown below.
689
lomatic negotiations or as defined by Meerts (2015: 11) as “the concession and
compensation exchange within the international order accepted by sovereign
entities”. The presence of more than one party increases the complexity, how-
ever, the resulting outcomes outweigh the particular interests and guarantee a
greater probability of implementation. Conferences are places where important
elements related to long-term goals are expressed and often serve as a platform
for making common resolutions, decisions or recommendations.
long been considered a new instrument for achieving the old goal, but never-
theless, the digital diplomacy has significantly influenced the change of work
modalities and the role of diplomats and diplomacy in general.
690
The war, wartime destruction, inflation, numerous displaced persons, and
refugees have marked the first few years of Croatia’s independence. Unlike
Croatia, other European transition countries that have emerged at the same
time did not face a similar problem. Instead, they sought to strengthen the in-
stitutional framework to make the transition from the planned to the market
economy as swiftly as possible. The Croatian economy sought to move away
from the socialist, planned economy as soon as possible, and the privatization
of the state-owned property was imposed as a logical solution for this departure
from the old system. Žitko (2011) states that the process of privatization did
not have a sole function of reducing the state’s share in business enterprises,
but it had also simultaneously attempted to create market players. With the
collapse of Yugoslavia, the market of nearly 22 million people has plummeted.
Companies unadjusted to market conditions, privatization that was carried out
without any high-quality studies, along with a number of exogenous factors,
have led the economy to an unenviable position, the consequences of which are
still felt.
691
It is visible from the data in the above table that the economies of some
countries have experienced a significant growth in the observed period, while
some countries have attained a much less favourable economic position than
at the beginning of the observed period. Croatia and other transition countries
have recorded a continuous growth up to 2008 and the global economic crisis.
Table 3. Main Economic Indicators for the Central European and EU Countries
Unem-
ploy-
GDP per capita Growth rate 1995-2001
ment
Inhabitants GDP 2001
rate
2001 (mil.) (bil.) EUR)
Percentage
Realistic
USD of the EU Productive Employed
GDP
average
1 2 3 4 5 6 7 8 9
Croatia 4,4 22,6 4.605 24 4,0 5,4 -1,3 16,3
Czech
10,3 62,1 5.530 29 2,0 2,5 -0,5 8,9
Republic
Hungary 10,0 57,4 4.660 24 3,6 3,3 0,4 8,4
Poland 38,7 197,8 4.560 24 4,8 4,5 0,4 17,3
Slovakia 5,4 22,7 3.700 19 4,4 3,8 0,6 18,2
Slovenia 2,0 20,9 10.605 56 4,1 3,1 1,0 5,9
EU Members
Dražen Holmik: ECONOMIC DIPLOMACY IN TIMES OF GLOBALIZATION
692
financial markets. The collapse of socialist-planning economies and the transi-
tion of most of the former socialist states to the market economy has addition-
ally strengthened the growth of financial flows.
The first significant foreign direct investments in Croatia were recorded only
after the declaration of independence because up to that point economic rela-
tions were under the state control and free access to foreign capital was dis-
abled. Economic growth and development were financed by international loans
while private investments were very rare. After the dissolution of Yugoslavia,
the inflow of foreign capital was enabled, but the capital inflow was weak due
to market instability, war operations, and investor uncertainty. The first signifi-
cant foreign direct investments occurred after the end of war operations and
restraint of inflation.
In the period from 1995 to 2014, Poland, the Czech Republic, and Hunga-
ry had achieved the highest inflow of foreign direct investments, almost 63% of
the total sum refers to these three countries (Poland 31%, Czech Republic 17%
and Hungary 15%). According to Babić et. al. (2001: 10), attracting foreign
direct investments is an international activity of governments and states that
requires observing the trends on international capital markets and the capacity
to accept investments in recipient countries, as well as the factors determining
the level and structure of foreign direct investment. The fundamental factor in
693
attracting foreign direct investments and internationalization of domestic busi-
nesses represents the institutional framework, in which the state and economic
diplomacy also play an important role.
4. ECONOMIC DIPLOMACY
The impact of globalization can be noticed in a large number of social and
economic elements that have undergone significant changes. Capital and trade
have perceived new emerging markets’ opportunities and under the influence of
globalization, there has been a shift of power centers from the West towards the
Asian-Pacific states. Technological progress was the catalyst for change, while
on the other hand, presenting new challenges for governments. Economic di-
plomacy is an integral part of diplomatic activities, but the changes that global-
ization has brought with it have required the further expansion of diplomatic
activities and apart from other types of diplomatic activities, economic diplo-
macy has been set out as an essential element.
Economic diplomacy is an umbrella element that facilitates the economic
and political goals of the state. Activities that are available range from trade
and investment promotion, economic and financial agreement negotiations and
development aid to measures such as economic sanctions.
Dražen Holmik: ECONOMIC DIPLOMACY IN TIMES OF GLOBALIZATION
Economic diplomacy has a rich history and tradition, it can be traced from
the times of the Roman and the Ottoman Empire. Economic diplomacy has
often used elements of commercial diplomacy to protect the interests of mer-
chants from 1500 to 1200 BC. Due to intense trade with the Far East, the first
intergovernmental agreements between ancient civilizations were created.
Okano-Heijmans has defined economic diplomacy as “the use of political
means as leverage in international negotiations to improve national economic
progress and the use of economic leverage to achieve political stability of a state”
(2013: 29). Radić (2015: 77) defines economic diplomacy as “a platform for
cooperation with the business community and institutions involved in the de-
velopment of international economic relations. The ultimate goal of economic
diplomacy as diplomacy of the future for each country is to achieve a competi-
tive, productive and export-oriented economy”.
694
Economic diplomacy can be viewed as a constituent of three elements that
can achieve the goals of economic diplomacy, consisting of (Okano-Heijmans in
Constantionuo et. al., 2016: 555):
- Trade diplomacy - the most frequently used tool that had been often mis-
identified with economic diplomacy, consisting of market analysis and en-
vironmental analysis, providing assistance in entering certain markets and
finding potential partners,
- Commercial diplomacy - became a particularly used diplomatic tool in
the early 1990s when, due to frequent crisis situations, countries had used
commercial diplomacy jointly to protect common interests,
- Development cooperation - is a tool for promoting political interests of
individual countries and also for promoting economic interests through
various forms of cooperation.
Different types and combinations of tools used by the states are available
depending on the set goals. In terms of mutual understanding and cooperation,
the tones are milder and the tools are more refined, however, in extreme situa-
tions, it is possible to use economic sanctions or military actions against certain
countries. Economic diplomacy is used by governments seeking to resolve the
tensions between politics and economy, foreign and domestic pressures, and
between government and other stakeholders such as private companies or non-
governmental organizations.
QHJDWLYHVDQFWLRQV
LQGXFPHQWV
ILQDQFLDOGLSORPDF\
WRROSROLWLFDO WRROHFRQRPLF
WUDGHGLSORPDF\
FRPPHUFLDOGLSORPDF\
EXVLQHVVHQG
SURVSHULW\
SULPDU\JRDOHFRQRPLF
695
Satow (1979: 3) defined modern diplomacy as “the use of intelligence
data and tactfulness necessary to conduct official relations between the govern-
ments of independent states”. The modern diplomacy defined by Satow does
not include globalization and multinational corporations in itself because it was
created prior to that era, but it can be considered timeless because the first part
of the definition represents the foundation of mutual relationships.
Saner and Yiu (2001: 19) defined the following participants in the economic
diplomacy of a particular country:
- Governmental stakeholders/implementers - The task of economic diplo-
mats is to influence multilateral economic co-operation by coordinating
specialized ministries, directing negotiating processes in various organiza-
tions, and involving non-governmental stakeholders when appropriate or
necessary. The task of commercial diplomats is to open foreign markets to
domestic companies and to remove entry barriers,
- Business enterprises - the task of business and corporate diplomats is to
recognize business opportunities in foreign markets. By influencing the
economic and political decision-makers and by informing different do-
mestic, foreign and transnational NGOs and other civil society organiza-
tions and co-ordinating them, they influence the sustainable development
of domestic companies in the foreign market.
696
- Civil society organizations - non-governmental organizations involved in
the creation of economic policies must understand and participate proac-
tively in the policy-making process at the level of ministries and the state.
One of their tasks is to analyze international agreements and to under-
stand their impact on the local government, and in cooperation with the
economy, they should promote employment and participate in solving so-
cial and environmental problems.
Under the influence of globalization, the field of diplomacy, that used to be
closely related to career diplomats who were raised/cultivated in ministries of
foreign affairs of different countries, became an area of interest of various inter-
ested parties. However, the changes have not only occurred in the field of diplo-
macy, but modern business models have led to frequent and significant changes
in the careers of businesspeople. It used to be strange that the former university
professor becames an ambassador and afterwards assumes a leadership or coun-
seling position in a multinational corporation, but this is not a case any more.
Economic diplomacy requires people with a wide scope of knowledge and
experience within the real sector who are also experienced in the functioning of
governments, universities and non-governmental organizations. Fields covered
by economic diplomacy are diverse and people with the general know-how are
needed. Economic diplomacy under the conditions of globalization is a propul-
sion tool which should serve the entire economy and can not be viewed as an
exclusively entrepreneurial or diplomatic tool (see Radošević, 2002).
697
Table 6. Key competencies necessary for economic diplomacy
Business Education at
Competencies Particular Competencies for post-modern
Education Diplomatic
relevance for diplomatic environment
School Academies
Business Diplomats
Knowledge of diplomatic instruments
General History of Transnational NGO Diplomats
Management Diplomacy Business Diplomats Capacities in influencing the diplomatic
Transnational NGO Diplomats process
Knowledge of key international business
Business Diplomats
related legal standards
Transnational NGO Diplomats
Strategic
Treaty Making Economic and Commercial
Management Capacities in influencing standard setting at
Diplomats
key international organisations (WTO, ILO,
Business Diplomats
UNEP, WIPO, OECD).
Transnational NGO Diplomats
Knowledge of the functioning of international
Business Diplomats
law & arbitration
Transnational NGO Diplomats
Managerial International
Accounting Law Economic and Commercial
Diplomats Knowledge of the impact of “Corporate
Reporting to Stakeholders”
Business Diplomats
Economic and Commercial Knowledge of the history & logic of non-US
Diplomats economic theories and practices
Financial International Business Diplomats
Dražen Holmik: ECONOMIC DIPLOMACY IN TIMES OF GLOBALIZATION
698
Economic and Commercial
Diplomats Knowledge of the decision making process of
Theory of key countries (domestic and foreign)
International Business Diplomats
International
Relations & Transnational NGO Diplomats
Management
Contemporary Economic and Commercial Capacity in conducting political risk analysis
History Diplomats regarding key stakeholders of the investment
Transnational NGO Diplomats project
Knowledge of the mechanisms of
Business Diplomats international crisis management and
Managing Transnational NGO Diplomats corresponding role of diplomacy and
Operations Delegations, government
Management Embassies & Economic and Commercial
Consulates Diplomats Capacity to intervene on behalf of the
Business Diplomats company
Transnational NGO Diplomats
Economic and Commercial
Diplomats Mastering public speaking and media
(key note speeches, TV interviews, press
Business Diplomats
Information Interaction with conferences etc.)
Management Media Transnational NGO Diplomats
Managing a Business Diplomacy Information
Business Diplomats System which supports strategic planning
regarding stakeholder management
Negotiation Economic and Commercial
Organizational Diplomats
skills (bilateral, Managing & influencing international
Behaviour &
multilateral, Business Diplomats negotiations(bilateral, multilateral, plurilateral)
Change
plurilateral) Transnational NGO Diplomats
Diplomatic Business Diplomats Mastering diplomatic practices & protocol
Behaviour Transnational NGO Diplomats
Quantitative
& Protocol Economic and Commercial Mastering analytic tools, e.g., stakeholder
Methods
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
Contemporary Diplomats analysis, the scorecard on stakeholder
History Transnational NGO Diplomats satisfaction, scenario planning, etc.
699
However, economic diplomacy is not exclusively an activity of diplomatic mis-
sions, it is the overall course taken by the state and all its participants.
5. CONCLUSION
Economic diplomacy does not only represent a narrower area of economic
and trade interests abroad, but it also promotes the broader interests of the
state and its multi-dimensional activities include a political, strategic and eco-
nomic dimension. Governments of countries are involved in shaping economic
diplomacy together with other stakeholders such as companies and civil society
organizations with a view to creating security and national wealth. Economic
diplomacy is an instrument of international politics, which have a large number
of different activities available to achieve their goals. The success of economic
diplomacy depends largely on the number of activities being used, and not all
activities are equally effective. Expertise is needed to assess the outcome of cer-
tain activities and to select the best set of activities that need to be redefined
following the evaluation.
The Croatian economy has gone through a rough patch since the procla-
mation of independence, with a sharp market decline along with the wartime
destruction and a large number of displaced persons and refugees. The priva-
Dražen Holmik: ECONOMIC DIPLOMACY IN TIMES OF GLOBALIZATION
tization which followed was aimed at the formation of market players, how-
ever, a large number of new owners was incapable of leading a market-oriented
business and it came to an additional weakening of the economy and a decline
of economic activities. Growth and development of the Croatian economy at
the beginning of the 21st century was based on Croatia’s optimism and orienta-
tion/vision towards becoming a full member of the EU. This was stopped in its
tracks as soon as the world economic crisis broke out, during which the econ-
omy entered a deep recession with far-reaching consequences. Only recently,
there have been signs of economic recovery, but indicators are still not sufficient
to catch up with the neighbouring transition countries which have made a sig-
nificant progress in the meantime and whose economy is often compared to the
domestic economy.
An economic diplomacy is an excellent tool that can open up new oppor-
tunities for businesses and the whole economy, but lack of strategy and focus
towards a specific goal places all economic diplomacy stakeholders/operators
in an unenviable position. A clearly defined vision and mission are not just ele-
700
ments on which companies have to build their competitive advantages, but they
are equally important for the state. The use of tools available to economic diplo-
macy with the evaluation and redefinition are elements that can boost the coun-
try’s competitiveness and thus lead to the strengthening of the overall economy
and the welfare of the nation.
In order to additionally strenghthen its economic diplomacy over the last
few years, the Croatian Ministry of Foreign and European Affairs has employed
professionals in charge of economic issues in its foreign representative offices.
In addition to the state institutions, the Croatian Chamber of Economy (CCE)
has also been helping businesses to enter new markets for a number of years.
In order to gain momentum, the CCE will be opening a network of economic
representative offices next to the already existing ones in Brussels, Moscow,
Shanghai, Sarajevo, Mostar, and Belgrade. As a suggestion for a future research,
the representative office’s activities’ could be measured/monitored, as well as an
increase in the foreign exchange volumes with the countries in which the repre-
sentative offices operate.
LITERATURE
Babić A., Pufnik A., & Stučka T. (2001). Teorija i stvarnost inozemnih izravnih ulaganja u
svijetu i u tranzicijskim zemljama s posebnim osvrtom na Hrvatsku, Hrvatska narodna
banka, Zagreb
Badel, L. (2014). Conflicting Identities - French Economic Diplomacy between the State
and Companies in the Twenthie Century. Diplomacy & Statecraft, 25 (3), p. 432-452
Berridge G. R. (2015). Diplomac: Theory and Practice, UK: Pelgrave Macmillan.
Bull, H. (2102). The Anarchical Society: A Study of Order in World Politics, 4th ed. Hound- INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
mills, UK: Pelgrave Macmillan
Calleya S. (2016), Developing states diplomacy, In the Sage handbook of diplomacy, SAGE
Publications Ltd, 55 City Road, London, pp. 423-433,
Constantinou M. C., Kerr P. & Sharp P. (2016). The Sage handbook of diplomacy, SAGE
Publications Ltd, London
Cull N. J. (2009). Public Diplomacy: Lessons from the Past, Figueroa Press, USA: California
Družić G. (2004). Hrvatska obratnica: Stanje i perspektive hrvatskog gospodarstva. Golden
marketing – Tehnička knjiga. Zagreb
Gills B. K. & Thompson W. R. (2006). Globalization and Global History, New York
Meerts, P.W. (2015). Diplomatic Negotiation: Essence and Evolution. The Hague: Clingendael
Institute.
701
Okano-Heijmans, M. (2013). Economic diplomacy; Japan and the balance of national interests,
Martinus Nijhoff Publishers, Portland OR
Ott K. (2003). Pridruživanje Hrvatske Europskoj uniji: izazovi ekonomske i pravne prilagodbe.
Institut za javne Financije. Zagreb
Porter M. E. (1985), Competitive advantage Creating and Sustaining Superior Performance,
The Free Press, New York
Potočan, V. (2013). How to More Holistically Understand Supply Chain Management?,
13th international scientific conference Business Logistics in Modern Management,
Segetlija, Z., Mesarić, J., Karić, M., Potočan, V., Rosi, B., Jereb, B., Trauzettel, V. (ed.)
Faculty of Economics in Osijek, Osijek, 7 October 2013, p. 13-21.
Radić. G. (2014). Gospodarska diplomacija, dipolomacija budućnosti. Svarog, p. 75-81
Radošević. D. (2002). Hrvatska gospodarska diplomacija u globaliziranom svijetu. Ekonom-
ski pregled, 53 (11-12). p. 1070-1086
Saner R. & Yiu, L. (2001). International Economic Diplomacy: Mutationin Post-modern Times.
Discussion Paper in Diplomacy. Netherlands Institute for International Relations
Clingandael
Satow, E. M., Gore-Booth, P. H. G.-B., & Pakenham, D. (1979). Satow’s Guide to diplomatic
practice, Longman, London
Williams, Phil (1976) Crisis Management: Confrontation and Diplomacy in the Nuclear Age.
Bath: Pitman Press.
Žitko M.; Tranzicija financijskog sektora u Hrvatskoj i Sloveniji, 2011., http://www.slobod-
nifilozofski.com/2011/07/mislav-zitko-tranzicija-financijskog.html, [access March
11. 2018.]
Dražen Holmik: ECONOMIC DIPLOMACY IN TIMES OF GLOBALIZATION
702
HOW BREAKING THE INTEGRITY
OF THE COLD SUPPLY CHAINS
MAY CONTRIBUTE TO GLOBAL
WARMING?
Magdalena KLOPOTT
Gdynia Maritime University,
Department of Logistics and Transport Systems, Poland
E-mail: [email protected]
Abstract
The demand for perishable, temperature-sensitive goods, especially food, has
significantly grown in recent years. Global distribution of these products is sup-
ported by cold chain services (e.g. transport, warehousing) that allow main-
taining specific freight conditions such as temperature and atmosphere during
the whole journey from the point of origin to the final customer. Relying on a
desk study research, this paper aims to elaborate the relationship between the
integrity of the cold chain and food losses, which can be directly correlated with
the carbon footprint. The paper starts with an analysis of the global perishable
goods trade and the reefer transportation markets. It also explains the key
drivers, challenges, and trends in those aspects that lag behind the impressive
703
Key words: cold supply chain, food losses, cold chain integrity, perishables
trade, reefer transport, carbon footprint
JEL Classification: Q54, Q59
. INTRODUCTION
Magdalena Klopott : HOW BREAKING THE INTEGRITY OF THE COLD SUPPLY CHAINS MAY CONTRIBUTE TO GLOBAL WARMING?
The demand for perishable goods, especially food, has significantly grown in
recent years. Perishable goods are those which may rapidly deteriorate and lose
quality in ambient atmosphere and therefore become unsafe for human con-
sumption or simply useless. They need to be transported and stored at precisely
defined conditions such as temperature, barometric pressure, moisture as well
as air composition, and are very sensitive to every deviation from them (Rong et
al., 2011, p. 421; Aung & Chang, 2014, p. 198; Haas et al. 2015, p. 400). This
group of commodities is comprised of a wide range of products of different
characteristics, fresh or processed, mainly horticulture and agriculture products
like fruit and vegetables, animal products (fresh or frozen meat or fish, dairy
and eggs), flowers and plants. Sensitive medical products (pharmaceuticals, vac-
cines), live organs, fresh blood samples, and some chemicals also belong to the
category of perishables, however, they are out of the scope of this paper.
Global distribution of perishable goods would not be possible without
the development of refrigeration technology and the support of cold logistics
systems. Owing to refrigeration, microbiological, physiological, and physical
changes of food in postharvest processes may be completely prevented or sig-
nificantly reduced (Haas et al., 2015, p. 400).
However, despite the advances in reefer technology, breaking of the cold
chain integrity, i.e. not maintaining recommended conditions (temperature,
ventilation, air composition) throughout the whole supply chain, still occurs
and leads to food losses. Therefore, the purpose of the paper is twofold:
1) to elaborate the relationship between the integrity of the cold chain and
food losses, and
2) to highlight the correlation between food losses and the global warming.
704
2. GLOBAL TRADE AND TRANSPORT OF
PERISHABLE GOODS
.. Development of global trade of refrigerated
commodities
There are several drivers and trends underpinning the rising interest in the
perishable refrigerated goods.
The first is the increase in the world’s population and demand for food, in-
cluding perishables. The current world population of 7.6 billion is expected to
reach 8.6 billion in 2030, and 9.8 billion in 2050 (UN, 2017, p. 15).
The second is the growing affluence, especially in developing economies such
as China and India (the growth of the middle-class population), which results
in burgeoning demand for resource-intensive products such as meat and dairy.
(Orbis Research, 2018, p. 98) It is known that the increase in the disposable
income worldwide correlates with a growing demand for top-quality products,
including food (e.g. Rodrigue et al., 2017, p. 234; Coyle et al., 2001, p. 17; Ser-
rano & Pinilla, 2010, p. 3503) The relation between income and food imports
is visualized in Figure 1.
Source: Rodrigue J.-P., Comtois C. & Slack B. (2017). The Geography of Transport Systems
4th edition, New York: Routledge.
705
The growing level of prosperity is often accompanied by dietary changes and
willingness to enjoy fresh food, diverse fruits and vegetables coming from dif-
ferent regions of the world, regardless of the season and geographical location.
Another factor that has fostered the global flow of perishable goods in recent
years are free to trade agreements between countries (e.g. between Peru and
China, or Australia and China) (Serrano & Pinilla, 2014, p. 165). Moreover,
Magdalena Klopott : HOW BREAKING THE INTEGRITY OF THE COLD SUPPLY CHAINS MAY CONTRIBUTE TO GLOBAL WARMING?
the proliferation of supermarket retail chains and their expansion facilitates the
year-round supply of fresh products, thus stimulates international trade of per-
ishable commodities.
Evaluating the state and development of the global trade of perishable re-
frigerated goods poses a serious challenge, as no single reliable database exists
to provide accurate data, and gathering data from different sources may not give
a comprehensive picture.
The WTO estimates that only in the ten-year period between 2006 and
2016 the world exports of agricultural products have increased by 70%.
(WTO, 2017, p.10) Food, fresh as well as processed, are increasingly traded
in the global marketplace. Analysing data derived from WTO databases, the
global exports of food products have increased from 224,000 million USD in
1980 to 1590 million USD in 2016. However, it is difficult to ascertain precise
volumes and the respective share of temperature sensitive food trade within the
food category.
As Drewry Maritime Research stipulates, the worldwide perishable reefer
trade increased by 54.7 million tonnes between 2003 and 2013, when it reached
185 million tonnes, which represents a CAGR of 3.6% (Drewry, 2016, p. 2).
Perishable food accounts for the majority of this volume, as pharmaceuticals
and flowers represent less than 3%. It is forecasted that cargo volumes will con-
tinue to grow, albeit at a lower rate, as a consequence of the predicted popula-
tion and GDP growth, reaching 216 million tonnes in 2018 (CAGR of 3.1%)
(Drewry, 2016, p. 5).
Figure 2 summarises the total worldwide trade of perishable reefer cargo.
706
Figure 2. Worldwide trade of perishable reefer cargoes by commodity (million
tonnes)
Source: Reefer Shipping Review & Market Forecast, Annual Report 2016/17, Drewry
Maritime Research, 2018, London.
Source: de Wit G. (2016). Perishables Markets – Modal Shift – Trends, WorldACD Mar-
ket Data, IATA World Cargo Symposium, Berlin, (presentation).
707
.. Global transport market of perishable reefer cargoes
Perishable food is mainly transported between continents, hence maritime
and air transportation dominate as they are well suited to covering long distanc-
es. Road transport is utilized as well, but rather for short distances, to secure
domestic or regional trade flows and distribution, and to provide feeder services
to and from seaports or airports. According to Billiard (2005, p. 4), there are
Magdalena Klopott : HOW BREAKING THE INTEGRITY OF THE COLD SUPPLY CHAINS MAY CONTRIBUTE TO GLOBAL WARMING?
over 1.2 million refrigerated road vehicles used to distribute refrigerated foods.
Considering the prediction of growth of the perishable goods trade, it is
also forecasted that the global perishable goods transportation market will fol-
low this trend and grow at a CAGR of 6.76% during the period 2016–2020.
(Technavio, 2015, p. 7)
The main global transportation routes mirror perishables trade patterns,
hence the biggest volumes are transported from South to North America, from
North America to Asia/Pacific and from Europe to Asia/Pacific.
The transportation market of reefer goods is noteworthy because of fierce
competition between maritime and air transport. Additionally, solely within
the shipping market, specialized reefer fleet competes with container shipping
(reefer containers) for the same cargo, a phenomenon that is unique and not
observed in case of other types of cargo.
Seaborne perishable reefer trade in 2016 approached 117 million tonnes,
whereas in 2006 comprised almost 85 million tonnes (CAGR 3.3%). Drewry
(2018, p. 14) forecasts this trade to increase at a CAGR of 2,8% over the five-
year forecast period (2016–2021) to 134 million tonnes in 2021. The share
of specialized reefer fleet in perishable transportation market has been declin-
ing gradually in favor of reefer container shipping. In 2016 reefer ships carried
almost 21% of total perishable cargo, the remaining part was carried in reefer
containers. (Drewry, 2018, p. 7) The shrinking of the specialized reefer fleet is
inevitable. Consequently, the increased cargo volumes will have to be shipped
by container vessels and the market share between the two models of shipping
will continue to move in favor of containers.
Short shelf-life and high value of goods are often the key drivers for choos-
ing airfreight instead of maritime transport. However, the share of air transport
in the transport of goods is inconsiderable, representing less than 1% of world
trade by volume, but over 35% by value (IATA, 2018, p. 2). In 2015 the share of
708
air transport in the total perishable goods trade comprised 2.1% of export and
3.4% of import volumes. (de Wit, 2016, p. nd).
As far as the competition for perishable products between air and maritime
transport is concerned, there are no general trends and air and maritime shares
vary for particular markets and commodities. For example, when we take into
account vegetables, in 2015 40% of vegetables from Europe to Japan were trans-
ported by air, whereas from India to Europe 77% were carried on ship boards.
(de Wit, 2016, p. nd).
Currently, rail transport has little significance in servicing the global trade of
refrigerated goods; however, recently DB Schenker has launched a new block-
chain service for perishable exports from Asia to Europe. (www.lloydsloading-
list.com, information from 13 Feb 2018).
In addition to increasing volumes of perishables being transported world-
wide, it is worth to mention that even more favorable forecasts are predicted
with regard to global cool chain markets. Development of the modern, commer-
cial warehouse spaces (Miklińska, 2017, p. 880), including those for refriger-
ated goods is an additional factor supporting this growth. TechNavio’s analysts
forecast that over the period 2014-2019 this market will grow at a CAGR of
15.75% and 10.53% in terms of revenue and volume, respectively. (Technavio,
2015, p. 10).
709
nectarines in –0.5°C to 0°C, making sure that the freezing point of only –0.9°C
is not reached, which would immediately result in a loss of quality. The same ap-
plies to kiwi fruits, which are additionally extremely ethylene sensitive (ethylene
concentration exceeding 0.1 ppm causes kiwi ripening already at a 0°C). Minus
35°C is particularly suited to achieving a longer shelf life for fatty fish products,
seafood, and ice cream. (Klopott, 2008, p. 3)
Magdalena Klopott : HOW BREAKING THE INTEGRITY OF THE COLD SUPPLY CHAINS MAY CONTRIBUTE TO GLOBAL WARMING?
710
Compared to most product supply chains, food supply chains are often more
complex and more difficult to manage (Aung and Chang, 2014, p. 200). The
networks of participants start from an individual or collective agriculture pro-
duction, fisheries, animal breeding, etc., and ends at retailers and final consum-
ers in different parts of the world. The exact structure of each cold chain varies
significantly depending for example on the product characteristic and unique
requirements, places of origin and destination, model of distribution and may
also involve, among others, exporters/importers, food processing companies,
warehousing, transportation services, wholesalers, auctions.
Regardless of the degree of cold chain complexity, compliance with special
requirements of perishable cargo needs to ensure at all stages of the cold chain.
Every negligence in this aspect may result in foodborne diseases and series of
deaths, even in the most developed countries (Coulomb, 2008, p. 415). It also
leads to food losses, as every interruption of the cold chain reduces the quality
or results in complete spoilage (total loss) of the product. Hence close coop-
eration and integration of all parties involved in the cold chain as well as di-
verse risk control techniques are essential to maintaining cold chain continuity
(Klopott, 2008, p. 6).
Food loss refers to the decrease in food quantity or quality, which makes it
unfit for human consumption (Grolleaud, 2002, p. 43). Food losses and dam-
ages are those which may be attributed to a variety of risks during transit, han-
dling and storage as well as value added operation (e.g. packaging, labeling), and
can usually be considered random and unintended events, often beyond human
control (e.g. force majeure). This category may be extended to losses resulting
from agricultural processes. (Lipinski et al., 2013, p.1).
Food waste refers to food appropriate for human consumption being dis-
carded because of diverse reasons, either before or after it spoils. Food waste is
the result of negligence or a conscious decision on the consumer or retailer level
711
(HLPE, 2014, p. 12; Lipinski et al., 2013, p.1), and therefore are not directly
related to (but may be correlated with) cold chain integrity issues.
There are plenty of risks in supply chain processes that may result in cargo
loss or damage, regardless of the nature of the commodity (e.g. Acts of Gods,
piracy, general average, fire, the collision of conveyances, vessel capsizing etc.).
With regard to perishable goods, a particular attention should be given to fac-
Magdalena Klopott : HOW BREAKING THE INTEGRITY OF THE COLD SUPPLY CHAINS MAY CONTRIBUTE TO GLOBAL WARMING?
tors that could lead to breaking the continuity in satisfying the defined cargo
requirements (especially temperature), which may result in complete spoilage
(total loss) of the cargo or lower its quality.
As mentioned above, cold chains are usually very complex ones, with many
intermediate steps before the product reaches the consumer. The global nature
of perishable goods trade—long distances and transit times, a lot of transship-
ment points and many parties involved in arranging and performing trans-
port—increases the likelihood of breaking the cold chain.
Practical experience with cold chains allows indicating the main, often inter-
connected factors that underpin the breaking the cold chain. The major events
include:
- refrigerated equipment failure,
- human failure (lack of knowledge, insufficient training for the personnel
working in the cold chain, negligence of the persons involved in arranging
and performing transport and other processes along the cold chain),
- errors & omissions in shipping documents (e.g. confusion in Celsius with
Fahrenheit degrees, minus with plus when setting the temperature),
- unsuitable preparation for the carriage, especially lack pre-cooling,
- careless handling.
These factors contribute to loss and damages to the cargo, such as:
- mechanical damages during handling and transport (e.g. damaged skin,
which can lead to mold or rot);
- microbiological damages (e.g. infestation with micro-organisms like mold
or rot),
- thermal damages (e.g. chilling and frost damages, tomatoes or bananas
may lose their ability to ripen; storage scald in apples, plums, and citrus
fruit; brown heart in apples; wooliness in peaches; shriveling; premature
ripening),
712
- physiological damages (e.g. ripening, and respiration),
- biochemical damages (e.g. browning reactions, lipid oxidation, and pig-
ment degradation),
- physical damages (e.g. moisture loss). (Klopott, 2008, p. 4)
Changes in condition and quality of perishable cargo may also lead to ship-
ment rejection. According to Lupien et al. (2005, p. 119), about 33% of perish-
able food shipments (by maritime transport) from Central America, intended
to enter the U.S. was rejected. A similar phenomenon has been observed in the
context of EU, and the number of rejections has increased more than six-fold
between 1998 and 2002 (1,520 cases). The underlying reasons are, among oth-
ers, related to tightening standards as well as rising enforcement ability. ( Jaffee
& Henson, 2005, p. 91)
It is worth noting that for many products, especially those which are packed,
freshness or spoilage may not be directly noticeable by the retailer or the con-
sumer. Visual and olfactory inspection may be insufficient to reveal commenc-
ing spoilage. Thereby, some damages occurring during pre-consumer stages
of the cold chain may influence consumer or retailer behavior, leading to food
waste. The consumer expects the product to remain edible for a reasonable pe-
riod of time. Thus, the issue is not only whether the product is of bad quality at
the time of sale, but whether it is bad before consumption at a reasonable time
before expiry. (Ketzenberga et al., 2018, p. 569) The same applies to retailers.
For example, research of Mena et al. (2011, p. 654) revealed that most main-
stream retailers have policies of only accepting product with a high (usually over
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
70%) proportion of remaining shelf-life.
Notwithstanding the above-mentioned variety of factors leading to food
losses or waste, a distinction can be made between developed and developing
countries with regard to the major causes.
In low income countries the major causes include: poor harvesting practices
(e.g. harvesting at the incorrect maturity stage); lack of access to cold chains
and reliable energy sources required to refrigeration; inadequate infrastructure
(roads, storage facilities), lack of knowledge on proper storage and food han-
dling (Kitnoja, 2013, p. 3; Winkworth-Smith et al., 2015, p. 10) All these com-
bined with unfavourable climatic condition (usually high ambient temperature
and humidity) favour food losses. Losses of perishable foodstuff due to lack of
713
refrigeration amount to 23% in developing countries (compared to 9% in devel-
oped ones). (Kitnoja, 2013, p. 2)
In higher income countries, thanks to the maturity of logistics markets and
well developed cold chain practices, the level of food losses is generally much
lower. Factors influencing food losses are mainly associated with consumers’ or
retailers’ behavior leading not only to food losses but also to food wastage. The
Magdalena Klopott : HOW BREAKING THE INTEGRITY OF THE COLD SUPPLY CHAINS MAY CONTRIBUTE TO GLOBAL WARMING?
rejection of food that does not meet the required specification (out-grading)
due to aesthetic preferences of consumers and retailers as well as arbitrary sell-
by dates is one of the major causes of food loss in developed countries. (Kitnoja,
2013, p. 4.; Winkworth-Smith et al., 2015, p. 21; FAO, 2015, p. 1) reported
that during the consumption stage losses accounts for 40% of the total food
waste in the supply chain.
Figures describing global food losses and waste are disconcerting. In many
developing countries, fruit and vegetable losses are between 20–50%. Meat, sea-
food, and dairy have similar levels of loss, but considering their much lower
levels of production, the overall loss is much lower than fruit and vegetables.
(Winkworth-Smith et al., 2015, p. 10) By weight, fruit and vegetables have the
highest levels of loss and waste globally at 44% of the total, followed by roots
and tubers (20%) (Lipinski et al., 2013, p. 6), as depicted in figure 5.
Figure 5. The share of global food loss and waste by commodity in 2009.
714
More than 50% of global food loss and waste is comprised of commodities
that can benefit from refrigeration (Winkworth-Smith et al., 2015, p. 10) How-
ever, only about 10% of perishable foods are refrigerated worldwide (Coulomb,
2008, p. 414). Underperforming cold chains translate directly into economic
losses that, according to the 2016 Cold Chain Top Markets Report, total more
than $750 billion annually. (Miller, 2017, p. 8) In the same report, the author
argues that “globally, billions of USD are spent on improving agricultural pro-
cesses to create higher food yields, but the fact that nearly half of all food never
makes it to a consumer’s plate is largely ignored”.
715
data. Moreover, the quantities of food losses in these stages are often bundled
with other stages such as transport and harvest losses, which may be mutually
interconnected. This is additionally complicated by the lack of data regarding
the proportion of food losses arising from breaking the cold chain integrity.
As FAO states (FAO, 2013, p. 16), a product’s carbon footprint is the total
amount of greenhouse gases (GHGs) it emits throughout its life cycle, expressed
Magdalena Klopott : HOW BREAKING THE INTEGRITY OF THE COLD SUPPLY CHAINS MAY CONTRIBUTE TO GLOBAL WARMING?
in kilograms of CO2 equivalents. This also includes the GHG emissions during
the agricultural phase, including those from on-farm energy use and non-ener-
gy-related emissions (such as CH4 and N2O) from soils and livestock, as well as
carbon footprint from manufacturing, distribution, households, and end-of-life
treatment (waste recovery, landfill, etc.).
FAO estimated that the total carbon footprint of food wastage, including
land use change, is around 4.4 GtCO2 eq per year, what is equivalent to about
8% of total anthropogenic GHG emissions. It means that if the category “food
wastage” was treated like a country, it would be the third largest emitter of
greenhouse gases after China and the US (FAO, 2014, p. 22). Figure 6 presents
the share of each commodity in food wastage and the carbon footprint. It clearly
shows that goods requiring refrigeration constitute the majority of those being
wasted. One can assume that improper maintenance of the cold chain could be
the likely cause of food losses or waste.
716
At the European level, according to the “Preparatory study on food waste
across EU 27” (BIOIS, 2011, pgs. 87, 113-118) the total emission from each
wasted tonne of food equal 1.9 tonnes CO2 eq/t. On this basis, it was calculated
that the overall environmental impact is at least equivalent to 170 Mt of CO2
emitted per year. This constitutes approximately 3% of the total EU27 emis-
sions in 2008. The Authors of the report also forecast that due to the rising
amount of food waste across the EU27 the associated GHG emissions will
more than double by 2020. These figures include all steps of the life cycle of
food waste; however, as far as food waste at the distribution level is concerned,
only limited sources of information have been identified (BIOIS, 2010, p. 38).
As FAO calculated (2013, p. 4), the distribution processes contribute to
about 15% of the carbon footprint associated with food wastage; however, it is
not clear whether the estimate involves international maritime or air transpor-
tation. Post-harvest handling and storage comprise about 17% of the footprint.
(see figure 7).
Figure 7. The contribution of each phase of the food supply chain to carbon
footprint and food wastage.
It should be noted that the process of refrigeration alone entails many en-
vironmental issues, as energy is required to maintain the temperature in the
whole cold chain (it is unclear whether it was taken into account in the above-
mentioned calculations). Energy consumption in cold chains has been predict-
ed to rise significantly in the view of the increasing world population as well
as world trade and transport volumes of perishable food. The little data that is
717
available suggests that currently, the cold chains accounts for approximately 1%
of CO2 world emission; however, this is likely to increase if global temperatures
increase significantly ( James and James, 2010, p. 1944).
Additionally, most existing refrigerating equipment is based on the compres-
sion and expansion of a refrigerant, which has the potential of contributing to
global warming. CFCs have been gradually replaced by hydrochlorofluorocar-
Magdalena Klopott : HOW BREAKING THE INTEGRITY OF THE COLD SUPPLY CHAINS MAY CONTRIBUTE TO GLOBAL WARMING?
bons (HCFCs) that have less impact on the depletion of the ozone layer and
climate change. CFCs and HCFCs will be phased out within the framework of
the 1987 Montreal Protocol and 2016 Kigali Amendment (Coulomb, 2008, p.
415; Ciconkov, 2018, p. 448).
Continuous improvements and progress in refrigeration technologies will
lower the energy consumption and GHG emissions associated with the cold
chain. One of promising technology is the recovery of thermal energy from en-
gine exhausts, which will be used to drive the refrigerating systems. (Tassou et
al., 2010, p. 263)
5. CONCLUSIONS
The increasing demand for food amplified the global food industry brings
about rising volumes of food products being transported worldwide and ag-
gravates the exploitation of natural resources. Cold supply chains, powered by
refrigeration technologies, support the global distribution of food, including
perishables. Refrigeration provides the best conditions for slowing down or pre-
venting food spoilage along the whole logistics chain. Nevertheless, all failures
in maintaining the prescribed product transport and handling requirements,
especially temperature, result in breaking the cold chain and food losses, which
can be considerable. Although human failure is one of the common causes lead-
ing to food losses, the variety of factors that contribute to breaking the cold
chain differs between high- and low-income countries. The environmental im-
pact of food losses is more and more recognized and there is an urgent demand
for action in order to minimize global food losses.
Despite the significant limitations posed by the lack of publicly or commer-
cially available data, the topic demands further, in-depth research to identify
the main risk and failures that underlie the losses of integrity of the cold supply
chains. Mitigating food losses demands a thorough understanding of the risks
718
and their sources as well as proper risk management. Substantive solutions and
strategies to avoid failures need to be coordinated on a global scale.
REFERENCES
Aung, M. & Chang, Y. (2014). Temperature management for the quality assurance of a per-
ishable food supply chain, Food Control, 40, pgs. 198-207.
Billiard, F. (2005). Refrigerating equipment, energy efficiency and refrigerants. Bulletin Inter-
national Institute of Refrigeration, 85(1), pgs. 12–25.
BIOIS (2011). Preparatory study on food waste across EU 27. Final Report, European
Commission (DG-ENV).
Ciconkov, R. (2018). Refrigerants: There is still no vision for sustainable solutions Interna-
tional Journal of Refrigeration, 86, pgs. 441–448.
Coulomb, D. (2008). Refrigeration and cold chain serving the global food industry and cre-
ating a better future: two key IIR challenges for improved health and environment,
Trends in Food Science & Technology ,19, pgs. 413-417.
Coyle, W., Hall, W. & Ballenger, N. (2001). Transportation technology and the rising share
of US perishable food trade, In The Changing Structure of Global Food Consumption and
Trade, Agriculture and Trade Report, WRS-01-1 Washington: Economic Research
Service/US Department of Agriculture.
Drewry Maritime Research (2014). Reefer Shipping Review & Market Forecast, Annual
Report 2014/15, London.
Drewry Maritime Research (2016). Reefer Shipping Review & Market Forecast, Annual
Report 2016/17, London.
FAO (2011). Global food losses and food waste - extent, causes and prevention. Report.
Rome: UN FAO.
FAO (2013). Food Wastage Footprint: Impacts on Natural Resources. Summary Report,
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
Rome: UN FAO.
FAO (2014). Food Wastage Footprint: Full-Cost Accounting, Final Report.
FAO (2015). Food Wastage Footprint & Climate Change. [available at www.fao.org, access
15 March 2018]
Grolleaud, M. (2002). Post-harvest losses: discovering the full story. Overview of the phe-
nomenon of losses during the post-harvest system. Rome, Italy: FAO, Agro-Industries
and Post-Harvest Management Service.
Haass, R., Dittmer, P., Veigt, M. & Lutjen, M. (2015). Reducing food losses and carbon
emission by using autonomous control – a simulation study of the intelligent con-
tainer, International Journal of Production Economics, 164, pgs. 400–408.
HLPE (2014). Food losses and waste in the context of sustainable food systems. A report
by the High Level Panel of Experts on Food Security and Nutrition of the Committee
on World Food Security, Rome.
IATA (2018). IATA Cargo Strategy. [available at www.iata.org, access March 22, 2018)
719
Jaffee, S. M., & Henson, S. (2005). Agro-food exports from developing countries: the challenges
posed by standards. In Aksoy, M. A. & Beghin, J. C. (ed.), Global agricultural trade and
developing countries, The World Bank, Washington, pgs. 91-114.
James, S.J. & James, C. (2010). The food cold-chain and climate change, Food Research Inter-
national, 43, pgs. 1944–1956.
Ketzenberga M., Gauklerb G. & Salin V. (2018). Expiration dates and order quantities for
perishables, European Journal of Operational Research, 266, pgs. 569–584.
Magdalena Klopott : HOW BREAKING THE INTEGRITY OF THE COLD SUPPLY CHAINS MAY CONTRIBUTE TO GLOBAL WARMING?
Kitinoja, L. (2013). Use of cold chains for reducing food losses in developing countries. PEF
White Paper No. 13-03, The Postharvest Education Foundation.
Klopott M. (2008). Risk control in the maritime transport of perishable goods, Proceedings
of the International Conference of Transport Science ICTS 2008, Portoroż, Slovenia.
Lipinski, B. et al. (2013). Reducing Food Loss and Waste. Working Paper, Instalment 2 of
Creating a Sustainable Food Future. Washington, DC: World Resources Institute.
[available at http://www.worldresourcesreport.org, access March 20, 2018)
Lupien, J. R. (2005). Food quality and safety: traceability and labelling. Critical reviews in food
science and nutrition, 45(2), pgs. 119-123.
Mena, C., Adenzo-Diaz, B., Yurt, O. (2011). The causes of food waste in the supplier–retail-
er interface: Evidences from the UK and Spain, Resources, Conservation and Recycling
55, pgs. 648–658.
Miklińska, J. (2017). Development Of The Market For Modern, Commercial
Warehouse Spaces As The Logistics Infrastructure Facilities Of The Region;
Experiences From Poland, 6th International Scientific Symposium
ECONOMYof EASTERN CROATIA;VISION and GROWTH,Osijek 2017,ISSN
1848-9559, s. 880-890
Miller, J. (2016) Top Markets Report Cold Supply Chain A Market Assessment Tool for
U.S. Exporters, U.S. Department of Commerce | International Trade Administration
| Industry & Analysis.
Orbis Research (2018). Refrigerated Warehousing Market 2018 Global Trends, Market
Share, Industry Size, Growth, Opportunities, and Market Forecast to 2025. Parfitt, J.,
Barthel, M. & Macnaughton, S. (2010). Food waste within food supply chains: quanti-
fication and potential for change to 2050. Philosophical Transactions of the Royal Society
B: Biological Sciences 365, pgs. 3065-3081.
Rodrigue J.-P., Comtois C. & Slack B. (2017). The Geography of Transport Systems 4th
edition, New York: Routledge.
Rong, A., Akkerman R. & Grunow M. (2011). An optimization approach for managing
fresh food quality throughout the supply chain, International Journal of Production Eco-
nomics, 131, pgs. 421-429.
Serrano, R., Pinilla, V. (2010), Causes of world trade growth in agricultural and food prod-
ucts, 1951–2000: a demand function approach, Journal of Applied Economics, Volume
42, Issue 27, pgs. 3503-3518.
720
Serrano, R., Pinilla, V. (2014), Changes in the Structure of World Trade in the Agri‐Food
Industry: The Impact of the Home Market Effect and Regional Liberalization from a
Long‐Term Perspective, 1963–2010, Agribusiness, Volume 30, Issue, 2, pgs. 165-183.
Tassou, S., Lewis, J., Ge, Y., Hadawey, A. & Chaer, I. (2010). A review of emerging technolo-
gies for food refrigeration applications. Applied Thermal Engineering 30, pgs. 263-276.
Technavio (2015). Global Cold Chain Market 2015-2019.
UN (2017). World Population Prospects: The 2017 Revision, UN Department of Econom-
ic and Social Affairs.
WTO (2017). World Trade Statistical Review 2017.
Winkworth-Smith, C. G., Foster T. J. & Morgan W. (2015). The impact of reducing food
loss in the global cold chain. University of Nottingham.
de Wit, G. (2016). Perishables Markets – Modal Shift – Trends, WorldACD Mar-
ket Data, IATA World Cargo Symposium, Berlin, March 2016. (presentation).
Venkat, K. (2012). The climate change and economic impacts of food waste in the
United States. International Journal on Food System Dynamics, 2, pgs. 431-446.
721
Financial
Economics
HARMONIZATION OF THE
CROATIAN PENSION SYSTEM
WITH A EUROPEAN SOCIAL
MODEL PERSPECTIVES AND
CHALLENGES
Abstract
725
dition, there is important compliance with the distribution of pension income
Branko Matić Maja Vretenar Cobović Mirko Cobović: HARMONIZATION OF THE CROATIAN PENSION SYSTEM WITH A EUROPEAN SOCIAL MODEL...
within the three pillars of insurance and the investment of individual pension
fund portfolios. Such harmonization would contribute to the harmonization of
the Croatian pension system with the European social model and ultimately
the sustainability of pension insurance in the future.
Key words: Pension System, Sustainability, Compliance, Croatia, European
Union
JEL Classification: H55, H75
1. INTRODUCTION
The pension system is a set of specific standards that regulate different risks
(age risk insurance, disability, etc.). The first forms of pension insurance in Cro-
atia were based on informal forms of so called old-age insurance whose owners
were agricultural household cooperatives. The development of the formal forms
of the pension system in our area is evident in the pensions of soldiers and civil
servants and in the lockers dating back to the 19th century. The legal arrange-
ment of this system was introduced in 1922 in the Kingdom of Serbs of Croats
and Slovenes when the Workers’ Insurance Act regulating employee retirement
provision was adopted. The crisis of the pension system, at the end of the period
of socialism was deepened even after the acquittal of Croatia’s independence,
and it sought to be resolved by pension reforms.
726
needs of the cooperatives, and also the daily financial assistance based on real-
ized sales revenues (Matić & Vretenar, 2009, 286). Further development of old
age insurance in Croatia was based on its formal forms and the development of
industrial society.
727
unemployment risk and mandatory retirement insurance for workers across the
Branko Matić Maja Vretenar Cobović Mirko Cobović: HARMONIZATION OF THE CROATIAN PENSION SYSTEM WITH A EUROPEAN SOCIAL MODEL...
country, covering the risks of age, disability and death (Puljiz & et al., 2008,
79). Pension funds were financed by the contributions of workers and employ-
ers, while work accident insurance was funded exclusively by contributions paid
by the employer. In addition to the 1922 Employee Pension Insurance, at that
time, employee retirement insurance was established as a mandatory insurance,
followed by the development of other professional forms of retirement insur-
ance for certain categories of employees (eg. employees in traffic, military, mu-
nicipal officers, journalists, traders, craftsmen, etc.).
728
funds was expressed, while in the 1950s there was gradual decentralization
and the introduction of self-managing elements in the management of pension
funds. Further development of pension insurance in our area is related to the
separation of health insurance, and in 1964 the Act allowed voluntary pension
insurance for those citizens who were not covered by mandatory retirement
insurance until then.
With the increasing decentralization of pension insurance in our area, it can
be noticed that in the 1970s this insurance was introduced and implemented
as a model for pension insurance in European countries. This is indicated by
the favorable number of insured persons and pensioners in this period, espe-
cially in the 1950s and 1960s (in the fifties 8:1, in the sixties 6:1). A favorable
proportion of insured and retired people in the 1950s and 1960s has shown a
downward trend in the seventies and eighties and was 4:1. At the beginning of
1990, this ratio was very unfavorable in contrast to the ratio in other European
countries and amounted to 3:1.
Based on the historical analysis of pension insurance in Croatia between
1945 and 1990, it is possible to conclude that the underlying characteristics of
this system at the beginning of the observed period were accompanied by highly
centralized central government management, while in the fifties and sixties the
pension system gradually decentralized. Decentralization manifested itself in
the ways of managing pension funds, involving craftsmen and farmers in the
system, and financing pensions through employee contributions, while state in-
centives were enabled for the various categories of insured. Initially, the pension
729
.. Pension insurance system after acquiring the
Branko Matić Maja Vretenar Cobović Mirko Cobović: HARMONIZATION OF THE CROATIAN PENSION SYSTEM WITH A EUROPEAN SOCIAL MODEL...
730
3. THE REFORM OF THE CROATIAN PENSION
SYSTEM AFTER GAINING INDEPENDENCE
Due to the crisis of public pension systems based on inter-generational soli-
darity, most European countries, including Croatia, have undergone significant
reforms of this system, striving to adapt to changed economic and social condi-
tions. As already described, the causes of the pension system crisis were multi-
faceted, but its most common cause was an increase of the share of older people
in the total population and decrease in the birth rate, resulting in generational
imbalances.
After the independence, the demographic structure of the population count-
ed for less younger and more and more elderly people, which ultimately caused
the deterioration of the age structure of the population and at the same time
caused a crisis of the pension system. In addition to demographic changes in
Croatia, the increase in unemployment and changes in the structure of labor
contributed significantly to the pension system crisis. As a consequence, the
inflow of funds reduced from the contribution of the insured and increased
the deficit in the pension funds financed by the state. Due to the difficult situ-
ation of the Croatian pension system, in the mid-nineties, the preparation of
the Croatian pension reform began, with the World Bank playing a key role,
proposing a pension system in which the burden of pension funding tends to be
passed on to insured persons and at the same time reducing the cost of pension
funds to public finances.
.. The first pension reform in INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
In the first pension reform that began in 1999, the goal was to rationalize
and to make sustainable the existing pension system of intergenerational soli-
darity. The so-called parameter pension reform was carried out, in accordance
with the 1998 Pension Insurance Act, by which Croatia sought to reduce pen-
sion costs and adapt them to economic opportunities.
In accordance with the parametric reform it was necessary to do the following:
1) starting from 1999, raising the retirement age each year for six months;
2) the increase of the employment period based on which pension is calculated
(retirement age);
731
3) a new way of indexing (matching) pensions;
Branko Matić Maja Vretenar Cobović Mirko Cobović: HARMONIZATION OF THE CROATIAN PENSION SYSTEM WITH A EUROPEAN SOCIAL MODEL...
4) new pension calculation formula based on the pension system points (Pen-
sion Insurance Act, Official Gazette, 102/98).
The changes in the Croatian pension system had influenced the financial
sustainability of the pension system (stabilizing the number of pensioners, an
improved ratio of pensioners to the number of insured persons, decreasing the
share of pension costs in GDP). However, despite positive trends, parametric
pension reform did not achieve the targets set and the retirement of retired
insured retirees fell after 1999, which required additional reforms of the entire
retirement pension system in our country.
732
system), but at the moment of retirement the future pension of the insured is
determined on the basis of the personal account balance which depends on the
contribution of the insured and the profits in funds.
The pension reform implemented in 2002 also introduced a third pillar of
pension insurance for those persons who wish to be additionally insured in the
event of age, disability or death. This kind of pension insurance is voluntary,
carried out by voluntary pension funds and financially supported by the state.
All three pillars of pension insurance were supposed to provide greater so-
cial security and the overall level of pensions, or in a better way to reduce the
risks of age, disability and death. By creating three pillars of pension insurance,
its risks are transferred to more insurance holders, which for pensioners and
overall economic developments should be preferable to pension insurance based
solely on generational solidarity. Ultimately, pension reform was supposed to
contribute to the modernization of the economy, especially its financial sector.
In line with reforms in the pension system, Croatia has created a mixed fi-
nancing model in which instead of one there is a system with more pension pil-
lars. In this way, it sought to strengthen the financial sustainability of the whole
system and move closer to the European social model.
733
1) prohibition of any form of discrimination based on age, gender, race, lan-
Branko Matić Maja Vretenar Cobović Mirko Cobović: HARMONIZATION OF THE CROATIAN PENSION SYSTEM WITH A EUROPEAN SOCIAL MODEL...
734
1) Scandinavian countries (Sweden, Finland, Denmark and Norway) where
there are generally relatively low pensions for all residents, but there is a
strict link between the contributions paid and the amount of pension that
are financed from taxes and they are a guarantee of existential security for
all citizens;
2) continental Europe (Germany, France, Austria, Belgium, the Netherlands,
Switzerland and Luxembourg) where state pension systems are significant
in terms of high contributions and high-income levels;
3) The countries of southern Europe (Italy, Greece, Spain and Portugal) have
systems similar to those in continental Europe. The retirement age, which
was often low, is increasing, and the criteria for obtaining retirement rights
are more demanding;
4) Anglo-Saxon countries (Great Britain and Ireland) are characterized by
equal, low general pensions, which are by no means sufficient for all retirees.
Therefore, in these countries the position of pensioners that are not covered
by the second pillar is particularly uncertain (Bijelić, 2005, 92).
Looking at the total pension income within the three pillars of pension in-
surance in some European countries, it is possible to see different trends in the
distribution of pension income (Table 1).
Table 1. Revenues from pension contributions paid into three pillars of insur-
ance in some European countries (in %)
I II III
The largest income in the first pillar of pension insurance is by Spain and
Germany, while the dominance of the second pillar of insurance is most rep-
resented in the United Kingdom and Denmark. Such revenue distribution de-
pends on the very structure of pension insurance of a particular country, its
735
reforms, demographic trends and the historical tradition of a particular area of
Branko Matić Maja Vretenar Cobović Mirko Cobović: HARMONIZATION OF THE CROATIAN PENSION SYSTEM WITH A EUROPEAN SOCIAL MODEL...
Europe.
736
ployed persons and self-employed persons moving within the Community,
Journal officiel L 209, Article 4, 5, 6, 7).
The Third Directive within the Second Pillar of Pension Insurance in the
European Union is Directive 2003/41/EZ of 3 June 2003, which is regulat-
ing the activities and supervision of professional pension insurance providers,
whether they are legal persons or not, and which are funded and operated on
the principle of capitalization (Directive 2003/41/EC on the activities and
supervision of professional pension schemes, Journal officiel L 235, Article 2).
Here, the importance of improving the computerization of these institutions
is particularly emphasized, which would contribute to a better comparison of
paid pension contributions of insured persons through time and control of in-
dividual processes in the second pillar of insurance.
Based on the analyzed Directives, the main characteristics of the second pil-
lar of the pension insurance are related to the existence of employment relations
or dealing with a particular occupation (so-called occupational or professional
insurance). Access to these care systems is only provided to employees in cer-
tain societies, industries or sectors and is based on agreements between social
partners or compliance with standards applicable in a certain field of activity.
The second pillar pension systems are managed by private institutions, and un-
like the first pillar, the state does not guarantee their payments. Contributions
are determined on an earnings basis and are equally paid by the employer and
the employee. Financing of these systems is mostly carried out within pension
funds, so current contribution income is invested to pay off future, but not cur-
737
In the member states of the Union there are different characteristics of the
Branko Matić Maja Vretenar Cobović Mirko Cobović: HARMONIZATION OF THE CROATIAN PENSION SYSTEM WITH A EUROPEAN SOCIAL MODEL...
738
institution that offers such financial products, and these are the most common
in life insurances. Contributions or payments of an individual are accumulated
and invested, so the funds are collected, including all the benefits of invested
capital, which will later fund retirement payments to the insured. Contribution
payments under the third pillar of pension insurance can eliminate the problems
of job loss for users of this system. Such forms of social security are relatively
well-resourced to demographic changes as opposed to the state pension system,
which is under pressure from the aging process of the population. Like in the
second pillar, in the third pillar of pension insurance it is, also, possible the inad-
equate return of capital and the absence of a mechanism to protect against the
effects of inflation. However, in spite of the disadvantages, life insurance has long
traditions in the market economy in some economies and a great economic im-
portance, especially for the third-year population, which, by participating in the
third pillar of pension insurance, ensures greater social and economic security.
739
terprise group, economic sector, branch etc.) is funded by the application of capi-
Branko Matić Maja Vretenar Cobović Mirko Cobović: HARMONIZATION OF THE CROATIAN PENSION SYSTEM WITH A EUROPEAN SOCIAL MODEL...
talization (the second pillar of pension insurance) and the individual voluntary
pension insurance in which the insured person independently chooses the hold-
er, and the insurance terms and conditions (third pillar of pension insurance).
Unlike the European pension system, the Croatian pension system, which is
also based on three pillars of insurance, in the second pillar has a mandatory and
private pension insurance funded by the application of capitalization of contri-
butions to the insured’s personal accounts, while the third pillar has the so-
called additional voluntary insurance (voluntary closed-end pension funds) and
exclusively voluntary pension insurance (voluntary open-end pension funds).
According to the analysis conducted, it is possible to conclude that the leg-
islation of the Croatian pension system is formally aligned with the obligations
deriving from the EU Directive in the field of pension insurance but the Croa-
tian pension system is not in line with the European social model, in the part
of mandatory pension insurance based on individual capitalized savings (the
second pillar of pension insurance). The basic differences between the pension
system of Croatia and the European model within the second pillar of pension
insurance are seen in the following characteristics:
1) there is no guarantee of the lowest retirement income, but only the agreed
pension is guaranteed;
2) the consistency of the principle of reciprocity is applied, and the granting
depends in full on the amount in the personal account of the mandatory
pension funder;
3) there is no social dialogue and there is no provision for the participation of
pension funders in the management of their funds, although these funds are
their property;
4) in Croatia, the second pillar of pension insurance has the sole characteristic
of the obligation, unlike other Member States, and is not based on profes-
sional insurance;
5) the investment of the second pillar pension fund portfolio in Croatia is sig-
nificantly different from other member states;
6) there is no improvement in the computerization of pension funds which
would contribute to the easier comparison of paid pension contributions
of insured persons through time and control of individual processes in the
second pillar of insurance.
740
By analyzing these characteristics, one finds the non-conformance in a part
of the Croatian pension system with the European social model at its second
pillar. According to the definition of so-called cognitive alignment of the Croa-
tian pension system with the European social model, it is possible to conclude
that the pension system of Croatia lacks the so-called “Europeization”, ie. the
expansion and introduction of formal and informal rules in order to achieve the
social and economic security of current and future insurers of the second and
third pillars based on capitalized mandatory and voluntary pension insurance
in the most efficient way.
6. CONCLUSION
The stability of the pension system is one of the fundamental problems, both
for Croatia and for other EU member states, and its co-ordination between
countries is of particular importance. According to the analysis conducted, it
is possible to conclude that the legislation of the Croatian Pension System is
formally aligned with the obligations arising from the EU Directive in the field
of pension insurance, but the Croatian pension system is not in line with the
European social model within the second pillar of pension insurance. The pen-
sion system of the Republic of Croatia, based on three pillars of insurance, has
the second pillar of mandatory pension insurance funded by the contribution of
capitalization to the personal accounts of insured persons, as opposed to Euro-
pean based on professional insurance and certain professional elements and in
most EU, countries is a voluntary type. In accordance with the aforementioned,
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
Croatia will have to do a series of procedures related to the so-called cognitive
compatibility that would contribute to the compatibility of the Croatian pen-
sion system with the European social model and ultimately the sustainability of
pension insurance in the future.
REFERENCES
Bijelić, M. (2005). Osiguranje i reosiguranje, Tectus, Zagreb
Puljiz, V. & et al. (2008). Socijalna politika Hrvatske, Pravni fakultet Sveučilišta u Zagrebu,
Zagreb
Bagarić, N. & Marušić, LJ. (2004). Pristup socijalnim pravima u Hrvatskoj: mirovinsko osig-
uranje, Revija za socijalnu politiku, broj 1, Zagreb, p. 39-61.
741
Matić, B. & Vretenar, M. (2009). Gospodarstvo i financijske institucije Brodsko-posavske
županije (od sredine 18. do sredine 20. stoljeća), Ekonomski vjesnik, br. 2/2009., Ekonomski
Branko Matić Maja Vretenar Cobović Mirko Cobović: HARMONIZATION OF THE CROATIAN PENSION SYSTEM WITH A EUROPEAN SOCIAL MODEL...
742
STOCK MARKETS REACTIONS
TO NEGATIVE DECISIONS OF
STANDARD&POOR’S RATING
AGENCY EIGHT CASE STUDIES
Izabela PRUCHNICKAGRABIAS
Warsaw School of Economics
E-mail: [email protected]
Abstract
The literature research say that the influence of credit rating agencies decisions
to stock markets is often noticeable. Using the variance analysis, the author
presents eight case studies from chosen European countries analyzing the influ-
ence of negative announcements of the Standard&Poors’ agency to stock mar-
kets volatility fluctuations. It is assumed that the studied influence can appear
not only during the day of the announcement, but also some time before and
sometime after the event. The study period was from January 2004 to June
2016 and European countries with the highest amounts of credit rating nega-
tive announcements were chosen. The author suggests that negative decisions
of Standard and Poor’s impact stock markets behaviour, however differently in
various countries.
Key words: credit rating agencies, negative ratings, stock markets, volatility INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
1. THEORETICAL BACKGROUND
Stock market prices depend on many factors. There are plenty of research
suggesting the influence of such factors as for example inflation, GDP, industrial
production, consumption, currency rates, interest rates, money supply, crude oil
prices (Buyuksalvarei, 2010; Hsing, 2011a; Hsing, 2011b; Hsanzade and Kian-
vand, 2012; Wisniewski, 2014). However, apart from macroeconomic variables,
these are decisions of credit rating agencies which are supposed to impact stock
prices (Bayar, 2013; Christopher, Kim and Wu, 2012; Fatnassi, Ftiti and Has-
743
naoui, 2014). Some theoretical research suggests that there is some influence
Izabela Pruchnicka-Grabias: STOCK MARKETS REACTIONS TO NEGATIVE DECISIONS OF STANDARD&POOR’S RATING AGENCY - EIGHT CASE STUDIES
3. RESEARCH RESULTS
The conducted research shows that credit rating announcements influence
stock markets behaviour, however differently in various countries. The effect
can be present both before the day of the announcement (Hungary) or later
(Italy) or exactly during the day of the announcement (Island) or both before
and after (the rest of examined countries).
744
Table 1. Breakdown table of descriptive statistics1
Standard & Poor’s1 ATHEX Composite ATHEX Composite ATHEX Composite
Ratings Averages N valid Standard deviations
0 -0,000332 3026 0,020366
1 -0,007087 63 0,024003
Total -0,000470 3089 0,020464
Source: author’s calculations.
Chart 1. Categorized Box & Whisker Plot for the ATHEX Composite index.
1
0 means that there was no decision of the rating agency on the decrease of the rating category, 1
means the opposite situation, that is the rating decrease.
745
Chart 2. Categorized histogram of rates of return on the ATHEX Composite
Izabela Pruchnicka-Grabias: STOCK MARKETS REACTIONS TO NEGATIVE DECISIONS OF STANDARD&POOR’S RATING AGENCY - EIGHT CASE STUDIES
index.
In Table 2 please find the results of the variance analysis of rates of return
on ATHEX Composite index. According to F-Snedecor distribution tables, for
the declared significance level α= 0,05, the beneath described findings are true:
F0,05;1;3087 = 3,8,
which lets create the critical range as < 3,8; +∞ >. The value 6,74 is in the range
of rejections of the null hypothesis. It means that the hypothesis on the lack of
relations between the negative announcement of the credit rating agency and
746
the volatility of rates of return on the ATHEX Composite index should be
rejected. The decision is statistically unambiguous.
Lavene homogenity test (Table 3) shows that at the assumed significance
level of α = 0,05 the hypothesis on the variance homogeneity cannot be re-
jected. The same conclusions can be drawn from the Brown-Forsythe test.
.. Spain
The null hypothesis is defined in the following way: there is no relation be-
tween the rating category decrease by Standard&Poor’s for Spain and the vola-
tility of rates of return on the IBEX35 index.
747
Chart 3. Categorized Box & Whisker Plot for the IBEX35 index.
Izabela Pruchnicka-Grabias: STOCK MARKETS REACTIONS TO NEGATIVE DECISIONS OF STANDARD&POOR’S RATING AGENCY - EIGHT CASE STUDIES
748
Table 5. Results of the variance analysis.
SS df MS
Variable SS Error df Error MS Error F p
Effect Effect Effect
IBEX35 0,000887 1 0,000887 0,715806 3181 0,000225 3,939695 0,047245
Source: author’s calculations.
749
Chart 5. Categorized Box & Whisker Plot for the PSI20 index.
Izabela Pruchnicka-Grabias: STOCK MARKETS REACTIONS TO NEGATIVE DECISIONS OF STANDARD&POOR’S RATING AGENCY - EIGHT CASE STUDIES
750
Table 8. Results of the variance analysis.
SS df MS df
Variable SS Error MS Error F p
Effect Effect Effect Error
ICEX 0,004331 1 0,004331 1,588297 3104 0,000512 8,464234 0,003648
Source: author’s calculations
Table 8 shows the results of the variance analysis. F-Snedecor tables for α =
0,05 show that:
F0,05;1;3104 = 3,8,
which lets define the critical range < 3,8; +∞ >. 8,46 is placed in it. The hypoth-
esis on the lack of relations between the negative decision of the rating agency
and the volatility of rates of return on ICEX index should be rejected at each
important significance level. The decision is fully statistically unambiguous.
Results of variance homogeneity test by Lavene (Table 9) prove that at the
declared significance level α = 0,05 the hypothesis on the homogeneity of vari-
ances should be rejected. The decision is fully statistically unambiguous. Identi-
cal conclusions can be drawn with the Brown-Forsythe test.
751
Chart 7. Categorized Box & Whisker Plot for the OMX index.
Izabela Pruchnicka-Grabias: STOCK MARKETS REACTIONS TO NEGATIVE DECISIONS OF STANDARD&POOR’S RATING AGENCY - EIGHT CASE STUDIES
752
Table 11. Results of the variance analysis.
SS df MS df
Variable SS Error MS Error F p
Effect Effect Effect Error
OMX 0,000838 1 0,000838 0,485303 3115 0,000156 5,375974 0,020480
Source: author’s calculations
Table 11 shows the results of the variance analysis. F-Snedecor tables for α
= 0,05 show that:
F0,05;1;3115 = 3,8,
which lets define the critical range < 3,8; +∞ >. 5,38 is placed in it. The hypoth-
esis on the lack of relations between the negative decision of the rating agency
and the volatility of rates of return on OMX index should be rejected at each
important significance level. The decision is fully statistically unambiguous.
Results of variance homogeneity test by Lavene (Table 12) prove that at the
declared significance level α = 0,05 the hypothesis on the homogeneity of vari-
ances should be rejected. The decision is fully statistically unambiguous. Identi-
cal conclusions can be drawn with the Brown-Forsythe test.
753
Chart 9. Categorized Box & Whisker Plot for the BUX index.
Izabela Pruchnicka-Grabias: STOCK MARKETS REACTIONS TO NEGATIVE DECISIONS OF STANDARD&POOR’S RATING AGENCY - EIGHT CASE STUDIES
754
Table 14. Results of the variance analysis
SS df MS
Variable SS Error df Error MS Error F p
Effect Effect Effect
PSI20 0,000671 1 0,000671 0,510189 3197 0,000160 4,206373 0,040354
Source: author’s calculations
Table 14 shows the results of the variance analysis. F-Snedecor tables for α
= 0,05 show that:
F0,05;1;3197 = 3,8,
which lets define the critical range < 3,8; +∞ >. 4,2 is placed in it. The hypoth-
esis on the lack of relations between the negative decision of the rating agency
and the volatility of rates of return on PSI20 index should be rejected at each
important significance level. The decision is fully statistically unambiguous.
Results of variance homogeneity test by Lavene (Table 15) prove that at
the declared significance level α = 0,05 the hypothesis on the homogeneity of
variances should be rejected at each important significance level. The decision
is fully statistically unambiguous. Identical conclusions can be drawn with the
Brown-Forsythe test
.. Russia
As the null hypothesis the following statement is made: there is no relations
between the rating decrease for Russia by Standard&Poor’s and the volatility of
rates of return on the MICEX index.
Table 16. Breakdown table of descriptive statistics
Standar & Poor’s MICEX MICEX MICEX
Ratings Averages N valid Standard deviations
0 0,000660 4568 0,026213
1 0,006184 119 0,072482
Ogółem 0,000668 4449 0,026325
Source: author’s calculations
755
Chart 11. Categorized Box & Whisker Plot for the MICEX index
Izabela Pruchnicka-Grabias: STOCK MARKETS REACTIONS TO NEGATIVE DECISIONS OF STANDARD&POOR’S RATING AGENCY - EIGHT CASE STUDIES
756
Table 17. Results of the variance analysis
SS df MS df
Variable SS Error MS Error F p
Effect Effect Effect Error
MICEX 0,005434 1 0,005434 3,160325 4572 0,000691 7,861508 0,005071
Source: author’s calculations
Table 17 shows the results of the variance analysis. F-Snedecor tables for α
= 0,05 show that:
F0,05;1;4572 = 3,8,
which lets define the critical range < 3,8; +∞ >. 7,86 is placed in it. The hypoth-
esis on the lack of relations between the negative decision of the rating agency
and the volatility of rates of return on MICEX index should be rejected at each
important significance level. The decision is fully statistically unambiguous.
Results of variance homogeneity test by Lavene (Table 18) prove that at the
declared significance level α = 0,05 the hypothesis on the homogeneity of vari-
ances should be rejected. The decision is fully statistically unambiguous. Identi-
cal conclusions can be drawn with the Brown-Forsythe test
757
Chart 13. Categorized Box & Whisker Plot for the ICEX index.
Izabela Pruchnicka-Grabias: STOCK MARKETS REACTIONS TO NEGATIVE DECISIONS OF STANDARD&POOR’S RATING AGENCY - EIGHT CASE STUDIES
758
Table 20. Results of the variance analysis.
SS df MS df
Variable SS Error MS Error F p
Effect Effect Effect Error
BUX 0,001246 1 0,001246 0,998722 4117 0,000243 5,135172 0,023497
Source: author’s calculations
Table 20 shows the results of the variance analysis. F-Snedecor tables for α
= 0,05 show that:
F0,05;1;4117 = 3,8,
which lets define the critical range < 3,8; +∞ >. 5,13 is placed in it. The hypoth-
esis on the lack of relations between the negative decision of the rating agency
and the volatility of rates of return on BUX index should be rejected at each im-
portant significance level. The decision is fully statistically unambiguous.
Results of variance homogeneity test by Lavene (Table 21) prove that at the
declared significance level α = 0,05 the hypothesis on the homogeneity of vari-
ances should be rejected. The decision is fully statistically unambiguous. Identi-
cal conclusions can be drawn with the Brown-Forsythe test.
759
Chart 15. Categorized Box & Whisker Plot for the FTSE MIB index.
Izabela Pruchnicka-Grabias: STOCK MARKETS REACTIONS TO NEGATIVE DECISIONS OF STANDARD&POOR’S RATING AGENCY - EIGHT CASE STUDIES
Chart 16. Categorized histogram of rates of return on the FTSE MIB index.
760
Table 23. Results of the variance analysis
SS df MS df
Variable SS Error MS Error F p
Effect Effect Effect Error
FTSE MIB 0,001036 1 0,001036 0,797671 3173 0,000251 4,121529 0,042424
Source: author’s calculations
Table 23 shows the results of the variance analysis. F-Snedecor tables for α
= 0,05 show that:
F0,05;1;3173 = 3,8,
which lets define the critical range < 3,8; +∞ >. 4,12 is placed in it. The hypoth-
esis on the lack of relations between the negative decision of the rating agency
and the volatility of rates of return on FTSE MIB index should be rejected. The
decision is fully statistically unambiguous.
Results of variance homogeneity test by Lavene (Table 24) clearly suggest
that at the declared significance level α = 0,05 there are no fundamentals to
reject the hypothesis on variance homogeneity. Identical conclusions can be
drawn with the Brown-Forsythe test.
5. FINAL CONCLUSION
As it was shown, negative decisions of Standard and Poor’s influence stock
markets behaviour, however differently in various countries. The effect can be
present both before the day of the announcement (Hungary) or later (Italy) or
exactly during the day of the announcement (Island) or both before and after
(the rest of examined countries).
761
REFERENCES:
Izabela Pruchnicka-Grabias: STOCK MARKETS REACTIONS TO NEGATIVE DECISIONS OF STANDARD&POOR’S RATING AGENCY - EIGHT CASE STUDIES
Bayar Y., C. Kilic, B. Kilic Savrul, Effects of Sovereign Credit Ratings on the Eurozone Stock
Markets During the Recent Financial Crises, International Journal of Business and
Social Science, Vol. 4 No. 12, 2013, p. 1 – 13.
Brooks R., D. Hillier, R. W. Faff, The National Market Impact of Sovereign Rating Changes,
Journal of Banking and Finance, Vol. 28, No. 1, 2004, p. 233 – 250.
Buyuksalvarei A., Effect of Macroeconomic variables on Stock Returns: Evidence from Tur-
key, European Journal of Social Sciences, Vol. 14, No. 3, 2010, p. 404-416.
Christopher R., S. Kim, E. Wu, Do sovereign ratings influence regional stock and bond mar-
kets interdependences in emerging markets, Journal of International Financial Mar-
kets, Institutions and Money, Vol. 22, No. 4, 2012, p. 1070 – 1089.
Fatnassi I., Z. Ftiti, H. Hasnaoui, Stock Market Reactions To Sovereign Credit Rating
Changes: Evidence From Four European Countries, The Journal of Applied Business
Research, Vol. 30, No. 3, 2014, p. 953 – 958.
Hasanzadeh A., M. Kianvand, The Impact of Macroeconomic Variables on Stock Prices:
The Case of Teheran Stock Exchange, Money and Economy, Vol.6, No. 2, 2012, p.
171-189.
Hsing Y., Effects of Macroeconomic Variables on the Stock Market: The Case of the Czech
Republic, Theoretical and Applied Economics, Vol. 18, No. 7, 2011, p. 53-64.
Hsing Y., Macroeconomic Determinants of the Stock Market Index and Policy Implica-
tions: The Case of a Central European Country, Eurasian Journal of Business and
Economics,Vol.4, No.7, 2011, p. 1-11.
Pruchnicka-Grabias I., The empirical study of the impact of credit rating agencies announce-
ments on the behavior of stock markets in European countries, in: D. Barkovic, B.
Runzheimer (red.), Interdisciplinary Management Research XIII, The J.J. Stross-
mayer University of Osijek and Hochschule Pforzheim University Opatija 2017, p.
758 – 780.
Treepongkaruna S., E. Wu, Realizing the volatility impacts of sovereign credit ratings in-
formation on equity and currency markets: Evidence from the Asian Financial Crisis,
Research in International Business and Finance, Vol. 26, No. 3, 2012, p. 335 – 352.
Wang Y., X. Chen, An Empirical Study of the Relationship between the Listed Company
Stock Returns and the Credit Rating, SHS Web of Conferences , 17, 01021, 2015, p.
1 – 4.
Wiśniewski H., Wpływ zmiennych makroekonomicznych na indeksy giełdowe, Praca dok-
torska, 2014, available at: https://depotuw.ceon.pl/bitstream/handle/item/918/Pra-
ca_dr_Hubert_Wisniewski.pdf?sequence=1.
762
PROJECT FINANCING OF
CULTURAL AND CREATIVE
INDUSTRIES IN CROATIA
ANALYSIS OF THE CREATIVE
EUROPE PROGRAMME 20142020
RESULTS
Abstract
The cultural and creative industries (CCI) today have an increasing impor-
tance at the local, regional and European level. Project cooperation in financing
and conducting the projects between partners from different European coun-
tries and linking to their common resources explores encourages and strength-
ens the European cultural and creative sector. Thus, the European Union,
within the framework of the Creative co-financing programs enables the appli-
cant countries transnational mobility, audience and capacity development, all
within innovative CCI. The aim of this paper is to determine the success and
763
capacities of Croatian CCI organizations in applying for co-financing of their
projects from the Creative Europe Programme (2014-2020), sub-programme
Culture. In this paper, the authors analysed the co-financed projects from the
Ivana Bestvina Bukvić Marija Šain Maja Haršanji: PROJECT FINANCING OF CULTURAL AND CREATIVE INDUSTRIES IN CROATIA – ANALYSIS ...
1. INTRODUCTION
Today, the ever-increasing influence of information and communication
technology (ICT) is heightened at the higher level of art and culture where
cultural and creative industries (CCI) are becoming more recognizable. The
conceptual definition of CCI’s even nowadays still is not unambiguously de-
fined. The CCI “...definitions are diverse and non-standardized, followed by the
rapid development of these industries and their impact on the globalization
of cultural and creative production and consumption.” (Švob-Đokić, 2008, 55)
UNESCO defines the CCI as a sector of organized activities whose main pur-
pose is production or reproduction, distribution and /or commercialization of
goods, services, and activities of cultural, artistic or natural nature. (UNESCO,
n.d.), where “in recent years, cultural theorists have concluded that the creative
industries sector is fuelling not only economic growth but also social and cul-
tural development.” (Matheson, 2006, 55) “The creative industry (CI) contrib-
utes to economic development in general, has an export potential and is based
764
on knowledge, science, technological and art innovation, development of talents
and preservation of national cultural heritage through its implementation into
contemporary products and services.” (Horvat et. al, 2018, pp. 18) Generally
speaking, the CCI contribution gives creative professionals through their rec-
ognizable and free creative expression, which can contribute to achieving eco-
nomic value. (Rocks, 2017; Borić)
CCI consists of 12 sub-sectors: museums, libraries, and heritage; art; music
and performing arts; design; movie; photography; crafts (craft trades); architec-
ture; computer programs, games, and new media; electronic media; publishing
and advertising and market communication. (Mihaljević, Stanković, 2016) In
Croatia, CCI has been accurately identified several years ago using the National
Classification of Occupations, which, for comparison of the CCI of other coun-
tries, is aligned with the ISCO1. Namely, for the achievement of good business
results, according to Croatian cluster of competitiveness of creative and cultural
industries (HKKKKI), the supportive and flexible legislative and institutional
system, through which it is possible to carry out the activities of business and
cultural sector is certainly very important. (Ekonomski institut Zagreb, 2015;
Bestvina Bukvić et. al 2015) In this framework, it has been identified that “there
is a lack of economic and investment framework of a wider scope” (Bestvina
Bukvić & Karačić, 2015, p 443) which is, as well, significant for the development
of all business sectors, including CCI. The aim of this paper is to determine
the success of Croatian CCI including public and non-profit organizations in
co-financing projects from the Creative Europe Programme (2014-2020), sub-
programme Culture. Here, the research question was: do Croatian public and
non-profit CCI organizations use the EU programmes to finance their activities INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
and improve their performance, ie. are they ready to network on the level of the
EU and exploit common capacities to increase their recognition, business, and
financing models available through EU programmes?
For that purpose the authors conducted the research including analysis of
the co-financed projects from the Creative Europe Programme, Culture sub-
programme, through a three-year period beginning 2014, and available infor-
mation from the previous financing period of the Culture Programme (2013-
2017) i.e. covering all available periods for the purpose of defining the charac-
1
ISCO- International Standard Classification of Occupations
765
teristics of the project funded from these resources that are having Croatian
participants included as partners or project coordinators.
The following chapters are giving the relevant literature review and showing
Ivana Bestvina Bukvić Marija Šain Maja Haršanji: PROJECT FINANCING OF CULTURAL AND CREATIVE INDUSTRIES IN CROATIA – ANALYSIS ...
the funding opportunities for projects from the Creative Europe Programme
(2014-2020). Furthermore, chapter three gives an explanation of the applied re-
search methodology and research limitations while the following chapter gives
the interpretation of the research results. At the end, the concluding remarks
are given with the suggestion for following research activities.
766
the private and public organizations in culture have been forced to collect funds
from different sources to carry out planned activities, or to improve their ac-
tivity. Thus, in addition to the possibility of funding through public programs
available in Croatia (“Program of public needs in culture”, “New Culture Foun-
dation”, “Entrepreneurship in culture”, etc.), private and public organizations
in the CCI area, it is possible to co-finance projects through various EU pro-
grammes. The support of the European Union to member states, as well as to
other countries outside its territory, through various programs of co-financing
projects, enables economic integration and cooperation, brings competitive ad-
vantage, but also contributes to the overall economy of the countries. (European
Commission, 2011)
This paper analyses co-financed projects through the seven-year Creative
Europe Programme (2014-2020), ie Culture sub-programme and in one-part
MEDIA sub-programme, intended primarily for the development of the cul-
tural and audio-visual sector of the countries. Within this programme, projects
can be submitted to all legal entities, but also to bodies of national, regional
and local authorities whose core business belong to the sphere of culture and
are in one of the 28 EU member states and overseas countries and EU ter-
ritories. Also, under special conditions, participation by the Member States of
the European Economic Area, the Swiss Confederation, accession countries,
candidates and potential candidates and the European Neighbourhood Policy
Member States is also possible. Participation opportunities in the Culture sub-
programmes are manifested through four types of competitions: Support to
European Cooperation Projects, Support to Literature Translation Projects,
European Network Support and Support to European Platforms. The entire INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
Culture sub-programme is coordinated by the Croatian Ministry of Culture
and their Creative Europe Desk (Republic of Croatia, Ministry of Culture, n.d.,
Directorate-General for Education, Youth, Sport and Culture (European Com-
mission, 2014) In addition, the European Union recognizes the needs of young,
talented artists and non-professionals and their innovations in the various seg-
ments of CCS-Creative Writing, Craftwork, Design, Painting, Music etc. en-
abling their mobility and networking through cross-sectoral cooperation that
contributes to sustainable development.
As far as the MEDIA sub-programme is concerned, which is aimed at cre-
ative industries with an emphasis on the audio-visual sector, the European
Union supports European filmmakers in the development of new film produc-
767
tions, seeking partners and finding a non-national audience. Namely, by co-
funding projects, smaller production companies have been able to distribute
different kinds of films - feature films, documentaries, television drama series
Ivana Bestvina Bukvić Marija Šain Maja Haršanji: PROJECT FINANCING OF CULTURAL AND CREATIVE INDUSTRIES IN CROATIA – ANALYSIS ...
768
tion on the value of the total grant, all other information is accessible, and there-
fore the projects with lacking information about the value were also, included
in the analysis. As well, the information about the Media programme (2007-
2013) is not published by the European Commission, and therefore could not
be included in the research. Here lies the space for further research, whereby
analysing all three conducted programs in the last two programming periods,
the exact and more comprehensive results could be found.
769
Table 1 The structure of the approved projects by sub-programmes of the Cre-
ative Europe Programme for the calls published in the period 2014 to
2017.
Ivana Bestvina Bukvić Marija Šain Maja Haršanji: PROJECT FINANCING OF CULTURAL AND CREATIVE INDUSTRIES IN CROATIA – ANALYSIS ...
770
Table 2 Overview of the structure of approved grants by action in the period
2007-2017 where Croatian partners were involved
EU grants Number
Programme/ Total EU of
Action Min per Max per Share
Sub-programme grants by Share approved
project project projects
programme
Cooperation
Culture 30,529,367 68.2% 22,152 2,000,000 51 30.4%
projects
Cooperation
Culture (2007-2013) 5,812,622 13.0% 52,500 1,607,185 65 38.7%
measures
Multi-annual
Culture (2007-2013) Cooperation 4,182,808 9.3% 651,500 1,541,035 10 6.0%
Projects
Audience
Media 1,101,843 2.5% 200,000 51,909 9 5.4%
Development
Literary
Culture translation 927,751 2.1% 14,457 99,411 9 5.4%
projects
TV
Media Programming 603,769 1.3% 103,769 500,000 2 1.2%
Support
Culture Platforms 499,696 1.1% 499,696 499,696 1 0.6%
Festivals
MEDIA 301,000 0.7% 20,000 41,000 9 5.4%
Support
Capacity
Building/
MEDIA 286,500 0.6% 24,000 95,250 6 3.6%
Training
Support
On-line
MEDIA 268,289 0.6% 36,200 89,339 4 2.4%
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
distribution
Refugee
Cross-sectorial Integration 199,989 0.4% 199,989 199,989 1 0.6%
Projects
Film
MEDIA 60,000 0.1% 60,000 60,000 1 0.6%
Education
The total value of the EU grants 44,773,633 168 1
771
actions, ie. action Networks, the projects with Croatian partners were not in-
volved and Platforms where only one project was accepted by the EU.
Table 3 gives the statistical analysis of the grants approved to the projects
Ivana Bestvina Bukvić Marija Šain Maja Haršanji: PROJECT FINANCING OF CULTURAL AND CREATIVE INDUSTRIES IN CROATIA – ANALYSIS ...
that are including Croatian partners. The analysis showed that in the structure
of the financial grants approved there are high differences in the amounts of
approved grants value that is depending on the characteristics of the sub-pro-
grammes and the planned project activities.
Table 3 Statistical analysis of the grants approved to projects including Croa-
tian partners
The minimum level of approved grant is 14 thousand EUR for the Literary
translation projects action, while the highest grant was approved in Coopera-
tion projects, that by terms of this action allowed the larger, financially more
demanding projects. The median was found the level of 195,016, where half of
the respondents got approved a grant in the amount less than 195,016 EUR
and the other half more than named amount, with a rather high level of stan-
dard deviation (σ = 528,925). It should be taken into consideration the fact
that the maximum level of possible financing in the Large-scale projects is 2
million EUR.
Table 4 presents the structure of the approved projects including the Croa-
tian partners by the sub-programme, the action and by the level of approved
grant.
772
As shown below and according to the official European commission infor-
mation, the 68,2% of the approved projects were financed with 200 thousand
EUR or fewer funds, while 83,3% were financed with 300 thousand or less,
of maximum possible grant of 2 million EUR. Only 6.8% of the projects are
placed in the upper quartile (1,500-2,000 million EUR) of the distribution.
The reason lies in the fact that the aforementioned call European Culture, Cul-
ture sub-programme, involves selecting between applications for small scale or
large-scale cooperation projects. Thus, the application of smaller co-operation
projects enables at least three organizations from different countries to receive a
grant of up to 60% of the total project value (ie. 200 thousand EUR). Contrary
to this, the financing of major, large scale EU projects by the European Union
implies up to 50% of co-financing of the value of the project, ie. maximum of 2
million EUR, and has to be submitted by at least six organizations from differ-
ent eligible countries.
773
Ivana Bestvina Bukvić Marija Šain Maja Haršanji: PROJECT FINANCING OF CULTURAL AND CREATIVE INDUSTRIES IN CROATIA – ANALYSIS ...
Table 4 Structure of the approved projects that are including the Croatian partners by the sub-programme, action and by the
774
value of the approved grant
Culture
Creative Europe Programme Creative Europe Programme
(2007-2013)\
EU grant (Culture sub-programme) (MEDIA sub-programme)
(in ‘000) Capacity Total Share
distribution Multi-annual On-line
Cooper. Cooperation Literary translation Audience Building/ Festivals
Cooper. Platforms distri-bution Other2
measures projects projects Development Training Support
projects
Support
-100 3 1 17 3 6 9 3 2 44 33,3%
101-200 19 20 5 2 46 34,8%
201-300 4 15 1 20 15,2%
401-500 1 1 2 1,5%
501-600 1 1 2 1,5%
601-700 1 1 0,8%
701-800 1 1 0,8%
901-1000 1 1 0,8%
1101-1200 1 1 2 1,5%
1401-1500 1 3 4 3,0%
1501-1600 1 1 0,8%
1601-1700 1 1 0,8%
1801-1900 3 3 2,3%
1901-2000 4 4 3,0%
Sum 27 4 51 17 1 9 6 9 3 5 1323 100,0%
Distribution 20,5% 3,0% 38,6% 12,9% 0,8% 6,8% 4,5% 6,8% 2,3% 3,8% 100,0%
Source: author’s calculations according European Commission, 2018a and European Commission, 2018b
2
Chategory „Other“ includesfollowingactivities: On-line Distribution Support, Refugee Integration Projects, TV Programming Support, Film Education.
3
Note: as the information about value of the grant for all Culture programme (2007-2013) are not available, there is a difference in the information presented by
Table 2 and tables 3and 4 that are including only 132 projects with published amount of the grant awarded.
Table 5 gives the structure of the Croatian partners’ role in the approved
projects in the most significant action Cooperation-projects (as it includes
30.4% of the number and the 68% of total funds approved to the projects with
the Croatian partners).
From the table shown, Croatia is mostly involved in small scale Cooperation
projects, where it is taking a role of leading partner in only 7 cases (13.73% of all
approved projects, where the financially largest project was approved with the
grant at the level of 198 thousand EUR).
The proponents of these projects are mainly associations and non-govern-
mental organizations where one project is being led by Croatian national the-
atre. This implies the possibility of existing the general reluctance or lack of
motivation as well as the capacity of national public organisations to apply their
project:
a) under Large-scale projects and
b) them as project coordinators (leading partners)
It has to be noted that in public institutions there are rare measures by which
institutions could motivate their employees to work on development of the new
projects (ie. free working days, less working obligations on their regular position
during the project lasting etc.), if their position is not directly linked to the proj-
ect development and project management position. This, together with lack of
financial strength can be one of the obstacles for the larger interest of the CCI
for the available alternative funding.
775
Table 6 presents the structure of all approved projects on the level of sub-
programme Culture by action and the projects where Croatia was participating
country by its role in the project.
Ivana Bestvina Bukvić Marija Šain Maja Haršanji: PROJECT FINANCING OF CULTURAL AND CREATIVE INDUSTRIES IN CROATIA – ANALYSIS ...
By observing the value of the grants approved through the activity Coopera-
tion projects, it was found that total value of the 51 projects including Croatian
partners was 30.5 million EUR, from which 7 projects with total value of the
grants approved in amount of 1.39 million EUR were coordinating by Croatian
partners, ie. 4.5% all in category of the Small-scale projects. Neither one project
from the category of the Large-scale projects is being led by the Croatian part-
ner as a coordinator.
By official information, only 7 projects in Culture sub-programme, coopera-
tion projects included cultural institutions in public ownership: Croatian Na-
tional Theatre Zagreb, Croatian National Theatre Split, The Croatian National
Theatre Ivan pl. Zajc in Rijeka, Croatian state Archive, and Museum of fine
Arts, Zagreb. From named 7 projects, 6 projects are small scale cooperation
projects and one project, in which Croatian National Theatre Zagreb that is
included into the project together with 27 other partners from 16 countries, got
a grant in the amount of 2 million EUR.
Table 7 is showing the structure of approved Literacy translation projects.
776
Table 7. Approved Literacy translation projects
Application Number of approved
Share
Country Name projects
Bulgaria 29 12.8%
Serbia 23 10.2%
Slovenia 20 8.8%
Hungary 19 8.4%
Macedonia 19 8.4%
Spain 18 8.0%
Italy 18 8.0%
Croatia 17 7.5%
Other 63 27.9%
Total 226
Source: author’s calculations according European Commission, 2018a and European Com-
mission, 2018b
777
owned cultural institutions are manly state funded, and thus less forced to seek
alternative funding.
Ivana Bestvina Bukvić Marija Šain Maja Haršanji: PROJECT FINANCING OF CULTURAL AND CREATIVE INDUSTRIES IN CROATIA – ANALYSIS ...
5. CONCLUSION
The key division on the policy instruments level that can be deciphered is
between those who receive support from the state (such as film, book and - to
some extent - music industry) and those creative industries which are at the
marketplace operating their businesses on the market/profit principles (such as
design, advertising, architecture, multimedia and electronic publishing). (Pri-
morac, 2008). However, the role of the state regarding cultural industries, in the
region of the SEE remains crucial, as it remains the key player (i.e. funder) of
these fragile industries. Nevertheless, the cultural institutions, as well as entire
creative industry, should seek alternative sources of funding, especially regard-
ing the project funding.
EU program, Creative Europe Programme, is one of the most significant
programs regarding the encouraging development culture and creative in-
dustries and financing of its projects especially since such projects foster the
development of the market, possibility of increasing (production) capacities,
self-employment and youth employment, cross-sector cooperation, networking,
internationalization of the CCI ventures and projects, etc.
The aim of this paper was to assess the utilization of the possibilities of
Creative Europe Programme by the Croatian institutions, organisations, firms,
and associations and define their capacities for development of the EU Creative
Europe funded projects. For that reason, the authors were analysing the pres-
ence of the Croatian partners in the projects financed by the Creative Europe
Programme regardless of their role - as a partner or as a coordinator (lead-
ing partner). The research was conducted in 2018 on the 737 projects financed
from the Culture Programme (2007-2013) and 1,815 projects financed from
the Creative Europe Programme (2014-2020), including Culture and MEDIA
sub-programmes and Cross-sectorial). It was found that 168 projects that in-
cluded Croatian partners were approved through named programs that are
6.58% on the level of both programs. The most significant sub-programme and
activity for the Croatian participants is Culture sub-programme, action Coop-
eration projects, from which 68.2% of total funds were approved to the projects
778
including Croatian partners (by officially published information by European
Commission).
If observing the value of the grants approved through the most significant
activity Cooperation projects, it was found that total value of the 51 projects in
which Croatian partners were included was 30.5 million EUR, from which 7
projects with total value of the grants approved in amount of 1.39 million EUR
were coordinated by Croatian participants, ie. 4,5% of total value of the grants,
all in category of the Small-scale projects. By analysing the participation of the
public owned cultural institutions, it was found that they were included in sev-
en projects, where theatres, museum and state archive had a role of a partner,
mainly in the small-scale projects (with a grant of up to 200 thousand EUR).
Only one project previously named was led by the Croatian partner.
By observing the Culture sub-programme, activity Literacy translation proj-
ects it was found that Croatia is among eight most successful countries with
7.5% of the total number of the projects approved, ie. 928 thousand EUR,
where all grants amounted up to 100 thousand EUR.
According to the above, it can be stated that although Croatian partners are
active and were involved in 168 projects (6.58%), of a total number of 2,552
those projects are mainly Small-scale projects, up to 200 thousand EUR, with
limited range. As well, the number of projects where Croatia is coordinating,
or even public owned cultural institutions participating is very low, thus it can
be concluded that the capacities, motivation or the strength of Croatian appli-
cants is still not developed enough so the interstate activities supported by the
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
administration should be directed towards strengthening these characteristics
and skills.
As of above, future, more comprehensive research on this topic should in-
clude a greater number of EU programmes so the situation and the reasons for
lower utilization of the EU funds from the cultural institutions and the CCI in
Croatia could be determined.
REFERENCES
Bestvina Bukvić I., Mihaljević, M. & Tokić, I. (2015). Kulturna politika i utjecaj zakonskog
okvira na financiranje kazališta, Pravni vjesnik, 31(3-4), p. 147-164.
Bestvina Bukvić, I. & Karačić, D. (2014). Competitiveness as a function of local and regional
growth and development, Ekonomski vjesnik, 27(2), p. 437-445.
779
Borić, M. (2016): Utjecaj kreativnih industrija na gospodarski razvoj s posebnim naglaskom
na zaposlenost, izvoz i bruto dodanu vrijednost, Scientific Conference: Globalizacija i
regionalni identitet: Sociokulturno nasljeđe i gospodarski razvoj, Faculty of Agriculture in
Osijek, J. J.Strossmayer University of Osijek, Department of Cultural studies, Faculty
Ivana Bestvina Bukvić Marija Šain Maja Haršanji: PROJECT FINANCING OF CULTURAL AND CREATIVE INDUSTRIES IN CROATIA – ANALYSIS ...
780
Primorac, J. (2014). The Position and Perspectives of Cultural and Creative Industries in
Southeastern Europe, Medijskaistraživanja, 20(1), p. 45-64.
Rocks, C. (2017): London’s creative industries - 2017 update, 2017, Greater London Authority,
[available at:
https://www.london.gov.uk/sites/default/files/working_paper_89-creative-indus-
tries-2017.pdf, access March 21, 2018]
Republic of Croatia, Ministry of Culture (n.d.), Potprogram Kultura – tko, što, kako i zašto?
[available at: http://www.min-kulture.hr/default.aspx?id=9821, access April 15,
2018]
Švob-Đokić, N. (2008). Što su kulturne/kreativneindustrije, In Švob-Đokić, N., Primorac, J.
and Jurlin, K. (Ed.). Kultura zaborava-Industrijalizacija kulturnih djelatnosti. Zagreb:
Naklada Jesenski i Turk, pp. 55-68.
UNESCO, Regional Bureau for Education in Latin America and the Caribbean (n.d.).
Creative Industries [available at http://www.unesco.org/new/en/santiago/culture/
creative-industries/, access March 15, 2018]
781
DOING BUSINES WB REPORT AND
Mustafë Hasani Sakip Imeri Ramadan Kryeziu: DOING BUSINES WB REPORT AND IMPACT ON FDI IN WESTERN BALKAN CONTRIES WITH FOCUS...
Abstract
This study aims at learning the trend and reasons for the decline of FDIs in
Western Balkans countries with focus in Kosovo which has occurred in the
last five years, especially when taking into account the fact that some positive
changes where marked in the last years in the context of a reasonable improve-
ment of some indicators in the ranking in the World Bank report “Doing Busi-
ness” which have not been followed by an increase of FDIs’. Nowadays, it is
rather difficult to attract FDIs’, especially in the Western Balkans region, be-
cause their (countries’) interests and policies for favouring foreign investors are
tremendously significant and they are applying an active competition to attract
FDIs’ which is increasingly becoming more tough. These countries are almost
competing in setting policies, strategies and various financial and non-financial
incentives as well as in creating a better business environment.
Studies and research on finding a proper Strategy to attract foreign inves-
tors based on natural and human resources, on competitive advantages and
782
on identifying countries with potential investors, sectors and specific foreign
companies in order for them to invest in our country will definitely be the key
to economic growth, creation of new jobs, attraction of new technologies and
know-how, as well as the increase of the living standard in general.
Key words: FDI, WBR “Doing Business”, WB countries, Kosovo, decline of
FDIs
JEL Classification: D25, F21
1. INTRODUCTION
Western Balkan countries have made a major advance in improving the
business environment and are very committed to attracting foreign direct in-
vestment. Significant progress is also noted in the world Bank Doing Business
Report, where they are almost every year ranked better, some of them ranked in
the top 20, but such an increase has not been followed in the growth of foreign
investment Therefore, a broader analysis will be about the improvement of busi-
ness environment indicators and FDI in the Western Balkan countries with a
special focus on the Kosovo case.
After Kosovo declared its independence in February 2008 and became a
member of the World Bank in June 2009, a member of the International Mon-
etary Fund in July 2010 and a member of EBRD in 2012 it has a potential to
become a regional competitor in providing a suitable environment and a favour-
able investment climate for foreign investors. In this context, the government
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
of Kosovo in the years 2010 -2017 in all its statements regarding the increase
of foreign direct investments has referred to the improvement of indicators of
doing business as an important and necessary step for the improvement of the
investment climate and the attraction of foreign investors which was also fol-
lowed by an increased engagement in improving some regulations which did
mark a significant progress in improving the business enabling environment.
When Kosovo was for the first time included in the WB report “Doing Busi-
ness” in 2009 it was ranked in the 119th position, in the 2016 64th position,
whilst in the last report from 2018 it was ranked in the 40th position. This
significant improvement for 79 positions was not also followed with an increase
of foreign investments. On the contrary during these years foreign investments
783
have declined for over 50%. A similar situation with little or more difference is
also with the Western Balkan countries.
Mustafë Hasani Sakip Imeri Ramadan Kryeziu: DOING BUSINES WB REPORT AND IMPACT ON FDI IN WESTERN BALKAN CONTRIES WITH FOCUS...
2. METHODOLOGY
The methodology is based on secondary data that is provided by the UNC-
TAD, WB “Doing Business Report” and the Central Bank of Kosovo for the
period 2010 – 2017 followed by a good quality comparative analysis with the
countries in the region and a questionnaire and interviews with investors and
business associations mainly through:
- Global, FDI Trend, Regional and FDI inflow in Kosovo.
- World Bank Doing Business reports 2010- 2017.
- Kosovo government policies in support of FDI.
- The questionnaire with 20 foreign investors in Kosovo and interview with
business associations.
The purpose of this study is to show the theoretical link between the busi-
ness environments, respectively 10 indicators of the Doing Business report and
FDI in Balkan countries with focus in Kosovo and an analysis of the govern-
784
ment policies to attract foreign direct investments. This link between Doing
Business and FDI has become even more relevant because of the fact that im-
provements especially in 2015 and 2016 are visible whilst FDI are declining
each year. The comparative analysis of the data will issue the findings which
show which indicators have an impact on FDIs’ and which indicators with an
impact are not included in the reformation of regulations for a better business
environment.
Interviews were held with business associations, with consulting compa-
nies which represent a high number of domestic and foreign companies as well
as with experts from respective fields. Questionnaires were filled with 20 for-
eign companies, opinions were given and compared. The data analysis which
have served to draw up conclusions that the business environment partially
improved, only in a number of indicators of doing business does not have an
immediate impact on the increase of foreign investments and furthermore all
indicators do not have the same effect on FDI whilst in the case of Kosovo sig-
nificant improvements are not made exactly on those indicators which based on
the analysis of different authors have a higher impact on attracting investments.
( Jovanović and B. Jovanović 2014).
The research questionnaire with 20 foreign companies in Kosovo and the
interview with business associations such as the European Investors Council
in Kosovo, American Chamber of Commerce, Kosovo Chamber of Commerce,
Businesses Alliance of Kosovo, were focused in particular in the case of FDI
in Kosovo, therefore the findings mainly correspond with the case of Kosovo.
3. TRENDS IN FDI
According to the UN Conference on Trade and Development (UNCTAD/
WIR/2017), global inflows of FDI in 2016 were equal to US$ 1.74 trillion
which are lower for 2% compared to the previous year but it may be considered
that FDI inflows in all the years after the recession have decreased and increased
and they remain at this level and have never been close to the historical value of
pre-recession in 2007 (1.9 trillion).
785
Another important element is that in 2016 FDI flows to developing coun-
tries dropped by 14% and increased in developed economies for 5%, thus reach-
Mustafë Hasani Sakip Imeri Ramadan Kryeziu: DOING BUSINES WB REPORT AND IMPACT ON FDI IN WESTERN BALKAN CONTRIES WITH FOCUS...
ing a global share of 59%. This is a bad news for developing economies because
the trend of FDI movement is increasingly directed to developed countries.
But the god news is a fact that in the top host economies developing econo-
mies are leading i.e. 5 out of 10 top host economies are developing economies
(China, Hong Kong China, Singapore, Brazil, and India) this gives hope for
the development of developing economies because the trend of FDI movement
gradually is directed from developed countries to the developing ones (Bayrak-
tar 2013).
Such an assertion is also supported by the publication of (UNCTAD 2017)
document where top prospective destinations in line with the IPA-S survey
findings for 2017 - 2019 are developing countries such as China, India, Indone-
sia, Thailand, the Philippines, Viet Nam and Singapore.
786
litical determinants. (Blonigen and J Piger 2011) Also, the studies by (David
et al. 2001) and (Bergstrand and Eggar 2007) have developed the theoretical
model of multinational enterprises foreign investment decision that suggests
additional possible factors like ‘Vertical” motivation for FDI where firms look
for low-cost location for labour intensive production.
An important element related to the link of FDI and DB ranking is also
the fact that Luxembourg, which is ranked every year in the top 15 of the host
economies, is ranked in an average position in the DB report or exactly in 2017
was ranked 59th position The government has established some measures to
make the country more attractive to FDI such as fiscal benefits, equipment and
construction land. This is a reason to believe that in addition to the impact of
doing business indicators, other ways should be found to make the better in-
vestment climate and to attract foreign investment.
An increase of the FDI flow compared to the previous year was marked in
United Kingdom Luxembourg, Ireland, Finland, Netherlands, Sweden, Aus-
tria and the Czech Republic. A trend with low oscillations was maintained in
Switzerland, Spain and Norway. In general, movements of the FDI trend in
Europe during 2010-2017 have been high mainly followed by a decline of for-
eign investments whilst in the Doing Business report for the same years in these
countries of the European Union, Norway and Switzerland, the changes have
been very small, because of the fact that all these countries have improved their
regulations for better business environments and have been ranked in high po-
sitions in the WB’s Doing Business report.
787
Significant changes were marked in Spain which in 2010 was ranked in the
nd
62 position. In the report from 2017 it was improved for 30 positions and was
Mustafë Hasani Sakip Imeri Ramadan Kryeziu: DOING BUSINES WB REPORT AND IMPACT ON FDI IN WESTERN BALKAN CONTRIES WITH FOCUS...
ranked in the 32d position. The same was the case of Italy which in 2010 was
ranked in the 78th position, whilst in 2017 was ranked in the 50th position even
though both two countries, despite of the improvements of the position in the
DB report have faced a decline of foreign investments.
Thus, when comparing the data from these developed countries which have
high ranking in the DB report it can be said that they have reached a point
which may be called “Neutral” in relation to the impact of foreign investment
attraction and that the FDI attraction should be followed by other political
actions like in the case of Luxembourg where the government has undertaken
some measures to attract FDI or policies for certain sectors where there is po-
tential and interest. The next figure shows the ranking of these countries in the
DB report and the small changes in position during 2010-2017.
FDI inflows in the Western Balkan countries (Albania, Bosnia & Herzegov-
ina, Montenegro, Serbia, FYR Macedonia, Croatia and Kosovo) are followed
almost with the same scenario such as FDI in Europe, however from 2011 oscil-
lations with an increasing tendency were observed, but FDI flow has a tremen-
dously low share in the total foreign investments from Europe, with only 1.2%.
788
Figure 3. FDI inflows 2017
FDI flows have been higher in Serbia, Croatia and Albania and the lowest in
the Republic of Kosovo. A common characteristic of all countries in the South-
east Europe is that especially in the recent years they have paid a lot of attention
to the improvement of business environments by improving the regulations
which have had an impact on easing the doing business and the same were re-
flected in the improvement of the position in the DB ranking almost every year.
All countries have improved, but Macedonia has had a rapid progress. In the
DB report 2017. Macedonia was ranked in the 69th position, in DB 2015 was
ranked in the 30th position and in the last DB report for 2017 was ranked 10th.
Similarly, Montenegro in DB 2009 was ranked 77th whilst on DB for 2015 was
ranked in the 36th position. Significant improvements were made by Albania,
Serbia, Bosnia & Herzegovina, Croatia and Kosovo. Doing Business (2017).
All countries have focused on improving the business environment to ease the
doing of business for domestic companies and at the same time attract FDI. INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
Prior to discussing the link between FDI and the DB report in the Bal-
kan Countries let us explain what is the purpose of DB and which indicators
are used in this document. Doing Business focuses on regulations and regula-
tory processes involved in setting up and operating a business. The objective is
to encourage the government and policy makers to improve regulations, to be
more efficient and simplify the implementation. The groups of indicators in
the doing business database are: Starting a business, dealing with construction
permits, ease of getting electricity, registering property, getting credit, protecting
investors, paying taxes, trading across borders, enforcing contracts and resolving
insolvency. Each group consists of several variables mainly the number of proce-
dures, time and cost (compared to % of income per capita).
789
Even though all these indicators and a high number of variables within in-
dicators have a great importance in measuring the business environment, im-
Mustafë Hasani Sakip Imeri Ramadan Kryeziu: DOING BUSINES WB REPORT AND IMPACT ON FDI IN WESTERN BALKAN CONTRIES WITH FOCUS...
proving them makes doing business easier for domestic firms and they have an
impact on attracting foreign investments. Many studies have shown that there
is a positive link between improving the indicators of doing business and at-
tracting foreign investments. It is more likely that a country with a high ranking
will attract foreign investors more than a country which has a lot more to do in
reforming legal rules for the improvement of business environment. However,
the study of data shows that there are cases when ranking is good but there are
no foreign investments or the ranking is low and foreign investments are high.
In such cases other indicators should be taken into account such as the mac-
roeconomic stability, trade openness, the size of countries, natural resources,
infrastructure quality, skills of workforce, judicial independence, legal system
efficiency, fight against corruption, political stability, government effectiveness
or other specifics relevant to the respective country in which FDI and DB are
not in the same direction.
The comparison of data in Western Balkan Countries shows that FDI in-
flow is tremendously low and the share is very low in the total FDI Inflow in
Europe. During 2010-2017 no increasing tendency is observed in FDI and
there are no significant oscillations from year to year. Nevertheless, what char-
acterizes more these countries is that all of them have made a rapid and visible
progress in the DB report. Improvements are seen in the ranking positions. In
the following figure, apart from DB ranking an overview of improvement may
be seen also through the measures of Distance to Frontier Score (DTF) where
0 represents the lowest performance and 100 the frontier. Distance to frontier
score illustrates the distance of an economy to the “frontier,” which represents
the best performance observed on each Doing Business indicator.
Macedonia 81.18, Kosovo 73.49 , Montenegro 73.18, Serbia 73.13, and
Croatia 71.70 are above the average DTF for Europe & CA 71.13 while Al-
bania 68.70, and Bosnia & Herzegovina, 64.2 are very close to the average
which represents good performance on improving the business environment of
Western Balkans countries. However FDI inflow is in low amounts, therefore
what we can get out of this data is that only the large scale reform is not enough
to attract FDI. ( Jayasuriya 2011).
790
Consequently doing business reforms should also be followed by the iden-
tification of other determinants of FDI or by a proper investment policy which
suits the respective country. Some of the Western Balkans countries such as
Serbia and Macedonia apart from the reform are also trying to attract FDI
through different investment incentives (State Grants, Free Economic Zones,
National Employment Service Grants, Tax and Social Insurance Exemptions)
Based on the data extracted for the FDI economic structure in Kosovo it
can be seen that the highest FDI are mainly in the financial sector, immovable
properties and construction whilst in sectors such as energy, mines and miner-
als, agriculture and tourism are rather low.
If we compare the FDI data in the economic sectors and the government
policies it can be concluded that the sectors considered of priority from these
policies and that are promoted regularly have not had investments in significant
amounts or they are very low e.g. a priority policy was to attract investments
in the energy sector whilst investments in this sector in the last decade do not
791
exceed $100 mil. The same situation is with mines and minerals and the agricul-
tural sector which are demanding a high number of permits, licences and other
Mustafë Hasani Sakip Imeri Ramadan Kryeziu: DOING BUSINES WB REPORT AND IMPACT ON FDI IN WESTERN BALKAN CONTRIES WITH FOCUS...
procedures which require a lot of time to be issued and have a high cost instead
of being followed by incentives and other favouring policies.
FDI in Kosovo mainly originate from Germany, Great Britain, Turkey and
Slovenia. An important role in attracting investors from Western Europe was
played by the Kosovar Diaspora which through mediating, co-financing or di-
rect investments covers a share of FDI in Kosovo. The reason for mentioning
this is that Kosovo has a huge diaspora scattered all over Western Europe and
further which is comprised of many successful entrepreneurs in the countries
where they operate. Thus, it can be said that they represent an important po-
tential to be attracted to invest in certain sectors in Kosovo through favourable
promotional policies and the offering of concrete projects.
Another issue to be taken into account is that in these low FDI the share
from the privatisation is significant, whilst this process may end very soon
which is another reason to draft a strategy for attracting foreign investments
based on the country’s advantages through the identification of key sectors as
well as support with concrete actions and favouring policies.
FDI inflow is low whilst a significant progress in creating a favourable busi-
ness environment. Through the reforms in doing business Kosovo moved from
the 119th position in DB 2010 for 79 positions until 2018 when it was ranked
in 40th position as shown in the next table.
792
If we compare the ranking for each indicator individually it turns out that
Kosovo despite of improving its position in the Doing Business report and
reaching the 40th position, in some indicators it does not have a good ranking
such as e.g. in dealing with construction permits ranking 129, ease of getting
electricity 114, resolving insolvency 163, protecting investors 63 and trading
across borders 51.
This ranking in 5 indicators with not a good position and in other 5 with
significant improvement again may be considered a partial reform rather than
a complete one. A moderate improvement for several positions in all indicators
is worth more than a large scale reforms in only a limited number of indicators.
Based on different studies and analyses not all indicators have the same im-
pact on FDI inflow, some of them have a higher impact on foreign investments
See for example, ( Jovanović and Jovanović 2014) show that a country where 9
documents are required to export is likely to have around 37% less investment
inflows than countries where 7 such documents are required.
In the ranking in Doing Business 2017 and in the previous years as well,
especially in terms of reforms Kosovo has done better than all Balkan countries
except Macedonia. DTF with a score of 73.49 is upper than the European aver-
age and makes a significant improvement. However, all this achievement is not
also followed by foreign investments. The promotion of Kosovo in attracting
foreign investors has been more focused on general FDI promotion through
conferences, seminars, publication of brochures and leaflets where the promo-
tion was based on presenting only the positive side for investment opportunities
793
In the question: Has the improvement of indicators of doing business had
an impact and have these been noticed in practice? 78% of respondents gave a
Mustafë Hasani Sakip Imeri Ramadan Kryeziu: DOING BUSINES WB REPORT AND IMPACT ON FDI IN WESTERN BALKAN CONTRIES WITH FOCUS...
negative answer and claimed that no difference was noticed compared to previ-
ous years. The questionnaire and the interviews emphasize, as general conclu-
sion that the main problems for foreign investors in Kosovo are: corruption,
informal economy, slow and inefficient administration, lack of law enforcement,
negative image of the country and the lack of various incentives for investors.
794
countries by overcoming the common practice of promotion with meetings and
general events such as international conferences for foreign investors, and at-
tracting investors with brochures showing only the good side, generalised op-
portunities, counting all possible sectors for investments without offering a sin-
gle alternative, without concrete projects, and not dividing the priority sectors.
REFERENCES
Asiedu, E. (2006): Foreign direct investment in Africa: The role of natural resources, market
size, government policy, institutions and political instability, World Economy, 29(1),
p.63-77.
Bayraktar, N. (2013).Foreign Direct Investment and Investment Climate. International Con-
ference on Applied Economics (ICOAE), Procedia Economics and Finance, 5, p.83–92.
Bergstrand, J. H. and Egger, P. (2007) A knowledge-and-physical-capital model of interna-
tional trade flows, foreign direct investment, and multinational enterprises, Journal of
International Economics, Elsevier, 73(2), p. 278-308.
Biljana Jovanović and B. Jovanović.(2014). Ease of Doing Business and FDI in the Ex-So-
cialist Countries, International Economics and Economic Policy, (2017),p. 1-41, DOI:
10.1007/s10368-017-0377-3.
Blonigen, B. A., and J. Piger (2011). Determinants of Foreign Direct Investment, NBER
working paper 16704, National Bureau of Economic Research
Cass, F. (2007): Attracting FDI to transition countries: the use of incentives and promotion
agencies, Transnational Corporations, 16(2), 77122.
David L. Carr, James R. Markusen, Keith E. Maskus (2001) Estimating The Knowledge-
Capital Model Of The Multinational Enterprise, NBER Working Paper No. 6773
American Economic Review, 91, p. 693-708.
Hornberger, K., Joseph,B. and Peter,K. (2011). Attractive FDI: How Much Does Invest-
ment Climate Matter? Viewpoint: Public Policy for the Private Sector; Note No. 327. INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
World Bank, Washington, DC.
Jayasuriya, D. (2011). Improvements in the World Bank’s Ease of Doing Business Rankings; Do
they translate into greater foreign direct investment inflows. Development Policy Centre
Discussion Paper No 8, Crawford School of Public Policy, The Australian National
University, Canberra
Central Bank of Kosovo (2017).Annual Report 2016 [available at:
https://bqk-kos.org/repository/docs/2017/CBK-17-08-2017_eng_AR_2016.pdf access
February 10, 2018]
Doing Business (2017). [available at: http://www.doingbusiness.org/reports/global-re-
ports/doing-business-2017, access March 21,2018]
UNCTAD /WIR (2017). [available at: http://unctad.org/en/Pages/DIAE/World%20In-
vestment%20Report/Annex-Tables.aspx, access March 13 , 2018]
795
COMPARATIVE FINANCIAL
ANALYSIS OF RAILWAY
WORKSHOP
Abstract
Financial analysis is the process of collecting, introducing, verifying and inter-
preting financial data. Financial analysis is actually a synthesis of financial
data with which we try to identify economic trends, determine financial poli-
cies and guidelines, create financial plans for the future and identify potential
projects and investments. Such analysis are mostly performed for companies,
yet other organizations, states or projects can also be covered – everything that
involves financial flows in their activities. The aim of the financial analysis
is to check whether the company which is the subject of the analysis is sol-
vent, liquid or profitable (viable). For that purpose, the analyst performing the
analysis checks various financial data. However, the core focus of analysis are
three basic financial statements - income statement, balance sheet and cash flow
statement. Most common subject of financial analysis is the business result, the
financial position and the cash flow of the company. All reports present busi-
ness operations in their own way, yet they complement each other, so they need
to be studied as a whole. The basic purpose of the analysis is to gain a clear pic-
796
ture of the company’s financial situation. The results of financial analysis can be
the basis for making economic decisions of a wider circle of useful information.
As a state-owned enterprise Croatian Railways (HŽ) are often referred to as
media topics. Croatian Railway (HŽ) operations and its components are in
the public focus as a synonym for public good that should be in the benefit of
all taxpayers of the Republic of Croatia. The aim of this paper is to illustrate
conducted financial analysis and make a comparative presentation for three
years of business on example of two companies: Radinice željezničkih vozila
Čakovec d.o.o. and Remont željezničkih vozila Slavonski Brod (RPV d.o.o.).
Key words: financial analysis, income statement, balance sheet, cash flow,
Croatian Railways (HŽ)
JEL Classification: G17, G19
1. INTRODUCTION
The analysis of the financial statements is part of a business analysis whose
purpose is to acquaint the economic and financial strength of the company, but
also the prospects that company can achieve during the business operations.
The analysis is an essential tool for a better understanding of the company’s
business, contribution to overall business performance, and making relevant
business decisions. This paper analyzes the operations of two limited liability
companies, and their business is closely related to Croatian Railways (HŽ).
Paper consists of two parts. The first part analyzes the operations of the
797
2. ANALYSIS OF BUSINESS OPERATIONS
OF RADIONICE ŽELJEZNIČKIH VOZILA
ČAKOVEC D.O.O RŽV D.O.O.
The Radionica was founded in 1945 with headquarters in Čakovec. In today’s
form, Radionica operates since 1993 and is state-owned. The main activities of
Radionica željezničkih vozila are: manufacturing, maintenance and repairation
of freight wagons. This paper presents a horizontal and vertical financial analy-
sis of the company’s business. With the help of horizontal financial analysis of
the company, changes in the position values of financial statements are observed
Marina Stanić Šulentić Tin Horvatin Milan Stanić: COMPARATIVE FINANCIAL ANALYSIS OF RAILWAY WORKSHOP
over multiple accounting periods. The key variable used in the horizontal analy-
sis is time, since by comparing the elements of the financial statements that are
expressed in cash units between two or more periods, the conclusion is reached
on the occurrence of the observed period over which the problematic areas of
business can be identified. Horizontal analysis compared 2015 and 2016 with
2014 as base year. Vertical analysis of a particular position in the balance sheet
is presented as a percentage of the total value of asset or passive. While in the
vertical analysis of the profit and loss account the value of total revenue, ie total
expenditures, becomes the basis for comparison.
798
.. Analysis of Assets
Table 1. Analysis of assets of RŽV Čakovec
Absolute Absolute
Name of the change Relative change Relative
2014 2015 2016
position change change
2015-2014 2016-2015
Non-current Assets 38 733 700 40 156 000 40 866 800 1 422300 3,67% 710 800 1,77
I Intangible assets 0 0 0 0 0 0
II Tangible assets 38 720 100 40 142 500 39 710 000 1 422 400 3,67% -432 500 -1,08
1. Lot 12 128 500 12 128 500 12 128 500 0 0% 0 0%
2. Buildings 11 690 400 11 902 400 11 986 200 212 000 1,81% 83 800 0,70%
3. Plant and
9 524 900 13 101 300 12 818 200 3 576 400 37,55% -283 100 -2 16
equipment
4. Tools and trans
1 389 900 1 147 600 2 642 100 -243 300 -17,43% 1 494 500 130,23%
assets
5. Prepaid expenses
0 671 100 0 671 100 100% 0 0
for tangible assets
6. Assets under
4 037 400 1 191 600 135 000 -2 845 800 -70,49% -1 056 600 -88,67
construction
III Long-term
0 0 1 142 600 0 0 1 142 600 100
financial
IV Receivables 13 600 13 500 14 300 -100 -0,74 800 5,93%
Current assets 37 833 200 40 369 700 32 462 100 2 536 500 6,70% -7 907 600 -19,59%
I Stocks 13 287 000 10 477 000 15 707 000 -2 810 000 -21,15% 5 230 000 49,92%
II Receivable 21 734 500 25 830 600 12 859 400 4 096 100 18,85% -13 241 200 -50,22
III Short-term
726 600 2 301 200 3 636 400 1 574 600 216,70% 1 335 200 58,02%
financial assets
IV Cash in bank and
2 085 200 1 761 000 259 300 -324 200 -15,54 -1 501 700 -85,28
cash registers
Paid costs of future
2 380 100 829 700 1 443 800 -1 550 400 -65,14 614 100 74,01%
period
TOTAL ASSETS 78 947 000 81 355 500 74 772 700 2 408 500 3,05% -6 582 800 -8,09
Non-current assets were 3,67% higher in 2015 than in 2014, and 1,77%
higher in 2016 than in same period in 2015. Short-term assets were 6.70%
higher in 2015 than in 2014, and 19,59% lower in 2016 than in same period in
2015. Total assets were 3,05% higher in 2015 then 2014, and 8,09% lower in
2016 then observed period in 2015.
799
.. Analysis of Passive
Table 2. Analysis of passive of RŽV Čakovec
Absolute Relative Absolute Relative
Name of the position 2014 2015 2016 change change change change
2015/2014 % 2016/2015 %
Capital and reserves 55 069 600 61 808 900 61 597 800 6 739 300 12,23 -211 100 -0,34
Long-term obligations 10 700 9 100 7 500 -1 600 -14,95 - 1 600 -17,58
Short-term obligations 20 918 300 17 038 000 11 763 800 -3 880 300 -18,55 -5 274 200 -30,96
Deferred payment of costs 2 948 500 2 499 500 1 403 600 -449 000 -15,23 -1 095 900 -43,84
TOTAL PASSIVE 78 947 000 81 355 500 74 772 700 2 408 500 3,05% -6 582 800 -8,09%
pany.aspx?Lang=en-US&Mode=HR&App=HR&CompanyDetailType=Financi
alData&CompanyId=430879&CompanyDetailSubType=FinancniPodatki; access
March 13, 2018]
800
It is evident that revenues had increased in 2015 by 38,10% in regard to
2014, and had keep on increasing in 2016 by 26,40% in regard to 2015. Ex-
penses had accordingly increased in 2015 by 36,90% in regard to 2014, and in
2016 decreased by 25,79% in regard to 2015.
801
.. Analysis of Assets
Table 5. Analysis of assets of RPV d.o.o
Name of the position 2014 2015 2016 Absolute Relative Absolute Relative
change change change change
2015/2014 % 2016/2015 %
Non-current Assets 16 519 000 16 008 000 15 408 700 -511 000 -3,09 -599 300 -3,00
1. Lot 3 809 800 3 809 000 3 809 000 0 0 0 0
2. Buildings 7 684 300 7 098 500 6 989 500 -585 800 -7,00 -109 000 -1,00
3. Plant and equipment 2 955 900 3 250 100 2 718 900 294 200 10,00 -531 200 -16,00
4. Tools and trans assets 2 069 000 1 849 700 1 850 700 -219 300 -10,00 1 000 0
Short-term assets 19 826 000 22 896 300 18 875 000 3 070 300 16,00 -4 021 300 -17,00
Marina Stanić Šulentić Tin Horvatin Milan Stanić: COMPARATIVE FINANCIAL ANALYSIS OF RAILWAY WORKSHOP
1. Stocks 3 522 700 4 085 300 4 250 900 562 600 16,00 165 600 4,00
2. Receivables 14 968 000 18 091 100 14 267 900 3 123 100 21,00 -3 823 200 -21,00
3. Cash in bank 1 335 300 720 000 356 200 -615 300 -46,00 -363 800 -50,00
TOTAL ASSETS 36 345 000 38 904 300 34 283 700 2 559 300 7,00 -4 620 600 -11,00
802
Capital and reserves had increased in 2015 by 2,00% in regard to 2014, and
continued to increase in 2016 by 1,00% in regard to 2015. Long-term obli-
gations had not been recorded in 2014 and 2015, but had increased in 2016.
Short-term obligations had increased in 2015 by 20,00% in regard to 2014, and
decreased in 2016 by 44% in regard to 2015.
803
.. Calculation Of Liquidity Indicators
Table 8. Calculation of liquidity indicators
Indicator 2014 2015 2016 standard
Current liquidity coefficient 0,17 0,08 0,07
1 Cash 1 335 300 720 000 356 200 1,00
Short-term obligations 7 879 800 9 431 900 5 203 300
Accelerated liquidity coefficient 2,07 2,00 2,81
2 Cash and short-term receivables 16 303 300 18 811 100 14 624 100 > 1,00
Short-term liabilities 7 879 800 9 431 900 5 203 300
Current ratio 2,52 2,43 3,63
>2,00
Marina Stanić Šulentić Tin Horvatin Milan Stanić: COMPARATIVE FINANCIAL ANALYSIS OF RAILWAY WORKSHOP
4. CONCLUSION
Financial statements are business documents that provide company’s busi-
ness financial result activities to persons, organizations and institutions outside
the company, and users within the company. Financial statements are publicly
available and are published on the pages of the Trade Register and on FINA
pages as a publication. The analysis of financial statements is part of the busi-
ness analysis that is being conducted to acquaint the economic and financial
strength of the company and possible directions in the further development of
the company. The aim of the research in this paper is to study the business of
two state-owned companies through a horizontal and vertical analysis. Hori-
zontal analysis is an analysis of financial statements that allows comparing data
over a longer period of time to detect the tendencies and dynamics of changes in
absolute and relative amounts of key positions in the Balance Sheet in the cur-
rent period related to the previous year/s. Vertical analysis compares financial
data in one year. Paper analyzes two companies whose business depends on the
operations of the Croatian Railways (HŽ), as they deal with the maintenance
and overhaul of the business infrastructure of the Croatian Railways (HŽ).
804
Horizontal and vertical analysis of the Radionica željezničkih vozila Čakovec
d.o.o and Remont željezničkih vozila Slavonski Brod d.o.o. came to a conclu-
sion. These two companies are deeply tied and dependent to the total business
of Croatian Railways (HŽ). Liquidity of these companies and their future busi-
ness development is uncertain. Companies have not developed independence
and distinctiveness in the market, their business is deeply dependent on the
budget of the Republic of Croatia. Positive results are only maintained thanks
to the assets inherited from the former social enterprises, with constant reduc-
tion in the number of employees working on the positive and minimum profit
margins. It is noticeable that companies should turn to new technologies and
new projects because decrease in their gross products will quickly cause decline
in in their revenue, which will result in negative financial results and losses.
Privatization of Croatian Railways will create the prerequisites for the inde-
pendent development of the observed companies and necessarily adaptation to
global market conditions.
REFERENCES
Abramović, K., Tominac Broz, S., Cutvarić, M., Čevizović, I., (2008). Primjena hrvatskih
standarda financijskih izvještaja, RRiF plus d.o.o., Zagreb
Brekalo, F., (2007). Revizija financijskih izvještaja, Zgombić i Partneri d.o.o., Zagreb
Čuveljak, J., (2012). O predstečajnoj nagodbi prema Zakonu o financijskom poslovanju i
predstečajnoj nagodbi, Pravo i porezi, br. 10
Garofulić, A., (2013). Plan financijskog i poslovnog restrukturiranja, Financije pravo i porezi,
br. 6
Rakijašić, J., (2012). HSFI, TEB, Zagreb INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
Zakon o financijskom poslovanju i predstečajnoj nagodbi, Narodne novine 108/12, 144/12,
81/13, 112/13, [available at: http://www.fina.hr/Default.aspx?sec=1550 access
March 13, 2018]
Žagar, K., Mamić Sačer, I., Sever, S., Žager, L., (2008). Analiza financijskih izvještaja MAS-
MEDIA d.o.o. Zagreb
805
DIE BEHANDLUNG VON
KONZERNUMLAGEN PROBLEME
IN DER PRAXIS
Abstract
With the latest modification of the German commercial law (ger. “Bilanzrich-
tlinie-Umsetzungsgesetz; BilRUG) the redefinition of „sales revenues“ came
up. This means, that sales revenues no longer only result out of “ordinary busi-
ness” and “typical products or services”. These changes have a huge impact
in practice, because they could have some implications on the income state-
ments of companies. One special issue with different opinions of experts is the
accounting treatment of group-contributions. It depends on the consideration
of every individual case to get an opinion on how the group-contribution is
treated. Generally, there exist different opinions on the treatment of group-
contributions – the literature and the HFA, which are discussed critically in
the following.
Key words: products, services, problems, practice
JEL Classification: L17, H27
806
1. DIE BEHANDLUNG VON KONZERNUMLAGEN
IM RAHMEN VON KONZERNINTERNEN
DIENSTLEISTUNGEN NACH BILRUG
.. Problemstellung
Bei Konzernumlagen handelt es sich um „ein vereinfachtes Verfahren zur
pauschalen Abrechnung von Dienstleistungen im Konzern“ (Engler, 2011:
281). Durch den Wegfall der Begrenzung der gewöhnlichen Geschäftstätigkeit
innerhalb der Umsatzdefinition des § 277 Abs. 1 HGB können künftig Er-
träge aus Konzernumlageverträgen als Umsatzerlöse ausgewiesen werden, so-
fern eine Gegenleistung für die Erbringung konzerninterner Dienstleistungen
vorliegt. Reine Umverteilungen, welche sich aus dem Außenverhältnis ergeben,
oder aus einem Gesellschafterverhältnis, sind hingegen auch künftig unter den
sonstigen betrieblichen Erträgen zu subsumieren. Die Voraussetzung ergibt
sich auch aus dem Gesetzeswortlaut, wonach der Ertrag aus der Erbringung
einer Dienstleistung hervorgehen muss und nicht durch einen anderen Zusam-
menhang veranlasst wurde (Hartgarten und Schieler, 2017: 299). Die Behand-
lung von Konzernumlagen gilt aufgrund der Neudefinition des § 277 Abs.1
HGB durch das BilRUG als umstritten. Sie können oftmals nicht pauschal den
Umsatzerlösen bzw. den sonstigen betrieblichen Erträgen zugeordnet werden,
weshalb eine genaue Analyse des Sachverhalts und der zugrunde liegenden Ver-
träge notwendig ist (Richter, 2015: 387).
.. Behandlung von Konzernumlagen im Rahmen von INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
konzernnahen Dienstleistungen in der Literatur
Bei Erlösen aus der Erbringung von Dienstleistungen muss bei einer sol-
chen Umlage ein konkreter Leistungsaustausch stattfinden, um sie unter die
Umsatzerlöse zu subsumieren (Richter, 2015: 387). Konzernumlagen gehören
jedoch meist nicht zum typischen Leistungsangebot des bilanzierenden Unter-
nehmens. Aufgrund dessen wurden die Erlöse daraus bisher unter den sonsti-
gen betrieblichen Erträgen erfasst. Dies wird künftig nur noch so sein, wenn
kein konkreter Leistungsaustausch vorliegt, wie bei Managementumlagen für
Konzernführungsaufgaben (Wulf und Roß, 2015: 741). Somit gilt auch hier
das allgemeine Kriterium für Erlöse aus Dienstleistungen, dass die Leistung (in
diesem Fall die Konzernumlage) um der Gegenleistung Willen bewirkt werden
807
muss („do ut des“) und umgekehrt (Russ, Jansen and Götze, 2015: 121). Die
nötige Abgrenzung bringt jedoch das Problem mit sich, dass bestimmte Kon-
zernumlagen nicht direkt kategorisiert werden können. Als typisches Beispiel
kann für ein solches Abgrenzungsproblem eine Umlage für den beim Mutter-
unternehmen angestellten Geschäftsführer, welcher beim Tochterunternehmen
eingesetzt wird, genannt werden. Inhalt dieser Umlage kann die komplette Ge-
schäftsführervergütung oder auch zusätzliche Vergütungen, wie beispielsweise
Pensionszusagen, sein. Hierbei stellt die Überlassung des Geschäftsführers eine
Mitarbeiterüberlassung dar, welcher ein Leistungsaustausch zugrunde liegt.
Markus Häfele Sarah Katharina Stiegeler: DIE BEHANDLUNG VON KONZERNUMLAGEN – PROBLEME IN DER PRAXIS
Dies wird jedoch kombiniert mit den Interessen des Gesellschafters, was eine
eindeutige Zuordnung somit nicht mehr ermöglicht und einen Graubereich
darstellt (Richter, 2015: 387).
Außer Frage steht, dass ohne konkreten Leistungsaustausch eine Zuord-
nung zu den Umsatzerlösen ausscheidet. Dies ist beispielsweise der Fall bei in-
nerkonzernlichen kalkulatorischen Verrechnungen und reinen Verrechnungen
von Umlagen, wie bei einer Versicherungsdeckung (Zwirner, 2015: 543). Auch
Erlöse für
• Die Übernahme von Buchhaltungstätigkeiten und Beratungsleistungen,
• die Mitarbeiterüberlassung und
• Nutzungsrechte an Patenten oder auch Lizenzen und Marken
stellen nach BilRUG Umsatzerlöse dar, wenn diese nicht in erster Linie in der
Funktion als Gesellschafter erbracht und auch von Dritten am Markt (Oser,
Philippsen und Sultana, 2017: 1099) angeboten werden (Richter, 2015: 387).
Als Übersicht, welche Konzernumlagen zu Umsatzerlösen führen, dient Ta-
belle 1.
808
Tabelle. 1: Einordnung der Konzernumlagen, Eigendarstellung
Konzernumlagen
Konzernumlage mit Umsatzcharakter Konzernumlage ohne Umsatzcharakter
Merkmal: Konkreter Leistungsaustausch vorhanden. Merkmal: Kein konkreter Leistungsaustausch vorhanden.
Beispiele Beispiele
Beratung Fehlender konkreter Leistungsaustausch
Buchführungstätigkeiten Verbrauchsunabhängige Beträge mit Ausnahme des
Forkschung und Entwicklung (F&E) Take-or-Pay
Personalgestellung Reine Kostenumlagen ohne eigene Dienstleistung
Nutzungsrechte Sanierungszuschüsse
Marktforschung Haftungsvergütungen
809
2. PRAXISBEISPIELE ZUR
UMSATZERLÖSABGRENZUNG
ten Leistungen für eine Reparatur der Server an sie. Der konzerninterne Dienstleis-
tungsvertrag sieht eine Abrechnung dieser Dienstleistung in Höhe von (i.H.v.) EUR
10.000 von der Muttergesellschaft des Konzerns (M) auf Rechnung der A vor. Für
die Abrechnungstätigkeit erhält die Mutter 5 %, somit EUR 500, des vereinbarten
Entgelts. Die M hat auf den Betrag keinerlei Einfluss, da dieser zwischen A und B
festgelegt wird. Er wird der B auch zusätzlich zum Betrag für die IT-Leistung der
Serverreparatur in Rechnung gestellt und eine Zahlung über EUR 10.500 erfolgt
über das konzerninterne Cash-Pooling-System, wodurch innerhalb des Konzerns für
alle Gesellschaften eine langfristige Liquidität sichergestellt wird (Hargarten und
Schieler, 2017: 301).
Durchführung der Abrechnung
Die M erbringt durch die Abrechnungstätigkeit eine Dienstleistung gegen-
über der B. Dies stellt eine Dienstleistung dar, welche zweifelsfrei i.H.v. EUR
500 nach § 277 Abs.1 HGB unter den Umsatzerlösen auszuweisen ist.
IT basierte Dienstleistung (Serverreparatur)
Fraglich ist nun, ob die von der M an die B in Rechnung gestellten IT-
Dienstleistungen als eigene Dienstleistungen (und somit ebenfalls als Um-
satzerlöse) anzusehen sind, mit A als Unterauftragnehmer (Schmidt und Peun,
2018; HGB § 275).
Voraussetzung hierfür wäre die Übernahme der Chancen und Risiken hin-
sichtlich der Dienstleistung seitens der M. Somit ist nachfolgend zu klären,
inwieweit für die M durch die IT-Dienstleistung sowohl Chancen als auch Ri-
siken existieren. Die M führt die Abrechnungstätigkeit als Dienstleistung aus
und erhält hierfür eine vorab festgelegte Vergütung i.H.v. 5 %, abhängig vom
1
Abk.: Gesellschaft mit beschränkter Haftung
810
jeweiligen Entgelt. Dieser Betrag wird jedoch zwischen A und B festgelegt und
die M hat keinerlei Einfluss auf ihn und somit auch nicht auf die Marge. Aus der
Dienstleitung der M resultieren somit keine Chancen. Hinsichtlich der Risiken
ergibt sich für die M ebenfalls eine Beschränkung, da ihre Tätigkeit lediglich in
der Ausführung der Abrechnung liegt. Liquiditätsrisiken bestehen für die M
ebenfalls nicht, da die B Teil des Cash-Pooling-Systems im Konzern ist. Primä-
re vertragsbedingte Leistungspflichten und eventuelle Nacherfüllungspflichten
betreffen ausschließlich die A. Somit ist die M durch ihre Leistung weder we-
sentlichen Chancen noch Risiken ausgesetzt, da die Tätigkeit vielmehr treu-
handähnlichen Charakter besitzt (Hargarten und Schieler, 2017: 301). Eine
Erfassung der Leistung als Umsatzerlös ist somit mangels Voraussetzungen zu
verneinen (Schmidt und Peun, 2018; HGB § 275).
Zusammenfassend ist demnach das Entgelt für die Abrechnungsleistung im
Jahresabschluss der M als Umsatzerlös auszuweisen, während die IT-Leistung
einen durchlaufenden Posten darstellt, welcher die Gewinn- und Verlustrech-
nung im Jahresabschluss der M nicht tangiert (Isele und Pfafftrath, 2011; HGB
§ 277, IDW; 2017).
811
Die Erbringung der Lagerleistungen von D gegenüber den T könnten Um-
satzerlöse nach § 277 Abs.1 HGB als Erlöse aus der Erbringung einer Dienst-
leitung darstellen.
Voraussetzung hierfür wäre die Erfüllung der dafür nötigen Tatbestands-
merkmale der Umsatzerlöse, sowie der Dienstleistungscharakter der Leistung.
Um als Umsatzerlöse ausgewiesen zu werden, müsste ein gegenseitiger Leis-
tungsaustausch vorliegen. Zudem dürfte die Erbringung der Leistung nicht als
Gesellschafterleistung erbracht werden (Richter, 2015: 387).
Markus Häfele Sarah Katharina Stiegeler: DIE BEHANDLUNG VON KONZERNUMLAGEN – PROBLEME IN DER PRAXIS
812
Eine reine Kostenumlage ist somit nach Prüfung der Merkmale zu beja-
hen, weshalb die Erträge aus der Weiterbelastung sonstige betriebliche Erträge
darstellen.
Ein Ausweis als durchlaufender Posten im Jahresabschluss wäre aufgrund
der Tatsache, dass die Rechnung der D nicht an die T fakturiert wurden, als
nicht korrekt zu beurteilen.
813
Konzerngesellschaft(en) erbracht wird. In diesem Beispiel würden die Kosten
somit „für Rechnung des anderen Unternehmens anfallen“ (Schmidt und Peun,
2018; HGB § 275) ohne dabei die Funktion eines durchlaufenden Postens zu
erfüllen und eben nicht Kosten darstellen, welche im Zusammenhang mit der
Leistungserstellung stehen (Schmidt und Peun, 2018; HGB § 275 ).
Im vorliegenden Sachverhalt entstehen die externen Aufwendungen direkt
gegenüber der T. Aus diesem Grund werden sie eine Komponente der Gesamt-
leistung der T, in Beziehung zum Dienstleistungsvertrag gegenüber der M. So-
mit liegt für die Leistung ein Gesamtleistungsentgelt der M gegenüber der T
Markus Häfele Sarah Katharina Stiegeler: DIE BEHANDLUNG VON KONZERNUMLAGEN – PROBLEME IN DER PRAXIS
814
durch die Erbringung der Dienstleistung und ein dafür anfallendes Entgelt han-
delt, rechtfertigt hier die Qualifikation. Zusätzlich wird nach dieser Ansicht die
Leistung nicht in der Eigenschaft als Gesellschafter erbracht, da sie anderweitig
am Markt beziehbar ist, wie auch von Richter (2015: 387) als Voraussetzung
zu einer Umsatzqualifizierung genannt. Oser, Philippsen und Sultana betonen
im Zusammenhang mit dieser Begründung, dass nicht nur darauf abzustellen
ist, ob die empfangene Leistung vom Tochterunternehmen auch am Markt be-
ziehbar gewesen wäre, sondern ob zusätzlich das Entgelt einem Drittvergleich
entsprechen würde. Dieser Aspekt wurde von Hargarten und Schieler nicht the-
matisiert. Oser, Philippsen und Sultana führen bei der Begründung ihrer Mei-
nung auf, dass in diesem Fall die Personalbereitstellung zwar eine Dienstleis-
tung erbracht wird und somit keine „reine Durchleitungsstelle extern bezogener
Leistungen vorliegt“, im Drittvergleich jedoch zusätzlich Kosten für Lohn- oder
Gehaltsabrechnungen in Rechnung gestellt werden und keine reine Weiterbe-
lastung ohne Aufschlag (Oser, Philippsen und Sultana; 2017: 1098). Folglich
ist für sie die Leistung nicht „um der Gegenleistung Willen“ (Russ, Jansse und
Götze, 2015: 121) erbracht worden und somit durch das Gesellschaftsverhält-
nis veranlasst (Oser, Philippsen und Sultana; 2017: 1098).
Somit herrscht in der Literatur hinsichtlich des korrekten Ausweises Mei-
nungsverschiedenheit. Der Auffassung von Oser, Philippsen und Sultana ist zu
folgen. Ein Drittvergleich für die Höhe des Entgelts ist bei der Beurteilung mit
einzubeziehen, da Dritte üblicherweise ein marktgerechtes Entgelt verlangen
würden. Eine Weiterbelastung, welche nahezu einer 1:1 Weiterbelastung ent-
spricht, schafft so die Vermutung einer Veranlassung durch das Gesellschafts-
verhältnis. Als alleiniger Indikator ist der Drittvergleich allerdings abzulehnen INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
(Schmidt und Peun, 2018; HGB § 275).
3. KONZERNUMLAGEN AN
TOCHTERUNTERNEHMEN BEI EINER
HOLDINGGESELLSCHAFT
Der Unterschied zu den oben genannten Praxisfällen liegt bei einer Hold-
ing-Gesellschaft darin, dass ihre typische Geschäftstätigkeit im Halten und
Verwalten von Beteiligungen liegt. Es ist nicht unüblich, dass Holding-Gesell-
schaften für ihre Tochtergesellschaften Leistungen erbringen, wie beispiels-
weise Rechts- oder Beratungsleistungen. Vor Inkrafttreten des BilRUG konnte
815
die Holding-Gesellschaft auch aus den Dienstleistungen Umsatzerlöse erziel-
en, sofern diese zu ihrer gewöhnlichen Geschäftstätigkeit zählten. Typischer-
weise wurde das Kriterium jedoch nicht erfüllt, weshalb die Weiterbelastung
hauptsächlich zur Erzielung von sonstigen betrieblichen Erträgen führte Oser,
Philippsen und Sultana, 2017: 1097).
Bei den Holding-Gesellschaften werden oftmals die im Konzern benötigten
Leistungen zentralisiert. Die daraus resultierenden internen oder externen Auf-
wendungen werden anschließend über Konzernumlagen an die Tochtergesell-
schaften, welche sich an den Dienstleistungen bedienen, weiterbelastet.
Markus Häfele Sarah Katharina Stiegeler: DIE BEHANDLUNG VON KONZERNUMLAGEN – PROBLEME IN DER PRAXIS
Nach § 277 Abs.1 HGB in der Fassung des BilRUG sind auch bei Konzern-
en mit einer Holding-Gesellschaft die bereits dargelegten Kriterien des Leis-
tungsaustausches und der Gegenleistung von Bedeutung. Nicht mehr jedoch
die betriebstypische Eigenschaft der Erbringung von eben diesen Dienstleis-
tungen Oser, Philippsen und Sultana, 2017: 1098).
Dass die Behandlung von Konzernumlagen bei Holding-Gesellschaften,
wie bei den oben genannten Praxisfällen zu beurteilen ist, soll das nachfolgende
Beispiel verdeutlichen:
Sachverhalt:
Die Holding-Gesellschaft (H) schließt mit dem Eigentümer (E) eines neu er-
richteten Gebäudekomplexes einen Mietvertrag ab, welcher die Untervermietung
einzelner Stockwerke des Gebäudes an drei Tochtergesellschaften (T) vorsieht. Es
wurde sich darauf geeinigt, dass der Mietvertrag nicht direkt über die T’s läuft,
sondern über die H, da der Eigentümer somit einen festen Vertragspartner hat
und die T’s aus der starken Verhandlungsposition der H im Rahmen von geringen
Mietpreisen von EUR 120.000 statt EUR 200.000 profitieren. Die von der H an
den E vertragsgemäß zu entrichtende Miete wird von der H direkt an die T’s, ohne
weiteren Gewinnaufschlag, weiterbelastet.
Vor Inkrafttreten des BilRUG hat die H die Mieterträge in der Buchhaltung als
sonstige betriebliche Erträge erfasst (Beispiel in Anlehnung Oser, Philippsen und
Sultana, 2017: 1097).
Fraglich ist nun, ob die Mietaufwendungen die Voraussetzungen für einen
Ausweis unter den Umsatzerlösen bei der H durch die Neudefinition der Um-
satzerlöse erfüllen.
816
Um die Voraussetzung eines Leistungsaustauschs zwischen der H und
den Tochtergesellschaften zu erfüllen, nennen Oser/Philippsen/Sultana die
nachfolgenden Voraussetzungen auch im Falle einer involvierten Holding als
unabdingbar:
• Eine aktive Tätigkeit durch das bilanzierende Unternehmen,
• ein am Markt erzieltes Leistungsentgelt (auch konzerninterner Markt
möglich),
• das Fehlen einer primären Veranlassung des Entgelts durch das
Gesellschaftsverhältnis.
So muss ein Verursachungszusammenhang zwischen der Leistung und ih-
rer Gegenleistung gewährleistet sein, was als Voraussetzung für einen Ausweis
unter den Umsatzerlösen gilt. Dies ist erfüllt, wenn die H ein Entgelt erhält
und selbst wertschöpfend tätig ist. Es trifft nach Meinung von Oser/Philippsen/
Sultana ebenfalls zu, wenn das von der Tochtergesellschaft gezahlte Entgelt ei-
nem Drittvergleich standhält, was eine negative Abgrenzung zum Punkt „Ver-
anlassung durch das Gesellschaftsverhältnis“ darstellt (Hargarten und Schieler,
2017: 301). Auch in diesem Beispiel agiert die Holding als reines „Verteilungs-
prinzipal“ (Hargarten und Schieler, 2017: 301), da die H weder an einer eige-
nen Nutzung des gemieteten Gebäudes interessiert ist, noch im Rahmen der
Miete anfallende weitere Kosten oder gar einen Gewinnaufschlag den Tochter-
gesellschaften in Rechnung setzt (Oser, Philippsen und Sultana, 2017: 1098).
Hinsichtlich der o.g. Voraussetzungen trifft das erste Merkmal der aktiven
4. FAZIT
Kostenumlagen aus konzerninternen Dienstleistungen bedürfen einer be-
sonderen Prüfung. Die genaue Abgrenzung zwischen einem Ausweis als son-
817
stigen betrieblichen Erträgen bzw. Umsatzerlösen ist von großer Bedeutung, da
sie oftmals einen Graubereich darstellt (Richter, 2015: 387).
Für eine Klassifizierung als Umsatzerlöse i.S.d. § 277 Abs. HGB n.F. muss
mit der konzerninternen Dienstleistung ein Leistungsaustausch stattfinden.
Reine Umverteilungen oder Umlagen auf Basis des Gesellschaftsverhältnisses
sind folglich den sonstigen betrieblichen Erträgen zu subsumieren. Bei einer
treuhänderischen bzw. agentenähnlichen Stellung der Konzerngesellschaft sind
die Erträge aus der konzerninternen Dienstleitung als durchlaufender Posten
zu behandeln, welcher die Gewinn-und Verlustrechnung der Gesellschaft nicht
Markus Häfele Sarah Katharina Stiegeler: DIE BEHANDLUNG VON KONZERNUMLAGEN – PROBLEME IN DER PRAXIS
tangiert.
Ob ein o.g. Leistungsaustausch vorliegt, oder die Leistung aus der Gesell-
schafterstellung erbracht wurde, ist auf Grundlage der Tatsache zu beurteilen,
ob die Leistung auch am Markt durch Dritte angeboten wird und somit die
Möglichkeit für die zahlende Konzerngesellschaft bestehen würde, die Leis-
tung am Markt zu beziehen.
Weiter kann der Leistungsaustausch auch, wie in Tabelle 8 zu sehen, von ein-
er reinen Umverteilung abgegrenzt werden. Hierbei dient zur Einordnung das
Kriterium, ob die Aufwendungen aus dem Außenverhältnis sowohl chancen-
als auch risikoneutral weiterbelastet wurden (Hargarten und Schieler, 2017:
302). Nicht zu vernachlässigen ist nach Oser/Philippsen/Sultana ebenfalls die
Höhe des Entgelts im Drittvergleich, was eine Abgrenzung zu einer durch das
Gesellschaftsverhältnis erbrachten Leistung ermöglicht (Oser, Philippsen und
Sultana, 2017: 1098).
Die einzelnen Komponenten, welche das Entgelt ergeben, sind in die Gesa-
mtbeurteilung mit einzubeziehen. Ebenfalls ist der Drittvergleich eines Entgelts
in der Würdigung des Sachverhalts zu berücksichtigen, d. h. ob eine Leistung
818
aus dem Gesellschaftsverhältnis erbracht wurde, da die Gesellschaft im Nor-
malfall allein aus ertragsteuerlichen Gründen (verdeckte Gewinnausschüttung)
ein angemessenes Entgelt verlangen würde.
LITERATURVERZEICHNIS
Engler, G. (2011) Verrechnungspreise, in: Herausgeber (Hrsg.) Vöge-le/Borstell/Engler, 3.
Auflage, C.H.Beck Verlag, München.
Hargarten, S. und Schieler, F. (2017) Bilanzierung von Erträgen aus konzerninternen Di-
enstleistungen nach BilRUG – Lösungsvorschläge zur Umsatzerlösabgrenzung, in:
Betriebsberater (BB) 2017, Heft 06, S.297-306.
IDW (2016) IDW Info Paket – Zusammenstellung der HFA-Sitzungsergebnisse zu
einzelnen Anwendungsfragen im Zusammenhang mit dem HGB i.d.F. des Bilanz-
richtlinie-Umsetzungsgesetz (BilRUG), S. 1-21, IDW Verlag, Düsseldorf.
IDW (2017) WP-Handbuch – Wirtschaftsprüfung und Rech-nungslgeung (Hauptband),
15. Auflage 2017, IDW Verlag, Düsseldorf.
Oser, P.; Philippsen, K. und Sul-tana, A. (2017) Konzernumlagen an Tochterunternehmen
in der GuV einer Holding-Gesellschaft nach BilRUG, in: Der Betrieb, Heft 20 vom
19.05.2017, S. 1097-1100.
Richter, F. (2015) Anpassung der Umsatzerlösdefinition durch das BilRUG, in: Der Betrieb,
Heft 08 vom 20.02.2015, S. 385-389.
Russ, W.; Janssen, C. und Götze, T. (2015) BilRUG – Auswirkungen auf das deutsche Bi-
lanz-recht, 1.Auflage, IDW Verlag, Düsseldorf.
Wulf, I. (2015) Änderungen der GuV-Struktur und Neudefinition der Umsatzerlöse durch
das BilRUG, in: Deutsche Steuer- Zeitung (DStZ) 2015, Nr. 19, S. 736-746.
Zwirner, C. (2015) Neudefinition der Umsatzerlöse nach BilRUG: Aus-wirkungen der neu-
en Abgrenzung für die Praxis, in: BC 2015, Heft 12, S.525-580.
HGB a.F. In: Wichtige Wirtschaftsgesetze, 27. Auflage, nwb Verlag, Herne. INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
HGB n.F. In: Wichtige Wirtschaftsgesetze, 30. Auflage, nwb Verlag, Herne.
Isele, H. und Pfaffrath, E. In: Handbuch der Rechnungslegung Einzelabschluss, (Hrsg.)
Küting /Weber, Stand: Februar 2011, HGB § 277 Rn. 47, Schäffer-Poeschel Verlag,
Stuttgart.,
Schmidt, S. und Peun, M. (2016) In: Beck‘scher Bilanz-Kommentar § 275 HGB, 11. Auflage
2018, Rn. 47-55, sowie 90-112.
819
Public
Economics
PUBLIC PROCUREMENT STRATEGY
POLICY REMARKS AND
CHALLENGES FOR THE REPUBLIC
OF CROATIA
Abstract
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
Public procurement is a mechanism that allows governments to secure the pro-
curement of goods, works and services they need to function, while at the same
time observing principles like transparency and equal opportunities. As well
as being a necessary function and part of the public sector, public procurement
can also be a generator of economic activities in its own right. If we consider
the fact that public procurement makes up 14% of GDP at European Union
level (European Commission, 2017a), it is evident that it represents a huge
market which is, as a rule, predictable and generates enough advance informa-
tion for efficient planning and management. It is beyond doubt that public
procurement is recognised as a tool that governments use to guide and develop
certain sectors within the economic policies that they implement. Also, it is no
wonder that a number of strategic goals of the European Union are targeted
823
at strengthening administrative capacities within the public sector that can use
Mladen Vedriš Nataša Drvenkar Damir Butković: PUBLIC PROCUREMENT STRATEGY – POLICY REMARKS AND CHALLENGES FOR THE REPUBLIC...
1. INTRODUCTION
The financial and economic crisis “has wiped out years of economic and so-
cial progress and exposed structural weaknesses in Europe’s economy” (Euro-
pean Commission, 2010a) as well as worldwide and intensified global strategic
challenges. With the launch of the Europe 2020 Strategy for Smart, Sustain-
able and Inclusive Growth, sustainable and inclusive economic development
have been recognised as key elements for Europe’s long-term competitiveness
(more on Strategy: European Commission, 2010a; Marlier and Natali, 2010).
As governments are expected “to do more with less”, public procurement has
witnessed considerable reform activity towards the pursuit of various socio-eco-
nomic goals. It has been recognised that demand coming from the public purse
can significantly affect and strengthen markets for innovative, environmentally
and socially responsible goods, services and works (European Commission,
2015a). As Defra (2006 in: Yeow, Uyarra and Gee, 2011b) notes, “the sheer size
of public sector demand, particularly in environmentally sensitive areas such
as transport, energy, food and paper confers obvious potential for impact.” The
introduction of new EU-wide public procurement rules aims at strategic use of
public procurement in achieving common societal goals, in particular in terms
of increasing public resource efficiency, promoting innovation, employment and
environmental responsibility (Čusek-Slunjski, 2016; Grandia and Meehan,
2017). Grandia and Meehan (2017) also highlight the importance of reducing
long-term unemployment, improving the working conditions across the (inter-
824
national) supply chain, fostering innovation, creating opportunities for small
and medium-sized enterprises and local businesses, and stimulating sustainable
goods and services markets, thereby making public procurement an important
public sector management tool. To achieve the goals of generating a single pro-
curement market, public procurement legislation in the EU is governed by the
basic principles of equal treatment and non-discrimination, transparency, pro-
portionality and mutual recognition (European Commission, 2015a). In early
2014, three new directives on public procurement were adopted, two revising
existing directives on general procurement and procurement in the utilities sec-
tor and one new directive on concession contracts. While the tenets of public
procurement regulation have remained mostly unchanged, the 2014 directives
have had important implications for the strategic use of public procurement,
and the introduction of strategic objectives has promoted proactive approaches
in various areas of the legal framework. The changes are aimed at: 1) Simplify-
ing the procedures and reducing the administrative burden for all public pro-
curement participants, 2) Increased use of the most economically advantageous
tender (MEAT) criteria, 3) Greater involvement of small and medium-sized
enterprises, 4) Innovation in procurement, 5) Consideration of environmental
and social aspects; and 6) Requirements in terms of monitoring of public pro-
curement procedures (European Commission, 2015a). Public procurement is
therefore an important tool of the European Single Market (representing 14%
of the EU GDP), which makes it a fundamental element of the Investment
Ecosystem (European Commission, 2017a). The single market strategy has fa-
cilitated the development of more transparent, efficient and accountable public
825
the research landscape and key to understanding the full potential and effective-
Mladen Vedriš Nataša Drvenkar Damir Butković: PUBLIC PROCUREMENT STRATEGY – POLICY REMARKS AND CHALLENGES FOR THE REPUBLIC...
ness of public procurement as a policy tool. The field has not been sufficiently
explored and represented in academic (or professional) circles, and, as pointed
out by Grandia and Meehan (2017), public procurement lacks strategic “matu-
rity”, and its impact on economic growth has not been sufficiently explored/is
underexplored. Given the fact that public procurement is a specific area that is
directly dependent on the policies of the countries in which they are carried out
and because of the significant differences between the institutional framework
and actual activities, they also emphasise the need for further research on public
procurement and its potential. The methodology adopted in this paper involved
a review of public procurement literature to provide a background for this study
which allowed us to recognise the issues in public management, in particular in
the Republic of Croatia, and identify areas requiring further research.
Public procurement aims at ensuring that public funds are spent in an eco-
nomically efficient way and at guaranteeing the best value for money for the
public buyer. According to Bovis (2007 in: Haugbølle, Pihl and Gottlieb, 2015),
“the expectation has been that the regulation of public procurement could pro-
vide substantial savings through three effects: 1) a direct trade effects as a result
of lower prices, 2) a competition effect through improving the competitiveness
of enterprises, and 3) a restructuring effect due to changes in the business struc-
ture”. The high purchasing power in the EU Member States and the importance
of public procurement procedures for any market have raised awareness of the
use of public procurement in achieving social and environmental objectives,
in addition to the economic ones (Šikić and Turudić, 2017; Luttenberger and
Runko Luttenberger, 2015; Brammer and Walker, 2011; Carter and Jennings,
2002; Grandia, 2015) and its role as a strategic instrument in the public sector
management toolbox. Man et al. (2014) argue that effectiveness is the main
826
objective of the institute of public procurement, and that it should be managed
by providing better services to the public at a lower price than it is possible
to achieve by the public sector. According to Georghiou et al. (2014), public
procurement is increasingly seen as an attractive and feasible instrument for
furthering the goals of innovation policy. The EU public procurement rules seek
to promote transparency and competition in procurement markets (European
Commission, 2017c). Sustainable public procurement aims at striking a balance
between the economic, social and environmental dimensions when making a
procurement choice. A smart use of public procurement can help address global
challenges such as climate change and resource scarcity or aging society. It sup-
ports social policies and accelerates the transition to more sustainable supply
chains and business models, which can improve competitiveness of small and
medium-sized enterprises and facilitate their access to public procurement op-
portunities (European Commission, 2017a). “Sustainable procurement offers
the Government the opportunity to lead by example and to use its purchasing
power to influence suppliers and the products they develop and design, for the
wider benefit of others in the economy” (NAO, 2009 in: Yeow, Uyarra and Gee,
2011b). As Abernathy and Clark (1985 in: Yeow, Uyarra and Gee, 2011b) note,
such effects are not restricted to high-tech sectors, but may apply to mature
sectors and even kick-start a process of reversal or renewal of industry develop-
ment or “dematurity”. Yeow, Uyarra and Gee (2011a), see sustainable procure-
ment as capable of delivering significant environmental benefits while achieving
better value for money in public services, and find that it has gained interest
among practitioners, policy-makers and academics in recent years. Transaction
827
viability of ‘green’ solutions, which are often perceived as being expensive (or
Mladen Vedriš Nataša Drvenkar Damir Butković: PUBLIC PROCUREMENT STRATEGY – POLICY REMARKS AND CHALLENGES FOR THE REPUBLIC...
828
3. “What’s the value-added/benefit” - Beyond the potentially greater up-
front costs of strategic public procurement, resistance from practitioners
stems from the perceived lack of clear benefits.
4. “More work” - Strategic public procurement represents a greater work-
load for public procurers, as it requires a strong assessment of needs be-
fore the initiation of the tender processes as well as the use of either more
complex procedures or the application of sophisticated technical criteria.
In addition, the study highlights the importance of: 1) skills and know-how
because the implementation of strategic public procurement requires a rela-
tively sophisticated level of know-how and competency. For instance, GPP and
PPI may require the use of Total Cost of Ownership / Life Cycle Costs (TCO/
LCC) costing, which are relatively complex to implement (for more informa-
tion see also: Edler and Yeow, 2016); 2) monitoring and evaluating (a com-
mon weak point in similar systems), the framework conditions (the legislative
background, the degree of centralisation, autonomy or devolution that applies
in public bodies for particular types or sizes of purchase, for more informa-
tion, see: Georghiou et al., 2014) and “rigid application of tendering procedures
for low-value items regardless of non-costs” (Erridge and Nodi, 1994 in: Yeow,
Uyarra and Gee, 2011b); 3) maturity of the market. There is a possibility that,
even if public buyers are willing to introduce strategic criteria, the supply side
is not ready to provide the corresponding products, services or works; in less
developed Member States, there a risk that strategic public procurement could
restrict requirements too much) but also “too many suppliers”; 4) knowledge of
829
1. ‘High competition from national bidders’ (40%);
Mladen Vedriš Nataša Drvenkar Damir Butković: PUBLIC PROCUREMENT STRATEGY – POLICY REMARKS AND CHALLENGES FOR THE REPUBLIC...
830
others to join and to learn from these experiences. Several indicators show that
strategic opportunities of procurement are still underused. 55% of procurement
procedures at the EU level still use the lowest price as the only award criterion.
The public procurement directives leave public buyers entirely free to opt for
purchases based on cost-effectiveness or quality-based criteria. Yet, most eco-
nomically advantageous tenders based on a cost-effectiveness approach which
may include social, environmental, innovative, accessibility or other qualitative
criteria are still underused (European Commission, 2016a). When used, the
contracting authority exercises considerable discretion in designing the scoring
rules and selecting quality criteria, although the principles of supplier selection
are prescribed by law (Lundberg and Bergman, 2017).
In 2011, with yearly purchasing valued at 3.5% of the GDP of EU, economic
significance of public procurement in EU is considerable (Man et al., 2014).
The main results of Public Procurement Indicators from 2015 show that al-
most all EU Member States increased their government expenditures on works,
goods and services, excluding utilities, except Cyprus and Croatia (-5%) (for
more information see: European Commission, 2016b). Herz and Varela-Irmia
(2017) use a data set of 1.8 million contract awards that have been matched to
geo-locations to estimate a gravity model of procurement flows between Euro-
pean NUTS3 region pairs and then documented evidence of very substantial
intra- and international border effects in European public procurement. For
example, they concluded that a firm located in the same NUTS3 region as the
contracting authority, is more than 900 times more likely to be awarded a con-
tract compared to a foreign firm and the results are similar for goods, services
and construction procurement and for different types of public procurement INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
procedures and award criteria. The new Public Procurement Act of the Re-
public of Croatia (hereinafter: the RoC) (Official Gazzette, 2016), which was
adopted in 2016, does not allow the contracting authority to use the price or
cost as a sole criterion in tender selection. Under the previous act, the contract-
ing authorities could mainly use the lowest price criterion in the procurement of
goods, works and services. A review of statistical annual reports on public pro-
curement for the period 2012-2016 reveals that, in comparison to the lowest
price criterion, the MEAT criteria were used the most in 2016 (in 2.5% of pro-
curement procedures), which, according to the European Commission study
(2016a), is significantly below the average percentage recorded in EU Member
States (44.52% in the same period). This is confirmed by the public procure-
831
ment policy performance indicator for 2016 reported in the latest European
Mladen Vedriš Nataša Drvenkar Damir Butković: PUBLIC PROCUREMENT STRATEGY – POLICY REMARKS AND CHALLENGES FOR THE REPUBLIC...
Commission’s report (2017b), which puts the RoC among few Member States
in terms of the percentage of contracts awarded based on the lowest price crite-
rion. In addition, it shows that, at least according to data covering the last three
years, the trend has not changed. The studies conducted by Čusek-Slunjski et
al. in 2016 examine the level of awareness and understanding of the legislative
framework established in the new directives, the provisions related to the appli-
cation of the MEAT criteria, and the possibilities for applying green, social, in-
novative and sustainable procurement. Although the results show solid or very
good knowledge of the provisions, the data from the statistical reports suggest
the lack of experience and competences in the public procurement system in
terms of application of the MEAT criteria. In addition, the National Action
Plan (NAP), adopted by the Government of the RoC in 2015, highlights the
inclusion of some of the measures for green public procurement in 50% of pub-
lic procurement procedures as one of the goals for the period 2015 - 2017, with
a 2020 horizon (Čusek-Slunjski et al., 2016). According to the annual statistical
reports on public procurement, the green criterion was used in 24 contracts in
2015, and in 2016, it was used in 57 contracts. All of this indicates inadequate
administrative capacity, which coincides with the results of the study conducted
in 2016 (European Commission, 2016a), whose conclusion includes a recom-
mendation for improvements in knowledge. The conclusion is that Croatian
procurement experts are faced with administrative capacity issues, partly be-
cause new employees are needed, and partly because it is challenging to retain
the existing ones, but mostly due to the lack of adequate staff training. In their
research on preferential treatment in the award of public procurement contracts
in the construction sector in the Republic of Croatia, Podumljak and Dávid-
Barrett (2015) found that there is a paucity of qualified individuals (typically
only one accredited certified procurement officer (CPO) in many contracting
authorities). This means that there is nobody else in the organisation qualified
to check or oversee the CPO’s work. This increases the risk of corruption. In
its Report on Croatia (European Semester 2018), the European Commission
(2018) highlights the need for effective risk control in public procurement, es-
pecially by contracting authorities with weaker control mechanisms. Podumljak
and Dávid-Barrett (2015) also emphasise the need to increase accountability
in the public procurement process by improving the monitoring of contract
implementation. This would help to ensure that contracts achieve good value
832
for money and deliver the works, goods or services intended to an appropriate
quality standard.
When it comes to the construction sector, i.e. the procurement of works, it is
particularly interesting that the criteria of the most economically advantageous
tender, according to publicly available data (Electronic Public Procurement
Classifieds, on-line), were practically not used. It should be noted that the value
of works in the period 2012-2016 ranged from 30 to 38 percent of the total
value of published contracts, which represents a significant share in total public
spending. This piece of information demonstrates the importance of develop-
ing a system of criteria for procurement of works, which will meet increasingly
stringent requirements in terms of environmental and social responsibility in
the future. This is also supported by some of the main recommendations put
forward in the study conducted by Čusek-Slunjski and others (2016), focus-
ing on the use of the selection criteria (i.e. the condition of qualification of the
bidder) and strengthening of the practice and the use of the MEAT criteria
(including whole life costs of the procured goods, quality criteria, functionality,
availability, environmental and sustainability criteria, social characteristics, and
the like) in a more effective way. One of the ways to improve the situation can be
through wider use of the Innovation Partnership procedure. This tool, whereby
market players are invited to bring innovative solutions, has been set-up by the
2014 directives to meet the specificities of innovation procurement, as well as
to increase the legal certainty and reduce the innovation inherent risks (Euro-
pean Commission, 2017a). When it comes to public procurement of innova-
tion (PPI), analyses show that their application is hampered by various barriers,
as is evident in the European Commission’s (2015a) study conclusions, some INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
of which have already been outlined in this paper. As Georghiou et al. (2014)
note, the use of public procurement as an instrument of innovation policy has
posed fresh challenges to policymakers. Edler and Yeow (2016), according to
many scientific researchers, noted that public procurement of innovation has
climbed up the ladder of policy and academic attention considerably in the last
5–10 years. Public procurement is a “tool for innovation policy” (Geroski, 1990
in: Edler and Yeow, 2016) and a “fundamental driver for the uptake of crucial
technologies” (Ghisetti, 2017); it also makes public services more efficient and
effective. Public procurement of innovation, according to Edquist and Zabala-
Iturriagagoita (2012, in: Edler and Yeow, 2016) “is not primarily done to en-
hance the development of a new product, but to target functions that satisfy a
833
human need or societal problems”. Geroski (1990 in: Ghisetti, 2017) concludes
Mladen Vedriš Nataša Drvenkar Damir Butković: PUBLIC PROCUREMENT STRATEGY – POLICY REMARKS AND CHALLENGES FOR THE REPUBLIC...
that “there is very little question that procurement policy can stimulate indus-
trial innovativeness, and more than a vague suspicion that it can be a far more
potent stimulus than a policy of generalised R&D subsidies”. Public procure-
ment of innovation needs an intermediation structure (better known as design
principles: impartiality and neutrality, accessibility and trustworthiness but also
access to the sources of expertise and knowledge) that is appropriate to support
public bodies across the various procurement situations and their correspond-
ing challenges (Edler and Yeow, 2016; see also: Georghiou et al., 2014).
834
erful instrument that can foster a country’s economic development. Clear and
consolidated procurement data are often not available. There is no EU-wide
consensus on which data need to be collected and for what purpose. In many
Member States, central authorities are unable to indicate the exact size of pub-
lic procurement spending in their country, despite the huge amounts of money
involved. In such cases, public scrutiny is largely absent, there is no possibility
for a data-driven policy-making and even budgetary control is hampered. In the
same way, the digital transformation of public procurement is slow. This is con-
firmed by the results of the 2016 European Commission (2017a) survey that
reveal that only four Member States rely on digital technologies for all major
steps of the procurement process (e-notification, e-access to tender documents,
e-submission, e-evaluation, e-award, e-ordering, e-invoicing, e-payment). Based
on their research, Čusek-Slunjski et al. (2016) conclude that there is a growing
need to enhance training for practitioners and the use of the European Single
Procurement Document (ESPD) and e-Certis database in the Republic of
Croatia. Furthermore, contracting authorities are rarely buying together, as only
11% of procedures are carried out by cooperative procurement. Joint procure-
ment often leads to lower prices and provides contracting authorities with an
opportunity to exchange experiences and obtain higher quality (more in: Mitea,
D. et al., 2017). Although not all types of procurement are suitable for aggrega-
tion, the low overall aggregation rate points to the missed opportunities. There-
fore, the contracting authorities are encouraged to engage in joint procurement
arrangements. According to this indicator (European Commission, 2017b),
there is a positive trend that puts the RoC among the top-ranking Member
835
The European Commission’s public procurement strategy (European Com-
Mladen Vedriš Nataša Drvenkar Damir Butković: PUBLIC PROCUREMENT STRATEGY – POLICY REMARKS AND CHALLENGES FOR THE REPUBLIC...
836
viable solutions. On the other hand, changes in public procurement entailed
some new practices whose implementation in day-to-day procedures is ham-
pered by the lack of knowledge. Terms such as “whole life costs” and “innovation
in public procurement” are still relatively new to contracting authorities and
require a substantial level of knowledge and skills for full operational applica-
tion. For example, the “value for money” philosophy referred to in the new act
has acquired a completely new meaning in the procurement of works because
whole life costs do not only relate to individual works but rather comprise sev-
eral connected entities of a much larger enterprise in which works are only one
of the phases. If you consider any of the aspects of sustainability and their ap-
plication in practice, procurement of works becomes quite challenging in terms
of the results that need to be achieved and will most likely become a focus of
attention in the coming period. Given the complexity of the requirement as well
as the experience of other countries, the key risks to the implementation of the
strategic goals are administrative capacity for implementation. There is still a
shortage of competent experts and other participants in the system and this
represents a major obstacle to achieving the desired outcome. Summarizing the
conclusions from the literature and the research carried out as well as the rele-
vant documents and equally important practical experience, it can be concluded
that the EU is still seeking the right path to achieving sustainable and efficient
public procurement policies. The RoC follows the agreed rules and strategies;
however, one should bear in mind that it is necessary to create the conditions
for the effective implementation of strategic requirements. The data presented
in the research referred to in this paper raise new questions and suggest that the
837
Apart from the questions of education and administrative capacities, this
Mladen Vedriš Nataša Drvenkar Damir Butković: PUBLIC PROCUREMENT STRATEGY – POLICY REMARKS AND CHALLENGES FOR THE REPUBLIC...
REFERENCES:
Brammer, S. & Walker, H. (2011), Sustainable procurement in the public sector: An inter-
national comparative study. International Journal of Operations and Production Man-
agement, 31(4): 452-476
Carter, C.R., Jennings, M.M. (2002), Social responsibility and supply chain relationships.
Transportation Research Part E: Logistics and Transportation Review, 38(1), 37-52.
Čusek-Slunjski, M., Fresl, A., Gruica Devčić, I., Serdarušić, I. (2016) Rezultati istraživanja:
Spremnost organizacija za primjenu novih direktiva u javnoj nabavi, Projekt jednako
razvoj d.o.o., Zagreb
Edler, J., Yeow, J. (2016), Connecting demand and supply: The role of intermediation in pub-
lic procurement of innovation, Research Policy, 45(2), pp. 414-426, doi: https://doi.
org/10.1016/j.respol.2015.10.010
838
Electronic Public Procurement Classifieds (2018), Elektronski oglasnik javne nabave, on-
line, available at: https://eojn.nn.hr/Oglasnik/, accessed on March 18, 2018
European Commission (2008), Communication from the Commission, Public procurement
for a better environment , COM (2008) 400, on-line, available at: http://eur-lex.eu-
ropa.eu/LexUriServ/LexUriServ.do?uri=COM:2008:0400:FIN:EN:PDF, accessed
on March 22, 2018
European Commission (2010a), Communication from the Commission, EUROPE 2020 , A
strategy for smart, sustainable and inclusive growth, COM (2010) 2020, on-line, avail-
able at: http://ec.europa.eu/eu2020/pdf/COMPLET%20EN%20BARROSO%20
%20%20007%20-%20Europe%202020%20-%20EN%20version.pdf, accessed on
March 16, 2018
European Commission (2010b), Buying Social - A Guide to Taking Account of Social Con-
siderations in Public Procurement, available at: http://ec.europa.eu/social/BlobServl
et?docId=6457&langId=en, accessed on March 20, 2018
European Commission (2015a), Study on strategic use of public procurement in promoting
green, social and innovation policies, PwC study for European Commission, available
at: https://publications.europa.eu/en/publication-detail/-/publication/6a5a4873-
b542-11e7-837e-01aa75ed71a1/language-en, accessed on March 16, 2018
European Commission (2015b), Communication from the Commission, Upgrading the
Single Market: more opportunities for people and business, COM(2015) 550 final,
available at: https://ec.europa.eu/transparency/regdoc/rep/1/2015/EN/1-2015-
550-EN-F1-1.PDF, accessed on March 16, 2018
European Commission (2016a), Stock-taking of administrative capacity, systems and prac-
tices across the EU to ensure the compliance and quality of public procurement involv-
ing European Structural and Investment (ESI) Funds – Croatia country profile; PwC
study for European Commission, available at: https://ec.europa.eu/fisheries/sites/
fisheries/files/docs/body/2016-06-27-public-procurement-report-summary_en.pdf,
accessed on March 16, 2018
839
European Commission (2018). Komunikacija komisije europskom parlamentu, vijeću,
Mladen Vedriš Nataša Drvenkar Damir Butković: PUBLIC PROCUREMENT STRATEGY – POLICY REMARKS AND CHALLENGES FOR THE REPUBLIC...
840
Ministry of Economy, Entrepreneurship and Crafts, Directorate for Public Procurement
System, Statistical Annual Reports on Public Procurement; on-line, Dostupno na:
http://www.javnanabava.hr/default.aspx?id=3425, accessed on March 22, 2018
Mitea, D. et al. (2017), Support of the internal market policy for growth: Feasibility study
concerning the actual implementation of a joint crossborder procurement procedure
by public buyers from different Member States, European Union, 2017, ISBN: 978-
92-79-64806-9, doi: 10.2873/10021
OECD (2013), “Strategic public procurement”, in Government at a Glance 2013, OECD
Publishing, Paris.
Podumljak, M. i Dávid-Barrett, E. (2015), Javna nabava građevinskih radova: slučaj Hrvatske,
Projekt Anticorrp, Partnerstvo za socijalni razvoj, Zagreb, available at: https://www.
vkontrole.lt/tf/files/files/The%20Public%20Procurement%20of%20Construc-
tion%20Work-The%20Case%20of%20Croatia.pdf, accessed on March 22, 2018
Šikić, M., Turudić, M. (2017) Održiva javna nabava, Zbornik pravnog fakulteta Sveučilišta
u Rijeci (1991) v. 38, br. 1, 419-448
UNDP (2015), Procurement Starategy, United Nations Development Programme, avail-
able at: http://www.undp.org/content/dam/sweden/Procurement%20Strategy%20
Final%20July%201%202015.pdf, accessed on March 22, 2018
Yeow, J., Uyarra, E., Gee, S. (2011a), Sustainable Innovation through Public Procurement,
The Proceedings of the XXII ISPIM Conference, Hamburg, Germany - 12-15 June
2011, ISBN 978-952-265-092-4
Yeow, J., Uyarra, E., Gee, S. (2011b), Sustainable Innovation through Public Procurement:
The case of ‘closed loop’ recycled paper, Manchester Business School Working Paper,
No. 615, ISSN: 0954-7401, available at: https://www.mbs.ac.uk/cgi/apps/research/
working-papers/
841
SHOULD EXCISE DUTIES ON
SOFT DRINKS IN BOSNIA AND
HERZEGOVINA BE INCREASED?
Abstract
Faced with several fiscal pressures on one side and concern for health of the
population on the other, some European countries have proposed the introduc-
tion or an increase of excise duties on soft drinks. In fact, European countries
mostly evaluate the effects of an introduction of sugar tax rather than excise
duties on soft drinks, but in the last few years the latter gained prominence in
the academic literature. By using a holistic approach, the aim of this paper is to
show the possible effects of an increase in excise duties on soft drinks in Bosnia
and Herzegovina (BiH). After a brief analysis of the status of taxation of soft
drinks in the European countries, we focus on the case of BiH. We conduct
a comprehensive economic analysis of the possible effects of an increase in the
existing excise duties on soft drinks in BiH in three simulation scenarios: a
simulation where the additional tax burden is fully absorbed by the producers;
a simulation where the additional tax burden is fully levied on consumers and
a simulation where the additional burden is shared between the producers and
consumers. In all three simulation scenarios, our results show that an increase
in the excise duty on soft drinks in BiH increases inefficiency for both producers
and consumers and is therefore discriminatory and harmful.
Key words: excise duties, soft drinks, Bosnia and Herzegovina
JEL Classification: E62, H27
842
1. INTRODUCTION
As a consequence of an increasing budget deficits in the EU member states
(Eurostat, 2017), European Commission (hereafter: EC) has, on several occa-
sions published a set of suggestions and recommendations for a successful tax
reforms (Garnier et al., 2013), which primarily focuses on a shift away from
income taxation towards consumption and property taxation. These facts to-
gether with increasing health expenditures and obesity have resulted that some
EU members have been considering an introduction of ‘sugar tax’ and/or excise
duty on soft drinks within consumption taxes.
The idea to impose additional excise duties (150% higher than the existing
excise duties) on soft drinks in BiH was not mentioned in the strategic docu-
ment regarding fiscal reforms in BiH as defined by the Reform Agenda 2015-
2018 (FBiH Government, 2015). It emerged later in the process of drafting
implementation documents aimed at settling the healthcare sector deficits.
The main goal and purpose of any taxation system should be to increase rev-
enues necessary for financing of public, general needs in the most efficient way
(lowest possible expenditures and highest possible revenues, Bratić, 2011, p 37).
Hence, we attempt to answer the question whether additional excise duties in
BiH would be efficient, i.e. what the effects of a such possible increase on both
producers and consumers might be.
843
2. FISCAL AND NONFISCAL REASONS TO
INTRODUCE EXCISE DUTIES
Throughout the history, excise duties were treated as ‘the gold mine’ due to
their exhaustiveness. European countries have been imposing excise duties on
Velma Pijalović Lejla Lazović-Pita: SHOULD EXCISE DUTIES ON SOFT DRINKS IN BOSNIA AND HERZEGOVINA BE INCREASED?
different groups of products such as salt, tobacco, matches, alcohol, coffee, wine
and lamps ( Jelčić & Jelčić, 1998). Excise duties have been playing an impor-
tant role in Europe for many years, and today, EU members impose excise du-
ties on three standard product groups: energy, alcohol and tobacco. The basic
characteristics of excise duties are similar to most consumption taxes – such as
financial stability of revenues, low cost of collection and limited application on a
certain number of products just to name a few. Excise duties are levied together
with sales tax (VAT in BiH), which means that the amount of the paid excise
duty is included in the VAT tax base (Šimović & Šimović, 2006, p. 200). Al-
ternatively, characteristics of excise duties can be grouped in the following way
(McCarten & Stotsky, 1995, p. 100):
1. Production and sale of excise products is supervised by the state;
2. Demand for these products has no price elasticity;
3. Income elasticity is higher than one, so excise duties are sometimes con-
sidered as a levy on luxury products;
4. They are imposed because consumption of excise products leads to nega-
tive externalities.
Theoretically, reasons for introduction of excise duties can be divided to fis-
cal and non-fiscal reasons. (Šimović & Šimović, 2006, p. 201). The fiscal reason
of imposing excise duties is the most obvious one – the need to collect public
revenues. Since excise duties, along with VAT, income tax and profit tax, rep-
resent the most stable and predictive tax revenues today, the share of revenues
from excise duties to total tax revenues in EU15 countries amounts to, on av-
erage 9.7% and on average to 3.3% to GDP (1965-2017, OECD, 2018). In
the past fifty years, their share to both total tax revenues and GDP has been
decreasing especially in the United Kingdom and Ireland (OECD, 2018).
Šimović and Šimović (2006, p. 203) list several non-fiscal reasons why mod-
ern states are trying to justify the introduction or an increase of excise duties to
844
get the approval of public and voters, whereas fiscal reasons are usually left be-
hind in such cases. Some non-fiscal reasons are social reasons which are usually
justified by the equity principle. Health reasons are linked to health protection
and discouraging of excessive use of some products which are detrimental to
health. The fact that excise duty is levied on those products whose consump-
tion leads to negative externalities in terms of higher air and water pollution,
etc. justifies the environmental reasons. One of key principles of tax policy
is tax neutrality1, or the idea that taxes should not have a significant impact
on investments, production or consumption. However, under certain circum-
stances, tax policy can include the need to levy ‘special’ taxes – excise duties – as
a response to existing negative externalities linked to consumption of some
products and services. Products for which levying excise duties is justified by
existence of externalities are usually alcohol, tobacco, motor vehicles and gam-
bling (Cnossen, 2005). Economic reasons are related to discouraging domestic
consumption of excise products, especially nowadays, when there is no differ-
ence between domestic and imported excise products. These can also be linked
to the government intention to improve the position of domestic producers
(for example lower excise duties on beer in Germany compared to excise duties
on wine, and vice versa in the Southern Europe). The intention is to influence
consumer habits within some groups of excise products, especially those with
lowest income. Other reasons for excise duties could include protective mea-
sures of some states so excise duties could serve as a replacement for import
duties. Excise policy of lower tariffs for domestically produced goods compared
to imported goods (for example excise duties on wine and beer in France) can
1
Tax neutrality can also have other meanings, for example revenue neutrality in tax reforms.
845
Gayer, 2009). In theory, introduction of this type of tax reduces production to
the ‘socially efficient’ level.
846
levels. Research shows that such demand is less elastic in developed countries
compared to developing countries (Searle et al., 2003). Furthermore, the prin-
ciple of measures of different types of elasticity in some groups of excise prod-
ucts is possible in developed countries, but virtually non-existent transition and
developing countries due to lack of reliable data (McCarten & Stotsky, 1995).
Table 1. Recent international studies: income and price elasticities by non-
alcoholic beverage category
Studies Product Income elasticity Compensated own price elasticity
Regular soft drinks 1.506 -1.903
Diet soft drinks 1.276 -0.957
Bottled water 0.364 -0.07
Fruit drinks 1.259 -0.082
Dharmasena & Capps Fruit juices 0.649 -0.822
(2009) Isotonics (energy drinks) 2.604 -5.937
Coffee 0.628 -0.464
Tea 0.752 -0.509
High-fat milk 0.798 -0.733
Low-fat milk 1.059 -0.761
Soft drinks 0.997 -0.151
Milk 0.614 -0.154
Zheng & Kaiser
Juice 0.656 -0.172
(2008a)
Bottled water 0.029 -0.498
Coffee/Tea 3.144 -0.083
Soft drinks 0.381 -0.164
847
Results represented in table 1 summarise research regarding different mea-
sures of elasticity for developed countries. Hence, table 1 indicates that con-
sumers’ price sensitivity is very different in different markets, and that different
types of soft drinks have different price and income elasticity. Thus, when intro-
ducing or increasing excise on soft drinks, it is crucially important to correctly
understand the availability of products, pricing and consumers’ reaction to price
changes. Even when demand for soft drinks has no price or income elasticity,
Velma Pijalović Lejla Lazović-Pita: SHOULD EXCISE DUTIES ON SOFT DRINKS IN BOSNIA AND HERZEGOVINA BE INCREASED?
848
So, an increasing number of studies show that obesity is not linked to intake
of sweet drinks only, and that this health problem requires a holistic approach
which respects the fact that in some countries, despite reduced sugar consump-
tion, per capita obesity level remained the same or even increased (Preece, 2013).
Also, while soft drinks represent a source of calorie and sugar intake, they are
surely not the only source, and that other sources should also be considered
(Howard & Wylie-Rosett, 2002). Hence, a few arguments justify these facts:
1. It is estimated that sweet soft drinks contribute to 1.4% to 7% of total
daily energy intake;
2. Argument for introduction and/or increase of excise in order to reduce
consumption and achieve health benefits stands only if there are no easily
available substitutes;
3. When designing anti-obesity measures, we need to focus on quantity and
balance of calorie intake from all sources;
4. Since obesity is also linked to lifestyle changes, anti-obesity measures
encourage physical activity too (Preece, 2013).
International experience shows that introducing or maintaining high excise
can have a negative impact on economic activity and investment opportunities,
thus limiting fiscal revenues. For instance, Hungary introduced taxes on salt,
sugar and different sweets on 1 September 2011. A study on sales and revenues
of Hungarian Biscuit Association (HBA) members showed that the industry
had following results in period of December 2011-May 2012:
a) Sale of confectionery products dropped by 10%, revenues from sale of
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
savoury snacks dropped by 15%;
b) Reduced sales resulted in reduced revenues from VAT by $ 4.5 million;
c) Introduction of so-called health taxes resulted in layoffs and cancelled
investments (Oxford Economics, 2013).
849
revenues compared to (post)transition countries (EU13). If we compare shares
of revenues from excise to total tax revenues in 2000-2012 in the two groups
of countries – EU15 and EU13, we see that the average in EU15 was 6.8% to
8.0%, and in EU13 it was 9.9% to 11.6% of total tax revenues (European Com-
mission, 2017).
Finland was the first EU member to introduce tax on sweets and soft drinks
in 1929. However, after abolishing the sweets tax in 1999 (it was to be replaced
Velma Pijalović Lejla Lazović-Pita: SHOULD EXCISE DUTIES ON SOFT DRINKS IN BOSNIA AND HERZEGOVINA BE INCREASED?
with sugar tax, but this idea was rejected), Finland is actively considering abol-
ishing tax on soft drinks as well. Denmark introduced tax on soft drinks in
1930, and it was abolished in 2013 (The Economist, 2015). The reason was a
combination of fiscal issues (low revenue collection rates) and economic issues
related to cross-border trade (Danish citizens shopping in other countries like
Sweden and Germany, as well as stimulation of domestic producers to boost
local economy). Some countries introduced this type of tax, (Hungary in 2011,
France in 2012, UK in 2016 with planned implementation as of 2018). Other
EU countries rejected it, such as Slovenia in 2014 (The Economist, 2015) or
Bulgaria in 2016. According to Germany’s Ministry of Food, sugar tax will
not be considered (Die Welt, 2016). Instead, Germany will focus on educa-
tion of children to encourage ‘healthy food habits’. Scientific debates and studies
in countries like Belgium and Estonia deem tax on soft drinks unjustified and
leading to additional economic distortions (although it was considered along
with tax on sugar, salt, fats, Institute for Market Economics, 2015).
850
Table 2. Share of revenues from excise duties to total revenues in selected Eu-
ropean countries
Types of revenues/Years 1995 2000 2005 2010 2011 2012 2013 2014 2015 2016
France
Share of revenues from
‘sugar’ excise to total
revenues from excise duties 2.3% 2.0% 0.3% 2.0% 2.1% 1.9% 2.4% 2.4% 2.2% 2.1%
Share of revenues from
‘sugar’ excise to total
revenues 0.5% 0.4% 0.1% 0.4% 0.4% 0.4% 0.4% 0.5% 0.4% 0.4%
Finland
Share of revenues from
‘sugar’ excise to total
revenues from excise duties 1.4% 0.7% 0.7% 0.6% 1.8% 2.6% 2.7% 3.5% 3.3% 3.1%
Share of revenues from
‘sugar’ excise to total
revenues 0.1% 0.1% 0.1% 0.0% 0.2% 0.2% 0.2% 0.3% 0.3% 0.3%
Norway
Share of revenues from
‘sugar’ excise to total
revenues from excise duties 4.7% 4.7% 4.9% 5.7% 5.6% 6.1% 5.8% 6.1% 5.9% 6.1%
Share of revenues from
‘sugar’ excise to total
revenues 0.4% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3%
N.B. ‘Sugar’ excise in Finland is a sum of: sugar levy, Excise duty on confectionery and Ex-
cise duties on sweets, ice cream and soft drinks. Sugar excise in Norway is a sum of: Tax on
non-alcoholic beverages, Chocolate and candy tax and Sugar tax. Even though Croatia is a
EU member since 2013, it will be analysed with other countries in the region. Hungary is
excluded from the analysis since „sugar levy“ is not classified under excise duties but rather
Table 2 shows low share of revenues from ‘sugar’ excise to total excise reve-
nues in France, Finland and Norway. Denmark was not included due to unclear
implementation of tax on sugar, ice cream, chocolate, confectioneries, sweets,
etc. (introduction, abolition and possible reintroduction of this tax type). In
France, a few papers have been published that deal with the effects of soda tax
on consumer prices, purchases and tastes (Cappaci et al., 2016; Berardi et al.,
2016; Etile et al, 2017). The results show that additional soda tax was gradually
levied to final consumers (Etile et al, 2017) whereas Cappaci et al. (2016) by
using a difference in difference method showed a relatively small impact of the
tax on prices with an uneven pass - through across the various drink categories.
851
In Hungary, as a post-transition country, revenues from sugar excise took less
than 1% of total excise revenues in period 2005 to 2012 and since 2012 was
abolished so it is not included in the table. In most developed economies such as
Norway, this share is higher (5.9% on average for 2010-2016), but unlike other
countries considering introduction of tax on soft drinks, Norway consistently
taxes all products containing sugar (including chocolates and sweets).
Data for neighbouring countries in period 2009-2016 provided in Table
Velma Pijalović Lejla Lazović-Pita: SHOULD EXCISE DUTIES ON SOFT DRINKS IN BOSNIA AND HERZEGOVINA BE INCREASED?
3 shows that revenues from excise on soft drinks in BiH and Croatia take a
relatively small percentage of total revenues from excise (on average 1.0% in
Croatia and 1.6% in BiH), with a declining trend, so they can be considered
the so-called nuisance taxes or negligible taxes which complicate the tax mecha-
nism (leading to so-called tax jungle or tax labyrinth), where cost of collection is
higher than generated revenues. Serbia does not levy excise on soft drinks. If we
speak about fiscal reasons for introduction of additional excise on soft drinks
in BiH, they remain questionable due to low share of this type of excise in total
revenues from excise. This share is negligible to total revenues and GDP of all
countries.
Since growing economic pressures on healthcare sector are often argued for
the introduction of excise on soft drinks, it is noteworthy that EU countries are
implementing a number of other measures aimed at resolving financial prob-
lems in healthcare sector as well, including changes in (I) level of revenues; (II)
quantity and quality of public financing of healthcare; (III) expenses of publicly
financed healthcare (Pijalović, 2011). If we take obesity as one of risks leading
to non-contagious diseases as an argument in favour of introduction of excise
on soft drinks, we must emphasise that BiH has the lowest percentage of over-
weight population in Europe. Only 17.6% of population have BMI > 30 (WHO,
2016), and only Moldavia has less obese population. Countries which decided
to introduce excise (like Hungary, Finland, France, UK), as well as the country
which decided to abolish it (Denmark) have higher percentage of obese popula-
tion than BiH. Also, the Reform Agenda in BiH did not mention an increase of
excise on soft drinks as a reform proposal. Instead of increasing tax and excise
revenues, BiH should decrease public expenditures significantly which could be
done by the implementation of the Strategy of Fiscal Discipline and Sustain-
ability (Kreso and Lazović-Pita, 2016). Bearing this in mind, the justifications
to increase excise duties on soft drinks by 150% in BiH is difficult to find, except
for possible fiscal reasons and even these reasons remain questionable.
852
Table 3. Share of revenues from excise duties to total revenues in Croatia, Ser-
bia and BiH, 2009-2016
Revenues/Year 2009 2010 2011 2012 2013 2014 2015 2016
Croatia
Share of revenues from excise duties to
9,2% 10,3% 9,7% 9,5% 10,3% 11,0% 11,7% 11,7%
total revenues
Share of revenues from excise duties on
soft drinks to total revenues from excise 1,1% 1,0% 1,1% 1,1% 0,9% 0,9% 0,8% 0,8%
duties
share of revenues from excise duties on
0,1% 0,1% 0,1% 0,1% 0,1% 0,1% 0,1% 0,1%
soft drinks to total revenues
Serbia
Share of revenues from excise duties to
11,2% 11,9% 12,5% 12,3% 13,3% 13,1% 13,9% 19,3%
total revenues
BiH
Share of revenues from excise duties to
19,2% 20,5% 21,5% 21,3% 21,3% 20,9% 22,0% ...
total revenues
Share of revenues from excise duties on
soft drinks to total revenues from excise 2,1% 1,3% 1,2% 1,7% 1,2% 1,8% 1,7% ...
duties
share of revenues from excise duties on
0,2% 0,2% 0,2% 0,2% 0,2% 0,2% ... ...
soft drinks to total revenues
853
it is higher than unit price of total soft drinks production. This divergent trend
indicates a strong influence of competition, as well as increasing productivity of
local soft drinks industry, since local producers had to significantly increase the
production volume, while at the same time their experienced a decline in total
sales value.
According to last available data, total number of employees in this indus-
try was 1,154. Negative economic trends in the industry in a three-year period
Velma Pijalović Lejla Lazović-Pita: SHOULD EXCISE DUTIES ON SOFT DRINKS IN BOSNIA AND HERZEGOVINA BE INCREASED?
854
Table 5. Summary of soft drinks subject to excise duties in BiH, BAM/l
Source: Federalni zavod za statistiku, 2015, Institut za statistiku RS 2015. & BHAS, 2015,
own calculation.
Table 6. Comparison between a price per liter of sold domestic versus im-
ported soft drinks subject to excise duty
855
(DEP, 2016), we used appropriate chain indexes calculated basing on trends of
value and quantity variables of BiH’s soft drinks industry, sectoral export and
import in order to create projections of quantities and values of produced and
sold soft drinks. The first simulation assumes that there will be no price spikes.
In order to do the second and third simulation based on data on price changes
and quantities in 2014, we calculated that the price elasticity of demand is -1.14.
On the other hand, the elasticity calculated by soft drinks producers in BiH is
Velma Pijalović Lejla Lazović-Pita: SHOULD EXCISE DUTIES ON SOFT DRINKS IN BOSNIA AND HERZEGOVINA BE INCREASED?
slightly higher at -1.50. Since it is realistic to expect some cross elasticity (since
more people will make homemade fruit syrups -which is a regional tradition),
we used the elasticity of -1.5 for our analysis.
856
Table 7. Simulation of the effects and an estimate of total sales revenues and
volumes in BiH soft drinks industry after addtional excise duty
2015 2016 2017 2018
Sold quanitites of BiH soft drinks industry, in liters
Price per liter 0.65 BAM/l 323.088.269 331.100.858 341.030.573 352.438.045
Price per liter after additional excise duty of
0.15 BAM/l; Tax burden: New price 0.584 368.860.046 379.922.158 392.630.554
BAM/l
Difference in quantities due to additional tax
37.759.188 38.891.586 40.192.509
burden (11.4% for each year)
Sales revenues of BiH soft drinks industry, in BAM
Per unit price of 0.650 BAM/l 210.055.356 215.264.729 221.720.518 229.137.069
Per unit price after additional excise duty
193.228.671 199.023.599 205.680.938
0.584 BAM/l
Difference in sales revenues- loss of
22.036.058 22.696.919 23.456.131
revenues of BiH soft drinks industry, in BAM
Source: own calculation.
Based on the projection of quantities and sales value of BiH soft drinks in-
dustry after imposing the ‘tax burden’, we can conclude the following:
- The amount of additionally collected excise in a three-year period would
be BAM 118,883,756
- The effect of shifting additional tax burden on business results of the indus-
try, or its revenues, due to inability to shift new indirect taxes on consum-
ers because of pressure on a highly competitive market would mean that
857
5.2.2. Simulation 2- Effects of 14% Increase of Excise on Soft Drinks in BiH
Since producers would be exposed to a great financial burden which would
probably jeopardise their survival (especially in case of small producers) if they
do not increase the prices, it is more likely that producers would decide to shift
the burden of new taxes to end consumers, and to increase prices by 14%.
Based on this assumption, we calculated that the sales volumes would
Velma Pijalović Lejla Lazović-Pita: SHOULD EXCISE DUTIES ON SOFT DRINKS IN BOSNIA AND HERZEGOVINA BE INCREASED?
decrease by 62,589,760 litres in 2016, i.e. sales value would drop by BAM
61,602,736. Sales volume in 2017 would drop by 69,354,321 litres, i.e. sales
value would drop by BAM 67,976,999. In 2018, sales volume would decrease
by 77,534,239 litres, and sales value would decrease by BAM 77,198,530.
As for the effects on excise collection, for excise of BAM 0.10/l in case of
excise increase by BAM 0.15/l, additional BAM 28,455,135, BAM 29,194,968
KM and BAM 29,811,905 would be collected in 2016, 2017 and 2018
respectively.
Based on data in average production quantity per worker, we can calculate
that reduced sales and consequent reduction in local production by 40,284,928
litres in 2016, a total of 143 workers would be redundant. Since the multiplier
in soft drinks industry is 2.23 (projection of Sarajevo Institute of Economics,
2015), another 177 workers would be laid off, totalling 320 workers.
Table 8. Simulation of possible economic effects of addtional excise duty in
BiH for 2016-2018
Soft drinks industry Total (multiplier 2.23)
Fall in number of workers (-143) (-320)
Wages (net) (-4.272.840) (-9.561.600)
Pension contributions (-1.525.352) (-3.413.376)
Health contributions (-1.094.259) (-2.448.691)
Unemployment contributions (-132.613) (-296.755.2)
PIT (-303.166) (-678.413)
Total (-7.328.230) (-16.398.835)
Source: own calculation.
858
Table 9. An increase/ a fall of additional VAT revenues* for 2016-2018
BiH 2016 2017 2018 Total
Excise duty of 0.10 BAM/l; Growth under
DEP procjections without additional excise 1.391.979 1.591.760 1.866.432 2.983.739
duties
Excise duty 0.25 BAM/l (-8.950.8159) (-9.876.990) (-11.216.869) (-30.044.675)
* In comparison to previous year when excise duty of 0.10 BAM/l
Source: own calculation.
The first version of projection of collected VAT (in case that excise remains
BAM 0.10/l) reflects the fact that sales of drinks (based on chain indexes) is
expected to grow, and consequently amounts of collected VAT are expected
to grow too. On the other hand, the version assuming introduction of excise
of BAM 0.25/l reflects the fact that there would be a decrease in value of sold
products caused by growing prices, whereby the amount of collected VAT (in
all three years) is expected to drop by BAM 30,044,675 (table 9).
859
balance (import substitution), a fall in consumption multiplier and GDP and
growing shadow economy.
6. CONCLUSION
Apart from the analysis of the justification for an increase of excise duty on
soft drinks based on comparative analysis with EU members and an overview
Velma Pijalović Lejla Lazović-Pita: SHOULD EXCISE DUTIES ON SOFT DRINKS IN BOSNIA AND HERZEGOVINA BE INCREASED?
of fiscal and non-fiscal aspects of introduction of excise on soft drinks, this pa-
per also provided a projection of economic effects of the proposed increase of
excise on soft drinks in BIH. Within the contextual framework which includes
a holistic analysis of wider economic effects, we established that: (I) production
in soft drinks industry and all related industries would decrease; (II) revenues
from excise would grow, but tax and non-tax revenues (contributions) might
fall; (III) employment in soft drinks industry and several related industries
(suppliers of soft drinks industry) would decrease. Besides the explicitly cal-
culated consequences, it is possible to expect additional consequences reflected
growing shadow economy, worsening of foreign trade balance, etc.
Due to all listed reasons, we conclude that levying additional excise on soft
drinks in BiH would be inefficient and harmful. Furthermore, in this paper we
attempted to perform a comprehensive economic analysis of the possible effects
of an introduction of additional excise duty on soft drinks. Further research
would include, based upon available micro data (age, sex, income, consump-
tion), a calculation of different elasticities for BiH. By using a comparative risk
assessment model, we would then be able to estimate the effects of taxes which
are linked to health protection and discouraging of excessive use of some prod-
ucts which are detrimental to health.
LITERATURE
Agencija za finansijske i posredinčke usluge (AFIP) Sarajevo & Agencija za finansijske i
posredničke usluge Banja Luka, 2015. Company database (available at request).
Berardi, N., Sevestre, P., Tepaut, M. & Vigneron, A. 2016. The impact of a ‘soda tax’ on
prices: evidence from French micro data. Jounral of applied economics. Vol 48. Issue 41.
BHAS, 2004, 2007 & 2011. Anketa o potrošnji domaćinstva. Available at: www.bhas.ba
(accessed:04/2017)
BHAS, 2015. Statistika vanjske trgovine. Available at: www.bhas.ba (Accessed: 17.04.2016.)
860
Bratić, V. 2011. Skrivena javna potrošnja – porezni izdaci: potreba ili udvaranje biračima?
Zagreb, Institut za javne finansije.
Capacci, S., Allais, O., Bonnet, C & Mazzocchi, M. 2016. The impact of the French soda tax
on prices, purchases and tastes: an ex post evaluation. Available at: https://www.tse-
fr.eu/seminars/2017-impact-french-soda-tax-prices-purchases-and-tastes-ex-post-
evaluation (accessed: 03/2018).
Central bank of BiH - CBBH, 2015. Bilten 4., 2015. Available at: www.cbbh.ba
(Accessed:04/2017)
Cnossen, S. 2005. Theory and practice of excise taxation: smoking, drinking, gambling, pol-
luting, and driving, Oxford University Press, New York.
Die Welt, 2016. Ernährungsminister gegen Steuer auf zuckerhaltige Getränke. Avail-
able at:http://www.welt.de/newsticker/dpa_nt/infoline_nt/brennpunkte_nt/ar-
ticle153795586/Ernaehrungsminister-gegen-Steuer-auf-zuckerhaltige-Getraenke.
html (Accessed: 04/2017)
Direkcija za ekonomsko planiranje - DEP, 2016. Program ekonomskih reformi za BiH
2016.-2018. Available at: www.dep.gov.ba (Accessed 06/2017)
Etile, F, Lecocq, S. & Boizot-Szantai, Ch. 2017. The Incidence of Soft-drink Taxes on Con-
sumer Prices: Evidence from the French Soda Tax. Available at: https://jma2017.sci-
encesconf.org/136124/document (Accessed: 03/2018)
European Commission, 2017. Taxation trends in the EU. Available at: http://ec.europa.
eu/taxation_customs/taxation/gen_info/economic_analysis/tax_structures/index_
en.htm (20.04.2016.)
EUROSTAT, 2017. Government deficit and surplus, annual data. Available at: http://
ec.europa.eu/eurostat/tgm/table.do?tab=table&plugin=1&language=en&pcode=tei
na200 (Accessed: 03/2018)
Federalni zavod za statistiku, 2015. Godišnji bilteni industrijske proizvodnje. Available at:
www.fzs.ba (Accessed:7/2017.)
Garnier, G., Gburzynska, A., György E., Mathé, M., Prammer, D., Ruà, S., & Skonieczna, A.
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
(2013). Recent Reforms of Tax Systems in the EU: Good and Bad News (European
Commission, Taxation papers, Working Paper no. 39). Available at: http://ec.europa.
eu/taxation_customs/resources/documents/taxation/gen_info /economic_analysis/
tax_papers/taxation_paper_39.pdf (Accessed:12/2017).
Howard & Wylie-Rosett. 2002. Sugar and cardiovascular disease’, AHA Journal, vol. 106,
pp. 523-7, viewed 28 November 2012, Available at: http://circ.ahajournals.org/conte
nt/106/4/523(Accessed:12/2017)
Institut za statistiku RS, 2015. Godišnji bilteni industrijske proizvodnje. Available at: http://
www.rzs.rs.ba/ (Accessed: 5/2017)
Institute for Market Economics, 2015. Social and Economic Impacts of the Proposed New
Taxes on Some Foods. Available at: http://ime.bg/en/articles/social-and-economic-
impacts-of-the-proposed-new-taxes-on-some-foods/ (Accessed: 04/2017)
Jelčić, B. & Jelčić, B. 1998. Porezni sustav i porezna politika. Informator. Zagreb.
861
Kreso, S. & Lazović-Pita, L. 2016. The Western Balkans after the fall of Yugoslavia – the sta-
tus and possible strategies of future fiscal reforms. U. Meyer, D. & Stübben, F. (Eds.).
Wirtschaftswissenschaft und Wissenschaftsdiplomatie, BERG Public Economic Se-
ries, Volume 28. Bamberg. Pp.91-114.
Leicester, A. and Windmeijer, F. 2004. The ‘Fat Tax’: Economic Incentives to Reduce Obesity.
Institute of Fiscal Studies. Briefing Note No. 49
McCarten, W.J & Stotsky, J. 1995. Excise taxes. in: Shome, P. (Ed.). Tax Policy Handbook.
Fiscal Affairs Department. Washington: IMF.
Velma Pijalović Lejla Lazović-Pita: SHOULD EXCISE DUTIES ON SOFT DRINKS IN BOSNIA AND HERZEGOVINA BE INCREASED?
Ministarstvo finansija R Hrvatske, 2018. Konsolidirana opća država 2015 Available at:
http://www.mfin.hr/hr/vremenske-serije-podataka (Accessed: 03/2018)
Ministarstvo finansija R. Srbije, 2018. Makroekonomski i fiskalni podaci 2015. Available at:
http://www.mfin.gov.rs/pages/article.php?id=11950 (Accessed: 03/2018)
Musgrave, R.A. & Musgrave, P. 1993. Javne financije u teoriji i praksi, IJF, Zagreb.
OECD, 2018. Revenue statistics 1965-2015. Available at: http://stats.oecd.org/Index.
aspx?DataSetCode=REV (Accessed: 03/2018)
Oxford economics, 2013. The Impact of Selective Food and Non-Alcoholic. International
Tax and Investment Center. Available at: http://www.delo.si/assets/media/oth-
er/20130508/ITIC%20Oxford%20Economics%20-%20The%20Impacts%20of%20
Selective%20Food%20and%20Non-Alcoholic%20Beverages%20Taxes.pdf (Accessed
03/2018)
Pijalović, V. 2011.Mogući pravci reforme zdravstvenog sektora, Međunarodni simpozij: U
susret promjenama. Udruženje računovođa i revizora FBiH.
Pratt, 2012. A constructive Critique of Public Health Arguments for Anti-Obesity Soda
Taxes. Tulane Law Review Vol.87, No. 73
Preece, R. 2013. The effective contribution of excise taxation on non-alcoholic beverages to
government revenues and social objectives: a review of the literature, World Customs
Journal, Volume 7, Number 1, March 2013. Available at: http://worldcustomsjournal.
org/archive/volume-7-number-1-march-2013/ (Accessed: 04/2017)
Rosen, H.S. & Gayer, T. 2009. Javne finansije. Beograd: Ekonomski fakultet Beograd.
Searle, J., Regmi, A. & Bernstein, J. 2003. International evidence on food consumption pat-
terns. United States Department of agriculture. Available at: https://ageconsearch.
umn.edu/bitstream/33580/1/tb031904.pdf (Accessed: 03/2018)
Šimović, J. & Šimović, H. 2006. Fiskalni sustav i fiskalna politika Europske Unije. Pravni
fakultet, Zagreb.
The Economist, 2015. Taxing sugary drinks, Stop slurping. Available at: http://www.
economist.com/news/finance-and-economics/21679259-taxes-fizzy-drinks-seem-
work-intended-stopping-slurping (Accessed: 04/2016)
The Economist, 2016. A tax on sugar. Pricier pop. Available at: http://www.economist.com/
news/britain/21694993-levy-drinks-may-change-recipes-not-waistlines-britain-
gets-new-tax-sugary-drinks (Accessed:.04/2017)
UINO, 2018. Izvještaj o naplaćenim prihodima na Jedinstveni račun UINO BiH. Avaiable
at: http://www.oma.uino.gov.ba/04_izvjestaji.asp?l=b (accessed: 03/2018)
862
UK Office for National Statistics, 2012-2013. The Effects of Taxes and Benefits on House-
hold Income, 2012/13. Available at: www.ons.gov.uk. (Accessed:04/2017)
Vartanian, LR, Schwartz, MB and Brownell, KD. 2007. Effects of soft drink consumption
on nutrition and health: a systematic review and meta-analysis. American Journal of
Public Health. 97(4)
FBiH Government. 2015. Reformska agenda za Bosnu I Hercegovinu za period 2015-2018.
Avaiable at: http://www.fBiHvlada.gov.ba/pdf/Reformska%20agenda.pdf (Accessed:
03/2018)
World Health Organisation. 2016. Global Health Observatory indicator views, Available at:
http://www.who.int/gho/database/en/ (Accessed:04/2017)
863
Health,
Education
and
Welfare
CONCEPT OF EDUCATIONAL
INSTITUTIONS AS SUSTAINABLE
ORGANIZATIONS
Abstract
Changes in the system usually occur when the system for some reason ceases to
be functional. The problem of the system is primarily question of development;
the crisis is a product of the system. One cannot expect the system to display a
higher idealism or stage of development than that to which the average human
consciousness has reached because the system is the product of that conscious-
ness. Purpose of this paper is to present a concept of educational institutions
as sustainable organizations. The general objective is to show connectedness
between energy sources, communication and paradigm shifts with an emphasis
on conformist - amber organizations, since most public educational institutions,
in general, carry conformist template. Specific objectives are to present Wilber’s
comprehensive Integral Theory that incorporate vast number of scientific truths
learned about human nature in one coherent whole, to show conscious business
model based on empowerment through learning, growth and adding value and
to explore digital information and educational products as possible products of INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
educational institutions that could contribute to the sustainability of the educa-
tion system. The aim is to encourage reflection on the possibilities of transform-
ing educational institutions based on conformist paradigm into organizations
inspired by emerging stage of human consciousness.
Key words: sustainable organizations, educational institutions, Integral Theo-
ry, digital information products, conscious business
JEL Classification: H52, I21
867
1. UNDERSTANDING THE CHANGE
What is difficult or impossible in one paradigm is easy even trivial in another
Joel Barker
What seemed like dreams a century ago, now are things we take for grant-
ed: smartphones, virtual reality sets, MP3 players, digital musical instruments,
home robots just to mention some. The scale of the change Harrari remarkably
described by comparing Spanish peasants falling asleep AD 100 and waking up
500 years later in the world quite familiar to him and one of Columbus’ sailors
fallen into a similar slumber and woken up to the ringtone of a twenty-first-cen-
tury iPhone, finding himself in a world strange beyond comprehension asking
is this a heaven or perhaps a hell (Harari, 2014:247). Just as Columbus’ sailor
could not even imagine a phone, especially not an iPhone, so it is for many peo-
ple hard to believe how could look like a world built upon abundance mentality.
Significant developments in physics, the emergence of Integral theory, a the-
Tena Čačić: CONCEPT OF EDUCATIONAL INSTITUTIONS AS SUSTAINABLE ORGANIZATIONS
ory that can be applied on every aspect of reality, (re)discovery of sacred geom-
etry/cosmometry/vortex mathematics which explains principles upon which
nature works, created a solid foundation for rewriting the conceptions of hu-
man nature and the structure of the world. As Einstein once said, “We cannot
solve our problems within the same thinking we used when we created them,”
new millennium brought us entirely new solutions for old problems. To get a
glimpse of a part of the solution, we will introduce Wilber’s Integral theory and
present the patterns of changing paradigm throughout history.
868
(AQAL model, AQAL map or AQAL framework): all quadrants, all levels, all
lines, all states, and all types. These five elements signify some of the most basic
repeating patterns of reality and can be used to “look at” reality and at the same
time they represent the essential aspects of persons own awareness in every mo-
ment (Esbjörn-Hargens, 2009:2-7).
Quadrants, the first element of Integral theory or AQAL indicates that there
are four irreducible perspectives (subjective, intersubjective, objective, and in-
tersubjective) that must be considered to fully understand any aspect of reality.
According to their position they are called: upper left (UL), upper right (UR),
lower left (LL) and lower right (LR). These perspectives are actual aspects of
the world that are always present in each moment. For example, all individuals
(including plants and animals) have some form of inner, subjective experience
or interiors (thoughts, feelings, sensations – UL quadrant), and outer, objec-
tive behaviors and physiological factors (heart rate, eye color, face expressions
– UR quadrant…), or exteriors. Furthermore, individuals are usually members
of groups or collectives. The interior aspects of collective are known as intersub-
jective cultural realities (shared meanings, values, group atmosphere – LL quad-
rant) while exteriors are known as interobjective ecological and social systems
(social systems, ecosystems, networks of communication – LR quadrant). For
example, a teacher that feels overwhelmed (UL) who has high blood pressure
(UR) can be found in ethnocentric culture (LL) working in public school (LR).
Levels of development is the second element of AQAL model. It refers to
higher and lower structures of consciousness present in each quadrant: within
869
states (UL); brain states, biological states like health, sickness (UR); states of
shared meaning, shared emotions, communication states, relationship states
(LL); economic states, political states, weather states, states of war (LR) (Wil-
ber et al.; 2008:101).
Types is AQAL element that describes horizontal differences between with-
in the quadrants. Here are some examples: personality types (e.g., Myers-Briggs,
Enneagram), gender types (e.g., masculine and feminine) (UL); body types (e.g.,
endomorph, ectomorph, mesomorph), blood types (e.g., B-, A-) (UR); cultural
types (e.g., Croatian, German), communication types (e.g., verbal, non-verbal)
(LL); types of democracy (e.g., parliamentary, two-party), transportation types
(e.g., plane, car) (LR).
To understand the process of replacing old with new and to put educational
institutions into a context of the 21st century, we will present patterns of para-
digm shifts through history.
Tena Čačić: CONCEPT OF EDUCATIONAL INSTITUTIONS AS SUSTAINABLE ORGANIZATIONS
870
In this paper, the term paradigm and the term worldview will be used as a
synonym for the meaning of how the world is viewed by people at the certain
developmental level of consciousness. It will refer to features of an individual’s
consciousness, such as cognition (what one is aware of ), values (what one con-
siders most important) and self-identity (what one identifies with). These fea-
tures of consciousness develop through recognizable stages, each stage revealing
a markedly different understanding of the world (Brown, 2006:1). Level, an ele-
ment of an individual’s consciousness, has an actual structure. It tends to unfold
in a sequence and thus progress through stages. “Levels are not rigidly separated
from each other but are rather fluid and overlapping waves. In short, levels are
abstract measures that represent fluid yet qualitatively distinct classes of recur-
rent patterns within developmental lines.” (Rentschler, 2006:19).
Before presenting the evolution of a Western cultural worldview, it should
be noted that the structure of nature is fractal, what means that developmental
levels through which the culture passes are visible in the development of human
being from birth onwards. In this paper levels will be named upon research
by Ken Wilber in Integral theory, Clare Graves, Don Beck, and Chris Cowan
in the development of values and Jane Loevinger and Susanne Cook-Greuter
in the development of self-identity (Brown, 2006:1). Levels are identified with
color and divided into egocentric (Infrared, Magenta, and Red), ethnocentric
(Amber), worldcentric (Orange and Green), and Kosmocentric levels (Teal,
Turquoise, and Indigo) (Brown, 2006:1).
At the beginning of humankind, people operated from the archaic world-
871
basic needs and following one’s impulses was the primary focus of self – iden-
tity. Today, animistic – magical worldview can be seen in children of around
three to 24 months of age, in the belief in voodoo-like curses; family rituals,
in some less developed countries, gangs, athletic teams, and corporate “tribes”
(Brown, 2006:3).
Ten thousand years ago in the history of Western Europe heavy plow started
to replace handled a hoe. Horticultural oral – drawing society began to evolve
into the agrarian, and the new way of communication occurred, early literacy.
The economy based on agriculture required the creation of a system for stor-
ing surplus and their distribution, so it also required a more efficient organiza-
tion which is not possible without a change in the method of communication
and power – gods worldview began to emerge. Central values of power – gods
worldview (red) are power, spontaneity, heroism, immediate gratification, re-
ceiving respect, getting attention, being daring, impulsive, and enjoying oneself
without regret; conquering, outsmarting, dominating. Self-identifies around
Tena Čačić: CONCEPT OF EDUCATIONAL INSTITUTIONS AS SUSTAINABLE ORGANIZATIONS
872
The invention of the printing machine in the 15th century and transition
from energy base on wood to coal, which lasted several hundred years, prepared
the ground for a groundbreaking invention of the steam machine and scientific
– rational (orange) worldview to emerge. The self becomes interested in causes,
reasons, consequences, efficient use of time, future-oriented, proactive and ca-
pable of self-criticism, and a broader sense of responsibility. Values are focused
around progress, prosperity, optimism, and self-reliance, strategy, risk-taking,
and competitiveness, goals, leverage, professional development, and mastery,
rationality, objectivism, results, technology, and the power of science (Brown,
2006:6). Corporate and scientific organizations are one of the embodiments of
scientific – rational worldview.
The discovery of oil and electricity paved the way for the electronic commu-
nications (telephone, radio, film, later TV, video, cassette) and the emergence
of pluralistic (green) worldview. The self operating from this perspective strives
to belong, to foster close and harmonious bonds with everyone. It is aware of
Orange’s materialistic obsession, the social inequality and the loss of commu-
nity and its values are centered around harmony, fairness, equality, community,
cooperation, peace and consensus. Pluralistic point of view respects all perspec-
tives as equally essential and intend to break free from “the prison of conven-
tional roles, social classes, patriarchy, institutional religion, and other structures”
(Laloux, 2014:30).
The shift in communication technology from mechanical and analog to digi-
tal electronics (from the late 1950s to the late 1970s) encouraged environmen-
873
Humanity is currently standing at the edge of a technological revolution that
is fundamentally changing the way people think, communicate, live, work, and
perceive reality. When compared with previous significant changes in Western
Europe, a transformation that started thirty years ago is evolving at an exponen-
tial pace. Holistic (turquoise) worldview supported by exponential technology
is disrupting industries in almost every country. Although Tesla’s idea of free
energy has not yet come to mainstream, it is assumed that it will be realized
in the near future as history has shown that evolution in communication and
consciousness inevitably follows the progression in energy supply: we are now
able to gather renewable energy from new grid systems called “microgrids”. Mi-
crogrids allow people who own solar panels to sell their leftover energy to other
people and renewable energy retailers without a third party within the system
of blockchain technology (decentralized technology that allows fast, secure and
transparent peer-to-peer transactions of digital values such as currency and
data).
Tena Čačić: CONCEPT OF EDUCATIONAL INSTITUTIONS AS SUSTAINABLE ORGANIZATIONS
The bottom line of holistic (turquoise) worldview is global order and re-
newal. It values the embodiment of mind and spirit, the detection of harmonics,
mystical forces, sensing waves of integrative energies and uniting feelings with
knowledge. The self sees itself as both distinct and a blended part of a larger,
compassionate whole; it recognizes that everything connects to everything else
in ecological alignments. Its primary focus is “interplay of awareness, thought,
action, and effects; transforming self and others.” Qualities of holistic self are
“high awareness of the complexity of meaning-making, systemic interactions,
and dynamic processes; seeking personal and spiritual transformation and sup-
porting others in their life quests; creating events that become mythical and
reframe the meaning of situations” (Brown, 2006:9).
874
monopoly (e.g., The Catholic Church), so today still tend to view competition
with suspicion. The overall structure settles into a rigid pyramid from bosses to
subordinates (Laloux, 2014: 20-23). Below the Minister of Education there are
senior advisors, below senior advisors there are advisors, below advisors there
are school principals, below principals there are teachers. Hierarchical stratifica-
tion in organizations often followed social stratification: priests were recruited
from peasantry; bishops and cardinals, from the aristocracy, so for a man (par-
ticularly a woman) born into the working class it was almost impossible to be-
come a chief.
The underlying worldview is that workers are mostly lazy, and they must be
controlled to achieve results. Jobs are narrow and routine-based. Innovation,
critical thinking, and self-expression are not asked for (and often discouraged).
People are replaceable; individual talent is neither discerned nor developed. Size
and stability of conformist organizations are possible because people operating
from conformist worldview are “content to stay in their box and not vie for a
higher prize” (Laloux, 2014:22).
Historically, since social belonging is crucial in the conformist – amber
worldview, to avert internal conflict within a group, problems and mistakes are
routinely blamed on others, what is often seen in Croatian society of today.
875
from which level of consciousness work is done. “New” economy is built around
consciousness. It requires leaders to continuously expandan awareness and to
develop clarity of vision to see beyond the constraint of this reality. Conscious
awareness or creativity is the way to navigate the change. It is responsible for all
of the incredible inventions and innovations in history and today.
So, to follow the steps of successful inventors, authors, pioneers, designers,
discoverers, entrepreneurs and to continuously expand awareness or creativity,
it is necessary to continually question the existing reality, to become aware of
mental concepts that are no longer functional and to replace it with functional
ones. To keep up with the exponential technology is required to go beyond the
surface and rules-based routines into transforming, creative mindsets at deep
and unconscious levels.
876
dustries. Demonetization appears when technology becomes cheaper, often to
the point of being free. The most common example is how digital photogra-
phy removed the need to buy film. Dematerialization, a process of transform-
ing physical things into digital, is intimately connected with demonetization
and democratization, it decreases costs and provides access to technology to
everyone.
Some examples of exponential technology are voice recognition, robotics,
3D printing, virtual reality, synthetic biology collaboration platforms, mobile
education platforms, online course platforms, blockchain platforms for different
purposes, etc.
877
selling products (e-books, membership sites, online training course, physical
goods, telesummits, webinars, software, music etc.), services (coaching, consult-
ing, freelancing, writing, , design, esoteric offers etc.) writing and publishing.
Since the purpose of educational institutions is to teach, consult and to dis-
seminate knowledge, they can become pillars of the new economy by using an
exponential technology in the democratization of knowledge and at the same
time becoming sustainable.
878
space and focused on end goals that strike a direct chord with their happiness
(Lakhiani, 2016:15).
The Bitdegree platform is an example of exponential technology disrupting
higher education institutions. It fills the gap between the needs of employers
and student’s tech knowledge (Bitdegree, 2018) by offering students the best
online courses with a clear and transparent blockchain based reward system
and achievement tracking. At the same time, it helps businesses to recruit tech
talents and shape global education to their needs. It revolutionizes education
by creating a new blockchain token (value exchange currency) that can be ex-
changed among the users of the platform: students, companies as sponsors, and
third parties. Educational institutions can consider using Bitdegree’s emerg-
ing model to fill gaps within different industries as well. The model has three
components:
1. Companies as sponsors are the primary fuel for a sustainable educational
economy. The economic incentive for companies as sponsors to buy to-
kens is to build an audience, recruite talents, solve their own problems
within emerging worldview, enhance company’s branding and advertising
2. students - tokens can be used for creating smart-incentives as payment for
scholarships for students’ educational accomplishments (learning accom-
plishments, working on solving company’s problems, branding, advertis-
ing etc.) which can be used for getting various digital services offered by
third parties on their platforms in exchange for tokens
3. third parties - sponsors as well as students will be able to exchange and re-
879
References
Bitdegree. (2018). Bitdegree.org, Available at: www.bitdegree.org Access: (11-03-2018)
Bowman, C. Douglas, G.& Bowman, S. (2015). Benevolent Leadership For A Better World:
Unlocking Benevolent Capitalism, Lifemastery Pty Ltd., Kindle Edition.
Brown, B. C. (2006). An Overview of Developmental Stages of Consciousness, Integral In-
stitute, Available at: https://integralwithoutborders.net/sites/default/files/resources/Over-
view%20of%20Developmental%20Levels.pdf Access: (08-03-2018)
Čačić, T. (2012). Stranice društvenih mreža i kultura net – generacije, doktorska disert-
acija, Available at: https://www.academia.edu/1963857/Stranice_dru%C5%A1tvenih_
mre%C5%BEa_i_kultura_net_-_generacije Access: (08-03-2018)
Esbjörn-Hargens, S. (2009). An overview of integral theory: an all inclusive framework
for the 21st century [resource paper no. 1], Integral Institute. Available at: http://www.
cybertech-engineering.ch/research/references/Esbjorn_2009/Integral%20Theory_
AQAL%20By%20K.%20Wilber%203-2-2009.pdf Access: (10.03.2018)
Harari, Y. N. (2014). Sapiens: A Brief History of Humankind, Harvill Secker, ISBN 978-
0-06-231609-7, London
Haupt, M. (30. 3 2016). Exponential Technology Defined. Available at: https://michael-
Tena Čačić: CONCEPT OF EDUCATIONAL INSTITUTIONS AS SUSTAINABLE ORGANIZATIONS
880
THE ECHOES OF GLOBALIZATION
AT THE UNIVERSITIES IN
CROATIA: THE ANALYSIS OF
WEBSITES AND TRENDS IN THE
STUDENT EXCHANGE
Abstract
The prerequisite for the positioning of Croatian higher education on the global
map is availability, which should be manifested in the selection of original cur-
ricula, subjects and lectures in one of the world languages, as well as the promotion
of Croatian universities in general and promotion of excellence and success of the
students who built a successful career after studying at a particular university. A
definition of term “globalization” is given in the theoretical part of this paper, as
well as the significance of globalization in different areas of its influence, with a
stress on higher education. By means of the research of the websites of Croatian
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
universities in the period 2015 – 2017, presented herein are the response of the
Croatian higher education to the challenges brought by globalization, how it man-
ages and what should be done in order for the Croatian higher education to present
itself actively, thus attracting a larger number of foreign students, scientists and
researchers and availing itself of the existing resources, creating new resources for
growth and development for its academic community, as well as for the commu-
nity in which it exists and functions. The results of the research indicated that the
Croatian universities were open to new globalization challenges, but that also sig-
nificant efforts are needed in order to make universities accessible and recognizable.
Keywords: Globalization, higher education, university, websites, student
exchange
JEL Classification: F69
881
1. INTRODUCTION
Globalization has become an inevitable part of human life. It spares no-one,
and everyone is affected by it. It has brought a lot of benefits to some in the
Suzana Obrovac Lipar: THE ECHOES OF GLOBALIZATION AT THE UNIVERSITIES IN CROATIA: THE ANALYSIS OF WEBSITES AND TRENDS IN...
sense of capital and profit; on the other side, it had a direct adverse impact on
life due to, for example, unplanned and ill-considered use of natural resources.
The 20th century was the most turbulent period of human civilization. From
the historical point of view, there were many changes in the society (two world
wars, the rise of communism, the fall of communism), in economy (creation of
capitalist societies, market liberalization), in technology (electric energy inven-
tion, automobile industry, all the way to advanced IT technologies). The world
is interconnected by fast connections, fast means of transport. The information
is circulating and makes the world accessible in real time. The markets are gov-
erned by multinational companies, supranational international organizations;
powerful financial institutions manage the national economies. The knowledge
is no longer a prisoner of the level of development of a society, social relation-
ships and a handful of the privileged, but it has become available to a greater
number of people than it had been at the beginning of the 20th century, thanks
to modern, global changes.
Observing the world being changed by globalization processes, sociology
stresses the significance of changes in the very basis of modern society, hav-
ing in mind the capitalist organization of economy and distribution of goods,
political power and reputation as well as knowledge “arising from scientific and
expert education, and which is being implemented in almost every sphere of
life” (Katunarić in Castells, 2000:10). From the aspect of communications, the
globalization processes unite the world into a single whole or one system, which
is possible because of permanent development in information and communica-
tions technologies. The world is becoming integrated, and all events that take
place locally may reflect globally. (Lončar, 2005.).
The theory of globalization was proposed in the 1980s and 1990s by Ronald
Robertson, who perceives globalization as “the compression of the world and
the intensification of the consciousness of the world as a whole” (Robertson,
1993:8). He considers that globalization to be a process which has been taking
place for centuries, yet the main focus in a discussion on globalization is placed
at the end of the 20th century.
882
When looking at the events on the world level in the 20th century, it can be
seen that major changes took place in the areas of economy, politics, and knowl-
edge. Globalization as a process encompasses all these areas interconnecting the
world, compressing it, but making the differences even bigger. Stiglitz defines
globalization as “the closer integration of the countries and peoples of the world
brought about by the enormous reduction of costs of transportation and com-
munication, and the breaking down of artificial barriers to the flows of goods,
services, capital, knowledge, and (to some lesser extent) people across borders.”
(Stiglitz, 2004:29). The formation of the economic policy of the world is to a
significant extent under influence of International Monetary Fund, the World
Bank, and the World Trade Organization, UN organization, a whole series of
regional banks and major sister organizations of the World Bank. The impor-
tant role in the shaping of economic policy is played by multinational companies
which interconnect the world into a network not only by capital and goods but
also technology, thus enabling the development of economies which wouldn’t be
able to generate such development on their own. Although the aforementioned
globalization key players often came under public criticism and were the cause
of protests, Stiglitz states that globalization also has positive consequences like
for example interconnecting of organizations such as International Red Cross
or Jubilee movement for debt relief to the poorest countries. (Stiglitz, 2004:29),
but also “better health, as well as an active global civil society fighting for more
democracy and greater social justice” (Stiglitz, 2004:239). However, the same
author also criticizes globalization, stating that many poor people in the world
do not have any direct benefit from it, as well as that the economic situation
883
their chances to gain power, their orientations, identities, and networks under-
mine national states and their sovereignty as they interconnect. (Beck, 2003:273).
In other words, the power of national states diminishes; political relations and
decision-making rise to the level of international integrations, and new alliances
Suzana Obrovac Lipar: THE ECHOES OF GLOBALIZATION AT THE UNIVERSITIES IN CROATIA: THE ANALYSIS OF WEBSITES AND TRENDS IN...
are created such as European Union and North Atlantic Treaty Organization
(NATO). They guarantee the strengthening of democracy and creation of a civil
society with the rule of human rights and the rule of law. This is also confirmed
by Jagić and Vučetić, whose opinion is that the task of globalization is to keep the
peace, to bond nations and their cultures and civilizations, thus making global-
ization fulfill its cosmopolitan significance ( Jagić, Vučetić, 2012:9).
The important prerequisite for globalization from the cultural point of view
was the colonization of the world by means of which the Europeans created the
first global culture. (Spybey, quoted in Milardović, 1999). The acceptance of the
European culture was perceived as advanced, a sign of modernization, indus-
trialization, and urbanization. (Lončar, 2005.) Along with the new technical
inventions (steamboat, railway, managing the states, political culture), the Eu-
ropeans brought some parts of their culture, such as the language, science, and
education, which they tried to integrate. Thus the cultural aspect of globaliza-
tion is being reflected in the contact of various cultures influencing one another,
permeating the national culture and changing it, depending on to what extent it
is allowed by the stakeholders in the national culture. The most vulnerable are
the small nations, specific cultures and regions which are not able to fight off the
influences of dominant culture, like for example American culture, unless they
have the representatives who are versed in culture, language, a way of living and
lifestyle of their particular nation. Jagetić and Vučetić think that the creation
of a global culture would have the adverse effects on cultural varieties, and they
stress that the means of mass communication contribute to the popularization
of so-called popular culture which thus becomes global culture ( Jagić, Vučetić,
2012:20)
The aim of the research was to present how the Croatian higher education
responded to the challenges brought by globalization, how it currently manages
and what should be done so that the Croatian higher education presents itself
actively, thus attracting a larger number of foreign students, scientists and re-
searchers and availing itself of the existing resources, creating new resources for
growth and development for its academic community, as well as for the com-
munity in which it exists and functions.
884
2. INFLUENCE OF GLOBALIZATION ON HIGHER
EDUCATION
The globalization influenced the dissemination of knowledge. It had a direct
impact on the education system, a part of which is the higher education. The
knowledge today is no longer a prisoner of libraries and archives, but it has be-
come available to general public, thanks to the Internet and mass media in the
first place. In case of the Internet we are talking about a medium which has no
restrictions in the sense of space and time, it is available to general public and
thus has a global impact. The global trends of networking the world contributed
to the fact that globalization ” has reduced the sense of isolation felt in much
of the developing world and has given many people in the developing world ac-
cess to knowledge well beyond the reach of even the wealthiest in any country a
century ago” . (Stiglitz, 2004:24).
The United Nations Educational, Scientific and Cultural Organization
(UNESCO), the Organisation for Economic Co-operation and Development
(OECD), the European Commission as well as many others are permanently
working on modeling the education policies which are of importance to the devel-
opment of education system, not only on national but also on global level. “Their
common characteristic is that education represents a fundamental resource be-
cause every national economy and its long-term development depend only on the
quality of its human resources.” (Filijović, Đorđević, Čukanović-Kravidić, 2011).
There can be no quality, educated persons without quality education, especially
higher education, therefore, as Dolenec put it, the knowledge is becoming the
885
satisfying jobs and live longer than those who don’t graduate from higher educa-
tion. It also states that the number of persons from OECD countries studying
outside their country of origin tripled in the period 1985 - 2008 (Yelland, 2011)
According to Wildawsky, the globalization in higher education is reflected
Suzana Obrovac Lipar: THE ECHOES OF GLOBALIZATION AT THE UNIVERSITIES IN CROATIA: THE ANALYSIS OF WEBSITES AND TRENDS IN...
in the search for the most talented, but also in the creation of universities which
shall contribute to the creation of such persons, giving them the knowledge they
cannot obtain in the countries of their origin. The fact that the students want to
study abroad and to find new knowledge away from their homes is a fact which is
dates back some nine hundred years ago, claims Wildawsky, when the Europeans
of that period went to the first universities in Bologna, Paris, and Oxford (which
are nowadays also very famous) in their search for new knowledge. (Wildavsky,
2010:3). The true scientific mobility started after the Second World War when
the European students started going to the US universities. The US universi-
ties underwent a real expansion in the 1970s and 1980s when lecturers were
being offered very good conditions for their work and research, while the stu-
dents were offered scholarships and excellent studying conditions (Wildavsky,
2010:15) Although we used to talk about “brain drain” since the best students
would leave their countries in their search for knowledge, the terminology has
changed and today we talk about “brain circulation” since many states send their
students to the universities abroad so that they could come back and help the
development of their countries like for example in China and India (Wildavsky,
2010:8). Wildawsky states that there is a so-called brain race going on among the
student population in the world, the consequence of which was the opening of
faculties and universities wanting to render the best service to their beneficiaries.
The competition among the universities, which one is better and has better
results, can be seen in the place of the universities on a ranking list which is an
indicator of their efficiency and popularity. The ranking lists are useful in vari-
ous ways: to the students so that they can find a university which shall enable
them someday to have a well-paid job; to higher education policymakers to in-
dicate the development of the higher education market
The effects of globalization are reflected also in employing the administra-
tors from various parts of the world in order to refresh the management struc-
ture of the universities. Wildawsky mentions the examples of Oxford and Cam-
bridge which hired their vice chancellors from other parts of the world for the
above-stated reason Wildavsky, 2010:26).
886
In accordance with the aforementioned, the universities act as multinational
companies: they open their representative offices around the world and employ
persons recruiting the best high school and university students, inviting them
to study at their universities. Thus the policy creators dealing with the develop-
ment of the university provide for the ranking of their institution in advance;
by recruiting and attracting the best students they have the opportunity to turn
the best “material” into excellent employees whose income will be rather high,
who will serve as a great advertisement for the university as well as the example
of success to the future generations.
887
larly, and 88% participated in social networking; 54% of users in that age group
were making telephone calls and video calls through internet-based applications,
while 80% search for the information on internet. (EUROSTAT, 2016). It is
clear from these statistical data that social networks are also very important. Ac-
Suzana Obrovac Lipar: THE ECHOES OF GLOBALIZATION AT THE UNIVERSITIES IN CROATIA: THE ANALYSIS OF WEBSITES AND TRENDS IN...
888
Table 1 The analysis of home pages of the websites of public and private univer-
sities in the Republic of Croatia1
When searching through the websites of the Croatia universities, the foreign
students will be faced with the lack of clear information as regards which study
programs may be enrolled and on what language. Namely, it is almost impossible
to find such information, and it is probable that even the most interested students
would give up on a further search for the information. Ministry of Science and
1
Note: The information contained in Table 1 were checked on August 7, 2016
889
terdisciplinary doctoral study programs. The only university offering studying
in Italian is Juraj Dobrila University in Pula, for undergraduate specialist study
as well as for integrated university study. Three out of ten universities in Croatia
do not offer any studies in foreign languages while the majority of programs and
Suzana Obrovac Lipar: THE ECHOES OF GLOBALIZATION AT THE UNIVERSITIES IN CROATIA: THE ANALYSIS OF WEBSITES AND TRENDS IN...
Source: The author’s own analysis of the information stated in the brochure “Study in Croa-
tia”, Ministry of Education and Science, of the Republic of Croatia, 2016 (Study in Croatia,
2016)
890
It can be concluded from the above-stated information that the Croatian uni-
versities fulfilled the basic requirements in order to attract the foreign students,
foreign lecturers and administration employees (translation of universities’ web-
sites, presence on social networks); however, this is not sufficient for more intense
cooperation on the international higher education market, which can be seen in
the UNESCO’s report for 2015 and 2015. Namely, the UNESCO Institute for Sta-
tistics states in its report for 2014 and 2015 that there were 639 foreign students
from 204 countries studying in the Republic of Croatia (UNESCO Institut for
Statistics, 2016.). Out of 204 countries, there were only 20 countries with more
than 5 students studying in Croatia (UNESCO Institut for Statistics, 2016).
According to this report, most of the foreign students are from Bosnia and
Herzegovina (127), Slovenia (89) Germany (69), the USA (48), Sweden (45),
France (32), Israel (23), Montenegro (21), Canada (16), United Kingdom (15)
etc. Although once could suppose that there would be more students from the
neighboring states because of the knowledge of the language, the number of
students from neighboring countries is rather small, except for students from
891
Bosnia and Herzegovina. It can also be supposed that the students from Bosnia
and Herzegovina and other states may have dual citizenship, which is not shown
in these data. It would be worth to research the reasons why the students from
neighboring countries do not decide to study in Croatia, i.e. why they decide to
Suzana Obrovac Lipar: THE ECHOES OF GLOBALIZATION AT THE UNIVERSITIES IN CROATIA: THE ANALYSIS OF WEBSITES AND TRENDS IN...
study in Croatia like for example students from Germany, the USA, Sweden
or Israel who opt for studying in Croatia on English. Such research would be
useful to Croatian universities, which might, on the basis of the results of such
research, design and adjust their study programs, come up with promotion for a
particular university, prepare actively for inclusion of foreign students by means
of provision of accommodation, courses of Croatian language, connecting with
local community etc. The final result of such approach would be the financial
income for the university, the building reputation in the local community as well
as an academic community from which the students originate.
In contrast to a small number of foreign students in Croatia, the UNESCO
Institute for Statistics states in its report for 2014 and 2015 that 8.672 Croa-
tian nationals studied abroad (UNESCO Institut for Statistics,2016.). If you
compare this number with the number of foreign students in Croatia, one can
see that the number of Croatian nationals studying abroad is 14-fold bigger.
892
It can be seen from the Figure 2 above that Croatian nationals study mostly
in Bosnia and Herzegovina (3 179), Italy (996), Austria (891), Slovenia (769),
the USA (534), Serbia (489), Germany (470), United Kingdom (247) etc. The
neighboring states are among the first 10 states, and Bosnia and Herzegovina
take the first place beyond any competition as a state with the most students
from Croatia. The questions worth research is why Croatian students decide
to study abroad, what are the study programs offered by the foreign and not by
Croatian universities, what is the basic reason for studying abroad etc. If there
were such a research and its results, then probably the Croatian universities
might adjust the range of their study programs, thus attracting the best stu-
dents or those students who are ready to pay more for better, more specialized
and more specific programs. The usefulness of such adjustment for universities
would contribute to the general reputation of Croatian universities and, finally,
to the better international ranking of Croatian universities:
What should be done so that the Croatian students obtain foreign diplo-
mas by studying in Croatia, and to have the foreign students studying the same
study programs on the Croatian universities?
In the acknowledgments of his book “Globalization and its Discontents”, Sti-
glitz stressed that when writing this book he was helped by a “global network
of colleagues-scientists, one of the healthiest forms of globalization”. (Stiglitz,
2004:19). The creation of the network of colleagues-students, colleagues-scien-
tists/lecturers would be the first step towards the market in the broadest sense
of this word: it would encourage the Croatian students to study in Croatia and
893
has developed similar cooperation in the study of Cultural Sociology, with the
participation of the Karl-Franzens University in Graz, Austria, University of
Zadar, University of Trento, Italy and Masaryk University in Brno, the Czech
Republic.
Suzana Obrovac Lipar: THE ECHOES OF GLOBALIZATION AT THE UNIVERSITIES IN CROATIA: THE ANALYSIS OF WEBSITES AND TRENDS IN...
4. CONCLUSION
Although when we speak of globalization it is mostly in the context of econ-
omy, politics, and culture, the contemporary higher education is taking on the
characteristics of big corporations competing on the international market for
its portion of the profit. The international universities are fighting for the best
“brains”, the most talented students, researchers, scientists. While doing so, they
don’t shrink from excellent scholarships, good fees, and big funds for projects.
Thanks to the most talented members of its academic community, they are
placed high on ranking lists, thus building up their reputation and becoming a
desirable place for studying. Those countries which don’t have the opportunity
to offer top education should use the privileges of the best universities in the
world and enable their most talented students and scientists to study at these
universities, at the same time obliging them to return to their home countries
and pass the knowledge to the new generations of students and colleagues sci-
entists. The examples from Asian countries such as China and India show that
this model is possible and cost-effective, and its effects can be recognized in the
successful economies of these countries.
Croatian higher education has lately intensified the activities on websites in
the sense of presenting the universities, thus joining the global market by means
of the Internet and search engines. Some universities have accepted the fact that
they can position themselves in global level by the use of English language as one
of the world’s most-spoken languages and they introduced courses and studies in
English, especially on the postgraduate doctoral level, thus becoming attractive
to foreign students and scientists. The data of the UNESCO Institute for Statis-
tics for 2014 and 2015 show that there are interested foreign students studying
in Croatia, as well as a multifold number of Croatian students studying abroad.
894
Such statistical data should be the basis for future research among the foreign
students in Croatia as well as Croatian students studying abroad in order to
define the reasons behind their decision to study in Croatia or abroad, and what
should be introduced, changed, designed in order to attract more foreign students
to Croatia, i.e. to make the most talented students and scientists stay in Croatia.
The answers to the aforementioned questions do not necessarily relate only to
higher education but also to development of local community which would
profit from the stay of foreign nationals, and to the development of the higher
education since the money spent abroad for tuition fees and living expenses
might be invested in the higher education system in Croatia. Some of the Croa-
tian universities found a way how to prevent the “brain drain” and made a step
forward by making joint university programs, mostly on doctoral level, thus
enabling Croatian students to obtain foreign diplomas but in Croatia.
Croatian higher education might significantly contribute to the Croatian
economy and place Croatia not only on the list of the best countries for vacation
but also for studying and scientific activities, by means of introduction of study
programs in foreign languages, with Croatian scientists in the country as well
as those living and working abroad, with quality strategy for the promotion of
Croatian universities, using the resources of its country.
Bibliography
Agencija za znanost i visoko obrazovanje - Higher education institutions in the Republic of
Croatia (2016). Retrieved from https://www.azvo.hr/hr/visoko-obrazovanje/visoka-
895
Lončar, J. (2005.). Globalizacija - pojam, nastanak i trendovi razvoja. Geoadria, Vol.10 (No.
1), 91-104.
Milardović, A. (1999.). Globalizacija . Osijek-Zagreb-Split: Pan Liber.
Roland, Robertson. (1993.). Globalization: Social Theory and Global Culture (Published in as-
sociation with Theory, Culture & Society). London, Thousand Oaks, New Delhi: Sage
Suzana Obrovac Lipar: THE ECHOES OF GLOBALIZATION AT THE UNIVERSITIES IN CROATIA: THE ANALYSIS OF WEBSITES AND TRENDS IN...
Publications Ltd.
Statista. (2016). Retrieved from https://www.statista.com/statistics/278414/number-of-
worldwide-social-network-users/ Accessed on: 12.5.2016
Stiglitz, J. E. (2004). Globalizacija i dvojbe koje izaziva. Zagreb: Algoritam.
Study in Croatia. (2016). Retrieved from http://www.studyincroatia.hr/download/files/
study_in_croatia_brochure.pdf
Accessed on: 12.5.2016
The University of Zagreb, School of Medicine. (2016). Retrieved from http://mse.mef.unizg.
hr/medical-studies-in-english
Accessed on: 12.5.2016
UNESCO Institut for Statistics - Global Flow of Tertiary-Level Students (s.d.).
Retrieved from http://uis.unesco.org/en/uis-student-flow
Accessed on: 12.5.2016
University of Split, School of Medicine. (2016). Retrieved from http://www.mefst.unist.hr/
studies/medical-studies-in-english/83
Accessed on: 12.5.2016
University of Zagreb, Faculty of Economics and Business. (2016). Retrieved from http://www.
efzg.unizg.hr/default.aspx?id=10661
Accessed on: 12.5.2016
Wildavsky, B. (2010.). The Great Brain Race: How Global Universities Are Reshaping the
World. Princeton: Princeton University Press.
Yelland, R. (2011). Observer Society Education. Tratto il giorno March 17, 2017 da OECD
Observer No 287 Q4.
896
THE LEADS’ OF ART ENSEMBLES
PERCEPTION OF NECESSARY
COMPETENCES
Abstract
Changes in the modern society reflect on the need to reorganize the way of
thinking and determining which knowledge, skills, abilities, values, and other
characteristics of individuals are relevant to a particular profession in accor-
dance with the requirements of the new age. Together with professional com-
petences regarding the selection of a harmonized and attractive art repertoire,
preparation and rehearsing of the interpretation of the work, and the musical
performance, the leads of art ensembles must possess pedagogical-psychological- INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
didactic-methodical competences. Those include communication, social, ana-
lytical, and developmental competences, as well as a whole range of desirable
personality traits: enthusiasm, patience, empathy, understanding, calmness,
patience, etc. Apart from the aforementioned competences, special emphasis
is placed on the importance and numerous other competences that enable the
leads of art ensembles to successfully deal with administrative duties, build in-
terpersonal relationships, motivate and guide the group, plan and organize
concerts, and to ensure the recognisability of the ensemble.
In order to determine the importance of the competences of art ensembles’
leads, a semi-structured interview with fifteen leads of award-winning choirs
897
was conducted to examine the possibility of implementing certain knowledge
and skills in art studies programmes.
The research results have shown that the leads are aware of the complexity of
competences important for their successful work with choirs. In addition to pro-
fessional and pedagogic competences, the leads emphasize the need to create a
good social climate in the choir as well as good communication, and emphasize
the importance of building a common vision for the ensemble’s future and creat-
ing conditions for choir’s good reputation. They point to the need for developing
organizational skills for arranging performances and competitions. As a sig-
nificant competence, they emphasize the ability to find opportunities to try out
the quality of the choir and further affirm it. The leads also emphasize the need
Tihana Škojo Renata Jukić: THE LEADS’ OF ART ENSEMBLES PERCEPTION OF NECESSARY COMPETENCES
1. INTRODUCTION
Lifelong learning represents learning activities throughout life with the aim
of improving knowledge, skills, and competences within the personal, civic, so-
cial, or professional activity of an individual. It includes learning in all life pe-
riods and in all forms – formal, non-formal, and informal (Commission of the
European Communities; 2001). It is one of the most important conditions for
dealing with contemporary (post)postmodern world. Globalization processes
are rapidly putting before the countries of the European Union new challenges
in which the imperative of survival in the business world is a wide range of
knowledge, skills, abilities, and attitudes so that each individual can easily and
quickly adapt to society and the world in which he or she lives. The concept of
lifelong learning is usually connected to the goals of economic nature (achiev-
ing greater competitiveness and sustainable employability), as well as those that
contribute to a more active role of an individual within society (Fischer; 2000).
898
As Coombs points out (according to Pastuović; 2008), the development of the
concept of lifelong education, or learning, has been crucially influenced by the
global education crisis, which manifested itself in a growing gap between mate-
rial and human inputs in education and outcomes as well as effects of education
on the economic and social development. According to Coombs (Pastuović;
2008), the cause of the crisis is a rigid organization of the costly and labour
intensive school system that is unsuitable for meeting the new educational and
social needs that arise in the rapidly changing economic, political, and socio-
cultural education environment. Nowadays, more than ever, there is a need for
lifelong learning, but also for a constant re-examination of its goals and out-
comes. The curriculum approach to education puts an emphasis on learning
outcomes, i.e. on acquiring the necessary competences. The reconsideration,
identification, and selection of key competences of particular professions is in-
evitably connected to the constant re-examination of the curriculum, i.e. the
curricula of individual study programmes. The term key competences belong to
the domain of management and denotes individual and organizational features
that are directly related to effective behaviour and performance in the context of
competitiveness among companies (Wester; 2001).
One of the key issues in defining, contemplating, and examining educational
reforms and lifelong learning strategies is the question of competences that are
expected of each individual performing a certain work role. Changes in teaching
occur due to changes done through research and development, the growth of
interdisciplinary and multidisciplinary activities, the cross-curricular approach
to education, and the needs of the globalized world and the global market. The
education system must re-examine educational programmes, monitor labour INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
market needs, and develop in a direction that will contribute to the develop-
ment of economy, that is, of society. In this light, it is necessary to re-examine
and identify the competences needed in the field of art, the programmes they
are acquired through, and align them with the labour market needs. A large
number of music pedagogues, in addition to teaching, also work as art ensem-
bles’ leads. The question is whether the professional and pedagogical-psycho-
logical-didactic-methodical competences they acquire during their studies are
sufficient for the job.
899
2. COMPETENCES AND COMPETENCE
APPROACH TO EDUCATION
The ever-growing imperative of today’s time is the need to determine which
knowledge, skills, abilities, values, and other characteristics of individuals are
relevant to a particular profession. The central term of the Croatian Qualifica-
tions Framework (which is based on the European Qualifications Framework)
refers to those competences that a person has acquired through education and
proved upon completing a particular education cycle. The CQF endeavours to
ensure the connection between the competences required in the workplace and
learning outcomes in educational programmes.
Tihana Škojo Renata Jukić: THE LEADS’ OF ART ENSEMBLES PERCEPTION OF NECESSARY COMPETENCES
900
solve certain external requirements. The constructivist approach to competence
emphasizes the social nature of competence. The holistic view of competence
represents a kind of compromise between the first two approaches, implying the
connection between an individual’s personality traits, external requirements,
and context as prerequisites for effective performance, and is characterized by
a holistic perspective, openness, and development (Babić; 2007, according to
Čatić; 2012). Within this aspect, competence is defined as a complex combina-
tion of knowledge, attitudes, skills, and values that is manifested in the context
of carrying out a particular task (Hager; 1995, Kerka; 1998, Babić; 2007, ac-
cording to Čatić, 2012).
Depending on the starting assumptions, expectations, and theoretical ap-
proach to competence one supports, at the academic level of education the cur-
riculum creation is approached differently (Toohey; 2000):
1. The field approach emphasizes the transfer of theoretical knowledge and
introduction into the scientific methodology of a particular field, i.e. it is
oriented on the content.
2. The system approach is oriented towards the functional aspect in ac-
cordance with learning outcomes as measurable “products” of the educa-
tional programme.
3. The cognitive approach focuses on the development of the students’ cog-
nitive potential.
4. The experiential approach emphasizes the importance of connecting life
experiences with the content that is being taught and the establishment
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
of personal sense of learning.
5. The social awareness approach tends to build a value system in students
that will enhance their motivation for an active participation in social life.
No matter which approach is advocated, one cannot ignore the fact that the
changes in modern society lead to the need for organizational structures and
processes in the workplace, and consequently the need to reorganize the way
of thinking about university education. Labour organizations and universities
are becoming more flexible and prone to change, and they should follow social
changes on the labour market and adapt themselves.
Competence approach to education is primarily seen in the field of manage-
ment (Stof et al; 2002, Stoff; 2005, according to Babić; 2007, 26), it advocates
the efficiency of labour force / human capital, and the education policy in many
901
countries accepts and support it (although there are many criticisms of such an
approach as well) (Palekčić; 2005, Sachs; 2001...). Such an approach becomes
the basis for planning the educational process and creating educational pro-
grammes. It allows for an assessment of advantages and disadvantages of each
individual as well as the assessment of the entire human potential of an organi-
zation and areas of further development (Sparrow; 1997).
902
the leads and organizers of various artistic and cultural events largely exceed
those offered by curricula in artistic education. The premise of the Triple Helix
Circulation model is that the global movement of people encourages creativity,
ideas, and skills. Universities as traditional providers of human resources and
knowledge are now key factors for the socio-economic development (Dzisah &
Etzkowitz; 2008). Today, management in the field of art represents a developed
a scientific branch with a steady growth trend. Universities in developed coun-
tries are conducting graduate and postgraduate study programmes in the field
of management in artistic areas.
Music pedagogues and leads of art ensembles must possess not only the
theoretical knowledge and pedagogical-psychological-didactic-methodical
competences, but also the competences for leading a group of people / a choir.
They must be able to bring music closer to their students, motivate them, be
creative and stimulate creativity, and adjust the music to the wishes and needs
of the ensemble members. They must employ a comprehensive approach and
“touch upon” the cognitive, psychomotor, and affective aspects of the members’
personality. Successful music pedagogues and leads of art ensembles need the
theoretical didactic-methodical knowledge and skills as well as knowledge of
socio-humanistic sciences, which make up the foundation of the educational
process (pedagogy, psychology, sociology). Yet, they also need managerial com-
petences or a set of different individual qualities of managers that, in both their
interaction with one another and specific interaction with their working envi-
ronment, i.e. objective factors, result in specific work behaviour and successful-
ness (Kulović et al.; 2012).
The main management factors in relation to the work of ensemble leads are INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
903
to guide and mobilize people and / or their ideas; and the role of the manager,
i.e. the ability to secure the right things at a right time and in a consistent and
adequate manner. The document Cultural Human Resources Council, Chart of
Competencies, Cultural Managers, defines and elaborates the following things.
Two main roles of managers within the culture: the role of lead and the role
of manager. Four key responsibilities: planning, developing the organizational
network for the implementation of the plan and the generation of expected out-
comes. And eight general areas of competence: determining the direction of
activities, drafting the strategic plan and budget, building interpersonal rela-
tionships, organizing activities and people, motivation and inspiration, solving
problems, administrative duties, “on-the-go” changes, and ensuring predictabil-
Tihana Škojo Renata Jukić: THE LEADS’ OF ART ENSEMBLES PERCEPTION OF NECESSARY COMPETENCES
ity. Nierensberg (2009) defines the following four core competences of the en-
semble lead: a clear vision on success; listening to “your people;” clear and unam-
biguous instructions; focusing on the team that creates music, not on oneself.
It is apparent that the aforementioned competences do not correspond with
those gained within the professional field, nor within pedagogical-didactic-me-
thodical education of music pedagogues. They belong to managerial compe-
tences that are usually not acquired through programmes of art education at the
undergraduate / graduate level.
4. RESEARCH METHODOLOGY
This paper describes the research conducted with the aim of identifying im-
portant competences of art ensembles’ leads in order to better adapt the cur-
ricula of art study programmes and lifelong learning curricula to the current
needs of the profession. In line with the formulated goal, the following tasks
were set:
• Determine which tasks are performed by art ensembles’ leads
• Examine the problems teachers encounter while working with the ensemble
• Explore opinions on the desirable competence profile of art ensembles’
leads
• Examine participation in professional development programmes
• Identify competences that are not sufficiently developed during the studies
and incorporate them as a recommendation in the guidelines for a more
successful curriculum in art studies.
904
Fifteen respondents, six male and nine female leads, participated in the re-
search on the competences of art ensembles leads. The age range of participants
was between 30 and 51 years. All respondents are the leads of multiple award-
winning art ensembles. According to the type of art ensemble, the leads of sing-
ing choirs, tamburitza orchestras, vocal-instrumental groups, and dance groups
were selected to participate. All leads have high qualifications with a diploma
in music (art) academies in the Republic of Croatia. The range of length on
the job is between 6 and 28 years. The research is based on the interpretative
paradigm and focuses on qualitative aspects. A semi-structured interview was
used, which was conducted individually. The string questions were used and the
answers were recorded by a voice recorder for further processing. The research
was conducted during February and March 2018. Research participation was
voluntary and confidential with the intention of using the answers solely for
scientific purposes.
Based on the set objectives and tasks, the following research questions were
posed:
• Which tasks are done by the art ensembles’ leads?
• What problems do they encounter while conducting the ensemble?
• What competences are needed to successfully lead the ensemble?
• Are the competences acquired during studies sufficient for the challenges
faced by the art ensembles’ leads?
• What knowledge and skills do art ensembles’ leads feel inadequately com-
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
petent about after completing their studies?
• Which programs of professional development are they involved in order to
acquire additional competences?
• Which future competences would they like strengthen in order to respond
more effectively to the challenges they face when conducting the ensemble?
• Which contents, within the framework of professional development pro-
gramme, would be most useful for their further work and progress?
905
5. RESEARCH RESULTS
In the qualitative data analysis, interpretable categories were obtained
through the coding procedure, which were then interpreted in accordance with
the research tasks.
In the data analysis data, the reduction was used through the “cut and paste”
method applied to similar statements (Krueger, 1994). Due to contextual sig-
nificance, certain comments were quoted in their entirety.
It should be noted that all the leads commented openly on all the set top-
ics and thus made it possible for the researchers to note the true status of the
profession.
Tihana Škojo Renata Jukić: THE LEADS’ OF ART ENSEMBLES PERCEPTION OF NECESSARY COMPETENCES
906
Connected to the aforementioned tasks that the leads have successfully done
for a number of years, as well as to difficulties they encounter in leading the en-
semble, is the question of identifying those competences that the leads consider
important for the successful leading of the ensemble. The respondents divided
the competences in several categories. As the first and most important, the leads
cite professional competences: professional knowledge, achieving a recognizable
artistic expression, and the ability to choose an appropriate repertoire. They point
to the necessary, permanent development of their professional competences
through monitoring world-renowned ensembles and art trends and incorporating
new ideas in order to maintain interest and freshness.
Next to the professional competences, the leads point out the importance
of didactic-methodical competences, which relate to abilities in planning, orga-
nizing, and conducting quality rehearsals, and shaping a working but at the same
time friendly atmosphere. As extremely important, leads emphasize the need for
well-developed communication skills that help them in encouraging the ensemble
members and creating good interpersonal relationships, as well as in arranging per-
formances and the overall popularization of the ensemble’s work. They point to
the importance of personal competences such as calmness, patience, flexibility,
tolerance, willingness to cooperate, consistency in decision-making, speed in decision-
making, and good self-organization. The leads also refer to those competences
they need to successfully address different administrative tasks, therefore they
emphasize the importance of knowledge related to management and financial
management, and consider various practical knowledge required from marketing.
907
The leads further explained the answers:
• After completing my studies, I felt a lack of knowledge and skills in the field of
organization of the global activity of the ensemble, recording of audio material
and its placement on the market, the selection of repertoire (in accordance with
copyright), the overall production of concerts, management, acquisition of ma-
terial and immaterial work resources, marketing, and production.
• Through this job, I entered a completely different, unknown world. Next to the
artistic, professional part, and the spell that is happening during rehearsals, it
is necessary to perform a whole range of administrative tasks related to renting
of a location, procurement of material and immaterial working resources, PR,
Tihana Škojo Renata Jukić: THE LEADS’ OF ART ENSEMBLES PERCEPTION OF NECESSARY COMPETENCES
908
Based on these answers, a clear interest is notable concerning a wide range of
different contents that the lifelong learning programme offers.
• Each form of additional development is useful and applicable in future work
with the ensemble. This refers to the acquisition of new knowledge and skills re-
lated to pedagogical-psychological-didactic-methodical competences, as well as
to those that are not closely related to the work of the choir in the vocal-artistic
sense, but concerning the organization of public performances and concerts,
participation at festivals, competitions, or in music production.
The leads face and accept all the demands put before them with great en-
thusiasm and courage, and continue to find ways to overcome them success-
fully. Regardless of the length of work experience in leading the ensemble, their
age, or the number of awards, the art ensemble leads agree that their job is an
extremely challenging one since it requires a variety of different knowledge and
skills. However, these new situations and challenges as well as indispensable
optimism are precisely that which motivates them on a daily basis to be even
better.
6. CONCLUSION
The relationship between education, knowledge, and learning outcomes and
acquired competences is a current theoretical and practical problem of educa-
tional systems. The importance of lifelong learning, flexibility, and adaptability
in the modern, globalized world and the information society is the main topic
909
competences, through which the acquired expert knowledge becomes user-
friendly and effective, and that they expand in the direction of knowledge and
skills that enable successful leadership and management of the “organization.”
Planning, organizing, and fulfilling daily activities of the ensemble as well as
leading the ensemble toward high-set goals, managing the budget, and solving
administrative tasks are just some among the new competences that the art en-
sembles’ leads have to possess.
Guided by new situations and needs, we point to the need for an interdisci-
plinary expansion of competences, acquisition of knowledge, and skills develop-
ment in the field of management. We also point to the possibilities of enhanc-
Tihana Škojo Renata Jukić: THE LEADS’ OF ART ENSEMBLES PERCEPTION OF NECESSARY COMPETENCES
ing the curricula and lifelong learning programmes through additional contents
focused on the competences of managers and contemporary leaders.
REFERENCES
Babić, N. (2007). Kompetencije i obrazovanje učitelja. In Babić, N. (Ed.), Zbornik rado-
va znanstvenog skupa Kompetencije i kompetentnost učitelja. Učiteljski fakultet
Sveučilišta J. J. Strossmayera u Osijeku i Kherson State University, Ukraine, 23-66.
Commission of the European Communities (2001). Making a European Area of Lifelong
Learning a Reality - COM final.
Cultural Human Resources Council, Chart of competencies. Cultural managers [available
at: https://www.culturalhrc.ca/mm/CHRC_Cultural_Manager-Chart-en.pdf ,
Acess (March 8, 2018)
Čatić, I. (2012). Kompetencije i kompetencijski pristup obrazovanju. Pedagogijska istraživanja,
9 (1–2), 175 – 189.
Dzisah, J., Etzkowitz, H. (2008). Triple Helix Circulation: The Heart of Innovation and
Development. International Journal of Technology Management & Sustainable Develop-
ment, (7) 2, 101-115.
Etzkowitz, H. (2006). The new visible hand: an assisted linear model of science and innova-
tion policy. Science and Public Policy, 33 (5), 310-320.
Fischer, G. (2000). Lifelong Learning - More than Training. Journal of Interactive Learning
Research, 11 (3/4), 265-294.
John P. Kotter (1990). A Force For Change. How Leadership Differs From Management.
The Free Press.
Kulović, Dž., Đogić, R., Kuzman, S. & Milunović, D.(2012). Kompetencije menadžera i
uspješnost preduzeća, Sarajevo: Jordan Studio.
Kurz, R. & Bartram, D. (2002). Competency and Individual Performance : Modelling the
World of Work. In I. T. Robertson, M. Callinan and D. Bartram (Eds), Organizational
Effectiveness : The Role of Psychology (pp. 225-255). Chichester : John Wiley.
910
Nierenberg, R. (2009). A Surprising Story About Leading by Listening Hardcover. USA: Pen-
guin Group.
OECD (2005). Definiranje i odabir ključnih kompetencija. Zagreb: Nacionalni centar za van-
jsko vrednovanje obrazovanja – PISA centar.
Palekčić, M. (2005). Utjecaj kvalitete nastave na postignuća učenika. Pedagogijska istraživanja,
2 (2), 209-233.
Pastuović, N. (2008). Cjeloživotno učenje i promjene u školovanju. Odgojne znanosti,10 (2),
253-267.
Sachs, J. (2001). Teacher professional identity: Competing discourses, competing outcomes.
Journal of Education Policy, 16 (2), 149-161.
Saad, M., Guermat, C. & Brodie, L. (2015). National innovation and knowledge perfor-
mance: The role of higher education teaching and training. Studies in Higher Education,
40 (7), 1194-1209.
Shippmann, J. S., Ash, R. A., Battista, M., Carr, L., Eyde, L. D., Hesketh, B., Kehoe, J., Pearl-
man, K., Prien, E. P. & Sanchez, J. I. (2000). The practice of competency modelling.
Personnel Psychology, 53, 703-740.
Singer, S., Oberman Peterka, S. (2012). Ocjena koncepta Triple helix: Kako testirati novi
concept sa starim pokazateljima. Ekonomski pregled, 63(11), 606-626.
Spajić-Vrkaš, V., Kukoč, V.. & Bašić, S. (2001). Interdisciplinarni rječnik. Zagreb: Hrvatsko
povjerenstvo za UNESCO.
Sparrow, P. R. (1997). Organizational Competencies : Creating a Strategic Behavioural Frame-
work for Selection and Assessment. In Adnerson, N. & Herriot, P. (Ed.), International
Handbook of Selection and Assessment. Chichester: John Wiley, 343-368.
Toohey, S. (2000). Designing courses for higher education, Buckingham: Open University
Press.
Tuning (2008). Universities’ contribution to the Bologna process – an introduction. [avail-
able at: http://www.unideusto.org/tuningeu/images/stories/Publications/ENG-
LISH_BROCHURE_FOR_WEBSITE.pdf , Acess: (March 8, 2018)
Warr, P. & Conner, M. (1992). Job Competence and Cognition. Research in Organizational INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
Behavior, 14, 91-127.
Westera, W. (2001). Competences in education: a confusion of tongues. Journal of Curricu-
lum studies, 33 (1), 75-88.
911
SILVER ECONOMY AND AGING
POPULATION:
MYTHS, REALITIES AND
Ivana Barković Bojanić Dajana Džeba Mate Perišić: SILVER ECONOMY AND AGING POPULATION: MYTHS, REALITIES AND OPPORTUNITIES
OPPORTUNITIES
Abstract
According to the demographic statistics worldwide, the number of population
aged 65 and over is growing at around twice the rate of the overall population
(Economic Intelligent Unit, 2011).
An aging population is becoming a reality that is surrounded by various myths
when it comes to older people as workers or as consumers. The fact is that
people today live longer and healthier lives, which requires a shift in perception
of age when it comes to supply and demand side of economics. The economy
that recognizes aging population as new source of economic and business op-
portunities is called „Silver Economy“ and is already attracting significant
policy attention worldwide. It is focused on opening a new frontier in practical
and policy thinking about and considering aged people not a fiscal threat but a
business opportunity.
912
The purpose of this paper is to define the notion of silver economy, discusses
the myths and realities related to this particular segment of the economy as well
as to present selected good practices that show the age friendly products and
services that capitalize on the unstoppable demographic shift.
Key words: silver economy, aging population, good practices
JEL Classification: D69, J11
1. INTRODUCTION
The age structure of world population is changing. According to date from
UN World Population Aging 2015 the number of older persons, and those are
all that are aged 60 years or over, has increased substantially in recent years in
most countries and regions and it seems the such a trend will continue at accel-
erating pace. Further statistics from the same UN source reveal following (UN
2015: 1-2): between 2015 and 2030, the number of people in the world aged
60+ is projected to grow by 56%, from 901 million to 1.4 billion, and by 2050,
the global population of older persons is projected to more than double its size
in 2015, reaching nearly 2.1 billion. At the global level, the number of people
aged 80+, or symbolically called the “oldest-old” persons, is growing even faster
than the number of older persons overall. According to the projections, in 2050
the oldest-old will number 434 million, having more than tripled in number
since 2015, when there were 125 million people over age 80. As far as regional
distribution of older persons is concerned, in the next 15 years the number of
913
roughly two decades ago (Gerstorf et al. 2015). Changing perception of getting
older is reflected in their wish to work longer, continue with an active lifestyle
and remain independent as long as possible. According to Bank of America
Merrill Lynch data1 pre-retired people that were surveyed revealed that they
Ivana Barković Bojanić Dajana Džeba Mate Perišić: SILVER ECONOMY AND AGING POPULATION: MYTHS, REALITIES AND OPPORTUNITIES
want to work in retirement because they want to stay mentally active (51%) and
physically active (46%), earn money (51%), maintain social connections (32%)
and have new challenges (28%) (OECD, 2014).
This demographic transition has been symbolically called Silver Tsunami
as well as two notions have been increasingly appearing when talking about
universal phenomenon of aging population – Silver Economy and Longevity
Economy, both challenging the conventional wisdom that older population is
a burden to the economic growth. Namely, the Silver Economy is defined as the
economic opportunities arising from the public and consumer expenditure re-
lated to population ageing and the specific needs of the population over 50.
The ageing population can be divided in 3 groups, each with their own need-
patterns: active, fragile and dependent. Thus, the Silver Economy comprises a
large part of the general consumer economy, but with significant differences in
spending priorities and patterns (European Commission, 2015: 2) According
to Bank of America Merrill Lynch (2014) the Longevity economy “is becoming
an increasingly powerful economic force – encompassing both the economic
activity serving the needs and wants of the 50+ global population, as well as
directly purchased products and services and the knock-on economic activity
that this generates (jobs, wages, productivity, taxes, charitable giving et. al.)”.
In another words, consumer that are 50 years and older represent untapped
potential for the economy. They spend more than any other group, as well as
they are becoming challenges for business to win them as clients. Following
statistics additionally support this claim:
• The size of the U.S. longevity economy alone is estimated at US$7.1tn,
making it the world’s number 3 economy – and it is expected to grow to
account for over 50% of U.S. and Japanese GDP by the 2030s (Bank of
Amerika Merril Lynch, 2014);
1
Additional reports results and findings by the Bank of America Merril Lynch for New York Times:
“We are living longer. Are you ready?” https://paidpost.nytimes.com/merrill-lynch/were-living-
longer-are-you-ready.html (Accessed on 22.03.2018.); „The Silver Dollar – Longevity Revolution
Primer“, 06 June 2014 available at https://ec.europa.eu/research/innovation-union/pdf/active-
healthy-ageing/merrill.pdf (Accessed n 22.03.2018.)
914
• Europeans over 65 have a spending capacity of over 3,000 billion EUR
and at 420 billion EUR market for the Silver Economy is the beginning of
an important development (European Parliament, 2015)
• Public spending on ageing in the EU accounts for 25% of GDP and 50%
of general government expenditure and is projected to grow by 4% of
GDP until 2060 (AAL Program, 2016).
• In France a study has estimated that 53% of economic demand in 2015
was from the aged; in Germany a study estimates purchasing power of
316 billion EUR and possible 900,000 jobs in the next 20 years related to
Silver Economy. (Silver Sudoe, 2018)
Considering this unprecedent and unstoppable demographic shift that is
creating a substantial market, a concept of Silver Economy should be taken se-
riously when making strategic plans on a business and policy level. Implications
for business opportunities are numerous and across all segments of economy –
manufacturing and retail wise (see, for example Zsarnocky and Gyorgy, 2016,
Barković Bojanić and Erceg, 2017). In addition, innovative disciplines such as
nanoscience, biotechnology, robotics and the like play an important role in de-
veloping products and services to better serve silver economy consumers.
The purpose of this paper is to discuss the notion of silver economy in
terms of myths and realities related to this particular segment of the economy
as well as to present selected good practices showing the age friendly products
and services that capitalize on the unstoppable demographic shift worldwide.
The paper is structured into five sections. After introduction, the section two
presents the silver economy in terms of myths and realities that are shaping the INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
policy dialogue when it comes to aging population and its impact on overall
economy. The section three identifies sectors that are most likely to benefit from
the demographic development related to age. The section four offers selected
examples of business opportunities stemming from the ageing marketplace. The
paper ends with section five offering concluding remarks. The list of references
stated in the literature section completes the paper.
915
gence of new consumer markets and by the need to improve the sustainability
of public expenditure linked to ageing. As such, it is attracting a policy attention
across the globe, particularly in the EU due to the fact that Europe is aging. By
2060 one in three Europeans will be over 65 and the ratio of working people
Ivana Barković Bojanić Dajana Džeba Mate Perišić: SILVER ECONOMY AND AGING POPULATION: MYTHS, REALITIES AND OPPORTUNITIES
2
For more details see European Parliament (2015).
916
scholars and policymakers to consider aging population as drivers of economic
growth and innovation. This shift in perception of older population contributes
to flourishing of silver economy and its benefits as well as it calls to dispel the
myths commonly related to aging population. In another words, one should not
underestimate the power of generation 50+.
There are several myths around the aging population. They stem from the
conventional wisdom, outdate assumptions and perception as well as policy in-
action and bias towards elderly. Erfurt et al. (2012) identified seven myths of
population aging that should be dismissed in order to see the silver econo-
my as an advantage for businesses leaders and policy makers not solely as
cost and limitation:
Myth #1: Emerging economies will balance out ‘silver tsunami’ of developed
economies.
Myth #2: Countries with aging populations face decades of low growth.
Myth #3: Employment is a zero-sum game, so retaining older workers will
only worsen the crisis of youth employment.
Myth #4: Older workers tend to be less productive.
Myth #5 Entrepreneurial spirit tends to decline with age.
Myth #6 Older consumers are unattractive demographic for marketers.
Myth #7 Older consumers are less likely to adopt new technology.
917
decrease overall economic activity and further decrease the demand for labor.
Various researches have showed that greater participation of older people has
no adverse effect on youth employment, i.e. retaining older people leads to bet-
ter outcomes for the young – reduced unemployment, increased employment
Ivana Barković Bojanić Dajana Džeba Mate Perišić: SILVER ECONOMY AND AGING POPULATION: MYTHS, REALITIES AND OPPORTUNITIES
and even higher wages (Cheng et al. 2007, Kalwij et al. 2010, Munell and Wu,
2012, Eichhorst et al. 2014).
The most common stereotypical attitude towards older workers consider
people aged 50 and over to be competent and knowledgeable yet reluctant to
changes and new ideas, less motivated and with lack of physical strength to
perform on a job. Thus, workplace dominated by older workers is less produc-
tive (myth #4). Recently numerous economic and empirical studies have been
examining the relationship between age and productivity (e.g. the surveys by
Börsch-Supan et al., 2005, Skirbekk, 2004) and have contributed to dispel this
myth, For example, research results of a major international study called the
COGITO Study by Schmiedek et al. (2010) showed that older employees have
been showing better performance results at the workplace than younger ones.
The study compared 101 young adults (20–31) and 103 older adults (65–80)
on 12 different tasks dealing with cognitive abilities, perceptual speed, episodic
memory and working memory over 100 days. The data have showed that the
workers age 65-80 had performance more stable, less variable from day to day
than that of the younger group. Further, the older adults’ cognitive performance
was more consistent over time than that of the younger workers; older people
tend to be more focused, less distracted as well as the experience helps older
workers to compensate for the physical and mental changes that accompany
aging. Older workers have been shown to perform well when it comes to orga-
nization, writing and problem solving. In the line with this finding, researches
from Avery et al. (2007) and Van Veldhoven and Dorenbosch (2008) have also
shown that older workers can learn faster at workplace and in training situa-
tions than younger workers. It is important to notice that the stereotypes in the
workplace reflect the stereotypes in the society when it comes to older people
(see for example McCann and Giles, 2002, Rožman et al., 2016).
Many companies are skeptic when it comes to older consumers believing that
they have less disposable income, tend to save more and are not willing to try
new products and services (myth #6). As already mentioned, Europeans over 65
have a spending capacity of over 3,000 billion EUR. In the United Kingdom,
baby boomers hold around 80 % of all financial assets and in the USA consum-
918
er over 50 years old outspent younger adults by approximately 1 trillion USD
(Erfurt et al. 2012). These sums represent significant purchasing power of older
generations. Academic scholars have been active in researching the characteris-
tics of older customers, i.d. considering the influence of demographic process
on customer behavior (see, for example, Leventhal, 1997, Lambert-Pandraud
et al., 2005, Bałandynowicz-Panfil, 2012). Unfortunately, these untapped
opportunities for marketers have not yet translated into more active focus of
the majority on older consumers related to, for example, product development
strategies and marketing approaches. However, there are companies that have
recognized the potential in the change of age structure among consumers. For
example, Danone, General Electric, Philips, Marks and Spencer are some of
examples of companies that have been conducting research and development
related to gaining market group (ActiveAge, 2012). These researches are fo-
cused to better understand older consumers – from nutrition point of view up
to the retirement plans. Since aging consumers have specific characteristics due
to the age, they represent a challenge for service and product developers. To
better understand these complications, the M.I.T. AgeLab was created in 1999
to invent new ideas and develop new technology to improve the quality life of
older people. It applies consumer-centered systems thinking to understand the
challenges and opportunities of longevity and emerging generational lifestyles
to catalyze innovation across business markets.3 AgeLab has developed an age-
sympathy suit called AGNES that is worn by product developers, designers,
engineers and all others who are associated with challenges of producing goods
and services for aged people. Agnes is designed to approximate the motor, vi-
3
For more details visit the official website of AgeLab at http://agelab.mit.edu (accessed on 2.04.2018.)
919
• Pharmaceutical and Healthcare sector: focusing on areas such as cancer,
cardiovascular disease, hypertension, stroke, dementia and Alzheimer’s,
diabetes, osteoporosis, arthritis, medical devices and technology, hearing
loss and aids, dental care, and incontinence, among other areas;
Ivana Barković Bojanić Dajana Džeba Mate Perišić: SILVER ECONOMY AND AGING POPULATION: MYTHS, REALITIES AND OPPORTUNITIES
920
Saga is UK company that offers insurances and financial services. Guided
by the idea that older drivers tend to have more experience behind the wheel
and are statistically less likely to have an accident, SAGA provide very low car
insurance premiums for drivers over 50 years old.4 Many insurance companies
started to follow this trend and offering cheaper insurances claiming the same -
older drivers are likely to own a more reliable car, and drive fewer miles (SAGA,
2018).
Harley-Davidson, a famous US producer of motorcycles recognized the po-
tential in older people as well as shifting the focus from the age to the values.
Namely, the baby boomers (people who are approaching the age of 65) have
been the most loyal buyers’ age of Harley’s and as they are getting old they still
want to hold on the feel by driving Harley motorcycle. That is why the Harley-
Davidson offered an innovation in motorcycle – the Three Glide. The innovation
included three-wheeled motorcycle that has additional stability and the triangle
wheel-based that has become very popular among older riders.
The Intelligent Systems Research Institute (ISRI) of the National Institute
of Advanced Industrial Science and Technology (AIST), an independent ad-
ministrative institution, has developed a new version (8th generation) of seal-
mimetic mental-committed robot PARO. The intellectual property right for
this product is licensed by the AIST to a venture enterprise, Intelligent System
Co., Ltd. to commercialize it. The PARO looks like baby harp seal and offers all
the benefits of animal therapy, but it is not a living creature; it is a robot. This
“camouflage” has been made because the researchers have found out that people
4
For more details see Saga at https://www.saga.co.uk/insurance/car-insurance.aspx (accessed on
4.04.2018.)
921
display at all that served as a telephone. This product did not even have SMS
option, yet it was favored by Japanese customers. This mobile phone has been
based on the idea that young people like fancy technology including camera,
Internet, colorful displays, games etc. while older people feel such products are
Ivana Barković Bojanić Dajana Džeba Mate Perišić: SILVER ECONOMY AND AGING POPULATION: MYTHS, REALITIES AND OPPORTUNITIES
5. CONCLUDING REMARKS
Demographic changes, i.e. increasingly aging population, are creating a new
market segment – silver customers - who have respectable purchasing power on
the one hand and the will to live longer quality and independent life on the
other hand. While many companies are still not fully aware of this change and
their impact on economy and society, there are companies that are not inert to it
and investing in product/service development to serve this specific age-defined
marketplace.
Both policymaker and business leaders must realize that it is time to address
the challenges of aging population. While many of these challenges may repre-
sent opportunities and a push factor for innovative thinking, there are still those
which represent barriers to market including:
• less marketing activities oriented toward older people;
• adjusting communication to older consumer, which is different from com-
munication with younger consumers not only in terms of communication
channels but in communication style as well;
• perception of older population known as ageism;
• stigma related to older people in workplace as well as in society.
Addressing the challenges of aging population in terms of business (econo-
my) and society calls for cooperation between business leaders, policymakers,
academia and media. One could say that the issue of silver economy calls for
Quadruple Helix approach to future research how economies can benefit from
demographic changes. The concept of Quadruple Helix, often applied to innova-
tion issues, in this case means the interaction of academia (university), industry
922
(business), government and civil society (media- and culture-based public)5 in
order to make aging successful on individual and society level.
One possible interpretation of Quadruple Helix concept is following: uni-
versities (academia) can provide empirical evidences on aging population and
its characteristics, preferences etc., which will reduce the existing information
asymmetry among firms and governments when it comes to older people/older
consumers. Namely, it is crucial to recognize and accept the fact that older peo-
ple are not homogenous group and they have great diversity in their potentials,
interests and needs as older consumers, workers or citizens. University research
(both theoretical, empirical or technical) can contribute to industry’s efforts, i.e.
business efforts to develop and/or innovate product to better serve the needs of
older consumers.
Government role is to provide the regulatory framework and financial sup-
port to both academia and industry in order for companies to invest more time
and money in new age-benefiting products and services. This can be in terms of
creating various policies regarding subsidies, technology promotion, sponsoring
research etc.
The Civil society also plays an important role since it uses and applies
knowledge obtained from the academia and firms, but it can be also very ac-
tive in providing ideas for innovation. Also, civil society, particularly media, has
an important role in fighting stereotypes and developing awareness that older
people are not liabilities but assets to the economy and society if understood
and treated properly.
One important aspect of silver economy is promoting social entrepreneur- INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
ship which offers, among else, great opportunity for public and private sector to
unite in finding solutions to increase the quality of life for senior citizens that in
turn has positive social impact. Many social entrepreneurs may find a window
of opportunity in this demographic trend and develop products and services
that will contribute to mitigation of many social problems. Certainly, this is an
issue that requires proper policy framework in order to translate potentials into
concrete results.
5
For more detailed explanation of Quadruple Helix and its potential as analytical tool see EU Com-
mittee of Regions (2016).
923
This paper has tried to demonstrate that aging population - a trend that is
unstoppable on global level - should not be treated as a threat to economy in
terms of national social security or pension systems and the like. Many compa-
nies and governments have become less inert and more aware that recognizing
Ivana Barković Bojanić Dajana Džeba Mate Perišić: SILVER ECONOMY AND AGING POPULATION: MYTHS, REALITIES AND OPPORTUNITIES
the age- citizens and consumers and their potential in various terms contributes
to business and public welfare. If one finds the way to use the new technology
and develop the right economic, science and technology policies than gaining
will no longer be considered a looming demographic crisis but a silver lining.
LITERATURE:
Avery, D. R., McKay, P. F., Wilson, D. C. (2007): Engaging the aging workforce: the rela-
tionship between perceived age similarity, satisfaction with coworkers, and employee
engagement. Journal of Applied Psychology, 92 (6), 1542-1556
Bałandynowicz-Panfil, K. (2012): The Role of Older People as Consumers – the Compara-
tive Analysis of Old and New Member States of European Union, Comparative Eco-
nomic Research, Volume 15, Issue 1, published online: 2012-07-04 | DOI: https://
doi.org/10.2478/v10103-012-0005-y (Accessed on 18.3.2108.)
Barković Bojanić, I., Erceg, A., (2017): Silver economy: demographic change and economic
opportunity, Conference Proceedings of 13th Interdisciplinary Management Research,
Faculty of Economics Osijek and Hochschule Pforzheim University, pp. 1005 – 1020
Bos, D., Von Weizsacker, R.K. (1989): Economic consequences of an aging population, Eur
Econ Rev, 33 (2-3), pp. 35-354
Börsch -Supan, A., Düzgün, I., Weiss, M. (2005): Altern und Produktivität: Zum Stand der
Forschung, Discussion Paper 73-05, MEA
Cheng, ST., Chan, A.C.M., Phillips, D.R. (2006): The Aging Situation in Asia and the Pa-
cific: Trends and Priorities. For inclusion in the World Ageing Situation Report 2007,
United Nations
Christensen, K., Doblhammer, G., Rau, R., Vaupel, J.V. (2009): Ageing populations: the
challenges ahead, The Lancet, Volume 374, October, Issue 9696, pp. 1196-1208
Eichhorst, W., Boeri, T., Coen, A.D., Galasso, V., Kendzia, M., Steiber, N. (2014): How to
Combine Entery of Young People in the Labour Market with the Retention of Older
Workers, IZA Journal of European Labor Studies, December, 3.
Fougère, M., Mérette, M. (1999): Population aging and economic growth in seven OECD
countries, Economic Modelling, Volume 16, Issue 3, 3 August, pp. 411-427
Gruber, J., Wise, D.: An International Perspective on Policies for an Aging Society, NBER
Paper No. 8103, January 2001, NBER Program(s): Aging, Labor Studies, Public
Economics.
Kalwij, A., Kapteyn, A. de Vos, K. (2010): Retirement of Older Workers and Emplyoment
of Young, De Economics, November, Volume 158, Issue 4, pp. 341-359
924
Lambert-Pandraud, R., Laurent, G., Lapersonne, E. (2005): Repeat Purchasing of New Au-
tomobiles by Older Consumers: Empirical Evidence and Interpretations. Journal of
Marketing, April, Vol. 69, No. 2, pp. 97-113
Lee, R., Mason, A., Cotlear, D. (2010): Some Economic Consequences of Global Aging, A
Discussion Note for the World Bank, HNP Discussion Paper, available at: https://
www.ntaccounts.org/doc/repository/LMC2010.pdf (Accessed on 23.03.2018.)
McCann, R., Giles, H. (2002): Ageism in the workplace: a communication perspective. In
Nelson, T. (2002): Ageism: Stereotyping and Prejudice against Older Persons, MIT
Press, Cambridge, MA, 163- 99.
Nagarajan, R., Teixeira, A.A.C., Silva, S. (2013.) The Impact of Population Ageing on Eco-
nomic Growth: An In-depth Bibliometric Analysis, FEP Working papers, ISSN:
0870-8541, School of Economics and Management Porto
Rožman, M., Treven, S., Čančer, V. (2016): Stereotypes of Older Employees Compared to
Younger Employees in Slovenian Companies, Management, Vol. 21, 1, pp. 165-179
Schmiedek, F., Lövdén, M., Lindernberger, U. (2010): Hundred Days of Cognitive Traninng
Enhance Broad Cognitive Abilities in Adulthood; Findings from the COGITO Study,
Front Aging Neuroscience, v.2, published online 2010 Jul 13; prepublished online
2010 May 20. doi: 10.3389/fnagi.2010.00027
Skirbekk, V. (2004): Age and individual productivity: A literature survey, in Feichtinger, G.
(ed.), Vienna Yearbook of Population Research, Vienna.
Van Veldhoven, M., Dorenbosch, L. (2008): Age, proactivity and career development. Career
Development International, 13 (2), 112-131
Zsarnocky, M., Gyorgy, E., (2016): The New Hope for the EU – Silver Economy, avail-
able at http://www.regionalstudies.org/uploads/Martin_Zsarnoczky_-_The_New_
Hope_for_the_EU_eng.pdf (Accessed on 10.2.2018.)
Web sources:
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
ActiveAge (2012): The ageing marketpalce: how some companies are successfully addressing
the needs of the older consumer, whilst others are struggling to access this expanding
market available at file:///C:/Users/Students/Downloads/AGEINGMARKETFF.
pdf (Accessed on 4.04.3018.)
AAL Programme (2016): Silver Economy available at http://www.aal-europe.eu/silver-
economy/ (Accessed on 23.03.2018.)
AgeLab at http://agelab.mit.edu (Accessed on 2.4.2018.)
Bank of America Merril Lynch for New York Times: “We are living longer. Are you ready?”
https://paidpost.nytimes.com/merrill-lynch/were-living-longer-are-you-ready.html
(Accessed on 22.03.2018.);
Bank of America Merril Lynch (2014): The Silver Dollar – Longevity Revolution Prim-
er“, 06 June 2014 available at https://ec.europa.eu/research/innovation-union/pdf/
active-healthy-ageing/merrill.pdf (Accessed on 22.03.2018.)
925
Economic Intelligent Unit (2011): A Silver Opportunity? Rising Longevity and its Implica-
tions for Business, A Report from the Economics Intelligence Unit Sponsored by AXA,
available at http://viewswire.eiu.com/report_dl.asp?mode=fi&fi=1877919572.PDF
(4.04.2018.)
Ivana Barković Bojanić Dajana Džeba Mate Perišić: SILVER ECONOMY AND AGING POPULATION: MYTHS, REALITIES AND OPPORTUNITIES
926
PUBLIC PERCEPTION OF
QUALITY OF PRIMARY HEALTH
PROTECTION IN THE REPUBLIC OF
CROATIA
Abstract
Thanks to the intense development of science in the last thirty years, an enor-
mous and rapid progress has been made in the sphere of medical activity and
the success of disease treatment. The improvements are so fast and significant
that they are permanently producing the growth of expectations of the popu-
lation regarding more successful, better and more comprehensive activities of
health system.
The aim of the survey is to get subjective insights into the quality of health care
in the Republic of Croatia by interviewing citizens.
927
they have compulsory health insurance. There is also a very large percentage of
respondents who have supplementary health insurance, with more respondents
paying for the insurance policy themselves. Unlike compulsory and supplemen-
tary health insurance, additional insurance is reported by less than 15% of
respondents.
Respondents mostly neutrally assessed the claim that healthcare quality in the
Republic of Croatia, as well as in their place of residence, is at a high level, but
the number of those who agreed with this claim is also significant.
Agneza Aleksijevic: PUBLIC PERCEPTION OF QUALITY OF PRIMARY HEALTH PROTECTION IN THE REPUBLIC OF CROATIA
1. INTRODUCTION
Public health is the institutional framework of health care that works accord-
ing to the needs of a man at the primary, secondary and tertiary level. Everyone
is responsible for his or her own health, but society bears the responsibility for
individual’s health. Society in this sense should ensure living conditions that
do not endanger human health, and on the other hand, in the event of a loss
of health society should provide conditions for the treatment of everyone. In
addition, in today’s living conditions, society should also ensure the promotion
of healthy life and promotion of disease prevention as well as the promotion
of health care systems. However, the society not only should do it, but it also
should do it efficiently. Since society is in constant change, and lately very in-
tense, especially because of the expansion of information and communication
technology, models of the health system and its promotion have to be constantly
evolving. In relation to this, rational society reacts in a way that brings about
the appropriate, scientifically based behavioural models and applies the same
to maintain the pace with constant technological and social changes. Thus, the
modelling of social processes, therefore, and those processes related to the pub-
lic health system, should be carried out on a rational and / or scientific basis.
928
With all the burdens and problems that are objectively present in the health
care system of the Republic of Croatia, the system today fulfils its social tasks
in global, and in terms of material conditions, it is in many ways more efficient
than what one should expect from it. First, they are responsible for the human
resources of the health care system which often, regardless of their own mate-
rial condition, go beyond the framework in which the health care system of the
Republic of Croatia functions. Considering, on the one hand, the quality of hu-
man resources of the Croatian health care system and the services they provide,
which are the product of both the education system and the way of working
and lifelong education of employees through work in the health care system of
the Republic of Croatia and taking into account the cost of work in the health
care system of the Republic of Croatia, the health care system of the Republic
of Croatia can be considered a globally competitive health care system. In many
scientific circles, the health care system of the Republic of Croatia is often seen
as a potential, not only in terms of preserving the health and longevity of the in-
habitants of the Republic of Croatia, but also as an export potential, especially
in the field of health tourism, which is almost unused at this time.
929
• prevention and detection of illness as well as treatment and rehabilitation
of patients,
• specific preventive health care for children and youth, especially in primary
and secondary schools and higher education institutions in their area,
• health care of persons over the age of 65,
• health care for women,
• health care for persons with disabilities,
Agneza Aleksijevic: PUBLIC PERCEPTION OF QUALITY OF PRIMARY HEALTH PROTECTION IN THE REPUBLIC OF CROATIA
930
Pursuant to the Health Care Act, the Croatian Institute for Health Insur-
ance cited the emerging forms of institutions, i.e. organizations providing health
care at the primary, secondary and tertiary level. Primary health care is provided
through the following activities (Croatian Health Insurance Institute):
• general / family medicine
• health care for preschool children
• health care for women
• patronage health care
• healthcare in a patient’s home
• dental health care (polyvalent)
• hygienic-epidemiological health care
• preventive-educational measures for the health care of school children and
students
• laboratory diagnostics
• pharmacy
• Emergency medical help.
The Croatian Health Insurance Institute regarding rights at different lev-
els of health care states the following: “The health protection from compulsory
health insurance at the primary level of the insured persons of the Institute is
realized on the basis of free choice of a doctor of medicine and dental practitio-
ner, as a rule, according to the place of residence and according to the provisions
of the general acts of the Institute. The health care coverage of the compul-
sory health insurance at the secondary and tertiary level of the insured persons INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
is provided by the basis of the referral of the selected contractor of primary
health care. Health protection from compulsory health insurance at the level
of health care institutions is carried out at the primary, secondary and tertiary
level of health care, and through special programs” (Croatian Health Insurance
Institute).
When it comes to ownership relationships, then health care services units
can be organized as public and private health care institutions. “Private health
institutions usually rent space in state-owned health facilities. Similarly, private
practices must meet certain criteria set by the Croatian Ministry of Health,
which includes the minimum number of enrolled patients and must offer a
minimum range of health services. Hospitals in the Republic of Croatia are
931
categorized into four categories: national hospitals, county hospitals of regional
significance, county hospitals and local hospitals”(Croatian Health Insurance
Institute).
Although it is common for health care providers to focus on health care
providers, one must not lose sight of the fact that preventive health promotion
activities give significantly better results in terms of the health status of a popu-
lation, but all activities that are targeted to restore lost health. Therefore, it is
extremely important to consider prevention features as factors of the health care
Agneza Aleksijevic: PUBLIC PERCEPTION OF QUALITY OF PRIMARY HEALTH PROTECTION IN THE REPUBLIC OF CROATIA
system of the population. In this sense, primary prevention is the best form of
“preservation” of health and includes all procedures to prevent disease (Public
Health Institute of Lika-Senj County). “Secondary prevention involves the de-
tection of illness at its very beginning when there is a large possibility of treat-
ment. Tertiary prevention is concerned with preventing “complications” of the
disease through proper treatment and appropriate rehabilitation. By preventing
complications, we increase the quality of life and progression of the disease”
(Public Health Institute of Lika-Senj County).
Everyone should know how to manage their health or illness and thus pre-
vent the occurrence of many chronic diseases or complications. Caring for your
health is primarily the responsibility of the individual then the community and
ultimately the society. It is necessary to realize the importance of the individual’s
influence on his/her health and behaviour to preserve and improve health. The
survey on health literacy in Europe (2009-2011) showed that 46.3% of respon-
dents were poor in health literacy. It is particularly concerned that vulnerable
groups are particularly illiterate. Thus, of 80% of unqualified or poorly educated
respondents, more than 75% are very ill and more than 70% are considered
members of lower social layers. Furthermore, 60% of respondents are over 75
years of age and over 50% are unemployed or retired. There are also great differ-
ences in the Member States of the European Union ( Janssen, 2011). Figure 1
shows the differences in health literacy among the population in the European
Union.
932
Figure 1. Differences in health literacy in eight EU countries measured by the
general HL index
* The general HL index is based on the meaning of all 47 elements of the HLS-EU instru-
ment. It is standardized between 0 and 50, where 0 is the minimum possible health literacy,
and 50 is the maximum health literacy.
Source: Janssen, 2011
933
institution, and accreditation of health institutions ensures the quality of health
care of a population.
3. RESEARCH METHODOLOGY
.. Research design and questionnaires
For data analysis, we used the methods of descriptive statistics. Respon-
dents’ distribution was also established according to the presence of acute and
Agneza Aleksijevic: PUBLIC PERCEPTION OF QUALITY OF PRIMARY HEALTH PROTECTION IN THE REPUBLIC OF CROATIA
934
Table 1. Distribution of respondents by gender, age, marital status, work status
and level of education
Characteristics Number of respondents Percentage
Gender
male 478 48,8
fenale 502 51,2
Age group
18 – 39 491 50,1
40 – 60 380 38,8
61 – 82 109 11,1
Age group
married 515 52,6
unmarried 353 36,0
partnership 30 3,1
divorced 36 3,7
widowed 46 4,7
Working status
student 237 24,2
employed 466 47,6
unemployed 102 10,4
retired 157 16,0
dependent person 18 1,8
Level of education
Lower than secondary school 154 15,7
Secondary school 617 63,0
There are more women in the sample than men. Regarding age, respondents
were classified into three groups. The first consists of people aged between 18
and 39, the other respondents who are between the ages of 40 and 60 and the
third of those aged 61 and over. More than half of the respondents are mem-
bers of the same group, while the sample is least represented by older people. If
non-grouped data is considered, the average age of respondents was 39.32 years
with a standard deviation of 15.9 years. According to the median, half of the
respondents were 39 years of age or less, and the other half were 39 years old
or more. Half of the respondents were between 24 and 51 years old. The coef-
ficient of variation, which is 40.45%, indicates significant data variability in the
distribution of respondents by age. It should be noted that the youngest person
935
in the sample was 18 years old and the oldest was 82 years. Age data is shown in
box-plot diagrams (Figure 2).
Figure 2. Box-plot of distribution of respondents by age
Range without outliers
Agneza Aleksijevic: PUBLIC PERCEPTION OF QUALITY OF PRIMARY HEALTH PROTECTION IN THE REPUBLIC OF CROATIA
936
contains mostly employed persons. This group is followed by respondents who
have indicated that they are students, which is slightly less than a quarter. The
unemployed are represented in the sample by approximately 10%, and retirees
with approximately 16%. Only 18 respondents, which make less than 2% of all
respondents, said that they were dependent individuals. According to the level
of education, respondents were grouped into three groups. The first is made up
of persons with lower than secondary education. Classified there are respon-
dents who stated that they did not have completed elementary school or that
the highest level of education they have completed was elementary school. Ap-
proximately 16% of the respondents made up this group. Most respondents had
completed secondary school education and they make almost two thirds of all
respondents. Approximately 21% of respondents stated that they have a higher
education degree (upper secondary school (undergraduate study)), completed
high education (graduate study), completed postgraduate specialist studies or
a master’s degree). Only one respondent stated that he had a master’s degree in
science, and no person selected in the sample had indicated that he/she was a
Doctor of Science.
The distribution of respondents by gender, age group, marital status, work-
ing status and education level is also shown in Figure 3.
937
Agneza Aleksijevic: PUBLIC PERCEPTION OF QUALITY OF PRIMARY HEALTH PROTECTION IN THE REPUBLIC OF CROATIA
938
of education
Figure 3. Respondents by gender, age, marital status, working status, and level
Table 2. Distribution of respondents by gender of age, marital status, working
status and level of education, with line percentages
Sex
Characteristic Total
Male Female
Age group
18 - 39 212 279 491
(43.2%) (56.8%)
40 - 60 203 177 380
(53.4%) (46.6%)
61 - 82 63 46 109
(57.8%) (42.2%)
Marital status
Married 281 234 515
(54.6%) (45, 4%)
Unmarried 151 202 353
(42.8%) (57.2%)
Domestic partnership 16 14 30
(53.3%) (46.7%)
Divorced 14 22 36
(38.9%) (61.1%)
Widower 16 30 46
(34.8%) (65.2%)
Working status
Student 81 156 237
(34.2%) 65.8%)
Employed 261 205 466
(56.0%) (44.0%)
939
To obtain a complete picture of the respondents, they were asked whether
suffered from some acute or chronic illness. Most respondents said they did
not suffer from acute and chronic illness. However, there are many respondents
who have reported to suffer from chronic illness.
Table 3. Distribution of respondents considering the presence of acute and
chronic diseases
Characteristic Number of respondents Percentage
Agneza Aleksijevic: PUBLIC PERCEPTION OF QUALITY OF PRIMARY HEALTH PROTECTION IN THE REPUBLIC OF CROATIA
Acute illness
No 877 89.5
Yes 103 10.5
Chronic illness
No 722 78.8
Yes 208 21.2
Most respondents said they did not suffer from acute and chronic illness.
However, there are many respondents who have reported to suffer from chronic
illness. The distribution of subjects regarding the presence of acute and chronic
diseases is also shown in Figure 4.
In the introductory part of the survey, the respondents were also asked ques-
tions related to their status regarding compulsory, supplementary and addition-
al health insurance. Table 4 shows the distribution of their responses.
940
Table 4. Distribution of respondents regarding possession of compulsory, sup-
plementary and additional health insurance
Number of
Characteristic Percentage
respondents
Mandatory health insurance
No 43 4.4
Yes 937 95.6
Supplementary health insurance
No 81 8.3
Yes (CHII covers all costs) 367 37.4
Yes (the respondent covers all costs) 532 54.3
Additional health insurance
No 839 85.6
Yes 141 14.4
More than 95% of respondents said they had compulsory health insurance.
There is also a very large percentage of respondents who have supplementary
health insurance, with more ones paying the bill themselves. Unlike compulsory
and supplementary health insurance, less than 15% of respondents have addi-
tional health insurance.
Figure 5. Distribution of respondents regarding possession of compulsory, sup-
plementary and additional health insurance
941
Table 5. Distribution of respondents according to the frequency of use of cer-
tain health care services
Frequencies of use
Health Care Service 1 2 3 4 5
(never) (rarely) (occasionally) (often) (constantly)
112 319 410 110 29
Primary protection
(11.4%) (32.6%) (41.8%) (11.2%) (3.0%)
197 408 278 83 14
Specialist examinations
Agneza Aleksijevic: PUBLIC PERCEPTION OF QUALITY OF PRIMARY HEALTH PROTECTION IN THE REPUBLIC OF CROATIA
The largest number of respondents noted that they occasionally use primary
health care services, and about a third of them do so rarely. More than 11% of
respondents said they did not use primary health care services at all, and 3%
used them constantly. Most of the respondents said they rarely use specialist
examination services, and more than 20% never use them. Only slightly more
than 1% of the respondents stated that they were constantly using them. Most
of the respondents stated that they rarely used outpatient hospital treatment,
while approximately the same number of people stated they do not use these
services at all or use them occasionally. More than half of the respondents do
not stay in the hospital for therapeutic reasons, and less than 1% said they did it
all the time. The highest percentage is of those who do not use hospital services
for treatment. About a quarter of the respondents stated that they rarely do so,
and less than 1% are constantly using such services. There is also a very large
percentage of those who do not even use physical therapy services at all. More
than a quarter of the respondents use such services rarely, and less than 1% of
them constantly. Regarding dental medicine services, the most prominent are
those who use them occasionally, and that group is followed by those who rarely
942
use them. Almost 18% of respondents stated that they never use dental care
services, and just over 3% do it constantly.
943
Table 6. Descriptive statistical indicators of the use of certain health care
services
Health Care Service Arithmetic environment median mod Standard deviation
Primary protection 2.62 3.00 3.00 0.93
Specialist examinations 2.29 2.00 2.00 0.93
Outpatient hospital treatment 2.21 2.00 2.00 0.98
Therapeutic reasons 1.64 1.00 1.00 0.87
Hospital accommodation for
1.56 1.00 1.00 0.85
Agneza Aleksijevic: PUBLIC PERCEPTION OF QUALITY OF PRIMARY HEALTH PROTECTION IN THE REPUBLIC OF CROATIA
treatment
Physical therapy 1.62 1.00 1.00 0.88
Dental medicine 2.61 3.00 3.00 1.03
944
Figure 7. Arithmetic mean of frequency of use of certain health care services
945
ing the claim that health care professionals pay attention to them. Although
most of the respondents do not agree or disagree with the statement that they
are familiar with the Patient Rights Act, in the case of this claim it is noticed
that none of the responses offered is particularly distinct from the others. It is
encouraging that the largest number of respondents agree that health care is
more accessible today than before but is largely neutral regarding the claim that
the patient is now in the “centre” of the system. It is also interesting that many
respondents believe that residents are “sicker” today and are more likely to go
Agneza Aleksijevic: PUBLIC PERCEPTION OF QUALITY OF PRIMARY HEALTH PROTECTION IN THE REPUBLIC OF CROATIA
to the doctor. It also prevails that health care is better today than before the
Croatian War of Independence. However, most of them do not agree or dis-
agree with the conclusion that health services in other countries of the former
Yugoslavia are worse than in Croatia. Regarding this issue, however, somehow
the answers of those who agree with this statement are more prominent that
answers of those who disagree that health services in other countries of the
former Yugoslavia are worse than in Croatia. It is quite like that of distributing
the respondents’ response to the claim that our health care is significantly worse
than in Western European countries. The prevailing attitude of the respondents
is that campaigning for preventive examinations raises the level of population
health. More than two-thirds of respondents generally or completely agree that
healthcare should be free for everyone. By contrast, although they are mostly
neutral in terms of healthcare efficiency, when privatized, none of the respon-
dents’ responses specifically stands out.
946
Table 7. Distribution of respondents according to degree of cure related to
quality of health care
Degree of agreement
1
(I completely disagree)
2
(I mostly disagree)
3
(I neither agree nor
disagree)
4
(I mostly agree)
5
(I completely agree)
Claim
947
Our health care is significantly worse than in Western 51 101 353 318 157
European countries (5.2%) (10.3%) (36.0%) (32.5%) (16.0%)
Campaigns related to preventive examinations raise the level 44 74 327 358 177
of population health (4.5%) (7.6%) (33.4%) (36.5%) (18.1%)
42 48 138 255 497
Healthcare should be free for everyone
(4.3%) (4.9%) (14.1%) (26.0%) (50.7%)
204 117 298 195 166
When privatized, healthcare would become more effective
(20.8%) (11.9%) (30.4%) (19.9%) (16.9%)
Agneza Aleksijevic: PUBLIC PERCEPTION OF QUALITY OF PRIMARY HEALTH PROTECTION IN THE REPUBLIC OF CROATIA
948
Based on the calculated arithmetic means, as shown in Figure 8, it can be
concluded that the respondents, on average, mostly agree that healthcare should
be free of charge for everyone. Only in this case the arithmetic mean has a value
greater than 4, while the median and mode have the value of 5. Respondents also
showed a relatively high level of agreement with the statement that the residents
are “sicker” and are more likely to go to the doctor today. They are somewhat less
consistent with the statement that health professionals respect their privacy.
Respondents with an average rating of 3.59 rated the claim that health care is
better today than before the Croatian War of Independence, suggesting that,
despite the criticisms of the health care system, they perceived some progress.
In addition, they generally agree that campaigning related to preventive exami-
nations raises the level of population health and that health care is now more
accessible than before. To a lesser extent, but still positive, they evaluate that
health care professionals gain their trust with their courtesy and knowledge. In
the case of these two, as well as previous findings, the median and mode have
the value of 4. Approximately similar, the respondents stated that they agreed
that health care was significantly worse than in Western European countries,
and that health services in other countries of the former Yugoslavia were worse
than in our country. However, in the case of these claims, the medium and mode
have the value of 3.
Compared to the previous assessments, there is a somewhat weaker assess-
ment that healthcare professionals pay attention to the respondents, provide
healthcare services in adequate premises, and that healthcare institutions and
employees are perceived as reliable. Respondents were fairly neutral, with an
average rating of just over 3, in evaluating the claims that health care protection INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
was high in the Republic of Croatia and in their place of residence. For a claim
that healthcare would be more effective if privatized, the calculated average rat-
ing was 3, with median and mode having the same value. In this case, the stan-
dard deviation has the highest value, indicating the highest degree of scattering
of responses.
Four findings were evaluated with an average rating of less than 3. The clos-
est to the value of 3 was the claim that the patient is now in the “centre” of the
system. A lower average rating was calculated in case of a claim that healthcare
institutions respect appointment schedule and that Croatian health institutions
provide a fast service. The smallest average rating was calculated for the claim
949
regarding the Patient Rights Act, which indicates that much greater attention
should be paid to this issue than it has been the case so far.
There are several more claims for which the male respondents showed on
average higher degree of agreement than female respondents. Thus, men rated
with a higher average rating the claims that the level of health protection in
their place of residence is high, that Croatian health institutions provide fast
service, that healthcare institutions respect the appointment schedule, health
950
institutions and employees leave an impression of reliability, that health care
employees gain their trust due to their knowledge, that the health profession-
als gain their trust with their courtesy, health care professionals pay attention,
familiarity with the Patient Rights act, that the patient is today in the “centre”
of the system, that the health services in the other countries of the former Yu-
goslavia are worse than in Croatia, that health care should be free for everyone
and that healthcare would become more effective if privatized. Almost the same
value of the arithmetic mean for men and women was calculated for the claim
regarding high level of health care in the Republic of Croatia.
4. CONCLUSION
There is evidently a problem of public perception of the quality of the health
care system in the Republic of Croatia by its users. It should be borne in mind
that this is not an ideal system, but on the other hand it should be borne in mind
that it is a system that, considering all the circumstances, generally achieves pos-
itive results when it comes to its fundamental goals. Developed countries have
higher quality health care because of their greater economic potential, but the
shortage of money in the health care system of the Republic of Croatia is often
compensated by the knowledge and willingness of health care workers who of-
ten get the most out of the available resources.
Considering evolving social processes and changes introduced by a new in-
formation age, and based on the conducted research, it can be concluded that
direct marketing communication has the biggest potentials for improving
healthcare system perception. In that sense, it is necessary to reorganize at the INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
951
and whether he/she tends to share information. For example, if a patient uses
a social network, then he/she can periodically receive in his/her inbox invita-
tions for check-ups, prevention measures and this type of communication can
be used for surveying patient satisfaction with services, obtaining patients’ sub-
jective attitudes regarding their treatment and its outcomes, as well as for in-
forming patients on their rights and obligations that have changed. In that way,
healthcare system stops being isolated from its patients and enters specific and
direct relations with a patient.
Agneza Aleksijevic: PUBLIC PERCEPTION OF QUALITY OF PRIMARY HEALTH PROTECTION IN THE REPUBLIC OF CROATIA
REFERENCES
Croatian Health Insurance Institute, (2013) Law on Health Care, http://cdn.hzzo.hr/wp-
content/uploads/2013/10/Interni_procisceni_tekst_ Zakon_o_zdravstvenoj_zasti-
tiv21.pdf [6.1.2018]
Health Care Act, (2015), https://www.zakon.hr/z/190/Zakon-o-zdravstvenoj-za%C5%A1ti-
ti [6.1.2018]
Croatian Health Insurance Institute .: Description of the Health System, http://www.hzzo.
hr/zdravstveni-sustav-rh/opis-zdravstvenog-sustava/ [6.1.2018]
Health Care Act, (2015), https://www.zakon.hr/z/190/Zakon-o-zdravstvenoj-za%C5%-
A1titi [6.1.2018]
Janssen, Health Writing v Europe, (2011), http://www.janssen.com/slovenia/novice/
zdravstvena-pismenost-v-Evropi [15.11.2015]
Public Health Institute of Lika - Senj County, http://www.zzjzlsz.hr/izaberimo-zdravlje
[15.11.2015]
952
EDUCATION FOR HANDLING
CONFLICT IN THE ORGANIZATION
Sara PEJAKOVIĆ
University J. J. Strossmayer, Osijek,
Faculty of Humanities and Social Science
Department of Pedagogy
E-mail: skakuk@ffos.hr
Abstract
The aim of this paper was to contribute to the body of the existing literature,
find out the causes, types, effects, and strategies on how to manage conflicts in
organisations effectively to enhance organisational performance. Every organi-
zation is a society in microcosm. Each lives their own culture and are tempted
to focus on solutions and resolution of the conflicted issues when a solution of
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
the conflict where either be suggested or imposed from the authorities in the
organisation. Often there is no time to think that maybe will be more helpful,
instead, to think in terms of a process that will enable those involved in the
conflict to arrive at their own solution or find ways of living with the differences
within the organizational culture. In addition, it is not possible to imagine
organizational communication without conflict. Conflicts are something in-
evitable in any organization because people have different opinions between
them. At first, where believed that conflicts were something that might destroy
manager’s authority but studies in the 1970s showed that conflicts could have
a positive, as well as a negative side (Spaho, at all, 2013). There is a common
agreement that it is very dangerous for an organization to have both too many
conflicts, as well as not to have any conflicts at all. Therefore, it is the prime
responsibility of education and curriculum in the formal school system to edu-
953
cate students how to put in place appropriate strategies on how to minimize
conflicts, focused on the process rather than product and develop necessaries
social and communication skills.
Key words: conflict, education, process, organizational communication
JEL Classification: I20, I29
1. INTRODUCTION
Contemporary society is undergoing rapid changes due to forces of global-
ization, the mobility of people, and technical growth in all aspects of life. Being
aware of those changings with paradoxes in which we have, from one side, signif-
icant evolution of informational technologies and from the other side more and
more poorly developed communicational and conflict resolution skills, within
the work population, necessary to successfully resolve conflict, rise a question
Sanja Španja Sara Pejaković: EDUCATION FOR HANDLING CONFLICT IN THE ORGANIZATION
of education for handling the conflict in the organization. The purpose of this
paper is to identify different educational approaches to conflict resolution.
It is not possible to avoid conflict in an organizational communication. Con-
flicts occur normally in any organization as people have different views and
thoughts, among them, there are people who cannot admit other people’s dif-
ferent perceptions (Spaho et al. 2013). Every organization is a society in micro-
cosm. When we think about organization usually, we connect with a society that
values its special qualities of homogeneity and harmony. According to Morgan
(1997) “Organizations are mini-societies that have their own distinctive pat-
terns of culture and subculture” (p. 129). Yet a closer examination reveals the
myth of an organization society that was never neither truly homogenous nor
simply harmonious which may contain an interaction of people from different
kinds of organizational cultures. Few interactions of this kind are without con-
flict, which can be at the same time eider a creative force, or a place for the fight.
There are no two or more individuals with identical attitudes, values, beliefs,
and skills. Small irritating events such as negative attitudes occur repeatedly
over time and can cause people to strike out at each other. However, people
are intelligent, dynamic, self-organizing and creative beings able to distinguish
thoughts and innovative reactions to conflicts. (Andrade, 2008). In many cases,
conflict occurs at the senior level of the organization. We could have perceived
conflict, as a normal and natural part of our workplace. This type of conflict can
954
be helpful in making necessary changes within the home or work environment.
However, unresolved conflict can result in feelings of dissatisfaction, unhappi-
ness, hopelessness, depression, and other negative emotions. It can result in be-
haviours such as physical or emotional withdrawal, resignation from jobs, dis-
solution of personal relations, poor work-related performance, aggression, and
even violence. In these situations, intervention is needed. (Zafar at all 2014).
955
Different theoreticians have tried to classify conflict into various forms. One
of the classifications is the relationship, task and process conflict. There is, how-
ever, the considerable conceptual overlap between these different forms of con-
flict (Dirks and Parks, 2003).
• Relationship Conflict: This exists when there are interpersonal differences
between group members, including personality clashes, tension, animos-
ity and annoyance ( Jehn, 1995). This type of conflict produces negative
individual emotions, such as anxiety, mistrust, or resentment frustration,
tension, and fear of being rejected by other team members (Murmnigham
and Conlon, 1991).
• Task Conflicts: These are disagreements about the content of a task and
work goals, such as the distribution of resources, procedures, and inter-
pretation of facts. Task conflicts include differences in viewpoints, ideas,
and opinions, and may coincide with animated discussions and personal
Sanja Španja Sara Pejaković: EDUCATION FOR HANDLING CONFLICT IN THE ORGANIZATION
excitement. In addition, studies have shown that task conflict can also be
associated with several harmful effects, such as job dissatisfaction, lack of
team work, and increased anxiety (Kabanoff, 1991).
• Process Conflicts: This refers to disagreement about how a task should be
accomplished, individuals’ responsibilities and delegation ( Jehn & Man-
nix, 2001), e.g. when group members disagree about whose responsibility
it is to complete a specific duty. Process conflict has been associated with
lower morale, decreased productivity and poor team performance ( Jehn,
1999).
Conflict is a social phenomenon that could be found in personal, group or
organizational interactions.
In short, organizational conflict can be intrapersonal, interpersonal, intra-
group, and intergroup. The strategies for managing the last three structural
types, each revealing different levels of concern for self and others are integrating.
Resolving problems to reach an effective solution acceptable to all disputants:
• Obliging-satisfying the concerns of the other party to preserve a relation-
ship and perhaps obtain something in exchange;
• Dominating-achieving a win-lose resolution that is in the best interest of
one group and at the expense of the other;
• Avoiding-deviance situations;
956
• Compromising- seeking a resolution that satisfies at least part of each
party’s demands (Serrat, 2017).
• According to Hener (2010), below are the types of organizational conflicts:
• Vertical conflicts that happen when the supervisor is always informing an
employee what to do and tries to “micro-manage”, while at the same time
allowing the employee to execute his job.
• Horizontal conflicts that happen among employees, on the same hierar-
chical level because of the different interests in relation to allocation of
resources.
• Line staff conflicts that occur between support staff and line employees.
• Role conflicts resulting from a mistaken understanding of the task given
to an employee at a particular period.
Despite the various definition and classification of conflict outlined above,
it is quite evident that to say that conflict is all good or bad is inappropriate
and naïve. Whether a conflict is good or bad depends on the type of conflict.
Specifically, its necessary to differentiate between functional and dysfunctional
conflict. Sometimes, conflicts can be useful, and help manager or employees to
make the correct decision, although conflict might represent a huge obstacle to
an organization and its business. However, the fact is that people are intelligent,
dynamic, self-organizing and creative beings able to distinguish thoughts and
innovative reactions to conflicts. (Andrade, 2008).
957
In “liquid society” concepts like permanence and long term, lose their signifi-
cance, leading to the fragility of human relationships, short-term expectations
of joint action, increased sense of insecurity, and vagueness and unpredictability
in professional and social life. All this derives from the enormous influence of
nomadic capital and globalization processes. Big capital, today, with great ease
and promptness, moves from one part to another part of the Earth. As results
of this rapid change in society and business world, we have today, changes in the
responsibilities of managers who are no longer interested in investing in staff or
fellow worker and team stability. Because of these risks in the workplace, just a
few managers are ready to invest in interpersonal relationships and education
for handling a conflict in the organizations. The individual is worth as much as
his last project is worth (Bauman, 2000).
The messages that such a value system sends to employees are: do not com-
mit yourself beyond what is necessary, loyalty is ridiculous, establish superficial
Sanja Španja Sara Pejaković: EDUCATION FOR HANDLING CONFLICT IN THE ORGANIZATION
958
not only necessary but also normal and healthy because only when we meet dif-
ferent needs and strategies can we begin negotiation and developing new con-
flict resolution skills.
If we do not enter conflict openly, if the differences do not show clearly and
publicly, we are unable to negotiate or find solutions that are good for all par-
ticipants. Such open confrontation requires courage to recognise and address
differences. Also, it takes a lot of energy, time, effort and creativity to find a solu-
tion that will satisfy everyone involved in the conflict. To do that, a basic edu-
cational knowledge needs to be implemented in school curriculum at all levels
of education. In addition, after formal education, it will be useful to educate (at
the very least) managers to be competent to face challenges in the organization
which include conflicts.
3. ORGANIZATIONAL COMMUNICATION
Communication (lat. communicare: to share) is the process of exchanging
information between people. All forms of communications have in common
at least one transmitter and receiver in (successful) communication processes
between whom the exchange of data or information happens. In a special case,
the transmitter can also be the receiver at the same time (Radermacher, 2010).
Communication is a transfer of information from a sender to receiver, imply-
ing that the receiver understands the message. Communication is also sending
and receiving messages by means of symbols. In this context, organizational
959
Successful organizations with high standard in professional performance,
one who cares for employees and relationships within the organization, are
based on the values of democracy (solidarity, responsibility, participation in con-
sensus-based decision-making, equal opportunities for all). This organizations
continuously invest in their employees, their social knowledge and skills, cher-
ished communication and opens possibilities for good and quality cooperation
at all levels of the organization. The style of communication in the organization
depends on the rules and norms of communication defined by the structure and
on the application of certain procedures and ways of acting in the operation of
the organization. Furthermore, organizational communication depends on the
culture and values of the organization, but also on the capacity of people to ap-
ply assertive communication strategies and dialogue. As the organization grows
and develops, communication is changing (improving or becoming worse) ac-
cording to the other manifestations and processes. Dialogue-based, successful
communication needs to be cherished, and the skills of dialogue must be con-
Sanja Španja Sara Pejaković: EDUCATION FOR HANDLING CONFLICT IN THE ORGANIZATION
960
• Intervention-The intervention is especially required in a case where there
are too many affective conflicts and too few substantive conflicts. There
are two types of intervention: the process approach and the structural ap-
proach. The process approach is where managers tend to match the styles
of handling conflicts to different situations, while the structural approach
is where conflict is managed by changing the perceptions of the intensity
of conflict at different levels.
• Conflict-Conflicts have two extents: One consists of disagreements in
relation to task issues, and the other involves emotional and interpersonal
issues that contribute to conflict.
• Learning and effectiveness: One of the main purposes of controlling con-
flict in a contemporary organization is to improve organizational learn-
ing which includes knowledge acquisition and dissemination, information
analysis, and maintenance of organizational memory. Individual learning
is obligatory, but it does not constitute an appropriate condition for orga-
nizational learning.
Educational strategies should involve several different social and communi-
cation skills that will help move the conflict toward a healthy resolution, rather
than allowing the relationships to deteriorate further or issues to fester. A pro-
cess – in contrast to a quick fix is likely to take time and recognise that there
are certain things that need to happen before moving on others (Fahed-Sreih,
2018). Acknowledging the importance of education in transforming conflict
with process-oriented approach; a few pointers need to be considered:
• It is important that all the parties be helped to acknowledge that there is INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
a conflict.
• It is important that all the parties be assisted in surfacing, recognising and
defining those issues. (Initially, this may require working with the party’s
separately).
• Once the issue has been defined, try to create a proper forum for dis-
cussing and hopefully, dealing with them. (A proper forum, among other
things. Implies that all those with perspectives on the issues are included
and that the group exploring the issues also has the power to make deci-
sions about them.)
• Get representation from all viewpoints.
961
• Seek balanced input or debate.
• Try to think as creatively as possible about a range of different opinions
for addressing the issues and moving conflict forward. Then, begin to ex-
plore which might best meet the needs of all those involved. (Remember
that what at first appears to be the issue may not be the most important
issue. Focusing too much on the presenting issue may not move the thing
forward at all. It may help, instead, to broaden out from a point of con-
flict and try to establish a broad understanding of an agreement about the
larger issue.)
• Make sure that any agreements reached are clear and communicated to all
of those with a stake in the conflict.
• Build in a time and way to review any agreements reached. (McAllister,
1997).
Sanja Španja Sara Pejaković: EDUCATION FOR HANDLING CONFLICT IN THE ORGANIZATION
962
The following process is useful for effectively managing conflict in the work-
place, in relationships, or in other situations where employees and manager in
the organization have an interest in seeking a negotiated solution. These steps
won’t guarantee an agreement, but they greatly improve the likelihood that the
problems can be understood, solutions explored, and consideration of the ad-
vantages of a negotiated agreement can occur within a relatively constructive
environment. They provide useful strategies to consider that reduce the impacts
of stress, fears, negative emotions and “surprise” factors involved in dealing with
conflict.
963
about what a neutral decision maker will most likely decide. This
can be difficult for people entrenched in their own views.
• By thinking these through, we can understand how a negotiated
solution can meet our needs better than the alternatives and can
clarify our desired outcomes. When considering the BATNA,
MLATNA, and WATNAs, each party should consider what al-
ternative paths exist if a party walks away from mediation. There
may be more than one path – going to court, walking away from a
particular situation, seeking a new job, etc
3. Identify a Safe Place for Negotiation
• Appropriate Space for Discussion/ Private and Neutral
• Mutual Consent to Negotiate/ Appropriate Time
• Role of Support People (Facilitators, Mediators, Advocates), as
Sanja Španja Sara Pejaković: EDUCATION FOR HANDLING CONFLICT IN THE ORGANIZATION
needed
• Agreement to Ground rules
4. Take a Listening Stance into the Interaction
• “Seek first to understand, then to be understood” (Covey)
• Use Active Listening skills
5. Assert Your Needs Clearly and Specifically
• Use “I-messages” as tools for clarification
• Build from what you have heard - continue to listen well
6. Approach Problem-Solving with Flexibility
• Identify Issues Clearly and Concisely
• Generate Options (Brainstorm), While Deferring Judgment
• Be open to “tangents” and other problem definitions
• Clarify Criteria for Decision-Making
7. Manage Impasse with Calm, Patience, and Respect
• Clarify Feelings
• Focus on Underlying Needs, Interests, and Concerns
964
• Take a structured break, as needed
8. Build an Agreement that Works
• Review “Hallmarks” of a Good Agreement
• Implement and Evaluate - Live and Learn
It is impossible to negotiate solutions to all organizational problems in one
session, or even in one series of meetings. Therefore, it is important to clarify de-
sired outcomes from the process of negotiation and focus all energies on two or
three priority issues among the dozen that those involved in conflict feel are im-
portant. By doing so, it is more likely to negotiate agreements that are meaning-
ful to all, and less likely to get diverted with trivial or small and not important
issues. Taking into consideration all above, understanding that there is a range
of outcomes which sometimes can push parties to consider the consequences if
they choose to walk away from a negotiation to take their chances with some-
one else or something else (like an arbitrator, agency, or court). It can also make
parties reflect on the power they have at the negotiation table that will be relin-
quished if the matter proceeds to a hearing of some kind (Law, 2015).
6. CONCLUSION
Being aware of the postmodern “liquid” societies that we are living in, emerge
new requirements for education for handling conflict in the organisation. From
the discussion thus far, it is quite evident that it is impossible to eliminate con-
965
flict analysis and strategies and core competence of the communication in the
organization. Handling conflict has a strategic advantage for the organization
that results in improved productivity, clear communication and successful de-
cision making. Use of a format like the one presented here, along with clear
understanding of the concept of conflict in the organisations, underline the im-
portance of developing new knowledge and skills for handling a conflict using
education as a tool for further personal and professional development.
REFERENCES
Academic leadership support, Office of quality improvement & Office of human resource
development. Eight steps [available at https://www.talent.wisc.edu/onlinetraining/
resolution/stepsoverview.htm access March 22, 2018]
Andrade L, Plowman D. & Duchon D. (2008). Getting past conflict resolution: a complexity
view of conflict. Emergence: Complexity and Organization 10 (1), p. 23–38.
Sanja Španja Sara Pejaković: EDUCATION FOR HANDLING CONFLICT IN THE ORGANIZATION
966
Jehn, K.A., et al, (1999). Why some Differences Make a Difference: A Field Study of Di-
versity, Conflict and Performance in Workgroups. Administrative Science Quarterly, 44
(1), p. 741-763.
Kabanoff, B. (1991). Equity, Equality, Power and Conflict. Academy of Management Review,
16 (2), p. 416-441.
Law, H. (2015). Weighing Your Options: BATNA, MLATNA, and WATNA [available
at http://www.houghlawfirm.com/weighing-your-options-batna-mlatna-and-watna/
access March 3, 2018]
Mc Allister, B. (1997). From Assertion of Identity to Political Violence - Mediation Within the
Northern Ireland Conflict. Belfast: The Mediation Network for Northern Ireland.
Murnigham, J.K. & Conlon, D.E. (1991). The Dynamics of Intense Workgroups: A study of
British Sting Qualets. Administrative Science Quarterly, 36 (1), p. 165-186.
Poljak, N. & Šehić-Relić, L. (2006). Sukob org. Upravljanje sukobom u organizaciji. Osijek:
Centar za mir i ljudska prava.
Pondy, R.L. (1967). Organizational Conflict: Concepts and Models. Administrative Science
Quarterly, 12 (2), p. 296-320.
Radermacher, F. J. (2010). Die Zukunft unserer Welt. Edition Stifterverband: Navigieren in
schwierigem Gelaende. Berlin: EDITION STIFTERVERBAND.
Rahim, A., & Bonoma, T. V. (1979). Managing organizational conflict: A model for diagno-
sis and intervention. Psychological Reports. 44 (3), p. 1023–1027
Serrat, O. (2017). Knowledge solutions Tools, Methods, and Approaches to Drive Organiza-
tional Performance. London: SPRINGER Open.
Spaho, K. (2013). Organizational communication and conflict management. Management:
journal of contemporary management issues, 18 (1), p. 103–118.
Zafara, F., Ashfaqb, H., Alic, A. & Imrand, M. (2014). Conflict Resolution in Organization
through Strategic Management. International Journal of Sciences: Basic and Applied Re-
search (IJSBAR) 14 (1), p. 1-15.
967
FREE MOVEMENT OF WORKERS:
THE CASE OF HEALTH CARE
WORKERS MIGRATING WITHIN
THE EU
Abstract
969
workforce are still not reached. Both mentioned things are needed to develop
high quality of health system in terms of quality of health service and quality of
Mirko Pešić Sanja Pešić Marija Baban Bulat: FREE MOVEMENT OF WORKERS: THE CASE OF HEALTH CARE WORKERS MIGRATING WITHIN THE EU
cash flow. Health management is currently one of the major topics at the level
of the Republic of Croatia, but at the European level the same problem also
exists, and solving models need to be found.
Key words: European Union, migrations, health, management
JEL Classification: F22, I10
1. INTRODUCTION
Freedom of movement for workers, as a narrower area of freedom of individ-
ual movement, is one of the four fundamental European freedoms, respectively
freedom of the Internal Market of the European Union, which consists of the
free movement of people, services, capital, and goods. Rights of free movement
for workers are defined in Articles 46 to 48 of the Treaty on the Functioning of
the European Union. The stated articles of the Treaty are based on the non-dis-
crimination principle on grounds of citizenship for workers from the Member
States with regard to their employment, wage and other conditions of labor and
employment (Treaty of the Functioning of the European Union, 2016). Each
Member State gains the right to these four freedoms by joining the European
Union. By signing the Stabilization and Association Agreement, Croatia has
taken over the rights and obligations when she gained full membership status
of European Union Member State (The Stabilization and Association Agree-
ment between the Republic of Croatia and the European Communities and
their Member States, 2007). With this Agreement, rights of freedom of move-
ment for workers has been acquired, including:
• the right to work without a work permit (after passing of the transition
period if the same is acquired)
• equality of treatment in employment as with citizens of Member State in
which work is performed
• the right to equal social benefits as the citizens of Member State have
• the right of family members to join the worker and receive family benefits
• full coordination of the social security system (pension rights and
contributions)
970
• mutual recognition of qualifications (The Stabilization and Association
Agreement between the Republic of Croatia and the European Commu-
nities and their Member States, 2007, pp 20-21).
When a country joins the European Union, it provides a chance for work-
ers to migrate and find better working conditions in other countries of the EU.
The migration route is most often from rural to urban areas, from poor to rich
countries and from countries where healthcare progress is slower to the coun-
tries where is that progress faster (International Organization for Migration ,
2014, pp 21). Mobility of workers is inevitable for the successful functioning of
the European Union Internal market, especially for increasing employment rate
and economic growth. Therefore, free movement for workers is an important
area for the European Union. However, it also contains some self-negative as-
pects like the sudden or even long-term weakening of the branch to which mi-
grant workers belong. To avoid such a disorder and the potential for a migration
wave within the EU during the enlargement process, the EU can set restrictions
on the free movement of workers. One of these restrictions is the transitional
period. The transition period usually lasts seven years and it can be introduced
individually by an „old Member State” to the “new Member State”. During this
period, workers from the new Member State have an obligation to obtain work
and residence permits, same as citizens from non-EU countries. Migration
largely depends on the unemployment rate of the Member State from which
workers migrate and the work conditions in other, often older Member State,
such as wages and better living conditions. The healthcare workers migration
is not only a problem that affects the European Union but almost the whole
world. Special attention is given to the migration of healthcare workers who INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
for years represent a great deal of a problems for the development of healthcare
systems and disorders within the same in countries from which workers are
leaving. After the 2004 and 2007 enlargement rounds, there has been the big-
gest shift in migration of healthcare workers. Nevertheless, it was not as big as
it was expected. There are many European studies and papers on this subject
which seek to regulate the health labor market to reach the same level of qual-
ity of healthcare services throughout the European Union. However, the right
solution is not found or it is not applied yet. The main problem is the increase of
differences in the development of the healthcare systems between Western and
Eastern Europe and lack of labor power. Namely, differences in healthcare de-
velopment are still noticeable and we still have not reached a sufficient amount
971
of labor to enable further development in this area. This also raises the question
Mirko Pešić Sanja Pešić Marija Baban Bulat: FREE MOVEMENT OF WORKERS: THE CASE OF HEALTH CARE WORKERS MIGRATING WITHIN THE EU
of the purpose of the EU’s Internal market that was primarily established for
reducing the differences between the EU Member States.
972
3. HEALTHCARE SYSTEM OF THE EUROPEAN
UNION
The European Union faces disproportionate qualities of the healthcare
system within the Member States, which is the result of the free movement
of healthcare workers. Because of this are, already mentioned, migrations of
healthcare workers and the lack of new healthcare workers. The European
Commission has adopted in 2008 the Green Paper on the European Workforce
for Health, in which is stated that the main problems that the health systems
of EU Member States are faced, is demographic- aging healthcare workers and
lack of newly educated young workers, diversity of healthcare labor force, lack
of public health attractiveness as potential jobs to younger generations, migra-
tions of healthcare workers from and to the European Union, uneven mobil-
ity within the EU, in particular the mobility from the poorest to richer Mem-
ber States of European Union and brain drain (Green Paper on the European
Workforce for Health, 2008). Healthcare worker’s migration has caused global
health problems reflecting on all aspects of society- structural, political, social
and economic (Novakova, 2015). Why does it come to the migration? Main
reasons for leaving the country are inadequate jobs, low income, poor working
conditions, poor infrastructure, and technology, but also poor social awareness
and repressive state apparatus (Novakova, 2015, pp 781). On the other hand,
the reasons for moving into other countries are higher quality education, higher
living standard, better business opportunities and a more sophisticated system
of scientific research (Novakova, 2015, pp 781). Attracting foreign doctors and
nurses presents the lack of will by the host country to predict the need for medi-
cal staff in the future, and that is particularly concerning for short-term cost INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
973
(Eurostat, 2011). What is the reason for this? Namely, the health system re-
Mirko Pešić Sanja Pešić Marija Baban Bulat: FREE MOVEMENT OF WORKERS: THE CASE OF HEALTH CARE WORKERS MIGRATING WITHIN THE EU
quires high qualifications, working conditions are harder, and health wages are
lower than in some other branches of the economy. The European Union, to
prevent the decline in the quality of health care services, should take measures
to encourage education and employment in the healthcare system. Firstly, that
includes investment in healthcare that will provide new technologies that will
enable improving skills for easier personal progress and ultimately the attrac-
tiveness of public health work for younger generations. Furthermore, investing
in new healthcare models will enable complete care for the patient, from hos-
pital care through primary health care and after completion of hospitalization.
We can conclude that the European Union at this level is struggling to deal with
the health system in the same way as the individual Member States, primarily
Croatia. However, for Croatian labor force obviously, there are better opportu-
nities within the European Union because several migrating Croatian health-
care workers are getting bigger. To facilitate the settlement of Member States
with the health problem, the European Commission has adopted guidelines for
joint planning and health prediction related to the following:
• Forecasting workforce needs and improving the methodology for planning
health care workers,
• anticipating the need for specific skills in the health profession,
• sharing experiences on effective attraction and retention of healthcare staff
(European Commission, 2012).
In the first guidelines, the idea is to get on the base of gender, age, knowledge,
and the necessary competencies to make an impression of supply and demand
and make a plan of investing in the education of existing and future healthcare
professionals. Considering other guidelines, the idea is to plan to avoid accumu-
lating unnecessary skills in health workforce that cannot be used in healthcare
because they are either unnecessary or there are too many employees with the
same skills. The third guidelines refer to raising awareness of the healthcare sec-
tor as a sector with a high employment rate.
The guidelines also apply to the countries that receive and to the countries
that deploy the healthcare workforce. How many countries are successful in im-
plementing these guidelines demonstrates the project research that is developed
under the patronage of the European Union - MoHProf (Mobility of Health
974
Professionals) I PROMETHEUS (Health Professional Mobility and Health
Systems) are shown below.
975
291). Analysis of healthcare worker’s movements has been put into order on
Mirko Pešić Sanja Pešić Marija Baban Bulat: FREE MOVEMENT OF WORKERS: THE CASE OF HEALTH CARE WORKERS MIGRATING WITHIN THE EU
sending countries, countries that receive doctors, nurses, and dentists. Within
the European Union, countries that are almost not depending on foreign doc-
tors are Estonia, Slovakia, and Poland; countries that are slightly depending on
foreign doctors are Hungary, Italy, and France (less than 5%); countries that
depend on average rate on foreign doctors are Germany and Finland (6.2%);
Belgium, Portugal, Spain, Austria, and Sweden has high dependence on for-
eign doctors (11.1% - 18.4%); Slovenia, Ireland, Great Britain, and here we can
include Switzerland, have a strong dependence on foreigners doctors (36.8%)
(Health Professional Mobility and Health System, 2011, pp 26). It is particu-
larly interesting to point out that it in the UK and Ireland each third doctor is
a foreigner (Health Professional Mobility and Health System, 2011, pp 26). As
for the dependence on foreign nurses, it is insignificant in Slovakia, low in Spain,
Hungary, France, Finland, Sweden, Germany, Portugal and Belgium, middle
dependent on nurses is Italy, and the biggest dependence shows Great Britain,
Austria and Ireland (between 10% and 47.1%) (Health Professional Mobility
and Health System, 2011, pp 27). Italy, Germany, Spain, Austria, and Portugal,
within the EU15 countries, receive nurses in the largest amount for the home
care services. Here, there is a situation where nurses are working illegally. In that
case, they receive a wage in a foreign country that is many times higher than
those they earned in their home country. This encourages further migrations
from the “east to west” of Europe. Great Britain, first London, is largely ahead of
attracting health care workers across the EU15. It is because Britain has not in-
troduced a transitional period for the freedom of movement of workers for new
Member States (together with Ireland and Sweden). Countries, where there is
a growing number of doctors, are Austria, Sweden, Germany and already men-
tioned, United Kingdom (International Organization for Migration , 2014, pp
29). Western Europe, respectively EU15 countries have far more dependence
on foreign medical labor than EU12 countries.
Among the countries that recorded the biggest entrance of doctors are listed
in absolute numbers Spain, Great Britain and Germany, and when we look at
the total share of the party the healthcare workforce in a given country was then
in the United Kingdom (the share of foreigners among the native 42.6%), Aus-
tria (13.5%), Hungary (4.7%) and Poland (2.7%) (Health Professional Mobil-
ity and Health System, 2011, pp 31). The biggest entry od nurses have reported
976
Italy, followed by the United Kingdom, Italy in totally recorded 28% and UK
14.7% (Health Professional Mobility and Health System, 2011, pp 32).
The largest departure within the European Union is recorded by Estonia,
Hungary, Poland, Romania, Slovakia and Slovenia with a tendency of growth
in Estonia, Hungary, and Romania (Health Professional Mobility and Health
System, 2011, pp 35). On the other side, the EU15 countries also report de-
parture, to a large measure Germany, Austria, Italy and the United Kingdom
(Health Professional Mobility and Health System, 2011, pp 35).
Among the medical staff, medical doctors get far better positions compared
to other medical staff. Regarding the return migration, the most common ones
are those with middle professional qualifications. In other words, these are
those related to nurses, however, for example, there have been records returns
of Spanish doctors from Portugal back to Spain afterward recovery of the Span-
ish economy (International Organization for Migration , 2014, pp 26). Further-
more, Ireland, France, the United Kingdom and Germany are the countries that
receive the most registered healthcare professionals with experience from the
EU12. On the other hand, Italy, Portugal, Spain, Austria, and partly Germany,
are countries that receive unregistered healthcare employees. France and Great
Britain are facing a large number of migration their healthcare workers in the
United States, Canada, and Australia. This is the reason they accept the most
healthcare workers from other countries.
977
Such cases are causing frustrations in countries that receive labor force. On the
Mirko Pešić Sanja Pešić Marija Baban Bulat: FREE MOVEMENT OF WORKERS: THE CASE OF HEALTH CARE WORKERS MIGRATING WITHIN THE EU
other side, they also incur additional costs since such labor power needs to be
further educated to acquire the knowledge and skills needed to work in more
advanced countries. Further, another problem which is occurring is knowledge
of the language. This is a crucial issue when it comes to healthcare. Ireland, for
example, opposed the arrival of nurses from Eastern Europe because of their
insufficient knowledge of English. Member States strive to tackle this prob-
lem by improving communication between the country which sends the labor
force and those who receive it. Namely, the problem is mutual and affects the
health care system of both countries. In one country it comes to the outflow
of labor power and disturbance of function the healthcare system while in the
other country is an increase in the workforce that cannot meet the needs of
the healthcare system. Also, this problem raises the costs within the healthcare
system of both countries. For that reason, an “Internet-based Internal Market
Instrument” was established to facilitate communication between the states.
978
the practice has shown that if there are comings, there are mostly from Bosnia
and Herzegovina, rarely Serbia.
5. CONCLUSION
The health sector of the European Union faces almost the same problem in
all Member States. The difference is just how much a Member State has the po-
tential to attract healthcare workers to reduce the shortage of their own health
labor power and thus solve its own problem of lack of healthcare workers. In
other words, while richer Member States like Great Britain and Germany, lose
their own health care workers who are moving to the United States or Canada,
newer or poorer Member States lose their health labor power that goes to coun-
tries like the UK or Germany. Considering that detailed migration data is miss-
ing, we can only speculate what is the actual scale of movement of medical staff.
It can be clearly concluded that the Member States must take measures in order
to tackle this problem affecting the healthcare system of individual countries
as well as on economy ultimately. One of the measures to solve the problem
is certainly an increased income in the healthcare sector. Another investment
is in improving the quality of healthcare services which automatically leads to
the opening of professional training opportunities for medical staff in carrying
out their work. The European Union is pushing for active policy measures to
solve this an issue. However, the problem is obviously only one, which is either
a lack of financial resources in less developed countries or insufficient willing-
ness of the state to address this problem. In Croatia, there is a problem of the
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
lack of financial resources in the healthcare sector that causes inability to attract
new healthcare labor power in the process of education, and on the other hand,
also causes brain drain with the departure of the healthcare labor power with
existing work experience. Unfortunately, due to the economic crisis that hit Eu-
rope, therefore, Croatia, we are faced with the problem of excessive labor power
migration in general which sometimes does not depend on objective reasons
why individuals would never leave their home country - family, housing, and
likewise. Therefore, if the European Union wants to solve this problem, it has
to put more resources to improve the health system of the newer and more less
wealthy Member States through financing in improving medical equipment and
services and the capacity of hospitals and other health institutions. This will
result in an increase of quality healthcare service that will generate the financial
979
resources with which the state will be able to increase salaries in the healthcare
Mirko Pešić Sanja Pešić Marija Baban Bulat: FREE MOVEMENT OF WORKERS: THE CASE OF HEALTH CARE WORKERS MIGRATING WITHIN THE EU
sector and could result in a way to retain the labor power. In this way, the over-
flow and movement of workers from one member to the other, mostly from
the poorest to the rich, the differences in the quality of the healthcare system
are becoming bigger and it leads to the question of the purpose of the internal
market of the European Union, which was established with the aim of reducing
the differences between the Member States.
REFERENCES
Commission to the European Parliament, the Council, the European Economic and Com-
mission of the European Communities: Green Paper on the European Workforce for
Health, Brussels, 10.12.2008., COM (2008) 725 final. Countries, 2011.
Directive 2004/38 / EC of the European Parliament and of the Council of 29 April 2004.
About the law of citizens of the Union and members of their families on freedom
of movement and residence on the territory of the State Member States amending
Regulation (EEC) No 1612/68 and repealing73 / EEC, 75/34 / EEC, 75/35 / EEC,
72/194 / EEC, 90/364 / EEC, 90/365 / EEC and 93/96 / EEC, Official Journal 158,
30.04.2004.
Eurofound (2013.) Mobility and migration of healthcare workers in central and eastern
Europe European Commission (2012.) Commission staff working document on an
Action Plan for the EU Health Workforce Accompanying the document Communica-
tion from the Eurostat (2011) NACE Rev. 2 Categories 86&87
Garcia Perez, M., Amaya, C., Otero, A. (2007.) Physicians’ migration in Europe: an overview
of the current situation [available at https://bmchealthservres.biomedcentral.com/ar-
ticles/10.1186/1472-6963-7-201, access February 22, 2018]
Goldner Lang, I. (2007.) Freedom of Movement of People in the EU, Školska knjiga, Za-
greb, 2007.
Health Professional Mobility and Health Systems, Evidence from 17 European Internation-
al Organization for Migration (2014.) Mobility of Health Professionals to, from and
within the European Union, Geneva, 2014.
Novakova, M. (2015.) Migration of Health Workers in the EU, ISBN 978-80-87927-08-3,
IISES, 15th International Academic Conference, 15 April 2015, Rome
Regulation (EU) No. 492/11 of the European Parliament and of the Council of 05.04.2011.
free up movement of workers within the EU, Official Journal L 141, 27.05.2011.
Social Committee and the Committee of the Regions Towards a Job Rich Recovery, Stabili-
zation and Association Agreement between the Republic of Croatia and the European
Union the Community and their Member States, 2007.
SWD (2012) 93 final, Strasbourg, 18.04.2012.
Treaty on the Functioning of the European Union (consolidated version), Official Journal of
the European Union, 2016, C 202/1
980
Law and
Economics
REDUCING THE TAX COMPLIANCE
GAP BY IMPROVING TAX
ADMINISTRATION
Abstract
In light of the fact that the state puts upon taxpayers (natural persons and legal
persons) obligation to pay taxes and subsequently intervenes in their personal
life by diminishing their economic strength and in that way affects tax compli-
ance, there has been a need to apply certain measures of fiscal policy by deter-
mining particular principles of taxation. These principles of taxation represent
guidelines for the state, for the bodies of public administration, especially Tax
Department. Also the principles that are incorporated in tax system depend
on the state in question, but once incorporated they should be properly executed
through the implementation of particular tax, where the crucial role belongs
to Tax Department. The administrative aspect of taxation must always be
considered when analyzing tax policy, alongside the design of taxes. Tax au-
thorities (i.e. Tax Department) are the bodies responsible for administering the INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
tax laws of a particular country or regional or local authority. They perform
various tasks, often referred to as ‘core functions’, including: identification and
registration of taxpayers, filing and payment of taxes, collection and recovery
of taxes, audit and investigation, and dispute resolution. The paper is going to
show the organization scheme of tax authorities in the Republic of Croatia and
the effect that the work of the Tax Department has on tax compliance.
Key words: Tax Department, Tax Compliance, Republic of Croatia, prin-
ciples of taxation
JEL Classification: : H20, H26
983
1. INTRODUCTION
The administrative aspect of taxation must always be considered when ana-
lysing tax policy, alongside the design of taxes. Tax authorities are the bodies
responsible for administering the tax laws of a particular country or regional
or local authority. They perform various tasks, often referred to as ‘core func-
tions’, including: identification and registration of taxpayers, filing and payment
of taxes, collection and recovery of taxes, audit and investigation, and dispute
resolution. Tax administration refers to the set of measures, procedures and sys-
tems that a tax authority uses to collect the taxes due under national legislation
in the most effective way and at the lowest administrative and compliance costs.
Tax authorities are not, however, the only body with a role to play in tax col-
lection, but are part of a larger network. In many countries, tax intermediaries
and professionals help businesses and individuals with the preparation of their
tax returns. IT providers also play a role, by developing the tools and systems
Emina Jerković: REDUCING THE TAX COMPLIANCE GAP BY IMPROVING TAX ADMINISTRATION
needed for the tax collection process itself. The paper analyses Tax Administra-
tion in the Republic of Croatia with its advantages and disadvantages and how
the problem of compliance gap can be reduced by improving the work of Tax
Administration of not just the Republic of Croatia, but the EU aswell.
2. INTRODUCTION TO TAXATION PRINCIPLES
By the fact that the state imposes the payment of taxes as an obligation to
both physical and legal persons and in this way enters into their private life by
reducing their economic strength, there is a need for applying certain tax poli-
cy measures through the task of identifying certain principles that will govern
the state at the time of the very act of taxation. Often, these principles are not
harmonized and there may be situations when they even exclude each other.
However, the principles once included in the tax system should, to the greatest
extent possible, be tried and accomplished. It is impossible to view and analyze
only one tax form at a time to see the whole picture but the tax system should
be viewed as a whole.
Taxation principles are closely related to tax goals that can be numerous and
are very often in collision. Also, the principles need not be rigid and narrowly
observed, but through the development of society, the development of the state,
the development of public needs. Requirements set before the tax system de-
pend on a large number of factors (such as time and territory eg), and also on
the goals that taxation seeks to achieve. The principles that a particular country
984
will incorporate into your tax system will also depend on the state itself. We
thus differentiate the tax systems of federated states and unitary states, socialist
states and capitalist states, developed states and developing countries, or transi-
tion countries that are particularly interesting to us to observe.
Much attention has been paid throughout history to the creation of prin-
ciples that must be observed in taxation. Opinion on this issue was manifested
by many excellent philosophers such as Turgot, Vauban, Montesquieu, Law,
Hume, Mill. However, as most important, we can name Adam Smith and
Adolph Wagner.
985
payer for goes his purchasing power and makes a sacrifice at the time of pay-
ment of tax hence the Government should see that the tax payer suffers no
inconvenience.
4. Canon of Economy. This principle suggests that the cost of collecting tax
should be the minimum so that a major part of collections may bring to the
Government treasury. If the administration expenses in the collection of taxes
consume a major portion of tax revenue collected; it cannot be said to be a good
tax system.1
In the words of Adam Smith-“Every tax ought to be contrived as both to take
out and keep out of pockets of the people as little as possible over and above what
it brings, into the public treasury of the State”. ( Jelcic et al., 2008: 177)
The fourth canon sets a justified requirement for the administration to pay
taxes as efficient as possible to make the inflow of money as big as possible. As
Emina Jerković: REDUCING THE TAX COMPLIANCE GAP BY IMPROVING TAX ADMINISTRATION
far as the tax system of Croatia is concerned, we are talking about the omis-
sion of the satisfaction of the fourth canon. The fact that taxing an extremely
complex job is not facilitated by the power of laws and regulations and subor-
dinate acts that fully cover the entire taxation matter. The implementation of
the taxation process itself is extremely complex and complicated, and frequent
occurrences such as tax evasion or more specifically fraud, both full and partial.
1
http://www.knowledgiate.com/canons-of-taxation/
986
funds entering the state treasury so that the state can meet its obligations. If the
procedure for collecting a certain tax is expensive in the amount that exceeds the
amount of taxed funds, it is definitely a problem or justification for introducing
this tax form into the tax system or we may look for a problem in the functioning
of the tax administration itself. It may happen that the tax revenue is low or that
the costs of collecting it are high, but the fact that a particular tax form has been
introduced into a tax system for some purpose other than a fiscal (eg pedagogical
goal, ecological goal) compensates for its low fiscal impact and abundance.
There are several ways to realize the principle of cheap tax collection. The
first way is to reduce the costs of redeeming through the restructuring of the tax
administration itself (employee structure, better organization of work, techni-
cal conditions etc.), whereby this principle does not collide with other taxation
principles.
The other way involves changes within the tax system itself, where collapse
may arise with other taxation principles. This way, there is a reduction in the
difference between gross and net collected taxes so that a) reduces the number
of tax forms; b) reduces the number of tax reliefs and exemptions; c) organizes
a division, collection and tax collection service; d) tax. ( Jelcic et al., 2008: 201)
When it comes to taxation in the Republic of Croatia, it should be empha-
sized that the very fact of the existence of a large number of tax forms, and
consequently the higher tax rates, as well as a great deal of relief and exemption,
does not favor the principle of collection.
987
1. District office of City of Zagreb
2. District office of Central Croatia with head office in city of Karlovac
3. District office of Northern Croatia with head office in city of Varaždin
4. District office of Slavonia and Baranja region with head office in city of
Osijek
5. District office of Istra, Hrvatsko primorje, Gorski kotar and Lika region
with head office in city of Rijeka
6. District office of Dalmatia region with head office in city of Split
7. District office for big taxpayers for the whole territory of Croatia (Na-
tional District Office).2
At the bottom of the pyramid there are 57 branch offices located in the cities
or municipalities.
Emina Jerković: REDUCING THE TAX COMPLIANCE GAP BY IMPROVING TAX ADMINISTRATION
988
- analyzes data on accrued and charged taxes, contributions and other public
benefits and plans tax revenue;
- provides the collection and enforcement of taxes, contributions and other
public grants; monitors and analyzes the application of tax regulations and
tax systems in the EU member states and participates in the work of the
institutions of the European Union;
- profiles and processes data through a unitary information system;
- advocates the improvement of the tax system and tax policy;
- cooperates extensively with the public law bodies carrying official records;
- can perform the tasks of recording, determining, controlling, collecting and
enforcing revenue from local and regional self-government units as well as
other public grants;
- enforces execution for the collection of budget revenues whose determina-
tion and collection within the scope of other organizational units of the
Ministry is forfeited for the payment of other public grants on the request
of public bodies and courts in accordance with special regulations;
- follows other duties assigned to it under special regulations.
The Tax Administration in the performance of its business activities coop-
erates with the Financial Police. The Croatian National Institute for Health
Insurance, the Croatian Pension Insurance Institute, the State Attorney’s Of-
fice, other judiciary bodies, local and regional self-government bodies and other
bodies with public authority and work on determining, collecting and control-
ling public revenues.
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
With most tax authorities facing significant reductions in human resources
and operational budgets, there is a clear need to improve efficiency. Further-
more, in both the EU and global markets, Member States’ tax authorities have
become increasingly dependent on each other in the area of tax collection. In
particular, they have shared responsibility for ensuring correct tax collection in
all Member States. In view of this, improving the effectiveness of the tax admin-
istration system has become more important than ever.
4. ePOREZNA
The unique portal of the Tax Administration (ePorezna-JPPU) is the cen-
tral place where taxpayers can access the electronic services of the Tax Admin-
989
istration. The one-stop-shop principle has been fulfilled with establishing this
unique portal of the Tax Administration. Through this system, Tax Admin-
istration will improve business processes using information technology and
reduce compliance costs.(Strategy of the Tax Administration for the period
2016-2020, Ministry of finance, Tax Administration, Zagreb 2016) Available
services include the management of taxpayers’ information, receipt of docu-
ments, submission of forms and requests and many other services.
Through the ePorezna-JPPU system, citizens (taxpayers, contribution pay-
ers etc.) can quickly and easily use Electronic Tax Administration services at
any time and from anywhere. The use of the application is safe, and the confi-
dentiality and inviolability of the data is guaranteed.
Through the ePorezna-JPPU system taxpayers and authorized taxpayers
can efficiently:
Emina Jerković: REDUCING THE TAX COMPLIANCE GAP BY IMPROVING TAX ADMINISTRATION
3
https://e-porezna.porezna-uprava.hr/Pages/Ousluzi.aspx
990
Through ePorezna-JPPU users can fill in, sign and send electronic forms.
Likewise, by adapting its accounting programs, it is possible for the user to open
previously generated files from the accounting software into the ePorezna-JP-
PU application, signing and sending the same.
The increasing trade flows, greater capital mobility and changing trade pat-
terns within the EU and with non-EU countries mean that both tax authorities
and business need to take a different approach to tax management and admin-
istration. Moreover, globalisation has highlighted the importance of preventing
fraud and tax evasion. The existence of different tax systems and procedures
in different countries create an opportunity for tax fraud and non-compliance,
especially where there is a lack of cooperation and communication between tax
authorities.
Tax evasion is process of attempting to avoid paying taxes, which occurs
before or at the time of billing. It can be legal when avoidance of tax payment
991
does not bring the taxpayer in conflict with the law, e.g. changing the place of
residence or doing business in order to reduce the tax (tax oasis and haven);
reducing consumption; by finding gaps in the law, in some countries by estab-
lishing a foundation (indirect and immediate benefit). In many developed coun-
tries, through the concept of legal tax evasion, a whole new profession has been
developed that deals with tax planning or planning to settle a tax liability in a
way that the legal tax evasion- tax avoidance does not pass into illegal tax eva-
sion. Tax lawyers, accountants who worry about tax related issues and sellers
of tax-advantaged investments make tax planning a major industry. (Hall &
Rabushka, 2007, 27)
Tax evasion can be illegal when a taxpayer comes into conflict with the law,
and there are two basic forms:
1. defraudation - a conscious act or omission of a taxpayer’s action with the
aim of avoiding the payment of direct taxes (tax evasion). It can be full
Emina Jerković: REDUCING THE TAX COMPLIANCE GAP BY IMPROVING TAX ADMINISTRATION
or partial.
2. contraband - illegal acts to avoid indirect taxes. The sanctions are related
to the amount, and the penalties are very high. The forms are:
- inadmissible acts in internal traffic (eg, keeping inaccurate records, issuing
incorrect invoices),
- illegal activities in the movement of goods abroad (eg avoidance of customs
duties),
- smuggling of prohibited or restricted traffic (eg traffic of various kinds
of drugs). (Srb & Perić, 2004, 55-56) Both types represent a violation of
legal regulations, are a criminal offense and punishable by money and /or
imprisonment. Insufficient expertise, conscientiousness and objectivity of
the tax administration as well as its relationship with taxpayers (arrogance,
vexation, inscrutability, etc.) have an impact on the tax evasion. ( Jelcic et
al., 2008)
Businesses are under pressure to cut costs, in order to be able to compete on
internal and global markets. At the same time, pressure on tax revenue, mean-
while, has obliged tax authorities to improve the administration of the tax sys-
tem, in order to encourage compliant behaviour by taxpayers. These consider-
ations apply to both direct and indirect taxes, and particularly to VAT, which
is a major source of revenue for Member States. Furthermore, the pressure on
992
government budgets, resulting in particular from the financial crisis and its af-
termath, is unlikely to ease in the near future. Tax authorities are therefore likely
to come under significant pressure in the coming years.
993
Tax authorities are responsible for managing a range of different risks, such
as the risk of noncompliance, including of tax fraud, and the risk of insolvency
on the part of the taxpayer. Compliance risk management strategies involve
finding ways to address these risks by analysing the behaviour of taxpayers, and,
in particular, how their behaviour gives rise to these risks. An effective tax com-
pliance policy should include a balanced mix of preventive and corrective mea-
sures, ranging from information and advisory services to law enforcement mea-
sures. The measures should be chosen on the basis of a risk assessment. Equally
importantly, tax compliance policies should aim to build confidence in the tax
administration system and trust between the taxpayer and the tax authority.
(Tax Reforms in EU Member States 2015, Tax policy challenges for economic
growth and fiscal sustainability, European Commission, 75)
Whereas in the past, tax authorities relied heavily on enforcement and pun-
ishment, a balanced tax compliance approach is now becoming more and more
Emina Jerković: REDUCING THE TAX COMPLIANCE GAP BY IMPROVING TAX ADMINISTRATION
popular worldwide. One of the main problems of the taxpayers is the lack of
uniformity in the treatment of tax bodies and arbitrary interpretation of the
law and taxation principle, which is the consequence of mistrust in the tax au-
thorities and the feeling of unfairness, which is especially evident in the tax su-
pervision procedure experienced by the “collector of taxes and penalties”. (Rogić
Lugarić, 2012: 517) so the elements of the tax law instead of the financial law
are classified as part of the criminal law, whereby a sense of trust between the
tax authorities and the taxpayers is disturbed. A number of seminars and work-
shops organised by the Commission have helped to raise awareness of new de-
velopments in this field. The core principle emphasised is that a tax compliance
strategy should balance preventive and corrective measures, in such a way as to
ensure that taxpayers fulfil their tax obligations.
One of the essential features of preventive measures is that they facilitate
tax compliance by providing services to taxpayers. The aim of these measures
is to promote voluntary compliance and prevent tax avoidance and evasion by
making it as simple as possible to pay taxes. This type of measure is generally
thought to be effective in ensuring correct tax payment by taxpayers who are
willing to be compliant, but struggle with the practicalities of paying their taxes.
For taxpayers who purposefully try to avoid paying taxes, however, enforcement
measures are needed. These measures are designed to force taxpayers to pay
the taxes they owe, and involve checking whether the taxpayer has properly re-
ported his tax obligations and paid the tax due.
994
Of particular interest are recent improvements seen in the level of trust be-
ing developed between taxpayers and the tax authorities. Social norms can help
to increase compliance among taxpayers and to build trust between taxpayers
and tax authorities. The quality of tax administration and of the provision of
public goods can help to increase voluntary compliance, reduce tax evasion and
ultimately increase tax revenue. In its latest report on the issue, the OECD finds
that that the importance attached to cooperative compliance has increased in re-
cent years and it has now become established practice in a number of countries
to take steps to improve cooperative compliance as part of tax policy. The suc-
cess of cooperative compliance programmes depends very much on staff having
the commitment and level of training necessary for the programmes to be suc-
cessfully implemented. There is also evidence that transparency and disclosure
on the part of businesses is increasingly considered to be an important part of
tax compliance systems, as it can reduce uncertainties for both tax authorities
and taxpayers. (Tax Reforms in EU Member States 2015, Tax policy challenges
for economic growth and fiscal sustainability, European Commission, 76)
It is difficult to assess how well EU tax authorities are performing. This is
not due to lack of data on the results achieved by Member States’ tax authori-
ties per se: in most cases, tax authorities report extensively on the results of
their activities, e.g. in annual reports and through press releases. Comparative
data, however, remain scarce: ‘the absence of comparable data across countries
on tax administration has made the comparative analysis of tax agencies (al-
most — author’ note) impossible’ This gap has been filled, to some extent, by
a comparative report on tax administration published by the OECD Forum
on Tax Administration.4 It provides reference data on the main aspects of tax INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
administration, including organisation, strategic and human resources manage-
ment, resources, operational performance, services, the relationship between tax
authorities and intermediaries, and the overall legal framework within which
tax authorities operate.5 The OECD compiles the report largely on the basis of
data gathered during its own survey of tax authorities. Other sources used in-
clude annual reports produced by tax authorities and the Commission’s report
on VAT collection and inspection.(Tax Reforms in EU Member States 2015,
4
This report is now in its sixth edition.
5
Although the report is primarily designed to assess the tax authorities of OECD member coun-
tries, the 2015 edition nonetheless covers all EU Member States, including those that are not
OECD members.
995
Tax policy challenges for economic growth and fiscal sustainability, European
Commission, 76)
Data on the cost of collecting taxes may be considered as a rough proxy
indicator of the institutional performance of a tax authority. The assumption
is that taxpayers tend to have greater trust in an organisation that is perceived
to be efficient and effective in performing its duties. The cost of tax collection
is generally calculated as the ratio of the annual administrative costs of the tax
authority to the total tax revenue collected, net of refunds, in one fiscal year. For
example, in the United States of America estimation is that the total costs of the
federal tax system make 65% of actual collections. (Hall & Rabushka, 2007, 10)
Almost all Member States’ tax authorities calculate and publish this ratio
in their annual reports. The OECD regularly records these data and publishes
them as part of its report on tax administration.
Emina Jerković: REDUCING THE TAX COMPLIANCE GAP BY IMPROVING TAX ADMINISTRATION
The data published in the 2015 OECD report show the average cost of tax
collection in the EU to be EUR 0.97 (or other national currency) per 100 units
of revenue in 2013. On the basis of this information, the tax authorities in Po-
land and Slovakia, Germany, the Czech Republic, Bulgaria and Romania stand
out as having relatively high costs of revenue collection. (Tax Reforms in EU
Member States 2015, Tax policy challenges for economic growth and fiscal sus-
tainability, European Commission, 76)
Given that tax authorities are being required to ‘do more with less’, it is im-
portant that governments invest in making the tax administration system more
efficient and effective. All tax authorities will need to be ready to face this chal-
lenge, and to adapt to their changing environment. New technologies, for ex-
ample, will allow them to develop more sophisticated systems for online tax ad-
ministration, which will offer taxpayers more online services and make it easier
to spot and avoid mistakes. The Republic of Croatia has made this big step by
introducing portla ePorezna to the public.
Five criteria are used to identify which Member States have a particular need
and scope to make tax collection more efficient and effective. The five crite-
ria considered to indicate a possible weakness in tax collection systems are as
follows:
996
1. undisputed tax debt as a proportion of net revenue, with a level signifi-
cantly above the EU average signalling a possible weakness in enforce-
ment of tax policy;
2. the proportion of tax returns filed online, with a level significantly below
the EU average signalling a possible weakness in the services provided by
tax authorities;
3. use of pre-filled tax returns, with, again, a low level of use being indicative
of poor service;
4. the administrative burden placed on an SME by the tax system, a high
burden suggesting weaknesses in the services provided by the tax authori-
ties; and
5. the cost of tax collection, used as a proxy of tax administration efficiency,
high costs thus potentially indicating inefficiency. (Tax Reforms in EU
Member States 2015, Tax policy challenges for economic growth and fis-
cal sustainability, European Commission, 77)
It should be noted that some Member States have introduced reforms since
the period to which these indicators refer.
A Member State may need to improve its overall performance in tax ad-
ministration if it is found to have scope for improvement in at least four of the
five areas, or in the last three — the level of undisputed tax debt, the burden of
paying taxes and the cost of revenue collection – this indicating a weakness in
all three aspects of tax administration (enforcement of tax policy, the services
provided by the tax authorities and efficiency of tax administration). The Mem-
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
ber States identified as potentially needing to improve their overall performance
in tax administration are thus Bulgaria, Czech Republic, Germany, Poland and
Slovakia. As stated in previous years’ reports, it is important to emphasise that
this initial screening may not identify all the countries that have particular
scope for improving their tax administration. Weaknesses in some countries’ tax
administration may only be able to be identified using country-specific informa-
tion, often of a qualitative nature. (Tax Reforms in EU Member States 2015,
Tax policy challenges for economic growth and fiscal sustainability, European
Commission, 78)
997
6. CONCLUSION
Every county strives to ideal (ie rational) tax system, but it is not possible.
Each and every tax system is sort of chaos or anarchy. And these sorts of cha-
otic tax systems should be adequately accompanied with further education and
perfection of knowledge of tax administrators. Practice shows that successful
application of tax regulations largely depends on the appropriate degree of edu-
cation and the adequate motivation of tax officials and their responsible relation
to the performance of work obligations, while neither the working conditions
nor the equipment needed and above all with modern office equipment are not
negligible. Tax administrators should perfect their knowledge not just about
taxation, tax forms and procedures and tax law as a whole. Tax Administration
is an interdisciplinary organization which deals with other revenue, like social
contributions as well. Also when the Republic of Croatia joined EU and even
before, there was a need for tax harmonization. Croatian tax system is and was
Emina Jerković: REDUCING THE TAX COMPLIANCE GAP BY IMPROVING TAX ADMINISTRATION
998
This makes the work of Tax Administration inconsistent. It is also important to
note the objectivity and the relationship of tax officials to taxpayers is affected
by the fact that tax officials work for the same time with the same taxpayers
or their services are performed in smaller environments, therefore due to the
unavoidable close personal interrelations, familiarity and kinship, execution of
the taxpayer’s obligation to pay taxes. There is an open question how to avoid
informal relations in formal legal issues in tax procedures. It is the task of the
Tax Administration to harmonize the practice of binding tax decisions, rather
than to obtain the different taxation decisions for one taxation problem in the
different branch offices of Tax Administration. This is also contributed by the
inadequate organization of the tax service as well as the lack of a number of tax
officials combined with potential defective expertise which can result in unsuc-
cessful execution of tasks and entrusted tasks.
Tax Administration is of great importance when it comes to any and every
tax reforms which are very common and frequent. At the same time Tax Ad-
ministration should have advisory function and help taxpayers with its advice
related to taxation and social contributions.
One of the biggest problems is the working hours of Tax Administration
which was partially annulled with portal ePorezna. The one-stop-shop prin-
ciple has been fulfilled with establishing this unique portal of the Tax Adminis-
tration ePorezna-JPPU. Through this system, Tax Administration will improve
business processes using information technology and reduce compliance costs.
Also, voluntary compliance must be recognized as a value and appreciated as
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
responsible behaviour. The more taxpayers voluntarily meet their tax liability,
costs are getting lower because Tax Administration won’t have to perform costly
procedures of audit or enforced collection. To achieve this goal Tax Administra-
tion has to work continually to raise awareness in society as a whole that paying
taxes benefits the whole society and not just the individuals.
REFERENCES
Hall, R. E. & Rabushka, A.(2007). The Flat Tax, Second Edition, Hoover Institution Press,
Stanford University, Stanford, California ISBN-10 0-8179-9312-6
Jelčić, B.; Lončarić-Horvat, O.; Šimović, J.; Arbutina, H; Mijatović, N. (2008). Financijsko
pravo i financijska znanost, Narodne novine d.d., Zagreb ISBN 978-953-234-107-2
999
Rogić Lugarić, T. (2012), O odnosu između poreznih tijela i poreznih obveznika-hrvatska
i usporedna iskustva, Zbornik radova 2. Međunarodne konferencije Razvoj javne up-
rave, Veleučilište Lavoslav Ružička u Vukovaru, Vukovar ISBN 978-953-7734-05-3
Srb, V. & Perić, R. (2004). Javne financije, Grafika, Osijek UDK 336.1/.5(075.8)
Tax Reforms in EU Member States 2015, Tax policy challenges for economic growth and
fiscal sustainability X/2015, European Commission, Luxembourg: Office for Official
Publications of the European Communities, ISBN 978-92-79-51181-3
Law on Tax Administration Narodne novine 115/16
STRATEGY OF THE TAX ADMINISTRATION FOR THE PERIOD 2016 – 2020,
Ministry of finance, Tax Administration, Zagreb 2016 [available at: http://www.
porezna-uprava.hr/en/Documents/Strategy%202016-2020%20final.pdf ] Access:
(20-3-2018)
http://www.knowledgiate.com/canons-of-taxation/ Access: (27-3-2018)
http://www.porezna-uprava.hr/HR_o_nama/Stranice/TeritorUstroj.aspx Access: (23-3-2018)
https://e-porezna.porezna-uprava.hr/Pages/Ousluzi.aspx Access: (23-3-2018)
Emina Jerković: REDUCING THE TAX COMPLIANCE GAP BY IMPROVING TAX ADMINISTRATION
1000
ECONOMIC ANALYSIS OF ECJ
JUDGEMENT IN JOINED CASES
C503/13 & C504/13: PRODUCT
RECALLS REGARDING MEDICAL
DEVICES
1001
uated by the economic outcomes of the altered control effect. In this paper, the
efficiency effects of liability rules regarding product liability are analyzed. The
Winona Wenning Nenad Rančić Ozren Pilipović: ECONOMIC ANALYSIS OF ECJ JUDGEMENT IN JOINED CASES C-503/13 & C-504/13: PRODUCT...
product recall of implanted medical devices as in the ECJ Judgement from 5th
March 2015 in the joined cases C-503/13 and C-504/13 is examined in
detail. Contrary to the economic considerations, health protection is pursued
with the Product Liability Directive. Though the ECJ extended the liability
only to recalls, necessary due to the devices’ particular danger. A general recall
obligation was explicitly not implemented, but the judgment introduced the
opportunity to stipulate a recall obligation on a case-by-case basis. The ad-
ditional incentives set by contractual liability and tortious producer liability
were not within the scope of the analysis. A multi-level precaution model could
include precautionary measures while development, production, and monitor-
ing of products. Other measures as a producers’ obligation were not examined.
The liability for a defect-free device, influencing the level of harm and the recall
costs in the model, was excluded too. A need for further research in that subject
remains.
Key words: EU Product Liability Directive, EJC judgment C-503/13 &
C-504/13, precautionary principle, unilateral precaution model
JEL Classification: K15, K22
1. INTRODUCTION
The risk of adverse consequences is an indispensable part of performing
every socially beneficial activity, and it can be eliminated completely only by
discontinuing these activities. As an alternative, the social cost of risky activi-
ties can be minimized by a reasonable investment in precautionary measures
(Miceli, p. 16.), as required by the precautionary principle. Development of the
precautionary principle began its path explicitly within the framework of Ger-
man social and legal thought associated with environmental protection in the
1970s. Initially, it appeared as a guideline in the “background”, i.e. the general
guideline for the implementation of an environmental protection policy, but
over time it has been transformed into a binding legal norm, extending to the
area of human health and safety. However, since it is a relatively new concept,
certain issues remain undefined, especially regarding the various formulations
and the practical application of the precautionary principle. The precautionary
principle in the last four decades has been incorporated into the legal system of
1002
many countries, as well as the legal system of the European Union, especially in
the field of human and environmental health and safety protection as well as in
the risk analysis and liability rules for damages in that area. By observing dif-
ferent examples of precautionary principles we can note that there is not yet a
generally accepted model of incorporating precautionary principles into already
existing plans and programs of health and environment protection, nor its role
is fully specified and interpretation in making new. Instead, they are regularly
ad-hoc defined, or seek, more precisely in the relevant documents that refer to
the principle of precaution only. This fact, arising from its generality, on the one
hand, contributes to universal acceptance as well as the scope of the precaution-
ary principle ( Jordan & O’Riordan, 1999, p. 16-33), but on the other hand it
opens a wide space for potential abuse and arbitrary decision-making motivated
by various political and economic interests. Due to their „inciting power (Ad-
ams, p. 149) liability rules are able to influence individuals’ behavior. Altering
liability rules also alters their control effect. Such decisions of legislature or judi-
cature can be evaluated by the outcomes of the altered control effect. This paper
shall analyze the efficiency effects of liability rules regarding product liability.
The product recall of implanted medical devices as in the ECJ Judgment from
5th March 2015 in the joined cases C-503/13 and C-504/13 (ECJ C-503/13
and C-504/13 – Boston Scientific Medizintechnik ./. AOK Sachsen-Anhalt/Be-
triebskrankenkasse RWE (ECJ Boston Scientific ./. AOK)1 will be examined.
1
European Court of Justice (2015). Judgment of the Court (Fourth Chamber) of 5 March 2015.
Boston Scientific Medizintechnik GmbH v AOK Sachsen-Anhalt – Die Gesundheitskasse and
Betriebskrankenkasse RWE. Requests for a preliminary ruling from the Bundesgerichtshof. Refer-
ence for a preliminary ruling — Consumer protection — Liability for damage caused by defective
products — Directive 85/374/EEC — Articles 1, 6(1) and section (a) of the first paragraph of
Article 9 — Pacemakers and implantable cardioverter defibrillators — Risk of product failure
— Personal injury — Removal of the allegedly defective product and replacement with another
product — Reimbursement of the costs of the operation. Joined Cases C-503/13 and C-504/13.
1003
on two similar proceedings of German national courts: A pacemaker and im-
plantable cardioverter defibrillators (ICD) producer’s quality control system
Winona Wenning Nenad Rančić Ozren Pilipović: ECONOMIC ANALYSIS OF ECJ JUDGEMENT IN JOINED CASES C-503/13 & C-504/13: PRODUCT...
each established that certain product types were manufactured with a deficient
component. This deficient component may lead to full or partial functional in-
capacity of the pacemaker or ICD. (ECJ Boston Scientific./. AOK, m.n. 13-
14, 19.) Consequently, the producer recommended replacing them with free
replacement devices. (ECJ Boston Scientific./. AOK, m.n. 14-15.) For ICDs
it was recommended to deactivate a particular feature, what restricts the func-
tionality without constituting a danger to the patient’s life or physical well-being
(ECJ Boston Scientific./. AOK, m.n. 19, 27.) The statutory health insurance,
based on the patient’s devolved rights, sought compensation for the costs of the
necessary surgery replacing the potentially defective devices (ECJ Boston Sci-
entific ./. AOK, m.n. 17, 23.).
It was uncertain if the definition of a defect in Article 6 of Product Liability
Directive can be extended to solely potentially defective products. Furthermore,
it was to decide if the producer is liable for the costs of the reimplantation2 con-
stituting damage caused by personal injury under Article 1 and Article 9 (1a) of
Product Liability Directive. In principle, the preliminary ruling provides the op-
portunity to treat solely potentially defective products as defective (equalization
thesis) (Wagner, 2016, p. 292, 294) covered by product liability, thus holding
the producer liable for a potential defect that is not realized yet (ECJ Boston
Scientific./. AOK, m.n. 41, 43, 54-55.)
It remains uncertain which risk threshold the potential defect must exceed
to equate an actual defect (Wagner, 2016, p. 292). Also, it is criticized that the
costs of a voluntary reimplantation surgery are qualified as the damage caused
by personal injury due to a product defect.3 Producers, who acquire new infor-
mation regarding the danger of their products after placing them on the market,
might recall them to avoid damages and accompanying damage claims. Within
the recall, producers can inspect individual products and replace or repair de-
fective ones. Considering implanted medical devices several difficulties arise:
To execute an equivalent recall, reimplantation and an immediate replacement
2
The costs of a reimplantation include the cost of the surgery composed by explantation and an-
other implantation. The costs of a new product are not included. The submitted question explicitly
refers to the costs caused by surgery, while the costs of a new device are not thematized.
3
For more details see: Wagner, 2016, p. 292, 299; reviewing the different approaches in the critical
literature.
1004
are necessary. A previous inspection of individual devices regarding the possible
defect is not possible. It equals voluntary or obligatory recalls by civil law, when
the producer decides to bear the reimplantation costs or the product liability
imposes the costs on him.
3. LEGAL FRAMEWORK
Since this paper is based on the preliminary ruling ECJ Boston Scientific ./.
AOK the liability based on the Product Liability Directive and its national
transposition – the Product Liability Act (German Product Liability Act: Act
on Liability for Defective Products (ProdHaftG) – will be examined. Further
civil claims, criminal law, and public law are excluded.
4
The terms manufacturer or producer liability are used synonymy since they are the liable parties.
However, sometimes non-producing parties are also liable. Therefore, the term product liability
will be used in line with the Product Liability Directive and the ProdHaftG.
5
The customer’s contractual entitlement for a defect-free product is regulated by sales law. Compen-
sation for damage to the product itself is regulated in § 823 I BGB. However, we will not examine
whether the producer is liable for a defect-free product outside the framework of product liability.
1005
is defective when it does not provide the safety which one is entitled to expect,
considering all circumstances. The first question submitted by the German Fed-
Winona Wenning Nenad Rančić Ozren Pilipović: ECONOMIC ANALYSIS OF ECJ JUDGEMENT IN JOINED CASES C-503/13 & C-504/13: PRODUCT...
eral Court of Justice (BGH) refers to the definition of defect: Is a product, that
cannot be examined, deemed to have a defect is suspected to be defective? In
accordance with the equalization thesis, this is the case. Therefore, producers
of implantable devices shall be liable, when the suspected defect cannot be veri-
fied prior to a reimplantation. But, in the first place, there must be any dam-
age the producer can be held responsible for. Regarding the case, the potential
defect did not yet cause the device’s failure the definition of damage is crucial:
Answering the second question submitted the ECJ ruled, that the costs of reim-
plantation necessary to replace a device adjudged defect are damage caused by
personal injury as per Article 9 (a) Product Liability Directive, § 1 ProdHaftG.
Thus, producers can be liable to pay compensation for reimplantation.
The use of the term recall in the German everyday language is as inconsis-
tent as in the legal literature. It can be broadly defined as all “possible measures
avoiding, eliminate or reduce the threats originating from dangerous products”
(Bodewig, 1999, p. 13.). The German Federal Court of Justice and the prevail-
ing theory in literature do not qualify mere warnings or information messages
as a recall (BGHZ 179, 157, m.n. 11; Kreidt, 2006, p. 135; Foerste & v. West-
phalen, 2012, § 24, m.n. 326; Rettenbeck, p. 1994, 15; Rolland, 1990, Teil II
m.n. 49; Sack,1985, p. 813, 817). Based on this we can define the recall as the
request to return a defective product to the producer to prevent damages (Foer-
ste & v. Westphalen, 2012, § 24, m.n. 326; Rettenbeck, 1994, p. 15). The per-
formance provided by the producer (Rettenbeck, 1994, p. 15) shall not include
a defect-free device as the product liability does not (see footnote 4).
Considering the Product Liability Directive and its implementation, the
Product Liability Act, a categorical obligation to monitor products which then
could result in mandatory warnings or recalls, cannot be found (Bodewig, 1999,
p. 111; Brüggemeyer & Reich, 1986, p. 149, 155; Taschner & Frietsch, 1990,
RL Art. 1, m.n. 8; Wagner, 2016, p. 292, 293). The producer is liable for the
costs of debugging only if – due to special circumstances - they qualify as a
damage caused by a defect (ECJ Boston Scientific./. AOK, m.n. 57). Recall
costs certainly fall in the category debugging costs as well, so that reversely we
can presume the ECJ neither adopts a categorical obligation to recall within
the civil law. National legislation such as the recall obligation by civil law with
the tortious producer liability under the terms of § 823 I BGB are not affect-
1006
ed (Bodewig, p. 112-113.) Producers of a defective product are not generally
obliged to recall these within the scope of the Product Liability. However, ac-
cording to the ECJ, the producer has “to restore the level of safety which a per-
son is entitled to expect, in accordance with Article 6(1) of Directive 85/374.”
(ECJ Boston Scientific./. AOK, m.n. 49). The producer must bear the costs
of reimplementing mere potentially defective devices in ECJ Boston Scientific./.
AOK. Based on the previously defined term recall, this equals an obligation to
recall. By including reimplantation costs in the definition of damage along with
the equalization thesis, the judgment paves the way to obligatory recalls for pro-
ducers of pacemakers and ICDs. A producer might execute a voluntary recall if
he fears the court to declare this obligation.
1007
- research and monitoring for early detection of potential risks,
Winona Wenning Nenad Rančić Ozren Pilipović: ECONOMIC ANALYSIS OF ECJ JUDGEMENT IN JOINED CASES C-503/13 & C-504/13: PRODUCT...
6
See: Treaty on European Union – consolidated form, https://europa.eu/european union/sites/
europaeu/files/docs/body/treaty_on_european_union_en.pdf, 22.07.2017.
1008
So, the question remains in which cases the precautionary principle is applied in
the manner envisaged by the Communication since there are no parameters to
decide on the risks and to what extent it is acceptable. Although the Maastricht
Treaty places it directly in the context of environmental protection, the scope
of the precautionary principle has been extended to the area of human, ani-
mal, and plant health protection. Like the Treaty, the Communication does not
provide a clear and unambiguous definition of the precautionary principle, but
only provides a framework for its application by placing it within a structured
approach to risk analysis that consists of three basic elements: risk assessment,
risk management, and risk reporting
At first glance it was an affirmation of the principle of precaution in EU
law, but it was introduced only as an integral part of one of the elements of risk
analysis, in a relatively narrow range, in particular, that does not pay attention
to the prevention of risks and adverse consequences, but is mentioned in the
context of risk management. There was no mention of necessity to find alterna-
tives to potentially risky activities; instead, the degree of risk acceptance is left
to the current policy leaders to decide. Such an approach is not consistent with
the original German concept of the precautionary principle contained in its very
name Vorsorgeprinzip, which should be used as an inspiration for its definition
and application since it is already a part of the legal system of one of the EU
member states.7 By referring to the precautionary principle in a specific case,
it is possible to consider a given product dangerous until its manufacturer or
importer provides the appropriate evidence to the contrary, whereby the burden
of proof is transferred from the state organs to the business sector, financially
stronger side in that relationship. In principle, it is prohibited to adopt arbi- INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
trarily (Marchant & Mossman, p. 23, 2004) and protectionist decisions in the
context of the application of the precautionary principle, but no mechanism for
prevention of such practice was devised.
7
It is also interesting to look at the economic background of German efforts to incorporate the pre-
cautionary principle into the EU legal system. After the application of the precautionary principle
in the economic and legal practice of the Federal Republic of Germany, the efforts of German poli-
ticians and businessmen to adopt it at the level of the then European Economic Community were
intensified, especially since this new, ultimately costly approach put additional financial burden
on the German industry that began to lead to its competitiveness decline. See also: Jordan, A. &
O’Riordan, 1999, p. 21.
1009
.. Unilateral Precaution Model
Winona Wenning Nenad Rančić Ozren Pilipović: ECONOMIC ANALYSIS OF ECJ JUDGEMENT IN JOINED CASES C-503/13 & C-504/13: PRODUCT...
The unilateral precaution model assumes that the rules of tort law serve one
purpose: all parties engaging in risky activities shall be incited to take all reason-
able measures minimizing the activity’s costs (Miceli, 2009, p. 15). The costs
of a harmful accident include the loss of the damaged party, the costs of pre-
cautionary measures taken and the costs of law enforcement (Miceli, 2009, p.
15). However, the unilateral precaution model does not consider administrative
costs. In the unilateral model only the injuring party I can take precautionary
measures to prevent damages certain risky activities cause (Polinsky & Shavell,
2007, p. 143). The injured party cannot influence the probability of the occur-
rence of damage (Shavell, 2004, p. 178).
The probability of an accident 𝑝 (𝑥) declines with increasing expenditures
on precaution 𝑥, while the level of harm h is constant. (Cooter & Ulen, 2012,
p. 200; Polinsky & Shavell, 2007, p. 143). The probability of an accident 𝑝 (𝑥)
is declining and convex in 𝑥, (Cooter & Ulen, 2012, p. 200; Polinsky & Shavell,
2007, p. 143) consequently the expected damage is 𝐷 (𝑥) =𝑝 (𝑥) h with 𝐷′(𝑥) =
𝑝(𝑥) h < 0 and 𝐷” (𝑥) = 𝑝 (𝑥) h < 0. (Cooter & Ulen, 2012, p. 200). In line with
the concept of wealth maximization the precaution taken by 𝐼 shall minimize
the total costs of the activity:
ܵܥሺݔሻ ൌ ݔ ܦሺݔሻ
௫
The social costs 𝑆𝐶 (𝑥) include the expenditures on precaution 𝑥 and the
expected damage 𝐷 (𝑥) (Cooter & Ulen, 2012, p. 200). The ideal level of pre-
caution 𝑥* minimizes the social cost: The marginal cost of precaution equals the
marginal reduction of the expected damage. (Cooter & Ulen, 2012, p. 200-201;
Miceli, 2009, p. 20; Polinsky & Shavell, 2007, pp. 143-144; Shavell, 2004, pp.
178-179). An optimal liability rule incites the injurer to invest 𝑥* in precaution-
ary measures and thereby minimizes the social cost SC (𝑥*).
1010
tain probability, a particular pacemaker contains the defect, which then leads to
premature battery depletion and functional incapacity without warning. (ECJ
Boston Scientific./. AOK, m.n. 14.) The default probability of the pacemakers
type X equals the probability of an accident 𝑝.
The level of harm h includes all damage 𝑉 suffers and I is liable for according
to the Product Liability Directive: In the case of damage I would be liable for
the re-implantation cost 𝑅, since the surgery is necessary to replace the defec-
tive device. (ECJ Boston Scientific./. AOK, m.n. 14.). Furthermore, medical
expenses will arise between failure and re-implantation, which are eligible for
compensation as damage caused by personal injury (Article 9 (1a) Product Li-
ability Directive). (Wieckhorst, 1994, p. 74.). Thus it holds h > 𝑅. Generally, a
pacemaker’s failure holds a death risk.8. However, damages caused by death shall
be excluded here, due to the controversy over adequate monetary assessment of
life. (Brox & Walker, 2016, p. 529, 608; Looschelders, 2016, m.n. 1201; Miceli,
2009, p. 53-54; Posner, 2014, p. 228-232; Schäfer & Ott, 2012, p. 395-400,
402-404; Wieckhorst, 1994, p. 74) I can reduce the probability of an accident
𝑝 (𝑥) with several measures from merely informing and warning the patients to
the recall of potentially defective devices. I must bear the re-implantation costs
R when recalling the devices9. The level of care 𝑥R = 𝑅 reduces the probability of
an accident to (𝑥R) = 0. The product recall is assumed to cause no more costs.10
Given 𝐼 decides to recall the devices he chooses the level of care 𝑥R and (𝑥R)
= 0, one finds for the expected damage:
ሺݔሻ݄ ݔ൏ ݔோ
ሺݔሻ ൌ ൜
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
Ͳ ݔ ݔோ
From the society’s perspective exists an optimal 𝑥*, which minimizes the
social costs SC(𝑥). If 𝑥* < 𝑥R or 𝑥* = 𝑥R is optimal depends on the respective
8
Opinion of Advocate General Bot in Boston Scientific./. AOK, m.n. 54.
9
For more details about whether the reimplantation qualifies as a precautionary measure from a
legal perspective see: Wagner, 2016, p. 292, 299.
10
This assumption is appropriate for pacemakers as it is only necessary to inform surgeons who de
facto implant the producers’ products.
1011
pacemakers’ default probability 𝑝 (𝑥) and the damage costs h in proportion to
the recall respectively re-implantation costs 𝑥R = 𝑅.
Winona Wenning Nenad Rančić Ozren Pilipović: ECONOMIC ANALYSIS OF ECJ JUDGEMENT IN JOINED CASES C-503/13 & C-504/13: PRODUCT...
1012
The injuring party is de facto relieved from liability since the recall inhibits the
occurrence of damage. With this, the situation equals simple negligence.11
Given a standard of care x = 𝑥R, 𝐼 faces the optimization problem
ܦሺݔሻ ݔݔ൏ x
ܥଵ ሺݔሻ ൌ ቐ
௫
ݔݔ x
(Miceli, 2009, p. 21)
If x = xR and 𝑥* differ a lot, 𝐼 will fall below the standard of care and choose
the optimal precaution 𝑥N = 𝑥*. (Polinsky & Shavell, p. 161). If the court would
decide on a mandatory recall for pacemaker with a very low default probability,
although merely informing the patients is necessary, then 𝐼 would still choose
the optimal precaution measure.
c) Standard of Care x < 𝑥*
11
It is not necessary to discuss whether there can be a relief from liability, when the required pre-
caution only consisted in an obligatory warning. We only examine the stipulation of a mandatory
recall: After executing a recall no damage is possible anymore, therefore the producer is de facto
relieved from liability.
1013
As a general rule: With an inefficiently low standard of care 𝐼 will not choose
the optimal precaution but fall short to 𝑥N = x < 𝑥*. (Polinsky & Shavell, p.
Winona Wenning Nenad Rančić Ozren Pilipović: ECONOMIC ANALYSIS OF ECJ JUDGEMENT IN JOINED CASES C-503/13 & C-504/13: PRODUCT...
161.) However, no standard of care lower than x = 𝑥R can be set for pacemak-
ers, as there won’t be the de facto relieve from liability without a re-implanta-
tion.
These can be summarized: If the mandatory recall is efficient (xR = x = x*
∗
), then I am incited to execute a socially desired recall, xN =x* =xR. In con-
trast, if the recall is not the optimal measure (xR > x*) but made mandatory by
the court’s decision, they will carry out a socially undesired recall ( xN = xR >
x*) or fall below the inefficiently high standard of care and choose the optimal
measure ( xN = x * <xR). Socially undesired product recalls will be executed due
to mistakes of the courts, but no desired recall will be left undone. I am never
incited to not carry out an efficient recall.
1014
expectable mistakes of the courts, eventually, an excessive number of recalls will
be executed (3b).
Provided that the courts’ decisions are sufficiently right, there is no differ-
ence between the situation without or with the possibility for recall obligations
from an economic perspective. Expecting a certain failure rate, recall obligations
should not be possible.
5. CONCLUSION
What are the legal consequences of the equalization thesis and the exceeded
definition of damage and how to evaluate them from an economic perspective?
First, it is to note that the equalization thesis and the exceeded definition of
damage provide the courts with the opportunity to stipulate a product recall
under the Product Liability Directive. Depending on extent and number of the
courts’ mistakes an excessive number of product recalls are to expect. Inefficient
few recalls and consequently not enough reimplantation of potentially defec-
tive devices are not to expect. If the judgments quality is totally uncertain, it is
preferable not to oblige the producer to recall the products in question. Exces-
sive precaution measures, like the product, recalls Wagner fears for the case that
courts excessively increase the producers’ liability (Wagner, 2016, p. 292, 296).
Anyways he concludes the producer shall be liable for the costs of eliminating
the high health risk his products caused (Wagner, 2016, p. 292, 303). Thus, the
producer of an active implanted medical device that exceeds a certain risk is li-
1015
the liability only to recalls, necessary due to the devices’ danger (ECJ Boston
Scientific./. AOK, m.n. 47.). A general recall obligation was explicitly not im-
Winona Wenning Nenad Rančić Ozren Pilipović: ECONOMIC ANALYSIS OF ECJ JUDGEMENT IN JOINED CASES C-503/13 & C-504/13: PRODUCT...
REFERENCES
Adams, M. (2004). Ökonomische Theorie des Rechts Konzepte und Anwendungen 2nd Edi-
tion, Frankfurt am Main.
Bodewig, T. (1999). Der Rückruf fehlerhafter Produkte - Eine Untersuchung der Rückrufpflich-
ten und Rückrufansprüche nach dem Recht Deutschlands, der Europäischen Union und der
USA, Tübingen.
Brox, H. & Walker, W.-D. (2016). Besonderes Schuldrecht, 40th Edition, München.
Brüggemeier, G. & Reich, N. (1986). Die EG-Produkthaftungs-Richtlinie 1985 und ihr Ver-
hältnis zur Produzentenhaftung nach § 823 I BGB, Wertpapier-Mitteilungen.
Communication from the Commission on the precautionary principle (Brussels, 2.2.2000
COM(2000) 1 final, [available at http://eur-lex.europa.eu/legal-content/EN/TXT/
PDF/?uri=CELEX:52000DC0001&from=EN access June 22, 2017]
Cooter, R. & Ulen, T. (2012). Law & Economics, 6th Edition, Boston.
European Court of Justice (2015). Judgment of the Court (Fourth Chamber) of 5 March 2015.
Boston Scientific Medizintechnik GmbH v AOK Sachsen-Anhalt – Die Gesundheitskasse
and Betriebskrankenkasse RWE. Requests for a preliminary ruling from the Bundesgeri-
chtshof. Reference for a preliminary ruling — Consumer protection — Liability for
damage caused by defective products — Directive 85/374/EEC — Articles 1, 6(1)
and section (a) of the first paragraph of Article 9 — Pacemakers and implantable car-
dioverter defibrillators — Risk of product failure — Personal injury — Removal of
the allegedly defective product and replacement with another product — Reimburse-
ment of the costs of the operation. Joined Cases C-503/13 and C-504/13. [available
at http://curia.europa.eu/juris/liste.jsf?pro=&lgrec=en&nat=or&oqp=&dates=&l
g=&language=en&jur=C%2CT%2CF&cit=none%252CC%252CCJ%252CR%252
C2008E%252C%252C%252C%252C%252C%252C%252C%252C%252C%252Ct
rue%252Cfalse%252Cfalse&num=C503%252F13&td=%3BALL&pcs=Oor&avg=
&page=1&mat=or&jge=&for=&cid=536469 access February 22, 2018]
Foerste, U. & von Westphalen, F. (2012). Produkthaftungshandbuch, 3rd Edition, München.
1016
Harremoes, P. et al. (Eds.). (2002). The Precautionary Principle in the 20th Century – Late Les-
sons from Early Warnings, London/Sterling, European Environment Agency/Earths-
can Publications Ltd.
Jordan, A. & O’Riordan, T. (1999). The Precautionary Principle in Contemporary Environmen-
tal Policy and Politics; in Raffensperger, C. & Tickner, A., J., (Eds): Protecting Public
Health & the Environment – Implementing the Precautionary Principle, Washington,
D.C./Colvelo, California, Island Press.
Kreidt, M. (2006). Die Haftung des Zulieferers für Produktionsschäden und Rückrufkosten,
Bonn.
Lenz, T. (2014) Produkthaftung, München.
Looschelders, D. (2016). Schuldrecht, Besonderer Teil, 11th Edition, München.
Marchant, G., E. & Mossman, K., L. (2004). Arbitrary and Capricious – The Precautionary
Principle in The European Union, Washington, The AEI Press.
Miceli, T. J. (2009). The Economic Approach to Law, 2nd Edition, Stanford.
Palandt, O. (2016). Bürgerliches Gesetzbuch mit Nebengesetzen, 75th Edition, München.
Polinsky, A. M. & Shavell, S. (2007). Handbook of Law and Economics, Volume 1, Oxford.
Posner, R. A. (2014). Economic Analysis of Law, 9th Edition, New York.
Rettenbeck, S. (1994). Die Rückrufpflicht in der Produkthaftung Zugleich ein Beitrag zur EG-
Richtlinie über die allgemeine Produktsicherheit vom 29. Juni 1992., Baden-Baden.
Rolland, W. (1990). Produkthaftungsrecht, Kommentar, Köln.
Sack, R. (1985). Produzentenhaftung und Produktbeobachtungspflicht in: Betriebsberater (BB).
Säcker, F. J. (2013). Münchener Kommentar zum Bürgerlichen Gesetzbuch, Band 5, § 705-853
BGB, PartGG, ProdHaftG, 6th Edition, München.
Schäfer, H.-B. & Ott, C. (2012). Lehrbuch der ökonomischen Analyse des Zivilrechts, 5th
Edition, Berlin.
Shavell, S. (2004). Foundations of Economic Analysis of Law, Cambridge.
1017
EFFICIENCY OF THE
CRIMINAL PROCEDURE AND
THE POSSIBILITIES OF ITS
IMPROVEMENT
Attorney at Law
E-mail: [email protected]
Abstract
This paper starts from the assumption that an efficient criminal procedure does
not imply just a speedy and inexpensive trial. The concept of the criminal pro-
ceedings efficiency also includes the principle of fair trial, which provides, inter
alia, an adequate level of protection of the rights of the defendant in criminal
proceedings and a correct decision of the court on his guilt or innocence. For
such a decision, the principle of substantive truth finding is also important.
Special attention is paid to the duration of the criminal proceedings and to
the measures that can be taken against its stalling. In the context of the protec-
tion of the victim’s right to an effective investigation and the defendant’s right
to a trial within a reasonable time, effective remedies against excessively long
criminal proceedings are being discussed. The need to strengthen the role of the
president of the court and its impact on increasing efficiency is emphasized,
taking into account the basic management functions.
Key words: criminal procedure, efficiency, excessive length of criminal pro-
ceedings, measures againsts talling
JEL Classification: K14, K41
1018
1. INTRODUCTION
Despite numerous reforms of Croatian criminal (law) legislation over the
past ten years, including changes to the Criminal Procedure Act (further in the
text: CPA), the efficiency of criminal proceedings is still considered to be an
unresolved issue (Đurđević, 2017, 265). In this regard, the latest literature also
presents concrete proposals for further reforms aimed at shaping the mecha-
nism to accelerate proceedings that would remove the causes of incentives to
delay the proceedings and ultimately lead to a violation of the accused’s right to
a trial within the reasonable time and violation of the victim’s right to efficient
investigation (Novokmet & Sršen, 2017, 326-329). Within such proposals, spe-
cial attention is devoted to effective remedies against delaying the proceedings,
strengthening the personal responsibility of the president of the court and the
disciplinary responsibility of the judges. The efforts of the legislator to improve
the efficiency of criminal proceedings, especially those realized in the fifth recital
of the CPA, have been assessed as insufficient or improper. They were encour-
aged by the practice of the European Court of Human Rights (further in the
text: ECtHR), which in several verdicts against the Republic of Croatia found
a violation of the Convention’s right to an effective investigation, and by the fa-
mous Constitutional Court decision of 19 July 2012, which obliged the legisla-
tor to impose a positive obligation to remove structural shortcomings in norma-
tive arrangement of the preliminary criminal proceedings. The discussion on the
possibilities of improving the efficiency of the Croatian criminal procedure pre-
supposes first the definition of the concept of efficient criminal proceedings, and
then a more detailed view and analysis of all relevant issues regarding measures
that could contribute to the urgency of proceedings in criminal cases pro futuro. INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
These questions relate to the right of victims to an efficient investigation and the
right of the accused to trial within a reasonable time and to effective remedies
against the delay of the proceedings, for which the Croatian criminal proce-
dural law is an important complaint due to the failure of the court to comply
with legal time limits in preliminary criminal proceedings and legal remedies to
protect the right to trial within a reasonable time. The paper further outlines
the main shortcomings of current criminal procedure arrangements from the
standpoint of its efficiency and discusses the merits for the latest proposals to
improve the efficiency of the Croatian criminal procedure de lege ferenda. Spe-
cial attention is also paid to the role of court presidents in the efforts to improve
the efficiency of criminal proceedings.
1019
2. THE CONCEPT OF AN EFFICIENT CRIMINAL
PROCEDURE
An efficient criminal procedure (trial) can be considered as a procedure
which is fair and whose duration was appropriate to the circumstances of the
case, and in which the competent court correctly decided about the innocence
or guilt of the defendant and in the latter case pronounced a lawful criminal
Vesna Škare Ožbolt Igor Bojanić: EFFICIENCY OF THE CRIMINAL PROCEDURE AND THE POSSIBILITIES OF ITS IMPROVEMENT
sanction (Krapac, 2013, 10). Such a definition takes into account the principle
of fairness as the cardinal principle of modern criminal proceedings (Krapac,
2014, 86), the right of the accused to trial within a reasonable time and the
purpose of the criminal proceedings consisting in the determination of guilt
or innocence and imposing a punishemnt or other cirminal sanction on the
perpetrator who is guilty pronouncing a perpetrator who is guilty (Krapac,
2014, 4). The aforementioned objective is also borne out by the legislator who
already emphasizes in the first article of the CPA that the law defines the rules
to ensure that no one is innocent being convicted and to impose a punishment
or other measure on the perpetrator of a criminal offense under the conditions
laid down by law and on the basis of a lawful procedure before the competent
court (Article 1 § 1 of the CPA). Within the principle of fairness of the crimi-
nal procedure, the guarantees of the fundamental rights of the accused and the
rights of defense are especially apparent. The views on the realization of these
aspects of the right to a fair trial under Article 6 of the European Convention
on Human Rights and Fundamental Freedoms (further in the text: ECHR) are
contained in numerous ECtHR judgments. A correct decision on the guilt or
innocence of the defendant implies acceptance of the principle of seeking mate-
rial truth. The ECHR and the ECtHR do not, however, establish the principle
of seeking material truth (substantive truth finding) as part of a fair trial, but it
can still be related to the convention law because the obligation of the courts to
establish the truth in the criminal proceedings is closely linked to the right to an
effective investigation (Đurđević, 2013, 340).
In defining the notion of judicial efficiency, the literature states its ability to
produce results that meet its goals (Ambos, 2015, 46). This view begins with
the distinction between efficiency and effectiveness in economics (Peter Druck-
er, The Effective Executive, 1967). Effectiveness raises the question of whether
the right things are done, while the effectiveness examines whether things are
done right. Thus, when it comes to the efficiency of criminal proceedings, the
question arises as to whether the court’s decision on the guilt or innocence of
1020
the defendant was realized in a fair trial and in a reasonable time, and with re-
spect for the principle of material truth.
In the mid-90s of the last century, in the reform of the legislation in the field
of criminal procedural law in many European countries, the desire to speed up
the criminal procedure was expressed. The aim of the reform was primarily to
improve the efficiency of criminal proceedings, but also better human rights
protection (Eser, 1996, 342). These goals can often be in mutual conflict. There-
fore, for every reform of the criminal procedure aimed at improving efficiency,
it is necessary to find the optimal balance in their realization. Every reform has
a greater chances of success if its guiding principle is not to insist on extremes,
but to look for a reasonably happy medium (Eser, 1996, 369).
Understanding the efficiency of criminal proceedings is fundamentally dif-
ferent in the Anglo-American legal tradition. The concept of efficiency is deter-
mined by the constant increase in the number of cases and the limited resources
intended for the judiciary. In such a context, there is a need for plea bargaining,
which is dominated by the criminal justice system, particularly in the United
States, whereby it solves more than 90% of criminal cases. The triumph of plea
bargaining is supported by the views of the Supreme Court in the case of San-
tobello v. New York, 404 U.S. 257, 260 (1971), in which the Court states that
plea bargaining is an essential component of the administration of justice since
the conduct of the full-scale trial for each criminal charge would often required
multiplication of the number of judges and court staff (Brown, 2014, 187).
The importance of trial costs is even more visible in civil litigation, where the
1021
even completely abolishing plea bargaining in practice. Of the arguments used,
it is particularly important to point out that unjustifiably large concessions that
are rendered unfair to victims, undermine the deterrent effect of sanctions and
hinder the court’s ability to detect the truth (Turner, 2017, 222). It is further
assumed that the plea bargaining has semi-privatized public justice, which ex-
plains why the parties prefer such a quick, inexpensive and discreet consensual
solution to the dispute that suits not only prosecutors and defenders but also
Vesna Škare Ožbolt Igor Bojanić: EFFICIENCY OF THE CRIMINAL PROCEDURE AND THE POSSIBILITIES OF ITS IMPROVEMENT
judges (Bibas, 2012, 173-174). It is also contended that the US plea bargaining
practice in key points is unregulated, and the main reason for this is the mar-
ginal role of judges. The allegations that legal restrictions on plea bargaining
fatally worsen the trial’s effectiveness are unfounded, as changes are needed to
bring plea bargaining practices into line with the requirements of the rule of law
(Brown, 2016, 1225-1226, 1276). The whole situation regarding plea bargain-
ing may perhaps best illustrate the following statement: “There is no glory in
plea bargaining. In the place of noble clash for truth, plea bargaining gives us
a skulking truce” (Fisher, 2000, 859). Fair proceedings and protection of the
accused’s rights and defense rights are important components of US criminal
proceedings, but in the literature it is also stated that the creation of such coun-
tervailing rights against the powers of state bodies in criminal prosecution (e.g.
the right to exclude unlawfully obtained evidence, the right to effective assis-
tance the defense lawyer in all criminal cases, the right to complain about po-
lice brutality and inhumane prison terms) has made the criminal justice system
cumbersome, expensive and most likely less effective in deterring crime (Posner,
1996, 7).
1022
justice delayed is justice denied. The length of the proceedings is particularly
important because of the trust of citizens in the functioning of the judiciary
and the effectiveness of the prevention provided by criminal law (Kuijer, 2013,
777-778).
1023
§§ 43, 47-50), but in this case (§ 49) particular emphasis has been placed on
the delay of the proceedings as a cause of a negative effect on the determina-
tion of the truth: “These delays along with the overall length of the investiga-
tion compromised the effectiveness of the investigation and could not but have
had a negative impact on the prospects of establishing the truth.” This reflects
the standard of comprehensiveness from which the request is made that the
investigation must be detailed and careful, that it must cover all relevant cir-
Vesna Škare Ožbolt Igor Bojanić: EFFICIENCY OF THE CRIMINAL PROCEDURE AND THE POSSIBILITIES OF ITS IMPROVEMENT
cumstances and that all reasonable steps must be taken to secure the relevant
evidence (Đurđević, 2014, 107). From this point of view, it can be concluded
that the principle of seeking material truth and the right to an effective investi-
gation are connected.
It is important to point out that the task of conducting an effective inves-
tigation is related to the way the investigation was conducted and not to its
result (Novokmet & Sršen, 2017, 311, note 78; Chevalier-Watts, 2010, 712,
720-721). Such a position is quite simply expressed in the case of Hugh Jordan
v. The United Kingdom (judgment of 4 May 2001, No. 24746/94, § 7): “This is
not an obligation of a result, but of means”.
1024
duced to an acceptable measure because otherwise the procedure is prolonged
and becomes more expensive (Krapac, 2014, 26). The criminal proceedings will
not be efficient if the correct outcome has come too late, despite the respect of
the principle of fair trial and the principle of seeking material truth, or if the
proceedings lasted for an inappropriate amount of time. Thus, for example, it
is right to ask whether an efficient criminal procedure was conducted based on
all the criteria of fairness and in which the accused’s guilt was established based
on a fully established factual situation, but this occurred 20 years or more after
the offense was committed. The punishment of the accused in such cases gener-
ally lost all meaning. The request to end the proceedings within the appropriate
time frame is found in all criminal prosecution models (Krapac, 2013, 7-8). The
length of proceedings, the number of unresolved cases and the ability of courts
to deal with the number of cases are essential parameters of an efficient judicial
system regardless of the model of the national judicial system or the legal tradi-
tion on which such a system is based (CEPEJ, 2016, 184).
It is clear from the practice of the ECtHR that the reasonableness of the
length of the proceedings must be assessed in the light of all the circumstances
of the case, considering the criteria laid down in the case law of the Court, and
in particular: the complexity of the case, the behavior of the applicant and the
conduct of relevant authorities. The cases of excessive duration of proceedings
have become commonplace in the 90s of the last century. Since the earlier cas-
es in which ECtHR has begun to establish the criteria of reasonable duration
of the proceedings, it is worth pointing out the case of Neumeister v. Austria
(judgment of 27 June 1968, No. 1936/63, § 21, pp. 37-38), Ringeiesen v. Aus-
tria judgment of 16 July 1971, No. 2614/65, § 110), case of König v. Germany INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
(judgment of 28 June 1978, No. 6232/73, § 99) and case of Eckle v. Germany
(judgment of 15 July 1971, July 1982, No. 8130/78, § 80). In some cases, re-
lated to the conduct of judicial bodies, the ECtHR has determined whether
there was any reason to deal with due dilligence (Kuijer, 2013, 781-783). Thus,
in the case of X v. France (judgment of 31 March 1992, No. 18020/91, § 47),
the ECtHR was of the view that the applicant’s illness and his limited life span
were of crucial importance for determining the reasonable duration of the pro-
ceedings. The Court also considers the nature and gravity of the sanctions that
may be imposed on an individual at the end of the trial (Krapac, 2014, 27)
and the type of proceedings, which may include issues of particular relevance
to the applicant (CEPEJ, 2016, 184) for example, in criminal cases, depriva-
1025
tion of liberty. The reasons for the lengthy duration of the criminal proceedings
may be objective, subjective and mixed. For objective reasons, there are usually
organizational shortcomings (e.g. insufficient number of judges or court staff )
or functional nature (complex access to certain evidence, trials for numerous
criminal offenses committed by multiple defendants, interruption of trials for
decision-making on the exemption of judges or for the exclusion of unlawful
evidence). The subjective reasons are most often manifested in the lack of pre-
Vesna Škare Ožbolt Igor Bojanić: EFFICIENCY OF THE CRIMINAL PROCEDURE AND THE POSSIBILITIES OF ITS IMPROVEMENT
paredness or inadequacy of the judge to handle the trial, the delay in writing
the published verdict or the submission of unfounded party proposals on which
the court must make special decisions. Concerning mixed (objective-subjective)
reasons, the most important thing is the multiple abolition of the first-instance
verdict and the reinstatement of the case for reconsideration before the lower
court (Krapac, 2013, 17-18). In relation to the latter, the case of Jeans v. Croa-
tia (judgment of 13 January 2011, No. 45190/07, § 39) should be mentioned,
in which ECtHR states: “Although the Court is not in a position to analyze
the juridical quality of it is considered that, since the remittal of cases for re-
examination is often ordered as a result of errors committed by lower courts,
the repetition of such orders within one set of proceedings may reveal a serious
deficiency in the judicial system”.
Considering the diversity of cases and circumstances that may be considered
crucial for the final assessment, it is difficult to determine in advance the reason-
able duration of the criminal procedure. Based on the practice of the ECtHR
in some years, the literature still accepts scheme 3-5-7 and concludes that the
duration of the proceedings for up to 3 years is considered reasonable, the du-
ration of the proceedings over 7 years in most cases is unreasonable and the
threshold between reasonable and unreasonable is about 5 years (Henzelin &
Rordorf, 2014, 96).
1026
right to a trial within a reasonable time, considering that Article 6 § 1 ECHR
was lex specialis in relation to Article 13. From that case, the ECtHR began to
separately examine and determine the violations of Article 6 § 1 and Article
13 of the ECHR. The change in practice was caused by a significant increase
in the number of applications due to a violation of the right to a trial within a
reasonable time. According to the Court’s view, the effective remedy referred to
in Article 13 should be understood as a means of enforcing the claims referred
to in Article 6 § 1 and preventing a violation of the right to a trial within a rea-
sonable time: „From this perspective, the right of the individual to trial within a
reasonable time will be less effective if there exists no opportunity to submit the
Convention claim to a national authority; and the requirements of Article 13
are to be seen as reinforcing those of Article 6 § 1, rather than being absorbed
by the general obligation imposed by the Article not to subject individuals to
inordinate delays in criminal proceedings“.
In the case of McFarlane v. Ireland (judgment of 10 September 2010, No.
31333/06, § 108), the ECtHR clearly distinguishes between preventive and
compensatory remedies: “Article 13 also allows a State to choose between a
remedy which may expedit pending proceedings a remedy post factum in dam-
ages for delay that has already occurred. While the former is preferred as it is
preventative of delay, a compensatory remedy may be considered effective when
the proceedings have already been excessively long and a preventative remedy
did not exist.“
From the point of view of ECtHR in the case of Scordino v. Italy (judgment
1027
as Italy has done, without that remedy being regarded as ineffective“ (§ 187).
The same reasoning was also repeated in the Sürmeli v. Germany case (Applica-
tion No. 75529/01), Judgment of 8 June 2006 (§ 100). Despite this, Germany
changed its legislation following that decision and decided only for a compensa-
tory remedy (Braasch, 2010, 1009; Krapac, 2013, 56). Accepting the views of
the ECtHR, the prevailing opinion in the literature is that accelerating (preven-
tive) remedies are the best solution (Uzelac, 2012, 392; Kijer, 2013, 787).
Vesna Škare Ožbolt Igor Bojanić: EFFICIENCY OF THE CRIMINAL PROCEDURE AND THE POSSIBILITIES OF ITS IMPROVEMENT
1028
under section 63 of the Constitutional Court Act represents an effective remedy
about the length of proceedings that are pending (see Slaviček v. Croatia (dec.),
no. 20862/02, ECHR 2002-VII). As to the present case the Court notes that
the proceedings before the Constitutional Court upon the applicant’s complaint
about the length of the civil proceedings lasted three years and fifteen days. The
Court considers that a remedy designed to address the length of proceedings
may be considered effective only if it provides adequate redress speedily. In the
circumstances of the present case it considers that the effectiveness of the con-
stitutional complaint as a remedy for the length of the pending civil proceedings
was undermined by its excessive duration. It follows that there has been a viola-
tion of Article 13 of the Convention“ (§ 37).
1029
or determine the conduct of the action (Article 347, § 5). The president of the
court shall notify the applicant within 15 days of the receipt of the complaint of
a new deadline for acting which, due to the failure to act, was not taken within
the legal time limit or on the determination of an appropriate period for the in-
vestigation judge (Article 347, § 6). Due to the possible failure of the president
of the court to act upon a complaint, the applicant may refer the matter to the
president of the higher court (Article 347, § 7).
Vesna Škare Ožbolt Igor Bojanić: EFFICIENCY OF THE CRIMINAL PROCEDURE AND THE POSSIBILITIES OF ITS IMPROVEMENT
The main objection to this legal solution is that according to the practice
of the ECtHR the term “effective investigation” does not only refer to the pre-
trial proceedings but to the effectiveness of the proceedings as a whole, which
ultimately should lead to a correct distinction between the guilty and the inno-
cent and imposing a punishment on the perpetrator Novokmet & Sršen, 2017,
311; Đurđević, 2014, 136-137). In the case of Počuča v. Croatia (judgment of
29 June 2006, No. 38550/02, § 35), the ECtHR states that the complaint of
length of proceedings is effective only if it can cover all stages of the proceedings
complained of: “In this connection the Court reiterates that a remedy available
to a party at a domestic level in order to raise a complaint about the length of
proceedings is ‘effective’ within the meaning of Article 13 and Article 35 § 1 of
the Convention only if it is capable of covering all stages of the proceedings
complained of and thus, in the same way as a decision given by the Court, of
taking into account their overall length”.
In addition to this objection, which may be considered justified, it should be
noted that the legislator has not specified what is considered to be an appropri-
ate deadline in the event that the president of the court, after finding that the
parties’ complaint or the defendant is founded, set a time limit within which the
investigating judge must make a decision or to determine carrying out the ac-
tion. In addition, regarding the eventual failure of the president of the court to
act upon a complaint, the question arises as to whether such conduct is covered
by the disorderly performance of the judicial function or should be explicitly
prescribed as a disciplinary offense related to the performance of court admin-
istration. From studies that have been carried out so far, it is not possible to find
out whether such cases of failure to act are generally occurring in practice.
1030
.. Legal remedies to protect the right to trial within a
reasonable time
The Courts Act (further in the text: CA) regulates in detail the legal rem-
edies for the protection of the right to a trial within a reasonable time by several
provisions (Articles 63 to 70). The CA first points out that a party in a court
proceeding has the right to judicial protection if the competent court has not
decided within a reasonable time on his/her right or obligation or on suspicion
or charge of a criminal offense (Article 63 of CA). Legal remedies for the pro-
tection of the right to a trial within a reasonable time are a request for protec-
tion of the right to a trial within a reasonable time and a request for payment
of an appropriate compensation for violation of the right to a trial within a
reasonable time (Article 64, § 1). It follows from the aforementioned provision
that the Croatian legislator has prescribed an accelerated (preventive) and com-
pensatory remedies in respect of the exercise of the right to trial within a rea-
sonable time. The decision-making process on such requests shall be conducted
in accordance with the proper application of the rules on non-contentious pro-
ceedings, as a rule without holding a hearing (Article 64, § 2). Provisions on the
request for protection of right to trial within a reasonable time and the request
for the payment of appropriate compensation for violation of the right to a trial
within a reasonable time shall regulate all relevant issues regarding the persons
who may submit the requests, the bodies which decide on them, the deadlines
for taking certain actions and possible appeals procedure.
When deciding on a request for the protection of the right to a trial within
1031
propriate compensation for a violation of the right to a trial within a reasonable
time may be filed within a further period of six months if the court to which the
request for protection of the right to trial within the reasonable time has been
addressed has not resolved the case within the time limit set by the president of
the court. The legislator has also regulated all relevant issues with this legal in-
strument. Regarding the request for payment of the appropriate compensation,
it should be emphasized that it is not only a compensatory remedy but also an
Vesna Škare Ožbolt Igor Bojanić: EFFICIENCY OF THE CRIMINAL PROCEDURE AND THE POSSIBILITIES OF ITS IMPROVEMENT
accelerating one, because if it has been decided upon while the proceedings have
not yet been completed, this circumstance will probably have an impact on the
prevention of further delays.
The aforementioned accelerating and compensatory remedies related to the
protection of the right to a trial within a reasonable time represent mainly suc-
cessful continuation of the appropriate regulation of this matter initiated by the
Law on Amendments to the Constitutional Act on the Constitutional Court
of 2002. By the aforementioned act, the Croatian model of constitutional com-
plaint was formulated as a combined legal remedy which can at the same time
provide monetary satisfaction and speed up the proceedings. Already in the first
case that appeared after the introduction of a new remedy, in case of Slaviček
v. Croatia, the assessment of the ECtHR was positive: “Although the Consti-
tutional Court has not yet adopted any decision following the introduction of
the new remedy, the wording of Section 63 of the 2002 Constitutional Act on
the Constitutional Court is clear and indicates that it is specifically designed
to address the issue of the excessive length of proceedings before the domestic
authorities“. Such a model is often referred to in the ECtHR’s further practice in
a positive context (Uzelac, 2012, 366-367). Later developments have led to the
design of a legal remedies for the protection of the right to a trial within a rea-
sonable time within the Courts Act, that is, no longer in the form of a constitu-
tional complaint to be decided by the Constitutional Court, but in the form of a
request to be decided by the regular courts. Such a legal remedy was rated as “a
welcome maintenance tool perhaps the most important component of a system
of protection of the right to trial within a reasonable time - its effectiveness”
(Uzelac, 2012, 384). Regarding possible changes to the law de lege ferenda, the
protection of the right to a trial within a reasonable time should allow at least
the victim or the injured party. The right to file a legal remedy in order to pro-
tect the right to a trial within a reasonable time could also have every participant
in the proceedings, following the ruling from the German Courts Law, as the
1032
right to a trial within a reasonable time is a fundamental human right which can
not be restricted to parties (Krapac, 2013, 58).
In addition to cases where long-lasting criminal proceedings are attempted
to be prevented by effective remedies for the protection of the right to a trial
within a reasonable time, it should be pointed out that cases of excessive du-
ration of the proceedings are also discussed in foreign practice as an obstacle
to the continuation of the proceedings for which is exceptionally possible to
make a decision to suspend the proceedings. Only a brief summary of the main
points of the ruling of the Higher Regional Court in Koblenz (Germany) has
been summarized below, which abolished the first-instance decision suspending
the criminal proceedings due to excessive duration and making a decision on
the continuation of the process. The criminal proceedings of excessive duration,
particularly when it is caused by the conduct of judicial bodies, may expose
the defendant to additional burdens comparable to the sanctions which must
be proportionate to the degree of the perpetrator’s guilt. Significant delays in
criminal proceedings for which the judicial authorities are responsible violate
the accused in his right to a fair trial in accordance with the requirements of
the rule of law. They are also incompatible with the constitutional requirement
of functional criminal law protection because unnecessary delays in crimi-
nal proceedings call into question the purpose of punishment and violate the
constitutionally guaranteed public interest in determining the truth as much
as possible. The excessive duration of criminal proceedings that is in conflict
with the requirements of the rule of law will nevertheless rarely be the cause of
the suspension of proceedings. Suspension will only be considered if adequate
compensation for breach of prohibition of delays can no longer be achieved in INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
the determination of the sentence. If the right of a defendant to a trial within a
reasonable time has been violated in an intolerable manner, such an offense may
be equated with a denial of rights, and in such cases the interest in further pros-
ecution no longer exist, and the continuation of the process is not acceptable
either from the standpoint of the rule of law (OLG Koblenz, 2017, §§ 24-28).
1033
5. SHORTCOMINGS OF CURRENT CRIMINAL
PROCEDURE ARRANGEMENT FROM THE
STANDPOINT OF ITS EFFICIENCY
According to recent Croatian literature in the filed of criminal procedure
law, the main shortcomings of current arrangement for criminal proceedings
from the standpoint of its efficiency are manifested in the unequal treatment of
Vesna Škare Ožbolt Igor Bojanić: EFFICIENCY OF THE CRIMINAL PROCEDURE AND THE POSSIBILITIES OF ITS IMPROVEMENT
state attorneys and judges in terms of their work and responsibilities, reflected
in the provisions of the CPA and subsidiary legislation (laws relating to the or-
ganization and functioning of state bodies participate in criminal proceedings)
and a limited range of already mentioned complaint from Article 347 of CPA.
The legislator has set strict deadlines for the activity of the state attorney in the
pre-trial proceedings (decision on criminal report, investigation, filing an indict-
ment) and procedural sanctions for their violation, including the presumption
of withdrawal from criminal prosecution, which are supplemented by the pro-
visions of the Law on State Attorney on responsibility for disciplinary offense
of unjustified non-fulfillment of the state attorney’s duty. On the other hand,
it is emphasized that the legislator did not prescribe the deadline for judges to
determine the trial if a preparatory hearing was held, the time limit for trial and
the passing of the first instance verdict if the defendant was not in the custody
(investigative jail), and did not prescribe the time for the second-instance ver-
dict. The legislator also did not prescribe disciplinary offenses for judges in the
event of delays in the proceedings (in brief: deadlines and disciplinary offenses
are not prescribed for the work of judges in case of delays in proceedings). Since
not only public prosecutors, but also courts are required to ensure the right to
an effective investigation and the right to a trial within a reasonable time, it is
considered that it is unjustifiable to limit the provisions on procedural time
limits and the procedural and disciplinary sanctions for their violation only to
state attorneys, and at the same time not regulate the responsibility of judges
to delay the proceedings. Based on the aforementioned, a conclusion is made
about the absence of a mechanism for efficient criminal proceedings before the
courts. In a complaint under Article 347 of the CPA, it is questionable whether
it is at all an effective remedy which can prevent the court from being delayed
by proceedings because it relates only to the pre-trial proceedings and does not
cover the stages of the trial and appeals. In addition, the complaint would make
more sense that the failure to comply with the deadline or failure to take action
leading to the delay of the proceedings is prescribed as a disciplinary offense of
1034
disorderly performance of judicial function (Đurđević, 2013, 348, 2014, 136-
137, Novokmet & Sršen, 2017, 295- 296, 312). The failure to regulate effective
remedies against irresponsible or unlawful work of judges is considered as a
consequence of reluctance or weakness of the system to solve one of the fun-
damental problems of the Croatian judiciary regarding the determination of
civil servants’ responsibility for their work on the prevention and prosecution of
criminal offenses (Đurđevic, 2014, 148-149). This assessment is accompanied
by the latest views that give rise to an alarming situation in the criminal justice
system. They emphasize everyday media writings related to decisions of crimi-
nal courts, corruption cases that are far from verdict, thorough investigation
of citizens’ mistrust into the work of the judiciary, the inadequacy of the so-
called normative optimism (the belief that legal reforms will solve all problems
while at the same time neglecting the problem of implementing the law), as well
as the lack of education of judges and state attorney, who educate themselves,
persecute and judge themselves for disciplinary acts and elect each other. Real
changes are possible only through proper education and the accountability of all
the relevant factors. It is necessary, inter alia, to introduce disciplinary responsi-
bility for judges due to unlawful decisions or actions, as well as negligence and
delay of proceedings (Đurđević, 2017, 265-267).
The perceived shortcomings regarding the efficiency of the criminal pro-
cedure are proposed to remove de lege ferenda by substantially changing the
complaint referred to in Article 347 of the CPA by extending this remedy at all
stages of criminal proceedings before the court, by strengthening the personal
responsibility of the president of the court by prescribing the duty to institute
disciplinary proceedings against a judge who did not remove the omissions that INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
lead to delays in the proceedings within appropriate time and by prescribing a
provision on the unjustified non-performing of the judicial function as a disci-
plinary act, which would include, inter alia, Article 347 of the CPA.
Since the concept of solving the case in the practical application of the re-
quest for protection of the right to a trial within a reasonable time is usually
reduced to the taking of a particular act and the usefulness of that remedy only
becomes apparent if it accelerates the proceedings as a whole, an approach is ad-
vocated in which the complaint from Article 347 of the CPA has advantage over
the request that should only be applied as the last ratio. The above-mentioned
proposals are based, inter alia, on the analysis of ways of regulating procedural
measures aimed at preventing the violation of the right to trial within a reason-
1035
able time in comparative law (Austria, Portugal and Poland). Such measures
are aimed at preventing, but also sanctioning inefficient proceedings before the
courts (Novokmet & Sršen, 2017, 327-328, 304-309).
There is, however, the view that the request for protection of the right to a
trial within a reasonable time is a remedy that can eliminate unnecessary delays
in the proceedings before the courts and that, with regard to the personal re-
sponsibility of judges who do not act within the legal deadlines and thus lead to
Vesna Škare Ožbolt Igor Bojanić: EFFICIENCY OF THE CRIMINAL PROCEDURE AND THE POSSIBILITIES OF ITS IMPROVEMENT
1036
6. THE MERITS OF THE PROPOSALS TO
IMPROVE THE EFFICIENCY OF THE
CROATIAN CRIMINAL PROCEDURE
The allegations of unequal treatment of judges and state attorneys in terms
of their work and responsibilities are based, as already stated above, on the al-
leged lack of time limits or disciplinary responsibility for delay of proceedings
for the work of judges (as opposed to state attorneys). Regarding the deadlines
for the work of judges, it should first be emphasized that the CPA does not set
a deadline for holding the hearing if a preparatory hearing is held, but it still
clearly prescribes that the presiding judge determines the time and place for
the trial before the completion of the preparatory hearing (Article 381 § 1 of
the CPA). The determination of the (instructional) time limits for the trial and
the passing of the first instance and second instance verdict may be considered
acceptable. In this regard, the highest (maximum) prescribed punishment for
the criminal offense that is the subject of the charge should be considered as the
primary criterion. On the other hand, when it comes to the unequal treatment
of judges and state attorneys, it is necessary to take into account the fact that the
state attorney is dominis litis (master) of the pre-trial proceedings and that in
this stage of the proceedings it is particularly important to protect the accused
from unjustified criminal prosecution, the court’s influence over the duration of
the trial in a disputed stage where adversary elements prevail and with the best
possible management of the process, however, is limited. The length of the trial
stage also determines the quality of the indictment, the conduct of the parties,
1037
to strengthen the personal responsibility of the president of the court, ignores
the fact that the CA (Article 95, § 3) already contains the duty of the president
of the court to institute disciplinary proceedings against a judge for whom he
has established that he has performed his duties disorderly.
As regards the limited scope of the complaint referred to in Article 347 of
the CPA and the proposal to extend it to all stages of criminal proceedings,
which is otherwise consistent with the practice of the ECtHR with regard to
Vesna Škare Ožbolt Igor Bojanić: EFFICIENCY OF THE CRIMINAL PROCEDURE AND THE POSSIBILITIES OF ITS IMPROVEMENT
1038
and whether it has been established in the concrete case the behavior of a judge
who has delayed the proceedings. There is, however, the possibility that even
the presidents of the courts by adjudicating on the complaints referred to in
Article 347 of the CPA have contributed to the delay in the proceedings, but no
evidence has been produced from previous investigations to confirm that such
cases appear in practice. That is why there is no reason for any distrust of the
work of the presidents of the courts, who would be guided by their policy of
non-confrontation in relation to their colleagues.
Neither media reports about individual court decisions that have scandal-
ized the public or endless trials in corruption cases are insufficient to generalize
the conclusion on the inefficiency of the criminal justice system, and in particu-
lar about the contribution of judges to the procrastination of proceedings. The
results of (thorough) investigations that testify to the distrust of many citizens
in the functioning of the criminal justice system are certainly to be respected,
but caution is also needed because the allegations of inefficient criminal pro-
ceedings must be based on clearly identified causes in each particular case. The
complexity of determining ineffectiveness in a particular case corresponds to
the complexity of the notion of efficiency of criminal proceedings. The asser-
tion of unjustified so-called normative optimism is generally acceptable when it
comes to legislative changes that are practically difficult to implement, but not
in cases where legislative changes are based on negative practical experiences.
From normative optimism, it is perhaps more dangerous to believe that more
frequent disciplinary proceedings against judges can solve the problem of inef-
ficient criminal proceedings. It is more important to turn to serious (extensive
and thorough) investigations of the causes of the inefficiency of the procedure INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
to shape the appropriate measures that will affect their elimination. In this re-
gard, it is worth supporting the view that the „most efficient way of dealing with
the ineffectiveness of the judicial system is to systematically investigate causes
and to discover reasons for lack of efficiency and constant struggle with it“ (Uz-
elac, 2012, 393).
The demands for changes in the system of training judges and state attor-
neys have to be more concrete because it is not entirely clear what the problem
is really when judges are being formed by judges and state attorneys from state
attorneys. Can a state attorney teach a judge about the trial management skills
better than an older and more experienced judge? Mutual exchange of experi-
ence in education between state attorneys and judges is not questionable. It is,
1039
however, a worrying fact that only 0.4% of the total annual budget for the courts
is set aside for education (CEPEJ, 2016, 37).
The views on disciplinary responsibility of judges due to illegal decisions
are also not sufficiently clear because the decisions of the courts against which
they may be pronounced (regular and extraordinary) remedies should in any
case be excluded from disciplinary responsibility. Additionally, when it comes to
the responsibility for the disciplinary offense of disorderly performance of judi-
Vesna Škare Ožbolt Igor Bojanić: EFFICIENCY OF THE CRIMINAL PROCEDURE AND THE POSSIBILITIES OF ITS IMPROVEMENT
1040
the number of received cases and is expressed in percentage because the result
of the division is multiplied by 100. CR close to 100% indicates the ability of
a court or judicial system to handle approximately as many cases as the num-
ber of cases received in a given period. CR over 100% indicates the ability of
the system to handle multiple cases than received, thus reducing the existing
number of unresolved items. Finally, CR under 100% occurs when the number
of incoming cases is higher than the number of settled cases. In this case, the
total number of unresolved cases will increase. The CR essentially shows how
the court or the judicial system carries with the total number of cases to be ad-
dressed (in-flow cases).
DT provides further insight into how much time it takes to resolve a par-
ticular type of case in a particular jurisdiction. The DT (case resolution time)
indicator is obtained by dividing the number of unresolved cases at the end of
the observed period with the number of resolved cases within the same time,
and the resulting number is multiplied by 365. The calculation of DT allows
comparisons within the same jurisdiction over time as well as the comparison
between judicial systems in different countries. It is also relevant to determine
the efficiency of courts in the light of adopted standards for the duration of
proceedings (CEPEJ, 2016, 184-185).
The CEPEJ report of 2016 shows that the efficiency of the courts is not a
major problem in the field of criminal justice in 26 European countries, includ-
ing Croatia, as CR and DT can be considered as positive, which means that the
number of unresolved cases decreases and that At the same time, cases before
1041
cases than received were solved only in the criminal law branch of adjudication
(Statistical Review, 2017, 22-23). After 2012, when the crime rate (CR) was
105.2%, from 2013 to 2016 CR was below 100%. The average CR in these four
years is 96.9%.
However, it should be noted that the CR in the period 2009-2012 is always
above 100%. The average for these four years was 104.3% (Statistical Review,
2017, 22). The data from that period confirm the assessment that the general
Vesna Škare Ožbolt Igor Bojanić: EFFICIENCY OF THE CRIMINAL PROCEDURE AND THE POSSIBILITIES OF ITS IMPROVEMENT
1042
Rules of Courts Procedure (further in the text: RCP), and in courts with more
than 20 judges the court president may only perform judicial affairs (Article
30, § 2 of the CA). Judicial affairs (court administration affairs), inter alia, in-
clude: care of neat and timely conduct of court affairs, handling of a request for
protection of the right to a trial within a reasonable time, affairs concerning the
applications of the parties to the proceedings, tasks related to the functioning of
the IT system, financial affairs of the court, the professional training of judges,
court counselors, court trainees and other officials and employees in court (Ar-
ticle 29, § 1, points 2, 6, 9, 10, 11, 14 of the CA). Except in the CA, the powers
and duties of the court president are determined by the RCP. The president of
the court manages the court, is responsible for the proper and lawful perfor-
mance of the judicial administration in the court, carries out supervision over
the orderly and timely conduct of all the proceedings in the court, and takes care
of the efficiency of the court in resolving the cases and especially of the cases
where the proceedings last for more than three years (Article 5, § 1 of the RCP).
In the literature (Gažić Ferenčina, 2017, 73), however, it is rightly emphasized
that the issue of autonomy of the court president is disputable as the Ministry
of Justice (Article 7, § 1 of the CA) has the authority of the supreme body to
perform judicial affairs. The President of the Court is obliged to report to the
higher court and the Ministry of Justice on all matters of importance for the
work of the court (Article 32, § 2 of the CA), and except the president of the
Supreme Court of the Republic of Croatia, shall, by 31 January to the president
of the higher court, to the State Judicial Council and to the Ministry of Justice
to submit a report on the judicial administration performed in the previous
1043
the Consultative Council of European Judges (CCEJ) on the role of the presi-
dent of the court of 10 November 2016.
Among other things, it states: “Any managerial model in courts must facili-
tate the better administration of justice and not be an objective in itself. The
court presidents should never engage in any actions or activities that may un-
dermine judicial independence and impartiality “(§ 5). In addition, the role of
the president of the court “should be significant, if not decisive” in the distribu-
Vesna Škare Ožbolt Igor Bojanić: EFFICIENCY OF THE CRIMINAL PROCEDURE AND THE POSSIBILITIES OF ITS IMPROVEMENT
tion of budget funds to the court (§ 6). In the section referring to the relations
within the court (§ 15), the CCEJ considers it very important that the court
presidents after having been elected to perform the duty of a judge in terms of
work on the case not only enable them to continue their profession and main-
tain relations with to other judges in accordance with the principle of primus
inter pares, but also to best fulfill their organizational role through information
and knowledge of current issues that arise in judicial practice.
The management and managerial role of the president of the court is em-
phasized also in comparative research studies (Exploratory study, 2013, 33).
Judicial managers in the true sense of the word exist only in the Netherlands
where the autonomy of courts requires a budget-based professional and all oth-
er managerial aspects that have been moved from the ministry of justice and
the judiciary. The key issue is the budget and how it is allocated to the courts,
which brings fewer or more managerial responsibilities to a court manager or
court president. Comparative research also shows that court presidents have
very limited disciplinary powers over judges, limited ability to influence on the
assignment of cases and prioritization in case management (Exploratory study,
2013, 35).
Despite limited autonomy, court presidents are still key figures in court
management. Given the organizational complexity of the courts, the challenges
facing the criminal justice system on a daily basis and the expected public confi-
dence in its functioning, the court presidents should, to the greatest extent pos-
sible, pay attention to the main management functions: planning, organizing,
leading, and controlling (popularly known as the P-O-L-C framework).
Finally, when it comes to the possible omission of the presiding judge to deal
with complaints under Article 347 of the CPC or on the legal remedy for the
protection of the right to a trial within a reasonable time, or to initiate disciplin-
ary proceedings against a judge for misconduct or for failure to act upon a deci-
1044
sion in the procedure for the protection of the right to a trial within a reasonable
time, such omission should be regulated as a separate disciplinary act because it
is the behavior of the presiding judge which in such a case is not a violation of
the judicial function but the duty of the presiding judge in the performance of
court administration.
8. CONCLUSION
There is no doubt that the purpose of the criminal proceedings is the cor-
rect decision on the guilt or innocence of the defendant and the imposition of
lawful sanctions on the perpetrator of a criminal offense. To define the notion
of efficient criminal procedure are not only significant elements of its reason-
able duration and acceptable costs, but also the principles of fair trial and the
search for material truth. Implementation of these principles does not speed
up the proceedings but improves its quality. When it comes to the efficiency of
criminal proceedings, the most attention is devoted to the urgency of the pro-
ceedings, which is quite understandable because of the important aspect of the
victim’s right to an effective investigation and the main issue of the defendant’s
right to a trial within a reasonable time.
At the legislative level, in the Republic of Croatia, the prerequisites for ef-
ficient criminal proceedings are mainly ensured, as there are effective remedies
for the protection of the right to trial within a reasonable time, as well as the
possibility of disciplinary sanctioning of state attorneys and judges due to acts
or omissions that contribute to the delay in proceedings. While respecting the
EctHR practice, the Croatian legislator made the right decision when choos- INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
1045
the influence of the court on the duration of the proceedings at a trial stage in
which adversary elements prevail is still limited.
Disciplinary sanctioning of judges due to the disorderly performance of the
duties of a judge is not contrary to judicial independence but must be based on
the unambiguous finding that the delay in the particular case is the result of
personal conduct of the judge and not of other causes which generally contrib-
ute to the length of the proceedings.
Vesna Škare Ožbolt Igor Bojanić: EFFICIENCY OF THE CRIMINAL PROCEDURE AND THE POSSIBILITIES OF ITS IMPROVEMENT
1046
LITERATURE
Ambos, K. (2015) Assessing the Efficiency of Transitional Justice, Yonsei Law Review, 6,
45-53
Batistić Kos, V. (2012) Pozitivne obveze prema Konvenciji za zaštitu ljudskih prava i
temeljnih sloboda, Narodne novine, Zagreb
Bibas, Stephanos (2012) Incompetent Plea Bargaining and Extrajudical Reforms, Harvard
Law Review, 126, 1, 150-174
Braasch, P. (2010) Follow-Up: The European Court of Human Rights’ Pilot Judgement on
Excessive Length of Proceedings Before the German Courts, German Yearbook of In-
ternational Law, 53, 1007-1012
Brown, D. K. (2014) The Perverse Effects of Efficiency in Criminal Process, Virginia Law
Review, 100, 183-223
Brown, D. K. (2016) Judicial Power to Regulate Plea Bargaining, William & Marry Law
Review, 57, 4, 1225-1276
Chevalier-Watts, J. (2010) Effective Investigations under Article 2 of the European Conven-
tion on Human Rights: Securing the Right to Life or an Onerous Burden on a State?,
The European Journal of International Law, 21, 3, 701-721
Coleman, B. D. (2015) The Efficiency norm, Boston College Law Review, 56, 1777-1827
Đurđević, Z. (2013) Rekonstrukcija, judicijalizacija, konstitucionalizacija, europeizacija
hrvatskog kaznenog postupka V. novelom ZKP/08: prvi dio?, Hrvatski ljetopis za ka-
zneno pravo i praksu, 20, 2, 315-362
Đurđević, Z. (2014) Pravo na učinkovitu istragu u kaznenim predmetima: analiza hrvatske
prakse i prava. Profili hrvatskog kaznenog zakonodavstva, Krapac, D. (ur.), Hrvatska
akademija znanosti i umjetnosti, Zagreb, 105-149
Đurđević, Z. (2017) Uvodna riječ, Hrvatski ljetopis za kazneno pravo i praksu, 24, 2,
265-268
Eser, A. (1996) The Acceleration of Criminal Proceedings and the Rights of Accused: Com-
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
parative Observations as to the Reform of Criminal Procedure in Europe, Maastricht
Journal of European and Comparative Law, 3, 4, 341-369
European Commission for the Efficiency of Justice (2016) European judicial systems. Ef-
ficiency and quality of justice, CEPEJ STUDIES No. 23, Edition 2016 (data 2014)
Exploratory study on the position of: Court President, Court Manager, Judicial Assistant,
and Media Spokespersons in Selected Council of Europe Member States (2013), Joint
Project on „Strengthening the Court Management in Turkey“ ( JP COMASYT), Re-
port by Marco Fabri, European Union, Council of Europe
Fisher, G. (2000) Plea Bargaining’s Triumph, The Yale Law Journal, 109, 5, 857-1086
Gažić Ferenčina, Jasna (2017) Uloga i položaj predsjednika sudova: mišljenje Savjetodavnog
vijeća europskih sudaca, komparativna iskustva i stanje u Republici Hrvatskoj, Sveske
za javno pravo, 8, 30, 69-77
1047
Henzelin, M. & Rordorf, H. (2014) When Does the Length of Criminal Proceedings Be-
come Unreasonable According to the EctHR?, New Journal of European Criminal
Law, 5, 1, 78-109
Kos, Damir (2014) Djelotvorno pravno sredstvo protiv odugovlačenja postupka i drugih
nepravilnosti u radu državnih odvjetnika i sudaca prema noveli Zakona o kaznenom
postupku, HLJKPP, 20, 2, 679-689
Krapac, D. (2013) Trajanje kaznenog postupka i pravo na kazneno suđenje u razumnom
roku, Zbornik Pravnog fakulteta u Zagrebu, 63, 1, 5-70
Vesna Škare Ožbolt Igor Bojanić: EFFICIENCY OF THE CRIMINAL PROCEDURE AND THE POSSIBILITIES OF ITS IMPROVEMENT
1048
Jularić protiv Hrvatske, zahtjev br. 20106/06, presuda od 20. siječnja 2011.
König protiv Njemačke, zahtjev br. 6232/73, presuda od 28. lipnja 1978.
Kudla protiv Poljske, zahtjev br. 30210/96, presuda od 26. listopada 2000.
McFarlane protiv Irske, zahtjev br. br. 31333/06, presuda od 10. rujna 2010.
Neumeister protiv Austrije, zahtjev br. 1936/63, presuda od 27. lipnja 1968.
Nikolić protiv Hrvatske (presuda od 29. siječnja 2015., br. 5096/12
Oneryildiz protiv Turske, zahtjev br. 48939/99, presuda od 30. studenog 2004.
Pizzati protiv Italije, zahtjev br. 62361/00, presuda od 29. ožujka 2006.
Počuča protiv Hrvatske, zahtjev br. 38550/02, presuda od 29. lipnja 2006.
Ringeiesen protiv Austrije, zahtjev br. 2614/65, presuda od 16. srpnja 1971.
Scordino protiv Italije, zahtjev br. 36813/97, presuda od 29. ožujka 2006.
Slaviček protiv Hrvatske, zahtjev br. 20862/02, odluka o dopuštenosti od 4. srpnja 2002.
Sürmeli protiv Njemačke, zahtjev br. 75529/01, presuda od 8. lipnja 2006.
Vidas protiv Hrvatske, zahtjev br. 40383/04, presuda od 3. srpnja 2008.
X protiv Francuske, zahtjev br. 18020/91, presuda od 31. ožujka 1992.
Odluka Ustavnog suda Republike Hrvatske (broj: U-I-448/2009) od 19. srpnja 2012., NN
91/12
OLG Koblenz 2. Strafsenat, Enstscheidung (Beschluss) vom 4.12. 2017, 2 Ws 406 – 419/17
1049
DIGITAL INHERITANCE
Abstract
In the past, photos, documents, receipts, bills, music, movies etc. were tangible
or were fixed on a tangible media such as CDs or DVD’s. After a person
died, it was usually enough to go to his/her house or office and find all these
items. Some of them were valuable, others were not, but all of them constituted
inheritance.
Today, for the most part, these items are digitized and stored on computers,
smartphones, flash drives, email accounts, clouds, social media etc. Most of us
have a lot of these digital assets, but almost none of us think about what will
happen to them after we die.
There are several issues concerning digital inheritance: digital assets are intan-
gible and for the most part, their holder’s heirs will not be aware of them; many
of them are password protected and heirs will not know log–in information;
they tend to be numerous and a lot of them hold no financial or emotional
value.
These problems could be solved if individuals made plans for what is to hap-
pen to their digital assets post mortem like they do for their tangible property.
The obvious choice is to include digital assets in a will. However, there are
Dubravka Klasiček: DIGITAL INHERITANCE
certain particularities which have to be kept in mind when planning for digital
inheritance.
For example, wills are publicly pronounced after a person dies, so many people
might be privy to sensitive and private information concerning deceased’s digi-
tal assets. When it comes to digital assets stored in internet service providers’
(ISP) accounts, making plans will not mean much, since ISP have rules pro-
hibiting anyone, other than the original user, from accessing these accounts.
This paper will deal with these challenges of digital inheritance and possible
ways on how to best prepare for it.
1050
Key words: digital assets, digital inheritance, tangible, intangible, will, heir,
ISP
JEL Classification: E22, E24
1. INTRODUCTION
Death was always a legally significant fact – it signifies termination of a legal
personality, ends the marriage, certain contractual obligations, some personal
rights and it initiates property transfer post mortem (Klarić/Vedriš, 2014). Suc-
cession rules have always determined who will, in what way, inherit decedent’s
property. When there are only tangible items to inherit, there are no significant
problems and if there were any in the past, they were settled a long time ago.
However, a new type of assets – digital assets – have emerged and neither their
owners nor legislators know what to do with them in terms of succession. A lot
of these assets are stored on on-line accounts, so, after one considers internet
service providers (ISPs), who decide what rights a person has over his/her ac-
count and its content, the situation becomes even more complicated.
Humans have accumulated more information in the past two years than in
all prior human civilization (Shaw, 2014, p. 30) and a clear majority of that
information is in a digital form. Also, utility providers, phone and internet com-
panies, banks and credit cards have nowadays moved into a digital domain and
most of them even offer incentives if their customers go paperless, both be-
cause it is cheaper and better for the environment. Most newspapers are now
1051
(Banta, 2014, p. 801; Beyer, 2015; Blachly, 2015 et al.). However, not many
people think about what will happen to these items after they die, let alone
make plans for it.
These assets, their ownership, and succession should be legally regulated be-
cause today most of us cannot even imagine what other types of digital assets
will be created soon. Nevertheless, the current law dealing with the inheritance
of digital assets is sparse and this problem is aggravated if a person who owns
digital assets dies intestate (Cahn, 2011). Likewise, since a lot of very important
digital assets are controlled solely by various ISPs, their relationship with ac-
count holders also needs to be considered. (Banta, 2017).
The first part of this paper will deal with advantages to digital inheritance
– it will list various reasons that are supporting the need to pass those assets to
heirs. The second part will deal with inheritability of digital assets and possible
obstacles to it. The third part will concentrate on advantages of planning for
digital inheritance and ways to do it.
2014 a/b). Domain names have economic value too, eBay accounts generate
money, photos, videos or messages shared on a celebrity’s social profile can be
valuable after a celebrity dies (Edwards/Harbinja, 2016).
If artists upload their art to various sites (Amazon, iTunes etc.), another
problem arises if these accounts are un-inheritable – heirs will inherit copyright
but will not be able to control account content distribution, because they would
need to access the account to control its content. So, if heirs are not permitted to
access manuscripts posted on Amazon or music posted on iTunes, they are un-
able to publish decedent’s unpublished work. (Borden, 2014a, p. 431). Digital
1052
inheritance is also promoting individuals’ creation and labor; encourages pro-
ductiveness and exploration, but it also builds upon existing virtual economy
(Truong, 2009)
Furthermore, social media is often used as a coping mechanism for decedent’s
family and friends. Nowadays it is common, after a person dies, for his/her fam-
ily and friends to post their sentiments of Facebook which has become a central
point for persons coping with the loss of loved ones (Borden, 2014a). Dece-
dent’s friends and family sometimes even set up new online venues, like memo-
rial Web sites or Facebook pages that serve as an emotional outlet (Brubaker/
Callison-Burch, 2016; Arnold, 2013). Likewise, after a sudden death of a loved
one, family members might find answers and reach closure by having access to
decedent’s e-mail and social media profiles. There are fewer and fewer tangible
items, written or otherwise recorded, which contain information about our day-
to-day lives. Today they are mostly in a digital form. (Banta, 2014; McCarthy,
2015).
Most of these digital assets do not have monetary value, but they could be
extremely emotionally valuable to heirs, especially family members. Otherwise,
great parts of people’s lives might be lost forever after they die (Calem, 2010).
This might be very hard for surviving family members, but in some cases, it
might impact others as well – fans, historians, public in general, because, some
digital assets that belong to ordinary people might be of no financial value, but
when it comes to celebrities, scientists, presidents etc., even their mundane digi-
tal assets might be worth a lot of money (Beyer, 2015; Banta, 2014).
1053
ness might suffer severely – heirs will not know who the customers are and
how to contact them (Banta, 2014; Tarney, 2016). Digital assets also present
archives for correspondence which has always offered an insight into various,
sometimes historically important, events (Borden, 2014a; McCarthy, 2015).
Since today correspondence is, often, carried out via e-mails, if nobody inherits
those e-mails, some important facts could be lost forever.
Many commentators agree that digital inheritance can help prevent identity
theft, as well (Banta, 2016; Beyer/Griffin, 2011; Blachly, 2015; Cahn, 2014;
Varnado, 2014; Wilkens, 2011). Until authorities’ databases are updated re-
garding someone’s death, his/her identity can be stolen. Unless heirs have ac-
cess to decedent’s on-line accounts, they will have a hard time protecting his/
her identity (Todorova, 2009). Inheritance of digital assets is also important
in order to prevent content theft, since, if heirs are unable to access decedent’s
blog, for example, either because they are unaware of its existence or do not have
instructions or ways to access it, they might be unable to prevent blog contents
to be stolen (Beyer/Griffin, 2011).
Another advantage of inheriting digital assets is the prevention of losses to
the estate. Some digital assets may lose their value if they are not accessed and
managed for too long. For example, a decedent might have had website gener-
ating income, but in case nobody knows about it or cannot access it, its value
can diminish quickly. Also, electronic bills might keep coming and unless heirs
know about them or have access to them, they will stay unpaid and penalties
will accumulate (Beyer, 2015).
In Croatian legal system, there are no rules that explicitly regulate the in-
heritance of digital assets. However, upon analyzing general rules on inheri-
tance laid down in Inheritance Act (IA), one cannot find reasons why digital
assets should not be inheritable under the same conditions as tangible assets.
In most countries, after a person dies, what is left is either inheritable property
or property that does not pass on to decedent’s heirs for various reasons. For
example, a specific item might not belong to the decedent at the time of death;
it might have to cease to exist after decedent dies, because of its legal nature
(like the right of personal easement according to the Law on property and other
property rights, Art. 202) or it might have to be transferred to somebody other
1054
than decedent’s heirs (for example through donation mortis causa or contract on
lifelong support, Gavella/Belaj, 2008). Under general rules of succession law,
such items are not inheritable. Most commentators believe that the same rules
should apply to digital assets (Banta, 2014, 2016, 2017; Borden, 2014a, Cahn,
2014; Darrow/Ferrera, 2007, Varnado, 2014; Watkins, 2014 et al.)
However, most commentators agree there are a few issues that make digital
assets inheritability distinct, when compared to other property: 1. digital assets
are intangible; 2. some are password protected; 3. a lot is stored on ISPs’ servers
that have varying rules concerning account transferability and 4. some digital
content is in fact merely licensed from an ISP, with the license expiring at death
(Banta, 2014, 2016, 2017; Cahn, 2014; Darrow/Ferrera, 2007; Lopez, 2016,
Ronderos, 2017; Varnado, 2014; Watkins, 2014 et al.).
1055
One of the most cited explanations of why decedent’s e-mail accounts should
be inheritable is a comparison of ISPs to warehouses (Darrow/Ferrera, 2007;
Watkins, 2014). One of the most important obligations of a warehouse is the
return of stored goods to the person that has the receipt. However, if a person
died and did not leave the receipt, that would not mean that stored goods would
not be inheritable, since heirs could prove in court that the decedent did indeed
leave those items at the warehouse and, since they are his/her heirs, they should
be able to inherit them. Similarly, if an owner of items stored in a safe deposit
box or other storage facility died, his heirs would inherit those items, although
they lack keys to a safe deposit box or storage facility. The same should apply to
e-mails – just because heirs do not have log-in information, does not mean they
should be banned from inheriting decedent’s e-mails (Darrow/Ferrera, 2007).
Problems of not knowing passwords are not exclusive only to digital ac-
counts. Some digital assets stored on decedent’s computer can also be password
protected. However, unlike digital accounts which can be accessed even without
log-in information, with ISP’s permission, password protected files on some-
one’s computer, flash drive or smartphone can never be accessed without a pass-
word, even if heirs inherited those devices unless someone manages to brake
the encryption. One of the often-cited examples of this happening is a famous
conductor Leonard Bernstein, who died in 1990. He left a manuscript for his
memoir titled “Blue Ink” on his computer in a password protected file. To this
day, nobody has been able to break the password and access the document. (Mc-
Carthy, 2015; Varnado, 2014; Blachly, 2015)
of digital assets than their intangibility or not knowing log-in information. This
is because, even if heirs knew log-in information while accessing an account they
would probably be violating ISPs’ ToS (Eichler, 2016). Most of these agree-
ments state that neither heirs nor anyone else is permitted to access decedent’s
account, even if they had log-in information (Banta, 2014; Lopez, 2016). This
is because most ToSA state that, while content remains owned by an account
holder, the account itself cannot be transferred to or accessed by decedent’s heirs
(or anyone else, for that matter) since most of them contain a non-transferabil-
ity clause (Yahoo, 2018; Google, 2018; Microsoft, 2018).
1056
Account holders might have control over their account content during life.
However, ToSA will later be the main authority in governing the transfer of
digital assets at death. (Banta, 2014; Ronderos, 2017). So, regardless of the fact
that it would make sense for heirs to inherit digital assets, because they were
owned by the decedent and it was in accordance with his/her wishes, they will
not be able to, since in order to get to those assets, they first have to access dece-
dent’s account and ISPs will not let them because of their rules.
It has to be emphasized that some heirs have been able to attain access to
decedent’s account, but only after a legal battle. This happened in several cases;
non-more recognized than the highly publicized Ellsworth case: After Yahoo!
refused family members access to an e-mail account belonging to late U.S. ma-
rine Justin Ellsworth, his father sued Yahoo!. The reason for Yahoo!’s refusal was
that their ToS prohibit third parties from accessing someone’s account, even if
that someone is dead, and it is his/her family members demanding access. In
the end, the judge ordered Yahoo! to enable access to the deceased’s account
without ordering the transfer of log-in and password information. That way,
Yahoo! could still abide by its privacy policy, but family members could and did
gain access to deceased e-mails. It was done because the judge ordered Yahoo!
to provide a family with a CD containing copies of the e-mails in the account
(Edwards/Harbinja, 2016; Truong, 2009). However, they did not gain access to
deceased’s e-mail account or log-in information.
Because most ISP’s fear bad publicity and public backlash, this and many
other cases, show that if family members try to gain access and try hard enough,
1057
type of transfer. ISPs will either destroy account and its content or leave it on
their servers indefinitely.
There are certain ISPs that have allowed their clients to choose what they
would want concerning their accounts post mortem, like Google (Inactive Ac-
count Manager) and Facebook (Legacy Contact) (Google, 2018, Facebook,
2018, Amazon, 2018). According to some commentators, these types of solu-
tions seem like the preferred option, since account holders themselves tell an
ISP their wishes (Banta, 2014, 2016; Hopkins, 2013; Tarney, 2012)
agree that by not giving users ownership over digital content, ISPs are certainly
preventing and avoiding inheritability of digital assets (Sherry, 2012; Banta,
2014, 2017; Ronderos, 2017).
Regardless of what rights account holders have over purchased digital con-
tent, it would be preferable for ISPs to clearly outline a policy that considers
digital assets in their ToS (so the users would be aware of those rules). The
policy should explicitly state what rights if any, heirs have in the account and its
digital content (Borden, 2014b).
1058
4. PLANNING FOR DIGITAL INHERITANCE
Under rules of succession, heirs can either be testate or intestate. If a dece-
dent leaves a will, he/she will be inherited by persons named in a will (Inheri-
tance Act, Art. 43). Otherwise, intestate heirs will be the ones to inherit his/her
property (IA, Art. 8).
While making a will, usually the first thing a person does is make an inven-
tory of property (Blachly/Walker, 2011). This helps a lot with the distribution
of the estate, but it is not crucial since even if the decedent did not leave a will
or failed to specify what his inheritance consists of, there are simple ways of
finding out.
Tangible assets exist in the physical world, they can be comprehended, and
they are usually not left undiscovered. They have been owned and inherited
since the beginning of time, so there are rules, presumably in every legal system,
which help establish who owns a certain item. For example, under Croatian law,
it is presumed that movables are owned by the person who has possession of
them until proven otherwise (Law on Property…, Art. 11). The ownership of
immovable is even easier to prove: it is registered in land registry (Law on Land
Registry, Art. 23). Therefore, when it comes to tangible property, it is usually
not too hard to find out what the inheritance consists of. Of course, even with
tangibles, there is a possibility that certain parts of estate remain unknown at
the time of probate proceedings. However, there are rules that govern that situ-
ation, too (IA, Art. 234).
When it comes to intangible property like digital assets, things can get a
little more complicated. Since those assets are not tangible and many are stored INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
1059
Most people still do not think about the fact that these days, after most of
us die, not only physical assets are left behind, but a lot of digital ones as well.
This was understandable in the recent past because not many of us had digital
assets. And, maybe, that is the reason why most people do not think about digi-
tal assets in the terms of inheritance: digital assets have existed for only a short
period of time and it probably has not yet sunken into our collective conscious-
ness that they too are our property, albeit intangible one, and that they too will
be left behind after we die.
So, what does the fact that the decedent did not share that information really
mean: Did he/she want those assets to remain where they were, undiscovered
by heirs, forgotten and possibly deleted by service providers? Did the decedent
mean to share log-in information with heirs, but death beat him/her to it? Does
the fact that log-in information was not shared mean anything at all?
Some commentators (Horton, 2017) mention that digital accounts should
probably not be treated like other property and should especially not be trans-
missible by intestacy, because most account holders may not want their digital
assets to be inherited, and inheriting digital assets might harm third parties
1060
(i.e. recipients or senders of e-mails). Therefore, according to Horton, if the
decedent did not leave clear instructions in a will, intestate heirs should not
inherit their digital assets. Lopez (2016) agrees and states that the most impor-
tant thing to do, when it comes to digital inheritance, is to establish decedent’s
intent regarding the distribution of his/her digital assets. Cummings (2014)
also stresses that it is of the utmost importance to concentrate on decedent’s
intentions rather than heirs’ interests and wishes concerning decedent’s digi-
tal assets. Unlike Darrow/Ferrera (2007), who agree that heirs must not have
access to an account only in case an account holder gave such explicit instruc-
tions, Cummings (2014) proposes that in absence of account holder’s explicit
instructions that permit access to his/her heirs, access to an account must be
prohibited to anyone and its content must be destroyed after its holder dies.
These authors believe that, without explicit instructions stating otherwise, it
must be presumed that an account holder did not want anyone accessing his/
her account, which is completely opposite from what today applies to the rest of
decedent’s property if he/she dies intestate.
As an example, Cummings (2014) also mentioned late Justin Ellsworth
and stressed that, since he opened an account with Yahoo!, agreed to their ToS
knowing they state that an account is terminated upon its holder’s death and
kept his passwords a secret – it must be presumed that he did not want any-
body, including his father, to access his account, both during his live and after
death.
Other commentators disagree and state that people have always had vari-
1061
or deleting them. Therefore, heirs desire to preserve should trump ISPs’ desire
to destroy (Banta, 2014, p. 843; 2016, p. 848-853).
However, when it comes to intestate inheritance, it has to be emphasized
that there are no set rules on how digital assets will be inherited for testate
decedents, let alone for intestate ones (McCarthy, 2015). Nonetheless, a person
can at least try to alleviate some of these problems by making plans and stating
his/her intentions concerning digital assets (Truong, 2009). That way, heirs will
at least have a clear picture about what the decedent wanted, regardless of the
fact that, when it comes to digital accounts, under today’s ISPs rules, most wills
would not have much effect concerning access and inheritability. Likewise, wills
will also not influence what happens post mortem to digital content that was
licensed from an ISP.
So why do most people ignore planning for digital inheritance, even if there
are so many advantages to it? Apparently, some people do not want to share
their log-in information, others do not think their digital assets are worth plan-
ning for, some might be overwhelmed by the magnitude of their digital assets
and some just do not want to think about their death (Varnado, 2014).
making an inventory, a person will likely delete a lot of digital assets that have
no emotional, monetary or any other value (Watkins, 2014). Furthermore,
some assets might surface that their holder does not want anyone (or some per-
sons) to find out about. Therefore, he/she can delete them or take appropriate
measures to hide them.
After an inventory is made, digital assets’ holder has to make sure his/
her heirs can access those assets. As the late Leonard Bernstein’s manuscript
showed, it is important for owners of encrypted digital assets stored on various
devices, to leave heirs their passwords. Otherwise, it is possible that even the
1062
best experts will not be able to break encryptions and those assets will be lost
forever. Of course, when it comes to digital accounts, this is where the issue with
ISPs’ ToS comes to haunt anybody who ever opened such an account and would
want it inherited by his/her heirs. These ToSA forbid any type of account trans-
fer and therefore severely affect freedom of testation and ownership. One of the
ways to tackle this issue is for ISPs to let account holders choose what will hap-
pen to their account and its content, as was done by Google and Facebook who
both provided their clients with such possibilities (Inactive Account Manager
for Gmail and Legacy Contact for Facebook – Brubaker/Callison-Burch, 2016;
Cummings, 2014).
After heirs have been notified about the existence of digital assets, passwords
provided (if needed), there is one more thing left to do: make one’s instructions
about digital assets clear, just like one would do with tangible assets.
1063
reading of a will (heirs, judge or public notary, court clerks etc.). For obvious
reasons, most people would not want that. Regardless, wills are still probably
the simplest of ways to manage any property, including digital one. This is espe-
cially the case if a person is making a will anyway, in order to administer his/her
tangibles. Maybe the best solution to bypass above mentioned shortcomings
is, as some commentators suggest, to reference in a will a separate document,
stored elsewhere, containing a list of digital assets, testators wishes on what is
to happen to them with log-in and password information (Bayer/Griffin, 2011;
Watkins, 2014).
The most important reason why a testator would want to plan for his/her
digital inheritance in a separate document is the fact that said document does
not have to meet all of the formalities necessary for a will to be valid. Therefore,
it is much easier to change it. This document would not have to be attached
to a will, it would only need to be referenced in it. It could be stored in a per-
son’s house, safe deposit box, on a computer, flash drive or given to an attorney
(Bayer/Griffin, 2011; Watkins, 2014). Wherever it is stored, it is important for
a person to have constant access to it, in order to update it regularly (Eichler,
2016). While it might be a hindrance to update it on a regular basis, a document
containing a list of digital assets and instructions is easily done and requires no
assistance or special knowledge.
Another possible solution, as some commentators mention, is using an on-
line company. These services list every account, password, security question and
a person can specify what is to happen with each digital asset (Beyer, 2015;
Calem, 2010; Watkins, 2014). However, they are costly and information stored
on their servers are not 100% safe since they could get hacked any time (they
must very tempting to hackers looking for valuable information to sell). One
other problem with these companies is that there are no guarantees on how long
Dubravka Klasiček: DIGITAL INHERITANCE
they would exist – they could go bankrupt at any time or be sold to new owners
and as a consequence, information stored there could be lost. They could also
become subject to different terms of services that no longer suit their clients
(Watkins, 2014).
5. CONCLUSION
As this paper has tried to show, types of digital assets vary greatly and most
of their owners and ISPs that control many of them, are not sure where to go
1064
next in terms of their devisability. Owners, at best, want to treat them as tan-
gible property and apply the same rules to them that are applied to the rest of
their assets. At worst, their owners do not even think about them as assets hold-
ing any value that should be passed on to their heirs.
First of all, it seems like the most important thing to do is to make people
aware of the fact that most of us have a lot of these assets and a lot of them have
great emotional and monetary value.
Secondly, is very hard to presume the wishes of the decedent about his/her
digital assets, if he/she died intestate. In that sense, it seems password protected
digital assets should maybe be treated differently than, say, decedent’s clothes,
car or real estate. Therefore, it is crucial to try to awaken the public to how
important stating their intentions on what is to happen to their digital assets
is. The easiest way to plan for any type of inheritance is in a will. However,
because of certain peculiarities of digital assets, it is advisable not to put all the
information about them in a will, but rather in a separate document that is only
referenced in a will.
When it comes to digital assets purchased from an ISP, their “owners” must
be aware that a lot of times they have not purchased digital content, but a li-
cense to access and use it, which expires upon death. Digital assets stored on
ISPs’ servers are an altogether different story: they are subject to their ToS and
most of them do not let account holders transfer their accounts, inter vivios or
mortis causa. ISPs state that their ToSA has to prohibit transferability in order
for them to abide by the law governing the relationship between an ISP and
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
an account holder. Also, those ISPs are private companies and they have the
right to operate under any rules the law lets them operate under. So, until the
law changes, some other solutions have to be made. Stating directly to an ISP
what an account holder wants to be done with his/her account post mortem
is, as some commentators agree, the best way to resolve this issue. Google and
Facebook have already offered their clients that possibility with much success.
REFERENCES
Arnold, C., Managing Your Digital Afterlife, Scientific American, 9-1-2013;
http://www.scientificamerican.com/article/how-to-manage-your-digital-afterlife/
Banta, N.: Death and Privacy in the Digital Age; North Carolina Law Review, Vol. 94/ 2016
1065
Banta, N., Inherit the Cloud: The Role of Private Contracts in Distributing or Deleting
Digital Assets at Death; Fordham Law Review, Vol. 83/2014
Banta, N.: Property Interests in Digital Assets: The Rise of Digital Feudalism; Cardozo Law
Review, Vol. 38/2017
Beyer, G.W.: Estate planning for digital assets; Estate Planning Studies, January 2015,
https://static.montecito.bank/PDFs/201501051633_Montecito%20Bank%20%20
Trust%20Estate%20Planning%20Studies%20-%20Jan%202015.pdf
Beyer, G.W., Cahn, N.R.: When You Pass on, Don’t Leave the Passwords Behind: Planning
for Digital Assets; Probate & Property, Vol. 26, No. 1/2012
Beyer, G.W.; Griffin, K.M.: Estate Planning for Digital Assets; Estate Planning Develop-
ments For Texas Professionals, April 2011
https://www.researchgate.net/publication/228143280_Estate_Planning_for_Digital_As-
sets
Blachly, V.D.: Uniform Fiduciary Access to Digital Assets Act: What UFADAA Know; Pro-
bate & Property Magazine: Vol. 29, No. 04, 2015
Borden, M.: Covering Your Digital Assets: Why Stored Communications Act Stands in the
Way of Digital Inheritance; Ohio State Law Journal, Vol. 75/2014(a)
Borden, M.: The Day the Music Died: Digital Inheritance and the Music Industry; Enter-
tainment and Sports Lawyer, Vol. 31, No. 2/2014(b)
Brubaker, J.R; Callison-Burch, V: Legacy Contact: Designing and Implementing Post-Mor-
tem Stewardship at Facebook;
http://www.jedbrubaker.com/wp-content/uploads/2008/05/Brubaker-Callison-Burch-
Legacy-CHI2016.pdf
Cahn, N.: Postmortem Life On-line; Probate & Property, Vol. 25, No. 4/2011
Cahn, N.: Probate Law Meets the Digital Age; Vanderbilt Law Review, Vol. 67/2014
Calem, R.E.: What Happens to Your Online Accounts When You Die, Techlicious,
6-29-2010
https://www.techlicious.com/how-to/what-happens-to-your-online-accounts-when-you-
die/
Cummings, R.G.: The Case Against Access to Decedent’ E-mail: Password Protection as an
Dubravka Klasiček: DIGITAL INHERITANCE
Exercise of the Right to Destroy; Minnesota Journal of Law, Science and Technology,
Vol. 15, no.2/2014
Darrow J.J.; Ferrera, G.R.: Who Owns a Decedent’s E-mails: Inheritable Probate Assets or
Property of the Network?; Legislation and Public Policy, Vol. 10/2007
Edwards, L., Harbinja, E., Protecting Post-mortem Privacy: Reconsidering the Privacy In-
terests of the Deceased in a Digital World; Cardozo Arts and Entertainment, Vol. 32,
No. 1/2013
Eichler, A.C.: Owning What You Buy: How iTunes Uses Federal Copyright Law to Limit
Inheritability of Content, and the Need to Expand the First Sale Doctrine to Include
Digital Assets; Houston Business and Tax Law Journal, Vol. 16/2016
Gavella, N., Belaj, V., Nasljedno pravo, Narodne novine, Zagreb, 2008
1066
Gavella, N. et al., Stvarno pravo (vol. I), Narodne novine, Zagreb, 2007
Harbinja, E.: Virtual Worlds – a Legal Post-Mortem Account; A Journal of Law; Technol-
ogy & Society, Vol. 11, No. 3/2014(a)
Harbinja, E.: Virtual Worlds Players – Consumers or Citizens; Internet Policy Review, Vol.
3, No. 4/2014(b)
Horton; D.: Tomorrow’s Inheritance: The Frontiers of Estate Planning Formalism; Boston
College Law Review, Vol. 58/2017
Hopkins, J.P.: Afterlife in the Cloud: Managing a Digital Estate; Hastings Science and Tech-
nology Law Journal, Vol. 5, No. 2, 2013
Lopez, A.B.: Death and the Digital Age: The Disposition of Digital Assets; Savannah Law
Review, Vol. 3, No. 1/2016
Klarić, P.; Vedriš, M.: Građansko pravo, Narodne novine, 2014
McCarthy, L.: Digital Assets and Intestacy; Boston University Journal of Science & Technol-
ogy Law, Vol. 21, No. 2/2015
Moncur, W; Waller, A.: Digital Inheritance, 2014, (https://www.researchgate.net/
publication/260301931)
Ronderos, J.: Is Access Enough: Addressing Inheritability of Digital Assets Using the Three-
Tier System Under the Revised Uniform Fiduciary Access to Digital Assets Act;
Transactions: The Tennessee Journal of Business Law, 18/2017
Shaw, J.: Why Big Data is a Big Deal; Harvard Magazine, March-April. 2014
Sherry, K.: What Happens to Our Facebook Accounts When We Die?: Probate Versus
Policy and the Fate of Social-Media Assets Postmortem; Pepperdine Law Review, Vol.
40, No. 1/2012
Tarney, T.G.: A Call for Legislation to Permit the Transfer of Digital Assets at Death; Capi-
tal University Law Review, Vol. 40/2012
Todorova, A.: Identity Theft Can Happen After You Die Too; Fair Credit Reporting Act,
8-6-2009
1067
Legislation
Copyright and Related Rights Act, National Gazette 167/03, 79/07, 80/11, 125/11,
141/13, 127/14, 62/17
Inheritance Act, National Gazette 48/03, 163/03, 35/05, 127/13, 33/15.
Law on Land registry, National gazette, 91/96, 68/98, 137/99, 114/01, 100/04,
107/07,52/08, 126/10, 55/13, 60/13.
Law on Property and Other Property Rights, National Gazette 91/96, 68/98, 137/99,
22/00, 73/00, 129/00, 114/01, 79/06, 141/06, 146/08, 38/09, 153/09, 143/12,
152/14
Internet sources
https://www.amazon.com/gp/help/customer/display.html?nodeId=201380010
&pop-up=1
https://www.apple.com/legal/internet-services/itunes/us/terms.html
https://www.facebook.com/help/1568013990080948
https://support.google.com/accounts/answer/3036546?hl=en
http://www.google.com/intl/en/policies/terms/
https://www.microsoft.com/en-us/servicesagreement/
https://policies.yahoo.com/us/en/yahoo/terms/utos/index.htm
Dubravka Klasiček: DIGITAL INHERITANCE
1068
DATA MANAGEMENT AND
KNOWLEDGE MANAGEMENT IN
NOTARY PUBLIC SERVICE
Abstract
The purpose and reason of this paper is to illustrate how the data and knowl-
edge management in the public notary service contributes to its development
and future, as well as to the development of the economy and legal security.
The data on the financial expenses of the Croatian Notaries Chamber for the INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
professional development of public notaries and the computerization of the no-
tary public service clearly shows a constant investment in the development of
knowledge with the aim of ensuring the future of the service and its moderniza-
tion. The statistical data of the Central Bureau of Statistics, over the five years
period, clearly indicate the permanent presence of establishment and deletion
of companies where public notaries play a significant role in the preparation
and drafting of documents that are the basis of the registration and deletion
of companies in the court register, and are also a legal guarantee of the safety
of procedure. This constant, experience, and legal safety assurance argue that
public notaries continue to participate even more in the procedures of found-
ing and all changes taking place in companies. Continuing investments in the
1069
computerization of the notary public service provide a niche for keeping, in
addition to the existing one, and new electronic registers whose keeping requires
data security to be guaranteed. By investing in knowledge and computeriza-
tion, preconditions are ensured for the creation of invaluable capital that would
provide the notary public with competitive advantage over other existing or
future services in terms of retaining the general tasks defined by law, future
Pavao Gagro Duško Ljuština Ante Baran: DATA MANAGEMENT AND KNOWLEDGE MANAGEMENT IN NOTARY PUBLIC SERVICE
1. INTRODUCTION
In performing their activities, public notaries collect various types of infor-
mation about clients and their legal affairs. Public notaries draw up and issue
public documents on legal transactions, statements, facts, certify private doc-
uments, and, at the clients’ request, safekeeping documents, money and vari-
ous values for their submission to other persons or public bodies, and, when
demanded by courts or other public bodies, other procedures defined by law
(Public Notaries Act, Official Gazette 78/1993, 29/1994, 162/1998, 16/2007
and 75/2009, Article 2). Public notaries maintain the Register of Wills (Croa-
tian Register of Wills), the Register of Debentures and Blank Debentures, the
Register of Advance Directions and Powers of Attorney, and prepare and draft
documents required for the foundation of companies and the making of chang-
es in companies.
Through their extensive service experience (almost 24 years) public nota-
ries have gained a lot of knowledge and they are today in position to use this
knowledge to contribute to the entire social and economic community and to
strengthen the legal certainty. Public notaries (the Croatian Notaries Chamber)
have transformed their knowledge and experience into innovations and they
also transfer their knowledge to each other and to new generations through
the Croatian Notaries Academy. Their knowledge and experience is also in-
volved in building and creating the European Judicial Area. European public
notaries are committed to bring new solutions for everyday life of citizens by
2020, to support the development of business in Europe, to contribute to the
strengthening of cross-border cooperation among public notaries, to contribute
1070
to the efficiency of justice through the notary public act and to support national
administrations. (http://www.hjk.hr/portals/0/Plan_2020_small.pdf, access:
12-03-2018).
When looking at ancient history of the public notary service, it can be con-
cluded that public notaries throughout history have so far played an important
role in maintaining and managing the data contained in their archives. Today,
the public notary service, through modern information technology and its con-
stant development, has unlimited capability for data storage and data manage-
ment. Already in 1996, the public notaries in the Republic of Croatia recognized
the unlimited capabilities of information technology and for the purpose of its
official implementation, made amendments to the Notaries Rules of Procedure
(Amendments to the Notaries Rules of Procedure, Official Gazette 37/1996,
Article 3) that allow the public notaries to keep registers and directories in elec-
tronic form in a unique way for all public notaries. By this a new era of public
notary services in Croatia commenced, i.e. the electronic era.
Owing to the electronization, the ever-growing link between the public no-
taries services within the European Union and the possibility of exchanging
data among public notaries is gradually evolving, for example, ENRWA (The
European Network of Registers of Wills Association) which consists of cross-
national network of national registers of wills of member states.
2. DATA MANAGEMENT
1071
web application e-Notar. The properties of the new e-Notar application include
the following:
• It is a central application
• e-archive module is envisaged
• Link with external databases of other state bodies
Pavao Gagro Duško Ljuština Ante Baran: DATA MANAGEMENT AND KNOWLEDGE MANAGEMENT IN NOTARY PUBLIC SERVICE
• Data and application security is based on their location on two data centres
• Central backup
• Safe access through VPN, HTTPS, and double authentication through
the username, password and Google Authenticator (TOTP).
The system itself is characterized by the security of stored data, protection
against unauthorized access to the application itself and registers, lower mainte-
nance costs, unified application, data availability and information from its own
database or external databases with the ability to link to additional external
databases, simple upgrade options and automated collecting statistical data.
In order to prove the security of the new central application, in 2018 the
Croatian Notaries Chamber will launch the certification process of the applica-
tion in accordance with the international standard ISO 27001, which describes
how to manage the information security and is the most popular information
security standard.
1072
Amendments to the Execution Act, which entered into force on 1 September
2014. For this purpose, public notary offices are connected to the court e-no-
ticeboards to enable the delivery of written communications.
By the new application, public notary offices are linked with tax administra-
tions and the Ministry of Construction and Physical Planning for the purpose
of delivering scanned documents.
Public notary is obliged, upon verification of the signatures on documents
of the sale or other means of disposal of a real estate or upon drafting a notarial
act, and not later than 30 days, to submit one copy of the document, as well as
any other documents concerning the real estate transaction (contract on the
partnership, contract of establishing the right to build etc.), with information
on the personal identification numbers of the participants in the procedure, to
the Tax Administration Office in the area where the property is located, by elec-
tronic means (the Real Estate Transfer Tax Act, Official Gazette 115/2016, Ar-
ticle 18, paragraph 1). The quoted provision of the Real Property Transfer Tax
Act came into force on the same date as the Act itself, i.e. on 1 January 2017 and
since then any of the submitted documents by the public notary to the Tax Of-
fice under which the real estate transfer is made represents a tax return for the
real estate transfer (e-tax declaration). Inclusion of the public notary service in
such a process of automation of filing of real estate sale tax, requires to consider
the most stringent (notarial deed) of contractual form related to disposal of the
real estate (purchase/sale, lease, rent, pledge ...), all to ensure legal certainty and
protect the interests of the parties.
1073
Public notaries may submit in electronic form the applications for regis-
tration of the establishment of companies (only simple private limited liabil-
ity company (j.d.o.o.) and limited liability company (d.o.o). By adopting the
Companies Act, which entered into force on 1 January 1995, the security of
the founding of companies (legal security) was also to be ensured. The assur-
ance of such security has been recognized in the newly established public notary
Pavao Gagro Duško Ljuština Ante Baran: DATA MANAGEMENT AND KNOWLEDGE MANAGEMENT IN NOTARY PUBLIC SERVICE
service, and since that time until now, it has played an important role in har-
monisation of earlier forms of legal entities with the new Companies Act, and
in foundation and changes in existing companies. In 2008, a pilot project for
electronic foundations of companies was launched, enabling (E-tvrtka) today
to provide a much faster way to establish a simple limited liability company and
limited liability company within 24 hours. Despite the fact that the public no-
tary service has given a huge contribution to the harmonization, establishment
and implementation of changes in the companies, the upcoming legal changes
from the very beginning of the application of the new Companies Act announce
the exclusion of public notaries from the process of establishing companies
from remote location. Statistical data of the Central Bureau of Statistics, over
a period of five years, clearly indicate the permanent presence of establishment
and deletion of companies where public notaries play a significant role in the
preparation and drafting acts that are the basis of registration and deletion of
companies in the court register and they also were guarantors of legal security
of the procedure. The obvious continuity of the cycle of founding and delet-
ing companies, the experience and the legal security assurance are arguments
that public notaries participate even more in the procedures of founding and all
changes taking place in companies. As public notaries are connected through
this programme with of the Ministry of the Interior’s database and the records
ID cards and travel documents, they can play a significant role in preventing
identity theft and thus the theft of companies and abusing them, which is not
a rare case.
1074
Table 1 Number of established and deleted companies in the period 2013
– 2017
Year 2013 2014 2015 2016 2017
Number of established companies 14,177 13,852 12,429 13,450 14,882
Number of deleted companies 29,276 317 285 345 16,820
Source: Author’s calculation based on the information of the Central Bureau of Statistics
the about the number and structure of business entities in December 2014 – 2017
(https://www.dzs.hr/)
KƐŶŽǀĂŶĂƚƌŐŽǀĂēŬĂĚƌƵƓƚǀĂ ƌŝƐĂŶĂƚƌŐŽǀĂēŬĂĚƌƵƓƚǀĂ
Source: Author based on the information of the Central Bureau of Statistics the about the
number and structure of business entities in December 2014 – 2017 (https://www.dzs.hr/)
Table 1 and Graph 1 show the number of established and deleted companies
in the period 2013 – 2017. The continuity in the number of established and
1075
With regard to the presented possibilities of linking public notaries to ex-
ternal databases (public registers), it can be said that notaries have different
functions in relation to these registers. First, their editorial-certification func-
tion is reflected in all those cases where such documents are the basis for the
registration of any right or fact (for example, registration of a pledge as agreed in
the notarial act, entry of changes in share capital on the basis of the decision of
Pavao Gagro Duško Ljuština Ante Baran: DATA MANAGEMENT AND KNOWLEDGE MANAGEMENT IN NOTARY PUBLIC SERVICE
1076
powers of attorney, and the Execution register, which is currently in the prepa-
ratory stage.
1077
Diagram 2. Linear overview of the number of entries into HOU and the num-
ber of proclaimed wills in the period 2013 – 2017
ϯϱϬϬ
ϯϬϬϬ
ϮϱϬϬ
ϮϬϬϬ
ϭϱϬϬ
Pavao Gagro Duško Ljuština Ante Baran: DATA MANAGEMENT AND KNOWLEDGE MANAGEMENT IN NOTARY PUBLIC SERVICE
ϭϬϬϬ
ϱϬϬ
Ϭ
ϮϬϭϯ͘ ϮϬϭϰ͘ ϮϬϭϱ͘ ϮϬϭϲ͘ ϮϬϭϳ͘
Source: Author, based on work of the Croatian Notaries Chamber in the period 2013 to
2017, http://www.hjk.hr/Interne-stranice-HjkHr.
Since the notaries service plans to create e-Arhiv (Archive) in foreseeable fu-
ture, there is no reason that the Croatian will register is not upgraded in such a
way as to allow the electronic deposition of the will itself. The advantage of such
electronic storage is the protection of the testator’s last will against its physical
destruction due to external unpredictable impacts at the place where the will
is “kept” (flood, fire ...). In addition to public wills, personal wills could be also
converted into electronic form, of course, provided they retain their meaning
and essence also in electronic form. The private wills are those wills written and
signed personally by the testator and the wills written in the presence of wit-
nesses, whereby the testator declared in front of two witnesses simultaneously
present that was his/her will and signed it jointly with the witnesses.
Data to the HUO are submitted electronically, and persons submitting them
are required to provide technical conditions for data transfer.
The European Network of Registers of Wills Association (ENRWA) is
gradually linking the national will registers where the Croatian Notaries Cham-
ber has the role of observer for now. (http://www.arert.eu/Members.html, ac-
cessed on: 15 March 2018).
1078
in favour of whom it has been issued, whether the security for obligation from a
debenture or a blank debenture has been taken over and who did it, the amount
of the claim for which it was issued, i.e. the highest amount that can be entered
in it, the data about the public notary who certified the debenture, business
number of the certificate and the date (Ordinance on the Register of debentures
and blank debentures, Official Gazette 115/2012 , 125/2014, Article 1).
After solemnization of a debenture or a blank debenture, the public notary
shall be obliged to enter the debenture data electronically without any delay,
in the Croatian register of debentures. The Register is intended for preventing
misuse and forgery of debentures aimed to obtain unlawful material gain. A
creditor who was not been able to collect debt from a debtor after the due date
of the debenture, submits the debenture to the Financial Agency that collects
the debenture only if it is registered in the Croatian debenture register and if it
corresponds to the data provided in the HRZ.
Based on the Report on work of the Croatian Notaries Chamber in the pe-
riod from 2015 to 2017, Table 3 shows the total annual number of entered
debentures, the number of entered blank debentures and the total number of
entered debentures. The table shows the continuity of the number of entries
in the HRZ, and it is also obvious that debenture is used more often than the
blank debenture as a means of security of claims in the Republic of Croatia.
Table 3. Information about the number of entered debentures and blank de-
bentures in the period 2015 – 2017
1079
Mental Disorders, Official Gazette, 76/2014, Article 68). The Ordinance on
the manner of keeping records on binding statements, the manner of storing,
safeguarding and exercising the right of access to the data from binding state-
ments (Official Gazette 16/2015) prescribes the manner of keeping records of
binding statements, how they are stored, preserved and how the right to access
the information from the register is exercised. Pursuant to Article 2 of this Or-
Pavao Gagro Duško Ljuština Ante Baran: DATA MANAGEMENT AND KNOWLEDGE MANAGEMENT IN NOTARY PUBLIC SERVICE
1080
compared to the current solution are reflected in the reduction of the proceed-
ings costs, better communication between the parties (creditor and debtor) and
the notary public responsible to conduct proceedings, access to the file, creation
of a register of final and enforceable decisions and faster enforcement of the
procedure itself.
The new HJK central information system has been created in such a way as
to provide an easy way to upgrading the application for operation and creating
the Register of final and enforceable decisions.
2.3.4. The Central Electronic Data Exchange System with the State
Administration Bodies
The idea is to connect the central system with state administration bodies
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
through the central electronic data exchange system. At present, the system is
linked through the central application with the tax administration for the pur-
pose of sending e-tax tax declaration for real estate transactions. In the future,
it is planned to link the system to the Court Register of Commercial courts
for sending e-registrations of founding and changes in companies and to the
Land Register tribunals for sending e-proposals for registration of real property
rights.
Currently, notaries submit e-applications on foundation of companies (lim-
ited liability companies/ d.o.o. and public limited liability companies/j.d.o.o.)
through the application of e-Tvrtka HITRO.HR, and registration of owner-
ship rights and issuance of land registry excerpts is done through an application
within the Joint information system of land registers and cadastre (ZIS). With
1081
respect to companies and land registers, notaries can, through the new informa-
tion system, simplify and speed up the process of registration of real property
rights, foundations and changes in companies through obtaining authorization
for direct registration in land registers and court registers.
Pavao Gagro Duško Ljuština Ante Baran: DATA MANAGEMENT AND KNOWLEDGE MANAGEMENT IN NOTARY PUBLIC SERVICE
1082
domly assigned to public notaries to ensure the keeping up-to-date of the proce-
dure and the equitable distribution of tasks. (https://pravosudje.gov.hr/vijesti/
posjet-madarskoj-javnobiljeznickoj-komori/13646, accessed on: 06-04-2018).
In Germany, the Federal Chamber of Notaries built in 1992 the foundations
of electronic transactions by the Electronic Legal Transactions project. In 2000
the Federal Chamber of Commerce was granted an approval for issuance of
certificates of qualified (verified) electronic signature. The Chamber also estab-
lished a closed notaries’ network (Notarnetz) that secures Internet communica-
tion between participants (notaries) and thus promotes notaries business. The
Central Registry of Custody was established in 2003 to simplify the procedure
of appointing guardians by appointing trustees in advance according to their
own choice. (Maganić, 2013, 386-389).
Throughout Europe, public notaries are testing the computerized exchange
of sales contracts with the competent administration. In Italy, public notaries
carry out a unique procedure - owing to the UNIMOD software – for registra-
tion of sales contracts in the public register and payments of taxes to the state.
In France, the Télé @ ctes computer software connects public notaries with the
mortgage register department, which manages the public property catalogue
of land and collects taxes related to the real estate transactions. Public nota-
ries must therefore enter the sales contracts they made and pay the appropriate
fees. They also inspect the catalogue when preparing sales contracts. By Télé@
ctes these formalities and insight are computerized. The main advantage of this
programme is considerable time savings. A similar system was adopted in the
1083
3. KNOWLEDGE MANAGEMENT
Knowledge is defined in various ways:
• Facts, information and skills acquired by a person through experience or
education; theoretical or practical understanding of a subject,
• Totality of everything known in any field; facts and information,
Pavao Gagro Duško Ljuština Ante Baran: DATA MANAGEMENT AND KNOWLEDGE MANAGEMENT IN NOTARY PUBLIC SERVICE
1084
celerating all procedures and general citizens’ satisfaction. The e-Notary appli-
cation was developed in accordance with the General Data Protection Regu-
lation (EU Regulation 2016/679, EU Directive 2016/1148 of the European
Parliament and Council of 6 July 2016 on measures to establish a high level of
network and information security throughout the Union). Through the new
application, the Croatian Notaries Chamber provided a basis for information
upgrade and the future of the notary service business, which will inevitably be
dependent on digital communication and the digital market.
In the new central application for public notaries work contains knowledge
based on experience and long-standing practice of collecting data from all pub-
lic notaries. The new application is “alive” and new acquired knowledge of the
service is constantly being embedded in it so that it is changed and improved on
the initiative of public notaries and their needs arising from the practice.
The knowledge management of good quality requires continuous learning
and innovation, and integration and synergy between human and social capital,
organizational culture, business processes and information technology tools.
Knowledge management does not mean just creating, sharing and applying
knowledge, but above all creating the conditions for it to happen, i.e. changing
the overall organizational structure, culture and strategy (Bahtijarević-Šiber,
2014, page 231).
The knowledge management process consists of acquisition, preservation,
transfer and use of knowledge.
The knowledge management process itself is defined in the literature in vari-
ous ways, such as: INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
1085
.. Knowledge Acquisition
When it comes to knowledge, it should be said that in order to maintain
the competitiveness of an individual, company or institution must be subject to
constant quality upgrade. Knowledge is gained through education of employees
(lifelong training and learning), buying a share in a company or whole company
Pavao Gagro Duško Ljuština Ante Baran: DATA MANAGEMENT AND KNOWLEDGE MANAGEMENT IN NOTARY PUBLIC SERVICE
1086
spouses and related subjects. The European Directory of Notaries allows the
search of notaries in countries whose notaries service is a member of the CNUE.
The project Buying property in Europe gives answers to questions about the law
in real estate business and formalities when transferring real property rights.
Since 1998, the initiative of the notaries of six countries (Austria, the Czech
Republic, Hungary, the Republic of Croatia, Slovakia and Slovenia) there has
been an informal initiative of the Hexagonale since 1998 within CNUE, where
public notaries through cooperation analyze and take common positions on rel-
evant topics within CNUE (http://www.hjk.hr/O-Komori/Mediculturalism,
accessed on: 19 March 2018).
1087
existing knowledge is extended. The three most common obstacles to knowl-
edge sharing are time distances, physical and spatial distances and social one
(Bahtijarević-Šiber, 2014, p. 263). For transferring knowledge, the skill how to
convey it is also needed beside the knowledge. Conversion from tacit to explic-
it knowledge means finding ways to express what is beyond words (Nonaka,
1991, p. 99).
Pavao Gagro Duško Ljuština Ante Baran: DATA MANAGEMENT AND KNOWLEDGE MANAGEMENT IN NOTARY PUBLIC SERVICE
1088
Article 20 of the Rulebook on the work of the Croatian Notarial Academy
defines the competence of the Academy to organize and supervise the imple-
mentation of e-public notarial practice. One of the projects of the Croatian No-
taries Academy is creation of the notarial practice that can be posted on a closed
site of the Croatian Notaries Chamber and available through the new e-Notar
application. This collection would, in addition to the notaries practice, contain
all the conclusions and minutes of the Chamber’s decisions. As shown in Table
4 and Graph 3, the Croatian Notaries Chamber continuously allocates funds
for the work of the Croatian Notaries Academy and computerization through
the four-year period, which is a clear sign of awareness of the importance of
investing in knowledge and technology.
Table 4. Budget funds of the Croatian Notaries Chamber allocated for the
Croatian Notaries Academy and computerization for the period 2015
– 2018
Year 2015 2016 2017 2018
HJA kn 650,000.00 kn 600,000.00 kn 600,000.00 kn 720,000.00
Computerization kn 400,000.00 kn 540.000.00 kn 700,000.00 kn 275,000.00
Source: Author based on information from the Minutes of the 20, 21 and 22 regular general
meetings of the Croatian Notaries Chamber, http://www.hjk.hr/Interne-stranice-
HjkHr .
Graph 3. Budget funds of the Croatian Notaries Chamber allocated for the
Croatian Notaries Academy and computerization for the period
2015 – 2018
ϴϬϬϬϬϬ INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
ϲϬϬϬϬϬ
<ƵŶĂ
ϰϬϬϬϬϬ
ϮϬϬϬϬϬ
Ϭ
ϮϬϭϱ ϮϬϭϲ ϮϬϭϳ ϮϬϭϴ
,: /ŶĨŽƌŵĂƚŝnjĂĐŝũĂ
Source: Author based on information from the Minutes of the 20, 21 and 22 regular general
meetings of the Croatian Notaries Chamber, http://www.hjk.hr/Interne-stranice-
HjkHr .
1089
.. Knowledge Use
The use and application of knowledge in the notarial service plays a major
role in self-promotion, development, maintenance of service and expansion of
its activities. Each notary should be a knowledge worker, because the future of
the service is ensured in this way.
Pavao Gagro Duško Ljuština Ante Baran: DATA MANAGEMENT AND KNOWLEDGE MANAGEMENT IN NOTARY PUBLIC SERVICE
Knowledge workers use their intellect to transform new ideas into new prod-
ucts, services, processes, and solutions and enhancements. Their greatest value
relates to their ability to collect and analyze relevant information and to make
decisions for the benefit of the organization they work in. Knowledge workers
are often defined as a group of different professions or professions that are most
often related to information technology or some other high technology, however,
it does not have to be a condition. The professions that are mentioned in the lit-
erature in the context of knowledge workers are: scientists, engineers, computer
scientists, professors, psychologists, lawyers, doctors, bankers, accountants and
physicists ... they secure their position through their formal education. They
daily use knowledge in their work to create new knowledge and thus become
the generators of improvement and development. They become the foundation
of society, and the society in which they operate is called the knowledge society
(Bakotić, 2012, pp. 145-147). Knowledge workers represent human capital that
is inspired by the individual through his innovations, creativity, ambition, en-
thusiasm, focus on achieving goals, responsibility, rationality and self-initiative.
Public notaries in the Republic of Croatia are people with great legal experience
and potential, and based on acquired knowledge, improvement and acquisition
of new knowledge, are able to improve the notaries service, strengthen its posi-
tion and contribute to the general public interest.
Users of notarial services can recognize the notarial service as a resource of
knowledge used for the purposes of legal security of all transactions they make
either privately or for business purposes. This is meant to recognize the advan-
tages provided by notarial documents and notarial securities, which are public
and enforceable documents that permit immediate execution.
Basic shortcomings refer to insufficient promotion of the public notary ser-
vice and lack of recognition of its potentials. By investments in informatiza-
tion and through possessing vast knowledge and experience, the public notary
service has the opportunity to make even greater contribution to legal certainty
and public interest. In cooperation with the Ministry of Justice and through the
1090
long-awaited amendments to the Public Notary Act, the public notary service
has the opportunity to demonstrate its full potential through the extension of
its powers. Regarding the companies, the current solution covers the establish-
ment of companies (limited liability company/ d.o.o. and a simple limited li-
ability company j.d.o.o.) through the application e-Company HITRO.HR -
service of the Government of the Republic of Croatia (http://www.hitro.hr/
Default.aspx?sec= 72, accessed on: 06-04-2018). The problem of such a solu-
tion is that it allows public notaries only to establish a limited liability company
and a simple limited liability company with no possibility to make changes in
an already existing company through the application. Furthermore, there is a
problem in the speed of establishment. Even though it is an electronic proce-
dure, the registration of the company in the court registry is not immediate
but the registration is done within 24 hours, and all documents sent electroni-
cally to the court must be delivered to the court in paper form, and notaries
are now only intermediaries between the parties and the court, while the reg-
istration is done by the competent commercial court. In order for a registered
company to start doing business, another few days are needed to enter it in
the court register (delivery of a decision on registration in the court register,
stamp making, obtaining a statistical number, opening an account with a bank
...). Connecting the central information system of the Croatian Chamber of
Notaries (the central electronic data exchange system) with the court register
and other state administration bodies, would allow direct registration of newly
established companies into the court register and entry of any future changes
in existing companies. The advantages of such connecting are instant entry into
1091
between parties and commercial courts, but would also conduct the procedure
of registration of companies into the court register and the process of register-
ing changes in the companies.
With regard to the transfer of real property ownership rights, citizens can
now, after signing a sales contract and it notarized it by a public notary, who will
submit an e-proposal to enter it into the land register by a lawyer and public
Pavao Gagro Duško Ljuština Ante Baran: DATA MANAGEMENT AND KNOWLEDGE MANAGEMENT IN NOTARY PUBLIC SERVICE
notary for execution in the land registry. After receipt of the appropriate pro-
posal for registration, the registration of the ownership right of the real estate is
carried out by the land registry department. A much better and simpler solution
for the transfer of real property ownership rights would be to define the format
of a notarial act for contracts relating to the transfer of property ownership
rights and direct entry of changes in property ownership rights on real estate by
public notaries.
In this way, legal security would be guaranteed, and the notary public office
would be the place where the parties conclude a contract, enter the ownership
right, and send an e-registration of real estate sales tax, all at the same time. As
traditional keepers of archival records, public notaries have the opportunity to
contribute to the physical safety of archival material through the development
of an electronic document in a way that protects it from decay and converts it
into electronic form. In this case, special attention should be paid to the protec-
tion of data protection, which is planned by the introduction of ISO interna-
tional standards of information security.
4. CONCLUSION
Information communication technology, data management and knowledge
management play an important role in the notarial service, because they great-
ly affect the effectiveness of the notarial service in a positive sense. Data and
knowledge management in good quality enhances the efficiency of the notarial
service and makes it recognizable to its contribution to increasing the efficiency
of other government services and to improving legal and economic security,
transparency and cost reduction. By constant investing in computerisation and
improving the application solutions, the Croatian Notaries Chamber techno-
logically has been improving the service and ensures its future. The qualities of
the new central information system of the Croatian Notaries Chamber are that
it can respond to all the challenges of linking through the web service and the
1092
possibility of participating in the realization of future IT projects of the Minis-
try of Justice. The central information system of the Chamber has the ability to
take over the management of new registers (e.g. registers of marriage contracts,
register of final and enforceable registers, power of attorney register, register of
lifelong support contracts and contracts for support until death), and experi-
ence in the current register management is a guarantee of data security (record
of the Governing Board of the Croatian Notaries Chamber).
The Notaries Service is still not sufficiently recognized, a huge role in pre-
venting disputes and reducing the burden on the judiciary system and has the
potential to further contribute to legal and economic security. The notarial ser-
vice now has technology and knowledge that enable it to become a leader in
bringing new solutions (innovations) in the area of legal security and data secu-
rity. The new application for public notaries opens up the possibility of data ex-
change among public notaries and notaries and other institutions and registers,
and there is also the possibility of exchanging data with other institutions and
registers within the European Union.
By inspecting the data presented on the number of entries in the registers
currently kept by the Croatian Notaries Chamber shows the continuity of the
entry numbers, and considering the Croatian will register, it can be said that
there is a trend of increasing the number of entries over the observed period. It
is the experience and the tradition of keeping registers on the side of the nota-
ries regarding the potentials that notaries maintain all future registers.
The Notaries Service played an important role in harmonisation of earlier
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
forms of legal entities with the new Companies Act and currently plays an im-
portant role in the process of establishing and making changes to existing com-
panies. This tradition and the experience of the notarial service must be taken
into account when introducing a new electronic establishment of companies
so that, as so far, the establishment is under supervision and in order to ensure
legal certainty.
Through the establishment of the Croatian Notaries Academy and the
adoption of the Rulebook on the work of the Croatian Notaries Academy, the
Croatian Notaries Chamber recognized the important role of knowledge man-
agement for the future of the service, in particular by acquiring new knowledge,
collaboration with universities and other professional organizations, training
and publishing (publishing of journals, collections, manuals).
1093
LITERATURE
Bahtijarević-Šiber, F. (2014). Strateški menadžment ljudskih potencijala - Suvremeni tren-
dovi i izazovi, Školska knjiga, ISBN: 978-953-0-30281-5, Zagreb
Bakotić, D. (2012.). Menadžerski izazovi u funkciji vođenja radnika znanja u suvremenim
poduzećima. Ekonomski fakultet Split Sveučilište u Splitu UDC: 65.012.4 J24, O47
str. 145-156. Available at: https://hrcak.srce.hr/83766. (Accessed on: 20-03-2018)
Pavao Gagro Duško Ljuština Ante Baran: DATA MANAGEMENT AND KNOWLEDGE MANAGEMENT IN NOTARY PUBLIC SERVICE
Ernst, H. & Josipović, T. (2009). Javni bilježnici i javni registri. Zbornik Pravnog fakulteta
u Zagrebu, Vol.59 No.6, str. 1117-1152. Dostupno na: https://hrcak.srce.hr/45425
(Accessed on: 20-03-2018)
Hrvatska javnobilježnička komora & Notaries of europe. Javni bilježnici u Europi. Javno
bilježništvo u službi Europe
Izvješće o radu Hrvatske javnobilježničke komore u periodu od 2013. do 2017. godine. Avail-
able at: http://www.hjk.hr/Interne-stranice-HjkHr (Accessed on: 20-03-2018)
Maganić, A. (2013). Javni bilježnik u elektroničkom pravnom prometu. Zbornik Pravnog
fakulteta u Zagrebu, Vol.63 No.2, str. 383-431. Dostupno na: https://hrcak.srce.
hr/109711 (Pristup: 06-04-2018)
Nonaka, I. (1991.), The knowledge-creating company, Harvard Business Review, 69 (6)
Panian, Ž. (2013.), Elektroničko poslovanje druge generacije, Ekonomski fakultet Zagreb,
ISBN: 978-953-6025-70-1, Zagreb
Upravni odbor Hrvatske javnobilježničke komore (2016), Pravilnik o radu Hrvatske
javnobilježničke akademije,
Zapisnik sa 194. sjednice Upravnog odbora Hrvatske javnobilježničke komore. Available at:
http://www.hjk.hr/Interne-stranice-HjkHr (Accessed on: 20-03-2018)
Zapisnik sa 195. sjednice Upravnog odbora Hrvatske javnobilježničke komore. Available at:
http://www.hjk.hr/Interne-stranice-HjkHr (Accessed on: 20-03-2018)
Zapisnici sa 20., 21., 22. redovne skupštine Hrvatske javnobilježničke komore. Available at:
http://www.hjk.hr/Interne-stranice-HjkHr (Accessed on: 20-03-2018)
Zbirka propisa o javnom bilježništvu Republike Hrvatske, Ruždjak, J. M. (ur), str. 265-274,
ISBN: 978-953-98839-5-7, Zagreb, studeni 2016., Hrvatska javnobilježnička aka-
demija, Hrvatska javnobilježnička komora, Zagreb.
https://www.dzs.hr/Hrv_Eng/publication/2014/11-01-01_04_2014.htm (Accessed on:
20-03-2018)
https://www.dzs.hr/Hrv_Eng/publication/2015/11-01-01_04_2015.htm (Accessed on:
30-03-2018)
https://www.dzs.hr/Hrv_Eng/publication/2016/11-01-01_04_2016.htm (Accessed on:
20-03-2018)
https://www.dzs.hr/Hrv_Eng/publication/2017/11-01-01_04_2017.htm (Accessed on:
20-03-2018)
https://www.dzs.hr/ (Accessed on: 20-03-2018)
http://www.hjk.hr/Interne-stranice-HjkHr (Accessed on: 20-03-2018)
http://www.hjk.hr/portals/0/Plan_2020_small.pdf (Accessed on: 12-03-2018)
1094
http://www.arert.eu/Members.html (Accessed on: 15-03-2018)
https://hr.wikipedia.org/wiki/Znanje (Accessed on: 19-03-2018)
http://www.skladistenje.com/wp-content/uploads/2013/06/KM.pdf (Accessed on:
19-03-2018)
http://www.hjk.hr/O-Komori/Medunarodna-suradnja (Accessed on: 19-03-2018)
https://pravosudje.gov.hr/vijesti/posjet-madarskoj-javnobiljeznickoj-komori/13646 (Ac-
cessed on: 06-04-2018)
http://www.hitro.hr/Default.aspx?sec=72 (Accessed on: 06-04-2018)
https://esavjetovanja.gov.hr/ECon/MainScreen?entityId=5126 (Accessed on: 06-04-2018)
Izmjene i dopune Javnobilježničkog poslovnika, Narodne novine 37/1996
Odluka o ustroju registra anticipiranih naredbi i punomoći u elektroničkom obliku, Narodne
novine 20/2017
Pravilnik o Hrvatskom upisniku oporuka, Narodne novine 135/2003, 164/2004
Pravilnik o načinu vođenja evidencije o obvezujućim izjavama, načinu pohranjivanja, čuvanja
i ostvarivanja prava pristupa podacima iz obvezujućih izjava, Narodne novine 16/2015
Pravilnik o registru zadužnica i bjanko zadužnica, Narodne novine 115/2012, 125/2014
Zakon o javnom bilježništvu, Narodne novine 78/1993, 29/1994, 162/1998, 16/2007 i
75/2009
Zakon o porezu na promet nekretnina, Narodne novine 115/2016
Zakon o sudskom registru, Narodne novine 1/1995, 57/1996, 1/1998, 30/1999, 45/1999,
54/2005, 40/2007, 91/2010, 90/2011, 148/2013, 93/2014 i 110/2015
Zakon o zaštiti osoba s duševnim smetnjama, Narodne novine 76/2014
1095
Business
Administration and
Business Economics
INTERCULTURAL BUSINESS
MANAGEMENT DEVELOPMENT
AND EDUCATION PROGRAMS IN
BUSINESS SCHOOLS
Abstract
This paper aims to reflect on the management of organizational intercultural
relations under the analysis of trends in the evolutionary development of orga-
nizations. It is questioned whether business schools are doing the right approach
to teach, research, train and consulting on multiculturalism to harmonize the
principles of cultural diversity that are more than an ethnocentric orienta-
tion, monocultural or multiculturalism with universal ethical principles. The
method used to analyze the phenomenon of organizational multiculturalism
is based on the understanding of the interrelationships in the cultural diversity
of individuals interacting in concert to achieve common goals. The work also
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
underpins some analysis principles of the creation, development and manage-
ment of organizational intercultural capital, and they are characterized to raise
some assumptions of organizational multiculturalism. Finally, the emergence
of a model of strategic management of organizational interculturalism focused
on learning and training for proper operationalization and implementation is
proposed, and some challenges and proposals are formulated.
Key words: Intercultural organizational, strategic, cultural, organizational in-
tercultural capital.
JEL Classification: B490, B590, L290
1099
1. INTRODUCTION
In recent years, the institutional and organizational evolution as a result of
José G. Vargas-Hernández: INTERCULTURAL BUSINESS MANAGEMENT DEVELOPMENT AND EDUCATION PROGRAMS IN BUSINESS SCHOOLS
1100
values such as justice, freedom, equality, mutuality, diversity, respect, under-
standing, acceptance, peace building, etc.
Intercultural interactions contrast with other types from each other by dif-
ferences and intercultural interactions, which are a source of confusion and mis-
understanding. One of the most widely used frameworks to analyze the cultural
differences of values in organizations that relate to the group’s tendency to as-
sign approval to abstract concepts of certain ways of being of a people. Some
of these cultural values are analyzed in terms of individualism / collectivism,
tolerance for ambiguity, social roles, time orientation, etc.
The cultural differences between people of different cultural backgrounds
working in the same team or project are an opportunity for synergy. Each of
these individuals has a responsibility to adapt and get to model behaviors
that are competitive across cultures creating a third culture throughout the
organization.
Contacts and cultural interactions in organizations take place on the job,
social and educational institutions contexts, regardless of the interests of in-
dividuals from different cultures to meet other people with different cultural
backgrounds (Allwood, Lindström, Börjesson, Edebäck, Myhre, Voionmaa
2007, p.18). In intercultural interactions of organizations there are comprehen-
sive mutuality, reciprocity and equality.
Intercultural contact is as much a condition as a result of the functionality
of intercultural relations in organizations that support and strengthen environ-
ments where members maintain equitable cooperation relations socially accept-
ed with rejection to negative stereotypes (Aneas, 2015). In intercultural orga- INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
nizational business objectives and universality of ideas intersect leaving room
for further cooperation between organizations in the private and public sectors.
1101
market, the influence of national and organizational culture and intercultural
communications decision process. To participate and promote business with a
global marketplace perspective is require training in intercultural motivation,
José G. Vargas-Hernández: INTERCULTURAL BUSINESS MANAGEMENT DEVELOPMENT AND EDUCATION PROGRAMS IN BUSINESS SCHOOLS
1102
and differences between cultures, at the several management levels within and
between organizations.
Global business management is critical competence that requires intercul-
tural learning and training (Bi, 2014). Intercultural management in organiza-
tions deals with different models at national, business and ethnic diversity levels
to recognize some similarities and differences. People meet in intercultural set-
tings with a specific situations and environments to make decisions and solve
problems.
The intercultural perspective of business management curriculum to be
taught at business schools must be student-focused. Individuals involved in
organizations, business and institutions in international situations and envi-
ronments tend to acquire and perform more intercultural sensitivity and capa-
bilities. Intercultural management practices both within and among cultures
benefit the reliability and the trustworthiness of the organization, processes of
cooperation where the interests of economic factors play a relevant role as a
result of human actions. Intercultural management by projecting morals gives
form to relationships between cultures and organizations.
Intercultural business management requires adequate study and research
programs to promote intercultural awareness and to improve culture learning at
the core of instructional and linking with business practices. Intercultural busi-
ness management learning and teaching theories with practical implications in
global business and economic activities must be aimed to improve professionals
and student’s capabilities. The learning activities are placing emphasis on inter-
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
cultural business management at the organizational level (Cao 2012).
However, some scholars argue that these skills, such as intercultural com-
munication cannot be learned from a course and from a body of knowledge, but
only from communicating across cultures. To achieve these goals, business stu-
dents are encouraged to have overseas living, studying and working experiences
to have opportunities on interactions in intercultural business management.
3. CULTURAL DIVERSITY
The intercultural organization is located in two-way interactions between
the reality of society and organizations. It is in this space where the roots of
cultural diversity are. The intercultural organization is a resource that consists
1103
of cultural diversity in terms of racial and ethnic heritage, gender and sexual
orientation, age, physical ability, sexual orientation, professional group, etc.
José G. Vargas-Hernández: INTERCULTURAL BUSINESS MANAGEMENT DEVELOPMENT AND EDUCATION PROGRAMS IN BUSINESS SCHOOLS
The background and cultural features that shape the identities of the or-
ganizations, behaviors, values, attitudes, perceptions, etc., influence the devel-
opment of organizations. The cultural capital is defined as the stock of values
upon which the structure of each society is characterized it as different from
others (Throsby, 2005). Among the main values that are considered practices
are integrity, power levels, the purely cultural aspects and respect (Himmel-
stern, 2007).
The diversity of cultures can be explained from perspectives such as philoso-
phy, emerging systems of complex interactions between cultures and human
habitat and in terms of intercultural contacts. Cultural diversity is viewed as
dynamic interactions between ethnic-racial, social, religious and cultural dif-
ferences, etc., they are essential to the promotion of intercultural organizations.
Religious expression is an important component of intercultural organization
is pushed as an issue for firms and organizations for several demographic trends
and public sector.
Intercultural organizations ensure the mix of individuals with diverse ethnic
and racial origin, gender, religion, beliefs, values, etc., with ability to influence
its internal work environment in accordance with the society in which it is im-
mersed. Organizations with a wider range of the population are more sensitive
to understand from the nature of intercultural organizational needs, desires and
fears of prospects and customers and therefore provide satisfactions, services
and products of superior quality (Adler, 1983; Griggs, 1991; Gasorek, 1998;
Gardenswartz and Rowe, 1998, 1994: Susaeta and Navas, 2005).
In this atmosphere of cultural diversity, the meetings of individuals to imple-
ment policies and corporate and business strategies, develop new satisfactions,
implement joint projects and solve problems that require long periods of time,
also require resources and technical expertise, resources and intercultural com-
petencies that provide the interaction of different national cultures
4. MULTICULTURALISM
Multiculturalism as a dynamic and dialectical process recognizes the exis-
tence and convergence of various cultures as a space between the local and glob-
1104
al processes that intersects social and cultural networks articulating personal
and collective identities (Hall, 1973). In organizational multiculturalism are al-
lowed and included a diversity of individuals in cultural groups with equal sta-
tus but remain one’s side by side of others, many times isolated from each other.
Tolerance is valued and differences are celebrated in cultural expressions but
the differentials of power untreated and exchange among the different groups
are not allowed, only focuses on the representation, i.e. it is required only a su-
perficial and friendly social interaction (The United Church of Canada (2011).
1105
6. CREATION, ORGANIZATIONAL
DEVELOPMENT AND MANAGEMENT OF
José G. Vargas-Hernández: INTERCULTURAL BUSINESS MANAGEMENT DEVELOPMENT AND EDUCATION PROGRAMS IN BUSINESS SCHOOLS
INTERCULTURAL CAPITAL
The intercultural capital consists of the stock of forms and types of symbolic
capital to represent the thoughts, emotions, values, experiences, skills and com-
petencies, etc., in ways of being, acting, thinking, etc. Intercultural experiences
from the action of the skills are internalized in individuals with common mean-
ings to generate organizational synergy and empathy influencing performance
of intercultural groups. Organizational diversity and intercultural organization
have an impact on competitiveness and organizational performance (Cox and
Blake 1991; Cox 1991, 2001; Milliken and Martins 1996; Thomas and Ely
1996; Williams and O’Reilly 1998; Pelled et al 1999; Kochan Bezrukova, Ely,
Jackson, Joshi and Jehn et al. 2003; Jackson, Joshi & Erhardt 2003; Joshi and
Roh 2009).
Intercultural and cultural diversity in organizational settings influence the
dynamics of the groups and the organization of work (Milliken and Martins
1996; Williams and O’Reilly 1998, Ely and Thomas 2001; van Knippenberg
and Schippers 2007). Intercultural capacities of organizations compounded by
international experiences increase levels of intercultural organization capital
and cultural levels of cosmopolitanism, both at the individuals and the organi-
zations themselves.
The development of intercultural competences is the result of complex pro-
cesses that require time and abundant resources. Organizations and corpora-
tions that will dominate the 21st century global market are those who are able
to realize their full potential of intercultural capital in human resources and
group teams. The development of intercultural competencies has implications
for people and organizations that have to work in intercultural environments
and global contexts
Distefano and Maznevski (2000) typify the intercultural teams as leveling
where members were successfully integrated to meet the objectives without nec-
essarily generating the added value resulting from the synergy of a team that has
cultural homogeneity. The ethnocentric approach contrasts with the acquisi-
tion of intercultural organizational capital because it is based on prejudices and
stereotypes rather than cultural generalizations based on serious research on
culture.
1106
The processes of creation, capture, development, integration, retention
and administration of this intercultural capital that go across the geographical
frontiers. It is in this sense that for -Alcázar, Romero Fernandez, Sanchez &
Gardey, (2012) diversity of human capital is a concept formed by demographic
attributes such as age, gender, nationality, education, type of training, status in
employment, and functional expertise. Aswell human capital attributes include
knowledge, experiences, cognitive styles and values
The policy-oriented companies by intercultural organization provide inter-
cultural training programs and human resource development to strengthen this
area through a process of integration of diversity and inclusion in their daily
activities.
1107
The analysis of cultural interactions are erroneously supported on general-
izations that do not always have specific applications to culture groups, such as
cognitive style that can be concrete or abstract, communication style that can
José G. Vargas-Hernández: INTERCULTURAL BUSINESS MANAGEMENT DEVELOPMENT AND EDUCATION PROGRAMS IN BUSINESS SCHOOLS
be high and low context, the use of language in the rituals of verbal greetings,
nonverbal behaviors in visual contact, etc.
The multidimensional construct metacognitive CQ (Earley and Ang, 2003)
is defined as the ability of consciousness and alertness that individuals have
for intercultural interactions through mental, motivational and behavioral com-
ponents. Therefore, intercultural organization reflects the mental capacities of
the individual members to acquire and understand culturally diverse situations
through the processes of knowledge and control over individual thinking (Fla-
vell 1979).
Monoculturalism and little intercultural organization are phenomena cou-
pled with prejudice made by the method of analysis that can lead to a variety
of dysfunctions and organizational deficiencies. All organizations, including
companies, to reach the level of intercultural organization require moving from
an exclusionary monocultural organization of minorities to a intercultural or-
ganization inclusive of all groups and minorities around values-centered in the
diversity and intercultural relationships between members.
The various dimensions and components of the national culture are factors
that influence decisively in the interactions, relationships and behaviors among
individuals and organizations. These relational factors affecting strategy and
management (Trompenaars, 1993), and therefore organizational performance,
can become more important than the technical factors (Whiple and Frankle,
2000).
Differences of culture in organizations have an influence on the contacts
and interactions of intercultural organization (Hamada, 1989; Garsten, 1993).
Organizations seeking to reach diverse consumers and markets (Gomez-Mejia,
Balkin and Cardy, 2001) require the creation and development of an organiza-
tional culture focused on diversity and plurality that is based on the promotion
of values, behaviors, attitudes, activities, ceremonies and rituals that encourage
intercultural organizational processes. The organizational culture, or corporate
culture is rooted in the values of the founders converted into common practices
and rules for members of the organization, where differences are understood
values (Hofstede, 1999, p. 19).
1108
8. CHARACTERIZATION OF INTERCULTURAL
ORGANIZATION
The intercultural organization is characterized in that the organization of-
fers conditions of support and help to its members to adapt socially, culturally
integrate and improve their psychological health and their professional compe-
tence involve in high level of acceptance. The intercultural organization facili-
tates creating inclusive work environments, to respect and promote its vision,
cultural values and sustainability of local communities where they operate, to
establish more effective cooperation relations with investors and suppliers, to
promote investment social programs, to meet and satisfy the needs, desires and
specific fears of the different segments of prospects and customers, etc.
The intercultural organizational characteristics has as mainstreaming, in-
dividual subjectivity, tasks and labor relations, contextual influence, learning
processes, data analysis and complex decision-making and the integration of
cognitive, emotional, attitudinal and behavioral components. However, in the
intercultural organizational processes are common that cognitive and emotion-
al elements overlap. Intercultural processes all benefit from the changes through
interaction with others (The United Church of Canada (2011).
The sociocultural characteristics of the members of an organization are cru-
cial to the diversity of relationships and interactions of intercultural organi-
zation, which can identify differences in membership and group memberships
that are significantly different in their culture, their characteristics and personal
attributes (Cox, 1994; Harrison, Price and Bell, 1998; Milliken and Martins,
1996). The interactions between people of different cultural groups learn and INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
grow together, develop interactions, share knowledge and experiences with each
other, they are transformed and molded shape.
9. ASSUMPTIONS OF INTERCULTURAL
ORGANIZATIONAL MODEL
The assumptions of intercultural organization are interdisciplinary informed
by paradigms or ways of thinking that emphasize cultural diversity or differenc-
es, the interpretive approach that emphasizes the context in which manifest the
interactions and critical theory approach that analyzes the interactions under
historical contexts if power. Considering the assumption that cultures develop
1109
their own structures of thought, therefore develop an “unconscious cultural”
showing the deep cultural codes and ways of thinking, establishing the differ-
ences between one culture and another (Rapaille, 2006).
José G. Vargas-Hernández: INTERCULTURAL BUSINESS MANAGEMENT DEVELOPMENT AND EDUCATION PROGRAMS IN BUSINESS SCHOOLS
1110
10. MANAGING ORGANIZATIONAL DIVERSITY
AND MULTICULTURALISM
Organizational management of intercultural is manifested in the very nature
of intercultural relations in organizations operating in environments of global-
ization processes and seek to reach the stage of globalization. This evolutionary
process of managing intercultural organization is expressed in developing ad-
aptation sensitivities of a global culture of organizational behaviors, processes,
products and services in tune with the communities they seek to serve.
Organizational management is an imperative of intercultural organizations,
especially companies that are the ones at the forefront of dealing with global
intercultural issues have already begun work on intercultural management and
potential experience in tools to try to get common goals, growing economies
and to work in a global environment in organizational cultural construction.
The entrepreneurial attitude can an attribute of the intercultural organiza-
tional management.
Entrepreneurial collaboration targeted deliberately encourages intercultural
organizational foundations for peace.
The psychological, social, cultural and economic welfare of the members of
an organization are ends of the management system diversity and intercultural.
Stephan, Stephan and Gudykunst (1999: 62) developed the theory of threat
that treats of the psychological-emotional processes of intercultural and dis-
tinguishes consciously perceived real threats to economic, social and political
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
system symbolic or different perceptions of moral, religious and other values
derived from the interpersonal and intergroup relations and negative stereo-
types. In managing organizational intercultural relations, psychological health
harmoniously integrates cognitive, emotional and behavioral components (Cat-
tails Alvarez, 2015).
The role of intercultural management that play businesses in the economy
by encouraging intercultural organizational position from below the line to un-
derstand and share the values of identity and purpose with stakeholders. Firms
and other organizations have initiatives to promote intercultural organization
through business.
There are numerous initiatives to promote intercultural organizations best
practices that are dealing with different aspects of the business environment.
1111
Business organizations have a very important role in promoting intercultural
organizational environment to emerge from the operating levels of the organi-
zational pyramid base and connect to the management level for achieving the
José G. Vargas-Hernández: INTERCULTURAL BUSINESS MANAGEMENT DEVELOPMENT AND EDUCATION PROGRAMS IN BUSINESS SCHOOLS
1112
that encourage sustainability working in partnership with government and civil
society. Organizations, especially business firms that have greater clarity in their
view, have an interest in supporting the efforts of communities to promote the
principles of intercultural, cooperative relations, sustainability, tolerance, etc.
It is in this sense that the promotion of the principles and values of inter-
cultural as part of the organizational approach to sustainability is reflected in
its programs to promote sustainable business practices such as human rights,
rights in the workplace, business peace, diversity, etc. This can be checked with
the innovative actions that firms made to achieve intercultural which can be
identified more as diversity issues in the workplace, in the marketplace and in
the communities.
The intercultural organization is the source of all creativity and innovation.
Among the findings of research conducted in intercultural organization it has
been found that the most creative and innovative organizations have diversified
groups and teams and greater results in reducing racism, classism and sexism
(Kanter, 1983).
The intercultural organization is assumed through knowledge management
and experience of unity and oneness of humanity recognizing its cultural diver-
sity based on respect. These capabilities of mental consciousness experiences
and standards for cross-cultural interactions include planning processes, moni-
toring and review of mental models
Under this assumption, intercultural organization is an organizational phi-
losophy that influences the contacts and interactions of individuals in organiza-
tions, societies and cultures. In intercultural organizations diversity and plu- INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
rality of individuals and groups contribute to comply with the organizational
mission under the support of an organizational philosophy. The organizational
values of equal opportunities, open communication, gender equality, fraternity
group, labor justice, etc., have their sustenance not only in organizational phi-
losophy but in individual conviction that engenders an atmosphere of diverse
intercultural. An organizational environment where these values are always
present, results in rampant non barriers.
Inclusive policies and citizen participation guarantee social cohesion of civil
society. The intercultural organization powers participation of the various ac-
tors and stakeholders’ involvement in the organizational structures with behav-
iors and attitudes that create an organizational climate and a favorable working
1113
environment for carrying out the processes of strategic management, produc-
tion, distribution and consumption of goods and services. In addition, inter-
cultural organization ensures integration of organizational structures so that
José G. Vargas-Hernández: INTERCULTURAL BUSINESS MANAGEMENT DEVELOPMENT AND EDUCATION PROGRAMS IN BUSINESS SCHOOLS
all members have the same opportunities of access to the benefits offered by
various positions without any benefits due to religious, ethnic, racial, gender,
etc., (Foster, Jackson, Cross, Jackson, Hardiman, 1991).
The strategic management of organizations is facing challenges related to
the formulation and implementation of policies and practices of intercultur-
al organizations. The strategic management of intercultural organization is a
challenge for the integration of individuals in organizations considering the in-
dividuality of people that have their own paradigms rooted on values, norms,
beliefs, attitudes, emotions, feelings, etc. This diversity of deeply held individual
paradigms difficult organizational integration processes where collective contri-
bution is more important.
The intercultural organizational environments affect strategic management
due to the different ways of running induced by different cultures. Conflicts
caused by dysfunctional management of diversity and intercultural organization
generate high levels of stress that lead to attitudes of intolerance, aggression and
understanding of others in the organization. In the processes of intra and inter
intercultural conflicts arising from cultural differences and diversity are common,
constantly threatening the local and global organizations (Bendick & Egan, 2008).
Organizational diversity and intercultural has an impact on the management of
intra- and inter-organizational conflicts (Pelled, Eisenhardt & Xin, 1999).
Innovative business practices promote intercultural relations of cooperation
in conflict or post-conflict situations. Risky investments in conflict situations
can provide an interface for contacts and interactions between the communities
involved, as a result of business activities by profits.
1114
the inter-linkages and establishing permanent ties in a solid organizational rep-
utation. The media and intercultural organizational communication processes
are essential in identifying the collective identities for both the institutional and
organizational changes
The phenomenon of intercultural organizational communication is complex
because it involves many individuals who have cultural background not very ho-
mogeneous and is likely to be very different. In intercultural communication, lan-
guage and symbols and representations as not discursive they are affected if they
do not have common codes for representing thought forms, emotions, feelings,
ideas, values, etc., and which are common to a community, village or nation.
There is an increasing need for organizations to manage processes to lead
intercultural learning value differences in a diverse world but globally connect-
ed and form the inclusive mindsets and attitudes among investors, suppliers,
employees, customers, prospects, levels of government and other stakeholders
in local communities in general. For contacts and inter relationships between
cultures to be more effective are required recognition of cultural differences un-
der the conditions of having an intercultural mentality, intercultural sensitivity
and intercultural skills (Hammer, Bennett, & Wiseman 2003: Bennett, 2001ª,
2001b, 2001c; Bennett, 1993).
The discussion on intercultural competition has developed for some time now.
In recent years the field of organizational multiculturalism is starting with the
development of a theoretical framework and some methods of intercultural com-
petence that help global leaders to learn how to learn in intercultural situations.
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
It is in the cultural interfaces where intercultural organizational processes are
developed and results in the generation of intercultural skills such as mediation
empathic abilities and distinctions from strong cultures and underlying cultures.
The intercultural organization is geared more to the creative development
of competencies rather than to consider the limitations of traditional academic
programs. Intercultural organizational mentality has to be established before
the skills and competencies acquired by individuals.
The intercultural organization is a valuable skill in organizations that is the
result of integrating exercise of intercultural competence, which according to
Aneas (2009) emerges when symmetry conditions are presented in intercultural
relations, psychological, social and cultural integration of all members working
in legal, fair, equitable and cooperative status in achieving common goals form.
1115
The intercultural organization encourages development of administrators in
their mentality and their skill set for the development of intercultural skills to
adapt to situations that require intercultural competence. The leader with inter-
José G. Vargas-Hernández: INTERCULTURAL BUSINESS MANAGEMENT DEVELOPMENT AND EDUCATION PROGRAMS IN BUSINESS SCHOOLS
1116
internal and external reality to create ways of thinking through the experiences,
values training, emotions, attitudes, behaviors, etc.
The intercultural organization is an ethical imperative for respect for the
dignity, respect and tolerance for cultural diversity. The formation and mainte-
nance of organizational values is central to the philosophy of the organization,
which serves as a guide to ethical behavior and pluralistic conduct, which influ-
ence the formulation and implementation of strategies and policies that govern
the action. Experience and positive attitudes of people who exercise an intercul-
tural ethics contribute to the development of intercultural mediator activities in
organizations.
As a strategy, intercultural organization requires committed leadership with
the formation of behaviors and structures centered on the assessment of orga-
nizational culture focused on prioritizing the plurality resulting from diversity.
The organizations involved in the exchange of training programs to create orga-
nizational intercultural knowledge, build the necessary structures and develop
the competencies and skills.
The intercultural organization has been considered as part of the intercul-
tural problematic by Steizel, Dumas & As (2006) when organizations con-
sciously focus expatriation policies of executives and employees of long dura-
tion in situations where people come together from different national cultures.
Employees, who are expatriates to work in international projects in a subsidiary
of the same corporation in a host country with a different culture and diversity,
need to adapt to the new culture through support programs of training, includ-
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
ing intercultural organizational diversity management and provide them with
the plurality of actions in structured experiences (Rubio, 1999).
1117
through dialogue, practical and culturally sensitive activities, contributes to im-
proved relations with all internal and external groups of the company stake-
holders in the local community.
José G. Vargas-Hernández: INTERCULTURAL BUSINESS MANAGEMENT DEVELOPMENT AND EDUCATION PROGRAMS IN BUSINESS SCHOOLS
1118
The implementation of strategies for the development of intercultural com-
petences of individuals in organizations is based on the intercultural sensitivity
to particular issues that need to be resolved. To achieve intercultural sensitivity
in organizations, people require intercultural skills training to recognize and
experience cultural differences so that they can adapt their organizations.
Intercultural sensitivity in organizations reaches greater sophistication if
construction of cultural differences is more complex. Once that is achieved and
experienced sensitivity to intercultural organization is acquired the competence
to differentiate cultures against generalizations, so that it is maintained a gen-
eral approach to cultural differences regardless of culture remains concerned.
People who achieve the level of sensitivity of the intercultural organization is
able to adapt in a dual perception to another culture without degrading itself.
1119
values underlying the harmonization of both approaches from cultural diversity
(Deloitte 2011, p. 12 and Sandyford and Molenkamp 2015).
José G. Vargas-Hernández: INTERCULTURAL BUSINESS MANAGEMENT DEVELOPMENT AND EDUCATION PROGRAMS IN BUSINESS SCHOOLS
16. CHALLENGES
The intercultural organization challenges today are present in the inter-
nationalization processes where staff employed have different cultural back-
grounds, belief systems and values, languages, customs, etc. This diversity in
the cultural background of the people is the cause of continuous clashes and
1120
conflicts with local markets from any of the cultural perspectives approached,
either from the cultural universalism or at the other extreme cultural relativism
(Donaldson 1996).
Among the challenges facing today’s organizations to promote intercultural
organizational platform supported by a diverse subcultures of members, can be
discussed processes of cohesion and group integration that encourage develop-
ment opportunities and meeting the needs of those involved.
The diversity and intercultural organizational challenges facing the emer-
gence of intercultural conflicts arising from the absence of human rights prac-
tices in relations between different actors and stakeholders both within and
outside organizations. This lack of exercise of human rights is manifested in
actions of unequal access to resources, employment opportunities, promotions,
incentives, etc., and expressions of attitudes of intolerance based on ethnic ori-
gin, gender, religion, age, functional ability, etc.
Concerns about the sustainability involve economic, social and environmen-
tal challenges. The vision of sustainable development is relevant to any form
of organization that considers what is important and the role to help achieve
the organizational challenge of intercultural. To meet these challenges, business
organizations develop concrete and innovative responses that are intercultural
organizational orientation to promote intercultural cooperation relations in the
business environment. Organizations and companies take the discipline of in-
tercultural organization as a management perspective of diversity, to respond to
challenges and opportunities, business needs evolve and develop new practices
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
and principles.
Diversity and intercultural in organizations tend to retain talented minori-
ties (Thomas and Gabarro 1999). Pless and Maak (2004, p. 130) recommend
that organizations embrace diversity and encourage mankind for attaining
some of the organizational benefits of intercultural as reducing the rotation of
talent from minority groups, inclusion and improving quality of life (das Neves
& Scrum, 2013).
1121
17. INTERCULTURAL BUSINESS MANAGEMENT
DEVELOPMENT AND EDUCATION PROGRAMS
José G. Vargas-Hernández: INTERCULTURAL BUSINESS MANAGEMENT DEVELOPMENT AND EDUCATION PROGRAMS IN BUSINESS SCHOOLS
IN BUSINESS SCHOOLS
The ultimate goal of cultural education is to cultivate intercultural commu-
nication and business management competences which should be emphasized
in learning activities at business schools. University plans and programs of
study at business schools must create and develop a curriculum in the intercul-
tural business, management and culture to provide students with better under-
standing, skills and capabilities. Business management programs are to culti-
vate multi-talented students mastering economics, and management, and who
possess high level of intercultural communication competence (Chen & Wang,
2009). Qualified intercultural business managerial talents are required to learn
and practice intercultural communication and understanding in their contents.
The overall academic program in intercultural business management must
promote intercultural awareness, leadership and communication skills. Under-
standing, gaining awareness and learning intercultural business management
based on relationships of cultural and social values exchanges can be achieved
through the acknowledge of diversity, analyzing perceptions, organizing cultural
and social values information and posing the challenges to behave in “other cul-
tures”. To get cultural awareness of differences and acquire cultural understand-
ing for intercultural business management is crucial capability to foster correct
behaviors and attitudes will intercultural abilities and skills of well-rounded
professionals.
Expertise in intercultural business management is gained through culture
learning based on lectures and discussion of cases in such a way that students
are involved with practices closely with doing global intercultural business man-
agement. Practices involving student and expatriate returns from their overseas
assignments can give presentations on their intercultural experiences which will
provide valuable insights to others. Business contacts within the global corpo-
rations can provide good intercultural business management experiences and
expertise.
Learning materials must state clearly to the students the important func-
tions of intercultural knowledge in business management as the core to improve
intercultural education (Zhao, 2013). Intercultural relationships are the cause
and the consequence of the need to learning and teaching techniques nowa-
1122
days. The research findings on intercultural business management should be
learned by professionals and students in the global business and economics
environment.
Improvement of intercultural learning must develop knowledge and skills on
cross-cultural business management in different cultural context, clearly stating
the intercultural elements and theoretical and methodological frameworks. To
set the goal with an emphasis in intercultural learning, business schools must be
more specific on aspects of business management, such as how the development
of intercultural skills improves the understanding between people of different
cultural backgrounds.
Business schools must prioritize cultivating intercultural business manage-
ment competences and skills through learning experiences to foster develop-
ment of global and international businessmen and women, as well as global
managers. Global management courses need to be taught in an intercultural
method. Intercultural business management capability cannot be realized by
taking courses but through the learning elements, methodology, teaching ma-
terials and activities of the entire program of intercultural studies and training.
Training in intercultural awareness promote meeting of individuals with differ-
ent backgrounds to practice their cultural traits and values followed by a discus-
sion on the basis and principles of intercultural interaction. Also the techniques
of role playing and script analysis can be employed to enhance practices on in-
tercultural business management.
1123
C. The management of intercultural organization should use available re-
sources to develop the capacities to promote behaviors, attitudes, skills
and abilities to facilitate relationships between individuals.
José G. Vargas-Hernández: INTERCULTURAL BUSINESS MANAGEMENT DEVELOPMENT AND EDUCATION PROGRAMS IN BUSINESS SCHOOLS
References
Adler, N. J. (1983). A Typology of Management Studies Involving Culture. Journal of Inter-
national Business Studies, 14(2), 29-47.
Allwood, J., Lindström, N. B., Börjesson M., Edebäck C., Myhre R. Voionmaa K. et al.
(2007). European Intercultural Workplace: SVERIGE, Projektpartnerskapet European
1124
Intercultural Workplace (EIW), Leonardo Da Vinci, Kollegium SSKKII, Göteborg
University, Sweden.
Aneas Álvarez, M. A. (2015). Relaciones interculturales en la empresa: claves teóricas de los pro-
cesos y resultados interculturales. Recuperado el 22 de octubre de 2015 de http://diposit.
ub.edu/dspace/handle/2445/65235
Aneas Álvarez, M.A. (2009) Competencia intercultural: competencia clave en las orga-
nizaciones actuales. Vivir entre culturas: una nueva sociedad. Madrid, ES: La Muralla,
151-175.
Bennett, M. J. (2001a). Intercultural competence for global leadership. The intercultural De-
velopment Research Institute. www.idrinstitute.org
Bennett, M. J. (2001b). Developing Intercultural Competence for Global Managers in
Reineke, Rolf-Dieter (Editor) ( June, 2001) Interkulturelles Managment. Wiesbaden:
Gabler Verlag.
Bennett, M. J. (2001c). An Intercultural Mindset and Skillset for Global Leadership from
Conference Proceedings of Leadership Without Borders: Developing Global Leaders. Adel-
phi, MD: National leadership Institute and the Center for Creative Leadership, Uni-
versity of Maryland University College, 2001.
Bennett, M. (1993) Towards Ethnorelativism: A Developmental Model of Intercultural
Sensitivity. In M. Paige (Ed.), Education for the Intercultural Experience. Yarmouth,
Maine: Intercultural Press.
Bi, J. W. (2014). Cross-Cultural Communication and Second Language Teaching (p. 6). Beijing:
Language and Culture University Press.
Burggraaf, W. (2017). Intercultural management. On cultures and the multicultural organ-
isation. Delivered on the occasion of the assumption of duties as Professor of Inter-
cultural Management at Nyenrode University,the Netherlands Business School on
Thursday, June 11, 1998. Download from http://www.nyenrode.nl/bio/Documents/
Intercultural%20management%20%20On%20cultures%20and%20the%20multicul-
tural%20organisation.pdf
Business of Peace. (2000). The Prince of Wales Business Leaders Forum, International Alert,
1125
Cox T.; Blake S. (1991). “Managing Cultural Diversity: Implications for Organizational
Competitiveness”. Academy of Management Executive. Vol. 5, No. 3.
das Neves, J. C., & Melé, D. (2013). Managing ethically cultural diversity: learning from
José G. Vargas-Hernández: INTERCULTURAL BUSINESS MANAGEMENT DEVELOPMENT AND EDUCATION PROGRAMS IN BUSINESS SCHOOLS
1126
Griggs, S. A. (1991). Learning Styles Counseling. ERIC Digest. ERIC Clearinghouse on
Counseling and Personnel Services. Ann Arbor, MI: 3.
Gudykunst, W., & Kim, Y. (1997). Communicating with Strangers: An Approach to Intercul-
tural Communication (3rd ed., pp. 83-104). New York City, New York: McGraw –Hill.
Hall, E. (1990). The Hidden Dimension (2nd ed., p. 13). New York, New York: Anchor. www.
ccsenet.org/elt English Language Teaching Vol. 9, No. 2; 2016
Hall, S. (1973). Encoding and Decoding in the Television Discourse. Birmingham: Centre for
Contemporary Cultural Studies.
Hamada, T. (1989). American enterprise in Japan. Albany, NY: State University of New
YorkmPress.
Hammer, M. R., Bennett, M. J., & Wiseman, R. (2003). Measuring intercultural sensitivity:
The Intercultural Development Inventory. In R. M. Paige (Guest Ed.). Special issue:
Research on Intercultural Development. International Journal of Intercultural Relations,
27(4), 421–443.
Harrison, D.; Price, K.; Bell, M. (1998). Beyond relational demography: Time and the effects
of surface-and deep-level diversity on work group cohesion. Academy of Management
Journal, vol. 41, nº 1, 96-108.
Himmelstern, F. (2007). Today’s Organizations are Multicultural. Signo y Pensamiento, (51),
68-79.
Hofstede, G. (1999). The Universal and the Specific in 21st-Century Global Management,
Organizational Dynamics, Vol. 28 no. 1, Summer 1999, 34-43.
Jackson, S. E., Joshi, A., & Erhardt, N. L. 2003. Recent research on team and organizational
diversity: SWOT analysis and implications. Journal of Management, 29: 801–830.
Johnson, J., Lenartowicz, T., & Apud, S. (2006). Cross-cultural competence in international
business: Toward a definition and a model. Journal of International Business Studies,
2(37), 525-543-37, 525-543. http://dx.doi.org/10.1057/palgrave.jibs.8400205
Joshi, A., & Roh, H. (2009). The role of context in work team diversity research: A meta-
analytic review. Academy of Management Journal, 52(3), 599-627.
Kanter R. M. (1983). The Change Masters. Editorial Simon and Schuster. NY, USA.
Kochan, T., Bezrukova, K., Ely, R., Jackson, S., Joshi, A., Jehn, K., et al. (2003). The effects INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
of diversity on business performance: report of the diversity research network. Human
Resource Management, 42(1), 3−21.
Martín Alcázar, F., Romero Fernández, P. M., & Sánchez Gardey, G. (2012). Transforming
human resource management systems to cope with diversity”. Journal of business ethics,
Vol 107(4): 511-531.
Maznevski, M. L. (1994), Synergy and Performance in Multicultural Teams, unpublished
Ph.D. dissertation, The University of Western Ontario.
Milliken. F. y Martins, L. (1996). Dearching for common threads: Understanding the mul-
tiple effects of diversity in organizational groups- Academy of Management Review,
vol. 21, 402-433.
Multinacional (2005). XV Congreso de la Asociación Científica Economía y Dirección de la
Empresa (ACEDE), Las Palmas de Gran Canaria, La Laguna, Septiembre, 2005.
Nelson, T.O. (1996). Consciousness and Metacognition. American Psychologist, 51/2:
102-116.
1127
Orlando C. R. (2000). Racial Diversity, Bussiness Strategy, and Firm Performance: A Re-
source- Based View. Academy of Management Journal. Abril del 2000, Págs. 164-177.
Pelled, L. H., Eisenhardt, K. M., & Xin, K. R. (1999). Exploring the black box: An analysis
José G. Vargas-Hernández: INTERCULTURAL BUSINESS MANAGEMENT DEVELOPMENT AND EDUCATION PROGRAMS IN BUSINESS SCHOOLS
1128
Tsui, A., & O’Reilly, C. (1989). Beyond simple demographic effects: The importance of rela-
tional demography in superior-subordinate dyads. Academy of Management Journal,
32, 402–423.
van Knippenberg, D., & Schippers, M. C. (2007). Work group diversity. Annual Reviewof
Psychology, 58, 515–541.
Whipple, J. M. & Frankel, R. (2000). Strategic alliance success factors. The Journal of Sup-
ply Chain Management, LEV-PART art 007 pp. 1-13.
Williams, K., O’Reilly, C., 1998. Forty years of diversity research: A review [in:] Staw, B.M.,
Cummings, L.L., (Eds.), Research in organizational behavior. CT: JAI Press, Greenwich.
Zhao, X. L. (2013). The Study of Business English Intercultural Education from the Per-
spective of Intercultural Communication. Journal of Langfang Nornal College, 29(1),
111-114.
1129
AMAZON GESCHÄFTSMODELL
UND SWOTANALYSE
Abstrakt
Amazon ist ein börsennotiertes Online-Versandunternehmen, das weltweit zu
Urban Bacher Torsten Winkler: AMAZON – GESCHÄFTSMODELL UND SWOT-ANALYSE
den TOP 10 der wertvollsten Unternehmen zählt, sein Gründer Jeffrey Bezos
gilt als reichster Mensch der Welt. Anhand einer SWOT-Analyse beschreibt
der Beitrag das Geschäftsmodell des dynamischen weltweit agierenden Unter-
nehmens. Dabei werden differenziert die Stärken, Schwächen, Chancen und
Risiken von Amazon dargestellt. Der Beitrag zeigt, dass Amazon ein integ-
riertes Full-Service-Konzept verfolgt.
Schlüsselwörter: Amazon, Alibaba, SWOT-Analyse, Trends im Einzelhan-
del, Onlinehandel, Internetplattform, Warenlogistik, Cloud-
Infrastruktur, Datenmanagement, Full-Service-Anbieter
JEL Classification: F19, M20
1. AMAZON
.. Firmenporträt
Die Amazon.com Inc. ist das weltweit führende Online-Versandhandelsun-
ternehmen. Das Unternehmen wurde 1994 in Seattle im US-Bundesstaat Wa-
shington von Jeffrey P. Bezos gegründet. Bei Amazon finden Käufer Waren aus
beinahe allen Bereichen der Konsumgüterindustrie. Bücher, Musik, Elektronik-
produkte, Digitale Downloads, Software, PC- und Videospiele werden ebenso
1130
angeboten wie Geräte für Küche, Haus und Garten, Spielwaren, Sport- und
Freizeitartikel, Schuhe und Schmuck, Gesundheits- und Kosmetikprodukte,
Kleidung, Autos, Lebensmittel und Zeitschriften. Dabei werden nicht alle Pro-
dukte von Amazon selbst verkauft. Auch private und gewerbliche Verkäufer
können ihre Produkte über das Onlineversandhaus auf einer Plattform anbie-
ten. Das Angebot des Online-Händlers umfasst noch weitere Leistungen. Dazu
gehört unter anderem der portable Reader „Kindle“, auf dem Bücher, Maga-
zine, Zeitschriften oder persönliche Dokumente heruntergeladen und gelesen
werden können, sowie das Video-on-Demand-Angebot über „Amazon Prime
Video“ oder der Streaming-Service „Fire TV“. Außerdem führt das Unterneh-
men die Cloud-Plattform „Amazon Web Services“, das Spracherkennungssys-
tem „Echo“ oder die Tablet-Reihe „Fire“. Über „Amazon Fresh“ können Kunden
frische Lebensmittel online bestellen. Eine ganz andere Art der Dienstleistung
von Amazon ist das Zahlungssystem Amazon Pay. Auf diesem Zahlungssys-
tem können Kunden ihre Einkäufe zuverlässig mit Informationen abwickeln,
die bereits auf ihrem Amazon-Kundenkonto gespeichert sind. Externe Händ-
ler können sich diesem Zahlungssystem anschließen und vom Vertrauen in das
eingeführte System und der Marke profitieren.
1131
Chart 1: Amazon Aktie in USD
.. Problemstellung
Urban Bacher Torsten Winkler: AMAZON – GESCHÄFTSMODELL UND SWOT-ANALYSE
1132
es, die strategischen Möglichkeiten des Unternehmens und der Konkurrenz
aufzuzeigen und geeignete Maßnahmen abzuleiten. Für das Unternehmen und
für dessen Investoren wäre es optimal, wenn die Chancen eines Unternehmens
in Verbindung mit den eigenen Stärken optimal genutzt werden!
1133
US-Dollar (Amazon, 2017b) in die Logistik- und Cloud-Infrastruktur sowie
das größte Software-Entwicklungszentrum außerhalb der USA investiert. (O.
Verf, 2016) Zur Erschließung des Mittleren Ostens wurde Anfang 2017 das in
Dubai ansässige E-Commerce Unternehmen Souq.com übernommen.
1134
.. Externe Risiken für Amazon
2.3.1. Branchen- und Wettbewerbsrisiko
Amazons Geschäftstätigkeit ist von einer Vielzahl an Wettbewerbern unter-
schiedlicher Branchen umgeben. Den Käufern steht eine Vielzahl an Vertriebs-
wegen offen. Beispielsweise könnten die angebotenen Waren Amazons online
bei anderen E-Commerce-Händlern oder offline im stationären Handel bezo-
gen werden. (Amazon, 2017: 4) Größter Konkurrent auf dem internationalen
Absatzmarkt ist die chinesische Alibaba Group. Wie Amazon steht Alibaba
ebenfalls für enorme Expansion und für Wachstum. Für Amazon kann der neue
Wettbewerber aus China eine Bedrohung darstellen. (Kaufmann, 2017c) Ali-
baba hat mehr als eine halbe Milliarde aktive Nutzer, die jedes Quartal um über
20 Millionen ansteigen. Aus diesem Kundenwachstum generiert Alibaba jedes
Quartal deutliche Umsatz- und Gewinnsprünge. Die Chancen für Alibaba sind
größer als die für Amazon, zumal das chinesische Online-Handelsvolumen
deutlich größer ist als das amerikanische. So generiert der Internethandel in
den USA ein Volumen von insgesamt 625 Mrd. US-Dollar, das Handelsvolu-
men in China ist noch deutlich größer und beläuft sich auf etwa 970 Mrd. US-
Dollar. (Kaufmann, 2017b) Wie Amazon wächst Alibaba besonders stark im
Cloudgeschäft und mit Hilfe von Zukäufen. So hat Alibaba im Februar 2018
ein 33-Prozent-Paket am Zahlungsabwickler Ant Financial erworben. Alibaba
hat ehrgeizige Ziele: Bis 2020 soll der Umsatz die Billionen-US-Dollargrenze
überspringen, zugleich sollen zwei Billionen Nutzer aktiv sein und den Unter-
nehmenswert von derzeit 470 Mrd. US-Dollar sich mehr als verdoppeln.
1135
2.3.2. Gefahren der gegenwärtigen Marktentwicklung
Wenngleich die Konjunkturaussichten gegenwärtig sehr gut aussehen, sind
diese eher zyklischer und nicht etwa politischer bzw. struktureller Natur. (Ste-
phan, 2017: 2) So sind Risiken, welche aufgrund von „geopolitische(n) Schocks
und Handelsprotektionismus“ bestehen, nicht von der Hand zu weisen.
(OECD, 2017: 7) Gerade die bestehende Nordkoreakrise könnte den Handel
mit China und den gegenwärtigen Konjunkturtrend abschwächen. (Stephan,
2017: 2) Eine weitere Gefahr besteht im zunehmenden Protektionismus der
USA, dem China Gegenmaßnahmen entgegensetzen wird. Insgesamt schwächt
dieses prohibitive Verhalten den Welthandel und das Wirtschaftswachstum.
Die expansive Geldpolitik der FED sowie der EZB generiert zwar zusätz-
liches Wachstum, allerdings ist dieses bestenfalls von mittelfristiger, aber nicht
von langfristiger Natur. Viele Reformen gegen strukturelle Probleme, wie die
weltweit weiter anwachsende Verschuldung, bleiben ungelöst. Dadurch wird
das nachhaltige Wachstum langfristig gebremst. Die Politik des billigen Geldes
Urban Bacher Torsten Winkler: AMAZON – GESCHÄFTSMODELL UND SWOT-ANALYSE
2.3.3. Währungsrisiko
Durch die internationale Ausrichtung ist Amazon dem Wechselkursri-
siko vom US-Dollar zum Euro, zum britischen Pfund, zum japanischen Yen
ausgesetzt. (Amazon, 2017: 10) Laut eigenen Unternehmensangaben haben
sich die Nettoumsätze im Geschäftsjahr 2016 im Vergleich zum Vorjahr we-
gen Wechselkursrisiken um 490 Millionen US-Dollar verringert. (Kaufmann,
2017f ) Auf der anderen Seite fallen hohe Kostenanteile für Warenverteilung
und Lagerung, z.B. in Deutschland, auch in Fremdwährung an, so dass sich die
Wechselkursschwankungen ausgleichen können. Langfristig gleichen sich die
Chancen und Risiken von Fremdwährungen oft aus.
1136
• Wie im Einzelhandel generell fallen die Umsatzerlöse von Amazon nicht
gleichmäßig über das Jahr verteilt an, sondern werden quartalsabhängig
generiert („Saisonalitätsrisiko“). So bildet das vierte Quartal den umsatz-
stärksten Zeitraum („Drittel des Jahresumsatzes“) und stellt an die Mitar-
beiter und Logistik besondere Anforderungen. (Amazon, 2017: 4)
• Amazon gilt als ein notorischer Steuervermeider. Die Behörden in Europa
haben dies erkannt, stellen den Konzern an den Pranger und pochen auf
angemessene nationale Steuerzahlungen. Insgesamt kann die Strategie ei-
ner weltweiten Steuervermeidung zu enormen Straf- und Steuernachzah-
lungen verbunden mit hohen Rechts- und Reputationsrisiken für Ama-
zon führen.
• China wäre ein Riesenmarkt für Amazon. Doch durch Abschottungsmaß-
nahmen wird auf absehbare Zeit Alibaba dort der Platzhirsch bleiben.
Für das Geschäftsmodell von Amazon erwachsen sich auch gravierende
Probleme, wenn das Internet stark reguliert wird oder nicht die notwendi-
ge Geschwindigkeit bzw. Verfügbarkeit hat. Im Endeffekt können derar-
tige Maßnahmen das weltweite Wachstum von Amazon enorm dämpfen.
• Der Aufbau eigener stationärer Läden (z. B. im Bereich Food) sowie neu-
artige Logistik- und Verteilsysteme (eigene Fahrzeug- und Flugzeugflot-
ten, Drohnensysteme etc.) verändern das bisherige Geschäftsmodell und
verursachen neben immensen Investitionen auch neue laufende Kosten.
Insgesamt sind damit hohe unternehmerische Risiken verbunden.
1137
tungen durch Amazon angeboten. Über Amazon Web Services (AWS) wird die
Nutzung einer Technologieinfrastruktur, welche ihren Kunden Speicherplatz,
Datenbanken sowie Anwendungen innerhalb einer Cloud zur Verfügung stellt,
ermöglicht. Über das Mitgliedschaftsprogramm Amazon Prime, über welches
vier von fünf aller Amazon-Konten ausgestattet sind, werden Leistungen wie
Prime Video, Prime Music und Amazon Cloud Drive vertrieben.
Der Gründer und CEO von Amazon Jeff Bezos ist die Schlüsselfigur des
Unternehmens, stellvertretend steht er für das Geschäftsmodell, für die Innova-
tionen und für das Wachstum. Er implementierte eine Vielzahl an innovativen
Alleinstellungsmerkmalen (USP), welche Amazon von der übrigen Konkur-
renz abgrenzt: das umfangreiches Produktsortiment, ein umfassendes Fulfill-
ment (Distribution/Logistik) sowie diverse Zusatzleistungen. Diese Vielzahl
an Vorteilen werden von der Konkurrenz nicht oder zumindest nur teilweise
geboten. (Oenning, 2016)
Im Geschäftsbericht 2016 des Online-Versandhauses wird der Verlust sei-
ner Person als überaus negativ für die weitere Geschäftstätigkeit seines Un-
ternehmens dargestellt. (Amazon, 2017a: 10) Das liegt daran, dass Bezos der
Visionär der Marke Amazon ist, ähnlich wie es Steve Jobs für die Marke Apple
war. Sein Wirken hat maßgeblich dafür gesorgt, dass sich das Kaufverhalten
der Leute im Laufe der vergangenen 20 Jahre verändert hat. Bezos persönlicher
Antrieb ist dabei stets der Spaß, Traditionen infrage zu stellen. (Scholz, 2012)
1138
trugen, sind diese bis zum Geschäftsjahr 2017 auf insgesamt 178 Mrd. US-
Dollar angestiegen. Diese Zunahme entspricht einer Verdoppelung innerhalb
von drei Jahren. Dabei ist zu beobachten, dass das Geschäftssegment Amazon
Web Services am schnellsten und stärksten wächst. Im Vergleich zum Vorjahr
ist AWS seit 2014 um zunächst 49 Prozent, im darauffolgenden Jahr um 70
Prozent sowie um 55 Prozent im Geschäftsjahr 2016 gewachsen. In absolu-
ten Werten ausgedrückt, macht dieser mit 10% den kleinsten Anteil mit etwa
17,5 Mrd. US-Dollar aus. Im Vergleich hierzu generierte Amazon ohne die
Cloud-Services des Geschäftssegments AWS auf dem nordamerikanischen
Markt etwa 106 Mrd. US-Dollar und auf dem Internationalen (ohne die USA)
etwa 54 Mrd. US-Dollar. Im Geschäftssegment E-Commerce betrugen die
Wachstumsraten zuletzt etwa 30 Prozent im Vergleich zum Vorjahr. (Amazon,
2017a: 23) Bei der Betrachtung des EBIT wird allerdings die Profitabilität des
Geschäftssegments AWS deutlich. Zum 31.12.2017 betrug dieser 4,3 Mrd.
US-Dollar. Im Gegensatz dazu wurde durch den Internethandel in den USA
lediglich ein EBIT i. H. v. 2,8 Mrd. US-Dollar und auf dem internationalen
Markt sogar ein Verlust i. H. v. 3,1 Mrd. US-Dollar ausgewiesen. Die geringe
Profitabilität des E-Commerce-Handels Amazons liegt allerdings in der Ziel-
setzung des Managements: Wachstum. (Amazon, 2017a: 24) Die Cashflows
des Online-Versandhändlers verdeutlichen dies ebenfalls. Die Investitionstä-
tigkeit Amazons wächst von Jahr zu Jahr und betrug zuletzt zum 31.12.2017
etwa 12 Mrd. US-Dollar. Dem werden auch jährlich steigende positive opera-
tive Cashflow Einnahmen gegenübergestellt: Während diese zum Jahresende
2014 noch etwa 6,8 Mrd. US-Dollar betrugen, hat Amazon zum Jahresende
1139
2.5.2. Geringe Profitabilität, hohe Investitionsausgaben, hohe Verschuldung
Durch die expansive Disposition des Managements wird Amazon zu ho-
hen Investitionsausgaben gezwungen. Dieses Vorgehen zugunsten des Firmen-
wachstums und zulasten der Profitabilität führt zu Verunsicherung bei den
Investoren. (Kaufmann, 2017e) Das Schwanken der operativen Margen sorgt
hin und wieder für ein Fallen des Amazon-Aktienkurses. (Kaufmann, 2017d)
Negativ auszulegen ist auch die niedrige Eigenkapitalquote von lediglich 21
Prozent zum 31.12.2017. Bei Abzug des aufgrund der teuren Whole Foods
Übernahme auf 13,4 Mrd. US-Dollar angeschwollenen Goodwill liegt sie so-
gar nur bei 11,3%. Damit korrespondiert zwar eine entsprechend hohe Fremd-
kapitalquote, die aber vorwiegend aus Verbindlichkeiten für Lieferungen und
Leistungen besteht. (Amazon, 2017a) Die tatsächlich zinstragende Verschul-
dung liegt mit knapp 25 Mrd. US-Dollar unter den liquiden Mitteln von 31
Mrd. US-Dollar, die in den zurückliegenden Jahren mit Hilfe der steigenden
Cashflow-Überschüsse angesammelt werden konnten. Weitere Besonderheit:
Im Fiskaljahr 2017 wurden erhebliche Finanzierungsmittel für die Whole-
Urban Bacher Torsten Winkler: AMAZON – GESCHÄFTSMODELL UND SWOT-ANALYSE
Foods-Übernahme benötigt.
Eine wichtige Substanzkennzahl, das Kurs-Buchwert-Verhältnis KBV liegt
mit 19 sehr hoch. Diese Kennzahl sagt aus, welchen Aufschlag der Markt auf
das Reinvermögen, also den Buchwert eines Unternehmens bezahlt. (Schmid-
lin, 2017: 119-120) Somit wird Amazon eine viel höhere Bewertung zuge-
sprochen, als dass Eigenkapital der Aktionäre bei einer Liquidation wert wäre.
(Schmidlin, 2017: 119-120) Auch die Ertragskennzahlen sind extrem hoch. So
liegt das Kurs-Gewinn-Ver-hältnis KGV für 2018 von Amazon bei 175. Ein
derart hohes KGV ist „teuer“ und mit viel Hoffnungen verbunden. Denn bei
gleichbleibenden Gewinnen würde sich das Investment erst nach 175 Jahren
amortisieren. (Schmidlin, 2017: 112-113) In die gleiche Richtung zeigen die
Ertragskennzahlen KCV sowie KUV (Kurs-Cashflow-Verhältnis bzw. Kurs-
Umsatz-Verhältnis). Das KCV liegt bei über 20, das KUV bei etwa 3,1. (Ama-
zon, 2017a) Historisch liegen die Marktdurchschnitte beim KGV bei etwas
über 15, beim KCV bei ca. 10 und beim KUV bei etwa 1,5. (Bacher, 2015: 284)
1140
zen wird. Die Marke und die Marktstellung als das in der westlichen Welt größ-
te Online-Versandhaus werden weiter strahlen und diese Strahlkraft wird der
Visionär Jeffrey P. Bezos weiter befeuern. Die Marschrichtung ist dabei klar:
Amazon wird sich noch breiter aufstellen und weiterwachsen. Erfolgsfaktoren
waren bisher die Marke, das breite Sortimentsprogramm, die Internetplattform
und die Logistik. Diese Erfolgsfaktoren werden systemisch ergänzt um weitere
moderne Technologien und Algorithmen. Die Strategie verfolgt eine Festigung
und weiteren Ausbau des weltweiten Kundenstammes und um die Verwertung
der dahinterliegenden Daten. Die Warenversorgung wird dabei immer mehr
um Online-, Service- und Finanzdienste überlagert werden. Alphabet (Goog-
le), Facebook, Apple und andere Technologieunternehmen gehen einen ähn-
lichen digitalen Weg und versuchen jeweils ihr digitales Infrastruktursystem
weltweit durchzusetzen. Alibaba und Amazon setzen hier noch eins drauf: Das
Nebeneinander von realen Waren- und Versorgungsdiensten einerseits und
Datendiensten und virtuellen Technologien andererseits werden diese Unter-
nehmen zu modernen Full-Service-Anbietern eigener Art, deren Zenit noch
lange nicht erreicht ist.
LITERATURVERZEICHNIS
Amazon (2017a). Amazon Annual Report [available at: http://phx.corporate-ir.net/
phoenix.zhtml?c=97664&p=irol-reportsannual access September 10, 2017]
Amazon (2017b). Economic Impact on India [available at: https://www.amazon.in/
b?ie=UTF8&node=12088418031 access September 5, 2017]
Bacher, U. (2015). Bankmanagement kompakt, 5. Auflage, Konstanz
Bovensiepen, G., Rumpff, S., Bender, S. (2015) Store 4.0 – Zukunft des stationären Han- INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
dels, in: Studie der PricewaterhouseCoopers AG Wirtschaftsprüfungsgesellschaft,
Frankfurt am Main
Bovensiepen, G., Rumpff, S. (2015). Handel und Konsumgüter: die Zukunft im digitalen
Wandel gestalten, in: Studie der PricewaterhouseCoopers AG Wirtschaftsprüfungs-
gesellschaft, Frankfurt am Main 2015
Clausen, S. (2017). Firmenakquisition Whole Foods Marketin: Manager Magazin, [availab-
le at: http://www.manager-magazin.de/unternehmen/handel/amazon-kauft-lebens-
mittelhaendler-whole-foods-fuer-13-7-milliarden-dollar-a-1152508.html access Sep-
tember 5, 2017]
Deka Investments (2017). Amazon – 20 Jahre nach dem Börsengang, in: Fonds Magazin,
Ausgabe 2, Frankfurt am Main.
EZB (2017). Wirtschaftsbericht, in: Wirtschaftsbericht der EZB, Ausgabe 2017/5, Frank-
furt am Main.
1141
Kaufmann, B. (2017a). Wachstum um jeden Preis, in Der Aktionär [available at: access Sep-
tember 7, 2017]
Kaufmann, B. (2017b). Der große Unterschied zwischen Alibaba und Amazon, in: Der
Aktionär [available at: http://www.deraktionaer.de/aktie/der-grosse-unterschied-
zwischen-alibaba-und-amazon-332670.htm access September 5, 2017]
Kaufmann, B. (2017c). 3 Gründe, warum Amazon in China keine Chance hat, in: Der Akti-
onär [available at: http://www.deraktionaer.de/aktie/3-gruende--warum-amazon-in-
china-keine-chance-hat-333870.htm access September 5, 2017]
Kaufmann, B. (2017d). Amazon Investiert international – das drückt mittelfristig die Ge-
winne, in: Der Aktionär [available at: http://www.deraktionaer.de/aktie/amazons-
investiert-international---das-drueckt-mittelfristig-die-gewinne-334330.htm access
September 5, 2017]
Kaufmann, B. (2017e). Amazon im Kaufrausch, in: Der Aktionär, 07.09.2017. http://
www.deraktionaer.de/aktie/amazon-im-kaufrausch-335060.htm access September 7,
2017]
Kaufmann, B. (2017f ). Microsoft stärkt gemeinsam mit Adobe seinen Cloud-Dienst, in:
Der Aktionär [available at: http://www.deraktionaer.de/aktie/microsoft-staerkt-
gemeinsam-mit-adobe-seinen-cloud-dienst-335170.htm access September 8, 2017]
OECD (2017). Die weltweiten Konjunkturaussichten sind zwar besser, aber noch nicht gut
Urban Bacher Torsten Winkler: AMAZON – GESCHÄFTSMODELL UND SWOT-ANALYSE
1142
walmart-schliessen-sich-gegen-amazon-zusammen-a-1164125.html access Septem-
ber 8, 2017]
Stephan, U. (2017). Wechsel der globalen Wachstumstreiber, in: Perspektiven, Deutsche
Bank, Ausgabe 09/2017, Frankfurt am Main
Stone, B. (2009). Amazons’s Expanding With Deal for Zappos, in: The New York
Times, [available at: http://www.nytimes.com/2009/07/23/technology/
companies/23amazon.html?mcubz=0 access August 29, 2017]
Wilhelm, S. (2017). Das Amazon-Universum, in: Digital Commerce 2017, Berlin
Zschaber, M. (2017). Mit 1500 Dollar zum Millionär – ist Amazon noch ein Kauf?, in:
Manager Magazin [available at: http://www.manager-magazin.de/finanzen/artikel/
amazon-experte-markus-zschaber-raet-weiter-zum-aktienkauf-a-1150400.html access
September 14, 2017]
1143
Marketing
NATIONAL POSITION OF THE
REPUBLIC OF CROATIA ON
COHESION POLICY POST 2020
Abstract
Cohesion policy is the key investment instrument of the European Union aimed
at stimulating balanced development in the Member States and regions, which INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
is why, in the context of the European Union’s budget after 2020, it is extremely
important to maintain its continuity. The new challenges that Europe is facing,
first of all the decision of the United Kingdom of Great Britain and Northern
Ireland to exit the European Union, as well as the need to finance new priorities,
point to the fact that the budget of the European Union will be the main focus
of conversations regarding the future of European Union consisted of twenty
seven Member States after the finalization of the Brexit process. As part of plan-
ning the new Multiannual Financial Framework (MFF), it is of importance
for Croatia to maintain the status of traditional policies such as cohesion and
common agricultural policy. The Ministry of Regional Development and EU
funds has drafted the National Position of the Republic of Croatia in relation
1147
to the future of cohesion policy after 2020, where national standpoints and pri-
orities are presented. Given the importance of the topic, this paper will address
the weaknesses and elements needed for reaching a higher level of synergy and
complementarity between European Structural and Investment Funds (ESIF)
and other EU funds. Furthermore, we shall also address the elements which are
necessary for the improvement of the effectiveness of cohesion policy implemen-
Gabrijela Žalac Ana Odak Mario Banožić: NATIONAL POSITION OF THE REPUBLIC OF CROATIA ON COHESION POLICY POST 2020
tation and for a simpler transition between program periods and a faster start of
the new financial period to ensure the continuity of investments. In conclusion,
this paper demonstrates the need for stronger efforts in keeping the cohesion
policy as one of the key priorities of the European Union’s budget after 2020,
taking into consideration its effects across all European regions in terms of reduc-
ing disparities and investment for growth and new jobs.
Key words: cohesion policy, Multiannual Financial Framework (MFF), Eu-
ropean Structural and Investment Funds (ESIF), national co-
financing, grants
JEL Classification: E60
1. INTRODUCTION
The double recession wave in 2008 and 2011 significantly halted the growth
of the European Union’s economy, which today shows signs of recovery and
prosperity. The impact of the crisis was felt in almost all Member States, and the
long-term reduction in differences between gross domestic products (GDP) per
capita between the Member States has been halted. What is positive is the fact
that the situation is improving, the differences are declining again, and growth
is registered in all segments, while higher progress rates have been recorded
in countries with a lower GDP per capita. Employment is also experiencing
recovery, but unemployment rates still remain higher than they were before the
crisis. In general, the European Union’s economy is gradually recovering from
the long-term stagnation that has been characterized by a significant invest-
ment reduction in several Member States and regions (Commission Report to
the European Parliament; 2017).
Cohesion policy is a driving force for the aforementioned positive trends
and is also the main investment policy of the European Union ensuring1 finan-
1
This investment adds value on the European level by contributing to: the goal of reducing
the differences stipulated in the Treaty (particularly with respect to per capita income and
1148
cial means amounting up to 8.5% of state capital investments in the European
Union (EU), reaching up to 41% in the EU-132 Member States and more than
50% for a number of states (Commission Report to the European Parliament;
2017). Cohesion policy is presented through the Single European Act3 and de-
fined as European Union’s investment policy that promotes and supports the
overall balanced development of the Member States and their regions. Creation
of new jobs, competitiveness, economic growth and the improvement of the
quality of life, as well as sustainable development, are the subject of its action
while supporting each of these areas. It is at the same time a testimony of the
European Union’s solidarity with less developed countries and regions because
the funds are allocated and concentrated to those most in need. Through con-
crete measures, it acts in a way to reduce significant economic, social and ter-
ritorial differences across Europe’s regions. It should be noted that a large part
of the European Union’s budget, almost one third4, focuses on cohesion policy
which also acts as a support for investments during the implementation of the
Europe 2020 strategy. The strategy itself is defined as the European Union’s
program for growth and job creation with a special emphasis on smart, sustain-
able and inclusive growth, the way to overcome the structural weaknesses of
the European economy, improving competitiveness and productivity, and sup-
porting a sustainable social market. However, for a balanced development of all
European countries and regions, including the Republic of Croatia, it is impor-
tant to respect those policies that through their long-term positive impact on
society’s general well-being have a traditional understanding.
1149
The paper presents the results of research and analysis of the absorption
capacity for the preparation and implementation of EU projects at a regional
and local level in the Republic of Croatia, also Administrative capacities of the
bodies in the Management and control system for the implementation of the
ESI funds.
Gabrijela Žalac Ana Odak Mario Banožić: NATIONAL POSITION OF THE REPUBLIC OF CROATIA ON COHESION POLICY POST 2020
5
Article 174 of the TFEU: To promote its overall harmonious development, the Union shall
develop and pursue its actions leading to the strengthening of its economic, social and ter-
ritorial cohesion. The Union shall aim at reducing disparities between the levels of develop-
ment of the various regions and the backwardness of the least favored regions. Among the
regions concerned, attention shall be paid to rural areas, areas affected by industrial transi-
tion, and regions which suffer from severe and permanent natural or demographic handicaps
such as the northernmost regions with very low population density and island, cross border
and mountain regions.
6
The Visegrád Group (The Visegrád Four), abbreviated V4, is the name of the association
of four Central European countries – the Czech Republic, Hungary, Poland and Slovakia.
The group was established at the summit meetings of leaders of Czechoslovakia, Hungary
1150
policy. To further strengthen the position and to articulate national interests,
the Ministry of Regional Development and EU Funds has developed a national
position on the future of cohesion policy, which, after its adoption in February
2018 by the Coordination for European and Foreign Affairs of the Govern-
ment of the Republic of Croatia, was sent to the European Commission and the
European Union Member States for their reference. Through this action, the
Republic of Croatia further pointed out its view that cohesion policy, tailored in
a way to consider actual implementation indicators from previous periods, must
maintain an appropriate continuity in the post-2020 period.
and Poland, held on 15 February 1991 and was then called the Visegrád Triangle because
of the dissolution of Czechoslovakia in 1992. V4 has been established with a goal to foster
European integration of the group’s members, common economic interests, promoting free
trade, development of transport infrastructure and energy-related cooperation. During pre-
vious meetings, all of the Visegrád Group member states and the associated member states
(Croatia, Slovenia, Romania and Bulgaria) have confirmed the position on cohesion policy
as the main source of financing development, which, with some minor reforms aimed at
simplification and more focus on investments, should be kept in the post 2020 period. This
fact points to the importance of issues relating to cohesion policy as well as their presence in
other member states, most of those in the Central European region with which the Republic
of Croatia closely cooperates and shares majority of views regarding future.
1151
riod preceded by a number of concerned discussions and published documents
on the subject of considerations and possible directions. During 2017, the Pres-
ident of the European Commission Jean-Claude Juncker launched a general
debate on the future of Europe with a document of the European Commission
called White Paper which listed possible directions and developments regard-
ing the future of the European Union (White Paper; 2017), social dimension
Gabrijela Žalac Ana Odak Mario Banožić: NATIONAL POSITION OF THE REPUBLIC OF CROATIA ON COHESION POLICY POST 2020
1152
to support the Member States in implementing structural reforms through the
instrument for reform implementation and technical support on their request,
also a special instrument for convergence for the Member States which are in
the process of introducing euro and stabilization function for maintaining the
investment level in the case of asymmetric shocks.
1153
According to conducted research Administrative capacities of the bodies in
the Management and control system for the implementation of the ESI funds
its presented in Table 1.
OP
Rural Fisheries
OP Competitiveness Efficient
Activity Development Operational
and Cohesion human Programme Programme
resources
Total number of people employed in
the bodies in the management and
779 324 182 25
control system (31st of December
2017)
Total number of employees necessary
according to work load analysis for 1109 441 309 63
2018
Total number of people employed in
the bodies in the management and
control system (31st of March 2018) 884 358 226 42
The conclusion of the research was that the number of employees work-
ing with EU projects at the local/regional level should be increased (about 900
new employees are necessary among the survey participants who completed the
questionnaire). Also, there is a lack of financial capacity, human resources and
capacity for strategic planning and 79.92% of participants stated that human
resources are the area that needs to be improved to ensure better performance
of project preparation and implementation in organizations.
1154
Having this in mind, it is extremely important that economic, social and ter-
ritorial cohesion remains the priority for the European Union. The importance
of the Union’s budget has been highlighted throughout all current discussions
as well as published guidelines and possible scenarios as the key instrument for
public investment, long-term competitiveness, sustainable growth and econom-
ic growth. At the same time, it represents the framework that will define which
policies and priorities will be funded and implemented and will also concretize
the direction of the European Union’s development in the next period. When
we talk about the future of cohesion policy in the context of the next Multian-
nual Financial Framework, it will surely remain one of the policies that will
continue to survive but what is of great importance for the Republic of Croatia
is for the funding to be kept at an appropriate level. Therefore, the Republic
of Croatia actively participates in discussions, both at the EU level and in the
extended form of the Visegrád Group, where it actively exchanges opinions and
views with other member states on the subject regarding the implementation of
cohesion policy in the post-2020 period.
1155
Union and, through cooperation within that political platform alongside with
the pro-cohesion countries, point to the importance of this policy for the future
financial period after 2020.
During previous meetings, all countries have agreed that cohesion policy is
the main source of financing development which should be maintained, with
Gabrijela Žalac Ana Odak Mario Banožić: NATIONAL POSITION OF THE REPUBLIC OF CROATIA ON COHESION POLICY POST 2020
7
The first Ministerial Meeting within the V4 + 4 platform was held during the Czech Presi-
dency of the Visegrád Group in January 2016 in Prague, when the Joint Statement was
signed by the V4 + 4 states, which clearly expressed their view that cohesion policy must
persist in the post-2020 period. These positions were also confirmed at the V4 + 4 meeting
in Ostrava in June 2016 when the chairmanship of the Visegrád Group was taken over by
Poland, while the Joint Statement was adopted in March 2017 in Warsaw. The third Joint
Statement on the Future of Cohesion Policy was adopted at Ministerial Meeting in Buda-
pest in February 2018. One of the main messages adopted by the Statement is the retention
of cohesion policy as the main investment policy of the European Union, which supports the
effective implementation of the investments needed to reduce the existing economic, social
and territorial differences between the Member States and their regions.
1156
5. PRELIMINARY POSITION OF THE REPUBLIC
OF CROATIA ON COHESION POLICY POST
2020
Discussions on the future Multiannual Financial Framework and cohesion
policy are currently very up to date and substantive and Member States are
most often divided into two groups: Member States that are net payers to the
EU budget and Member States that are net beneficiaries. Within the discus-
sions, the net payers advocate an increase of national co-financing rates, return
to n + 2 rules for decommitment, greater use of financial instruments, linkage
between cohesion policy implementation and the rule of law, stronger linkage
between cohesion policy and European Semester and the possibility of transfer-
ring part of national allocations into centralized EU instruments (instruments
and funds directly implemented by the EU). The net beneficiaries, including
the Republic of Croatia, advocate opposing views from the net payers, namely:
keeping minimum national co-financing rates, retaining n + 3 rules for decom-
mitment, maintaining grants as the main instrument for the implementation of
the Cohesion Policy, advocating precautionary measures regarding the further
strengthening of Cohesion Policy and structural reforms and non-transfer of
resources within the shared management (national envelopes) into direct EU
management (centralized EU instruments and funds). At the same time, all
Member States are committed to simplifying the rules of implementation of the
cohesion policy, with the net payers promoting the principle of proportionality,
with the possibility of obtaining simplification only in some countries, while
1157
the EU, and therefore it is of utmost importance that adequate funding of cohe-
sion policy is maintained in the EU budget after 2020 (National Position of the
Republic of Croatia on Cohesion Policy post 2020; 2018).
Numerous Member States supported the Commission during the informal
discussions in increasing the conditionality of using EU funds in the forthcom-
Gabrijela Žalac Ana Odak Mario Banožić: NATIONAL POSITION OF THE REPUBLIC OF CROATIA ON COHESION POLICY POST 2020
ing period through their further linkage with the implementation of economic
reforms through the European Semester. For the Republic of Croatia, the op-
tion of setting up reserves for the implementation of structural reforms at the
level of cohesion policy envelope or within the framework of a special European
Structural and Investment Fund is not an option that would currently like to
support. At the same time, a stronger link between the European Semester pro-
cess and country-specific recommendations for the Member States with Eu-
ropean Structural and Investment Funds is a possibility that the Republic of
Croatia would be willing to consider.
According to the interpretations of the net payers, national co-financing
contributes to the feeling of ownership of all involved stakeholders, however,
given the significant differences between different countries and regions, its in-
crease would not contribute to the added value nor do net beneficiaries consider
it would increase ownership. The Republic of Croatia, together with all mem-
ber states of the extended Visegrád Group, strongly advocates maintaining the
current minimum national co-financing rates in national ESIF envelopes and
national budget contributions at the level of 15%. The actual rate of national
co-financing is considerably higher than the rate laid down in regulations and
operational programs, as well as the potential for increasing national co-financ-
ing of cohesion policy, varies significantly between the EU Member States. The
statistical data on the estimated share of cohesion policy on public investment
per Member State in relation to the EU average show that increasing the co-
financing rate is not only a good will of countries or a sign of the ownership
of the cohesion policy, but an objective obstacle if we want to maintain fiscal
sustainability and respect the rules and objectives of the Stability and Growth
Pact (Stability and Growth Pact, 2015).
Currently, the European Commission is working intensively on the design
of a single financial mechanism, in which all financial instruments would be
centralized within the Multiannual Financial Framework and reducing the use
of grants while increasing the use of financial instruments. The Republic of
1158
Croatia considers that financial instruments can play an important role in in-
vestment policies and have a leverage effect, especially at the time of budgetary
constraints, but they are not applicable for all interventions that the cohesion
Policy should back up after 2020. The appropriateness and effectiveness of us-
ing financial instruments should depend on ex-ante evaluation for a program
area that will confirm the need for the implementation of financial instruments,
their type, and scope. Therefore, the Republic of Croatia supports the position
that grants should remain the main instrument for the implementation of the
cohesion policy, and the Member States should be free to decide on the use of
financial instruments in relation to grants and offer customized public interven-
tions to the specific development needs of regions.
Given the absence of a new EU strategic document which would replace
the Europe 2020 strategy, the Republic of Croatia supports the retention of all
investment priorities (11 thematic objectives) within the current programming
period 2014-2020 and after 2020. Establishing clear goals at the EU, national
and regional level is the first step towards achieving stronger focus on results.
At the same time, thematic concentration contributes to the effectiveness of
the allocated EU funds and is a key tool for guiding cohesion policy to the EU
priorities and strategic coherence of investments. In the period after 2020, it is
necessary to adapt it to the specifics of Member States and regions.
Within the current discussions in the context of a decommitment proce-
dure, the net payers strongly advocate for the so-called n + 2 rule. The Republic
of Croatia supports the current period for absorption of funds n + 3 rule be-
1159
only be delivered in a short time frame. (National Position of the Republic of
Croatia on Cohesion Policy post 2020; 2018).
6. CONCLUSION
Regional policy is not an equally meaningful concept of cohesion policy. Re-
Gabrijela Žalac Ana Odak Mario Banožić: NATIONAL POSITION OF THE REPUBLIC OF CROATIA ON COHESION POLICY POST 2020
1160
The views of the Republic of Croatia are fully in line with the values that the
European Union has nurtured since the beginning of its existence. A protected
and secure Europe that respects the freedoms of its citizens with a secure ex-
ternal border and effective migration policy, a prosperous and sustainable com-
munity who promote sustainable development through a single market and a
society that combats unemployment, discrimination, social exclusion, and pov-
erty - all is what makes the merit of the decision to become a full member.
REFERENCES
Commission sets out Roadmap for deepening Europe’s Economic and Monetary Union,
http://europa.eu/rapid/press-release_IP-17-5005_hr.htm (Accessed 27 March 2018)
Communication From The Commission To The European Parliament, The European Coun-
cil And The Council - A new, modern Multiannual Financial Framework for a Euro-
pean Union that delivers efficiently on its priorities post-2020 http://eur-lex.europa.
eu/legal-content/HR/TXT/?uri=COM:2018:0098:FIN (Accessed 27 March 2018)
European Structural and Investment Funds: Country factsheet by countries, http://
ec.europa.eu/regional_policy/en/information/publications/factsheets/2016/eu-
ropean-structural-and-investment-funds-country-factsheet-croatia, (Accessed 27
March 2018)
National Position of the Republic of Croatia on Cohesion Policy post 2020, https://razvoj.
gov.hr/vijesti/usvojeno-stajaliste-republike-hrvatske-o-kohezijskoj-politici-nakon-
2020-godine/3763 (Accessed 9 March 2018)
The opinion of the European Committee of the Regions - Mid-term revision of the Mul-
tiannual Financial Framework (MFF), http://eur-lex.europa.eu/legal-content/HR/
TXT/?uri=CELEX:52016IR0009, (Accessed 27 March 2018)
Report from the Commission to the European Parliament, the Council, the European Eco-
1161
THE MARKETING ACTIVITIES AND
BARRIERS OF THE AGROTOURISM
Dejan Tubić Rikard Bakan Juraj Randelj: THE MARKETING ACTIVITIES AND BARRIERS OF THE AGROTOURISM ECONOMIES OF CONTINENTAL...
ECONOMIES OF CONTINENTAL
REGION OF THE REPUBLIC
OF CROATIA: TFF OWNERS
PERCEPTION
Abstract
Implementation of marketing principles in tourism business differs from the
implementation of marketing principles in other industries, primarily because
of the specificity and particularity of the tourism market. In tourism, even
something that does not have the characteristics of goods and services can be
sold and that significantly affects the distribution and points to the importance
of marketing knowledge and activities for the development of any form of tour-
ism. As the fastest growing form of rural tourism, especially in the interna-
tional context, agritourism gains more and more importance both from the
1162
academic, as well as the tourism public. In the academic sense, there is a mod-
est base of theoretical and empirical notions. Therefore, the aim of this paper is
to terminologically define the key terms at the theoretical level that will surely
contribute to a clearer and more accurate understanding of this highly confus-
ing terminology. The modern tourism market is characterized by a more di-
versified tourism offer of products and services. The lack of market placement
as well as market communication, especially market advertising, certainly has
a negative indication for the further development of rural activities in such
market conditions. In order to identify and analyze the general characteristics
of the current marketing activities and advertising means and channels, to
evaluate the quality levels of advertising activities arising from the cooperation
with other stakeholders and to analyze the websites of the economies at the em-
pirical level, a research will be conducted on a suitable sample. The survey will
include 13 counties of the Continental region of the Republic of Croatia, and
the respondents will be TFF owners. The research instrument will be a survey
questionnaire and the collected data will be analyzed according to standard
scientific methods.
Key words: rural tourism, agritourism, marketing, TFF owners, Continental
region of the Republic of Croatia
JEL Classification: L83, Z32
1. INTRODUCTION
Tourism has become one of the greatest industries where the concept of
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
borders lost the significance since the number of international tourist visits has
been growing rapidly (Tubić et al., 2017: 1231). In accordance with that, there
are also many changes in the market competition. Modern tourist consumers
can no longer be satisfied with the offer of tourism products that are based on
the hard3 platform (sun, sea, and sand), but they need to be offered a tourism
product that will satisfy their physical, emotional, intellectual and all the other
needs of an emancipated consumer of the 21st century. In a concrete sense, that
refers to the product based on the soft 6E platform (experience, excitement,
escape, education, entertainment, ecology). Precisely this approach will result
in the development of the 4M soft tourism (moderate growth, multidiversifica-
tion, multitasking, mobile), the part of which is surely made of the rural forms
of tourism with agritourism as its fastest-growing form in Croatia and world-
1163
wide. The holders of agritourist offer, which consists mostly of small economic
units, need to have a high level of marketing knowledge and reasoning in order
Dejan Tubić Rikard Bakan Juraj Randelj: THE MARKETING ACTIVITIES AND BARRIERS OF THE AGROTOURISM ECONOMIES OF CONTINENTAL...
to place the product of rural tourism in the ever more saturated market and to
insure its recognition and competitiveness. In accordance with that and as an
addition to the terminological definition of the key terms of rural tourism, the
main goal is to identify and analyze previous marketing activities, as well as the
barriers faced by TFF owners in the area of 13 counties of Continental Croatia
on an empirical level.
1164
products. Although some rural areas are still facing depopulation, other
rural areas are experiencing the influx of people or the development of
“untraditional” jobs. A previously clear difference between the urban and
the rural has been annulled by suburbanization, better communication
and the growing number of weekend-houses in the countryside;
• rural tourism is not only tourism on the agricultural farm but a complex ac-
tivity. It includes stays on agricultural farms but also special vacation forms
such as holidays in nature and eco-tourism, hiking, climbing, and horse-
back-riding, adventure, sports and health tourism, hunting and fishing,
educational travels, art, and culture tourism. All of the mentioned forms
imply a growing market interest in less-specialized forms of rural tourism.
Due to all of the mentioned facts, there is still does not exist a single com-
monly-accepted definition in the international academic scene nor in the praxis,
which was co rroborated in the work of Tchetchnik, Fleischer and Finkelshtain
(2006), Polo and Frías (2010), Mili (2012) and Tubić (2015). Many inter-
national and domestic authors such as Lane (1994; 2009), Rátz and Puczkó
(1998), Roberts and Hall (2001), Thompson (2004), Brščić (2005), Jelinčić
(2007), Kušen, (2007), San Martín and Herrero (2007), Ružić (2009), Szna-
jdera et al. (2009), Irshad (2010), Krajnović, Čičin-Šain and Predovan (2011),
Pesonen et al. (2011), Pröbstl Haider et al. (2014) and many others have tack-
led the topic of rural tourism in their scientific and professional works. The
resolution of terminological perplexities beings with defining the rural area ac-
cording to the most commonly-implemented criteria which are based on the
population density that defines a rural area through two basic approaches:
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
• the first – local units (e.g. boroughs) – can be identified as rural if the
population density stands below 150 inhabitants per square kilometer.
• the second criterion classifies the regions according to three categories:
• Predominantly Rural Region – PR: if more than 50 percent of the
region’s inhabitants live in rural units (with less than 150 inhabit-
ants per square kilometer);
• Intermediate Region – IC: if 15 to 50 percent of the region’s inhabit-
ants live in rural local units;
• Predominantly Urban Region – PU: if less than 15 percent of the
region’s inhabitants live in rural local units (European Commission,
2006: 3).
1165
This approach was implemented by Tubić et al. (2017) in their works “Ag-
ritourism: a new power of Croatian tourism”. In a broad specter of definitions
Dejan Tubić Rikard Bakan Juraj Randelj: THE MARKETING ACTIVITIES AND BARRIERS OF THE AGROTOURISM ECONOMIES OF CONTINENTAL...
of rural tourism1, the key definition will be the one created by the OECD for
two fundamental reasons. The first reason is that it is the only definition that
follows the methodology of defining a rural area and the second reason is that
it the most comprehensive in terms of content. The definition by the OECD
(1994: 34-35) reads as follows: ‘‘Rural tourism fundamentally takes place in rural
areas and is primarily in the function of agriculture. It is based firmly on the agricul-
tural world with special features of the open space, the contact with nature, the rural
heritage and the society. Rural tourism must be in an agreement with the environ-
ment and the social community in which it takes place. The community includes less
than 10,000 people and it includes the farms inside that area of work. The focus of
rural tourism is oriented towards a whole line of sustainable business subjects and the
community inside the rural area. The goal of rural tourism is insuring a long-time
sustainability of the life in the region where it takes place; it must be a force for the
preservation of the rurality and not a force of urbanization.’’
With the fundamental purpose of minimizing the unjustified mixing of the
three key terms (rural tourism, village tourism and agritourism), Tubić (2015:
68-69) proposes that rural tourism should be terminologically equalized with
village tourism since all three forms of tourism are defined by the rural area
and, unlike agritourism, they can be primary and/or secondary sources of in-
come without depending on the agricultural activity. In conclusion, rural tour-
ism stands as a synonym for village tourism and conversely, while agritourism
stands as a manifestation of rural, i.e. village tourism.
Due to the subject matter of this work, it is necessary to define the term agri-
tourism in more detail. Although agritourism is not a new phenomenon, a unique
consensus in academic circles in terms of the terminological definition of agri-
tourism has still not been reached, which has been confirmed by Hajdaš Dončić
et al. (2007), Chesky (2009) and Flanigan et al. (2014). Due to a broad specter of
different interpretations by foreign, as well as Croatian authors, this work defines
agritourism as a visit to a farm or any other agricultural, horticultural or economic
goods with the purpose of pleasure, education or active participation in the activ-
ity of the agricultural economy (Lobo, 2001). In terms of the provided services,
Demonja and Ružić (2010) divide tourism into following forms:
1
See more in Tubić (2015)
1166
• forms of agritourism that provide only catering services. These forms are
intended for tourists who want to try or who like homemade authentic
foods and beverages. A characteristic feature of this form of tourism is
serving foods and beverages in a specialized facility which is located on
the family farm which is decorated and equipped according to the original
architecture;
• forms of agritourism that provide only accommodation services. A char-
acteristic feature of this form of agritourism is a great number of facilities
that provide accommodation services, some of which are: rural houses of
traditional architecture, rural rooms, rural family hotels, traditional and
new architecture suites;
• forms of agritourism that provide catering and accommodation services.
What is specific for this form of agritourism is the possibility of providing
the complete service of accommodation and catering, as well as the full ad-
ditional vacation program with excursions, farm tours and other contents
that are organized in the area and its proximity. Precisely this form pres-
ents a complete family farm service package and is considered extremely
attractive and thus economically viable.
In term of facilities, there are different forms of vacation agritourism (Ružić
2009: 20).
• rural houses of traditional architecture;
• rural family hotels;
• rural rooms and traditional architecture suites;
• rural rooms and new architecture suites; INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
1167
continuously. So far (2018) only one official research has been conducted in the
whole area of the Republic of Croatia by the Croatian Chamber of Economy in
Dejan Tubić Rikard Bakan Juraj Randelj: THE MARKETING ACTIVITIES AND BARRIERS OF THE AGROTOURISM ECONOMIES OF CONTINENTAL...
2007 – the research under the name Current state of tourism in Croatian rural ar-
eas in 2008. As is known to the authors of this work, only three doctoral theses have
been written on that subject matter (Brščić, 2005; Tubić, 2015; Kantar, 2016).
The existing research in most cases encompasses only one county as a territo-
rial unit. It is important to mention here that Tubić (2015) includes the area of
13 continental counties in his empirical research for the purpose of writing his
doctoral thesis The model of the development of rural tourism in Continental Croa-
tia and that for the first time his research took into consideration the creators
and co-creators of the national tourist policy as well as TFF owners.
3. EMPIRICAL RESEARCH
.. Research methodology
While defining the sample and due to the fact that the only official data
about the number of registered family tourist farms in Croatia are the ones
from 2007, the authors will use the data collected in 2013 (Tubić 2015) to show
the most real image of the current state in Continental Croatia. Upon analyzing
the data from that database, there has been an increase by 60,6 percent of the
number of registered family farms, i.e. the number of the registered farms grew
from 125 up to 317 registered farms. The research2 was conducted in the time
span from December 8, 2013, until April 12, 2014, on a coincidental, conve-
nient sample of 107 respondents, i.e. on 33,7 percent of the total sample. While
analyzing the data, the authors have used different techniques of descriptive and
inferential statistics; for the presentation of the data, they used the calculated
frequencies, while the data gained through the questionnaire, that was made in
the form of the Likert type scale, were presented by the implementation of the
arithmetic mean and standard deviation.
2
The research was conducted with the purpose of writing a doctoral thesis by the author Dejan
Tubić (2015) and this work will show the mentioned results but with a different interpretation
1168
a 5-degree Likert type scale (1 – I completely disagree, 2 – I do not agree, 3 – I
have no opinion, 4 – I agree, 5 – I completely agree). From the collected answers
and upon summing the results (I agree and I completely agree), it can be con-
cluded that the greatest percentage of the respondents, 81,11 percent (90) agree
or completely agree that marketing is extremely important for the survival and
the development of agricultural family farms (middle grade 4,39). In contrast
to the mentioned facts and upon summing the results of “completely disagree”
and “disagree”, it can be concluded that more than half of the respondents, more
precisely 66 of the respondents (61,68 percent) mostly disagree that there is a
practice of a common promotion of rural tourism on the national level in the
Republic of Croatia (middle grade 2,13).
Upon determining the limiting business factors, 75 (75 percent) of respon-
dents consider the unadequate marketing activities in local and national level
as the most crucial factors that hinder the business development (middle grade
1,99). With the goal of determining the accuracy of this claim more precisely,
the authors constructed the intervals of accuracy around the values of certain
claims in order to examine whether the differences between the arithmetic
means are high enough so that they cannot be considered accidental. Tubić
(2015) states here that out of 17 offered factors, the restrictive factors are stron-
ger than the factors of excessive tax rates, the lack of stakeholder co-operation,
lack of motivation and tradition in tourism and education programs, and other
factors at the confidence level of 95%. Modern tourism market is character-
ized by the growing diversity of tourism product and service offering, and the
lack of market placement, as well as the lack of market communication, espe-
cially the lack of market advertising, certainly has a negative connotation for INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
the further development of rural businesses in such market conditions (Tubić,
2015: 266). Upon determining the basic features of market advertising, the re-
spondents were asked to state their views on the methods of advertising of the
existing tourist products and services that are offered within their own rural-
tourism offer to different consumer categories. The results show that most of
the respondents (48,60 percent) promote their tourism products and services
on their own, but also that a high percentage (42,99 percent) is promoted in
cooperation with other stakeholders. If the results given in table 1 are taken into
consideration, we can see that the respondents rated the cooperation with other
rural economies with the average grade of 2,45, while the lowest average grade
of 1,77 was attributed to the cooperation with amenable Ministries and other
1169
state institutions. Based on the data gained through the empirical research con-
nected to the use of advertising channels in the business, Tubić (2015:269-270)
Dejan Tubić Rikard Bakan Juraj Randelj: THE MARKETING ACTIVITIES AND BARRIERS OF THE AGROTOURISM ECONOMIES OF CONTINENTAL...
Very favorable
Not favorable
favorable nor
Considerably
Not entirely
Arithmetic
favorable
favorable
Advertising activity
Neither
mean
poor
1170
(2015) evaluated the quality of web pages based on four defined criteria: general
information, contact information for the visitors, information about the tourist
offer and web 2.0 technology. The evaluation form and the results can be seen in
Table 2. The poorest results were recorded in the fourth evaluated criterion and it
is important to insensify the use of the Internet as the promotional and commu-
nicational medium, exclusively due to the many advantages of the web 2.0 tech-
nology (global reach, low activity costs, the possibility of a quick reaction to new
market trends and alike). These advantages certainly result in an increased num-
ber of Internet visitors, a higher rank in the Internet search engines, the obtaining
of feedback from the consumers and in the creation of loyalty (Tubić, 274-275).
1171
4. CONCLUSION
In the Republic of Croatia, rural tourism in the academic sense is still in its
Dejan Tubić Rikard Bakan Juraj Randelj: THE MARKETING ACTIVITIES AND BARRIERS OF THE AGROTOURISM ECONOMIES OF CONTINENTAL...
LITERATURE
Brščić, K. (2005). Marketinške pretpostavke uspješnosti subjekata agroturističkog gos-
podarstva u Istarskoj županiji, Doktorska disertacija, Osijek: Ekonomski fakultet
Sveučilišta u Osijeku.
Chesky, A. (2009). Can Agritourism Save the Family Farm in Appalachia? A Study of Two
Historic Family Farms in Valle Crucis, North Carolina. Journal of Appalachian Stud-
ies, 15 (1/2), p. 87-98.
Demonja, D., Ružić, P. (2010). Ruralni turizam u Hrvatskoj s hrvatskim primjerima dobre
prakse i europskim iskustvima, Zagreb: Meridijani.
European Commission (2006). Directorate - General for Agriculture and Rural Develop-
ment: RURAL DEVELOPMENT IN THE EUROPEAN UNION - STATISTI-
CAL AND ECONOMIC INFORMATION - Report 2006.
1172
Flanigan, S., Blackstock, K., Hunter, C. (2014). Agritourism from the perspective of provid-
ers and visitors: a typology-based study, Tourism Management, 40, p. 394-405.
Franić, R., Cunj, L. (2007). Društveno-gospodarski preduvjeti razvitka agroturizma u
Zagrebačkoj županiji, Agronomski glasnik, 69 (5), p. 381-400.
Grgić, I., Zrakić, M., Cerjak, M. (2011). Agroturistička ponuda Zagrebačke županije:
ograničenja i mogućnosti, Agronomski glasnik, 73 (1-2), p. 41-58.
Hajdaš Dončić, S., Horvat, Đ., Šmid, I. (2007). Klaster - model za interregionalno povezivan-
je kontinentalnih agroturističkih odredišta, Acta Turistica Nova, 1 (1), p. 99-116.
Irshad, H. (2010). Rural tourism – an overview. Alberta: Government of Alberta, Rural
Development Division.
Jelinčić, D.A. (2007). Agroturizam u europskom kontekstu, Studia ethnologica Croatica, 19
(1), p. 269-291.
Krajnović, A., Čičin-Šain, D., Predovan, M. (2011). Strateško upravljanje razvojem ruralnog
turizma - problemi i smjernice, Oeconomia Jadertina, 1 (1), p. 30-45.
Kušen, E. (2006). Ruralni turizam, p. 167-190., u Čorak, S., Mikačić, V. (Eds) (2006).
Hrvatski turizam - plavo bijelo zeleno, Zagreb: Institut za turizam.
Kušen, E. (2007). Terminologija ruralnog turizma. U: Baćac, R. (Ed.) Zbornik radova 1.
Hrvatskoga kongresa o ruralnom turizmu s međunarodnim sudjelovanjem „Perspe-
ktive razvoja ruralnog turizma“, Hvar, 17. - 21. listopada 2007., Zagreb: Hrvatski
farmer d.d., p. 273-280.
Lane, B. (1994). What is rural tourism? Journal of Sustainable Tourism, 2, p. 7-21.
Mili, N. (2012). Rural Tourism Development: An Overview of Tourism in the Tipam
Phakey Village of Naharkatia in Dibrugarh District, Assam (India). International
Journal of Scientific and Research Publications, 2 (12), p. 710-712.
Mišćin, L. Mađer, B. (2008). Aktualno stanje turizma u ruralnom prostoru Hrvatske 2008.
godine, Zagreb: Sektor za turizam HGK.
Organisation for Economic Cooperation and Development (1994). Tourism Strategies and
Rural Development Organisation - General Distribution. Paris
Pesonen, J., Komppula, R., Kronenberg, C., Peters, M. (2011). Understanding the relation-
ship between push and pull motivations in rural tourism, Tourism Review, 66 (3), p. INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
32-49.
Polo, A.I., Frías, D. (2010). Collective Strategies for Rural Tourism: The experience of net-
works in Spain, Journal of Tourism Consumption and Practice. 2 (1), p. 25-45.
Pröbstl-Haider, U., Melzer, V., Jiricka, A. (2014). Rural tourism opportunities, strategies
and requirements for destination leadership in peripheral areas, Tourism Review. 69
(3), p. 216-228.
Rátz, T., Puczkó, L. (1998). Rural Tourism and Sustainable Development in Hungary, p.
450.-464., u Hall, D., O’Hanlon, L. (Eds.) (1998).”Rural Tourism Management: Sus-
tainable Options” International Conference, Conference Proceedings; Scottish Agri-
cultural College, Auchincruive, Ayr, Scotland, UK.
Roberts, L., Hall, D. (Eds.) (2001). Rural Tourism and Recreation: Principles to Practice,
Oxon and New York: CABI Publishing.
Ružić, P. (2009). Ruralni turizam, Pula: Institut za poljoprivredu i turizam Poreč.
1173
San Martín, H., Herrero, Á. (2012). Influence of the user’s psychological factors on the on-
line purchase intention in rural tourism: Integrating innovativeness to the UTAUT
framework, Tourism Management, 33, p. 341-350.
Dejan Tubić Rikard Bakan Juraj Randelj: THE MARKETING ACTIVITIES AND BARRIERS OF THE AGROTOURISM ECONOMIES OF CONTINENTAL...
1174
THE ISLAND OF RAB TOURISM
POSITIONING AND DESTINATION
BRANDING
Abstract
The process of defining a tourist destination in terms of positioning on the tour-
ist market has to serve the purpose of creation an identity and quality, which INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
depends on the megatrends in tourism. Depending on the economic power of
a destination and the aims of the management body in positioning process it is
necessary to create a product development action plan, while one of the steps
also includes destination branding.
This paper presents the results of the revision on the research and activities car-
ried out in the period from 2014 to 2017 by the Croatian Tourist Board offices
on the island of Rab. Measuring brand impact is necessary in understanding
the success of destination management plan. The results of measuring brand
impact will reveal how travelers perceive the destination regarding brand dif-
ferentiation and the brand esteem. The paper will present the results of the sur-
1175
vey conducted in March 2018 in relation to “Brand Development Rab - The
Happy Island”.
Key words: positioning, destination branding, competitive advantage, tourist
destination of the island of Rab, brand tracking survey
JEL Classification: L83, M39
Dominik Paparić Jesenka Ricl Dražen Ćućić: THE ISLAND OF RAB – TOURISM POSITIONING AND DESTINATION BRANDING
1. INTRODUCTION
This paper attempts to determine if the process of positioning and branding
of the island of Rab in terms of the “Rab The Happy Island” slogan was success-
ful. In 2014 a suggestion was put forward as to position the destination of the
island of Rab on the tourist market. The suggestion was an answer to an invest-
ment swing and a qualitative bounce in terms of the tourist product and service
offer. This advanced development prompted the creation of a new brand. The
primary goal of the positioning and branding of the island of Rab was to pro-
long tourist season and to increase the efficiency of tourism economics, which
results in income growth, new workplace opportunities and their diversifica-
tion and the overall growth of the life standard of the inhabitants of the island.
The branding process is very complex and long-lasting if it aims to achieve the
competitive strength of the destination. A brand is the feeling that a tourist has
towards tourist destination, a brand relates to the specificity, originality and
authenticity of the features owned by the destination. Marketing activity is the
process of tourism product development. Product marketing does not solely
mean product promotion. Nevertheless, it has to do with its development and
improvement. In order to be able to develop a product, it is necessary to explore
the tourist market regularly, conduct promotional campaigns and study behav-
ior of the consumers as well as their preferences.
This paper explores how recognizable the brand of “Rab The Happy Island”
is. It made use of the survey method among the current and the potential trav-
elers, i.e. tourists as well as the analysis of the secondary records given by the
employees of the Tourist Boards of the Town of Rab and the Municipality of
Lopar. The research aims to determine how and to what extent brand influences
the positioning of the island of Rab on the tourist market.
1176
2. TOURIST DESTINATION POSITIONING
.. Tourist motivation and customers ‘wishes
Trends show that today’s tourists are often called travelers, who want to
explore the destination and become a part of the local community. Globaliza-
tion process influences the change of a contemporary tourist’s needs, i.e. of the
traveler. Today, traveler demands more than a usual beach vacation. Contem-
porary traveler seeks a “getaway” from the everyday routine, authenticity and
is in continuous need of the new life and educational experience. Destinations
change, not just because of the pressure made by tourism but also because of the
outdated offer (Magaš; 1997, 8).
In modern tourist development the destination is treated as tourist product
that will successfully compete on the market duo to its attractive and high-qual-
ity issues (Magaš; 2003, 30).
Today’s travelers can be divided into two categories (ETC/UNWTO,
2009):
a) the ones who travel to their destinations frequently and who are moti-
vated to materialize what they acquired and enjoy its hedonic magic, and
b) the ones in search of the personal and emotional fulfillment, but in those
destinations, which enable the transformation of travelers through the
new life experience
Understanding of tourist motivation helps workers in tourism industry
1177
Traveler’s motivation is a consequence of a consumer’s wish to travel. Com-
mercial or non-commercial information can stimulate the consumer’s wish.
That information triggers the consumer’s attention and convinces him that the
temporary situation can be changed if he buys or consumes a product or ser-
vice. During the purchase the value of the brand plays a significant role. Con-
sequently, the image and brands of the destination become important stimuli
which affect the consumer’s behavior as well as consumer’s motivation during
Dominik Paparić Jesenka Ricl Dražen Ćućić: THE ISLAND OF RAB – TOURISM POSITIONING AND DESTINATION BRANDING
1178
.. Competitive surroundings
Each year new tourist destinations emerge with diverse offer of selective
tourism. Each of them develops different experience for potential travelers.
Managerial tourist destination units try to use tourist activities in order to re-
cover economy, which means an ongoing search for better tourist destination
positioning in highly competitive surroundings. It is of utmost importance in
these cases to determine who the rivals are and what motivates a traveler, i.e. a
tourist to go to that destination. Competitive analysis is important in the pro-
cess of destination branding and in conducting optimal marketing activities.
Understanding other destinations has become important for the develop-
ment of a quality destination brand. The analysis of competitors can clarify
their current position and activities; it can identify the weaknesses and actions
that can be taken in that regard (Oliva & Paliaga; 2015, 30).
Normally, tourist offer includes cultural, natural, heritage or adventure of-
fer, which is actually not enough. It is necessary to move away from the “generic”
offer and find particulars and authenticities which will influence stronger tour-
ist destination positioning in relation to a competitive destination. Destination
positioning, branding and the creation of a suitable image of a destination are a
key motivational means for tourists.
1179
zation, characterization, continuity, hedonism and ethics of the products or the
combination of these different factors which give identity to the product or ser-
vice and make it different from the other products or services. This is a way to
distinguish a product or a service among the others, which consequently leads
to its growing consumers’ appeal (Paliaga; 2008, 7).
Branding is a marketing and managerial process which gives a unique iden-
tity and image to a certain product or service and makes it typical and more
Dominik Paparić Jesenka Ricl Dražen Ćućić: THE ISLAND OF RAB – TOURISM POSITIONING AND DESTINATION BRANDING
1180
The island of Rab is the fourth island of the Kvarner Gulf. It also includes
the neighboring islands, among which it is noteworthy to mention somewhat
larger islets such as Sv. Grgur (6.7 km²), Goli otok (4.7 km²) and the island
of Dolin (4.3 km²). There are some more islands around Rab which are even
smaller and together they form the island archipelago of Rab, also known as the
Dalmatian type of coast.
Being a part of Kvarner, the island of Rab has a convenient location in terms
of transport and tourism oriented towards the inland of Europe. The Kvarner
Gulf, which is deeply indented into the European territory, is where economi-
cally significant areas of central and western Europe gravitate towards in respect
of transport and particularly tourism. The areas in question are mainly parts
of Italy, Slovenia, Austria and Germany but also parts of the Czech Republic,
Slovakia, Hungary and Poland, which have had an increasingly important role
regarding the European trends in tourism (Turk & Turk Šarić; 2010, 14).
1181
the course of its historical development, the majority of them try to take a clear
and recognizable place in the minds of potential target segments of buyers by
means of strategic management of the process of destination branding.
The development of the brand of the island of Rab, which will enable the
desired tourist market recognizability in the region, has been one of the key
questions of the marketing strategy of Rab for the past 10 years because it is
clear that Rab is insufficiently recognizable on the market as a tourist destina-
Dominik Paparić Jesenka Ricl Dražen Ćućić: THE ISLAND OF RAB – TOURISM POSITIONING AND DESTINATION BRANDING
tion and that there is no clear image of the island and the perception of buyers,
i.e tourists.
The brand strategy of Rab has the following aims (Tourist Boards of the
island of Rab, 2014):
• Define the key elements of competitive positioning of Rab (it is related
to the selection of key characteristics that make Rab unique and differ-
ent from its competition and represent the foundations for a destination
brand)
• Derive the brand concept of Rab (relying on the characteristics that make
Rab unique; it has to do with the formulation of a single and clear promise
valid for the entire island of Rab and which having the connecting power)
The purpose of the brand strategy of Rab is the creation of preconditions
that can assure taking a clear position on a “mental map” of potential buyers in
the region. Key “leading thoughts” of tourist development of the destination
become “umbrella” brand of Rab, interpreted and maintained in terms of tourist
products and services, as well as in the entire communication with buyers, i.e.
tourists.
It is possible to identify the following characteristics of singularity of the
destination of the island of Rab (Tourist Boards of the island of Rab, 2014):
• Island with a long-lasting tradition of medical tourism in the Adriatic; the
beginnings of tourism on Rab, dating back to 1889, are related precisely to
the specific climatic and sanitarium conditions, i.e. proclaiming the island
a climatic health resort. By continuing and modernizing the medical tour-
ism tradition, it was on Rab that the programs of “healthy life” used to be
and still are active.
• The island of varied and unique activities offering an all-year-round active
and fulfilled stay: various available activities, some of which are unique
1182
in terms of location, climate and culture, with the possibility of an all-
year-round, fulfilled and active tourist stay. From the abundance of forests
of the island (one of the greenest islands in Croatia), unique climate and
numerous bays, beaches for all the generations (sandy, pebbly, stone) and
the clean sea, to the exceptional historical and cultural sights, unique Rab
Geopark as well as the rest of the tourist offer implemented in the full
tourist product
• The island of exceptional areal diversity: embraced and protected by its
highest peak (the Kamenjak hill – 408 meters of altitude) which defends
the island from strong northern winds and the influence of cold air; ow-
ing to that the island emanates the Mediterranean in the true sense of the
word.
• The island confronted the developmental challenges and dedicated itself
to the implementation of the principles of sustainability: the conflicting
developmental options of Rab as an island of the exceptional preserved
natural beauty and cultural heritage and simultaneously oriented towards
tourism and, traditionally, to agriculture and fishing contribute also to an
increasingly distinctive inclination towards sustainability as an assump-
tion of the contemporary development.
• The proximity of the island to the regions of the big markets of Central
Europe: owing to the significantly improved transport infrastructure Rab
is today, along with the other destinations in Kvarner and Istria, the easi-
est Adriatic region to reach, even for the more distant markets.
As one of the easiest islands to reach in the Croatian Adriatic, with excep- INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
tional diversity and unique activities offering numerous possibilities for a ful-
filled and active holiday, Rab stands out as a happy and healthy island with rich
cultural and historical heritage, with over 200 interesting events throughout the
year and consistently oriented towards the holiday motivated by health, physical
fitness, beauty and enjoyment. These are the key elements which the Rab Brand
is based on.
1183
the island in the perception of buyers and is the key assumption for the creation
of market recognizability of Rab as a tourist destination. Below are the concepts
that will place the destination of the island of Rab on the “mental” map of buy-
ers, i.e. tourists.
The value of the brand implies the identification of a specific idea behind
which there is the destination of the island of Rab and which gives its market
strength. It is a promise to a buyer, i.e. a tourist about the relevant benefits that
Rab can offer.
Resulting from the specific characteristics of the identity of the island of Rab
and communicating with the value system of a modern buyer (“the new tourist”),
the value of the brand, i.e. the essence or the very core of the promise of Rab is a
clear benefit to the tourists: the Happy Island. This concept comprises the mes-
sage of a “good feeling” while staying on Rab in terms of pleasure and fulfillment,
resulting from the possibility of doing a huge variety of activities, staying in the
preserved area and the region dedicated to the assumption of sustainability.
1184
a visitor/tourist feels during his vacation. Island of Rab can be described as
moderate, generous, vital, amusing and open. It is impressive in many ways. Its
rich historical heritage and distinctive nature impress, its rich culture of living
delight, its vitality inspires, the complexity of developmental options is worth of
respect. In its diversity Rab is the place where a visitor/tourist has a great free-
dom of choice, positive energy and the place which sets free. However, island of
Rab appeals mostly by its moderate, fine temper, ranging from the mild climate,
peaceful and protected sea to the gentle scents of the island vegetation, refined
architecture and subtle tastes.
The study of the positioning and branding of the island of Rab for a creative
solution for the visual identity of the “Rab” brand was conducted in 2014 for the
Tourist Boards of the island. The study showed that the level of self-catering
vacation rentals is extremely low, that the increased competitiveness between
those who rent their accommodation leads to lowering accommodation prices
and that there is a lack of the guests of higher purchasing power. Since then
various activities have been conducted to increase the overall tourism indus-
try revenue, to prolong tourist season, preserve natural and cultural heritage
and develop the destination in accordance with the attitudes and values of the
inhabitants.
The study shows that the overall cultural and natural heritage of the island,
the development of autochthonous products as well as good traffic connections
are all fine resources which can increase seasonal income and prolong its dura-
tion. The authors propose a way of improving the offer, which is based on de-
1185
Picture 2. Visual identity of the island of Rab
Dominik Paparić Jesenka Ricl Dražen Ćućić: THE ISLAND OF RAB – TOURISM POSITIONING AND DESTINATION BRANDING
1186
4.1.1. Research based on the secondary data
The authors did a research into the documents handed in by the employees
of the Tourist Board offices on the island of Rab. The following data has been
researched
• The study of the branding of “Rab the Happy Island”
• Tourism flow per country in the period from 1.1.2014. to 31.12.2017.
• Tourism flow per accommodation type in the period from 1.1.2014. to
31.12.2017.
Table 2. Tourism flow on the island of Rab in the period from 1.1.2014. to
31.12.2017.
ARRIVALS
INDEX INDEX INDEX
2014 2015 2016 2017
15/14 16/15 17/16
DOMESTIC 16,339 17,571 19,218 20,072 108 109 104
FOREIGN 224,914 238,062 246,620 263,052 106 104 107
Σ 241,253 255,633 265,838 283,124 106 104 107
OVERNIGHT STAYS
DOMESTIC 129,925 130,667 197,433 101 141 107
184,562
FOREIGN 1,696,858 1,779,818 1,898,778 2,011,093 105 107 106
Σ 1,826,783 1,910,485 2,083,340 2,208,526 105 109 106
LENGTH OF
STAY (DAYS) 7.57 7.47 7.83 7.80
Σ
The analysis of the statistical data showed the increase in the tourism flow
(the number of arrivals and overnight stays of domestic and foreign tourists) in
the period from 1 January 2014 to 31 December 2017 in the destination of the
island of Rab.
There were 8% more domestic tourists in 2015 as compared to 2014 and the
same period showed a rise of 1% in overnight stays. There were 6% more foreign
tourists in 2015 as compared to 2014 and the same period showed a rise of 5%
in overnight stays. The overall tourism flow in 2015 showed a rise of 6% in ar-
rivals and 5% in overnight stays as compared to 2014.
1187
There were 9% more domestic tourists in 2016 compared to 2015 and the
same period showed a rise of 41% in overnight stays. There were 4% more for-
eign tourists in 2016 compared to 2015 and the same period showed a rise of
7% in overnight stays. The overall tourism flow in 2016 showed a rise of 4% in
arrivals and 9% in overnight stays compared to 2015.
There were 4% more domestic tourists in 2017 compared to 2016 and the
same period showed a rise of 7% in overnight stays. There were 7% more foreign
Dominik Paparić Jesenka Ricl Dražen Ćućić: THE ISLAND OF RAB – TOURISM POSITIONING AND DESTINATION BRANDING
tourists in 2017 compared to 2016 and the same period showed a rise of 6% in
overnight stays. The overall tourism flow in 2017 showed a rise of 7% in arrivals
and 6% in overnight stays compared to 2016.
The highest number of arrivals (around 44%) and overnight stays (46%) in
the inspected period (2014 – 2017) was achieved in private accommodation
while the lowest number of arrivals (around 20%) and overnight stays (around
17%) was achieved in hotels. Considering the structure of guests, one third came
from Germany followed by Austrian tourists (10 – 15%), Hungarian (9-13%),
Slovenian (7-10%), Czech, Slovakian, Polish, Italian and Croatian (5-8%).
The length of stay in 2014 was 7.57 day, 7.47 in 2015, 7.83 in 2016 and 7.80
in 2017.
Chart 1. Graphic representation of statistical data regarding the achieved over-
night stays of domestic and foreign tourists on the island of Rab in
the period from 1 January 2014 to 31 December 2017 (in thousands)
1188
Chart 2. Graphic representation of statistical data regarding the achieved
overnight stays of domestic and foreign tourists on the island of
Rab in the period from 1 January 2014 to 31 December 2017 (in
thousands)
1189
.. The results of the survey research
A total of 201 examinees took part in the survey research, 115 of whom
were women (57%) and 86 men (43%). Out of the total number of the examin-
ees 194 of them (97%) state the Republic of Croatia is their residence while 7
of them (3%) live abroad.
The number of examinees across the counties is as follows: Primorje – Gor-
ski kotar County – 54 examinees (28%), the City of Zagreb – 36 examinees
Dominik Paparić Jesenka Ricl Dražen Ćućić: THE ISLAND OF RAB – TOURISM POSITIONING AND DESTINATION BRANDING
1190
(65%) make decisions based on their friends’ or colleagues’ recommendations
or the recommendations of their relatives, 102 of them (51%) make decisions
based on their personal experience, 77 of them (38%) search the web sites
which gather and publish comments, reviews and ratings of travelers/tourists,
41 of them (20%) search online social networking sites (for accommodation,
restaurants, transport services etc.), 39 of them (19%) the web sites owned by
the service providers or the destination, 18 of them (9%) make decisions based
on the information published in newspapers, on the radio or television pro-
grams, while no more than 13 examinees (6%) make decisions in travel agen-
cies or tourist offices and 10 of them (5%) with the help of tourist guides and
magazines that are sold.
The examinees usually travel with partner or spouse, which is claimed by
67 examinees (33%), 65 of them (32%) travel with their family including the
children younger than 18, 40 of them (20%) travel alone while 13 of them (6%)
travel in organized groups.
The main reason for taking their vacation in 2017 were the sun and beach
for 103 of the examinees (51%), 77 of them (38%) decided to stay in the nature
(mountains, lakes, scenery). Sightseeing was the main reason for travelling for
61 of the examinees (30%), for 40 of them (20%) the reason was a visit to fam-
ily, friends or relatives, 38 of them (19%) chose sports activities as the reason
for taking a vacation, 37 of them (18%) chose culture and 28 of them (14%) en-
joyed in the possibilities of health tourism. 24 of the examinees (12%) indicate
special events such as sports events, festivals and the like as the main reason for
1191
– of average importance, 4 – important, 5 – absolutely essential) and the results
are presented hereafter.
Chart 3. The rating in prices in general, natural characteristics and the quality
of the accommodation of the destination of the island of Rab
Dominik Paparić Jesenka Ricl Dražen Ćućić: THE ISLAND OF RAB – TOURISM POSITIONING AND DESTINATION BRANDING
Chart 4. The rating of the availability of activities and facilities for the people
with special needs and the rating of cultural and natural landmarks
1192
Chart 5. The rating of preferences about staying in the intact nature, meeting
the local inhabitants and hospitality, the rating of authenticity of ex-
perience and satisfaction of the local inhabitants
1193
Chart 6. The rating of preferences regarding the offer of typical dishes and bev-
erages, souvenir pastries, nautical destination, cultural offer, natural
richness and beauty, authenticity and consistency in the lives of the
local inhabitants
Dominik Paparić Jesenka Ricl Dražen Ćućić: THE ISLAND OF RAB – TOURISM POSITIONING AND DESTINATION BRANDING
A total of 129 (64%) of the examinees saw the slogan “Rab The Happy Is-
land” out of 201 of them. Out of 129, 79 (62%) recognized the slogan or logo
on the Tourist Board web sites and 47 (36%) on the promotional brochures
published by the Tourist Board. 39 of them (30%) saw the slogan or the logo on
the web sites owned by service providers or the destination, 38 of them (29%)
saw the slogan or the logo on the social networking web sites (offering accom-
modation, restaurants, transport services providers, etc.) 16 of them (12%) rec-
1194
ognized the slogan or the logo during a specialized show as presented on a stall,
15 of them (12%) recognized it on television shows or commercials. No more
than 11 examinees (9%) recognized the slogan or the logo in guides and maga-
zines that are sold. More than half of the examinees, 105 of them (52%) think
that the tourist offer of the island is not recognizable enough. The examinees
gave their opinion about the major drawback in terms of the recognizability of
the tourist offer of the island of Rab. As the major drawback to the recogniz-
ability of the offer of the island 47 of them (44.8%) say services and products
are not sufficiently differentiated, 45 of them (42.9%) say there is an insuffi-
cient number of branded products and services, 38 of them (36.2%) mention
the static system of the local marketing, 34.3% of them the lack of cooperation
in the field of joint marketing between the tourist offer providers, 24 of them
(22.9%) the attractions of the neighboring islands and competitive advantage of
other destinations.
When asked what effects the recognizability of the tourist offer of the island
of Rab 201 of the examinees answered in the following way: 142 of them (71%)
think that brands such as souvenir pastries (Rapska torta) or thematic events
(Rapska fjera) have an influence on the recognizability of the destination. 85 of
the examinees (42%) see the natural richness, cultural and heritage attractions
in relation to the competitive neighboring islands of Mali Lošinj, Cres and Krk
as a part of the recognizable offer. 36 of them (18%) think that differentiation
of products and services effects the recognizability of offer, while 33 of them
(16%) think this is the merit of cooperation in joint marketing and 28 of them
(14%) believe that a recognizable system of the local marketing made the island
of Rab a recognizable tourist destination. INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
5. CONCLUSION
Tourists choose the products they consider attractive and for which they
think that will offer them the best value for money. From the results of this
survey research one can reach the conclusion that:
• The aforementioned results show that the most frequent travelers have a
university degree, average income and work for an employer. The examin-
ees with the under-average income travel almost as much as the ones with
above-average income.
1195
• A contemporary traveler chooses a future tourist destination based on a
recommendation and former experience and searches the Internet for the
web sites with the published comments and experiences of other travelers.
• The trend of booking vacation packages (accommodation) is still present.
• Tourists find the accommodation quality important and usually choose
apartments in terms of accommodation, natural and cultural characteris-
tics of a destination, overall price range, access to additional services and
Dominik Paparić Jesenka Ricl Dražen Ćućić: THE ISLAND OF RAB – TOURISM POSITIONING AND DESTINATION BRANDING
1196
cial services that offer private accommodation organized by natural persons,
the recommendation is that the employees of the Tourist Boards additionally
inform the entrepreneurs and point to the benefits of joint marketing.
REFERENCES
Jakovljević, R. (2000). Grad kao proizvod, IDC, ISBN 953-98144-5-6, Zagreb
Magaš, D. (1997). Turistička destinacija, Tipograf, ISBN 953-6198-14-2, Rijeka
Magaš, D. (2003). Management turističke organizacije i destinacije, Fakultet za turistički i
hotelski menadžment, ISBN 953-6198-39-8, Opatija
Marušić, M. & Prebežac, D. (2004). Istraživanje turističkih tržišta, Adeco, ISBN 9789-953-
97228-5-3, Zagreb
Oliva, E. & Paliaga, M. (2015). Regionalni autohtoni proizvodi hrane u funkciji izgradnje
regije, MPS d.o.o., ISBN 978-953-99569-2-7, Rovinj
Paliaga, M. (2008). Branding i konkurentnost gradova, MPS d.o.o., ISBN 978-953-99569-
1-0, Pula
Tkalac Verčić A., Sinčić Ćorić D. & Pološki Vokić N., (2011). Priručnik za metodologiju
istraživačkog rada u društvenim istraživanjima II. Izdanje, MEP d.o.o., ISBN 978-
953-6807-53-6, Zagreb
Turk, H. & Turk Šarić, H. (2010). Lopar- turistička prošlosti i sadašnjost, Općina Lopar i
Turistička zajednica Općine Lopar, ISBN 978-953-56247-0-7, Lopar
Andrades, L., Dimanche, F. & Ilkevich, S. (2015). Tourist Behavior and Trends, p. 108
(available at:
https://www.researchgate.net/publication/302139612_Tourist_Behavior_and_Trends ac-
cess 20.03.2018.)
Buncle, T. & Keup, M. (2009). Handbook on Tourism Destination Branding, p.35-36 (avail-
1197
THE QUANTIFIED SELF A
THEORETICAL FRAMEWORK
AND EMPIRICAL STUDY ON
Thomas Cleff Laura Marie Hansmann Nadine Walter: THE QUANTIFIED SELF – A THEORETICAL FRAMEWORK AND EMPIRICAL STUDY ...
MARKETING OPPORTUNITIES
WITHIN THE SELFTRACKING
ENVIRONMENT
Abstract
Self-tracking – the practice of systematically recording information about one’s
diet, health, or activities – is becoming increasingly popular. A large variety
of data is being collected and analyzed by the users with the aim of improving
their physical well-being. The article analyses motives and habits of self-trackers
and investigates to which extend this individually-gathered data can be used
for (personalized) marketing purposes. An empirical study was conducted in
April 2017 with a sample size of 197 participants of which 106 were using
self-tracking. The results identified the key motives of self-tracking (getting fit),
their willingness to purchase additional products (mainly dietary supplements
and to a lesser extent sports accessories), their preferred frequency of observ-
1198
ing advertisements (2-4 times a month), their preferred type of advertisement
(coupons) and their preferred preference of marketing channels (social media).
The study also confirmed the negative impact of intrusiveness on the purchase
intention (meaning unclear) – but also the possibility to use opt-ins to restore it.
Overall, the findings give essential insights how self-tracking data can be used
successfully for marketing purposes.
Key words: self-tracking, personalized marketing, marketing opportunities
JEL Classification: M31, M39
1. INTRODUCTION
“The digital world is present in every part of the real world, in our phones and
glasses, smartwatches and wearables, televisions, coffee machines, and cars, soon in
our food, our clothing, our floors, walls, water, air, in our bodies. The digital world
has long turned into reality.”
(Marc Elsberg 2014: 339)
1199
2. WHAT IS THE QUANTIFIED SELF?
.. Definition
In 2007, when Gary Wolf and Kevin Kelly, journalists and publicists of The
Thomas Cleff Laura Marie Hansmann Nadine Walter: THE QUANTIFIED SELF – A THEORETICAL FRAMEWORK AND EMPIRICAL STUDY ...
Wired Magazine, founded the Blog Quantifiedself.com, the term Quantified Self
was first established. Ever since it has been used to encompass a worldwide
community of users and suppliers of self-tracking methods and technologies.
The members of the community unite to support new discoveries about them-
selves with the solemn promise of accurate observation (Quantified Self 2015,
para. 1). By monitoring themselves, Quantified Selfers liberate themselves from
unwanted habits to pursue their goals with the deep belief of increased chances
of personal success (Beato 2012, para. 8).
Today the term Quantified Self interconnects two aspects of the movement,
first the general act of quantifying or tracking one’s personal data followed by
processing this through programs that give a precise analysis of desired aspects,
and secondly the community itself. The thought of the community for the big-
gest part comprises sharing personal data with each other or learning from oth-
ers’ self-tracking or data visualization to continuously optimize the personal
tracking project (Lupton 2014).
1200
data (Selke 2014, p. 129). Lifeloggers usually do not intend to use the gath-
ered data to support future decisions but intend to keep data purely stored and
unanalysed on a server. Thirdly, there is one other tracking type: Lifehacking.
It relates more closely to the idea of Quantified Self in a way that users analyse
and interpret results of their tracking efforts, concluding possible actions for
further improvement (Wexler 2017, pp.3). In this sense, lifehackers purposely
conduct numerous self-experiments with the ultimate goal to optimize as many
aspects of their lives as possible.
Throughout this article, the term self-tracker is used when generally ad-
dressing people who track certain aspects of their lives, unrelated to data usage
habits.
1201
tential customers’ activity levels and to support them in reaching their goals.
However, the disadvantage of only using a smartphone without an additional
wearable is the fact that one has to manually enter all the necessary information
such as the sports activity, or actively measure the pulse with the mobile device.
Thomas Cleff Laura Marie Hansmann Nadine Walter: THE QUANTIFIED SELF – A THEORETICAL FRAMEWORK AND EMPIRICAL STUDY ...
1202
trackers. Self-optimization is driven by an underlying personal goal the con-
sumer wants to achieve. The assumption that the collection and analysis of daily
life activities help to reach a personal target is widespread. As Beato (2012, para.
4-5) states, it helps to increase the control over one’s life with maximum insights,
implicitly improving one’s chance of success. As a second motivation category,
Wolf (2010, p. 3) states the pure inherent curiosity of humans to reflect on one-
self. Self-tracking thereby serves to overcome guessing and improvising of given
states of our body and mind by directly understanding the underlying condi-
tions. Self-knowledge, as the third motivation category, is a distinct factor that
is needed for self-individualization as well as potential maximization in today’s
meritocracy (Langwieser and Kirig 2010, pp. 38). This category can also be seen
as the antecedent to self-optimization. By increasing the amount of information
an individual has about him- or herself, the feasibility to precisely target the
areas that need improvement to become a better ‘self ’ significantly rises.
1203
having purchased sports accessories during the past year. (Statista 2016b,
para.1). This leads to the presumption that self-trackers exhibit a willingness to
pay in order to reach their goals, thus hypothesizing:
H2: Self-trackers have a high willingness to purchase sports accessories that
Thomas Cleff Laura Marie Hansmann Nadine Walter: THE QUANTIFIED SELF – A THEORETICAL FRAMEWORK AND EMPIRICAL STUDY ...
1204
effect is saturated and decreases thereafter. This is also described as an inverted
U-shaped relationship (Park, Shenoy and Salvendy 2008, 362). Multiple au-
thors (Rau et al. 2014, p. 464; Raaijmakers and Shiffrin 2002, p. 7; Barwise and
Strong 2002, p.18) have discussed the optimal frequency of exposing a con-
sumer to one specific advertisement in order to pass the attention threshold as
described by Atkinson and Shiffrin (1968). Research that identifies the optimal
repetition or frequency for mobile advertising is fairly contradicting and ranges
from less than once a week (Carlton 2015) to three messages a day (Barwise
and Strong 2002, p.18). However, all agree that high exposure is likely to trigger
‘delete on receipt’ reactions amongst consumers. Additionally, a high frequency
of exposure decreases the perceived advertising value (Haghirian, Madlberger
and Tanuskova 2005, p. 7). We believe that self-trackers are used to a high fre-
quency usage of their device for monitoring purposes, meaning that steady push
notifications will easily lead to annoyance. Therefore, we postulate a rather con-
servative hypothesis:
H4: Self-trackers prefer weekly marketing messages
1205
.. Personalized Marketing Possibilities
Successful personalization of services mainly depends on the businesses
abilities to acquire and process information about consumers and their will-
ingness to share information, in order to enable usage of personalized services
Thomas Cleff Laura Marie Hansmann Nadine Walter: THE QUANTIFIED SELF – A THEORETICAL FRAMEWORK AND EMPIRICAL STUDY ...
(Chelappa and Sin 2005, p.184; Lee and Rha 2016, p. 454). As defined by Rim-
er and Kreuter (2006, pp. 187), tailoring is the process of creating individual-
ized communication by collecting and analysing personal data, in order to de-
termine the most appropriate information or strategies to meet the consumer’s
unique needs. The willingness increases if there are benefits in return, such as
discounts, personalized information or services. However, fear of privacy inva-
sion was and still is a very prominent topic (Sheng, Nah, and Siau 2008, pp.
350). Overall, there are multiple possibilities of personalizing the entire cus-
tomer journey or specific marketing aspects. We believe that self-trackers, due
to their specific profiles can be targeted effectively with personalized advertising
– better than average consumers that do not have as specific profiles. In general,
it can be said that the more specific and targeted the information is, the higher
the acceptance. Therefore, the following hypothesis is proposed:
H6: Personalized advertisements are more favoured among self-trackers
1206
cluding offensive materials (Morimoto and Chang 2006, p. 10). Therefore, the
following hypothesis is presented:
H7: Advertisements tailored using behavioural information will result in
high perceived intrusiveness
Intrusiveness is highest when combining data, collected through wearables
and from location-based browsing (using precise GPS data) (Gazley, Hunt and
McLaren 2015, p. 1698). Therefore, an additional hypothesis is postulated:
H8: Tailored advertisements using very precise location-based information
increase perceived intrusiveness
As explained above, personalized advertising can lead to perceived intrusive-
ness. This may result in negative reactions from the consumer such as ad irrita-
tion, avoidance, message rejection or even source derogation (White et al. 2008,
p. 42; Barnard 2014, p. 35). Additionally, this can lead to a decreased willing-
ness to purchase (Truong and Simmons 2015, p. 241).
H9: Perceived intrusiveness decreases the willingness to purchase
Resistance in intrusively perceived ads serves as a potential explanation for
addressing privacy controls on Social Media sites and applications likewise. Em-
pirical analysis suggests that following a policy change on Facebook has positive
effects. By allowing users to define the availability of their data to third parties,
the acceptance of personalized advertising content increased greatly with users
twice as likely to react positively to the content. This analysis suggests, that by
handing back the control over users’ personal information, the consumer can
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
benefit from advertising-supported media. (Tucker 2014, p.557). This result
raises the question, whether the same concept may also apply to the data col-
lected with wearables. Permission-based advertising differs from traditional ad-
vertising because messages about specific products, services, or content are sent
only to individuals who have explicitly indicated their willingness to receive the
message (Tsang, Ho and Liang 2004, p. 68). By relying on the permission of the
target audience, permission-based advertising focuses on reducing this unwant-
ed irritation. The hypothesis includes an opt-in option as a privacy restriction
possibility for users to be clearly informed and in control of the data collected
and shared. Therefore, we propose the following hypothesis:
H10: Opt-in options for sharing data with third parties decrease the per-
ceived intrusiveness
1207
4. DATA COLLECTION AND SAMPLING
For data collection purposes an online questionnaire been developed, and
convenience sampling (Brick 2011, pp.881) was chosen as a sampling approach.
The survey was distributed via the online survey tool Unipark to an online sur-
Thomas Cleff Laura Marie Hansmann Nadine Walter: THE QUANTIFIED SELF – A THEORETICAL FRAMEWORK AND EMPIRICAL STUDY ...
vey panel including 670 students and alumni of Pforzheim Business School,
using the Germany language. Following a pre-test, the panel members were sent
an email invitation on the 4th of April 2017. This survey was then closed on the
15th of April 2017 containing a sample size of 210 participants. Out of these,
thirteen participants did not fully complete the survey, leading to an exclusion
and an effective sample size of n=197 participants (completion rate = 93.8%).
The survey itself consists of 11 parts addressing eight overarching topics as
presented in Table 1. The first part comprises general information about the
background of the research study. Besides the general questions on self-tracking
experiences in part #2, questions about the reasons for self-tracking were ad-
dressed in part #3 of the questionnaire. The used items were retrieved from
previous research studies (Nißen 2013, p.57; Lupton 2015, pp.6; Choe et al.
2014, p.1146; research2guidance 2016, p.26). The vital component of willing-
ness to spend on further accessories was asked in part #4 using a 5-point Likert
scale with two statements adapted from previous research studies (Wu, Yeh and
Hsiao 2011, p.37; Hong and Cho 2011, p.474; Kim and Han 2014, pp.256;
Robinson, Faris and Wind 1967, p.14; Naumann, McWilliams and Lincoln
2015, p.187).
1208
The preferences of different marketing channels have been measured in part
#5. To avoid high intrusiveness of marketing activities, participants were asked
to rate the frequency they would like to receive advertisements.
Based on Goldsmith, Flynn and Korzenny (2015, p.48) the self-assessment
of a consumer regarding his or her innovativeness and shopping behaviour has
been formulated in part #6 on a 5-point Likert scale. In part #7 the respondents
had to evaluate the degree of interest in different marketing activities within
a given marketing channel. The scale has been adapted from Barnard (2014,
pp.48) and White et al. (2008, p.43), previously adapted from Edwards, Li and
Lee (2002).
Part #8 conveyed an advertisement in a neutral format. The marketing chan-
nel was not given to avoid biased reaction of consumers based on channel pref-
erences. The first advertisement was designed in the light of presumed high
interest in sports and fitness relying on previous research in this area. As shown
on the left-hand side of Figure 1, a sports shoe is recommended based on the
step count and tracked sports activity of the individual over a specified period.
The weight of the shoes and the availability of data to third party companies
were also advertised.
1209
fered within the ad, incentivising the person to enter the store. The participants
are expected to rate different aspects of both advertisements on given scales.
In part #10, a third advertisement has been presented. It uses highly sensi-
tive and personal data about individual sleeping habits. In this case, a sleeping
Thomas Cleff Laura Marie Hansmann Nadine Walter: THE QUANTIFIED SELF – A THEORETICAL FRAMEWORK AND EMPIRICAL STUDY ...
pill company is addressing the user based on his/her tracking results to reveal
the correlation of the (bad) quality of sleep and personal online-calendar. With
the additional personal touch of approaching the consumer by using the first
name and an empathetic tone, the impression of a friend giving advice is simu-
lated. The participants are expected to project their thoughts according to the
scales in part #9 and #10. Part #11 finally asked for their willingness to buy the
products when the option to share data with third parties is given.
5. RESULTS
A total of 106 participants confirmed the success of the self-tracking sub-
sample. The other 91 participants, not having experienced self-tracking yet, had
to consider the question if they would use self-tracking. The gender distribu-
tion amongst self-trackers was 25 men (24%) and 80 women (75%) with one
participant not indicating the gender. In terms of age, from the 106 self-trackers
20 are below 20 years (19%), 60 are between 20-25 years (56%), 22 are between
25-30 years (21%) and 4 are between 30-35 years. This reveals that over 80% of
the respondents are Millenials (i.e. born between 1980 to 1995, being between
22 and 37 years old).
1210
Figure 2: Distribution of Motivation for Self-tracking
1211
.. Hypotheses and – Preferred Frequency and Type of
Advertisement
Figure 3 shows that 32% of the respondents prefer advertisement once a
week, and 32% two or three times per month. Results do not differ significantly
Thomas Cleff Laura Marie Hansmann Nadine Walter: THE QUANTIFIED SELF – A THEORETICAL FRAMEWORK AND EMPIRICAL STUDY ...
1212
Figure 4: Advertisements with high or very high interest
1213
.. Hypotheses and – Marketing Channel and Consumer
Innovativeness
As shown in Table 3, the social media channel exhibits the highest preference
with a mean of Mean=2.98 followed by print advertising (Mean=3.09) which
Thomas Cleff Laura Marie Hansmann Nadine Walter: THE QUANTIFIED SELF – A THEORETICAL FRAMEWORK AND EMPIRICAL STUDY ...
seems surprising due to its lack of audio compared to the other channels. The
mobile media channel exhibits an even less important preference (Mean=3.44).
1214
.. Hypotheses - – Tailored Advertisements and
Intrusiveness
Intrusiveness was measured for each advertisement with three items (dis-
turbing, forced and invasive) on a 5-point Likert scale anchored from ‘strongly
agree’ to ‘strongly disagree’. Comparing the means of the three intrusiveness
items for each advertisement, one can clearly see a large gap between the run-
ning shoe (Mean=2.95) and the store (Mean=2.2) accounting for much lower
ratings. Principal components analysis has been used to condense the three in-
trusiveness items to one intrusiveness factor for each advertisement (shoes and
store) separately.
The willingness to purchase is measured on a 5-point Likert scale with 1
representing highest willingness to purchase and 5 no willingness to purchase.
The running shoe shows a higher willingness to purchase (Mean=3.58) than
the store (Mean=3.69) but neither the parametric t-test (p=.156) nor the non-
parametric Wilcoxon test (p=.172) shows significant differences.
Spearman’s rank correlation shows a negative and significant (p<.0005) cor-
relation (r=(-.564)) between the intrusiveness and the purchase decision for the
sports shoe. The negative monotonic correlation indicates that an increased feel-
ing of intrusiveness has a significant negative influence on consumer’s purchase
intention. For the store advertisement, there is an even stronger negative and sig-
nificant correlation (r=(-.648), p<.0005). Therefore, the hypotheses 7, 8 and 9
confirm that intrusiveness decreases the willingness to purchase certain products.
.. Hypothesis – Opt-in Influence on the Willingness to INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
Purchase
Since a negative correlation between the willingness to purchase and the
perceived intrusiveness has been found, it is to be tested if an opt-in may in-
crease the willingness to purchase. The non-parametric Wilcoxon test was ap-
plied to test if the willingness to purchase is significantly higher with or with-
out the opt-in. For the shoe, test results depict a statistically highly significant
(p<.0005) change in acceptance, reflecting a much higher willingness to opt-in.
Only eleven out of 125 participants reacted negatively as seen in Table 4. Simi-
lar results were seen in the analysis for the opt-in of the store advertising, as
presented in Table 5. Altogether, it can be said, that hypotheses 10 is verified.
1215
Table 4: Ranks of Purchase Willingness before and after Opt-in – Running
Shoe
Thomas Cleff Laura Marie Hansmann Nadine Walter: THE QUANTIFIED SELF – A THEORETICAL FRAMEWORK AND EMPIRICAL STUDY ...
1216
6. CONCLUSION
.. Discussion
It was discovered that many participants of the given target group were self-
tracking, in order to improve their fitness. Despite this, there was a rather low
willingness to spend money on additional products. Interesting to mention is
that the willingness to purchase dietary supplements is the highest. This indi-
cates that – against our prediction of the highest interest in purchasing sports
accessories – the most appealing products for cross-selling are nutritional sup-
plements. This corresponds with the fact of a worldwide growing market for
dietary supplement products (Statista 2017c). Specifically, the sports nutrition
in Europe is showing positive sales forecasts for the upcoming years (Statis-
ta 2017a). The segment of self-trackers with interest in dietary supplements
seems to have a high potential.
The research has also found that the optimal frequency for targeting users
with marketing efforts lies between once a week and two or 3 times per month.
Possible low interest in marketing efforts due to prior negative experiences or
advertising overload on multiple channels might explain the lower end of the
scale (Geraci and Nagy 2004, p.18). Nevertheless, consumers are still interested
in being addressed by companies, since very few outliers claimed the wish to
receive no further advertisements.
For Marketing purposes, it is vital to know what information is most ap-
pealing and increases the probability of a purchase. As seen from the results,
the coupon advertisement was favoured across all participants. Surprisingly, the
interest in product innovations seems to be rather low. An explanation for this INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
1217
liked among users (73%), thereby supporting the given results (Adblock 2016,
para.1). In-app advertising, although featuring a very negative disposition, is,
however, growing steadily.
Social media has the highest level of favourability for self-trackers. A key
Thomas Cleff Laura Marie Hansmann Nadine Walter: THE QUANTIFIED SELF – A THEORETICAL FRAMEWORK AND EMPIRICAL STUDY ...
reason could be that this channel enables very high personalization and, as dis-
covered previously specifically self-trackers have an inclination towards such
personalized marketing efforts. A further interesting outcome was the medium
to the high correlation between predisposition of in-app and mobile as well as
radio and television. The explanation for radio and television could be that both
are categorized under the traditional media section (Dewan and Ramaprasad
2014, pp.101). A reason for the correlation between mobile and in-app may
well be consumers tending to see these two forms as one channel.
This study shows that perceived intrusiveness decreases the willingness to
purchase. Information displayed with the running shoe advertisement made the
users feel least intruded. The reason for this could be that although using be-
havioural information, the ad uses data that is actively tracked during workouts
with full awareness of the consumer. The reason for the remaining intrusive
perception might be due to the company specifically approaching the individual
with a purchase recommendation based on collected data despite he or she not
be aware that such data is readily available to third parties.
The second advertisement, mainly targeting the topic of precise GPS infor-
mation availability, shows the highest amount of intrusiveness. Although it does
provide a coupon, which is clearly favoured by consumers, the willingness to
follow the call to action is rather low. Attempting to reduce perceived intrusive-
ness, the opt-in version increased interest to purchase. This clearly reflects the
interest of users to have power over their own data (Eastlick, Lotz and War-
rington 2006, p.880). Correspondingly, it also shows a positive correlation be-
tween the consumer’s attitude towards the advertisement, if he or she is clearly
informed about the data sharing. Concluding this, it might be said, that the opt-
in can have a very positive influence on the way an advertisement is perceived.
Nevertheless, it should anticipate reactions depending on data and the tonality,
marketing vehicle and frequency used.
1218
.. Limitations and Recommendations for Future Research
It is important to note the few inherent limitations to this study. Since the
history of the Quantified-Self-movement and the overall self-tracking is still
young, only a few secondary resources and scientific literature are available. Spe-
cifically, research elaborating on the implications for marketing is highly rare,
leaving the authors with the necessity of transferring and adapting assumptions
of marketing implementations from other modern fields of research.
Noteworthy is also the fact that only 106 millennial self-trackers participat-
ed in this study. Due to convenience sampling, all respondents are benefitting
from a high educational level. The generalization of search results is limited due
to the origin of participants.
It is also clear that further research into marketing in the wearable technol-
ogy era is needed in order to find out more about what key drivers constitute to
success in this area. Key areas for such research might include:
1. An assessment of the profitability of the various segments using self-
tracking technology. Hardly any research exists that evaluates the eco-
nomical background and thereby also the attractiveness of the self-track-
ers for companies.
2. An in-depth analysis of the presentation, tonality, and context in which
the data that might cause intrusiveness is used. Situational factors, the
correct media vehicle, and representation, as presented by Edwards et al.
(2002, pp.86), could be influential factors to be further analysed.
1219
REFERENCES
An, M. (2016). Why people block ads. Retrieved from https://research.hubspot.com/reports/
why-people-block-ads-and-what-it-means-for-marketers-and-advertisers#LINK8
Atkinson, R. C., Shiffrin, R. M. (1968). Human memory: A proposed system and its control
Thomas Cleff Laura Marie Hansmann Nadine Walter: THE QUANTIFIED SELF – A THEORETICAL FRAMEWORK AND EMPIRICAL STUDY ...
1220
eMarketer (2016a). Are Consumers Warming to Personalized Marketing Services? Retrieved
from http://www.richrelevance.com/wp-content/uploads/2016/08/eMarketer_
Are_Consumers_Warming_to_Personalized_Marketing_Services.pdf
Fritz, T., Huang, E. M., Murphy, G. C., and Zimmermann, T. (2014). Persuasive technology
in the real world: a study of the long-term use of activity sensing devices for fitness. Paper
presented at the Proceedings of the SIGCHI Conference on Human Factors in Com-
puting Systems.
Gazley, G., Hunt, A., McLaren, L. (2015). The effects of location-based-services on con-
sumer purchase intention at the point of purchase. European Journal of Marketing, 49
(9/10), 1686-1708.
Geraci, J. C., Nagy, J. (2004). Millennials-the new media generation. Young Consumers, 5(2),
17-24.
GfK (2016). Health and fitness tracking. Retrieved from http://www.gfk.com/fileadmin/
user_upload/website_content/Images/Global_Study/Fitness_tracking/Docu-
ments/Global-GfK-survey_Health-Fitness-Monitoring_2016_final.pdf
Goldsmith, R. E., Flynn, L. R., and Korzenny, F. (2015). Brand engagement and consumer
innovativeness. Journal of Applied Marketing Theory, 6(1), 44-53.
Goldsmith, R. E., Hofacker, C. F. (1991). Measuring consumer innovativeness. Journal of the
Academy of Marketing Science, 19(3), 209-221.
Haghirian, P., Madlberger, M., and Tanuskova, A. (2005). Increasing advertising value of the
mobile marketing-an empirical study of antecedents. Paper presented at the System Sci-
ences, 2005. HICSS’05. Proceedings of the 38th Annual Hawaii International Con-
ference On.
Hesse, M. (2008). Bytes of Life: for every move, mood, and bodily function, there’sa web site
to help you keep track. The Washington Post.
Hong, I. B., Cho, H. (2011). The impact of consumer trust on attitudinal loyalty and pur-
chase intentions in B2C e-marketplaces: Intermediary trust vs. seller trust. Interna-
tional Journal of Information Management, 31(5), 469-479.
1221
Morimoto, M., Chang, S. (2006). Consumers’ attitudes toward unsolicited commercial e-
mail and postal direct mail marketing methods: intrusiveness, perceived loss of control,
and irritation. Journal of Interactive Advertising, 7(1), 1-11.
Naumann, E., McWilliams, R., and Lincoln, D. J. (2015). How Different Buying Center Mem-
bers Influence Different Purchasing Phases. Paper presented at the Proceedings of the
Thomas Cleff Laura Marie Hansmann Nadine Walter: THE QUANTIFIED SELF – A THEORETICAL FRAMEWORK AND EMPIRICAL STUDY ...
1222
Shankar, V., Kleijnen, M., Ramanathan, S., Rizley, R., Holland, S., and Morrissey, S. (2016).
Mobile shopper marketing: Key issues, current insights, and future research avenues.
Journal of Interactive Marketing, 34, 37-48.
Sheng, H., Nah, F. F.-H., and Siau, K. (2008). An experimental study on ubiquitous com-
merce adoption: Impact of personalization and privacy concerns. Journal of the Associa-
tion for Information Systems, 9(6), 344.
Statista. (2016a). Advertising in Europe. Retrieved from https://www.statista.com/
study/28333/advertising-in-europe-statista-dossier/
Statista. (2016b). Welches Sport- und Fitnesszubehör haben Sie innerhalb der letz-
ten 12 Monate gekauft? Retrieved from https://de.statista.com/statistik/daten/
studie/597402/umfrage/kauf-von-sport-und-fitnesszubehoer/
Statista (2017a): Retail sales forecast of sports nutrition in Europe from 2010 to 2020*
(in billion USD). Retrieved from https://www.statista.com/statistics/646785/
retail-sales-forecast-of-sport-nutrition-european-union-eu/
Statista (2017b). Year-on-year change of gross advertising spendings in Germany from
January to March 2017. Retrieved from https://www.statista.com/statistics/433111/
gross-advertising-expenditure-by-types-of-media-germany/
Statista (2017c). Value of the dietary supplements market in Europe in 2015 and
2020, by country (in million euros). Retrieved from: https://www.statista.com/
statistics/589452/value-dietary-supplements-markets-europe-by-country/
Sutanto, J., Palme, E., Tan, C.-H., and Phang, C. W. (2013). Addressing the Personalization-
Privacy Paradox: An Empirical Assessment from a Field Experiment on Smartphone
Users. MIS Quarterly, 37(4), 1141-1164.
Swan, M. (2009). Emerging patient-driven health care models: an examination of health
social networks, consumer personalized medicine and quantified self-tracking. Interna-
tional journal of environmental research and public health, 6(2), 492-525.
Swan, M. (2012). Sensor mania! the internet of things, wearable computing, objective met-
rics, and the quantified self 2.0. Journal of Sensor and Actuator Networks, 1(3), 217-253.
1223
Wolf, G. (2009). Know thyself: Tracking every facet of life, from sleep to mood to pain. Re-
trieved from https://www.wired.com/2009/06/lbnp-knowthyself/
Wolf, G. (2010). The data-driven life. The New York Times, 28.
White, T. B., Zahay, D. L., Thorbjørnsen, H., and Shavitt, S. (2008). Getting too personal:
Reactance to highly personalized email solicitations. Marketing Letters, 19(1), 39-50.
Thomas Cleff Laura Marie Hansmann Nadine Walter: THE QUANTIFIED SELF – A THEORETICAL FRAMEWORK AND EMPIRICAL STUDY ...
Wu, P. C., Yeh, G. Y.-Y., and Hsiao, C.-R. (2011). The effect of store image and service
quality on brand image and purchase intention for private label brands. Australasian
Marketing Journal (AMJ), 19(1), 30-39.
Zhao, Z., Etemad, S. A., and Arya, A. (2016). Gamification of exercise and fitness using wear-
able activity trackers. Paper presented at the Proceedings of the 10th International
Symposium on Computer Science in Sports (ISCSS).
1224
SOCIAL MEDIA AND IT`S IMPACT
ON TRADITIONAL MARKETING
CHANNELS OF COMMUNICATION
Abstract
It is remarkable how fast technology is developing in the last ten to fifteen years. INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
Smartphones, tablets, smart TVs, smart houses, smart appliances, etc. It was
almost unimaginable 15 years ago that we wouldn`t be able to live without
mobile phones. The world as we know it completely changed when smartphones
were invented, not to mention the Internet. What completely changed the way
we interact is the development of social media, and how they became the most
popular way of communicating privately and professionally. This article will
try to determine how important social media really is today for companies and
its brands. Is it making communication with consumers easier or harder, and
is it making brands and consumers grow closer or pulling them apart? With
social media also came the phenomenon of influencers. This article will also
try to determine what is the “buzz” among marketing professionals about this
1225
topics, and what are their thoughts and recommendations how to successfully
go digital as a brand.
Željko Turkalj Tihomir Vranešević Tajana Marušić: SOCIAL MEDIA AND IT`S IMPACT ON TRADITIONAL MARKETING CHANNELS OF COMMUNICATION
1. INTRODUCTION
We are witnessing the most drastic change in marketing in the last twenty
years. Internet, but mostly social media came and changed everything. What
was once a benchmark how to communicate to the market and consumers in
terms of TV, advertising in papers and magazines, radio, PR, billboards, leaflets,
are now considered traditional channels of communication. Just the fact that we
have traditional and modern communication channels is a segmentation that
was practically non-existing until 10 to 15 years ago, especially in Croatia.
The main objective of this article is to determine the impact of social media
on how brands communicate with its consumer. How much does social media
have an influence on consumer decisions and their attitudes, and what is user-
generated content and influencers as a direct “side effect” of social media. Also,
to determine whether is better to use traditional or modern channels of com-
munication, or both. Are modern communication channels appropriate for all
target groups?
1226
was known was through market research conducted by market research agen-
cies, and of course through sales of products and services.
Since television was invented in the 1950s, it became and still is one the most
popular way people spend their free time. Television is a powerful communica-
tion tool for brands because of its reach to consumers, and because it allows for
sound, motion, and sight (Keller, 2013, 222). Of course, that is also the reason
why it is interesting to advertisers, and why it is still the most expensive channel
of communication. For example, in America, billions of dollars are still spent
every year on TV advertising culminating with Super bowl where according
to American Marketing Association (www.ama.org), in 2017 advertisers spent
little over 5 million dollars for a 30-second spot.
On the other hand, the radio was invented before television and remains
a popular way of communication. It is a pervasive way to communicate with
consumers (Keller, 2013, 225), especially in the mornings when everybody is
driving to work.
Although it has a disadvantage of not having visual stimulation, it can be a
very creative way for a brand to express themselves using music, humor, etc. In
addition, it is a less expensive way of communication for companies and brand,
although it has a smaller reach than TV, it is a very effective way to target the
local market.
The print is definitely a communication channel that was most affected by
the popularisation of online editions and social media and is declining rapidly.
The biggest disadvantage of print advertising is that a large number of potential
consumers can miss the add by turning pages. Still, some companies had a huge INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
success and increase in brand image and sales using print advertisements like
Absolut vodka, which was a small Swedish brand in 1980 selling 100.000 nine-
liter cases a year. In 2006 it became third premium spirits brand in the world
selling 9,8 million nine-liter cases a year (Keller, 2013, 227). The success was
achieved by a very memorable print ad with a slogan “Absolut perfection” and a
bottle crowned by a halo, which is most associated with angels.
Billboards and posters have changed over the years and now have full digital-
ly produced graphics, backlighting, movement, 3D images to attract attention.
They are a very effective way to draw attention; they also have parts that now go
beyond the frame of billboards. Today there are almost limitless opportunities
1227
where companies can advertise: in elevators, pump stations, public transporta-
Željko Turkalj Tihomir Vranešević Tajana Marušić: SOCIAL MEDIA AND IT`S IMPACT ON TRADITIONAL MARKETING CHANNELS OF COMMUNICATION
tion (trains, subway, and buses), toilet stalls, airports, cinema theatres, etc.
Sales promotion is also a traditional communication channel, especially in
stores where a host offers a product to consumers to try. This is called sampling.
It is a good way to introduce a new product directly to consumers and get first-
hand information about the product or service. It is also a good way to start
positive word –of - mouth between consumers.
Trade promotions include financial incentives or discounts to distributors or
retailers to better display and enhance the visibility of the product in the store
(Keller, 2013, 231). This is very costly for producers, especially when retailers
ask for large sums of money every year when new contracts of cooperation are
made between producers, distributors, and large and medium retailers. Because
of this increasing cost, many companies are trying to decrease them because
many of them do not see brand building value in trade promotions.
Another traditional way to communicate as a brand is sponsorships of differ-
ent events. Companies choose to sponsor events such as sports or social events
that correlate to their vision as a company, and that can positively relate to their
image with consumers. Publicity along with public relations is an important
way of communication and is a nonperson way, which includes interviews, press
conferences, sponsored articles etc. Public relations can include fundraising, an-
nual reports, lobbying, etc.
The last but often the most effective way of promoting and communication
is the word – of - mouth (WOM). Its biggest influence is the relevance that it
brings or better to say from whom it brings. Most often, it is friends and family
members whom we trust the most. Almost everybody had a situation where
they are not sure to try a product or not and they turn for advice for somebody
they know uses or tried that product or service. What that person experienced
using them will most often be the key to our own decision to try that product
or not.
Word of mouth especially became important when we look at the impact of
social media because now the reach is more significant than when 10 people are
talking.
Traditional marketing channels remained practically unchanged until social
media became so popular. Television, printed media, radio, billboards, promo-
1228
tions in store, PR and WoM where what made the “backbone” of every success-
ful marketing campaign. (Figure 1.)
Source: Authors
1229
2011). Consumers can share images, text, videos with each other through social
Željko Turkalj Tihomir Vranešević Tajana Marušić: SOCIAL MEDIA AND IT`S IMPACT ON TRADITIONAL MARKETING CHANNELS OF COMMUNICATION
media and if they choose with brands on their pages. We can focus on six forms
social media comes in: message boards and forums, chat rooms, blogs Facebook,
Twitter and YouTube (Keller, 2013, 230).
By using social media, users can create their profiles and share them with
friends, family, colleagues. (Kaplan and Haenlein 2010). For companies, it is
vital to use social media in accordance with their predefined business strategy
(Mangold & Faulds 2009). What perhaps changed the most with the devel-
opment of social media is that it made communication between brands and
consumers a two-way street instead of a one way. Consumers gained the power
to influence a reputation of a company or a brand through electronic word of
mouth (eWoM) or user-generated content (UGC).
1230
and sadness, private pictures and videos. Everything that was once private is
now public, and for many, it became easier to “connect” when you do not have to
interact face to face.
From 1991 became the „explosion” of platforms used for communication
such as Blogger in 1999, Wikipedia in 2001, Myspace in 2003, Facebook and
Flickr in 2004, Youtube in 2005, Twitter in 2006, some of them became so
popular that using them invented new verbs for example „tweeting” is now a
commonly used verb and describes writing on Twitter.
The numbers concerning social media are staggering. Research report of
global media study made by InSites Consulting. in 2011, covering 35 coun-
tries states that Facebook has recognition of almost 100% and that more than
1 billion people which make more than 70% of internet population use social
networks.
More than 400 million people use Facebook daily and an average Facebook
session lasts 37 minutes. Facebook is by far the most popular social network
in the US, Canada, and Europe, but has strong competition in Russia (Vkon-
takte) and China (Qzone) which result in lower penetration rate.
What is also interesting is that 50% of social network users are connected
to brands, and what is more interesting is that offline brand experiences are the
main online conversation starters. In addition, positive experiences are bigger
conversation starters then the negative one. People with smartphones are more
intensive users of social media than the ones without smartphones. Most used
applications on smartphones are social network applications.
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
According to Curran, Graham, and Temple (2011), a social network can
be used to reach new customers, keep in touch with current customers and
promote new products, sales/offers, and events. Many companies were unsure
whether to engage on social media or not but came to realize that online conver-
sation will happen in any case and perhaps they should find a way to participate.
The result is that many companies now have official Twitter, Instagram and
Facebook pages for their brands (Keller, 2013, 238).
1231
cerning brands is written mainly by users, which then affect other users, directly
Željko Turkalj Tihomir Vranešević Tajana Marušić: SOCIAL MEDIA AND IT`S IMPACT ON TRADITIONAL MARKETING CHANNELS OF COMMUNICATION
1232
Figure 2. Why consumers follow a brand on social media?
Source: Authors, adapted from a study „Consumers attitude towards brands on social me-
dia” shared on www.slideshare.com in 2015, by Jitendra Raichandani
When active users on social media were asked why they follow a brand on-
line, the main reason for them was the information about the brand itself. What
was new, are there any new products or an upgrade of the ones that already
exist. After that, main reasons why they follow a brand was information about
discounts and promotions. They also follow brands online because friends or
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
family members recommended it, and last but not least because they find it
entertaining.
.. User-generated content
Kaplan and Haenlein (2010) describe user-generated content as all the ways
people use social media or to be more exact the various forms of content that are
available or is created by end users of social media. For brands, it means when
users share their feedback of an experience of a product linked to the brand.
This can also be described through a term called social currency. (Zinnbauer
and Honer 2011).
1233
Paquette (2013) explains how Zinnbauer and Honer also concluded
Željko Turkalj Tihomir Vranešević Tajana Marušić: SOCIAL MEDIA AND IT`S IMPACT ON TRADITIONAL MARKETING CHANNELS OF COMMUNICATION
through empirical study in 2011 that a brand will be successful on social media
only if they are integrated into the everyday life of users. When it is impor-
tant to users they share, comment with like-minded brand users and generate
consumer generated advertising. Two sorts of user-generated advertising can
be distinguished; consumer-generated advertising (CGA) and firm generated
advertising (FGA)
Consumer-generated advertising (CGA) is when consumers use online
communication to inform other users about their experience concerning a
brand (Campbell et al. 2011). Today it is considered that CGA originated from
consumers who wrote their opinions on brand through reviews, blogs, videos
(Pehlivan et al 2011). It is important to emphasize that CGA can complement
traditional marketing but can also have a negative impact. For example, a user
can write a comment on a profile on social media of a mobile phone operator
saying they are not satisfied with their service. They signed for one thing and
what they received is not what was promised. Very soon other users also join in
on the discussion on social media. Depending on the reply representative of the
mobile phone operator has on the issue it will become a user-generated content
with positive or negative effect.
The firm generated content (FGA) is content generated by the company for
informing users about new products or services. However, a study conducted
by Cheong and Morrison about the influence of CGA and FGA in 2008 and
concluded that consumers trust more information about a product created by
another user then the producer of the product. Social media makes communi-
cation between consumers much easier but as a direct result of that, companies
have to ensure more resources to control the content that is shared between us-
ers (Mangold and Faulds 2009). Social media allows a greater insight into con-
sumer preferences, but it also makes brands very vulnerable. For example, one
of the largest brands in the world Apple uses the only firm generated advertising
(FGA). On their profiles on social media, consumers cannot leave comments,
obviously, it is a chosen strategy, so Apple has full control and that possibility
of negative comments that can jeopardize brand image does not occur.). In the
case of social media, electronic word of mouth (eWOM) can be very powerful.
In 2002 Gladwell detected three groups of people that spread word of mouth
through social media: connectors, mavens, and salesman.
1234
Connectors are users that have a significant number of contacts and can
spread a message in a very short time to a large group of people. Mavens rate
and evaluate all the information concerning the area of their expertise before
deciding if they will share the information further. Salesman, they usually do
not have the expertise of mavens but are charismatic and because of that people
spread their message.
A term word – of – mouse also emerged as a type of eWOM. It is a term
that describes the power of a mouse click in terms of spreading information’s
between users and companies or users with other users (www.themarketing-
sage.com), Vranešević et al. 2018, 41, 216.).
With available social platforms, UGA became very easy to create in a very
short time. YouTube and Facebook are often mentioned as the biggest UGA
platforms.
Consumers are empowered through the freedom that social media provide
and like the fact that their voice can be heard (Pehlivan et al 2011).
According to Nielsen report from 2012 that the world spends over 110 bil-
lion minutes on social networks and blog sites. It also reports that three of the
world’s most popular brands are social media related: Facebook, YouTube, and
Wikipedia.
.. Influencers
Influencer marketing as a product of social media is a new phenomenon
within the industry. Due to the constantly evolving and changing market, this INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
topic has been widely discussed by contemporary media, but what we noticed
by searching for relevant literature, not enough by the academic community.
Actually, most of the literature about influencers is available only on market-
ing themed platforms and portals such as Influencer Marketing hub. It is an
agency from Denmark, which specializes in Influencer marketing (www.influ-
encermarketinghub.com). They also organize an annual Influencer marketing
conference in London and New York.
According to Influencer Marketing hub, an influencer is an individual who
has the power to affect purchase decisions of others because of his authority,
knowledge, position or relationship with his audience. Influencers in social
1235
media are people who have authority, knowledge, position and/or a special
Željko Turkalj Tihomir Vranešević Tajana Marušić: SOCIAL MEDIA AND IT`S IMPACT ON TRADITIONAL MARKETING CHANNELS OF COMMUNICATION
relationship with their audience. Influencers have built a reputation for their
knowledge and expertise of social media channels and generate large followings
of people who pay close attention to their views.
Three types of influencers are being mentioned online: celebrity influencers,
macro and micro influencers (www.influencermarketinghub.com).
Celebrity influencers have a large reach because of the number of followers
that they have on social media. They can have a positive impact on a brand they
are promoting but because of their popularity, they can be very costly for com-
panies and are usually avoided by the ones that do not have a limited budget.
Macro influencers are popular online tenders, most often who started
as bloggers with a large population following them. However, this also often
means they have a much lower engagement with consumers.
Micro influencers are ordinary people who have managed to build up a so-
cial media following. According to Influencer Marketing hub, micro influencers
perform 90% of successful influencer marketing.
Researching available literature what can also be concluded that the phe-
nomenon of influencers is not older than five years and people who are using
influencer marketing for that period are calling themselves pioneers of the field.
What sites like Forbes and Influencer marketing are also claiming is that that
influencer marketing is the next big thing in marketing strategies for successful
brands and are already using the term such as Influencer Relationship Man-
agement, Influencer platforms, agencies specialized in influencer marketing are
emerging etc.
Most of the information about Influencer marketing is actually coming from
marketing agencies and marketing-oriented portals. In 2015 a study was re-
leased by a French marketing agency Augure called the State of Influencer en-
gagement (www.launchmetrics.com ).
The study was carried out in cooperation with the market research firm
called Schlesinger Associate through an online panel of marketing and com-
munication professionals. 967 people participated. One of the information in
the study is that 84% of brands will launch campaigns with influencers in 2015.
It also states that the US is much more progressive than Europe in using in-
fluencer marketing and adapting their marketing budgets. There are actually a
1236
large number of different statistical data available online about Influencers and
Influencer marketing and why to use them.
Influencers are mainly people who became very popular through media plat-
forms such as YouTube, Twitter, Instagram or Facebook. They are mainly regu-
lar people turning celebrity rather than celebrities turning influencers. This is
mostly because of the costs it represents for brands. According to Forbes (www.
forbes.com), in 2017 there were top 10 influencers in several categories: pets,
parenting, fashion, entertainment, travel, gaming, fitness, beauty, home, food,
tech & business, kids. These top 10 influencers together through Twitter, Ins-
tagram, YouTube and Facebook reached 247 million people (www.forbes.com).
One such influencer in the entertainment segment is Lilly Singh. She is
a 28-year-old Canadian vlogger and comedian also known as “Superwoman”
online. Forbes reports that she has a YouTube audience of almost 12 million
people, completed a 27-city tour and has written a New York Times bestseller
(www.forbes.com). She started vlogging (video blogging) in her final year of
university studying psychology. In her first year of vlogging on YouTube, she
was approached by its executives and asked to join their Partner program. In
2016 she partnered with cosmetics giant Smashbox to launch a signature red
lipstick shade called Bawse. The lipstick is named after her preferred spelling of
the word boss. The lipstick soon became number one selling lipstick in Smash-
boxes range and the company stated that it was because with Lilly Singh also
came almost 12 million of her followers as new customers (www.forbes.com).
The other is celebrity influencers. There are many celebrities that have a
INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
large number of followers, one of them is pop music superstar Justin Bieber.
It is estimated that he earns somewhere between 134.000$ and 222.925$ per
post. He has around 90 millions of followers. It obvious that he has a large base
of followers, but also that it will cost a lot of money for companies to hire him
(www.influencermarketinghub.com).
In Croatia, the most popular influencer is Ella Dvornik. She is a daughter
of a famous deceased Croatian singer Dino Dvornik. She first became a travel
blogger and then started collaborating with other companies. In 2017 she stated
that she has 400.000 followers and can earn around 500.000kn (ca 70.000$)
per year which is a lot for Croatian standards. This is her career and sole source
of income (www.net.hr).
1237
4. TRADITIONAL AND NEW CHANNELS OF
Željko Turkalj Tihomir Vranešević Tajana Marušić: SOCIAL MEDIA AND IT`S IMPACT ON TRADITIONAL MARKETING CHANNELS OF COMMUNICATION
1238
success and image. New channels are also enabling a more global reach of con-
sumers and are more cost-efficient than traditional channels.
There are practically no articles backed up by scientific research that com-
pares this two channels, but all of it is again generated by marketing agencies
and marketing web platforms leaving potential advertisers feeling that to be suc-
cessful as a brand you have to be online.
Global brands such as Coca-Cola, Guinness, and Starbucks have already
completely integrated social media into their marketing strategy (Schivinski,
Dabrowski, 2013). Integrating traditional and new channels of communica-
tion, especially social media allows a more global reach of consumers and cost-
effective advertising. (Figure 4.)
Source: Authors
1239
5. CONCLUSION
Željko Turkalj Tihomir Vranešević Tajana Marušić: SOCIAL MEDIA AND IT`S IMPACT ON TRADITIONAL MARKETING CHANNELS OF COMMUNICATION
1240
There is a definite need for academic research on these subjects, so compa-
nies and brands can have a broader perspective of this already important mar-
keting trend.
LITERATURE
Campbell, C., Pitt L., Parent M & Berthon P.R. (2011). Understanding Consumer Conver-
sations around Ads in a Web 2.0 World, Journal of Advertising, 40, p. 87-102.
Cheng J., Blankson C., Wang E. & Chen S. (2015) Consumer attitudes and interactive digi-
tal advertising, International Journal of Advertising, 28, p. 501-525.
Cheong, H. & Morrison M. (2008). Consumers’ Reliance on Product Information and Rec-
ommendations Found in UGC. Journal of Interactive Advertising 8, p. 38-49.
Chu, S. (2011). Viral advertising in social media: Participation in Facebook groups and re-
sponses among college-aged users. Journal of Interactive Advertising 12, p. 30-43.
Cox, S., Online social network member attitude toward online advertising formats (2010).
Doctoral dissertation. Rochester Institute of Technology, accessed from http://schol-
arworks.rit.edu/cgi/viewcontent.cgi?article=5596&context=theses
Curran, K., Graham S. & Temple, S. (2011). Advertising on Facebook. International Journal
of E-Business Development 1, p. 26-33.
Gladwell, M. (2002). The tipping point. How little things can make a big difference, Little,
Brown & Company, Boston
Heinonen, K. (2011). Consumer activity in social media: Managerial approaches to consum-
ers’ social media behavior, Journal of Consumer Behavior 10, p. 356-364.
Kaplan, A. & Haenlein, M. (2010), Users of the World, Unite! The Challenges and Oppor-
tunities of Social Media.” Business Horizons 53, p. 59-68.
Keller, K. (2013). Strategic Brand Management. Building, Measuring, and Managing Brand
Equity, Pearson, Essex, p. 222, 225, 227, 230, 231, 238
Kelly, L., Kerr G. & Drennan J. (2010). Avoidance of Advertising on Social Networking INTERDISCIPLINARY MANAGEMENT RESEARCH XIV
Sites: The Teenage Perspective, Journal of Interacting Advertising 10, p. 16-27.
Mangold, G. & Faulds D. (2009). Social Media: The New Hybrid Element of the Promotion
Mix, Business Horizons 52, p. 357-365.
Paquette, Holly, “Social Media as a Marketing Tool: A Literature Review” (2013). Major
Papers by Master of Science Students. Paper 2, accessed from http://digitalcommons.
uri.edu/tmd_major_papers/2
Pehlivan, E., Sarican F. & Berthon P. (2011). Mining Messages: Exploring Consumer Re-
sponse to Consumer vs. Firm Generated Ads.” Journal of Consumer Behavior 10, p.
313-321.
Shankar, V., Inman, J., Mantrala, M., Kelley, E. & Rizley, R. (2011). Innovations in Shop-
per Marketing: Current Insights and Future Research Issues.” Journal of Retailing 1,
p.29-42.
1241
Schivinski B. & Dabrowski D. (2016). The Effect of Social Media Communication on Con-
sumer Perceptions of Brands, Journal of Marketing Communications, Vol 22 (2), p. 189
Željko Turkalj Tihomir Vranešević Tajana Marušić: SOCIAL MEDIA AND IT`S IMPACT ON TRADITIONAL MARKETING CHANNELS OF COMMUNICATION
-214.
Van Dijck, J. & Poell, T. (2013). Understanding Social Media Logic. Media and Communica-
tion, 1(1), p. 2-14.
Vranešević, T., Pandža Bajs, I. & Mandić, M. (2018). Upravljanje zadovoljstvom klijenata,
Accent, Zagreb
Zinnbauer, M. & Honer, T. (2011). How Brands Can Create Social Currency- a Framework
for Managing Brands in a New Era. Marketing Review St. Gallen 28, p. 50-55.
Arnaud R.(2015), State of influencer engagement [available at: https://www.launchmetrics.
com/resources/blog/state-influencer-engagement, accessed February 22, 2018]
Beal, V. (2017), Do you know the difference between the Internet and the World Wide Web
[available at
https://www.webopedia.com/DidYouKnow/Internet/Web_vs_Internet.asp,
accessed March 13, 2018]
Canada post corporation (2015), A Bias for action, the neuroscience behind the response
driving power of direct mail [available at https://www.canadapost.ca/assets/pdf/
blogs/CPC_Neuroscience_EN_150717.pdf, accessed February 22, 2018]
FDe Qeurol, R. (2016), Interview: Zygmunt Baumann: Social media are a trap [available at
https://elpais.com/elpais/2016/01/19/inenglish/1453208692_424660.html,
accessed February 25, 2018]
hot.hr (2017), Otkrila iznos koji sve zanima: Evo koliko Ella Dvornik zarađuje na
društvenim mrežama [available at https://net.hr/hot/zvijezde/otkrila-cifru-koja-sve-
zanima-evo-koliko-ella-dvornik-zaraduje-na-drustvenim-mrezama/, accessed March
13, 2018]
InSites Consulting (2011), Social media around the world [available at: http://www.insites-
consulting.com/report/social-media-around-the-world-2011/ accessed February 25,
2018]
Instagram Influencer Earnings Calculator [available at: https://influencermarketinghub.
com/instagram-money-calculator /accessed February 22, 2018]