Interdisciplinary Management Research - IMR X

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

HOCHSCHULE PFORZHEIM UNIVERSITY
_____________________________________________________________
INTERDISCIPLINARY MANAGEMENT RESEARCH X

INTERDISZIPLINRE MANAGEMENTFORSCHUNG X
Opatija, 2014
Published by:
Josip Juraj Strossmayer University of Osijek, Faculty of Economics in Osijek, Croatia,
Postgraduate Studies Management
Hochschule Pforzheim University
For the Publisher:

Ulrich Jautz, Ph.D., Dean, Germany
Vladimir Cini, Ph.D., Dean, Croatia
Editors:
Urban Bacher, Ph.D., Pforzheim University, Business School, Germany
Draen Barkovi, Ph.D., Faculty of Economics in Osijek, Croatia
Karl Heinz Dernoscheg, Ph.D., International Business School Styria, Austria
Maja Lamza - Maroni, Ph.D., Faculty of Economics in Osijek, Croatia
Branko Mati, Ph.D., Faculty of Economics in Osijek, Croatia
Norbert Pap, Ph.D., University of Pecs, Hungary
Bodo Runzheimer, Ph.D., Pforzheim University, Business School, Germany
Review Committee:
Ivana Barkovi Bojani, Ph.D., Faculty of Law in Osijek, Croatia
Ivan Ferenak, Ph.D., Faculty of Economics in Osijek, Croatia
Nino Grau, Ph.D. University of Applied Sciences, Fachhochschule Giesen-Friedberg, Germany
Mladen Jurii, Ph.D., Faculty of Agriculture in Osijek, Croatia
Slavo Kuki, Ph.D., University of Mostar, Faculty of Economics in Mostar, Bosnia and Hercegovina
Hartmut Loffler, Ph.D., Pforzheim University, Business School, Germany
Brano Marki, Ph.D., University of Mostar, Faculty of Economics in Mostar,
Bosnia and Hercegovina
Renata Peri, Ph.D., Faculty of Law in Osijek, Croatia
Bela Orosdy, Ph.D., University of Pcs, Faculty of Business and Economics, Hungary
Ivan Pavlovi, Ph.D., University of Mostar, Faculty of Economics in Mostar,
Bosnia and Hercegovina
Slavica Singer, Ph.D., Faculty of Economics in Osijek, Croatia
Jusuf ehanovi, Ph.D., Juraj Dobrila University of Pula, Croatia
Dirk Wentzel, Ph.D., Hochschule Pforzheim University, Germany
Technical editors:
Jerko Glava, Ph.D., Faculty of Economics in Osijek, Croatia
Hrvoje Serdarui, Ph.D., Faculty of Economics in Osijek, Croatia
Language Editing and Proofreading:

Ljerka Rado, Faculty of Economics in Osijek, Croatia
CIP record is available in the electronic catalogue of the City and University Library of Osijek
under the number 131102055.
ISSN 1847-0408
ISBN 978-953-253-126-8
Indexed in: EBSCOhost, RePEc, EconPapers, Socionet
Program committee:
Mate Babi, Ph.D., University of Zagreb, Faculty of Economics in Zagreb, Croatia
Heinrich Badura, Ph.D., President, The European Academy for Life Research, Integration and
Civil Society, Austria
Firouz Gahvari, Ph.D., University of Illinois at Urbana-Campaign, Department of Economics,
USA
Gunther Gottlieb, Ph.D., University of Augsburg, Germany
Rupert Huth, Ph.D., Pforzheim University, Business School, Germany
Zoran Jai, Ph.D., Ambassador of the Republic of Croatia to the Republic of Austria
Zlatko Kramari, Ph.D., Ambassador of the Republic of Croatia to the Republic of Kosovo
Ulrich Jautz, Ph.D., Pforzheim University, Business School, Germany
eljko Turkalj, Ph.D., Faculty of Economics in Osijek, Croatia
Mladen Vedri, Ph.D., University of Zagreb, Faculty of Law, Croatia
CONTENTS
VORWORT ......................................................................................................................... 11
FOREWORD ...................................................................................................................... 12
Management
Sofija Adi
MEASURING PERFORMANCE OF MANAGEMENT IN AGRIBUSINESS
- PROBLEMS, CONTROVERSIES AND SOLUTIONS .................................................... 15
Martina Bri Ali, Alen Ali
COMPETITIVE ADVANTAGES OF THE CROATIAN WOOD INDUSTRY ................ 26
Draena Gapar
INFORMATION TECHNOLOGY AND KPIs
DEVELOPMENT AT UNIVERSITIES ............................................................................... 38
uro Horvat, Marinko Kovai, Ljiljana Kristijan Ivanek
PROCESS MANAGEMENT MODELS AND FUSION
ORGANIZATION CULTURE ..............................................................................................48
Linda Jurakovi, Ivan Herak, Romina Sinosich
ANALYSIS AND PERSPECTIVES OF TOURISM /
AGROTOURISM DEVELOPMENT IN ISTRIA ................................................................ 60
Kreimir Jurina, Igor Vreko, Zlatko Barilovi
WEB TECHNOLOGIES DEVELOPMENT SUPPORTING
CONTEMPORARY PROJECT MANAGEMENT NEEDS ............................................... 69
Zlatica Kavi, Mario ercer
FRANCHISE RELATIONSHIP: FRANCHISEES SATISFACTION ................................. 77
Sandra Mrvica Maarac, Igor Kuki, Matej Gali
USE OF ELECTRONIC RETAIL IN THE REPUBLIC OF CROATIA ............................. 85
Sanja Kri, Ivan Maloa, Duan Ljutina
MARKETING APPLICATION OF SOCIAL NETWORKS IN TOURISM ....................... 93
Jos G. Vargas-Hernndez
RESEARCH METHODOLOGY STRATEGIES IN
STRATEGIC MANAGEMENT ......................................................................................... 106
Draen Barkovi, Ivana Barkovi Bojani
SUPERVISOR SELECTION IN THE PH.D PROGRAM BY USING
THE ANALYTICAL HIERARCHY PROCESS METHOD ............................................... 148
Thomas Cleff, Klaus Rennings
ARE THERE ANY FIRST AND SECOND MOVER
ADVANTAGES FOR ECO-PIONEERS? LEAD MARKET
STRATEGIES FOR ENVIRONMENTAL INNOVATION ............................................ 164
Stefan Dilger
ANALYSIS OF THE ENERGY SUPPLY FOR INDUSTRIAL
CONSUMPTION IN FRG DURING A SELECTED PERIOD OF TIME ................... 190
Nedzad Fajic
RISK AS SOURCE OF RELUCTANCE TO SAAS ADOPTION IN EUROPE ............. 226
Gerdesics Viktria, Mladen Panci, Orosdy Bla
THE ROLE OF TOURISM IN PERCEPTION OF THE
CROATIAN COUNTRY BRAND IN HUNGARY AND CROATIA ............................ 236
Ivanka Hadi-Petrueva Meloska, Anica Hadi-Petrueva Jankijevi
PROJECT MANAGEMENT OF LYME DISEASE THROUGH
MONITORING OF SEROPREVALENCE OF ANTI-BORRELIA
ANTIBODIES IN MACEDONIAN PATIENTS.............................................................. 245
Barbara Marunik, Luka Stani
CROATIA AND NEW PROFESSIONS .............................................................................255
Igor Mavrin, Jerko Glava
THE NIGHT OF THE MUSEUMS EVENT AND DEVELOPING
NEW MUSEUM AUDIENCE FACTS AND MISAPPREHENSIONS
ON A CULTURAL EVENT ..............................................................................................265
Markus Moritz, Sonja Keppler
CUSTOMER EQUITY IN A NETWORK DRIVEN
CONTEXT - CONTRIBUTIONS FOR EVALUATING CUSTOMER EQUITY ..........275
Robert Obraz, Zlatko Reetar, Nikolina Pavii
REDUCING DELIVERY TIMES OF PRODUCTS
USING DMAIC METHODOLOGY ..................................................................................285
Goran Pajni, Davor Bonjakovi, Ivan Keli
THE POTENTIAL OF MOBILE APPLICATIONSIN
ORGANIZATION AND PROMOTION ...........................................................................296
Mirko Pei, Teufik oi
ORGANIZATIONAL ASPECTS OF MODERN
MANAGEMENT IN 21st CENTURY ................................................................................304
Andreja Rudani-Lugari
INTEGRATED QUALITY MANAGEMENT OF A TOURIST
DESTINATION THE KEY FACTOR IN ACHIEVING A
COMPETITIVE ADVANTAGE.........................................................................................312
ura Solea Grijak, Dragan Solea
HUMANISTIC APPROACH TO MANAGEMENT ..........................................................332
Nenad Stanii, Jelena Stanii
CONSUMERS PERCEPTION OF CRM AND E-COMMERCE ...................................342
Slobodan Stojanovi
CASH CONVERSION CYCLE AS A COMPANY LIQUIDITY MEASURE ....................358
Vunjak Nenad, Davidovi Milivoje
COST EFFICIENCY OF AGROINDUSTRIAL COMPANIES IN
VOJVODINA: DEA APPROACH .......................................................................................369
General Economics
Gabrijela alac, Mario Banoi
FINANCING DEVELOPMENT PROJECTS IN NEW EU
FINANCIAL PERSPECTIVE 2014-2020 ............................................................................379
Microeconomics, Macroeconomics and Monetary Economics

Besim Aliti, Marko Marki, Boris tulina
THE REPUBLIC OF CROATIA EMLPOYMENT STRUCTURE
ANALYSIS FROM 2008 UNTIL 2013 AS AN MACROECONOMICAL
CRISIS INDICATOR ..........................................................................................................391
va Ladnyi, Istvn Kobolka
THE HAWALA SYSTEM....................................................................................................413
Mladen Vedri
THE CRISIS, NEW EU POLICIES, AND THE REPUBLIC OF CROATIA ....................421
International Economics
Luka Burilovi, Tolui Zrinka, Draen Holmik
IMPACT OF GLOBALIZATION PROCESSES FROM THE
SURROUNDINGSON THE SUGAR INDUSTRY IN
THE REPUBLIC OF CROATIA .........................................................................................459
Sanda Renko, Alica Grilec Kauri, Mario Leina
DEALING WITH CRISIS: USING SUBCONTRACTING
FOR THE DEVELOPMENT OF THE CROATIAN LEATHER
MANUFACTURING AND PROCESSING INDUSTRY.................................................463
Slobodan Vuji, Saa Vuji, Aida Abduzaimovic
INNOVATTIVE SALES OF E@SY LEASING
PRODUCT IN THE B&H LEASING MARKET .............................................................475
Financial Economics
Andreas Will
SHORT TERM SOLUTIONS FOR THE FINANCIAL CRISIS .....................................491
Markus Hfele, Celine Frei
PRACTICAL APPLICATION EXAMPLES FOR SPECIAL CASES IN
THE SCOPE OF CONSOLIDATION ACCORDING TO IFRS ....................................501
Urban Bacher, Eva Amann
WHY BANKS NEED A SLOGAN .....................................................................................513
Domagoj Karai, Ivana Bestvina Bukvi
RESEARCH OF INVESTMENT RISK USING BETA COEFFICIENT ...........................521
Ivan Luki, Branka Marti, Davor Vlaovi
ROLE AND RESPONSIBILITIES OF LOCAL MANAGEMENT FOR
GOVERNING AND DISPOSAL OF FUNDS FOR FINANCING OF
DECENTRALIZED FUNCTIONS .................................................................................. 531
Andreja Katolik
IMPACT OF FISCALIZATION AT THE HEIGHT OF
CALCULATED VALUE ADDED TAX .............................................................................. 545
Branko Mati, Hrvoje Serdarui, Maja Vretenar Cobovi
ECONOMIC CIRCUMSTANCES AND PERSONAL
FINANCE MANAGEMENT ........................................................................................... 557
Izabela Pruchnicka-Grabias
THE INFLUENCE OF CONFIDENCE LEVEL, CORRELATION AND
VOLATILITY ON VALUE AT RISK. SIX CASE STUDIES .............................................. 565
Bodo Runzheimer
FAIR VALUE MEASUREMENT - THE NEW IFRS 13 - CONCEPTUAL
SUITABILITY AS A DATA BASIS FOR CONTROLLING AND IMPACT ON
PERFORMANCE MEASUREMENT ............................................................................... 582
Nikolina Smajla
MEASURING FINANCIAL SOUNDNESS OF INSURANCE
COMPANIES BY USING CARAMELS MODEL CASE OF CROATIA........................ 600
Milan Stani, Melita Cita, Berislav Bolfek
ADVANTAGES AND DISADVANTAGES OF PRE-BANKRUPTCY SETTLEMENT ... 610
Public Economics
Boris Crnkovi, eljko Poega, Goran Sui
STATE OWNERSHIP AND CORPORATE GOVERNANCE OF
ENTERPRISES IN CROATIA .............................................................................................623
Branimir Markovi, Domagoj Pavi
THE EFFECTS OF THE ECONOMIC CRISIS ON BEVERAGE
SALES IN CATERING FACILITIES...................................................................................633
Ana Udovii, Katarina Maroevi, Katarina Arnold Brati
SOCIAL ENTREPRENEURSHIP IN CROATIA .............................................................644
Health, Education and Welfare

Grozdanka Gojkov, Aleksandar Stojanovi, Aleksandra Gojkov-Raji
META-COMPONENTS OF INTELLECTUAL AUTONOMY AS
HIGHER EDUCATION TEACHING QUALITY INDICATORS ....................................657
Nevenka Kova
QUALITY MANAGEMENT IN HEALTH CARE - CONTRIBUTING TO
PATIENT SAFETY AND EFFICIENCY OF BUSINESS OPERATION .........................670
Nedeljko Kovai
GLOBALIZATION AND THE IMPACT OF GLOBALIZATION
ON THE HEALTH INDUSTRY ........................................................................................684
Maja Lamza-Maroni, Ivana Ivani, Mira Majstorovi
THE ROLE OF VOCATIONAL EDUCATION AND TRAINING IN
THE YOUTH EMPLOYABILITY.......................................................................................696
Katarna Letovancov, Mria Dvidekov
IMPACT OF SCHIZOPHRENIA ON THE LIFE QUALITY..........................................712
Mirela Mabi
QUALITY IN HIGHER EDUCATION WHICH DIMENSIONS CAN BE
IDENTIFIED FROM THE RESPONSES OF STUDENTS OF ECONOMICS ............721
Ivan Mikulin, Ivan Ambro
PRODUCTIVITY LOSSES FROM ROAD TRAFFIC DEATHS IN CROATIA .............732
Sunica Oberman-Peterka, Nada Bosanac, Darko Matotek
ANALYSIS OF EFFICACY OF STUDYING OF THE FIRST
GENERATION OF STUDENTS WITH NATIONAL MATRICULATION ....................742
Klara uka, Isabella Beli, Miroslav Jari
ROLE OF MANAGEMENT IN ORGANIZATION OF PRIMARY HEALTH
CARE IN UNITS OF REGIONAL GOVERNMENT ........................................................752
Dirk Wiedenhfer, Sonja Keppler
FREE HOSPITAL CHOICE IN SWITZERLAND PATIENTS DECISION
CRITERIA AND SOURCES OF INFORMATION .........................................................763
Martina kov, Thorsten Eidenmller
NATIONAL DIVERSITY AT UNIVERSITIES IN SLOVAKIA .......................................774
Zsuzsa M. Csszr, Gbor Csllg, Norbert Pap
INTERNATIONALISATION OF THE UNIVERSITY OF PCS, HUNGARY .............787
Law and Economics

Pavao Gagro
ECONOMIC ANALYSIS OF LAW: CRIMINAL OFFENSES
AGAINST PROPERTY (LARCENY AND AGGRAVATED LARCENY)..........................811
Renata Peri, Emina Jerkovi
PRINCIPLE OF FAIRNESS IN REGARD TO PERSONAL INCOME TAX ..................821
Vjekoslav Puljko, Mirela upan, Josipa ivi
INFRINGEMENT OF PRIVACY VIA INTERNET ...........................................................829
Industrial Orgnization
Dalibor Pudi, Ivana andrli-Danko
DISTRICT HEATING IN THE SERVICE OF DEVELOPMENT OF ENERGY
EFFICIENCY, COMPETITIVENESS AND SECURITY OF SUPPLY ..............................841
Bussiness Administration and Business Economics

Antun Bilo, Davorin Turkalj, Ivan Rui
THE POWER OF SOCIAL NETWORK APPS:
PHOTO-CONTEST BASED APPLICATION STUDY ................................................... 855
Sanja ori, Danijel Bara
BUSINESS PROCESS MANAGEMENT IN INSURANCE CASE OF JADRANSKO
INSURANCE COMPANY ................................................................................................. 866
Economic Development, Technological Change and Growth
Drago Pupavac
ECONOMETRIC MODEL FOR FORECASTING TRAFFIC
ON CROATIAN MOTORWAYS ...................................................................................... 891
Urban, Rural and Regional Economics

Dejan Tubi, Josip Britvi, Boidar Jakovi
CLUSTER AS THE DEVELOPMENT TOOL OF RURAL TOURISM IN
CONTINENTAL CROATIA ..............................................................................................903
Iva Buljubai, Marta Bori, Bojan Bodrai
CULTURE AND TOURISM AS MAJOR CATALYST IN CREATING
COMPETITIVE AND MULTICULTURAL CITY IDENTITY .........................................913
Lukas Pavelek, Thorsten Eidenmueller
THE CURRENT STATUS, PROSPECTS AND CHARACTERISTICS OF
POPULATION AGEING IN SLOVAK REPUBLIC .........................................................923
Bernadett Glosi Kovcs, Norbert Pap, Zsuzsa M. Csszr,
Pter Remnyi, Krisztina Kmves, Andor Vgh, Aliz Horvt
HUMAN RESOURCE DEVELOPMENT AS A POSSIBILITY FOR
DEVELOPING THE MOST UNDERDEVELOPED MICRO-REGIONS OF
HUNGARY .........................................................................................................................931
Sanja Kneevi, Anita Kula, Lena Duspara
THE IMPACT OF MIGRATION ON CROATIAN CULTURAL DIVERSITY ...............943
Miscellaneous Categories
Darko Etinger, Jusuf ehanovi, Antonio Ribi
MEASURING THE SUCCESS OF E-LIBRARY IMPLEMENTATION:
STUDENTS PERCEPTIONS AND USE .........................................................................957
Monika Makinov, Jana Keketiov, Marta Vavrkov
THE IDENTITY OF GYPSY CHILDREN IN FAMILY FOSTER HOMES .....................970
Ulrich Fhl, Felicitas Memer
THE INFLUENCE OF DESIGN CRITERIA FOR THE BRAND PERSONALITY.........981
Ivan Miloloa, Helena Miloloa, Emil Kuhti
CHALLENGES OF CROATIAN EXPORT ........................................................................981
Vorwort
Es ist uns ein Vergngen, das Konferenzband Interdisziplinre Managementforschung

X / Interdisciplinary Management Research X vorstellen zu knnen. Ein Buch aus
dieser Reihe ist zum ersten Mal 2005 erschienen, als Resultat der Zusammenarbeit
zwischen der Wirtschaftsfakultt in Osijek, Kroatien und der Hochschule Pforzheim,
Deutschland, und insbesondere durch das Magisterstudium des Management. Die
Zusammenarbeit der zwei genannten Partnerinstitutionen ist unter anderem durch
jhrliche wissenschaftliche Symposien gekennzeichnet, auf welchen interessante Themen
aus verschiedenen Bereichen der Wirtschaft und des Managements vorgestellt und folglich
in einem Band verffentlicht werden. Jedes Jahr ziehen die wissenschaftlichen Symposien
Akadamiker anderer kroatischer, sowie auslndischer Universitten, einschlielich
Australien, Deutschland, Ungarn, Polen, Rumnien, Slovenien, Montenegro, Bosnien
und Herzegovina, Serbien, Indien, Irland, Czechien, Israel, Italien, Sudafrica, Belgien,
Schweiz, USA, Slowakei, Dnemark, Mazedonien, Mexico und Grobritannien an, die
ihren wissenschaftlichen und profesionellen Beitrag zur Diskussion ber zeitgenssische
Fragen aus dem Bereich des Managements leisten. Die Aktualitt der behandelten
Fragen, der internationale Charakter im Hinblick auf Themen und Autoren, die hchsten
Standards der Forschungsmethodologie sowie die Kontinuitt dieser Konferenzreihe
wurden auch von der internationalen akademischen Gemeinde erkannt, weswegen
sie auch in internationalen Datenbanken, wie Thomson ISI, RePEc, EconPapers und
Socionet, zu nden ist.
Die neueste Ausgabe von Interdisziplinre Managementforschung X / Interdisciplinary

Management Research X umfasst 75 Arbeiten geschrieben von 165 Autoren. Der
Erfolg frherer Ausgaben ging ber die Grenzen der Lnder hinaus, deren Autoren
schon traditionell Teil der Reihe waren und zog neue Autoren aus Mexico und Zypern
an. Jedes der Autoren leistete einen bedeutenden Beitrag zu diesem fachbergreifenden
Managementforum.
Als Herausgeber dieses Bandes hoffen wir, dass diese Reihe auch weiterhin Akademiker
und Profesionelle dazu bewegen wird, in Forschung und Beruf die hchsten Standards
zu beanspruchen, und dass es weiterhin als Ansporn zu weiteren Formen von
Zusammenarbeit unter Teilnehmern dieses Projektes dienen wird.
Prof. Dr. Draen Barkovi

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

Interdisciplinary Management Research X to you. The rst volume appeared in 2005
as a result of co-operation between the Faculty of Economics in Osijek (Croatia) and
Pforzheim University (Germany), particularly through the postgraduate programme
Management. The co-operation between these partnering institutions has been
nurtured, amongst else, through annual scientic colloquiums at which interesting
topics in various elds of economics and management have been presented and later
published in the proceedings. Over the years, the scientic colloquiums have drawn
the attention of academic scholars from other Croatian universities, as well as from
other countries including Australia, Germany, Hungary, Poland, Romania, Slovenia,
Montenegro, Bosnia and Herzegovina, Serbia, India, Ireland, Czech Republic, Israel,
Italy, South Africa, Belgium, Switzerland, USA, Slovakia, Denmark, Macedonia, Mexico
and the United Kingdom each making a contribution in academic and professional
discussion about contemporary management issues. Actuality and importance of the
issues discussed, the international character of the book in terms of authors and topics,
the highest standards of research methodology and continuity in publishing have been
recognized by the international academic community, resulting in the book now being
indexed in world-known data bases such as Thomson ISI, RePEc, EconPapers, and
Socionet.
The latest edition, i.e. Interdisziplinre Managementforschung X / Interdisciplinary

Management Research IX encompasses 75 papers written by 165 authors. The success of
former editions has echoed beyond the traditionally participative countries and authors
and now includes new authors from Mexico and Cyprus, each providing a valuable
contribution to this interdisciplinary management forum.
As editors we hope that this book will continue to encourage academic scholars and
professionals to pursue excellence in their work and research, and to provide an incentive
for developing various forms of co-operation among all involved in this project.
Prof. Dr. Draen Barkovi

Prof. Dr. Bodo Runzheimer
MANAGEMENT
MEASURING PERFORMANCE OF MANAGEMENT IN AGRIBUSINESS PROBLEMS ... 15
MEASURING PERFORMANCE OF MANAGEMENT IN

AGRIBUSINESS - PROBLEMS, CONTROVERSIES AND
SOLUTIONS
Sofija Adi. Ph.D.1
1
University of Novi Sad, Faculty of Economics, Subotica, Republic of Serbia, sofija.adzic@gmail.com
Abstract
The paper is focused to the problem of external performances measurement of
management in agribusiness. The measurement is discussed in terms of the needs
of public and commercial development institutions, researchers and other devel-
opment actors. The main goal is to design a coherent set of indicators for external
analysis of the problems and processes of business development, as well as monitor-
ing of the reforms and the allocation of development resources in accordance with
the criteria of an open market economy (in particular, the analysis of the effective-
ness of public support for I&R activities, subsidies and subsidized loans to finance
the production of food for export in terms of broader socio-economic objectives).
The methodology is derived based on the analysis of problems and controversies
that accompany the structural adjustment of agricultural industry in Eastern Croa-
tia and AP Vojvodina in the period from year 2015 till 2030/2035.
The presented matter, in addition to an introduction and a conclusion, divided
into four parts. The first part is focused to researching the structure of manage-
ment performances indicators in the context of the needs of more effective exter-
nal regulation of agribusiness. The focus of the second part is on the selection of
principles for concretization of contents of indicators for performances measure-
ment of management in agribusiness. The base is a holistic approach to solving this
problem. The third part shows the authors view of the problems and challenges of
their implementation and consequently, establishment of rules that should guide
the public and commercial development institutions in the awarding of subsidies,
loans and providing the technical support. In the fourth section is given a critical
evaluation of conditions of their operationalization.
16 Soja Adi
JEL Classification: O13, D78, E65

Keywords: agricultural business, macro management, performances measure-
ment system for external regulations, holistic approach
1. Introduction
The paper is focused to the problem of external performances measurement of
management in agribusiness. This problem can be approached in various ways. The
proposal is based on an analysis of the problems that faced the public support for
the privatization of the development of agricultural industries in Eastern Croatia
and AP Vojvodina in the period from year 2015 till 2030/35. Although they are
in two states, a common feature is that they belong to typical Central European
NUTS 2 agricultural regions with large p/c natural and man-made resources for
food production and similar problems to overcome the (post)socialist transition
depressions. The main goal is to design a coherent set of indicators for external
analysis of the problems and processes of business development, as well as moni-
toring the reforms and the allocation of development resources (in particular, the
analysis of public support for I&R activities, subsidies and loans for production
financing in terms of broader socio-economic objectives in the reproduction chain:
higher and more efficient food production with greater share of added value>higher
export - > increased employment - > increased standard of living).
2. The structure of indicators for performances measurement of management

in agribusiness in the context of needs to increase the efficiency of external
regulation
The problem of determining the set of indicators to measure the performances
of management in agribusiness is based on a methodological approach in which
two aspects are separated.
The first is based on the SWOT analysis: Why the factors, such as: (1) A clearly
defined mission, vision and goals in the entrepreneurial decision-making; (2) The
possibility to establish a continuity in the improvement of corporate governance
by development of management processes and functions of capital; (3) Organiza-
tion in function to constitute three-ply management process in the activities of
planning, organizing, leading and control; (4) Econometric support in planning
defined targeted states; (5) The risk analysis in financial flows for the given liquidity
management; (6) Increased degree of freedom in identifying impacts and pressures
of non-economic and economic factors and resources; (7) Application of modern

(market-oriented) technique for the preparation and evaluation of investments in
processes that enable the growth and faster capital turnover; (8) Operational and
investment decision-making in the management processes and stages based on the
multidisciplinary action; (9) Pinpointing the responsibility for deciding on the
material, financial and human resources through consultations, cooperation and
co-decision, did not result in more efficient farm management, or companies or busi-
ness ventures, according to the minimalist criteria - providing the cash-flow, which
provides the regular service of all obligations with maintenance of the minimum
(target) profit rate (Adi et al.; 2014, 173-176)?
The second aspect relates to the objective of this study the performances mea-
surement of management in agribusiness is considered, first of all, in terms of the
needs of public and commercial development institutions, researchers and other
actors of development. The initial commitment is providing a balance between
market reforms and incentives and public interest. In this context, it is necessary to
say something about the key elements of scientifically valid transformation of the
role of public factors in the formation of a general framework for the development
and their implications for the determination of indicators for the performances
measurement of management in agribusiness (the exposed matter is processed ac-
cording to Hyden and Court; 2002).
Both the Republic of Croatia and the Republic of Serbia are over two decades in
the process of constituting the conditions for the transfer of rights and responsibili-
ties for the allocation of development resources from the state to the market. Tech-
nically, this approach marks: (1) liberalization of market, (2) increasing the degree
of freedom of movement of capital, and (3) development of economic and legal
institutions in function of encouraging and maintaining the (1) and (2). However,
in terms of their development problems, it is more visible that the discretionary
role of the state in the allocation of development resources can be reduced, only
if as a substitutions establish a clear, precise and transparent principles based on
certain aspects of reforms and management actions in which in the foreground are
the rights, not needs (Table 1).
18 Soja Adi
Table 1. The implications of concept of rights implementation on the public

regulation of management behavior in agribusiness
Behavior of managers in agribusiness when in Behavior of managers in agribusiness when in
the structure of public regulation dominates the structure of public regulation dominates
the concept: the needs the concept: the rights
The needs are met. The right is exercised.
The needs do not implicate any obligations. The acquisition of rights implicates corresponding
duties and obligations.
The needs are not universal. The rights are universal.
The needs can be met in a variety of ways, The needs can be achieved under the condition of
provided that some desired set of results simultaneous respect for the processes and results.
is achieved (for example, a minimum
amount or resources to each user).
The needs can be ranked in order of priority (for example, The right is indivisible and must be achieved
privileged farms, companies and businesses ...). completely and at the same time.
The needs can be achieved in various ways: gifts, In normal conditions, gifts, donations, subventions,
donations, subventions, by assistance, awarding the assistance, awarding the discretionary power to the
discretionary power to full or partial write-off of various write-offs are incompatible with the rights-
outstanding debts from suppliers and the like. based approach (this means that all economic entities
and citizens must regularly service their obligations,
the only exception are the individuals unable to work
- which belongs to the domain of social policy in the
narrow sense).
The exposed indicates that the application of the concept of rights in the public
regulation of management behavior in agribusiness is based on the completion of
the institutions and norms that will enable everyone to take responsibility to meet
their needs and their development in the future. On technical side, it can be seen
- that the development does not go from the top to the state to the farm, or com-
panies and their management, but inverse, development is a process that goes from
the individual in terms of people and their families (primarily as consumers of food
and employment opportunities) and economic entities and their associations to the
state (the so-called holistic approach).
3. Principles for selecting the methodology for performances measurement of

management in agribusiness
Initially should be noted that, there is no agreement on the concept of successful
managerial control, and consequently about the determination of the appropriate
set of indicators for its measurement. In seeking solutions, the key is a clear distinc-
tion between the system of public governance and ways of its implementation at
micro-level (corporate and entrepreneurial management). The scientifically valid
approach is based on determining the adequate combination of measuring the re-
alization of goals in the domain of: increasing the economic performances (farms,
companies and businesses within an open market economy), protection and im-
provement of environment issues and social prosperity, on the one hand, and meet-
ing the expectations of the owner and all other interest groups in and outside the
farm or enterprise, on the other hand. The key of implementation is the holistic
view of the business of farm or enterprise (Box 1).
Frame 1. The holistic approach in determining good public and corporate gov-
ernance in the agricultural business
The holistic approach has two characteristics. The first is that defining the key
(may be called also ultimate) development goals should be placed at the execu-
tive level. Second, the individual goals are harmonized starting from the different
observation perspectives. In fact, the initiatives for the integration of strategies are
correlated. The integration of development strategies can be seen in the example
of sugar production. The continuity in production requires a removal of sugar
beet production from the plot to the plot, because it can not be sown at the same
plot every year ( the scientific recommendations is every five years, meaning, for
the continuous production of an average sugar refinery is necessary at least 50.000
hectares of high class arable land). Defining the crop rotation on a larger num-
ber of grounds connect the export providing industrial strategy and agricultural
strategy for providing food raw materials respecting the sustainable development
criteria. The implementation of the holistic approach to this problem relies on a
network of public, corporate and enterprise policies and strategies composed of
four nodes, representing different views of this problem. The first node is macro
management. Its ultimate goals are: (1) reduce unemployment by increasing pro-
ductive employment, (2) increase export and a newly created p/c value, (3) in-
crease of fiscal revenues. The second node is a micro economic management. The
ultimate goals are: (4) increase the accumulation and income, (5) improving the
investment capacities, (6) reduce the conflicts due to the market power dispropor-
tion between the primary agricultural producers and processors. The third node
includes institutions and regulation. The structure in this case is formed by the
commercial and the public part. The top of the commercial part of the institutional
20 Soja Adi
system and regulation is formed by: (a) an aggregation of banks, whose ulti-
mate goals are: (6) short-dated investments, (7) high interest rates, and (8) low
risks. The public part is composed of: (b) control of monopoly, (c) settlement of
disputes, (d) set of local, regional, national and European norms and standards.
The ultimate goal is: (9) respect of consumer and environmental standards. The
fourth node establishes a system of values. The ultimate objectives are: (10) fighting
the corruption and (11) respecting the economic freedoms.
Measuring the economic performances of management in agribusiness should

be carried out directly from the regular service of all obligations of their farms or
companies and mass and structure of profit compared with the analogous indicators
in closer and further international environment. Since the techniques are known,
the focus is on the selection of principles for measuring the realization of other
goals. Three groups of indirect indicators for the determination of the content of
successful managerial control in agribusiness are proposed (Arndt & Oman, 2006):
The first includes the inputs or entries. The term includes: legislation, certain
specific rights, accepted national and international obligations and the like. The
indicators for measuring are the facts derived from the analysis of relevant laws,
contracts and agreements, accepted obligations. They are the basis (de jure concept)
for determining the content of term successful managerial control in agribusiness,
but do not show: What is the real situation? or What is going on: at the level of
farm or company?
The second includes the processes or procedures that lead to the implementation
of enacted laws and rights, acceptance of contracts and obligations, and the like.
These indicators determine where is the farm or the company on the path of the
enacted laws and accepted contracts, agreements and obligations to their imple-
mentation. Although this is a de facto concept to determine the term successful
managerial control, there is no information on the achievement of concrete results,
implementation of specific rights, and the like.
The third includes the outputs, outcomes, results or actual performances.
The measure is: How many farms or companies, but also how many people and
their families (as food consumers and job seekers) enjoys the results of enacted laws,
agreements, contracts and the like, and at what price?
The presented point out six general principles that should be used in the con-
struction of the indicators (Vujovi, 2007, 222):
First, the principle of participation, that is appreciation of authentic interests in

a triangle: government (in terms of public interest holder) - farm or company - in-
ternal and external stake-holders;
Second, the principle of equality, more exactly its application in the formation
of the rules that fully respects the rights and interests of all participants in the chain
of reproduction;
Third, the principle of equivalence, that is in the application of rules to everyone,
regardless of income, economic, political and social status;
Fourth, the principle of responsibility, more exactly that all elected actors must
be responsible for their actions and consider the justified demands of the govern-
ment and also of the internal and external stake-holders;
Fifth, the principle of transparency, more exactly that the decision-making pro-
cess must be efficient, clear, transparent and open to review by the government and
the internal and external stake-holders;
Sixth, the principle of efficiency, that is, definitiveness of rules of game, which
enables quick and timely decision-making;
The presented approach is based on a broader understanding of agribusiness
out of the political and financial framework. At the same time shows which way
and how should the agribusiness actors go into the initiation of the process of con-
stituting a good business environment for the regular market operation. A good
entrepreneur and manager must very carefully and systematically submit the sug-
gestions, comments, criticisms and statements of support to the surrounding, so
his work on management will be sufficiently supported and as little as possible
hindered aside. Thereby it must be done in such a way that will make the coworkers
cooperative rather than uninterested or competitors.
4. The structure of indicators for measuring the quality of agribusiness and

the preliminary results of their implementation
The proposed structure of indicators for measuring the quality of agribusiness
is derived from the mixture consisting of: (1) obligations to implement and ap-
ply the appropriate technical, business, social and environmental standards as a
preconditions for the globalization of business activities, (2) elements of the cor-
porate social responsibility concept, as well as (3) positive destiny of entrepreneurs,
managers and owners to the problem of improving the quality of their business. In
22 Soja Adi
this framework, the classification of indicators for measuring the performances of

agricultural business is carried out in four groups (Lonar, 2007, 366-370):
The first group includes the obligation of every business entity to establish and
apply the appropriate technical, business, social and environmental standards. A
special role in improving the management performances have the common stan-
dards, such as: (1) Quality Management System (ISO 9000), (2) Environmental
Management System (ISO 14000), (3) Social Accountability System (SA 8000),
(4) Health and Safety Management System (OHSA 18000) and the like. Each cov-
ers a narrower or broader set of business activities that ultimately result in a forced
or voluntary respect of national, European and international regulations and obli-
gation toward all relevant interest groups in the internal and external environment.
The second group of agribusiness performances indicators results from the needs
that the agribusiness actors should be more transparent and accurate in reporting to
the public about their results and achievements. In this sphere a variety of standard
instruments circulate, such as: (1) Sustainability and Social Corporate Responsibil-
ity (CSR), (2) Reporting - Global Reporting Initiative (GRI), (3) Corporate Sus-
tainability Reporting Toolkit, (4) CSR Assessment Tool and the like.
The third group refers to the principles and instructions on the application of
positive business standards.
The fourth group is related to the efforts of owners, entrepreneurs and man-
agers to introduce and apply the first three groups of indicators for measuring
the performances of agribusiness. This refers to measures for: (1) integration of
requirements and goals of the first three groups of indicators for measuring the
performances of agribusiness into organizational structure of farm or company and
typical processes, (2) motivating the employees to create innovative solutions for
more efficient implementation of the above-mentioned indicators, (3) intensifica-
tion of the cooperation with internal (unions, professional teams, ...) and external
groups (agricultural administration, spas, consumer associations, ...), as well as (4)
more accurate reporting on achievements and problems. The key instruments for
the implementation are: (1) awards, (2) education and training, (3) partnerships
and (4) promotion and communication.
5. Discussion
In the analysis of operationalization possibilities the proposed conceptions of
measuring the performances of agribusiness should take into consideration the
fact that science, in the dominant understanding of its essence, can not develop
methods and mechanisms for successful determination of all mentioned elements.
At this point should be noted that for a large part of the (minimal) European
standards for measuring the effectiveness of business and the quality of business
environment there is no adequate production-technological and socio-economic
solutions, but they should be sought on the fly.
Both the Republic of Croatia and the Republic of Serbia, sooner or latter, will
have to turn to the macro, meso and micro-economic reforms and policies that will
pave the way towards regional and local endogenous, auto-propulsive and sustain-
able development in conditions of high uncertainty and risk. In the preparation
and implementation of the development strategy of regional agricultural indus-
tries are present a various interpretations of reality, which are also variable in time.
Therefore, the fundamental existential questions of formulation and implementa-
tion of reforms and policies to the constitution of the institutional and financial
framework for the endogenous, auto-propulsive and sustainable development of
regional agricultural industries are - the result of the interaction between: (1) indi-
vidual and collective entrepreneurship, ownership and management initiatives, (2)
sciences, (3) non-governmental sector and civil society, (4) internal and external
actors of commercial reproduction, while on the other hand are (5) left to the poli-
ticians voluntarism. For successful solving this problem, in the selection of actors
of the business, innovation and political system should be given a more impor-
tance to the possession and use of: (1) specific knowledge and skills, (2) ability for
credible understanding of the problem and managing the complex and uncertain
circumstances and (3) specific abilities to create solutions and persistence in their
implementation. This approach faces two problems.
The first arises from the fact that the main task of the proposed concept is-
how to with the simultaneous action of public regulation, entrepreneurship and
corporate governance create the conditions for growth of competitiveness of food
production for export on the basis of generation and valorization of scientific
knowledge. For its improvement are required the investments in new products,
new organization, new equipment, new knowledge and skills, but above all, those
who will be able to, on the basis of micro-innovations organize the labor and capital
24 Soja Adi
in order to make the production profitable in tough and unequal game on target
segments of the European and global food markets. So, requires a large number of
agricultural entrepreneurs, managers and technical teams with a very diverse and
specific knowledge and skills.
The second is related to the current ranges of national and regional innovation
systems in initiating and implementing the restructuring strategy of (regional) ag-
ricultural industries. At first appearance, the current situation (number and struc-
ture of the organization for education and research, the number and structure of
teachers, scientists and researchers, available space, experimental farms and to some
degree the equipment) is in many dimensions respectable. However, the institu-
tional arrangements supporting these systems are far away from their ability to pro-
vide their modernizing role, despite the plenty of, more politically-declarative than
properly constructed institutional reforms, educational, scientific, technological,
agricultural, and industrial and trade policies. In this context, the listed innovative
systems, in the strict (scientific) sense of this term does not exist, because where
there is no innovation (in terms of bringing (economic) benefits to the innovator,
and new values to the user), there is no innovation system, and thus one of the
major factors of starting the process of food production industrialization by the
exogenously determined European and global standards.
6. Conclusion
The main finding of this study is that indicators for external performances
measurement of agribusiness must be derived from the mixture composed of: (1)
obligations to in their business implement and apply the appropriate national,
European and global technical, business, social and environmental standards, (2)
key elements of the corporate social responsibility concept, but above all, (3) posi-
tive definitiveness of entrepreneurs, managers and owners toward the problem of
improving the business performances in the conditions of hyper-competition on
the domestic, European and global food market. The entrepreneurs, owners and
managers in agricultural businesses have to accept the high standards of conduct
in the field of relationship to the external and internal environment. Their reputa-
tion should not depend only on business success accounting indicators, as the basis
to satisfy the owners and financiers, but also on the ability to make a consistent
relationship of mutually beneficial interactions with employees, customers, (local,
sub-regional, regional and national) community and environment.
References
1. Adi, S. et al. (2014). Performanse i razvojne mogunosti agrarne industrije u AP
Vojvodini: Prilog regionalnoj strategiji unapreenja agrarnog biznisa, Univerzitet
u Novom Sadu, Ekonomski fakultet, Subotica, Poljoprivredni fakultet, Novi Sad,
ISBN 978-86-499-0190-2, Novi Sad.
2. Hyden, G. and Court, J. (2002). Governance and Development. World Governance
Survey Discussion Paper 1, Union Nations University, Tokyo.
3. Kaufmann, D., Kraay, A. and Mastruzzi, M. (2006). Governance Matters V: Aggregate
and Individual Governance Indicators for 1996-2004. World Bank Policy Research
Department Working Paper.
4. Lonar, D. (2007). Korporativna socijalna odgovornost: koncept, rejting, instrumenti
i znaaj, Zbornik radova: Miloerski ekonomski forum 2007: Korporativno i javno
upravljanje u funkciji razvoja konkurentnosti, Dabi, S. (ur), str. 358 376, ISBN
978-86-84651-112-1,Savez ekonomista Srbije i Savez ekonomista Crne Gore,
Beograd.
5. Vujovi, D. (2007). Pojava kompozitnih indikatora upravljanja: potreba ili globalna
moda bez povoda, Zbornik radova: Miloerski ekonomski forum 2007: Korporativno
i javno upravljanje u funkciji razvoja konkurentnosti, Dabi, S. (ur), str. 209 232,
ISBN 978-86-84651-112-1,Savez ekonomista Srbije i Savez ekonomista Crne Gore,
Beograd.
26 Martina Bri Ali Alen Ali
COMPETITIVE ADVANTAGES OF
THE CROATIAN WOOD INDUSTRY
Martina Bri Ali, Ph.D.1, Alen Ali, B.Sc.2
1
Josip Juraj StrossmayerUniversity of Osijek, Faculty of Economics, Republic of Croatia, mbris@efos.hr
2
Aurea Grupa Inc., Republic of Croatia, uprava@aurea-grupa.hr
Abstract
This research will look into competitive advantages of the Croatian wood indus-
try. The paper provides an explanation of potential sources of competitive advan-
tages as well as positive and negative aspects of the selected generic strategies, fol-
lowed by examples of companies using these strategies. The subject of the research
encompasses characteristics, the area and the impact of competitive advantages on
the companys market position and business success.
The aim of the paper is to define the term competitive advantage and to bring it
into correlation with the wood industry.
The methods used in the research include description, compilation and classifi-
cation, and use of comparative and genetic method to interpret the phenomenon
in its origin, i.e. in this case, a competitive advantage in its source, namely in costs
or differentiation.
JEL Classification: F12
Keywords: competitiveness, competitive advantages, productivity, Croatian
wood industry
1. On competitive advantages in general

When organisms belong to different species, they can both survive, as they fight
over resources in different ways. However, when they belong to the same species,
one of them disappears. In other words, the species that take up the same ecological
niche cannot coexist in a stable equilibrium (Popov, 2010:10).
COMPETITIVE ADVANTAGES OF THE CROATIAN WOOD INDUSTRY 27
Accordingly, the natural law that the stronger ones will survive can be perceived.
For this reason in the field of economy and business operations there is competi-
tion between companies fighting to achieve competitive advantages by means of
which they would avoid competitors threats and succeed in achieving their set
goals, expressed in profit, market share or something else.
Competitiveness can also be defined as productivity by which a company uti-
lizes its human resources, capital and natural resources. Higher productivity leads
to higher competitive advantage.
Staying competitive and being always aware of consumer needs requires coop-
eration among different business functions. Operational function is not isolated.
Actually, none of the business functions can survive isolated from others. Work can
be done optimally only if interdependence of various business functions is accepted
and exploited in an optimal way (Barkovi, 2011:27).
Competitive advantage is punctum saliens of the strategic activity of a company,
and presence or absence of a competitive advantage is what makes a difference
between successful and unsuccessful companies. It is achieved by having or build-
ing a specific quality that is required and accepted by buyers and which makes a
company different from their competitors (Tipuri, 1999:3).
A company achieves a competitive advantage in the situation when it offers a
product or service that is considered superior by buyers and does so at a lower cost
than its competitors, making it possible to sell a product at a lower or equal price,
whereby the company generates higher profit. Simply said, competitive advantage
is a characteristic of a product that makes it different from the competitors prod-
uct. According to Porter, competitive advantage arises in the first place from the
value that the company offers to its buyers, and which exceeds the very costs of
achieving that same value (Pekanov Starevi, 2012:12).
There are two key sources of competitive advantages lower costs and differ-
entiation. Competitive advantage is achieved and maintained by either supplying
identical value to buyers at a lower cost than competition in the industry (cost
advantage) or by supplying higher value to buyers at an average cost in the industry
(differentiation advantage).
1.1. Cost leadership

Although competitive advantage is established and maintained through all busi-
ness activities and their operativity, a company may achieve a competitive advan-
tage by orienting itself primarily towards low costs, which implies focus on rela-
tively standardized products and services.
Through this strategic orientation, based on the experience curve, efficient use
of resources and economies of scale, and with strict cost control, a company seeks
to reduce the price of its products (costs), thus achieving competitive advantage.
Based on low production costs, a cost leader is able to impose low sale prices that are
lower than competitors prices. A cost leader chooses the lowest level of production
differentiation, as differentiation makes production more expensive and it can lead
to the situation where the strategic business unit directly jeopardizes the founda-
tion upon which its strategy is built. Furthermore, a cost leader ignores the differ-
ences among market segments and directs the positioning of its products towards
an average buyer. The reason for such an attitude of the leader is that adjusting the
product to the different market segments is costly, i.e. it increases production costs.
Besanko, Dranove and Shanley also state the following favourable conditions
for building a competitive advantage based on low costs:
When the industry is characterized by economies of scale and economies of
experience, but none of the companies in the market has begun to exploit
them seriously
When the possibilities for improving the perceived benefit of an industrial
product are limited by the nature of the product itself
When buyers are relatively price sensitive and they are not willing to pay a
premium price for additional improvements of quality, design or image of
the product
When an industrial product has features of a product whose objective quality
attributes buyers are able to estimate at the time of buying (for example, of-
fice furniture or computers). In such cases possibilities of differentiation can
be found in improving the visible product features, which multiplies the risks
of imitating differentiation and directs strategic attention to cost advantages
(Tipuri, 1999:15).
It should be mentioned that cost advantage arises from more efficient perfor-
mance of activities in the value chain compared to industrial competitors. In addi-
tion, low cost culture should be implemented in the core of the companys activi-
ties, thus successfully monitoring and managing costs, which is not an easy task at
all. Exactly for this reason, a company may not succeed in achieving competitive
advantage through orientation on low costs. The logic behind this strategy is to be
the leader in the industry, and not one of several followers. Rivalry of several com-
petitors over the position of the industry leader is extremely dangerous, because, as
long as one of the companies does not become a leader and eliminates others from
the market, consequences for the company may be catastrophic. However, high risk
is also followed by a high yield, so that focusing on costs may achieve a significant
competitive advantage.
Wall-Mart and Southwest Airlines have won strong market positions by using
low-cost advantage over their competitors and by consistently having lower prices
than their competitors (Thompson & Strickland & Gamble, 2008:7). Other suc-
cessful global cost leaders include Texas Instruments in consumer electronics, Hyun-
dai in the automobile industry, Black & Decker in the power tools industry, etc.
In the wood industry, the Swedish company IKEA is known worldwide for its
low prices, as their business strategy is based on low prices only.
1.2. Differentiation
By means of differentiation in the process of market exchange, a company is
trying to achieve the desired level of differentiation between its product and similar
products of its competitors. The content of differentiation relies on the knowledge
about consumer needs, wants and preferences. Efforts and investments in this area
belong to the category of improving placement of the products that are already
present in the market. When it comes to new product development, the producer is
trying in advance to embed certain elements in the product through design, which
will help the product to stand out among similar competitors products.
In the Croatian wood industry, there is an example of Kvadra Design, a com-
pany that differentiated itself from other companies in the industry through its
innovation and finalisation of their own designer products. With emphasis on the
Croatian design furniture, they were the first to start with the above business con-
cept and have chosen a business strategy that in the long run produces only top
results. The concept and model they apply in their production can be compared to
Italy, a country that is known for production of design furniture.
By applying this generic strategy, barriers to entrance of other companies are
established by building customer loyalty, which discourages potential new players.
Buyers also feel connected to products or services with unique attributes, which
reduces the threat of a substitute, and brand loyalty provides safety to the company
against rival threats.
Brand is a name, term, sign or a symbol, i.e. a system of fundamental, visual,
verbal and written characteristics, aimed at identification and differentiation of one
suppliers product from those of others (Medi & Panci, 2009:88).
The term brand refers to a specific product that will be accepted by consumers,
that will remain familiar to them based on differentiated features and promises
they have to ascertain. Consumers also have to be convinced of its superiority or
appropriateness for their lifestyle, status, purchasing power. In this way, brands are
transformed into beliefs, ideas, and the world that consumers can identify with
(Pavlek, 2008:121).
Brand is the basic reason why buyers are willing to pay more (although they
could buy an identical or similar product for less). Brand is the strongest weapon
in the fight against competition and a companys most valuable asset (Medi &
Panci, 2009:95).
Consequently, differentiation makes it possible for a company to:
Set the price with additional profit
Sell larger quantity of the product at a given price
Acquire equally valuable benefits (higher customer loyalty during cyclic or
seasonal falls) (Jovi, 2010:51).
The process of differentiation of the existing products in the market is actually
neutralisation of causes and differences that cause the product to fall behind oth-
ers in the market. By applying adequate measures, for example, product meta-
morphosis in the production and technological sense, the company is trying to
improve the product, under condition that it is profitable (considering the costs).
Sometimes it is not about eliminating physical flaws, but about the need for chang-
es in the marketing mix. The problem lies within the fact that buyers often cannot
know the value a product has for them. Sometimes they overestimate a product,
and in other cases, they underestimate it. Buyers often do not know what is ben-
eficial for them. Therefore, the strategy should be based on use and signal values. A
buyer ought to recognise the product as unique; thus, the forms of differentiation
that are difficult to imitate have the best chances for success. Some of the examples
of such successful differentiation are overall value of McDonalds, prestigious Rolex
watches, Federal Express delivery, Daimler Chrysler engineering, etc.
Examples of companies successful at applying differentiation in the Croatian

wood industry include Spin Valis d.d., with high quality solid wood furniture sets
and eco-friendly furniture chest of drawers, show cases, tables and chairs. Spava
is known for its high quality floors and doors, whereas Kvadra Design is known for
its original furniture designed by Croatian designers.
In addition to the two extremes of competitive advantages, there is also another
generic strategy focus strategy, which is based on the choice of targeted market
segment. Focused cost leadership includes cost control in a narrow field. Similar
to focused cost leadership, focused differentiation also offers a unique product in a
narrow field. Cost leadership strategy and differentiation strategy are trying to find
competitive advantages in a wide range of industrial segments, whereas focus strate-
gies are focused on cost advantages (Cost Focus) or differentiation (Differentiation
Focus) within a narrow segment (Pekanov Starevi, 2012:27).
2. Analysis of the wood industry in Croatia

Forests1 cover about 47% of the Croatian land area, and total area of forests and
forest land amounts to 2 688 687 ha.
Wood processing and furniture production in the Republic of Croatia has devel-
oped based on high quality raw material. Development of these industries is based
on utilisation of this raw material, long-term tradition of wood processing and
good human resources (Pirc et. al., 2010:230). Wood processing industry accounts
for a significant segment of the Croatian economy.
As shown in Table 1, the total number of people in Croatia employed in the
activity C16 wood processing and wood products in 2012 amounted to 11 072,
whereas the total number of people employed in the activity C31 furniture pro-
duction was 8 887 in the same year. Therefore, the total number of people em-
ployed in these activities in the Republic of Croatia in 2012 amounted to 19 959.
1
Find more details on forests in Croatia at: http://portal.hrsume.hr/ (February 5, 2014)
Table 1. THE NUMBER OF EMPLOYEES IN LEGAL ENTITIES ACCORDING TO THE

2007 NATIONAL CLASSIFICATION OF ACTIVITIES (annual average)
Shares Indices
ACTIVITY 2009 2010 2011 2012
2012 12/11
Agriculture, forestry and
A 25,766 24,710 24,891 25,391 2.2 102
fishing
02 - forestry and wood cutting 8,659 8,224 8,495 8,478 0.7 100
C Processing industry 232,751 219,976 214,302 207,298 18.0 97
Wood processing and
16 11,501 11,050 10,839 11,072 1.0 102
wood products
31 Furniture production 9,637 9,676 9,357 8,887 0.8 95
Total wood processing
21,138 20,726 20,196 19,959 1.7 99
and furniture production
TOTAL CROATIA 1,211,085 1,168,179 1,159,657 1,153,497 100.0 99
Source: State Bureau of Statistics, Communication 9.2.6.
Wood processing industry in Croatia is among rare industries that have recorded
exports higher than imports. Exports in this industry in 2012 accounted for 7% of
the total exports of the Republic of Croatia, and it amounted to USD 902 million.
The value of exported wood and wood products was USD 578 million, whereas the
value of exported furniture amounted to USD 324 million. The value of imported
products in the same year was USD 498 million (Table 2).
Table 2. FOREIGN TRADE OF WOOD PRODUCTS AND FURNITURE

EXPORT IMPORT BALANCE Export -import ratio
mil. USD mil. USD mil. USD (%)
2008 977 905 72 108
2009 755 655 100 115
2010 814 535 279 152
Index 2011/2010 118 110 135
2011 964 587 377 164
Wood and wood products 612 239 373 256
Furniture 352 349 4 101
2012 902 498 405 181

Wood and wood products 578 194 384 298
Furniture 324 304 20 107
Index 2012/ 2011 94 85 107
Wood and wood products 95 81 103
Furniture 92 87 573
Source: State Bureau of Statistics
The greatest problem is that the structure of export products is very unfavour-
able. It is dominated by export of raw materials and semi-finished goods that gener-
ate the lowest added value. As the most important segment of forest-based indus-
try that should represent the highest added value, furniture industry is in a very
difficult position. Although global recession has significantly reduced demand for
furniture, the problems for this industry actually started 20 years ago. At the begin-
ning of the 1990s, within only a couple of years, Croatian furniture industry was
almost halved and brought to the verge of catastrophe, partially due to the war, and
later due to the largely unsuccessful privatization and economic policy that failed
to provide adequate incentives. As annual yield has increased, companies now have
wood raw material, but they lack processing capacities to increase the added value
(Vlahini-Dizdarevi & Uri, 2010:66).
Due to the situation in the industry outlined above, imported products domi-
nate the furniture market.
To change the structure in the wood processing industry, the Ministry of Ag-
riculture has developed the Operative Programme for the Development of Wood
Processing and Furniture Production with the goal to increase the value of wood
raw material multiple times through products of high finalization level, quality,
design and recognisability.
The long-term goal is to achieve wood processing and furniture production as
economically successful, profitable activities with well-balanced, competitive and
sustainable development, following the global development trends.
This goal is based on the prerequisite of increased economic efficiency, and in-
creased level of competitiveness will be the key point for continuous economic
achievements.
The long-term goal will be achieved through realization of short-term goals:

Change in the existing structure, with higher proportion of final production;
Increased share of final products on the market;
Increased competitiveness of final products on the market;
Increased employment and maintaining the population in rural areas;
Encouraging the development of, and protecting the national wood process-
ing and furniture production, without compromising its openness.2
Thus, the entire economy as well as wood industry in the Republic of Croatia
needs to face strong and large competition, in both the home and foreign markets,
and look for solutions for its survival and future development in such competitive
conditions.
One of the strengths of the forest-based industries is superb yet available raw
material. Products made of Slavonian oak and other types of wood have been tradi-
tionally exported to the European and world markets. Croatia has a long tradition
and experience in production of wood products. One of the strengths is also the
forestry policy with elements of sustainable development. According to Hrvatske
ume (a public enterprise for forest and woodland management in the Republic of
Croatia)3, the wood mass in the Republic of Croatia amounts to 398 million m3,
with annual yield growth of 10.5 million m3, thus ensuring the future of sustain-
able management, as annual consumption of wood mass is lower than the yield.
However, the above stated facts are only comparative advantages that should be
developed into competitive ones and become opportunities for the development
of this sector. One of the possibilities refers to encouraging the development of
clusters, which would make it possible for Croatian companies to specialize in a
particular phase of furniture production and improve production flexibility. This
type of business organisation has already proved itself very successful, for example
in Austria (Vlahini-Dizdarevi & Uri, 2010:71).
Based on the above, several clusters were founded in Croatia and they are ori-
ented towards problems of companies in the wood industry, trying to facilitate
2
Operative Programme for the Development of Wood Processing and Furniture Production 2011-
2014. Available at http://www.mps.hr/default.aspx?id=8474 (January 19, 2014)
3
http://portal.hrsume.hr/index.php/hr/ume/opcenito/sumeuhrv (February 5, 2014)
placement of goods through joint presentations at trade fairs and on the market.
Producers organised in a cluster can also obtain raw material under more favour-
able terms and many other benefits.
When it comes to branding of the Croatian wood industry, the cluster Drvo je
brand (Wood is a brand) stands out. Through its goals and activities, it promotes
and educates companies about the need of the Croatian wood industry to aspire
to the highest possible level of product finalisation. One of the most important
tasks of the cluster Drvo je brand is to achieve a higher level of competitiveness of
the Croatian wood products on the world market through its activities based on
innovation, design and final products, with inevitable activities of marketing and
promotion to create a higher additional value.
Change in the production structure to the benefit of final products opens op-
portunities for greater employment, but also for greater export. Opportunities also
exist in tourism involving of domestic furniture producers in supplying hotels
and tourist facilities with furniture would result in sales growth and indirect pro-
motion of the Croatian furniture (Vlahini-Dizdarevi & Uri, 2010:71).
Unfortunately, there are more weaknesses than strengths. These refer to dominant-
ly standardized mass production, which prevents comparative advantages of Croatia
from being utilised. Mass production results in products of lower added value that
have difficulties in finding the market due to increasing international competition
within the observed market segment, where the product price is the most important
factor of competitiveness. In the field of mass production, greatest competitiveness
is achieved by countries with low labour costs with which Croatia cannot compete.
Therefore, Croatian production should specialize in production of high quality furni-
ture that is produced in small series (Vlahini-Dizdarevi & Uri, 2010:71).
Poor product structure should also be emphasized, with dominance of primary
products, which usually generate the lowest profit, compared to final products.
Low productivity and low level as well as outdated technology are also some of the
weaknesses of the forest-based industry. Significant weaknesses in furniture produc-
tion include inadequate and unattractive design as well as a lack of brands.
Threats refer to poor utilization of wood raw material in the way that good raw
material is turned into an uncompetitive final product. In terms of price competi-
tion, countries presenting threats include countries of Asia and Eastern Europe,
which have lower labour costs.
2.1. Measures to stimulate competitiveness

The unacceptable existing programme and unsatisfying competitiveness require
restructuring and diversification of the existing production toward products of
higher added value and adjusting to the market conditions of the EU. This requires
increased investment activity, embedding competitiveness factors in production
and business, and sustainable production that increases the share of the analyzed
activities in GDP structure.4
In order to increase competitiveness, in 2010 the Ministry of Regional Develop-
ment, Forestry and Water Management presented the Operative Programme for
the Development of Wood Processing and Furniture Production 2011 2013.
This programme aimed to increase competitiveness in two ways5:
a) Through education and improvement of human resources
Raising the human capital value, acquiring knowledge, skills, attitudes and val-
ues that an individual needs to realise his or her working role, all of these are
key factors of repositioning the economy in terms of competitiveness. Education
should be perceived as an investment that enables integration of business plans and
employees skills in order to achieve goals in the field of economic growth, products
and services. Education and improvement increases competitiveness by ensuring
the necessary quality of human resources.
b) Through application of new technologies and technological processes
Todays production conditions imply wide application of automated technol-
ogy in designing, engineering, and production process. Successful integration of
this technology in the business process and keeping up with global trends requires
systematic investment in technological development. Introduction of new tech-
nologies has numerous effects on business, such as increased production volumes,
reduction of production costs, improvement of product quality and business pro-
cesses, improved production flexibility and shorter delivery periods.
3. Conclusion
Recognising competitive advantages and disadvantages is the most important
goal of any company. There are two key sources of competitive advantages low
4
Amendments to the Operative Programme for the Development of Wood Processing and Furniture
Production 2011 2014, available at http://www.mps.hr/default.aspx?id=8474 (January 19, 2014)
5
Ibidem
costs and differentiation. Competitive advantage is achieved and maintained either

by supplying identical value to buyers at a lower cost than the competition in the
industry i.e. low cost advantage, or by supplying a higher value to buyers at an aver-
age cost in the industry, i.e. differentiation.
In 2012 in the Republic of Croatia there were 19 959 people employed in the
wood processing industry. The crisis has had devastating effects on all segments in
Croatia, including the wood industry. One of the most important strengths of the
forest-based industries is high quality, easily available raw material. Another im-
portant strength is the experience in wood industry. Unfortunately, there are more
weaknesses than strengths. These refer to predominantly standardized production
in large series, which prevents Croatias comparative advantages from being utilised.
References
1. Barkovi, D. (2011) UVOD U OPERACIJSKI MANAGEMENT. Faculty of
Economic in Osijek, Osijek.
2. Jovi, S. (2010) Upravljanje lancem vrijednosti u malim poduzeima. Osijek.
3. Medi, M., Panci. M. (2009) Osnove marketinga praktikum. Ekonomski fakultet
u Osijeku, Osijek.
4. Ministry of Agriculture, available at www.mps.hr (January 19, 2014)
5. Pavlek, Z. (2008) Branding. M.E.P. Consult, Zagreb.
6. Pekanov Starevi, D. (2012) Metode upravljanja trokovima u funkciji konkurentnosti
poduzea. Osijek.
7. Pirc, A., Motik, D., Moro, M., Posavec, S., Kopljar, A. (2010) ANALIZA
POKAZATELJA STANJA NA TRITU DRVNIH PROIZVODA REPUBLIKE
HRVATSKE. Drvna industrija, Nr. 4/10, Vol. 61, Zagreb, pp. 229-238
8. Popov, L. (2010) Strateki marketing kao preduvjet konkurentske prednosti i
poduzetnikog rasta. Osijek.
9. Portal Hrvatske ume, available at http://portal.hrsume.hr/index.php/hr/ume/
opcenito/sumeuhrv (February 5, 2014)
10. Thompson, A.A., Strickland, A.J., Gamble, J.E. (2008) Strateki menadment, U
potrazi za konkurentskom prednou, Teorija i sluajevi iz prakse. 14th Edition,
Croatian edition, Mate, Zagreb.
11. Tipuri. D. (1999) Konkurentska sposobnost poduzea. Sinergija, Zagreb.
12. Vlahini-Dizdarevi, N., Uric, V. (2010) Drvno-preraivaki kompleks u Republici
Hrvatskoj : SWOT matrica i projekcije rasta. Poslovna izvrsnost, Zagreb, pp. 63-83
38 Draena Gapar
INFORMATION TECHNOLOGY AND KPIS

DEVELOPMENT AT UNIVERSITIES
Draena Gapar, Ph.D.1
1
Faculty of Economics, University of Mostar, Bosnia and Herzegovina, drazena.gaspar@sve-mo.ba
Abstract
The paper presents importance of development and implementation of appro-
priate key performance indicators (KPIs) at universities in order to make precondi-
tions for better strategic management of these institutions. Strategic management
of the modern universities is based on vision, mission, defined strategy and strategic
goals. But after defining the main strategic goals, the universities need indicators to
enable monitoring of their implementation. Therefore, universities have enormous
obligation to collect, access and analyze data on their key performance indicators.
Today, that is almost impossible without quality IT support. Through Tempus
project SHEQA public universities in B&H developed and implemented USKPI
(University System of KPI) software that provides a simple and fast method of data
collection, calculation and presentation of key performance indicators necessary for
the efficient management of the University. Continuous monitoring and analysis
of KPI creates a basis not only for strategic planning and management of higher
education institutions, but also for accreditation, evaluation, tactical planning, en-
rolment procedures and so on.
JEL Classification: I21, I23
Keywords: Key performance indicators, KPI software, strategic management
Introduction
Knowledge is recognized as the new currency of the innovation economy and
long-term economic success is tied inextricably to human and knowledge capital
(HEA; 2013, 14). The emergence of the knowledge economy challenged the
ivory tower status hitherto enjoyed by universities and academics, ushering
in a new era for the higher education sector. Last fourteen years the European
INFORMATION TECHNOLOGY AND KPIS DEVELOPMENT AT UNIVERSITIES 39
Commission has continuously emphasized the role of universities in contributing

to the knowledge society and economy (EC; 2005a, Eurydice; 2008), stressing
that Europe must strengthen the three poles of its knowledge triangle: educa-
tion, research and innovation. Universities are essential in all three (EC;2005b).
Appropriate governance structures and processes are frequently regarded as a pre-
condition to achieve these goals. The changing role of the state higher education
(HE) institutions relation has been visible in the form of enhancing institutional
autonomy and stressing quality assurance and accountability. The strong correla-
tion between institutional autonomy and high-performance was well-established
in the literature on higher education (Aghion et.al; 2010, Salmi; 2011). Yet while
there is consensus about the need for both autonomy and accountability, there is a
divergence of opinion as to what constitutes the optimal balance between them. An
overly mechanistic approach to performance evaluation can stifle innovation while
an overly detached approach deprives stakeholders of reassurance about the quality
of teaching, learning and research in the higher education sector (HEA; 2013, 16).
The monitoring of institutional performance has been on many university
boards agendas during the last decade. Many universities accepted that key per-
formance indicators (KPIs) could be a useful tool for assisting with institutional
performance monitoring. KPIs are sets of measures on aspects that are most critical
to current and future success of an organization (Parmenter; 2010, 3), where com-
petitive advantages may be built over competitors. KPIs can provide a set of com-
petitive advantages in analysis where the results can be comparable to those in other
organizations. Although the use of KPIs has become a hot topic at universities, little
guidance or arguments on concrete selection of KPIs have been developed. Some
of commonly used criteria in selection of KPIs are importance of specific KPI for
institution, its relationship with strategic planning, measurability (quantification)
and so on. Very often, the selection process is the result of managerial subjective
judgments and may be driven by external stakeholders in universities.
In year 2006 the Committee of University Chairs (CUC) developed Report
on the Monitoring of Institutional Performance and the Use of Key Performance
Indicators (CUC; 2006) where proposed 10 high-level KPIs later refined in Report
from 2008 (CUC; 2008, 14) here presented in Table 1. These KPIs were used in
the measurement of institutional performance from a perspective of governors
in higher education, covering both financial and non-financial aspects. Report
from 2006 (CUC; 2006) included a number of self-assessment questions in each
40 Draena Gapar
of the ten performance areas covered by the high-level KPIs, and also a number of
supporting (lower level) KPIs in each of the ten areas.
Table 1. High-level KPIs

Super KPIs
Institutional Sustainability Academic Profiles and Market Position
Supporting KPIs
Student Experience Student Diversity
Leadership & Governance Staff & Human Resources
Financial Health Estates
Regional Engagement Commercialisation
Research Excellence Research Income
Source: (CUC; 2008, 14)
Combination of these three types of monitoring tools (high-level KPIs, self-

assessment questions and supporting KPIs) creates a logical monitoring framework,
and a menu of illustrative monitoring tools which institutions can use and adapt
as they wish (CUC; 2006, 1). In the Report from 2008 (CUC; 2008,14) they
presented that universities included in that initiative mostly accepted and imple-
mented proposed 10 KPIs while they are still experimenting with two super KPIs.
These trends identified in the European Higher Education Area clearly indicate
the need for a thought-out, organised and high-quality approach to higher educa-
tion governance in Bosnia and Herzegovina. These circumstances call for a strategic
approach to the harmonization of the higher education governance system within
Bosnia and Herzegovina and with the European Higher Education Area.
1. Use of KPI in strategic management of public universities in B&H

Since Bosnia and Herzegovina is a country with complex structure, this com-
plexity also reflects on state governance in higher education. Namely, in Bosnia and
Herzegovina there is no ministry for education at the state level, because education
is responsibility of the entity Republic of Srpska, cantons in Federation of Bosnia
and Herzegovina and District Brko. Result of such constitutional organization
is existence of 14 different ministries and bodies which are competent for educa-
tion, and of course higher education. Consequence of such complex constitutional
structure is that there are substantial differences, not just in approaches related to
financing of public universities, but also in quantity of assignment of public money
to them. In Bosnia and Herzegovina there is no consensus about the basic indica-
tors for public sector funding and costs, not to mention other sources. Two public
universities are even not in the budget of their ministries and they are financed
through grants.
It is clear that both different ways of institutional organization and approaches
to financing directly influence on the way of governance and management of pub-
lic universities in Bosnia and Herzegovina. The degree of strategic management
development at the institutional level is different from university to university.
As far as national level is concerned, Agency for Development of Higher Educa-
tion and Quality Assurance (HEA) developed Criteria for accreditation and stand-
ards (OGB&H; 2010) where the first criterion is related to strategic management
and performance monitoring of higher institutions. This criterion puts in focus
necessity for strategic management, planning and performance monitoring at HE
institutions in B&H. But, neither Criteria for accreditation and standards clearly
defined Key Performance Indicators (KPI) at the national level nor required its us-
age at institutional level.
However, it is necessary to stress out that in the last decade development and
modernization of institutional governance systems were significantly supported by
the international projects in which all public universities in Bosnia and Herzegovi-
na have participated. Public universities in Bosnia and Herzegovina have observed
trends in European higher education and therefore have understood that is neces-
sary to adopt some managerial approach if they want to be a significant key player
in the further development of the society. That was the main reason why Uni-
versity of Mostar proposed idea for Tempus project called Strategic management
of Higher Education Institutions based on Integrated Quality Assurance System
SHEQA. The main objectives of this project are analysing the existing KPIs for
performance measurement in Europe, defining and implementing KPIs for perfor-
mance measurement in B&H and contributing to strengthening and developing
the strategic management at HEIs on the basis of KPI, which are used in the Eu-
ropean Area of Higher Education (Rezi et al, 2013). Tempus SHEQA lasted three
years, from 2010 till 2013. University of Mostar used experience and knowledge
gained in that project to improve development of its KPIs and to integrate them
with strategic planning.
42 Draena Gapar
2. Development of KPIs at the University of Mostar

University of Mostar has long tradition of using KPIs, but they are used mostly
as a base for specific decisions (enrolment policy, new study programs, decreasing of
drop out, etc.) and reporting to amenable ministries and other external stakeholder.
There is no, at least no purposely, direct relations between KPIs and university
strategic goals. In the process of developing new university strategy and preparing
for accreditation, top management of the University of Mostar has recognized the
necessity to use KPIs for better performance monitoring of institution and that, in
that case, KPIs should be directly related to strategic goals. That was reason why
Team for strategy development decided that new strategy should be followed by
strategic plan based on KPIs.
Development of new strategy was preceded by comprehensive analyses of in-
ternal and external stakeholders opinions related to the future of University. The
analyses were based on a survey conducted among actual and former rectors, vice-
rectors, deans, vice-deans and among professors, assistants and students representa-
tives. Also, the research was conducted on a convenience sample of external stake-
holder like amenable ministries, companies and employment offices.
Survey consisted of questions about advantages/disadvantages of University,
about what should be changed, about possible improvements and new ideas related
to future development. The result of that survey was SWOT analysis of the Uni-
versity which was the basis for definition of new mission, vision and main strategic
goals of the institution.
Strategic plan based on KPIs was constituent part of a new strategy. Way of
measurement, data sources, way of data collection, responsibility and deadline
were defined for each KPIs. Strategy, together with strategic plan was first passed
through extensive internal analysis at faculty councils. Also, it passed through pub-
lic discussion. All suggestions and recommendations were collected and analyzed
first by Team for development of strategy and then by the Senate. Finally the Senate
adopted new University strategy and strategic plan for period 2011-2016.
As it was already said, University of Mostar, as creator of Tempus SHEQA,
during development of new strategy and definitions of KPIs used experience and
knowledge from this project. For example, Team for development of strategy ad-
opted template for KPIs definition developed in USKPI (University System of
KPIs) software purchased through Tempus SHEQA (see Figure 2.)
3. IT support for KPI

Continuous monitoring and analysis of KPIs is almost impossible without qual-
itative IT support. During Tempus SHEQA workshops basic demands and initial
model for development of IT support for monitoring KPI were defined.
Selected and at each B&H public university installed USKPI (University Sys-
tem of KPIs) software provides a simple and fast method of data collection, cal-
culation and presentation of key performance indicators necessary for the efficient
management of the University.
USKPI is a web-oriented i.e. database web centric application developed by
using Oracle Application Express tools and it uses Oracle Database 11g Express
Edition (XE) as a database.
Basic elements of USKPI software (Figure 1) are as follows (Rezi et al; 2013):
User interface for maintaining set of master data and definition of indicators
User interface for automatic and manual import of data about key perfor-
mance indicators
Reporting on indicator values
Administration of security settings.
Figure 1: Basic elements of USKPI software Main menu
Source: (Rezi et al; 2013)

44 Draena Gapar
The most important part of the master data is definitions of indicators. This part
of the master data must be maintained carefully in order to correctly apply each
individual indicator definition data (Figure 2).
USKPI software uses traffic lights for better visual presentation of KPI value
(Figure 3).
Figure 2: Definition of indicators in USKPI software

Figure 3: Visual presentation of KPIs in USKPI software

It is obvious from Figure 3 that Index of financial resources total budget is
rising (green light) while index related to student fees is in stagnation (yellow light)
and index related to donations declines (red light). USKPI software enables graphi-
cal data presentation (Figure 4).
Figure 4: Graphical data presentation in USKPI software

46 Draena Gapar
Tempus SHEQA project enabled University of Mostar and other B&H public
universities to purchase and implement USKPI software. The final result is signifi-
cant advancement in development and implementation of strategic management
and performance monitoring at those institutions.
6. Conclusion
Continuous monitoring and analysis of KPI supported by USKPI software cre-
ates a basis not only for strategic planning of higher education institutions, but also
for planning of higher education done by authorized institutions, both cantonal
and state ones. USKPI software implementation could be crucial advantage for
B&H public universities in efficient strategic management and monitoring of real-
ization of their strategic goals.
The methodology to be used in the implementation of systems of management
indicators in the university should have the direct participation of the managers
team. Management structure of universities and key persons responsible for the
quality assurance collects accesses and analyze data on key performance indicators
of universities. This process begins by defining the vision, mission, goals and strat-
egy of the university. After defining the basic strategic goals, the university needs
indicators to enable monitoring of their implementation. Key indicators should be
complete and accurate. Each indicator must be measurable, and its way of measur-
ing is to be clearly defined. It is essential that the definitions of these indicators do
not change and are monitored from year to year.
References
1. Aghion,P., Dewatripont,M., Hoxby,C., Mas-Colell,A. & Sapir,A. (2010). The
Governance and Performance of Universities: Evidence from Europe and the
U.S., Economic Policy 25/61, p. 759., available at: http://dev3.cepr.org/meets/
wkcn/9/976/papers/aghion_etal.pdf (accessed 20.01.2014.)
2. CUC (2008). CUC Report on the implementation of Key Performance Indicators:
case study experience, Committee of University Chairs, June 2008. Available at:
http://www2.bcu.ac.uk/docs/cuc/pubs/CUC_Report.pdf (accessed 08.11.2013.)
3. CUC (2006). CUC Report on the Monitoring of Institutional Performance and the
Use of Key Performance Indicators, Committee of University Chairs, November
2006. Available at: http://www2.bcu.ac.uk/docs/cuc/pubs/KPI_Booklet.pdf
(accessed 08.11.2013.)
4. EC (2005a). Contribution to the Conference of European higher Education

Ministers in Bergen. Brussels: European Commission. Available at: http://europa.
eu.int/comm/dgs/education_culture/index_en.htm (accessed 12.03.2013.)
5. EC (2005b). Mobilising the Brainpower of Europe: Enabling Universities to Make
Their full Contribution to the Lisbon Strategy. Brussels: European Commission.
Available at: http://europa.eu.int/comm/dgs/education_culture/index_en.htm
(accessed 12.03.2013.)
6. Eurydice (2008). Higher Education Governance in Europe. Policies, Structures,
funding and Academic Staff. Brussels: Eurydice. Available at: http://eacea.ec.europa.
eu/education/eurydice./documents/thematic_ rep orts/131EN.pdf (accessed
20.06.2013.)
7. HEA (2013). Towards a performance evaluation framework: Profiling Irish Higher
Education, Higher Education Authority Available at: http://www.hea.ie/node/1022
(accessed 01.03.2014.)
8. OGB&H (2010). Decision on Criteria for Accreditation of Higher Education
Institutions in Bosnia and Herzegovina, Official Gazette of Bosnia and Herzegovina
75/10.
9. Parmenter, D. (2010). Key Performance Indicators (KPI): Developing, Implementing
and Using Winning KPIs, Wiley, 2nd Edition, ISBN: 978-0-470-54515-7.
10. Rezi S., Gapar D., Govaert A., De Lepeleer G., Zovko I. 2013. Tempus -
511262-TEMPUS-1-2010-1-BE-TEMPUS-SMGR Strategic Management of
Higher Education Institutions Based on Integrated Quality Assurance System-
SHEQA: Project Outcomes
11. Salmi, J. (2011). The Road to Academic Excellence: Lessons of Experience in The
Making of World-Class Research Universities, Philip G. Altbach and Jamil Salmi
(eds), Washington, World Bank, ISBN: 978-0-8213-8805-1
48 uro Horvat Marinko Kovai Ljiljana Kristijan Ivanek
PROCESS MANAGEMENT MODELS AND FUSION

ORGANIZATION CULTURE
uro Horvat, Ph.D.1, Marinko Kovai, M.Sc.2, Ljiljana Kristijan Ivanek, B.Sc.3
1
College for Finance and Law Effectus, Republic of Croatia, horvat@edukator.hr
2
Croatian Chamber of Economy, Republic of Croatia, mkovacic@hkg.hr
3
Lekcio Ltd.,Republic of Croatia, ljiljana.kristijan-ivanek@lekcio.hr
Abstract
Radical new technologies like the Internet technology and multimedia, tele-
communication technology, nanotechnology and new material technology form
completely new economic reality in an evolutional way. Existing organizational
structures, mainly in creative industry segment and high technologies, are not in
the position of achieving maximal result. It is due to the strong traditional resource
influence and classical managerial concepts. Finding out suitable organizational
forms for acting in contemporary conditions is one of the biggest challenges of
contemporary economy. Because of everything mentioned above, our team pres-
ents new organizational form called fusion organization. This organizational form
is suitable for acting within creative industry and high technologies and for all the
activities based on innovation and knowledge. Fusion organization enables maxi-
mally rational usage of alpha employees creative potentials as well as other resourc-
es like data base and informal network. Our research is based on relevant empirical
research results presented in the literature, corporative practice, theoretical models
comparison and categorial ideas synthesis. That theoretical effort resulted in new
organizational structure formulation and new approach to human resources. In the
process, we point out the importance of finding out, engaging and suitable manag-
ing of extra talented individuals. While doing so, suitable organizational structure
should be articulated. The importance of hyper trust stands out and it is neces-
sary to ensure the transparency of all the business processes. Gradual articulation
of new economy demands the establishment of new organizational forms. A new
structural form called fusion organization is suggested by our team. Also, essen-
tial elements of managerial model suitable for managing new organizational form
PROCESS MANAGEMENT MODELS AND FUSION ORGANIZATION CULTURE 49
mentioned above are pointed out. Polycentric power system, hyper trust, alpha and
beta employees and hybrid model of managing intellectual property, knowledge
in particular, are characteristic for this organizational model. It is also necessary to
make all the processes and sub-processes and extremely important essential activi-
ties transparent and networked, integrating them within local, regional and global
surrounding. In brief, development and the importance of managing processes will
be analysed. The findings confirm that the fusion organizations are appropriate
forms of action in the field of high technology and the creative industries. To prove
the hypothesis scientific methods of analysis and synthesis, induction and deduc-
tion, and the comparative method were applied.
JEL Classification: L22
Key words: alpha employee, change, culture, extreme core activities, hyper
trust, holism, process
1. Introduction
Organizations of different sizes but primarily large ones significantly mark in-
dustrialization process and in the end mass production and society. This was the
first time that people started to feel they belong to a business organization which
enables security. It was written about by Whyte (Whyte; 2002, 32) who argumen-
tatively states it is a new phenomenon. In the first part of the 20th century, belong-
ing to a business organization is mainly existential but later it is more sophisticated
due to the organizational culture and it goes beyond existential needs.
Industrialization i.e. mass production eliminates artistic and creative elements
which craftwork was distinguished by. In the first part of the 20th century classic
industrial worker was not well educated and was focused on fulfilling simple work-
ing operations because management was above all focused on improvement of the
productivity and production of larger series.
2. Turning points
Even though market or better to say capitalist production is based on innova-
tion which is the basis of entrepreneurship, the process itself has not entirely been
established. Otherwise speaking radically new technologies have initiated social
transformation including affirmation of organizational entrepreneurship.
Nevertheless, it has to be said that the first research corporative laboratory ap-
peared in the second half of the 19th century, in time when first highly educated
individuals were employed. In 1872 Siemens, a German company employed uni-
versity educated engineer (Hefner-Altaneck) for the first time, the man who es-
tablished industrial research laboratory. In 1876 in the USA similar activity was
realized in Thomas Edison Menlo Park. Employees in factory research laboratories
had to develop new products in order increase profitability and market share.
In the second half of the 20th century, innovativeness became standard element of
the leading world companies. Significantly, innovations are result of knowledge or bet-
ter to say competency which employees own and which are just in the small amount a
result of intuition or luck i.e. they are achieved by a web of unplanned circumstances.
At that turning point of development two phenomena can be noticed and one
of the first people to analyse them was Daniel Bell. The first phenomenon consists
of strengthening service sector in the first place, transport, finance, trade, health
care, education and tourism. A new social phenomenon was first noted by Bell
(Bell; 1999, 127-128) who argued that tertiary sector marks social processes more
and more, thus increasing the quality of life and work. Second phenomenon is
gradually stronger affirmation of immaterial factors in production and service pro-
cesses like information, data, knowledge, quality, design, time and loyalty. Numer-
ous production processes which require high level of competency for its function
are being transformed, so Drucker (Drucker; 1993, 5-6) formulates new terms
knowledge worker and knowledge work. Post-industrial society is being evo-
lutionary articulated in which knowledge dominates while new corporation goals
and responsibilities like environment preservation, energy efficiency and respecting
variety are established.
3. Revolutionary changes
Social transformation is based on the development of technology. Social evolu-
tion is generated by technology revolution which began in car industry.
Womack, Jones and Roos (Womack et al.; 1990, 48) makes an important em-
pirical research worth over five million US $, argued that Toyota Motor Company
in 1950 produced only 2685 cars per year while Ford in its Detroit factory pro-
duced 7000 cars in only one day. These authors conclude that Eiji Toyoda and Tai-
ichi Ohno, an engineer genius, realized that they cannot compete with American
manufacturers with large batch but with quality short production run.
At the very beginning of Toyotas expansion to managers becomes clear that they
have to articulate new forms of organization. In Toyota, together with technologi-
cal innovation significance, the importance of human factor is also recognized so
they introduced quality circles. The teams were approached voluntarily and their
main task was to improve quality with the help of constant and at first small in-
novations. In the famous textbook Landy and Conte (Landy and Conte; 2007,
560) noting that team spirit was confirmed as an efficient generator of innovation
processes which was verified by numerous empirical researches. Organizational or
inner entrepreneurial spirit enables innovativeness not only for smaller companies
but also for large entrepreneur organizations.
Economical short run production includes elimination of all the unnecessary
stoppage and actions i.e. processes which do not create value. Womack and Jones
(Womack and Jones; 2003, 15) elaborated new structural forms and ways of manage-
ment thinking and conclude that for this way of work lean thinking which maximally
rationalizes the usage of human effort, time, equipment and space is indispensable.
Also Womack and Jones (Womack and Jones; 2005, 287-288) recognize the
importance of consumers and believe that lean thinking and lean enterprise were
developed as tools for more efficient realization of consumers needs. The customer
is started to be treated as one of the elements of business strategy and politics that
is included in business with the aim of maximally efficient and complete problem
solving, saving customers time, realization of his needs and providing expected
value in terms/time directed by them. Holistic focus on integrating processes en-
ables total satisfaction of customers interests which become more and more so-
phisticated with time and in the process managers often use the pattern known as
managing total quality.
For some time now a standard component of textbooks of operating manage-
ment including textbooks of Slack, Chambers, Harland, Harrison and Johnston
(Slacke et al.; 1998, 548) is the elaboration of the concept just-in-time stating that
just-in-time production or providing service enables temporary satisfaction of cus-
tomers needs and in the process offers top quality without waste. The concept of
managing of processes enables maximal productivity and minimal cost in which
all the elements of supplying-production chain including customers are integrated.
Economical short run production and just-in-time model enable realization of
personalized production or providing service. In that way the customer really be-
comes, and not only declaratively the element of corporative policy and strategy.
Japanese corporations were the first who started realizing new business philoso-
phy of personalized production which includes kaizen principle practice. Welling-
ton (Wellington; 1995, 17-23) systematically analyses the model known as kaizen,
and concludes that the kaizen is the way of thinking and acting and it is based on
ten principles:
1. Focus on customers,
2. Make improvements continuously,
3. Acknowledge problem openly,
4. Promote openness,
5. Create work teams,
6. Manage projects through cross-functional teams,
7. Nurture the right relationship processes,
8. Develop self-discipline,
9. Inform every employee,
10. Enable every employee.
In the book Connected Marketing edited by Kirby and Marsden (Kirby and
Marsden; 2006, 109) analysed the new communication forms and states that to-
gether with traditional communication with customers, online opinion leader be-
comes more and more important and it includes following processes: participate
in chat rooms: post to bulletin boards, post to new groups, post to listservs; send
emails to companies; send emails to politicians; make friends online; make business
contacts online; provide feedback to websites; forward news and website informa-
tion to others. The Internet and similar technologies strengthened the market posi-
tion of customers and different practical knowledge related to purchasing certain
product or service.
Information access became extremely easy for customers and employees them-
selves. Democratisation or dispersion of power articulated polycentric structural
mechanism of making decisions in which there is no classical centre of power. Pro-
cess managing presupposes enabling faster and timely information flow.
For the successful functioning of the fusion organization it is important new ap-
proach to employees. One of the managing models that were established with the aim
of strengthening the role of the employee was open-book management which pointed
out the necessity of articulation of new managerial philosophy. This model articulated
by Schuster, Carpenter and Kane (Schuster et al.; 1996, 35) states that with access to
the right information in a timely fashion, individuals and teams in the organization
will put that understanding to work to improve their stake in the enterprise.
Lean production, open-book management, total quality management and kai-
zen are just some of the models that are used to try to design new mechanism of
entrepreneur or production processes function. Establishment of new way of en-
trepreneur or production process function and new organizational relations/struc-
ture can be carried through the entrepreneur re-engineering that was particularly
popular in 1990s. Later that managerial model upgraded but basic principles of
entrepreneur re-engineering are valid today.
Reengineering is an affective instrument of affirmation of talented individu-
als and alpha employees with the help of fusion organization. Champy (Champy;
1995, 48)stated that a surprising number of the re-engineering managers we talked
to recalled that whatever procedures they eventually used to prepare the company
for change-usually some sort of focus group, like the DELTA (Develop Excel-
lence trough Leadership, Teamwork, and Accountability)... To realize organiza-
tional changes successfully it is necessary to find the real situation or way of process
functioning and make the employees familiar with planned actions.
While managing processes one should always bear in mind the definition of re-
engineering: formulated by Hammer and Stanton (Hammer and Stanton; 1995,
3) The fundamental rethinking and radical redesign of business process to bring
about dramatic improvement in performance. In the process managers have to be
aware that radical process redesigning is an extremely complicated and demanding
task that requires multifunctional approach.
4. Managing the processes

Hammer (Hammer; 1997, 5) advocates a systematic approach to processes char-
acteristic of fusion organization and believes that the difference between task and
process is the difference between part and whole. A task is a unit of work, a business
activity normally performed by one person. A process, in contrast is a related group
of tasks that together create a result of value to a customer.
In the contemporary economy of core activities it is necessary to constantly im-
prove the engagement of talent and competent people at different areas. Tenner and
DeToro (Tenner and DeToro; 1997, 71) believe that the number of core processes
in the first place depends on the size of the corporation, e.g. the managers of Xerox
company established the following core processes:
1. Market to collection,
2. Integrated supply chain,
3. Time to market,
4. Customer service,
5. Corporate governance,
6. Infrastructure.
Similarly, General Electric managers established following core processes:
1. Advanced technology,
2. Offering development,
3. Go-to-market,
4. Order-to-remittance,
5. Service delivery,
6. Support.
It should be mentioned that both corporations act in the segment of high
technologies.
Contemporary process management presupposes involvement of more and
more people and support of the employees of the whole chain of value. In this, al-
pha employees play a key role in the implementation of the changes and the estab-
lishment of hyper confidence as a segment of a new organizational culture. Smith
and Fingar (Smith and Fingar; 2003, 117) advocate a new approach to managing
processes arguing that the third wave of process management takes process - based
methodologies out of the hands of specialists and technicians and provides busi-
ness people with the tools they need to create, improve and deploy processes. In
that way, entrepreneur excellence and top performance of organizational processes
are desired to be achieved. Science becomes the basic motive force of entrepreneur
organization function, too.
5. Elements of fusion organization

In our opinion, to realize those goals it is necessary to articulate new organiza-
tional form which we called fusion organization. Fusion organization is character-
ized by integrating of particular segments of organization like horizontal organiza-
tion, virtual organization, project organization, learning organization and innova-

tive organization; in the process significant synergy effect emerges. Therefore, it is
necessary to continually and systematically implement changes. Fusion organiza-
tion is conducted with the help of combination of several managerial models like
project management, knowledge managing, innovation managing, process manag-
ing, total quality managing and change managing. In other words, fusion organi-
zation is holistically conducted with the fundamental goal of maximal flexibility
realization, dynamic and innovativeness which is entrepreneur imperative in global
hyper-competitive market surrounding.
Polycentric and asymmetric model of power and diffuse structure are specific for
fusion organization. Informal relations and constant redesigning of structure with
help of ad hoc projects teams enable open communication within whole fusion
organization. Paladino (Paladino; 2007, 40) advocates focusing on the processes
is conducted with help of CPM (Corporate Performance Management) where of-
fice and officer realize several forms of best practices on everyday basis like executive
sponsorship, leadership influence factors, collaborative maturity and ability to learn. It
is tried to maximally realize corporative performance by constant innovation and
outsourcing and benchmarking practice for which the officer at the peak of manage-
ment takes responsibility.
Fusion organization consists of more than one core activity which is interlaced
with the basic aim of creating new added value. However, for fusion entrepreneur
organization generating new knowledge and new products and services and inno-
vation management is extreme core activity. Alpha employees who are characterized
with above-average creativity and competency are responsible for the realization of
extreme core activities. In fusion organization, together with alpha employees, there
are beta employees who are competent but without great creativity potential. In fu-
sion organization extra core managerial models are knowledge management and
management innovation even though other core managerial models like change
management and human resource management co-exist. In fusion organization
different managerial models and organizational processes are imbued, better to say
become one in which process significant synergistic effect develops.
Tiem, Moosley and Dessunger (Tiem et al.; 2012, 248) believe that knowledge
management consists of the following processes:
1. Knowledge identification and creation,
2. Knowledge collection and capture,
3. Knowledge storage and organization,

4. Knowledge sharing and dissemination,
5. Knowledge application and use.
While doing so one should bear in mind that in each company there are ex-
plicit and implicit knowledge that are equally important for new added value
development.
The new product development is extreme core process which integrates cer-
tain sub-processes: research, development, purchasing, marketing, sales, produc-
tion design and finance. Tenner and DeTorro (Tenner and DeTorro; 1997, 66)
point to weaknesses in traditional, hierarchical organizations by claiming that the
new-product development process would cut across half dozen or so functions
with a different executive responsible for each functional sub-processes. In fusion
organization sub-processes mentioned above are integrated within project teams
which are managed holistically and transparent. Project teams are an important
instrument of action of fusion organization whereby Jeston and Nelis (Jeston and
Nelis; 2008, 124) indicate that the structure of project teams can be very complex
because, for example, it includes project steering committee, project decision team,
project sponsor, project director and project manager. Successful functioning pre-
supposes networked and open communication channels and constant coordination
of activity.
6. Elements of organizational culture

Jones (Jones; 1995, 395-396) describes the case NUMMI. In 1963, General
Motors opened a car plant in Fremont, California, 35 miles east of San Francisco.
From the outset, the plant was a loser. Productivity and quality was poor. Drug and
alcohol abuse were widespread. GM closed the plant in 1981.
In 1983, GM and Toyota announced a joint venture. They would cooperate
to reopen the Fremont plant. GM wanted to learn how Toyota operated its pro-
duction system, and Toyota wanted to see whether it could achieve its customary
high level of productivity by using Japanese techniques with American workers. In
1984, the new organization NUMMI opened under the control of Japanese man-
agement. By 1986, productivity at NUMMI was higher than productivity at any
other GM factory. At the NUMMI factory, Toyota divided the work force into 350
flexible work teams. We have already pointed out the advantages of Toyota pro-
duction system that enables world productivity and competitiveness. Even though
Toyota and General Motors business and some other leading car corporations have
lately marked difficulties it does not reduce the significance of organizational cul-
ture. Corporative culture is in many cases characterized by the system of value of
each country, even though it is not an absolute rule.
Hyper trust is based, together with transparency and trust in all relevant eco-
nomic agents, on high ethical principles, good business practice and appreciation
of personal integrity. Hyper trust enables self-confirmation through creative work
which is a framework of fusion organization. In the process, in fusion organization
within extremely important basic activities superior experts and creative people, i.e.
alpha employees motivated for self-articulation should be engaged.
Together with family values, elements from wider or national context like pa-
triotism are characteristic for fusion organization. One of the elements of rapid
development of Chinese corporation Lenovo are precisely patriot feelings of Chi-
nese customers. Daniel F. Spulber (Spulber; 2007, 176) wrote about it in his book
Global Competitive Strategy A consumer purchasing educational software pro-
duced by Lenovo explained why he chose it over competing foreign brands: Its
cheap, it works and its Chinese. Key elements of success, together with hyper trust
and other elements of culture are creative people or alpha employees and innova-
tion processes located within networked, horizontal and extra flexible structure.
At the same time, fusion organization functions with help of hybrid model of
managing property which includes patents, copyright and other and open knowl-
edge exchange. Open approach is focused on fundamental knowledge and knowl-
edge protection refers to innovation that is market profitable at the time. Manage-
rial concept is an amalgam of numerous managing models that harmoniously inte-
grated form a new managing style and in which holistic opinion is central element.
7. Conclusion
It is necessary to keep developing the model of fusion organization and it is
necessary to work out harmonious integrating of numerous managerial tools in the
process. Hyper trust and holism are important elements of entrepreneur culture
and philosophy and also the basic way of strategic thinking in fusion organization.
It is necessary to develop suitable way of recruitment and motivating alpha em-
ployees who are the generator of creating new added value in fusion organization.
Within fusion organization the following elements or processes are synthesized:
intellectual effort, innovation processes, creative potential of alpha employees and

hyper trust where with the help of networking open organization that is in dynamic
relation with the surrounding is created. Specific concept of intellectual property
management is also very important for a successful business. Fusion organizations
are suitable form for acting in the segment of high technology and creative industry.
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60 Linda Jurakovi Ivan Herak Romina Sinosich
ANALYSIS AND PERSPECTIVES OF TOURISM /

AGROTOURISM DEVELOPMENT IN ISTRIA
Linda Jurakovi, Ph.D.1, Ivan Herak, B.Sc.2, Romina Sinosich, M.Sc.3
1
Business College with Public Rights, Vinjan, Republic of Croatia, linda. jurakovic@gmail.com
2
Business College with Public Rights, Vinjan, Republic of Croatia, i.herak@yahoo.com
3
High Technical Business Administration School Pula, Republic of Croatia, romina.sinosich@gmail.com
Abstract
Tourism, as an economic activity in Croatia and consequently Istria as a leader
of tourism development, has been facing a number of constraints for years ranging
from extrinsic ones i.e. legal to intrinsic i.e. those regarding the facilities used for
tourism purposes. Despite the existing opinion of political and social structures in
favour of developing tourism as a primary activity of Istrian development, there are
constant operating constraints occurring locally and at the state level. In view of pe-
rennial Istrian emphasis on the development of agrotourism as a perspective form
of tourist offer, authors are analysing development, advantages and disadvantages
in an analytically constructive manner for the purpose of stressing those elements
which need to become a part of development strategy in order to offer better qual-
ity agrotourism services in Istria and its wider area. Constraints have been detected
and guidelines for a more quality agrotourism offer development provided based
on research conducted in Istria Region from 2007 until today on a representative
sample by using various scientific methods.
JEL Classification: L83, O13
Keywords: agrotourism, Istria, development, quality.
1. Introduction
In order to raise the level of service quality in agrotourism, the Republic of
Croatia must first define the concept of agrotourism development and manage-
ment along with making significant investments into this segment of tourism via
various financial and economic incentives and subsidies. The existing experience
ANALYSIS AND PERSPECTIVES OF TOURISM / AGROTOURISM DEVELOPMENT IN ISTRIA 61
from neighboring countries and conducted questionnaires led to knowledge of

which concrete measures should be taken for raising the quality and appeal of the
Croatian (Istrian) agrotourism. The analysis of the current condition led to the
conclusion that the crisis of agrotourism in the Region of Istria results from un-
defined concept and undefined system of incentive measures which require a bet-
ter legal definition of the agrotourism status by providing certain benefits to farm
households which primary business activity is agrotourism as well as by defining
conditions which must be met if farm households wish to perform such activities.
It is necessary to pull together rural citizens savings and facilitate flexibility of
financial operations. We must get involved in establishing and constructing lo-
cal financial institutions which will be specialized in rural areas and agribusiness
(Strategic Programme of 2008-2013 Rural Development of Istria County, from 25
January 2014)
One of elements strongly connected to the agrotourism product is hospitality.
According to Jurakovi, Tomi, and Rajko, Istrian gastronomy has not been mar-
keted properly nor used all its resources, especially with regard to its diverse offer
with placing a stronger future emphasis on marketing mix. This means that the
strategy of tourism development must pay particular attention to better placement,
branding and permanent activities focused on emphasizing traditional, local delica-
cies. (Jurakovi, Tomi, Rajko; 2007: 87 92).
2. New products as elements of agrotourism development in leader

programme
Rural development is a new developmental model of the agricultural sector
(Plog et al., 2000., p. 392). Apart from the increase in agricultural production
competitiveness, it also includes protection of the environment, land management,
diversification, improvement of life in rural areas and LEADER approach (Liaison
Entre Actions de Dveloppement de lEconomie rurale), which means that all the
initiatives for starting of activities should come from the local community
One of the basic characteristics of rural development implementation in rural
communities is putting an accent on local population, by which it is validated as a
main factor of the overall rural area development. It is this particularity of trust in
people who live in rural areas and in their abilities to discover what suits best their
environment, culture, work traditions and skills itself that makes the LEADER
Project special. Connecting at the local level brings people together in order for
them to exchange their experiences and knowledge, inform themselves and pro-
mote rural development activities, find project partners, as well as create a feeling of
belonging to a larger entity, such as the local action group. (Ilak Peruri, Jurakovi,
Tomi, 2010:254 247).
During recent years in Croatia, there have been intensive talks about rural de-
velopment. Plans and programmes are being produced, development strategies
and laws are being proposed, legislation is being coordinated with the EU and the
means/funds from the EU programmes, intended for those purposes, are being
used (CARDS, INTERREG, SAPARD and other). However, in order to imple-
ment the rural development plans and programmes, Croatia needs expert consult-
ing assistance from the EU, as well as a greater self-initiative. Given that Croatia is
a candidate for accession to the European Union, it should dedicate itself more to
familiarising with the experiences of the other EU member countries in the process
of rural development in order to avoid other countries mistakes. The first analyses
and evaluations of the EU rural development policy show that the means from
the EU funds were mostly spent on structural measures, namely approximately
34%, which includes the increase in competitiveness, i.e. investment in companies
and food production, assistance to young farmers and earlier retirement. (Rajko,
Tomi, Jurakovi, 2007). Approximately 38% of means were spent on environ-
mental protection, soil quality improvement, afforestation and natural resource
protection. A large part of the means was also spent on the preservation of old,
traditional crafts, village reconstruction, improvement of life quality in rural areas,
as well as the preservation of tradition for the purposes of the development of tour-
ism in rural areas. Equally, rural tourism also, as a growing business in the tourist
industry offers many benefits to the local community development. It can be devel-
oped locally, in partnership with small businesses, local government, other agencies
in the area and its development is not dependent on external or large companies
decisions. The Leader approach supports innovative approaches and stimulation
of unexploited resource development, or, just a different view on existing issues;
the problem of rural areas, its preservation and sustainable development had been
recognised in Europe much earlier than in Croatia. One more principle by which
this programme is recognisable is local financing and management, which gives
big powers to the LAGs in decision making and financing of specific programmes.
3. Leader Programme principles in function of development rural tourism

Istrian area
Fundamental principles of the LEADER Programme in the rural communities
sustainable development are based on the characteristics of the areas to which they
are applied, which means that an attempt has been made to use own unexploited
resources. This principle emanates from the participants need to base their devel-
opment on local values. According to the Leaders action groups, there are four
main values of this programme:
1. decentralised, integral approach, based on a specific areas characteristics
2. community involvement
3. uniting of development bearers at the local level
4. possibility of implementing in practice unrealised ideas (LEADER, 2004, p.
47).
The bottom-up approach (typical for Italy), as opposed to the majority of devel-
opmental plans, is a completely opposite approach, by which an attempt was made
to encompass the largest possible number of participants who would influence the
decision making process for an area. Literally everyone who wishes and believes
that they can assist the developmental process, whether it concerns the inhabitants
or the public, private, or some other sector representatives. (Herak, 2011 : 646
654). The bottom-up approach means that the local factors take part in the decision
making processes pertinent to the strategy and selection of the priorities which
should be implemented in their local area. The European experience has shown
that the bottom-up approach should not be considered as an alternative or contrast
for the top-down approaches of national and/or regional authorities, but that they
should be combined in order to achieve better overall results.
Therefore, the principles based on good European practice and LEADER ap-
proach are:
Sustainable rural development which is based on preservation and develop-
ment of environmental, human, social and creative/productive capital.
Approach based on area characteristics, as they form a foundation for quality
development.
Starting up the community, as it lags behind in inclusion in developmen-
tal processes and needs support in order to get involved in developmental
processes.
Bottom-up approach todays development is not possible without involve-

ment of the public. This is why all available forces in local communities
should be involved in order to, by richness of ideas and possible solutions, as
high a quality as possible development could be achieved.
Development of local partnerships in approaches and actions presently,
fragmented initiatives are often condemned to failure beforehand, they lack
power and trust.
Networking and cooperation, as well as connecting, synergistic acting in de-
velopmental processes, exchange of knowledge and experiences, both in to-
days modern Europe and here, in Croatia.
Innovative quality and tradition, together with sustainable rural development,
but innovations are essential in order for traditional values to be represented
in a new and market competitive way.
Integral approach sector division is a frequent cause of problems in develop-
ment. Horizontally, inter-sector linking, as well as the vertical one, linking of
local, regional and national institutions, is of great importance in realisation
of sustainable rural development.
Local financing and project management it is extremely important that lo-
cal level activities should also be financed from local budgets.
4. Management of the resources of rural area and its role in rural / agrotour-
ism development in Istria
Member countries of the European Union apply the rural development pro-
gramme Leader in strengthening the local development as a counter-balance for
europisation. In the period between the years 1991 and 2006, Leader I, Leader II
and Leader+ Programmes demonstrated a new approach for integral and sustain-
able rural area development, strengthening local communities developmental poli-
cies. In the solution of the problem of a less favourable position of rural Europe in
comparison to the urban, the Leader programme represents a new social and eco-
nomic model. In analysing rural development programmes in the European Union
and in Croatia, an attempt was made to concentrate on the Leader Programme as a
new and innovative approach to the development of rural community, village and
agriculture. In the period when Croatia is negotiating its accession to the European
Union we can observe the results of the Leader Programme and principles and give
recommendations for its application in Croatia.
The main advantage of the Leader Programme was the bottom-up approach,
which helped activate local resources for the purposes of local community devel-
opment. Additionally, it involves the local population who has the closest insight
into the developmental opportunities and who is deemed partly responsible for
and more dedicated to the project than the external active participants. Such an
approach is not in opposition to the top-down approach in the sense of the influ-
ence coming from the top of the state, regional authorities or through relevant
ministries. For Croatia, the Leader Programme is considered to be positive for the
purposes of rural development and we expect fast adjustment of local active par-
ticipants in the creation of LAGs, as well as strengthening of their role as develop-
mental factors. For example, we find the first institutional initiative of that kind in
the Istrian Countys attempts to include the Leader Programme in their rural devel-
opment. One of the non-government organisations using the Leader Programme
principles is the Croatian Rural Development Network. After the years of informal
work, in January 2006, it was formally registered with the task of gathering and
representing civil society organisations which deal with the sustainable rural devel-
opment of Croatia.
The strategic guidelines for rural area development, which should form a base
for preparation of a comprehensive strategy of the development of the Republic of
Croatia, should be based on the five points which we quote below. According to
the studied documentation, Delphi method research and a many years long work
in that area, it is proposed that the following be acted on:
a) Increasing destination competitiveness

Rural area must develop a tourist offer which will be competitive by its quality,
price and attractiveness and that offer should particularly be based on originality,
historical, cultural and natural characteristics of that area and its other specific
qualities. Competitiveness is very important in achieving a strongly manifested
destination advancement; the destination will achieve the said goal by means of
offer differentiation and quality emphasising. Through field research the deficiency
of rural area management was determined. Apart from removing those drawbacks,
the activities directed to rural development must be focused on new products and
a new offer accompanied by adequate and systematic resource management. Qual-
ity-wise, the current offer does not satisfy the requirements of the modern market
and EU, which, in future, should be changed by bringing in new investors and
retaining the existing ones, with a necessary measure of knowledge and expertise,
compatible with European and world levels.
In order to increase the number of visitors and tourists also in the geographi-
cally isolated and remote areas which contain less interesting attractions (natural,
historical and cultural), it would be necessary to unite all destinations landmarks
by means of clusters.
Apart from this, associated itineraries for visits to attractions would also be cre-
ated. In such a way a visitor critical mass would be created even in less attractive
locations with less interesting contents. Owning an appropriate product is a part
of a successful equation. Branding is a path by which potential producers and
consumers are encouraged to purchase and to produce products. Apart from an
integral image, quality hallmarks for typical products can also be created. The goal
of development of Republic of Croatias rural areas according to the Leader Pro-
gramme principles:
Faster overall economic and social growth and development
A more dynamic overall development, which can be achieved by synergy of all
significant economic and managerial factors, is needed in the area.
Dynamic, quality and organised tourism development
Tourism in rural area does not follow in speed and quality the development of
Croatian coastal destinations. In that part, tourism is expected to provide greater
dynamics in development, improvement of overall quality, as well as a modern and
flexible management system. Rural areas have all the predispositions to become
recognisable eco-destinations, in which rural and all other sustainable forms of
tourism in protected natural areas will become prominent.
Multiplicative impacts (economy and overall)
The current position in the economic structure does not facilitate achievement
of remarkable multiplicative impacts on associated businesses. This area develop-
ment must commence noticeable activities also in the fields of agriculture, trade
and traffic.
Improvement of the lives of inhabitants
Rural area development will enable a decrease in unemployment and drain of
inhabitants, economic prosperity and security, as well as entrepreneurship and a
positive climate for further economic activities.
Giving meaning to programmes which provide a faster return on invested capital

In their work, proposers of all the contents in rural areas need to take into con-
sideration those products which will facilitate a faster return of invested means to
investors.
5. Conclusion
Despite Istrian (Croatian) abundant natural and other resources, we cannot
speak of its competitiveness in relation to worldwide tourist offer. Tourism rep-
resents one of the most dynamic world social processes. A better integration of
agrotourism into the offer of tourist destination development must be seen in such
a context as it results in a competitive ability of a destination on the world tourist
market offering a service of better quality. Insufficient tourism offer leads to ab-
sence of certain positive effects such as: increase of regional GDP, increased income
for local administration, enhanced quality and exclusivity of tourist offer, attract-
ing better paying guests, prolonged tourist season, increased number of tourists
and overnight stays, year-round tourism operations, increased foreign investments,
employment of new staff and local construction companies.
The survival of tourism destinations requires intensified trend monitoring re-
garding a permanent increase of tourism offer quality. In seeking new solutions for
enhancing competitiveness and monitoring world tourism market trends, the new
concept of integral quality management (IQM) was set up as a response to real
changes in behavior and differentiation of tourism demand resulting from new in-
fluences in all life segments(Herak, Rudani-Lugari, 2014, in print). Apart from
the above, it can also be emphasized that the absence of proper resource manage-
ment can have adverse effect including the absence of destination image and loss
of quality guests leaving for other destinations with a more diverse offer and richer
traditional values.
According to Jurakovi and Sinosich, proper development and resource man-
agement requires the introduction of the Leader Programme principles i.e. involve-
ment of local community in the management system as the most important com-
ponent, which is not compatible with the current centralized system. Introduction
of new ideas from the level of local management is very functional as each local
community knows its own needs and constraints best. (Jurakovi, Sinosich, 2012:
1099-1108).
References:
1. Herak, I., Rudani-Lugari, A. (2014) Integralni management kvalitete turistike
destinacije-kljuni imbenik za postizanje konkurentske prednosti, 2014.,
Ekonomski vjesnik Ekonomskog Fakulteta Osijek (u tisku)
2. Herak, I. (2011). Ulazak u Europsku uniju i utjecaj na turistiki sektor. Znanstveni
rad. Zbornik radova sa Meunarodnog znanstvenog kongresa Znanje i poslovni
izazovi globalizacije u 2011. godini . Celje, studeni 2011: 646 654. ISBN
978-961-6825-36-8.
3. Ilak Peruri, A. S., Jurakovi, L., Tomi, Z. (2010). Ekstrinzini i intrinzini
ograniavajui faktori razvoja agroturizma primjer Istre. 45 hrvatski i 5 meunarodni
Simpozij agronoma 2010. Zbornik radova, recenzenti, Poljoprivredni fakultet
Sveuilita J. J. Strossmayer u Osijeku: 254.-247., ISBN 978-953-6331-79-6.
4. Jurakovi, L., Tomi, Z., Rajko, M. (2007). Ugostiteljska djelatnost gastronomija,
smjetaj u agroturizmu. Zbornik radova sa 1. Kongresa o ruralnom turizmu,
znanstveni rad. Hvar 17.-21. listopada 2007: 87-92., ISBN 978-953-6387-07.06.
5. Jurakovi, L., Sinosich, R. (2012). Analysis and role of leader programmein rural
development of Croatia. International conference in Opatija, 11.-13.05. 2012.
Zbornik radova Interdisciplinary management research VIII, Ekonomski fakultet u
Osijeku, znanstveni rad, recenzenti: 1099-1108. ISBN 978-953-253-105-3.
6. Rajko, M., Tomi, Z, Jurakovi L. (2007). Upravljanje resursima ruralnog prostora
u funkciji razvoja agroturizma. Zbornik radova, 1. Croatian Conference of rural
tourism, Hvar 17.-21 october 2007., rec. Kuen E., Tomlenovi R i dr.: 187-192.,
ISBN 978-953-6387-07-06.
7. Rajko, M., Tomi, Z, Jurakovi L.(2007). Poticajne mjere u razvoju agroturizma.
Zbornik radova. 1. Croatian Conference of rural tourism, Hvar 17.-21. october
2007., rec. Kuen E., Tomlenovi R i dr.: 181 186., ISBN 978-953-6387-07-06.
8. Strategic programme of rural area development in Istria (2008.-2013.). http://www.
istra-istria.hr., 25. 01. 2014.
9. Velenik, R., Jurakovi, L., Tomi, Z. (2008). Proposal for promotial strategy for
agrotourism structures in Istria. 4th International Conference An Enterprise Odyssey:
Tourism - Governance and Entrepreneurship, Zagreb, Faculty of Economics and
Business, 2008.: 2048-2065, ISBN 978-953-6025-23-7.
WEB TECHNOLOGIES DEVELOPMENT SUPPORTING CONTEMPORARY PROJECT ... 69
WEB TECHNOLOGIES DEVELOPMENT SUPPORTING

CONTEMPORARY PROJECT MANAGEMENT NEEDS
Kreimir Jurina, bacc.ing.comp., spec.oec.1, Igor Vreko, Ph.D.2, Zlatko Barilovi, univ.spec.oec.3
1
College of Business Administration Baltazar Adam Kreli, Republic of Croatia, kresimir.jurina@vspu.hr
2
University of Maribor, Faculty of Economics and Business, Institute for Project Management, Repub-
lic of Slovenia, igor.vrecko@uni-mb.si
3
College of Business Administration Baltazar Adam Kreli, Republic of Croatia, zlatko.barilovic@vspu.hr
Abstract
During the last two decades, projects have become increasingly important and
recognizable tools for achieving competitiveness, strategic aims and much need-
ed positive changes. The consequence of this, among other things, is the growing
number of projects which emerge and are carried out in all business systems around
the world. With the growing number of projects, there arose the need for trained
project managers. In order to successfully do their tasks, it is very important for
project managers to know and understand various techniques and methods of proj-
ect management. The rate at which the number of formally trained project manag-
ers is growing and the dynamics of their adaptation to the specificities of todays
business environment is still insufficient.
Development of user-friendly IT support tools which would enable project
managers to successfully implement projects without previous very long and in-
tense project training imposes itself as a possible and increasingly available solution
to the above mention problem.
The development of IT technology and software increased enormously in the
last decade. The emergence of Web 2.0 technology finds new solutions, very useful
and applicable also in the field of project management. These options are currently
still underutilized by companies when dealing with projects. Capabilities of exist-
ing and emerging solutions of Web 2.0 development and the open source commu-
nity create important value and the potential to increase the efficiency of project
management.
70 Kreimir Jurina Igor Vreko Zlatko Barilovi
The emergence of the Semantic Web (Web 3.0) currently being developed and
implemented, with its innovations and technologies based on semantic and ar-
tificial intelligence, is expected to greatly change the present concepts of doing
business. In the paper we will analyze the importance and possibilities arising from
new web technologies (especially Web 2.0 and Web 3.0) when dealing with project
management issues.
JEL Classification: L17, O22
Keywords: web technologies, projects, project management, Open source
1. INTRODUCTION
The needs of a contemporary project manager for successful implementation of
current projects significantly differ from those in the recent past. These needs can
be divided into the following nine groups (Figure 1): a) project preparation process
support, b) project implementation process support, c) project decision making
process support, d) communication management, e) virtual project teams coopera-
tion, f ) virtual project systems cooperation, g) permanent project tracking (moni-
toring) support, h) documentation management and i) lessons learned support.
Figure 1: Contemporary project management needs
Source: Authors own

Indications of all previously mentioned needs can be found in the basic docu-
ment of the International Project Management Association (IPMA), under the
name of IPMA Competence Baseline (ICB, Version 3.0). These needs are, directly
or indirectly, described through individual competence elements which are con-
sidered important for every project manager. Short information on particular ele-
ments is given further in the text.
In todays modern business, good launching of a project provides the basis for
future success of any programme or project. The implementation of project manage-
ment includes defining the best possible processes, methods, techniques and tools,
the change in attitudes and the application of organizational change along with
permanent improvement. Project management must be implemented in ways most
convenient for the organization. Decision making can be universally defined as a
choice between more alternatives, which determines future actions. Decisions are
often the result of very long and complex decision making processes. Communi-
cation involves effective exchange and understanding of information between the
parties. Communication in a project should be useful, clear and valid. Projects are
carried out by teams of people who often meet solely for the purpose of project
implementation. Nowadays, teams do not necessarily meet at the same place (most
often because of geographical distance between them), so we can talk about coopera-
tion of virtual project teams. Besides the importance of connecting people (teams)
virtually, today we can also talk about virtually connecting different project systems.
Permanent project tracking (monitoring) during its implementation phase is of cru-
cial importance for the success of every project. It is important in order to notice any
deviation from the set objectives and project plans and to take corrective measures in
order to return the project into the framework of previously devised plans.
Information management includes shaping, collecting, choosing and storing, as
well as retrieving project data. Documentation includes all the data, information
and knowledge collected during the life cycle of a project, especially those concern-
ing project configuration, the changes and all the important contracts in the proj-
ect. It is also very important to record everything learnt in the course of the project
(since projects can also be regarded as processes of acquiring new knowledge) and
use that knowledge in future projects.
(In todays business world) IT technology and the use of adequate software play
an important role in mastering the above mentioned processes.
Although there are numerous IT solutions currently on the market, in most

cases they are very expensive. However, there are solutions based on Web.2 and
open source software, which are considerably cheaper or even free to use. This
paper will proceed to explain the concept and the advantages of Web.2 technolo-
gies, the open source and the new opportunities which arise from the forthcoming,
so-called, Semantic Web.3 technologies for the needs of a modern project manager.
3. WEB 2.0
Web2.0is the network as platform, spanning all connected devices;Web2.0
applications are those that make the most of the intrinsic advantages of that plat-
form delivering software as a continually-updated service that gets better the more
people use it, consuming and remixing data from multiple sources, including in-
dividual users, while providing their own data and services in a form that allows
remixing by others, creating network effects through an architecture of partici-
pation, and going beyond the page metaphor ofWeb1.0 to deliver better user
experiences (OReilly, 2005).
Some of the Web 2.0 technologies that can be useful for project management
are: Blog, Wiki, E-Portfolio, RssReally Simple Syndication, Social Bookmarking, Pod-
casting, Document Management System, Social Network.
4. OPEN SOURCE
Open source software (OSS) is software with an available source code that may
be used, copied, and distributed with or without modifications, and that may be
offered either with or without a fee. If the end-user makes any alterations to the
software, he can either choose to keep those changes private or return them to the
community so that they can potentially be added to future releases (Kenwood,
2001.)
OSS is software licensed in such a way that when distributed in binary form,
it comes with the source code. In addition to being available in source form, the
software is also freely redistributable, modifiable, without discrimination, without
ties to a specific product, without placing restrictions upon other software, and is
technology neutral (Perens, 1999.).
The community which emerged through open source was much distrusted and
denied phenomenon. It is made up of enthusiastic software developers who, in
addition to their jobs, develop software solutions in their free time and offer them
to the public for free. Since the code of this software is open and can be adapted
according to individuals or project teams needs, the only condition is that it is still
subject to free software licensing after the original software code has been changed,
which means that it can be used and modified without restrictions. Software devel-
oped by open source community can compete with a lot of commercial software,
but because of the amounts of money invested into commercial software, especially
into its marketing and design, a lot of people are not aware of the potentials of open
source software.
The biggest database of open source software on the web is called SourceForge.
net. and it comprises one of the largest open source communities. SorceForge is
a major website for open source development projects that provides a set of tools
to developers. It is also a virtual hangout, a place that open source developers visit
regularly to see what kind of projects are evolving and who is doing what in spe-
cific areas. Today SourceForge page has more than 430,000 projects and 3,7 mil-
lion registered users, connecting more than 41,8 million clients with over 430,000
downloads a day (sourcefoge.net).
Some of the open source software solutions concerning project management,
cloud, business operations and cooperation are the following: ProjectLibre, Open-
Project, ]project-open[, ProjectPier, ProjectHQ.
5. SEMANTIC WEB (WEB 3.0)

The idea behind the Semantic Web is to weave a Web that not only links docu-
ments to each other but also recognises the meaning of the information in those
documents (Frauenfelder 2001). In other words, when semantics technology is
implemented into the web, web browser would not offer search results according to
the entered key words; instead, it would understand the meaning of these words or
sentences and would offer search results based on the understanding of the entered
concept.
Transformation of the current Web from a series of interconnected, but ulti-
mately semantically isolated data islands into one gigantic, personal information
storage, manipulation and retrieval database (Kck, 2004.).
Tim Berners-Lee sees it as being an extension of the current World-Wide Web
that will bring a common structure to the content of Web pages, thereby providing
such content with meaning which will allow external software agents to carry out
sophisticated tasks on behalf of the reader or user and, as such, promote a greater
degree of cooperation between humans and computers. In so doing, a new age of
computing will be ushered in where machines are better able to process and un-
derstand the data that they merely display at present (Berners-Lee et al. 2001).
The Semantic web, or, as it is sometimes called, Web 3.0, could be described
as intelligent Web, Web combined with AI (Artificial Intelligence). The idea of a
semantic web as a place where all the information is categorized and saved so that
the computer can understand it in a way much the same as humans, is gradually
being realized.
There is a case to be made that the Semantic Web is doing just fine, in places
like e-Science and e-Research, and it is only a matter of time before that success
includes (more of ) e-Business as well (Smith et al. 2006).
6. CONCLUSION
Technologies mentioned in this paper and the open source software are widely
applicable in successful project management, although their potential has not been
fully recognized yet. Many open source solutions developed for project manage-
ment support in different project phases are currently available (table 1). These
solutions are primarily oriented towards supporting the project preparation and
implementation phase, while others are oriented towards decision-making support,
virtual project teams cooperation, virtual project systems cooperation and perma-
nent tracking / monitoring support. With their characteristics, Web 2.0 technolo-
gies can most often be used in cooperation of project teams and the entire project
community, as well as in acquiring new knowledge concerning experiences gained
on projects carried out worldwide. The open source community has gained mo-
mentum and started to grow rapidly in the last few years; it develops software
which is applicable in all parts and processes of project management and can com-
pete with large commercial software, and this is about to bring big changes on the
software market. The use of the Semantic web, the Web 3.0 technologies in the
field of project management is yet to take hold, but a lot of changes are to be ex-
pected in that respect in the near future.
Table 1: The application of web technologies and OSS in the field of project management
CONTEMPORARYPROJECTMANAGEMENTSNEEDS
Project Project Decision Virtualproject Virtualproject Permanenttracking Documentation Lessons
Communication
preparation implementation making teams systems /monitoring management learned
management
processsupport processsupport support cooperation cooperation support support
WEB2.0

technologies
Blog 9 9
Wiki 9 9
EPortfolio 9 9 9 9
RSSReallySimple
Syndication
9 9 9
Socialbookmarking 9 9
Podcasting 9 9
Documentmng.
system
9 9
Socialnetwork 9 9 9 9
OPENSOURCE

software
ProjectLibre 9 9 9 9
OpenProject 9 9 9 9 9 9
]projectopen[ 9 9 9
ProjectPier 9 9 9 9 9
ProjectHQ 9 9 9 9
SEMANTICWEB

WEB3.0
WEB TECHNOLOGIES DEVELOPMENT SUPPORTING CONTEMPORARY PROJECT ...
Source: Authors own

75
REFERENCES
1. Berners-Lee, T., Hendler, J. and Lissila, O. (2001). The Semantic Web. [Online].
Available: http://www.scientificamerican.com/article/the- semantic-web/
2. International Project Management Association (2006). ICB IPMA Competence
Baseline Version 3.0, Nijkerk (the Netherlands): International Project Management
Association.
3. Kenwood, Carolyn A. (2001). A Business Case Study of Open Source Software, The
MITRE Corporation. Washington C3 Center Bedford, Massachusetts.
4. Kck, G. (2004). Tim Berners-Lees Semantic Web, South African Journal of
Information Management.
5. OReilly, T. http://radar.oreilly.com/ [14.03.2013.]
6. Perens, B. (1999.). Open Sources: Voices from the Open Source Revolution, OReilly
Online Catalog.
7. Smith, D.A., Russell, A., Wilson, M. (2006). Semantic Web meets Web 2.0 (and vice
versa): The Value of the Mundane for the Semantic Web, IAM Group, Electronics
and Computer Science, University of Southampton, Southampton UK.
8. Sourceforge. http://www.sourceforge.net [09.03.2014.]
FRANCHISE RELATIONSHIP: FRANCHISEES SATISFACTION 77
FRANCHISE RELATIONSHIP: FRANCHISEES SATISFACTION

Zlatica Kavi, B.Sc.1, Mario ercer, B.Sc.2
1
Ph.D. Candidate at Faculty of Economics in Osijek, Josip Juraj StrossmayerUniversity of Osijek,
Republic of Croatia,zlatica.kavic@gmail.com
2
Republic of Croatia, bioplam@ck.t-com.hr
Abstract
Franchise as business method especially popular become in second half od 20th
century (Khams, 2013.,78).Since than as a significant factor in business growth
and lever of economic development attracts researches attention. In contest of fran-
chise way of doing business, relation between franchisor and franchisee is crucial
for success, not only for the individual member of franchise but for entire franchise
system. Franchise relationship actually begins with meeting the needs of clients
through cooperation of franchisor and franchisee. Each party is directly interesed
in success of franchise. The element that varies franchise from most other forms of
business is a symbiotic relationship of interdependence and confident of two legally
different economic. In focus of this research is franchisee satisfaction as a aquire
of the right of represenatation contractor of the franchise agreement, franchi-
see as a member of distribution system and franchisee as individual that experi-
ence franchise as satisfaction for invested efforts, knowledge and money. Research
uses scientifically verified questionnaire of four university teachers (Abdullah and
other.,2008) satisfactory internal consistency ( = 0,87). Questionnaire contains
five dimensions of franchisees satisfaction: 1) social interaction, 2) service sup-
port, 3) financial, 4) assurance and 5) competence. Contains a total of 23 particles.
Recearch is conducted between owners of the right of represenatation (dealers) and
managers on the highest and middle level, employed in ten various automotive
sales and service representative (ten different principals) in the area of Republic
Croatia. After final analysis of the data obtained through the SPSS software pack-
age are discussed factors affecting the franchisee satisfaction. Also regression analy-
sis indicates that the relationship between competitive position and its franchisee
satisfaction shows meaningful, significant and consistent relationship.
78 Zlatica Kavi Mario ercer
JEL Classification: M21

Keywords: franchising, franchisor, franchisee satisfaction, relationship, auto
- industry
1. INTRODUCTION
Franchise is business format in which franchise providor (franchisor) replicates
its way of doing business market positioning , brand and a series of procedures and
operations, allowing to smaller independent contractors franchise receipient (fran-
chisee) using of this business format with refundation (Davies et al.;2011.;322).
All around the world franchise way of doing business becomes an important in-
strument of contractors activity in a wide range of business like as retail sale, fast
food, constructions, catering, finance etc.(Szulanski & Jensen;2008.;1733). Rela-
tion between franchise providor and independent franchisee characterized interpen-
dence: franchisor expects that franchisee does business on certain level, inner defined
guidance and standards while franchisee count on franchise support. In growing
competition conditions for franschisor becomes imperative building of quality and
effective relationship with franchisee, that will become precondition for competitive
advantage aquisiton (Kuan;2008.;119).This relationship franchisor-franchisee fre-
quently instead of cohesion efforts is ballasted by opportunistic behavior tensions as
well as conflict of interests (Barthelemy;2008.;1453), this in certain extent influents
on reducing potentialy valuable elements of franchise relationship or contract. Ac-
cordingly, category of franchisor satisfaction as a signator of franchise contract, as a
memeber of distribution system and individual that experience franchise as satisfac-
tion for invested efforts, knowledge, time and money, leads to rapid development
and effectiveness of whole system (Rooh et al.;2008.;88). Pluralist attitude about
value and impact of company resurses (Barney; 1991), also and environment and
market (Porter; 1980) on reaching sustainable competitive advantage, raises need
for value analysis of franchise contract as a basic source for franchisee satisfaction
intangible resurs that is basic predisposition of sustainable competitive advanatage,
that according opinion of Rindov and other (2010) builds both from resurs and
contingent environment.. Work deals with the influence of certain type of franchise
contract on franchisee satisfacation and organizational perfomances encompassing
five satisfaction dimensions: 1) social interaction, 2) service support, 3) financial, 4)
assurance and 5)competence. Research is conducted on luxury products market in
Republic of Croatia , on the examples of ten groups (ten different franchise provi-
dors) of retail sales and service representatives, whose franchise contracts are strategic
different. This sector is very suitable for analysis of franchisee satisfaction of doing
business , because company business strategies varies, products and technology are
very complex, customers are sofisticated, brand value is important, and a competi-
tion is global and intense (Grnhagen, 2011.;58). Sector is very delicate indicator of
economic fluctuations and changes, a selling is done by retail network based on fran-
chise principle. Certain parts of the automobile industry value chain, are connected
with different global, regional and nacional access in forming strategies. Based on
a market approach differences of certain automobile producers through their retail
network representatives, regarding franchise contract regulations it should be termi-
nated market most optimal and most effective competitive approach that enables
the highest franchisee satisfation level regarding forces and weaknesses of franchise
system and according environment opportunities and threats.
2. CONCEPT OF FRANCHISEES SATISFACTION

Franchisees satisfaction is powerful concept of franchise business. It raises brand
value decreases franchisors costs, contibutes representatives and longterm franchise
network sustainability and mutually increases incomes (Abdullah et al.;2008.;183).
Concept of franchisees satisfaction gets more on its important, because many fran-
chisors recognize importance of measuring and valuation concept. Franchisees sat-
isfaction measuring is basis to improve relations in network. By regular level and
structure satisfaction researching, and consequently by redesigning elements that
causes dissatisfaction , attracts future franchisees and existing increases efforts aim-
ing better business results. Franchisees satisfaction as well as customer satisfaction
is abstract concept that exist only in franchisees mind (Gauzente;2003.;510). To a
certain extent concept is ambiguos because despite similar environment, franchisee
satisfaction level will vary from franchisor to franchisor , since it shows discrep-
ancies between expected performance and its perception. High satisfaction level
occurs when perception transcend expectations. Franchisees satisfaction is a term
that covers more dimensions. Because of the franchise relation nature, franchisee
will have expectations and perception according a lot of elements that covers brand,
marketing, training, manuals, leadership, employment, advices, finance etc. The
concept is further complicated by changing expectations and needs of franchisee
over time, and there is a difference between certain franchisees. Franchisor continu-
ously by learning, innovations and leadership should develop franchise network.
result, a franchisee satisfaction concept is liable to permanent changes.
2.1. Previous researches

Modern researches defines franchise as business relation that sales knowledge
and benefites of one organisational system (franchise providor, franchisor) to po-
tential franchise receipient or franchisee, consequently to an end customer. (Paswan
i Wittmann, 2009).The same authors thinks that the key for succes of franchise sys-
tem is management of invisible resources knowledge, respectively contract inner
and between organisation. Model of franchise contract is important because of
legal and functional aspect, marketing, finance, production, supply chain manage-
ment, human resource management, and regulates relation between franchisor and
franchisee through its involved intense in business process and decision in spe-
cific area of responsability. (Lafontaine, 1993., Dant i dr., 1996., Bercovitz, 1998).
Importance od franchise contract especially accents Kashyap et al.(2012) in their
examination of contract incentive and relation of both side in franchise channel,
before and after contract signature. As organizational form , franchise is intensively
researched during past twenty years, when experience the most significant growth
and global presence. Alon and other (2010) write about franchise way of doing
business as a prevalent way in service sector, for example inner automobile indus-
try in sale and servise sector. Special attention is focused on trust and satisfaction
relations between participants in franchise network. Academical researches shows
significant correlation between large number of satisifed franchisees and longterm
growth and franschise development, which are part of:
1) Hing (1995) discover positive correlation between satisfied franchisees and
their attention to recommend this franchise system to others
2) Hing (1995) satisfied franchisee highlight that he wolud be part of this
same franchise again
3) Morrisson (1997) satisfied franchisee accomplishe performances beyond
expected and is commited member of the organisation
4) Justis i Judd (2002) ideal satisfaction inner franshise is accomplished when
both sides feel the same than mutual useful and longterm relation is build-
ing and helding
5) Gauzente (2003) franchisee satisfaction inner network is necessary precon-
dition for continuos business activity over years
6) van Wyk and de Jager (2009) satisfied franchisee expects high level of in-
denpendence, potential income, education, market and inforamtion, opera-
tive support, marketing support, etc.
7) Khams (2013) highlight influence of system quality , franchise competitive

advantage, respect for franchisor and market activity to the satisfaction of
franchisees.
It is obvious that high level of franchisee satisfaction is not only desirable, they
are vital.
3. RESEARCH
3.1. The research problem
For contribution to the success of franchise it is necessary to create francshisee
satisfaction conditions by perfomances of franchisor in context of mutual rela-
tions , while identifying areas of satisfaction and their priorities based on franchisee
perceptions.
3.2. Research objectives

Primary research object is to determine total franchisee satisfaction level regard-
ing contract category which they are attached to franchisor , and after that to deter-
mine importance of five franchisee satisfaction factors that are researched.
3.3. Sampling
Electronic questionnaire includes retail representatives for car sale and service,
ten different franchise in Republic Croatia , owners of right of representation (deal-
ers) and managers on high and middle management level .They are divided in
four groups according franchise contract category: 1)each one is direct importer,
2) general importer for the teritory of RH, 3) participates in network management
through Franchise board, 4) without participation in network management. A total
of 248 franchisees were contacted and 72 responded, which represented a response
rate of 29%.
3.4. Q uestionnaire design

Questionnaire were developed by Abdullah et al. (2008) and it has been used
in previous researches, it is made of five dimensions of satisfaction (social interac-
tion, service support, financial, assurance and competence ) which contains total
23 particles. For valutaion of each particle it been used Likerts scale from 1 to 5.
Second part of the questionnaire collects demographic data about respondents, and
a company data.
3.5. Data collection

Sent email to the respondents contained link towards questionnaire. Advan-
tage of such method include speed and economy, visual attraction, simplicity and
interaction.
3.6. Findings of the research

The level of overall franchisee satisfaction varies depending on the category of
franchise contract that defines business rules and interaction inner each franchise.
Franchisees that are part of the network in which business function on the principle
of general importer for whole Croatin market shows the highest satisfaction level
(M=4,32; SD=1,01). Respondents, franchise members without Franchise board are
the following in satisfaction (M=4,05; SD=1,09). Than follows franchise receipi-
ents where exists franchise board with M=3,51 i SD=1,22. Franchisees with the
lowest satsicfation level are network memebrs where each member is also importer
for its area of responsability. (M=3,27; SD=1,12). Research of the influence and
importance of five factors on franchisee satisfaction according category of franchise
contract gave following results (factors are sorted from the most influent towards
the less influent: 1) network with general importer: finance, service support, social
interaction, confidence, competence 2) network with dealer importer: compe-
tence, finance, service support, social interaction, confidence 3) network with fran-
chise board: social interaction, competence, finance, confidence, service support 4)
network without franchise board: finance, competence, service competence, confi-
dence, social interaction.
Demographic data determine tipical responder related to gender (male 82%),
age between 45-55 years(62%), university degree (52%) dealer experience 15-17
years (82%), manager experience in dealership 5-8 years (71%). Companies are
privately owned since its founding (100%) with the highest level of domestic capi-
talsa (74%). Majority of the companies are middle companies(62%) with number
of employees 25-35 (58%) and with two bureaus(59%).
4. CONCLUSION
Objective of this work is to illustrate levels of franchisee satisfaction inner fran-
chise. Franchisee satisfaction can result in positive and negative behaviour , and
according this and competence position on domestic market.
There are few basic factors that influence on franchisee satisfaction and this were
used for research purposes: social interaction, finance, servise support, confidence
and competence.
Recearch shows that franchisors that are from the beggining better prepaired for
franchise business , gives to franchisee appropirate support in certain market condi-
tions, and also influence on mutual relation and franchise advancement, continuos
and longterm cause higher franchisee satisfaction levels, therefore ensure compe-
tence advantage with regard to other franchise.
Measuring franchisee satisfaction is very important instrument for franchise
management because it shows concerning and comitment to the franchisee. Object
of the measuring is an object of easier and more effective management. Based on
the maesuring results are developed practical strategies for furtherance of problem-
atic areas. Furthermore franchisee appreciate strong, frequently and meaningful
mutual communication and franchisee satisfaction measuring experience as respect
of their own opininos and attitudes.
Research has shown that relation between competence position of franchisee
and its satisfaction shows meaningful, significant and consistent relation.
At the end, implications for the practice. Franchisors should pay attention to
franchisee relation according each satisfaction instument, and a importance that
they are attach to, concerning categorie of franchise contract.
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munication on Satisfaction and Loyalty in the Franchise System: Subjective Viewpoints
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mance, Organizational Commitment, Franchisor Relations, and Intention to Remain,
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tems, Industrial Marketing Management 38, pp.173-180
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17. Roh, E.Y and Yoon, J.H. (2008), Franchisors ongoing support and Franchisees stista-
ction: a case of ice cream Franchising in Korea, International Journal of Conteporary
Hospitality Management, Vol. 21 No. 1, pp. 85-99
18. Szulanski, G., & Jensen, R.J. (2008), Growth Through Copying: The Negative Con-
sequences of Innovation on Franchise Network Growth, Research Policy, 37(10),
1732-1741.
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chise relationship,Independent Research Journal in the Management Science,
Vol.9.No.1.,pp. 119-128
USE OF ELECTRONIC RETAIL IN THE REPUBLIC OF CROATIA 85
USE OF ELECTRONIC RETAIL IN THE REPUBLIC OF CROATIA

Sandra Mrvica Maarac, M.Sc.1, Igor Kuki2, Matej Gali3
1
Polytechnic Lavoslav Ruika in Vukovar, Republic of Croatia, smrvica@vevu.hr
2
Student, The Faculty of Tourism and Hospitality Management in Opatija,
Republic of Croatia, igor.kukic@gmail.com
3
Belje Inc, Republic of Croatia, matej.galic@belje.hr
Abstract
In the modern trade business the application of IT achievements has the great
usage opportunities. Electronic commerce is a form of trade that includes com-
mercial transactions that take place via electronic networks. The course of the sales
process in the electronic commerce is almost identical to the conventional course
of the sales process: initiative, business operations, contracting, product delivery
and payment.
There are numerous advantages of electronic commerce: a huge selection of
products, time availability, lower product prices due to high competition, shopping
convenience. However, electronic commerce has its disadvantages such as cultural
differences in business between different countries, legislation, the inadequacy of
some products for this form of shopping, doubts about the security of payment...
Electronic retail or B2C (business to customer) is a computer store in which the
entity aims at the ultimate consumer, whereat they notice a wide range of products
and businesses engaged in trade new possibilities and advantages of this way of
doing business.
With the increasing number of Internet users in Croatia, the question is wheth-
er they use the electronic shopping and to what extent? A survey on the use of
e-commerce in Croatia was conducted in three counties for the purposes of this
paper: Zagreb, Vukovar-Srijem and ibenik-Knin county for belonging to different
regions, different levels of economic development as well as because of the differ-
ent structure of their population. The study was conducted on 150 examinees, by
means of a questionnaire with structured questions. The examined sample of this
86 Sandra Mrvica Maarac Igor Kuki Matej Gali
study will show the extent to which residents of the Republic of Croatia as the ulti-
mate consumers of non-business consumption use electronic shopping, the reason
why is not used, if they believe in the security of payment over the Internet, who
the users of e-commerce according to demographic characteristics are, as well as
differences in regional affiliation with regard to the use of electronic commerce, etc.
Keywords: electronic retail, electronic shopping, use of e-commerce
1. INTRODUCTION
Retail e-commerce is becoming common way of doing business with the ap-
plication of information technology due to its simple application and low costs
compared to conventional retail. In the modern fast rhythm of life, online shop-
ping doesnt take a lot of time and it is accessible at any time. The basic difference
between conventional shopping and retail e-commerce is how the information is
transferred from seller to buyer and vice versa. Online shopping uses e-forms (or-
ders) and e-mails (confirmation of the order). The part that remains the same is the
delivery of the product with its documentation. Payment can be made in different
forms, usually credit cards.
The question is how much do the citizens of the Republic of Croatia use online
shopping? Are there any differences in use of online shopping regarding the resi-
dence and demographical characteristics? If they dont use it, why is that?
2. E-COMMERCE
E-commerce is the process of shopping, selling or trading items, services or
information using Internet with significant cost and transaction time reduction.
(Panian, 2000). Online seller is a mediator between the manufacturer and ultimate
buyer, so his position in the value chain is somewhere in the middle and usually
determined by himself. (Babi et al, 2011).
E-commerce can be defined from for perspectives (Spremi, 2004):
1) communicational perspective; e-commerce enables the delivery of informa-
tion, products/services or payment using public telephone lines, public com-
puter networks or in any other electronic way.
2) business process; e-commerce represents the application of the new technol-

ogy for automatisation of business transactions and business improvement
3) provision of services; companies, users and managers use e-commerce to
reduce provision costs and increase the quality level of goods and delivery
speed
4) virtual perspective; e-commerce enables shopping and selling of products,
services and information on the Internet
E-commerce consists of trading activities over the Internet and cannot be equat-
ed with the wider notion of e-business which performs all business activities elec-
tronically. (Andam, 2003)
E-commerce can be divided in two basic areas (Rui et al. 262): trade between
business entities - Business-to-business (B2B) and commerce oriented on the ul-
timate consumer market - Business-to-consumer (B2C). Retail e-commerce B2C
is the computer commerce in which business consumer is aiming for the ultimate
consumer. While consumers discover the whole new world of online shopping and
payments, sellers network providers discover insatiable infinite market because
Internet gives them access to a wide range of demographic segments (Panian, 2000).
The advantages of e-commerce can be divided into advantages for sellers and
advantages for consumers. Advantages for sellers are market expansion, improved
marketing, product width, cost reduction and longer working hours. In the offline
world it is hard to get the buyers opinion on success of certain part of marketing
mix. In online world buyers gladly share their opinion by e-mail so companies get
feedback and can react faster and change unsatisfying components of marketing
mix. Internet shops offer the unique possibility to take the direct marketing to a
higher level individual marketing. These shops have unlimited sales space since
its measured in bytes.
E-commerce also has certain disadvantages like fast technology change, interna-
tional problems, regulations, lack of marketing concept, inappropriateness of some
products and digital divide. E-commerce technology is changing exceptionally fast
and companies have to pay off their high investments in a short period of time.
Other problem is the lack of IT experts. Cultural and linguistic differences cause
international problems that are trying to be fixed by adding multilingual content
in the online shops which causes additional expenses. Concerning the regulations,
the main problem is that the documents cannot be found in written and a lot of
countries do not except digital signatures in court and it is difficult to make credit
card payment in these countries. One of the problems is complicated shopping sys-
tem. Some products were not suitable for selling over the Internet, but e-commerce
is important for these products too. Ernst % Young discovered that 64% of the
Internet users does a research on the product on web sites and then buys them in
traditional shops. (Rui et al., 2009).
3. RESEARCH RESULTS OF USING E-COMMERCE IN CROATIA

The research for this paper was conducted in May 2013 using questionnaire in
three Croatian counties: Zagrebaka, Vukovarsko-srijemska and ibensko-kninska.
The research involved 150 examinees, 50 from each county. These three counties
were chosen for their geographical position and their different economic growth
rate. The questionnaire consisted of 13 questions.
The research involved 41,06% of men and 57,62% of women. 15,89% of them
were aged 18-25, 39,74% were 26-40 years old, 23,84% of examinees were 41-
55, 14,57% were 56-65 and finally 4,64% were 66 years old or more. Accord-
ing to their educational level, 2,65% of the examinees finished elementary school,
48,34% had secondary education, 26,49 had associate degree and 19,87% had
university degree. 60,93% of the examinees were employed, 11,26% were unem-
ployed, 14,57% were retired, 2,65% of the examinees were housewives and 9,27%
were students.
To the question How do you assess your computer skills? 20,53% of the exam-
inees answered they have poor Internet skills, 47,68% think they have good Inter-
net skills and 29,80% think they have very good Internet skills.
To the question Do you use online shopping? 43% of the examinees had an
affirmative response. From those who dont use it, 33,33% say they do not use it
because they dont know how, 32,14% say they dont find online payments safe,
29,76% say it is because of lack of physical contact with the product and 4,76%
dont purchase products online because of delivery costs.
Picture 1. Reasons for not using online shopping Lack of confidence in online
payments, lack of physical contact with the product, I dont know
how, Delivery costs
Source: Author
As presented in Picture 2, the majority of users of the online shopping live in

the county Zagrebaka (56% of the total number of examinees); in the county
ibensko-kninska 46% use online shopping, and in Vukovarsko-srijemska 32% of
the examinees County use online shopping.
Picture 2. Use of online shopping in counties Zagrebaka, ibensko-kninska and

Vukovarsko-srijemska
1-Use online shopping 2- Do not use online shopping
Source: Author
Picture 3. shows how often the examinees use online shopping. 63,64% of the
examinees use online shopping few times a year, 16,67% once a month, 15,15%
once a year and 4,55% use it once a week or more often.
Picture 3. Frequency of the use of online shopping Once a year, Few times a
year, Once a month, Once a week or more often.
Source: Author
50,03% of examinees who use online shopping say that their shopping depends
on the web site design and 46,97% says that the web design does not matter to
them. 59,00% of the examinees use payment services such as PayPal. 43,94% of
the examinees use online shops, 36,36% use auction sales, and 19,7% use online
advertisements. Most often, the examinees buy online (Picture 4): clothes, shoes
and accessories (50%), computer equipment (13,64%), books (10,61%), tickets
(6,06%), travel (6,06%) and other (13,64%).
Picture 4. Products bought online Tickets, Clothes, shoes, Books, Travel, Food
and drink, Computer equipement, CDs, Other
Source: Author
We used Fichers exact test for statistical data treatment. The results of the survey
point out that there is statistically significant difference (p=0.027) between coun-
ties in answers to why examinees do not use online shopping (Picture 5). 60% of
those who do not shop online in county ibensko-kninska say they do not use
online shopping because they do not know how; 38% of those who do not shop
online in Vukovarsko-srijemska say it is because of lack of physical contact with the
product, 45% of the examinees in the county Zagrebaka say they do not shop on
line because of the lack of confidence in online payments.
Picture 5. Reasons for not using online shop in different counties
1-I dont think online payments are safe

2-I cant touch of feel the product
3-I dont know how
4-Delivery costs
Source: Author
The results show a statistically significant difference between type of purchased

product depending on the gender (p=0.001). 69% of women using online shop-
ping for buying clothes, shoes and accessories while most of the men (39%) buy
food and drink computer equipment and CDs (Picture 6).
4. CONCLUSION
Modern lifestyle, lack of time, technology development and other numerous
advantages make online shopping acceptable solution for buyers and is becoming
the most profitable aspect of commerce. E-commerce has enabled the appearance
of new type of selling space- virtual stores.
The research for this paper was conducted in tri counties in Croatia: Zagrebaka,
Vukovarsko-srijemska and ibensko-kninska and indicates the difference in use of
online shopping; online shopping is most common in countie Zagrebaka and
Vukovarsko-srijemska, the least developed county has the lowest number of online
shopping users. Of the total number of the examinees, last than half (43%) pur-
chase products online. This research also indicates the interdependence of demo-
graphical characteristics (age, gender, professional education) of the examinees and
the frequency of online shopping. The common reasons for not using the online
shopping are lack of internet skills and lack of confidence in payments made online.
It is necessary to bring e-commerce closer to the as bigger number of users as
possible to Croatian market and in that way to increase profitability of commercial
companies on our market.
REFERENCES
1. Andam., Z. R. (2003), E-commerce and e-business, dostupno na: http://www.apdip.
net/publications/iespprimers/eprimer-ecom.pdf (pristupljeno 16.07.2013.)
2. Babi et al. (2011), Dosezi elektronike trgovine u Hrvatskoj i svijetu, Oeconomica
Jadertina,Vol. 1., No. 2-2011., str.48-68.
3. Panian, . (2000), Elektroniko trgovanje, Sinergija, Zagreb
4. Panian, . (2005), Poslovna informatika za ekonomiste, Masmedia, Zagreb
5. Rui D. et al. (2009), e- marketing, Sveuilite J.J. Strossmayera u Osijeku, Ekonom-
ski fakultet, Osijek
6. Spremi, M. (2004), Menadment i elektroniko poslovanje, Narodne novine, Zagreb
MARKETING APPLICATION OF SOCIAL NETWORKS IN TOURISM 93
MARKETING APPLICATION OF
SOCIAL NETWORKS IN TOURISM
Sanja Kri, univ.spec.oec.1, Ivan Maloa, univ.spec.oec.2,
Duan Ljutina,univ.spec.oec.3
1
Sales Representative at PIK Vrbovec Inc., Republic of Croatia, sanja.krsic3@gmail.com
2
Chief Executive Officer at Interfilm Zagreb Ltd. Republic of Croatia, alocazg@gmail.com
3
Theatre Manager at Kerempuh Theatre, Republic of Croatia, dusko.ljustina@kazalistekerempuh.hr
Abstract
Tourism is the most powerful initiator of activities in Croatia and one of the
strongest in the world. Despite the worldwide crises, the number of tourists is
increasing every year and the competition among tourism entrepreneurs is getting
tougher. There is a constant struggle for every guestroom among destinations and
hotels. Though quality offer used to be crucial, now the situation has changed.
Marketing activities took over. The most important rule of marketing is informa-
tion placement (in this case, the tourist offer). Therefore, traditional advertising
models that have prevailed so far, cease to be important. Internet and social net-
works took the leading role which brought the revolution in marketing activities.
Tourism is certainly one of the economic activities where the use of social net-
works has greatest success potential. Sharing photos, status, location and tips is
interesting and fun, and entertainment and leisure is one of the main reasons for
being on Facebook, Twitter, Instagram, Pinterest and other platforms. Through
this interesting contents on social networks tourism subjects or destinations can
increase visibility and define destination brands, attract new guests who will then
with one click attract new potential guests and thus increase the revenue. The pur-
pose of this study is to point out the extremely low level of knowledge and applica-
tion of Internet and social networks for promotion and placement of tourism and
catering companies and destinations in Croatia.
JEL Classification: L83, M15, M31
Keywords: tourism, marketing, social networks, promotion, marketing research
94 Sanja Kri Ivan Maloa Duan Ljutina
1. INTRODUCTION
Tourism is the most powerful initiator of activities in Croatia and one of the
strongest in the world, and amounts to 10% of worlds gross domestic product.
Words tourist and tourism have been domesticated in Croatian language long time
ago and are well-known. Both words come from the English word tour which ini-
tially had meaning only for the round trip. The first derivative of the word tour -
tourist - was first used two centuries ago in the pejorative sense. Even Adam Smith
had the opinion that the ideals of culture significantly eroded by placing a prior-
ity on fun and pleasure. That could justify the use of the term tourist, which has
marked the persons who briefly visited cultural sites, while spending most of the
time for pleasure. Although the concept of tourist and tourism is in use for more
than 200 years, scientists have not yet come to the generally accepted definition.
Tourism is a significant initiator of other branches of the economy because tour-
ists are consumers of other goods and services. The tourism industry operates with
thirty other industries, such as culture, sports, agriculture, etc. Tourism is the most
powerful initiator of activities and with financial sector and telecommunications,
makes the backbone of Croatian economy. Tourism can help solve world problems,
such as reducing the gap between rich and poor countries, with contributing in
revenue, development and education. In Europe, 95% of hotels and restaurants
are those with nine or fewer employees. The technological progress of our time is
a key factor for the modern world tourism. Internet, as one of the most significant
technological phenomena of our time, provides a completely new competitive op-
portunities. This makes the idea of this paper.
2. SOCIAL NETWORKS
Social networks are certainly one of the easiest forms of promotion and market-
ing that can reach specific target audience. When using social networks, the results
of invested time, effort and money are visible at any moment. Social networks allow
restaurant facilities feedback from their guests. Each remotely good quality restau-
rant wants to know the right opinion (praise and criticism) of their guests about the
services they received and the impressions and experiences they gained. That is one
of the important things through which we obtain information: whether the guest
will re-visit and what kind of service was he provided with? What kind of opinion
about the object will he share with his family and friends?
Feedback obtained on social networks is far more realistic than the one gained
when asking the guests directly or asking them to write it in the guestbook. Many
feel uncomfortable when they have to share a bad experience while still in the
restaurant, and therefore, most of them just smile and say: Oh, it was all right,
while they hardly wait to share on a social network on the way home how they ate
in your restaurant and the food was undercooked, waiter unfriendly, drink warm...
Therefore, it is necessary to constantly monitor what is being said about your offer,
and improve service based on that criticism.
Social networks are a real revolution in the tourism industry, it is no longer
enough to accommodate guests in the hotel and give them a brochure with in-
formation about the location. It takes a lot more now, which is, in a way, good
because all have an equal opportunity to be among the first. Today, only diligent
succeed,there is no room at the top for slackers in the world of social networking.
Many local and tourist organizations neglect to use social networks. Individuals
even claim that social networks affect poorly on tourism industry due to the fact
that tourists can see and learn everything from customs to localities only on the
internet, so there is no reason to travel.
Social networks provide the opportunity for those worthy to become what they
want. People create digital identities on the social networks a certain image of
themselves and their activities and lifestyle is sent to the public. The individual is
in the center of attention on social networks. Everyone wants to stand out from the
masses and present themselves in their finest. The number of likes and retweets is
crucial.
3. SURVEY ON THE USE OF INTERNET AND SOCIAL NETWORKS IN CROATIA

A survey has been conducted to research the attitudes and opinions on the use
and application of social networking in tourism. Research sample was made at
random. The survey was conducted via Facebook and email. The duration of the
survey was limited to two weeks. The survey included 537 respondents, of which
268 males and 269 females, so the percentage of both sexes was equal. The average
age of the respondents who participated in the survey was 25-34 years old, and
that is also the largest percentage (47%). 49% of respondents have a high school
education, 33% university, 16% of higher education and 8% are low-qualified. The
majority selected that they choose the tourist destination they want to visit over
the internet - 33%, and a smaller number of respondents take recommendations
from relatives or friends - 26%. Travel fairs, agency recommendations, articles in

newspapers and magazines, and last-minute offers take an insignificant percentage
by which service users get informed.
Picture 1: Response summary to survey questionnaire on choosing a tourist

destination
Source: Front page screenshot https://docs.google.com/forms/d/1p0nBKdgbIbYaibje3ASRLdr

AcsuIEPcHpuFojUodQIw/viewanalytics (13.10.2013.)
How do you choose a tourist destination that you want to visit?

Travel or tourism fairs 1%
Travel agency recommendations 5%
Tourism brochures 5%
Internet 33%
Recommendations from relatives or friends 26%
Previous stay 16%
Articles in newspapers and magazines 5%
No information was required 4%
Group travel, last minute travel 5%
On a scale of 1 to 5 in order of importance for keeping users on the website and

potentially make them choose the hotel/apartment, primarily is a display of prices
followed by photographs (showing the hotel/apartment). Links to the social net-
works in Croatia are lagging behind compared to global trends, as can be seen from
the results. When traveling, in 74% cases tourists use Internet as an information
source to find out about events in a specific destination or the destination itself.
Picture 2: Response summary to the survey questionnaire on using the Internet

as a means of informing on holiday
Source: Front page screenshot https://docs.google.com/forms/d/1p0nBKdgbIbYaibje3

ASRLdrAcsuIEPcHpuFojUodQIw/viewanalytics (13.10.2013.)
When on vacation/holiday, do you use Internet as an information source to find
out about events in a specific destination or the destination itself?
Yes 74%
No 7%
Rarely 20%
Picture 3: Response summary of the survey questionnaire on using social

networks as a means of informing about a potential holiday
destination
Source: Front page screenshot, https://docs.google.com/forms/d/1p0nBKdgbIbYaibje3ASRLdr

Do you use social networks as an information source for a potential holiday

destination?
Yes 47%
No 15%
Rarely 39%
Social networks are used in 47% of cases as a means of informing about the
destination in which tourist tends to go. The importance of the site on which a
potential holiday is searched is very important. Time that users spend on social
networks is mainly an hour or more a day.
Picture 4: Response summary to the survey questionnaire on average time

spent on social networks

What is the average time you spend using social networks?

10 to 15 minutes 11%
up to 30 minutes 17%
up to 1 hour 27%
1 hour and more 38%
I very rarely browse the content of social networks 7%
Other 1%
Picture 5: What social networks do you use.

Facebook is used by 65% of all respondents, followed by Instagram with sizable

13%. Other social networks and services have a very low rate of interaction. 43% of
respondents sought information about the chosen destination on social networks.
Picture 6: Response summary to survey questionnaire on using social networks

during the holiday

Do you share holiday pictures, videos, or your location via social networks?
Yes 54%
No 15%
Rarely 31%
Over 50% of respondents share pictures and location via social networks, while
31% do it rarely.
Picture 7: Response summary to the survey questionnaire on authenticity of

information shared by other users

Do you trust the recommendations of other users on the social networks?

Yes 69%
No 71%
When talking about authenticity of recommendations of other users, 69% of
respondents trust other users and their suggestions.
Picture 8: Response summary of the survey questionnaire on social networks as

a media for promoting tourism and travel services
Source: Front page screenshot, , https://docs.google.com/forms/d/1p0nBKdgbIbYaibje3ASRLd

rAcsuIEPcHpuFojUodQIw/viewanalytics (13.10.2013.)
What do you think of social networks as a media for promoting tourism and
travel services?
I think they have great potential for the promotion of tourism and should be
an important media in tourism 42%
I think that they might contribute to the promotion of tourism, but are not
crucial 55%
I think that they do not have an important role nor could contribute to the
promotion of tourism 3%
Other 0%
55% of respondents think that social networks can contribute to the promotion
of tourism, but that it is not essential. 42% think that social networks have great
potential for promotion, and only 3% of respondents think that they do not have
an important role, nor could contribute to the promotion of tourism.
4. ANALYSIS OF FACEBOOK PAGE USE IN CASE OF CROATIAN HOTELS

The data (number of hotel units in the Republic of Croatia and their catego-
rization) of the Ministry of Tourism from January 2013, downloaded from their
website, was used for this analysis. According to that statistics, there is a total of
648 hotels in Croatia and one new hotel opened in July 2013, hotel Bevanda 5* (in
ibenik-Knin County). Facebook page analysis of hotels in Croatia that have a fan
page has been made on 09/01/2013. According to those results, 59% of all hotels
in Croatia, 381 hotel to be exact, have a fan page on Facebook. Initially, that were
not bad results, but when looked at the number of likes on a single page, devastat-
ing results appear.
The method of proof analysis of Croatian hotel fan pages shows that managers
of Croatian hotels do not have any specific strategy or plan for their ultimate goal,
that is how to achieve it by using social networking as a marketing tool that should
serve the purpose of increasing sales. It was found that the largest percentage of those
who do not use resources of social networks adequately do not actually know what
they are doing wrong. Lack of awareness of tourism organizations and operators on
the importance of social networks is one of the main causes of the current situation.
Picture 9: Display of hotels with Facebook fan page
Croatian hotels which have Facebook fan

page41%
Croatian hotels which do not have a

Facebook fan page59%
Source: Prepared by author, (12.09.2013.)
To show the number of likes by counties (adding up the number of likes of all
hotels in the county), the display would look like this. From the graph above it is
visible that the city of Zagreb is leading with the number of 59,019 likes, which is
not an enviable result compared to foreign hotels that individually have that many
likes. Poega-Slavonia County and Virovitica County do not have any hotel with
Facebook fan page so they are located on the last place in the graph.
Picture 10: Display of the number of Facebook likes by county

Picture 11: Display of the number of Facebook likes by county

County Number of likes Number of hotels Average number of likes
Istarska 27097 101 268
Primorsko-goranska 41990 106 396
Liko-senjska 473 17 28
Zadarska 8160 39 209
ibensko-Kninska 33830 62 546
Splitsko-dalmatinska 36029 130 277
Dubrovako-neretvanska 12976 80 162
Bjelovarsko-bilogorska 218 5 44
Brodsko-posavska 1679 7 240
Grad Zagreb 59019 52 1135
Karlovaka 4722 12 393
Koprivniko-krievaka 853 6 142
Krapinsko-zagorska 18480 8 2310
Meimurska 16788 5 3358
Osjeko-baranjska 9168 17 539
Poeko-slavonska 0 1 0
Sisako-moslavaka 661 3 220
Varadinska 1481 8 185
Virovitiko-podravska 629 3 210
Vukovarsko-srijemska 1664 9 185
Zagrebaka 2114 8 264
Picture 12: Hotels in the City of Zagreb by the number of Facebook fan page
likes

Picture 13: 5* hotels by the number of Facebook fan page likes
If the Croatian hotels with 5* were separated from the others, the assumption
is made that these are hotels that have a service and management at the highest
level, and will also have the highest number of likes. However, the previous graph
number 8 shows that this assumption is not correct. Only some of the hotels that
are listed in 5* rank have a constant interaction with customers. The hotel which
is first by the number of likes and thus interaction quality is Spa & Golfer Hotel
Sveti Martin na Muri in Meimurje County, and belongs to a 4* hotel rank. On
09/01/2013 The Spa & Golfer Hotel had 16,161 likes. Facebook fan page was
founded on 18th May 2010. The hotel was opened in 2009, and from the first
publications it is visible that the Facebook fan page was made because of the Croa-
tian Miss and Mister contest. They have very good current interaction and almost
daily publications.
The Hotel Mediteran in Rabac is the hotel with the lowest number of likes. Fan
page was founded on 23rd March 2011. They have a total of four publication on
the site. The first release is on the date of original site, and contains information
in two sentences about the environment and beautiful beaches that surround the
hotel. The second one, from March 1st of the following year, contains informa-
tion of the site on which accommodation can be booked. The third publication,
from 9th May the same year contains a picture of Rabac and has two likes. The last
notification, from 29th June2013 re-releases the page Adria24 where accommo-
dation can be booked. The number of photos on their fan page page is only two.
Profile picture shows blurry photo of the hotel. It can be concluded that it would
be better that this hotel does not have a Facebook fan page, rather than using it the
wrong way.
5. CONCLUSION
What is the expense of using social networks, which are now more popular than
any other social media? The answer is simple. Social networks are free! Everyone is
on social networks, around 80% of the population uses social networks. Of course,
to increase the business, a variety of paid promotions can be used, which are far
more cheaper and more accessible to everyone than other media. Social networks
are certainly one of the easiest forms of promotion and marketing that can reach
specific target audience. For example: if the target group are business people from
London, through a couple of clicks the promotion is directed at them in a simplest
way possible, while your precious time is not spent on teenagers from London. This
is a gigantic advantage over traditional types of media. If a facility/destination is
advertised, for example, on a national television, the expenses would be huge, and
the question which primarily sets would be: Will our target group even see this
advertisement? Perhaps all the other groups will, except the businessman.
When using social networks the results of invested time, effort and money can
be seen at any time. Each of our activity is recorded, and from the statistical data
the whole range of useful information can be made, while almost no television will
send a report on viewership or target groups. The research we have conducted on
the use of social networks has shown that the majority of respondents has a user
account on a social network, visits them at least once a day for an hour or more.
With the invention of smart phones, people have the possibility to use social net-
works at any time. Those few hours are slowly turning into a 24-hour online access.
These users are all potential guests. Tourists are on social networks now! One of
the very customary opinions is that social networks are used mostly by teenagers,
a group that has no income, therefore, no financial means to pay for holiday. In
other words,this consumers are not real. This is absolutely wrong notion. Perhaps
this statement was accurate at the beginning of social networks, but those students
which have been using Facebook for five or six years are no longer students and
most of them became economically independent.
In this survey, the highest percentage use of social networks have the people
aged 25-34, which means that, in the not too distant future, the numerical group
of older, even retirees will equalize with a number of teenagers. The conclusion that
emerges from this research on Facebook profiles of Croatian hotels is that, although
the figure of 59% is solid, most subjects do not use them properly. This means that
they do not have any specific strategy or plan for their ultimate goal, that is how
to achieve it by using social networking. It can be said that this area is dominated
by ignorance! By this approach, positive results can not be achieved: the interest of
tourists, an increase of overnight stays, multiple reviews and, ultimately, strength-
ening the brand recognition. It was found that the largest percentage of those who
do not use resources of social networks adequately do not actually know what they
are doing wrong. Lack of awareness of tourism organizations and operators on the
importance of social networks is one of the main causes of the current situation.
References:
1. avlek, N., Bartoluci, M., Prebeac, D., Kesar, O., Hendija, Z., Bilen, M., Mikuli,
J., Tomaevi, A., imar S., (2011): Turizam ekonomske osnove i organizacijski
sustavi, kolska knjiga, Zagreb., str. 25
2. Morgan, M. (1996): Marketing for Leisure and Tourism, Prentice Hall Europe,
London
3. Rui, D. (1997): Upravljanje marketingom u ugostiteljstvu, Ekonomski fakultet
Osijek, Osijek
4. Rui, D., Bilo, A., Turkalj, D., (2009): e Marketing, Sveuilite J.J. Strossmayera,
Ekonomski fakultet u Osijeku, Osijek
5. Akcija.com, (2013): Kakao koristiti drutvene mree u turizmu., Dostupno na:
http://akcija.com.hr/Kako_koristiti_drustvene_mreze_u_turizmu.pdf
6. World Trade Organization (2010) Trade policy review., Dostupno na: http://
search.wto.org/search?q=cache:sGpUG5rd4K0J:www.wto.org/english/
tratop_e/tpr_e/g238_e.doc+World+tourism+is+10%25+of+gross+domesti
c+product+in+the+world&access=p&output=xml_no_dtd&ie=ISO-8859-
1&client=english_frontend&site=English_website&proxystylesheet=english_
frontend&oe=UTF-8,(04.09.2013.)
106 Jos G. Vargas-Hernndez
RESEARCH METHODOLOGY STRATEGIES

IN STRATEGIC MANAGEMENT
Jos G. Vargas-Hernndez, M.B.A.; Ph.D.1
1
University Center for Economic and Managerial Sciences, University of Guadalajara, United Mexican
States, jvargas2006@gmail.com, jgvh0811@yahoo.com, josevargas@cucea.udg.mx
Abstract
This paper review and examine how strategic management researchers apply
research methods, and what strategies use as part of the research process, to locate,
organize, manage, transform, create, communicate and evaluate research tools, data
and information resources. It also analyzes recent developments on research meth-
odology to create scientific knowledge in theory building and practice in strategic
management offering an overview of methodologies used in strategic management
research. The assessment of strategic managements research methodology is based
on a review and analysis of strategies for the incorporation of knowledge of mana-
gerial research methods. Finally, the paper identifies and discusses some method-
ological research issues and reviews future directions on research methodologies in
strategic management.
JEL Classification: A29, B49, M19
Keywords: Research methodology, research strategy, strategic management.
1. Introduction
Research methodology within strategic management has not been a well de-
veloped field in the academic and scientific literature. The field of organizational
research methods attracts more attention from scientists than the strategic man-
agement research methods and thus, focusing more on the micro analysis than on
the macro analysis. The study of strategic management is eclectic in nature, theory
based, with substantial empirical research. Much of the strategic management re-
search has been using surrogates for the firms strategic direction.
RESEARCH METHODOLOGY STRATEGIES IN STRATEGIC MANAGEMENT 107
A good theory in strategic management must meet the criteria of being unique-
ness, parsimony, conservation, generalizability, fecundity, internal consistency, em-
pirical riskiness, and abstraction. A theory is a systematically related set of state-
ments, including some lawlike generalizations, (sic) that is empirically testable
(Rudner, 1966: 10). A scientific theory must have generalized conditionals, em-
pirical content, and exhibit nomic necessity. A theory that lacks support based on
scientific methodology, it cannot develop into a proposition, hypothesis, concep-
tion, or model subject to empirical testing (Van Maanen, Sorensen, & Mitchell,
2007; Xu & Zhou, 2004). Theoretical structures are intended to represent and give
insights into the phenomena of the real world. Representations of the real world do
not necessarily portray the real world itself. The dominant worldview is the form of
framing sciences at any given historical moment by a particular paradigm (Kuhn,
1970; Hesse-Biber & Leavy, 2008).
A paradigm is, a system of ideas or theoretical principles that determine, main-
tain and reinforce our way of thinking about an issue or a topic (Plowright, 2011,
p. 177). Plowright (2011, p. 177) argues that a paradigm is a scientific approach
in which the world we inhabit has an ontological reality, an existence that is not
dependent on our perception, understanding or descriptions of that reality or
world constructivist paradigm, in contrast, claims that reality is mind dependent
and is socially constructed through the relationships, psychological activities and
shared understandings that we all take part in. Scientists describe perceptions of
the ontological reality through a framing process. The work of Kuhn, and the so-
ciologists of science... showed that scientific change had little to do with the shape
science obtains through the application of a general rational method, and more to
do with the fact that it is a social institution. (Hughes & Sharrock, 1997, p. 93)
This paper review and examine how strategic management researchers apply
research methods, and what strategies use as part of the research process, to locate,
organize, manage, transform, create, communicate and evaluate research tools and
data and information resources. The objective of this paper is to analyze recent
developments on research methodology to create scientific knowledge in theory
building and practice in strategic management. The objectives of the analyses offer
an overview of methodologies used in strategic management research. The assess-
ment of strategic managements research methodology is based on a review and
analysis of strategies for the incorporation of knowledge of managerial research
methods. To identify and discuss some methodological research issues in strategic
management, this paper reviews future directions on research methodologies in

strategic management.
2. Research methodology
Research methodology is defined as highly intellectual activity used in the inves-
tigation of nature and matter and deals specifically with the manner in which data
is collected, analyzed and interpreted. A research methodology defines the research
purposes, activities, procedures, measurements and applications. The background
of research methodology refers to philosophy of research conceived as the way in
which is formulated the research strategy and the way in which research is con-
ducted. The research methodology determines the framing of explanations arisen
from the analysis of data and observations.
Although the field of strategic management is growing, the development of re-
search methodologies applied has not the same tendency. Research methodology in
strategic management has developed from single case studies at firm and industry
levels on issues such as corporate strategies and firm performance (Rumelt 1974).
Rumelt (1991) based on some methodological features empirically demonstrated
that industry was less important that firm characteristics for firm performance.
Research methodology used in strategy has contributed substantially to the devel-
opment of the strategic management and can make significant contributions to
the knowledge and study of administration and strategy fields. Regardless of the
research methodology used, research methods of management strategy play a key
role in the advancement at a high level of methodological rigor, extending the em-
pirical analyses to more highly theoretical scientific principles.
Overarching research methodology goals can apply to individual specific proj-
ects managing their participants and deliverables. Sharing methodological expertise
involves knowledge dissemination of techniques and practices. Changes of research
methodology practices may involve some convenience in the use of research meth-
ods. Anshen and Guth (1973) argue that the field of research methodology requires
some research strategies to improve the research capital such as the study of sci-
ence and arts, the design and use of analytic concepts and operational approaches,
the study of historical relationships and the examination of interfaces with social
problems and other institutions. Research methodology is the rationale behind a
technique of collecting and analyzing data systematically.
A. Data collection
Research methodology is the system of collecting data for research projects,
either theoretical or practical research. Data collection is treated as a design issue
to enhance the construct and internal validity of the study, as well as the external
validity and reliability (Yin, 1994).
B. Data analysis
Data analysis consists of examining, categorizing, tabulating, or otherwise re-
combining the evidence to address the initial propositions of a study (Yin, 1994).
Research methodologies and data analysis are increasing in sophisticated domains.
More advanced tools for text-mining, grid and cloud computing, semantic web,
etc. can be used as part of the research methodology on strategic management. The
tools and methods for creating and using data analyses must be technologically
accessible.
Other data analysis are being used in strategic management research such as
repertory grid (Ginsberg, 1988, 1989; Reger & Huff, 1993), cognitive mapping
(Huff, 1990), and policy capturing (Hitt & Tyler, 1991). Alternative techniques
of data analysis use diverse methods as using arrays to display the data, creating
displays, tabulating the frequency of events, ordering the information, etc. (Miles
and Huberman, 1984). A good research strategy is one that allows for the observa-
tion of the interested phenomena and the data analysis that is being collected from
a variety of sources and perspectives.
C. Taxonomy of research methods

The taxonomy developed by Van Horn (1973) classifies empirical studies in case
studies, field studies, field experiments and laboratory experiments. Alavi and Carl-
son (1992) presented a taxonomy of research methods in three levels: Conceptual,
illustrative and applied concepts. Saunders and Thompson (1980, 129) compare
conceptual with empirical research and argue that a turn away from feeble at-
tempts at the insight type and toward hard examination of applicable data in an
empirical framework is what is needed now.Keegan and Kabanoff (2008) devel-
oped a measurement approach through applying content analysis to annual reports
that incorporates managerial discretion into conceptual and empirical models.
Thus, a mix of empirical testing and explanatory conceptual search aims at theory
building and development for the field.
There is not any best single research methodology intrinsically better (Benbasat
et al., 1987). For example, it is required to have a more pluralistic attitude towards
strategic management research methodologies (Remenyi and Williams, 1996). To
improve the quality of research it requires adapting a combination of methods
(Kaplan and Duchon, 1988) and avoiding only using a single research method
characterized as methodological monism.
D. Theory-testing and theory-building

The research methodology should imply the use of both an inductive logic and a
deductive logic at different phases of the research based on previous findings and al-
lowing theory-testing and theory-building. Inductive methodology research can be
qualitative and quantitative and is being used to generate inductive theory. Quan-
titative techniques may be used as inductive methodology to generate inductive
theory. Empirical findings emerging from the strategic management research have
been for the most part inductive oriented in nature and aimed at theory building.
Research methods in strategic management provide the theory-testing and theory-
building and framework analysis to be applied to practical problems.
Theory-building research seeks to find similarities across many different do-
mains to increase its abstraction level and its importance. The procedure for good
theory-building research follows the definition of theory: it defines the variables,
specifies the domain, builds internally consistent relationships, and makes specific
predictions. Theory-building in strategic management is not developing evenly
across all methodologies. If strategic management theory is to become integrative,
the procedure for good theory-building research should have similar research pro-
cedures, regardless of the research methodology used. Jemison (1981) support the
integrative research in content and process advocating the mid-range theories and
hypothesis testing. Tyler (2000) discussed procedural justice sustaining that people
may apply the heuristic by proper procedures to achieve outcomes.
Theory-building of strategic management research has been approached from
the perspective of industry effects. Chandler reported in case study methodology
some strategy management problems providing the basis for theory-building. The
typology of generic strategies (Porter, 1980) is the framework that has fostered
theory-building and empirical work. Some theory-building borrowed from the
resource-based theory are amenable to empirical test through methods such as the
rate perspective (McKelvey, 1997: 365).
Scholars have some expectations of methodological tools and scientific criteria

in strategic management in order to share surprisingly similar practices in man-
agement theory-building, creation of managerial knowledge and collaboration in
scientific research. Despite the robust research methods used in theory-building of
strategic management and the substantial accomplishments, Ketchen, Boyd, and
Bergh () consider that the field confronts significant challenges. Research in theory-
building and operational procedures in strategic management needs to incorporate
rational-analytical, behavioral-neoinstitutional and political approaches.
E. Limitations of research methods

Given the nature of the phenomena investigated in strategic management, the
research methodology may have certain limitations. The research methodology is
better suited to investigate phenomena in strategic management where few mod-
erating or intervening variables have an impact on the relationships between de
dependent and independent variables. The methodological structure of strategy
investigations has enduring effects (Hitt, Gimeno, & Hoskisson, 1998). Strong
structures in the research methodology ensure guidance to be focused at all times.
Thomas (1984, 14) suggests that theory development should be the most impor-
tant aim for research in strategic management to have directions and traditions
because it suffers from an identity crisis and lack of consensus.
3. Research strategies
Strategic management uses a relatively restricted set of research strategies and
analytical methodologies of choice (Podsakoff and Dalton, 1987). The research
strategies adopted to improve research in strategic management requires analytical
concepts, theory building, formal analytical techniques and operational procedures.
Research strategies exist within the knowledge movement. Deploying knowl-
edge governance mechanisms that mitigate costs of creating, sharing and integrat-
ing knowledge may have normative and practical implications for the research strat-
egies in strategic management. Tripodi and Epstein, (1978) present potential uses
of two strategies for incorporating knowledge of research methods. Foss (2009)
discussed the dominant research strategies framed by the knowledge movement
(Eisenhardt and Santos, 2002; Nonaka, 1994; Spender, 2005) manifesting itself in
organization and strategic management. Foss (2009) sustained alternative research
strategies distinguishing between capabilities first, networks first and individu-

als first strategies. A research strategy may begin from individual members.
Foss (2009) elaborates a simple taxonomy of research strategies within the
knowledge movement that he calls Capabilities First, Networks First, and In-
dividuals First. The capabilities first and the networks first research strategies focus
on supra-individual antecedents seeking to account for firm-related outcomes such
as integration, knowledge sharing, innovation, etc.
4. Strategic management research approaches

The strategy research field borrows from different normative, interpretative,
analytic, positive, empirical and the quantitative-qualitative research approaches,
among others. The study and research of strategic management is eclectic in nature,
theory based and empirical research.
A. Normative approach
The development of normative theory is enhanced by the differences in deter-
mination and explanation of strategies as a salient goal of strategic management
research (Schendel & Hofer, 1979). The rational normative model assumes that
the nature of the theoretical problem may determine the choice of the appropri-
ate research method (Cohen, March, and Olsen, 1972, Martin, 1982). Normative
theory-building is enhanced if a causal relationship is supported between the per-
formance construct and other constructs, where performance is the outcome and
not the cause under consideration. As a research strategy, reaching derived norma-
tive implications of empirical findings gives greater confidence and accuracy in
developing and testing theory, although the parsimony of the study is diminished.
Hinings and Greenwood (1988a) identify configurations as containing elements
of both organizational structure and processes strongly underpinned by meaning
and interpretive schemes which bind them together in an institutionally derived
normative order. Configuration research in strategic management links constructs
of multiple domains such as complexity and uncertainty of the environment, or-
ganizational structures, organizational behavior and culture, technology process,
strategy making processes, content of strategies, etc. The research on strategic man-
agement has fruitful developments in strategy content and process research.
Multiple domain configuration research enables to study complex multivari-

ate relationships and the fit among constructs in multiple domains for findings
that have normative implications. A more integrated approach to theory-building
in strategic management research should consider normative results to guide for-
mulation and implementation of strategies in organizational settings. Erroneous
interpretations of firm-level performance may lead to inaccurate descriptions and
interpretations of observed relationships, which in turn mislead findings that may
have normative implications for researchers and practitioners alike.
B. Interpretative approach
One important component of the case studies is the criteria for interpreting
the findings (Yin, 1994, p. 20). The analysis and interpretation of research in case
studies is dependent upon the aggregation of data collected from many sources and
participants. The criteria for interpretation of the findings and data linked to the
propositions require development in case studies.
Phillips, N., Sewell, G. and Jaynes, S. (2008) suggests some research methods
based on a discourse analysis as a critical approach to strategic management to ex-
amine and interpret the social construction of reality and the roles of rhetoric and
narrative within strategy processes. In strategic management research, constructs
are presented as archetypes, gestalts, and configurations. In both normative and
descriptive strategy researches explore issues relevant to their configuration appro-
priateness (Mintzberg, 1990). Research methodologies should be appropriate for
configuration research. Configuration research has as an important role to classify,
describe and explain the phenomena. Researchers use configurations to develop
normative and descriptive theory. Strategic management research uses configura-
tions to represent and interpret the phenomena and to analyze complicated and
interrelated relationships among many variables which are collectively meaningful.
The discourse analysis provides a deeper understanding of the managers interpreta-
tions, intentions, motivations, expectations and decisions.
The critical theory research approach to strategic management opens possibili-
ties to examine, analyze an expose hidden agendas of the strategic agents and actors.
An alternative framing of research methods in strategic management may suggest
an additional layer and level of investigation when applying specific theoretical
approaches. Framing is described as the selection, emphasis, exclusion, and elabo-
ration (Weaver, 2007, p. 143). Framing is the way a phenomenon is seen which
depends what is chosen to include or exclude aspects to emphasize or elaborate

on. Selection is inevitable arbitrary, and, the greater the mass of information from
which a selection has to be made, the more disputable will be the investigators
choice. (Toynbee, 1976, p. x).
Analyses may be valuable if focusing on data definition and interpretation con-
sidering institutional structures, and applying evidences from elsewhere. Institutional
structure, funding attached to issuespecific research and data limitations the estab-
lished databases and large volumes of existing research may affect the research possi-
bilities. Triangulation of methods for interpretation occurs when there some followers
of one approach which can increase confidence in interpretation (Denzin, 1984).
Research on strategic management has not been consistently designing research using
adequate conceptualizations of managerial environments in the empirical research
which at the end derives wrong findings and misleading interpretations.
C. Analytic strategies
Significant analytical research has been made in strategic management beyond
the typologies and taxonomies of strategies. Any research methodology has a gen-
eral analytic strategy supported by some analytic techniques which rely on some
theoretical assumptions. Strategies for research in strategic management are chosen
to provide varying definitions of what strategic management research is, or should
be in the development of a theoretical body and formal analytic techniques. The
use of the analysis method can show a relationship between two variables, such as
the frequency of one term employed and the strategic management implications.
Researchers can demonstrate specialization in the craft of some methods which can
apply to the development of some other analytical tools.
Traditional approaches to strategic management research emphasize some sourc-
es of data and analytical technique downplaying some variables while overlooking
some others. Researchers that have access to data reduction analytical methods
and secondary data sources can develop and test hypotheses related to the field of
strategic management from multiple approaches (Ketchen, Thomas & Snow, 1993;
Nath & Gruca, 1997). The multiple methods involve data collection of behaviors
through personal interviews, focus groups, and webometrics. Thus, there is a range
of possibilities for more diverse approaches and sources of information, being aware
of limitations inherent in any research to avoid overstating the value of findings in
complex real phenomena.
Researchers in strategic management must frequently demonstrate their capa-

bilities of the archives and databases, which is a critical task of knowledge dissemi-
nation. Besides their activities of database development and digitization, they be-
come involved with development programming after they perceive a gap in either
content or analysis functionality. Data collection and analysis methods in experi-
mental and quasi-experimental research can hide some details (Stake, 1995). Cor-
pus based methods collect data using interviews and newspaper articles marking
up using some parts of the speeches to identity portions of sentences, frequencies,
concordances, etc., which are processed using text-mining and analysis tools.
The use of corpus-based methods in research requires creating instruments to
analyze the concordance through packages and resources such as newspaper data.
Corpus-based methods examine concordance by creating a spreadsheet to check
and reorder data. Corpus linguistics researchers methods rely upon machine-read-
able texts in the analysis of specially-designed collections of texts by computer
(Anderson, 2008). Corpus linguists use complex datasets, diverse methods and a
variety of theoretical perspectives to tackle research questions. The research strat-
egy as a field has received support from the literature on scanning activities and
may be framed by the research questions. Scanning activities are the gathering of
information about events and relationships in a companys outside environment,
the knowledge of which would assist top management in its task of charting the
companys future course of action (Aguilar, 1967, p. 1). For data collection in
case studies, participants can use text-based methods to gather and examine socio-
linguistic phenomena. Analyzing language fluctuations represents some method-
ological challenges.
Researchers and scholars show limited uptake of advanced tools for data man-
agement and sharing. Organizational strategies are formulated and implemented
among managers with the more savvy professionals using document management
systems, databases, LaTeX for word processing and other more sophisticated soft-
ware. Good quality of research methods are needed for effective data management
and sharing, although compliance with scientific requirements. The most common
practices of data management are usually accomplished on the computer desktop
and storage on PDF and image files.
An analytic statement requires further conceptual development to become a law
like generalization. The analytic generalizations of a case study can be informative
to other similar cases. Although there are some analytic statements that are true by
definition these are not law like generalizations. An analytic statement based on the
commonly accepted definitions may be true when is accepted as a correct assertion.
Replacing definition of terms in a theory with its definition in the theory to deter-
mine if the statements are true by definition, it clarifies if the statements are purely
analytic without empirical data. Any literal or theoretical replication logic can both
strengthen and broaden analytical generalizations.
The difference between analytic generalization and statistical generalization was
explained in these terms In analytic generalization, previously developed theory is
used as a template against which to compare the empirical results of the case study
(Yin, 1984). The analytic strategy requires of the specific statistical techniques to
evaluate data gathered. Evaluative research methodology aims to provide some use-
ful feedback using standard social research methods. Some analytical tools as event
studies, event history analysis, logistic regression, simultaneous equations analy-
sis, and multidimensional scaling are used in strategic management research. Yin
(1994) presented some analytic techniques such as pattern-matching, explanation-
building, and time-series analysis. Pattern-matching compares a predicted pattern
with an empirically based pattern enhancing the internal reliability of the study
when both patterns match. An analysis may follow conventional analytic tech-
niques using anecdotal and statistical analysis.
Some analytical tools are become more used in strategic management research
such as repertory grid (Ginsberg, 1988, 1989; Reger & Huff, 1993), event studies,
event history analysis, logistic regression, simultaneous equations analysis, multi-
dimensional analysis, cognitive mapping (Huff, 1990), and policy capturing (Hitt
& Tyler, 1991). Narrow categories for analytic tools such as single versus multiple
regressions are used by Shook et al (2003). Multiple regressions became the domi-
nant statistical technique used in strategic management research after the research
in the strategic management field was dominated by cross-sectional, static studies
and employed few control variables (Ketchen, Boyd, and Bergh, ). Regression may
not be the most appropriate analytical method to apply where the research de-
sign and the causal relationship between two variables is not clear. Keats and Hitt
(1988) employed causal modeling approach with longitudinal or time ordered data
in their research in strategic management. Advanced methods of data analyses on
strategic management based on databases and text mining tools are bringing greater
changes in research methods.
Methodological contributions in conceptualization and measurement of firm-

level performance have implications (Meyer, 1991) to analyze formation, adaptation
and evolution of organizational configurations on strategic management research.
Some data analytic methodologies can be used on the configuration approach.
There is value in additional analysis of processes of change both for assessing
desirability and for understanding feasibility. Research value should not be judged
solely on the sophistication of the techniques or the quality of available data but on
the existing body of knowledge. Analytic modeling provides rational approaches to
research in strategic management. Some sophisticated analytical techniques used in
research on strategic management, such as for example the employment of archival
data bases that are applied to capture complexity of the phenomena, to achieve
more objective measures and data validation. However, to determine the correct-
ness of analytic data is not necessary the confrontation of these data with real facts.
Model estimation is only part of the way towards addressing feasibility, magnitudes
change, costs and benefits, etc., considering also the legitimate research questions
that incorporate additional factors. Research questions based on a particular theory
or technique may not consider other additional aspects.
The use of analytical techniques in management research to develop strategy
knowledge can be comparable in scope and impact to the behavioral approach.
Aldag and Steams (1988) review a sample of organizational research topics. Shook,
Ketchen, Cycyota & Crockett (2003) searched for data analytic trends on 297 pa-
pers published between 1980 and 2001 found that the use of analytical techniques
is growing, although many scholars report that they are ill-equipped to use these
techniques. Research in strategic management may be restrictive in the data and
methods to emphasize comparisons in a complex environment of real phenomena.
There is plenty of room for improvement on the use of a range of analytic tools for
research in strategic management.
D. Positivist approach
The positivist upbringing favor to have full control of field research under a well
structured research protocol. Amitabh, M. and Gupta, R. K (2010) found that the
logical positivism-empiricism paradigm, one way linear causality in the strategy-
structure-performance relationship is favored by researchers instead of two-way
causality that will increase contributions using innovative designs and archival data.
There are several research methodologies that have been identified by Galliers
(1991, p. 149) in two paradigms, the positivist and interpretive. Lack of objectivity
associated with interpretive research methods has resulted in adopting a more posi-
tivist quantitative approach. Debate has arisen in between the areas of positive ver-
sus normative perspectives (Friedman, 1953). Mixing quantitative and qualitative
methods is becoming more common, and Guba and Lincolns criticisms of positiv-
ist approaches in the social sciences cannot be ignored. The positivist perspective
has been criticized in the social sciences field. Hughes & Sharrock (1997, p. 197)
argues that Had the social sciences measured themselves against one or other of
the natural sciences apart from physics...then the status of the social sciences as sci-
ences might have seemed a good deal less problematic.
E. Empirical research
Few studies have attempted to empirically determine the extent of the use of a
restricted and exclusively set of methodologies in strategic management. There have
been major changes in the methodologies of strategic management research despite
that the field is still very young.
Hoskisson, Hitt, Wan, W.P. and Yiu (1999) examine the primary theoretical
and methodological bases of strategic management through its history, which they
consider is eclectic in nature and theory-based with substantial empirical research.
They concluded that the early works (Chandler, 1962, Ansoff 1965) centered on
the relationship between strategy and structure can be characterized from a con-
tingency perspective. Early theoretical and methodological developments in strate-
gic management took a contingency approach in Chandlers (1962) Strategy and
Structure and the resource-based framework in Ansoffs (1965) Corporate Strategy.
Initial strategy research emphasized analytical methodology to explain the competi-
tive environment of firms and industries based on simple assumptions such as the
homogeneity of firms within an industry in terms of resources and strategies and
the mobility of these resources.
Miller & Friesen (1978) conducted empirical research to demonstrate the exis-
tence of configurations or archetypes that exhibit internal logic, stability and integ-
rity based on what Miller (1987) terms the imperatives such as environment, struc-
ture, leadership and strategy. However, due to difficulties in data collection and
analysis, empirical research in organizational configurations has lagged behind the
development of theoretical approaches. Empirical studies of configurations used
cross-validation of responses to assess reliability and convergent validity (Miller,

1986; 1987b; 1988 and Miller & Friesen (1980; 1983).
1) Theory of the firm

Theories of the firm provide a framework for analyzing important research is-
sues in strategic management (Seth, and Thomas, 1994). Seth and Thomas (1994)
demonstrate the usefulness of economic theories of the firm as a framework for
guiding and analyzing strategy research and evaluate the conceptualization of the
theory of firm to research strategic management compared to the traditional as-
sumptions of strategy. In turn, the research methodology and findings challenged
the strategic management principles supporting theory of the firm arguing that
industry characteristics have more impact on performance.
To enhance descriptive analysis of the firm as well as to the human agents in or-
ganizational research in strategic management, it has arisen a repertoire of cognitive
and motivational assumptions from very different sources, such as the economics
model of man, behavioralism, social and motivational psychology as a critical reac-
tion to the economic agent theory (Simon, 1955; Cyert and March, 1963).
2) Industrial organization economics

Industrial organization (IO) economics provides a foundation for research on
strategic management with some econometric tools for the analysis competitive
dynamics. The macroeconomic approach of industrial organization, the five-force
framework (Porter, 1980) and the resource-based view (RBV) (Wernerfelt, 1984)
Schmalensee (1985) of firm-specific qualities required new research methodolo-
gies, such as analyses of variance decomposition techniques and regression analysis
despite the operationalizing the attributes of competitive advantage and firm spe-
cific qualities. Empirically the relative advantage of small firms has advantages that
have been ill-understood by the discussion (Zenger and Lazzarini, 2004). Most
of the research conducted in strategic management among SMEs to explain the
relationship between scanning dimensions, activities and their performance are of
a descriptive nature.
Empirical analysis based on Porters framework has been conducted by Dess &
Davis (1984), Hawes & Crittenden (1984), Kim & Lim (1988), Miller & Dess
(1993), White (1986), Wright, Kroll, Tu, & Helms (1991). To test the arguments
of Porter the method of regression analyses was ushered. Other studies use other
methodologies and analytical techniques to sample and measure the firm and in-
dustry effects on performance (McGahan & Porter, 1997; McGahan & Porter,
2005, and Ruefli & Wiggins, 2005).
3) Resource-based theory
The research on firm resources strategy has introduced some descriptive theories
from industrial organization economics such as the studies on teamwork produc-
tion (Alchian & Demsetz, 1972) and the relationship of price and quality (DeVany
& Saving, 1983). Conceptual and empirical research based on resource based-view
is very limited in terms of augmenting the original knowledge sustained by Barney
(1991) as it has been treated by Bates & Flynn, 1995; Brush & Artz, 1999; Litz,
1996; McWilliams & Smart, 1995; Michalisin, Smith, & Kline, 1997; Mosakows-
ki, 1998; Powell, 1992a,b; Rindova & Fombrun, 1999; Yeoh & Roth, 1999).
The industrial organization economics supports the resource based theory as a
descriptive and explanatory approach (Barney, 1992; McWilliams & Smart, 1995;
Meyer, 1991) whereas the strategic management has a prescriptive orientation.
Empirical research on strategic management based on the resource-based view has
used course-grained measures of firm intangible resources. The resource-based view
provides some foundations for research on strategic leadership and process research
on decision theory. However, the resource-base view of the firm supports the as-
sumptions of heterogeneity and the imperfect mobility of resources of firms within
an industry (Barney, 1991: 101). Recent research in strategic management has ac-
cepted the application of the resource-based view of the firm despite that it is dif-
ficult to test empirically because of the complexity and difficulties in operational-
izing and measuring idiosyncratic firm resources and capabilities that are valuable,
rare, costly to imitate and no substitutable (Barney, 1991). Armstrong & Shimizu
(2007) examined 125 papers employing methods in resource-based view studies
from 1991 to 2005 finding that although researchers have overcome some chal-
lenges in studying resources and their effects, others challenges still remain.
The research based-view strategy theory is criticized as being descriptively ac-
curate and correct but quite difficult to manipulate in real life, for not meeting the
operational validity criterion until managers can apply the descriptive theory to
manipulate the independent variables (Priem and Butler, 2001). Bacharach (1989)
and Hunt (1991) argue for some statements from the resource based-theory deal-
ing with competitive advantage that are not amenable to empirical tests. Accord-
ing to the analysis of Bacharach (1989), Hunt (1991) and McKelvey (1997) the
resource based view does not meet the empirical content criterion. The resource
based view theory is considered to have a static argument that identifies generic
resources without considering differing situations, posing potential limitations for
the advancement in strategic management research.
4) Capabilities
The dominant resource-based analytics in strategic management is considered
to be the sustained competitive advantage emerging through firm-specific capabili-
ties (Dierickx & Cool, 1989; Barney, 1991). Empirical research on the resource-
based view and capabilities theory has been using some course-grained measures
and proxies of firm resources, such as human capital leverage, intangible resources,
technological and organizational capabilities, etc. The notion of capability unites
sources of firm-level experiential knowledge and behavioralism as an analytical no-
tion of the knowledge movement of research in strategic management.
A critical methodological challenge for strategic management is the capabilities
development to offer evidence-based findings those organizations and managers
can use to improve and attain the best performance (Locke & Latham, 1990). A
starting point for scientific analysis in knowledge in firms is the collective levels
rather than an empirical proposition despite that there is significant evidence at
individual level, such as the empirical research on routines and capabilities pre-
dominantly mono-level (Gupta, Tesluk & Taylor, 2007).
Stinchcombe (1991: 379-380) argues that [w]here there is rich information on
variations at the collective or structural level, while individual-level reasoning (a)
has no substantial independent empirical support and (b) adds no new predictions
at the structural level that can be independently verified, theorizing at the level of
[individual level] mechanisms is a waste of time.The Knowledge-based theory of
economic organization (Grandori, 2001, Kogut & Zander, 1992; Nonaka, 1994;
Spender, 1996; Grant, 1996; Nickerson & Zenger, 2004) brought to research in
strategic management fresh concepts and analytical methods, constructs, dimen-
sions (Winter, 1987) and measures (Heimeriks & Duysters, 2007).
Empirical research within strategic management supports the argument that
productive knowledge at the firm level has an impact (Hoopes & Madsen, 2008).
However, the knowledge movement has some difficulties in identifying theoreti-
cally as well as empirically the causal mechanisms. Self-determination theory (Deci
& Ryan, 1985), form motivational psychology has supported successfully both
theoretical and empirical research in knowledge-related behaviors (Cabrera, Col-
lins & Salgado, 2006).
5) Other empirical approaches

Stake (1995) proposed a naturalistic generalization as an intuitive empirical-
ly-grounded approach based on relationships between the experiences of the re-
searcher, the readers and the case study itself, facilitating the understanding and
explanation of the unit of analysis. The empirical implications regarding the unit
of analysis are related to the operationalization and the types and sources of data
in research using the configuration approach. The empirical use of more holistic
methods on the research of configurations (Venkatraman & Prescott, 1990) such
as canonical correlation analysis, cluster analysis and q- factor analysis empirically
facilitates to capture multivariate interconnections among strategy, structure, orga-
nizational behavior, process and environment.
The empirical research should refer only to taxonomy and not typology for de-
rived classifications. Empirical research use different operational types of tools and
sources of data according to object of study and the unit of analysis. The empirical
methods are classified as non-econometric and econometric.
F. Econometric methods
Empirical strategic management research may get more support from econo-
metric theory models. The empirical research in strategic management is increasing
with the use of econometric methods, changing the appropriate use of empirical
research methodologies in strategic management. Empirical methods centered on
the use of econometric techniques taking account for endogenous and omitted
variables for discrete strategy choices is becoming more widely applied in strategic
management research. Econometric data only describe and analyze situations that
are history because they have already occurred. Econometric techniques are such
as classical regression, limited dependent variables, and methods that account for
omitted variables.
Common econometric research techniques automatically exclude much available
information. An empirical research analysis of performance as a function of decision
variables, assume that are exogenous, to yield right results should correct endogene-
ity based on the assumption that managers make decisions to achieve higher perfor-
mance. The empirical research approach is common in experiments assuming that

strategy choice can be exogenous and assigned randomly to participants. Economet-
rics implicitly excludes from the analysis much of the information coming from a
variety of sources of data and research methods used by other sciences by selecting
only the functional forms and information suitable for econometric analysis.
Empirical research in the field of strategic management is concerned with endo-
geneity. Empirical papers should consider endogeneities to be corrected econometri-
cally. Empirical research in strategic management is beginning to focus on correct-
ing for endogeneity, and must benefit from econometric advances. To achieve highly
pertinent empirical strategic management research is required the implementation of
econometric methods to correct for endogeneity. Empirical strategy research in firm-
level performance outcome should consider correcting for endogeneity.
Hamilton and Nickerson (2001) reviewed more than a decade of empirical
research and assessed the econometric methods used and found that few papers
econometrically correct the endogeneity of management decisions and the expect-
ed performance. Hamilton and Nickerson (2001) report in their study that 169 of
the 196 performance-related papers (86%) do not control for endogeneity. They
also report that out of 601 papers, 426 empirical papers published, only 27 papers
explicitly econometrically correct for potential endogeneity concerns. The authors
argue that empirical research in strategic management is a failure due to the low
number of papers that account for endogeneity. Failure to statistically correct for
endogeneity leads to faulty conclusions contaminating the direction of empirical
research difficult to predict ex ante. The empirical research in strategic management
simply reports coefficient estimates and robust standard errors that account for
heteroscedasticity but not pre-estimation error.
From an alternative perspective to econometrics, it may consider a wider range
of not predetermined relationships between the chosen variables, but selecting oth-
er significant points to influence the choice.
G. No-econometric methods
Non-econometric are simple statistical descriptors or multivariate analysis, explor-
atory data analysis such as principal component analysis or clustering analysis, etc.
Research strategy in strategic management is having a major shift away from
more basic analyses, such as descriptive studies with a rise in the use of regression
and ANOVA models. Empirical papers use descriptive statistics, means and cor-
relations as their primary analysis, chi-square tests of contingency tables, regression
and ANOVA for analysis, and discriminant and cluster analyses in the context of
strategic groups. Cluster analysis has been applied as a research technique in stra-
tegic management research since the late 1970s. Ketchen & Shook (1996) focused
on cluster analysis of 45 papers published during the period 1977-1993 found that
the implementation of cluster analysis methodology often less than ideal.
However, the implementation of this research technique has not been applied
properly to generate knowledge in strategic management. Cluster analysis as a mul-
tivariate technique enabled to reduce large data sets into groups and types. Cluster
analysis as a statistical technique requires several methodological choices to sort
data into similar groups or sets to give solution to the cluster. Research choices are
made within a bounded time and space which can justify the particular denials and
exclusions associated with our choice of approaches to research.
Logical empiricism as a research approach has been used for example to identify per-
formance indicators of implemented strategies. Empirical strategy research is emerging
in the form of a broad-based narrative reviews, content analyses and best practice
guidelines. Collaboration among researchers involves detailed methodological and
content analysis and discussions, often taking into account the established stan-
dards and even challenging them. The empirical research separates purely analytic
contents which are considered true because of their either/or form based on their
logic or because the definition of their terms, from synthetic statements, which are
true only after investigation. The empirical content criterion addresses the logic and
semantic of theory rather than vagueness, as Bacharach (1989) argues that many
organizational-level theories are so vague they can never be empirically tested.
Empirical strategy research has gained from the use of contingency tools. Boyd,
Haynes & Hitt (2007) identified moderation in form or strength (Venkatraman,
1989) such as interaction, as the most prevalent tool used to analyze contingency
studies. There is little empirical research to support the assertion that control of
strategic assets determines the profitability of firms (Miller and Shamsie, 1996).
An empirically based pattern may be confronted to the initial theoretical frame-
work for theoretical validation. Empirical tests include field-based case study and
comparative outlier (Hitt, Harrison, Ireland, and Best, 1996) and the case survey
(Larsson, 1993) methodologies used for theory development and for theoretical
replication and extension. Field research methods have been used to develop stra-
tegic management theory supported by a multiplicity of research approaches and

data analysis techniques. Field studies are classified according to their research goal
as descriptive, explanation, or predictive.
Results and research findings in empirical research should be reasonably accurate
despite despite the implicit assumptions due to loss of information to portray the
phenomena under investigation. Results based on empirical research pertaining to
scanning practices have contributed to the development to theoretical approaches
to strategic management. The result of research can be some absolute truths besides
it involves decisions on the choice of methods, questions and selection of the data.
Research methodological decisions are made regarding questions, sources of data,
methods, techniques, etc.
Anshena and Guth (1973) emphasize the need of integrative, multidisciplinary
research in strategic management. Empirical methodology research in strategy,
model building and new techniques should be emphasized (Saunders and Thomp-
son, 1980). Jeremy Bentham advocated utilitarianism, the dominant consequenti-
ality position. A utilitarian believes in the greatest happiness for the greatest num-
ber. (PHG Foundation, 2011).
H. Case study
Case studies are fine-grained research methodologies (Harrigan, 1983). Case
study methodology has applications to investigate empirical phenomena in real-life
contexts. A case study model can be applied to explain and describe complex causal
links in real-life interventions, to describe the intervention itself and to explore
some situations (Yin, 1994). A case study can be used to analyze by building an
explanation as a pattern matching, for exploration send a hypothesis-generating
process. The case study as a research method in strategic management has been useful to
analyze generic business strategies and corporate diversification strategies among other
important organizational areas. One of the characteristics of the research methodol-
ogy of case studies is that researchers have no control over behavioral events (Tellis,
1997).
Case studies have been used in varied investigations, particularly in sociological
studies, but increasingly, in instruction. As a research tool of strategic management
investigations, the case study methodology has been employed since the 1930s
subject to criticisms that consider is not a reliable research methodology. The meth-
odology of case study recommended by Yin (1984) and a version of the question-
naire developed by Levy (1988) were modified and adapted for use at Fairfield Uni-
versity. Levy (1988) used the methodology of the case study in his investigation
aimed to show the impacts of information technology at the University of Arizona.
Levy (1988) used a single-case design based on exploratory and explanatory meth-
odology strategies to conduct an in-depth case study of the pace of acquisition of
information technology at the University of Arizona was considered the most suit-
able for the investigation of information technology.
While the exploratory strategy examined the environmental and economic as-
pects of information technologies, the explanatory strategy analyzed the patterns
followed by institutions of higher education when acquiring and using information
technology. The single-case study methodology used by Levy (1988) was based on
the contributions of Yin (1984) and Feagin, Orum, and Sjoberg (1991).
Case study research is not necessarily sampling research considering that it is a
system of action focusing on some selective issues where the most critical factor is
the unit of analysis. Each case study is unique in such a way that the data collection,
questions and unit of analysis cannot have the same form. The unit of analysis in a
case study could be an individual, a community, an organization, a nation-state,
an empire, or a civilization (Sjoberg, Williams, Vaughan, & Sjoberg, 1991). Holis-
tic or embedded case studies can be revelatory of inaccessible phenomenon involv-
ing more than one unit of analysis. Case studies have been used in varied strategic
management investigations an ideal methodology when a holistic, in-depth inves-
tigation is needed (Feagin, Orum, & Sjoberg, 1991).
Intrinsic case studies are those on which the researcher has an interest. Instru-
mental case studies are those considered to contribute to develop more profound
understanding beyond the researcher. Collective case studies are those that belong
to a group of cases. The action research as a methodology provides to the involved
participants an insider view of the specific situations for the analytical and reflective
learning, although it has been criticized that it may lack objectivity.
The case study methodology requires a discussion of procedures and their appli-
cation. good use of theory will help delimit a case study inquiry to its most effective
design (Yin, 1993, p. 4).To consider case studies as a research strategy in strategic
management consideration must be given to construct internal validity, external va-
lidity, and reliability (Yin, 1989). Any case study should attain external validity and
must provide the reliability required of all research in strategic management. The
reliability, internal and external validity of any case study research can be enhanced
by the rules and procedures stated in the protocol, more essentially in multiple-case
studies (Yin, 1994) that follow replication logic. To ensure accuracy in case studies,
and to confirm vality of the research processes is required triangulation to establish
meaning with explanations using multiple sources of data (Yin, 1984). The types of
triangulation identified are data source, investigator, theory and methodological tri-
angulation. Case study as a research strategy can triangulate methods, data, theories,
researchers, etc. (Feagin, Orum, & Sjoberg, 1991) asserted that triangulation can
occur with data, investigators, theories, and even methodologies.
Case studies can be exploratory, explanatory, descriptive (Yin, 1993) intrinsic,
instrumental and collective (Stake, 1995) and multiple-case applications. Explor-
atory case studies may be used to prelude research. Exploratory case studies aim to
find causal relationships in research. Descriptive case studies are based on descrip-
tive theory. A case study may be organized around a descriptive framework leading
to the analysis that relies on theoretical propositions. If there are not any theoretical
propositions in the research design for a reliable analysis, still is possible to develop
a descriptive framework for a case study.
The multi-site study is a research strategy that combines several approaches
merging on case study research (Eisenhardt, 1989; Yin, 1993, 1994). Audet, J.
and dAmboise, G. (2001) conducted a case study research in a multi-site study
to analyze data of an organizational phenomenon by combining the positivism,
interpretative and qualitative theoretical approaches using cross-case comparisons
and explanation building techniques.
Yin (1994) recommended as a case study methodology to design, conduct, ana-
lyze the evidences and develop the conclusions, recommendations and implications.
The development of the case study protocol is required in the case study method-
ology (Yin, 1994). A complete description of the research explains what available
information is necessary to used. Design of case studies as a research strategy should
satisfy the conditions of the research question posed, the extent of control and the
degree on focus over behavioral events (Yin, 1994). Case study as a research designs
are not variants of other research designs (Yin, 1994).
Case studies are designed to use multiple sources of data bringing out the details
from diverse viewpoints of the involved participants. The case study as a strategy
of research in strategic management has the characteristic to consider points of
view of all parties, agents and actors involved regarding the selected issues to study
(Feagin, Orum, & Sjoberg, 1991). The nature of the research questions lead to the
relevant strategy to be used in an explanatory-exploratory case study (Levy, 1988).

The explanatory strategy determines the extent of similar patterns applicable in
other environments.
The analysis presented in a case study must include relevant evidence, use of
rival arguments. Using multiple sources of data for case study research based on
documentation, archival records, interviews, direct observation, participant obser-
vations and physical artifacts (Yin, 1994) is an important strategy to achieve reli-
ability of the research (Stake, 1995; Yin, 1994). Yin (1984) analyzed the strengths
and weaknesses of the different sources of evidence, which are presented in table 1.
Yin (1994) recommended conduct as the second stage of the methodology used
in a case study, to be carried out by the activities of preparation for data collections,
distribution of the questionnaire and conducting interviews. As a field method,
data collection is treated in isolation from the research process (Yin, 1994), al-
though this would not be productive in case study research. Doz (1996) conducted
an empirical test on field-based case study methodologies to collect both archival
and interview data from three sets of alliance partners, using a qualitative theory
building approach. Doz (1996) used field-based case study methodologies centered
on qualitative theory building approach to empirically test archival and interview
data from sets of alliance partners.
Table 1 Types of Evidence
Source of Evidence Strengths Weaknesses

Documentation stable - repeated review retrievability - difficult
unobtrusive - exist prior to case biased selectivity
study reporting bias - reflects author bias
exact - names etc. access - may be blocked
broad coverage - extended time
span
Archival Records Same as above Same as above
precise and quantitative privacy might inhibit access
Interviews targeted - focuses on case study bias due to poor questions
topic response bias
insightful - provides perceived incomplete recollection
causal inferences reflexivity - interviewee expresses what
interviewer wants to hear
Direct Observation reality - covers events in real time time-consuming

contextual - covers event context selectivity - might miss facts
reflexivity - observers presence might
cause change
cost - observers need time
Participant Same as above Same as above
Observation insightful into interpersonal bias due to investigators actions
behavior
Physical Artifacts insightful into cultural features selectivity
insightful into technical operations availability
(Yin, 1994, p. 80)
The case study methodology has the data analysis of case study as one of the
least developed areas of research methods. Research based on case study has a fre-
quent criticism of the generalization of results that are not being widely applicable
in real and some other specific situations. There has been a lot of criticism of some
research techniques and methodologies of not being scientific in nature, such as the
case study because it is not possible to replicate it.
I. Quantitative and qualitative research

There is a trend in strategic management research projects toward the integration
of both quantitative and qualitative data (Judge and Zeithaml, 1992) that requires
using multiple methods and measures (Hitt, Hoskisson, Johnson, and Moesel,
1996). The increasing sophistication of some research methodologies combines both
quantitative and qualitative approaches and statistical tools. Combined qualitative
and quantitative data approaches as a strategic management research design meth-
odologies is gaining more grounding and popularity. There is an increased tendency
in the quantity and quality of research developments in the theoretical and method-
ological fields of strategic management (Hitt, 1997). Research in strategic manage-
ment tends to integrate in complex models both quantitative and qualitative data
(Judge and Zeithaml, 1992) requiring multiple methods and multiple measures of
specific constructs (Hitt, Hoskisson, Johnson, and Moesel, 1996).
The research methodologies used in strategic management are becoming in-
creasingly sophisticated and frequently combine both quantitative and qualitative
approaches with new statistical tools. Quantitative measures attract the attention
to underlying objective facts that give evidence of the phenomena, while qualitative
data colors and enrich the analysis and interpretation of such phenomena.
1) Quantitative research
The analytical mathematical research methodology, analytical statistical and
causal relationships are popular quantitative research methods used in strategic
management to test for internal validity. Quantitative research is the systematic sci-
entific investigation used to measure and gather quantitative data of everything that
is measurable. Research in strategic management is already developing complex
and sophisticated models though the integration of multiple theories and meth-
ods such as structural equation modeling, panel data analysis, network analysis
dynamic models of partial adjustment, logistic and Poisson regression analyses and
event history analysis.
Quantitative research methodology in strategic management emphasizes lon-
gitudinal data, dynamic analysis, and focus on specific strategic decisions and ac-
tions. Data for quantitative research can be collected through interviews, structured
questionnaires, surveys, etc. Quantitative measures are likely to facilitate cross-case
comparisons comparison between scores, and the use of multiple indicators with
scales provides more confidence in the validity of the measure. Comparison be-
tween the predicted pattern and actual pattern for internal reliability of the study
might not have any quantitative criteria, but discretion of the research is required
for interpretations.
Quantitative methodologies have some limitations if they are confined in study-
ing configurations, despite overcoming problems associated with conventional sta-
tistical analysis.
2) Qualitative research
Qualitative research methodologies have evolved beyond the techniques of
qualitative data collection helping researchers to improve understanding and ex-
plaining a variety of complex management phenomena. The qualitative research
approach can be used to analyze the strategic management phenomenon barely
researched that is both adaptive and innovative. Given the complexity an ambigu-
ity of the qualitative methodological components (Lee, 1999), the researcher has
more room to design a research strategy more suitable to his skills and his specific
objectives and needs. The qualitative research approach is being used for example
in the design of multi-site study research strategies to gain an in-depth knowledge
of strategic management in organizations.
Qualitative research is a multi-focal investigation to get an in-depth insight of

behaviors, values, attitudes, motivations, etc., based on unstructured interviews,
feedback and recordings methods. Qualitative data are useful for uncovering emic
views (Guba & Lincoln, 1994, p.106). In strategic management research it may
not be possible to undertake standard analyses limited by the etic or outsider theory
based on the knowledge of the countries firms economic, political, cultural, etc.
circumstances may not correspond within the emic or insider view.
Greckhammer, Misangyi, Elms, and Lacey (2008) introduce the research tech-
nique termed qualitative comparative analysis (QCA) for strategic management
research aimed to diagnose interdependent causal effects across different levels of
analysis. Longitudinal qualitative analysis as a research strategy in strategic manage-
ment provides meaningful insights about the inter relationships among the envi-
ronment, strategy, structure, processes and outcomes and the different constructs
of organizational evolutive configurations (Eisenhardt, 1989; Bourgeois & Eisen-
hardt, 1988). A qualitative research design may support and combine theory test-
ing and generation (Lee, 1999). Qualitative research does not require and justifies
probabilistic sampling (Merriam, 1998, p. 61). Patton (1999, p. 1190) argues that,
it need not be antithetical to the creative aspects of qualitative analysis to address
issues of validity and reliability. Other research methodologies such as case replica-
tion (Leonard-Barton, 1990) and retrospective event histories (Glick et al., 1990)
are designed to overcome some of these problems.
Some approaches to strategic management include action (Birks, 2010; String-
er, 2007) and grounded theory (Strauss & Corbin, 2008), approached that differ
from the detached observer view of research. Egon Guba describe action research
as a reaction to the search for common, general findings (Stringer, 2007, p. ix) that
combines qualitative and quantitative research methods in a close involvement in
specific situations. Personal experience and involvement supports grounded theory
approach that provides insights for the etic/emic analyses although it may result in
a limited range of possibilities because the difficulties to become impartial observer.
Qualitative studies are being the target of criticism which considers has limita-
tions because they are subject to the researcher bias, non-replicability and labor
intense (Van de Ven & Huber, 1990). It is also criticized the impartial observer
view of detached researchers (Guba & Lincoln, 1994) as unrealistic, because their
subjectivity. The concept of street-level epistemology (Hardin, 2002 states that
information and views are passed on from others, including academic disciplines.
5. Strategic management research

As a field of strategic management advances, so should its level of research meth-
odological rigor. Research methodology improves the scientific background and
framework of strategic management, and contributes to enhance confidence in the
results and findings generated. McGuire (1986) argues that researchers and manag-
ers can benefit from each other if their needs and modes of thinking are compared.
Both have to abstract the general theoretical principles to be applied to specific situ-
ations and to assess the generalizability of their conclusions. Bower (1982) argues
that research in strategic management should concentrate on issues of concern to
the top management of the firm to enrich the field by well-structured problems
although it may emerge the problem of rewarding academics.
The interest in strategic management research has been increasing over the last
three decades. Research methods in strategic management have evolved over time
growing since its inception in the late 1970s (Bowman, Singh & Thomas, 2002;
Kay, McKiernan & Faulkner, 2003; Mintzberg, Ahlstrand, & Lampel, 1998). Some
academic papers presented the research methodological implications in a broad
overview of strategic managements development, such as hypothesis formulation,
quantitative and qualitative analytic tools among other important methodological
issues (Hitt, Gimeno and Hoskisson, 1998). Empirical strategy papers increased
in number and in diversity of topics to create a strong research stream in strategic
management. However, there is a relatively limited set of research methodology
strategies and analytical procedures in strategic management.
Strategic management is one of the most recent fields of the management disci-
pline (Boyd, Finkelstein & Gove, 2005; Hambrick, 1990). Strategic management
has become one of the most popular fields (Bergh, 2001; Ramanujam & Varada-
rajan, 1989) since a pioneering research by Rumelt (1974) found that strategy
matters and gives rise to a notable research in the field (Bergh & Holbein, 1997;
Greve & Goldeng, 2004). Research in strategic management has focused on some
specializations such as strategic leadership, competitive dynamics, restructuring,
etc. The large number of topics and subjects covered by strategic management lit-
erature gives the idea that it does not have a unified, coherent and integrative sci-
entific fields identity, object of study, research methods, conceptual and theoretical
frameworks.
The conceptual, theoretical and methodological frameworks challenged by
Williamsons (1975, 1985) model of transaction cost economics, the following in-
vestigations on strategic management by Miles and Snow (1978), Meyer (1982),

Eisenhardt (1989), and Henderson and Cockburn (1994) produced influential
conceptual, theoretical and methodological frameworks. During the 1980s, dif-
ferent approaches to research methodologies resulted in the new theoretical devel-
opments of strategic management; among them the transaction cost economics
(TCE) (Williamson, 1975, 1985) that provided theoretical and conceptual frame-
works, although it is difficult to capture and measure not observed transaction costs
in bargaining and negotiating processes.
Content analysis in strategy research has been improving for the last three de-
cades (Bergh & Holbein, 1997; Boyd, Gove & Hitt, 2005; Shook, Ketchen, Hult
& Kacmar, 2004). Bergh & Holbein (1997) looking at longitudinal designs in
203 papers on strategic management from 1980 to 1993 found that more than
90% of studies had insufficient attention to methodological assumptions, thus,
the investigations were affected by type I bias. Sarker and Lee (2001) using a case
research methodology in business process reengineering to test competing theories,
found evidences to refute the dominant technocentric theory and the alternative
sociocentric view while providing support to adopt the socio-technical approach.
Bergh & Fairbank (2002) found that strategy researchers reach flawed conclu-
sions and inaccurate findings because when measuring changes they do not rec-
ognize the required research methodology. Hitt, Boyd and Li (2004) summarized
key content analyses of research methodology employed in strategic management.
Ketchen, Boyd and Bergh, D. D. (2008) reviewed the research methods applied in
strategic management between 1980 and 2004 observing a growth in the number
of articles devoted to strategy topics using empirical tools.
Lohrke (2008), Shook (2008), and Wright (2008a) have reviewed different top-
ics of research methodology, integrating them in a coherent analytic framework
and making important contributions to research on strategy methods. These pa-
pers review the application of some research methods employing traditional tools
and more specialized methods. Among the traditional methodological tools are re-
viewed meta-analysis, strategic groups, survey data collection, etc. Among the more
specialized methods the authors review cause mapping, conjoint analysis, internet
data collection, repertory grids, etc. Regarding the content analyses these authors
review some conceptual, theoretical and methodological frameworks, such as the
resource based-theory, discretion, upper echelons, etc.
Research methods used address theoretical perspectives such as resource-based

view, traditional tools such as survey data collection, meta-analysis, etc., and more
specialized methods such as internet data collection, conjoint analysis, repertory
grids, cause mapping, etc. The methodological practices of strategic management
research strength the scientific character of the field to the extent that increase the
confidence in the findings resulting from a variety of research design, sampling,
measurement, analysis, and interpretation of results techniques.
Management research is aimed to analyze recent developments on research
methodology in strategic management. Organizational location using spatial re-
search methodology in strategic management is a research topic that has called
the attention of some researchers such as Dohn and Hahn (2008). Venkatraman
(2008) highlights the improvements on research methodological sophistication of
the strategic management field.
Research methods used at the different levels of analysis to capture motives,
preferences, and decisions of industries, firms, management strategic groups and
individuals are very limited on the design, implementation and monitoring strate-
gies. The simplicity of some methods used to analyze multi-level phenomena, such
as variance decomposition, is not suitable for more complex analysis of situations.
The integrative nature of strategy research leads to an imperative for adoption of
multiple theoretical frameworks. Innovations in research methodology provided
new insights out of the debate industry versus firm provided new insights. every
new innovation consists of a new combination of existing ideas, capabilities, skills,
resources etc. It follows logically from this that the greater the variety in these fac-
tors within a given system, the greater the scope for new combinations of these fac-
tors, that is, new innovations (Fagerberg, 2003, p. 7). Researchers and scholars
address identified methodological areas of omission.
Strategic management has borrowed some research methods and techniques
from other fields such as economics, sociology, psychology, politics, and more re-
cently geography, etc. Research in strategic management influences other fields
such as organizational theory (Oliver 1991, 1997) and human resource manage-
ment (Huselid, 1995; Wright, Dunford & Snell, 2001).
Ketchen, Boyd and Bergh (2008) argue that the research methodology used to
analyzed strategic management are as robust as the findings generated, although the
methods still face some challenges despite the accomplishments. Not all case stud-
ies require or have absolute necessity of statistical robustness. However, researchers
in strategic management repeat past mistakes of adopting a technocentric or socio-

centric approaches without considering the interactions between the social and the
technological (Collins, R. S. and Cordon, C., 1997).
6. Challenges for research methodology strategy

New communication and information technologies have changed the pace, vol-
ume and nature of available information but also in the methods for analyzing such
data. Sources of data are more easily accessible and searchable depending of type
and mix of research methods and techniques used. Analysis of textual information
as an input derived from data sources and literature review has many forms and
is itself research (Johnson & Christensen, 2012; McKee, 2003) that may require
some quantitative, mathematical and econometric modeling. Meta analyses and
combinations of existing knowledge can give valuable insights.
Research methods in strategic management face several challenges due to the
methodological limitations for the examination and analysis of the strategys pro-
cesses and phenomena complexities. Longitudinal methods help to the analyses
of evolving events over time although the complexity, uncertainty and immeasur-
ability variables associated to these phenomena. The strategy phenomena pose a
challenge for researchers due to the multidimensional nature of constructs. Strate-
gic management might be enriched through inclusion and use of alternative tech-
niques in addition to conventional tools.
The strategies of research in strategic management should consider the actions
and interactions of all agents and actors involved in organizational activities. Re-
search on the processes of formulation, design and implementation of strategies
in organizations has called the attention not only of scientists, scholars and prac-
titioners but also common people interested in the topic, despite the fact that the
research methods have limitations.
Research methodology still has plenty of perverse problems that limit the ap-
plication of research findings in design, measurement and analysis. Research meth-
odological practices prevail that provide limited insights in strategic management.
Less developed economies have a small budget for scientific research, innovation
and technology transfer. It is difficult to introduce new research methodologies in
less developed countries where the scientific culture is not widely promoted and
adapted as the common ground among the scientific community. Conventional
wisdom (Galbraith, 1999) considers that group culture and political influences
shape dominant views. Strategies for engaging strategic management research-
ers and scholars with new types of research methods and resources and new ways
of practicing and working with them require sensitivity to the existing scientific
cultures and practices. If researchers in strategic management want to be effec-
tive in optimizing the use and exchange of research methodology and resources,
they should be more sensitive to the practices and cultures of different research
communities.
Samik-Ibrahim (2000) proposes a grounded theory methodology (GTM) in
a developing country at the stage where research activities have a lot of obstacles
and many shortages such as low effectiveness-productivity and efficiency, lack of
funding, etc. Grounded Theory Methodology (GTM) is a general method of com-
parative analysis to discover theory with four central criteria: Work or generality,
relevance or understanding, fit or valid, and modifiability or control.
The future research in strategy process research has the tendency to be more
holistic, more integrative, with an emphasis on team work, corporate management
and be more oriented and supportive of action research methodologies (Hitt, Gi-
meno y Hoskisson, 1998). Future research in strategic management phenomena
will include integration of multiple theoretical and empirical complex models sup-
ported by sophisticated statistical tools such as structural equations modeling and
multinomial logit analysis.
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148 Draen Barkovi Ivana Barkovi Bojani
SUPERVISOR SELECTION IN THE PH.D PROGRAM BY USING

THE ANALYTICAL HIERARCHY PROCESS METHOD
Draen Barkovi,Ph.D.1 Ivana Barkovi Bojani, Ph.D.2
1
Professor Emeritus, Josip Juraj StrossmayerUniversity of Osijek, Faculty of Economics,
Republic of Croatia, barkovic@efos.hr
2
Faculty of Law, Josip Juraj Strossmayer University of Osijek,
Republic of Croatia, ivana.barkovic@pravos.hr
Abstract
This paper focuses on the selection of supervisor for Ph.D. candidate in general,
i.e. on the issue of establishing and sustaining a supervisory relationship between
the professor and the Ph.D. candidate. While this relationship is essential for the
success of the Ph.D. program in general and completition of dissertation in partic-
ular, there are many evidences in the practice that such a relationship may contain
imbalances in the power between the professor/supervisor and the Ph.D. candi-
date, which may be discussed in the terms of equity and inequality. Based upon the
literature review, this paper briefly presents the (in)equitable relationship between
supervisor and Ph.D. candidate, demonstrates the supervisor selection issue by us-
ing the analytical hierarchy process (AHP) method and discusses about the equity
theory as the guiding aid in establishing and sustaining a supervisory relationship.
JEL Classification: A23, C00, Z00
Keywords: analytical hierarchy process, thesis supervisor, equity theory
1. Introduction
Long term experience in managing postgraduate studies, especially master and
doctoral programs, reveals various significant aspects of managing those studies,
which are often underestimated yet they reflect themselves upon the efficiency and
effectiveness of Ph.D. students/candidates1, their professors, Ph.D. program and
the university itself.
1
There are variety of terms across universities that may be used for students beeing involved in the
doctoral programm-doctoral student, Ph. D. Student or Ph. D. Candidate. Doctoral student or Ph.
SUPERVISOR SELECTION IN THE PH.D PROGRAM BY USING THE ANALYTICAL ... 149
The issue of establishing and sustaining supervisory relationship between the

professor and the Ph.D. candidate, i.e. the selection of supervisor for Ph.D. thesis,
is rather complex since it involves development of both professional and personal
relationship. Even though these relationships may be rewarding for both sides, such
relationships may contain imbalances in the power between the professor/super-
visor and the Ph.D. candidate. These imbalances are often regarded in terms of
equity and inequality.
The focus of this paper is the selection of Ph.D. thesis supervisor. The section
2 of the paper briefly discusses the complexity of supervisory relationship with
the particular emphasis on the existence of inequity on either side professors or
Ph.D. candidates. It presents the equity theory postulated by J.S. Adams (1965)
which provides an insight how individuals evaluate social exchange relationships
such as those between professor and Ph.D. candidate. Section 3 demonstrate the
supervisor selection issue by using the analytical hierarchy process (AHP) method
and discusses about the equity theory as the guiding aid in establishing and sustain-
ing a supervisory relationship. Section 4 concludes the paper.
2. The complexity of supervisory relationship

Mentoring and supervision are important processes in educating and profes-
sionally developing the Ph.D. candidate to win the Ph.D. title. While mentors and
supervisors often have overlapping roles, one cannot use these terms interchange-
ably without emphasizing their important distinctions. Mentoring is a process for
the informal transmission of knowledge, social capital, and the psycho-social sup-
port perceived by the recipient as relevant to work, career, or professional develop-
ment; mentoring entails informal communication, usually face-to-face and dur-
ing a sustained period of time, between a person who is perceived to have greater
relevant knowledge, wisdom, or experience and a person who is perceived to have
less (Bozeman & Feeney, 2007). On the other hand, supervision in the academic
contest is a process to facilitate the student becoming an independent professional
researcher and scholar in their field, capable of adapting to various research arenas,
whether university or industry based (Pearson & Brew, 2002).
D. Student is every student involved in the doctoral programme. The doctoral /Ph. D. Student is
granted in the candidate status after competition and examination of all corsework required for the
degree, except the dissertation.
As said, the focus in this paper is on the selection of supervisor and the issues
embedded in his relationship to the Ph.D. candidate such as trust, equity and the
like. Namely, the relationship between a Ph.D. candidate and an academic supervi-
sor is critical to the success of the Ph.D. program in general and it is crucial for the
completion of Ph.D. thesis in particular. Many scholars have been examining vari-
ous issues related to establishing and sustaining an equitable supervisory relation-
ship that leads to education and creation of science professionals (e. G. Bird, 1994,
Swayze & Anderson, 1996, Bird, 2001). Yet, it has proven to be very complex and
dynamic relationship which has multiple aspects such as managing and research
process time-wise, socialization of the Ph.D. candidate into the role of academic
researcher, supporting critical thinking, developing academic independence etc.
(see for details Lee, 2011). The professional relationship that results from these
interactions will help not only to Ph.D. candidates in their future careers, but also
professors in their growth as educators and researchers (Carter & Whittaker, 2009).
This is true only in the cases when there is trust and equity between these two sides.
However, this relationship may suffer from mismatched expectations, lack of trust
or equity, which may jeopardize its critical role.
The presence of inequity on either side professors or Ph.D. candidates may be
costly in numerous ways. For example, the cost that Ph.D. candidate could bear is
related to obtaining Ph.D. degree from the institution, finding a job, ability to pub-
lish in desired journals. If one takes into consideration that drop-out rates at the
postgraduate/doctoral programs are rather high, approximately 40-50% according
to Smallwood (2004), then the relationship factors that can contribute to keep the
Ph.D. students /candidates in the program become of critical importance for both
Ph.D. candidates and faculty. According to the McWilliam et al. (2002) attrition
rates from doctoral programs have a tremendous opportunity cost in terms of re-
sources, time and energy waste, as well as adversely impact many involved profes-
sor0s reputation and in some cases the institutions, schools, or doctoral programs
reputation. In order to overcome these potential negative outcomes it is important
to understand how equity impacts relationships between Ph.D. candidates and su-
pervisors, as well as to understand what makes an equitable student professor
relationship in the Ph.D. program.
2.1. Equity Theory in the Light of Supervisory Relationship

The equitable relationship between the supervisor and the Ph.D. student may
be observed and understood by studying theories that underline the equity. The
notion of equity is usually understood as a kind of justice, but one can differenti-
ate two ways of it: equity is the same as a rectification of legal justice as stated by
Aristotel or equity is a justice conceived as fairness as stated by J. Rawls. When the
term equity is used in higher education, it mainly refers to different conceptions of
social justice as equality of opportunities:, e.g. to enroll in higher education institu-
tions (equity of access), to complete higher education studies (equity of results).
The equity theory has gained substantial popularity among social scientists due
to several factors: (i) the logic behind it is well understood by the scholars and
practitioners; (ii) equity is one of the operating norms of the stratification system of
Western societies and (iii) it reached rather sophisticated level of theoretization and
has been connected to other fields, such as psychology, economics, etc. (Neumann
& Neumann, 1984: 269).
One of the most discussed models explaining how individuals evaluate social
exchange relationships has been formulated by J.S. Adams in his Equity Theory
developed in 1965. Adams introduced the idea that fairness and equity are key
components of a motivated individual. In a nutshell, the equity theory is based in
the idea that individuals are motivated by fairness, and if they identify inequities
in the input/output ratios of themselves and their referent group, they will seek to
adjust their input to reach their perceived equity.
The inputs are factors that a person has accomplished (i.e. past experience, edu-
cation, and work) and perceives to be worthy to some return. The outputs are the
returns to the individuals job investment. In modeling context, inequity exists for
person (p) whenever he perceives the ratio of his outcomes (O) to inputs (I) and the
ratio others (o) outcomes to others inputs are unequal. Mathematically expressed,
inequity exists when either of these relationships holds true:
as well as equity exist when
Adams suggested that the higher an individuals perception of equity, the more
motivated they will be, and vice versa - if someone perceives an unfair environment,
they will be demotivated.
Adams equity model consists of four essential postulates: (i) perceived inequity
creates tension in an individual, (ii) the amount of tension is proportional to the
magnitude of the inequity; (iii) this created tension motivates the individual to
reduce it; (iv) the strength of the motivation to reduce the inequity is proportional
to the perceived inequity.
Equity theory is a motivation theory with the prime interest to describe how in-
dividuals in organizations react to inequitable compensation compared to other co-
workers. Adams equity model alludes to the fact that an employee who believes to be
under rewarded for his or her responsibilities and efforts will strive to create a more
equitable balance regarding both monetary and nonmonetary rewards. The applica-
tion of equity theory is often extended to unfair situations, such as an individual who
has been allocated a much lighter or heavier work load than a comparative other.
Even though the steps are not always taken to fix dysfunctional relationships and alter
unfair situation, the inequitable relationship will probably create tension that may be
eventually reduced by making the necessary changes in the power base.
2.2. Inequity in the Supervisory Relationship

The existence of inequity in the supervisory relationship, i.e. between the profes-
sor and Ph.D. candidate opens the question of unethical people who, by default,
are taking the advantage of individual, particular in the cases when the individual
has a higher level of tolerance to inequity.2 Unethical individuals at the university
who might take advantage of others e.g. supervisor is taking the advantage of
Ph.D. candidate - are harmful not only to the Ph.D. program but for the university
as whole. For example, one of possible effects is the lost in trust or loss of reputation
in the Ph.D. program and/or university. In order to avoid the persistence of such
detrimental behavior, one should be acquainted of what makes an effective and
equitable relationship between professor and Ph.D. students/candidates.
The Ph.D. candidate and professor relationship is rather complex since it is a
personal as well as a professional relationship in which the power may be unevenly
distributed. Due to the nature of Ph.D. programs, there are cases when Ph.D.
students/candidates are treated more like colleagues that regular students. This is
not surprising if one takes into consideration that Ph.D. students/candidates may
2
This is one of the complicating factor in the equity theory. Namely, some individuals have higher
level of tolerance for inequity than others and become the victions of unethical persons who use
them to satisfy their own interests (Tornow, 1971).
be well positioned people in the business or other community that see the Ph.D.
title as the additional professional and personal achievement in their career and/or
the people that may be linked to the university through industry-university part-
nership. If the relationship is equitable, then it is rewarding for both sides and can
be promoted in so to say value added partnership resulting in joint publications,
contacts, research grants, and variety of other opportunities. Yet, if the professor
is inequitable in the treatment of the Ph.D. student/candidate, this can have an
adverse impact on both sides, especially if the student works to lessen the inequity.
There are also situations in which the student, despite being treated inequitably,
does not commit to an action to reduce inequity. When professor takes the advantage
of Ph.D. student, one can notice the existence of positional power of the professor in
their relationship. Literature review reveals that students occasionally ignore the fact
they are being treated inequitably because they view the professor as having power
over them: for example, supervisors have been known to change the requirements of
a thesis inappropriately in order to delay completion of the degree when a student
is especially talented or capable in providing computing or electronic skills to the
research group (Bird, 2001). Schniederjans et al. (2012) reviewed academic scholars
discussing the professional power being unevenly distributed: a part of the role of
a professor in the professor-student relationship is power inherent (Blevins-Knabe,
1992); professors power comes from the professor evaluating the student and having
the authority in the subject in which the professor is expert (Paludi, 1990; Zalk et
al., 1990). Not so many Ph.D. students/candidates have the courage to oppose to
someone who can significantly influence their careers. Those individuals that do
stand up against inequity may be role models to those who follow, but are often hurt
in the process, which is an inequity in and of itself (Schniederjans et al., 2012).
Opposite to inequitable professor-student relationship, a fair and equitable rela-
tionship with a professor is based on the attitude of the professor towards the student
and may encompass following: (i) professors role should be teaching, not only the
course material, but also modeling how to use the knowledge appropriately; (ii) being
trustworthy in offering faculty members sensitive information, including objective
and equitable evaluation as well as equal learning opportunities for all students with-
out preferential treatment; and (iii) the professors role should include demonstrating
power in the authority of the subject matter (see for details, Blevins-Knabe, 1992).
Schniederjans (2007) proposed a Ph.D. student bill of rights that dealt with is-
sues regarding what Ph.D. students should expect from professors who chair their
doctoral committees. This bill of rights contains a few requirements for both fac-
ulty members and students, including: (i) faculty members should make sure the
right to select Ph.D. program committee members is given to the student; (ii) the
student should be given the right to permit changes in the program committee ei-
ther before or during the creation of the dissertation; (iii) a committee chair should
work with the student on research prior to, during, and after the dissertation; (iv)
a committee chair should set up codes of conduct between the student and the
chair based on sound ethical values. These are the rights a doctoral student should
have and a committee chair should ensure. If the program committee chair fails to
ensure these fundamental rights, a student will most likely have problems. Equity
theory proposed that when a state of inequity is perceived, that individual would
experience a state of distress Walster, Berscheid &Walster (1973).
3. Research methodology
There are not so many studies that have looked into the method of supervisor selec-
tion. This article proposes and demonstrates the application of a multiple criteria based
selection method using Analytical Hierarchy Process (AHP) for supervisor selection.
The Analytical Hierarchy Process is a popular decision-making tool developed
at the Wharton School of Business by Thomas Saaty [Saaty, T., 1991] and allows
decision makers to model a complex problem in a hierarchical structure showing
the relationships of the goal, objectives (criteria), sub-objectives, and alternatives
as shown in Figure 1. Uncertainties and other influencing factors can also be in-
cluded. It is used in wide variety of decision situations.
Figure 1: The AHP decision hierarchy process

In AHP, the main problem is first decomposed into a hierarchy of simplified

sub-problems in which each can be analyzed independently. The elements of the
hierarchy can relate to any aspect of the decision problem, tangible or intangible.
Once the hierarchy is built, the elements are arranged systematically and compared
to one another in pairs using concrete data about the elements or based on hu-
man judgments about the elements relative meaning and importance. A numerical
weight or priority is derived for each element of the hierarchy, allowing diverse and
often incommensurable elements to be compared to one another in a rational and
consistent way. In the final step of the process, numerical priorities are derived for
each of the decision alternatives. Since these numbers represent the alternatives
relative ability to achieve the decision goal, they allow a straightforward consider-
ation of the various courses of action Clety (2008).
To determine the weights of each evidence layer, each criterion (or layer) was
compared against each other and a judgment on the relative importance of each
layer was made and an appropriate score from 1 to 9 was assigned (Table 1). Pair-
wise comparison greatly reduces the conceptual complexity by comparing only two
criteria at a time. The pair-wise comparison is performed in a square preference
matrix from which eigenvalues and eigenvectors are calculated.
Table 1: Example scale for comparisons (Saaty T., Vargas, 1991)

Intensity of importance Description
1 Equal importance
3 Moderate importance of one factor over another
5 Strong or essential importance
7 Very strong importance
9 Extreme importance
2, 4, 6, 8 Intermediate values
Reciprocals Values for inverse comparison
In the first phase of the study Ph.D. students at the postgraduate doctoral pro-
gram Management of the Faculty of Economics in Osijek were asked to list all
factors they would consider or would recommend that one should consider before
selecting a supervisor for a Ph.D. thesis. The simple question based upon the ex-
pert reasoning and academic literature - that was asked was What are important
characteristics that you look for in a faculty member before selecting her or him as
a supervisor ? There were 47 students in the Ph.D. programme during the time of
study, of which 23 responded. This resulted in an initial list of 13 items, which is
further reduced using 5 point Likert scale. The selection problem was then formu-
lated using the 6 elements that serve as criteria for selection.
3.1. Criteria for the supervisor selection

The problem in this research is to determine an optimal supervisor selection for
doctoral candidate. The criteria or objectives for supervisor are given in Table 2.
Table 2: Criteria summarized

No. Criteria Abbreviation
Freedom to work. The professor is open to ideas and is flexible about adopting
1 FW
alternative approaches.
Time conscious . The professor is conscious about time taken for completion and is
2 TC
generally willing to work towards it.
3 Reputation, publications. Reputation of professor in his or her field. RP
Personal relationship with the professor. Cordial and understanding relationship with
4 PR
the professor.
Social networks. The professors social network and relationship with other professors
5 SN
in the institute and outside.
6 Number of thesis guided. NT
3.2 Qualitative comparison by Analytical Hierarchy Process (AHP)

After defining the main criteria for supervisor selection, they are then ranked
against each other in terms of relative importance to the solution of the problem.
In this case, each objective is given a ranking of 1 to 4 relative to the other show-
ing how good one objective is better to the other. The results are shown in Table 3.
Table 3: Relative importance of the criteria

FW TC RP PR SN NT
FW 1 1/3 1/2 1/4 1/4 2
TC 3 1 2 1/3 1 3
RP 2 1/2 1 1/2 1/2 2
PR 4 3 2 1 1 4
SN 4 1 2 1 1 3
NT 1/2 1/3 1/2 1/4 1/3 1
The alternative professors who may be the potential supervisors are listed in
Table 4.
Table 4: Alternative professors for supervisors

No. Potential supervisors
1 Professor A
2 Professor B
3 Professor C
The alternative professors and potential supervisors were ranked relative to each
other for each criterion reflecting their perceived strengths. Based on intuitive judg-
ments, the relative strengths of the alternative professors (supervisors) were evalu-
ated for each of the criteria above. The ranking of alternatives for each criterion are
as shown in Table 5.
3.3. Comparing of alternatives steps

The alternatives are compared by matrix evaluation. The following steps are used:
The matrix from the relative ranking of the alternatives is squared
The rows of the square matrix of alternatives is summed to form column
matrix
Sum the column matrix resulting from sum of rows
Divide each element of column vector by the sum to form eigenvector
Multiply eigenvectors of objectives by that of alternatives
The result of product of the eigenvectors gives the overall comparison of the
alternatives. The results are discussed in next section.
Table 5: Relative importance of alternatives for each criterion

Freedom to work Time conscious Reputation, publications
A B C A B C A B C
A 1 1/2 3 A 1 1 3 A 1 2 2
B 2 1 4 B 1 1 1 B 1/2 1 2
C 1/3 1/4 1 C 1/3 1 1 C 1/2 1/2 1
Personal relationship with the
Social networks Number of thesis guided
professor
A B C A B C A B C
A 1 1/2 2 A 1 1 2 A 1 3 1
B 2 1 2 B 1 1 3 B 1/3 1 1/2
C 1/2 1/2 1 C 1/2 1/3 1 C 2 2 1
3.4. Results of AHP

The AHP model was created and executed using a simple MATLAB code to
execute the matrices. The results from the AHP matrix calculations are summarized
in Table 6.
Table 6: Relative importance of the criteria

FW TC RP PR SN NT
FW 1 1/3 1/2 1/4 1/4 2
TC 3 1 2 1/3 1 3
RP 2 1/2 1 1/2 1/2 2
PR 4 3 2 1 1 4
SN 4 1 2 1 1 3
NT 1/2 1/3 1/2 1/4 1/3 1
COLUMN SUM 14,500 6,166 8,000 3,333 4,083 15,000
FW TC RP PR SN NT Priorities
FW 0,069 0,054 0,063 0,075 0,061 0,133 0,076
TC 0,207 0,162 0,250 0,100 0,245 0,200 0,194
RP 0,138 0,081 0,125 0,150 0,122 0,133 0,125
PR 0,276 0,487 0,250 0,300 0,245 0,267 0,304
SN 0,276 0,162 0,250 0,300 0,245 0,200 0,239
NT 0,034 0,054 0,063 0,075 0,082 0,067 0,062
max = 6,220, consistency index and consistency ratio are CI = 0,044, CR = 0,035
FW A B C
A 1 1/2 3
B 2 1 4
C 1/3 1/4 1
3,333 1,750 8,000
A B C Priorities
A 0,300 0,286 0,375 0,320
B 0,600 0,571 0,500 0,557
C 0,100 0,143 0,125 0,123
TC A B C
A 1 1 3
B 1 1 1
C 1/3 1 1
2,333 3,000 5,000
A B C Priorities
A 0,429 0,333 0,600 0,454
B 0,429 0,333 0,200 0,321
C 0,143 0,333 0,200 0,225
RP A B C
A 1 2 2
B 1/2 1 2
C 1/2 1/2 1
2,000 3,500 5,000
A B C Priorities
A 0,500 0,571 0,400 0,490
B 0,250 0,286 0,400 0,312
C 0,250 0,143 0,200 0,198
PR A B C
A 1 1/2 2
B 2 1 2
C 1/2 1/2 1
3,500 2,000 5,000
A B C Priorities
A 0,286 0,250 0,400 0,312
B 0,571 0,500 0,400 0,490
C 0,143 0,250 0,200 0,198
SN A B C
A 1 1 2
B 1 1 3
C 1/2 1/3 1
2,500 2,333 6,000
A B C Priorities
A 0,400 0,429 0,333 0,387
B 0,400 0,429 0,500 0,443
C 0,200 0,143 0,167 0,170
NT A B C
A 1 3 1
B 1/3 1 1/2
C 2 2 1
3,333 6,000 2,500
A B C Priorities
A 0,3000 0,5000 0,4000 0,4000
B 0,1000 0,1667 0,2000 0,1556
C 0,6000 0,3333 0,4000 0,4444
Criteria and its averages

Alternatives FW TC RP PR SN NT Overall
0,076 0,194 0,125 0,304 0,239 0,062
A 0,320 0,454 0,490 0,312 0,387 0,400 0,386
B 0,557 0,321 0,312 0,490 0,443 0,156 0,408
C 0,123 0,225 0,198 0,198 0,170 0,444 0,206
The AHP analysis shows that the professor A is superior to the other professors
regarding the conscious about time taken for completion and is generally willing to
work towards it and regarding his reputation of professor in his field.
Professor B is the preferred when one considers his openness to ideas and his
flexibility about adopting alternative approaches, as well as his personal relation to
student and his social networking. On the other hand, professor B is rated poorly
in number of thesis guided.
Professor C is surprisingly rated least in all the objectives (criteria) except in
number of thesis guided.
4. Conclusion
As Ph.D. students/candidates are encountering various challenges during their
path to obtain the degree, they must realize that inequitable situations most likely
will arise. Selecting a proper course of action to inequitable situations may quickly
ease the situation and either resolve it or lead to potential option that eventually
provide resolution.
In this paper a decision making model based on AHP method has been il-
lustrated for the selection of most suitable professor for the role of Ph.D. thesis
supervisor. The method presented and results discussed may serve as the motivation
for academic scholars, professors and students. The complexity of establishing and
sustaining equitable supervisory relationship may be the focus of more in-depth
analysis using much more sophisticated qualitative and quantitative approaches,
while students may consider the approach shows to validate their tentative choice
and be more confident about decisions they have made or will make regarding the
selection of supervisor for their Ph.D. thesis.
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164 Thomas Cle Klaus Rennings
ARE THERE ANY FIRST AND SECOND MOVER ADVANTAGES

FOR ECO-PIONEERS? LEAD MARKET STRATEGIES FOR
ENVIRONMENTAL INNOVATION
Thomas Cleff, Ph.D.1, Klaus Rennings, Ph.D. 2
1
Pforzheim University and Mannheim Centre for European Economic Research (ZEW),
Federal Republic of Germany, thomas.cleff@hs-pforzheim.de
2
Mannheim Centre for European Economic Research (ZEW),
Federal Republic of Germany, rennings@zew.de
Abstract
In environmental policy first mover advantages for environmental technologies
are often taken for granted. It is a popular view to see the state as a political en-
trepreneur who introduces a certain environmental policy instrument, e.g. feed-in
tariffs for renewable energies, and thus becomes the world market leader or the lead
market for the respective technology. Against this background, this paper wants to
find out if the idea of first mover advantages can be justified by theories and empiri-
cal evidence from the relevant literature on business administration, innovation,
environmental and development economics.
A review of theoretical and empirical studies at the firm level shows that first
mover advantages are not confirmed by empirical evidence. The successful innova-
tor is not necessarily the first but very often one of the early movers within the com-
petition of different innovation designs. Studies carried out at the national level
give however only anecdotical evidence on the existence of lead market patterns.
However, with regard to emerging countries, there is as well anecdotical evidence
on successful latecomers, i.e. states that follow a strategy of environmental leapfrog-
ging. The question under which conditions a country may switch from a second
mover to a first mover strategy cant be answered by the existing literature.
This paper argues that it seems to be more reasonable to complement a lead
market strategy by a lead supplier position. The lead supplier strategy corrects for
the problem that the domestic industry may not participate sufficiently from the
ARE THERE ANY FIRST AND SECOND MOVER ADVANTAGES FOR ECOPIONEERS? ... 165
growth of the national market due to the demand advantage. It considers also goals
from industrial policy, which play an important role also within latecomer strate-
gies in emerging countries.
JEL classification: Q55, L60, O33
Keywords: Lead markets, environmental innovation, first mover advantages,
innovation strategies
1. Introduction
The term first mover advantage is often cited in documents of environmental
policy. For example, in the justification of the Renewable Energy Act the German
government states that it will realize first mover advantages due to the use of renew-
able energy with modern technology (Bundesregierung, 2007). Another example
from the German Ministry of Environment (2008) is the report Investments for
a climate friendly Germany which mentions these technology investments will
create first mover advantages for the domestic industry. At the European level the
President of the European Commission, Jose Manuel Barroso (2008), argues that
the European energy and climate change package should be seen as an opportunity
to Europe in economic terms: It will encourage innovation and it will increase
competitiveness. It is a mistake to oppose the fight against climate change to the
competitiveness of European industries. The Union should lead the global efforts
to tackle climate change. And European industries should continue to be world
leaders. At the same time, we will also create new markets and new jobs, and make
sure that we have the first mover advantage in many sectors.
It seems that in the political arena first mover advantages for environmental
technologies are taken for granted. It is a popular view to see the state as a political
entrepreneur who introduces a certain environmental policy instrument such as
feed-in tariffs for renewable energies, and thus creates a profitable market for the
respective technology. However, with regard to lead markets, the question should
be allowed if it can be attractive for a country to invest in the development of a
market where the majority of goods and services is imported from other countries,
such as in the case of photovoltaics in Germany (Frondel et al., 2010). There would
also be an alternative strategy for government strategies in environmental technol-
ogy markets to wait and co catch up quickly later by leapfrogging, being a second
mover or a late follower, with likely giants steps in catching up (Hilton, 2001). This
is a strategic option especially for emerging countries such as China and India (but
the question of being a 2nd mover seems also be realistic e.g. for many South- or
Eastern European countries in the European Union).
Against this background, this paper wants to find out if first mover advantages
for pioneering firms are confirmed by theories and empirical evidence from the
relevant literature of industrial organization, business management, environmen-
tal and development economics. It starts with an analysis of market-oriented in-
novation strategies of innovating companies. It has however to be asked if such
strategies can easily be transferred to eco-innovations and to the level of national
policy strategies. In a second step we look at the case of wind energy in China as an
example for successful leapfrogging strategies at country level. The second case of
the feed-in-tariffs policy in Germany will show that a too narrow defined national
lead market policy only focusing on the demand advantage of the market may
not necessarily lead to advantages of the German photovoltaic industry. Industry
policy has to take into account the whole range of all lead market factors of the
lead market approach and the supply-side of the industry at the same time. Only
if the supply-side is able to develop high lead market potentials for all lead market
factors, countrys industry may benefit from a governmental lead market strategy.
Therefore the structure of this paper is as follows: While section 2 introduces the
concept of lead markets, section 3 reviews the theoretical reasons for first and sec-
ond mover advantages. Section 4 gives an overview about the empirical literature
on econometric analyses and case studies for first and second mover advantages,
country lead market strategies and leapfrogging. In section 5 the question of lead
markets vs. lead suppliers will be discussed. Finally we will draw some conclusions
regarding national lead market policies.
2. The lead market approach
Lead market factors

The lead market approach suggests focusing customer interaction on those re-
gions, which are likely to be ahead in international demand trends and show de-
mand preferences that are later adopted in other regions, too. It was first suggested
in the 1980s by Porter (1986) and Bartlett and Ghoshal (1990) and is receiv-
ing increasing attention worldwide during the last years (cf. e.g. Johansson 2000,
Commission of the European Communities 2006, Cleff/Grimpe/Rammer 2009).
Bartlett and Ghoshal (1990, p. 243) consider lead markets as markets that provide
the stimuli for most global products and processes of a multinational company.
[] [Local] innovation in such markets become useful elsewhere as the environ-
mental characteristics that stimulated such innovations diffuse to other locations.
A lead market can be defined as a country where users prefer and demand a
specific innovation design that not only appeals to domestic users, but can sub-
sequently be commercialized successfully in other countries as well. The technical
design preferred by the lead market squeezes out other designs initially preferred in
other countries and becomes the globally dominant design. The innovation designs
adopted in the lead market have an advantage over other country-specific innova-
tion designs competing globally to set the international standard. This advantage
makes consumers from other countries follow the technological standard of the
lead market and adopt the design preferred by users there. In some cases this means
abandoning a design that was previously preferred on the national market (Beise
et al., 2002). Where the scientific and technical knowledge for this purpose was
actually generated is mostly not relevant, as companies in the lead market are able
to appropriate this knowledge. More important for competitiveness is the ability
to learn on the lead market about the applications and production of innovations
(Meyer-Krahmer, 1997).
Therefore, lead markets have specific properties (lead market factors) that in-
crease the probability of a wide take-up of the same innovation design in other
countries (Commission of the European Communities, 2006). A theoretical lead
market model has to provide these lead market factors and has to give an answer
to the question under which market circumstances countrys market characteristics
are appropriate to the adoption of technological innovations that will succeed in-
ternationally and mark out the technological path to be followed worldwide.
At the moment there is no consistent and stringent lead market theory. Howev-
er, Beise (2001 and 2006) and Cleff/Grimpe/Rammer (2007) were able to develop
an eclectic approach of a lead market model. They have been investigating lead
markets on the basis of detailed ex-post case studies focusing on the mechanisms
at a national level and how these mechanisms are leading to global designs. Beise
himself (2001) has been derived a system of five particular country-specific success
factors for lead markets. A study on lead markets of environmental innovations
has added a sixth success factor, the so called regulation advantage (Beise and Ren-
nings, 2005). These factors are influencing the international competitiveness of
innovations and a good performance of these factors at the national level increases
the probability of the market becoming a lead market. The six factors, as shown in
Fig. 1, are:
- price advantage,
- demand advantage,
- transfer advantage,
- export advantage,
- market structure advantage and
- regulation advantage.
Fig. 1. Lead market factors
Source: Rennings and Smidt (2010)
A price advantage arises from national conditions that result either in relative
reductions in the price of a nationally preferred innovation design compared with
designs preferred in other countries or in anticipation of international factor price
changes. Countries can gain a price advantage if the relative price of the nation-
ally preferred innovation design decreases, thus compensating for differences in
demand preference to foreign countries. This price mechanism is the centerpiece
of Levitts (1983) globalization hypothesis, according to which consumers in for-
eign markets capitulate to the attraction of lower prices and abandon their initial
endowment of goods. Price reductions are mainly due to cost reductions based on
static and dynamic economies of scale (learning-by-doing). Market size and growth
are examples of country-specific factors creating economies of scale. Another price
advantage emerges from anticipatory factor prices in the lead market. Factor price
changes can induce innovation. If the new relative prices occur worldwide, the
same innovations are adopted worldwide as well. Price advantages play also an im-
portant role in leapfrogging strategies in emerging countries due to low labor costs.
Demand advantages originate from national conditions which result in the an-
ticipation of the benefits of an innovation design emerging at a global level. A good
example is provided by off-grid solutions in the energy and telecommunication
sector. Such innovations are more beneficial and thus more likely to be adopted
first in industrialized, geographically large countries with a low population density,
such as in Scandinavia (Beise and Rennings, 2005). When other countries catch
up, they demand the same innovation that has already been used in the country at
the forefront of the trend. Another example is provided by trends related to envi-
ronmental problems such as climate change. Some countries are more exposed to
the risks of rising temperatures (e.g. countries with above-average risks of flooding
like the Netherlands) than others and will thus anticipate these trends earlier.
Transfer advantages are national conditions that increase the perceived benefit
of a nationally preferred innovation design for users in other countries or by which
national demand conditions are actively transferred abroad. The perceived benefit
increases when information on the usability of the innovation design is made avail-
able. The initial adoption of an innovation of unknown merit reduces the uncer-
tainty and therefore the risk for subsequent adopters and kicks off a bandwagon
effect - also referred to as the demonstration effect of adoption (Mansfield, 1968).
With regard to eco-innovation, international reputation in the field of environ-
mental technologies plays an important role.
Conditions which promote the inclusion of foreign demand preferences in na-
tionally preferred innovation designs constitute a national export advantage. Three
national export advantage factors can be identified: domestic demand that is sensi-
tive to the problems and needs of foreign countries, the established export experi-
ence of national firms, and the similarity of local market conditions to foreign
market conditions. Dekimpe et al. (1998) support the hypothesis already proposed
by Vernon (1979) that the greater the cultural, social and economic similarities
are between two countries, the greater is the likelihood that an innovation design
adopted by one of the two countries will be adopted by the other country as well.
The market structure effect focuses mainly on the degree of competition. Com-
petition and entrepreneurial effort have been described as two of the main determi-
nants of international patterns of innovations by researchers such as Posner (1961)
and Dosi et al. (1990). The lead market is usually highly competitive. This is due
to the fact that faster development and more market-oriented innovations are sup-
ported by competitive market structures. Firstly, companies engaged in fierce com-
petition will demand more innovations from suppliers because they are able to reap
greater competitive rewards from using innovative parts than monopolies (Porter
1990). Secondly, competing firms are under more pressure to emulate firms which
have already adopted a new technology (Mansfield 1968). Thirdly, and possibly
most importantly, more innovation designs are tested in a competitive market than
in a monopoly market.
Regulation advantage is a specific determinant of environmental innovations
(Rennings, 2000), thus it will be explained separately in the next section.
2.2 Lead markets, eco-innovation and regulation

In this paper we define environmental innovation (or eco-innovation) as inno-
vation of new or modified processes, techniques, practices, systems and products
which are more environmental friendly compared to earlier innovations (Kemp/
Arundel 1998 and Rennings/Zwick 2002).1 Beise and Rennings (2005) have shown
that lead markets exist for environmental innovations, with demand advantages be-
ing especially relevant e.g. for eco-efficient cars. However, for other eco-innovations
such as renewable energies innovations are strongly driven by regulation. Beise and
Rennings added regulation advantages of a country as a sixth lead market factor
specifically for eco-innovations. Due to the at least partial public good character
of new environmental products and processes it is evident that regulation will have
an important influence on the innovation process and therefore on the lead market
position. Two different types of eco-innovations can be distinguished:
1. Environmental innovations can have a typical business objective with the
aim to reduce the costs in the production process or the product characteris-
tics, to raise the product quality and thus to improve the competitive situa-
tion with a reduction of environmental impact at the same time. This type
of eco-innovation does not differ in its primary focus from other product
or process innovations, which also have as target the increase of process- or
market efficiency. Porter/van der Linde (1995) see this form of eco-innova-
tion especially there, where resources are privately owned or possess a regular
1
Innovation in the organization of firms as it is described in the OECD (2005) guidelines on the collection
and interpretation of innovation data is not within the scope of this paper.
market price and savings of respective resources are immediately cost-effec-

tive. Several eco-innovations have this triple-benefit for the environment,
the firm and the user. Examples for such eco-innovations are innovation in
energy and material efficiency (Rennings and Rammer, 2009).
2. On the other hand eco-innovations can have the exclusive focus on the re-
duction of environmental impacts. This is the case when policy regulations
interfere in the economy and thus cause innovations. The prohibitions to use
certain harmful products, resources or end-of pipe technologies are examples
for this. This type of regulation can improve the international competitive
situation for the home industry when the regulation policy is adopted by
other countries so that the innovation design established on the home mar-
ket can develop into a global design. One can speak in terms of the lead
market language of an anticipation of existing regulatory trends by a na-
tional government. It is not very difficult to observe such long term regula-
tion trends if we look at the issues of international agreements: low carbon
economy, energy and material savings are for example megatrends of the
current and future decades (Jnicke, 2008 ). Regulation can pick up such
regulatory trends and lead to the development of new markets, for example
for energy efficient refrigerators, dishwashers or washing machines. These
new markets however, must orient themselves along the lead market factors
and allow the development of a global design on the home market. However,
there is the risk that other countries will not follow the regulation process or
that that they will choose another form of regulation and that there develops
an idiosyncratic innovation design on the home market. But the develop-
ment of environmental markets such as the rapid worldwide diffusion of
energy efficiency labels shows that there is a quick adoption of innovative
regulation in the area of eco-innovations.
3. Innovation timing advantage
3.1. Sources of first mover advantages

The first mover in theory is the very first firm to bring an innovative prod-
uct or service to market, but in practice it means one of the first to do. Therefore,
Gilbert/Birnbaum-More (1996) recommend to use the term early mover since it
might be a more accurate description of most situations, which are discussed as first
mover. Second mover or late mover mean all firms entering the market after the
first mover(s). They typically imitate or adapt the innovation design.
Only the profits for innovation with well specified and protected intellectual
property rights (IPR) are limited to a single first user. Where do the first mover ad-
vantages result from and why dont they come up in specific situations? Three basic
sources of first mover advantages and another three of second mover advantages are
often described in literature of business strategies (cf. e.g. Gilbert and Birnbaum-
More, 1996; Lieberman/Montgomery, 1988).
The first source of a first mover advantage is technological leadership due to a
quick reduction of costs, the learning or experience curve (Lieberman, 1987) or a
success in R&D or patent races (Mansfield, 1986). When IPRs are well-specified
and protected a firm gains competitive advantage through patenting or copyright,
or as a trade secret. Theoretically this leads to a temporary monopoly. Mansfield
(1985) however has found that successful protection of IPRs against imitation by
other firms is a rare case.
Secondly, a source of first mover advantages can be the preemption of physical
or spatial assets such as skilled workers, unique channels of distribution or manu-
facturing facilities. It is seldom the case however that those assets are completely
appropriated by a single firm (Lieberman/Montgomery, 1988). It can thus be ar-
gued that pre-emption of assets is a kind of timing advantage available to several
first movers, i.e. first movers securing anchor locations in a new shopping mall in a
desirable area gain advantage over latecomers.
The third category of advantages is buyer switching costs. Switching costs de-
velop due to initial transaction costs or investments when a user has to adapt to the
new product. First of all, the user must be convinced of learning another system.
This step demands for non-superior products specific marketing skills and addi-
tional costs from the followers. Additionally, there arise user-related qualification
costs, which must be covered by the supplier or the user. All these costs have to be
raised by the follower in order to compete with the first mover on the market. In
case the first mover is able to convince the buyer of the uncertainty of the follower`s
product quality, then the user will seldom turn away from the first brand, which
has already proven its quality. Switching costs may also arise through the users
contractual restraints with the first mover (Lieberman/Montgomery, 1988).
It can be summarized that out of the three sources of first mover advantages,
only technological leadership if at all is restricted to a single firm. And in the case
of technological leadership it depends on the existence and protection of IPRs, and
on the time potential imitators need to find ways around the restriction.
3.2. Sources of second mover advantages

Second movers have a competitive advantage in specific situations, which are
based on three theoretical arguments. There is no indication in the literature that
second mover advantages may be limited to a single firm.
The competitive advantage for second movers is simply to free-ride on first mov-
er investments. This is possible due to the positive spill-over of the first mover, es-
pecially when IPRs are not well-defined and specified. Many products and services
can be easily and inexpensively imitated. In many cases also second movers can
profit from improvements of the first mover regarding the learning and experience
curve (Lieberman 1987).
A second source of advantages is technological developments or customer needs,
which arise after the introduction made by the first mover. They may be over-
looked by the first mover due to incumbent inertia. This argument is taken up by
Markides/Geroski (2005) who argue that a first mover is colonizing the product
and typically has a different in most cases technology-driven mindset, while a fast
second firm focuses on consolidation from niche to mass markets.
The third main advantage for second movers is leapfrogging (Fudenberg et al.,
1983), i.e. catching up to the first mover in fast, big or even giant steps. While the
developer of the new product or service had to experiment with a lot of different
variations of the original innovation design, and thus had to pay a large amount of
development costs, which are now sunk costs, the second mover has the advantage
of reduced market, technological and regulatory uncertainty.
In the following we want to present the results of some empirical studies that
have analyzed, which factors influence the innovation success of market pioneers /
of a follower in dependency on different factors.
4. Empirical evidence from the literature
4.1. Business management literature: Evidence on first vs. second mover

advantages of firms
The empirical literature brings up reasons for and against first mover advantages,
which have been analyzed broadly during the past decades. An analysis of studies
shows that until the mid 1980`s the opinion prevailed that only the market pio-
neer can secure a long-lived market share advantage (cf. e.g. Yip 1982, Urban et. al
1986, Robinson/Fornell 1985). Biggadike (1979) was convinced of having proved
in his study that even after 5 to 8 years later entrants were not able to catch up the
disadvantage.
This apparently natural symbiosis between the first mover and the innovation
success was questioned by more recent studies. Studies conducted by Tellis/Golder
(1996), Lellien/Yoon (1990) and Lambkin/Day (1989) confirm a higher failure
rate of market pioneers. Golder/Tellis (1993) ask rightly whether the pioneer ad-
vantages are a Marketing Logic or Marketing Legend. Olleros (1986, p. 8) even
states that we see industries emerge over the dead bodies of their early pioneers .
Markides/Geroski (2005, p. 2) give a great number of anecdotic examples for
unsuccessful pioneers, contributing to the discussion of first mover advantages for
radical innovation. The authors show anecdotically that the process for radical in-
novations is mainly driven from small firms or startups, very often without an
established brand name. Main criteria from Markides and Geroski are shown in
Table 1.
According to Markides and Geroski (2005), first movers typically They develop
a technology pushed innovation over a long period in niche markets and they feel
less risk to pioneer a radical innovation. The innovation design is being developed
in an elaborate exploration process, during which different variations have to be
checked with regard to the market preference. The major role of the pioneer is the
colonization of the new market. The established firms free-ride on the technologi-
cal and market experience of the pioneer. They make use of the developing mass
market and the dominant designs, by trying to drive out the first mover with rival
variants of the dominant design, and to consolidate the market into a mass market.
Table 1. First and second mover strategies for radical innovations
First Mover Fast Second

Exploration and Creation of product on Niche
Focus of activity Creation of Mass Market
Market
Firm characterization Young, small Established, big
Major role Colonization (creation of product) Consolidation (of market)
Innovation drivers Technology push Market pull
Rival variants of dominant
Object of competition Rival innovation designs
design
Dominant innovation
Variation, Exploration Selection
design
Market structure Large firm population Concentration, Shakeout
Source: Own overview according to Markides/Geroski (2005)
This can also be seen in the area of eco-innovations, e.g. in the case of E-Mobil-
ity. Up to now it is not decided, which engine technology if at all - will win the
race for a sustainable transport technology, if it will be e.g. hybrid, fuel cell or bat-
tery cars? Thus, following Markides and Geroski, big firms should aim at a strategy
of consolidating markets, i.e. taking up a radical innovation early enough to be able
to develop it from niche to mass markets.
However, it is not the case that these results speak against a first mover advan-
tage. Robinson/Min (2002) observe a 66 percent survival rate during the same
time for market pioneers, whereas early followers only have a 48 precent chance.
The results could not be more diverging, so that Min/ Kalwani/Robinson (2006,
p. 15) come to the conclusion that first mover advantages depend on the respective
environmental circumstances.
One of the first studies that took into account the environmental circumstances
of the market is the study conducted by Urban et al. (1983). Data basis were the
sales of 38 and in a later analysis 44 brands of frequently purchased consumer
goods in connection with information from media audits and interviews. On the
basis of regression analyses the authors analyzed the influence of the order of entry,
the years between the entry, the product positioning, the preference of a brand of
interviewees, and the advertising intensity on the market share of first movers. The
authors assess that a later entrance has less market share on average than the market
pioneer, but pioneer`s share decreases with each new firm entering the market. This
decline is higher if other brands can achieve superior price and product position-
ing. In order to avoid this market pioneer should occupy and defend the preferred
product positioning.
Another regression-analyses approach was chosen by Robinson (1988). On the
data basis of 1.209 companies from mature industrial goods manufacturing busi-
nesses he confirms that market pioneers gain a sustainable market share advantage. In
addition, their products have a better quality and show a broader product line. While
the product quality advantage decreases over the time, the advantage of the breadth
of product line remains. Robinson (1988, p. 93) differentiates the results with regards
to the different velocities of the technological development on markets. The market
share of the pioneer decreases when the technological competition increases on the
market. Only if the value added of an industry is high, the market pioneer is able to
resist the technological competition and to extend the market share.
Some years later Gilbert/Birnbaum-More (1996) took up the findings of the
influence of dynamics in technology and on the market in the framework of a meta
study, in which they bring together the empirical results of different surveys. On
the basis of different sources of competitive advantages, they propose the important
influencing factors on the industry and technology level as well as on the product/
service level (cf. Table 2).
Table 2. Correlation directions between factors and timing advantages

Correlation with
Level Factor 1st Mover 2nd Mover
Advantage Advantage
Degree of fragmentation + -
Industry/
Velocity of innovation + -
Technology
Rate of innovation diffusion - +
Connection to technological infrastructure + +
Product/ Degree of novelty - +
Service Difficulty of production/complexity of technology - +
Customer resources invested (lock in)/switching costs + -
Cost leadership - +
Firm
Differentiation + -
Strategy
Core Competence + +
Source: According to Gilbert and Birnbaum-More (1996)
With increasing fragmentation of the industry and increasing velocity of the

innovation the first mover advantage rises. This effect is being emphasized when
switching costs are high and technological infrastructure is sufficiently available.
The implementation of a first mover strategy is successful under these circumstanc-
es only by taking-over technological leadership and the herewith connected R&D
expenditures. The diffusion rate, the degree of novelty and the complexity of the
product however, have negative effects on the first mover advantage. The second
mover has the advantage that the pioneer has already found technological solutions
and has developed these for the market preference. There are no such costs for the
followers, so that a cost leadership strategy is promising.
Min et al. (2006) look at radical and incremental innovation. The latter is de-
signed to satisfy a felt market need and uses an existing technology or refinement of
it (Min et al., 2006, p. 16). Using the Thomas Register of American Manufactur-
ers they identified 264 new industrial markets and they analyzed the influence of
different factors on the survival rate of first movers. Indeed, the multivariate hazard
rate analysis shows that market pioneers have a greater survival risk for radical than
for incremental innovation. This context is not significant for early followers. For
radical innovations the market pioneers show a significantly higher survival risk
than the early follower. For incremental innovation it is vice-versa. In conclusion,
market pioneers are often the first to fail in really new product-markets. However,
this is not true in incremental new markets, in which market pioneers have consis-
tently lower survival risks than early follower (Min et al. 2006, p. 30).
Summing up, it can be ascertained from the literature of business management
that the successful innovator is not necessarily the first but very often one of the
early movers within the competition of different innovation designs. The empirical
literature on the firm level finds evidence that there is no simple yes or no answer to
the question of first vs. second mover advantages. The studies based on correlation or
regression analysis are inconsistent in the choice of factors, which are finally respon-
sible for the development of successful global designs, but the results of the empirical
studies find different factors leading to a successful timing strategy. They range from
1) Luck, to
2) technological leadership, preemption of assets and buyer switching costs
(Lieberman/Montgomery, 1988) to
3) industry, technology, firm and product-specific factors (Gilbert/Birnbaum-
More 1996) and
4) leading time, market dynamic, and type of innovation (Min/Kalwani/Rob-

inson 2006). It seems that radically new technologies are difficult to defend
for a first mover, while it seems to be easier for incremental innovations.
4.2. Innovation and environmental economics literature: Evidence on first mover

advantages of countries
Characteristics of different national country markets for the global success of
an innovation design have hardly gained importance in the discussion. Although
Beise (2006) and Beise and Cleff (2003) carried out an ex-post analysis of suc-
cessful global innovation designs and identified typical patterns on the country
level. According to this anectdotical evidence, successful global designs can be
characterized by the to be following patterns (see.g. Beise 2006 and Beise and Cleff
2003). They
- firstly enjoy early national success,
- are then successfully commercialized worldwide and
- force other innovation designs out of the market in the medium term, to be-
come the global design or the world standard respectively.
There are many examples of global innovation designs emerging from the adop-
tion in one country, e.g. the cellular mobile telephony in the Scandinavian coun-
tries, the personal computer in the USA, the industrial robot or the fax machine in
Japan, the airbag in Germany and the smart card in France (Beise 2001). All these
examples show that the first country that adopts a specific design becoming the
global dominant design is often not the country where the innovation was invented
or the technology used for it mostly developed. On the contrary it is often another
country that is leading the worldwide adoption of an innovation: This country can
be called the lead market.
The pattern of successful lead market strategies was also confirmed by Beise
and Rennings (2005) for environmental innovations. They have applied the lead
market approach to the world market for renewable energies and especially wind
energy which has grown rapidly in recent decades, see Fig. 2. The developing world
market was in the 90ies dominated by countries that introduced feed in tariffs,
especially by the small Nordic country of Denmark. Substantial differences can be
identified where regulation systems are related to the development of a national
wind industry. A wind industry tends to develop rapidly in countries with a feed in
tariff system, such as in Denmark, Germany and Spain. Fig. 2 shows the penetra-
tion rate of wind energy use in different countries and identifies Denmark as the
lead market. Germany follows closely, while other countries are developing wind
energy with a considerable lag. The penetration rate has been measured as the per-
centage of exploitation of on-shore wind potential.
Fig. 2. International Diffusion of Wind Energy

60 Wind energy usage
as a percentage of
Wind potential
50
40
Denm ark
30
Germ any
20 Spain
10
NL
UK
0
75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00
YEAR
Source: Beise and Rennings (2005)
It remains however unclear if a lead market position is really profitable for a

certain country. The discussion on this issue usually is very general and refers to
the so-called Porter hypothesis postulating improved competitiveness for a country
due to environmental regulation in the long run. A literature review on the Porter
hypothesis faces however the problem that a [. . . ] systematic economic analysis
is hindered by ambiguity as to exactly what the hypothesis is (Jaffe and Palmer,
1997). This critique refers to the initial paper of Porter (1991, p. 168), where
he claims: Strict environmental regulations do not inevitably hinder competitive
advantage against foreign rivals; indeed, they often enhance it. Tough standards
trigger innovation and upgrading. In the literature the positive link from environ-
mental regulation to competitiveness is known as the strong version of the Porter

hypothesis (Ambec et al., 2011).
In their recent comprehensive survey of the hypothesis Ambec et al. (2011) state
that the overwhelming part of the literature does not find evidence for the strong
Porter hypothesis. However Rexhuser and Rammer (2011) find evidence that the
Porter hypothesis is true only for innovations in energy and material efficiency (i.e.
for type 1 mentioned in section 2.2, in contrast to eco-innovations aiming at a
general reduction of external effects which may only produce a public benefits but
not firm profits, i.e. type 2 in section 2.2.)
4.3. Development economics literature: Empirical evidence on leapfrogging

While a lead market strategy may be attractive for countries with a high repu-
tation in environmental technology, others as for example Eastern European or
emerging countries start from a catching up position. For them a first mover
strategy is not realistic since they are latecomers. And a late follower strategy is
more attractive for those countries since it allows to leave the initial risks of de-
veloping new products to and establishing a market for a new product to indus-
trialized frontrunner countries (Watson, 2011). This advantage of technological
leapfrogging has been formulated by Soete (1985) as follows: The opportunities
offered by the international diffusion of technology to jump particular technologi-
cal paradigms and import the more if not most, sophisticated technologies that will
neither displace the capital invested nor the skilled labor of the previous technolog-
ical paradigm, constitute one of the most crucial advantages of newly industrialized
countries in their bid for rapid industrialization.
Watson reviews the evidence on successful leapfrogging strategies by reviewing
three cases: The Korean Steel industry, the Korean automotive industry and wind
energy in China and India. He concludes that key factors for success are different
in each case, but important latecomer advantages were in all three cases the cost ad-
vantage due to cheap labor costs. It is therefore not possible to generalize to a larger
degree (Watson, 2011). But he perceives also barriers to successful leapfrogging
such as the lack of innovative capacities, lack of technological expertise, missing
access to markets and the missing appropriate institutions.
This explains to a large degree the international differences in the diffusion of
environmental technologies regarding abatement times. In a case study on the
worldwide lead phase out Hilton (2001), using data for 48 countries, observes a
faster abatement of latecomers that is triggered by lower costs and lower innovation
risks. The countries who started early with their abatement activities took about 50
percent more time (on average 15 instead of 10 years) than late abaters to complete
their abatement. The quick catching up was enabled by giant steps, i.e. at least
one very large reduction in a 2 year period. While none of the early abaters has ever
taken a giant step, 13 out of 20 latecomers have taken such a step. This is explained
by innovation spillovers or, in the words of Hilton (2001), by accrued wisdom. As
empirical studies show, historically late diffusion has been accompanied by faster
diffusion, e.g. already in the case of railroads and channels in the 19th century. This
accrued wisdom means that early abaters have demonstrated not only the feasibil-
ity of a new technology, but also showed how to implement the policy in practice.
The catching up of the Chinese and Indian wind industry is an impressive ex-
ample of a successful leapfrogging strategy. Both countries have established a home
wind industry within a decade. This was enforced by national renewable legislation
and policies in support of domestic industries (Watson, 2011). According to Zhang
et al. (2009) the progress can be explained by a bundle of domestic policies (such as
a mandatory renewable market share) and international support (such as the Clean
Development Mechanism). Jnicke and Rennings (2011) and Jin et al. (2010) see
the main driver of the success story in a policy push in terms of ambitious domestic
target setting. The Chinese renewable energy development plan from 1997 intro-
duced a targeted share of renewable energy which was quantified as 10 of the total
energy consumption by 2010 and 15 percent by 2020.
The change from a market dominated by foreign-owned manufacturers to a
domestic wind industry is shown in Fig. 3. The success can be mainly explained by
a requirement of the wind concession program that 70 percent of the added value
of the components of the wind turbine should be manufactured by domestic firms
(Zhang et al., 2009).
Fig. 3. Changes in market shares in Chinas wind energy market
Source: Zhang et al. (2009)
5. From lead markets to lead suppliers

5.1. Cost-benefit-analysis of lead markets: The case of feed-in tariffs
While there is agreement in the literature that lead markets for environmental
innovations exist, and that Germany has successfully established such a lead mar-
ket for renewables due to the system of feed-in tariffs, it is still controversial if it
is profitable to be such a lead market. It is argued that subsidies for suppliers of
renewables are much too expensive, and that the lead market position does not lead
to a dominant position for German exporting firms. Thus this section will discuss
the case of feed-in tariffs, based on this experience it will analyze if a lead market
strategy is sufficient in terms of industrial policy targets.
Germans renewable industry is rapidly increasing, and is exceeding its policy
targets. This is mainly a consequence of a subsidy policy based on feed-in tariffs
which was established in 1991, the year when the Electricity Feed-in Law was
introduced (Frondel et al., 2010). The government provided excellent investment
conditions in this Law by guaranteeing stable feed-in tariffs for up to 20 years, i.e.
a price up to 43 Cents/kWh for solar electricity.
This brought the German market quickly into a demand advantage position,
see also section 4.2. However, this did not lead necessarily to advantages for the
German industry. Most modules for photovoltaic energy are imports from Japan or
China. While the imports in the era of solar electricity were 1.44 Bn in total, ex-
ports had only a value of 0.2 Bn (Frondel et al., 2010). As is shown in Table 3, the
domestic production of installed capacities started in 2000 with only 16 percent.
Although the share of German production has grown substantially over the past
decade (the average growth rate is pgeom=61%), it is still lower than the growth of
the domestic PV capacity (the average growth rate is pgeom=75%), i.e. Germany
is still a net importer of photovoltaic cells. It seems that the German photovoltaic-
industry was not able to develop relative export- or price advantages compared to
producers from other countries such as China.
The debate on the cost-efficiency of feed-in tariffs is still ongoing. Wackerbauer
(2009) for example argues that in 2007 one employee in the renewables sector
needed public support between around 28.000 for biomass and 41.000 for
solar energy. Frondel et al. (2010) count even 175.000 as per capita subsidy for
photovoltaics. According to Wackerbauer, the abatement costs of CO2 for photo-
voltaics in the year 2007 are estimated between 420 and 611 /t CO2 since the
subsidies have crowded out much cheaper investments in the area of e.g. residential
buildings and heating systems. Frondel et al. (2010) estimate even higher abate-
ment costs for photovoltaics of 716 /t CO2.
Table 3. Photovoltaics capacities and solar cell production in Germany

2000 2001 2002 2003 2004 2005 2006 2007 2008
Capacity installed
100 178 258 408 1018 1881 2711 3811 5311
in MW
Annual increase in
- 78 80 150 610 863 830 1100 1500
MW
Annual cell
production in 16 33 54 98 187 319 530 842 1450
Germany in MW
Source: BMU (2009) and BSW (2009), cited in Frondel et al. (2010)
5.2. A lead supplier strategy: The case of e-mobility in Germany

The experiences from the renewables market have obviously motivated a change
of the German policy approach from an unexceptional demand-oriented towards a
broader approach, taking all lead market factors of the lead market model and the
supply-side of the innovation into consideration. We have also seen in the example of
the wind energy market in China that emerging countries do not follow an eco-inno-
vation policy without considering the interests of the domestic industry, but more an
industrial policy ensure a certain share of the production from Chinese firms.
The best example of the revised and broader German lead market strategy is
the case of e-mobility. The German government follows the target of developing a
domestic lead market for e-mobility. Until the year 2020 one million e-cars should
drive on German roads. However, the concept is not only demand oriented. Maybe
due to the negative experiences with the renewables market, a focus of the German
strategy lies on either market pull measures such as tax reductions and technology
push measures such as R&D and qualification (Acatech, 2010).
The German National Platform E-Mobility aims explicitly at becoming a market
with high lead market potentials for all lead market factors, including both, the devel-
opment of lead supplier structures by realizing price advantages through cost reduc-
tions in first market phase until 2014, a demand advantages by developing a pilot
market for cars and infrastructure until 2017, and start a mass market later (Nationale
Plattform Elektromobilitt, 2011). A list of the foreseen policy mix is listed in Table 4.
Table 4. German measures for becoming a lead supplier in E-mobility
Technology Push Measures Market Pull Measures

R&D programme and networking in battery, engine, Privileges of e-cars regarding parking
lightweight, information and communication
technologies, recycling and integration
Academic and occupational qualification and education Compensation for users of company e-cars
Harmonisiation of international standards and norms Tax depreciations for firms
Programs from the Kreditanstalt fr

Wiederaufbau for private use of e-cars
Annual tax incentives
Source: Acatech (2010)

6. Conclusion
In this paper the sources of first mover advantages were presented. There is
agreement in the business management literature that first mover advantages de-
pend on the respective environmental circumstances. It can be ascertained that the
successful innovator is not necessarily the first but very often one of the early mov-
ers within the competition of different innovation designs.
The results of the empirical studies of successful timing strategies of firms find
different factors leading to a successful timing strategy. They range from techno-
logical leadership, preemption of assets and buyer switching costs to industry, tech-
nology, firm and product-specific factors, and leading time, market dynamic, and
type of innovation. It seems that radically new technologies are difficult to defend
for a first mover, while it seems to be easier for incremental innovations.
There is also anecdotical evidence on the country level of both successful lead mar-
ket and leapfrogging strategies. For countries with high reputation in environmental
technology it is attractive to join the race for a lead market. For emerging countries
however it seems reasonable to apply a leapfrogging strategy approach, by jumping
into a first mover position when innovation capacities exist, and when there is large
innovation pressure. However, the question under which conditions a country may
switch from a second mover to a first mover position cant be answered by the existing
literature. With regard to this questions, research needs can be stated.
The case of the German renewable policy showed that a strong demand-pull
policy alone does not guarantee sufficient value added to the domestic industry.
Industrial policy has to take into account the whole range of the lead market ap-
proach and the supply-side of the industry at the same time. Only if the supply-side
is able to develop high lead market potentials for all lead market factors, countrys
industry may benefit from a governmental lead market strategy. This is also an im-
portant aspect for emerging countries, as it was demonstrated by the case of wind
energy in China.
Interestingly, in all cases industrial policy played an important role. In the case
of Germany this aspect can be identified as the reason why the country switched
from a strict demand-oriented strategy with regard to renewables to a complemen-
tary lead supplier strategy with regard to e-mobility. Thus, if also industrial policy
targets are relevant, a lead market strategy should be at least complemented by a
lead supplier strategy, leading to a policy mix of technology push and market pull
measures.
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190 Stefan Dilger
ANALYSIS OF THE ENERGY SUPPLY FOR INDUSTRIAL

CONSUMPTION IN FRG DURING A SELECTED
PERIOD OF TIME
Stefan Dilger1
1
Ph.D.Student University of Konstanz, Federal Republic of Germany, stefandilger@freenet.de
Abstract
Rising raw material costs and a shortage in non-renewable energy sources lead
to rising energy expenses. In order to carry out business plans, budgets and forecasts
the Business management planning in companies is to remain especially important
due to divergences. If the need arises appropriate measures would have to be intro-
duced to remain competitive.
At times of volatile raw material prices, it has become increasingly difficult for
enterprises to carry out forward planning. Gone are the times when a country
could depend on its own resources and in fluence the domestic price structures.
Because the national resources are currently drying up moderate procurement costs
today still appear in the energy sector. This is the result of the financial and eco-
nomic crisis in 2008 which has led to a global economic collaps thus to a declining
demand and lower procurement costs for commodities, in particular well non-
renewable energy. Nevertheless well-known scientists, politicians as well as analysts
predict rising energy prices, should the economies the demand pick up again. The
international raw material supply particularly non-renewable energy is becoming
increasingly precarious.
This diploma thesis covers the structure of the primary energy supply in Germa-
ny from 1990 to 2008. It refers particularly to the non-renewable energy sources.
Further, it describes for a specially selected period from 1995 to 2008, how the
energy consumption developed within single sectors of the economy. Investigations
were conducted on carefully selected topics.
JEL Classification: Q31, Q48
Keywords: energy, cost, planning
ANALYSIS OF THE ENERGY SUPPLY FOR INDUSTRIAL CONSUMPTION IN FRG DURING ... 191
1. Initial situation
Now it becomes more visible then before, how much the national economy de-
pends on an economic of save and more environment-friendly energy supply. The
global demand leads to rising energy prices and thereby burdens the industry. Ger-
many is dependent on energy imports. Oil and natural gas reach Germany from far
distant regions. Presently the worldwide energy consumption in higher than 1970
and the important sources are the non-renewable energies oil and natural gas. It
is to be assumed that the global energy consumption will further rise but to what
degree? The global energy consumption in particular is also driven by the emerg-
ing countries such as India, China and Brazil. They have during the recent years
achieved a high economic growth rate. During the last few years Germany, has also
experienced an increasing dependency on energy supply imports.
Increasing prices in the energy sector are bothering energy consumers. Other
contributing factors are the production and net expenses, as well as the state gov-
erned interventions. Energy related questions in Germany and in the European
Union as well as in the emerging economic nations are at the center of political
discussions. A fully comprehensive and interdisciplinary approach is therefor es-
sential. In the past, such considerations were normally initiated only by energy
crises. Present opinions are calling for a substitution of the non-renewable energy
sources before they eventually dry up. But the question is, does the nuclear power
era arrive, or has the bioenergy time begun? Could the energy efficiency1, per-
haps solve, the problem? The scheme of the energy policy will have effects on the
industry as well as on the consumers, the growth and the quality of life.2 What
does this mean for Germany, with regard to the production of energy to be utilized
in different sectors of the industry? What positive impacts could arise out of these
deliberations? There are good reasons to deal with this topic.
Aim of the work

The aim of this work is, to show companies residing in Germany how energy
consumption presents itself with regard to expenses the gross domestic product and
the utilization and how they have developed. The selected period refers in detail
to the period from 1999 to 2008. For this period all data required is ascribable.
1
Energy efficiency is a quotient from a use and the energy used for it.
2
Cf. Defilla, 2007, p. 10.
192 Stefan Dilger
Pre- and past investigations are also proportionally introduced. They merely serve
to indicate the association with this subject. Throughout the industrie single well-
chosen sectors have been singled out and are being examined and outlined.
Approach
Within this work stock levels of the energy of the earth as well as the develop-
ment of the primary energy consumption of the world are shown. In detail, dif-
ferent economic blocks for example, the United States of America, the European
Union and emerging countries are being analyzed and featured. For Germany,
the supply structures and the final utilization consumption are shown by means of
well-chosen examples from 1990 to 2008. Further representations follow relating
to electricity production, energy efficiency of the industry and the energy con-
sumption structure of industrial sectors in Germany.
Detailed information which is being analyzed originates from the syndicates
energy balances, the government institution of earth sciences and commodities
with its publication in 2009, of the Federal Statistical Office of Germany as well as
the Federal Office for environment protection and reactor security and the Federal
Ministry for Economy and Technology.
In the following chapter the problem of the restricted raw materials availabil-
ity is being outlined. Statistical examples referring to the non-renewable energy
source, the development of energy consumptions over a period from 1971-2002 in
the emerging, development, and industrial countries. The problem of the primary
energy supply is outlined. Also the development costs in the area of the heating
market should indicate the problems of the rising prices. National as well as inter-
national statistics about non-renewable energy sources will indicate the dependence
of Germany in this area.
2. Problem of limited resources

Resources are part of nature and are being exploited by mankind. Among them
are the mineral commodities which originate from protracted geologic processes.
They play today an important role. The best known commodities are for example,
oil, and ores. In the business administration, commodities are in general utilized
in the manufacturing process. They are being used as auxiliary materials in inter-
mediate products. Since the beginning of the 20th century the raw material con-
sumption has increased tenfold. This is an exponential development. The natural
resources are in the opinion of the community of states endangered, because the
exploitation of this raw material progresses very fast. This situation is still aggra-
vated by conflicts and wars.3
Our world is sustained by limited primary energy sources of fossil origin. The
demand of particularly non-renewable energy sources and the race for their posses-
sion has begun. Accelerated growth above all, of the Asian states in the near past,
the situation in the energy sector and the demand for non-renewable energy sourc-
es has strongly intensified. The problem is that these commodities will no longer
be available at one point in time. In the past various commissions were instructed
by the German Bundestag over and over again to examine the raw material energy
availability. These investigations were introduced to the public however they found
no resonance neither in the community nor in politics. In 1973 the first energy
crisis shocked national economies with full force. Up to 1973 no active energy
policy was pursued in Germany. In the German national economy the results were
clearly felt. In the following chapter the raw material availability in particular the
non-renewable energy sources of the world are being shown.
Short overview of the worldwide availability of energy sources

In 2007 the reserves (Reserven) in non-renewable energy sources totaled of
38.695 Exa joules. Compared to 2001 of 2.200 Exa joules was achieved, particu-
larly due to the soft brown coal, natural gas and oil. Due to a high potential the
coal is the dominating energy source. The share amounts to 55%. 22,7% are at-
tributed to oil, and natural gas follows with 18,5%. The nuclear energy has got a
share of 4,2%.4 The exploitation lay in the same considered time span at 439 Exa
joules. The resources (Ressourcen) in the non-renewable energy sources amount to
571.711 Exa joules. The represents compared to 2007, a share of 1,1%.
3
Cf. Brockhaus economy, in 2004, p. 498. If the current situation describes in the raw material area
and the fact that is fought for commodities also with military means. The security of supply with
commodities has become a political security assignment.
4 Cf. Bundesanstalt fr Geowissenschaften und Rohstoffe, 2009, p. 11.
194 Stefan Dilger
Graph number 1: Interests of single non-renewable energy commodities in 2007

in the support, the resources and reserves, source: Bundesanstalt fr Geowissen-
schaften und Rohstoffe (2009), side 11.
Ranking of the reserves in 2007 basis 38.695 Exa joules:

1. Coal 54.7% (21.166 Exa joules)
2. Oil 22.7% ( 8.784 Exa joules)
3. Natural gas 18.5% ( 7.159 Exa joules)
4. Nuclear 4.2% ( 1.625 Exa joules)
Definition: Raw material reserve and raw material resource

The rule does not clearly distinguish between raw material reserves and raw ma-
terial resources. Because the difference is not entirely known and clearly defined.
Both terms are also mistaken in the wide public. Therefore, the terms have to be
explained and then be differentiated from one another.
Definition resources (Ressource)

The resources are all the commodities available in total, in particular including
those where locations can be only assumed or are still to be expedited with new
technologies where todays available technologies are not economic cally viable .5
5
Erdmann, 2008, p. 122.
In 2007 the fossil energy commodities have reached about 571.700 Exa joules
(graph compares number 1). In 2007 compared with 2001 this meant an increase
of around one and a half time. Decisive for this increase is a higher appraisal of the
coal and the additional occurrence in the natural gas area (coal gas and rocks).6
Definition reserves (Reserve)

Reserves are a share of the resources. This share might in all probability exist
and can be placed on the market providet they can be expedited. At reasonably low
cost.7 The share of the reserves within the resources (compares graph number 1)
amounts therefore to 6,8%.
Statistical reserves of the non-renewable energy sources

As already described, the non-renewable energy sources are finite therefore only
available within limits. In the graph number 2 shows the static reach of the non-
Graph number 2: Static reach of non-renewable energy sources, source: Bun-

desministerium fr Wirtschaft und Industrie, Energie in Deutschland April 2009,
side 9.
renewable energy sources is. The static reach is an approximation and is calculated
on the bases of present annual productions. For example the oil which is shown
with a period of 40 years. The oil reserves will be exhausted in 40 years if the exploi-
6
Cf. Bundesanstalt fr Geowissenschaften und Rohstoffe, 2009, p. 11.
7
Cf. Erdmann, 2008, p. 122.
196 Stefan Dilger
tation rate remains unchanged every year and no new sources are being tapped.8
Below the statistical reserves of some commodities have been listed.
The static reach is for oil is 60 years as well as, for natural gas for the coal (hard
coal) 139 years, for the brown coal 300 years and for the uranium are 70 years.
The biggest non-renewable energy source potential exist in the form of the coal,
followed by natural gas. The core fuel uranium books rank three with 290 years of
reach. As the last follows the energy source oil with a reach of 140 years. Compari-
sons the following overview.
Order of rank list of the reserves (static reach stood in 2009):

1. Brown coal 300 years
2. Hard coal 139 years
3. Uranium 290 years
4. Natural gas 60 years
5. Oil 60 years
Overview of the worldwide primary energy consumption

In graph number 3 the worldwide energy consumption is shown divided into
world regions comparins the years 1971 to 2002. In 1971 a share of the world
energy consumption of 62% was attributed mounted to the industrial countries.
In 2002 it was 52%, only a difference about 10%. The developing countries used
in 1971 only 23% of the world energy but their share increased to 37% in 2002.
The share of the reform countries was in 1971 at 15% and decreased until 2002 to
10%. Overall in total there has been an substantial increase in the energy consump-
tion since 1971 from 5.800 million tons of oil equivalent to 10.200 million tons of
oil equivalent. The world primary energy consumption has clearly increased from
1971 up to 2002. The big increase of the worldwide energy consumption is partly
due to the backlog demand of the developing countries. In particular the peoples
republic of China had an ever increasing demand. The attitude of the Chinese at
the climate-summit in Copenhagen from December indicated that the worldwide
primary energy situation will in future be intensified and more aggravated.
8
Cf. Bundesanstalt fr Geowissenschaften und Rohstoffe, 2009, p. 235.
Graph number 3: World energy consumption after regions in 1971 and 2002, source:
Energiewirtschaftliche Institut / Prognose Studie 545, side 14.
The power demand in 2002 of main energy consumers is shown in graph num-
ber 3. The following ranking shows the world energy consumption divided in
groups of consumers.
Ranking of the energy consumption after land markings (2002):
1. Industrial countries 52% (in 1971 = 62% correspond -10%)
2. Developing countries 37% (in 1971 = 23% correspond +14%)
3. Reform countries 10% (in 1971 = 15% correspond + 5%)
In the following chapter the German static reach of the primary energy sources
is analyzed and shown.
198 Stefan Dilger
National statistic reach of non-renewable energy sources

The reserves in non-renewable energy corresponded at the end of 2007 in Ger-
many to: Oil 37 million tones, (47 million tones, in 2001), natural gas 218 million
tones (343 million tones, in 2001), and coal 40.936 million tones. The national
Statistical reserves
Graph number 4: Statistic reach comparison the non-renewable energy sources

in Germany and the world, source: Own representation.
in non-renewable energy sources amount to 4 years for oil, for natural gas to 12
years and for the coal to 200 years. Since 1998 Germany does no longer produce
its, own uranium. Since 1990 there is no exploration activity in Germany in this
field either. The graph number 4 illustrates clearly the critical situation of the non-
renewable energy sources in Germany. Considering coal Germany owns very good
reserves. No realistic availability for Oil is given at a forecast of four years only. The
overall static reserves were at 216 years for the year 2007.
Order of rank of the static reserves in Germany (2007):
1. Coal 200 years (92.6% of share)
2. Natural gas 12 years ( 5.6% of share)
3. Oil 4 years ( 1.8% of share)
4. Total 216 years
The national contribution of our domestic non-renewable energy sources has

clearly declined by 2008. At the beginning of the nineties (1990) still nearly 44%
of the primary energy consumption was covered by the national sources. Currently
this share still reaches 3,5%. 96,5% are being imported. This is shown in the graph
number 5 (net imports). The blue line shows the primary energy consumption in
Germany which is limited to 100% at 15.000 Peta joules. Only in 2007 the net
imports could roughly cover the primary energy consumption.
The diminishing of the currently most important non-renewable energy source oil
is clearly shown. It is virtually no longer available in. This has an effect that the depen-
dence on imports will clearly increase in the following years and will also negatively
affect the development of the purchase prices and the national economy in Germany.
Graph number 5: Netimport and primary energy consumption development

from 1990 to 2008 in Peta joules and in percent, source: Bundesministerium fr
Wirtschaft und Technologie, Energie in Deutschland 2009, side 15.
If we look now at the following segment of the sectorial energy use in Germany
in this context.
Sectorial energy use in Germany

In the picture number 5 indicates the primary energy consumption by power
stations to generate electric power. They make available to the consumers the so-
called end energy as in table number 1 enumerated.
200 Stefan Dilger
The development of the primary energy consumption with regard to non-re-

newable energy sources appears as follows. In 1990 14.905 Peta joules were re-
quired. In 2008 these were still 13.607 Peta joules. This corresponds to a decline of
8,7%. The development of the final energy consumption has decreased from 1990
at 9.472 Peta joules to 9.027 Peta joules in 2008. This corresponds to a decline
of 4,7%. The final energy consumption in 1990 in the sector industry amounted
to 2.977 Peta joules. This corresponds to an interest of 31,4%. In 2008 the final
energy consumption amounted to 2.589 Peta joules which corresponds to an in-
terest of 28,7%. The decline of the final energy consumption from 1990 to 2008
amounts therefore to 2,7%.
Table number 1 shows an overview of the development of the primary energy
input and the end energy consumption.
Table number 1: Development and structure of the German primary energy

consumption, source: Bundesministerium fr Wirtschaft und
Technologie, Zahlen und Fakten Energiedaten Internationale
und nationale Entwicklung.
The share of the industrial sector decreased from 1990 at 31,4% to 28,7% in
2008.
Order of rank of the proportional interests of the sectors stood in 2008:
1. Industry 28,7%
2. Transport 28,5%
3. Households 27,3%
4. Trade, Industry, services 15,5%
The detailed analysis for branches in the industrial sector is shown in the follow-
ing chapter. At the same time the structural analysis of branches with a particularly
high energy demand is in indicated. They are therefore also susceptible for high
energy expenses.
The use of non-renewable energy in the industrial sector

For the manufacturing of products and services commodities are being used.
The problem of the dependence on of the non-renewable energy natural gas for
example can be clearly indicated. In graph number 5 one can recognize that the
primary end energy consumption lies at 13.500 Peta joules for 2008. The German
static reserves of the non-renewable energy source accumulate to 12 years. The
industrial sector consumed natural gas in 2008 at the rate of 796 Peta joules (com-
pares table number 2). This corresponds to a share of 8%. The industrial consumers
of natural gas are: recovery of minerals, food / tobacco, paper trade, chemistry, rub-
ber and plastics, glass and ceramics, metal production, nonferric metals, mechani-
cal engineering and automotive industry. In 2008 the energy consumption of the
chemistry sector was at 197.3 Peta joules the highest. Followed by the food and
tobacco with 98,3 Peta joule as well as the metal production with 90 Peta joules
and the area of the paper+pulp industry with 76.8 Peta joules (table number 2).
202 Stefan Dilger
Table number 2: Amount and final energy consumption of natural gas Ger-
many, source: Bundesministerium fr Wirtschaft und Technologie, Zahlen und
Fakten. Energiedaten nationale und internationale Entwicklung.
Order of rank overview of the sectors engaged with natural gas consumption in
2008:
1. Chemistry 197.3 Peta joules (share 24,8%)
2. Food, tobacco 98.3 Peta joules (share 12,3%)
3. Metal production 90.0 Peta joules (share
11,3%)
4. Paper + Pulp 76.8 Peta joules (share 9,6%)
5. Glass and ceramics 63.6 Peta joules (share 7,9%)
6. Recovery of minerals 55.0 Peta joules (share 6,9%)
7. Automotive industry 42.1 Peta joules (share 5,2%)
8. Metals 39.6 Peta joules (share 5,0%)
9. Mechanical engineering 29.4 Peta joules (share 3,7%)

10. Rubber and plastics 20.9 Peta joules (share 2,6%)
Price development of the energy commodities

According to calculations done by the Federal Ministry for Economy and work
in 2008, the prices of energy commodities would in future clearly increase, in par-
ticular for oil and natural gas. In graph number 6 the developments are retrospec-
tively shown for the period from 1995 to 2004 as well as a graph of the future price
development (inflation-adjusted). It is to be noted that oil as well as natural gas are
still going to be more expensive and that prices have escalated. According to graph
number 6 the costs for the oil at 2,30 euros in 1995 rose to 5,00 euros compared
to 2004. This corresponds to an increase of 2,70 euros (+117,4%). In the natural
gas area the expenses rose from 1,80 euros in 1995 to 3,20 euros in 2004. This cor-
responds to an increase of 1,40 euros (+77,8%). Coal shows a more moderate in-
crease of approximately 0,10 euros (+6,7%). An overview of the cost development
from 1995 at 1,50 euros up to 2005 at 1,60 euros follows.
Graph number 6: Real prices of oil, natural gas, coal, brown coal in 1995 to
2030, source: Bundesministerium fr Wirtschaft und Arbeit, Dokumentation
Nummer 545.
204 Stefan Dilger
Order of rank overview of the real cost development in 1995 - 2004:

1. Oil 2,70 euros (+117,4%)
2. Natural gas 1,40 euros (+ 77,8%)
3. Coal 0,10 euros (+ 6,7%)
The Federal Ministry for Economy and Work had in 2008 forecast further de-
velopments for above described energy commodities. Correspondingly oil will sell
in 2010 at, 4,80 euros and develop until 2030 to 6,20 euros. This corresponds
to an increase of 1,40 euros (+29,2%). Natural gas offered in 2010 at 3,20 euros
could reach 3,90 euros in 2030. This increase corresponds to 0,70 euros (+21,9%).
A more moderate increase can be expected for coal and brown coal. Coal could rise
from a praising of 1,65 euros in 2010 to a max of 1.80 euro in 2030 equivalent to
0,15 euros (+9,1%). The brown coal area are can be calculated 0,90 euros in 2010
without any further increase following an order of rank overview forecast for the
delivery costs, for the described energy sources is shown.
Summary of the cost forecasts from 2010 to 2030:

1. Oil 1,40 euros (+29,2%)
2. Natural gas 0,70 euros (+21,9%)
3. Coal 0,15 euros ( +9,1%)
4. Brown coal 0,00 euros ( 0.0%)
The risks for further price increases after 2008 rose, because of the dependence
of the Germany on economically and politically unstable mining and transit re-
gions. Another negative aspect is the future increase in demand and the fact that
there are not enough mining exploitation facilities available. This was triggered off
by absent investments in new plants or in investigations where additional resources
could be detected. The effect on the purchase prices due to a general supply short-
age leads therefore in total to higher purchase prices.9 If we look next at the devel-
opment of the raw material prices for example of the heating market.
9
Cf. Campel, 2007, p. 7. Colin J. Campbell acted for decades in leading positions at oil companies,
and knows the circumstances like no one else. He is a respectable expert in this area. In this con-
nection he describes this situation in 2002 as a Peak Oil.
Development of the raw material cost for example of the heating market
Primary energy prices are an important factor for the economic performance
and development of the German national economy. The relative height of competi-
tive energy prices can be determining factor for the business management planning.
It is furthermore also important for any financial economic planning. Domestic
energy prices are being influenced by the prize pattern and the development on
the world market. Other influential factors are the expenses for the procurement,
energy commoditie it self, energy taxes and various extra charges (for example,
service remuneration) as well as the delivery and conversion expenses. Availability,
expectations of the market participants and politically caused risks play an impor-
tant role regarding the prize development. Excluded from this development is the
mining of the national reserves which do not sufficiently exist in Germany. Graph
number 7 shows the development in the past using the example of the industrial
heating market in 1995 up to 2005. Here, increases are visible, above all in the areas
of Natural gas, heavy fuel oil and the purchases of import coal. Clear increases are
to be recognized as from 1999.
Referring to light fuel oil an increase is to be seen between 1999 at 5,20 eu-
ros and 2005 at 11.80 euros. This corresponds to an increase within six years of
126,9%. A similar course can be recognized in the area of Natural gas. In 1999 at
4,00 euros it rose to 7,40 euros in 2005. This corresponds to an increase of 3,40
euros (85%). In the area of the heavy fuel oil a price of 2,60 euros was paid in 1999,
in 2005 the costs were at 5,80 euros. This corresponds to an increase of about 3,20
euros or 123,1%. The imported brown coal the registers are more moderate in-
crease. The price for imported coal was in 1999, at 1,20 euros and in 2005 at 2,20
euros. This corresponds to an increase of 1,00 euro or 83,3%. The price for brown
coal was 2,20 euros in 1999. In 2005 the expenses lay at 2,40 euros. This corre-
sponds to an increase of 9,1% or 0,20 euros. The costs are to pay for Giga joules.
The indicated costs are per Giga joule.
206 Stefan Dilger
Graph number 7: Energy price development in the warm market of the indus-
try from 1995 to 2005, source: Bundesministerium fr Wirtschaft und Technolo-
gie und Bundes-ministerium fr Umwelt, Naturschutz und Reaktorsicherheit,
side 23.
Following is an overview of the cost development from 1999 till 2005.
Ranking overview of the real proportional cost development between 1999 and
2005:
1. Light fuel oil + 126.9% (in 2030 = 6,60 euros / Giga joules)
2. Heavy fuel oil + 123,1% (in 2030 = 3,20 euros / Giga joules)
3. Natural gas + 85,0% (in 2030 = 3,40 euros / Giga joules)
4. Import coal + 83,3% (in 2030 = 1,00 euros / Giga joules)
5. Brown coal + 9,1% (in 2030 = 0,20 euros / Giga joules)
The graph shows that the light as well as heavy fuel oil register the biggest in-
creases. These are followed by natural gas and the imported coal which also devel-
oped rapidly. The brown coal remains at a moderate cost increase.
Summary:
The introduction shows that worldwide there are sufficient energy sources in the
medium term. The same picture also appears for the energy resources which means
that there is a good availability. This fact is supported by a good worldwide statistic
reach on non-renewable energy sources. They are sufficiently availabl. The statistics
reaches from oil at 40 years and the coal in excesses of 1.000 years availability. At
the same time a trend develops to substantially higher energy consumption rates.
From 1971 to 2002 the developing countries had a higher power demand in com-
parison to the industrial nations. The worldwide energy consumption has increased
within 31 years by 75,9%. The driving fore these are the developing countries and
industrialized nations.
In Germany is in a bad position regarding the national statistic range of the non-
renewable energy sources. At the end of 2007 the statistic range for oil in particular
was at only 4 years. The same picture appears in the area of Natural gas. Only the
coal can demonstrate a good availability at 200 years. The uranium production was
stopped in Germany and does not exist any longer. The nuclear energy has to be
inevitably imported. The primary energy consumption in Germany continuously
improved from 1990 at 14.905 Peta joules to 13.607 Peta joules in 2007. This cor-
responds to a decline of 1.298 Peta joules which corresponds to decline within 18
years to 8,7% equivalent to 0,48% per year. The German primary energy consump-
tion must be covered by imports. Therefore Germany is dependent on imports of
non-renewable energy sources.
With 28,7% the industry is the most affected sector as far as by these energy
imports are concerned. The final demand on utilized power was in 1990 at 2.977
Peta joules and improved by 2008 by 388 Peta joules to 2.589 Peta joules. This
corresponds to an improvement 13% in 18 years or 0,72% per year. Nevertheless,
the dependence on imports still remains. The sector chemistry within the industrial
sector is looking at the energy source natural gas for instance at 197.3 Peta joules
relying on stable energy supply to maintain its production rate. For example the
heating transfer marked showed real price increases during years from 1995 to
2005 (10 years) for the non-renewable energy sources like oil, natural gas and coal.
These increases lay inflation-adjusted for oil at 117,4%, followed by natural gas at
77,8%. The coal lies with a moderate increase 6,7% in the lower vicinity. In future
a more moderate forecast appears compared with the near past however there is a
rising cost development to be expected.
208 Stefan Dilger
Up to 2030 an increase for oil of 29,2%, for natural gas of 21,9% and for the
coal of 9,1% is forecast. Merely for the brown coal there is no reason to fear any
appreciable increase.
For the German industry a clear cost increase was recognized since 1999 for the
heating transfer media market. The increase will reach in 6 years for the light fuel
oil 126,9% and for the heavy fuel oil 123,1%. They are the biggest cost driving
forces, followed in the centerfield by natural gas with 85% and the import coal
with 83,3%. The tail ender is the brown coal with 9,1%.
Resmee:
Germany is very strongly dependent on energy imports of non-renewable en-
ergy sources. The reason for this is a lack of own resources in Germany itself. The
primary power demand is covered in Germany by imports. The expenses for the
non-renewable energy imports show for the period of observation of from 1999
to 2008 dramatic cost developments. The biggest consumer of the non-renewable
energy sources is the industrial industry with its biggest consumer, the chemical
industry.
The energy prices have not only an upwards trend, but at the same time they
show a manner of high volatility.
2. Analysis and investigation

The problems of the rising expenses and of the absence of domestic availability
of non-renewable energy sources asper 2007, have been shown. The investigation
on single sectors of the industry, the further subdivision of the primary energy de-
velopment, the import structure of the energy imports, the German primary power
production, the energy consumption in relation to energy sources, the German
electricity production and finally the development of the German energy efficiency
will be shown in this chapter. The period of observation entails a wide range from
1991 to 2008. Situatively some analyses are conducted for shorter time intervals.
Industry analysis of the industrial sectors

The table number 3 shows a summary of the final energy consumptions in Ger-
many from 1999 to 2007.
Table number 3: Single sectors energy consumption structure from 1999 to

2007, source: Own representation.
Detailed industrial sectors are shown in table number 3, and the sequences of
the energy consumption of single branches are illustrated in graph number 8.
Detailsektorenbersicht
3000000
Ernhrung und Tabak
Endenergieverbruach in T Joule
Papiergew erbe
2250000
Grundstof fchemie
Verarbeitung v. Steine u. Erden

1500000
Metallerzeugung
Metallbearbeitung
750000
Fahrzeugbau
Endenergieverbrauch in Tera Jo
0
1 2 3 4 5 6 7 8 9
Sektor
Graph number 8: Detailed sector overview of the sector industry from 1990 to
Order of rank of the structural energy consumption of the sector industry (2007):
1. Metal production 561.846 Tera Joule (share 21,2%)
2. Raw material chemistry 460.104 Tera Joule (share 17,3%)
3. Paper and pulp 242.634 Tera Joule (share 9,2%)
4. Processing stones earth ware 221.802 Tera Joule (share 8,5%)
210 Stefan Dilger
5. Other industrial branches 215.970 Tera Joule (share 8,2%)

6. Food and tobacco 204.328 Tera Joule (share 7,8%)
7. Metals, - foundries 133.674 Tera Joule (share 5,1%)
8. Automotive industry 131.117 Tera Joule (share 4,9%)
9. Metal handling 114.476 Tera Joule (share 4,3%)
10. Glass and ceramics 92.501 Tera Joule (share 3,5%)
11. Other chemical industries 91.138 Tera Joule (share 3,4%)
12. Mechanical engineering 84.435 Tera Joule (share 3,2%)
13. Rubber and plastics 81.298 Tera Joule (share 3,1%)
14. Mining stones earth ware 17.777 Tera Joule (share 0,7%)
15. Total sum 2.653.101 Tera Joule
The sector metal production and the raw material chemistry amounted to an
energy consumption in 2007 of 1.021.950 Tera joules. This corresponds to a share
of 38,5% and more than one third of the whole sectors needs. These sectors are
followed by the paper trade, processing stones and earthware, food + tobacco and
the automotive industry. The industries metal production and foundries need a to-
tal of 695.520 Tera joules. This corresponds to a share of 26,2%. This is more than
one quarter of the whole sector power demand. The utilized power demand has
risen from 1999 at 2.383.914 Tera joules to 2.653.101 Tera joules in 2007. This
corresponds to an increase of 269.187 Tera joules, or 11,3%.
In the following step industrial branches which are especially energy-intensive,
are being put into relation to the gross domestic product. These are the raw mate-
rial chemistry, the paper trade, the processing of stone and earthware, the food and
tobacco as well as the metal production and metals and foundries. The basis for the
calculation is the year 2003 (base 100). The analyzed period encomparses the years
from 2004 to 2007.
bersicht des Energiebedarfs in den Sektoren zum BIP von 2004 - 2007
45.000
Reihe1 2004
40.000 Reihe2 2005
35.000 Reihe3 2006
Reihe4 2007
30.000
TJ / Mrd. Euro
25.000
20.000
15.000
10.000
5.000
0
Grundstoffchemie
Verarbeitung v.
Papiergewerbe
Fahrzeugbau
Metalerzeugung
Ernhrung u.
+ NE-Metalle,-
Steine Erden
gieereien
Tabak
Branchen des Sektor Industrie
Graph number 9: Energy application (in Tera joules) to well-chosen industries,

gross domestic product from jump in 2004 to in 2007: source: Own representa-
tion.
Graph number 9 shows the relation of the gross domestic product of the
branches to their energy input. From the diagram one a recognize the sectors metal
production and metals, - foundries as well as the processing of stone and earth have
a high share in energy input in relation to the GDP, followed by the raw material
chemistry and the paper trade. The automotive industry shows the smallest part.
For the period from 2004 to 2007, all industries remain nearly the same values.
Merely the industry metal production +Non ferrous metals, foundries have regis-
tered an increase.
Order of rank of the power demand to the GDP to 2007:
(Unit Tera Joule/Milliarde euros)
1. Metal production and one metal foundries 29.000
2. Stone + earthware 15.500
3. Raw material chemistry 9.000
4. Paper + Pulp 7.500
5. Food tobacco 6.000
6. Automotive industry 2.000
212 Stefan Dilger
Global economic development

At the beginning the rapid development of the energy consumption of the
union of states was shown between 1971 and 2002. While the energy consumption
went down in the industrial countries within this period by about 10% of from
62% to 52%, the developing countries in the same period registered an increase
of about 14% of from 23% to 37%. Graph number 10 shows the development of
the energy consumption of the most important states and communities in 1990, in
2000 and 2006. The Organization for Economic co-operation and Development
has not been included here.
The world energy consumption rose from 1990 at 8.758.8 million tons of Oil
equivalent to 11,740 million tons of Oil equivalent in 2006. This corresponds to
an increase of 34% in 16 years or 2,1% per annum.
bersicht der Primrenrgieentwicklung
12000
10000 1990
2000
8000 2006
Mtoe
6000
4000
2000
0
en
ld
na
d
l
A
l
ta
ta
an
az
US
or
di
i
to
to
Ch
Br
hl
W
In
27
sc
EC
ut
EU
De
O
Gemeinschaften
Graph number 10: Overview of the primary energy development from 1990 to
In the European Union as well as in Germany the energy consumption at 1.700
million tons of oil equivalent and 340 million tons of oil equivalent remains for the
same period in each case nearly at a steady level.
The USA had an increase of 1.926,3 million tons of oil equivalent from (1990)
to 2,320.7 million tons of oil equivalent in 2006. The energy increase amounts to
394,4 million tons of Oil equivalent or 20,5%. This corresponds to an increase of
1,3% per annum.
During the same period China had increase from 863.2 million tons of oil
equivalent to 1.878,7 million tons of oil equivalent (2006). The increase amounts
to 1.015,5 million tons of Oil equivalent or 117,6%. This corresponds to 7,4% per
annum.
Brazil had forceded its power demand of 140 million tons of oil equivalent in
1990 to 224,1 million tons of oil equivalent in 2006, and used 84,1 million tons of
oil equivalent more. This corresponds to an increase of 60% or 3,8% per annum.
The Indian energy consumption rose from 1990 at 319,9 million tons of oil
equivalent to 265,8 million tons of oil equivalent in 2006. This increase amounts
to 245,9 million tons of Oil equivalent and amounts to 76,9% or to 4,8% per
annum.
Order of rank overview of the primary energy development of selected regions:
1. China 117,6% (7,4% per annum)
2. India 76,9% (4,8% per annum)
3. Brazil 60,0% (3,8% per annum)
4. World 34,0% (2,1% per annum)
5. USA 20,5% (1,3% per annum)
6. European Union 2,9% (0,2% per annum)
7. Germany 0%
In the following segment the German primary power production is shown and
being evaluated from 1990 to 2007.
Primary power production in Germany From 1990 to 2007:

The primary power production in Germany was decreasing during to the period
of 1990 to 2007, according to the publication of the federal environment office
from February, 2009. Between 1990 and 2007 the production of local energy
commodities decreased in Germany by about 35%, from 6.224 Peta joules to 4.077
Peta joules. The brown coal in 2007 represented a share of 39,9% (in 1990: 51%)
214 Stefan Dilger
and was the most utilized domestic energy source. The coal mining industrys con-
tribution to the domestic energy provision is ranked second. The share amounts
to 16% in 2007 (in 1990: 34%). During the last 15 years the coal has registered a
decline of 68,7%. Oil and gas had a light increase of 11% for the same period. And
contributed 2007 a share of 13,3% (in 1990: 9,1%) towards the primary power
production. The production of the mineral oil is not relevant because of reserves
being absent. In 2007 only a share of 3,7% was reached.
The contribution of wind energy and water power in the past contributed a
minimal share to the primary power production in Germany. The amount of both
these primary energies has still almost quadrupled to 217 Peta joules in 2007 from
59 Peta joules in 1990. This corresponds to an increase of 267,8% or 15,8% per
annum.
Graph number 11: German primary power production after energy sources
from 1990 to 2007, source: Arbeitsgemeinschaft Energiebilanzen, Energiebilanz
Auswertungstabelle Deutschland 1990 bis 2007 Stand 09 / 2008.
The remaining primary energy sources which contain mainly renewable energy
sources like solar energy, biomass, Geothermal, but also, for example, waste incin-
eration have risen in this period since 1990 by six fold from 153 Peta joules to 890
Peta joules and (737 Peta joules +481,7% or 23,3% per annum) represented in
2007 a share of 21,8% in the primary energy sources.10
Overview of the German primary power production from 1990 to 2007:
Coal - 68,7% ( -4,0%)
Overall development in Germany - 35,0% ( -0,5%)
Brown coal - 11,1% ( -0,7%)
Oil gas and oil + 11,0% ( +0,6%)
Wind and water power + 267,8% (+15,8%)
Rest (Biomass, Geothermal, Solar) + 481,7% (+23,3%)
In the following segment the relation structure of the energy imports for Ger-
many as well as the utilization of the energy source is being depicted. A trend is
visible here towards the use the renewable energy sources.
Supply structure of the Germany energy imports

The time considered runs from 1991 up to 2008. Table number 4 depicts the
energy sources coal, crude oil, natural gas and uranium for said period with the re-
spective imports. The change in the area of the coal is remarkable. In 1990 approx.
90% had been covered by the domestic production. In 2008 the demand was cov-
ered two thirds by the imports. In 1991 16,9 million tons of coal were imported.
Then in 2008 the amount rose to 39,1 million tons. The increase amounts to 22,2
million ton corresponding to an increase of about 131,4%. In 1991 573,2 Tera
watt hours of natural gas were imported. In 2008 the imports rose to 981.4 Tera
Watt hours. This corresponds to an increase of 408,2 Tera to Watt hours or 71,2%.
The natural gas imports emanated mainly from countries like the Netherlands,
Russia and from Norway. It can be recognized that the import structure has shifted
in this field in favor of the Norwegian and Russian natural gas deliveries. In 1991
the Imports amounted to 94,7 Tera watt hours and in 2008 they lay at 291,4 Tera
watt hours. This corresponds to an increase of 207,7% within the last 17 years.
Russia supplied the biggest share at 40% of the entire natural gas imports.
10
Cf. Umweltbundesamt, 2007, Energieverbrauch nach Energietrgern. http://www.umwelt-
bundesamt-daten-zur-umwelt.de/um welt daten/public/theme.do;jsessionid=7F068C3E4542E6
C9B53DA8DE7F043C36?nodeIdent=2326 (Datum 26.07.2010).
216 Stefan Dilger
Table number 4: The relation structure of the energy imports from 1991 to
2008. source: BMWI 2009, side 16.
In 1991 crude oil stand at 88.8 million tons and rose until 2008, to 105,3 mil-
lion tons. This corresponds to an increase of 16,5 million tons or 18,6%. The crude
oil import from Africa since 1991 at 27,1 million tons went down to 8.8 million
tons in 2008. This corresponds to a decline of 67,5%. Russia however has also
played an important role in the area of Crude oil. With imports in 1991 at 14.0
million tons, to a total of 33,6 million tons of oil in 2008. This corresponds to an
increase of 140%. The imports from the Middle East remained almost consistent.
In the uranium field the imported amounts from the listed supply countries
reached 3.09kt by 2007. This corresponds to an increase of 2.05 kt or an incline of
197,1% correspondingly.
Order of rank list of the energy sources with imports from 1991 to 2008:
1. Uranium + 197,1%
2. Crude oil + 140,0%
3. Coal + 131,4%
4. Natural gas + 71,2%
In the following chapter the utilization of the energy sources is being analyzed.
The main focus lies on the industrial sector. Table number 5 shows the develop-
ment of the utilized energy consumptions by the sectors.
Table number 5: Final energy consumption after sectors from 1990 to 2008 in
PJ,source: BMWI 2009, side 23.
In the area of mineral oil products the consumption of 308 Peta joules in 1990
decreased to 160 Peta joules in 2008. This corresponds to a decline of 48,1%.
218 Stefan Dilger
In the area of gases a decline is to be registered by 136 Peta joules or 14,5%. If

in 1991, 936 Peta joules had been used, these were in 2008 only 800 Peta joules.
In the area of Coal the final energy consumption could be lowered from 884
Peta joules to 577 Peta joules. This corresponds to a reduction of 307 Peta joules
equivalent 34,7% by 2008.
In the electricity field a growth rate of 70 Peta joules was reached. In 1990 the fi-
nal energy consumption lay at 748 Peta joules and had increased to 818 Peta joules.
This corresponds to an increase of 9.4%. It has to be recorded that the industry is
the biggest final energy consumer concerning coal (interest 66%) and electricity
(42,9%). It takes up 2nd place regarding gas consumption at an interest of 35%.
With the mineral oil products the industry occupies place 4 with a share of 4,9%.
This is only very small part. Within the remaining sources a decline has to be reg-
istered. 101 Peta joules used in 1990, decreased to 44 Peta joules. This corresponds
to a reduction of 57 Peta to joule which corresponds to decrease of approx 56,4%.
Ranking of the final energy consumption of the industry from 1990 to 2008:
1. Remaining one - 56,4%
2. Mineral oil products - 48,1%
3. Coal - 34,7 %
4. Gas - 14,5 %
5. Electricity + 9,4 %
It has got to be recognized that all sources except electricity show a decline.
Merely the electricity consumption registers a growth of 9,4%. This is being ex-
amined in the following chapter. The gross electricity production for the whole of
Germany as well as the structural development are being depicted and described.
Electricity production in Germany from 1990 to 2008:

The imported as well as the domestically produced primary energy sources are
not utilized immediately. They usually through different processes of transforma-
tion. Thereafter they are being used in purified form to operate vehicles, machines,
production plants or are used as process energy and serve as a source for heating of
buildings. The biggest share of the conversion is being used for the electricity pro-
duction. Beforehand it has to be mentioned, that the power generation structure in
Germany, is the result of long-term investment decisions. Because of an expected

life span of the plants of 35 years and more, the design of the power station park
can at a certain times be the result of economic, ecological, regional-economic-
political and energy-political factors of influence, which can partly be backdated
for.11
Graph number 12: German gross electricity production of the power stations
after energy sources from 1990 to 2008, source: BMWI, side 19.
Thus it can be explained, that approx. half of the presently running plants have
been constructed 20 years ago or longer. At that time other basic conditions for
the power generation by coal applied than those valid today. In the graph number
12 the gross electricity production for Germany together with the primary energy
source input is shown. In 2008, 639 milliard kilos of watt of hours of electric
power were produced. This corresponds to a primary power demand of 5.494 Peta
joules. Compared to the whole primary energy consumption this represent approx
11
Bundesministerium fr Wirtschaft und Technologie, 2009, p. 18. Books been getting on in years
power stations in Germany and how the decisions were made in the past.
220 Stefan Dilger
to 39%. 29% can be allocated to nuclear sources, 26% to brown coal, 22% to coal,
14% to gas and 8,4% to remaining energy sources.
As it can recognized in the graph number 12, the share in renewable energy
has increased. In 2008 an interest of 93 Tera watts of hours of electric energy was
produced from renewable energy sources. This corresponds to an interest of 14,6%.
In 1990 550 Tera watt of hours electricity were generated. This corresponds to an
increase of about 89 Tera watt of hours compared to 2008 to an increase of 16,2%
in 18 years. Representing a moderate increase of 0,9% per annum. What are now
the reasons of this moderate increase in the gross electricity production. Why does
it not rise as strongly as for example the world energy consumption? Lets therefore
look, next at the energy efficiency in Germany.
Analysis of the energy efficiency of the industry

Due to the improvement of the energy efficiency the energy consumption has
gone down in the industrial sector and has decoupled itself from the gross output
value. The industry could reduce the energy intensity for the production processes
by about approx. 35% from 1991 to 2008. This corresponds to 2.054 Mega joules
per 1.000 euros of gross output in prices compared to 2000. This was achieved by
high savings in the fuel sector as well as by small declines in the specific electricity
application. From 1991 up to 2008 the electricity application sank at an annual
average of 2,05%. The fact that the electricity utilization did not go down consider-
ably more, is due to an increased automation as well as replacement of fuels by the
electricity. The consumption of the fuel went down by 3,2% at an annual average.
The modern rotary furnaces in the cement industry have contributed to energy sav-
ings as well as the ongoing change of energy-intensive production processes. In the
cement industry the thermal demand of fuels has gone down by about 6% since
1991, and lies at 2.896 kJ / kilogram of cement produced. In the steel production
energy savings due to higher efficiencies have also been possible in all production
processes. In 1990 an energy input equivalent to 18,3 Giga joules was required to
produce 1 ton of raw steel. Presently the energy input lies at 15.5 Giga joules and
corresponds to a decline of 15,3%.12
12
Cf. Bundesministerium fr Wirtschaft und Technologie, 2009, p. 27f.
Graph number 13: Development of the energy efficiency of the German indus-
try in unit gross output value in prices of 2000, source: Bundesministerium fr
Wirtschaft und Technologie 2009, side 27.
The moderate increase in the power generation can also be attributed to new
investments by the industry for improved energy efficiency. Less energy being is
required for the gross output production.
In a survey by the credit institute for the reconstruction (kfW) banking group
in 2005, 521 companies in Germany were questioned on the subject of energy
efficiency in their own plants. 60% of the interviewees stated to have attached an
high relevance to the questions of energy efficiency. 29% had already introduced
concrete energy efficiency measures. The measures were carried out in the areas of
Process head requirements, space heating as well as hot-water consumption (58%).
43% were invested for improved Building insulation and advanced lighting tech-
nologies. The main motive for 94% of the companies was lowering of energy ex-
penses. 55% explained to have introduced energy efficiency measures in order to be
able to react adequately to rising energy prices.13
13
Cf. KFW-Befragung, 2005. Belegt wie sich die Einstellung und die Haltung zu steigenden Ener-
giekosten sich im Sektor Industrie am Beispiel der Stahl-, und Zementindustrie gendert hat.
222 Stefan Dilger
3. Results
Global results:
The global energy consumption from 1971 to 2002 developed rapidly, sub-
stantially more energy was needed. In 1971 the oil equivalent energy consump-
tion amounted to 5,800 million tons. In 2002 additional 4,400 million tons were
required . The increase in this period amounts to 75,9% and lies at the level of
10,200 million tons of oil equivalent in 2002. This corresponds to an increase of
2,4% per year. The driving force behind this development are the industrialized
countries and the reform countries. In the period from 1990 to 2006 the world
energy consumption rose from 8.759 million tons of oil equivalent to 11.749 mil-
lion tons of oil equivalent. This corresponds to an increase of 2.981 million tons
of Oil Equivalent or 34% which is an increase of nearly 2,1%. Compared to the
first annual increase at 2.4% the second increase of the recent past at 2.1% is
slightly lower by -0,3%. However this is still at a very high level. Respnsible for
this development since 1990 are in particular countries like India, China, Brazil
and the USA. Worldwide indications are the sufficient energy sources are available.
The worldwide static range on non- renewable energy sources is good and indi-
cates sufficient supplies. Worldwide enough non-renewable energy sources exist.
The worldwide exploitation lays at 1,1% compared to the reserves. This means that
there are enough resources of non-renewable energy source. The reserves compared
to the resources amount to 6,8%.
National results:
The problem portrayed and at the same time the challenges for the German
economy and its industry are as follows. The German energy exploitation is ex-
tremely precarious in the areas of Oil and natural gas. The static range is only four
and twelve years. Germany depends in all primary energy sectors on imports. The
primary energy consumption in Germany cannot be covered by own energy re-
sources. The biggest energy consumer in Germany is the industry, with a share of
28.7%. Between 1990 and 2008, the end energy consumption has fallen by about
4,7% in Germany. The industry could achive a decrease of the final energy con-
sumption of 2,7% in the same period. The most intensive energy industries are the
chemistry, food and tobacco and the metal production. A worrying factor are the
volatile energy prices. They manifest themselves clearly in the period from 1995 to
2004. Increased expenses for oil at 117.4%, for natural gas at 77,8% and for coal
at 6,7% are disturbing. Also the energy expenses forecast indicated in 2005 all-
clearance either. According to the forecast up to 2030 increases can be expected for
oil at 29,2%, for natural gas at 21,0% and for coal at 9,1%. Merely the brown coal
can get by well. If this investigation is more refined, other volatile energy expense
developments appear, For example, in the period from 1999 to 2005 increases in
the area of the light fuel oil of 126,9%, of heavy fuel oil of 123,1% and of the im-
port coal of 83,3% were to be registered.
In 2007 especially energy-intensive industries such as the metal production with
an interest of 21,2%, the raw material chemistry with an interest of 17,3%, the
paper industry with an interest of 9,2%, the processing of stones and earth ware
with an interest of 8,5%, food and tobacco with 7,8%, the one metal foundries
with 5,1% and the construction of vehicles with 4,9% have been susceptible. If
one looks at the above the gross domestic product of the industries referred to
above the same period in 2007 then the following energy input amounts had to
by invested by the sector raw material chemistry, at 9000 Tera joules per 1 milliard
euro turnover, the paper industry with 7.500 Tera joules per 1 milliard turnover,
the stone and earthware with 15.500 Tera joules per 1 milliard euros turnover, the
food and tobacco with 6.000 Tera joules per 1 milliard euros turnover, the automo-
tive industry with 2.000 Tera joules per 1 milliard euros turnover and in the metal
production and one metal foundries with 29.000 Tera joules per 1 milliard euros
turnover therefore they are the most susceptible sectors in the industry. Here the
metal production and non-ferrets metal foundries are the most susceptible sector in
place 1, followed by stones and earth ware place 2, the raw material chemistry in
place 3, as well as the paper trade in place 4 and food and tobacco in place 5. Place
6 is occupied by the automotive industry.
For the primary power production in Germany a trend can be not iced away
from various non-renewable energy sources. In the period from 1990 to 2007 the
coal with -68,7% and the brown coal with -11,1% lost impact on an overall con-
sideration of the primary power production in Germany, a decline of -35,0% was
registered. Merely the oil gas and oil production were able to improve by about
11,0%. At the same time the imports of non-renewable energy sources rose. In the
period, increasing imports of uranium of 197,1%, of crude oil at 140%, of the coal
at 131,4% and of the natural gas at an increase of 71,2% had be registered. At the
same time the imports structure for natural gas had moved towards Norwegian,
Dutch and Russian suppliers.
224 Stefan Dilger
The final energy consumption in the industrial sector is falling. There will 48,1%
less mineral oil products, 34,7% less coal, and 14,5% gas used. The remaining will
decline significantly with 56,4%. Only with electricity there is an opposite direc-
tion to be recognized. Here a growth of 9,4% was registered in the same period. In
particular the renewable energy sources like wind and water power have achieved
an increase of 267.8% from 1990 to 2007. If one examines the gross electricity
production in Germany from 1990 to 2008 an increase of 16,2% can be registered.
This corresponds to a year by increase of 0,9%. This is also not an exceptionally
high average due to an a reason for this improved contribution of the energy ef-
ficiency of the German industry. In the period considered from 1991 to 2008 the
energy intensity could be reduced by 35%. The energy efficiency of the German
industry has clearly improved over the last years. On a average of 2,05% per year.
Less energy is being used per gross output value.
In the following sectors of the industry the industries metal production, raw
material chemistry, the paper trade as well as the processing of stone+earthware
in particular must the subject energy seriously be locked into. They deliver a big
economical contribution to the prosperity and social well fare. Nevertheless, they
still have to remain internationally competitive at levels of high energy consump-
tions. Thereby volatil energy prices with a rising tendency are a disadvantage, in a
competitive market. This fact was confirmed with a survey by the loan corporation
for reconstruction in 2005.
References:
1. Short own definition of the author to the energy efficiency. Stefan Dilger.
2. Defilla, S. (2007): Energiepolitik Wissenschaftliche und wirtschaftliche Grund-la-
gen, 3. Band, S. 10.
3. Grber-Seiinger, U./Gnther, L./Haas, Jan W./Millinet, M./Reger, O./Schieberle,
A. (2004): Brockhaus Wirtschaft, Leipzig et al.
4. Bernhard, C./Fachautoren (2009): Energierohstoffe 2009, Hannover.
5. Erdmann, G./Zweifel, P. (2008): Energiekonomik, Theorie und Anwendungen,
Berlin et al.
7. Erdmann, G./Zweifel, P. (2008): Energiekonomik, Theorie und Anwendungen,
Berlin et al. S. 122.
9. Campbell, C. J. (2007): lwechsel, Das Ende des Erdlzeitalters fr die Zukunft,

Nrdlingen, S. 7ff.
10. Umweltbundesamt, 2007, Energieverbrauch nach Energietrgern. http://www.
umweltbundesamt-daten-zur-umwelt.de/um welt daten/public/theme.do;jses
sionid=7F068C3E4542E6C9B53DA8DE7F043C36?nodeIdent=2326 (Datum
26.07.2010).
11. o.V. Bundesministerium fr Wirtschaft und Technologie (2009): Energie in
Deutschland, Trends und Hintergrnde zur Energieversorgung in Deutschland,
Berlin.
12. o.V. Bundesministerium fr Wirtschaft und Technologie (2009): Energie in
Deutschland, Trends und Hintergrnde zur Energieversorgung in Deutschland,
Berlin.
List of abbreviation
BIP - Bruttoinlandsprodukt
Exa - 1018
Giga - 109
Kfw - Kreditanstallt fr Wiederaufbau
Kt - Kilo tonnen
Tera - 1012
USA - United States of America
NE-Metall - Nichteisen-Metall
226 Nedzad Fajic
RISK AS SOURCE OF RELUCTANCE TO SAAS

ADOPTION IN EUROPE
Nedzad Fajic, M.Sc.1
1
University Politehnica of Bucharest, Faculty of Engineering and
Management of Technological Systems, Romania
Abstract
Cloud computing is among the most discussed issues in the information com-
munication and technology (ICT) sector. Information technology (IT) infrastruc-
ture is altered by the business methods due to cloud computing and moved ahead
towards a utility model of pay as you go. Instead of spending time with con-
structing, managing, maintaining and running their own physical infrastructure,
now firms can host their applications, platforms and storage in data centers on
virtual servers supported by professional third parties. Such services based out of
the cloud assist agile and cost efficient business surroundings. The most essential
economic influence of cloud technology could exist in developed competitiveness
and cost savings of existing IT services, as well as in introducing new services to
private and public companies. Because of the bulk buying of hardware and pro-
cessing power, demand aggregation, and decreased costs of labor per unit, cloud
providers can achieve essential savings on their running price and pass these on to
their customers. Businesses can utilize the cloud computing technologies, thereby
using better equipment with more flexibility, being faster, and having lower ex-
penditures of capital. Customers of cloud computing technologies make data and
online content interactive and accessible for users. Given the importance of cloud
computing, not many studies have been conducted from the adoption perspective
and, in particular, have not sought to identify factors of risk in the most popular
cloud computing deployment model, which is Software-as-a-Service (SaaS). This
paper provides an overview on the European cloud computing perspective and as-
sesses the risks in SaaS.
Keywords: Cloud Coomputing, SaaS, Software-as-a-Service, Europe, Risks.
RISK AS SOURCE OF RELUCTANCE TO SAAS ADOPTION IN EUROPE 227
1. Introduction to Cloud Computing

Cloud computing is a model for enhancing convenient, on demand and ubiqui-
tous access of network to shared areas of designed computing networks, resources,
applications, services, servers and storage that can be supplied and liberated with
reduced efforts of management or interaction of service providers. The most essen-
tial economic influence of cloud technology could exist in developed competitive-
ness and cost savings of information technology services available to private and
public companies as well as chances leading to new services. Because of bulk buy-
ing of hardware and demand aggregation cloud providers decreased costs of labor
per unit. They can achieve essential savings on their running price and pass these
on to their consumers. Businesses can utilize technologies of cloud computing for
information technology supply thereby using better equipment, being rapid, being
much flexible and having less expenditure of capital. For customers the technolo-
gies of cloud computing are making online data and content more interactive and
accessible. Cloud computing solutions are the solutions of the new age of informa-
tion technology offering numerous benefits to its customers. Cloud-based solutions
offer cost effective services to customers for which they can pay based on their us-
age. This makes cloud based solutions favorable for most of the customers in the
corporate world.
2. An overview of the European cloud computing perspective

According to Kushida et al. (2012) cloud computing is modifying the way busi-
ness is being performed by altering the underlying infrastructure of information
technology. Computing is moving ahead towards a utility model of pay as you go.
Rather than spending in constructing, managing, maintaining and running their
own physical infrastructure, now firms can host their processes of business on vir-
tual servers provided data centers in the state of art performed by professional third
parties. Such services based would one call out of the cloud and they would assist
agile and cost efficient business surroundings. The adoption rate varies around the
globe.
International Data Corporation (IDC, 2008) evaluated that in 2015 $9 Billion
will be invested in the services of professional cloud in Europe, a development from
$570 Million in 2010. While present applications provided in the cloud may be
basic backup/disaster recovery, management of electronic mail, web hosting and
storage, organizations are already initiating the usage of cloud for core applications.
228 Nedzad Fajic
TechMarketView recommends United Kingdoms market of cloud computing will

increase from $3 Billion in 2010 to $6 Billion in 2014 and similar development is
anticipated by Experton Group in Germany from $2 Billion in 2010 to $9 Billion
in 2015. Such rates of development represent that Europeans view cloud as mov-
ing ahead spelling first mover benefits for those able to travel quickly. It is difficult
to align what Europeans expect from their cloud solution with the US American
market (IDC, 2010).
According to IDC (2008) a distributed group of data centers in Europe permits
cloud service providers to provide their consumers transparency and a selection of
free choice of storage locations. It is essentially critical for 3rd party owners of the
data centers to ensure integrity, availability and confidentiality of the entire data,
whether in a private cloud or multi-tenancy servers. The providers of data centers
must offer straight access to a vast number of local and international low latency,
high speed mobile and broadband networks preferably from numerous Tier 1 op-
erators. Their facilities must involve networks of content distribution, tracing plat-
forms and points of internet exchange as well as distributed but interacting hubs of
cloud supporting seamless pan-European and worldwide connectivity. With these
practical assurances, new entrants into the European market have a strong discus-
sion. The cloud expertise of cloud service providers constructed in the thriving US
market and integrated with a clear understanding of regional market drivers, local
business and law cultures plus assisted by best of breed hosted information technol-
ogy facilities from a trusted 3rd party could lead into a sustainable and rapid entry
into Europe. It is found that the European Union market of public cloud is devel-
oping three times more rapid than general information technology (EU, 2011).
According to Kar (2012) Europe needs coordinated action in the computing
field. But several users are still hesitant to face technical and complex difficulties
and security of data particularly when it comes to confidentiality of data. In Europe
the strategy of the Commission must represent 3 drawbacks of cloud: the contrac-
tual uncertainties of digital single markets, the fragmentation of data and the cloud
standards fragmentation. Therefore the Commission has declared 4 measures to
develop cloud computing productivity.
The 4 measures are:
1) Assist schemes of certification for reliability of cloud service across the Euro-
pean Union.
2) Assure portability of data, reversibility and interoperability for cloud service

users. Essential standards must be set up by 2013.
3) Develop fair agreements and safe standards for cloud computing including
service level agreements.
4) Undergo a partnership on cloud computing between businesses and member
states which would use the buying powers of the public and private sectors in order
to shape the cloud computing market in Europe, deliver better and affordable ser-
vices for e-government and business cloud service usage.
Figure 1: Cloud computing market development in European Union
Source: Adopted from Bradshaw et al. (2012)
3. Software-as-a-Service (SaaS)
The idea of using a software for service is as old as the corporate computing as
per Gerard (2008). From the beginning of the mainframe era of 1960s and into the
modern day minicomputer, computers were costly till 1970s and various small and
medium enterprises (SME) possessed sources of computing as a way to gain distant
access. Software delivery modules, on request have been progressing in the late
1990s that dwell in many forms and varieties incorporating provision for services
like application service provision (ASP) and business service provision (BSP). These
types of services that are supported by demand render users and enterprises, along
230 Nedzad Fajic
with an internet based retrieval of resources, proficiency, and a unique range of in-
tricate applications covering an organizations complete real value chain. In the cur-
rent IT literature, concerned with research and management, arguments based on
ASP and outsourcing have been quite silent, importantly due to the reasons of very
few successful stories. As an alternative, a delivery model based on new on-demand
processes, which is known as Software-as-a-Service (SaaS) has gained consideration
of IT researchers and officials. In reality, SaaS is recognized as an on-demand soft-
ware service module and it is an integral part of cloud computing marvels.
Figure 2: Evolution of SaaS
Source: SaaSdevinmexico.wordpress (2009)
SaaS is forecasted to become significantly important in almost all enterprise

application software (EAS) markets as per a study conducted by Gartner (2011).
Throughout the globe software revenue related to SaaS was predicted to grow up
to 19.4% between 2008 and 2013. Professionals and researchers predict assured
prospects for the effective implementation of SaaS, particularly in all application

service markets that require low stages of system customization (e.g. Office suites).
Figure 3: SaaS revenue within sizing of enterprise software 2011- 2016
Source: Gartner (2011)
Even though, not everyone is positive about the implementation of SaaS. Partic-
ularly, few organizations and researchers are doubtful about its feasibility and func-
tionality in robust EAS markets like that of Enterprise Resource Planning (ERP).
The significant limits are noted as the issues concerned with reliability, (i.e., firm
access to the service), security for the stored information and confidential issues
(that is breach of information and inadequate protection for the stored data), and
the process viability (like execution capability and quality service rendered).
3.1 Salient risk beliefs in SaaS adoption

Cummingham (1967) developed a framework for the known risks to bring out
a Hypothesis on the risk factors that can influence an individual on the overall
risks. Known risks have been defined as the expectation of losses associated with
purchase and acts as an inhibitor to purchase behavior.
232 Nedzad Fajic
The inability of SaaS not delivering the level of services that is expected would
be referred to as performance risk, which is SaaS cannot provide the availabil-
ity of application/network bandwidth as originally stipulated by the provider. All
customers can be affected at once by connectivity problems and system outrages
which will imply a high value at risk. Additionally, performance risk includes those
risk problems which are related to the interoperability of the SaaS application with
the home grown applications that are located on the client side. Performance risk
can lead to potential losses crippling the day to day operation and this lack of sup-
port can lead to organizational inefficiency or great damage to the reputation of
the organization if a customer-oriented process is affected. Some potential sources
of failure are a lack of vendor capabilities, the poor service level agreement (SLA)
management and the inability to provide customers the agreed-upon resources.
Economic risk show that a SaaS client may be expected to pay more in order
to receive that level of service which he anticipated initially- the so-called hidden
costs. Specific investments are shifted to clients by the architectural approach of
SaaS, thus making the client responsible for maintaining the customized compo-
nents. Therefore, to own it is the only solution if the client wants to customize the
application core. In case the client is keen to use to standard core, he may want
to build components on top of the core functionality using application program-
ming interfaces (APIs) in order to suit his needs with regards to customization and
integration. These additional or changing future requirements may lead to higher
than expected costs and these increasing costs can emerge hold-up because the
ownership of the vendor regarding the application core provides with more power
to bargain in the future. This allows him to charge extra costs, increased prices
and also refused to invest for the clients customized code in backward-compatible
interfaces.
Strategic risks are those risks in which a company will lose the capability and
the resources when sourcing applications via SaaS. This matters inadvertently in
cases of business critical application and those applications which support impor-
tant functional areas in an organization. If these resources are externally outsourced
they can lead to a high level of interdependence between the vendor firm and the
client. The adoption of SaaS can reduce the ability of a company to react quickly
to new internal forces (example by aligning itself with new business strategies and
external forces, example by seizing new market opportunities.) The reduction in
ability can be because of the SaaS provider having full control on the maintenance
and development of the application. Apprehending such potential resource depen-
dence, one can argue that the perceptions of the IT executives regarding the risk
associated with SaaS adoption are relevant, salient beliefs that can have an influence
on the overall vision of SaaS adoption risks.
A direct control of their data (and thus the valuable asset) is given by the SaaS
client to the provider without knowing how secured their data is and which disaster
recovery and backup procedures he has intact to secure the exact data levels. Service
level agreements can be used but however the experience of a client in sourcing
software through a service provider is often slight. Moreover, there is such a swift
progress in technological developments that clients are quite unaware about the
risks their data faces as regards security from contractual flexibility when signing a
service contract. Loopholes and equivocality in the contract can prompt the vendor
to take advantage of their client.
In addition, the characteristics of technologies that are web based and uncer-
tainties related to environment cannot be predicted easily. Incidences of security
breaches like theft of data or corruption might trigger stress, discomfort and anxi-
ety among potential SaaS customers. As IT executives anticipate these possible
security risks beforehand, it can be assumed that such security risks form a salient
feature that would affect the perceived risk.
Managerial risks, also known as psychosocial risks in earlier studies can oc-
cur if the software is outsourced to external firms, as it would put the reputation
and the career span of the manager, who bears this responsibility, at stake. This is
because the associate ventures that deal in outsourcing ventures usually associated
with negative aspects such as failure to provide outsourcing jobs within the deadline
or loss of jobs to the person responsible. This would also affect the way the peers,
staff and clients of a firm perceive their managers in terms of loss of power owing to
the inability to control the resources. During the process of SaaS adoption, it can
be assumed that the executives of IT departments are highly aware about all the
negative consequences that are personal in nature. This leads to the argument that
perceptions about the managerial risks of the IT executive influences the perceived
risks involved in SaaS adoption.
3.2 Major sources of reluctance for the adoption of SaaS

Various factors affecting the adoption of SaaS can be identified and addressed
with the help of prescriptive theory. This paper has classified reluctance factors into
technology, psychology, security risk, financial risk, strategic risk, psychosocial risk,
234 Nedzad Fajic
service provider and product provider risk. In terms of technology, the major sourc-
es of risk are lack of adequate computer skills, lack of user friendly SaaS programs,
data storage issues, information security and compliance issues. Under psychology,
the major non-adopting factors are personality and attitude barriers such as lack of
trust, resistance towards change, resistance towards taking risk and previous worst
experience. Similarly, the security risk factors identified from the study are lack of
reliability among service provided by SaaS provider, data security issues, privacy
issues and compliance issues. Strategic risk comprises limited flexibility of organiza-
tion, limited customer service and data security issues. In addition, lack of aware-
ness regarding actual cost and unexpected transactional costs are classified as finan-
cial risk of SaaS implementation. In this study, psychosocial barrier is described as
individuals fear over their reputation due to SaaS implementation. It also includes
the fear of individual whether SaaS implementation affects their business relation-
ship. Service provider risks include lack of trust, reliability of the services offered by
provider, data security issues, compatibility issues and technical and maintenance
support issues. Finally, product provider issues comprise technical features of the
product, lack of reliability, price, security issues, and unexpected transition costs.
Figure 4: Reluctance of consumer buying
Source: Author (2013)

4. Conclusion
The present paper reveals the risks with regard to SaaS deployments. Hence,
SaaS providers should focus on training and awareness programs focusing on its
advantages, lower TCO, easy accessibility, integrity, ease of operation, and other
favorable factors. It is necessary to compare the benefits and risks associated with
SaaS and to utilize an appropriate decision-making strategy. Moreover, the impor-
tance of excellent customer service and of effective promotional strategies such as
free trial, pay per service, customer success stories is at hand. Furthermore, custom-
er success stories help to overcome financial, technological, psychological, strategic,
psychosocial, service and product provider barriers. Service providers should focus
on improving data security, privacy and technological features to increase the SaaS
adoption rate in the European region.
References:
1. Bradshaw, D., Folco, G., Cattaneo, G. And Kolding, M. (2012) Quantitative Estimates of
the Demand for Cloud Computing in European and the Likely Barriers to Take-up, Available
at: http://ec.europa.eu/information_society/activities/cloudcomputing/docs/quantitative_es-
timates.pdf
2. Cunningham, S. (1967) The major dimensions of perceived risk, In: Cox, D. F. (eds.) Risk
Taking and Information Handling in Consumer Behavior, Cambridge, MA: Harvard Univer-
sity Press.
3. EU (2011) Industry Recommendations on the Orientation of a European Cloud Computing
Strategy, available at: http://ec.europa.eu/information_society/activities/cloudcomputing/
docs/annexindustryrecommendations-ccstrategy-nov2011.pdf.
4. Gerard, B. (2008) SaaS 100 Success Secrets - How companies successfully buy, manage, host and
deliver Software-as-a-Service (SaaS), New York : Emereo Pty. Ltd. Publishing.
5. Gartner (2011) Gartner survey reveals 95 percent of respondents expect to maintain or grow use of
SaaS, Available at http://www.gartner.com/it/page.jsp?id=1812814.
6. IDC (International Data Corporation) (2008) IT Cloud Services Forecast 2008-2012: A Key
Driver for Growth, mimeo, Available at http://blogs.idc.com/ie/?p=224.
7. IDC - Press Release (2010) Business Analytics SaaS Market to Grow Three Times Fast-
er Than the Overall Business Analytics Marke, Available at: http://www.idc.com/getdoc.
jsp?containerId=prUS22155410.
8. Kar, S. (2012) Europe Boosts its Strategy on Cloud Computing, Available at http://cloudtimes.
org/2012/10/04/europe-strategy-cloud-computing/.
9. Kushida, K. E., Murray, J. and Zysman, J. (2012) The Gathering Storm: Analyzing the Cloud
Computing Ecosystem and Implications for Public Policy, Communications and Strategies,
85, pp. 63-85.
10. SaaSdevinmexico.wordpress (2009) Free webinar on SaaS Application development, Available
at: http://SaaSdevinmexico.wordpress.com/
236 Gerdesics Viktria Mladen Panci Orosdy Bla
THE ROLE OF TOURISM IN PERCEPTION OF THE CROATIAN

COUNTRY BRAND IN HUNGARY AND CROATIA1
Gerdesics Viktria1, Mladen Panci Ph.D.2, Orosdy Bla, Ph.D.3
1
University of Pcs Faculty of Business and Economics, Hungary, gerdesics@gmail.com
2
Faculty of Economics in Osijek, Republic of Croatia, pancic@efos.hr
3
University of Pcs Faculty of Business and Economics, Hungary, orosdy@ktk.pte.hu
Abstract
Today it is not easy to find the best choice as a tourist. There are not only count-
less opportunities but the competitive advantages of tourist destinations have to
be also identified within the endless bunch of information. Obviously, in a reverse
interpretation, neither the supplier countries have an easy job in gaining the tour-
ists. Among others this is one reason to consciously develop a good country brand.
A specific historical element of Croatia is its secession from Yugoslavia in 1991 by
which it had to develop an independent country image. For this tourism being a
decisive part of its economy seemed to be an adequate tool. The survey shown in
present study is the continuation of a last year investigation on the Croatian coun-
try image carried out in Hungary this paper shows the results of a Croatian survey
as well. Based on Hungarian and Croatian questionnaire surveys it analyses the role
of tourism in Croatian country brand by the time of the countrys EU-accession.
Keywords: Croatia, Hungary, country image, country brand, tourism
1. Introduction
In our globalized world changes of the modern society have resulted intense
development of communication and fast flow of information has opened endless
1
This research was realized in the frames of TMOP 4.2.4. A/2-11-1-2012-0001 National Excel-
lence Program Elaborating and operating an inland student and researcher personal support sys-
tem. The project was subsidized by the European Union and co-financed by the European Social
Fund.
THE ROLE OF TOURISM IN PERCEPTION OF THE CROATIAN COUNTRY BRAND IN ... 237
doors for people in this world nation branding as a tool of enhancing competi-
tiveness is a must. This is especially true for a country development of which is
traditionally focusing on tourism andwhose visual picture originally connects it
to sea. It could simply been said that Croatia is a touristic country. However, the
one who knows the country better could see the things behind the highway and
could describe it in a more complicated way. Croatias 20th century-history was
glorious and sad at the same time while it recently has become the new member
of the European Union, twenty-two years after its secession from Yugoslavia. The
paper focuses on the touristic dimension of the Croatian country image; is Croatia
primarily a touristic country?
2. The country image

Country image is one of the most significant marketing concepts today. Accord-
ing to Kotler et al. (1993) it is the sum of different views, beliefs and opinions that
people have about a country. The country image has been present in the profes-
sional literature since the 1960s, primarily from the aspects of the so called country
of origin effect, but the latest papers investigate the country image as a brand value.
(Jenes; 2010) Simon Anholt was the first to write the concept of country branding
down in 1996 (Papp-Vry; 2009). Every country has a continuously changing im-
age, varying spontaneously or in a managed way (Papadopoulos&Heslop; 2002),
and as all image types, it is a multidimensional concept; it can be inside and outside
image, or even current and wished image. (Sndor; 2003) In the paper both the
inside (Croatian survey) and outside (Hungarian survey) image is analysed, and
the one called thought outside image i.e. what could other think about Croatia
in opinion of the Croatians. However, there are some spectacular examples for
country brands also from the times before the appearance of the definition of na-
tion branding. The French nation brand was developed consciously in the early 18th
century but England, the nazi Germany, the fascist Italy or the communist Russia
could be also highlighted as examples. By the broke-up of great colonial empires
new nations appeared after the 2nd WW and this re-happened in the 90s by the
collapse of the Soviet Empire and Yugoslavia. The successor states are intensely
revealing their national consciousness, own personality, their cultural, linguistic,
ethnic, religious and economic status to the world. (Olins; 2004) According to
Anholt (2005) a good nation brand means soft power in this process. Opinion of
Kotler & Gertner (2002) is that a good country brand means competitiveness, first
of all, while it is called competitive identity by Anholt (2007).
Papp-Vry (2009) says that the primary goals of nation branding are economic;
enhancing tourism, strengthening investments and development of export. Never-
theless, the countrys international judgement also has to be taken into consider-
ation in connection with the international relations and especially the process of
europeanization. (Skoko; 2009) These motivations has interlocked since 1991
in case of the independent Croatia the country had to develop its own country
image after separation from Yugoslavia, had to vivify its economy weakened by the
Yugoslavian war and had to eliminate the negative stereotypes and peoples bad
feelings coming with it, while it wished to become part of the European Union,
shoving off everything connecting it to the dark Balkans.
3. Tourism as the tool of image development

Croatia thanks to its favourable geographic position has always been a signifi-
cant commerce centre during its history. In the early 6th century BC Illyrians dealt
with Greeks here while the presence of the Romans on the seaside is proven by sev-
eral buildings. By the time of the Slavs Dubrovnik played an important commercial
and cultural role. With the development of the infrastructure the first commer-
cial accommodation facilities occurred, first modern hotels were built in Opatija,
Crikvenica and Dubrovnik in the end of the 19th century. (Hitrec; 2002) Opatija
celebrates the 170th anniversary of its tourism in 2014.
Croatia used to be the second most developed member state of the former Yu-
goslavia after Slovenia. However, the Yugoslavian war had enormous consequences,
the direct devastation of the war resulted high decrease of the Croatians most im-
portant branch of economy, the tourism. (Remnyi; 2006)By the collapse of Yu-
goslavia most of the Adriatic seaside remained within the Croatian borders where
there had been several nations during the centuries, thus besides the natural beau-
ties historical places compose the tourism potential showing the weird shared life
of the European, Bezant and Mediterranean world.
Based on Meler & Rui (1999) the Croatian tourism began to be recognized
since the 1960s, it showed upward development until the 1980s when it began to
stagnate. Based on this it can be concluded that the Croatian tourism was already
at a cross-road that time either makes steps toward its development or gets lost.
Discovery of the Croatian seaside was not a result of conscious mechanisms as well
as the enlargement of the number of accommodation facilities did not go hand in
hand with quality increase and there was no conscious positioning either. Jordan
(2000) states similar as he says that tourism of the socialist Yugoslavia was still
water, most of the accommodation potential was state-owned having no competi-
tors, thus resulting bad quality in long-term.The usual social and economic life of
the country was broken between 1991 and 1995, thus the touristic development as
well, part of the accommodation potential became victim of the war. Besides, there
was a state on the map named Croatia again having several tasks as a solution
for these tourism seemed to be an obvious tool.
Tourism had a significant role in the life of the new country since the beginning,
the law about the foundation, operation and financing the Croatian National Tour-
ist Board was enacted as early as in 1991. (Vukoni; 2005) According to Golua
(2001) everything can be shown and advertised through tourism; history, culture,
gastronomy, people etc. Thus it seemed to be obvious to reshape the countrys
reputation through tourism, moreover, it was the easiest opportunity for economic
proliferation as well. Croatian National Tourist Board began its operation in 1992
and one of its tasks is to develop the three elements of Croatian image as well; the
country name, the slogan and the logotype. (Papp-Vry & Gymnt; 2009)
Country name means the brand name in the process of nation branding as there
is always a picture coming into ones mind when hearing the name of a country.
The country names as geographical phenomena usually have old historical roots,
however, there can be situations when these have to be changed in case of colonies
when becoming independent, countries after the collapse of the Soviet block or
new-borns after the end of Yugoslavia. Thus Croatia is one of them as it had quiet
rarely been Croatia during its history until 1991.
The today known concept of country slogan had been used since the 18th cen-
tury as the textual message of the brand, actually containing the promise of the
product. In 1993 the already cited Goluas touristic slogan won the tender: Mala
zemlja za veliki odmor or Small country for a great holiday. This slogan was
considered to be the best as the attribute small is sympathetic and great holiday
does not only mean big in English but it is also a synonym for good. In 1997 a
new one was introducedcoming from George Bernard Show Raj na zemlji but
it was not successful as its focus is heaven that had been already used in many
countries. The third slogan Mediteran, kakav je nekad bio or The Mediterranean
as it once was had been used since 2005. (Skoko; 2005)
Third image element is the visual part of the brand, the logotype.(Papp-Vry &
Gymnt; 2009)The blue colour of the logotype created by Boris Ljubiiis refer-
ring to the sea and islands of Croatia, the yellow to the golden wheat fields and
green to the forests of inland Croatia. The most important elements of the logotype
are the two cubes (red and blue) that show the visual code of Croatia, the colours
of the flag. (Figure 1)
Figure 1: The elements of country image
Source: http://www.novacom.hr/korcula-velaluka/kako_do_nas.html
Croatian tourism began to develop after the war. 10.6 million tourist arrivals
were realized in Croatia in 2010 while in 2011 this increased to 11.46 million.
(Croatian Bureau of Statistics; 2012)
4. Appearance of tourism in the Croatian country image

Besides the literature base two researches are presented in the study carried out a
few months before the Croatian accession. The role of tourism in perception of the
Croatian country brand is investigated by the results shown in the paper.
The Hungarian investigation was executed with online questionnaire and the
answers were collected by snowball sampling, which means that it cannot be repre-
sentative neither for the European Union, nor for Hungary. Neither the Croatian
survey could show representative answers as its aim was to see the opinion of the
future Croatian EU-citizens, thus the sample consists of students studying business
economics in Osijek and Zaprei. Although as both survey are done on quiet big
samples, they are both worth to consider.
During the survey done in Hungary, 681 valid questionnaires were collected in
almost two weeks. 59% of the Hungarian sample were women, average age was 29
(between 20 and 30), nearly 70% holding BSc or MSc diploma, 56% working and
43% living in Baranya Country, while 23.5% in Budapest or Pest County.
The survey in Croatia was executed by paper based questionnaire where the aim
was to see the own image-sensation and the outside image thought by them. 434
fully completed questionnaires were collected, apart from a few exceptions. 68%
of the Croatian students were women, average age was 23, 80% study in Osijek
while 20% in Zaprei near to Zagreb. As it could be seen, to achieve a recognizable
country brand different image elements could be used as marketing tools thus it
would be interesting to investigate what colours, words, symbols are connected to
a given country, and we could get useful basis in designing the marketing tools by
knowing whether our country is regarded to possess a male or a female character.
Both surveys shown in the study included these issues regarding the outside im-
age in case of the Hungarian one, while the Croatian research aimed to study the
inside and thought outside image.
84% of the Hungarian respondents associate on some word in connection with
the sea, seaside, the Adriatic, holiday or the tourism itself regarding Croatia. The
same category appeared only in 34% in the inside image part of the Croatian re-
search and the answers are much more colourful. (Figure 2)
Figure 2. Please write down the first word that comes in to your mind in connec-
tion with Croatia! (results of the Croatian survey)
Source: own editing
Following the touristic words Croatian respondents mentioned such negative

concepts as corruption (11%), recession (8%) and unemployment (4%), but in a
relatively higher percentage patriotism (3.5%) was also marked which latter de-
spite the other previously mentioned negative ones appeared also in the Hungar-
ian answers (1.5%). It can be concluded that tourism has a prominent role in the
Croatian image; highly in the outside image according to the Hungarians but it is
also important in the inside one although Croatians think more about their coun-
try than this, often even negative words. The Croatian respondents were asked to
write down what could foreigners associate on in their opinion; they think 67%
would say something in connection with seaside tourism that is quiet close to the
percentage mentioned by the Hungarians. Besides, often associated words could
be the Balkans (3%), the war (5%), Yugoslavia (1.5%), corruption (2.5%) and the
Croatian football but neither of them reached 1% in the Hungarian answers.
According to the literature, Croatians think they have three strong symbols: the
Croatian coat of arms with red and white chessboard, the tie and the Dalmatian
dog getting its name after the Croatian region Dalmatia. (Skoko, 2005) However,
results of the survey show something else. For the question about the Croatian sym-
bol the answer was in 42% something with sea or tourism according to Hungarians
(similarly to the previously shown issue of the first association). Significant percent-
age mentioned the red and white chessboard (18.5%), familiar from the coat of
arms but also from the football dresses or the several Croatian souvenirs, and obvi-
ous symbol was also the flag (10%) and the coat of arms itself (5%). According to
31% of the Croatians their symbol is given by the sea and the seaside tourism but
the red and white chessboard (17%), coat of arms (19%) and the flag (6%) was also
marked. It can be interesting that out of the 681 Hungarian respondents only two
and seventeen Croatian ones mentioned the tie, thus this symbol seems not to be so
well-known in Hungary. The Dalmatian dog did not appear in any of the surveys.
List of colours joining the country is lead by blue and red; 70% Hungarians and
40% Croatians said blue, while 13% Hungarians and 25% Croatians said the red
colour. Nevertheless, there is a greater difference in the answers in case of the ques-
tion regarding brand personality. 60% Hungarians think Croatia would be a male
if being a person and only 28% voted for female character, while 47% Croatians
said that Croatia would be a female and 30% voted for male. There can be several
psychological explanations behind this difference and also a linguistic phenomenon
may have some role as the Croatian word Hrvatska (Croatia) is even as feminine
as domovina, meaning home.
5. Conclusion
Features and the constantly changing elements of the Croatian country image
could be analysed through long pages. Although one element can be considered to
be standard the tourism. Not just because the Croatian economy is highly deter-
mined by seaside tourism but also because Croatia being independent since 1991
based its independent country image on tourism and the touristic image. This was
probably a good decision as the peculiarity of tourism marketing is that emphasizes
generally accepted positive values, moreover, these pictures are usually connected
to our holidays calling negative feelings only in a few cases.Present study focuses on
these positive values and investigates whether Croatia is primarily a touristic coun-
try besides is analyses how successful its touristic image creation was.
Based on the relatively new research findings shown above, Croatias touristic
image creation was absolutely successful in Hungary, moreover, even Croatians
know that abroad they are considered to be a touristic country. Results show that
Hungarians explicitly interpret Croatia from touristic aspects while the most inter-
esting thing coming from the surveys is that opinion of the Croatians is not so posi-
tive about themselves. In the Croatian survey more often appear negative words as
more than 36% listed some negative feature as the first association while this rarely
happenamong the Hungarian answers. Obviously this can be explained by the fact
that residents of a country are more clear with own weaknesses and everyday prob-
lems than the outsider eyes, e.g. tourists. However, findings of outside image not
showing negative stereotypes regarding Croatia mayonly tell us that if there could
be one word said, this would be seaside tourism.
References
Anholt, S. (2005). Brand New Justice How Branding Places and Products Can Help the Devel-
oping World. Elsevier Butterworth Heinemann, ISBN 978-075-066-600-8, Oxford
Anholt, S. (2007). Competitive Identity The New Brand Management for Nations, Cities and
Regions Palgrave Macmillan, ISBN 978-023-050-028-0, Basingstoke
Croatian Bureau of Statistics(2012).Statistical Yearbook 2012. http://www.dzs.hr/Hrv_Eng/lje-
topis/2012/sljh2012.pdf [2013.12.11.]
Golua, M. (2001). Promidba Hrvatske u svijetu. In. Bili, B. 2001: Misli 21. stoljea, Glo-
bus, Zagreb
Hitrec, T. (2002) History of Tourism with Particular Reference to the Croatian Adriatic. http://
eh.net/XIIICongress/cd/paper/4Hitrec185.pdf [2010.12.30.]
Jenes B. (2010). Branding the nation the historical context. http://www.marketing-trends-

congress.com/2010_cp/Materiali/Paper/Fr/JENES.pdf [2012.03.12.]
Jordan, P. (2000). Hrvatski turizam pred izazovima globalizacije. Turizam 48 (2) 195-202.
ISSN: 0494-2639
Kotler, P. & Gertner, D. (2002). When a Country Becomes a Brand and a Product. Lubin Work-
ing Research. Summer 1. and 4.
Kotler, P. & Haider, D.H. Rein, I. (1993). Marketing places: Attracting Investment, Industry
and Tourism to Cities, States and Nations, Free Press, ISBN 978-047-147-913-0, New York
Meler, M. & Rui, D. (1999). Marketing identity of the tourist product of the Republic of
Croatia, Tourism Management 20635-643
Olins, W. (2004) A mrkk A mrkk vilga, a vilg mrki, Jszveg Mhely, ISBN 978-963-
705-204-0, Budapest
Papadopoulos, N. & Heslop, L.A. (2002). Country Equity and Country Branding Journal of
Brand Management 9. 4-5. 294-314. ISSN 1479-1803
Papp-Vry .F. & Gymnt B. (2009).Az arculat szerepe az orszgmrkzsban Orszgnevek,
orszgszlogenek, orszglogk. Marketing&Menedzsment 43 (2) 38-47. ISSN 1219-0349
Papp-Vry .F. (2009) Orszgmrkzstl a versenykpes identitsig A country branding
megjelense, cljai s termszete. Marketing&Menedzsment 43 (2) 4-19. ISSN 1219-0349
Remnyi P. (2006). Horvtorszg trszerkezetnek alapvonsai a XXI. szzad elejn. Balkn
Fzetek 4. 57-78. ISSN 1588-6557
Sndor I. (2003). A marketingkommunikci kziknyve,ANT Stdi Bt., ISBN
963-04-9065-0,Budapest
Skoko, B. (2005). Hrvatska Identitet, Image i Promocija. kolska knjiga, ISBN 953-0-61430-
6, Zagreb
Skoko, B. (2009). Drava kao brend Upravljanje nacionalnim identitetom, Matica Hrvatska,
ISBN 978-953-150-865-0,Zagreb
Vukoni, B. (2005). Povijest hrvatskog turizma, Prometej, ISBN 953-6460-45-9,Zagreb
PROJECT MANAGEMENT OF LYME DISEASE THROUGH MONITORING OF ... 245
PROJECT MANAGEMENT OF LYME DISEASE THROUGH

MONITORING OF SEROPREVALENCE OF ANTI-BORRELIA
ANTIBODIES IN MACEDONIAN PATIENTS
Dr. Ivanka Hadi-Petrueva Meloska1, Dr. Anica Hadi-Petrueva Jankijevi2
1
Avicena Laboratory, Skopje, Macedonia, ivahpm@gmail.com
2
Clinical Hospital Acibadem Sistina, Skopje, Macedonia, anicahpj@yahoo.com
Abstract
Lyme disease is a worldwide zoonotic disease and the most common tick-borne
illness in Europe and North America. It is caused by at least three species ofbacte-
ria belonging to thegenus Borrelia (Borrelia afzelii and Borrelia garinii cause most
Europeancases, whereasBorrelia burgdorferi - is more frequent in North America).
Borreliais transmitted to humans by bite of infected ticks belonging to a few spe-
cies of the genusIxodes. Typical symptoms include fever, headache, fatigue, and a
characteristic skin rash - erythema migrans. If left untreated, infection can spread to
joints, heart, and nervous system. There are very little data about the seroprevalence
in our population, furthermore the relation to clinical data has not been previously
studied. IFA is a standard test for antibody detection of B burgdorferi sensu lato,
since cultural growth of the organism from skin samples and blood is very difficult.
The aim of this paper is to find correlation between Lyme disease and tick bites
in Macedonian patients. It was done through determining the seroprevalence of
Borrelia IgG and IgM antibodies using IFA test and relating that data to reported
tick bites.
The study was conducted on a sample of 240 patients, after suspected or ob-
served tick bite. Serum samples were collected in a four years period (June 2009-
June 2013). Borrelia specific IFA test - RIDAFLUOR Borrelia burgdorferi (sensu
lato), R-biopharm, Germany, was performed for IgG and IgM antibody detection.
The positive titer was 1:16 for IgM and 1:32 for IgG. The sera were taken at least
10 days after confirmed or suspected thick bite. All patients also answered a short
questionnaire regarding the history of a thick bite and previous treatment.
246 Dr. Ivanka Hadi-Petrueva Meloska Dr. Anica Hadi-Petrueva Jankijevi
Seropositive were 45/240 (18,8%) patients. Concomitant Borrelia IgG and IgM
seropositivity was noted in 9 cases, and only IgG or only IgM seropositive were
21 and 15 patients, respectively. A tick bite 10 -60 days prior the testing had been
noted in 62/240 (25,8%) patients. The ticks were removed in hospital settings in
approximately two thirds of the patients. Seropositivity in either or both classes of
antibodies in patients who reported a thick bite was 28,9% (13/45). Erythema mi-
grans as a symptom was noted in 9 patients, all of them reporting a thick bite and
being IgG positive. Approximately 50% of the patients bitten by a thick received
antibiotic therapy.
Having in mind that B burgdorferi in this area is being tested for only few years,
the results demonstrate IgG and/or IgM antibody seropositivity of 18,8%, whereas
approximately one third of those cases were associated with a tick bite. Very few of
those seropositive patients reported any previous symptoms. Those findings sug-
gest that exposure to B burgdorferi does occur in our population, mostly without
giving rise to clinical manifestations of Lyme disease. The need of applying precise
testing and treatment protocols is obligatory. Further seroprevalence studies on
human, as well as on animals are needed in order to create a correlation between
seroprevalence of anti- Borelia antibodies with tick bites, which ultimately means
better health protection of the population.
JEL Classification: H75, I10, I15, I18,
Keywords: Project management, Borrelia, Macedonia
1. INTRODUCTION
Lyme disease is a worldwide zoonotic disease and the most common tick-borne
illness in Europe and North America. It is caused by at least three species ofbacte-
ria belonging to thegenus Borrelia (Borrelia afzelii and Borrelia garinii cause most
Europeancases, whereasBorrelia burgdorferi - is more frequent in North America)
(Table 1). Borreliais transmitted to humans by bite of infected ticks belonging to a
few species of the genusIxodes (Figure 1).
Table 1 Currently known Borrelia burgdorferisensu lato complex

Borreliaspecies Vector Borreliaspecies Vector
B. afzelii I. ricinus I. persulcatus B. californiensis I. pacificus, I. jellisonii, I.
spinipalpis
B. americana I. pacificus, I. minor B. carolinensis I. minor
B. andersonii I. dentatus B. garinii I. ricinus, I. persulcatus, I.
hexagonus, I. nipponensis
B. bavariensis I. ricinus B. japonica I. ovatus
B. bissettii I. ricinus, I. scapularis, I. B. kurtenbachii I. scapularis
pacificus
B. burgdorferisensu I. ricinus, I. scapularis, I. B. lusitaniae I. ricinus
stricto pacificus
Infection occurs primarily during the late spring and summer months when
nymphs are most active and persons spend the most time outdoors, but cases have
been reported throughout the year1. The duration of tick attachment is a critical
factor affecting the risk of transmission2. After attachment, the tick feeds and be-
comes enlarged, discharging its saliva into the bite wound. It takes 36 to 48 hours
after attachment forB. burgdorferito migrate from the midgut of the tick to the
salivary glands3. How long the tick is attached (usually at least 36 hours) and
whether it is enlarged are two of the most important factors to consider when as-
sessing the risk of transmission.
Figure 1. Ixodes ricinus tick feeding on human skin
Source: https://en.wikipedia.org/wiki/Ixodes (3.04.2014)
1
Bacon RM at all; 2008,57(10):19
2
Piesman J et all;1991,163(4):895897),( Sood SK et al; 1997,175(4):996999
3
Murray TS& Shapiro ED; 2010,30(1):311328
1.1 Clinical Manifestations

Symptoms of early Lyme disease usually begin one to two weeks after a tick
bite (range of three to 30 days)4 . There are three well-recognized clinical stages of
Lyme disease, and clinical manifestations are different at each stage(Table 2)5 . Ap-
proximately 80 percent of patients develop the characteristic erythema migrans
rash(Figure 2). Erythema migrans is classically reported as a single lesion, and most
commonly appears as a uniform erythematous oval to circular rash with a median
diameter of 16 cm (range of 5 to 70 cm). Nearly 19 percent of erythema migrans
rashes are a bulls-eye rash. Multiple erythema migrans lesions may occur in up
to 10 to 20 percent of patients. Associated symptoms are similar to a nonspecific
viral illness and often include fatigue, malaise, fever, chills, myalgia, and headache.
Following this initial stage, the bacteria disseminate systemically via the lymphatic
system or blood.With untreated disease, the most common sites of extracutaneous
involvement are the joints, nervous system, and cardiovascular system.
Figure 2. An erythema migrans rash in a patient with Lyme disease
Source: http://lymepedia.org/lyme-disease-bullseye-rash-erythema-migrans-rarely-seen-
during-relapse-in-chronic-cases-of-the-disease/ (2.04.2014)
Common manifestations of early disease include transient oligoarticular symp-
toms of arthralgia or myalgia that may include joint swelling. Musculoskeletal
symptoms are the most common extracutaneous manifestations of disseminated
disease and can occur with early or late disease Arthritis is usually a manifestation
of late disease. Patients approximately six months after infection are affected with
joint pain and swelling, and synovial fluid findings that suggest an inflammatory
process. Chronic arthritis primarily involves the knees and hips. Neurologic in-
volvement, can include lymphocytic meningitis, cranial neuropathies, motor or
4
Murray TS& Shapiro ED; 2010,30(1):311328),(DePietropaolo DL et all; 2005,72(2):297304
5
Bratton RL et all; 2008,83(5):566571),( Murray TS& Shapiro ED; 2010,30(1):311328
sensory radiculoneuropathy, cerebellar ataxia, and myelitis. Patients may present

with headaches neck pain and stiffness6. Lyme carditis is a less common complica-
tion of systemic disease, occurring in approximately 4 to 10 percent of patients.It
may present as chest pain, dyspnea on exertion, fatigue, palpitations, or syncope,
and often includes some form of atrioventricular block (Table 2)7
Table 2. Stages and Symptoms of Lyme Disease

STAGE SYMPTOM
Early localized Erythema migrans
Virus-like illness (e.g., fatigue, malaise, fever, chills, myalgia, headache)
Early disseminated Cardiac (e.g., atrioventricular block)
Dermatologic (e.g., multiple erythema migrans lesions)
Musculoskeletal (e.g., arthralgia, myalgia)
Neurologic (e.g., lymphocytic meningitis, facial nerve palsy, encephalitis)
Late Arthritis (e.g., monoarticular, oligoarticular)
Neurologic symptoms (e.g., encephalomyelitis, peripheral neuropathy)
1.2. Diagnostic Testing

Direct and indirect approaches have been used in the laboratory to assist in
the diagnosis of Lyme disease. Direct methods involve culture or techniques that
detectB. burgdorferispecific proteins or nucleic acids, whereas indirect methods
involve serology to detect antibodies8. Although culture remains the diagnostic
standard, it is not routinely available and its usefulness has been limited to skin
biopsy samples in patients with a single early erythema migrans lesion or plasma
in patients with multiple erythema migrans lesions. European and American pro-
tocols recommend serology as the preferred initial diagnostic test. Currently, the
CDC recommends a two-tier protocol using an enzyme-linked immunosorbent
assay initially, followed by the more specific Western blot to confirm the diagnosis
when the assay samples are positive or equivocal(Centers for Disease Control and
Prevention (CDC); 1995,44(31):590591). Polymerase chain reaction testing has
the highest sensitivity for Lyme disease in synovial fluid samples from patients with
untreated late Lyme arthritis, for patients with neurologic Lyme disease9 .
6
Steere AC; 2001,345(2):115125
7
Bratton RL et all; 2008,83(5):566571),Murray TS& Shapiro ED; 2010,30(1):311328).
8
9
Dumler JS. 2001;6(1):111
1.3. Immune response

It is necessary to understand the immune response to Borrelia, which will explain
the reasons for false-positive and false-negative results with serology and the limita-
tions inherent in this testing that often lead to an erroneous diagnosis and unneces-
sary antimicrobial treatment10 .During infection,B. burgdorferiis capable of dissemi-
nating and persisting in a variety of host tissues, suggesting thatB. burgdorferihas
developed efficient mechanisms for evading the host innate immune response. In
fact, with regard to the major borrelial genospecies that cause Lyme isease,B.burg-
dorferiandB. afzeliiare resistant to the complement-mediated bactericidal activity
of serum, while most strains ofBorrelia gariniiare killed by human serum11 Im-
munoglobulin M (IgM) and IgG produced in response toB. burgdorferi may persist
for years following standard antimicrobial therapy. These persistently elevated levels
are not an indication of ineffective treatment or chronic infection.Repeated serologic
testing for documentation of treatment effectiveness or cure is not recommended in
current guidelines.The immune response of Lyme Disease can be divided into three
stages. These stages can turn into each other, but they can also be separated by periods
of a symptom-free latency. The course of the disease is not obligate. Symptoms gen-
erally found in specific stages can be missed and spontaneous recovery may occur at
any point. With serological diagnostics it has to be considered, that in stage I 50 - 60
% as well as in stage II 10 - 30 % of the patients with clinical manifestations have no
sufficient antibody titers against Borrelia burgdorferi. In stage III of the disease high
antibody titers can be detected generally. Furthermore, it has to be considered, that
an early antibiotic therapy can prevent the occurrence of serious and chronic disease
manifestations. But, it reduces also the production of antibodies. Therefore, a pro-
phylactic antibiotic therapy should be avoided if only a tick bite has been reported.
2. AIM
There are very little data about the seroprevalence in our population, further-
more the relation to clinical data has not been previously studied. IFA is a standard
test for antibody detection of B burgdorferi sensu lato, since cultural growth of the
organism from skin samples and blood is very difficult. The aim of this paper is to
find correlation between Lyme disease and tick bites in Macedonian patients. It was
done through determining the seroprevalence of Borrelia IgG and IgM antibodies
using IFA test and relating that data to reported tick bites.
10
11
Alitalo, A. et all; 2001, 693685-91
3. MATERIALS AND METHODS

The study was conducted on a sample of 240 patients, after suspected or ob-
served tick bite. Serum samples were collected in a four years period (June 2009-
June 2013). Borrelia specific IFA test - RIDAFLUOR Borrelia burgdorferi (sensu
lato), R-biopharm, Germany, was performed for IgG and IgM antibody detection.
The positive titer was 1:16 for IgM and 1:32 for IgG. The sera were taken at least
10 days after confirmed or suspected thick bite. All patients also answered a short
questionnaire regarding the history of a thick bite and previous treatment.
Table 3. Age structure of the examined group of 240 patients

0-9 years 5
10-19 years 79
20-29 years 65
30-39 years 40
40-49 years 51
3.1. Test principle

Inactivated Borrelia are fixed in defined wells on the surface of test slides. Dilut-
ed serum samples were applied to the wells. Present anti-Borrelia-antibodies bind
to cell surfaces and form antigen-antibody-complexes. After a washing step for
removing unbound antibodies, the complexes become visible by adding FITC-
conjugated anti-human-immunoglobulines (anti-IgG or anti-IgM-conjugate). Af-
ter a further washing step for removing excess conjugate, the test was analyzed by a
fluorescence microscope with 400x magnification.
Figure 3. Borrelia seen by fluorescence microscope with 400x magnification
http://www.orbio.fr/catalogue_details.php?item_id=109&g=canin&t=ANALYSE&c=S%E9rol
ogie%20chien (2.04.2014)
3.2. Evaluation and interpretation

Specific fluorescence is decisive for positive evaluation of a sample. The specific
fluorescence is a bright green coloration visible on the cell surfaces of the Borrelia in
a homogenous distribution within the wells. Intensity of the fluorescence can vary
from weak (1+ reaction) to very strong (4+ reaction). If no specific fluorescence is
visible, the test was valuated negative. The RIDAFLUOR Borrelia sensu lato IgG,
IgM tests detect antibodies against Borrelia. The fluorescence intensity did not al-
ways correlate with the clinical data. Titers of 1:>64 (IgG) and 1:>32 (IgM) were
considered positive. Serum samples showing just a weak fluorescence (1+) with the
recommended initial dilution were considered equivocal, whereas serum samples
with titers of 1:<64 (IgG) and 1:<32 (IgM) were considered negative.
4. RESULTS AND DISCUSSION

Seropositive were 45/240 (18,8%) patients. Concomitant Borrelia IgG and IgM
seropositivity was noted in 9 cases, and only IgG or only IgM seropositive were 21
and 15 patients, respectively (Chart 1).
Chart 1. Distribution of seropositivity in examined sera

A tick bite 10 - 60 days prior the testing had been noted in 62/240 (25,8%)
patients. The ticks were removed in hospital settings in approximately two thirds of
the patients. Seropositivity in either or both classes of antibodies in patients who re-
ported a thick bite was 28,9% (13/45) (Chart 2). Erythema migrans as a symptom
was noted in 9 patients, all of them reporting a thick bite and being IgG positive.
Approximately 50% of the patients bitten by a thick received antibiotic therapy.
Chart 2. Seropositivity in patients bitten by a tick

A positive IgM result as well as a four fold IgG titer increase indicated an acute
infection. However, a positive result did not exclude the presence of other patho-
gens as a cause of an illness. Due to the low antibody titers at the beginning of an
infection, the test can show negative results, so negative antibody findings cannot
exclude a Borrelia infection. Even in stage II of the disease, no detectable antibody
levels might be found in up to 30% of cases. In the cases when there is a clinical
suspicion for a Borrelia infection, a further patient sample after three weeks should
be taken and tested. IgM-antibodies are usually detectable five days after a tick bite
with Borrelia infection at the earliest. There were cases when antibiotics were given
directly after the tick bite. There was a possibility that the immune response was
reduced so that despite of an infection, antibodies were not detectable with this
diagnostic test. Furthermore, the antibody IgG as well as IgM titer could often
decrease, evan in months after a successful therapy. Additionally, IgM-antibodies
in these cases persist, too.
5. CONCLUSION
Prevalence ofBorrelia burgdorferisensu lato species inIxodes ticks in Europe has
been studied frequently (Rauter C & Hartung T;2005,71:72037216). However,
investigations for seroprevalence of B burgdorferi in human population in this area
are performed for only few years. Our results demonstrate IgG and/or IgM anti-
body seropositivity of 18,8%, whereas approximately one third of those cases were
associated with a tick bite. Very few of those seropositive patients reported any pre-
vious symptoms. Those findings suggest that exposure to B burgdorferi does occur
in our population, mostly without giving rise to clinical manifestations of Lyme

disease. The need of applying precise testing and treatment protocols is obligatory.
Further seroprevalence studies on human, as well as on animals are needed in order
to create a correlation between seroprevalence of anti- Borelia antibodies with tick
bites, which ultimately means better health protection of the population.
References:
Alitalo, A., T. Meri, L. Ramo, T. S. Jokiranta, T. Heikkila, I. J. Seppala, J. Oksi, M. Viljanen,
and S. Meri. 2001. Complement evasion byBorrelia burgdorferi: serum-resistant strains promote
C3b inactivation.Infect. Immun.693685-3691.
Bacon RM, Kugeler KJ, Mead PS; Centers for Disease Control and Prevention (CDC). Surveil-
lance for Lyme diseaseUnited States, 19922006.MMWR Surveill Summ. 2008;57(10):19.
Bratton RL, Whiteside JW, Hovan MJ, Engle RL, Edwards FD. Diagnosis and treatment of
Lyme disease.Mayo Clin Proc. 2008;83(5):566571.
DePietropaolo DL, Powers JH, Gill JM, Foy AJ. Diagnosis of lyme disease [published correction
appears inAm Fam Physician. 2006;73(5):776].Am Fam Physician. 2005;72(2):297304.
Murray TS, Shapiro ED. Lyme disease.Clin Lab Med. 2010;30(1):311328.
Piesman J, Maupin GO, Campos EG, Happ CM. Duration of adult femaleIxodes damminiat-
tachment and transmission ofBorrelia burgdorferi, with description of a needle aspiration isola-
tion method.J Infect Dis. 1991;163(4):895897.
Rauter C, Hartung T. Prevalence ofBorrelia burgdorferisensu lato species inIxodes ricinusticks in
Europe: a metaanalysis.Appl Environ Microbiol.2005;71:7203-7216. Sood SK, Salzman MB,
Johnson BJ, et al. Duration of tick attachment as a predictor of the risk of Lyme disease in an area
in which Lyme disease is endemic.J Infect Dis. 1997;175(4):996999.
Steere AC. Lyme disease.N Engl J Med. 2001;345(2):115125.
CROATIA AND NEW PROFESSIONS 255
CROATIA AND NEW PROFESSIONS

Barbara Marunik, univ.spec.oec.1, Luka Stani, M.Sc.2
1
College for Technology and Business - Pula Polytechnic, Republic of Croatia,
bmarusnik@politehnika-pula.hr
2
Merkur osiguranje JSC, Republic of Croatia, luka.stanic@merkur.hr
Abstract
Imbued with the global economic crisis and contemporary trends of techno-
logical development, the question is where to find Croatia in relation to the need
for the creation of competent human resources in the response to the high rate of
unemployment and the need for training for jobs of the future, in order to create
the basis for sustainable and inclusive growth and development.
The paper gives an overview of the current state of the Croatian employment
and the current demand for occupations, as it points the need for qualifications
which would be aligned with the needs of the labor market in the future. The paper
also includes contemporary, global trends of technological development and gives
a list of potential future jobs as the result of predictions in accordance with these
trends.
JEL Classification: D83
Keywords: knowledge, new professions, technological development, GCI
1. Introduction
The current technologicaldevelopmentproceeded according to the well-known
dynamicsstarting from the 2nd half of 18th centurywith the use of steam, generat-
ing machine,steamship, railway, etc. This is followed by another technological revo-
lution through the development of electricity, mechanization, telephone, radio, car,
airplaneetc. There was a third technological revolution which was marked by the
IT specialists through the developmentof electronics, microprocessor, rocket, tele-
vision, robot, etc. After that, started a fourth technological revolution which was
market by the scientists with the development of photonics, the fusion of atoms,
256 Barbara Marunik Luka Stani
Artificial Intelligence, biotechnology, and is emerging the so-called fifth techno-

logical revolutionthat should follow in the near future. It should be marked by the
teams of scientists, especially multidisciplinary teams that will seek globally to cre-
ate scientific preconditions for the knowledge society, learning society, intelligent
society, democratic society, a society of equal people, welfare society, a society of
sustainable development, etc. (Zelenika; 2011, 83-84)
Contemporary global trends are marked by the rapid technological and scien-
tific development and the accelerating exchange of knowledge.Croatian education
system is not enough flexible for implementing the development of changesin study
programs in time, and a large number of current studentsacquiresqualifications for
occupations that in the near future will no longer exist. The question is where
Croatia willbe positioned in this challenge for the training of human resources for
the future occupations.
2. The actuality of knowledge

Knowledge is a key resource in driving development.It drives the development
of techniques, technology and science, which results with the development of
economy as a hole.Creating an upgrade of existing knowledge acquired through
formal or informal education with the new knowledge is of a crucial importance.
Sucha processof continuous learningin conditions of globalizationensures labor
force competitivenessin domestic and foreign labor market. To insure the success of
above mentioned, it is necessary to define the period of actuality of certain knowl-
edge.It is known that there are basic groups of knowledge that do not change and
do not become obsolete during the time. For example there is knowledge from
Croatian language, mathematics or physics. On the other hand, there is knowledge
that grows through building on the already existing, and well established that is
changing in accordance with the technological and science development.Because
of this group of knowledge it is important to follow global development trendsand
create conditions for the implementation of novelty in existing educational system.
For easy understanding of actuality of knowledge it will be explained the term of
half-life of knowledge.
Figure 1 Half-life of knowledge
Source: Schppel, J. (1996.) Wissensmanagement, OrganisatorischesLernenimSpannungsfeld

von Wissens-und Lernbarrier. Wiesbaden: DeutscherUniversitt-Verlag
Half-life of knowledge implies a time during which half knowledge is being

substituted with a new one. (Beni; 2009, 101) The reason of exchange of the
knowledge is obsolescenceof knowledge or falsity of existing knowledge.During the
half-life of knowledge it is created more new knowledge than it can vanish. That
is how the total amount of knowledge increases.Therefore, the time of observation
declining of knowledge should be limited to the time interval of half-life of knowl-
edge... The definition of half-life of knowledge does not imply that knowledge
decreases exponentially. (Beni; 2009, 101)
Figure 1 shows a graph that indicates the trend of decliningof the relevance
of knowledge in time in relation to the type of knowledge acquired. It is evident
from the Figure 1 that knowledge in the field of information technology (IT),
technology and professional knowledge, and knowledge acquired in higher educa-
tion have exponential decreasing trend, in relation to school knowledge that has
a linear trend. Around 50% of IT knowledgebecomes obsolete after a year and
a half, technological after three, andprofessionalafter five years. 50% of tertiary
knowledge becomes obsolete after twelve and school knowledge after twenty years.
Fully obsolescence of IT knowledge appears after nine and technology after twenty
years. Approximately 10% of professional, 30% of tertiary and 50% of the school
knowledge, remains real even after twenty years.
Half-life of knowledge in the most fields lasts from two and a half to four years.
(http://www.hzz.hr/default.aspx?id=11946, access: 21-02-2014)It can be conclud-
ed that it is extremely important to determine the time intervals in the global
development of science and technology, strive to anticipate changes and systemati-
cally create conditions for the implementation of changes, both in education and
in raising the level of infrastructural equipment.
Technological and scientific development occurs in even shorter time interval
compared to previously recorded, and the impact it has on the individual areas is
significant and has an ever-expanding range of effects that are not limited to just
one field of science. For example, the development of applied research in medicine
made it possible to cure certain diseases from which people earlier died, the devel-
opment in technology has enabled modern transport equipment, which improved
the quality of human life, etc.Over time, the result of this development has proven
to be in a growing number of populations in the Earth, among them a large num-
ber of older populations. With the increase of populationproblems emerged in the
absence of food, resulting in resorting to genetically modified food, and also inthe
absence of energy, which were launched researches of the possibility of using alter-
native energy sources. Increasing of pollution, which affected the enormous global
climatic disturbances,has been also the result of all this development activities, etc.
Every development made some changing and any change fostered the need for
new knowledge and new training for the challenges of the future.
The measure used to evaluate the development of the country is covered by the
Global Competitiveness Index which is in detail discussed in the sequel.
3. The Global Competitiveness Index of Croatia

The Global Competitiveness Report is written bythe World Economic Forum-
based on twelve criteria called twelve pillars of competitiveness, and they define
competitiveness as set of institutions, policiesandfactorsthat determine the level
of productivity of a country...The concept of competitiveness thus involves static
and dynamic components. (Schwab; 2013, 4) GCI includes a weighted average
of many different components, each of which measures a different aspect of com-
petitiveness and also includes long-term and short-term period. GCI includes three
stages of development of the country:
first stage represents factor driven economiesand is contained of the first
four pillars,
second stage represents efficiency driven economies and is contained of the
next six pillars, then follows the
third stage thatrepresents innovation driven economiesand is contained of
the last two pillars of competitiveness.
Figure2shows thestructureof the Global Competitiveness Indexaccording to the
stages listed.
Figure 2 The Global Competitiveness Index framework
Source: Schwab, K. (2013.), The Global Competitiveness Report 2013 2014, World Economic
Forum, Geneva, p. 9
According to the latest Global Competitiveness Index Report Croatia is defined

as an economy that is in transition between the second and third stage of develop-
ment, along with 22 other countries, among which is located in the sixth place.
(Schwab; 2013, 11) In the overall ranking of 148 countries, Croatia is ranked in
75th place in 2013, with an average score of 4.13 in a scale of 1 to 7. In the sub
index of basic requirements Croatia took a 61st place with the score 4.69.In the
sub index ofefficiency enhancers Croatia took a 68th place with the score 4.05,
and ultimately in a sub index of innovation and sophistication factors Croatia took
an80th place with a score 3.46. (Schwab; 2013, 17) A detailed view of the Global
Competitiveness Index of Croatia in the year 2013 is shown in Table 1.
Table 1 demonstrates that Croatia is the best developed in health and primary
education which are included in factor driven economies and weakest in the in-
novation which is included in innovation driven economies.
The highest average score is the set of indexes in the first stage of development,
and the lowest is the set of indexes in the third stage of development of the country.
As the highest grade is 7, it is evident that in front of Croatia isa lot of work and un-
dertaking for better positioning among developed countries. Higher education and
training index is rated with the score 4.53 and the percentage ofhighly educated
population according to the census of year 2011 is 16.4% (http://www.jutarnji.hr/
template/article/article-print.jsp?id=1116540, access: 21-02-2014).
Table 1 GCI Croatia 2013

GCI Pillars Rank Score (1 - 7) Key for
1 Institutions 93 3,60
Factor-
2 Infrastructure 42 4,66
Basic requirements 4,69 driven
3 Macroeconomic environment 68 4,71
economy
4 Health and primary education 66 5,80
5 Higher education and training 51 4,53
6 Goods market efficiency 111 3,92
Efficiency-
7 Labor market efficiency 114 3,94
Efficiency enhancers 4,05 driven
8 Financial market development 78 3,90
economy
9 Technological readiness 45 4,41
10 Market size 74 3,59
11 Business sophistication 88 3,81 Innovation-
Innovation and
3,46 driven
sophistication factors 12 Innovation 79 3,12
economy
Source: Author by Schwab, K: The Global Competitiveness Report 2013 2014, World Eco-
nomic Forum, Geneva, 2013
This situation does not provide a development perspective with which Croatia
would gain a comparative advantage over other European countries, as it lags con-
siderably in the number of highly educated population.Currently, the European
average is 30 percent, and by 2020 the planis to achieve a result of 40 percent
of the highly educated at the European level. (http://www.mojfaks.com/vijesti/
zemlja-znanja-i-obrazovanja-gdje-se-nalazi-najvise-i-najmanje-obrazovanih-hrvata,
access: 21-02-2014)Innovation should be partially initiated also from the field of
higher education. It is shown that the innovating index is rated 3.12. The number
of patent applications in Croatia in the year 2012 totaled 249, and is a decline of
1% of patent applications in relation to the year 2011. (DZIV; 2012, 25). 2011
was reported 251 patent, as compared to 2010 accounted for 10% less. (DZIV;
2011, 33-34)From these data it is evident that innovation declines, although there
is a growing number of a highly educated population in Croatia.
4. Contemporary trends in the Croatian employment

Currently most requested jobs in the Croatian labor market are: waiter, chef,
salesman, graduated economist, cleaner, kitchen worker, educator, chef assistant, a
lawyer and a hair stylist. (http://burzarada.hzz.hr/Default.aspx, access: 03-03-2014)
The unemployment rate in December 2013 was 21.6%. (CES, 2014, 4)In the
educational structure of the unemployed were the most numerous people with
secondary vocational school for up to three years and schools for skilled and highly
skilled workers (33.9%), followed by those with secondary professional school for 4
and more years and gymnasium (28.9%), people with primary education (20.4%),
people with university and postgraduate degrees (6.5%), people with no schooling
and primary education (5.1%) and people with the first college degree, college
education and professional studies (5.1%). (CES, 2014, 4) It is evident that the
unemployment rate is very high, and that the largest share of the interest rate is re-
lated to secondary education, which is not surprising because the proportion of the
population in the Croatian educational structure, is also the largest. The percentage
of unemployed with a university degree is also high considering that Croatia has
only 16.4% of highly educated population.
Even more disheartening is the fact that 43% of the workforce in the EU does
not have the qualifications to what employers are looking for today. The number
of unemployed is increasing, and the stagnation of the economy is still present.All
these negative trends are affecting the decrease in employment.Change is inevitable,
and education and knowledge are the key factors that can change things.The future
of the Croatian labor market cannot be accurately predicted, but can suggest some
trends. Due to the aging of the nation the working life will extend and thus will get
to extend the duration of career. Therefore, it is important for employers to invest
in their people and their education. The demand for workers who perform routine
tasks will reduce and these jobs will be taken by the automatization, technology
and robotics. For such work it will be required workforce that has the competence
to manage the technology and in the future will be an emphasis on workforce
with digital competencies and ICT occupations. (http://eskills.hr/?p=550, access:
28-10-2013)
5. New professions
Global trends in scientific and technological development points to the fact
that some occupations are vanishing andthose which still exist today will van-
ish till year 2025. It is emphasized the importance of knowledge and knowledge
application,lifelong learning and investment in employee training, creating special
laws for the effective regulation of part-time study and various continuing educa-
tion programs.
Some analysts of the labor market predict that will grow the future demand
for workers in the field of health, science and technology, and it is anticipated
that the new global jobs will be opened specifically for the production of organic
food, microbiology, computer biology, genetics, robotics, nanotechnology, space
technology, advanced medical services and etc. In accordance with the above men-
tioned, it is important to plan educational programs to keep pace with technologi-
cal development and create a staff of trained and prepared human resources for the
future. Trends show that the emphasis will be on technology and natural-oriented
professions, which will have an increasing dominance in the global labor market.
(http://eskills.hr/?p=550, access: 28-10-2013)
According to the previous researches it is made a list of the potential future oc-
cupations. These are: a lawyer for virtual property, house coordinator for childrens
education, professional friend, an expert in cataclysm, death coach, traceability
manager, architect of the body, 3D construction worker, consultant for simplic-
ity, broker for online education, and occupations in the field of health services.
(http://www.jutarnji.hr/zanimanja-buducnosti--nasa-djeca-bavit-ce-se-svemir-
skom-tehnikom--pomagat-ce-umirucima-i-proizvoditi-organe/1019089/,access:
28-10-2013)It is obvious that the future demand for occupations will be based on
ICT technology and literacy, and that the technological and scientific development
in the future will produce enormous changes in the labor market and society in
general.
6. Conclusion
According to previous researches of technological and scientific development, it
is evident that we are entering in a time of a new technological revolution. Knowl-
edge is changing at an increasing pace and only in a few years there will be a modi-
fication of the acquired knowledge which points to the growing need for lifelong
education and training of human resources.
Croatia is a country situated in the transition from the second to the third stage
of development according to the Global Competitiveness Index, which is assessed
as 4.13 out of a maximum possible score 7.
To maximize its business sophistication and innovation, Croatia needs to de-
velop more effective interinstitutional cooperation that will facilitate the smooth
flow and acquisition of new knowledge and its application in the development of
its own know-how.
The current state of the Croatian labor market indicates a very high unemploy-
ment rate. Among them is the high percentage of people with tertiary education.
It has been established that it is necessary to invest in knowledge and competence
in the field of ICT because of the insufficient computer literacy and use of this
technology without which it is impossible to imagine a workplace in the future.
Occupations that could occur in the near future are in the area of technologi-
cal and natural-oriented professions. The educational system of Croatia has to
face great challenges and the changes are happening in even shorter time inter-
val. It is necessary to establish a systematic model of managing these changes
and their implementation in order to ensure Croatia sustainable and inclusive
growth and development in the future.
References:
1. Beni, Z. (2009.), Bolonjskistudijivrijemepoluraspadaznanja, Automatika 50, 101-
106, ISSN 00051144
2. Croatian Employment Service, (2014.), Monthly Statistics Bulletin, XXVII / 2014,
CES, Zagreb (http://www.hzz.hr/UserDocsImages/stat_bilten_01_2014.pdf, access:
03-03-2014)
3. Schppel, J. (1996.) Wissensmanagement, OrganisatorischesLernenimSpannungs-
feld von Wissens-und Lernbarrier. Wiesbaden: DeutscherUniversitt-Verlag
4. Schwab, K. (2013.), The Global Competitiveness Report 2013 2014, World Eco-
nomic Forum, Geneva, 2013
5. Zelenika, R. (2011.), Znanost polugaodriveegzistencijeovjeanstva,
EkonomskifakultetSveuilita u Rijecii IQ Plus d.o.o., Rijeka
6. http://www.hzz.hr/default.aspx?id=11946, (access: 21-02-2014)
7. http://www.jutarnji.hr/template/article/article-print.jsp?id=1116540, (access:
21-02-2014)
8. http://www.mojfaks.com/vijesti/zemlja-znanja-i-obrazovanja-gdje-se-nalazi-najvise-
i-najmanje-obrazovanih-hrvata, (access: 21-02-2014)
9. http://www.dziv.hr/files/File/go-izvjesca/godisnje_izvjesce_2011.pdf,(access:
03-03-2014)
10. http://www.dziv.hr/files/File/go-izvjesca/godisnje_izvjesce_2012.pdf,(access:
03-03-2014)
11. http://burzarada.hzz.hr/Default.aspx, (access: 03-03-2014)
12. http://eskills.hr/?p=550, (access: 28-10-2013)
13. http://www.jutarnji.hr/zanimanja-buducnosti--nasa-djeca-bavit-ce-se-svemir-
skom-tehnikom--pomagat-ce-umirucima-i-proizvoditi-organe/1019089/, (access:
28-10-2013)
THE NIGHT OF THE MUSEUMS EVENT AND DEVELOPING NEW MUSEUM ... 265
THE NIGHT OF THE MUSEUMS EVENT AND

DEVELOPING NEW MUSEUM AUDIENCE FACTS AND
MISAPPREHENSIONS ON A CULTURAL EVENT
Igor Mavrin, Ph.D.1, Jerko Glava, Ph.D.2
1
Independent Consultant, Republic of Croatia, imavrin@gmail.com
2
Josip Juraj StrossmayerUniversity of Osijek, Faculty of Economics,
Republic of Croatia, jglavas@efos.hr
Abstract
The Night of the Museums (originally Long Night of Museums), an event held
in the Republic of Croatia since 2005, is continuously setting up new records the
number of cities and museums involved in the project records the continuous in-
crease, along with the rising number of visitors to the museums, heritage and cul-
tural institutions in the few hours of the event. In 2013 the Night of the Museums
project involved 226 museums, galleries and cultural institutions. According to the
Museum Documentation Centers Registry of museums, galleries and collections
in the Republic of Croatia, there are 281 museums at the states territory. It is obvi-
ous that there is a tendency for the inclusion of all Croatian museum institutions in
the Night of the Museums project. The event is an excellent promotion of museum
activities and also the promotion of the project itself. The question remains how
much individual museums themselves can highlight the quality of their programs
in this mass event. Also, a continuous increase in the number of visitors to the
Night of the Museums does not necessarily create a new museum audience. This
paper provides an overview of the success of the Night of the Museums project, and
seeks to identify the extent to which these events contributed to the development
of the recognition of museums themselves, but also the creation of a new museum
audience.
JEL Classification: Z11
Keywords: the Night of the Museums, museum marketing, museum manage-
ment, museum audiences, cultural events
266 Igor Mavrin Jerko Glava
1. Introduction
Museum institutions in the Republic of Croatia come into the spotlight and are
probably the most successful segment of Croatian cultural life. The Night of the
Museums manifestation certainly contributes to the success of the museum proj-
ect, but one should not ignore the impact of reinventing and redesigning existing
museums (e.g. Museum of Contemporary Art in Zagreb), nor the visiting mega-
exhibitions (Picasso exhibition in Zagreb in 2013, Caravaggios Supper at Emmaus
in Zagreb 2013). The greatest media attention was given to the Night of the Muse-
ums project, which itself becomes the most recognizable Croatian museum brand.
The question remains as to how the individual museums themselves involved in a
project can get a long-term benefit from it, and come out from the shadow of the
Night of the Museums popular event?
2. Developing museum audiences global trends

Museums of the 21st century get beyond their usual functions - preservation,
conservation and presentation of heritage, along with bridging the time barrier
between present and past. Today, museums are the places that combine educa-
tion and entertainment, using all the advantages of modern technology. Museum
institutions that have recognized its new, additional role in modern society, con-
tinue paths to success, and the museums that held its traditional role remain closed
guardians of heritage that attracts less interest. One of the key roles of modern
museums in the digital age certainly is - continually create new museum audi-
ences. Visiting the museum exhibitions and their visibility (media) recognition is
increasingly becoming a benchmark for determining the available (and all the more
limited) funds from the public and private sectors. Development and maintenance
of the museum visitors become key to the survival of the museum. Successful mu-
seum can be considered only the one which is ... recognized by their identity not
composed only from exclusive exhibitions, research and scientific work, but also
the relationship with the audience. (Suboti, 2005:27)
Mat et al (2002:109-110) considered that museum management should con-
stantly ask the following questions:
Does the offer continue to meet our commitment? (...);
With what additional offers (...) can we expand the range of services? (...);
What services could be abolished? (...)
What makes us unique and clearly identifiable? (...);

With which service offers we can bind our visitors?
Waltl (2006:4) emphasizes the following goals, aimed to creating sustainable
museum audiences:
To refine and enhance communication withvisitors.
To achieve an attainable and sustainableaudience.
To turn non visitors into visitors, visitors into repeat visitors and regular mu-
seum goers into supporters.
To enhance access.
To offer multiple experiences.
To engage visitors (hands on & minds on).
To establish an active network with specialtarget groups.
Richardson (2011:1) believes that todays cultural consumers can no longer be
described by the term audience, and it is more appropriate to use the term partici-
pants, because these are people who live increasingly digital lives, where they
are not spectators, but active participants, positively engaged through outreach pro-
grammes and projects.
Using the term audiences or more recent term participant, it is certain that the
Night of the Museums event continuously breaks all the records, in terms both pas-
sive (audience) and active visitors (participants).
3. The Night of the Museums project development (2005-2013)

Project Museum Night has European roots and is associated with the inten-
tion of attracting a younger audiences, which no longer visits the museum institu-
tion organized (because you do not attend primary or secondary school, where the
practice is applied). Directorate of Museums of France (Direction des Muses de
France) in Paris gathers the European museums on joint projects for nearly twenty-
six years. Since 1999 it was a Spring project in museums, and in the 2005The Long
Night of the museums was launched. The project is aimed to inspire and encourage
museums to hold numerous events, from artistic performances, unusual guided
tours through the collections and exhibitions, tours of the museum by candlelight
concerts and lectures, to heritage made more attractive and interesting for younger
users and families.(Margeti; 2007:145)
Since 2005 and the first Night of the Museums, until today, the event has be-
come the most recognizable museum brand in the Republic of Croatia, which can
be seen by the attendance during the same period (Table 1).
Table 1: The Night of the Museums event in the Republic of Croatia (2005-2013)
Number of museums, galleries and
Year Number of cities Number of visitors
other cultural institutions
2005 1 6 10.000
2006 0 0 0
2007 8 27 70.000
2008 20 60 111.000
2009 31 73 140.000
2010 43 116 278.000
2011 60 150 300.000
2012 80 180 315.000
2013 100 226 324.000
Source: Croatian Museum Association; available on http://nocmuzeja.hr/o-nama/
The Night of the Museumsoutgrows the usual concept of the museum event,
which seeks only to draw attention to the existing museum exhibition. Numbers
from the 2013 event show that ... there were 129 exhibitions, 40 lectureswere
held, 57 professional guided tours through the museums exhibition organized, 40
screenings held along with 9 plays, 41 workshops, 67 music programs, two
fashion shows (....) literary evenings, storytelling and performances.
(Croatian Museum Association; available on http://nocmuzeja.hr/o-nama/)
3.1. The Night of the Museums 2014 and the new visiting records
The record-breaking trend was continued in 2014 the number of visitors to
the Night of the Museums event grew once again, so there were 350.900 visi-
tors in 100 cities and more than 200 institutions. (Croatian Museum Association;
available on http://www.hrmud.hr/)
The following table brings information on visiting numbers of the Night of the
Museums 2014 event in Croatian cities.
Table 2: The Night of the Museums 2014 event visiting numbers

City Number of visitors
Zagreb 138.278
Split 51.633
Zadar 33.187
Rijeka 21.306
Dubrovnik 15.094
Pula 12.288
Osijek 11.760
Varadin 9.600
Source: edited by authors, according to Croatian Museum Association; available on http://www.
hrmud.hr/
As it can be seen, Croatian capital (and the most populated city) Zagreb leads by
the number of visitors, followed by Split. The following table displays the numbers
of visitors in the most popular museums.
Table 3: Top 10 most visited museums in the Republic of Croatia the Night of
the Museums 2014 event
Museum City Number of visitors
18.127
National Museum Zadar Zadar
(Note: museumon 6 different locations)
Museum of Contemporary Art Zagreb 14.970
Car Museum Ferdinand Budicki Zagreb 14.500
Croatian National History Museum Zagreb 11.800
Mimara Museum Zagreb 11.501
City of Split Museum Split 9.925
Archaeological Museum in Zagreb Zagreb 9.053
Archaeological Museum in Zadar Zadar 8.960
Museum of Arts and Crafts Zagreb 8.764
7.780
Dubrovnik Museums Dubrovnik
(Note: 5 museums in total)
Source: edited by authors, according to Croatian Museum Association; available on http://www.
hrmud.hr/
As it can be seen, the most successful museums are in Zagreb (6 of 10 museums

from the list), while an exceptional success record the museums from the Adriatic
part of Croatia (Zadar, Split and Dubrovnik).
4. Comparing the most visited museums in 2006 and 2011

Museum Documentation Center (MDC) provides statistics on visiting num-
bers for year 2006 and 2011. Data on the period since 2000 to 2006 show contin-
ued growth in visitor numbers.
Table 4: Number of visits to Croatian museums 2000 2006

2000. 2001. 2002. 2003. 2004. 2005. 2006.
845.000 1.402.500 1.474.000 1.901.000 2.352.000 2.260.627 2.505.636
Source: Franuli, 2007:2
An interesting detail of these statistics is the Year 2005 the only one with
decreased the number of visits to museums in the period since 2000 to 2006. It is
also the first year the Night of the Museums in Croatia (six museums from Zagreb
involved in the project). The upward trend was repeated since 2006, and this was
the year in which the event was skipped (it continued in 2007). Lets compare the
data on the most visited individual museums in 2006 and 2011.
Table 5: Comparison of the most visited museums in the Republic of Croatia

(2006 and 2011)
Most visited Number of Most visited museums in Number of visitors
museums in 2006 visitors in 2006 2011 in 2011
Dubrovnik Museums Dubrovnik Museums,
445.000 385.421
Dubrovnik Dubrovnik
Archaelogical Museum Archaelogical Museum of
444.952 314.674
of Istria, Pula Istria, Pula
Klovievi dvori Gallery,
200.000 Museums of Croatian Zagorje 181.503
Zagreb
Brijuni National Park
Cultural and Historical 155.410 Museum of technics, Zagreb 159.316
Heritage Department
Museums of Croatian Museum of Contemporary Art,
95.986 112.485
Zagorje Zagreb
Source: edited by authors, according to Franuli, 2007:6 and MDC, 2012:1
As shown in the previous table, the two most visited museum institutions are
on top both years, but the number of visitors to both institutions has considerably
declined in 2011 compared to 2006. Number of visitors to the Museum of Croa-
tian Zagorje (five museums in one institution) was almost doubled in the same
period. The Night of the Museums event reached 300.000 visitors infor the first
time reached, noting the continued growth earlier, but also in the coming years.
This may lead us to the conclusion that the Night of the Museums event benefited
the museum institutions from periphery, while most visited institutions failed to
achieve additional growth. In fact, the most visited museums recorded a decline
compared to the period 5 years ago.
Continuous increase in number of cities, museums and visitors as part of the
Night of the Museums project speaks in favor of the event and the creation of its
brand. However, it remains in question whether the success of the event reflected
on branding museums involved in the project. The opposite is more likely. A qual-
ity museum programme becomes invisible in mass museum offer concentrated in
one (free) museum day (or night, as the event typically held in the period between
18 hours and 1 hour after midnight). For most recognizable museums, the event
participation becomes a certain prestige, but the long-term success of the institu-
tion still depends more on the organization of the programme, strategic planning,
management of the museum and marketing campaigns carried out during the year.
The Night of the Museums certainly drew attention to the visibility of the museum
in Croatian cities, and there has been some impact on the marketing activities of
museums themselves. Quality and effective leadership of the museum will take ad-
vantage of this attention and visibility. It will use it for the implementation of con-
tinuous activities, which will in turn result in a permanent increase in attendance
to regular and occasional activities offered by museum institution.
5. Research: The Night of the Museums and new cultural audiences

Research conducted on the student population at the Josip JurajStrossmayer
University in Osijek shows the trends of the new museum audiences and their mu-
seum preferences, with special emphasis on the Night of the Museums event. 61
students of Management at the Faculty of Economics in Osijek took the survey(30
male students and 31 female students). The following graphic summarizes the basic
preferences of the student population associated with the event and museums in
general.
Graphic 1: The Night of the Museums and museum offer students preferences
Wouldvisitmuseummorewithno
Wouldvisitmuseumsmoreifthere
Wouldvisitmuseumsmoreifopen
Visitingmuseumsasmuchasthey
Visitedtheeventin2013orbefore
Visitedtheeventin2014
0 10 20 30 40 50 60 70
YES NO
Source: edited by authors
As can be seen from the graph, the majority of respondents did not visit the
Night of the Museums in 2014, neither the earlier years. Most of them still do not
visit the museums to the extent they would like. They would visit the museums
more frequently if there are more events like the Night of the Museums, if the
museums would work in the evening and night hours, and if the entrance to the
museum was free of charge.
6. Concluding remarks and recommendations

The year-to-year continuously growing numbers of the Night of the Museums
visitors proves that it is possible to create a new museum audience, but data on vis-
its to the museums outside of the event are proof that the new museum audiences
is difficult to retain and it is also difficult to attract them to museums more than
once a year. Some of the possible directions of development of the museum audi-
ence outside the event model are as follows:
museum late evening/night event once a week museums open to the audi-
ence in the evening once a week free of charge;
ensuring active participation of the public in the exhibitions, and increased
interactivity of museum exhibitions;
greater connection between the museum displays and modern technology
attractive presentations connecting museum exhibition and modern mobile
communication technology;
increasing the accessibility of the museum offer reverse distribution process

in which part of the exhibits of the museum comes to citizens (set in the
streets , squares, shopping malls).
Previous recommendations can be implemented successfully through two sig-
nificant changes in the museum expertise:
strengthening the museum marketing activities - training museum experts
in marketing skills and/or employment of individuals with marketing educa-
tion in museums;
strengthening the leadership of the museum the implementation of mana-
gerial skills from the business sector and application in museum sector.
Changing the communication strategy and attracting younger people to the mu-
seums (as a future permanent museum participants) has become imperative for mu-
seums which do not want to be interpreted likeuninventive, unattractive places fo-
cused exclusively on the preservation and conservation of heritage, without adequate
presentation strategy for museum content. Creating new and maintaining existing
audience (i.e. museum participants) are the tasks which arisefor the 21st century
museums. Events such as theNight of the Museums are a good way, but are still
insufficient. Without defining a clear strategy in each institution, museums would
gradually become part of the culture of spectacle, in the form of one night attraction.
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for successful museum management strategies; available on: http://www.intercom.
museum/documents/1-4Waltl.pdf; accesed on: 10th February 2014.
CUSTOMER EQUITY IN A NETWORK DRIVEN CONTEXT CONTRIBUTIONS FOR ... 275
CUSTOMER EQUITY IN A NETWORK DRIVEN CONTEXT -

CONTRIBUTIONS FOR EVALUATING CUSTOMER EQUITY
Dipl.Ing. Markus Moritz1, Sonja Keppler, Ph.D.2
1
S-Y Systems Technologies Europe GmbH, Federal Republic of Germany
2
Cyprus International University, Republic of Cyprus, sonja.keppler@eu-edu.ch
Abstract
Customer Equity Management (CEM) is not only a method to analyze future
customers behavior but also a segmentation tool for identifying customers that de-
liver a great value to a company and those that should be eliminated from a compa-
nys customer portfolio. One problem companies in industry are facing nowadays is
the heterogeneous customer portfolio structure and the fact, that customer equity
(CE) calculation models are referring to a companys turnover and are not profit
oriented. Thus, a customer (that can be an organization, company or an individual)
providing the selling company with a big turnover is more or less of greater value
than a customer delivering a minor turnover. This may lead to mismanagement and
wrong budget decisions. Therefore CE is a key indicator for a companys Customer
Relationship Management (CRM) environment.
In this paper, first the customer equity will be explained with its monetary and
non-monetary dimensions. Secondly a new and applicable model will be intro-
duced and discussed before starting with solving the problem of a heterogeneous
customer portfolio, which is very important for companies dealing with a multi-
level key market (e.g. lighting industry). The outcome of this paper is a network
based CE calculation model, which is dynamic and can be used for different net-
work structures - not only in an industrial environment.
JEL Classification: D11, P36, P46
Keywords: Customer Equity; Customer Equity Management; Customer Be-
havior; Customer Segmentation; Customer Portfolio Management; Customer Re-
lationship Management
276 Markus Moritz Sonja Keppler
Introduction
Customers in a network context mean companies, organizations, and individu-
als delivering a certain monetary and non-monetary value to another network actor,
which also can be a company, organization or just another individual. In this case
always a bidirectional relationship between a seller and a customer is described. As
a result two main perspectives can be defined, (i) customer value from a customer
perspective where the focus is on delivering value from a company to a customer,
and (ii) customer value from a companys perspective where value is delivered from
a customer to a company (Verhoef & Lemon; 2013, p 1). From a sellers perspec-
tive, of course, customers are very important as they are the primary source for
bringing value into the business (Amue et al.; 2013, p. 1).
However, value can only be measured in the first instance in a profit and loss
(earnings and expenses) context, where profit means the value delivered by a cus-
tomer and loss means the customer driven expenses a company needs to invest in.
As already stated above, there is a difference between monetary (e.g. turnover and
profit) and non-monetary value (e.g. cross-buying and referrals). CEM as a network-
oriented management approach leads to a more specific view on customer-driven
costs versus customer generated value. The outcome is a more efficient and effective
allocation of the actors own resources as well as metrics not only to measure but to
make the network structure more transparent (Villanueva & Hanssens; 2007; p. 3).
One famous method for analyzing the CE is the so called Customer Lifetime
Value analysis (CLV), even if it is not easy to use, but its structure reminds of finan-
cial discounting investment strategies (Jaeck; 2014, p. 2). CLV displays the current
financial situation and the prospective cash flow of a customer relationship but
has its limitations for using it, like predicting customers behavior or the limited
amount of considered non-monetary values (Abdolvand et al.; 2013, p. 42). Due
to these limitations and because of the fact, that CEs main drivers are also non-
monetary values an applicable metric must be found combining the past and future
companys perspective as well as CE non-monetary dimensions, that combine the
customers market potential (earning potential, loyalty potential, growth potential,
cross-buying potential) and resource potential (reference potential, synergy poten-
tial, information potential, cooperation potential) from a past-to-current and a
current-to-future perspective (Moritz; 2011, p. 11). In a network- driven context
the CE is a key driver for evaluating a certain network value if considering a full set
of actors on shareholder and stakeholder side.
Customer Potential and Customer Profit

For evaluating the CE it is necessary to consider past-related as well as future-
related figures, because if the CE is only considered past-related we only have a
one-dimensional perspective, which leads to wrong strategy definitions and imple-
mentation. Thus, the whole customer lifetime circle must be considered (Carr;
2012, p. 1). On the one hand, there is the future-oriented CE, which can also be
called Customer Potential (CPO), and on the other hand the past-oriented CE,
called Customer Profit (CPR), can be introduced. Combined, this will be the first
step to evaluate the Delivered Customer Value (DCV), which will be used as a key
dimension for the Network or Node Weight in a network oriented approach.
Even though CE is meant to combine customer value management, brand
management, relationship management, and retention management (Abadi et al.;
2013, p. 2), CE should be not only be considered for marketing activities in a short
view but for evaluating a companys strategic thinking cross-functionally. From a
users point of view the CE calculation model needs to be as simple as it can be in
usage and understanding, as well as adaptive, easy to control and it must focus on
relevant elements for a companys strategy (Villanueva & Hanssens; 2007; p. 10).
First it is necessary to define the Customer Profit in order to find a more practical
approach (see figure 1):
Fig. 1. Customer Net Profit Evaluation
Source: Authors own work.

The above-mentioned calculation is a template which can be changed accord-

ingly to a companys specific needs, as the usage of the different modules (Costs of
Sales, Costs of Marketing, etc.) are based on the companys own business as well
as network structure. One advantage is: it is very easy to implement also in project
organizations or other network-driven business environments.
The next step is to evaluate and calculate the CPO in order to implement a
future-related perspective into the CEM framework:
Fig. 2. Definition of Customer Potential
Therefore it is recommended to use a scoring model based on monetary and

non-monetary dimensions, as scoring models can be found in various ways to en-
hance a CEM perspective by evaluating the CE core metrics (Wortmann; 2012, p.
58). As the name tells us, the CPR is a profit-related figure. In order to calculate a
more profit-related value for the CPO, we have to adjust the following calculation
in correlation to a trend analysis:
Fig. 3. Calculating the Customer Profit and Customer Potential
The assumption would be to just add the CPR and CPO to get as a result the
needed Delivered Customer Value (DCV). However, the problem is, that accord-
ing to the above-mentioned calculation processes, also the values are still turnover-
related, and this could lead to problems if a company does not have a homogeneous
but heterogeneous customer portfolio, as it is the case for companies dealing with
a multi-level key market (e.g. lighting industry). Additionally it is important to
add the non-monetary values as modules to the future margin and future expenses
driven by the customer, because customer loyalty, customer satisfaction and cus-
tomer retention do have a significant impact on the CE and vice versa.
Customer Investment Rate

Thus, next step is to solve the problem that the output of both metrics is still
turnover-related and thus in a heterogeneous customer portfolio not every cus-
tomer can be compared or segmented properly. This leads to a simple question: If I
invest 1 Euro in my customer, which amount of money can I get out of it? Because,
as already mentioned, the problem with customer segmentation based on turnover
is: (i) the customer with the highest turnover will be classified as a top-customer,
and (ii) the customer with the highest CPO will also be classified as a top-customer.
The question can be answered by taking the ROI (Return on Investment) as a basis:
Metric 1. Calculating the Return on Investment (ROI)

Total Benefits - Total Costs
ROI =
Total Costs
Source: Corman; 2012 p. 6
Once again: If I invest 1 Euro in my customer, which amount of money can I

get out of it? The solution might be to implement a new KPI (Key Performance
Indicator), where it is not important to take the turnover as a basis but the profit
as an outcome of the relationship between seller and customer. And the ROI (Re-
turn on Investment) provides a first approach to solve this problem. Investments a
company places throughout its customer portfolio need to be valued more profit-
related, therefore the Customer Investment Rate (CIR) will be used with the ROI
as a basis:
Metric 2. Calculating the Customer Investment Rate (CIR)

Customer Investment Rate =
Customer Profit + Customer Potential
Customer Expenses
The Customer Investment Rate defines the ratio from the monetary values your
company gained in the past and the monetary and non-monetary value is about to gain
in the future in relation to the capital invested in the customer, and the amount of mon-
ey your company is going to invest in the customer in the future (Moritz; 2013, p. 52).
The CIR is the main driver for evaluating heterogeneous nodes in a network
defined as customers. Referring to customers, the model introduced above is called
the CIR-Customer Equity Model and can be used for any network related CE in-
vestigation or evaluation. In order to apply this model, the CIR-Customer Equity
Model needs to be evaluated for every single customer in a network and can then
be used to segment or group customers not only for marketing activities but also in
areas like Key Account Management.
The result is a combination of CPR, CPO and CIR to evaluate the DCV:
Fig. 4. DCV Calculation
For further segmentation processes, the correlation between CPR, CPO and
CIR can be visualized in correlation to a multi-dimensional strategy definition, as
follows (example):
Fig. 5. Correlation between CPR, CPO and CIR
A multi-dimensional strategy formulation means that every dimension (KPI -

Key Performance Indicator, etc.) needs to be ranked in the overall context. After
this it is recommended to set the priorities for the different dimensions in context
to and with regard to a companys targets and objectives. Regarding the DCV, it
could be characterized in different ways:
Fig. 6. Different value specification regarding the DCV dimensions
Of course, if we do not only consider the DCV but also the other Networking
Management forces like (i) RI (Relationship Intensity), (ii) TL (Threshold Level),
(iii) IQ (Information Quality), (iv) NW (Networks/ Node Weight), (vi) SV (Sup-
plier Value), strategies need to be formulated for all of them according to a com-
panys set of targets. One way is to use a 3-level strategy definition:
Fig. 7. 3-Level Strategy Definition
Conclusion
The CIR-Customer Equity Model combines three different approaches for eval-
uating the CE or so called DCV in a network-related context by valuing the CPR,
CPO and the CIR. It is not only possible now to compare heterogeneous customers
but also to define strategies along the different approaches in order to increase the
CE of a customer or a group of customers. Future attempts will show that a three
level strategy definition can be used to control not only a single customer but also
different customer groups. In a network-driven environment it is essential to realize
that there is a bidirectional exchange of information between two or more actors
and that one actor may play a significant role in a companys business relationship
in order to acquire or retain other current and future customers.
However, as it is known that acquisition costs beat retention costs it is also necessary
for a company to keep their customer-driven costs as low as possible. Efficiency versus
effectiveness nowadays is a key issue for companies and thus it is necessary to make cus-
tomers as much transparent as could be from a cost point of view. And this can only be
achieved by using metrics that allow a company to compare heterogeneous customers.
The advantage of the CIR-Customer Equity model is that it is easy to use and easy to
extend by putting additional modules into the metrics that play a significant role for the
company, considering monetary as well as non-monetary CE dimensions.
References
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REDUCING DELIVERY TIMES OF PRODUCTS USING DMAIC METHODOLOGY 285
REDUCING DELIVERY TIMES OF PRODUCTS

USING DMAIC METHODOLOGY
Robert Obraz, univ. spec. oec., Zlatko Reetar, univ. spec. oec.
Nikolina Pavii univ. spec. oec.3
Klimaoprema Inc., Republic of Croatia, robert.obraz@zg.ht.hr
College of Business Administration Baltazar Adam Kreli,
Republic of Croatia, zlatko.resetar@vspu.hr
3
Republic of Croatia, nikolina.pavicic@vspu.hr
Abstract
The global market is a challenge for Croatian companies because the current
business paradigm applied in the domestic market can hardly be applied globally.
Faced with changing customer demand and increased competition, companies in
the manufacturing sector have continued to question the production processes and
continuously improve them if they want to survive in the global market and keep
pace advantages over market competitors. One way of questioning, enhancement
and improvement of existing business systems is DMAIC methodology.
This paper presents the application of the DMAIC methodology to a product
that has lost its market position. Although the product price was competitive, the
delivery times of products for customer were too long. To solve this problem, ob-
served business entity starts DMAIC project of improvement operations. The proj-
ect covers all functional units and their operating procedures, and the end result of
the project activities were new working procedures. Changing its operating modes
observed business entity is able to shorten delivery times and win new geographical
segments of the global market without additional financial investment.
JEL Classification: D23, D24, O22
Keywords: Six Sigma method, DMAIC methodology, production improve-
ment, cost reduction, project management.
286 Robert Obraz Zlatko Reetar Nikolina Pavii
1. INTRODUCTION
The purpose of the business of each company is to make profit and create condi-
tions for further growth. Nowadays, the biggest challenge for almost all companies,
participants in the global market, faced with the economic crisis, uncertainty, in-
tense competition and a lack of funds to finance the production, is how to change
and adapt business goals and strategies to satisfy the preferences of customers. One
of the continuous questioning and improvement of production business systems is
DMAIC methodology. This methodology is being successfully used through sev-
eral decades by the leading global companies and their business results prove that
through a systematic approach and application of DMAIC methodology can im-
prove and enhance existing business systems.
The hypothesis assumes that the DMAIC methodology is a powerful and ef-
fective tool for improving the work of businesses at all levels of companies, and
that in addition to improving manufacturing processes can equally well be used to
improve everyday business activities in functional units, such as Sales, Purchasing,
Production planning, etc.
As a testing ground for research we selected business entity Klimaoprema Inc.
Samobor which operates 40 years on the market of equipment for ventilation.
Since the observed business entity has a wide range of products, for testing hy-
potheses selected product called kitchen hood. The product, in various sizes, can
be found in every contemporary restaurant, hotel and larger kitchens where they
thermally processed and prepared food for more people.
2. DMAIC METHODOLOGY
DMAIC methodology is one of two approaches to solve complex business prob-
lems by using a method of quality improvement called Six Sigma. DMAIC is a
systematic scientific approach based solely on the facts, where the main goal is
continuously improve the already existing and well-established business processes.
(Lunau et al.; 2009, 11). The term comes from the acronym DMAIC, English
name of the individual steps approach: Define, Measure, Analyze, Improve and
Control. (Eckes; 2003, 30). DMAIC methodology and the steps or stages of access
are shown in Scheme 1.
Scheme 1. Phases of DMAIC methodology
Source: adapted according to: Lazibat, T. (2009.) Upravljanje kvalitetom, Znanstvena knjiga,
Zagreb, pg. 259.
According to Scheme 1, DMAIC methodology presents a closed process that

takes place continuously over a long period of time, and whose application elimi-
nates unproductive business processes with the implementation of fixed measure-
ments and the application of techniques to improve. The most significant phase of
the DMAIC methodology is a phase change in the design of business processes.
It is repeated until the results of the activities is not an optimal process that will
enhance and improve the function of the observed system and annul the so called
bottlenecks business processes whose appearance causes higher overall operating
costs. In practice, the DMAIC methodology is most commonly used for constant
improvement by reducing or minimizing the causes of variation in existing process-
es. This approach makes it easier to make changes on an ongoing and progressive
basis and provides stability by minimizing variation that leads to additional costs
and customer dissatisfaction. (Lazibat; 2009, 258.)
3. APPLICATION OF DMAIC METHODOLOGIES

DMAIC methodology is used for enhancement and improvement of the well-
established existing business processes that take place over a longer period of time.
Consequently, the production process of kitchen hoods in the observed enterprise
can be categorized as previously mentioned process because the product is made
continuously over the past thirty years. The product is selling well in the domestic
market and the regional market and as such it was competitive, but with the arrival
of the economic crisis, demand for the product in these markets reduced and pro-
gressively declined in recent years. Turning out to the global market given product
is still competitive, but delivery times are too long for customers.
Applying DMAIC methodology in this particular case moves through the five
above-mentioned phase, starting the first phase - phase of defining the problem.
3.1. Defining the problem

Previous product delivery times of 12 working days customers are perceived as
too long and sales department has pointed out the need to shorten delivery peri-
ods if we want to attract new customers and retain competitiveness in the global
market. In order to shorten delivery times, a project team was formed responsible
for the project, and team members are assigned roles and duties in accordance with
the Six Sigma methodology. The teams task was to examine the existing business
operations of the observed system and find ways to shorten the current terms of
delivery of the product.
3.2. The measurement process

After identifying the boundaries of the system and the problem of defining the
project moved on to determine the time required to produce the product. To deter-
mine the time of labor, or labor costs in each functional department, it was decided
to monitor document that passes through the entire system, and that is Production
order. With the help of Production order business process was measured by observ-
ing the time units required to perform any work procedures in the process, and the
measurement results are recorded in a standardized tables for data entry.
3.3. Process analysis

In the third phase of the DMAIC methodology previously obtained results of
the measurements were selected and analyzed using statistical applications. Result
of analysis is shown on the first diagram.
Diagram 1. Pareto analysis of working time spent by departments
Source: Authors calculations.
In diagram 1 can easily be seen that the largest part of the total time of mak-
ing an offer and closing the deal until the delivery of the finished product in a
monitored business system is spent on planning and design of the product and that
this working procedure is the bottleneck of the observed business system. Other
departments, according to the first diagram, participate in a smaller share of the
total cost of work time. Since it is according to diagram 1 process of designing and
constructing products demonstrated critical to shorten product delivery deadlines,
the project team was concentrated all of its activities on the analysis of the work and
working procedures in this section.
3.4. Improvement process

Preliminary analysis of the working procedures of the Department of product
design has highlighted the fact that the designer in charge of this group of products
is continuously working on the construction and design of the kitchen hoods. Ad
hoc solution that is immediately imposed, hiring another new employee, which
would speed up the process of constructing the product and avoid bottleneck
process in this functional department. Since the DMAIC methodology is based
on facts and not on an ad hoc approach, the project team decided that all efforts
and activities focus on the design and construction products and the development
of technical documentation and thus try to expedite the process. To speed up the
design process, it was necessary to examine the flow of information through the
business system and see which information entering and leaving the Department of
product design. Conducted activities have resulted in a flow chart of work through
the system, which can be seen in Scheme 2.
Scheme 2. Business processes and existing mode
The Scheme 2 shows the current way of working in the observed business sys-
tem and the interaction between the individual functional departments. Accord-
ing to Scheme 2 it is evident that sales department sends Production order in the
Department of product design, where it prepares the necessary documentation and
after finish it Department of product design send it in the production planning.
The Department of production planning is determined dates for the manufacture
of products and documentation with Production order goes into production.
The further analysis of work in the Department of product design has been
extended to the type and size of the product produced on an annual basis. The ap-
plication of statistical methods for data analysis revealed that the data is grouped
around one type of product and that in some cases the products differ in size by
only a few centimeters. From the viewpoint of function and other useful properties
the minimal difference in size does not affect the function of the product because
they are designed with certain safety factor.
Review of annual production in the observed enterprise over the past five years
has shown that the average annual production is 200 pieces of product. This also
means that for more than 200 delivered products are made technical drawings, pro-
cess documentation and worksheets necessary to produce the product. In order to
improve the working procedures of designing and constructing the observed prod-
uct all the above-mentioned data were grouped and analyzed using a statistical com-
puter program. The results indicated that there is only one optimal model for the
enhancement and improvement of the observed business system. Computer simula-
tion indicated the need to change existing ways of working in the sales department
by introducing new work procedures, and these are graphically shown in Scheme 3.
Scheme 3. The process after analysis and implemented improvements
According to Scheme 3, we can see that the new business process in the sales
department is more complex than the former because it involves several working
procedures that have so far existed. In addition to the increased complexity of the
new working process it requires a little more focused work of employees in the
sales department. In the optimal business process when a customer requests for a
quotation of the observed product, an employee in the sales department has at its
disposal a database of products already made. In the database are detailed descrip-
tions of all manufactured products, and a new database is fully compatible with the
ERP system used to manage at all levels of business in an enterprise. Employee in
the sales department, based on the information in the database, selects one of the
procedures by the method shown in Scheme 3.
If the query is related to a product already made in the observed business entity,
this means that there is full documentation for this product, Production order for
manufacturing opens directly into the sales department without having to con-
structor prepares complete documentation. Constructors task in the new process

is to control the opened Production orders in relation to the reference product and
the information system approved by the department of production planning ac-
cess, browse and use the necessary documentation. Further information and docu-
mentation flow goes, according to the working procedure scheme 3 to the produc-
tion department.
If in the database does not exist same product in accordance with the wishes and
needs of the customer, sales employee handles according to the procedure shown
on the left side of Scheme 3 and offers the customer first dimensionally similar
product that meets the tolerances field operating conditions. Thereby, Sales depart-
ment informs customer about the possibility of buying a similar product with the
same characteristics and seeks his approval. If the customer or the client is satisfied
and agrees with the characteristics of the offered product, a production order goes
in the standard way and it is approached to developing products according to exist-
ing documentation and the established operating procedures.
If a customer is not satisfied with the offered product and seeks product exclu-
sively to the desired dimensions, it is opened, according to the procedure shown at
the bottom of Scheme 3, the Production order to create entirely new products and
approaches to making the entire technical documentation for a new product. After
making all the necessary documentation and information about a new product, it
is promptly entered into the database of products made and designed new product
becomes a standard product offering.
3.5. Process control

After implementation of operating procedures shown in Scheme 3 employees
in Sales department started to work by new operations. The new work process was
monitored daily in order to avoid errors and delays, and the first problems were
related to products database. Issues regarding indexing the data have been removed
in the short term, and the base is flawlessly in daily operation.
The control process illustrated in Scheme 3 is carried out periodically and is
based on the principle of random sampling. Two to three times a month database
is checked, and daily backups are made.
4. EVALUATION OF IMPROVEMENT PROCESS

Shown DMAIC project after ending must go through the validation and evalu-
ation how we would be able to assess the actions taken. Since this project falls
into the category of simple projects with very short duration, the evaluation can
be carried out by simply economic principles - the process of evaluating the im-
provements carried out before and after the carried out process of evaluating the
improvements.
Diagram 1 shown the first Pareto analysis of total time spent working on the
functional units of the observed business entity. It is based on the analysis found
the bottleneck of the business system in the department of product design. After
the introduction of the new Operating instructions for the sales department based
on operating procedures shown in Scheme 3 it was re-conducted recording time
spent working by departments according to a predefined method. Once again for
the measure its used Production order that circulated among all functional depart-
ments in the observed business entity, the results of Pareto analysis of the recorded
working hours are shown in the diagram 2.
Diagram 2. Pareto
y analysis of time after the improvements
p

In the second diagram it is clear that time of work in the Department of product
design significantly reduced and currently amounts 0.5 working hours. Working
operations design and engineering products is moved from the first position in
diagram 1 to the last place in the diagram 2 which indicates that this operation is
no longer a bottleneck in the observed business system. The main reason for this
significant reduction in working hours is the facts that during the thirty years are
designed and constructed thousands of concerned products and all products are
made with completed technical documentation. With new work procedures, as
shown in scheme 3 all information flows bypass the Department of product design
unless customer are looking for products according to special requirements. From
the second diagram it is evident that the trends observed during the total product
through the business system shortened so that according to the new mode of fin-
ished product delivery time is 5 working days instead of 12 days.
5. CONCLUSION
Most business paradigm assumes that the use of automated processes can re-
place manual work and that they can produce larger quantities of product per unit
of time in order to reduce the total time of the duty cycle and the total cost of de-
veloping the product. Applying DMAIC methodology on the present case, showed
that the delivery times of the product can reduced by using the same level of tech-
nological equipment. In our case, because of the steady operating mode, the bot-
tleneck of the business system is representing the working procedures of design
and construction products. Systematic approach, through five phases of DMAIC
methodology, observed operating system is analyzed and further enhanced without
large investments and additional costs, and the project resulted in the development
of optimal process flow of information and documentation. With new operating
procedures to the business process of the observed business entity is adapted to the
needs and demands of the global market for shorter periods of development and
delivery of finished products. Delivery dates are shortened from 12 days to 5 work-
ing days, and with a new way of working are achieved significant savings in time
working on design and construction products.
Applying DMAIC methodology to the present case shows that a systematic
approach and minimal investment can achieve big savings and reduce labor costs.
Our study can be extended vertically using the DMAIC methodology to produc-
tion process, which could cause further enhancement and improvement of the pro-
duction process of the observed product.
References:
1. Buble, M. et al. (2005). Strateki menadment, Sinergija, ISBN 953-6895-23-4,
Zagreb.
2. Brue, G. (2006). Six Sigma for Small Business, Entrepreneur Media, Inc., ISBN
1-932531-55-6, USA.
3. Eckes, G. (2003). Six Sigma for Everyone, John Wiley & Sons Inc., ISBN 0-471-
28156-5, USA.
4. Lazibat, T. & Bakovi, T. (2007). est Sigma sustav za upravljanje kvalitetom, Po-
slovna izvrsnost, (Vol 1. No 1.), Lipanj 2007, 55-67, ISSN 1846-3355, Ekonomski
fakultet u Zagrebu, Zagreb.
5. Lazibat, T. (2009). Upravljanje kvalitetom, Znanstvena knjiga d.o.o, ISBN 978-953-
95902-1-3, Zagreb.
6. Lunau, S. et al. (2009.) Desing for Six Sigma+Lean Toolset, Springer & UMS GmbH
Consulting, ISBN 978-3-540-89513-8, Germany.
7. Pande, P. S. & Holpp, L. (2006). to je est Sigma? Mate d.o.o., ISBN 953-246-010-
1, Zagreb.
8. Smith, D. & Blakeslee, J. & Koonce. R. (2002). Strategic Six Sigma Best Paractices
From The Executive Suite, John Wiley & Sons Inc., ISBN 0-471-23294-7, New York,
USA.
9. Thomsett, M. C. (2005). Getting started in Six Sigma, John Wiley & Sons Inc., ISBN
0-471-66811-7, New York, USA.
10. Yang, K. & El-Haik, B. (2003). Desing for Six Sigma A Roadmap for Production
Development, McGraw-Hill, ISBN 0-07-143599-9, New York, USA.
296 Goran Pajni Davor Bonjakovi Ivan Keli
THE POTENTIAL OF MOBILE APPLICATIONSIN

ORGANIZATION AND PROMOTION
Goran Pajni, B.Sc.1, Davor Bonjakovi, B.Sc.2, Ivan Keli, univ.spec.oec, 3
1
Chief Executive Officer at Belje Inc., Republic of Croatia, goran.pajnic@belje.hr
2
Chief Executive Officer at Vupik Inc., Republic of Croatia, davor.bosnjakovic@vupik.hr
3
Faculty of Economics in Osijek, Josip Juraj StrossmayerUniversity of Osijek,
Republic of Croatia, ikelic@efos.hr
Abstract
With the advent of mobile marketing and wide acceptance of the technology
among end users through smartphone devices, the conditions are ripe for devel-
oping new promotional channels. According to some estimates, smartphone sales
have exceeded one billion units, with no signs of slowing down. Through mobile
applications, these devices allow for two-way communication between business
entities and consumers. Initially, mobile applications were intended mostly for en-
tertainment and were simple applications for personal use. Over time, they have
evolved into sophisticated business-world functions, thus becoming an unavoid-
able trend in marketing activities. It is estimated there are 800,000 mobile applica-
tions on the market, with an incredible range of content. This paper aims to define
the potential of mobile applications in modern marketing activities. To that end, a
survey will be carried out with a sample of tourist board marketing managers. The
results of the survey will indicate the extent to which mobile applications are used
and considered important in modern business practice.
JEL Classification: M31, M37
Keywords: mobile marketing, Web 2.0, smartphone, e-business
1. Introduction
Competition in the modern market has been rapidly changing, mainlydue to
the development of Internet technologies where participants are invited to take
part in content generation. Consequently, participants become active users whocan
THE POTENTIAL OF MOBILE APPLICATIONSIN ORGANIZATION AND PROMOTION 297
fully use an application through a browser and have control over the content. As a
result of the development of digital and communication technologies, new chan-
nels were created for business entities to distribute information to their custom-
ers. The new channels for distribution of information are part of the current Web
2.0Internet technology,which includes e-mail, RSS, blog, forums, social networks,
and one of the fastest growing trends presently location-based applications using
geographical location of the user. Tim OReilly defined the term Web 2.0 as: ...the
business revolution in the computer industry caused by the move to the internet as
platform, and an attempt to understand the rules for success on that new platform
(OReilly, 2006). The main characteristics of Web 2.0 are openness, freedom and
collective intelligence (Strauss & Frost, 2009, 13-14), which all come together in
user participation in content generation. Mobile applications enable users to re-
ceive real-time information on the screens of their devices (mobile phones, laptops
or tablets) and then generate their own content and distribute it to others. To use
mobile applications,one needs a mobile device a smartphone or a tablet that can
be connected to the Internet. Such devices have a built-in GPS tracker to locate the
user, thus enabling two-way communication.
There are various definitions of the term marketing. Most experts accept the one
that defines marketing as a social process by which individuals and groups obtain
what they need and want through creating, offering, and exchanging products and
services of value with others(Renko, 2009, 12). Marketing, as a business strategy, is
dependant on the orientation of an organisation towards the market and customers
whereinall employees of an organization should focus on the customer in perform-
ing their duties. Electronic marketing applications facilitate a more detailed insight
into consumers characteristics and behaviour patterns through the database and
technology that enables interaction with them. Unlike traditional, i.e., analogue,
offline marketing based on market research, electronic marketing facilitates strategic
targeting of consumers as well as quick customization and flexibility of all marketing
activities that respond to customers specific needs. In general, we can conclude that
e-marketing complements traditional marketing activities. Furthermore, e-market-
ing is closely linked to the development of new technologies, which seekto imple-
ment traditional marketing mix (variables) through network. It is the development
of technology that has created the preconditions for the implementation of mobile
marketing activities. Mobile marketing enables an organization or an individual to
communicate and engage with their audience in an interactive and relevant man-
nerthrough any mobile device or network (Venkatesh & Sridhar, 2009, 118). Some
authors find that mobile marketing is any marketing activity conducted through a
ubiquitous network to which consumers are constantly connected using a personal
mobile device to transmit information (Kaplan, 2012, 129-139).
New global marketing trends developed as a result of an increasing number of
smartphone users. Mobile marketing features such as interactivity, measurability
and possibility of direct communication with the user open up enormous oppor-
tunities that all types of organizations recognize. Integration of mobile technology
into existing marketing campaignshas enabled usersto access additional informa-
tion easier and receive alerts about relevant events. Mobile marketing has enabled
advertisers to create personalized multimedia campaigns for their target audiences
and has given users the possibility to react, i.e., respond to the campaign directly.
The main goal of this paper is to collect and analyse data in order to determine the
extent to which business entities have recognized this technology. In view of the
research problem and objectives the following hypotheses were defined:
H1: Mobile applications,as a powerful promotional tool for business entities,
record a steady growth in the number of users.
H2: Business entities in tourism industry underuse mobile applications as an
information distribution channel.
2. H1:Mobile applications, as a powerful promotional tool for business

entities, record a steady growth in the number of users.
Internet, one of the most significant technological phenomena of our time, pro-
vides business entitieswith completely new competitive opportunities through mo-
bile marketing based on mobile applications. Links and search engines have created
a parallel world, in which information can be obtained and integrated with a single
click of the mouse. According to Chetan Sharma, an expert in the field of electronic
advertising, the benefits of mobile advertising are as follows (Sharma, 2011):
Reach - quantified audience.
Targeting - ICT management at the right time, in the right place.
Engagement - possibility of engaging consumers in the process.
Viral - how fast and wide can the message be spread through the medium.
Transactions - how fast, painlessly and effectively can a consumer execute a
transaction that is advertised (buy a product, service, download...).
User participation is a key feature of mobile marketing which gives it the ad-
vantage over other marketing channels (Griffiths and al., 2004). As a result of rapid
development of the Internet in the past few years, the devices that consumers use
to access the Internet and obtain information have also developed. Research shows
that after 2010 the sales of desktop computers compared to smartphones have
been constantly decreasing (Kadlec, 2013, 4). According to the results of another
research, the share of smartphone users worldwide amounted to around 29% (IDC
- Press Release, 2011). In 2011, 627 million people were using smartphones, ac-
counting for 12.3% of the total number of active telephone cards in the world. It
is expected that in 2015 more than 1.5 billion people could be using smartphones,
which would make 24.8% of active phone cards. Research has revealed that in 2012
there were 1.2 billion people using mobile applications worldwide. Statistics show
that this trend has been growing at an annual rate of 29.8% and that it will reach
4.4 billion in 2017(Portio Research, 2013). According to the results of research
conducted by Gartner, the worlds leading information technology research com-
pany, smartphone users downloaded more than 102 billion mobile applications in
2013 (Gartner, 2014). These results indicate that application downloading is on
the rise. However, it needs to be pointed out that the rise pertains to free applica-
tion downloading. Table 1 shows the number of paid application downloads in
relation to free application downloads, as well as predicted downloads and trends.
Table 1. Downloads of mobile apps from all stores worldwide, 2010-2016

according to Gartner.
2011 2012 2013 2014 2015 2016
Free downloads 22.1 billion 40.6 billion 73.3 billion 119.9 billion 189 billion 287.9 billion
Paid-for
2.9 billion 5.0 billion 8.1 billion 11.9 billion 16.4 billion 21.7 billion
downloads
Total downloads 24.9 billion 45.6 billion 81.4 billion 131.7 billion 205.4 billon 309.6 billion
Percentage free
88.4% 89.0% 90.0% 91.0% 92.0% 93.0%
downloads
Source: Gartner; 2012, available at: http://goo.gl/amyytB (15.03.2014.)
Free downloads account for almost 91% of all downloaded applications. Busi-
ness entities that use applications as apromotional tool should therefore offer them
for free. To achieve recognition, draw attention, and eventually gain the trust of the
community in online environment is a challenge for all business entities. The above
results indicate that the proposed hypothesis, i.e. that mobile applications, as a pow-
erful promotional tool for business entities, have recorded a steady growth in the
number of users,has been confirmed. In other words, in the future, business entities
will mainly use this technology in their promotional and organisational activities.
3. H2: Business entities in tourism industryunderuse mobile applications as

an information distribution channel.
Numerous factors depend on the product development strategy. Tourism, as a
specific activity mix, is characterized by a great deal of information playing a role in
business decision making. This information needs to be accurate, timely and reliable.
Marketing information system is an organized set of procedures and methods for
continuing and planned collection, analysis and interpretation of data; assessment,
maintaining and distribution of information to improve business decision making
(Marui & Prebeac, 2004, 6). The focus is on availability of the relevant content.
Today, when all sectors of the economy are affected by the crisis, including tourism,
it is safe to assume that ICT is key to overcoming the difficulties encountered by
business entities in tourism industry all over the world. The answer to these prob-
lems lies in reinforcing e-marketing activities in all segments of business operation
andpromotion. As a result of rapidly developing ICT, allbusiness entities in tourism
industryhave an opportunity to use this technology in online distribution, organiza-
tion, marketing and sale and in doing so ensure their strong market penetration.
To gain a clear insight into the tourism board marketing activities on the In-
ternet, a survey was conducted with a sample of 101 tourist board offices across
different levels - county tourist board, city tourist board, municipal tourist board
and regional tourist board. The survey also included the main office of the Croatian
tourist board. The survey sample included a total of 14 county tourist board offices,
45 city tourist board offices, 39 municipal tourist board offices, two regional tourist
board offices and the main Croatian tourist board office. The data were collected
using a Google spreadsheet questionnaire which was sent to the official e-mail ad-
dresses of the tourist board offices from January to June 2012. The questionnaire
consisted of 62 questions, nine of which were open-ended questions where respon-
dents were required to write their response, while the rest were multiple-choice
closed-ended questions. In view of the aim of the paper, i.e. investigating the ap-
plication of Internet marketing tools and techniques in tourist boards, intentional
sampling was used to select the target audience. Therefore, the survey was con-
ducted on a sample of employees of tourist board offices who are proficient in the
field of Internet marketing and whose knowledge would be useful for determining
the extent to which tourist board offices have developed mobile applications.
The aim of the questionnaire was to investigate whether respondents, i.e., tour-
ist board online promotion managers have used Web 2.0 applications and if so,
which applications have been used and to which extent, as well as to examine the
attitude of respondents towards the advantages and disadvantages of these applica-
tions. The study also looked into how much tourist boards invest in adapting the
content to mobile devices so that it can be used with the help of specialized mobile
applications by asking whether the tourist board has invested financial resources in
developing a mobile application. Figure 1shows the results of the survey.
Figure 1. Has the tourist board invested in a custom-made mobile application
Source: Research results by authors
The results indicate that only 17% (17 offices) have a (custom-made) mobile
application or some kind of application with features that identify the tourist board
office in question. Given the fact that mobile applications can provide most of the
information to their users, and can largely operate in the same form both offline
and online, the results show that tourist boards have not recognized the importance
of mobile applications. Tourist boards, as organizers and promoters of destinations
must allow unrestricted flow of relevant information to all potential guests. Mobile
applications enable all users to take part in the exchange of content. Most applica-
tions allow constant update of data and information (events, photos, links, con-
tact information, available accommodation units in the area covered by the tourist
board, etc.). Using mobile applications, tourist boards target their audience in or-
der to conduct pre-sale activities by presenting information on a destination to pro-

spective guests. Since the application is constantly updated, the latest information
about the destination that guests had visited is sent out to them. They can browse
it, receive information about the upcoming events and perhaps decide to come
back. The survey results confirm the hypothesis that tourist boardsunderuse this
technology. Bearing in mind that the development of mobile applications has only
started to take off, some tourist boards may still not be aware of the need to have an
application developed. However, since there is a large number of applications that
can provide information about the relevant destination, tourist boards should look
into the existing ones and recommend them to their guests. A quality tourist ap-
plication can be used as a travel guide,navigation system, booking agency, shopping
guide, Wi-Fi hot spot locator, translator, information service provider (weather in-
formation, transit schedule, important phone numbers, exchange rates), historian,
etc. (ipo, 2012). Given that there is a need for practical and simple, yet attractive
mobile applications with quality content, the possibilities are limitless.
4. Conclusion
Business entities, as well as other networked application users have been in-
creasingly following the trend of providing relevant information to their customers
through mobile applications. It is expected that in the future customeranalysis will be
performed on a daily basis and mobile applications are the best tool for that. Since in-
formation flows and changes rapidly, it is necessary to select the information that will
be useful to customers and distribute it using the most adequate channel. The survey
confirmed the hypotheses that mobile applications represent a powerful promotional
tool for business entities, and that there is a steady growth in the number of users. A
customer using these applications becomes also an administrator, and a distributor
of information to other users, thereby creating a new kind of link between businesses
and customers, which confirms the importance of investing in mobile technology.
One-way communication, usually initiated by a business entity, has become an obso-
lete and inefficient promotionmethod. The latest trend favours two-way communica-
tion in which consumers are taking on an increasingly important role in creating a
long-term strategy of the business entity. As the technology develops, the number of
consumers using smartphones will grow. This creates a testing ground for location-
based services customer locators and customer interaction applications. Individuals
receive relevant information through the information search/retrieval system in mo-
bile applications. The more product and service customers use these technologies and
services, the more they will insist on obtaining useful and information-rich content.
It is therefore necessary for business entities to invest in mobile applications in order
to be recognized in the cyber world.
References:
1. Gartner (2014) Over 100 billion mobile apps downloaded in 2013;available at:
http://www.hindustantimes.com/business-news/over-100-billion-mobile-apps-
downloaded-in-2013/article1-1124695.aspx (15.03.2014.)
2. James, T.L. & Griffiths, K. & Smyrnios, K.X. & Wilson, B. (2004). Mobile Mar-
keting: The Role of Permission and Attitude on Purchase Intentions, ANZMAC
Conference 2004.
3. Kadlec, T. (2012). Implementing Responsive Design: Building sites for an any-
where, everywhere web, NEW RIDERS, ISBN 978-0-321-82168-3, Berkeley.
4. Kaplan, A.K. (2012). If you love something, let it go mobile: Mobile marketing and
mobile social media 4x4, Business Horizons 55.
5. Marui, M. & Prebeac, D. (2004). Istraivanje turistikih trita, Adeco, ISBN
9539722853, Zagreb.
6. Panian, . (2000). Internet i malo poduzetnitvo, Informator, ISBN 9531700877,
Zagreb.
7. Portio research (2013) Mobile Applications Futures 2013-2017; available at: http://
www.portioresearch.com/en/major-reports/current-portfolio/mobile-applications-
futures-2013-2017.aspx (12.03.2014.)
8. Renko, N. (2009). Strategjie marketinga, 2. izdanje, Naklada Ljevak, ISBN: 978-
953-303-079-1, Zagreb.
9. Sharma. S. (2011). The Promise of Mobile Advertising, Chetan Sharma Consult-
ing; available at: http://mobileenterprisestrategies.blogspot.com/2011/02/chetan-
sharmas-promise-of-mobile.html (07.02.2014)
10. Strauss, J. & Frost, R. (2009). E-marketing, Pearson Prentice Hall.ISBN
0136154409.
11. ipo, V. (2012). Mobilne aplikacije za mobilni turizam, Konferencija Web Strate-
gija 13 kupac zvan enja, Zagreb.
12. Venkatesh, S. & Sridhar B. (2009). Mobile Marketing: A Synthesis and Prog-
nosis, Journal of Interactive Marketing. Volume 23, Issue 2, 2009. Available at:
http://yadda.icm.edu.pl/yadda/element/bwmeta1.element.elsevier-64cdf0e5-
2c7d-3358-93f0-51fc02229ddf (12.03.2014.)
304 Mirko Pei Teuk oi
ORGANIZATIONAL ASPECTS OF MODERN

MANAGEMENT IN 21ST CENTURY
Mirko Pei, B.Sc.1, Teufik oi, M.Sc.2
1
Josip Juraj Strossmayer University of Osijek, Department of Cultural Studies,
Republic of Croatia, mpesic@unios.hr
2
Bajment Ltd., Sarajevo, Bosnia and Herzegovina, cocic.teufik@gmail.com
ABSTRACT
Everything is changing in the course of time, especially nowdays when the world
is in the globalization process and all business processes are subject to turbulent
conditions. Every organization in the market must adapt to the market conditions
and the environment. As the economy has its own laws and market conditions that
are changing on a daily basis, different models of leadership and management are
needed. So, this is the reason why management is the most important factor for
managing and leading organizations and companies on market effectively. Manage-
ment faces the biggest challenges and obstacles that companies and organizations
have in their work and must overcome in order to survive on the market in order
to achieve successful growth and development. Management in the 21st century
is probably in the most turbulent environmental conditions in the history of eco-
nomics. This paper provides an overview of modern management in the conditions
of the 21st century, as well as the factors that influence the management in the
process of creating successful companies and organizations, and the ways in which
management companies adapt to market conditions and to the environment.
Keywords: management, organization, modern management, 21st century
1. INTRODUCTION
The all areas in which the work of management is constantly changing, thus it is
necessary that management and organization operate and adapt to the conditions
and changes in the market. This includes monitoring of market trends and moni-
toring of all business factors.
ORGANIZATIONAL ASPECTS OF MODERN MANAGEMENT IN 21ST CENTURY 305
Modern Management has grown with the growth of social-economics and sci-
entific institution. Modern view consists that a worker does not work for only
money. They work for their satisfaction and happiness with good living style. Here
Non- financial award is most important factor.1
There are many different aspects of performance management, but in most cases
it can be broken down into a few simple steps. If youre adopting a performance
management process for the first time or want to modify your current one to maxi-
mize its effectiveness, there are three key aspects that are the most important in
your performance management system. Obviously these are up for debate, but in
most cases of performance management you can plan on these to have the most
impact on the success or failure of your performance management efforts.2
Three the most important aspects of management are:
Planning
Monitoring
Rewards
2. THE MOST IMPORTANT ASPECTS OF MANAGEMENT

Planning The first step in any good performance management process is likely
also the most important. Haphazardly stumbling towards goals will usually only
end in disaster, so its important that proper planning is used during performance
management. This applies not only to the performance management system itself,
but also to the inner workings of the business. Speaking strictly about performance
management, good planning begins by analyzing the exact goals you want your
company to attain and to develop realistic ways to achieve them. Its vital that your
goals be realistic, otherwise your performance management plan will fail. Its also
important to take the time to create a real plan that can achieve your goals.
Monitoring If any performance management system is to succeed it needs to
involve a very rigorous monitoring process. Closely surveying your overall com-
pany, each department, and individuals is vital for performance management and
for you to reach your goals. Monitoring during performance management involves
1
http://managementlearningcenter.blogspot.com/2012/09/modern-management-theory-in-princi-
ple.html (01.03.2014)
2
http://www.unicornhro.com/articles/the-three-most-important-aspects-of-performance-manage-
ment--what-to-focus-on (10.03.2014.)
not just monitoring the progress of each department and employee but also pro-
viding them with constant feedback whether it is in the form of praise and reward
or in constructive criticism. If you want your performance management efforts to
succeed youll have to monitor each step towards your goal very closely to ensure
everything is going according to plan. If areas seem to be lacking, youll need to be
able to take steps to improve them such as providing training.
Rewards While some experts place this lower in importance than other aspects
of performance management, the truth is that your employees deserve rewards and
that few things will influence not only the success of your performance manage-
ment efforts but also the success of your entire company quite like appropriate
rewards. Whether it is simple public recognition or actual monetary rewards, no
performance management process will be complete or effective without good use
of rewards. They can improve morale and employee satisfaction, boost productivity,
and help you move closer to your goals. If you want your performance manage-
ment to be successful, take the time to utilize rewards.3
Planning monitoring and rewards are aspects which represent the most general
management and implementation of processes and functions of organizations.
From the above we can see the most important backbone around which all pro-
cesses are modeled management in the 21st century in which management operates.
According to the Scottish investors most detailed aspects of the management of
modern management are:
1. Focus and clarity of vision
2. Good leadership
3. Communication
4. Involvement and collaboration
5. Manage your assets
6. Different reactions
7. Fundamental needs must be met
8. Loss curve
9. Expectations must be met
10. Fears must be dealt with
3
Ibidem
11. Create urgency

12. Form a coalition and create a dialogue
13. Remove obstacles
14. Build on the change
15. Anchor changes in culture
16. Incentives
17. Assess present situation clearly
18. Identify the current capabilities
19. Identify current mind sets that must change
20. Engage with the workforce at the earliest opportunity
21. Break down programs into initiatives
22. Leaders ensure that frontline staff feel ownership for change4
All those detailed aspects are making a detailed focus and elaborate parts man-
agement and modeling of the organization for current market conditions in the
21st century.
Due to the world economy, which is in the process of globalization and re-
cession management with all the detailed things to worry about unification and
connecting all these work activities to a company or organization adapted to the
market and adapt to any conditions on it.
For developing economies the development of enterprises should be a strategic
goal, this way of thinking may become viable only as a result of a combination of
judicious analysis based on specific local economic aspects and a set of actions to
correct any slippage or amplify existing development trends taken by the managers.
A better leadership would unequivocally lead to a better strategy but sometimes the
lack of information, first about the external environment, continuously undergo-
ing quick and radical changes, the political problems and the complexity of the
implementation of the strategy or the costs that it implies are not taken into consid-
eration. Therefore managers have two options: to establish strategies, which would
lead to the achievement of the objectives; evaluate them on the basis of economic
4
http://investorsinpeoplescotland.wordpress.com/2013/09/23/22-key-aspects-of-managing-change-
leaders-must-consider/ (11.03.2014.)
efficiency or to identify an already existent strategy and to adapt it to the environ-

ment changes in which the enterprise carries on its activity.5
3. ASPECTS AND STRATEGIES

According to Jeremy C Bradley,( Demand Media) there are other four impor-
tant aspects:
Strategic Analysis
Strategic Choice
Strategic Analysis
Strategy Implementation
SWOT Analysis
Strategic analysis is an idea used within the broader field of strategic manage-
ment to help businesses understand where their companies fit into the broader
marketplace. This starts by looking inward -- evaluating the work environment, the
availability of resources and the relationships between various levels of stakeholders.
The aim of strategic analysis is to get you, the business owner or manager, to think
about the key influences on the companys present position and to begin thinking
about how those influences can be manipulated to get the company where it wants
or needs to go.
Strategic Choice
Once a strategic analysis of the companys environment has been carried out,
you can move onto listing the strategic choices your company can take to meet its
objectives. If you need to increase revenue by 25 percent, for instance, over the
next 12 months, listing your strategic choices will help you come up with ways to
scale up resources, change company policy and reinvent business processes so as to
reach the increased revenue goal. The key to this process is open communication.
Discussing your options with your stakeholders -- employees, customers, board
members and concerned community members -- will give you a 360-degree view
of where the company can tweak or modify its policies and processes to better posi-
tion itself for success.
5
Cristiana, POP Zenovia and Anca, Borza, (2013), New perspectives on strategic management pro-
cess, Annals of Faculty of Economics, 1, issue 1, p. 1573-1580.
Strategy Implementation
Implementing the choices outlined in the strategic plan is likely to be a time-
consuming and, at times, frustrating endeavor. There are two things to keep in
mind allocation of resources and the organizational structure. If the organization
and its management are rigid and not very open to change, it will be much harder
to implement your strategic plan. You also have to think about access to resources,
such as manpower, money and tools. Implementing change within the business
will require a balance between pouring money into a problem and effectively using
resources to change business policies and processes.
SWOT Analysis
One of the main tools that can be used in bringing together a strategic man-
agement plan is called a SWOT analysis. SWOT stands for strengths, weaknesses,
opportunities and threats. The idea behind this tool is to list each of your organiza-
tions attributes in each section. If you have strengths in customer service, list that
here, but also dont be shy about listing areas for improvement. If your facilities
need to be revamped, list that as an opportunity to better your company. If theres
a competitor you cant do much to control, list that as a weakness. Seeing all of
your businesss pros and cons in one place can you help decide a strategic plan for
accomplishing financial, operations and resource-based goals.6
At the present stage of the economy development of the country in conditions
of the crisis and the complex transformation processes, conditions of management
of domestic enterprises significantly become more complex The effectiveness of the
economic subjects activity is caused mainly by their organizational and managerial
structure, which leads to the necessity of consideration of the enterprise potential
formation problem in the organizational and managerial aspects.7
Businesses and organizations are in constant confrontation with improving their
performance in an environment that provides them with all the guarantees. This
improvement is increasingly sought through a decentralization of decision making
to ensure appropriateness. In these circumstances, the firms manager will normally
ask questions about the effectiveness of the functioning of the organization, exer-
cised by him and by his collaborators. In this context, communication between
6
http://smallbusiness.chron.com/aspects-strategic-management-64372.html (14.03.2014.)
7
Yu., Amosov O., (2012), The Formation of the Potential of the Enterprise: Organizational and
Management Aspects, Business Inform, issue 12.
management and audit committee, and internal auditor and external auditor could
be strengthened and formalized.8
The current crisis, more than any other disturbing factor, provoked a rough
breach in the managements daily routine, involving major transformations, es-
pecially in the enterprises strategic management. The complex reality in which a
modern company activates, its position, role and responsibilities, makes its strategic
management an extremely complex one, a tridimensional process, its three dimen-
sions being: rational and analytic (economic dimension); political (human dimen-
sion); bureaucratic (organizational dimension). The strategic management implies
taking into consideration simultaneously the three dimensions, each dimension
having its role and importance according to the respective context.9
The current state of the recession and the current trends of globalization and
management can show their best moves and the adjustment thereto may withdraw
best moves and show off your most important aspects through which may lead the
company in the most turbulent times and market conditions.
Specifically, cost management has been created as a source of information for
managerial decision-making on matters of production. An increasing share of the
costs arised out of production in the total costs of the company encouraged the
process of developing instruments for managing costs that arise out of production,
primarily in marketing and logistics activities. Therefore, cost management does
not cover only the costs to the level of products and production departments, but
also the cost per channel of distribution and individual customers. Thanks to the
development of information technology and modern management methods, it is
possible to spread the areas in which cost management contributing to profitability
of the whole business process of companies in production, trade and services.10
Cost management must be the first item in the planning and a major factor by
which will be modeled all business processes in a company or organization capabili-
ties and there starts one of the most important items of management.
8
Botez, D. (2011), Some aspects regarding the relation between management, internal auditor and
external auditor, International Conference Modern Approaches in Organisational Management and
Economy, 5, issue 1, p. 95-99.
9
Deac, V., (2012), Strategic management in a crisis context, Proceedings of the International mana-
gement conference, 6, issue 1, p. 102-109.
10
Karic, M. (2010), The Impact of new Cost Management Methods on Business Profitability, Busi-
ness Logistics in Modern Management, 10, issue , p. 27-55.
4. CONCLUSION
Aspects of modern management nowadays differ in economic activities and
management styles. But the main postulates of management and management
must be the basic principles of management and after them to specific areas can be
modeled and changed, and called aspects and attitudes by which the organization
adapts to market conditions and consumer needs.
Therefore, the conclusion is that the planning and development strategies must
take the aspects that require current conditions and trends in the markets and the
needs of consumers and customers
References:
1. Botez, D. (2011), Some aspects regarding the relation between management, inter-
nal auditor and external auditor, International Conference Modern Approaches in
Organisational Management and Economy, 5, issue 1, p. 95-99.
2. Cristiana, POP Zenovia and Anca, Borza, (2013), New perspectives on strategic
management process, Annals of Faculty of Economics, 1, issue 1, p. 1573-1580.
3. Deac, V. (2012), Strategic management in a crisis context, Proceedings of the Inter-
national management conference, 6, issue 1, p. 102-109.
4. Karic, M. (2010), The Impact of new Cost Management Methods on Business Prof-
itability, Business Logistics in Modern Management, 10, issue , p. 27-55.
5. Yu., Amosov O. (2012), The Formation of the Potential of the Enterprise: Organiza-
tional and Management Aspects, Business Inform, issue 12.
6. http://managementlearningcenter.blogspot.com/2012/09/modern-management-
theory-in-principle.html (01.03.2014)
7. http://www.unicornhro.com/articles/the-three-most-important-aspects-of-perfor-
mance-management--what-to-focus-on (10.03.2014.)
8. http://investorsinpeoplescotland.wordpress.com/2013/09/23/22-key-aspects-of-
managing-change-leaders-must-consider/ (11.03.2014.)
9. http://smallbusiness.chron.com/aspects-strategic-management-64372.html
(14.03.2014.)
312 Andreja Rudani-Lugari
INTEGRATED QUALITY MANAGEMENT OF A TOURIST

DESTINATION THE KEY FACTOR IN ACHIEVING A
COMPETITIVE ADVANTAGE
Andreja Rudani-Lugari, B.Sc.1
1
Doctoral candidate, Postgraduate Ph.D. study Management,
Republic of Croatia, alugaric@hotmail.com
Abstract
The dynamic changes in the global tourism market require qualitative transfor-
mation of nearly every segment of a destinations tourism supply. The survival of
tourism destinations requires an intensifying tracking of trends relating to a con-
tinuous improvement of the tourism supply quality.
In the new economic, social and cultural frameworks of the tourism market
areas of new dialogue are emerging that treat the tourists as individuals rather than
mere demographic segments of the target market. There is a large number of ways
that brings to a competitive advantage of a tourist destination and all are based
on the interaction on what tourists consider as the superior value the value for
money or a quality tourist product at the right price. This indicates that the changes
in the habits of tourists require the implementation of integrated quality manage-
ment (IQM) in a tourist destination as a fast and efficient response to consumer
preferences and the increasing competitiveness of destinations in the world tourist
market. Taking into account the above starting points, the main view is to recog-
nize and describe the integrated quality management model of tourist destinations
and to highlight the major factors of a qualitative tourist base on the examples of
Opatija and Porec as a precondition for building a competitive and market recog-
nizable tourist destinations.
JEL Classification: L15, L83
Keywords: tourist destination, integrated quality management (IQM), com-
petitiveness, Qualitest
INTEGRATED QUALITY MANAGEMENT OF A TOURIST DESTINATION THE KEY FACTOR... 313
INTRODUCTION
Tourism is rightly called the industry of the 21st century1(Pirjavec & Kesar; 2002,
5) and is characterized by the constant changing trends in tourism demand and the
development of new travel motivation. In addition, in the world tourism market one
must systematically answer the challenges of a competitive environment (Schaumann;
2004, 103). This requires a tourist destinations proactive stance in the way of thinking
and acting. On the one hand, the supply tracks the changes in demand preferences,
while on the other hand, the demands expectations grow and it is increasingly diffi-
cult to meet it. The model of a tourist destination as a system deals with the processes
within which many elements or subsystems such as accommodation, entertainment or
transportation transform inputs into outputs (Dwyer et al.; 2011, 43).
In a world of growing competition the quality was no longer an option but an
integral part of strategic responses of a company as late as the 1990s. Quality is
achieved through a combination of better processes, better approaches, techniques
and efforts of those who create products and service (Barkovi; 2011,192-193). At
the same time, the quality of a tourist destinations effects can be measured by the
survey results that are achieved by perceiving the quality of the respondents-tourists
and their experiences.
In search of new solutions to enhance the competitiveness and monitoring
trends in the world tourism market a new concept of integrated management of
quality of tourist destination has been established and it occurs in response to ac-
tual changes in behavior and differentiation of tourist demand resulting from the
new impacts on all aspects of life.
The paper defines concepts such as tourist destination and integrated quality
management and highlights their characteristics. The emphasis is put on the un-
derstandings and the views tourists, residents and destination management express,
and the correlation of the results obtained from the study in perceiving the quality
of the tourism supply on the examples of Opatija and Porec. Based on the present-
ed analysis data, the appropriate attitudes will be set forth, which incorporate cer-
tain views regarding the realization of a higher quality in these tourist destinations.
1
Although here is used this trendy term for tourism, it should, however, be emphasized that the defi-
nition of tourism introduced by Hunziker and Krapf in 1942, and later adopted and implemented
by AIEST, reads: Tourism is the sum of relationships and phenomena arising from the travel and
stay of non-residents, Insofar as they do not lead to permanent residence and are not connected with
any earning activity.
1. The integrated quality management model in support of the

competitiveness of a tourist destination
It is known that, due to the high degree of tertiarization, tourism directly and
indirectly affects the positive development of the tertiary sector, especially trade, ca-
tering industry, hospitality management, service trades and transportation in a par-
ticular tourist destination. Tourism is a field that is now being rapidly transformed
in the supply and demand spheres, which greatly affects the intensity and quality
of tourism development in many tourist destinations. The term tourist destina-
tion implies an optimally combined and market-adjusted environment that, by
developing important and dominant skills, advisedly creates assumptions that will
enable it to achieve long term and good tourist results compared to its competition
(Maga; 2003,16).
The tourist destination is the reason for travel and tourism products make tour-
ists visiting it (Getz; 2008, 403-428). Tourists return in the same tourist destina-
tion depends upon the quality of the tourism product. From the point of view of
the tourist, the quality of a tourist destination is defined by the following elements
(Avelini Holjevac; 2002, 156): an image of the destination prior to arrival, in-
formation prior to arrival, reservation, journey to destination, arrival (reception),
information at the destination, place of staying, place of eating, attractions, infra-
structure and environment, farewell and return journey, contacts and memories
(impressions) upon return.
Furthermore, the World Tourism Organization emphasizes the importance of
the quality segment that a tourist perceives in a certain tourist destination. There-
fore, there are at least ten reasons for the introduction of the quality system in the
tourist destination management: (Camp; 1989,81) quality enables a competitive
advantage; quality services and products are more easily sold in the market; qual-
ity products and services encourage customer loyalty; quality brings higher profits;
quality management brings to the stability of the tourism industry and protects
jobs; improving quality betters the quality of life of the local population; qual-
ity management facilitates access to financing; an effective monitoring of progress
reduces repetition of costly mistakes; carefully collecting data provides the tools to
make the right management decisions; monitoring progress in quality management
enables the understanding that encourages proactive management.
In this direction, the IQM model serves as a support for the activities of re-
structuring and repositioning of the tourism destination whose task is to ensure a
higher level of quality elements in the structure of the tourism product. Integral
quality management (IQM) is a relatively new concept in the management of a
tourist destination that developed in the 1990s as a response to competitive pres-
sures on both the supply and the demand side. At least three reasons can be cited
to explain the late appearance of this concept: (European Commission; 2000, 13) a
more intense pressure of the competition both on the supply and on the demand,
a delayed emergence and development of quality management in the service sector
that occurred not earlier than in the 1980s; a complex nature of the overall quality
management of tourist destinations.
The approach to integrated quality management (IQM) recommended for
tourist destinations includes (European Commission; 2000,19): a comprehensive
plan supported by a leader who is capable of influencing and coordinating all the
partners within the destination; an access to the draft strategy and policy that re-
quires an integrated management (human resources, natural resources, quality of
life, cultural heritage, etc.) which can also be expressed in a formal form by the
partners involved, under the supervision of the authority; the foundations for the
implementation of measures by the various public and private service providers are
laid at this stage; the partners involved and the principal authority measure the ef-
fectiveness of approaches with the help of various indicators to track the satisfaction
of various target groups, the integration into the community and the conservation
of resources from the perspective of sustainable development; in this interactive
process the authority that leads the plan ensures that the results are analyzed and
that findings are deduced from them in order that corrections and additions which
are considered important could be inserted at every level of a chain to ensure the
proper functioning of the chain as a whole.
Here below is an overview of the scheme of the integrated quality management
(IQM) of a tourist destination.
Scheme 1. Overview of the integrated quality management (IQM) of a tourist

destination.
(1) (2) (3) (4) (5)
Five
Identification of Decision to Application Performance Evaluation and
stage
partner(s) action of action measurement adjustment
Individual Joint Strategies Operations Indicators Results
level and project and
key elements policies
Main concept Dynamics of Dynamics of Dynamics of Dynamics of Dynamics of evaluation and
partnerships devising application monitoring adjustment
Leading authority Analysis of Public Satisfaction Evaluation of results

(leads the current authority of tourists Recommendations to
partners), main situation initiatives leading authority and
Content partners participants in the public
and the way they Satisfaction and private sectors
interact Aims and Services for of tourism
overall professionals professionals
strategy and leading
authority
support
Environmentand Quality of life of
sustainable Tourist services local residents
development partners offer Impact on
Division of roles before, the local
between the Human resources during and economy
partners resources after the visit Impact ont he
environment
Leader, Leading Leading Leading

participants authority, authority, authority,
Leading
Involved in the public participants in participants in participants in
authority and
Integration
partners and private sectors, the public and the public and the public and
partners
citizens private private private sectors
sectors sectors
Continuous cycle
Integration
Source: European Commission: Towards quality coastal tourism; Integrated quality manage-
ment (IQM) of coastal tourist destinations and towards quality urban tourism; Inte-
grated quality management (IQM) of urban tourist destinations, Bruxelles: Enterprise
Directorate-General Tourism Unit, 2000. p. 19
IQM approach connects the five stages that mark the chain of the quality man-
agement applied to a tourist destination. This approach also seeks to explain the
most important driving forces, content and participants in each phase. It allows,
and thus also requires a vertical and horizontal integration. At the same time, the
integrated quality management (IQM) can be accessed in several ways, most of
which derived from the private sector. If any of these approaches want to be applied
to a tourist destination, they should be adjusted in two ways: they must integrate
the public dimension, and must take into account all public and private agencies
involved in the process as well as the complexity of their interrelationships.
The European Commission defines IQM as a systematic effort for internal and
external quality, i.e. an economic growth in the short term and local development
in the long term (European Commission; 2000, 19). The inner or internal qual-
ity is the value that tourists receive through a chain of experiences from the initial
information about the tourist destination to the after-sales services upon their re-
turn in the place of residence. Internal quality includes chain services in the public
and private sectors. The outer or external quality refers to the sustainable develop-
ment of tourism with the rational use of renewable and non-renewable natural and
other resources in order to prevent possible unintended consequences(Ritchie &
Crouch; 2003, 86).
Unlike traditional approaches to quality management - that refers to specific
tourist companies - integrated destination management involves coordination of
tourism and other tourism-related activities such as infrastructure, environmental
protection, protection of cultural heritage and equally satisfying qualitative needs
of tourist/visitors, local population and tourism service providers-management of
tourist destinations (Scheme 2).
Scheme 2. Integrated approach to quality management of a tourist destination
TOURISTS
LOCAL TOURIST
COMMUNITIE ECONOMY
DESTINATION
WITH THE
APPLICATION OF IQM
The well-being of the local Larger business excellence community

without conflicts
Satisfied guests and employees
Source: author analysis according to European Commission: Towards quality coastal tourism; In-
tegrated quality management (IQM) of coastal tourist destinations, Bruxelles: Enterprise
Directorate-General Tourism Unit, 2000, p. 31
The connection of the above structures in a joint operation can be achieved by

encouraging the organization of interest groups, meetings of local communities,
common supervision, control and evaluation of the results of the research and so
on. Experience shows that the quality of the destination management generally be-
gins to apply for tourist destinations that recognize their stagnation and when their
successful future is questioned and in this way quality management is introduced
in order to stop the negative trends. Thus, the qualitative approach is used more
as a corrective rather than preventive measure, which is wrong (Blanke & Chiesa;
2007, 22-25).
The integral quality management is usually part of a strategy of the developed
tourist destinations for specific providers of tourist services such as tour operators,
travel agents, hotels, restaurants and so on. However, from the standpoint of tour-
ists, the satisfaction with a particular tourist destination does not depend solely on
the experience of the providers of tourist services, but also on many other more
general factors such as kindness and hospitality, security at the destination, sanitary
and health conditions, traffic and management of tourist flows.
It can be concluded that many factors affect the tourist perception of a destina-
tion, and ultimately they influence the decision of tourists to visit again and/or
recommend a tourist destination to potential visitors.
2. The Qualitest concept as a support to integrated management model of a

tourist destination
To implement an integrated system of quality management (IQM) in practice,
it is necessary to choose an adequate methodology and integrate several internation-
ally recognized standards of quality management in one system. For this purpose
it is necessary to create conditions for the continuous monitoring of satisfaction of
tourists/guests, in parallel to the evaluation of the satisfaction of the participants
in the structure of the tourism supply. One of the modern tools that allow the
measurement, monitoring and comparing of the elements of the quality system in
a tourist destination with its competitors is Qualitest.
Qualitest is a tool that ensures different types of information according to the
needs of the destination management. It provides supervision of the achieved phase
of quality at different hierarchical levels in a tourist destination.
Qualitest is an integral measurement and control test of the achieved level of
quality of internal relevant tourism supply factors over a period of time. It is also a
reliable basis to compare ones own performance with that achieved in similar tour-
ist destinations (European Communities; 2003, 3).
The starting point of quality indicators at Qualitest model is showed here below
(Table 1).
Table 1. Instrument of tourism destination management
Perception
Indicators Indicator of
indicator
Fields of quality quality results
of quality
management (performance)
requirements
1. Ability of local
tourism industry
2. Satisfaction of
local population
Quality of a destination
3. Support to local
tourism industry
4. Marketing and
publicity
5. Safety and

security
6. Air quality at
destination
7. Quality of
environment
8. Communication
before arrival
Quality of a tourism product
9. Availability
10. Transportation
11 Accommodation
12. Information
13. Food and beverage
14. Activities
15. Quality of bathing
water
16. Value for money
Source: adapted according to A Manual for Evaluating the Quality Performance of Tourist Des-
tinations and Services Enterprise, DG Publication, European Communities, 2003. p. 8
Qualitest is a practical tool comprised of 16 indicators that complement the

integrated management of quality tourism destination in a way that focuses on the
evaluation of four main elements:(European Communities; 2003, 2) satisfaction
of the needs of tourists with quantitative and qualitative elements of the tourist
supply; local peoples satisfaction with quality of life in the tourist destination and
the effects of tourism at the local level; participants satisfaction with local tourist
attractions achievements in the domain of the range and quality of supply as well
as their relationship with customers; finally, with satisfaction of all the participants
from the quality of the environment, the implementation of sustainable tourism
development, the impact of tourism on the environment of tourist destinations,
concern about the historical and cultural heritage.
Some of the tourist destinations use the Qualitest model along with its indica-
tors to evaluate the achieved level of quality, and it can be used by all interested and
responsible people for the quality management of tourist destinations (European
Communities; 2003, 5): a local DMO (destination management organization)
who intends to apply the concept of integrated destination management and needs
a tool for measuring and tracking (monitoring) the quality, and to compare the
results with similar destinations or competition; other public administration insti-
tutions interested in improving the quality of the tourism sector and looking for
practical advice and recommendations; providers of tourist services, from accom-
modation and food to the various activities that want to acquaint themselves with
the key points of measurement and monitoring their own performance and results
in the area of quality, tour operators and agents interested in monitoring the imple-
mentation of quality systems at destinations they send their clients and intend us-
ing the indicators as a basis for the dialogue with the destinations local managers.
The paper provides an overview of the research elements of the tourist supply
and through comparative analysis compares perceptions of each target group of the
same elements of tourist attractions of Opatija and Porec as destinations.
3. Comparative analysis of tourist supply in Opatija and Porec as tourist

Destinations
In 2011 the Faculty of Tourism and Hospitality Management in Opatija con-
ducted an empirical research on the topic Assessment of Kvarners tourism supply2
For the purposes of this study separate data will be used for the tourist destination
Opatija and there are also explored the attitudes of tourists, local residents and
2
More about it in Ocjena turistike ponude Kvarnera, 2011 (Assessment of Kvarners tourism supply,
2011).,-research results of the project Tourism Regionalization in global processes (a project funded
by the Ministry of Science, Education and Sports, no. 011,603, previous research in the same project
was published in a special issue of the scientific journal Tourism and Hospitality Management - Faculty
of Tourism and Hospitality Management in Opatija
tourism management towards the quality tourism supply and the quality of Opatija
as a tourist destination. In 2011, in parallel with the above survey, a research was
conducted by the author with the same approach to Porec as a tourist destination.
For the purposes of this study there will be used primary data of the research
within the project Assessment of Kvarners tourism supply(interest limited to
Opatija as a tourist destination), in comparison with the data obtained relating
to Porec as a tourist destination and conducted by the author of this paper. The
emphasis is placed on the examination of attitudes and perceptions of the target
respondents about the quality of common and specific elements of both tourist
destinations.
The empirical research was conducted by the author in Porec during the year
2011 (from May to October) by using a survey questionnaire3 customized for each
target group of respondents (tourists, local residents and management of tourist
destinations). The survey was anonymous on a one-shot single stratified sample.
Besides Croatian, questionnaires were translated into three languages (English,
German and Italian). In the data collection it was mostly used the method of per-
sonal interviews while the method of self-completion was used only in a small part
of the survey. The questionnaires were designed in such a way that each group of re-
spondents was asked specific questions relating only to that target group of respon-
dents, while the second part of the questionnaire (survey about the satisfaction with
elements of the tourist supply) was identical for all target groups of respondents.
Both indoor and outdoor types of questions were used in the survey, as well as the
Likert 7 -degree scale (from 1 the worst to 7 the best). In Porec there were surveyed
284 tourists, 162 residents and 32 tourism managers. It was analyzed a total of
478 properly completed surveys out of the planned 600, which represents a 79.7
% feedback. Each studied element is represented with an arithmetic mean. The
collected questionnaires were encoded and all data were analyzed using statistical
methods and the SPSS computer program, as shown in the sequel. These data can-
not be fully accepted as relevant but they indicate some important facts while con-
sidering the qualitative tourism supply in Opatija and Porec as tourist destinations.
3
It was used the same type of survey questionnaires as those used in the project Assessment of
Kvarners tourism supply, 2011 - conducted by the Faculty of Tourism and Hospitality Man-
agement in Opatija in 2011
4. Tourists satisfaction with the elements of the tourism supply in Opatija

and Porec as tourist destinations
As a group of respondents, tourists assessed their own level of satisfaction with
the elements of the tourism supply in both tourist destinations (Opatija and Porec).
In the evaluation it was used the Likerts scale of priorities (from 1 to 7) for all 37
elements of the tourist supply, in which 1 indicates extreme dissatisfaction and 7
extreme satisfaction with that element, as shown in the following table.
Table 2. Tourists satisfaction with the elements of the tourism supply in Opatija
and Porec
ELEMENTS OF TOURISM SUPPLY IN OPATIJA AND POREC Opatija Porec
SPACE RESOURCES AND ENVIRONMENT
Climate 5,69 5,89
Beauty of the landscape 5,73 5,84
Preservation of the environment 5,46 5,58
Cleanliness of the sea 5,53 5,71
5,60 5,75
POPULATION, EMPLOYEES
Kindness of the population 5,41 5,45
Kindness of the population employed in tourism 5,50 5,64
Knowledge of foreign languages of the population employed in tourism 5,38 5,51
5,43 5,53
RECOGNITION, SAFETY, INFORMATION
Feeling of safety and security 5,48 4,84
Tourist information prior to arrival at destination 5,10 4,98
Tourist signs at destination 5,09 5,18
Souvenirs 5,29 5,37
5,24 5,09
LEVEL OF ORGANIZATION AT DESTINATION
Transport accessibility 4,85 4,32
Local traffic 4,38 5,23
Car parks 3,93 4,01
Care for the appearance of the town 5,63 5,19
Urban harmony 5,31 5,11
Promenades (Opatija)/Old Town (Pore) 5,88 5,53
Parks and green spaces 5,82 5,38
Tidiness and cleanliness of the beach 5,30 5,39
Crowded beaches 5,38 5,48

Opening hours in the service industry (banks, shops) 5,35 5,31
Opening hours in catering facilities 5,47 5,40
Shops 5,49 5,45
5,23 5,16
FACILITIES
Events 5,11 5,00
Historical and cultural heritage 5,30 5,29
Facilities for children 5,08 5,12
Accommodation facilities 5,56 5,74
Catering facilities 5,53 5,81
Cultural facilities 5,22 5,42
Entertainment facilities 5,35 5,60
Sports facilities 4,95 5,14
Conferences and congresses 4,88 4,75
Health tourism facilities 5,31 5,21
Nautical offer 5,17 5,24
Excursion offer 5,34 5,30
Local cuisine 5,68 5,74
Price and quality ratio 5,19 5,24
5,31 5,32
5,36 5,38
Source: Survey of the Faculty of Tourism and Hospitality in the project Assessment of Kvarners
tourism supply, - tourist destination Opatija, and the authors analysis according to the
questionnaires related to the tourist destination Porec
The above table presents the comparative attitudes of tourists for each group of
elements at tourist destinations Opatija and Porec. It can be noted that the tour-
ists tested in both tourist destinations are extremely satisfied with natural resources
such as landscape beauty, cleanliness of the sea and preservation of the environment
and climate. Tourists rated very high (mark 5.73) the beauty of the landscape of
Opatija, while in terms of natural resources the highest mark (5.89) got the climate
in the tourist destination Porec. Tourists rated the elements population, employees
very high giving them more than five points in both destinations, which can be
interpreted that the most important asset in both tourist destinations are people.
A slight difference is perceived in the higher rating of courtesy of employees in the
tourism sector in Porec in relation to the destination Opatija. The third element
assessed by the tourists is recognition, safety, information, of a tourist destination.
It should be emphasized a slightly higher average score (5.24) of the tourist destina-
tion Opatija in relation to the tourist destination Porec in the sphere of this group
of elements of tourism, recognition, safety, information, because tourists in Porec
rated slightly lower the element of a sense of safety and security, which requires
further research in this tourist destination in order to take action to improve them
systematically. Within the group of elements related to the organization of both
destinations it can be noticed that the best marks obtained the promenades in
Opatija (5.88) and the Old Town in Porec (5.53). In the above mentioned groups
the car park obtained the lowest score which is a significant problem both in the
tourist destination Opatija and in Porec. For the assessment of service quality of a
tourist destination the largest number of elements is classified in the group desti-
nation facilities .Within this group tourists rated with the highest mark (5.68) the
quality of the local cuisine in Opatija, and in Porec the quality catering facilities
received the highest score which is associated with the promotion of gastronomy
and enology that is being nurtured in the whole Istrian region.
5. Local populations satisfaction with the elements of the tourism supply in

Opatija and Porec
Tourist offer should be based on the principles of sustainable development and
- with the satisfaction of preferences of increasingly demanding tourists it should
also contribute to meeting the needs of the local population. Therefore, the popula-
tion was also required to evaluate all elements of the tourist supply, in the same way
as assessed by the tourists. By analyzing the responses, it is possible to examine the
attitude of the population toward certain elements of the tourism supply.
Table 3. Local populations satisfaction with the elements of the tourism supply
in Opatija and Porec
Climate 5,93 5,97
5,47 5,50
Kindness of the population employed in tourism 4,46 4,67

4,52 4,68
Souvenirs 3,62 4,93
4,16 4,78
Car parks 1,81 2,97
Promenades (Opatija)/Old Town (Pore) 5,76 5,29
Shops 4,60 4,68
4,42 4,50
FACILITIES
Events 3,88 3,90
4,45 4,63
4,60 4,82
From this table one can deduce that the local population is satisfied with the
tourist supply in Opatija and Porec. The local population of both tourist destina-
tions ranked the elements of beauty of the landscape and climate at the top of
all elements. Also other elements based on natural resources are ranked very high,
which represents the best rated segment of the tourism supply. All three elements
related to local population and employees are rated on the high second place in the
overall assessment of satisfaction of the population with the existing elements of
their tourist destination (4.52 for tourist destination Opatija and 4.68 for tourist
destination Porec), annotating that in the overall segment the population is much
more critical than the tourists, who gave much higher marks to all those segments.
Elements of the tourism supply such as recognition, safety, information, were rated
relatively poorly by the local population. Safety achieved the best rate in the segment
(5.58 for Opatija and 5.42 for Porec), although this score is lower than that given
by the tourists in the same category. The population perceives the elements of traffic
as the biggest problem in both destinations, local traffic in Opatija was evaluated
with 3.35, while in Porec with 3.83 and the element of parking places deficiency (in
Opatija 1.81 and in Porec 2.97). In the segment facilities population of both des-
tinations worse rated some additional features such as events, activities for children,
entertainment and sports facilities, indicating that qualitative changes are necessary.
Population positively perceived cultural and historical heritage (tradition of tourism
in Opatija).
6. Managements attitudes towards the elements of tourism supply in Opatija

and Porec
The continuation of the research related to the assessment of perceptions of
tourism management in tourist destinations Opatija and Porec, i.e. whether they
met the expectations of tourists about individual elements of tourism supply in a
destination. Based on the survey results, managements attitudes of both tourist
destinations will be presented hereafter.
Table 4. Managements attitudes towards the elements of tourism supply in

Opatija and Porec
Climate 6,00 5,99

5,88 5,84
Kindness of the population employed in tourism 5,67 5, 97
5,56 5,58
Souvenirs 4,33 4,60
5,08 5,18
Car parks 2,67 2,78
Promenades (Opatija)/Old Town (Porec) 6,50 6,10
Shops 5,00 5,01
4,97 5,00
FACILITIES
Events 5,00 4,97

5,05 5,07
5,31 5,34
The table 4 shows the comparative managements attitudes about the elements of
the tourism supply in Opatija and Porec. In the opinion of the management of both
tourist destinations, natural resources arguably represent a significant comparative
advantage in these destinations. The management evaluates something better the
group of elements of the tourism supply that refers to population, employees (5.56
to Opatija and 5.58 to Porec). In the group of elements referring to recognition,
safety, information, the element a sense of security and protection is placed on the
top of the chart in both destinations it gained more than six points. In Porec, the
management evaluates as the most critical the quality of tourist information (4.18)
tourists receive before arriving at the tourist destination. The results obtained in
the group of organization are equal but there are minor differences in favor of
Porec. Specifically, in Porec the highest marks are highlighted as follows; appearance
of the town, the Old Town, urban harmony and arrangement of parks and green
spaces. Furthermore, in the same group of elements in Opatija the highest marks
obtained are for the following: promenades, arrangement of parks and green spaces
and urban harmony of the facilities. For both tourist destinations the management
is critical in terms of the lack of parking places and an inadequately organized lo-
cal traffic. The highest ranking score given by the management within the group of
elements facilities for both destinations (more than 6 points) refers to historical
and cultural heritage and local cuisine. At the same time, the tourism management
in both tourist destinations expressed dissatisfaction with the lack of facilities for
children, as well as with entertainment and sports elements of the tourism supply
(rated less than 4). Despite the quality offer of autochthonous events and excur-
sions, the management believes that the quality elements from the group facilities
are not adequately offered and are unrecognizable in the wider tourism market,
which should certainly be improved.
CONCLUSION
An indicator of the degree of the impact of tourism on economic, social and cul-
tural prosperity of the local population is the tourists satisfaction with the tourism
supply and the satisfaction of the destination management with the economic ef-
fects of their activities. The emphasis is placed on the local populations perception
of the economic effects of tourism. The need for an as harmonious coordination as
possible and the implementation and control of all aspects of tourism destinations
occurs accordingly.
Only an innovative and integrated destination management can manage a tour-
ist destination based on a IQM model, with the support of local authorities, the
tourist supply and the local population, that are funneled by the tourist demand.
The aim is to realistically consider all relevant elements of the tourist supply and to
achieve a higher level of competitiveness in the tourism market by valorizing the
available resources with the help of their optimal structuring and effective use by
the principles of sustainable development.
In this paper, the perception of the target group tourists, residents and tourism
management of the same elements of the tourism supply in Opatija and Porec has
been compared through a comparative analysis. Synthesizing information has led
to the following conclusions; the obtained results are similar in both destinations
but minor differences were observed in favor of Porec. Furthermore, all tested target
groups highly ranked the natural resources supply and this may be considered the
greatest comparative advantage of both tourist destinations in the world tourist
market. Deficiencies are perceived in the group organization and facilities of tourist
destinations in both destinations, which leads to the conclusion about the absence
of effects of tourism management in making and implementing significant business
decisions to improve the quality of supply in both tourist destinations. This may
positively direct both tourist destinations to a destination management organization
as a cohesive force that unites and integrates all the decision makers in linking the
needs and desires of tourists by taking into account the views of the local popula-
tion, and the application of the concept of sustainable development based on the
principle of IQM model.
Finally, it is necessary the use of the integrated management quality (IQM) in
the tourist destinations Opatija and Porec, which will provide them with a com-
petitive advantage in the market competition with the worlds tourist destinations,
aimed at the same target groups.
References:
1. Avelini Holjevac, I. (2002). Upravljanje kvalitetom u turizmu i hotelskoj industriji,
Fakultet za turistiki i hotelski menadment, ISBN 953-6198-29-0 Opatija.
2. Barkovi, D. (2011). Uvod u operacijski management, II dopunjeno izdanje, Eko-
nomski fakultet u Osijeku, ISBN 953-6073-42-0 Osijek.
3. Blaevi, B. & Peri, M. et al. (2011). Ocjena turistike ponude Kvarnera (dionica:
elementi turistike ponude destinacije Opatija)- istraivanje u sklopu projekta br
.011603 Turistika regionalizacija u globalnim procesima, Fakultet za menadment
u turizmu i ugostiteljstvu u Opatiji.
4. Camp, R.C. (1989). Benchmarking: The Search for Industry Best Practices that
Leads to Superior Performance, Milwaukee, ISBN 156-3273-52-7, WI: ASQ Qual-
ity Press.
5. Dwyer, L. Forsyth, P. & Dwyer, W. (2011). The Travel and Tourism Competitiveness
Index as a Tool for Economic Development and Poverty Reduction. In L. Moutinho
(ed.), Strategic Management in Tourism, 2nd ed Wallingford, ISBN 978-1-84593-
588-7 UK: CAB International.
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agement, Vol. 29.
7. Maga, D. (2003). Management turistike organizacije i destinacije, Fakultet za
turistiki i hotelski menadment, ISBN 953-6198-39-8, Adami, Opatija.
8. Pirjavec, B. & Kesar, O. (2002). Poela turizma, Mikrorad, ISBN 953-6286-54-8 Zagreb.
9. Ritchie, J. R. B. & Crouch, G. I. (2003). The competitive destination: a sustainable
tourism perspective, Oxon,ISBN 0-85199-664-7 UK: CABI Publishing.
10. Schaumann, P. (2004). The Guide to Successful Destination Management, Hobo-
ken, New Jersey.
11. A Manual for Evaluating the Quality Performance of Tourist Destinations and Ser-
vices Enterprise, DG Publication, European Communities, 2003.
12. Blanke, J. & Chiesa, T. (2007). The Travel & Tourism Competitiveness Index: As-
sessing Key Factors Driving the Sectors Development. In J. Blanke & T. Chiesa
(Eds.) The Travel & Tourism Competitiveness Report: Furthering the Process of
Economic Developmen Geneva: World Economic Forum, from http://www3.we-
forum.org/docs/WEF_TravelTourismCompetitiveness_Report_2007.pdf.
13. European Commission.( 2000). Towards quality coastal tourism; integrated quality
management (IQM) of coastal tourist destinations Bruxelles: Enterprise Director-
ate-General Tourism Unit.
14. European Commission. (2000). Towards quality urban tourism: Integrated qual-
ity management (IQM) of urban destinations, Bruxelles: Enterprise Directorate-
General Tourism Unit.
332 ura Solea Grijak Dragan Solea
HUMANISTIC APPROACH TO MANAGEMENT

ura Solea Grijak1, Ph.D., Dragan Solea2
1
Preschool Teacher Training College in Kikinda, Republic of Serbia, gdjurdja@gmail.com
2
The Faculty of Economics and Engineering Management,
University of Business Academy of Novi Sad, Republic of Serbia, dragan.solesa@fimek.edu.rs
Abstract
Modern management is basically a humanistic approach, where the concept of
a man is understood as a whole, consisting of his skills, needs and ambitions. Al-
though science has much to object to modern management in indulging a man
and therefore losing its criticism, this discipline is under constant development and
has materialized in practice.
Successful management means understanding a man, where basic psychological
concepts are considered as guidelines on the road of a successfully accomplished
job. Psychology acts as a frame for understanding not only human motivation but
also interpersonal communication as a basic social need and as a basic means for
satisfying other psychological needs.
In the other side, modern management also includes connection between man
and technologies. This means understanding IT (Information technology) as one
of leading high technologies and specific knowledge about IT as necessity for any
kind of managers activity.
JEL Classification: D82, L86, M15
Keywords: modern management, hierarchy of motives, communication, IT
1. INTRODUCTION
The core of modern management is the ideas of humanistic psychology. The
first of the ideas is the one stating that each man is a good man in his very nature,
although this idea does not deny that a man can also be destructive. The good and
the bad in a person represent a cloak which is at a certain moment put on for justi-
HUMANISTIC APPROACH TO MANAGEMENT 333
fied reasons, while at another moment it seems very rigid and out of control. This
is where this theory is different from other theories which take a man to be bad
and selfish in his nature. The second of the ideas perceives a man only as a whole.
Humanists tend to use the notion of integration, meaning that we are responsible
for every part of our psychic and body and for all the parts as a unit. Therefore,
a person actually represents a harmonious whole of contrasts. The third of the as-
sumptions is that a man is under constant growth and development as these are his
inborn instincts. Still, the humanistic approach has often been characterized as too
soft and too people-oriented, but the humanists basic argument is that people
are the factor which can not be avoided in any job (Revelle, 1993).
Humanistic psychology also focuses onto mans rich motivation. Other psychologi-
cal approaches consider the motives of lacking to be the basic generators of human
behavior if food is insufficient, we shall look for it. Therefore, a man will start action
only if something goes beyond his defined boundaries. Humanists see in man a moti-
vation for accomplishment, the need for various experiences and the curiosity, which
takes him from the state of insufficiency into the area of cumulated experiences.
Modern management can be viewed as a mosaic consisting of the exact number
of parts as there are human characteristics and skills. Each individual colors his own
parts, while in successful management each part of the mosaic has to be there and
has to be understood. The part of the modern management mosaic elaborated in
this paper is human motivation.
Abraham Maslow is the founder of humanistic psychology. His greatest contri-
bution is the hierarchy of human needs and the concept of self-realization. Accord-
ing to Maslow, an ideal person is the one that can be referred to as caring, clear,
realistic, relaxed, self-sufficient, spontaneous, creative, direct with good intentions,
cheerful, and the one who successfully takes over risk and goes through life, it
seems, very smoothly (Griffin, 2006). According to this theory, there are four types
of needs that must be satisfied in order for a person to behave in non-selfish man-
ner. Although the urge for satisfying the needs is powerful, it is not too much of a
burden. A man can resist satisfying any need; still, it is not easy to do so. The needs
defined by Maslow are universal, while the manner in which we satisfy them is
individual. What this theory presents in a different way from the other ones is that
the motive is described as something having a power to initiate, therefore having
the most powerful influence over our actions. Each individual has such a need, and
it is the one which is the lowest in hierarchy and which has not been satisfied.
Hierarchy of human needs is based on two groups of needs motives of lack-

ing and motives of growth. The motives of lacking are the basic needs which must
be satisfied and neutralized since it is only then that they stop being triggers of
behavior. The motives are distributed in four levels of hierarchy. At the first and
the lowest level are physiological needs breathing, thirst, hunger, sleep and sex.
Then come the psychological needs: the needs for safety protection, stability; the
needs for others and for love friends, partner, children, emotional relationships,
feeling of belonging to the community, communication. The last motive of lacking
is the need for respect where two levels are differentiated, according to Maslow.
The lower level is the need for being respected by other people, the need for a po-
sition in society, for fame and even for domination. The higher level of respect is
the need for self respect, accompanied by feelings of being competent, successful,
independent and free. Self respect is a higher psychological need, since once gained
self-respect is hard to lose. The motives of lacking function by the principle of ho-
meopathy when insufficiency is present, human organism reacts and satisfies the
need. By the laws of nature in satisfying human needs those that are satisfied first
are the lower, basic needs. It is then that a higher, psychological need might occur
(Maslow, 2004).
Motives of growth trigger behavior with prolonged action, since they can never
be completely satisfied. A person constantly directs his ambitions towards higher
goals; therefore the motives of growth remain a constant motivation source. Maslow
considers only one need as a motive of growth the need for self-realization. The
concept of self-realization represents the greatest power of motivation. It refers to a
mans aspiration to know, to understand, to experience beauty, peacefulness and the
feeling of fulfillment. Referring to the researches, Maslow describes a self-realized
person in the following way (Patterson, 1985):
- Clear perception and very high consciousness of reality and the environment,
human and non-human self-realized individuals are more relaxed towards
the environment; they do not have fears of unknown, of feelings of suspicion
and insecurity nor of the attempts of unifying the familiar and the new.
- Self- and outer acceptance self-realized individuals are not ashamed of them-
selves, their weaknesses, imperfections and flaws and do not criticize these at
others; they respect themselves and others, are open-minded, honest, never
put cloaks on; are not self-satisfied and oriented towards the aberrations in be-
tween what there is and what should be in themselves, in others and in society.
- Spontaneity self-realized individuals are neither conformists nor anti-con-

formists, but their motivation is oriented towards growing and developing
their own potentials.
- Outer problems orientation self-realized individuals have a clear feeling of
responsibility, duty and obligation.
- Qualitative alienation self-realized individuals enjoy privacy and being
alone; they remain immune to what is provoking to others; they feel self-
dependant and safe.
- Autonomy, independence from environment and culture in satisfying basic
pleasures self-realized individuals depend on others in order to satisfy the
needs for growth and development of own potentials.
- Constant acknowledgement in self-realized individuals everyday life, re-
spect, pleasure and surprise occur repeatedly.
- Mystic experiences apart from respect, pleasure and surprise, self-realized
individuals experience the world as a constant source of new experiences.
- Empathy, acceptance of and respect for human beings self-realized individu-
als are able to detect occasional fits of anger, hostility and loathing in others.
- Interpersonal relationships - self-realized individuals are selective and, most
often, their circle of friends is small, consisting of other self-realized individu-
als; other people admire them and follow their steps.
- Democratic character a self-realized individual does not make a difference
among other people on the grounds of their race, social status or education,
but sees each person as a potential source of knowledge and is ready to learn
from everyone.
- The goal and the means - self-realized individuals are of high moral principles;
they make clear distinction between the goal and make the means subject to
the goal.
- Philosophic humor with good intentions the humor of self-realized indi-
viduals is spontaneous, reflexive, suits the situation and has no intentions of
hostility, sarcasm or dominance.
- Creativity here, creativity does not mean any special talent, but a fresh, nave
and direct perspective of things.
Maslow defines the need for self-realization as an aspiration to become the

whole that a person is, the all of that which he/she is able to become (Griffin,
2006). Self-realization is the need for self-accomplishment and for realization of
own potentials, but only after the basic needs, the needs of lacking, have been satis-
fied. The concept of self-realization might take the form of aspiration for knowl-
edge, for understanding, the essence of life, beauty or self-fulfillment, which de-
pends on the person itself and is not ordered in hierarchal sequence. Maslows
main stand is that self-realized individuals achieve wisdom and are therefore more
capable of managing themselves in the wide spectrum of various situations (Huitt,
2004).
Communication is the process of transferring a message from sender to receiver.
Each organism, in order to survive, has a specific ability to send and receive mes-
sages. Whenever an impulse is directed from one individual, other individuals react
not only directly (by their senses), but the impulse also tells them something or
provokes specific behavior in them. It is in this case that communication occurs
(Griffin, 2006).
Although all the living beings communicate, only communication among hu-
mans is precise and flexible, due to the use of language (Krauss, 2002). As a means
of communication, human speech comprises three levels: expression, information
and persuasion. Expression and information refers to notifying the other individual
about something and is the characteristic of animals, too, while persuasion is hu-
man specific and refers to communicative skill. The man is the only living being
capable of lying. Animals either do or do not do what they have expressed, while
a mans word can refer to something completely different from what the person
pronouncing it is doing (Breton, 2000).
We can distinguish between verbal and non-verbal system of communication
depending on whether the speech is used or not.
Verbal communication is human specific and refers to the process of message
transfer using words. Speech enriches communication among people by its seman-
tics, its formation and its possibility of transfer that all makes people free to for-
mulate a number of messages that are not necessarily bound to the present. At
the primary level of communication, a verbal message transfers the meaning that
the speaker has transferred into words and sentences, while the recipient, by un-
derstanding the sentence, has overcome the literal meaning of the expression and
has reached the exact meaning that the speaker himself had in mind (Rot, 2004).
Semantics is understood as signals, which define objects which in turn have specific
meaning. Formation refers to the language with its possibility of various and nu-
merous combinations of symbols and of uttering expressions never uttered before
but understood by the speaker. As a characteristic of the language, the possibility
of transfer means that words symbols denote objects movable in time and space
(Krauss, 2002).
Non-verbal communication does not refer to words and is most often unin-
tentional and unconscious, while messages are transferred by movements (gestures
and body posture, facial expression and eye contact), by spatial distance between
the participants and by vocal characteristics of the voice (pitch, force, rhythm).
Non-verbal communication is often referred to as a language the body language
which is similar to speech, since both these kinds of communication are struc-
tured and governed by certain rules where it is also possible for nonverbal signs
to have particular parts of speech as their counterparts (Koneya&Barbour, 1976).
In communication, non-verbal signs often have multiple functions: prominence,
enhancement, exchange, contradiction and control. Prominence refers to drawing
attention to the message by the use of additional means (e.g. a knock at the table).
Non-verbal signals are also used in order to enhance the meaning of verbal symbols.
Exchange refers to non-verbal signal used instead of a verbal symbol. Contradiction
means that nonverbal signal bears different meaning of the message than the verbal
symbol. Non-verbal signals are used in order to control or complete the process of
verbal communication.
Communication has a double role (the goal and the means) when we look at
it within the context of motivation. If viewed within the framework of needs for
love and for belonging which themselves refer to the need for a partner, for having
and maintaining emotional relationships, for friends and for belonging to the com-
munity, it is clear that communication is one of the social needs (Krauss & Fussel,
1996).
At the same time, communication can be viewed as a means for reaching a
goal; actually, as a means of satisfying all the motives of lacking and the motive of
growth. Within the principle of satisfying the needs in hierarchy, communication
is an important and, very often, a necessary means of achieving homeopathy. The
motives of lacking trigger behavior, while satisfying them means relying on verbal
and non-verbal signals and signs. An individual gains the feelings of security, pro-
tection and belonging through interpersonal communication. All of these are pre-
conditions for self-respect that is based, according to Maslow, on being respected

by other people. Therefore, feelings of being competent and feelings of pride, pres-
tige and position come out of the social context. Other peoples speech and body
language play key role in gaining a positive perspective of self. Self-realization, as
the highest of the motives in hierarchy, which can never be completely satisfied,
implicates communication as providing meaning and aim to what is being done.
Maslow himself refers to communication in a similar fashion (Kunc, 1992). His
claim is that most obstacles that we come upon in interpersonal communication
are the result of a bad intrapersonal communication, i.e. the communication in the
person itself. Successful communication is based on isomorphism existing among
the environment, other individuals and the individual itself. It means that a person
is able to receive from the environment and to offer to the environment only that
what the person itself is. The meaning of a message, whether verbal or non-verbal,
depends not only on its content but also on the individuals ability to react at it.
Successful communication is achievable only if all the participants are at the same
level of hierarchy of motives (Leonard, 2004).
2. INFORMATION TECHNOLOGIES (IT) AS A PART OF MODERN MANAGEMENT

It is important for management to have specific knowledge about IT as pre-
condition for their activities to legitimately and proper connecting and analyzing
of necessary business processes in its own jurisdiction. In worldwide practice, we
distinguish two levels of relevant knowledge about IT - traditional knowledge (re-
sult of formal education (and new knowledge (lifelong continuous learning) (Gam-
melgard et al., 2006). Basic questions that modern manager has to find adequate
answers are which is an adequate approach to new technologies, how to motivate
potential users of modern technologies, how to evaluate potential effects.
It is very important in practice to notice these questions ant treat them as busi-
ness phenomenon, recognize their potential hint of stagnation in applying of new
technological solutions and properly react.
IT paradox is that it cannot carry out any project by itself, but create new pos-
sibilities for realizing of final goals. Every project should have clear vision that
considers this paradox as well as clients needs. IT projects include transformation
of ways of work, system, process and relations in business system. It is also essential
to use planning framework even for small IT projects that open questions about
the impact that project will has to clients and different business systems. Managers
have to be aware of risks if IT system does not work properly and make any steps
to manage possible mistakes (Crouhy, 2001). Although there is most of work and
responsibility on technology, we cannot ignore human factor. This means necessity
of investing into skills and knowledge of IT experts and other stuff. Heeks (1999)
was the first who claimed that sources of errors in IT implementing are not from
technology but from management.
3. CONCLUSION
This paper tried to analyze humanistic aspects of management through connec-
tions between importance of satisfying of psychological needs of people in team
and human factor in IT as integral part of modern management.
Modern management bases upon many assumptions. Some of them are the
following: everyone should be trusted; all people have the impulse of achievement;
there is an active trend for self-realization; people prefer to feel important, needed,
successful, useful, respected than to feel unimportant, substitutable, failure, un-
wanted, not needed, not respected; each individual tends to be perceived as a whole
being, not as a part, a thing or an object, each individual prefers responsibility to
dependence and passive state, everyone likes to have enough information on what
should be done Every individual has the need to be the creator of his own destiny
and the need to tell something on the subject of the determination of his future
(Maslow, 2004). Peoples motivation is the elementary link between what a man
knows and what he is doing, between the thought and activity, competence and
behavior.
It is difficult to apply all of the assumptions to most people, since they do not
satisfy the same needs in the hierarchy. Some have not satisfied the need for securi-
ty, some for belonging, while others are already on the road of self-realization. Still,
these assumptions can help us in shaping the message we want to send to someone,
but also in understanding why there was no expected reaction (response).
Unless a man satisfies some of his psychological needs, he may feel unsuccessful,
inferior to others who have achieved to satisfy the need, and eventually may stop
communicating. It is very hard to exchange any clear messages with such people.
Communication itself means paying attention to own verbal and non-verbal mes-
sages, but also to messages received from others. Communication will be successful
or not depending on how relaxed, reliable and professional impression we give out
as individuals, i.e. recipients. If we are aware of our non-verbal signals, we can use
them to persuade the other party into what we are talking about, to enhance the
verbal messages we send, to make the other party interested into what we are telling
and to interpret correctly the signals coming from the other person.
Mans main goal in life is the by-product of self-realization through work and
self-realization through duty. The road to self-realization through commitment to
work which is important and purposeful is the road to human happiness. Self-
realized individuals assimilate work into identity, into their own being. Work can
be a therapy; it can make good people develop in the direction of self-realization.
By identifying with an important work, the person gains in his importance. People
who identify with work are those who are on the road of self-realization. However,
according to Maslow, a man can never completely satisfy the need for self-realiza-
tion. It would mean that the hierarchy of motives has reached its top and that a
man has realized himself fully, has become the best person he is able to become and
now feels as a complete individual. Such person has, therefore, learned all that can
be learned, experienced all that can be experienced and has no more room for intel-
lectual, emotional and spiritual development.
Management must take into account each mans basic needs and must take care
of the way it treats each individual. The proper understanding of human com-
munication means taking into account individual differences in motivation (Rav-
elle,1991). Nobody wants to feel incompetent; therefore each superior manager or
team leader must bear in mind that, very often, no matter how much attention is
being paid to the words addressed to the team, he/she could unconsciously show
that there is a hierarchy within the team; hierarchy in professionalism, knowledge
and/or intelligence. Satisfying the need for respect and self-respect becomes blocked
in that way; therefore, the communication itself becomes blocked but also the road
to self-realization, which is important in every job.
Gardner (Gardner, 1993 according to Whitaker, 1998) defined two skills within
a new concept of integrative and holistic intelligence interpersonal and intraper-
sonal intelligence. Interpersonal intelligence is the ability to understand other peo-
ple their motives, the way they work and how to establish successful cooperation
with them. Intrapersonal intelligence refers to the ability to understand ourselves,
to become aware of our own potentials and motives and to use them in order to act
as efficiently as possible in life. It is these two abilities that make us competent in
every work we do and in every team we are part of.
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342 Nenad Stanii Jelena Stanii
CONSUMERS PERCEPTION OF CRM AND E-COMMERCE1

Nenad Stanii, Mr.Sc.1, Jelena Stanii, univ.spec.oec.2
1
Hrvatskeume Ltd, Republic of Croatia, nenad.stanisic@hrsume.hr
2
Osimpex Ltd, Republic of Croatia, jstanisic8@gmail.com
Abstract
It is a fact that the Republic of Croatia, due to objective as well as subjective
reasons, has a permanently lower rate of development compared to the countries
that lead the global economy. Therefore it would be beneficial to conduct a research
to determine a current level of acceptance of e-Commerce among the consum-
ers in Croatia, as well as their willingness to paticipate in the CRM systems and
their understanding of CMR principles and benefits which they could have by
implementation of such systems in e-Commerce. Such research may be used as the
cornerstone for building an e-Commerce in the Republic of Croatia similar to the
e-Commerces based on the CMR potentials already existing in the well-developed
global markets,.
JEL Classification: D12, L81
Keywords: e-Commerce, CRM, management, ICT, marketing
1. Introduction
The research of customers understanding and knowledge of e-Commerce and
CRM was conducted by poll survey. The research main goal was to gain detailed
informations regarding the Internet use habits, the current levels of Internet-shop-
ping, and different channels mainly used to conduct such shopping. Such detailed
research will be a base for proposal of a model for building and implementation of
the e-Commerce CMR system suitable for the modern business market.
Having in mind pre-knowledge of the research theme, the following hypothesis
is formed:
1
This paper is based on Jelena Staniis yet unsubmited Ph.D. dissertation paper.
CONSUMERS PERCEPTION OF CRM AND ECOMMERCE 343
H1: E-Commerce in the Republic of Croatia is underdeveloped, considering

the level of development of the information-communications infrastracture
network and the level of use of that network by the Croatian population.
The specific topics of this research were: household use of Internet and e-Com-
merce, frequency of Internet use in regards of different purposes of use, frequency
of Internet-shopping, which products and services are mostly buyed, methods
of payment, level of established contact with consumers (CMR), motivation and
primary reasons for online shopping, as well as consumers perception of potential
problems which may arise in such shopping, their satisfaction with the informa-
tions provided by online shops, use of the social networks, and the general opinion
of research subjects on the informational technology development.
The results of this thorough, scientific research will show the state of existing
Croatian e-Commerce development, and be used in explanation of the reasons for
the current state of matters, as well as an argument to the thesis that the application
of CMR would help the Croatian e-Commerce development.
2. Explanation of research
The research was conducted by combination of field and online polling on the
appropriate (so-called snowball) sample of 569 people polled, 417 in the field
poll and 152 in the online poll. Due to the specifics of the data gathering, this type
of poll sample pattern does not allow extrapolation of results to the general popula-
tion, but still serves to identify the impact of different observed factors on use of
Internet and online shopping. Such factors include household size and income,
sex and place of residence (urban or countryside) of poll participants, number of
computers in household, etc.
The result data was collected in period from 17.10.2013. till 08.11.2013, on fol-
lowing locations: Economics university of Osijek, Law university of Osijek and Man-
agement college in Virovitica, and by online polling posted on Facebook and various
forums or sent by an e-mail. The poll questionary form had 48 questions; some of
them required only a single answer, while others allowed for multiple choice answer-
ing. After the data was collected, it was subjected to the logical control, aimed to find
eventual inconsistencies in the answers. Then it was processed by suitable statistical
methods and models to provide informations relevant to the abovementioned re-
search goals. All informations passed the statistical testing (on the =0,05 level), so
they can be statistically generalised from the poll pattern to the population.
2.1. Description of the poll pattern

The poll participants were 60,4% male and 39,6% female. Majority of partici-
pants live in the households which have 3 to 5 members, while least of participants
live single. It should be mentioned that the place of residence data refers to the
poll participants family residance, meaning that the polled students gave data about
their family (permament) residence, not a possible temporary one where they were
living during the poll (dorms and such). This particular data was needed for re-
searching the eventual connection between the variable of household size to the
variables of Internet use and online shopping. As for a size of income, most house-
holds were in the 5001-8000 kuna category (26,4%). Second place had 8001-
12 000 kuna category (24,8%), followed by 3000-5000 (18,3%), above 12000
kuna (18,1%), 1001-3000 kuna (10,4%), and bellow 1000 kuna (2,0%).
2.2. Research of Internet and e-Commerce presence

Table 1. shows figures regarding the number of computers per household, the
number of household members which use a computer and Internet, own a mobile
phone, own a smartphone, and access Internet via a mobile phone.
Table 1: Number of computers, use of Internet, computer, mobile phone and

smartphone per household (%)
Arithmetic
4 and
0 1 2 3 mean
more
average
Total number of computers in household 0,5 27,9 39,8 21,7 10,1 2,17
Household members using a computer 0,7 10,2 34,4 26,9 27,8 2,81
Household members using Internet 0,5 9,8 31,1 28,5 30,1 2,88
Household members owning a mobile phone 0,0 1,2 16,4 25,4 20,0 3,64
Household members owning a smartphone 14,9 29,2 27,3 17,5 11,2 1,84
Household members accessing Internet via a 3,2 28,3 39,9 18,4 10,2 2,07
mobile phone
Table 2. shows the frequency of usage of different devices for Internet access.
As expected, the most used device is a personal computer (desktop and/or laptop),
being mainly used every day, but it is also notable that very high percentage of
poll participants use a smartphone2 for accessing the Internet, mainly very often.
Unfortunately, currenty available data from Eurostat for that topic are published
in 2010., when the procentage of smartphone Internet access in Croatia was most
certainly lesser that is today, but even than it was almost identical (7%) to the
average percentage of other EU countries (8%)3. Some rough estimates show that
currently worldwide over 1 billion people use smartphones for the Internet access,
so this 2010. data most certainly does not reflect the current conditions. The poll
participants stated that their least used device for Internet access is a game console
(such as Playstation, X-box etc.), but such result is probably founded in fact that
most of them dont own a game console.
Table 2: Use of devices for Internet access

Never Rarely Occasionally Often Very often
Computer 1,1 1,8 3,0 13,0 81,2
Mobile phone 38,4 6,1 6,1 5,9 43,5
Smartphone 19,5 3,9 5,3 7,3 63,9
Tablet 67,7 7,6 7,8 4,5 12,5
Game console 81,8 8,2 5,0 2,0 3,0
TV 43,9 3,0 6,5 14,7 31,9
According to the latest Eurostat data, in the Republic of Croatia during 2012.
66% of households have an Internet access, which is still lower percentage than the
europian average of 76%4.
As for a mode of accessing Internet provider network, WiFi and ADSL are
mostly used - WiFi is used often or very often by 77,1% of participants, ADSL by
69,8%. Less often is used the mobile device access (mobile phones, USB portable
sticks and such), and by far least the dial-up connection.
Before presenting poll results regarding Internet use, let us review Eurostat data
of the same topic. According to the 2012. data, 58% of the Croatian citizens use In-
ternet almost every day, while the EU has a slightly bigger procentage of 70%. The
scale of procentages between individual EU countries highly varies, being highest
2
Although, it is logical to assume that most smartphone users bought them just for that reason, a
possibility to access the Internet anytime and everywhere.
3
Eurostat, StatisticsDatabase, http://epp.eurostat.ec.europa.eu/portal/page/portal/statistics/search_
database. (16.11.2013.)
4
Eurostat, StatisticsDatabase, same source.
for the Scandinavian and Benelux countries (around 90%), and lowest in Rumunia
and Bulgaria (around 50%)5. This also tell us that the Republic of Croatia is in the
lower part of the such scale. Similar indicator is the share of citizens that never used
Internet in general population: in the Republic of Croatia it is 35%, compared to
the EU average of 22%, but it should be mentioned that these percentages rapidly
decline in all EU countries.6.
Taking these two set of data in consideration together, it could be concluded
that populations of the Republic of Croatia and EU share the same trend: Internet
is either used on daily basis or not used at all. Therefore, it is very rarely used only
occasionaly. The frequency of connecting to Internet in the Republic of Croatia
and EU is shown below in the chart number 1.
Chart 1: Frequency of connecting to Internet in the Republic of Croatia and EU
The poll participants use Internet rather instensly. The results according to the
number of hours per day show that 21,1% participants use Internet from 0 to 2
hours daily, 43,3% use it from 2 to 5 hours and 19,9% from 5 to 8 hours. Very
high percentage of 9,8% use Internet 8 to 10 hours every day, and 5,9% use it for
even more than 10 hours per day.
Internet is mostly used for surfing and content browsing - by 97,5% of the poll
participants. This is followed by news reading (92,1%), social networking (91,2%),
file download (85,1%), etc. The lowest percentages have activities of watching the
Internet television (33,0%) and radio stations listening.
Next section of the questionary form contained the exploration of frequencies
of different types of shopping, comparing the Internet shopping to regular retail
shopping. The poll participants were here also asked to state the frequency accord-
ing to the scale from never to very often (at least once a day). The results are
shown below in the table 3.
5
Same source.
6
Same source.
Table 3: Frequency of different types of shopping (%)

Never Rarely Occasionally Often Very often
(once a month (several times (several times (at least once
or less) a month) a week) a day)
Retail shopping
(going to a retail 0,4 3,8 16,5 45,1 34,2
store)
Internet shopping
(buying and paying 42,4 36,4 17,2 2,7 1,3
done online)
Combination of
retail and Internet 32,6 31,9 27,6 7,4 0,5
shopping1
The table data clearly shows that, as expected, the regular retail shopping is the
most prominent type of shopping, with only 0,4% of the poll participants which
never practice such shopping, compared to 79,3% that do such shopping several
times a week or more. Internet shopping is never practiced by 42,4% of the poll
participants, 36,4% do it once a month or rarer, 17,2% several times a month,
2,7% several times a week, while only 1,3% marked at least once a day answer.
The combination of retail and Internet shopping is also quite frequent - several
times a week or more by 7,9%, and 27,6% by several times a month.
The poll results show that 57,6% of the participants practice Internet shop-
ping. But it should be mentioned once again that this pattern is very specific (the
participants were largely university and college students, which are quite possibly
a demographic group with the highest computer skills), so it can not represent the
state of this matter in the total population. To form more complete understanding
of Internet shopping, we can also look into the Eurostat Internet shopping data
gain by research in the Republic of Croatian and 27 others countries of EU, which
show current trends of online shopping.
Chart 2. shows that the Croatian citizens purchase goods and services online
only half as often as an average europian citizen. The question Did you purchase
goods or service on Internet in the last 12 months? had 23% of a positive answer
in the Republic of Croatia, while the total europian average is 44%7. It should
be pointed out that the results are widely diffenent for particular countries. The
7
Scandinavian countries and United Kingdom populations have 70% of Internet-

shoppers8, while Rumunia have only 5% and Bulgaria 9%. But, it should be also
pointed out that all observed countries, including the Republic of Croatia, have a
yearly percentage growth tendency of 5-10%. The poll research data bear better un-
derstanding when observed and compared with the Eurostat data that relates only
to the population that use Internet at least occasionaly - the difference between
croatian and europian averages is still visible and very similar to the one of general
population: 36% croatian Internet users conduct online shopping, compared to
59% in the EU9.
Chart 2: Percentages of poll participants which have purchased goods or ser-

vices online during the last 12 months
Another interesting set of data related to online shopping provided by Eurostat

is shown in the next chart (chart 3.)10. Once again the croatian citizens fall behind
the europian averages - while in the topic of finding informations about products
and services online the percentage is fairly similar to the rest of 28 europian coun-
tries, other related percentages are visibly lower: using e-Banking (21% in Croatia,
40% in EU), selling goods and/or services (9% in Croatia, 16% in EU). The per-
centage of the croatian consumers buying or ordering the Internet content is (yet)
almost negliable 2%, while EU has 11%11. The term Internet content relates to
different online services such as web-portals paid membership subsciptions (for
example, nba.com offers the video-streaming of sports events provided for monthly
payments), pay-membership-only Internet television, online courses etc.)
8
All poll participants very older than 15
9
10
Data relates to 2012.
11
Eurostat, StatisticsDatabase. Same source.
Chart 3: Comparison of using Internet for e-Commerce - the Republic of Croatia

nad 28 members of the EU
Our research also measured the correlation level between the frequency of differ-
ent types of shopping and the frequencies of Internet usage and usage of different
devices for connencting. Resulting Kendalls tau_b correlations (table 5.) show that
these frequencies are indeed correlated. The total number of hours spent online,
and the frequency of using computer, smartphone, tablet or game console are cor-
related to both Internet shopping and combined retail shopping. The frequency of
connecting to Internet by simple mobile phone has negative correlative factor for
Internet and combined retail shopping, but that has no significant statistical mean-
ing. The correlation is highest with the smartphone use12 Kendalls tau_b is 0,25.
Table 5: Correlation between Internet shopping and the frequency of use of

Internet-connecting devices (Kendalls tau_b)13
Number Frequency of Frequency of Frequency of Frequency of Frequency of

of online connecting connecting connecting connecting connecting to
hours to Internet to Internet to Internet - to Internet Internet -
- computer - smartphone mobile phone - tablet game console
Internet 0,15** 0,15** 0,25** -0.10** 0,14** 0,12**
shopping
Combination 0,18** 0,10** 0,19** -0,04 0,14** 0,11**
After the introductory question about the types of shopping, the poll partici-
pants were asked to state how often they order products and services on Internet.
The answers to this question confirmed earlier observation that slightly less than
half of the participants, in this case 44,7%, do not shop online. Of these that do,
12
This can be explained by assumption that the smartphone owners usually fall into the high-income
category
13
* p < 0,05; ** p < 0,01
51,7% use Internet shopping 1-5 times a month, while 3,6% shop even more fre-
quently. Therefore, we can conclude that online shoppers among the poll partici-
pants on average shop couple of times a month.
Most Internet shoppers purchase clothes (38,3%). This is followed by electronics
equipment (25,3%), sports products (19, 5%), tourist travelling arrangements (15,1%),
books (14,3%), etc. Rarely purchased items are fuels & energy (5,4%), newspapers
(4,7%), stocks (4,2%), food (3,4%), and life and other insurance policies (2,9%).
Most of the Internet shoppers - 63,9% - spends less than 500 kuna monthly. Rest
of them spends between 500 and 1000 kuna (24,4%), or between 1000 and 5000
kuna (10,4%), while 1,3% spends even more than 5000 kuna per month. This shows
that the poll participants mostly buy low-cost goods, probably because the difficulties
with customs paperwork and taxes, lower costs of delivery, and similar reasons.
The poll participants stated around forty online shops that they could recollect
in mind. The mostly mentioned site by far was auction site eBay, mentioned by 306
poll participants. It was followed, by large margin, by small-ads site Njukalo (63)
and auction site Amazon (49). Mentioned less than 10 times were sites Konzum,
Asos, Moje krpice i eKupi.
2.3. Research of level of established customers relationship (CMR)

This part of the research had a goal of determing how important is the custom-
ers relationship management (CRM) to the poll participants. From the answers
represented in chart 4. we could conclude that the poll participants deemed CRM
as important - very important had 34,1%, and mostly important 36,6%. The
percentage of ones that condisder CRM neither important nor unimportant is
19,9%, while the mostly or completely unimportant category had 9,5%.
Chart 4: Evaluation of importance of CRM by poll participants

Further analysis seeked to determine how important is CRM to the poll par-
ticipants grouped by the frequency of hours spend online and the frequency of
Internet shopping. Table 6. shows the statistically significant connection (measured
by Kendalls tau_b ordinal association coefficient) between described variables and
the CRM importance evaluation, although this correlation is relatively low.
Table 6: Correlation of Internet use/frequency of Internet shopping and the CRM

importance evaluation14
Number of hours online frequency of Internet shopping

CRM importance 0,08* 0,10*
The results shown in table 7. list the reasons for the Internet shopping. The
most important one is lower prices (evaluated important or very important by
87,0% of the poll participants), possibility of purchasing products unavailable in
local retail stores (82,1%), bigger selection of products (85,7%) and home delivery
(84,6%). As very important were also evaluated easier access to informations
(80,4%), easier comparison of prices and services (76,4%) and possibility to order
24-7 (79,%). Slightly less important were deemed vendors faster complience to the
customers demands (67,4%), avoidance of bothersome verbal sales pitch by retail
salespersons (48,3%), and convenience of this shopping type (45,7%). It is some-
how suprising that the reason particulary promoted by online stores, convenience
of armchair shopping, rated very low among the poll participants - even less than
half of them considered it important.
Table 7: Importance of reasons for the Internet shopping
Neither Arithmetic
Completely Mostly Mostly Very
important nor mean
unimportant unimportant important important
important average
Lower prices of
1,2 4,2 7,6 39,0 48,0 4,28
products
Purchase of products
unavailable in the 1,7 3,2 13,0 31,7 50,4 4,26
local retail shops
Better selection of
1,2 4,2 8,9 43,2 42,5 4,21
products
14
* p < 0,05; ** p < 0,01
Home delivery 1,5 4,9 9,0 40,6 44,0 4,21

Easier access to
3,2 3,0 13,4 41,3 39,1 4,10
informations
easier comparison of
2,7 3,0 17,9 35,7 40,7 4,09
prices and services
possibility to order
2,2 5,9 12,1 46,4 33,3 4,03
24-7
faster complience
to the customers 5,7 5,9 21,0 33,3 34,1 3,84
demands
avoidance of verbal
sales pitch by retail 11,4 10,4 30,0 30,2 18,1 3,33
salespersons
convenience of
15,8 11,2 27,5 34,4 11,2 3,14
armchair shopping
Next poll question probed the most important problems arising during online
ordering of products and services. The highest percentage had lack of warranty
that the purchased item will be delivered. This was followed by problems with
delivery service companies (79,7%) and unsecurity of online financial transactions
(74,5%). As least problematic were proclaimed problems of FBI and other similar
agencies Internet surveillance (43,1%), trade courts jurisdictions (42,8%) and lan-
guage barrier (40,3%).
As for reasons to shop in a particular online store, the most important one
was a money-back garantee policy, with 61,5% of very important and additional
21,5% mostly important votes. Other reasons include discounts (3,97%) and
no-extra-fees policy with credit-card payments. Least important reasons were re-
cieving a complementary greeting cards for birthday, hollidays and similar occa-
sions (almost half of the poll participants deemed it irrevelant), and recieving the
informations about new products and existence of customers-call service, voted
irrevelant by a third of the poll participants.
By far most popular social network in the poll was Facebook, used by 92,8% of
the poll participants. Every fifth poll participant uses Twitter or Instagram. Further
down the list were LinkedIn, MySpace, Pintrest, etc.
Statistically significant correlation was proven between the frequency of all types
of shopping and the number of social network memberships per poll participant
(table 8.). This shows that the poll participants that use more social networks also
shop more.
Table 8: Correlation (Kendalls tau-b) between the frequency of all types of shop-
ping and the number of social networks memberships
Internet- Retail Combination of Internet and
shopping shopping retail shopping
number of social network
0,152** 0,069* 0,105**
memberships
3. MODEL OF ESTABLISHING E-COMMERCE BASED ON CRM IN THE REPUBLIC

OF CROATIA
Establishing any form of an electronic commerce in general demands process
of development steps, usually beginning with defining of the e-Commerce model
and ending in its implementation. If the building of e-Commerce is done without
proper prior planning, it is higly likly that it will end in failure. Therefore it is
prudent to define a model of e-Commerce structure and implementation before
implementing the e-Commerce system itself. Basic starting point of the structure
model definition is determing the type of e-Commerce, by deciding its customer
orientation - will it be B2B (business to business) type, or aiming to mass-market of
end-consumers, or being an intermediary between end-consumers (such as Kolek-
tiva.hr site). After deciding on a type of e-Commerce, next step is a formulation of
strategy dealing with establishment of consumers relationships in the online busi-
ness enviroment. Implementator of such strategy is a vendors management, which
formulates vision, mission statement and long- and short-term goals. The consum-
ers relationships management strategy implementation model has following steps:
1. management decide to implement new model of costumers relationships man-
agment in accordance to the general vision and mission statement of company. 2.
model of costumers relationships management is adapted in complience with the
marketing strategy and plan, which must be based on market research and defined
target segment.
CRM process encompass complete changes of organisational relationships. Or-
ganisation by process has a quality of linking every activity to activity next to it
in the chain of business, thus providing customers with products and services of
improved value and quality. After forming the process-orientated organisation, it is
important to consider the timing of an e-Commerce based on CRM implementa-
tion. Such timing largely depends on priorly conducted processes of linking dif-
ferent functional phases inside the organisation, and on the recognition of CRM
efforts by consumers. Implementation of processes and organisational changes may

take years to accomplish, but, as in every other project, it is important to determine
the duration of each separate activity.
Having in mind that every organisational model change is conducted in stages,
it is important to prepare employees for changes in advance, to expedite the imple-
mentation of new business processes. The finite stage of the implementation of
the e-Commerce based on CMR is application of suitable information-commu-
nication technologies that support e-Commerce. Electronic business in general,
therefore electronic commerce in particular, should be economical and efficient.
It is already stated that CRM depends on highly developed information process-
ing, which structuring and networking are based primary on the information-com-
munication technology. Therefore, by implementing CRM model, it is necessary
to formulate the financial project concept which promotes the investment in the
technological inovations, thus insuring e-Commerce which functions by relying on
a state-of-the-art system providing the informations about customers.
Picture1: Sheme of implementation of customers relationships management

model in e-Commerce (by stages)
After balancing the general vision, mission and business goals with the strat-
egy of e-Commerce, next step should be an analysis of the targeted market. Large
number of companies, particulary ones that are marketing-orientated, already have

developed market analysis procedures incorporated in their general business strat-
egy, using them to follow customers activities in order to upgrade product and
services quality. The target market segment analysis is a foundation for building
e-Commerce model, design and technical support. For instance, if a trade offer is
orientated to other business subjects, the online shop sheme should have frame-
work that provides a customer with quick and easy browsing of products or services
on sale, standard accounting ordering form and possibility of generation of an
electronic bill which can be transfered to the customers own business account-
ing database. Besides such features, most e-Commerce software by default have a
database which is filled by customers submitting an introductionary form, giving
basic informations about themselves (name, address, business activity etc.). Such
database enables a vendor to sort its customers into groups by specific criterions,
such as business field, geographical location, etc. This leads to better ability to fol-
low activities and behaviour of consumers/costumers. It should be noted that the
modern e-Commerce is almost exclusively conducted on Internet, World Wide
Web enviroment. Therefore the process of building an e-Commerce model must
include the software solutions suitable for Web enviroment. Such software must in-
clude applications for e-Commerce web-site administration, communications with
other Web sites and resources, and CRM support modules. Solid database is the
cornerstone of integrity for the entire e-Commerce system based on CRM.
Combining the implementation sheme presented in picture 1 with the experi-
ences of the leading trade companies in the Republic of Croatia, we can declare
that the e-Commerce based on CRM implementation model must have clear set of
activities terms and expected results. Such set should always be able to adopt to the
changes in the consumers market behaviour, as well as the changes in the needs of a
vendor company itself. Therefore such model generaly can not be a long-term one.
The customers relationships management is a live process that constantly changes,
adapting to its internal and external factors.
4. Summary conclusions regarding the conducted poll research

The research results show that Internet shopping is being done as purely on-
line shopping, but even more often as combined shopping, where the poll par-
ticipants find the informations about goods or services on Internet, but make a
purchase in a retail shop. The research results also show that Internet shopping is
done more in the households with higher incomes. The differences in sex or place
of residence (urban or countryside) shown no significant statistical value. The fre-
quency of Internet shopping has, as expected, shown considerable correlation with
the frequency of Internet access and the number of hours spent using the Internet,
but the strongest correlation was with the use of smartphone.
Large majority of the poll participants considered the costumers relationships
management (CRM) very important in regards of online shopping (36,6% marked
it as mostly important, and 34,1% as very important). The evaluation of CRM
importance has a positive correlation with the quantity of time spent on Internet
and the frequency of Internet shopping. Main reasons for Internet shopping were
lower prices of products/services, unavailabity of a certain product on the Croatian
retail market, better selections of products and home delivery. As least important
was deemed the convenience of shopping from armchair. The poll participants
voted the uncertainty of delivery and problems with the delivery companies as the
most important problems. These were followed by unsecurity of financial transac-
tions and fear of identity theft, while as least important were listed language barrier
and secret services surveillances. The main incentives for increasing the frequency
of Internet shopping were wider selection of offered items, security of purchase
transaction, and extra informations.
Certain money-back policy in case of unability to deliver purchased product
was the most important reason to regular shopping in a particular web-store. It
was voted as important by 83,0% of the poll participants. As important were also
considered discounts and no-extra-fees policy with the credit cards payments. The
poll participants use 2,31 social network in average, mostly Facebook, followed by
Twitter and Instagram. The number of the social network memberships has posi-
tive correlation with the frequency of Internet shopping. In other words, the poll
participants who use more social networks also shop on Internet more.
According to the 2012. Eurostat data, 58% of the Croatian citizens use Internet
almost every day, while the EU average is slightly average at 70%. Also, the per-
centage of population that never use Internet in the Republic of Croatia is 35%,
while the europian average is 22%. This data tell us that the Republic of Croatia
is at the lower part of the list of europian countries ranked by availability and us-
age of Internet, but that such setback is not greatly significant. In the other hand,
the Eurostat data shows that the percentage of Croatian citizens buying goods and
services on Internet is only half of the europian average. Only 23% of population
purchased something on Internet in the 12 months prior to survey, compared to

the europian average of 44%.
This lead to conclusion that Croatia, although not being far behind the euro-
pian average when it comes to availability and usage of Internet, falls greatly behing
in the matter of Internet shopping. Therefore we may declare that the starting hy-
pothesis, stating that E-Commerce in the Republic of Croatia is underdeveloped,
considering the level of development of the information-communications infra-
stracture network and the level of use of that network by the Croatian population,
has been fully confirmed.
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(CRM), Ekonomskifakultet u Osijeku, ISBN 978-953-253-017-7, Osijek
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358 Slobodan Stojanovi
CASH CONVERSION CYCLE

AS A COMPANY LIQUIDITY MEASURE
Slobodan Stojanovi, univ.spec.oec.1
1
Polytechnic Lavoslav Ruika in Vukovar, Republic of Croatia, stojanovic@vevu.hr
Abstract
Effective and adequate management of a companys liquidity position represents
a key element in securing the overall ability of a company to meet its short-term ob-
ligations using assets that are readily converted into cash. The companys liquidity
position is especially important in todays globalized and highly competitive busi-
ness environment, as well as in times of economic and financial hardships charac-
terized by decreasing cash inflows and deteriorating market conditions. In order to
predict, manage, and evaluate the liquidity position, the company utilizes specific
analytical tools and measures. Apart from usual static measures of liquidity such as
liquidity ratios (e.g. current and quick liquidity ratios), the cash conversion cycle
(or cash gap cycle) represents dynamic measure, which incorporates the element of
time in the consideration.
The cash conversion cycle is defined as a number of days between actual cash
outflows on a companys purchase of needed productive resources and actual cash
inflows resulting from product sales. It measures the time between outlay of cash
and cash recovery from a companys regular course of operation. During that pe-
riod of time, the financial funds are tied up in the current assets, such as payables,
inventories, and receivables. The shorter cash conversion cycle, stated in a num-
ber of days, indicates better liquidity and working capital position of a company.
Quick cash recovery is a permanent business consideration, especially in the short
term and in smaller firms. A successful management of the cash conversion cycle
implies the effective management of individual components of current assets. The
company management undertakes a different set of activities to decrease inventory
and receivables conversion periods, as well as to increase payables deferral period
in order to shorten the cash cycle and quickly release the funds that are invested
CASH CONVERSION CYCLE AS A COMPANY LIQUIDITY MEASURE 359
in a working capital. The concept of cash gap is closely related to the net working
capital management and it is regarded as a method for cash flow management.
Therefore, the aim of this paper is to present an overview of the cash conversion
cycle concept and its importance in relation to the measurement of the liquidity
position of a company. The relations between the cash gap and net working capital
management will be explained, as well as basic financial management implications
of the concept for the companys business operations. Additionally, the concept will
be illustrated with a sample of companies that makes the index CROBEX10 of the
Zagreb Stock Exchange.
JEL Classification: G32
Keyword: cash conversion cycle, liquidity measure, net working capital
management
1. Introduction
One of the key elements in securing the everyday operations and the overall
ability of a company to meet its short-term liabilities is the effective and adequate
liquidity management. The adequate liquidity position of a company is especially
important in todays globalized and highly competitive business environment, as
well as in times of economic and financial hardships characterized by decreasing
cash inflows and deteriorating market conditions. All sorts of market and other
risks directly influence business operations and the companys cash flow dynamics
in a negative way, thus requiring active management of its working capital, which
should result with desired liquidity position. Many different unfavorable factors,
such as sudden particular and/or general fall in market demand, an increase in un-
collected receivables, raising prices of specific inputs, frozen credit markets and
similar, are threatening liquidity and survival of the company. The short-term (cur-
rent) liabilities can be met only by having enough disposable cash on hands and/or
having enough short-term (current) assets that are readily convertible into the cash.
Therefore, it is very important to actively manage working capital of the company
and keep cash balances at the required level, thus maintaining adequate liquidity.
In order to predict, manage, and evaluate its liquidity position with a satisfying
degree, the company must utilize specific analytical tools and measures. Apart from
usual static measures of liquidity such as liquidity ratios (e.g. current and quick
liquidity ratios), the cash conversion cycle (or cash gap cycle) represents dynamic
measure, which incorporates the element of time in the consideration.
2. Key motives (reasons) for maintaining cash balances

Every businessman would say that cash is king when it comes to the com-
panys operations, because only the cash can pay the companys bills. Therefore,
it is of great importance that certain cash balance is maintained by the company
management in order to meet its short-term liabilities. Generally, the company
holds the cash for reasons of transactions, compensations, precautions and specula-
tions, thus creating (1) transactional, (2)compensating, (3) precautionary, and (4)
speculative cash balances (Brigham & Houston; 2003, 698). Transactional balance
is associated with routine business transactions of payments and collections of the
bills. The amount of the transactional cash varies between different companies and
it is influenced by the specific industry setting. Compensating balance is often
maintained in order to compensate the banks for providing loans and services to
the company, while precautionary balance is associated with the cash held in re-
serves for random and unforeseen fluctuations in the companys cash flow. Specula-
tive cash balance enables the company to take advantage of any bargain purchases
and profit making situations that might arise, especially in times of financial crises
when declining security prices and rising interest rates can be expected. The level of
the overall cash (or currency) balance is strongly influenced by other current assets
stated on a companys balance sheet. The degree of the liquidity of current assets is
different in terms of their ability to be converted into the cash, quickly and without
any price discount, in the amount sufficient to fulfill companys immediate short-
term liabilities. The cash is the most liquid asset and only with the cash the com-
pany can fulfill its obligations. The importance of cash as the ultimate liquid asset
is reflected in todays cash positions of corporate America. According to the Federal
Reserve, U.S. nonfinancial companies had $1.984 trillion in liquid assets (cash and
cash equivalents) on their books at the end of the fourth quarter of 2013, of which
$464 billion in hard cash (checkable deposits and currency) or 23.39% of their
total liquid assets (Financial Accounts of the U.S.; March 2014). Total liquid assets,
which include foreign deposits, checkable deposits and currency, time and savings
deposits, money market fund shares, security repurchase agreements, commercial
paper, treasury securities, agency and GSE backed securities, municipal securities,
and mutual fund shares, accounted for 5.67% of total assets held by U.S. nonfi-
nancial corporations in the same period. However, if the company has a favorable
structure of its total current assets (e.g. more current assets with a higher degree of
the liquidity in the total structure of current assets when compared with some other
combinations), then it can have a lower cash balance. In this case, specific current
assets can be converted on time into the currency that is needed for whatever rea-
sons, thus making the liquidity position of the company stronger. Therefore, the
effective management of each component of working capital is a precondition for
achieving an adequate liquidity position of the company, thus decreasing the risk
of bankruptcy.
3. Cash conversion cycle

In order to achieve optimal level of liquidity, the company must pursue strong
liquidity management, which in turn requires strict and systematic financial plan-
ning of cash flows. Insufficient liquidity management may cause severe difficul-
ties and losses due to unfavorable short-term developments even for the company
with positive long-term prospects (Richards & Laughlin; 1980, 2). Liquidity has
to be monitored, managed and measured. Generally, the company uses static and
dynamic measures in assessing its liquidity. Static measures are defined as such
because they reflect the nature of the balance sheet structure, while dynamic ones
are connected to turnover metrics (Bolek; 2013, 3). The most common static mea-
sure is the current ratio(CR) and its variations (e.g. quick or acid ratio), while cash
conversion cycle (CCC) represents dynamic measure, which incorporates the ele-
ment of time in the consideration of liquidity (Cagle et.al.; 2013). Liquidity ratios
based on balance sheet do not take into account the different degrees of liquidity of
specific current assets. Therefore, two companies having the same CR might have
different liquidity positions due to the different structure of their current assets.
There are also other disadvantages of liquidity ratios such as difficult and ambigu-
ous interpretation, their static nature, possibility of manipulations through balance
sheet items etc. (Cagle et.al.; 2013).The CR is calculated as a ratio of current as-
sets and current liabilities. The net working capital (NOC) is also a static measure
of liquidity, which is calculated as a difference between current assets and current
liabilities, thus closely related to CR. It roughly measures the companys reservoir
of cash (Brealey& Myers; 2003, 813). The positive and higher NOC signals better
liquidity position. On the other hand, there is a cash conversion cycle or cash gap
cycle, which complements static liquidity measures and provides deeper insights
into the companys liquidity position. The CCC can be defined as a length of time
funds (cash) are tied up in working capital or the length of time between paying
for working capital and collecting cash from the sale of working capital (Brigham
& Houston; 2011, 521). It is a number of days between cash outflows needed to
purchase resources for production and cash inflows resulting from product sales.
In order to compute the CCC the company must monitor and measure indicators
of three time periods, such as (1) inventory conversion period (or days inventory
outstanding, DIO), (2) receivables collection period (or days receivables outstand-
ing, DRO), and (3) payables deferral period (or days payables outstanding, DPO).
Inventory conversion period is the average time required to convert raw materials
and other needed resources for production into finished goods and then to sell
those goods to buyers. Receivables collection period (also average collection period)
is the average length of time needed to convert the companys receivables into cash;
it is the time to collect cash from the buyers following a sale of goods on credit.
Finally, the payables deferral period is the average length of time between purchase
of resources and the payment of cash for those resources. The CCC model is pre-
sented in figure 1.
Figure 1. The Cash Conversion Cycle Model

Inventory Finish Goods and Receivables
conversionperiod Sell Them Collection Period
Payables Deferral Cash Conversion

Period Cycle
Days
Receive Raw Pay Cash for Collect Accounts
Materials Purchased Receivables
Source: Ehrhardt& Brigham; 2008, 550
The CCC can be computed by using a three-part formula as indicated in figure 1.:
CCC = DIO + DRO DPO (1)
Generally, each component (indicator) in the formula (1) would be calculated
using items stated in the financial statements of the company. Thus, the days inven-
tory outstanding (DOI)is calculated as:
where COGS is a cost of goods sold, while the number of days in a year can be
360 or 365, depending on a selected method. Very often due to unavailability of
the COGS data in financial statements, the COGS is substituted with the net sales
item.
The indicator the days receivables outstanding (DRO) is calculated as:
Finally, the indicator the days payables outstanding (DPO) is calculated as:
where COGS is also substituted very often with the amount of material costs from
the income statement or some other item(s) of expenditures that can be related to
the COGS. The management of the company undertakes different activities to si-
multaneously decrease inventory and receivables conversion periods, while increas-
ing payables deferral period in order to shorten the CCC and quickly release the
funds invested in a working capital. The CCC concept indicates that the company
with shorter CCC also has a better liquidity and working capital position. Quick
cash recovery is a permanent business consideration. Successful management of the
CCC implies the effective management of individual components of specific cur-
rent assets and liabilities, and as such, it is closely related to the NOC management.
Additionally, it is regarded as a method for cash flow management. The CCC is
different from the operating cycle, which represents the time it takes the company
to turn its investment in inventory into cash and is equal to DIO and DRO.
4.. Application of liquidity measures in selected Croatian companies

The application and calculation of the static (current ratio and NOC) and dy-
namic (CCC)liquidity measures are presented with a sample of companies whose
shares are listed on the Zagreb Stock Exchange. Shares of those firms make the
CROBEX10 index, which is a specialized index of companies with the highest free
float market capitalization and the trade volume. Maximum weight of each stock
in the index is restricted to 20%. As of March 3, 2014, the index had a value of
981.61 (base value is 1000). The composition of the indexis presented in table 1.
Table 1. Composition of the CROBEX10 index of the ZSE

Market capital.*
Nr. Ticker Company Industry (sector)
(in billions kn)
1. ADRS-P-A Adrisgrupa d. d. Management and investments 1.62
2. ATGR-R-A Atlantic Grupad.d. Wholesale 0.77
3. ERNT-R-A Ericsson Nikola Tesla d.d. Communication equipment 1.18
4. HT-R-A Hrvatski Telekom d.d. Telecommunication 2.45
Oil & gas (exploration, production,
5. INA-R-A INA Industrijanafted.d. 2.00
retail)
Manufacturing (generators,
6. KOEI-R-A Konar elektroindustrijad.d. 1.26
electro-motors, transformers)
7. KORF-R-A ValamarAdria Holding d.d. Tourism & Management 0.56
8. LEDO-R-A Ledod.d. Ice-cream production 1.24
9. PODR-R-A Podravkad.d. Fruit & Vegetable processing 1.11
10. PTKM-R-A Petrokemijad.d. Fertilizer manufacturing 0.17
* Market capitalization as of March 3, 2014
Source: Zagreb Stock Exchange (http://zse.hr/default.aspx?id=121)
Application of static measures of liquidity is presented in table 2. Current ratio

(CR) and NOC were calculated for each company in the period 2010 to 2012.
Generally, the company has a better liquidity position if the current ratio and NOC
have higher values. Although acceptable current ratio values vary from industry
to industry, a current ratio of 2:1 is generally considered to be appropriate. The
current ratio higher than 1, indicates a positive NOC, which is expressed in cur-
rency units. Also, the higher NOC connotes a better liquidity. The available data
indicate a general trend of deteriorating liquidity during the analyzed period. Only
three companies (ADRS, KOEI and KORF) have a greater CR values in 2012 if
compared with 2011, four companies have CR values higher than 2, while two
companies (INA and PTKM) have CR values below 1, which can be considered as
concerning because it indicates possible problems in the future with paying the bills
on time. The values of NOC correspond with CR values and confirm the results on
the liquidity of analyzed firms.
Table 2. Static measures of liquidity

Net working capital (in bill. kn) Current ratio
# Company
2010 2011 2012 2010 2011 2012
1. Adrisgrupad.d. 3.428 3.575 4.049 4.34 4.17 5.51
2. Atlantic Grupad.d. 0.512 0.980 0.913 1.40 1.97 1.84
3. Ericsson Nikola Tesla d.d. 0.920 0.655 0.604 6.08 6.06 3.91
4. HTd.d. 3.407 3.834 3.317 3.22 3.55 3.06
5. INA d.d. -0.940 0.174 -1.646 0.89 1.03 0.82
6. Konar - elektroindustrijad.d. 1.268 1.212 1.247 2.72 2.57 2.89
7. ValamarAdria Holding d.d. 0.037 -0.021 0.105 1.15 1.04 1.66
8. Ledod.d. 0.398 0.538 0.537 3.01 3.52 1.57
9. Podravkad.d. 0.156 0.696 0.672 1.15 1.71 1.70
10. Petrokemijad.d. -0.083 0.104 -0.029 0.90 1.11 0.98
Source: authors calculation according to financial statements of companies
The values of CCC give further insights into the liquidity position of selected
companies. The results of CCC, which is a dynamic measure of liquidity, are pre-
sented in table 3. All components of cash gap are calculated in a three-year period,
thus providing better comprehension of liquidity and management efficacy in deal-
ing with specific current assets and liabilities, explicitly with inventory, receivables
and payables. The calculation of components had to be adjusted to the availability
of data in financial statements, meaning that specific balance sheet and income
statement items had to be used in order to get needed values. Therefore, CCC
components are calculated as follows: DOI equals 365/(net sales/inventory), DRO
equals 365/(net sales/receivables), and DPO equals 365/(material costs/payables).
The available data shows a general deterioration of the CCC for the most com-
panies in the sample.The number of days of the CCC is increasing for five firms
(ADRS, INA, KOEI, LEDO and PTKM), while one firm has a stagnant CCC
(PODR). Two firms have decreasing CCC (ATGR and ERNT), while two firms
have a negative CCC (HT and KORF).
Table 3. Elements of Cash Conversion Cycle for companies in CROBEX10

2010 2011 2012
# Com.
DOI DRO DPO CCC DOI DRO DPO CCC DOI DRO DPO CCC
1. ADRS 93 114 77 130 93 115 77 131 92 138 72 158
2. ATGR 99 178 156 120 52 87 74 65 49 85 77 57
3. ERNT 13 145 86 72 7 117 63 61 6 62 47 21
4. HT 9 63 208 -135 8 59 203 -136 8 60 264 -197
5. INA 41 51 75 17 45 45 36 55 41 40 28 53
6. KOEI 72 131 82 121 79 144 92 132 73 142 71 144
7. KORF 6 20 44 -18 5 12 42 -24 4 13 48 -31
8. LEDO 50 55 64 42 55 81 61 75 69 55 45 79
9. PODR 73 103 83 93 74 103 83 94 70 107 86 90
10. PTKM 79 34 62 50 82 45 49 78 82 56 63 74
Source: authors calculation according to financial statements of companies
The determinants of changes in CCC values can be found in management ef-

ficacy of each component. The two companies that decreased their CCC were very
successful in inventory and receivables management (thus decreasing their oper-
ating cycle, i.e. DIO and DRO), although they had to pay their bills (DPO) in
shorter periods.
Figure 2. Cash Conversion Cycle, 3-year comparison for CROBEX10 companies
Source: according to authors calculation

On the other hand, the companies with deteriorating CCC had problems with
their operating cycle, i.e. with the management of their current assets. They did
not find a proper set of management activities in order to shorten their DIO and
DRO, while being confronted with suppliers to pay their bills faster at the same
time. The companies with the negative CCC managed to keep their operating cycle
very short, while compelling their suppliers to accept not so favorable credit terms.
In order to better comprehend and see relevant changes in a number of days of cash
conversion cycle in a sample of selected companies during the analyzed period, the
available data are presented additionally in figure 2.
5. Conclusion
The appropriate liquidity position should secure the capacity of the firm to pay
its short-term liabilities on time and maintain its business operations. Different
activities, aimed at optimization of current assets and current liabilities, have to
be undertaken by the management in order to achieve appropriate liquidity. To be
able to manage and evaluate its liquidity, the company utilizes specific analytical
tools and measures. Static and dynamic liquidity measures such as current ratio
and net working capital, as well as cash conversion cycle are used to assess the com-
panys liquidity position and to determine proper course of action in the future.
The CCC concept, which expresses the length of time (in days) that it takes for a
company to convert resource inputs into cash flows, is closely related with NOC
and its management. It clearly indicates where additional effort is needed regarding
the management of CCC specific components. Shorter CCC can be realized by
simultaneously decreasing the inventory and receivables conversion periods,while
increasing payables deferral period. The application and calculation of liquidity
measures for ten firms that make CROBEX10 stock index on the ZSE, evidently
showed a deterioration of their liquidity position during the analyzed period from
2010 to 2012. The values of net working capital and current ratio correspond to-
cash conversion cycle values; those measures together give clear insights in liquidity
positions of the analyzed firms. Additionally, the calculation of CCC components
revealed key determinants of their (un)favorable liquidity, thus directing further
working capital management activities in the field of inventory, receivables and
payables in order to shorten the CCC.
REFERENCES
1. Brigham, E. & Houston, J. (2003). Fundamentals of Financial Management, South-
Western College, ISBN 0324178298, USA
2. Brigham, E. & Houston, J. (2011). Fundamentals of Financial Management, Con-
cise Edition, Cengage Learning, ISBN 0538477113, USA
3. Bolek, M. (2013).Dynamic and static liquidity measures in working capital strate-
gies, European Scientific Journal, 9(4), 1-24, ISSN 1857-7881
4. Brealey, R.A. & Myers, S.C. (2003). Principles of Corporate Finance, 7ed, McGraw-
Hill, ISBN 0072467665, USA
5. Cagle, C. et al. (2013). Analyzing liquidity: using the cash conversion cycle, Journal
of Accountancy, 215(5), 44-48, ISSN 1945-0729
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7. South-Western College, ISBN 0324655681, USA
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ity Analysis, Financial Management, 9(1), 32-38, ISSN 0046-3892
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2013, Available on: http://www.federalreserve.gov/releases/z1/Current/z1r-1.pdf
COST EFFICIENCY OF AGROINDUSTRIAL COMPANIES IN VOJVODINA: DEA APPROACH 369
COST EFFICIENCY OF AGROINDUSTRIAL COMPANIES IN

VOJVODINA: DEA APPROACH
Vunjak Nenad, Ph.D.1, Davidovi Milivoje2
1
University of Novi Sad, Faculty of Economics in Subotica, Republic of Serbia, vunjakn@ef.uns.ac.rs
2
University of Novi Sad, Faculty of Economics in Subotica, Republic of Serbia, milivojed@ef.uns.ac.rs
Abstract
The aim of this study is to assess the cost efficiency of 25 agro-industrial com-
panies in Vojvodina. The analysis covers the period from 2010 to 2012, and the
efficiency of the companies is estimated using the non-parametric DEA techniques.
Data Envelopment Analysis (DEA) is a linear programming technique that esti-
mates technical efficiency using the input-output model. This paper will apply an
input oriented model with (a) constant returns to scale (CCR model), (b) variable
returns to scale (BCC model). Results of CCR and BCC models indicate that
the agro-industrial sector in Vojvodina increased the average efficiency score (from
80.45% to 86.97% (CCR) and from 89.37% to 90.74% (BCC)). Also, research
indicates that the introduction of bankruptcy proceedings coincided with improv-
ing the efficiency scores and ranking of some companies.
JEL Classification: D24, L16
Keywords: cost efficiency, agro-industrial companies, DEA approach, BCC
model, CCR model
1.Introduction
Intersectoral analysis of comparative advantages suggests that the agro-industrial
sector could be a generator of development propulsion in Serbia. The agriculture
and food industry in Serbia have the potential to generate extraordinary positive ex-
ternalities on other sectors of the economy (Davidovi; 2014, 229). The importance
of the agro-industrial sector in Serbia is confirmed by official data of economic sta-
tistics. According to the Statistical Office of the Republic of Serbia, the share of gross
value added in the agricultural sector in the gross domestic product of the Republic
370 Vunjak Nenad Davidovi Milivoje
of Serbia in the last ten years is 11.3%, while one-fifth (20%) of the gross domestic
product is created by agro-business companies. Also, the agriculture and food in-
dustry participates in the overall export of Republic of Serbia with 20.9% (average
for the last 9 years), and an aliquot portion of imports that can be attributed to
these activities is only 6.8%. Moving toward a more efficient, competitive, export-
oriented, healthier and more sustainable food system is a process that involves tack-
ling longstanding challenges and addressing more sophisticated demands at both the
theoretical and the empirical level (Adi & Bolozan; 2013, 859). Bearing in mind
the above, the efficiency of the agribusiness company is a conditio sine qua none of
the economic development of Vojvodina (Vunjak; 2008, 62).
Empirical studies dealing with the evaluation of the efficiency of DMU (com-
panies and banks) typically use two techniques: parametric Stochastic Frontier
Analysis (see Farsi, Filippini & Kuenzle; 2006, Kiyota; 2009, Hasan et. al; 2011,
Holmgren; 2013) and non-parametric Data Envelopment Analysis (see Johnes;
2009, Yusof et. al.; 2010, Nigmonov; 2010, Castellanos & Garza-Garcia; 2013) or
both at the same time (see for example Andries & Cocris; 2010, Krl & Rohcova;
2013).
Analysis of efficiency and growth potential of companies in the agro-industrial
sector should be the starting point for designing the model for sustainable econom-
ic development of Serbia. Therefore, the main objective of this study is to assess
the relative efficiency of 25 agribusiness companies from Vojvodina in the period
2010-2012. DEA approach will be used to assess the cost efficiency - input oriented
model with constant (CCR model) and variable (BCC model) return to scale. Both
models will include two input variables (operating expenses and financial expenses)
and two output variables (operating income and financial income).
2. Data and methodology

The data set includes annual operating and financial revenues and expenditures
of the 25 agro-industry companies in Vojvodina in the period 2010-2013. Data
are taken from official financial statements provided by the Serbian Business Regis-
ters Agency. To measure efficiency scores, we used Efficiency Measurement System
(EMS) software.
DEA evaluates efficiency compared to the reference (benchmark) organiza-
tional unit that has been identified as the most effective. DEA is then based on a
postulate of uniform error model. This implies that deviations in efficiency can be
caused by random factors: any form of deviation in the current efficiency and the
estimated efficiency frontier represents inefficiency. It is also the main drawback
of this technique, since there are possible errors in assessing the effectiveness of
individual DMU and in assessing the reference benchmark value - the efficiency
frontier. However, the utility value of DEA methodology stems from a number of
advantages (Kho-Fazari et al.; 2013, 1-2): (a) it does not require a priori assump-
tion in the context of data distribution, (b) it gives the possibility of simultaneous
handling of multiple input and output variables, without previous assessment of
their relative importance, (c) it results in a single measure of DMU performances.
According to Chen-Guo et al. CCR model can be conceived as follows (Chen-

Guo et al.; 2007, 51-53):
(1)
If hj = 1, DMUj is relatively efficient, which implies that it is positioned on the
efficiency frontier (production frontier). If hj > 1, DMUj is relatively inefficient.
The more hj is distant from 1 to 0 (further from the efficiency frontier), DMUj is
less efficient (relatively inefficient). To improve the utility value of basic CCR mod-
el, the A-P super-efficiency model is used. The results of super-efficiency establish
rank of DMU that are relatively efficient. CCR model is based on the hypothesis
that potential production set is convex. However, if the product set is not convex,
then BCC model is used to evaluate the effectiveness of the DMU. Assuming nD-
MUs: (xj, yj), xj Rm, yi Rs, j = 1,,n, BCC model can be conceived as follows:
(2)
Moreover, if Rm, Rs, duality (D) has the following algebraic expression:
(3)
BCC model efficiency frontier is not sensitive to the variations in the volume
of the input and output factors. This setting extends the DEA technique, since in
this situation it is not necessary that the values of input and output variables are
positive.
3. Research results
Descriptive statistics of input and output variables is the shown in Table 1.
Table 1: Descriptive statistics

Statistics FIN INC FIN EXP OPER INC OPER REV
Mean 195.0701 292.2713 5116.142 4520.947
Median 86.637 127.215 3734.888 3380.83
Maximum 1450.186 1550.662 21274.27 17992.76
Minimum 1.308 2.179 70.016 59.898
Std. Dev. 268.823 402.1339 5426.08 4631.609
Skewness 2.244987 1.996989 1.498152 1.437182
Kurtosis 8.799178 6.0789 4.408335 4.203569
Observations 75 75 75 75
Source: Author`s calculation
Individual and average efficiency score, ranking of companies by efficiency

scores and ranking of superefficient companies are given in Appendix 1. The mark
* indicates a super-efficiency score (shaded areas in the table). Companies that are
effective have 100% score, but super-efficiency analysis showed companies that are
most effective (with the highest score above 100%). However, for the calculation of
the average score in the efficient companies, a score of 100% is used.
Results of the assessment of efficiency are very interesting. They point to several
important implications. First, the results of both models indicate varying efficiency
score. Extreme examples of this variability are Fidelinka, Ratar Panevo, Beejska
Pekara, Trivit-Pek and Pik Beej. Second, dramatic improvement in the technical
efficiency scores of companies Pik Beej and Fidelinka Subotica coincides with the
initiation of bankruptcy proceedings. This implies that the bankruptcy authorities
significantly improved the efficiency of these companies. Third, from all of the
companies in the sample, only Galenika-Fitofarmacija and meat industry Matijevi
remained on the efficiency frontier (CCR and BCC estimate). Fourth, the imple-
mentation of the BCC model marked a larger number of efficient companies, than
in the case of CCR model results. Fifth, the average score for the agro-industrial
sector tends towards the efficiency frontier. This indicates that the agro-industrial
companies in Vojvodina have constantly increased the technical efficiency. Bearing
in mind the implemented input oriented model, the companies reduced the input
variables volume from year to year (operating expenses and financial expenses) in
order to achieve a constant quantum of output variables (operating income and
financial income).
4. Conclusion
Subject of the research presented in this paper is the technical efficiency of agro-
industrial sector in Vojvodina. Evaluation of effectiveness is realized by implement-
ing CCR and BCC models. Also, we have exploited the input oriented model to
determine whether the company can reduce the quantum of inputs (operating and
financial expenses), in order to realize a constant quantum of output (operating and
financial income). The results indicate that some companies significantly increased/
decreased efficiency score. Also, the initiation of bankruptcy proceedings coincides
with the recent increase in the efficiency of the individual companies. In addition,
the use of BCC model identified a number of companies which are relatively ef-
ficient. Finally, the agro-industrial sector has increased the average efficiency score
in this period. In addition, a significant increase in efficiency was recorded through
observation of the results of assessing the efficiency with CCR model.
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Appendix 1: Efficiency scores and ranking of companies 376
CCR * CCR rank BCC* BCC rank
Kompanija
2010 2011 2012 2010 2011 2012 2010 2011 2012 2010 2011 2012
CARNEX VRBAS 80.06 80.29 86.92 16 17 13 85.96 81.1 90.67 16 19 15
VETERINARSKI ZAVOD SUBOTICA 78.1 81.95 85.33 20 15 16 80.04 82.22 86.19 21 18 17
CRVENKA FABRIKA EERA 84.68 87.89 92.60 7 9 8 146.47 94.80 96.14 5 10 12
BAG BAKO GRADITE 78.27 217.37 125.16 19 2 2 91.52 166.08 459.34 13 5 5
BANAT NOVA CRNJA 81.88 80.00 77.90 13 19 21 82.26 80.04 79.04 19 20 22
BANAT BANATSKI KARLOVAC 29.74 41.25 69.30 25 25 25 81.93 72.68 73.15 20 25 24
BEEJSKA PEKARA 667.51 85.58 79.72 1 11 18 169.97 95.02 85.5 4 9 18
DUVANSKA INDUSTRIJA OKA 79.03 83.16 86.37 17 13 15 88.16 97.41 98.79 14 8 10
IMLEK 85.66 84.47 89.32 6 12 10 495.91 926.07 878.57 1 1 1
DIJAMANT 80.66 80.04 88.85 14 18 12 114.70 91.42 97.65 8 14 11
GALENIKA-FITOFARMACIJA 116.94 111.21 108.94 3 3 3 117.13 112.46 109.27 7 6 6
TRIVIT-PEK 80.56 93.38 156.47 15 7 1 140.29 94.36 597.18 6 11 3
VITAL VRBAS 86.73 76.42 77.02 5 21 22 102.87 78.37 79.08 10 21 21
ITKO 77.84 72.82 71.82 21 24 23 78.50 73.84 71.84 22 24 25
NEOPLANTA 78.9 82.95 84.7 18 14 17 84.65 85.85 88.18 17 16 16
MLEKARA SUBOTICA 82.64 79.94 78.68 11 20 20 87.52 82.23 80.17 15 17 20
RATAR PANEVO 326 99.02 70.35 2 5 24 465.47 362.13 75.00 3 4 23
SEERANA ABALJ 84.62 86.78 89.77 8 10 9 91.53 88.97 91.2 12 15 14
TE-TO SENTA 83.98 96.02 95.67 9 6 6 112.63 109.77 101.92 9 7 8
PTUJ-TOPIKO 72.48 73.4 79.52 22 22 19 72.95 75.09 81.66 23 22 19
SOJA PROTEIN 82.04 80.36 86.40 12 16 14 95.64 93.76 94.78 11 12 13
DUKAT SOMBOR 83.5 90.49 95.13 10 8 7 84.00 91.67 107.18 18 13 7
MATIJEVI 107.19 108.99 104.02 4 4 5 490.57 923.18 862.52 2 2 2
PIK BEEJ 59.27 73.07 88.86 24 23 11 62.11 74.41 99.54 25 23 9
FIDELINKA SUBOTICA 60.55 336.14 106.53 23 1 4 67.61 479.78 462.76 24 3 4
Average score 80.45 84,37 86.97 ---- ---- ---- 89.37 89.33 90.74 ---- ---- ----
Vunjak Nenad Davidovi Milivoje
Source: Author`s calculation

GENERAL
ECONOMICS
FINANCING DEVELOPMENT PROJECTS IN NEW EU FINANCIAL PERSPECTIVE 20142020 379
FINANCING DEVELOPMENT PROJECTS IN NEW EU

FINANCIAL PERSPECTIVE 2014-2020
Gabrijela alac, B.Sc.1, Mario Banoi, Ph.D.2
1
Department for International Cooperation and EU Affairs,Vukovar-Srijem County,
Republic of Croatia, gabrijela.zalac@vk.t-com.hr
2
Department for Tourism and Culture, City of Vinkovci, mario.banozic@vk.t-com.hr
Abstract
The EU funds represent an important source of financing development proj-
ects in the Republic of Croatia. Only well-prepared projects on national, regional
and local level, involvement of potential beneficiaries of European projects in early
phases into the programming and planning process of strategic documents based
on bottom-up approach and larger investment of budget means through well-elab-
orated plan of development programs will be vital for successful use of structural
and investment funds in new EU financial perspective 2014-2020.
As the space for the increase of absorption of capacity of EU means existed even
in the pre-accession period, the need for additional improvement of capacities of
Croatian stakeholders for realization of financing their projects from EU funds
grew significantly with new and more abundant funds. Therefore, one of the most
important priorities of Croatian society as a whole is to focus their strengths to
making and implementing of high-grade projects that will compete for co-financ-
ing from EU funds, equally with projects from other member states.
In order to make the Republic of Croatia more competitive in using structural
instruments of cohesion policy it is necessary to involve relevant institutions into
the process of preparation of strategic documents in the next period, and especially
the present and future beneficiaries of the means to include and identify all needs
and development priorities of the Republic of Croatia.
Those that implement the projects know exactly which investments should be
supported. With this kind of bottom-up partnership approach the prioritising of
380 Gabrijela alac Mario Banoi
strategic references of future Operational programs and Partnership agreement

would be made much easier, and based on that the member states use EU funds.
If this should not be the case with the Republic of Croatia as a new member
state, the priorities of financing will be general and not sufficiently adjusted to real
needs of those that will implement the projects on field, and that will negatively re-
flect development results we wish to accomplish in the future financial perspective.
It is important not to neglect financial aspect of the projects, i.e. to ensure
enough means for their pre-financing and co-financing, in order to implement
the projects until the end. In major infrastructural projects it is more important to
ensure financial sustainability after the end of a project and European financing.
JEL Classification: F63, O21
Keywords: financing development projects, EU funds, new EU financial per-
spective, bottom-up approach, development programs plan
Introduction Cohesion policy and its guidelines

The preamble of the Roman Treaty of establishing the European Community
(1957) refers to the will of strengthening the economic and social cohesion of
the EU in respect of the harmonious, balanced and sustainable development of
the community. In the 1970s the European cohesion policy was equipped with
financial instruments in the form of structural funds, which were implemented in
frame of annual budget system. The main goal of the Treaty, as mentioned above,
was realized according to compensational criteria, which comprised of directing the
financial support towards solving the inner challenges of the EU, i.e. the help for
regions that suffer from structural problems. (Ministry of Regional Development
of Poland, 2009,20)
On June 24, 1988 the Council adopted the first regulation that integrated the
existing financial instruments under the roof of Cohesion policy. The total
long-term goal of Cohesion policy was clearly stated in the Art. 158. of the Treaty
under which: In order to promote its overall harmonious development, the Com-
munity shall develop and pursue its actions leading to the strengthening of eco-
nomical and social cohesion. In particular, the Community shall aim at reducing
disparities between the levels of development of the various regions and backward-
ness of the least favoured regions or islands, including rural areas. (Rybinski, 2009,
69)
Picture 1. Main components of Cohesion policy
Made by the author
If we add two more funds to the stated components, to be more precise the Eu-
ropean agricultural fund for rural development and European maritime and fisher-
ies fund, we place them under one common title, which are the European struc-
tural and investment funds (ESIF). The use of means from these funds represents
the foundation of sustainable and balanced economical growth.
As the Cohesion fund is mostly directed towards projects of national impor-
tance, such as the railway, roads and similar, we find Structural funds and Euro-
pean agricultural funds for rural development and European maritime and fisheries
funds especially interesting from the regional and local point of view.
The European fund for regional development has the aim to strengthen eco-
nomical and social cohesion and decrease the disparities in development between
the regions within the European Union. It is mostly directed towards infrastructur-
al investments, production investments with the goal to open job vacancies and to
local development and the development of small and medium enterprises, whereas
the European social fund tends to decrease disparities in standard of living and wel-
fare in member states and their regions, but at the same time promote economical
and social cohesion. (www.mrrfeu.hr)
Comprehensive aim of the Cohesion policy is to promote economical and social
cohesion in Europe by increasing the competitiveness of EU economy and by de-
creasing disparities in economical development between the countries and regions
in the European Union.
As the aims of the Cohesion policy are to be fulfilled by implementation and
investment into infrastructure such as the traffic, environment protection, ener-
getic, regional competitiveness and human potential development, Croatia faces a
great challenge that demands certain institutional adjustments. It is necessary, as
on national and regional so on local level to ensure multiannual and strategic ap-
proach, partnership of all relevant stakeholders and ensure that with the EU funds
the investments on both national and local level that have already been financed
speed up, rather than invent new areas of investment (IM, August 2013,13).
The Cohesion policy is at the same time expression of solidarity of the European
Union with less developed countries and regions, which concentrates means in
areas and sectors where they are most needed. The neglecting of these economical,
social and territorial disparities would mean undermining of basic principles of the
European union, including the common market and unique European currency.
Therefore, the significant part of the budget of the European Union is directed to
the Cohesion policy, what can be seen in the following graph:
Graph 1. The budgetary importance of Cohesion policy in EU (in billions of EUR)

376
400
350 308
300
250 195
200 161
150
75
100
50
0
19891993 19941999 20002006 20072013 20142020
The Republic of Croatia in new EU financial perspective 2014-2020

The Republic of Croatia has so far had through pre-accession funds 1,12 billion
EUR at disposal, from which 820 million EUR or 73,15% have been contracted,
which puts us in the upper-house of EU member states. When it comes to the
pre-accession program IPA that has been implemented since 2007, from 823 mil-
lion EUR that have been at our disposal 582.871.983,15 million EUR have been
contracted. But, that amount, as the previous, will continue to grow, because the
non-contracted means can be contracted and spent until the end of 2016. (www.
mrrfeu.hr)
Table 1. Total financial overview of pre-accession programs in the Republic of

Croatia in financial perspective 2007-2013
State: March 21st 2014
Contracted amount: 582.871.983,15 EUR
Paid amount: 383.111.380,63 EUR
Contracted Payment
Operational Allocated Paid amount Contracting rate
amount (in
program amount (in EUR) (in EUR) rate (%)
EUR) (%)
1 2 3 4 5 (3/2) 6 (4/2)
IPA I (2007-2013) 249.047.325,00 168.788.127,89 140.139.402,16 67,77 56,27
IPA II (Cross-border
cooperation + trans-
17.519.302,00 12.263.321,24 9.126.395,56 70,00 52,09
national program
2007-2013)
IPA V (2007-2013) 144.283.680,00 81.430.830,52 34.937.476,33 56,44 24,21
OP Traffic 2007-2013 236.983.305,00 80.264.872,60 54.880.827,41 33,87 23,16
OP Environment
281.099.011,00 96.290.130,65 41.760.986,20 34,25 14,86
2007-2013
OP Regional
competitiveness 187.779.595,00 69.336.849,96 46.121.774,37 36,92 24,56
2007-2013
OP Human resources
development 152.413.106,60 74.497.850,28 56.144.518,60 48,88 36,84
2007-2013
TOTAL 1.269.125.324,60 582.871.983,15 383.111.380,63 45,93 30,19
*Remark: The indicators of contracting and payment of means differ from former values presented in
regular reports every 6months on usage of pre-accession means, because for the first time the values of
allocated means from pre-accession and structural funds of European Union for 2012 and 2013 have
been included and therefore the total amount of allocated means from the funds of the European union
for the Republic of Croatia has been increased.
Source: www.strukturnifondovi.hr
The Republic of Croatia has for the first time begun to plan the investments
from European structural and investment funds for the period of seven years,
2014-2020 as an equal member state after July 1, 2013.
The process of programming of multiannual financial framework on the level of

European Union is finished and we can conclude that the Republic of Croatia was
allocated financial envelope in the amount of 8,029 billion EUR, which includes
means of the European regional development fund, European social fund and Cohe-
sion fund. If we add stipulated means for common agricultural policy in the amount
of 2,336 billion EUR we come to a sum of 10,365 billion EUR, i.e. 77,7 billion
kuna. These means can, with good and smart application, turn the negative economi-
cal trend in Croatia and initiate investments, growth, development and employment.
Table 2. Multiannual financial framework 2014 2020 2011. g.)

Allocated means from ESI funds for Croatia 2014-2020 in billions EUR
Cohesion policy ERDF, ESF i CF 8,029
Agriculture and rural development EAFRD 2,056
Maritime and fisheries EMFF 0,280
Source: www.mrrfeu.hr
The stated means are in harmony with the Strategy Europe 2020 and Common
strategic framework and are meant for the goals of employment, increase of invest-
ments into research and development, adjustment to climate changes, increase of
energy efficiency, use of renewable sources of energy, investment into education
and decrease of poverty and strengthening of social inclusion. Regarding Croatian
point of view, they are allocated exclusively to increase of competitiveness, decrease
of regional disparities and strengthening of human capacities.
They have been put on our disposal since January this year, but since the strate-
gic documents, like Partnership agreement as a top planning-programming docu-
ment with which Croatia reasons its strategy and justification for use of ESI funds
and Operational programs as program documents where measures and activities for
more efficient implementation and use of ESI funds are described in more detail,
have not been defined yet, we will have to wait for a while for using these means.
We consider it very important to emphasize that the projects from EU funds are
not co-financed in the amount of 100%, but it is also necessary to invest a part of
your own resources. The percentage of co-financing of projects through EU funds
depends from tender to tender, and minimum and maximum support that can
be allocated through individual call for delivery of project proposals is defined in
tender documents.
The EU funds are not only money, they give you the possibility of participation
in common market, labour market, then there is a possibility of studying, possi-
bility of self-employment and similar, and it is crucial to know them well and use
them efficiently.
We think that on the national level for the Republic of Croatia, there are not
enough financial means from the state budget allocated to major development
projects for preparation and implementation of development projects. The same
thing happens on regional and local level where the allocated means are insignifi-
cant or do not even exist.
In order to use European money put to our disposal on time, it is necessary to
prepare development projects in the value of more than 2 billion EUR on annual
basis. The stated implies that it is necessary to have a reserve of prepared projects
in double amount from European money at our disposal, which is on average 1
billion EUR annually. As 3-5% of total project value goes to the preparation of
projects it means that the Republic of Croatia would have to allocate annually
minimum of 100 million EUR for high-quality project preparation in new EU
financial perspective.
Therefore is every EUR from regional and structural funds of the EU planned;
it is managed in order to increase the means of local units that have the aim to
increase these units to the level of developed regions. Thus, the aim of managing
regional and structural funds of the European Union is balancing regional develop-
ment. (Kandija, V., 2004, 67)
County development strategies, especially from the aspect of budgetary plan-
ning, defining of strategic goals and priorities and connecting goal and budgetary
means play crucial role for high-quality preparation of regional and local devel-
opment projects. County development strategies bear basic guidelines of regional
development policy and they are the basic plan document for sustainable socio-
economical development of regional and local units.
This way of strategic planning through development projects is excellent and
needs to grow in this financial perspective, considering that all development activi-
ties are based in budgetary items. That way it is very simple to follow the realization
of certain priorities, measures and development projects in certain time frame.
Conclusion
The EU funds are main source of financing investments on European level that
help member states in economical revival and growth, preservation of existing and
creation of new jobs and give the possibility for sustainable development in accor-
dance with the Strategy Europe 2020. There, they should be recognized in Croatia
on all levels as major drivers of development in economy and competitiveness.
All investments in the Republic of Croatia can be significantly accelerated with
these means and things that were planned to be finished within twenty years with
own resources can be done in five years with mutual resources.
The basic condition for efficient implementation of European funds is to rec-
ognize in set goals and priorities all potential project leaders and that goals and
priorities should be defined coming from the needs of the local and regional self-
administration, entrepreneurs, scientists, non-profit organisations and similar (IM,
January 2014).
The issue of using European funds is pretty complex and sometimes even those
experienced in that area find it hard to manage all pieces of information and data
that appear in public.
We think that the main issue that stands out on the level of the Republic of
Croatia is that local and regional authorities do not have enough financial or hu-
man capacities in order to prepare development projects. They have to use the small
amount of resources they have efficiently and they have to know in advance what
will be financed in their area.
This is exactly where we see the role of the state in order to help according to
the development index both financially and administratively to units of local and
regional authority with preparation of strategic documents and pre-financing of
certain projects, as well as in co-financing of their implementation. If this does not
happen, the usage of means from EU funds will be very low on local level and they
will be mostly used by the most developed and fiscally strongest, which is totally
inconsistent with the goals of Cohesion policy.
References:
1. Jovanevi,R. (2005). Ekonomski uinci globalizacije i Europska Unija, Makron
promet, ISBN 953-95180-0-8, Zagreb
2. Kandija, V.(2004). Upravljanje regionalnim i strukturnim fondovima Europske
unije, Zbornik radova Ekonomska decentralizacija i lokalna samouprava, Karaman
Aksentijevi et al (ur), str. 54-68, ISBN 953-6148-39-0, 2004, Rijeka
3. Rybinski, K.( 2009). Cohesion Policy post-2013, A final wake up call for the EU,
Cohesion policy facing the challenges of the 21st century-Materials from conference,
Ministry of Regional Development, ISBN 978-83-7610-078-4, Warszawa, Poland
4. Sumpor,M. & Petak, Z. (2013). 4.Forum za javnu upravu: Policy i strategija u javnoj
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upravu, ISBN 978-953-7043-47-6, Zagreb
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dova Europske unije, Zbornik radova Ekonomska politika Hrvatske u 2012, Jurii,
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(rujan 2013). Proraun EU i financijska omotnica za RH, 14-17
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22-28
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12. IM (sijeanj 2014). Pripremljenost drava lanica za sudjelovanje u Kohezijskoj
politici 2014-2020 s posebnim osvrtom na Republiku Hrvatsku, 21-25
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Policy Post-2013, Desired Directionsof the Reform, Ministry of Regional Develop-
ment, Warsaw
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16. Zakon o proraunu, Narodne novine 87/08, 136/12
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18. http://www.mrrfeu.hr/default.aspx?id=1425 (26. oujka 2014)
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blje%20EU%202007-2013/OPRK%202007-2013%20HRV%20NOVI%20-.
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MICROECONOMICS,
MACROECONOMICS
AND
MONETARY
ECONOMICS
THE REPUBLIC OF CROATIA EMLPOYMENT STRUCTURE ANALYSIS FROM 2008 ... 391
THE REPUBLIC OF CROATIA EMLPOYMENT

STRUCTURE ANALYSIS FROM 2008 UNTIL 2013 AS AN
MACROECONOMICAL CRISIS INDICATOR
Besim Aliti, mag.kin.1, Marko Marki, B.Sc.2, Boris tulina, B.Sc.3
1
Republic of Croatia,besim.aliti@hotmail.com
2
Oil AC Ltd., Bosnia and Herzegovina, marko.markic@oilac.com
3
Republic of Croatia, boris.stulina@gmail.com
Abstract
Employment (unemployment) is one of the most observed macro-economic
indicators with GNP and inflation (Ferenak, 2003). Thus, it could easily be con-
cluded that employment analysis would give us a transparent data of the economic
situation of the Republic of Croatia and European Union. The paper puts forward
the curve of employment which shows the fluctuations of the employment struc-
ture at the period of past ten years (from 2003 to 2013). Statistical analysis in
programming language R have been used in order to give prospective on European
Union and Croatian employment past trends, its correlation with GDP and its
future predictions for period 2014 to 2016.
JEL Classification: E24
Keywords: Employment/Unemployment, GDP, European Union,
INTRODUCTION
Macroeconomics is a branch ofeconomicsdealing with the performance, struc-
ture, behavior, and decision-making of aneconomyas a whole, rather than indi-
vidual markets. This includes national, regional, and global economies (Sullivan,
Sheffrin, 2003, 57). Ferenak (2003, 241) points out three main indicators of
macroeconomics: inflation, employment (unemployment) and GDP. Two of them,
GDP and unemployment are analyzed in the paper. The same author defines un-
392 Besim Aliti Marko Marki Boris tulina
employment as a state of a part of the population without job and searching for
one. Also, he distinguishes four types of unemployment: frictional, cyclical, sea-
sonal and structural, from which emphasize is on frictional since it is the only one
where country must interfere. GDP is presented as the sum of final goods being
produced by an economy.
The paper analyzes two macro-economic indicators, GDP and employment
(unemployment) with data collected among Croatia and European Union from
2003 until 2013. Therefore, the paper analyzes the correlation between Croatian
and European Union GDP and the unemployment rate with the aim of predict-
ing trends of GDP and unemployment for next three years (2014-2016) in EU
and Republic of Croatia. According to European Communication Commission,
Europe Strategy 2020 puts forward three mutually reinforcing priorities: smart
growth (developing an economy based on knowledge and innovation); sustainable
growth (promoting a more efficient economy in terms of resource use, more eco-
logical and competitive); inclusive growth (fostering an economy with a high rate
of employment, to ensure social and territorial cohesion) (Iuga, Cioca, 2013, 71)
In conclusion, the paper is written with the aim to make a significant contri-
bution on the general macro-economic analysis of the Republic of Croatia and
European Union dealing with high unemployment rates. As it was mentioned pre-
viously, beside the analysis of past and current trends of unemployment rates and
GDP in EU and Croatia aim of this paper is to predict its future trends for period
2014 to 2016.
1. UNEMPLOYMENT GENERAL ISSUE OF NATIONAL ECONOMIES

As it was mentioned previously, Ferenak (2003, 241) defines unemployment as
a state of a part of the population without job and searching for one. Other authors
have also put various definition of unemployment. Bejakovi (2003, 659) defined
unemployment as a state in which a capable of working part of society doesnt work
or works under the standard working hours and with incomes under the mini-
mum salary. Kerovec (1999, 259) defined unemployment as a structure consisting
of three criteria: a person without a job, capable of working and searching for a
job. Anunemployedperson isdefinedbyEurostat, according to the guidelines of
theInternational Labor Organization, as:
someone aged 15 to 74 (inItaly, Spain, theUnited Kingdom, Iceland, Nor-
way: 16 to 74 years);
without work during the reference week;

available to start work within the next two weeks (or has already found a job
to start within the next three months);
actively having sought employment at some time during the last four weeks.
The classification of unemployment identifies four main types:
1. Frictional
2. Structural
3. Seasonal
4. Cyclical
According to Hughes, Perlman (1984, 27-30) both frictional and structural
unemployment arise because the labor market is not perfect in matching the vast
number of individual suppliers of labor services with a large number of employ-
ers who demand those services. This happens because in dynamic economy many
suppliers will keep contracting their traditional lines of business while others will
diversify their activities and therefore demand new operations. On the supply side
some workers will withdraw from the labor market, other might return to it or en-
ter for the first time. The net result is that the changes on the supply side will effect
that some of the workers will have to quit jobs, some of them will be laid off and
others will enter or re-enter. Cyclical unemployment occurs during the recession
phase of a business cycle when investments and consumption expenditures begin to
fall off and the economy is unable to generate the same number of jobs existing at
the previous cyclical peak. According to Ferenak (2003, 251) seasonal unemploy-
ment include all workers being left without a job at some period of year because of
the seasonal characteristics of a job.
Unemployment is almost always expressed by the unemployment rate. Eurostat
(2014) define the unemployment rate as a number of unemployed as a percentage
of the labor force. The same formula will be used in unemployment analysis of
Croatia and EU, as well in their comparison and correlation. The unemployment
rate is an important indicator with both social and economic dimensions.
Rising unemployment results as: a loss of income for individuals, increased pres-
sure to government to spend on social benefits and a reduction in tax revenue.
From an economic perspective, unemployment may be viewed as unused labor
capacity. The unemployment rate is considered to be a lagging indicator. When
there is an economic downturn, it usually takes several months before the unem-
ployment rate begins to rise. Once the economy starts to pick up again, employers
usually remain cautious about hiring new staff and it may take several months
before unemployment rates start to fall (Eurostat, 2014). Europe 2020 strategy and
its two initiatives concerning unemployment issues, An agenda for new skills and
jobs and Youth on the move put forward by European Commission unemploy-
ment rates will be targeted via by a range of policies, including proposals aimed at
education and training institutions, or measures for the creation of an environment
conducive to higher activity rates and higher labor productivity (Iuga, Cioca, 2013,
71; European Commission, 2014). As well as for the EU countries, Europe 2020 is
implemented in Croatia and is expected to give positive results in the years.
Graph 1. Unemployment graph Unemployment EU and Croatia comparison

form 2003 to 2013
Source: Author calculation

Graph 2. Unemployment graph Unemployment EU countries and Croatia

comparison form 2003 to 2013

On these graphs is presented comparison of unemployment between Croatia
and EU as a whole and comparison between Croatia and EU countries separately
in the period 2003-2013. Economic crisis in 2009 began to destroy the economic
stability of Europe. Until 2009, Croatia was not able to get back to the previous
years level and unemployment is still rising. Since 2003 Croatia has been above
EUs average in unemployment except in 2009, which was a year after crisis began.
While Croatias labor force is sinking some of the EU members have woken up and
became a perfect example, like Poland and Slovakia. Unemployment in Croatia
is breaking all the records and unfortunately, the prognoses are still poor for the
Croatian economy. Since 2008 the unemployment rate has doubled from 8.6 % to
16.3 % in 2012, and most young people are affected. If Croatia is compared with
its neighbors, Slovenia or Hungary with the unemployment rate of 9 % and 11%,
Croatia is still deeply affected with economic crisis and its consequences.
2. GDP - REAL ECONOMIC STRENGTH MEASUREMENT FOR ANY COUNTRY

National accounts provide a comprehensive set of data about the economy, in-
cluding the widely reported indicator gross domestic product (GDP). GDP, the
most important concept of macroeconomics, refers to the total amount of goods
and services a country produces. As well as being an indicator of the overall size of an
economy, GDP is also used as a benchmark for other indicators to facilitate compari-
son between countries and regions or over certain period of time, and as a standard
measure of economic progress. Useful for analysts, economists and investors, it is the
most followed, discussed and digested indicator. Looking backwards in time it allows
us to calculate economic growth. Truly economic growth is the change in the size of
the economy and the level of output, and for that reason we calculate GDP figures. It
is also a good way of assessing a quality and effectiveness of government policy that is
trying to achieve economic growth. Only by measuring the economy we will know if
these policies were successful or not. GDP has four components:
private consumption (C)
gross investments (I)
government spending (G)
net exports (X) imports (M)
GDP at market prices, which is used in this papers analysis, is the final result of
the production activity of resident producer units and it can be defined in three ways:
GDP Production approach sum total of market value of final goods and
services produced an a country during 1 year
GDP Expenditure approach all expenditure incurred by individuals during
1 year
GDP Income approach sum total of incomes of individuals living in a
country during 1 year
GDP per capita is an approximation of the value of goods produced per person
in the country, equal to the countrys GDP divided by the total number of people
in the country. Economic variables such as unemployment are important factor
that influences the GDP and need to be controlled by the government to achieve
the stabilization of economy. The correlation between GDP and unemployment
which is analyzed in this paper can be seen as the higher unemployment rate will
contribute to lower GDP because it indicates the slower growth of the economy
by having too much jobless because of the unproductive economy. The effects of
the crisis can be seen in constantly increasing rate of unemployment, the continual
decline in GDP, and reduced share of exports to the EU and rest of the world
(M.Vedri,The Republic of Croatia before its entry into the EU: expectations and
limits, zbornik radova sa Interdiscplinary Management Research). In 2012 GDP
in Croatia stood at 43.9 billion equivalent to 0,3 % of the EU-28 total. Relative
to the size of population, GDP in Croatia was 10.300 per capita, around 40 %
of the 25.600 per capita average for the EU-27. It should be borne in mind that
the cost of living in Croatia is below the EU average. GDP per capita in Croatia
was around 61 % of the EU-27 average in 2011, above that of Latvia, Romania
and Bulgaria. Prior to the financial, economic and public debt crisis annual GDP
growth in Croatia exceeded that in the EU-27 but since 2009 this situation has
reversed. (Eurostat, Stat Portrait Of Croatia2013, 76).
Croatia faces a major challenge in terms of strengthening public finances and
promoting competitiveness. After five years of recession, the growth which is based
on the creation of new jobs is a major challenge in the short term. Europe 2020 is
a ten year strategy of growth of the EU. The goal is not only to overcome the crisis
that still affects most of our economies, but also to fix shortcomings of current
growth model and strategies and to create a different kind of growth that will be
smarter, sustainable and inclusive. Five main objectives are defined that EU must
achieve till the end of decade. These include employment, education, research and
innovation, social inclusion and poverty reduction and climate change and energy
(ec.europa.eu/europe2020/europe-2020-in-a-nutshell/index_hr.htm).
In 1962, Kuznets stated: Distinctions must be kept in mind between quantity
and quality of growth, between costs and returns, and between the short and long
run. Goals for more growth should specify more growth of what and for what(S.
Kuznets, How to judge quality, The New Republic, 1962).
Graph 3. GDP - EU and Republic of Croatia comparison
Source: Author calculation Graph 4. GDP in 27 EU countries

Graphs 3 and 4 show the change rates of GDP and GDP comparison between
Croatian and EU and Croatia and the EU member states individually. It can be
seen that in the period from 2003 until 2008 GDP grew, but the consequences of
the economic crisis, both worldwide and in the EU led to a decline of GDP of up
to 6.9% in 2009 and gradually stabilized on an annual basis. Experts predictions
are that GDP will achieve positive growth of 1 % in 2014. Peer countries such as
Czech Republic, Hungary, Poland, Slovakia, Slovenia, Bulgaria and Romania have
all managed to stabilize its own GDP.
3. GDP AND UNEMPLOYMENT ANALYSIS FOR EUROPEAN UNION AND

REPUBLIC OF CROATIA
3.1. Analysis for European Union
In this chapter will be analyzed GDP and unemployment of European Union
and Republic of Croatia. Main goal of this analysis is show GDP and EU and Re-
public of Croatia unemployment in the last 10 years, its correlation and to predict
its future trends.
Analysis of correlation between GDP and unemployment shown in past ten
years will be done by appliance of programming language R and its packages. All
commands in R language are intuitive and there is no need of higher level com-
puter programming knowledge to its understanding. All data for analysis, GDP
and unemployment rates in past ten years are prepared in dataset form and stored
in Excel worksheet.
Command conn=odbcConnectExcel(C:\\MarkoAna\\euBN.xls) connects with
data stored in Excel. In business intelligence system is usually to interpret data us-
ing three-dimensional visualization (in data cube form). In our example data cube
is formed by data of unemployment, and GDP in EU and in Republic of Croatia
for 10 years of time period, from 2003 until 2013.
Lines of commands in programming language R to create three-dimensional
data cube:
> library(RODBC)
> library(scatterplot3d)
> conn = odbcConnectExcel(C:\\MarkoAna\\euBN.xls)
> data = sqlFetch(conn, euBN)
> X<-data$Year
> Y<-data$Unemployment
> Z<-data$GDP
> scatterplot3d(X, Y, Z, pch=16, type=h, main=Data cube: GDP versus unem-
ployment in EU from year 2003 to 2012, xlab=Year, ylab= Unemployment,
zlab = GDP .)
Picture 1. Data cube showing GDP versus unemployment in EU from 2003 until
2012
20000 21000 22000 23000 24000 25000 26000
GDP
Unemployment
11
10
9
8
7
2002 2004 2006 2008 2010 2012
Year

Picture 1 shows the correlation between GDP and unemployment for the pe-
riod from 2002 until 2012. Z-axis represents the amount of GDP in the EU in
thousands of , Y-axis percentage of unemployment and axis-X represents years.
The picture shows that the lowest unemployment rate was in 2003, and the highest
unemployment rate was in the 2012 (Z axis). It is also evident that the increases of
GDP and unemployment have the same trend for several years.
The Y-axis illustrates the changes in the unemployment rate in the EU, and the
X-axis changes in GDP (in percentage), which is economically justified and logi-
cal, because unemployment is a function of GDP in every big economic system.
In other words, it is assumed that any increase in GDP at the same time reduces
unemployment (unemployment change is positive) and vice versa. Mathematically
said reducing unemployment is a decreasing function of GDP growth.
Analyzing changes of unemployment and changes of GDP in the EU, there are
visible periods for which is valid economic logic, but there are also other periods in
which such economic logic is lost.
Picture 2. Regression line showing unemployment changes versus GDP changes

in EU
Picture 2 shows correlation between unemployment rate change and GDP

change in European Union during past 10 years (2003 to 2013).
There are two periods of unexpected changes in GDP and unemployment fluc-
tuations (section of a graph in which function has a positive incline). Polyno-
mial sixth grade (regression function), best adapts to the original data (best ap-
proximates them).
Ur = 0,0004GDP6 - 0,0128 GDP 5 + 0,149 GDP 4 - 0,8584 GDP 3 + 2,5467 GDP 2 -
3,6601 GDP + 2,0485
Ur is the change of unemployment rate and GDP is change in Gross Domestic
Product in European Union. The coefficient of determination is R = 0.99. That
means that the regression function explains 99% of the original data (changes of
unemployment rate as a function of changes in GDP).
The original data of unemployment rate changes and changes in GDP for the
period from 2003. to 2012. can be visualized again (picture 3). For visualization are
used following sequence of commands of programming language R:
>library(RODBC)
>library(scatterplot3d)
>conn = odbcConnectExcel(C:\\MarkoAna\\UnGDPc.xls)
>data = sqlFetch(conn, List1)
>X<-data$Year
>Y<-data$Unc
>Z<-data$GDPc
>scatterplot3d (X, Y, Z, pch=16, type=h, main=Data cube: GDP change versus
unemployment change in EU from year 2003 to 2012, xlab=Year, ylab= Un-
employment, zlab = GDP ).
After establishing connection with data source (file UnGDPc.xls) from relation
table next attributes are selected:
X<-data$Year;
Y<-data$Unc and
Z<-data$GDPc
These vectors keep data about year, GDP changes rate and changes of unem-
ployment rate respectively. In three dimensional data cube (picture 3.) are shown
all points/records of relational table. Because one of three dimensions is time di-
mension in three dimensional systems is not clear relation between values of GDP
changes and unemployment. These functional relations which are complement
with economic logic are shown in picture 2.
Picture 3. GDP change versus unemployment change in EU from 2003. until 2012

3.1.1. Prediction of trend of unemployment rate and GDP for EU in period 2014 to
2016
It would be very interesting if predictions about the unemployment rate changes
in the EU, according to expected changes of GDP, would be implemented in the pe-
riod 2014 to 2016. Such predictions follow all weaknesses that are due to the qual-
ity of the data and imperfections of predicting analytical instruments. Nowadays,
in data analysis and predictions of variables future trends, methods of knowledge
discovery in data are used. There are more methods which stream to avoid strictly
mathematical functional dependence usually shown as regression. Implementation
of those methods is a special part of the scientific research which is not part of the
goals set in this paper. Those methods are called data mining and they are part of
process of knowledge discovery in data. Those are applicable mostly on the large
amount of data which detects hidden relations and connections between variables.
All data are specially prepared and filtered and are usually in form of dataset to
be analyzed with some of data mining algorithm or method. The most common
transformations of data in such system, also called the system of the business intel-
ligence, are: inductive rules (ID3 and C4.5 algorithm), Support Vector Machines,
multivariate methods (e.g. Principal Component Analysis), clustering methods (k-
means clustering, hierarchical and agglomerative clustering, fuzzy c-means cluster-
ing), neural networks, associative rules, Bayes algorithm etc.
Because there is fewer amount of data in process of analysis and prediction of
unemployment rate changes as function of GDP amount it will be used trend line
based on unemployment rate data in EU from period 2003 until 2012. Also, for
the analysis, again it will be used simple commands in programming language R.
Data are stored in file C:\\MarkoAna\\euBN.xl. After loading data it is enough to
call function lm(Y~X) that adapts to original data.
Result of calculation is trend function Y=0.1733*X - 339.0267.
> Unemployment prediction (2014 to 2016):
> Unemployment_prediction=round (0.1733*(2014:2016) - 339.0267,2).
Results of calculation in programing language R showed that the unemploy-
ment trend in period from 2014 to 2016 will be 10.00% (2014); 10.17% (2015)
and 10.35% (2016).
GDP trend:
> X<-data$Year
> Z<-data$GDP
> trendGDP<-lm(Z~X)
> abline(trendGDP)
> trendGDP
Call:
lm(formula = Z ~ X)
Coefficients:
(Intercept) X
-914280.0 467.3
Z=467.3*X-914280.0
Result of calculation is trend function Z=467.3*X-914280.0.

EU GDP prediction for 2014, 2015 and 2016:
> GDP_prediction=round (467.3*(2014:2016)-914280.0,2)
> GDP_prediction
[1] 26862.2 27329.5 27796.8
Results of calculation in programing language R showed that the GDP trend

in period from 2014 to 2016 in EU will be 26.862,2 (2014); 27.329,5 (2015)
and 27.796.8 (2016).
Next regression function shows the functional relationship between unemploy-
ment and GDP in absolute values.
Picture 4. Correlation between unemployment rate and GDP in absolute

amounts in EU for 2003 to 2013
Regressionline
12,00 y=0,0043x5 0,1311x4 +1,4642x3
7,2005x2 +14,517x
10,00 R=0,8881
8,00
6,00
Regressionline
4,00
Poly.(Regressionline)
2,00
0,00

Picture 4 shows correlation between unemployment rate and GDP in absolute
amount in European Union during past 10 years (2003 to 2013).
Polynomial fourth grade (regression function), best adapts to the original data
(best approximates them).
Ur = 0,0043GDP5 - 0,1311 GDP 4 +1,4642GDP 3 -7,2005 GDP 2 + 14,517GDP
3.2. Analysis for Republic of Croatia

The same methodology and procedure used in analysis for European Union is
also used in analysis of unemployment rate and GDP past trends and its future
predictions for Republic of Croatia.
Following the same methodology by analyzing relations between unemploy-
ment and GDP in Republic of Croatia there is significant similarity in the macro
economical variable changes with those in the EU countries. In fact, the results
showed the decrease of the unemployment rate in the periods of GDP growth. The
difference exists in the coefficients of the regression equation but slope and direc-
tion of changes is very similar to what is seen in the previous diagrams related to
European Union.
> library(RODBC)
> conn=odbcConnectExcel(C:\\MarkoAna\\HRVGDP.xls)
> data=sqlFetch(conn,CroGdp)
> X<-data$Year
> Z<-data$GDP
> scatterplot3d(X, Y, Z, pch=16, type=h, main=Data cube: GDP versus unem-
ployment in Croatia from year 2003 to 2012, xlab=Year, ylab= Unemploy-
ment, zlab = GDP )
Picture 5. GDP versus unemployment rate in Republic of Croatia in 2002 to 2012
Picture 5 shows the correlation between GDP and unemployment rate for the
period from 2002 until 2012. Z-axis represents the amount of GDP in the Re-
public of Croatia in thousands of , Y-axis percentage of unemployment and
axis-X represents years. The picture shows that the lowest unemployment rate
was in 2003, and the highest unemployment rate was in the 2012 (Z axis). It is
also evident that the increases of GDP and unemployment have the same trend
for several years.
The Y-axis illustrates the changes in the unemployment rate in the Republic
of Croatia, and the X-axis changes in GDP (in percentage), which is economi-
cally justified and logical, because unemployment is a function of GDP. In other
words, it is assumed that any increase in GDP at the same time reduces unem-
ployment (unemployment change is positive) and vice versa. Mathematically
said reducing unemployment is a decreasing function of GDP growth.
Picture 6. Regression line of unemployment rate changes versus GDP changes

9000 10000 11000
Unemployment
GDP
8000
16
14
7000
12
10
6000
8
2002 2004 2006 2008 2010 2012
Year
Analyzing changes of unemployment and changes of GDP in the Republic of

Croatia, there are visible periods for which is valid economic logic, but there are
also other periods in which such economic logic is lost.
Picture 6 shows correlation between unemployment rate change and GDP
change in Republic of Croatia during past 10 years (2003 to 2013).
There are two periods of unexpected changes in GDP and unemployment fluc-
tuations (section of a graph in which function has a positive incline). Polynomial
third grade (regression function), best adapts to the original data (best approxi-
mates them).
Ur = 0,0048GDP 3 0,0736GDP 2 + 0,2774GDP 0,1289
Product in Republic of Croatia. The coefficient of determination is R = 0,89. That
The original data of unemployment rate changes versus changes in GDP for the
period from 2003. to 2012. can be visualized again (picture 7). For visualization are
used following sequence of commands of programming language R:
> library(RODBC)
> conn = odbcConnectExcel(C:\\MarkoAna\\UnGDPcCro.xls)
> data = sqlFetch(conn, List1)
> X<-data$Year
> Y<-data$Unc
> Z<-data$GDPc
> scatterplot3d(X, Y, Z, pch=16, type=h, main=Data cube: GDP change versus
unemployment change in Croatia from year 2003 to 2012, xlab=Year, ylab=
Unemployment, zlab = GDP )
Picture 7. GDP change versus unemployment change in Republic of Croatia

from 2003 to 2012
Source: Author calculation 1
These vectors keep data about year, GDP changes rate and changes of unem-
ployment rate respectively. In three dimensional data cube (picture 3.) are shown
all points/records of relational table.
3.2.1. Prediction of trend of unemployment rate and GDP for Republic of Croatia
in period 2014 to 2016
Prediction of unemployment rate and GDP future trends for Republic of Croa-
tia will be done by the same methodology and procedures using programming
language R as prediction for European Union in the paper.
Sequence of commands in programming language R:

> library(RODBC)
> X<-data$Year
> Z<-data$GDP
> trendUY<-lm(Y~X)
> abline(trendUY)
> trendUY
Call:
lm(formula = Y ~ X)
Coefficients:
(Intercept) X
19.320000 -0.003636
Unemployment trend function - Y=-0.003636*X+19.320000
> UnEmploy_prediction=round(-0.003636*(2014:2016)+19.320000,2)
> UnEmploy_prediction
[1] 12.00 11.99 11.99
Results of calculation in programing language R showed that the unemploy-
ment trend in period from 2014 to 2016 for Republic of Croatia will be 12.00%
(2014); 11.99% (2015) and 11.99% (2016).
GDP trend and prediction:

> library(RODBC)
> X<-data$Year
> Z<-data$GDP
> trendGDP<-lm(Z~X)
> abline(trendGDP)
> trendGDP
Call:
lm(formula = Z ~ X)
Coefficients:
(Intercept) X
-784934.9 395.6
GDP trend function - Z=395.6*X-784934.9
> GDP_prediction=395.6*(2014:2016)-784934.9
> GDP_prediction
> [1] 11803.5 12199.1 12594.7
Results of calculation in programing language R showed that the GDP trend

in period from 2014 to 2016 in Republic of Croatia will be 11.803,5 (2014);
12.199,1 (2015) and 12.594,7 (2016).
Picture 8. Regression line unemployment change versus GDP in absolute

amount in Republic of Croatia for 2003 to 2013

Picture 8 shows correlation between unemployment rate and GDP in absolute

amount in Republic of Croatia during past 10 years (2003 to 2013).
Polynomial of sixth grade (regression function), best adapts to the original data
(best approximates them).
Ur = 0,0009GDP6 - 0,0316GDP5 + 0,4265 GDP 4 2,6741GDP 3 + 7,9267
GDP 2 + 11,2GDP + 19,88
4. CONCLUSION
GDP and unemployment as two economic indicators are used to measure eco-
nomic growth and strength of any economy. Its analysis and attempts of predic-
tions are very important for establishing economics policies in every country.
In this paper those two indicators, its past values and future trends for European
Union and Republic of Croatia are presented.
Result of unemployment and GDP trend analysis for EU showed that the low-
est unemployment rate was in 2003, and the highest unemployment rate was in
the 2012. It is also evident that the increases of GDP and unemployment have the
same trend for several years. It is assumed that any increase in GDP at the same
time reduces unemployment (unemployment change is positive) and vice versa.
Mathematically said reducing unemployment is a decreasing function of GDP
growth.
Analyzing changes of unemployment and changes of GDP in the EU, there are
visible periods for which is valid economic logic (lower unemployment rate with
higher GDP), but there are also other periods in which such economic logic is lost.
Following the same methodology by analyzing relations between unemploy-
ment and GDP in Republic of Croatia there is significant similarity in the macro
economical variable changes with those in the EU countries. In fact, the results
showed the decrease of the unemployment rate in the periods of GDP growth. The
difference exists in the coefficients of the regression equation but slope and direc-
tion of changes is very similar to what is seen in the previous diagrams related to
European Union.
References:
1. Europe2020: Europe 2020 in nutshell (2014). Eurostat, European Commission.
2. Bejakovi, P. (2003). Pojmovnik. Zagreb: Institut za javne financije.
3. Economic Programme of Croatia (2013). European Commission.
4. Ferenak, I. (2003). Poela Ekonomike. Osijek: Sveuilite J.J. Strossmeyera u
Osijeku, Ekonomski fakultet.
5. Hughes, J. J., Perlman, R. (1984). The economics of unemployment: A comparative
analysis of Britain and the United States. UK: Cambridge University Press.
6. Iuga, I., Cioca, I. C. (2013). Analysis of correlation between the unemployment
rate and gross domestic product in the European Union. Poland: Polish Journal of
Management Studies.
7. Kerovec, N. (1999). How to measure unemployment. Zagreb: Revija za socijalnu
politiku.
8. OSullivan, A., Sheffrin, S. M. (2003). Economics: Principles and tools. USA: Pren-
tice Hall PTR
9. Stat Portrait of Croatia (2013). Eurostat, European Commission.
10. Unemployment statistics (2014). Eurostat, European Comission.
11. Vedri, M. (2013). The Republic of Croatia before its entry into the EU: expectation
and limits. Opatija: Interdisciplinary Management Research. Pristup (10-02-2014)
12. 2014: Jo jedna teka godina (2014). HUB, Klub glavnih ekonomista hrvatskih
banaka.
13. Simon Kuznets (1962). How To Judge Quality. USA: The New Republic.
THE HAWALA SYSTEM 413
THE HAWALA SYSTEM

va Ladnyi, Ph.D.,1 Istvn Kobolka, Ph.D.2
1
Chief Advisor at Ministry of Human Resources, Hungary, eva.ladanyi@nefmi.gov.hu
2
Head of Department for the Institute of National Security in the National University of
Public Service, Hungary, kobolka.istvan@feek.pte.hu
Abstract
The authors in their article review a well-known money transfer system in Mid-
dle-East and Asia. There is an alternative remittance channel that exists outside of
traditional banking systems. The main focus of the article is why and how does
the systems work in practice? Hawala or hundi is a method of transferring money
without any real movement. Transactions between hawaladars or hawala operators
are done without promissory notes because the system is heavily based on trust.
One definition from Interpol is that Hawala is money transfer without money
movement. Hawala originated in Asia during ancient times, and is used in many
regions in the world today, especially in the Islamic community.
JEL Classification: E26, N15
Keyword: Hawala, padala, hundi, hawaladar, informal funds transfer (IFT),
Sharia,
What is hawala?
Informal funds transfer (IFT) systems are in use in many regions for transferring
funds, both domestically and internationally. The hawala system is one of the IFT
systems that exist under different names in various regions of the world. Hawala is
a traditional and alternative Asian Remittance System in the Middle East, North
Africa, South Asia and the Horn of Africa. Known as hawala in India, hundi in
1
Canon lawyer and state building expert, She is working in the Ministry of Human Resources as a
chief advisor in the international department
414 va Ladnyi Istvn Kobolka
Pakistan, fei qian in China2, padala in Philippines, hui kuan in Hong Kong, and
phei kwan in Thailand.
The FATF3( Financial Action Task Force) uses the following definition:
Alternative remittance systems cover any system used for transferring money
from one location to another and generally operating outside the banking channels.
The services encompassed by this broad definition range from those managed by
large multinational companies to small local networks. They can be of a legal or il-
legal nature and make use of a variety of methods and tools to transfer the money.4
Origins of the word of hawala and hundi

The words hawala and hundi are both used, interchangeably and correctly.
There is only one system, the usage the hawala and hundi systemis incorrect. The
correct usage is hawala or hundi system.
The word comes from the Arabic root h-w-l, which has the basic meaning
change and transform. The word of hawala is defined as a bill of exchange or a
promissory note. When the word came into Hindi5 and Urdu6 languages it retained
the meanings, but it also gained the additional meanings trust and reference,
which reflect the manner in which the system operates. The hawala operator is the
hawaladar or hawala operator7.
The word hundi comes from the Sanskriti8 root meaning collect. In addi-
tion to this, it also has the same meanings as hawala. The hundi operator is the
hundiwala.
Both terms are used.
2
In China has another well-known system: the chop or chit or flying money, and also used
around the world.
3
The Financial Action Task Force is an inter-governmental body whose purpose is the development
and promotion ofnational and international policies to combat money laundering and terrorist fi-
nancing.TheFATFis therefore a policy-making body that works to generate the necessary political
will to bring aboutlegislative and regulatory reforms in these areas.
4
http://www.fatf-gafi.org/dataoecd/16/8/35003256.pdf
5
Hindi is one of the national language of India.
6
Urdu is the national language of Pakistan.
7
The term of Hawala dealers are used, too.
8
The liturgical language of Hinduism and the Persian of the Mughals, the Islamic rulers of India.
The history of hawala

Hawala is an ancient system originating in South Asia. Its origins in the classical
Islamic law (Sharia) and is mentioned in texts of Islamic jurisprudence in early 8th
century. Hawala itself later influenced the development of the operation in civil
law.
Hawala is believed to have arisen in the financing of long-distance trade around
the emerging capital trade centres in the earlymedieval period.
In early 20th century the hawala appears to have developed into a fully-fledged
money market instrument, which was only gradually replaced by the instruments
of the formal banking system. Today, hawala and traditional banking exist as
parallel, but intertwined economic systems in India and Pakistan.
How does the system work?

Hawala systems involve the transfer of the value of currency without physically
moving it. In fact money transfer without money movement is a definition of
hawala that was used, successfully, in a hawala money laundering case.
An effective way to understand hawala is by examining a single hawala transfer:
An initial transaction can be a remittance from a customer (CA) from country
A, or a payment arising from some prior obligation, to another customer (CB) in
country B. A hawaladar from country A (HA) receives funds in one currency from
CA and, in return, gives CA a code for authentication purposes. He then instructs
his country B correspondent (HB) to deliver an equivalent amount in the local cur-
rency to a designated beneficiary (CB), who needs to disclose the code to receive
the funds. HA can be remunerated by charging a fee or through an exchange rate
spread. After the remittance, HA has a liability to HB, and the settlement of their
positions is made by various means, either financial or goods and services. Their
positions can also be transferred to other intermediaries, who can assume and con-
solidate the initial positions and settle at wholesale or multilateral levels.
The settlement of the liability position of HA vis--vis HB that was created by
the initial transaction can be done through imports of goods or reverse hawala. A
reverse hawala transaction is often used for investment purposes or to cover travel,
medical, or education expenses from a developing country. In a country subject to
foreign exchange and capital controls, a customer (XB) interested in transferring
funds abroad for, in this case, university tuition fees, provides local currency to HB
and requests that the equivalent amount be made available to the customers son
(XA) in another country (A).
Customers are not aware if the transaction they initiate is a hawala or a reverse
hawala transaction. HB may use HA directly if funds are needed by XB in country
A or indirectly by asking him to use another correspondent in another country,
where funds are expected to be delivered.
A reverse hawala transaction does not necessarily imply that the settlement trans-
action has to involve the same hawaladars; it could involve other hawaladars and be
tied to a different transaction. Therefore, it can be simple or complex. Furthermore,
the settlement can also take place through import transactions. For instance, HA
would settle his debt by financing exports to country B, where HB could be the
importer or an intermediary.9
Fig.1. The Hawala system 10
9
El-Qorchi,Mohammed: Hawala
10
http://www.imf.org/external/pubs/ft/fandd/2002/12/elqorchi.htm
Why does hawala work?

Hawala works because of its cost effectiveness. The secondary consideration is
that there is often related or even integral to existing business dealings.
On reason for hawalas cost effectiveness is low overhead. The second reason
is exchange rate speculation. In addition, since many hawaladars are involved in
businesses where money transfers are necessary, providing remittance services fits
well into these businesses existing activities. Monies from remittances and business
transfers are processed through the same bank accounts, and few, if any, additional
operational costs are incurred by a business that offers hawala remittance services.
Finally, one of the most important movement is trust. Hawala dealers are almost
always honest in their dealings with clients and fellow hawaladars. Breaches of
confidence are very rare. It can be note that one of the most important meanings
attached to this word hawala is trust.
Everybody knows that Hawala hurts the national economies of developing
countries desperate for foreign exchange deposits, but every individual in the chain
has the incentive of earning a commission.
People know that salaries cannot buy the goo things says one of thousands
of operatives in an underground banking world that stretches from New York to
Tokyo. You need a little extra. Even at a cost of enabling crime and terrorism11
There is an array of advantages for users:12

- The system is cost effective. Hawala brokers take a small commission and usu-
ally practice more advantageous exchange rates than the official rates. Hawala
operators low overheads, and generate profit through small commissions and
exchange rate speculations.
- The system is safe. In countries plagued by political insecurity such as Af-
ghanistan, it is one of the most convenient, safe, reliable and inexpensive ways
to move funds within the country.
- The system is efficient. A Hawala remittance transaction takes place within
one or two days.
11
http://content.time.com/time/world/article/0,8599,178227,00.html; A Banking System Built for
Terrorism
12
www.U4.no
- The system is reliable. The system is based on trust and there are no reported
instances of customers being cheated in the literature. A breach of trust would
keep the customers away.
- The system is flexible and not bureaucratic. The informal nature of the trans-
actions makes them very attractive to users with tax, immigration or other
legal concerns. For example, illegal migrants do not have adequate identifica-
tion and couldnt use the formal banking system to send money home.
- The system is anonymous. It facilitates transfer of money without records or
documentation.
- The system doesnt leave a paper trail. As it is rare that Hawala brokers keep
records after the transaction is completed, it is unlikely that the transaction
will be identified or detected.
- The system is culture friendly. For migrant workers, ethnic or kinship ties with
the Hawala brokers make this system particularly convenient and easy to use.
Is hawala legal?
All authors consulted agree on the advantages of using hawala both for legal
and illegal purposes. Hawala is attractive to customers as it provides a fast, safe
and convenient way to transfer funds, usually with a far lower commission than
that charged by the banks. In countries where there are strict regulations govern-
ing domestic and international money transfers, Hawala can be driven by capital
flight motivations, by customers concerned with internal security and stability us-
ing alternative remittance systems to place money abroad, or pay for education or
medical treatment.
Hawala has been made illegal in some U.S. states and some other countries but
there is a legal and effective system in many countries across the world (UAE, Paki-
stan, Afghanistan, India etc.)
In South Asia the situation is more complicated. Hawala is traditionally associ-
ated with South Asia and the Middle East. Its primary users are members of the
expatriate populations from the Indian sub continent, East Asia, Africa, Eastern
Europe who migrated to Northern America, Europe and the Persian Gulf region
and send remittances to their family who remained in their country of origin.
These migrant labours have reinvigorated the systems role and importance.
While hawala is used for the legitimate transfer of funds, its anonymity and mini-
mal documentation have also made it vulnerable to abuse by individuals and groups
transferring funds to finance illegal activities.
Economic and cultural factors13

As we declared before hawala is less expensive, swifter, more reliable, more con-
venient, and less bureaucratic than the formal financial sector. Hawaldars charge
fees or sometimes use the exchange rate spread to generate income. The fees charged
by hawaladars on the transfer of funds are lower than those charged by banks and
other remitting companies, thanks mainly to minimal overhead expenses and
the absence of regulatory costs to the hawaladars, who often operate other small
businesses.
The structure is swifter than formal financial transfer systems partly because of
the lack of administration and the simplicity of its operating method; instructions
are given to correspondents by phone, facsimile, or e-mail; and funds are often
delivered door to door within 24 hours by a correspondent who has quick access to
villages even in remote areas.
The minimal documentation and accounting requirements, the simple man-
agement, and the lack of bureaucratic procedures help reduce the time needed
for transfer operations. In addition to economic factors, kinship, ethnic ties, and
personal relations between hawaladars and expatriate workers make this system
convenient and easy to use.
Summary14
Hawala system is an informal banking arrangement that allow the transfer of
funds both domestically and internationally without using formal financial insti-
tutions. As a cheap, fast, and reliable money transfer system, they are primarily used
by itinerant workers overseas sending remittance to support their families in their
home countries.
13
El-Qorchi,Mohammed: Hawala
14
www.U4.no
Although it is difficult to quantify accurately the volume of funds transferred

every year to the developing world through such channels, remittances are very
important sources of income for many impoverished households and may play an
important role in promoting growth and development.
Like any other remittance system, hawala can and does, play a role in money
laundering. As they are anonymous and require minimal documentation, they can
be easily misused by criminal organisations, including terrorist groups to conceal
the proceeds of criminal activities or corrupt officials to launder the proceeds of
corruption.
References:
1. Patrick M. Jost and Harjit Singh Sandhu, The Hawala Alternative Remittance System
and its Role in Money Laundering; Prepared by the Financial Crimes Enforcement
Network in co-operation with INTERPOL/FOPAC,/ www.treasury.gov/resource.../
FinCEN-Hawala-rpt.pdf, / (02.04.2014)
2. El-Qorchi, Mohammed: Hawala , in: - (http://www.imf.org/external/pubs/ft/
fandd/2002/12/elqorchi.htm)
3. http://www.imf.org/external/pubs/ft/fandd/2002/12/elqorchi.htm, (02.04.2014.)
4. http://www.U4.no, (02.04.2014.)
5. http://www.fatf-gafi.org/dataoecd/16/8/35003256.pdf, (02.04.2014.)- http://con-
tent.time.com/time/world/article/0,8599,178227,00.html,( A Banking System
Built for Terrorism-TIME) (02.04.2014)
THE CRISIS, NEW EU POLICIES, AND THE REPUBLIC OF CROATIA 421
THE CRISIS, NEW EU POLICIES,

AND THE REPUBLIC OF CROATIA
Mladen Vedri, Ph.D.1
1
University of Zagreb, Faculty of Law Department of Economics,
Republic of Croatia, mladen.vedris@pravo.hr
Abstract
The period from 2007 until today has been characterized by two extreme events:
a) an economic crisis of global extent and reach; and b) rapid and powerful reac-
tions by individual countries and regions of the world in response to those distur-
bances, keeping in mind the consequences of the dilatory reactions to the Great
Depression of 1929-1933. In this context, and after a certain time, the EU began
a series of systematic changes and coordination within its institutional framework
and undertook concrete measures with the goal of correcting national economic
policies, and at the same time it also established the coordination, supervision,
and implementation of (non)binding recommendations for individual member
countries. The measures were applied to public finance, to reducing deficits in na-
tional budgets at the level of the Maastricht criteria and to encouraging structural
reforms, proportionately to each particular member state. Since 2010, the overall
program of these coordinating activities and their regular monitoring has taken
place within the framework of the European Semester.
On the basis of its full membership in the EU (since 1 July 2013) the Republic
of Croatia in 2014 has been completely included in the regulations and obligations
that arise from that program: from procedures to reduce excessive deficits over the
next three years (2014-2016) to a series of structural changes within a special na-
tional program in the framework of the European Semester. What to do to fulfill
the formal conditions and criteria, and moreover to raise the performance level
of the national economy not only within the EU but globally, is the fundamental
question and challenge that the Republic of Croatia is facing in the new economic
framework of the EU.
422 Mladen Vedri
JEL Classification: H12, E6, G01, P11

Keywords: crisis, national economic policy, European Semester, structural re-
forms, global competitiveness, sustainable economic growth, procedures for exces-
sive debt, Croatia and EU regulations.
1. INTRODUCTION
The economic, development, social and regulatory position of the EU from
the period before the outbreak of the global crisis (2008) and that of todays times
shows a deep conceptual difference. Accordingly, a series of new organizational and
regulatory solutions appeared that until that time and in regard to those changes
seemed simply impossible. After the euphoria of creating a common currency
the euro it seemed that it was an impossible mission to also take further unifying
steps: coordinating and harmonizing the economic policies of individual member
countries, let alone the establishment of any joint projections, or evaluations of
what had been achieved and the issuing (of increasingly binding) recommenda-
tions. The changes arose in part as a reflex and response to the crisis, and partly,
somewhat less noticeably, as an awareness that the process of globalization and en-
hanced competitive pressures made past behavior, or any attempt to maintain the
status quo, simply unsustainable.
In this context, this work will devote special attention to two types of changes:
a) the new regulatory configuration of the EU that has arisen for creating and
implementing the economic policies of individual countries, and
b) a new development paradigm that conceptually and then operationally
(measures, instruments, stimuli) draws on a (rediscovered) development
model through the use of the tools of industrial policy as a tool for overall
development policy. And within this framework, as a special effort and a
segment of activity the renewal of industrial production on new founda-
tions but with the same fundamental goals: the creation of a platform for
the development of other (to a considerable extent service) sectors, and the
introduction of innovation and the use of human development capital. All
of this is a necessary response to its own shortcomings in this area and to the
rapid growth in other countries the BRIC countries and the US, which
have quickly created new economic space, and to a considerable extent have
also taken over that which existed until then.
In addition to these EU trends and mega-changes, a special interest of this work

is to see to what extent the Republic of Croatia, after its formal (political, nor-
mative) inclusion in the EU as a full member, has also succeeded in beginning,
behaving, and acting in accordance with these new realities: what are the existing
deficits, what are the directions of activity, and what are the possible paths, mean-
ing reforms and mechanisms in achieving these required changes.
2. EU: THE NEW ECONOMIC REGULATORY FRAMEWORK

The powerful shock of the economic crisis on the economic position of the EU
has been present since 2008 as a continuation of the events that began a year earlier
in the United States. After the first period, a year of surprises, and unilateral ac-
tions within individual member countries on how to struggle with the fall in GDP
and a decline in industrial production and following from that employment and
exports it seemed that the EU and Brussels were just joint formal institutions left
over from some better and more prosperous times. An organized resistance to the
crisis was present, especially in regard to the measures and actions undertaken by
individual member countries. It frequently depended on the financial capabilities
of a country, whether in the framework of the allocation of current revenues and
expenditures, and credit capabilities (the availability and cost of capital) to shore up
programs that benefited individual segments of the national economy by external
indebtedness, or measures of financial participation that ensured coverage of a part
of the labor costs in industry, especially those that created a higher degree of added
value and had a significant share of exports.
What happened in individual countries or groups of countries within the EU
(EU28, EU 27, and EU 17) can be seen from the data in Table 1 that separates
the movement of GDP in a period from before the crisis (2006) until the current
situation.
424 Mladen Vedri
Table 1. Movement of GDP within the EU, referent countries and groups of
countries (2006-2013)
GEO/TIME 2006 2007 2008 2009 2010 2011 2012 2013
European Union (28 countries) 3,4 3,2 0,4 -4,5 2,0 1,7 -0,4 0,1
European Union (27 countries) 3,4 3,2 0,4 -4,5 2,0 1,7 -0,4 0,1
Euro area (17 countries) 3,3 3,0 0,4 -4,4 2,0 1,6 -0,7 -0,5
Belgium 2,7 2,9 1,0 -2,8 2,3 1,8 -0,1 0,2
Bulgaria 6,5 6,4 6,2 -5,5 0,4 1,8 0,8 :
Czech Republic 7,0 5,7 3,1 -4,5 2,5 1,8 -1,0 :
Denmark 3,4 1,6 -0,8 -5,7 1,4 1,1 -0,4 0,4
Germany (until 1990 former FRG) 3,7 3,3 1,1 -5,1 4,0 3,3 0,7 0,4
Estonia 10,1 7,5 -4,2 -14,1 2,6 9,6 3,9 :
Ireland 5,5 5,0 -2,2 -6,4 -1,1 2,2 0,2 :
Greece 5,5 3,5 -0,2 -3,1 -4,9 -7,1 -6,4 :
Spain 4,1 3,5 0,9 -3,8 -0,2 0,1 -1,6 :
France 2,5 2,3 -0,1 -3,1 1,7 2,0 0,0 :
Croatia 4,9 5,1 2,1 -6,9 -2,3 -0,2 -1,9 :
Italy 2,2 1,7 -1,2 -5,5 1,7 0,5 -2,5 :
Cyprus 4,1 5,1 3,6 -1,9 1,3 0,4 -2,4 :
Latvia 11,0 10,0 -2,8 -17,7 -1,3 5,3 5,2 :
Lithuania 7,8 9,8 2,9 -14,8 1,6 6,0 3,7 3,3
Luxembourg 4,9 6,6 -0,7 -5,6 3,1 1,9 -0,2 :
Hungary 3,9 0,1 0,9 -6,8 1,1 1,6 -1,7 1,1
Malta 2,6 4,1 3,9 -2,8 3,3 1,7 0,9 :
Netherlands 3,4 3,9 1,8 -3,7 1,5 0,9 -1,2 :
Austria 3,7 3,7 1,4 -3,8 1,8 2,8 0,9 :
Poland 6,2 6,8 5,1 1,6 3,9 4,5 1,9 :
Portugal 1,4 2,4 0,0 -2,9 1,9 -1,3 -3,2 :
Romania 7,9 6,3 7,3 -6,6 -1,1 2,2 0,7 :
Slovenia 5,8 7,0 3,4 -7,9 1,3 0,7 -2,5 -1,1
Slovakia 8,3 10,5 5,8 -4,9 4,4 3,0 1,8 :
Finland 4,4 5,3 0,3 -8,5 3,4 2,8 -1,0 -1,4
Sweden 4,3 3,3 -0,6 -5,0 6,6 2,9 0,9 1,5
United Kingdom 2,8 3,4 -0,8 -5,2 1,7 1,1 0,3 1,9
Iceland 4,7 6,0 1,2 -6,6 -4,1 2,7 1,4 :
Norway 2,3 2,7 0,1 -1,6 0,5 1,3 2,9 0,6
Switzerland 3,8 3,8 2,2 -1,9 3,0 1,8 1,0 2,0
Montenegro 8,6 10,7 6,9 -5,7 2,5 3,2 -2,5 :

Serbia 3,6 5,4 3,8 -3,5 1,0 1,6 -1,5 :
United States 2,7 1,8 -0,3 -2,8 2,5 1,8 2,8 1,9
Japan 1,7 2,2 -1,0 -5,5 4,7 -0,5 1,4 1,6
Source: http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&plugin=0&language=en&pco
de=tec00114, 5 March 2014.
Prosperity and a high conjuncture are apparent (2006, 2007), then a decline
and sinking into negative rates of growth (2008-2012), and followed by the begin-
ning of a recovery in 2013.
But at the height of the crisis in 2010, there appeared an organized concept for
the coordination of the economic policies of member countries, which began to be
applied with a clearly formulated and mandatory framework of behavior and the
degree of freedom in managing economic policies within the national economic of
the member countries. This means that in 2010 the active use of a new economic
framework for behavior, called the European Semester, began. Launched in 2010,
the European Semester is the cornerstone of the EUs strengthened framework for
integrated coordination and supervision of the economic and budgetary policies
of member countries. This strengthened framework builds on the Stability and
Growth Pact provisions, as well as on the new EU tools to prevent and correct
macro-economic imbalances and covers the implementation of the Europe 2020
strategy for smart, sustainable and inclusive growth.
This framework has started to deliver results. A close partnership is being built
between the Member States and the EU institutions, national procedures and time-
tables have been adjusted to enable EU level policy co-ordination to take place in
a predictable framework. As a result, Member States have embarked on important
reforms, putting in place the right conditions for a return to growth. Further detail
on the implementation of country-specific recommendations is provided in annex.
Substantial progress has been made on fiscal consolidation. National fiscal
frameworks have been significantly strengthened through e.g. the establishment of
independent fiscal bodies and the setting of numerical fiscal rules and important
fiscal reforms have been implemented in a difficult economic environment. This
has helped to stabilize the increase in debt levels and improved financial markets
perception of the sustainability of public finances, thus lowering sovereign bond
426 Mladen Vedri
spreads. This has also contributed to preserving the integrity of the common cur-
rency and stabilizing the financial system. 1
It is evident that awareness that the economic crisis will not disappear by itself
(automatic operation of laws of the marketplace) and of the need to create real con-
ditions for overcoming with an intelligent role of the government has accelerated
the creation of just such a new, consistent system of economic management. At the
end of the year, the European Semester will begin publication of its Annual Growth
Survey, in which the Commission will announce the main economic priorities for
the upcoming year. EU leaders will consider the report in March and reach agree-
ment on joint guidelines for fiscal and structural policy. They are also analyzing
the situation on the financial markets. In April, member countries will report to
the Commission on the specific measures within the concept of national economic
policy with which they intend to stimulate economic growth and employment
and prevent macroeconomic incompatibilities and instability. This will also include
measures that have been undertaken within the national area to ensure achieve-
ment of the EU fiscal rules. On the basis of these documents the Commission will
analyze the situation in each individual member country and draft specific recom-
mendations for each of them. Discussion of these recommendations will take place
in June and the programs will be definitively accepted by the European Council
in July. The accepted programs have to be achieved by the national governments
within the framework of their national economic programs and budgets by the end
of the year, when a new cycle of evaluations will begin. The table below shows the
dynamic of overall events with the participants, obligations, and deadlines.
1
Source: Communication from the Commission Annual Growth Survey 2014, European Commis-
sion; COM(2013) 800 final, Brussels, 13.11.2013., p. 4.
Table 2. European Semester 2014

Source: European Semester 2014: Strengthening the recovery, European Commission, Brus-
sels, 13 November 2013; available at: http://europa.eu/rapid/press-release_IP-13-1064_
en.htm .
3. EU: INDUSTRIAL POLICY AND REINDUSTRIALIZATION

Moved by a new realism arising on the foundation of the deep crisis from 2008,
the EU has opened a new path for creative thinking framed in the document Eu-
ropa 2020. A strategy for smart, sustainable and inclusive growth is based on three
strong development priorities.
- Smart growth: developing an economy based on knowledge and innovation.
- Sustainable growth: promoting a more resource-efficient, greener and more
competitive economy.
- Inclusive growth: fostering a high-employment economy delivering social
and territorial cohesion. 2
The reasons for encouraging a new realism are evident in the next figure:
2
Europe 2020 A strategy for smart, sustainable and inclusive growth, Communication from the
Commission, European Commisssion, Brusels, 3.3.2010., p. 3.
428 Mladen Vedri
Figure 1. Double-dip of EU manufacturing production
Source: European Competitiveness Report 2013 Towards Knowledge-Driven Reindustrialization,

European Commission, Commission Staff Working Document, SWD (2013)347 final,
Brussels, November 2013, p. 15.
In 2013, the success of industrial production was equal to that in 2003 (a de-
cade of development), but the rate of employment in the industrial sector in that
same year was one-fifth lower that in the year 2000.
Therefore, for the required priorities to be realized and succeed, several areas
were established, the most relevant of which for the purposes of this work, is the
Flagship Initiative: An Industrial Policy for the Globalization Era. It estimates that
industry, and especially SMEs, have been hit hard by the economic crisis and that
all sectors are facing the challenges of globalization and adjusting their production
processes and products to a low-carbon economy. The impact of these challenges
will differ from sector to sector. Some sectors might have to reinvent themselves
but for others these challenges will present new business opportunities. The Com-
mission will work closely with stakeholders in different sectors (business, trade
unions, academics, NGOs, consumer organizations) and will draw up a frame-
work for a modern industrial policy to support entrepreneurship, to guide and
help industry to become fit to meet these challenges, to promote the competitive-
ness of Europes primary, manufacturing and service industries and to help them
seize the opportunities of globalization and of a green economy. The framework
will address all elements of the increasingly international value chain from access
to raw materials to after-sales service. 3 How that will in fact be achieved can be
seen in the following overview (Box 1).
Box 1. Flagship Initiative: An industrial policy for the globalization era4

To achieve such an ambitious goal, the Commission recommended the follow-
ing activities:
- To ensure that transport and logistics networks enable industry throughout
the Union to have effective access to the Single Market and the international
market beyond;
- To develop an effective space policy to provide the tools to address some of
the key global challenges and in particular to deliver Galileo and GMES;
- To enhance the competitiveness of the European tourism sector;
- To review regulations to support the transition of service and manufactur-
ing sectors to greater resource efficiency, including more effective recycling;
to improve the way in which European standard setting works to leverage
European and international standards for the long-term competitiveness of
European industry. This will include promoting the commercialization and
take-up of key enabling technologies;
- To renew the EU strategy to promote Corporate Social Responsibility as a
key element in ensuring long term employee and consumer trust.
- At national level, Member States will need: To establish an industrial policy
creating the best environment to maintain and develop a strong, competitive
and diversified industrial base in Europe as well as supporting the transition
of manufacturing sectors to greater energy and resource efficiency;
- To develop a horizontal approach to industrial policy combining different
policy instruments (e.g. smart regulation, modernized public procure-
ment, competition rules and standard setting);
- To improve the business environment, especially for SMEs, including
through reducing the transaction costs of doing business in Europe, the pro-
motion of clusters and improving affordable access to finance;
3
Ibidem, p. 15.
4
Ibidem, p. 15.
430 Mladen Vedri
- To promote the restructuring of sectors in difficulty towards future oriented

activities, including through quick redeployment of skills to emerging high
growth sectors and markets and support from the EUs state aids regime and/
or the Globalization Adjustment Fund;
- To promote technologies and production methods that reduce natural re-
source use, and increase investment in the EUs existing natural assets;
- To promote the internationalization of SMEs;
- To improve the business environment especially for innovative SMEs, includ-
ing through public sector procurement to support innovation incentives;
- To improve the conditions for enforcing intellectual property;
- To reduce administrative burden on companies, and improve the quality of
business legislation;
A turnaround is evident, but so is the pressing consequence of the two-decade

trend of de-industrialization in the EU, with all of the accompanying consequences
on employment, innovation capacity and exports. The following figure clearly de-
picts this trend:
Figure 2. EU industrial production
Source: ERT Benchmarking Report 2013, European Round Table of Industrialists, Brussels,
updated 12/13, p. 9.
In general, the trend of industrial production at the EU level has been in a con-
stant and drastic decline. The rate of that decline to a considerable also correlates to
the depth of the overall economic crisis in individual EU countries (Greece, Spain,
and Portugal). From todays approximately 15% share of industrial production in
GDP, it is expected that with the introduction of a new EU industrial strategy
(European Competitiveness Report 2013 Towards Knowledge-Driven Reindustrial-
ization) can be raised by a high, but not easily achievable, five percentage points to
an average of a 20% share of GDP for the EU as a whole.
The dimensions of this trend in the period of the economic crisis are also ex-
pressed in the significant decline and oscillations of industrial production in the
majority of the analyzed sectors.
Figure 3. EU manufacturing recovery by industry sector
updated 12/13, p. 10.
In addition to the especially hard hit sectors of construction and the metal in-
dustry, a marked decline was recorded by the chemical and auto industries and
in the electronics and energy sectors. The only exceptions were a part of the food
432 Mladen Vedri
processing, the production of transport resources and especially the pharmaceutical

industry. It is obvious that the demographics in the EU and the growing purchas-
ing power in other parts of the world comprise a basis for this positive turnaround.
Such an overall decline also continues to be reflected in the general education
system from the aspect of the employability of individual profiles in professional
education primary, secondary, and tertiary Overall, the threshold of the demand
for higher and specialized education and knowledge has risen, at the expense of
less demanding employment in industry, the construction sector, and the services
sector.
Figure 4. Trends in EU job skills requirements
updated 12/13, p. 25.
All of these trends were the basis for achieving the conceptual turnaround con-
tained in the strategic guidelines of the document Europa 2020. A further essential
step in evaluating the situation, but also in proposing concrete forms of action,
is analytically shown in the previously mentioned document Towards Knowledge-
Driven Reindustrialization European Competitiveness Report.5 This document is
5
Source: European Competitiveness Report 2013 Towards Knowledge-Driven Reindustrialisation, Eu-
ropean Commission, Commission Staff Working Document, SWD(2013)347 final, Brussels, No-
vember 2013.
also a call for the establishment of clear and undeniable industrial policy that would
raise the level of competitiveness of EU industries. It also cites three imperatives
for why it is necessary to preserve the critical size of its industrial production base.
Manufacturing still accounts for a major part of the innovation effort in
advanced economies and this translates into above-average contributions to
overall productivity growth and thus to real income growth.
There are very important backward linkages from manufacturing to services
which provide important inputs for manufacturing (in particular business
services).
Manufacturing has a carrier function for services which might otherwise be
considered to have limited tradability. This operates through international
competitive pressure and has an added stimulus effect for innovation and
qualitative upgrading for service activities. Another linkage is increased prod-
uct bundling of production and service activities in advanced manufacturing
activities.
Lastly, and related to the first argument, is the higher productivity growth in
manufacturing which is important because the sector of origin of productiv-
ity growth may not be the sector which benefits most from the productivity
growth.6
The document continually explains that there is no essential dilemma about
what is more important the real sector or the services sector; the degree of their
complementariness is high; in a modern economy it is difficult to imagine that they
function either separately or exclusively. The following figure depicts this situation.
6
Ibidem, p. 10.
434 Mladen Vedri
Figure 6. Services value added in EU manufacturing gross exports 2009
Source: European Competitiveness Report 2013 Towards Knowledge-Driven Reindustrialization,

European Commission, Commission Staff Working Document, SWD (2013)347 final,
Brussels, November 2013, p. 31.
To a great extent, the existence of the services sector and its creation of new value
are linked to individual branches of the manufacturing industries and the creation
of economies of scale and an export economy. The increasing contribution of the
service industry, at the expense of manufacturing, can also be partly explained by
an increasing service content of manufacturing final output. This content reflects
the total value of the services required for the development, production and mar-
keting of a modern manufacturing product. The service content of manufacturing
has been growing in the EU and elsewhere in the world. Currently about a third of
the price of a manufacturing product in the EU is associated with integral services.
Whilst manufacturing products too are used for producing services, the manu-
facturing content of services produced in the EU is only around 10 per cent. The
gradual rise in services and reduction in the manufacturing share of valued added
do not mean that manufacturing can be ignored. It is still seen as a pivotal, though
heterogeneous, sector with important production and demand linkages that play a
significant role in the process of economic development.7
7
Ibidem, p.
In addition to their conceptual and general value, these explanations have spe-
cial importance for the national economy and society, where a forced dilemma is
frequently observed: is Croatian economy being directed at (or condemned to?!)
primarily the services sector only because of the existence of its tourist sector and
a rapid development of commerce with a time-limited construction boom (high-
ways, apartment construction), as a permanent substitute for the existence of man-
ufacturing industries with all that they create: centers of competence and innova-
tion, new employment, and a dominant role in exports, which means the presence
of an economy of scale.
4. THE REPUBLIC OF CROATIA: THE CURRENT SITUATION AND THE NEW EU

ECONOMIC REGULATORY ENVIRONMENT
In the Republic of Croatia the process of preparing for full membership in the
EU took almost a decade from the moment of the beginning of that preparation
and the chapter-by-chapter negotiations under the Acquis communautaire. During
that period, the process was slowed even more because of events with a political
character, as a consequence of the war and aggression during the creation of the
new country in the area of the former Yugoslavia. Although this is more an expla-
nation than a justification, it is apparent that the full attention of the Croatian
political elite and several governments was aimed at resolving open political ques-
tions, and in parallel a strong normative process of harmonizing legal acts with EU
regulations.
At the very beginning, the implementation of the required structural reforms as
part of a process to raise the efficiency of public administration and the judiciary
and also the level of the competitiveness of the national economy, which was also
affected by the inability to undertake reforms, was pushed into the background.
Accordingly, the onset of the global, and soon also the European, economic crisis
(2007-2008) was not perceived as an important challenge, and in such a situation
there was consequently an absence of a corresponding, timely reaction, both in the
consistency of the proposed measures and in their implementation.
The following figure, which covers the period from the beginning of 1995 to
2013, is an extremely important documentary foundation for understanding these
statements.
436 Mladen Vedri
Figure 7. Real gross domestic product
Source: Croatian Economic Outlook, Ekonomski institut Zagreb, No. 56, October 2013, p. 1.
On the wave of global prosperity GDP, and also the value of investments, grew
from the beginning of 2005 to the middle of 2008 in the Republic of Croatia.8
There was also strong growth in domestic spending (credit activities of banks) and
exports, especially non-commodity ones primarily in the tourist industry. The
turning point, with its negative consequences, appeared in the second half of 2008.
And it has lasted continuously until now. All of the accompanying values have been
in a continual decline: the level of GDP at the end of 2013 is below that of 2005.
In an absolute amount it is nearly 14% lower than the level reached in the first half
of 2008.
8
For the Republic of Croatia,a special consideration in the time under consideration is the structure
of investment: the relationship between brown field and green field investments and their distribu-
tion by sector: primarily commerce and construction highway and apartment construction. But
this is a question for detailed analysis and evaluation on theme outside the focus of the this work.
The level of investment has experienced a drastic decline. Compared to 2005,

the level was almost 10% lower in 2013. Personal spending at the end of 2013
was at the same level as in 2005. What is especially hindering the recovery from
the aspect of a small and open economy is the fact that it is now (2013) identical
to the economy of eight years ago. In view of the limited purchasing power of the
internal market, it becomes clearer that, first, economic recovery, and then restored
growth, can only be achieved by moving beyond national borders. In principle, it
is supported by the full membership in the EU, which occurred in the meantime
and which would potentially provide easier access to new markets. The stated eco-
nomic trends have had an important influence on the overall financial position of
the country and on the status of public finances, which is apparent in the following
table.
Table 3. Croatia: Government deficit and debt according to the ESA95 concept

Source: Croatian Economic Outlook, Ekonomski institut Zagreb, No. 56, October 2013, p. 8.
In addition to the clearly stable (continued) share of public revenues and expen-
ditures in GDP during the entire period of the crisis (2009-2013), a high rate of
deficit in GDP can be seen (above 5%) and high public amounts of deficit in bud-
get expenditure, which are covered by taking on additional indebtedness. The final
consequence is that in this period public debt grew by one-third and now amounts
to about 66% of GDP.
Besides the trends from the period of the economic crisis, it is of macroeco-
nomic as well as scientific research interest to examine events from the past period
in the context of trends in the upcoming period. From the aspect of public debt the
projections are as follows:
438 Mladen Vedri
Figure 8. Public debt as % of GDP

110 JAVNI DUG (% BDP-a)
100
Snaniji ras t BDP-a
Sm anjenje s trukturnog deficita
90 Nedostatak reformi
Osnovni scenarij
80
70
Maastricht kriterij
60
50
Izvor: MinFin, HAAB istraivanja
40
2003 2005 2007 2009 2011 2013 2015 2017 2019 2021
Source: Ekonomski izgledi 2014.-2015. Recesija poputa, kreu li reforme?, H. Stoji, Director
Ekonomskih istraivanja, Hypo Alpe Adria, Zagreb, 1.10.2013, p. 24.
The absence of reforms, otherwise demanded by the procedure for overcoming

the excessive deficit, would lead to a level of public debt for the next three years at
a level of 90% of GDP and would make its refinancing a mission impossible. All
of this is the link in the relationship that has been established: Croatian economic
policy and the new EU economic configuration. The high degree of need for con-
structing a new economic policy is shown in the following data.
Figure 9. Gross public need for (re)financing (2014, % of GDP)

20 BRUTO JAVNE POTREBE ZA (RE)FINANCIRANJEM (2014, % BDP-a)
18
16
14
12
10
0
EST BG LAT ROM POL LIT TUR SVK CZE CEE HUN SRB SLO HR
Izvor: nacionalni izvori, HAAB istraivanja
Source: Ekonomski izgledi 2014.-2015. Recesija poputa, kreu li reforme?, H. Stoji, Director
Ekonmskih istraivanja, Hypo Alpe Adria, Zagreb, 1.10.2013, p. 24.
In 2014, the Republic of Croatia needs to ensure almost 20% of the value of
national GDP for financing in the current year the expected new deficit in the
national budget and for refinancing the payment of annuities that are coming due,
but area linked to the indebtedness from the previous period. Stated more precisely,
it is necessary to ensure an amount of 8.4 billion euros, but new, additional indebt-
edness is planned in the amount of 1.5 billion euros.
One and the other position is part of an analysis and overall evaluation by the
EU for creating a Croatian program for overcoming the excessive deficit and its
reducing to acceptable frameworks in a period of the next three years. In this con-
text, it is possible also to cite a recent evaluation of this part of the economic
development, stated by the IMF Mission, according to which the risks in making
the prognosis are considerable and mostly negative. It is also estimated that fis-
cal adjustment could cause a greater than expected reduction in private spending.
Furthermore, fiscal adjustment could trigger a larger private demand compression
than projected. Conversely, insufficient fiscal consolidation could trigger concerns
about sustainability of the public finances and undermine investor confidence. Pri-
vate sector deleveraging could remain a drag on demand for longer than projected.
440 Mladen Vedri
Finally, tighter global liquidity conditions and a re-pricing of risk could complicate
external financing, affecting especially Croatian sovereign debt. On the upside, for-
eign direct investment could pick up more rapidly than foreseen, reflecting in part
recent policy initiatives to facilitate investments.9
Therefore, the IMF Mission in its final report strongly recommends sustainable
fiscal consolidation, stating While very difficult to implement in an environment
of economic contraction, sustained and predictable fiscal consolidation is critical
to strengthen confidence in macro-economic management, boost sentiment, and
retain the economys access to financing at acceptable conditions. A structural re-
duction in the general government deficit of about three percent of GDP is need-
ed to ensure the return to a sustainable fiscal stance. To avoid an excessive fiscal
contraction in the short term, IMF staff recommends stretching adjustment over
three years in roughly equal annual portions. Adjustment should be supported by
high-quality measures, with an emphasis on the revenue side in 2014given the
still weak economyand a gradual switch to expenditure consolidation in 2015
and 2016. To maximize the positive impact on confidence, adjustment would best
follow a comprehensive three-year plan whose main parameters are known in ad-
vance. As regards the medium term, structural balance should be restored gradually,
with a view to achieving a sustained reduction in public sector debt and regain flex-
ibility to react to economic shocks. 10
These analyses and assessments indicate the high degree of coordination in
monitoring Croatian economic policy by the IMF, in conjunction with the World
Bank, especially in assessing overall national competitiveness. In parallel, the EU
Commission is giving special attention to the sustainability of the financial position
and the implementation of the required structural reforms. Thus, the EU Com-
mission states that after a period of conjuncture and expansive growth up to 2009,
in which the imbalances accumulated, Croatia is now passing through a phase of
additional, deep, and long-lasting economic decline in which external and internal
risks have strengthened. The long period of postponing the restructuring of the
manufacturing sector has contributed to an inability to establish the relevant ex-
port industries as a complement to the tourist sector. Such a situation has limited
Croatias participation in the integration into a regional development of commerce
9
Source: IMF, Republic of Croatia: Concluding Statement of the 2014 Article IV Consultation Mis-
sion Zagreb, March 3, 2014, p.1.
10
Ibidem, p. 2.
and international exchanges, including during the years of prosperity. The ultimate
consequence was that Croatia has remained a small country, a member of the EU,
but with one of its most economies and at the same time a country with a relatively
low level of GDP, incomes and revenues measured on any basis.
The Commission further stated: A widening current account deficit was largely
funded by the foreign parents of Croatian banks and by Foreign Direct Invest-
ment (FDI) into inward-oriented sectors of the Croatian economy. As the global
financial crisis unfolded, capital inflows suddenly stopped in 2009. The impact on
Croatia was severe: domestic demand rapidly contracted and the ensuing recession
led to soaring unemployment. The country entered a long-drawn recession from
which it has not yet recovered. Despite the reversal in the current account, vulner-
abilities such as high external liabilities, uncompetitive exports, a corporate debt
overhang and growing public sector indebtedness persist. Structural weaknesses
have contributed to these imbalances, including a poor business environment and
a malfunctioning labor market. State-owned enterprises still play a dominant role
and are often highly indebted and weakly profitable. These factors also combine
to lower potential growth, which hinders private sector balance sheet repair and
increases the required fiscal consolidation effort.11
Regarding possible exit strategies, the analytical assessment of the EU Commis-
sion are clear. Croatias low competitiveness was eroding export market shares
even before the crisis. Croatia has been and remains a comparatively expensive
production location. After 2004, Croatias export market shares started falling from
their already low level. These losses have accelerated since the crisis, indicating the
persistence of a substantial competitiveness gap. Export market share losses have
been concentrated in goods exports, where labor cost levels stand out in regional
comparison, while overall labor costs have grown moderately since 2009 in com-
parison to competitors. These high costs combine with a wide range of non-cost-
competitiveness deficiencies. One-off factors, including the restructuring of the
shipbuilding and chemical industries, have interacted with low overall competitive-
ness to generate a decline in goods exports in 2013.12
An analytical evaluation of economic trends by the ECB is analytically less pres-
ent, in view of the fact that the Republic of Croatia is not (and will not become for
11
European Economy Macroeconomic Imbalances Croatia 2014, European Commission, Occa-
sional Papers 179, Brussels, March 2014, p. 9.
12
Ibidem, p. 9.
442 Mladen Vedri
the foreseeable future) a member of the Eurozone. However, a powerful influence

on overall events and the position of the real sector can be achieved through the
direct cooperation and coordination of the HNB and the ECB and strict obser-
vance of the rules of behavior dictated by the ECB, especially from the aspect of the
riskiness of the regulatory framework and the operations of business banks. This
influence will be additionally strengthened by the fact that more than four-fifths of
the overall banking potential in the Republic of Croatia is with banks resident in
the country, although the majority or sole owners are banks in Austria or Italy, or
to institution that to a lesser or greater degree are subject to the competence and
responsibility of the ECB.
All of this points to the fact that in addition to the realities and facts on the
public scene, transmitted to the general, and frequently also the professional, pub-
lic, the degree of autonomy in conducting a national economic policy is essentially
limited and narrow, and not only on the basis of the openness of globalization
processes and the level of current (non)competitiveness, but increasingly on the
rules of the game that are made, and are now being carried out at the EU level. The
dominant question in such conditions is what the Republic of Croatia, with in its
current position and situation, can and must do, and how to try to take advantage
of the new EU regulatory environment and the established institutional framework
as a factor of support on that road, and thus strengthen its position both in the
analyses of the international rating agencies and, consequently, the EU and the
global financial markets.
In the context of the expected reforms, their direction, and depth, it is of in-
terest to consider and cite the joint assessment of the troika (EU, ECB and IMF)
related to The Economic Adjustment Program for Portugal: The economic recovery
is strengthening. Led by investment and exports, economic growth is somewhat
ahead of projections, employment is increasing, and the unemployment rate is
continuing to decline from very high levels. GDP is now expected to rise by 1.2
percent in 2014an upward revision of 0.4 percentage pointswhile unemploy-
ment is projected to decline to 15.7percent a downward revision of 1.1 per-
centage points. The current account balance, which moved into surplus in 2013,
is expected to improve further, although at a more moderate pace than before.13
13
Source:European Economy The Economic Adjustment Programme for Portugal, Eight and Ninth
Review, Occassional Papers 164, Brussels, November 2013, p. 1, available at:
http://www.imf.org/external/np/sec/pr/2014/pr1480.htm .
Furthermore, related to future planned activities is the following priority should be

stressed, which is also stated in an assessment of the achievements of the program
to date: A deepening of the structural reforms agenda is needed to continue
the switch to an export-led growth model. A wide array of structural reforms
has already been adopted, and these reforms are expected to have a positive impact
on growth and job creation over the coming years. But there are still important
bottlenecks that hinder Portuguese companies in competing with their foreign
competitors on a level playing field; these include remaining excessive rents in the
non-tradable sector and rigidities in the labor market, while public administration
needs to become more business-friendly. A strong commitment to continue and
expand the process of structural reform into the medium term will be essential in
attracting more foreign direct investment to the tradable sectors.14
In view of the similarity of the economic structure of Portugal and the Republic
of Croatia (tourism, agriculture, construction, transport), and the loss of competi-
tiveness that is essential for the performance of the manufacturing industry and
exports, the literature what the Republic of Croatia has to accept as its reality as
quickly as possible.
5. CONCLUSION
The global economic crisis initially arose in the United States. Its appearance
and intensity has further accelerated the process of the globalization of economic
and general social events from the 1980s until today. These changes were stimu-
lated by the introduction of new IT technologies, the ever greater penetration of
international financial structures, and in the political field the fall of the Berlin
Wall and the disappearance of the US-Soviet bipolar political and military system,
with the domination at that moment of a single global power, meaning the United
States. But, new powers soon grew and strengthened China and the Far East as a
whole. All of these events and more rapid chances inexorably appeared, but they
also found the politically, economically, and socially unprepared countries of the
EU. The first reflex reaction was the creation of unilateral programs to protect
against the accelerating economic implosion, especially the decline of GDP and
employment. At the end of 2009, a proactive program began for the creation of
a new administrative and regulatory infrastructure that began to place demands
on all member countries to: a) consistently formulate national economic policies;
14
Ibidem, p.1.
444 Mladen Vedri
and b) to coordinate individual components of those policies to a greater extent.

For that purpose a general framework for EU action was created under the name
European Semester. The position of the European Commission is that having to
compete mainly on price may not be an attractive growth model for EU manufac-
turers in the long run. Given its considerable knowledge production and the high
technology content of EU products, a gradual shift away from the current portfolio
of predominantly mature products where firms compete more on price than
quality to more innovative and complex products could be an avenue to pursue.
As part of the new EU monitoring, the Republic of Croatia has entered in to
the circle of countries that are included in the program for reducing and excessive
fiscal deficit, which is expected to be achieved in 2014-2016. The achievement of
this program is ultimately expressed in the reduction of the fiscal deficit, which
is planned to be 2.3% in 2014, 1% in 2015, and 1 % in 2016. To achieve this
result it will be important to provide those prerequisites that stimulate economic
growth. It is clear that just the introduction of financial order and discipline (which
has mostly been done already) and an increased in revenues through the introduc-
tion of new tax obligations are not enough to achieve a positive growth rate. And
without such growth and on the basis of increased tax revenues, and the level of
production and employment, it will not be possible to achieve a turnaround and a
permanently sustainable reduction of the fiscal deficit.
The initial experiences in achieving a program in individual countries that exclu-
sively or predominantly relied on increasing revenues and reducing (public) spend-
ing, were unsuccessful (Greece, Spain, and Portugal) and served as a guide in the
second phase, and in other countries that a policy for achieving economic growth
and financial consolidation has to be considerably more complex and balanced.
What the Republic of Croatia can do to turn its membership in the EU, and
its new obligations in coordinating its economic policy with that which is created
and implemented at the EU level, to its advantage is the essential question: a) the
ability and expertise of the political elite; b) the ability of the executive government
to begin that process as soon as possible without (pre)election delays and without
expectations that the economic recovery will just be a derivative of a new economic
upswing and the economic situation in the EU and/or globally in which the Re-
public of Croatia, based on the logic of traveling in a convoy (its newly acquired
membership in the EU), will automatically join.
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INTERNATIONAL
ECONOMICS
IMPACT OF GLOBALIZATION PROCESSES FROM THE SURROUNDINGSON THE ... 449
IMPACT OF GLOBALIZATION PROCESSES FROM THE

SURROUNDINGSON THE SUGAR INDUSTRY IN THE
REPUBLIC OF CROATIA
Luka Burilovi, univ.spec.oec.1, Tolui Zrinka, univ.bacc.ing.agr.2, Draen Holmik, M.Sc.3
1
Croatian Chamber of Economy, Republic of Croatia, predsjednik@hgk.hr
2
College of Business Administration Baltazar Adam Kreli, Republic of Croatia, ztolusic@gmail.com
3
Croatian Chamber of Economy, Republic of Croatia, dholmik@hgk.hr
Abstract
Globalization processes during the history have constantly changed the eco-
nomical picture of the world. In line with the globalization changes occurred also
the transfer of centres of power which moved from the Middle and Far East to-
wards Europe and further to the North up to the North America. Following this
process the Far East has slowly but surely become the centre of power in the recent
decades. With the fall of the Steel Iron, with geopolitical changes in the world and
with the opening of markets, fluctuation and transfer of capital became easier. Not
even the sugar market was immune to the transfer of capital and power.
Sugar, as specific commodity, has in the last couple of decades become a com-
modity people often talk and think about, whether in the context of trade liberal-
ization, or problems with underpaid workers who work in harsh conditions, or raw
material for fuel production. Along with all above mentioned sugar is very interest-
ing because it is a stock-exchange material and as such it is a subject of speculations.
Globalisations processes have significantly influenced the Croatian sugar indus-
try, creating new threats but also possibilities of development and increasing of
competitiveness.
JEL Classification: F12, L41
Keywords: globalisation, sugar industry, the European Union, Stabilisation and
Association Agreement, reform of the sugar market, competitiveness
450 Luka Burilovi Tolui Zrinka Draen Holmik
1. Introduction
Croatian sugar industry currently comprises of three sugar factories, geographi-
cally situated in Slavonia. The proximity of raw materials is of great importance
because it is necessary to process the sugar beet as quick as possible after picking.
Considering the relatively great volume and the required amount of sugar beet
the transportation costs play an important role and with the increase of distance
the costs rise exponentially. Domestic sugar industry is characterized by high con-
centration primarily due to relatively high entry barriers, and one can say that the
strength of competitiveness, which is made of competitive structure, demand char-
acteristics and exit barrier1, is pretty high.
Sugar production in EU is strictly regulated because sugar is a strategic product.
Depending on the market organisation some countries direct their subventions and
supports differently. In some countries subventions are directed to the sugar pro-
ducers and the state guarantees a protected product price, whereas in the Republic
of Croatia incentives are paid to sugar beet producers.
After the signing of the Stabilisation and Accession Agreement, and before ac-
cession into the full membership of the EU, sugar was one of the most important
export products. In order to stimulate export additionally, the state has enabled
sugar factories to import raw sugarcane without paying custom duties, which for
many reasons was favourable to sugar factories. The price of sugar produced from
sugarcane was lower than of that produced from sugar beet so they made extra
profit and accomplished better commercial conditions on foreign markets.The in-
crease of export was also favorable to the state, because it influenced the reduction
of the export deficit.
2. World market and sugar production

Hewitt (2001, 9) states that The sugar industry is one of the least efficiently
regulated industries in the world, the opposite end is the sugar market of the Euro-
pean Union, which started with the regulation in 1967, (Slezek et all.; 2003, 287)
or even Americas, which are strictly regulated.
An extremely big influence to the development of globalisation processes in the
sugar industry, primarily in the EU but also around the world, were the negotia-
tions of the World Trade Organisation on agricultural reforms and trade liberaliza-
1
Tipuri, D.: Porters model of industrial structure, Business analysis, No. 3/4, 1996,p. 30.
tion. The WTO has put significant pressure on the EU which then accordingly
started the reform of the sugar market. On the other side, continuous liberalisation
of the world agriculture under the influence of globalisation leads to a free forming
of market prices and strengthening of competitiveness.
Production of sugar from sugar beet and from sugarcane, even if they are pro-
duced from different raw materials, is technologically very similar. Sugar is cur-
rently produced in 114 countries, out of which 80% is produced from sugarcane
and 20% from sugar beet.
Out of sugar producing countries (table 1;3), sugar is produced from sugarcane
in 71 countries, from sugar beet in 43 countries, and only 7 countries have suitable
agro-meteorological conditions for producing sugar from both raw materials.
Table 1. Sugar production in the world by continents in thousands of tonnes

2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12
1 2 3 4 5 6 7 8 9 10
EUROPE 26.287 29.220 30.294 27.233 27.236 25.840 27.723 25.652 31.811
from sugarbeet 26.281 29.216 30.291 27.233 27.236 25.840 27.723 25.652 31.811
from sugarcane 6 4 3 0 0 0 0 0 0
AMERICA 55.056 55.271 52.793 60.223 59.730 61.418 67.530 65.098 64.857
from sugarbeet 4755 4.723 4.535 5.045 4.688 4.287 4.500 4.679 4.920
from sugarcane 50.301 50.548 48.258 55.178 55.042 57.131 63.030 60.419 59.937
AFRICA 9.674 9.830 10.253 10.411 9.924 10.362 8.879 10.174 11.079
from sugarbeet 840 950 1.010 1.195 1.020 1.120 1.116 1.091 1.325
from sugarcane 8.834 8.880 9.243 9.216 8.904 9.242 7.763 9.083 9.754
ASIA 45.597 40.870 47.078 64.052 66.399 48.602 50.918 60.243 65.163
from sugarbeet 2.497 2.445 2.658 3.332 2.959 2.177 2.296 2.242 2.579
from sugarcane 43.100 38.425 44.420 60.720 63.440 46.425 48.622 58.001 62.584
AUSTRALIA-OCEANIA 5.665 5.929 5.752 5.052 5.220 5.052 4.675 3.796 3.959
from sugarbeet 0 0 0 0 0 0 0 0 0
from sugarcane 5.665 5.929 5.752 5.052 5.220 5.052 4.675 3.796 3.959
WORLD TOTAL 142.279 141.120 146.170 166.971 168.509 151.274 160.795 164.964 176.869
from sugarbeet 34.373 37.334 38.494 36.805 35.778 33.339 35.635 33.664 40.635
from sugarcane 107.906 103.786 107.676 130.166 132.731 115.496 125.160 131.300 136.810
Source: Sugar and Sweetener Economy 2007-2013, Bartens
The data for Americas include both the North and the South America, but the
majority of production is situated in the South America. In Europe, sugar is exclu-
sively produced from sugar beet, and this is also the majority of the world produc-
tion of sugar from sugar beet. Some countries are not only big producers but also
big importers or exporters of sugar (table 2).
Table 2. Import and export of sugar by continents in thousands of tonnes

2007 2008 2009 2010 2011
Continents import export import export import export import export import export
1 2 3 4 5 6 7 8 9 10 11
Europe 8.199 2.676 7.590 2.274 5.740 2.464 7.070 3.466 9.415 2.728
North America 3.178 386 3.987 355 3.774 172 4.046 401 5.620 298
Middle America 903 3.911 695 4.202 827 4.329 810 4.786 852 4.889
South America 1.507 22.042 1.614 21.642 1.808 27.378 1.591 30.117 1.926 27.223
Asia 22.080 12.531 20.465 13.380 25.983 8.848 27.772 9.946 23.963 14.059
Africa 8.515 3.193 9.096 2.898 8.340 3.109 9.679 2.874 11.141 3.401
Australia 274 4.153 293 3.569 328 3.499 346 4.238 459 2.375
Total 48.802 46.624 48.510 48.320 47.400 49.799 55.350 55.828 54.973 54.975
Table 3. Significant world producers of sugar in thousands of tonnes

2007/08 2008/09 2009/10 2010/11 2011/12
1 2 3 4 5 6
Brazil 31.600 31.850 41.135 38.725 37.133
India 28.630 15.950 20.637 26.574 28.800
EU 15.614 14.014 18.380 16.490 19.556
Kina 15.898 13.317 11.429 11.199 12.341
Thailand 7.820 7.200 7.131 9.919 10.569
US 7.396 6.833 7.158 7.156 7.695
Mexico 5.852 5.260 5.034 5.395 5.258
Russia 3.200 3.481 3.430 3.290 5.413
Pakistan 4.163 3.512 3.420 3.920 4.520
Australia 4.939 4.814 4.472 3.610 3.733
Others 43.397 45.043 38.569 38.686 42.427
Total 168.509 151.274 160.795 164.964 177.445
In the last couple of years, along with the increase of consciousness of the neces-
sity of using renewable energy resources, there was also an increase in the usage of
sugar beet and sugarcane as one of the sources for alcohol production2. In the sugar
industry the ethyl alcohol is gained by fermentation of sugar content from sugar
beet, sugar cane syrup, sugar fermentation in refined syrups after the crystallisation
process or molasses fermentation.
The difference in costs is tied to growing of certain raw material but also to the
ratio of sugar production (80%:20%). At the same time due to the increase of the
living standard there has come to an increase of sugar consummation per capita
(table 4).
Table 4.Sugar consummation per capita in kg

2003 2004 2005 2007 2008 2009 2010 2011
Europe 38,2 39,1 38,1 40 39 36,8 38,2 38,2
NorthAmerica 32,9 32,1 32,5 31,5 33,4 36,2 35,7 35,2
MiddleAmerica 46,2 47 46 45,6 45,4 43 41,9 43,2
SouthAmerica 48 47,9 47,7 52,8 49,9 51 53,8 53
Asia 14,6 16,3 16,2 16,5 17,5 18 17,6 17,5
Africa 15,2 15,6 15,7 16,6 16,4 16,3 16,1 16,3
Australia 47,2 43,8 43,1 43,2 47 43,1 39,4 41,1
World 22,1 23,4 23 23,8 24,5 23,9 24,1 23,7
2
Under the term alcohol we understand ethyl alcohol (ethanol) gained from fermentation and distil-
lation of sugar substrate from sugar beet, sugar cane, and cereals or during wine production.
Figure 1. Movement of sugar prices in the period from 1991 to 2013
Source: OECD/FAO Agricultural outlook
The increase of the sugar consummation per capita with the increase of use
of raw material for production of bio-ethanol has influenced the increase of the
sugar price on the world market(figure 1.). Sugar is a stock-exchange material; the
reference stock exchange for the sugarcane price is the New York Stock Exchange
whereas white sugar is traded on the London Stock Exchange. Sugar prices within
single countries are formed according to the price on the stock exchange unless the
sugar market is defined by interior policy of the single country.
3. Sugar market of the European Union and agricultural reform

The European Union sugar market (Common Market Organisation of Sugar
CMO Sugar) is based on the content of the Common Agricultural Policy (CAP)
of the European Union. The goals of CAP have been defined in the Roman Agree-
ment, based on which in 1957 the European Union was founded. The founding
countries were Belgium, Germany, France, Italy, Luxemburg and the Netherlands.
Later on other countries joined them and currently there are 28 member states. The
goals of common agricultural policy were set in July 1958 in Italy3.
The CAP was set in 1962 and in the beginning it did not cover sugar sector. It
was set for sugar sector in 1967. The principles of CAP set on the Stresa conference
3
The foundation of CAP was set on the conference in Stresa (Italy) which was held from 3rd to 12th
July, 1958
were: founding of a common market by using common rules, common preferences

in respect of protection of interior market based on the product preferences within
the EU and the common financial responsibility for implementation of CAP with-
in the EU member states.
3.1. CAP reform

In the late 70s and the early 80s of the last century, the expansion in agricultur-
al production influenced the fall of prices. The EU had to intervene on the market
by buying off the surplus of products (mostly milk, meat, wine and cereals) for the
guaranteed minimum prices (intervention prices). The high costs of intervention
on one side and the pressure for opening markets for EUs agricultural products on
the other side influenced the need for agricultural policy reform. The reform was
started at the end of the 1980s and it affected the market organisation by limiting
the production with introduction of production quotes, burdening for production
above the quote and limiting the intervention price for certain amount of product
(Evaluation of the CMO Sugar Sector, 2001). The reform changed the way of sup-
port allocations that were aimed directly towards the producers4.
On the European summit held in 1999 in Berlin agreements about the so-called
Agenda 2000 which represented the continuation of the reform were successfully
reached. The reform was above all planned because of the expansion of the EU but
also because of the need for decrease of incentives. Firstly, the incentives for cereal,
beef and veal producers were decreased. The introduction of a limit for the dairy
sector was postponed until 2005 and for the sugar sector until 2006.
On the other hand, the reform set new foundations for rural development ap-
proach. Programs for agriculture and rural development incentives, which until
then had been separated, were joined and simplified.
In the middle of 2001 the Decision EU 1260/2001for more precise definition
of the sugar market and rules of conduct was passed. The Decision defined produc-
tions quotes, reference prices, interior sugar market and the way of surplus produc-
tion and export.
The reform of the European sugar market was based on this Decision from
2001.
4
MacSharry reform (1991)based on production directly at the producers and tied to amount of
hectares or number of animals.
4. Situation in the Croatian sugar industry

In Croatia there are three active sugar factories at the moment, except for them
there is also the sugar that has been imported in a certain volume and put on the
market by different companies. For entering the sugar industry there are not only
many entry but also exit barriers. The building of a plant for processing of sugar
beet is a quite expensive investment; however, the new market competitor would
have to provide the raw material for processing.
The total annual need for sugar in Croatia is about 150 thousand tonnes. The
sugar amount which will be produced depends on the amount of the processed
sugar beet and the amount of sweetness which the sugar beet contains. Sown areas
represent a relatively fixed size because of crop rotation and the amount of arable
land, and the influence of climatic conditions during the growing season is of ut-
most importance.
Production of sugar is not a continuous process, but takes place in campaigns of
sugar beet processing. The negative side of such production is that all three sugar
factories have the campaign at the same time and that the entire amount of sugar
consumed by the market over the next year has been produced in a short period of
time. In order to avoid a reduction in price due to the sudden increase in supply,
sugar factories have built storage areas in which the sugar for further consumption
is kept conditionally.
The technology of sugar production in all three sugar factories is similar, how-
ever, taking advantage of the economy of scope and by modernizing cert a in parts
of the processing plant cert a in economic advantages can be achieved. Very large
area for potential savings is the production of raw materials. By improving agricul-
tural practices it is possible to reduce the cost per unit of input in order to achieve
the highest possible yields and output.
4.1. Impact of the Stabilization and Association Agreement on the sugar

industry in Croatia
The Stabilization and Association Agreement was preceded by a regional
framework which was adopted by the Council of the European Union in 1997.
The regional approach represented apolitical framework for the development of re-
lations and cooperation with the countries of South East Europe, highlighting the
possibility of establishing institutional cooperation (cooperation agreements) with
countries in this area (Croatia, Bosnia-Herzegovina, Macedonia and Yugoslavia).
The EU has set the so called conditionality policy which includes some specific
demands on all countries together and every state in particular, concerning dealing
with the consequences of conflicts and establishing regional cooperation.
In June1999, the Council of Ministers of the European Union adopted the
Stabilization and Association Process for the Republic of Croatia, Bosnia and Her-
zegovina, Albania, Macedonia and the former Federal Republic of Yugoslavia, as a
modification of the regional approach of the European Union from April1997.
The regional approach has proved to be insufficiently flexible and dynamic for ar-
ticulation of the EU policy and long-term regulation of relations with the countries
in the region.
The so called fact finding mission was sent to Croatia in order to record the
state of the departments for the purpose of gathering data required for the prepara-
tion of negotiations feasibility studies on the SAA. By development and adoption
of the Feasibility Study in June2000, the European Commission made a recom-
mendation to the Council of Ministers of the EU to start negotiations on the
Stabilization agreement.
The Agreement was initialed in Brussels on 14th May2001, and signed on 29th
October 2001 in Luxembourg. After signing the agreement the ratification process
in the Republic of Croatia, the European Parliament and all EU countries began.
The agreement entered into force on 1st February 2005.
In the period between signing and entering into force the Interim Agreement
by which the trade issues were regulated and which was applied from 1st January
2002 was being applied.
By the Stabilization and Association agreement a transitional period was agreed
in which the Republic of Croatia will liberalize its market for industrial and ag-
ricultural products from the EU, since the European Union has decided to fully
liberalize its market for products of Croatian origin.
Figure 2. The total production of sugar in Croatia by years
Source: DZS, made by the author
The time before the implementation of the SAA was very difficult for the Croa-
tian sugar factories, insolvency, lack of incentives and short comings of the agricul-
tural policy influenced the existential issues of the Croatian sugar industry. After
signing the SAA begins a new period of recovery and prosperity for the Croatian
sugar industry (figure 2). New export markets, on which the payment deadlines
were much shorter and fresh capital inflows have enabled the survival and develop-
ment of the Croatian sugar factories.
5. European sugar market reform

The decisionEU1260/2001is the fundamental decision on regulating the EU
sugar market on whose basis the subsequent regulation was formed, related to the
regulation of the EU sugar market (CMO Sugar). The first part of the market re-
forms began in 2001and continued during all the years mainly due to the expand-
ing in 2006.
By the regulation from 2006, a reduction by about 30% in production areas
was anticipated, that is, the reduction of sugar production quotas from 19.3 to
13.3 million tonnes. The key of the reform was the reduction of the reference
price of sugar by 36% from 631.9 Euros/tonne in the 2006/2007 market year to
404.4Euros/tone in the market year 2009/2010, and the removal of the interven-
tion mechanisms which guaranteed a minimum price of sugar.
By reducing the price they sought to discourage the less competitive producers so
that they leave the industry, because it was thought that the stronger producers would
endure the difficult period easier. In the years in which this sugar market reform was
implemented, the number of sugar producers has dropped dramatically. The industry
has changed significantly and was guided by the idea of increasing efficiency (tab 5).
The current EU sugar industry consists of 20 states where sugar production is
located opposite to the 24 countries that were stricken by the reform. The concen-
tration in individual countries has increased considerably and now 70% of the total
production is concentrated within seven producer states.
The restructuring process was radical, 68 sugar factories have been closed in the
period from 2000 to 2005, or an average of 11 per year. 83 more sugar factories
were closed between 2006 and 2008, or nearly 28 per year.
In this period, the average size of the sugar factory has shown a steady increase,
particularly in the western EU countries that in 2009 have held about 85% of the
sugar production in the EU.
Congruently to the drop in the number of sugar factories the number of em-
ployees has been reduced. Between 2004 and 2009 the number of employees in
the sugar sector has fallen by 44% notwithstanding the reduction in the number of
sugar factories and staff reductions, sugar production remained a significant factor
in the economic life of rural areas.
The process of producing sugar includes not only sugar factories, but also a large
number of suppliers of raw materials and equipment. If we take direct and indirect
employment of the EU into account, sugar industry employs about 180.000 em-
ployees and contributes to the prosperity of approximately 170.000 farms.
Table 5. Number of sugar factories by the size of capacity (EU15)

tonne/day 1992 2000
< 5.000 51 9
5.000 8.000 59 28
8.000 12.000 46 51
12.000 15.000 27 26
> 15.000 0 21
Total 183 135
Source: CEFS Sugar statistics
6. Impact of the reforms on the sugar market and production in Croatia

The period after signing of the Stabilization and Association Agreement was
followed by the years of recovery of the Croatian sugar industry (figure 3). The
first measures that reduce sugar exports from the Republic of Croatia were the
introduction of export quotas for sugar.5 The introduction of the export quotas
limited the exports of sugar to the amount of 180.000 tones in one marketing year.
Given the fact that three sugar producers were active in Croatia the sugar export
quota was usually divided into three equal parts. On the other hand, in the frame-
work of the EU regulations, but also to improve the export balance, the Republic
of Croatia allowed the import of 40.000 tones of raw sugar duty-free.
The sugar reform from 2006, excluding the limited amount of sugar, affected
the price at which sugar could be placed on the EU market. The reference price,
which was reduced from year to year and the excess supply affected the reduc-
tion of sugar prices on the foreign market. Due to the high cost of raw materials
and energy, which account for almost 70% of the total sugar production costs,
the Croatian sugar factories began to approach the zone of insolvency. The ca-
pacities of sugar factories in the EU are generally higher than the processing
capacity of the local sugar factories by which the higher exploitation of the
economy of scope is achieved, which is very important for sugar factories.
Figure 3. Comparative overview of the total areas under sugar beet and their
yields
Source: DZS, EUROSTAT
5
During the entire period only the sugar of Croatian origin could be exported in EU, ie. only sugar
produced from sugar beet.
7. Conclusion
It is possible to argue that in the EU the most important part of the reform has
been fulfilled, for the number of producers and the area under sugar beet has been
reduced, however, due to the sugar misbalance on the world market, the price of
sugar in the period from 2010-2013 recorded a significant increase, which favoured
the sugar producers.
Figure 4. Movement of the prices of sugar beet and sugar
Source: FAO Agricultural outlook, DZS, EUROSTAT
Joining the EU imposed some new challenges for the Croatian sugar factories,
the export quotas were replaced by the production quotas. Croatia has been as-
signed a production quota of almost 193.000 tonnes which in the first year was dis-
tributed to unequal shares by which the sugar factory in Osijek Ltd. and Sladorana
Ltd. each received35% of the total amount and the remaining30% was allocated
to Viro sugar factory JSC.
At the end of 2013 and the beginning of 2014, there was a significant reduction
in sugar prices on the market (figure 4). An additional problem for the Croatian
sugar industry is the EUs decision on the abolition of the sugar production quotas
in 2017.
Over years the Croatian sugar factories have been prepared for the strong com-
petition that currently rules on the sugar market in the EU, however, significant
market changes will require restructuring of the Croatian sugar industry and anew
positioning of this economically very important industry.
References:
Sugar and Sweetener Economy, VerlagDr.Albert Bartens KG, Berlin, 2013
CEFS Sugar statistics (2013) Brussels, available at: http://www.comitesucre.org/site/wp-
content/uploads/2014/04/CEFS-Sugar-Statisitics-Inquiry-2013-FINAL-DRAFTv3.
pdf, (visited on4th April 2014)
Development and the future of CAP (1991), available at: http://ec.europa.eu/agricul-
ture/cap-history/1992-reform/com91-100_en.pdf, (visited on 30th March 2014)
Evaluation of the CMO Sugar Sector (2001), Netherlands Economic Institute, available
at: http://ec.europa.eu/agriculture/eval/reports/sugar/ch1_en.pdf, (visited on 3rd April
2014)
Hewitt, A.P. (2001), Guyana, Sugar and EBA: Case-study of a country which is not
quite Least Developed, Working paper, Barcelona, available at: http://www.odi.org.uk/
publications/3599-guyana-sugar-eba, (visited on 3rd April 2014)
Izvjetaj o poslovanju za 2012.godinu (2013), (Report on business for year 2012 ) Sla-
dorana d.d., upanja
OECD FAO Agricultural outlook, available at: http://www.oecd.org/site/oecd-faoagri-
culturaloutlook/, (visited on 3rd April 2014)
OECD FAO http://www.oecd.org/trade/agricultural-trade/35018726.pdf, (visited on
3rd April 2014)
Slezak s. et all. (2003.), The Situation of the Sugar Beet Production in Hungary before
the EU Accession, ACS, No. 63/2003, available at: http://hrcak.srce.hr/12360, (visited
on 2nd April 2014).
Tipuri, D. (1996.), Porterov model industrijske strukture, Poslovna analiza, No. 3/4,
(Porters model of industrial structure, Business Analysis) available at:http://web.efzg.hr/
dok/OIM/dhruska/Porterov%20model%20industrijske%20strukture.pdf, (visited on
2nd April 2014)
Dravni zavod za statistiku,(Central Bureau for Statistics)available at http://www.dzs.hr/
Hrv_Eng/publication/2013/01-01-17_01_2013.htm, (visited on 3rd April 2014)
COUNCIL REGULATION (EC) No. 1260/2001 of 19 June 2001 on the common
organisation of the markets in the sugar sector, Official Journal of the European Com-
munities 1260/2001
UREDBA (EZ) No. 266/2006(EU Directive)
Vrste I raspored eerana u svijetu, (Types and distribution of sugar factories in the world)
available at: http://www.sugartech.co.za/factories/index.php, (visited on 2nd April 2014)
DEALING WITH CRISIS: USING SUBCONTRACTING FOR THE DEVELOPMENT ... 463
DEALING WITH CRISIS: USING SUBCONTRACTING

FOR THE DEVELOPMENT OF THE CROATIAN LEATHER
MANUFACTURING AND PROCESSING INDUSTRY
Sanda Renko, Ph.D.1, Alica Grilec Kauri, M.Sc.2, Mario Leina, B.Sc.3
1
University of Zagreb, Faculty of Economics and Business, Republic of Croatia, srenko@efzg.hr
2
University of Zagreb, Faculty of Textile Technology, Republic of Croatia, alica.grilec@ttf.hr
3
PhD student candidate at the Faculty of Economics Osijek,
Republic of Croatia, mario.lesina@gmail.com
Abstract
As literature suggests, subcontracting presents an important source of support
of various kinds to small and medium-sized companies from large ones as well
as an important source of efficiency and competitiveness. It is considered as an
instrument of industrial and economic development and employment creation in
developed and developing countries, and particularly in labour intensive industries.
A reduction of demand, a change in consumption patterns, a global shift from
production and economic crisis have increased the interest of many researchers
analyzing subcontracting relationships mostly in textile and clothing industry. This
paper is investigating the role of subcontracting in the case of the Croatian leather
manufacturing and processing industry with an aim of getting better insight into
its contribution to the development of this sector. Therefore, for the purpose of
this paper, a two-phase research study, including a qualitative approach, was used:
1) the first phase on the sample of companies operating in the Croatian leather
manufacturing and processing industry which intended to find out overall percep-
tion of benefits and limitations of subcontracting for the Croatian footwear and
leather manufacturing companies; 2) the second phase on the group of the Croa-
tian footwear and leather manufacturing companies, focusing on the success of
subcontracting in dealing with global crisis. The findings of the study confirm that
positive relationships between subcontracting and business performance was found
as well as some areas for improvement.
JEL Classification: L67, M11
Keywords: subcontracting, Croatian footwear and leather manufacturing industry
464 Sanda Renko Alica Grilec Kauri Mario Leina
1. INTRODUCTION
While adapting to the demanding EU market, exposed to the increasing compe-
tition from the Far East, and very inconsistent market susceptible to ever-changing
fashion trends, Croatian leather manufacturing and processing industry has rec-
ognized the necessity for implementation of new strategic approaches. Those new
strategic approaches have focused on a cost management strategy combined with
adequate service and quality management level. Literature (Buxey, 2009) suggests
that subcontracting is the strategy for companies in the textiles, clothing, and foot
wear industry for adapting to the pressures of globalisation. Namely, the produc-
tion in the textile, clothing, and footwear industry is transferred to cheap offshore
locations, generally via subcontracting, and in order to survive, local factories focus
on quality and customer service. In general, Ani et al. (2008) have seen the textile
and clothing industry as a declining industry.
The main characteristics of the Croatian leather manufacturing and process-
ing industry are: labour intensiveness, export character, insufficient investment in
technologies and high regional concentration (75% of companies are located in the
Northwest of Croatia). It participates in the Croatian manufacturing industry with
1,22% companies, 3,89% employees and 1,84% revenue (CCE, 2012.).
The fact that most of the revenue in investigated industry is realised through
the system of subcontracting, that, according to INTRASTAT, does not record
value of used materials, given on disposal to be manufactured, in invoices issued,
but added value only, can partially explain disproportion between participation
in the number of employees and revenue. The domination of small companies in
this industry is evident (93,8% of companies have less than 50 employees), but,
although there are only eight medium and big size companies, they should also
be taken into account because their revenue is significant. Analysing the situa-
tion in this industry, a slight increase in the number of companies and in total
revenue is observed from 2008 to 2012 (Table 1), and this paper is an attempt
to find out whether subcontracting business model have helped Croatian com-
panies to deal with global crisis which started in 2008.
Table 1 Number of companies, employees and total revenue of Croatian foot-

wear and leather industry 2008 - 2012.
Indicator 2008. 2009. 2010. 2011. 2012.
Nr of companies 124 124 127 129 130
Nr of employees 8.538 7.692 8.781 9.026 8.547
Total revenue 2.364.973.135 2.182.539.018 2.556.027.748 2.957.739.973 3.000.752.156
Source: CCE, 2012.
Kimura (2002) points out that in labour intensive industries, subcontracting

has been regarded as an important source of efficiency and competitiveness. It is in-
teresting that although there is a growing interest to examine subcontracting as the
special form of co-operation among companies (Furlan et al., 2007) or as a specific
form of outsourcing (Heshmati, 2003) in the world, and the importance of sub-
contracting as the form of the export of the Croatian leather processing and manu-
facturing industry`s output, there has been little academic investigation into the
area of subcontracting in the Republic of Croatia. There is only worth mentioning
work of Ani et al. (2008), which compares subcontracting and full manufacturing
business models employed by the Croatian textile and clothing manufacturers.
Therefore, in this paper we try to obtain the better insight into the benefits and
limitations of subcontracting for the Croatian footwear and leather manufacturing
companies, and into the contribution of subcontracting in their dealing with global
crisis.
The paper begins with the literature review where the definitions of the concept
of subcontracting, main types of subcontracting, as well as motives for subcon-
tracting are presented. Then, research methodology, short review of the situation
in the Croatian leather manufacturing and processing industry, and an analysis of
the research findings are given. For the purpose of this paper, a two-phase research
study, including a qualitative approach, was used: 1) the first phase included in-
depth interviews carried out on the sample of 10 companies that are working as
subcontractors in the Croatian leather manufacturing and processing industry; 2)
the second phase included more detailed in-depth interviews with two companies
in the Croatian footwear and leather manufacturing industry. Finally, an integrated
conclusion, summarising the results, developing managerial implications and pro-
viding suggestions for future research is provided.
2. LITERATURE REVIEW
The role of subcontracting, as an important source of support of various kinds
to small and medium enterprises from large firms, as well as an important source of
efficiency, emerges from the decentralisation process of large companies that started
in the 1970s and that has been widely discussed by the literature (Cagliano and Spi-
na, 2002). Accordingly, literature review suggests the wide range of definitions of
the concept of subcontract ting. According to the UN official definition (UNECE,
1995), subcontracting relationship exists whenever a business (subcontractor) acts
for the account of another (main contractor) undertaking in the process of working
and making a specific product to plans and technical specifications supplied by the
main contractor, who has final economic responsibility.
Subcontracting can be considered as an inter-firm alliance contributing to en-
hancing common members` interests (Kooli et al., 2010, p. 374). It is an important
option among strategies for aggregate production and capacity planning. Sub-
contracting is a means of reallocating production requirements among firms to
achieve production smoothing. It usually lowers total production costs, and hence,
increases producers profits (p.1362). Subcontracting is traditionally regarded as
an opportunity to pay a fixed-cost or premium for items produced by an outside
supplier. Watts and Kleiner (1995) consider subcontracting as the procurement of
an item or service which is normally capable of economic production in the prime
contractors own facilities and which requires the prime contractor to make specifi-
cations available to the supplier.
There is an interesting approach of Sousa and Voss (2007), who investigate sub-
contracting as a particular case of outsourcing. The authors observe it as a taype
of manufacturing outsourcing, an arrangement in which the client outsources
manufacturing-related processes (manufacturing per se as well as product design
processes), resulting in the subcontractor plant performing all or part of the manu-
facture of the clients product.
Taymaz and Kilicaslan (2002) think that there are significant differences be-
tween traditional and new approaches to subcontracting. Traditional approaches
consider subcontracting as a relationship between two firms, the parent and the
subcontractor, while new approaches like the network and cluster approaches look
at a group of firms ooperating (and competing) within a complex web of support-
ive institutions. Externalities generated by this form of cooperation and competi-
tion are internalized by the network so that the collective efficiency and flexibility
is enhanced.
A number of researchers point out the advantages of subcontracting. According
to Ani et al. (2008, p. 331), the main idea behind advocating the development of
subcontracting was based on the benefits a small subcontractor derives from a large
parent company in the form of guaranteed markets, secured raw materials, and
technical assistance. Taking advantage of the small size, subcontractors can produce
multiple items in small quantities. On the other hand, large companies (parent
companies), start with subcontracting model for the following purposes (Watan-
abe, 1971): to economize capital and labour, to take advantage of lower wages in
small companies, to take advantage of the subcontractor`s specialised technology,
and to serve as a buffer against business fluctuations.
Kongmanila and Takahashi (2010, p. 99) pointed out two main reasons why large
companies prefer to outsource production process through subcontractors: to en-
joy flexibility by utilizing production capacity of subcontractors, and because of cost
reduction. Subcontracting networks occur when a manufacturer sells products to a
specific buyer for a considerable period of time, while the latter specifies the design
of the products and supervises the production process (Ghauri et al., 2008, p. 741).
Small and medium enterprises can have multiple benefits from the subcontract-
ing relationship with large firms (Bala Subrahmanya, 2008, p.25; NASEP, 1997):
- subcontracting enterprises can produce multiple items in small quantities ef-
fectively taking advantage of the small size of the organization,
- subcontracting enterprises let their parent enterprise develop products, culti-
vate markets and sell products. This allows them to concentrate on manufac-
turing activities alone and specialize in specific engineering fields.
- subcontracting enterprises can ask their parent enterprise to instruct or advice
on technologies and production management, lend facilities, train human
resources, and provide with information.
Although the literature considers subcontracting as basically positive business
model, there also some disadvantages of subcontracting. For example, Cagliano
and Spina (2002, p. 1383) find that although subcontract ting seems attractive
and profitable, companies that are involved in the model of subcontracting show
relatively low levels of strategic planning, employee involvement and performance
measurement. In contrast, they excel in production practices.
Kooli et al. (2010) warn that an organization might suffer from the oppor-
tunism of its partner. Moreover, the role of information in coordinating activities
between the two partners, involved in the model of subcontracting, becomes very
important as it reduces the problem of uncertainty and complexity.
Andreff (2009, p. 24) points out that overall impact of subcontracting on host
countries is less controversial than in home countries since it is basically positive,
even though all the revenues from this business model do not remain in host coun-
tries. However, although foreign multinational companies support local suppliers
in setting up their production facilities, by providing technical assistance to raise
product quality, and by training employees and managers, at the same time they
have an impact on competition in local markets. They could be more productive
than local firms, may increase imperfect competition in the local market and re-
duce the market share of local firms forcing them to exit their activities. There is
insufficient transfer of capital, technology and knowledge via subcontracting busi-
ness model (Uroevi et al., 2009).
Andreff (2009, p. 28) suggests that the likelihood of positive effects of the sub-
contracting on the host country`s economy depends on specific factors, such as:
depth of technological gap between foreign multinational company and host coun-
try, extent of vertical linkages between multinational company and local firms,
nature of competition in a specific industry, etc.
Ani et al. (2008, p. 331) considered some disadvantages of employing sub-
contracting business model. Firstly, its success depends on the exact predefined
standards. Moreover, most subcontractors have no possibility to differentiate their
offer except through geographical proximity and/or low prices. In such a way, sub-
contractors are in an adverse position on their way towards the full manufacturing
model. Subcontracting does not contribute to the development of modern indus-
try, bur it keeps up old fashion production structures. Uroevi et al. (2009, p.
112) add that the parent firms determine prices of products, insist on the export
of equipment from their host countries, and engage the part of subcontractor`s
production capacities. Thus, we cannot rely on the stability, continuity and no
riskiness of subcontracting business model. Kaufman et al. (2000) point out that
from a strategic perspective, and because product designs remain under the control
of clients, subcontractors avoid investing in client-specific processes in order to
prevent dependency on a few clients. Thus, subcontractor plants have their opera-
tions organized specifically to routinely provide manufacturing services to a range
of clients and they tend to employ general assets and skills in order to meet diverse
client specifications.
3. METHODOLOGY
The objective of this study is to understand benefits and limitations of the sub-
contracting strategy and its contribution in dealing with the crisis of the Croatian
leather manufacturing and processing industry. Therefore, given the exploratory
nature of the research it was felt that a qualitative approach, using qualitative in-
depth interviews, was appropriate. Such approach will produce the qualitative data
necessarry in an exploratory study, where scientific explanations are desirable and
the researcher is uncertain of the nature of the construct to be employed. Eisen-
hardt and Graebner (2007) point out that a qualitative approach is particularly
suited for gaining a better understanding of collective and individual perceptions,
and open or semi-structured interviews are suitable means to gain such perceptual
data with respect to a given phenomenon of interest.
For the purpose of this paper, a two-phase research study, including a qualitative
approach, was used:
1) the first phase - on the sample of ten companies that are working as sub-
contractors in the Croatian leather manufacturing and processing industry
which intended to find out overall perception of benefits and limitations
of subcontracting for the Croatian footwear and leather manufacturing
companies;
2) the second phase with two companies operating in the Croatian footwear
and leather manufacturing industry, focusing on the success of subcon-
tracting in dealing with global crisis.
At the methodological level, the research was carried out by means of a qualita-
tive study companies. Information was gathered using a questionnaire, specially
developed for this specific industry, which was followed up with direct interviews
with the owners. Pre-survey telephone calls were made at each company to identify
whether they would be prepared to participate in the survey.
The sample (in the first phase) consisted of large Croatian companies with more
than 250 employees, and with more than 20 years of the existence on the market.
Their parents firms are mostly from Germany (59%), Italy (35%), Austria (29%),
and France (24%).
Concerning two companies that were included in the second phase of the
study, they differ in their ownership. The company A (for the reason of ano-
nymity we did not use their names in the text) is completely in the Croatian
ownership, while the second company, named company B, is half Italian and
half Croatian ownership. Moreover, both companies are middle sized companies
(50-250 employees) and are completed production facility. However, company
A operates 23 years on three locations on the Croatian market, while company B
operates less than 10 years on one location on the Croatian market. Both compa-
nies are producing high quality products in high price range. As their compara-
tive advantages they state: closeness of the main markets, production flexibility
that is reflected in the capabilities of small-series production with no additional
cost, experienced and skilled, even too low educated labourers, and specialisa-
tion for certain demands regarding special constructions or specific processing
inquired by parent company. Some of the questioned companies also consider
reliability of the Croatian companies as one of the advantages as well.
The questionnaire design is based on the discussion pointed out in the theo-
retical part of the paper. Moreover, two different research instruments were used
in each phase of the study. Namely, questionnaires were adapted to the particular
research interest in each phase of the study.
Each inteveiwing lasted on average about 30 minutes and was transcribed
verbatim, and thematically content analyzed.
4. RESULTS
In accordance with the research methods, the analyses, as well as the results,
first refer to the first phase of the study on the sample of ten companies, and then
to the second phase of the study conducted through in-depth interviews with two
companies. What follows is a short discussion of investigated themes and some
interpretations.
4.1. The perceptions of investigated companies about benefits and limitations of

subcontracting
The findings of the interview among companies, that are working as subcon-
tractors in the Croatian leather manufacturing and processing industry, revealed
that they were of the same opinion regarding benefits of subcontracting for their
business.
Subcontracting has brought significant financial stability and improved internal

relationships in the companies. Moreover, their organizational schemas were ad-
justed to subcontracting business model. There were rationalizations in all depart-
ments that are not directly related to production, while their business volume was
enlarged.
Subcontracting business model brought some improvements in the level of
knowledge of the companies, as it resulted in the increase of education level. Name-
ly, after introducing subcontracting, companies (subcontractors) have continually
experienced internal education programmes in order to increase their efficiency.
Also, education has been conducted to coordinate subcontractors` processes to
those of the parent firm. Both of the companies investigated in the second phase,
emphasized that help provided by parent company was priceless in process of turn-
ing low educated into a highly skilled labourers.
Respondents agree that subcontracting business model helped them with the
working capital and to independently participate in the international market.
4.2. The perceptions of investigated companies about the success of

subcontracting in dealing with crisis
In subcontracting system, mostly every subcontracting company performes one
function (eg: production, sales or marketing, etc.) for which is highly specilaized.
So when it comes to the problem (in this case crisis), it is much easier to deal with
problem in only one function than in the entire business process. In a period of
crisis, it is neccessary to initiate optimization processes, and mentioned processes
are different in each business process, apropos, cost are reduced in different ways.
For example, production mostly makes decisions for productivity increase, market-
ing insists on efficiency increase, while sales needs to find new target markets with
the same operating costs.
Respondends agreed that it is more effective when each subcontracting com-
pany has responsibility for only one function and that in subcontracting system
they operate more effectively and efficiently than companies that deal with all busi-
ness functions/processes at once. In subcontractiong companies, each company has
it own management that deals with only one function for which is highly trained.
That is how subcontracting leads to business risk dispersion. In a period of financial
crisis it leads to dispersion of negative effects caused by crisis. Further more, each
company cover costs of the mentioned process out of own sources, what disperses
financial burden as well. Such system gives much more strength to struggle any
disorder. Nor less important is the fact that different governments applied different
measures to struggle with the global crisis, and, companies involved in subcontract-
ing systems in several countries, took benefits of each one of them
Respondents agree that subcontracting help them to overcome global financial
crisis that started at the year 2008 because they are in charge for only one function
for which are highly trained and they do not disperse their concentration on other
business functions.
5. CONCLUSION
The increasing market competition with the growing trend of globalisation
forced companies to improve their business strategies. This paper presents an at-
tempt to prove that the implementation of subcontracting, as one of the new stra-
tegic approaches leads to lower costs, increasing quality and service efficiencies.
Moreover, the goal of the paper was to find out whether subcontracting has helped
the Croatian footwear and leather manufacturing companies in dealing with glo-
bal crisis. The main reason why the authors of this paper decided to choose the
footwear and leather manufacturing industry to explain benefits and limitations of
subcontracting lies in its strongly export-oriented towards EU market, mainly in
the form of contract processing.
The paper contributes to a better understanding of the theoretical and opera-
tional implications of subcontracting for small and medium companies in leather
processing and manufacture of footwear and leatherwear in the form of guaranteed
markets, secured raw materials, and technical assistance. On the other hand, there
are two main reasons why large companies prefer to outsource production process
through subcontractors: to enjoy flexibility by utilizing production capacity of sub-
contractors, and because of cost reduction.
The results of the study conducted among companies that are working as sub-
contractors in the Croatian leather manufacturing and processing industry proved
that subcontracting business model has brought significant financial stability in the
company and improved internal relationships, increased overall level of knowledge,
and conducted rationalizations in all departments that are not directly related to
production. Additionally, respondents agree that subcontracting is efficient strategy
in a period of crisis because subcontracting company performes one function (eg:
production, sales or marketing, etc.) for which is highly specilaized. So when it
comes to the problem (in this case crisis), it is much easier to deal with the problem
in only one function than in the entire business process.
Several managerial implications for the Croatian leather manufacturing and
processing industry might be derived from the findings of this paper. Firstly, the
study shows that the main reason for employing subcontracting business model is
the lack of working capital and impossibility to independently participate in the
international market. Moreover, it gives directions for the Croatian Chamber of
Economy`s Leather Processing Industries Association to help Croatian manufac-
turers in dealing with crisis and entering EU market.
One of the Interview findings was also that most of the companies in Croatian
footwear and leather manufacturing industry, eight out of ten, see their further de-
velopment in overtaking the tasks with higher value added in order to increase in-
comes and keep up with expected wages growth, rather than develop its own brand,
what is opposite to the main stream opinion in Croatian contemporary economy.
Positive tendencies within last eight, recessional, years, unlike most of the man-
ufacturing industries, give us the right to conclude that contemporary main stream
opinion is about to be modified.
Business performance can be indeed improved trough the system of subcon-
tracting, what this paper also researched and proved.
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INNOVATTIVE SALES OF ESY LEASING PRODUCT IN THE B&H LEASING MARKET 475
INNOVATTIVE SALES OF E@SY LEASING

PRODUCT IN THE B&H LEASING MARKET
Slobodan Vuji Ph.D.1, Saa Vuji, Ph.D.2, Aida Abduzaimovic3
1
University Vitez Travnik, Bosnia and Hercegovina, slobodan.vujic@unvi.edu.ba
1
VB Leasing BH Ltd., Bosnia and Herzegovina,slobodan.vujic@vbleasing.ba
2
University Vitez Travnik, Bosnia and Hercegovina, sasa.vujic@unvi.edu.ba, vujic.sasa1@gmail.com
3
University Vitez Travnik, Bosnia and Hercegovina, sasa.vujic@unvi.edu.ba,
aida.abduzaimovic@unvi.edu.ba
Abstract
The paper is aimed at analyzing and determining whether the strategy of differ-
entiation through introducing a new innovative product, Easy Leasingresults in
the competitive advantage in the market. By means of new technological achieve-
ments, the Easy Leasing product allows a more efficient and faster processing of
the application for financing through leasing, and by means of intensive promo-
tion allows better sales. The differentiation strategy used by VB Leasing relies on
the process optimization through new technological achievements, and in this way
achieves the differentiation. Easy Leasing allows improvement of business effi-
ciency in the B2B segment and thus leads to the companys greater profitability.
This service requires a more intensive Internet use for e-sales, and allows a reduc-
tion of the time necessary for selling the product.
Due to market development and globalization, supply is becoming greater than
demand; consequently, the role of marketing is increasing, with sales acquiring a
vital role. The crisis impact on the leasing market is obvious, and its consequences
will inevitably be reflected on the economic environment where leasing companies
do business in the forthcoming period as well. If a leasing company wants to main-
tain its market share, all the company functions should be directed toward achiev-
ing the set goals. Sales has a central role in leasing companies, both from the aspect
of implementing the business marketing concept and from the aspect of ensuring
revenues for covering all the business costs and the remainder for business profit.
The paper will also provide a review of the role of sales force, which is the link be-
tween the Easy Leasing product and final service users.
476 Slobodan Vuji Saa Vuji Aida Abduzaimovic
The paper will use primary research among car dealers by means of survey ques-
tionnaire. Scientific analysis will determine their satisfaction with Easy Leasing,
whether the innovative product singles the company out of the competition; it will
also assess the new products recognizability, all from the aspect of increasing the
leasing companys business efficiency and an increase in its market share.
JEL Classification: M31, O15,
Keywords: Leasing service, differentiation, innovative product, marketing, sales
determinants, customers, human resources.
INTRODUCTION
Market development and globalization make supply greater than demand; con-
sequently, the role of marketing gains significance and sales obtains the vital role.
The ultimate goal of marketing activities is the successful satisfaction of customer
needs and ensuring its own successful business. It is impossible to separate strategy
from marketing approach and expect results (Kotler; 2006, p.176).
Leasing companies activity in the Federation B&H is regulated by the Law on
Leasing, which came into force in 2009. During 2012 and 2013, economic trends
in the surroundings had a negative effect on local economy due to the overflow of
debt crisis from the Eurozone and the region. This resulted in the trend of local
production weakening, which has been present since 2010 and which has slowed
down leasing companies business activities as well. The crisis impact on the real
sector is evident, and in the forthcoming period its consequences will inevitably
reflect on the economic environment where leasing companies operate. It also
affected the balance total of leasing companies in the Federation B&H which, as
of 30 September 2013, amounted to 26,037 thousand KM, which is by 9.84%
or 68,327 thousand KM lower than on 31 December 2012. The above amount
of assets refers to six leasing companies, while the amount of total assets as of 31
December 2012 referred to seven leasing companies (one leasing companys license
for performing leasing activity was revoked) (Banking Agency of the Federation of
Bosnia and Herzegovina; 2013, p.45).
If a leasing company wants to retain its market share, all the functions in the
company should be focused on achieving the set goals, the sales function obtaining
the pivotal role. Sales department communicates directly with customers and by
selling its products satisfies customer needs, and in the same time ensures income
and provides prerequisites for profitable business. This role places the sales depart-
ment on the front line of communicating with customers and provides it the cen-
tral role in achieving both customers and the leasing companys goals. In order to
keep the sales function successful, the company must permanently work on inno-
vating its products, aimed at satisfying customer needs. Easy Leasing is a new, B2B
module product, which offers a fast and efficient way of selling vehicles, equip-
ment and machinery through leasing. The high-quality service via Easy Leasing
allows the improvement of business efficiency in the B2B segment, and thus leads
to greater efficiency and profitability of the entire companys business. Through a
more efficient and faster processing procedure, the Easy Leasing product makes
financing through lease more efficient and faster and thus, through intensive pro-
motion, allows greater car sales. This service requires more intensive use of the
Internet for e-sales, and allows the reduction of the time needed for service sales.
Marketing department can be efficient only in companies where all departments
and employees joined forces in order to create a competitively superior system of
the value delivered to consumer.(Kotler; 2006, p. 463).
Starting from the pivotal role of sales department in leasing companies both
from the aspect of implementing the marketing concept and from the aspect of
ensuring income for covering all business costs and the balance for business profit,
it is necessary to analyze the quantitative and qualitative sales determinants.
QUANTITATIVE AND QUALITATIEV SALES DETERMINANTS

Qualitative indicators should allow the successful and efficient leasing service
sales from the aspect of quality. Qualitative sales determinants can be defined as
indicators that refer to the sales quality as: sales activities, sales organization, sales
planning, sales management, sales human resources, running sales, sales control,
sales and product/service range, sales and price policy, sales and promotion, sales
and distribution. With its active functioning, sales obtain the central role in the
marketing concept. Some theoreticians remarks that marketing development may
result in the disappearance of sales and loss of its significance are unacceptable. It
is necessary to point out that the increased competitors efforts, increased supply
and market globalization lead to the increased supply and that it is the sales depart-
ments task to sell the companys products in a bulk of same or similar offers that
can successfully satisfy customers needs and desires (Grabovac; 2005, p.30).
Qualitative methods of forecasting the leasing service sales are based on profes-
sionals estimates, and can include: estimates by the leasing companys sales repre-
sentatives, estimate by the leasing companys manager and research into the leasing
service customers intentions.
Quantitative sales determinants refer to the physically expressed volume of sales,
and are mostly expressed in sales quantities and values. It makes it possible to de-
termine sales quotas for a defined product or a defined consumer segment, market
share, etc. Quantitative sales determinants must be planned, their performance
must be monitored and the achieved results analyzed.
Quantitative methods of forecasting the leasing service sales are based on:trend
methods,correlation methods,regression methods, andeconometric methods.
The sales planning process is an activity based on analyzing the present sales
conditions and forecasting future sales on the grounds of expected events. The se-
quence of activities in the planning process is defined, since one activity depends
on the previous one and is conditions by its statements (Grabovac; 2005, p.429).
Based on the combination of methods for forecasting the leasing service sales in
the tabular comparison of obtained results, it is possible to make the final version
of forecasting the leasing service sales,which will form a basis for developing the
sales plan. In order to implement its strategy and position itself in the market, or
else to keep its market position, the leasing company must permanently innovate
its product. The differentiation strategy applied by VB Leasing relies on the process
optimization through new technological achievements, and in this way achieves the
differentiation through competitive advantage. Differentiation can be built upon
brand loyalty, product quality, product innovation, and company or product style
and image (Thompson et al.; 2008, p.115).
INNOVATIVE NEW PRODUCT E@SY LEASING

Every product or service must have a clearly defined market position, and there-
fore the VB Leasing company strives to be the leader in the leasing market. Easy
Leasing, its slogan being E@SY LEASING - FORMULA FOR THE FASTEST
LEASING is a new product by the leasing company, i.e. a new service that allows
a sales person in the indirect distribution channel to use a B2B application and
the Internetto send, to VB Leasing head office, documents necessary for leasing
application processing. In this way, the application is immediately processed and
has the priority status. The entire processing procedure is completed in a very short
time, considerably faster than by competition, and without the repeated clients
visit before signing the contract.
By means of the new, innovative Easy Leasing product, i.e. service, the VB
Leasing company will prolong the service life of its services. Product is the most
important marketing mix element. The essence of a product existence is reflected
in satisfying a defined need. Understanding customer needs is certainly a good
job. Clients needs can be properly satisfied only if companies offer their services
or products in a way better than their competitors, so that clients feel they have
received more(Solomon et al.; 1999, p.11). Services, like products, have their
service life, regardless of how successful they are in one business cycle. A company
will inevitably experience a decrease in its business activity if it does not keep pace
with clients requirements and needs. The new product can ensure a competitive
advantage for the company and attract leasing service users through indirect sales
channels. In their discussion of competitive strategies, Prof. A. Thompson et al.
(Thompson et al.; 2008, p.115) give priority to the question as to whether the tar-
get market segment is too broad or narrow, and whether the competitive advantage
the company hopes for is related to low cost or product differentiation.
At the very point of sale, by means of B2B online module, dealers are directly
linked to VB Leasing, and when offering their product (car sales) they have the
opportunity to offer the leasing service as well and prepare the suitable offer for its
financing. Dealers who have access to the B2B module, i.e. Easy Leasing applica-
tion, prepare the offer and application for financing, which they can print with the
already entered client data. The dealer forwards the described offer to VB Leasing
for approval via the B2B online module, together with the quotation, application
for financing and other documents. Immediately upon receiving the information
that the offer has been accepted by the client, employees at the contract department
set to analyze the client. The specific of this way of working is that the dealer has
access to the offer status at any time. Clients acceptance of the offer takes place in
the presence of the dealer, who confirms it by signing the filled-in application for
financing. In the meantime, client is able to collect the necessary documents and
have the financing application certified by his employer. The crucial advantage of
Easy Leasing service for clients who deal with VB Leasing in this way is in that such
applications have priority over others.
The research was conducted at the point of sale, i.e. at the car dealers by means
of a survey questionnaire. Research results revealed that 85% dealers are very satis-
fied with the Easy Leasing application, and that 15% are satisfied.
Figure 1: Dealers satisfaction with the Easy Leasing leasing application
Source: Authors creation (Own primary research)
With respect to question Does the Easy Leasing product differentiate the VB
Leasing companyfromits competition, all the respondents replied that the Easy
Leasing service differentiates the VB Leasing companyfrom competition.
Figure 2: Does the Easy Leasing product differentiate the VB Leasing

companyfrom competition
Source: Authors creation(Own primary research)
Besides, the recognizability of the Easy Leasing product was assessed, with the
following results: 60% respondents claimed that the Easy Leasing product is recog-
nizable, while 40% responded that it is somewhat recognizable. In order to create
a positive image, the differentiation marketing strategy should offer, to customers,
something unique and particularly valuable to them, which other suppliers cannot
offer (Porter; 1980, p.119).
Figure 3: Assessment of the Easy Leasing product recognizability
In the course of primary research, all the respondents gave the affirmative answer
to the question, Has the promotion of Easy Leasing contributed to the increase in
VB Leasing service sales?, while the question, Has the promotion of Easy Leas-
ing increased the sales of your product / cars? was answered affirmatively by 90%
respondents and negatively by 10%, which is shown in the graph.
Figure 4. Has the promotion of Easy Leasing contributed to the increase in your
product sales
The research leads to the conclusion that promotion is a visible part of market-
ing process, and a very important one, since the target market would perhaps not
have heard of the Easy Leasing service had it not been for the promotion. Promo-
tion is to be credited for the fact that target segment becomes aware of the existence
and availability of the Easy Leasing product.
Easy Leasing clients, i.e. end users, form the opinion of the Easy Leasing service
quality based on the people who represent VB Leasing.
HUMAN RESOURCES IN LEASING SERVICE SALES

Modern role of human resources in leasing service sales derives from the leasing
service complexity, maximum focus on customers and an increasing market compe-
tition. The modern role of leasing service sales representative does not include mere
offering and selling of leasing services. Their role and task is increasingly becoming
a factorthat comprehensively satisfies customer needs. Sales representatives provide
the customer with the needed means, as well as propose and resolve the problem
of ensuring financial resources with which the latter will pay for the needed and
acquired means through annuities, Due to the leasing service complexity, the seller
also suggests, to the buyer, other solutions besides the use of leasing service.
Sales staff is a link between Easy Leasing and end users of Easy Leasing service,
and they must therefore possess proper interpersonal skills, as well as the knowledge
of Easy Leasing services.
Besides personal sales, leasing companies achieve a significant sales volume
through the indirect sales channel, i.e. through dealers. In the latter case, personal
sales proceed through the dealers sales representatives. VB Leasing company regu-
larly invests into the training of its own staff as well as of the dealers sales staff,
which can be seen from the responses to the question about the satisfaction with
training and communication provided by VB Leasing employees related to Easy
Leasing service: 80% are very satisfied, while 20% respondents claimed to be satis-
fied. No respondent claimed to be dissatisfied with the training.
Figure 5: Satisfaction with training and communication
ANALYSIS OF THE LEASING COMPANYS RELATIONSHIP WITH END

CUSTOMERS
In the course of primary research, customers were surveyed about five elements
as important for the leasing companys relationship with end customers; respon-
dents were asked to grade their respective importance on the scale: unimportant,
slightly important, important, very important, and extremely important.
All the collected data are presented in the table. Customers were surveyed about
the following five elements:
1. direct communication,
2. simplicity of acquiring the desired equipment,
3. repayment of installments from future income,
4. maintaining liquidity, and
5. possibility to increase the leasing package.
Figure 6: Importance of individual elements for customers

SIMPLICITY REPAYMENT OF
POSSIBILITY TO
DIRECT OF ACQUIRING INSTALLMENTS MAINTAINING
RESPONSES INCREASE LEASING
COMMUNICATION DESIRED FROM FUTURE LIQUIDITY
PACKAGE
No
EQUIPMENT INCOME
1. UNIMPORTANT 0.0% 0.0% 0.0% 9.4% 5.2%
2. SLIGHTLY IMPORTANT 3.4% 0.0% 0.0% 7.8% 13.9%
3. IMPORTANT 47.3% 19.1% 10.1% 23.8% 19.9%
4. VERY IMPORTANT 37.0% 48.9% 41.0% 34.1% 40.4%
EXTREMELY
5. 12.3% 21.0% 48.9% 24.9% 20.6%
IMPORTANT
TOTAL 100% 89% 100% 100% 100%
Source: Vuji S. Own research (2013)
With respect to the importance of direct communication, a total of 3.4% re-

spondents pointed out that it is slightly important while all the others 96.6%
emphasized the importance of this element. As for the simplicity of acquiring the
desired equipment, all 100% customers responded that it is important. As for the
third element, the importance of repaying installments out of the future income,
the entire sample, i.e. 100% customers claimed that it is a particularly important
issue while no customers responded that it is unimportant. As for the question
related to the importance of maintaining liquidity, 82.8% customers believe that
the element is important, while 17.2% claim that it is unimportant or slightly
important. A total of 80.9% respondents believe that the possibility to increase the
leasing package is important, while 19.1% claim that it is unimportant.
LEASING MARKET ANALYSIS

VB Leasing doo must take into account the best positioned competitors. At the
moment, the direct competitors in the B&H market are companies Raiffeisen Leas-
ing doo, UniCredit Leasing doo and S Leasing d.o.o. These competitors are actually
members of the priority competitor category, and their strategies and plans must par-
ticularly be taken into account when choosing and developing the marketing strategy.
A few factors at the global level affect building close ties between a company and
its significant customers. Above all, they include the increase in global competition,
increasingly strong requests for improving quality, fast technology development, and
accepting the just in time comprehensive business philosophy (Kesi; 2003, p.543).
Figure 7: Market share by financial volume, total at the end 2013 (in 000 KM)
Source: Vuji, S. Own research (2013)
VB Leasing doo company has not always been the market leader, but it has
had a significant share in the movables market (it has always been among the first
three leasing service suppliers). In 2010, VB Leasing doo, with about cca 1100
contracts, was the second best company in the market, with UniCredit Leasing on
the top position with somewhat over 1300 contracts in the same year. Viewed in a
long term, VB Leasing has been constantly experiencing an increase in the number
of contracts, and an increase in the financing volume, and thus in 2012 it signed
somewhat over 1700 contracts and won the market leader position. By the end of
2013, these trends continued, and the VB Leasing company maintained its leading
position. According to the financial volume, its market share amounted to 30%,
while by the number of contracts it was 32% of the market.
Figure 8: Market share by volume (in 000 KM)
Source: Own creation, data by the Association of Leasing Companies of B&H
Figure 9: Market share by the number of contracts and years (in 000 KM)
Source: Own creation, data by the Association of Leasing Companies of B&H

Despite the volatile economic conditions in Bosnia and Herzegovina, VBLeas-

ing is the leader by financial volume as well, owing to about 53,000,000 KM fi-
nancial volume of new business in 2013. It can be concluded that by introducing
the innovative product VB Leasing improved and strengthened its position in the
leasing market.
CONCLUSION
Competition in the leasing service market is manifested through improving the
service quality, faster application processing and providing additional incentives
with the emphasis on the higher service quality and fast application processing.
Innovative solutions that raise the companys service quality are the guideline for
satisfying clients and the foundation for further company development.
Easy Leasing is a service that offers a fast and efficient way of sales through leas-
ing. By means of B2B online module, dealers are directly linked to VB Leasing,
and while selling their products, e.g. cars, they can also offer the leasing service and
prepare the suitable offer for its financing. The greatest advantage of Easy Leasing
service is that it offers the approval of leasing application within an hour. One of
the most important details achieved by introducing E@sy Leasing is a long-lasting
and permanent link, i.e. strengthening of ties between partners on a long-term
basis. It makes the competition access more difficult since competition would have
problems if they wanted to regain part of VB Leasings market. In order to pen-
etrate the market, competition must be willing to invest considerably, i.e. grant
considerable discounts to clients and partners, which ultimately brings the entire
financing business into the unprofitability zone.
In order to achieve a fast and efficient way of sales, all activities in the sales
process must be clearly defined, in order to avoid confusion and promote service
consistency. One of the pre-requisites for successful launch of Easy Service sales is
a well-developed distribution network.
VB Leasing promotes Easy Leasing services to the following player in the dis-
tribution channel, i.e. to the dealer, and by improving their sales, i.e. allowing fast
financing, the latter sells their products more easily, and thus promotes Easy Leas-
ing services to the end user; in this way, successful promotion increases sales.
It is only with educated and professional staff that speed and flexibility can be
achieved, and thus generate future success. Training should be viewed as a continu-
ous process which results in the increased interest in Easy Leasing services by new
dealers, and strengthening of the existing partners. Training of the dealers sales staff
is aimed at achieving the long-term competitive advantage.
Primary research results indicate the total end users satisfaction with dealing
with the leasing company. The leasing company develops and nourishes its rela-
tions with end users, particularly in the direction of: creating and developing the
database of end users and potential users, attracting, retaining and developing end
users, building end users loyalty to the leasing company, decreasing end user drain,
and creating strong ties with end users.
References
1. Agencija za bankarstvo Federacije BiH,(2013) Informacija o sektoru lizinga Feder-
acije BiH, Sarajevo,
2. Grabovac N., (2005),Prodaja i prodajni menadment, ACA System, Sarajevo.
3. Kotler P.(2006),Marketing menadment, 12 izdanje, translation. Mate, Zagreb.
4. Solomon M., G. Bamossy, S. Askegaard; (1999), Consumer Behavior; Financial
Times Prentice Hall Europe; Thompson A.i dr.;(2008), Strateki menadment u
potrazi za konkurentskom prednou; translation, Mate, Zagreb.
FINANCIAL
ECONOMICS
SHORT TERM SOLUTIONS FOR THE FINANCIAL CRISIS 491
SHORT TERM SOLUTIONS FOR THE FINANCIAL CRISIS

Andreas Will1
1
University Politechnica of Bucharest, Romania
Abstract
The focus is on short-term solutions for the current financial crisis which would
cause as little total costs as possible and would help to preserve the EU. Solutions
will be discussed for issues such as organisation of bonuses, debt redemptions and
trust, role of insurers, and direct credits. Direct credits are still the most cost-effec-
tive measures for solving the financial crisis.
JEL Classification: G01, H63
Keywords: current crisis, top performers value, flat rate withholding tax, the
debt-to-GDP ratio
1. Introduction
Central to the current article is a short-term solution for the crisis. On the one
hand, the costs arising from the solution should be as low as possible but, on the
other hand, they should be as high as necessary for the existing Eurozone. Due to
the progress of the current crisis, it is essential to find solutions that will prevent the
collapse of the Eurozone and which can still be paid at all. This aim is much harder
to achieve than may be expected as there are many different factors involved which
are partly related to each other. Therefore, many options are discussed and solutions
are proposed. They will be rated according to how well they work to minimise the
total costs of solving the financial crisis.
2. Short Term Solutions
2.1 Bonuses
When paying bonuses and calculating their amount, one needs to take their
benchmarks into consideration. For instance, the share of ones own decisions in
492 Andreas Will
a gained profit is always a benchmark for paying a bonus to the employee of the
respective company. Moreover, a bonus is related to the payment within a bank or
in comparison to other top performers. Additionally, this can be the case within a
branch or between related branches. Finally, a top performers value is defined by
the profit for the owners or, often, by the shareholders of the bank or the TBTF-
institute, respectively.
Moreover, an increase in bonuses is always necessary in order to retain the trader
or the top performer. This is especially true as, at a return of 10% - which is the
long-term, on average attainable stock yield - in combination with the current flat
rate withholding tax, it is possible to quit with a 14- or 15-fold annual net salary.
When a return is higher than 10%, the period needed is even shorter. Therefore,
the bank is forced to reward performance respectively in order to be able to retain
their top performers.
This means that, along the same line of reasoning, also chair-people and chief
executives will be rewarded annually with a salary increase of about 4% - depending
on the level of the flat rate withholding tax and with an inflationary adjustment.
This lower limit to a salary increase is also necessary if one wants to retain good
personnel at a bank or other related institutions for longer than 12 years.
Therefore, it is generally not possible to reign in the incentive-issue resulting
from adverse effects that originate from risky behaviour with respect to the pay-
ment of bonuses. However, the problem can be alleviated in a different way.
For instance, the issue of betrayal within a bank can be revealed with the help
of whistleblowers.
It is generally known that large confrontations due to betrayal within a bank
occur again and again. Therefore, the regulations and laws with respect to whistle-
blowers should be developed further. For example, bonuses could be partly used for
the purpose of a timely prevention or limitation of the danger coming from risks
or risk-positions. Such a system is supported by the fact that the desk-neighbour
or the direct supervisor will always be best informed about a colleagues or employ-
ees scheming. Consequently, enlarging and promoting the use of whistleblowers
should pay off in general.
However, competition is a cost-minimising factor as well which should be seen
as being more cost-minimising as compared to bonuses.
2.2 Setting a Trend

According to (Morris & Shin; 2012, 18), the issue of overrated assets only be-
came known when the subprime crisis started in August 2007.
Recognising high risks too late can already trigger a crisis. Therefore, the ECB
should always be alert and warn about potential risks. In case of doubt, it makes
sense to have a more pessimistic attitude and to announce stronger and more fre-
quent warnings. However, it needs to be ensured that the ECBs reputation and
ability to make prognoses or to evaluate the situation is not affected too much. In
case of an unobvious or not yet obvious underrating of risks which have not yet
been recognised, the ECB should set a trend using a very careful and proportionate
choice of wording in order to limit negative effects early enough until more clarity
and unambiguity is reached concerning the correct evaluation of the risks.
However, in case of a market-anticipation during an already rolling crisis which
turned out to be too pessimistic, adjusting the evaluation to be more optimistic is
not possible anymore. For the current crisis, for instance, it could already be estab-
lished that the attitude had been too pessimistic.
According to (Bi & Traum; 2012, 164), an agent expected an annualised default
rate of 37.88% for Italy. However, the actual default probability only lies at 30%
when the current annualised debt-to-GDP ratio is ranging between 1.46 and 1.60.
Therefore, the quality of the ratings can be improved when it is clear that the
debt-to-GDP ratio in the size of its actual default from is deviating (considerably)
from the default that is to be expected. This will automatically result in different
credit ratings.
Furthermore, if ratings can be improved through this model which is clearly
indicated by the results , then this should lead to better estimations for default-
risks for states in the future.
If a too high default probability is given on the market, this should be made
public and transparent so that the interest rates on government stocks decrease.
Therefore, it should make sense to then set a trend in order to give rise to poten-
tially lasting decreases in interest rates.
Furthermore, according to (Bi & Traum; 2012, 166), there are further factors
which need to be investigated for the default risk which will then help to better
494 Andreas Will
understand the complexity of the evaluation with respect to the rating or the evalu-
ation of the risk.
According to (Coenen et al.; 2012, 74f.), it is better to set a trend if it is at all
possible in this area. For instance, this could be initiated by necessary reforms.
Moreover, following (Gros; 2010, 349) argumentation, it is dangerous when in-
vestors withdraw because they doubt if the EU can still solve the financial problems.
Therefore, it is necessary for the solvent countries, the ECB, and the IMF to
clearly show that the financing problems of the less wealthy countries will be ad-
dressed with utter determination and that the TBTF-banks will not go bankrupt.
Each insolvency of a TBTF-institute or of a defaulting country such as Spain or
Italy would most likely cause conflagration which France could also fall prey to. In
such a case, the financial possibilities would be exhausted for Germany. Therefore,
apart from showing determination and energy, a trend needs to be set and signals
for improvement need to be sent our repeatedly so that the situation will not spin
out of control further and the markets will quickly gain confidence again.
According to (Gros & Alcidi; 2010, 7), the standardised Happiness Index
illustrates that, from 1996 until December 2009, the attitude was extremely nega-
tive both in the US and in the Eurozone. Additionally, since the end of 2005, the
attitude was much more positive in the EU compared to the US. However, this
difference has levelled as of recently. Within the Eurozone it is noticeable that the
population of Germany is still the most satisfied one. However, in France and Italy,
the attitude is considerably more negative and in Spain it is extremely negative.
Therefore, a trend needs to be set so that the attitude can slowly improve and
that the people can gain confidence. This will also positively affect consumer spend-
ing and, therefore, the overall economy.
In comparison to setting trends, Eurobonds are a more direct approach to solv-
ing the financial problems of some of the EU-countries. Therefore, they are re-
garded as being a more effective cost-minimising solution.
2.3 Time for Repaying Credits and Confidence

Following (Bi & Traum; 2012, 164f.) argumentation, the numbers for Greece
and Italy also show that the debt-to-GDP ratio can stay the same and that the
potential for a default can decrease (later on) anyway.
Therefore, it should be useful to grant the bankrupt countries enough time for
repaying the credits and the funds they have received from other countries. When
the deadline for repaying is early or set very tightly, high financial burdens for the
population and, eventually, for the economy can occur. Furthermore, this can cause
a higher risk for a default despite a decrease in the debt-to-GDP ratio. Therefore,
the level of debt should be kept stable until the situation is alleviated entirely and
the crisis is completely resolved. Moreover, the economy should be supported most
effectively from the side of the government. Such an alleviation of the situation on
the government bond-market can arise from the decrease of the risk of a default
through a credit event. If the effect is large enough over time, then, the respective
country will also be able to return to the financial market and fund itself again as
well as repay debts to other countries.
According to (Gros; 2010, 348), the case of Dubai showed that the United Arab
Emirates enforced both an extension of the period for repayment and a reduction
of the interest rates that needed to be paid at the same time.
However, such a period for repayment should at least be 18 months plus a vari-
able number of months as the markets usually anticipate the development for six
or 12 months in advance, and sometimes up to 18 months in advance. This means
that a period of time shorter than 18 months will not leave the defaulting countries
with enough time to react appropriately to create positive effects for their own
options for refinancing on the capital market However, in order to avoid creating
adverse effects based on too low individual initiative of the respective country, the
upper limit granted for repaying the debts should not be higher than about three
years. This is also an important psychological signal not to beat down the debt bur-
den by reducing the debt itself.
Furthermore, the confidence in the EU should not be destroyed by wrong
policies.
According to (Gros & Alcidi; 2010, 1-10), it is important to create confidence
when the attitude in the EU is extremely tense due to the current crisis. This is to
prevent violent riots, mass demonstrations, or a bank run from occurring. If fear
spreads because of violent riots, then the negative attitude will only get stronger.
Moreover, frequent mass demonstrations would affect the economy negatively and
can freeze important and necessary reforms which inhibit the growth in the inter-
mediate term too much. Especially when the confidence in the banks and in the
Euro as a currency is destroyed and panic arises, the resulting bank run would have
496 Andreas Will
serious consequences for the entire EU. Therefore, each member country of the
EU should consider its options for improving the attitude at least within its own
boundaries.
With respect to the required effort and the intrinsic value, it is also impor-
tant to actively involve insurer and pension funds in securing the financing of the
EU-countries.
2.4 Insurer
Insurer could be promoted in such a way that they redeploy in more invest-
ments for structurally weak areas of a country in their investment portfolios. Apart
from security aspects, also the yield plays a major role in decisions for investment.
For instance, investments could be guided indirectly from a governmental level by
allowing for tax concessions.
Furthermore, abolishing a minimum interest return for the insurers may entail
that the redeployment of defaulting countries within the EU to German federal
bonds is stopped or reversed. As this concerns a four-digit billion amount, it is very
important to have the insurers as well as the pension funds available for financing
the defaulting EU-countries. Only when no yield has to be generated, the capital
can be invested in slightly higher risks as can currently be seen for the Italian and
Spanish government bonds for instance. However, the legally determined mini-
mum interest return should also not be lower than 0% so that the alternative of
doing nothing would not be the optimal one and that the appeal to seek profit with
a maximisation of the profit is not overridden.
However, if the insurers do not redeploy to other government bonds, to Ger-
man bonds, or to other asset classes within the Euro-currency, but, instead, turn
towards the area of the US-dollar, then the Euro will be weakened. The correspond-
ing positive effect of more exports due to a weaker currency and the better growth
impulses should definitely be included in the tactical considerations for the insur-
ers strategic decisions.
A lower level of relative interest rates in the EU as compared to the USA would
weaken the Euro and, therefore, entail currency gains apart from the reduced insur-
ance charges for a currency-swap. This could convince insurers to redeploy money
from the Eurozone to the US for treasury bonds for instance. This would cause
disadvantages for the liquidity in the EU-countries which are obvious from the
deduction of the funds from their government bonds towards EU-foreign govern-
ment bonds and the respective higher interest rates for their own bonds. Therefore,
this would be counterproductive for financing the Eurozone.
However, the effect of an external subsidy as compared to the involvement of
insurers and pension funds can lead to an even better cost-minimisation when the
input is put into perspective to the result. From an absolute point of view it is pos-
sible that the financial support is moving through the level of deployments by the
insurers.
2.5 Direct Credits

According to (Lacina & Rusek; 2012, 71-73), it is essential to consider which
of the following two options would be the better one: (a) if a defaulting country
remains in the EU or (b) if a defaulting country leaves the EU.
Nothing will be gained from a member-country leaving the EU. When the
home-currency is reintroduced, apart from a de-valuation, an inflation would also
occur and the debt burden in Euro would still have to be repaid. Furthermore, the
banks would have a major problem both with the change in currency and with the
debt burden. Moreover, the respective populations buying power would not be
increased. Additionally, the danger of a bank run would emerge when the exit from
the Euro would become more obvious which would have fatale consequences for all
major banks of the respective country as well as for the EU in case of TBTF-banks.
Moreover, the signal to the markets would be that the cohesion of the EU would
not be given unconditionally anymore and domino-effects on other countries
could appear. This would then lead to the breakdown of the entire EU and would
certainly have serious consequences for the economy in the intermediate term as
well as on the potential for refinancing in the EU in the long term. Therefore, it
is necessary to find an appropriate way to minimise the costs and to inhibit future
crises at the same time. At the moment, direct credits can still be provided to the
defaulting countries by the solvent countries in order to enable their refinancing
outside the financial markets.
According to (Bi & Traum; 2012, 164), the correlation between the level of na-
tional debt in Italy und its decennial development of interest rate lies at only 0.01.
This correlation should be restorable based on Italys large assets, its intact economy
and contestability.
498 Andreas Will
This lower correlation means that promoting the growth should be seen as
paramount compared to repaying the debts. At the same time, the financial lee-
way for Italys government bonds on the financial market is limited. For financing
the country, funds should be granted from other countries to ensure the further
progress of the current financial situation. However, reforms for promoting growth
should be connected to this in order to gain the confidence of the financial markets
and, furthermore, to provide the grounds for internal financing as soon as possible.
Moreover, a borrowing ceiling of the financial sector and, ultimately, the coun-
trys financing should be capped which is also in favour of direct credits.
According to (Schularick & Taylor; 2012, 1057f.), the examination of over 140
years of historic data has shown that, the larger the financial sector is compared
to the country, the more dangerous this will be for the respective country and the
country will be more prone to crises. There are indications that booms and crashes
in the stock market have significantly larger effects on the real economy of a coun-
try in which the financial sector is large. Therefore, they are especially counterpro-
ductive for the respective country. It has also been shown that past credit bubbles
were the best single indicator for a countrys future financial stability. Credits are
advantageous for economic growth to a certain extent for a certain period of time.
However, a strong increase in credits is a robust indicator for the predictability of
a coming crisis. Therefore, it is possible to predict future developments from the
past. However, it seems that financial crises would also cause a bad memory for
future crises.
Therefore, limitations of credit volumes should be introduced that are relative
to assets, to the economic size of the country, and to the size of the entire financial
system. Then, an escalation which could trigger a large crisis should be prevented.
Furthermore, nothing should be done in this financial crisis which would accept
possible turbulences with respect to costs.
At the same time, an increase in the current public spending ratio would be
useful.
According to (Welfens; 2011, 29), a public spending ration of 4.5% of the BIP
is suggested. The national decision makers should transfer budget rights to the
EU so that the EU in Brussels can decide on the use of the funds when the public
spendings cross a certain threshold. Then, the interest in the policies made by the
EU should increase considerably so that the increasing disinterest, which shows in
the lack of election turnout for European general elections, could be stopped.
The current deficit limit of 3% which is posited in the Maastricht Treaty should
be increased to 4.5%. The generated leeway should be especially used by solvent
countries in order to support the other member-countries of the Eurozone which
have large financial problems with their national budgets as well as financially sup-
porting their growth possibilities through direct credits.
Furthermore, according to (Mabbett & Schelkle; 2010, 81-85), direct credits
provided by solvent countries to the defaulting countries are more useful as long as
they can be afforded financially.
The interest rate should orient itself on the expected inflation as a lower level
for direct credits. Therefore, they should not be lower than 2%. Otherwise, the
markets would not see any incentive for the EU-countries especially Spain and
Italy to cut spendings and to promote growth if the debts could be repaid via
inflation. Moreover, it makes sense to limit the upper level of the interest rate in
order to keep it payable. This means that the interest rate should not significantly
exceed 3% for the long term.
In case of too high risk estimations of the customers for government bonds,
variable interest for government bonds should generally be capped with an upper
limit as well in order to allow for the further financing of a country. Moreover, the
funds which have to be used for paying the interest rates cannot be used for eco-
nomic impulses anymore which will cause the weakening of a countries solvency
due to a weaker economic growth. This would be counterproductive for the buyers
of government bonds.
As an incentive for repaying earlier, the interest rate could be reduced so that
positive effects for the main creditors such as Germany could occur. Moreover, the
interest rate can be variable in order to support the aim of returning to the capital
market earlier. According to the credit volume, this could also be handled differ-
ently depending on individual cases of EU-countries so that the correct incentive-
threshold can be met as precisely as possible for the respective intensity of the
efforts and to develop an optimal effect on the creditor.
So the most cost-efficient measures which can contribute most effectively to
solving the current financial crisis in the short term are bilateral credits in form of
direct credits. Due to extreme distortions on the market, Germany has to register
a historic low for interest rates on government bonds. This money which had been
redeployed by market participants needs to be directed back into the defaulting
countries. This is currently the most cost-effective measure as long as the market
500 Andreas Will
players do not force a potential collapse of the Eurozone too much and assume it
predominantly. Moreover, limitations from constitutional courts should not com-
plicate direct credits too much or prevent them entirely. In such a case, Eurobonds
are the best alternative for a short-term solution. Additionally, it is also important
to promote growth in many ways in order to release the EU-countries from fi-
nancial distress. To refinance themselves, to fund themselves through higher fiscal
revenue, and to be able to install necessary reforms, they need to regain unlimited
access to the financial markets.
References
Bi, H. and N. Traum (2012). Estimating Sovereign Default Risk. American Economic
Review 102(3): 161-166.
Coenen, G., R. Straub, et al. (2012). Fiscal Policy and the Great Recession in the Euro
Area. American Economic Review 102(3): 71-76.
Gros, D. (2010). The Euro Sovereign Crisis: The Difficult Transition to Private Sector
Involvement. Intereconomics/Review of European Economic Policy 45(6): 346-350.
Gros, D. and C. Alcidi (2010). The Crisis and the Real Economy. Intereconomics/
Review of European Economic Policy 45(1): 1-10.
Lacina, L. and A. Rusek (2012). Financial Crisis and its Asymmetric Macroeconomic
Impact on Eurozone Member Countries. International Advances in Economic Re-
search 18(1): 63-73.
Mabbett, D. and W. Schelkle (2010). Beyond the Crisis - The Greek Conundrum and
EMU Reform. Intereconomics/Review of European Economic Policy 45(2): 81-85.
Morris, S. and H. S. Shin (2012). Contagious Adverse Selection. American Economic
Journal: Macroeconomics 4(1): 1-21.
Schularick, M. and A. M. Taylor (2012). Credit Booms Gone Bust: Monetary Pol-
icy, Leverage Cycles, and Financial Crises, 1870-2008. American Economic Review
102(2): 1029-1061.
Welfens, P. J. J. (2011). From the Transatlantic Banking Crisis to the Euro Crisis?
International Economics and Economic Policy 8(1): 15-29.
PRACTICAL APPLICATION EXAMPLES FOR SPECIAL CASES IN THE SCOPE OF ... 501
PRACTICAL APPLICATION EXAMPLES FOR SPECIAL CASES

IN THE SCOPE OF CONSOLIDATION ACCORDING TO IFRS
Markus Hfele, Ph.D.1, Celine Frei2
1
Hochschule Pforzheim University, Federal Republic of Germany,
markus.haefele@hs-pforzheim.de
2
Hochschule Pforzheim University, Federal Republic of Germany, frecel@hs-pforzheim.de
Abstract
Business combinations under common control are business combinations in
which all of the combining entities or businesses are ultimately controlled by the
same party or parties both before and after the business combination, and that
control is not transitory (IFRS 3.B1). These issues often are undertaken for many
different reasons to achieve purposes that vary from business combinations of en-
tities not under common control, i. e. reorganise group activities with an aim to
achieve synergies or to obtain tax efficiency within the group. The European Fi-
nancial Reporting Advisory Group explains that the often complex structures and
arrangements to effect such changes raise considerable challenges for financial re-
porting. International Financial Reporting Standards (IFRS) are currently silent on
how the entity receiving a business under common control should account for the
transaction1.
JEL Classification: H21, H25, M4
Keywords: accounting, tax efficiency, financial reporting, International Finan-
cial Reporting Standards (IFRS),
1. Einleitung
Die Abgrenzung des Konsolidierungskreises sowie die weitere bilanzielle Be-
handlung gestaltet sich im Zusammenhang mit Gleichordnungskonzernen bzw.
1
European Financial Reporting Advisory Group, Discussion Paper, Accounting for Business
combinations under common control. S. IV, http://www.efrag.org/files/bcucc/bcucc_DP.pdf.
502 Markus Hfele Celine Frei
Zusammenschlssen von Unternehmen unter Common Control in bestimmten

Fllen schwierig. Dies betrifft vor allem Flle, in denen die Beherrschung nicht von
einem Unternehmen allein, sondern von mehreren beherrschenden Unternehmen
gemeinsam ausgebt wird bzw. in denen letztlich alle sich zusammenschlieen-
den Unternehmen von derselben Partei oder denselben Parteien sowohl vor als
auch nach dem Unternehmenszusammenschluss beherrscht werden2. Zurckzu-
fhren sind diese Unsicherheiten in der Rechnungslegung auf Regelungslcken
in den International Accounting Standards (IAS) bzw. International Financial Re-
porting Standards (IFRS). Weder die einschlgigen Standards (IAS/IFRS) noch die
Interpretationen (SIC/IFRIC) regeln die detaillierte bilanzielle Behandlung dieser
Sachverhalte, auch der International Accounting Standards Board (IASB) wei in
diesem Sonderfall keine angemessene Vorgehensweise aufzuzeigen3.
Da diese sehr praxisrelevanten Themenbereiche uerst ermessensbehaftet sein
knnen, bedarf es auch im Interesse der Anwender einer adquaten Schlieung der
Lcken, um die Abbildung der genannten Sonderflle unter Gewhrleistung des
true and fair view im Rahmen der Abgrenzung des Konsolidierungskreises sowie
der bilanziellen Behandlung im Konzernabschluss zu erreichen.
2. Gleichordnungskonzern: Eigenschaft und Besonderheit bei der

Anwendung nach IFRS
Nach den deutschen Rechnungslegungsnormen wird von einem Gleichord-
nungskonzern gesprochen, wenn die Kriterien des 18 Abs. 2 AktG erfllt sind.
Diese beinhalten definitionsgem die Zusammenfassung mehrerer rechtlich selb-
stndiger Unternehmen, welche in Unabhngigkeit zu dem anderen Unternehmen
stehen und unter einheitlicher Leitung agieren, d. h. zwei Unternehmensgruppen
werden durch die gleichen nichtunternehmerischen Personen beherrscht (vgl. Ab-
bildung 1)4. Schlussfolgernd liegt bei dieser Art eines Konzerns keine Fhigkeit der
vollstndigen Einflussnahme durch eine Partei vor5.
2
Baetge, Hayn, Strhner in: Baetge, Wollmert, Kirsch, Oser, Bischof (Hrsg.), Rechnungslegung nach
IFRS, TeilB, IFRS 10, Tz. 196 sowie IFRS 3. B1.
3
Vgl. ERNST & YOUNG (2014), International GAAP 2014, Kap. 6, 2.3.6; Kting in: Quo vadis?
Common Control vs. Separate Entity Approach: zum Teilkonzern-(miss-)verstndnis nach IFRS,
IRZ (2012), Rn. 151.
4
Ldenbach in: Ldenbach/Hoffmann (Hrsg.) (2013), IFRS Kommentar, 32, Rn. 77.
5
Nachfolgende Ausfhrung verwendet die Definition eines Gleichordnungskonzerns nach dem
Aktiengesetz, da sich in den IFRS keine Erluterungen diesbezglich befinden.
Abbildung 1, Quelle: Eigene Darstellung.
Die Pflicht zur Konzernabschlussaufstellung richtet sich fr Mutterunternehm-

en mit Sitz in Deutschland ausschlielich nach den 290 ff. HGB, auch wenn
fr den Konzernabschluss Art. 4 der IAS-Verordnung bzw. 315a Abs. 2 HGB gilt
und ein Konzernabschluss nach endorsed IFRS erstellt werden muss. Kapitalmark-
torientierte Gesellschaften, die nach 290-293 HGB einen Konzernabschluss zu
erstellen haben, unterliegen somit fr die Beurteilung des Konsolidierungskreises
den Vorschriften nach IFRS 106.
Aufgrund der teilweise starken Kritik an den bisherigen Regelungen fr die
Konzernrechnungslegung IAS 27 Consolidated Financial Statements (nach der
Neuregelung Seperate Financial Statements) hat der IASB im Mai 2011 den neuen
Standard IFRS 10 Consolidated Financial Statements verffentlicht, der den alten
Standard und die entsprechenden Interpretationen (z. B. SIC-12) im Hinblick auf
die Abgrenzung des Konsolidirungskreises ersetzt7. Gem IFRS 10 Consolidated
financial statements fllt ein Gleichordnungskonzern nicht unter dessen Anwen-
dungsbereich, da sich dieser Standard lediglich auf Unternehmen bezieht, welche
unter der Beherrschung eines Mutterunternehmens liegen, dieses demnach die
Vgl. 18 Abs. 2 AktG; Bayer (2008), Unterordnungs- und Gleichordnungskonzerne, Rn. 3;

Maier-Reimer (2011), Konzern und Konzernunternehmen, Rn. 9.
6
7
Mglichkeit hat, die Finanz- und Geschftspolitik eines Unternehmens zu bestim-

men. Dieses gravierende und ausschlaggebende Merkmal der Kontrolle erfllt ein
Gleichordnungskonzern nicht, da zwischen den Obergesellschaften kein Beherr-
schungsverhltnis existiert und keines der an den Konzernen beteiligten Unterneh-
men eine beherrschende Kontrollfunktion hat.8 Bei Anwendung des IFRS 10 htte
es bei einer Konzernstruktur mit gleichgeordneten Obergesellschaften zur Folge,
dass unter keinen Umstnden das Prinzip der true and fair view nach dem Rah-
menkonzept erfllt wird und es zur Entstehung von Teilkonzernen (A, B) kommen
wrde. Die Tatsache, dass zwischen den Konzernen Transaktionen stattfinden und
diese demnach wie unter fremden Dritten behandelt werden, fhrt zu einer un-
zutreffenden Darstellung dieser Manahmen und Geschftsvorflle, welche nicht
vollumfnglich und teilweise verzerrt dargestellt werden. Ein Abschluss, der die
Gesamtheit aller Gesellschaften bercksichtigt und ein entsprechendes Gesamt-
bild des Gleichordnungskonzerns wiedergibt, fllt dadurch weg. Jede Obergesell-
schaft bildet ihren eigenen Abschluss gem. IFRS 10. Durch die fehlenden Konso-
lidierungsbuchungen in einem von IFRS 10 nicht vorgesehenen Gesamtabschluss
kommt es zu einer fr den Abschlussadressaten inkorrekten Abbildung der Trans-
aktionen zwischen den Teilkonzernen.
Diese Regelungslcken knnen unter Umsttnden nach den Vorschriften des
IAS 8 Accounting policies, changes in accounting estimates and errors geschlossen
werden9. Nach IAS 8.10 kann eine Analogie zu einem anderen Standard gebildet
werden, wenn sich in einem bestehenden Standard eine Regelungslcke auftut. An
dieser Stelle bedarf es vorab einer genaueren Betrachtung der Struktur eines Gleich-
ordnungskonzerns (vgl. auch Abbildung 1). Lediglich das Merkmal der gleichran-
gigen Positionen der Obergesellschaften und somit das Nicht-Vorhandensein eines
Beherrschungsverhltnisses unterscheidet den Gleichordnungskonzern in seinem
Aufbau vom gngigen Unterordnungskonzern nach 18Abs. 1 AktG, welcher sich
durch ein herrschendes und mindestens ein in Abhngigkeit stehendes Unterneh-
men auszeichnet10. Rein formal gesehen liegt somit nicht exakt die nach IFRS10
geforderte hierarchische Konzernstruktur vor, im Gleichordnungskonzern kommt
es gerade nicht zur Beherrschung der Vermgenswerte eines Unternehmens durch
8
Vgl. IFRS 10.1 i. V. m. IFRS 10.7, so auch IAS 27.1 i. V. m. IAS 27.4 a. F.; Ldenbach in: Lden-
bach/Hoffmann (Hrsg.) (2012), IFRS Kommentar, 32, Rn. 93.
9
Vgl. IAS 8; Ruhnke/Nerlich in: Behandlung von Regelungslcken innerhalb der IFRS, Der Betrieb
(20.02.2004), Heft 8, S. 389-395.
10
Vgl. 18 Abs. 1 AktG.
ein anderes Unternehmen. Bei Betrachtung aus wirtschaftlicher Sicht ergibt sich
aber in bestimmten Ausnahmefllen ein nahezu gleichwertiger Aufbau durch die
gemeinsame Kontrolle, vor allem aus dem Blickwinkel der Adressatenbezogenheit.
Ein Rckgriff auf den Grundgedanken des IFRS 10 kann daher als sinnvoll erach-
tet werden. Der Standard verlangt in Anhang A, dass alle Tochterunternehmen
des Mutterunternehmens in den Konzernabschluss miteinzubeziehen als handle es
sich um ein einziges Unternehmen11. Auf den Gleichordnungskonzern projiziert
bedeutet dies das Einbeziehen von sowohl allen Obergesellschaften als auch aller
weiteren Gesellschaften im In- und Ausland, die unter der Beherrschung der Ober-
gesellschaften stehen, in einen zusammenfassenden Abschluss, um das Gesamtbild
normgerecht darzustellen. Nur so kann die Zuverlssigkeit, der Informationsgehalt
fr die Abschlussadressaten, die Vollstndigkeit und eine nicht verzerrte Darstel-
lung gewhrleistet werden. Denn durch Konsolidierungsvorgnge bzw. Eliminie-
rungen werden die konzerninternen Transaktionen angemessen dargestellt. Kombi-
nierte Abschlsse bzw. combined statements mssen alle Konsolidierungsbuchungen
beinhalten, wie es auch bei einem normalen Konzernabschluss der Fall ist12. Ein
zusammenfassender Abschluss in diesem Sinne ist allerdings nur unter bestimmten
Umstnden IFRS-konform. Im Besonderen wenn gleichartige Eigentmerstruk-
turen, Personalidentitt der Organe und operatives Zusammenwirken von Grup-
pen kann ein Rckgriff auf IAS 1.17 fair presentation override erlaubt sein. Ein
kombinierter Abschluss (combined financial statement) ist auch nach US-GAAP
nach den Voraussetzungen der FASB ASC 810-10-45-10 bzw. ASC 810-10-55-1B
mglich. Fr die herrschende Meinung gilt der Abschluss unter den folgenden
kumulativen Bedingungen auch nach IFRS als testierfhig13:
- Einheitliche Eigentmerstruktur innerhalb der Gruppe,
- Einheitliches Leitungsorgan fr alle finanziellen und operativen Entscheidun-
gen eines Unternehmens,
- Operative Integration der Gruppe (z. B. gemeinsame Budgetkontrollen, fi-
nanzielle und operative Struktur wie eine integrierte Gruppe).
11
Vgl. IFRS 10, Anhang A, Konzernabschluss.
12
Vgl. ERNST & YOUNG (2014), International GAAP 2014, Kap. 6, 2.3.6.
13
Baetge, Hayn, Strhner in: Baetge, Wollmert, Kirsch, Oser, Bischof (Hrsg.), Rechnungslegung
nach IFRS, TeilB, IFRS 10, Tz. 196 und 198.
Entscheidend ist letztendlich immer die Ermessensfrage, ob der kombinierte

Abschluss ein den tatschlichen Verhltnissen entsprechendes Bild der Verm-
gens-, Finanz- und Ertragslage der Gruppe fr den weitgefcherten Adressatenkreis
vermittelt.
3. Unternehmenszusammenschlsse von Unternehmen unter Common

Control: Eigenschaft und Besonderheit bei der Anwendung nach IFRS
Die in den IFRS vorgegebene Definition fr Unternehmenszusammenschlsse
von Unternehmen unter gemeinsamer Beherrschung stellt diese als einen Unter-
nehmenszusammenschluss von Unternehmen oder Geschftsbetrieben unter ge-
meinsamer Beherrschung []dar, in dem letztlich alle sich zusammenschlieenden
Unternehmen oder Geschftsbetriebe von derselben Partei oder denselben Parteien
sowohl vor als auch nach dem Unternehmenszusammenschluss beherrscht werden,
und diese Beherrschung nicht vorbergehender Natur ist.14.
Im Rahmen von Umstrukturierungen innerhalb des Konzerns oder einer Grup-
pe kann es beispielsweise vorkommen, dass in diesen Fllen ein Erwerb im Sinne
einer Erlangung von Beherrschung nicht vorliegt15:
14
The official standard sand interpretations approved by the EU,IFRS (2011),IFRS3 Appendix B1.
15
IDW RS HFA 2, Tz.33.
Abbildung 2, Quelle: Eigene Darstellung.
Grundstzlich vertritt der IASB die Meinung, dass auch diese Unternehmens-
zusammenschlsse nach der Erwerbsmethode abzubilden sind16. Allerdings ist die
16
Baetge, Hayn, Strhner in: Baetge, Wollmert, Kirsch, Oser, Bischof (Hrsg.), Rechnungslegung
nach IFRS, TeilB, IFRS 3, Tz. 31.
Frage nach der bilanziellen Behandlung von Transaktionen unter gemeinsamer

Beherrschung strittig. IFRS 3 Business combinations regelt die Vorschriften be-
treffend Unternehmenszusammenschlssen nach IFRS. Zusammenschlsse von
Unternehmen oder Geschftsbetrieben unter gemeinsamer Beherrschung sind
angesichts der Definitionskriterien vom Anwendungsbereich des IFRS 3 gem
IFRS 3.2 (c) explizit ausgeschlossen, darber hinaus liegen keine anderen explizit
anwendbaren Vorschriften hierfr vor. Hieraus lsst sich folgern, dass bei einer
derartigen Form einer Transaktion in den IFRS-Standards eine Fehlstelle fr eine
entsprechende Bilanzierung vorhanden ist.17
Zur bilanziellen Behandlung derartiger Flle werden unter Anwendung des IAS
8.11 f. zwei Anstze diskutiert, der separate reporting entity approach und das
predecessor accounting18.
Ein Ansatz gem dem separate reporting entity approach nimmt Rck-
griff auf IFRS 3. Im Regelbereich dieses Standards stellen Teilkonzerne unterhalb
des bergeordneten Mutterunternehmens eigenstndige Berichtseinheiten dar.
Der Teilkonzernabschluss des Kufers soll demnach einen eigenstndigen Kon-
zernabschluss zur Darstellung bringen. Transaktionen zwischen den Unternehmen
werden bilanziell wie Transaktionen unter fremden Dritten behandelt. Dies geht
auf IFRS 3 zurck, da dieser sich auf die bilanzielle Behandlung von Unterneh-
menszusammenschlssen unter fremden Dritten bezieht. Als Konsequenz dieser
Perspektive htte das Unternehmen, welches die Gesellschaft verkauft eine ergeb-
niswirksame Endkonsolidierung vorzunehmen und das erwerbende Unternehmen
einen Erwerbsvorgang.19 Dieser Erwerbsvorgang erfolgt nach IFRS 3.4 anhand der
Erwerbsmethode bzw. acquisition method, welche die Erfordernisse gem. IFRS 3.5
(a) bis (d) vorsieht20. Bedingt durch die Erwerbsmethode kommt es zur Aufde-
ckung stiller Reserven. Und auch die sich durch die Kaufpreisallokation ergeben-
den Unterschiedsbetrge werden vom Erwerber auf der Aktivseite als Goodwill
17
Vgl. IFRS 3.2 (c); Ldenbach in: Ldenbach/Hoffmann (Hrsg.) (2013), IFRS Kommentar, 31,
Rn. 186.
18
IDW HFA RS 2, Tz. 35; ERNST & YOUNG (2014), International GAAP 2014, Kap. 10, 3.1.
19
Vgl. Buschhter/Senger, Common Control Transactions Aktuelle Bestandsaufnahme und Aus-
blick, IRZ (2009), Rn. 24, 25; Kting in: Quo vadis? Common Control vs. Separate Entity
Approach: zum Teilkonzern-(miss-)verstndnis nach IFRS, IRZ (2012), Rn. 152; Senger/Brune
(2009), 34 Unternehmenszusammenschlsse, Rn. 22.
20
Vgl. IFRS 3.4 5.
ausgewiesen, wenn die Anschaffungskosten die Zeitwerte der Vermgenswerte und

Schulden bersteigen21.
Mit dieser Vorgehensweise ergeben sich auf Ebene der Teilkonzerne immense
Spielrume in der Bilanzpolitik und knnen gegebenenfalls missbruchlich aus-
gelegt werden. Einerseits steht es dem abgebenden Unternehmen offen, inwiefern
es das Ergebnis durch bilanzpolitische Manahmen im Teilkonzern beeinflusst.
Andererseits knnen auch auf Seiten des erwerbenden Unternehmens im Teilkon-
zern erhebliche Gestaltungsspielrume entstehen. Letztendlich haben diese Gestal-
tungsmglichkeiten eine beeinflussende Wirkung auf die konzernbilanzielle Dar-
stellung22. Bei einer missbruchlichen Behandlung besteht durch die bilanzpoliti-
schen Spielrume die Problematik der Nicht-Erfllung der true and fair view. Da
die Unternehmen unter gemeinsamer Beherrschung stehen, findet keine wirkliche
Markttransaktion statt. Ein Konzernabschluss in diesem Sinne wrde die tatsch-
lichen wirtschaftlichen sowie finanziellen Verhltnisse in keinerlei Art und Weise
nach dem Prinzip der true and fair view abbilden und dementsprechend zu einer
Verzerrung der Sachverhalte fhren. Darber hinaus knnte sich die Identifizie-
rung des Erwerbers nach IFRS 3.5 (a) i. V. m. IFRS 3.6 kompliziert gestalten.
Denn gem. IFRS 3.7 muss der Erwerber nach Zusammenschluss der Unternehmen
die Beherrschung ber das betroffene Unternehmen besitzen. Die Identifizierung
eines Erwerbers knnte somit ins Leere gehen, da die Verhltnisse der Kontrolle
nicht klar und deutlich sind. Durch diese Darlegung knnte das Kriterium der
Identifizierung des Erwerbers nicht erfllt sein bzw. der Erwerber nach IFRS 3
entspricht nicht dem rechtlichen Erwerber23.
Ein Ansatz nach dem predecessor accounting nimmt Rckgriff auf die Sys-
tematik des US-GAAP und dessen Grundgedanke zu Common Control Transak-
tionen24, FASB ASC 805 i. V. m. APB Opinion No, 16 und FTB 85-5 (Analogie
zur Interessenzusammenfhrungsmethode). Hiernach stellen untergeordnete Teil-
21
ERNST & YOUNG (2014), International GAAP 2014, Kap. 10, 3.1.
22
Vgl. Kting in: Quo vadis? Common Control vs. Separate Entity Approach: zum Teilkonzern-
(miss-)verstndnis nach IFRS, IRZ (2012), Rn. 153.
23
blick, IRZ (2009), Rn. 23-26, zuletzt genannter Aspekt kann aufgrund der umgekehrten Unter-
nehmenserwerbe reverse acquisition dennoch zur Anwendung des IFRS 3 fhren.
24
Vgl. ERNST & YOUNG (2014), International GAAP 2014, Kap. 10, 3.3, Kting in: Quo vadis?
Common Control vs. Separate Entity Approach: zum Teilkonzern-(miss-)verstndnis nach IFRS,
IRZ (2012), Rn. 155.
konzernabschlsse einen Ausschnitt des gesamten Konzernabschlusses dar, womit

nur die bergeordnete Betrachtungsweise fr die Bilanzierung der Teilkonzerne in
Bezug auf das Mutterunternehmen von Bedeutung ist. Bei der Bilanzierung nach
dieser Vorgehensweise werden Vermgenswerte und Schulden zu Konzernbuchw-
erten bernommen, demnach werden die Konzernbuchwerte des Veruerers zum
Zeitpunkt des Vorgehens fortgefhrt. Unterscheiden sich die vom Veruerer ang-
esetzten historischen Anschaffungskosten von den Buchwerten in den Abschlssen
des veruerten Unternehmens, so ist herrschende Meinung, dass das erwerbende
Unternehmen im jeweiligen Konzernabschluss die historischen Anschaffungs-
kosten des Mutterunternehmens bilanziert25. Dies hat zur Folge, dass es zu keiner-
lei Anpassungen bezglich des Zeitwertes bzw. fair value kommt und daher keine
Aufdeckung stiller Reserven erfolgt26.
Aus Konzernsicht, sowohl aus der des Gesamtkonzerns als auch aus der der je-
weiligen Teilkonzerne, ist es mageblich eine wirtschaftliche Einheit darzustellen.
Eine Markttransaktion im wirtschaftlichen Sinne liegt bei einem Unternehmens-
zusammenschluss unter gemeinsamer Beherrschung nicht vor, sondern lediglich
eine Umgliederung eines Unternehmens innerhalb der Konzernstruktur. Umso
mehr sollte eine derartige verbundinterne Transaktion keinerlei Auswirkungen auf
das Ergebnis haben. Entsprechend wird der sich ergebende Unterschiedsbetrag aus
Nettobuchwerten des aufgekauften Unternehmens und Anschaffungskosten von
Seiten des Erwerbers bei Gebrauch dieser Technik direkt mit dem Eigenkapital
verrechnet, um die Ergebnisneutralitt zu gewhrleisten. Da das Eigenkapital meh-
rere Posten beinhaltet, ist offen, welcher zur Behandlung der Verrechnung der Ver-
uerungsgewinne bzw. verluste sinnvollerweise heranzuziehen ist. Ein Ausweis
in den Rcklagen wrde aufgrund der Charakteristik des Gewinns bzw. Verlustes
und bei Betrachtung der anderen Eigenkapitalposten sich als geeignet erweisen27.
Demgem wird kein neuer Geschfts- oder Firmenwert als Ergebnis der Trans-
aktion anerkannt, es findet eine Verrechnung eines enstehenden aktivischen bzw.
passivischen Unterschiedsbetrags mit den Rcklagen statt. Der einzige Goodwill,
25
blick, IRZ (2009), Rn. 25; Kting in: Quo vadis? Common Control vs. Separate Entity Ap-
proach: zum Teilkonzern-(miss-)verstndnis nach IFRS, IRZ (2012), Rn. 153.
26
Vgl. Senger/Brune (2009), 34 Unternehmenszusammenschlsse, Rn. 22, 23.
27
blick, IRZ (2009), Rn. 25; Kting in: Quo vadis? Common Control vs. Separate Entity Ap-
proach: zum Teilkonzern-(miss-)verstndnis nach IFRS, IRZ (2012), Rn. 153-156.
der anerkannt ist, ist der bereits bestehende im Zusammenhang mit den zusam-
mengeschlossenen Unternehmen28.
4. Fazit
Gleichordnungskonzerne und Zusammenschlsse von Unternehmen unter
Common Control stellen Sonderflle dar, bei denen es keine Standards oder In-
terpretation nach der internationalen Rechnungslegung nach IFRS gibt. Diese Re-
gelungslcken knnen allerdings unter Anwendung des IAS 8 geschlossen werden,
um dem Abschlussadressaten relevante und verlssliche Informationen zu lief-
ern. Entscheidend ist bei der Beurteilung der genannten Sachverhalte immer der
wirtschaftliche Gehalt der in Frage stehenden Transaktionen.
References:
1. Baetge J., Wollmert P., Kirsch H-J., Oser P., Bischof S. (Hrsg.): Rechnungslegung
nach IFRS, 2. Auflage, ab 2002, Schffer-Poeschel, Stuttgart.
2. Bayer (2008): 18 AktG Konzern und Konzernunternehmen. Unterordnungs- und
Gleichordnungskonzerne. In: Mnchener Kommentar zum Aktiengesetz. Erster Teil.
Allgemeine Vorschriften ( 1 AktG - 30 WpHG). 3. Auflage 2008. C. H. Beck:
Mnchen.
3. Buschhter, M.& Senger, T. (2009): Common Control Transactions Aktuelle Be-
standsaufnahme und Ausblick. In: IRZ - Zeitschrift fr Internationale Rechnungsle-
gung, Jahr 2009, Heft 1, S. 371 bis 407, C.H. Beck: Mnchen.
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Sussex, United Kingdom.
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(IDW RS HFA 2).
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Freiburg, Mnchen, Berlin, Wrzburg.
28
ERNST & YOUNG (2014), International GAAP 2014, Kap. 10, 3.3.
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Strohn (Hrsg.): Gesellschaftsrecht. Aktiengesetz. Erster Teil. Allgemeine Vorschriften
( 1 AktG 30 WpHG). 1. Auflage. C. H. Beck: Mnchen.
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IFRS. In: Der Betrieb, Jahr 2004, Heft 08, Fachverlag der Verlagsgruppe Handels-
blatt GmbH, S. 389 bis 395 .
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Handbuch. Erster Teil. 3. Auflage 2009. C. H. Beck: Mnchen.
WHY BANKS NEED A SLOGAN 513
WHY BANKS NEED A SLOGAN

Urban Bacher, Ph.D.1, Eva Amann2
1
Hochschule Pforzheim University, Federal Republic of Germany,
urban.bacher@hs-pforzheim.de
2
Hochschule Pforzheim University, Federal Republic of Germany
Abstract
Some specific features of banking products (they are abstract, time-related, im-
material, in need of explanation, legally standardized, imitable, and require a mini-
mum of trust) make their marketing quite challenging. Good branding seems to
be a solution to this problem. There is a lot of competitive pressure on the banking
market. It is very important for a lending institution to be properly positioned in its
competitive environment. A prerequisite for such positioning and differentiation
is an integrated, consistent communication, which reinforces the recognition value
of the company. A well thought-out slogan, representing the brand features and
speaking to customers emotions, is an important component of successful brand-
ing and communication strategy of financial institutions.
Keywords: slogan, wear-out effect, banking products, dual code theory
1. Problemstellung
Whrend eine Vielzahl der Unternehmen mit dem Produkt selbst die Sinne
und Emotionen des Kunden ansprechen kann, weisen Bankprodukte besondere
Merkmale auf. Sie sind stofflos und abstrakt, besonders vertrauensempfindlich,
zeitkritisch und erklrungsbedrftig. Diese Besonderheiten stellt das Bankmarket-
ing vor groe Herausforderungen. Fr die Vermarktung ihrer Bankprodukte und
Dienstleistungen setzen Finanzdienstleister meist einen Slogan ein. Der Blick auf
die verschiedenen Markenauftritte der Banken in Deutschland zeigt vor allem eine
Gemeinsamkeit: Die Verwendung eines Slogans. Dabei haben einige der Werbe-
botschaften bereits lange Tradition: So wirbt die Bausparkasse Schwbisch Hall seit
514 Urban Bacher Eva Amann
1962 mit Auf diese Steine knnen Sie bauen; seit Jahrzehnten setzen Sparkassen
und die Volksbanken Raiffeisenbanken auf die allseits bekannten Slogans Wenns
um Geld geht - Sparkasse und Wir machen den Weg frei.1 Untersucht werden
im Folgenden die Grnde, warum Banken sich eines Slogans bedienen.
2. Markierung der Finanzdienstleistung

Der Finanzmarkt besteht aus vielen Anbietern mit nahezu identischen Geld-
und Beratungsleistungen. Die Bankleistung bietet im Kern kein besonderes Erleb-
nis, spricht wenig Emotionen an und ist im Grunde genommen fr eine Vielzahl
der Kunden ein langweiliges Pflichtprogramm.2 Die besonderen Merkmale von
Bankprodukten (Abstraktheit, Zeitbezogenheit, Stofflosigkeit, Erklrungsbedrft-
igkeit, rechtliche Normierung, Imitationsmglichkeit und ein Mindestma an
Vertrauen)3 erschweren die Vermarktung. Als Lsung dieses Problem kann eine
gute Markierung dienen.
Besonders das Merkmal der Stofflosigkeit bringt einige Risiken mit sich, die die
Produktmarkierung notwendig machen.4 Unter anderem besteht durch die Stofflo-
sigkeit der Finanzdienstleistungen ein hheres Kaufrisiko als bei Sachgtern. Die
Qualitt des Bankproduktes kann vom Kunden - wenn berhaupt - erst whrend
bzw. nach dem Kauf beurteilt werden.5 Des Weiteren ist das Produkt auch nach
der Leistungserstellung unsichtbar, woraus das Risiko des schnellen Vergessens re-
sultiert.6 Eine starke Marke kann diese Probleme lsen. Sie stellt ein Symbol der
Bestndigkeit und des Vertrauens7 dar und hilft dem Kunden dabei, sein wah-
rgenommenes Kaufrisiko zu vermindern. Eine starke Markenprsenz und kontinu-
ierliche Kommunikation mildert auch das Risiko des Vergessens. Das dritte Risiko,
welches sich aus der Stofflosigkeit ergibt, ist die leichte Imitierbarkeit der Finanzdi-
1
Vgl. Szallies, Marke und Kommunikation, in: bank und markt 1/2006, S. 22.
2
Vgl. Tanner/Cheng (2008), S. 327.
3
Vgl. Bacher (2012), S. 107, 109.
4
Vgl. Bruhn/Stauss (2008), S. 12.
5
Vgl. Homburg/Krohmer (2009), S. 265.
6
7
Krmer (1998), S. 245.
enstleistung.8 Damit der Kunde die Produkte der verschiedenen Anbieter dennoch
unterscheiden kann, dient vor allem die Marke als Differenzierungsinstrument.9
3. Slogan soll die Kernbotschaft an den Kunden effektiv vermitteln
3.1.Slogan soll Kernbotschaft transportieren

Auf dem Bankenmarkt besteht ein hoher Wettbewerbsdruck. Fr ein Kreditin-
stitut ist es dabei von besonderer Bedeutung, sich im Wettbewerbsumfeld klar zu
positionieren und zu differenzieren. Voraussetzung dafr ist eine durchgngige und
einheitliche Kommunikation, die den Wiedererkennungswert des Unternehmens
strkt.10 Die inhaltliche Integration hat dabei die Aufgabe, die verschiedenen Kom-
munikationsmanahmen aufeinander abzustimmen.11 Ein Slogan kann dabei als
inhaltliche Klammer fungieren, die den verschiedenen Botschaften eine gemeins-
ame inhaltliche Basis gibt12 und somit fr Konsistenz, Eigenstndigkeit und Kon-
gruenz sorgt13.
Beispiele fr Slogans und deren Kernbotschaft im deutschen Kreditgewerbe:14
Bankname Slogan Kernbotschaft
Sparkassen Wenns um Geld geht ... Spezialist fr Geldleistungen
Volksbanken/ Wir machen den Weg frei, neuerdings ergnzt mit Problemlser und Garant fr
Raiffeisenbanken der Kampagne: Jeder Mensch hat etwas, das ihn Unabhngigkeit
antreibt.
Deutsche Bank A Passion to Perform bzw. Leistung aus Leistungsprinzip

Leidenschaft
Commerzbank Die Bank an Ihrer Seite Partnerschaft
HypoVereinsbank Leben Sie wir kmmern uns um die Details Vertrauen, Geborgenheit,
Kompetenz
8
Vgl. Bacher (2012), S. 109.
9
10
Vgl. Schmidt/Vest (2010), S. 162.
11
Vgl. Bruhn (2010), S. 243.
12
13
Vgl. Bruhn (2010), S. 243.
14
Vgl. Bacher (2012), S. 130 Aufgabe 6 zu 4.
Ein Slogan verkrpert die eigentliche Werbebotschaft kurz und prgnant, er

trgt aktiv zur Wiedererkennung bei.15 In anderen Worten: Beim Slogan sollte es
primr um die Festlegung der Kernbotschaft gehen, welche dem Kunden vermit-
telt werden soll. Dabei soll der Slogan den Markenkern einer Bank kommunikativ
effektiv untermauern.
Beispiel: Markenkern der Volksbanken/Raiffeisenbanken:16
Image: Kundennhe, regionale Verbundenheit, Sympathie, Vertrauen, Part-
nerschaft/ Mitgliedschaft (Wir-Prinzip)
Kompetenz: Kundenorientierte Lsung in allen Geldfragen.
(den-Weg-frei-machen)
Slogan-Nutzenversprechen: Wir machen den Weg frei (verhilft zur Unab-
hngigkeit und Problemlsung, letztlich zur Verwirklichung der Lebensziele)
besonderer Antrieb (es-gemeinsam-machen)
Kunden- und Leistungsbereiche: Privatkunden und Mittelstand mit allen
Bedarfsfeldern, umfassendes Leistungsangebot
3.2. Visualisierung der Marke

Der Inhalt der Botschaft kann durch verschiedene Wege visualisiert werden.17
Entscheidet sich das Unternehmen, seine Werbebotschaft nur in Worte zu
fassen, ist dies mit Hilfe eines Slogans mglich. Es knnen die Unterneh-
menswerte kommuniziert oder die zentralen Produkteigenschaften des Un-
ternehmens betont werden.18 Da jedoch dem Kunden immer noch die hch-
ste Bedeutung zukommen sollte, knnen in einem Slogan auch die Kunden-
bedrfnisse und der Kundennutzen angesprochen werden.
Besser als Wrter sind gewhnlich Bilder. Der Erfahrungssatz ein Bild sagt
mehr als tausend Worte drckt vereinfacht den Vorteil von Bildern ge-
genber Worten aus. Mit Hilfe von einem Bild kann auch ein komplizierter
Sachverhalt mhelos erklrt werden, welcher in Worten nur schwer zu be-
schreiben ist.
15
Vgl. Haug (2012), S. 161.
16
Vgl. Bacher (2012), S. 129/130.
17
Vgl. Bruhn (2010), S. 225.
18
Vgl. Haug (2012), S. 161.
Die Dual-Code-Theorie besagt, dass verbale und nonverbale Informa-

tionen (..) in voneinander unabhngigen, aber miteinander verbundenen
Systemen verarbeitet und gespeichert [werden].19 Eine beliebige Informa-
tion knnte sowohl bildlich wie sprachlich abgespeichert werden (Wort-
Bild-Marke), was zu einer hheren Erinnerungswahrscheinlichkeit fhren
kann.20 Begrndung: Die Erinnerungswahrscheinlichkeit von Bildern ist der
von Worten berlegen.21 Hinzu kommt, dass Bilder eine hhere aktivierende
und emotionale Wirkung haben und die Wahrnehmung und Verarbeitung
nahezu automatisch abluft.22 Das Ergebnis des Wahrnehmungsprozesses ist
ein inneres Bild, welches das Individuum beim Gedanken an die Informa-
tion abrufen kann.23
Die Folgerung fr das Marketing aus diesen Erkenntnissen ist, dass bei der
Markenkommunikation die Verwendung von Bildern dem Einsatz von Worten
vorgezogen werden sollte. Dem Kunden wird es dadurch leichter fallen, die Marke
wahrzunehmen, sie abzuspeichern und in Form des inneren Bildes auch jederzeit
abzurufen.
4. Gefahren bei der Verwendung eines Slogans

4.1 Fehlende Zuordnung zur Marke
Vor der Zuordnung des Slogans zu einer bestimmten Marke steht zunchst die
Erinnerung daran. Fr die Speicherung einer Information im Langzeitgedchtnis
mssen Gedchtnisspuren aufgebaut werden, was Zeit bentigt und nicht nach
einmaligem Hren oder Lesen erfolgt.24 Das Vergessen von Informationen hngt
unter anderem mit den Defiziten des Gedchtnisses zusammen und ist fr den
Menschen ein natrlicher Prozess.25
Wurde ein Slogan im Gedchtnis abgespeichert, bleibt fraglich, ob er der rich-
tigen Marke zugeordnet werden kann. Der Bekanntheitsgrad und die richtige
19
Esch/Mll (2008), S. 77.
20
Vgl. Kroeber-Riel/Weinberg/Grppel-Klein (2009), S. 393.
21
Vgl. Esch/Mll (2008), S. 77.
22
Vgl. Trommsdorff/Teichert (2011), S. 86.
23
Vgl. Trommsdorff/Teichert (2011), S. 86.
24
25
Markenzuordnung drfen daher nicht gleichgesetzt werden.26 Musterbeispiele fr

die erfolgreiche Zuordnung sind die seit Jahrzehnten verwendeten Slogans der LBS
und der Bausparkasse Schwbisch Hall.27 Vielen anderen Banken scheint es mit
ihrem Slogan jedoch nicht zu gelingen, in den Kpfen der Kunden zu bleiben.
Offensichtlich fehlt die mentale Verbindung zur Marke. Festzuhalten bleibt, dass
die Verwendung eines Slogans fr ein Unternehmen sinnlos ist, wenn er von den
Kunden nicht erfolgreich der eigenen Marke zugeordnet werden kann.
4.2 Fehlende Differenzierung nach Zielgruppen

Die (potenziellen) Bankkunden und somit ihre Anforderungen an die Bank
knnen sehr unterschiedlich sein. Zur Vereinfachung teilen die Banken ihre Kun-
den in Segmente ein, wobei die Einordung anhand verschiedener Merkmale erfol-
gt.28 Die jeweiligen Kundensegmente erwarten eine gezielte Ansprache. Das Mar-
keting muss daher verschiedene Werbebotschaften formulieren, welche konkret die
unterschiedlichen Bedrfnisse der Zielgruppen ansprechen. Mit Hilfe eines Slo-
gans versucht das Unternehmen jedoch seine Werte und Angebote in einem Wort
oder einem Satz zu beschreiben. Dies widerspricht teilweise der nach Zielgruppen
differenzierten Kundenansprache.29
4.3 Wearout-Effekt
Der Wearout-Effekt bezeichnet den absoluten Rckgang der Werbewirkung ab
einer bestimmten Zahl an Werbekontakten.30 Der Zeitpunkt und das Ausma der
Abnutzung knnen im Vorhinein nicht genau bestimmt werden. In diesem Zusam-
menhang ist die Variationsfhigkeit der Werbemittel von besonderer Bedeutung,
da durch Variation das Problem der Abnutzung verhindert werden kann.31 Da je-
doch ein Slogan bereits per Definition nicht variierbar ist, sondern eine durchgn-
gige Programmformel darstellt, ist hier die Eintrittsgefahr des Wearout-Effektes
besonders gro.32
26
Vgl. Rhmeier, Markenfhrung, in: bank und markt 7/2008, S. 35.
27
Vgl. Wermuth (2004).
28
Vgl. Bacher (2012), S. 121ff.
29
Vgl. Mller/Brggemann-Helmold, Bankmarken, in: bank und markt 2/2002, S. 24.
30
Vgl. Esch (2011), S. 147.
31
Vgl. Esch (2011), S. 200.
32
Vgl. Esch (2011), S. 200.
5. Konkrete Handlungsempfehlungen
Zusammenfassend gilt: Ein gut gestalteter Slogan, der die Eigenschaften der
Marke umfasst und die Emotionen der Kunden anspricht, ist ein wichtiger Bes-
tandteil einer erfolgreichen Marken- und Kommunikationsstrategie von Finanzdi-
enstleistern.33 Fr das Bankgewerbe werden in Zusammenhang mit der Frage von
Slogans folgende fnf Voraussetzungen bzw. Empfehlungen ausgesprochen:
1. Aufgrund der Stofflosigkeit von Bankdienstleistungen hat die Markierung
eine besondere Berechtigung im Bankengewerbe. Neben einer Marke kann
ein Slogan wichtige Kommunikationsfunktionen entfalten und eine beson-
dere Kraft und Emotionen entfalten.
2. Bei der Gestaltung eines Slogans kommt es unter anderem auf die Konzen-
tration auf wenige Worte an.34 Besonders kreative und abstrakte Wortkom-
binationen sind nicht anzustreben. Der Schlsselfaktor fr die Erinner-
ungswahrscheinlichkeit liegt in der Konkretheit und Prgnanz des Wortes.35
Kurzum: Ein Slogan sollte knapp und przise die Kernbotschaft einer Finan-
zdienstleistung bzw. den Markenkern kommunizieren.
3. Agieren Banken am internationalen Markt, mssen die verschiedenen
Sprachen beachtet werden. Assoziationen zu einem bestimmten Begriff kn-
nen von Land zu Land stark variieren.36 Die interkulturellen Unterschiede
mssen bei der Wortwahl beachtet werden, um eine negative Wirkung des
Slogans zu verhindern.
4. Von der Verwendung von englischen Slogans sollte abgesehen werden. Die
vom Unternehmen gesendete Werbebotschaft kann nur von wenigen Kun-
den richtig entschlsselt werden und ist daher nicht immer zielfhrend.37
Zudem stoen die englischen Slogans auch bei denjenigen, denen die ber-
setzung leicht fllt, auf Abneigung.38
5. Die Dominanz von Bildern gegenber Worten spricht fr den Einsatz von
Wort-Bild-Marken und fr die Verwendung von Schlsselbildern. Auch
33
Vgl. Szallies, Die Entwicklung der Marke Postbank, in: bank und markt 7/2007, S. 32.
34
Vgl. Brandtner (2006), S. 87.
35
36
37
38
Vgl. Mller/Brggemann-Helmold, Bankmarken, in: bank und markt 2/2002, S. 24.
kann der Slogan mit Hilfe einer Melodie transportiert werden, da akustische
Reize vom Menschen unbewusst aufgenommen und gespeichert werden.39
Quellenverzeichnis
Bacher, U.: Bankmanagement kompakt, 4. Auflage, Konstanz 2012
Brandtner, M.: Brandtner on Branding, Gratkorn 2006.
Bruhn, M.: Marketing, 10. Auflage, Wiesbaden 2010
Bruhn, M./Stauss, B. (Hrsg.): Dienstleistungsmarken, Wiesbaden 2008.
Bschgen H./Bschgen A.: Bankmarketing, 2. Auflage, Dsseldorf 2002.
Esch, F.-R.: Wirkung integrierter Kommunikation, 5. Auflage, Wiesbaden 2011.
Esch, F.-R./Mll, T.: Mensch und Marke, in: Grppel-Klein, A. (Hrsg.), Konsumen-
tenverhalten im 21. Jahrhundert, Wiesbaden 2008, S. 67-98.
Haug, A.: Multisensuelle Unternehmenskommunikation, Wiesbaden 2012.
Homburg, C./Krohmer, H.: Grundlagen des Marketingmanagements, 2. Auflage, Wi-
esbaden 2009.
Krmer, H.-P.: Effizienzsteigerung in der Werbung durch Kommunikationscontrolling,
in: Schting, J./Heitmller, H.-M. (Hrsg.), Handbuch des Bankmarketing, 3. Auflage,
Wiesbaden 1998, S. 243-271.
Kroeber-Riel, W./Weinberg, P./Grppel-Klein, A.: Konsumentenverhalten, 9. Au-
flage, Mnchen 2009.
Mller, M./Brggemann-Helmold, K.: Bankmarken: Englische Slogans unbeliebt, in:
bank und markt 2/2002, S. 23-26.
Rhmeier, O.: Markenfhrung: Bestndigkeit vor Kreativitt, in: bank und markt
7/2008, S. 32-35.
Szallies, R.: Marke und Kommunikation: Der Doppelpass zum Erfolg, in: bank und
markt 1/2006, S. 22-26.
Schmidt, D./Vest, P.: Die Energie der Marke, Wiesbaden 2010.
Tanner, T./Cheng, C.S.: Persnlich, menschlich, zugnglich: Emotionale
Markenbindung
bei der Schweizer Bank USB, in: Bruhn, M./Stauss, B. (Hrsg.), Dienstleistungsmarken,
Wiesbaden 2008, S. 325-344.
Trommsdorff, V./Teichert, T.: Konsumentenverhalten, 8. Auflage, Stuttgart 2011.
39
Vgl. Schmidt/Vest (2010), S. 173. Als Beispiele dienen: S-Finanzgruppe, ING-Diba, Bausparkasse
Schwbisch Hall.
RESEARCH OF INVESTMENT RISK USING BETA COEFFICIENT 521
RESEARCH OF INVESTMENT RISK USING BETA COEFFICIENT

Domagoj Karai Ph.D.1 , Ivana Bestvina Bukvi Ph.D.2
1
Faculty of Economics, Josip Juraj StrossmayerUniversity of Osijek,
Republic of Croatia, karacic@efos.hr
2
Zagrebaka banka JSC, Zagreb, Republic of Croatia, ivana.bestvina.bukvic@os.htnet.hr
Abstract
Beta coefficient is a measure of the investment or assets systematic risk in rela-
tion to the overall stock market. It enables comparison of level of the risk of invest-
ments or assets with different characteristics. Before interpretation of its results it
is necessary to understand the specificity of this coefficient, the conditions of the
capital market, as well as investments that are being analysed. This paper analyses
the applicability of beta in determining the risks of, by the characteristics, differ-
ent types of investments and presents the results of the research of level of the risk
and return of investments in capital projects compared to investment in a portfolio
of selected stocks on the Croatian capital market. Given the above the aim of this
work was to determine the usefulness of the beta coefficient and in the different
types of investments risk analysis. Analysing the results of the research it has been
found that, in the period 2003-2010, according to analyst projections, the invest-
ments in capital projects were, in average, less risky compared to investing in a port-
folio of selected stocks. It was also found that the expected return on investment in
a portfolio of selected stocks is 1.4 times greater than the average expected return
on investment in capital projects (measured by the CAPM model). By adjustment
of the beta calculation model to the characteristics of the market it was used on, it
was found that beta coefficient is a useful measure in the risk analysis and can be
used to compare riskiness of, by characteristics, different types of investments.
Keywords: beta coefficient, risk assessment, capital market, decision-making.
522 Domagoj Karai Ivana Bestvina Bukvi
1. INTRODUCTION
Assessment of justification of capital investment is important element of deci-
sion making process in any capital investment projects. The basic component of
assessment of capital investments is risk assessment. If the investor does not have
information about the level of risk of the project, he will not be able to determine
and evaluate all its characteristics. When assessing the risk level, the key question
is the size of minimum expected profit that investor expects to realize when it
depends on the investment risk and investors preferences towards the risk. When
conducting the investment risk assessment and presenting expected profitability,
ratio of achievable profit and possible risk might not be satisfactory, and more exact
estimations of the level of capital risks in all sectors might be necessary. At the mi-
cro level, in manufacturing sector, where uncertainity of business success is highly
expressed, additional need for a comprehensive review of the problems in invest-
ment decisions making, as well as the elaboration of risk assessment techniques
applicable in practice, is additionally stimulated. In fact, projects in the domain
of manufacturing sector require a detailed and comprehensive analysis of risk fac-
tors and evaluation of investments due to the complex manufacturing process, the
length of the production cycle, market conditions, specific (hardly measurable)
risks, What makes investments interesting and exciting is that you have lots of
noise in the data. (SR Vishwanath, 2009:98). When assesing the risk, it is neces-
sary to evaluate the relevance of certain information and to determine the risk with
greater precision. In Croatia, a number of academic stuff is engaged in the work
related to the risk assessment. Previous studies covered theoretical background of
the problems, while the practical problems were adressed only in certain cases. Ac-
cording to the available data, studies of risk investment in the medium and large
agricultural business, which have higher level of production organization and busi-
ness management, addressed in this paper, have not been yet implemented in more
comprehensive format. The main objective of this paper is to present the results of
research of the beta as a measure of systematic risk; to analyse applicability of this
coefficient when determining the risk of investment and to implementation risk
analysis of different types of investments. One of the focuses was to determine level
of risk of investment in relation to overall capital market risk (for research purposes
representative portfolio of securities was selected, both in regard to the period of
research and securities market). This paper aims to stimulate further research, to
present new results in order to introduce new knowledge, as well as strengthen
decision making processes in capital investment areas. Next chapter of this paper
will presented methods of beta coefficient, specificity of its calculations and the as-
sessment of its applicability in regard to the characteristics of the Croatian capital
market.Third part of the paper will introduce the scope of research, describe the
sample and the methods used in the research. Fourth section will presents the re-
sults of research which will be used as base for the conclusions addressed in the last
part of the paper.
2. BETA COEFFICIENT ()
Beta coefficient () measures volatility of expected result of specific investments
(either in the real or in the financial assets) in relation to the efficiency of the
overall capital market. Therefore it is measure of systematic risk of financial assets,
investment project, the business entity or any other type of property in a diversified
model.
Beta coefficient of investment projects is determined by calculating the standard
deviation of the internal rate of return and the profitability of market index and
their correlation.
Equation 1: The formula for calculation of beta coefficient
VP
EP,T rP,T
VT
where:
P = standard deviation of internal rate of return
T = standard deviation of profitability of market
rPT = correlation coefficient of project profitability and profitability
Value of the beta coefficient of the project can range between 0 and 4. The
higher coefficient inciates proportionally higher risk in cash flows of the invest-
ment project. Risk free asset has a coefficient 0 since its covariance with the market
portfolio is 0 (Gossy, 2008:35). If the result of the beta coefficient is 1, it means
that the systemic risk of the project is equal to the risk that investor would take over
if he invests its assets in a diversified portfolio of securities in the referenced market.
This coefficient is important because it allows comparison of levels of the risk of
investment projects by the size of the investment, the length of the economic life
span of the project and the level of return.
Beta is important for the investment manager because it can be used to:
select individual stocks for investment,
construct portfolios of financial assets with desired levels of risk and return, and
evaluate the performance of portfolio managers. (C.-F. Lee et al., 2010:99)
In this study, calculation of beta includes an analysis of a selected portfolio of
stocks and data on actual stock prices, for a period equal to the period of the eco-
nomic life span of the projects in the sample.
When calculating beta coefficient of new capital investment (especially in the
case of start-up companies and new projects that are not comparable with exist-
ing business activities of investors), and if market or the historical (accounting) data
are not available, problem of determination of the value of the market is specif-
fically emphasized. In this case, the calculation of the coefficient is based on the
projected financial reports and the expected cash flows. It is extremely important
that the project is based on realistic input data. When calculateng beta coefficient
some concernes regarding the representative indicators of the systematic risk of
diversified portfolio of securities can arrise. Namely, risk assessment is based on ac-
tual data of previous period and main condition is development of capital markets
(Kari, 1995:95). When choosing the index that is not enough representatives and
diversified, projections may give us inaccurate information regarding the level of
risk of investing in a project in relation to the level of risk of investing in a diversi-
fied portfolio of securities. When analysing beta coefficient of investment projects
in this study, profitability of the market was based on the profitability of the port-
folio of 20 stocks on Zagreb Stock Exchange that are actively beeing traded since
2000 (some of thisis stocks are part of index CROBEX). In year 2000, 45 shares
were quoted on the Zagreb Stock Exchange, of which 24 are still active.
Table 16: Preview of the value of created market portfolio of securities and
dividends per stock
(value in HRK)
Value of Paid Annual return Cumulative Cash
Year % changes Cash flow
portfolio dividends on investment Flow
31.12.2000. 8.332 -8.332,37
31.12.2001. 13.007 212,42 56% 212,42 2,55% -8.119,95
31.12.2002. 13.009 212,42 0% 212,42 2,55% -7.907,53
31.12.2003. 18.842 212,42 45% 212,42 2,55% -7.695,11
31.12.2004. 24.364 212,42 29% 212,42 2,55% -7.482,69
31.12.2005. 30.972 278,00 27% 278,00 3,34% -7.204,69
31.12.2006. 48.100 237,00 55% 237,00 2,84% -6.967,69
31.12.2007. 70.592 202,00 47% 202,00 2,42% -6.765,69
31.12.2008. 23.004 18,00 -67% 18,00 0,22% -6.747,69
31.12.2009. 29.378 354,80 28% 354,80 4,26% -6.392,89
31.12.2010. 27.800 184,69 -5% 27.984,34 335,85% 21.591,45
Referenced ten year period is equivalent to the period of the economic life span
of the projects from the sample. Composition of the market portfolio is presented
in the Annex 1. Investment projects are mainly related to a longer time period
in which is likely for the value of beta coefficient to change. In the initial period
projects might have a high beta coefficient, but after the launch, when the realisa-
tion of the project is not stabile, decrease of risk level is possible and it is likely
that risk will be decreased, and therefore the beta coefficient as well. Also, during
the economic lifetime of the project, some changes of economic cycles can occur
(periods of expansion or contraction), which will also affect the level of risk of the
project in a specific year, compared to the year in which the investment is analysed.
(Kari, 2006:20) Therefore, use of same value of the beta coefficient during the en-
tire economic life of the project can results with projections which may differ from
the actual results. Also possible changes in the business activities of the company,
resulting in improving profitability, efficiency and profitability, are not foreseen by
beta coefficient.
When calculating beta coefficient for project investments calculations should be
made on the basis of the expected net cash flows. Rreliability of beta coefficient will
depend on the quality of investment proposals. In general, when calculating beta
coefficient following problems can occur (SR Vishwanath, 2009: 98):
exact (present value) of the coefficient is never used

in CAPM calculation estimation of beta coefficient is used, which is calcu-
lated with discrepancies of the actual values
measurement discrepancy in the calculation of the coefficient will have influ-
ence on non-objective assesment (smaller risk in ratio where beta coefficient
is lower)
Considering all above stated, it is necessary to interpret this coefficient with
care, taking into account the all circumstances (characteristics of the project activi-
ties and characteristics of capital markets compared to the project).
3. EMPIRICAL STUDY OF INVESTMENT
3.1. The selection of sample, method and the implementation of research

process
The research was conducted on a sample of medium and large privately owned
companies that, in the period of the 2003 to 2010, implemented capital invest-
ments, with previously prepared investment studies. Research includes projects that
are planned and / or implemented within the specified time period. The sample
included a total of 49 investment proposals initiated by 38 economic entities op-
erating in the eastern Croatian, where some entities in the reference period con-
ducted a number of different investments. Total value of all investments included
in the study, according to the presented investment projects amounts to 986 mln.
HRK (figure includes the value of investments in fixed assets and permanent work-
ing capital, without value added tax). Also, minimum acceptable rate of return on
investment is defined in a portfolio of securities selected on the Croatian capital
market, which includes 20 stocks that are active in the analysed period, without
significant interruptions on the Zagreb Stock Exchange. Analyses were carried out
with statistical and mathematical calculations and methods of calculating the beta
coefficient. Beta coefficient is determined for each project in the sample.
3.2. Analysis of the results of applicability of beta coefficient

This study analysed the level of risk of projects in the sample in relation to the
risk of a portfolio of selected securities. The aim of this study was to determine
whether the beta coefficient is applicable measure for comparison of the risk of
project with risk of capital markets and whether it is applicable measures for com-
parison of project with different characteristics of the investment.
Table 2: Beta coefficient result distribution

Distribution of the results of Distribution of the results in Share of the category in
beta calculation the sample the sample
< 0,10 6 12%
0,11-0,20 19 39%
0,21-0,30 13 27%
0,31-0,40 6 12%
>0,40 5 10%
Source: calculation of the author
According to the research results, the most significant part of projects from the
sample had lower level of risk than market risk, which is defined with beta coef-
ficient 1. The largest share of projects in the sample, 78% had beta coefficient less
than 0,30.
For only few projects beta coefficient was bigger than 1, meaning - the risk is
higher than average risk of the entire capital market (where, for the purposes of
research, selected portfolio of securities, presented in the previous section, is con-
sidered to be representative for securities market and period reviewed). According
to the research, form of investment also has a significant impact on the level of risk.
In the case of high investments in real estate, with a high residual value in the final
year of economic flows, it is more possible that beta coefficient will be high (given
that the standard deviation will record a higher value). On the other hand, when
investing in equipment (regardless of the amount of investments), the most signifi-
cant part of the value of the equipment is being reduced by amortisation, so in the
final year of the project, equipment will not record high residual value. As the result
of that, annual return over the final year does not differ significantly in comparison
to other years of economic life. That will have an impact on the standard deviation
and beta coefficient.
Graphic presentation 1: Comparison of beta coefficient from all projects in the

sample in regard to the beta coefficient of capital market
Source: calculation of the author
In this research projects are also categorized according to sectors in which they
invest. It was determined that average cost of invested capital in the sample of
non-agricultural sector is 4,4% lower when compared to the projects in the sample
of non-agricultural sector. The average price of invested capital in the sample of
non-agricultural sector is 12,42% and average price of invested capital in the sam-
ple of projects from agricultural sector is 16,57%. Beta coefficient showed higher
risk in the projects in the agricultural sector. Specifically, average beta coefficient in
agricultural sector is 0,36 and in sample of non-agricultural sector is 0,25.
Table 3: Distribution of the results of the calculation of capital cost and beta co-
efficient in agricultural and non-agricultural sector
Distribution of results in Distribution of results in non-

Price of the investment capital
agricultural sector agricultural sector
< 10% 47% 59%
10% - 20% 44% 41%
> 20% 9% 0%
Average beta coefficient 0,36 0,25

In a survey conducted on the projects in agricultural sector, the average cost of
invested capital of all analysed projects was16,57%, and in relation to all projects
in sample it was 15.13%. Aannual return for oobserved portfolio of securities, for
the period 2000 2010, was on the level of 36%
These data, along with other results, are indicators of a larger range of possible
calculateons of the beta coefficient and its higher value in the case of projects in
agriculture sector, compared to projects that run in non-agricultural sector. This
analysis showed that beta coefficient enables comparison of the risk level of projects
that run in different industries, that are different in investment sizes, with level of
return and other characteristics.
The characteristics of the securities market in the period of calculating the beta
coefficients are:
the volatility of stock prices on Croatian capital market is significant,
stocks take 80% of the securities in the domestic market but the market turn-
over is significantly reduced since 2008, although with a few exceptions, the
liquidity of the shares is generally small. (Ivanov, 2009:1).
The shares do not bring income like in 2008 and the number of participants
on the domestic market decreased significantly. Size of capital market in Cro-
atia is insignificant when compared to the international market. This research
is limited just to the Croatian market assuming that domestic investors will
not invest in foreign markets.
calculation ratio included historical indicators of income on the capital mar-
ket on the one hand and predictions of the future cash flows of investment
projects
Projects do not anticipate recession nor any possibility of decrease of the
income. In almost all projects the lowest possible level of income is defined
with income in the first year of the economic life of the project. From first
year of the project, income and profitability are maintained at the same level,
or are in increased at a defined rate, which can be characterized as unrealistic
projections.
4. CONCLUSION
Beta coefficient is most commonly used measure of systematic risk. This coef-
ficient is important because it allows comparison of project risks levels between
the projects with different investment sizes, different length of the economic life
span and the level of return. Therefore it is a valuable risk measure that investors
should take into account in the process of making a decision regarding the capital
investments. Investors often take decisions on investments without sufficient in-
formation about the level of risks. Due to that, in the process of assessment of the
acceptability of a specific investment it is necessary to conduct a risk analysis, us-
ing, among other methods, calculation of the beta coefficient. With this study, and
results presented in this paper, beta coefficient is identified as measure applicable
for determination and comparison of the level of risk of investments in capital
projects in relation to the overall capital market. Beta coefficient enables the risk
level comparison according to key characteristics of different projects. However,
when analysing and interpreting beta coefficient all conditions should be taken into
account. Possible concerns and restrictions thatt can occur in calculation of beta
coefficient are partially listed in this paper. Therefore, calculation methods should
be additionally analysed in order to determine input values specific for the market
for which the analysis is conducted. Although beta coefficient is a useful measure
in assessing the justification of investment, this coefficient should not be observed
individually. It should be interpreted as one of the measures in the framework of a
comprehensive analysis of investment risk assessment.
REFERENCES
1. Cheng-Few Lee, Joseph E. Finnerty, and Donald H. Wort (2010) C.-F. Lee et al. (eds.),
Handbook of Quantitative Finance and Risk Management, Springer Science+Business
Media, LLC, New York, ISBN: 978-0-387-77116-8
2. Ivanov, Marija (2009), Trite kapitala: Nema anse slubena internet stranica Ban-
ka magazina, dostupno na: http://www.bankamagazine.hr/Naslovnica/Kolumne/
3. Biznisifinancije/tabid/296/View/Details/ItemID/55061/ttl/Trziste-kapitala-Nema-
sanse/Default.aspx, pristup stranici: 25.05.2012
4. Kari, Marijan (2006.), Analiza rizika, Ekonomski fakultet, Osijek
5. Kari, Marijan, (1995), Mjerenje rizika u uvjetima diverzificiranih investicija
(1995.), Ekonomski vjesnik, br. 1, Ekonomski fakultet u Osijeku
6. Gossy, E. (2008), A Stakeholder Rationale for Risk Management, Implications
for Corporate Finance Decisions, Betriebswirtschaftlicher Verlag Dr. Th. , Gabler,
GWV Fachverlage GmbH, Wiesbaden , Njemaka, ISBN 978-3-8349-0985-5
7. S. R. Vishwanath , C.Krishnamurti, (2009), Investment Management, A Modern
Guide to Security Analysis and Stock Selection, Springer Science+Business Media,
LLC, New York, ISBN: 978-3-540-88801-7
ROLE AND RESPONSIBILITIES OF LOCAL MANAGEMENT FOR GOVERNING ... 531
ROLE AND RESPONSIBILITIES OF LOCAL MANAGEMENT

FOR GOVERNING AND DISPOSAL OF FUNDS FOR
FINANCING OF DECENTRALIZED FUNCTIONS
Ivan Luki,univ.spec.oec.1, Branka Marti,univ.spec.oec.2, Davor Vlaovi, univ.spec.oec3
1
Brod- Posavina County, Republic of Croatia, ivan.lukic@bpzupanija.t-com.hr
2
Brod- Posavina County, Republic of Croatia, branka43@net.hr
3
Brod- Posavina County, Republic of Croatia, dvlaovic@bpz.hr
Abstract
Decentralisation and devolution in conducting of public affairs from higher to
lower level of government was implemented in Croatia in 2001 in elementary and
secondary education, health care, social welfare and firefighting. It was not true
decentralization, with the expansion of the local authority, responsibility and finan-
cial capabilities, rather mere administrative decentralization, without spreading the
autonomy of the local community. Legal decentralization was not accompanied by
fiscal decentralization, which involves financial aspects of transfer of public affairs
to regional and local government. The degree of fiscal decentralization of certain
government is estimated by the proportion of local government involvement in to-
tal revenues and expenditures of the general government and the local government
share in GDP. None of these indicators in Croatia are reaching the EU average.
Financing of decentralized functions from income tax in the past five years in-
dicates enormous problems in financing due to total dependence of local com-
munities on the central government, especially in the area of primary and second-
ary education. In such circumstances, the local management, responsible for the
efficient and economical operation of the management and disposal of funds for
decentralization, is facing organizational challenges.
JEL Classification: H72
Keywords: decentralization, fiscal decentralization, decentralized functions, lo-
cal management
532 Ivan Luki Branka Marti Davor Vlaovi
1. Introduction
Decentralization in Croatia is an unfinished process. During the establishment
of the system of decentralization, especially in the last five years, there have been no
significant changes in funding or in the transfer of authority to local government.
One of the major reasons for the delay in this process are large differences in the size
of the fiscal capacity of local government units. Local management which manages
budgetary resources (fiscal capacity) should be more and more focused on increas-
ing effects in the managing of limited resources and achieving of the set goals with a
reduction in costs. The paper will be exploring issues of fiscal decentralization with
an emphasis on elementary and secondary education. One of the key problems is
the fact that regional government funds for financing primary and secondary edu-
cation are continuously being reduced, with a steady increase in costs. The amount
of decentralized funds allocated to regional government for the monitored features
is only 77% of funds allocated in 2010. In such conditions, local management is
put in a very difficult position of making unpopular decisions that need to have a
long-term positive effect. It is very difficult for the managers in the regional govern-
ment to maintain the achieved standard with the available financial capacity .
What is the actual fiscal power and how much of the responsibilities are allo-
cated to regional and local authorities greatly depends on: (1) which public services
local and regional governments are funding, (2) whether their revenues are propor-
tionate and consistent with the responsibilities in providing of public services, (3)
level of rights regional and local authorities have to vote in the actual allocation of
their budget for the financing of certain public services, (4) whether the regional
and local authorities determine their own tax rates and benefits by allowing the
level of public spending (public expenditure) to vary in order to adjust the level of
quality of the public services to the users who are also the taxpayers. 1
We will try to find the answers to these questions in the following chapters.
2. Decentralization and fiscal decentralization in Croatia

Decentralized functions are expenses that are by special laws for primary and
secondary education, welfare, health and fire services transferred to the local and
regional self-government, and financed from additional share of income tax and
equalization grants for decentralized functions.
1
Jurlina Alibegovi,D.: Fiskalna decentralizacija u Hrvatskoj: izmeu elja i mogunosti, Ekonomski
institut, Zagreb, 2012, str. 35
Balance sheet rights are funds necessary to ensure minimum financial standards
in a given decentralized function according to the Article 4 of this Regulation.
Equalization grants are transfers of funds from the state budget to local and
regional self-government for financing of decentralized functions when revenues
generated from the additional share of income tax are not sufficient to finance the
minimum financial standards.
Fiscal decentralization involves the division of public expenditure (public af-
fairs) and revenues for financing of public affairs between levels of public authority
and discretion to decide of regional and local public authorities. It is, in fact, the
relationship between central and local levels of government in which part of opera-
tions were transferred to lower levels, as well as given a certain, limited autonomy in
financing expenses. Simply put, we can say that this is a kind of transfer of power
and money from the central government level to a lower one-local.
The decentralization process in Croatia is characterized by unclear division of
competence in the implementation of public functions between central, regional
and local government, so that all the levels of government are charged with the en-
forcement of public functions and their responsibilities often overlap. In addition,
a large number of laws that regulate this area (Constitution, more than 20 laws,
regulations, decisions) make the system even more complicated in practice.
Various authors have studied the process of decentralization and given their as-
sessment of the effectiveness of the process, some of them being Decentralization
of primary and secondary education, health, social welfare and public fire service
conducted in 2001 was not conducted so as to strengthen local autonomy, but
so as to some lesser extent include the local government and the counties in the
organization and financing of these services. At the same time fiscal decentraliza-
tion was not implemented, but the funds for these services are transferred from the
state budget. There is no decentralization of decision-making and then virtually
no accountability. Line ministries are still the power centres in regard to services
concerned. 2
The degree of fiscal responsibility in Croatia is characterized by a very small
proportion of local government in total revenue (11.9%) and expenditure (10.0%)
2
Kopri,I.: Lokalna samouprava u Hrvatskoj: pokvarena igraka u rukama politike, 1. Forum o javnoj
upravi, 2012. str.13.
of the consolidated general government, as well as a share of income (4.5%) and

expenditure (4.0%) of local government in GDP in the year 2012.
All subsequent changes after 2001, the so-called decentralization of govern-
ment functions, the concept of major cities (2005), direct election of local officials
(2009) were only cosmetic changes of the same, centralized model of governance.
The mentioned indicators of the degree of fiscal decentralization indicate that
Croatia is still an unchanged and strictly centralized state, one of the few severely
centralized in Europe, which divides the infamous position at the rear with Greece
and Slovenia.
3. Characteristics and problems of financing decentralized functions

The system of financing local and territorial (regional) self-JLP (R) S in Croatia
is characterized by a large number of local units in a special status (275), of which
180 local government units (LGUs) in the status of special state concern, 45 local
governments in the hilly mountainous areas, and 50 on the islands. Special status
also belongs to 54 local units (34 cities and 20 counties) that finance decentralized
functions (DEC). Thus, more than a half of the local government, or a total of 328
local governments is in a special financing status, while only 248 are out of the
special status of funding. Particularly complicated is the system of public financing
of decentralized functions of the so-called shared taxes - income taxes.
Income tax is a shared tax, which means that the revenues from this tax are
shared between the municipality or the city in which the taxpayer has a domicile
or habitual residence, the county in which is located the city or municipality and
the central government. There is a general and two types of special allocation of
revenues from income tax (Table 1). For the sake of simplicity this article explains
only the general allocation of income tax.
Method of allocation of income tax is defined by:
- The Law on Financing of the Local and Regional self-government3
- Regulations on the method of calculating the amount of equalization grants
for decentralized functions of the localself-government and the decisions of
3
NN br. 117/93, 33/00, 73/00,59/01, 107/01, 117/01-ispravak, 150/02, 147/03, 132/06, 73/08,
25/12 Odluka Ustavnog suda Republike Hrvatske NN br. 26/07
the minimum financial standards for each decentralized function. These regu-
lations and decisions are published separately for each year.
Table 1: Distribution of income tax from 1 March 2012 according to the Law on
Amendments to the Law on Financing of Local and Regional self-government (in%)
County Municipality Fire services Other
Equalization fund for
Type of distribution main or city- main (decentralized decentralized
decentralized functions
part part functions) functions
General 16,0 56,5 1,3 10,7 15,5
General
- 72,5 1,3 10,7 15,5
for the City of Zagreb
Source: Authors calculations based on the Law on Amendments to the Law on Financing of Lo-
cal and Regional self-government
Method of allocation of revenues from income tax changed over time, and
amendments to the Law on the 1st March 2012, 16% belongs to the county and
56.5% to cities/municipalities. Since the City of Zagreb performs within the scope
of the city and the county, the City of Zagrebs share in the revenue from income
tax is 72.5% (16%+56.5%). These revenues can be used by municipalities/cities/
counties to finance any expenditure.
Graph 1 Allocation of income tax (%)
Source: Authors calculations based on the Law on Amendments to the Law on Financing of Lo-
cal and Regional self-government
Part of municipalities/cities/counties has since 2001. assumed the obligation to

finance one or more decentralized functions (education, welfare, health and/or fire
service) from the revenue collected from income tax. This is a public service that
was previously financed by the central government. Each year the Government
prescribes minimum financial standards, or how much an individual municipality/
city/county should spend for each assumed decentralized function.
To fund these decentralized functions central government leaves up to 12%
income tax to municipalities/cities/counties (1.3% for fire fighting and 10.7% for
the other decentralized functions: 3.1% for the financing of primary education,
2.2% for the secondary education, 2.2% for social welfare and 3.2% for health).
If municipalities/cities have not taken the decentralized functions those are funded
by the central government. In this case, additional share in income tax intended for
these functions belongs to the central government.
The remaining 15.5% of the income tax collected in their area the municipali-
ties / cities pay to the Fund for decentralized functions. Resources from this fund
are awarded only to those municipalities/cities/counties that have taken the decen-
tralized functions, and an additional share in income tax that accrues in their area
is not sufficient to finance the minimum financial standards.
Municipalities/cities/counties whichobtain more funds from additional share
in income tax for funding decentralized functions and assistance from the Fund for
decentralized functions than was prescribed by minimum financial standards must
return the excess to the state budget.
This model of distribution of the income tax has led to significant fiscal imbal-
ances and to large differences in fiscal capacity of local units, as can be seen from the
table of the gross domestic product in Croatia for the year 2012 (Table 2)
Table 2: Gross domestic product of the Republic of Croatia

GDP in thousands Compared to 2008. GDP per capita
%
REPUBLIC OF CROATIA 44,219.521 -7 10.235
CONTINENTAL CROATIA 30,184.405 -6,7 10.514
Citiy of Zagreb 14,633.846 -3 18.503
Zagreb County 2,474.201 -5,4 7.786
Krapina-Zagorje County 836.265 -16 6.300
Varazdin County 1,457.024 -13 8.285

Koprivnica-Krievci County 984.443 -13 8.524
Meimurje County 962.715 -7 8.459
Bjelovar-Bilogora County 884.007 -15 7.062
Virovitica-Podravina County 536.188 -15 6.333
Pozega-Slavonija County 488.743 -10 6.281
Brod-Posavina County 931.277 -12 5.882
Osijek-Baranja County 2,520.085 -10 8.271
Vukovar-Srijem County 1,113.215 -13 6.217
Karlovac County 991.103 -12 7.709
Sisak-Moslavina County 1,411.293 -2,2 8.214
MEDITERRNIAN CROATIA 14,035.115 -7,7 9.941
Primorje-Gorski Kotar County 3,768.380 -3,3 12.724
Lika-Senj County 409.920 -15 8.081
Zadar County 1,413.905 -12 8.302
Sibenik-Knin County 865.431 -15 7.930
Split-Dalmatia County 3,672.051 -11 8.072
Istria County 2,703.901 -4 12.991
Dubrovnik-Neretva County 1,201.527 -11,4 9.807
Source: National Bureau of Statistics, 2014.
From the data presented are visible large differences in average GDP per capita
between individual counties and regions. For example, the poorest Brod-Posavina
County has only 57.5% of the Croatian average GDP per inhabitant, and the
City of Zagreb even 180.8% of Croatian average. Only two counties (Istria and
Primorje-Gorski Kotar) exceed Croatian average, and 90% of Croatian counties is
below the average of 10,235.
Total revenues and receipts of all local government units in Croatia in 2012
amounted to HRK 21,993,030,187, out of which 3,535,587,768 kuna applies to
counties (16.1%), cities 8,659,608,812 kuna (39.4%), City of Zagreb (29.1%)
and municipalities (15.4 %).
In the period from 2010 to 2013 the total funds for financing of decentralized
functions are reduced from 2.85 billion to 2.21 billion, a decrease of 640.89 mil-
lion kuna, or only 77.5% of the amount from 2010.
Table 3: Financing of decentralized functions (DEC) in the year 2012

Additional share Additional Participation
in income tax for share in Equalisation of additional
No. DEC function carrier Total DEC
DEC (without the income tax fund shares in
City of Zagreb) for DEC DEC%
1. Counties 504.375.066 504.375.066 1.022.148.515 1.526.523.581,00 33,04
2. Cities 167.292.640 167.292.640 252.506.805 419.799.445,00 39,85
3. City of Zagreb 531.196.893 349.141.001,00 0,00
4. Municipalities 31.597.000,00 152,14
TOTAL: 671.667.706 1.202.864.599 1.274.655.320 2.327.061.027 28,86
Republic of Croatia
(for cities that have not 250.827.973 250.827.973 100,00
5. taken DEC)
GRAND TOTAL: 922.495.679 1.202.864.599 1.274.655.320 2.577.889.000 35,78
Source: Authors calculation based on data from the Ministry of Finance
Analytics in the table above confirm the stated claims of inadequate funding
model of decentralized functions in Croatia. To obtain more objective data from
the analytics it is necessary to exclude the City of Zagreb, which is an obvious ex-
ample of unsustainable financing model of DEC.
Three counties with additional share in finance of DEC participate with more
than 50%, 14 with less than 30%. City of Zagreb with realization of 152% DEC or
182 million more than the necessary funds for funding of decentralized functions
confirms the specified argument.
For financing of DEC in 2012 a total of about 2.6 billion kuna was spent of
which the local units (not including the city of Zagreb) with additional share in
income tax participated with only 28.86%. This means that the transfer of some
public functions and resources needed for their implementation from the state to
the local level has not achieved the desired goal nor caused a higher autonomy of
local governments.
In the conditions of strong (financial and political) dependence and increas-
ing paternalistic attitude of the central government and its power centers local
management can hardly manage public resources more efficiently, increase their
effectiveness, monitor the results of their own decisions and thus lead to increased
accountability for the results achieved .
4. The role and responsibility of local management to manage and dispose of

the funds for funding of decentralized functions on the example of el-
ementary and high school education
By the Decree on the method of calculating the amount of equalization grants
for decentralized functions of regional self-government and the Decisions on the
criteria and standards for financing of minimum financial standards of elementary
and secondary education for each year, the Croatian Government determines the
amounts of funds for counties, the City of Zagreb and 34 cities that took over the
obligation to fund primary and secondary education (cities financeDEC primary
schools in their area only). From the thus established balance rights are funded ma-
terial and financial expenditures, current and investment maintenance and expen-
ditures for the acquisition of fixed assets and additional investments in nonfinancial
assets.
It should be emphasized that, except for the first year of decentralized funding
of some public functions in 2001, formulas for the method of calculation of equal-
ization funds and the minimum financial standards were not publicly disclosed.
The Decree is issued by the Government, and the amount of funds for each year
is determined by the line ministry. In this way, local management is led into great
temptations. The amount of funding is determined by the power centers (relevant
ministries) and the responsibility for the management and disposal is transferred to
the local level. It is important to note that the county management cannot in any
way independently exert influence on the amount of the shared revenue and help
because it has no role in their determination. The rates, bases and deductions as
well as the distribution of income tax and the change of the additional share in in-
come tax are decided by the central government without consultation with the lo-
cal community. In this way, local management is placed in the gap between legally
defined duties and responsibilities and actual possibilities. This is best illustrated by
the following table (Table 4)
The data shows that for a very important function in the primary and secondary
education local management in 2013 had at their disposal only 77 or 78% of funds
in relation to 2010, that is over 247 million Kuna less on the level of Croatia. At
the same time, an important segment of material expenditure - energy (fuel oil) can
be used as an example. Compared to the year 2009 it recorded a price increase of a
staggering 200% and in relation to the year 2010 132% (6 Jan 2009 price fuel oil/
lit = HRK 3.58, 14 Dec 2010 price was HRK 5.44 / l and on 3 April 2013 even
HRK 7.19 / l). If we consider the most important goals of the local management:
improving the effectiveness and efficiency, strengthening of responsibility, increase

in efficiency and effectiveness while reducing public expenditure, the question re-
mains open how to minimize already minimized costs with a strong and steady rise
in prices? The solution is to further reduce student standards, since the existing
fiscal capacity cannot meet even the minimum. At the same time students in other
communities enjoy 152% of the standard ...
Table 4: Financing DEC primary and secondary education in the period from
2010 to 2013
Index Index Index Index
Year /Function 2010. 2011. 2012. 2013.
3/2 4/3 5/4 5/2
2 3 4 5 7 8 9 10
Primary education
material expenditures 609.286.863 575.266.050 555.169.599 543.093.135 94,4 96,5 97,8 89,1
capital expenditures 189.939.432 140.290.342 132.060.857 85.211.556 73,9 94,1 64,5 44,9
total counties 799.226.295 715.556.392 687.230.456 628.304.691 89,5 96,0 91,4 78,6
total cities 283.818.495 251.633.845 243.113.563 207.318.174 88,7 96,6 85,3 73,0
TOTAL PRIMARY
1.083.044.790 967.190.237 930.344.019 835.622.865 89,3 96,2 89,8 77,2
EDUCATION
Secondary

education
TOTAL SECONDARY
533.361.408 472.351.825 454.562.339 418.759.459 88,6 96,2 92,1 78,5
EDUCATION
SOCIAL WELFARE 387.603.850 350.214.690 320.067.033 276.651.291 90,4 91,4 86,4 71,4
HEALTH CARE 509.057.561 403.277.348 387.952.808 373.000.346 79,2 96,2 96,1 73,3
PUBLIC FIREFIGHTING
334.673.351 330.930.628 318.355.264 302.815.642 98,9 96,2 95,1 90,5
UNITS
TOTAL DEC 2.847.740.960 2.523.964.728 2.411.281.463 2.206.849.603 88,6 95,5 91,5 77,5
Source: Authors calculation based on data from the Ministry of Finance
5. Instead of conclusion: further steps in fiscal decentralization and local

management
The current decentralization process in Croatia has been implemented from
administrative but not enough from the fiscal point of view. Funding DEC is
achieved at much lesser extent from the revenues of local budgets (additional share
in income tax), the most significant part comes from the revenues of the central
budget (grants for funding DEC) and the Equalisation Fund. The only public
function that is almost completely decentralized is public fire service, while in other
functions jurisdiction overlaps, which, together with the lack of own resources to
finance local management presents great temptations.
In the governance and management of funds for the financing of decentralized
functions, local management under the definitions of management is tasked to
plan, organize, lead and control the operation of primary and secondary education,
fire service, health and social welfare4. Regional governments and managers on that
level have a much more complex role. Management must take into account the
economic as well as social, political and many other aspects, because those are the
most important segments of the local community.
Public management must apply fundamental principles of public life, namely:
integrity, objectivity, accountability, openness, honesty and leadership5.
In particular, there is a big problem in financing DEC of primary education,
which is divided by the founding rights between counties and cities. Only a quar-
ter (34 cities) of the total number of Croatian cities has assumed the obligation to
finance part of the expenses of primary education, while more than sixty cities with
more than 8000 inhabitants have not benefited from the existing legal possibility
so far. Due to the large differences in fiscal capacities between counties, cities and
municipalities, local management is not able to provide the same level of public
services to taxpayers in all communities.
Based on previous research and our own experiences in decentralization in the
Brod-Posavina County the following measures and activities are proposed:
- Define the jurisdiction of state and local government
- Reassign taxes and provide greater share to units of regional self-government
4
Katelan-Mrak,M., Vaiek, D.: Menadment u javnom sektoru, Zbornik radova, Savjetovanje
proelnika jedinica lokalne i podrune (regionalne) samouprave, Zagreb,2013, str.121.
5
IFAC: Governance int he Public Sector-a governing body percpective Research Report, www.ifac.org
- Build systems and criteria for the allocation of government assistance

- Connect neighboring local and regional governments to strengthen the fiscal
capacities
- Create financially independent local and regional self-government
For the implementation of the decentralization process, it is necessary to em-
power the management of regional and local self-government in all its components:
top managers, middle managers and operational managers through education. Op-
erational managers must become a link that perceives needs of the citizens, opera-
tionalizes them through projects and presents to medium and top managers, the
County Prefect and the heads of regional administrations.
References:
1. Brati,V: Lokalna samouprava u sredinjoj i istonoj Europi: snaan, neovisan in-
strument upravljanja na lokalnoj razini ili tigar od papira?, Financijska teorija i
praksa 32(2) str. 149-155.
2. ulo, I. : Financiranje lokalne samouprave u Republici Hrvatskoj, Poega:
Veleuilite u Poegi: Matica hrvatska, 2002.
3. Ekonomski leksikon, Leksikografski zavod Miroslav Krlea i Masimedia, Zagreb,
1995.
4. Bajo, A.: Fiskalna decentralizacija u Hrvatskoj : problemi fiskalnog izravnanja. //
Financijska teorija i praksa, 28 (2004), 4 ; str. 445-467.
5. Jurlina-Alibegovi, D.: Financiranje niih razina fiskalne vlasti. // Financijska prak-
sa : [asopis za financijsku teoriju i praksu], 22 (1998), 3 ; str. 289-312.
6. Jurlina Alibegovi, D. & Slijepevi, S. : Fiskalne (ne)jednakosti izmeu lokalnih
jedinica, Riznica 3/2011, Pregledni lanak UDK 336.2, str. 18-26.
7. Katelan-Mrak,M., Vaiek, D.: Menadment u javnom sektoru, Zbornik radova,
Savjetovanje proelnika jedinica lokalne i podrune (regionalne) samouprave, Za-
greb,2013, str.121.
8. Luke-Petrovi, M.: Decentralizacija funkcija javnog sektora s dravne razine na
jedinice lokalne i podrune (regionalne) samouprave i fiskalna decentralizacija. //
Hrvatska javna uprava : asopis za teoriju i praksu javne uprave = [Croatian pub-
lic administration : a journal for theory and practice of public administration], 4
(2002), 1 ; str. 157-182.
9. Budak, J: Deset tema o reformi javne uprave u Hrvatskoj, EIZ, 2011.
10. Jurlina Alibegovi,D.: Fiskalna decentralizacija u Hrvatskoj: izmeu elja i
mogunosti, Ekonomski institut, Zagreb, 2012, str. 35
11. Kopri,I.: Lokalna samouprava u Hrvatskoj: pokvarena igraka u rukama poli-

tike, 1. Forum o javnoj upravi, 2012. str.13.
12. Vaiek, D: Raunovodstvo i financijsko izvjetavanje u funkciji upravljanja u
javnom sektoru, Pregledni znanstveni rad, UDK 35.073.526, Rijeka 2009. Str.
394-398.
13. Zakon o financiranju jedinica lokalne i podrune (regionalne) samouprave (Narodne
novine br. 117/93, 33/2000, 73/2000, 59/2001, 107/2001, 117/2001.-ispravak,
150/2002. i 147/2003, 132/2006. i 73/2008.)
14. Zakon o lokalnoj i podrunoj (regionalnoj) samoupravi (Narodne novine
33/2001, 60/2001, 129/2005, 109/2007, 125/2008. i 36/2009.
15. Uredba o nainu izrauna iznosa pomoi izravnanja za decentralizirane funkcije
jedinica lokalne i podrune (regionalne) samouprave za 2010.,2011.,2012. i 2013.
godinu (NN br. 19/10, 29/11, 52/12 i 29/13)
16. Odluka o kriterijima i mjerilima za utvrivanje bilannih prava za financiran-
je minimalnog financijskog standarda javnih potreba osnovnog kolstva u
2010.,2011.,2012. i 2013. godini (NN br. 19/10, 29/11, 52/12 i 29/13)
17. Odluka o kriterijima i mjerilima za utvrivanje bilannih prava za financiranje min-
imalnog financijskog standarda javnih potreba srednjih kola i uenikih domova u
2010.,2011.,2012. i 2013. godini (NN br. 19/10, 29/11, 52/12 i 29/13)
18. Odluka o minimalnim standardima, kriterijima i mjerilima za financiranje materi-
jalnih i financijskih rashoda centara za socijalnu skrb i trokova ogrjeva korisnicima
koji se griju na drva u 2010.,2011.,2012. i 2013. godini (NN br. 19/10, 29/11,
52/12 i 29/13)
19. Odluka o minimalnim standardima, kriterijima i mjerilima za decentralizirano fi-
nanciranje domova za starije i nemone osobe u 2010.,2011.,2012. i 2013. godini
(NN br. 19/10, 29/11, 52/12 i 29/13)
20. Odluka o minimalnim financijskim standardima za decentralizirane funkcije za
zdravstvene ustanove u 2010.,2011.,2012. i 2013. godini (NN br. 19/10, 29/11,
52/12 i 29/13)
21. Odluka o minimalnim financijskim standardima za decentralizirano financiranje
redovite djelatnosti javnih vatrogasnih postrojbi u 2010.,2011.,2012. i 2013. go-
dini (NN br. 19/10, 29/11, 52/12 i 29/13)
22. Dravni zavod za statistiku, Podruni ured Slavonski Brod,
23. Interna dokumentacija Upravnog odjela za proraun i financije Brodsko- posavske
upanije
24. www.ifac.org: IFAC: Governance int he Public Sector-a governing body percpec-
tive Research Report
IMPACT OF FISCALIZATION AT THE HEIGHT OF CALCULATED VALUE ADDED TAX 545
IMPACT OF FISCALIZATION AT THE HEIGHT OF

CALCULATED VALUE ADDED TAX
Andreja Katolik, B.Sc.1
1
Polytehnic of Slavonski Brod, Republic of Croatia, andreja.katolik@vusb.hr
Abstract
Public revenues are funds (money) which states meet public needs in their ju-
risdiction. The development of public revenue is related to the development of the
state, a form of public- private planning and economic development.
This article discusses the types of public revenues, and analyzes the impact of the
legislation on Fiscalization traffic cash reserves on the amount of value added tax.
Furthermore, the paper carried analyzes for the first nine months of three years of
calculated value added tax on the Croatian territory. The analyses include the in-
troduction of new rates of value added tax from 1 January, 2013. Also, the changes
in the Law on Personal Income Tax are analysed, and its impact on the Ordinance
of flat taxation of self-employed and the impact of this on the level of reserves in
the value added tax.
JEL Classification: H71
Keywords: public revenues, taxes, fiscalization, The Republic of Croatia
1 Introduction
The process of implementation of the Fiscalization Law in cash circulation is
shown through the analysis of the first nine months in the period of three years.
The study includes the impact of the Ordinance on flat taxation of self-employed
and the impact of this on the level of reserves in the value added tax. The applica-
tion of the new rate of value added tax and its impact on the level of reserves in the
value added tax will also be displayed.
546 Andreja Katolik
2 Definition and classification of public revenue

Characteristics of public revenues are in collecting the money, levying periodic
collection of revenue, income and exceptional property, and they serve to meet
public needs. Public revenues can be divided into seven categories, and in this pa-
per, the seventh category of division in public revenue belonging to the budget will
be explained. According to the affiliation in public budget revenues are divided on
fiscal and non-fiscal.
The fiscal revenues include taxes, duties, fees, contributions and par fiscals.
2.1 Law on Value Added Tax

Value added tax is one of the most important revenue for the national budget.
Taxpayer for Value Added Tax is a businessman who supplied goods or services, or
the issuer of the account that is required to provide an account for goods delivered
or services performed separately which is indicated by the VAT. An entrepreneur,
who during the current year, delivers goods that would have been taxable in value
over 230.000,00 HRK becomes taxpayer from 1 January of next year and shall no-
tify the competent Tax Administration office filing for registration in the Register
of Value Added Tax. The taxing period on the value added tax is the calendar year
and the accounting period are from the first till the last day of the month.1
The taxpayer calculates value-added tax invoices issued by the supplied goods
and services over the relevant period and is calculated as the tax required to disclose
the tax return and pay within the time limits prescribed for the filing of an appli-
cation or the final tax calculation. The taxpayer has the right to use tax stated on
invoices for goods and services that are performed by other entrepreneurs taxpayer
in entrepreneurial purposes - prepayment that a taxpayer may use under certain
conditions. A taxpayer, who in the accounting period, shall be entitled to deduct
input tax, the amount of which is greater than its tax liability is entitled to a refund
of the difference. Tax administration is obliged to refund the difference within 30
days from the date of submission of application.2
From 1 January, 2013. changes re-occurred in the taxation of value added tax
in the part which refers to the threshold of delivery and the amount of the tax rate.
According to the amendments to the Law on Value Added Tax (Official Gazette
1
Jerkovi; 2011., 44
2
Jerkovi; 2011., 29
22/12), 1 January, 2013. applies a reduced rate of 10%on food preparation and
meals in restaurants, and preparing and serving alcoholic drinks, wine and beer at
these facilities. Law amendments on the Law on Value Added Tax (Official Gazette
136/12) which comes into force on 1 January, 2013. provides an increase in the
rate of VAT on certain products from 0% to 5%. Also, there is a regulation in the
rate of 5%, which is applicable to vessels for sport and leisure when they are placed
under the customs procedure of release for free circulation by 31 May, 2013, and
by then they were in the temporary importation procedure.3
According to the Law Amendments on the Law on VAT in 1 January, 2013. tax
rate of 0% is replaced by a rate of 5% on the listed products, given that the RH
required VAT rate to align with the Directive 2006/112/EC, where in the article.
98 provides that the general tax rate cannot be lower than 15% and that the EU
member states may apply a maximum of two reduced rates that cannot be lower
than 5%. The reduced rate of VAT can only be applied to goods and services listed
in Annex III. Council Directive 2006/112/EC and therefore these amendments
in the provisions of the VAT amount rate are completely aligned. Taxpayers who
sell products which they are taxed at different rates of VAT turnover on 1 January,
2013. must be classified according to the tax rates on products taxable at the rate
of 5, 10 and 25%. According to the change of Article 38 paragraph 2, paragraph g
of the Law on Amendments to the Law on Value Added Tax from 1 January, 2014
from the 10% rate increases to 13%.4
2.2. The impact of the application of the Fiscalization on public revenues through
the process of introducing individual phases of fiscalization, concerning the
activities of NKD2007 5
Application of the Fiscalization Law in circulation of cash (Official Gazette
133/12) started on 1 January, 2013. and is being implemented in phases as follows:6
1 For large and medium taxpayers, basically all the activities of providing ac-
commodation and food preparation and serving (mark I-NACE 2007) from
1 January, 2013.
3
Kali; 2013., 54
4
http://narodne-novine.nn.hr/clanci/sluzbeni/2013_12_148_3138.html (16.11.2013.)
5
http://www.dzs.hr/Hrv/important/Nomen/nkd2007/nkd2007.pdf ( 13.12.2013.)
6
Matkovi; 2013.,36
548 Andreja Katolik
2 For people as one of the activities carried out by wholesale trade and retail
trade, repair of motor vehicles and motorcycles (NACE G label in 2007) and
those engaged in independent professions (Article 18 paragraph 2 of the Law
on Business Companies-a) started from 1 April, 2013.
3 For the rest from 1 July, 2013.
The obligation to adhere to the Fiscalization Law is determined by the Account-

ing Act, which provides:
1 natural person is a subject to income tax on the basis of self-employment by
art. 18 from the Law on Personal Income Tax and 2 legal and natural persons that
are considered to be subject to income tax under Art.
2 the Law on Corporate Income Tax, and under special regulations are obliged
to issue an invoice for the supply of goods or services, in any activity for which, in
accordance with special regulations, subject to issuance of the invoice for the deliv-
ery of goods or services.
3 Comparative analysis of calculated value added tax before and after the
introduction of the Law on Fiscalization
The chapter analyzes the results of the implementation and impact of the Law
on Fiscalization in light of changes to the Law on Value Added Tax and the imple-
mentation of the Ordinance on flat tax. In the analyses are the first nine months
of the 2013, in relation to the previous two years. Ones are monitoring the large
and medium taxpayers, which are all in the activities of providing accommodation
and preparing and serving food (NACE mark I- 2007) in the system of fiscaliza-
tion from 1 January, 2013. It analyzes the effects of these factors on the Croatian
territory .The results of fiscalization are influenced by a number of factors: changes
in the rate of value added tax for caterers from 25% to 10 %, the increase for the
threshold from HRK 85,000.00 to 230,000.00 KN for entry into the system of
value added tax, amended provisions of Article 44 for Law on income tax and a
new condition for the possibility of determining income and income taxes in a
flat taxation which resulted in the application of the Ordinance of flat taxation of
self-employed.
3.1. Analysis of calculated VAT in the first nine months of 2013 compared to the
first nine of 2012, and 2011, in Croatian territory
Below analyzed data are for large and medium taxpayers, and for all the activi-
ties of providing accommodation and food preparation and serving (mark I-NACE
2007) from the 1 January, 2013.
Table no. 1 Analysis of the value of shipments and the calculated tax in January
2011, 2012, and 2013, in the Croatia, Group I
Delivery value Delivery value Delivery value
ITEM DESCRIPTION:
1/2013 1/2012 1/2011
8,36% 11,74% 100,00%
TAXABLE TOTAL (1+2+3+4) 646.636.309,39 592.604.765,08 523.044.811,91
I. Is invoices 5% and 10% 461.990.312,97 111.624.217,93 89.694.326,51
II. Is invoices 22% and 23% -396.503,14 481.017.605,28 44.926,96
III. Is invoices 25% 185.061.714,80 0 436.315.716,73
IV. Subsequent exports liberation -19.215,24 -37.058,13 -10.155,29
Source: Made by author
With the application of the Fiscal Law and the fiscalization obligation with
cash accounts, and despite the decrease in the rate of value added tax from 25%
to 10% in January 2013, there was a significant increase in the calculated value of
shipments and value added tax for 8,36 compared to January 2012. The increase
was evident despite the fact that by the increase in the threshold for entering into
the system of value added tax payers, a considerable number came from a system of
value added tax and the rest of the income tax system, and the results of fiscaliza-
tion for these taxpayers will be visible when registered upon submission of registra-
tion tax receipts for the 2014.
Table No. 2, in section IV. subsequent to the liberation of exports within the
passenger transport refers to the delivery of goods, excluding oil products, which
passengers under passenger traffic ship individually or are transported from the
Republic of Croatia or somebody has done that on their behalf, are exempt from
value added tax. Liberation is achieved when a taxpayer who delivers goods receives
proof of exported goods. The customer, that purchased goods within the passenger
traffic and in the country, shall be entitled to a claim of a refund for the value added
tax for the goods taken out if the following conditions are met:
550 Andreja Katolik
a) that the passenger has a domicile or habitual residence in the territory of the
Republic of Croatia, which proves the passport or identity card,
b) the total value of goods purchased from the VAT shown on the invoice ex-
ceeds 740.00 KN,
c) that the customer or on behalf of the transported goods purchased in Croa-
tia abroad before the expiration of three months from the date indicated on the
invoice for the goods delivered. The property can be derived from the Republic of
Croatia and by mail or in any other appropriate manner.
d) that there is no proof of export, the original account and PDV-P form en-
dorsed by the customs office in the territory of which the goods involved from
the Republic of Croatia. The customs office, after the inspection and the customs
treatment certify it with a stamp and signature of the authorized customs officer
facsimile form PDV-P and enters the number of records of the customs office and
the date when the goods crossed the Croatian border.
Since this paper analyzes the impact of fiscalization on the height of the cal-
culated tax on the value added in providing accommodation and preparing and
serving food (mark I-NACE 2007), and point IV. is talking about the subsequent
liberation of export goods, it has no effect on taxable supplies (no subsequent lib-
eration of the export of services).
Table no. 2 Analysis of the value of shipments and the calculated tax in Febru-
ary 2011, 2012, and 2013, in the Croatia, Group I
ITEM DESCRIPTION:
2/2013 2/2012 2/2011
9,81% 3,60% 100,00%
TAXABLE TOTAL (1+2+3+4) 693.622.313,91 625.572.109,03 603.037.163,48
I. Is invoices 5% and 10% 520.595.795,03 165.054.985,68 145.307.163,48
II. Is invoices 22% and 23% 133.090,21 460.535.153,42 -178.454,28
III. Is invoices 25% 172.913.031,55 0 457.926.736,84
February brought a growth of 3.60% in the 2012, and in 2013, in relation to the
2012 by 9.81%. Achieving results in the application of this Law would not be pos-
sible without a tax audit that has no compromise in implementing its provisions.
In tables 1, 2, 3, 4, 5, 6, 7, 8 and 9 in which we analyze fiscalization at the Re-
public of Croatia, appears a negligible amounts of subsequent liberation of exports
in passenger traffic and it represent an impairment delivery and VAT. The reason
is that taxpayers in one tax form, are displaying all taxable supplies for all activities
performed and for this reason they are appearing in the tables.
Table 3, looks at the impact of fiscalization on February 2011, 2012. and 2013
Table no. 3 Analysis of the value of shipments and the calculated tax in March
ITEM DESCRIPTION: Delivery value Delivery value Delivery value
3/2013 3/2012 3/2011
14,67% 8,31% 100,00%
TAXABLE TOTAL (1+2+3+4) 943.895.086,55 805.441.671,68 738.512.691,34
I. Is invoices 5% and 10% 725.306.953,64 282.204.075,40 211.039.234,36
II. Is invoices 22% and 23% 589.032,94 -4.418.815,07 -64.418,35
III. Is invoices 25% 218.008.105,17 527.584.443,77 527.552.413,26
IV. Subsequent exports liberation -9.005,20 69.967.58 -14.537,92
The number of surveillance provisions of the Fiscalization Law was increasing

from month to month, as shown in Table no. 3. In March 2012, value of taxable
supplies increased by 8.31% while in 2013 one may notice an increase in taxable
supplies by 14,67%. The most important role in achieving results in the applica-
tion of this Law, has a tax audit, which must have no compromise in implementing
its provisions, since any deviation will result in not issuing bills or without fiscaling
cash accounts.
552 Andreja Katolik
Table no. 4 Analysis of the value of shipments and the calculated tax in April
ITEM DESCRIPTION:
4/2013 4/2012 4/2011
14,36% 0,64% 100,00%
TAXABLE TOTAL (1+2+3+4) 1.250.745.716,99 1.071.187.913,08 1.064.353.021,48
I. Is invoices 5% and 10% 1.010.613.499,27 465.688.627,90 438.158.093,84
II. Is invoices 22% and 23% -380.832,60 2.693.985,50 -221.757,88
III. Is invoices 25% 239.347.186,04 602.799.989,06 626.432.241,62
IV. Subsequent exports liberation 1.165.864,28 5.311,62 -15.556,10
Table no. 4 shows an increase of 0.64% in 2012, in relation to the 2011, and
in 2013,for 14.36% in relation to 2012. In addition to the facts stated above, and
tables, and that affected the beneficial effects of fiscalization citizens play a signifi-
cant role in the implementation of this Law. They can best contribute to changing
perceptions about how important it is for the very citizens that gets the bill for the
purchased goods or services, because there is a developed sense that if you do not
get the bill for the purchased goods or services tax calculated at the amount one had
bought, the benefits go to the owners, at the expense of the state budget and on the
citizen as a service user which are financed from the budget.
Table no. 5 Analysis of the value of shipments and the calculated tax for May
2011, 2012, and 2013, level of Croatia, Group I
ITEM DESCRIPTION:
5/2013 5/2012 5/2011
21,11% 2,88% 100,00%
TAXABLE TOTAL (1+2+3+4) 1.789.694.823,01 1.411.973.621,73 1.371.359.556,50
I. Is invoices 5% and 10% 1.468.708.048,90 654.254.210,40 600.079.339,81
II. Is invoices 22% and 23% 0,00 -716.811,10 771.355.618,11
III. Is invoices 25% 320.710.477,81 758.495.163,19 0,00
IV. Subsequent exports liberation 276.296,30 -58.940,76 -75.401,55
From Table no. 5 is seen an increase in the value of the delivery of 2.88%, in
2012, compared to 2011, and an increase of 21.11% in 2013 compared to 2012.
Table no. 6 Analysis of the value of shipments and the calculated tax in June
ITEM DESCRIPTION:
6/2013 6/2012 6/2011
12,99% 5,18% 100,00%
TAXABLE TOTAL (1+2+3+4) 2.195.773.310,19 1.910.580.964,00 1.811.693.123,97
I. Is invoices 5% and 10% 1.838.578.260,30 971.070.101,40 882.125.642,60
II. Is invoices 22% and 23% 0,00 -2.081.738,56 929,579,062,83
III. Is invoices 25% 357.281.533,08 940.749.791,71 0,00
IV. Subsequent exports liberation -86.483,19 842.809,45 -11.581,46
Table no. 6 shows the increase of the value of the delivery of 5.18%, in 2012,
compared to 2011, and an increase of 12.99% in 2013 compared to 2012. If you
look at the increase of taxable supplies since the beginning of the year and applica-
tion of the new Law can be seen a continuous growth of taxable supplies.
Table no. 7 Analysis of the value of shipments and the calculated tax in July
ITEM DESCRIPTION:
7/2013 7/2012 7/2011
17,34% 6,15% 100,00%
TAXABLE TOTAL (1+2+3+4) 3.421.715.643,18 2.828.255.270,84 2.654.458.352,78
I. Is invoices 5% and 10% 2.947.067.196,63 1.530.003.106,80 1.427.445.040,49
II. Is invoices 22% and 23% 0,00 2.888.699,55 1.225.136.717,28
III. Is invoices 25% 474.699.824,15 1.295.468,23 0,00
554 Andreja Katolik
From Table no. 7 is visible is an increase of the value of taxable supplies of

6.15%, in 2012, compared to 2011, and an increase of 17.34% in 2013 compared
to 2012. In 2013, was abolished the rate of 23% which can be seen in the tables
that are used for analysis of taxable supplies. It should take into account the fact
that the summer season began and it has also affected the results of the analysis in
Table 7, 8 and 9.
Table no. 8 Analysis of the value of shipments and the calculated tax in August
ITEM DESCRIPTION:
8/2013 8/2012 8/2011
19,26% 7,49% 100,00%
TAXABLE TOTAL (1+2+3+4) 3.933.861.675,88 3.176.268.519,65 2.938.414.563,80
I. Is invoices 5% and 10% 3.452.342.129,59 1.834.991.743,59 1.710.520.764,30
II. Is invoices 22% and 23% 0,00 3.622.195,73 1.227.908.294,00
III. Is invoices 25% 481.589.357,49 1.337.797.996,18 0,00
The analysis of taxable supplies in the table no. 8 shows the increase in the value
of the delivery of 7.49% 2012, compared to 2011, and an increase of 19.26% in
2013,compared to 2012. At the beginning of the summer season, in July, started a
significant increase in taxable supplies in comparison to other months of the 2013.
Table no. 9 Analysis of the value of shipments and the calculated tax in Septem-
ber 2011, 2012, and 2013, in the Republic of Croatia, Group I
ITEM DESCRIPTION: Delivery value Delivery value Delivery value
9/2013 9/2012 9/2011
16,93% 3,69% 100,00%
TAXABLE TOTAL (1+2+3+4) 2.244.961.465,73 1.864.810.189,40 1.796.070.212,91
I. Is invoices 5% and 10% 1.923.320.263,66 967.138.232,10 910.380.387,92
II. Is invoices 22% and 23% 0 337.305,29 885.958.109,54
III. Is invoices 25% 321.641.202,07 897.587.742,41 0
IV. Subsequent exports liberation 0,00 -253.090,40 -268.284,55
From Table no. 9 is seen an increase in the value of the delivery of 3.69% in
2012, compared to 2011, and an increase of 16,93% in 2013 compared to 2012,
which follow the trend of increasing taxable supplies through other months of ap-
plying Law on Fiscalization.
4 Conclusions
By analyzing the first nine months through the three years it can be concluded
that the application of the Fiscalization Law resulted in an increase in taxable de-
liveries. The level of taxable supplies will depend primarily on Tax Administration,
specifically on the department of supervision which is in charge of the laws speci-
fied in the work carried out, and to implement sanctions which are in the Law and
are prescribed. The significant importance in the implementation of the Law, and
in particular the Law on Fiscalization in cash transactions have citizens who are
required to receive an invoice for the purchased goods or services and businesses
to report if the same is not observed. The campaign called If no account it does
not count is not sufficient to raise awareness of Croatian citizens, therefore, the tax
administration should respond quickly so that issuers of bills would relax and find a
new way of tax evasion which is the crux of the Law on Fiscalization traffic or cash
therefore reducing the gray economy.
According to the presented analysis, by looking at the total income per year (i.e.
the first nine months), it is evident that in the 2013, is an increase compared to the
2012, amounts of KN 2,834,211,320.34, or KN 3.619.962.846.66 compared to
year 2011 on the Republic of Croatia territory.
References:
1. Doji, I., (2012.) Ulazak u sustav PDV-a u 2013. godini, TEB-ov - Poslovni info,
prosinac 2012.
2. Doji, I. (2013.) Novi sustav PDV-a od 1.7.2013., TEB-ov - Poslovni info
3. Jerkovi, M.(2011), Porez na dodanu vrijednost, Institut za javne financije, Zagreb
4. Jerkovi, M. (2012),Porezni prirunik za graane, Republika Hrvatska, Ministarstvo
financija, Porezna uprava
5. Jerkovi, M. (2013), Porezni vjesnik, Institut za javne financije
6. Kali, R. (2013), Primjena stopa PDV-a od 1.sijenja 2013., Porezni vjesnik, godite
22. br. 1
556 Andreja Katolik
7. Markovi, B. & Karai, D. (2009) Javne financije - praktikum, Ekonomski fakultet

u Osijeku 2009.
8. Matkovi, B. (2013), Fiskalizacija i oekivani rezultati,Porezni vjesnik, godite 22.,
br.4
9. http://narodne-novine.nn.hr/clanci/sluzbeni/2013_12_148_3138.html Pristup:
(16-11-2013.)
10. http://www.dzs.hr/Hrv/important/Nomen/nkd2007/nkd2007.pdf Pristup:
(13-12-2013)
ECONOMIC CIRCUMSTANCES AND PERSONAL FINANCE MANAGEMENT 557
ECONOMIC CIRCUMSTANCES AND

PERSONAL FINANCE MANAGEMENT
Branko Mati, Ph.D. 1, Hrvoje Serdarui, Ph.D. 2, Maja Vretenar Cobovi, Ph.D. 3
1
Faculty of Economics in Osijek, Republic of Croatia, matic@efos.hr
2
Faculty of Economics in Osijek, Republic of Croatia, hserdar@efos.hr
3
Polytehnic of Slavonski Brod, Republic of Croatia, mvretenar@vusb.hr
Abstract
The authors examine the impact of changed economic circumstances to manage
personal finances. Analyze financial involvement, level of education and the man-
agement of personal finances population in Croatia. The paper used the method of
analysis, synthesis, induction, deduction, and a survey poll.
JEL Classification: D14, D31
Keywords: financial education, personal finance, financial management
1. Introduction
Prerequisite basic financial involvement of each individual owns a bank ac-
count. Bank account is a contractual relationship between credit institutions and
their customers through which credit institutions allows a person receiving pay-
ments and making payments within the limits of its financial resources and / or
the approved loan. (Law of Obligations, the official gazette No. 35/2005, 41/2008,
125/2011, article 1009).
Current and bank account are the main types of bank accounts. The giro ac-
count is defined by statutory regulations of the Republic of Croatia as the ac-
count to which you receive your self-employment income either in the form of
cash or as remittance from natural or legal persons (http://www.splitskabanka.hr/
retail-clients/accounts-and-payments/accounts/giro-account)
A current account can be with regular or without regular monthly income, and
it is an obligatory for all employees. On and throught current account workers
558 Branko Mati Hrvoje Serdarui Maja Vretenar Cobovi
receive their regular income salary. It is not taxable like giro account and own-
er can dispose of the funds (up to the available account credit or authorised
overdraft).
As such it is closely related to and influence the development of personal fi-
nancial skills and knowledge of the individual which is particularly evident and
reflected in terms of disturbed economic circumstances when it is necessary to
rationally and responsibly manage personal finances.
2. The impact of financial education programs on managing personal

finances - survey results
The relationship of the individual to personal finances in substantially reflects
its level of financial education. The authors present results of the three surveys
conducted on the relationship between the population of Eastern Croatia toward
personal finances. Surveys have been conducted on this topic in order to collect
relevant information about the financial inclusion to personal finances.
The first survey was conducted in December 2011 on are representative sample
of 1199 respondents, while the second survey conducted in November 2013 on
a sample of 1444 respondents. Third survey was conducted in March 2014 on a
sample of 1395 respondents.
Table 1 shows the general economic indicators in Croatia.
Table 1. General economic indicators in Croatia

2009 2010 2011 2012 2013
Real GDP growth rate -6.9 -2.3 -0.2 -1.9 -1.0
GDP per capita in PPS
62 59 61 62 62
(EU-28 =100)
Government deficit/surplus -5.3 -6.4 -7.8 -5.0 -4.9
Private debt in % of GDP 117.3 128.0 137.0 134.2 132.1
Source: Eurostat
According to the data in Table 1 it is possible to observe a decline in real gross

domestic product in purchasing power standards in Croatia in the period 2009
2011. After 2011 GDP shows a slight upward trend and is retained at that level
until the end of 2013. These economic conditions have influenced and manage-
ment of personal finances population.
Banking account is an actual requirement for being able to take part in societal
and economic life. (Jerusalmy; 2013;5)
But in Croatia even today there is one part of the population, which is not fi-
nancially involved or do not possess any form of bank account (Chart 1, Table 2).
Chart 1. Owning a bank account
Table 2. Owning a bank account

Survey Standard
Type of bank account Mean Median Standard Error
2011 2013 2014 Deviation
Only current account 52,6 39,71 47,3 46,53667 47,3 6,478814 3,740545
Only giro account 11,5 12,2 10,5 11,4 11,5 0,8544 0,493288
Current & giro account 26,5 39,89 39,6 35,33 39,6 7,648379 4,415794
no bank account 9,4 8,2 2,5 6,7 8,2 3,686462 2,12838
Total percent 100 100 100
Source: Authors
The largest number of the population has a current account in all study years, al-
though the number is in constant decline and the largest was in the 2011. Number
of the population has a giro account grew in 2013, after which records the intensity
of the drop, caused by poor economic conditions.
Similarly can be seen by the population with both accounts open. But it is
certainly satisfactory information that the number of the population that does not
have any bank account in decline during the studied years (Table 2).
An approved overdraft on population account is shown in Chart 2 and Table 3.
Chart 2. Approved overdraft
Table 3. Approved overdraft

Survey Standard
Approved overdraft Mean Median Standard Error
2011 2013 2014 Deviation
Yes 64 68,5 67,3 66,6 67,3 2,330236 1,345362
No 36 31,5 32,7 33,4 32,7 2,330236 1,345362
Source: Authors
The number of the population that has received approved overdraft on accounts
is higher in relation to the population that does not have this option. Authorized
overdrafts largest were in 2013, and the lowest in 2011 and recorded a slight down-
ward trend in 2014 as compared to 2013.
Also the largest percentage of the population that does not have overdrafts re-
corded in 2011, and the smallest 2013 (Table 3).
Use of approved overdraft is shown in Chart 3 and Table 4.
Chart 3. Use of overdraft
Table 4. Use of overdraft

Survey Standard Standard
Use of overdraft Mean Median
2011 2013 2014 Deviation Error
Every month 37,5 35,9 36,2 36,53333 36,2 0,85049 0,491031
Every 3 to 6 months 21,9 22,6 21,4 21,96667 21,9 0,602771 0,34801
do not use 40,6 41,5 42,4 41,5 41,5 0,9 0,519615
Source: Authors
Despite overdrafts largest percentage of the population does not use its permit-
ted overdraft. In addition, the constant increase in population during the investi-
gated period not exceeding the permitted uses. The highest was recorded in 2014
and amount 42%.
Part of the population that uses their overdraft usually uses them every month,
and the highest percentage recorded in the 2011. Overdraft every three to six
months using 21-23% of the respondents (Table 4).
Amounts used overdrafts are shown in Chart 4 and Table 5.
Chart 4. Amount of used overdraft in HRK and %
Table 5. Amount of used overdraft

Amount of used Survey Standard
Mean Median Standard Error
overdraft in HRK 2011 2013 2014 Deviation
Up to 500 13,6 7,8 12,1 11,16667 12,1 3,010537 1,738134
501 2.000 30,1 34,7 39,7 34,83333 34,7 4,801389 2,772083
2.001 4.000 22,5 23,8 21,2 22,5 22,5 1,3 0,750555
4.001 6.000 15,1 14,9 7,6 12,53333 14,9 4,273562 2,467342
6.001 8.000 7,1 5,9 5,2 6,066667 5,9 0,960902 0,554777
Over 8.000 11,5 12,9 14,3 12,9 12,9 1,4 0,80829
Source: Authors
Permissible overdrafts in the accounts of the population are in the range of HRK
500 to HRK 8.000. The largest number of responding commonly used overdraft
in the amount of HRK 501 to HRK 2.000. The percentage of this population is
constantly increasing during the years studied, and the highest was recorded in
2014 and amount 40%.
The least used amount of overdraft is those in the range of HRK 6.001 to HRK
8.000 and used them 5-7% of those surveyed. Based on the data in the table and
despite the poor economic circumstances largest percentage of respondents did not
charge too much (Table 5).
3. Conclusion
Nowadays, owning a bank account is the basis for access and use of various
financial services and as such it is also a basis of the financial and social inclusion
of all individuals. The results of the survey and research indicate a noticeable down-
ward trend in the financial exclusion of citizens of Eastern Croatia measured by
owning a bank account. Moreover increasing trend in owning all type of bank ac-
count is closely related to generated additional business activities of respondents.
Use of overdraft despite the negative economic circumstances uses two thirds of
respondents by the significant drop in their absolute values. This is a result of more
responsible management of personal finances.
Reference
1. Atkinson, A. and F. Messy (2013), Promoting Financial Inclusion through Finan-
cial Education: OECD/INFE Evidence, Policies and Practice, OECD Working Pa-
pers on Finance, Insurance and Private Pensions, No. 34, OECD Publishing. http://
dx.doi.org/10.1787/5k3xz6m88smp-en
2. Jerusalmy, O. (2013) Financial inclusion and new means of payment European
Foundation for Financial Inclusion, Brussels
3. Lamza Maroni, M. & Glavas, J.& Bonjak S. (2008) Contribution to the Devel-
opment of the Urban Management Model, Interdisciplinary Management Research,
Faculty of Economics in Osijek, Croatia, vol. 4, pages 526-541
4. Law of Obligations, Official gazete No 35/2005, 41/2008, 125/2011
5. Mati, B. & Serdarui, H. & Vretenar, M. (2010) Financijski marginalno
stanovnitvo kao faktor ogranienja regionalnog razvoja, Proceedings of 2nd In-
ternational Conference Vallis Aurea Focus on: Regional Development, Katalini,
Branko (ur.), Politechnic of Poega, Croatia; DAAAM International Vienna, Austria,

Poega; Vienna, pages 829-833
6. Mati, B. & Serdarui, H. & Vretenar, M. (2011) Impact of Financial Crisic on
Credit Lending of Croatian Banks, Interdisciplinary Management Research VII, Ur-
ban Bacher; Draen Barkovi; Karl - Heinz Dernoscheg; Maja Lamza - Maroni;
Branko Mati; Norbert Pap; Bodo Runzheimer (ur.), Osijek: Josip Juraj Strossmayer
University in Osijek, Faculty of Economics in Osijek, Croatia Postgraduate Studies
Management; Hochschule Pforzheim University, Osijek, pages 598-607
7. Mati, B. & Serdarui, H. & Vretenar, M. (2012) Some Features of the Relationship
to Personal Finances within Population of Eastern Croatia, Interdisciplinary Man-
agement Research VIII, Urban Bacher; Draen Barkovi; Karl - Heinz Dernoscheg;
Maja Lamza - Maroni; Branko Mati; Norbert Pap; Bodo Runzheimer (ur.), Osijek:
Josip Juraj Strossmayer University in Osijek, Faculty of Economics in Osijek, Croa-
tia Postgraduate Studies Management; Hochschule Pforzheim University, Osijek,
pages 603-612
8. Mati, B. & Serdarui, H. & Vretenar, M. (2013) The Impact of Financial Popula-
tion Education on Managing Personal Finances, Interdisciplinary Management Re-
search IX, Urban Bacher; Draen Barkovi; Karl - Heinz Dernoscheg; Maja Lamza
- Maroni; Branko Mati; Norbert Pap; Bodo Runzheimer (ur.), Osijek: Josip Juraj
Strossmayer University in Osijek, Faculty of Economics in Osijek, Croatia Post-
graduate Studies Management; Hochschule Pforzheim University, Osijek, pages
503-511
9. Mati, B. & Serdarui, H. (2008) Naini i modeli financiranja regionalnog razvoja
financiranje putem zaklada i fundacija, Ekonomski fakultet u Osijeku, Osijek
10. Mati, B. (2010) Financijska inkluzija i regionalni razvitak, Ekonomski fakultet u
Osijeku, Osijek
11. Mati, B. (2012) Financijski potencijal stanovnitva Istone Hrvatske, Ekonomski
fakultet u Osijeku, Osijek
12. McKinsey and Company (2010) Global Financial Inclusion, Achieving full fi-
nancial inclusion at the intersection of social benefit and economic sustainability.
http://mckinseyonsociety.com/global-financial-inclusion/
13. Splitska banka d.d. http://www.splitskabanka.hr/retail-clients/
accounts-and-payments/accounts/giro-account
THE INFLUENCE OF CONFIDENCE LEVEL, CORRELATION AND VOLATILITY ON VALUE ... 565
THE INFLUENCE OF CONFIDENCE LEVEL, CORRELATION

AND VOLATILITY ON VALUE AT RISK. SIX CASE STUDIES
Izabela Pruchnicka-Grabias, Ph.D.1
1
Warsaw School of Economics, Republic of Poland, ipruch@wp.pl
Abstract
Studies show that hedge funds and other financial institutions often apply the
standard deviation as a risk measure. Even if one looks at hedge fund internet pages
with investment results data for investors, they usually present them with standard
deviations and Sharpe indicators, neglecting the fact that their investment assets are
not always normally distributed, as well as such important measures as for example
kurtosis and skewness. The author estimates the correlation and volatility for se-
lected investment assets and verifies assumptions of popular risk models concerning
these parameters. The impact of the confidence level, correlation and volatility on
Value at Risk is analyzed.
JEL Classification: E44, O16
Keywords: hedge funds, financial institutions, standard deviation, investment
assets
INTRODUCTION
Studies show that hedge funds and other financial institutions often apply the
standard deviation as a risk measure. Even if one looks at hedge fund internet pages
with investment results data for investors, they usually present them with standard
deviations and Sharpe indicators, neglecting the fact that their investment assets are
not always normally distributed, as well as such important measures as for example
kurtosis and skewness defined by the following formulas.
Kurtosis = ,
where:
566 Izabela Pruchnicka-Grabias
T the number of observations

the standard deviation of rates of return
arithmetic mean of rates of return1
Skewness is the third central moment of a distribution and measures the sym-
metry of a return distribution around the mean. Mathematically it is calculated as:2
Skewness = 3
3
Taking the assumption that the volatility does not change in time leads to inad-
equate results. It has been well documented in the literature that it changes. Thus, it
also influences value at risk. The key matter for calculating VaR is the choice of the
holding period. Holding period is understood as the period in which the calculated
loss may be generated. The proper choice of the holding period must be based on
the time in which an institution is able to sell the majority of liquid assets. Banks
usually use a one day holding period, however for hedge funds it is not adequate,
because their assets are less liquid. For this reason, they often use a 10-day holding
period.
Another weak point of this method is using the square root of time. Although it
is widely accepted in practice, F. Duc and Y. Schorderet3 show that the approxima-
tion of VaR using the square root of time rule differs significantly from the correct
VaR and makes it impossible to catch the fact that the risk starts to fall down from
the sixth month.
Value at risk in the given confidence interval can be written as:4
VaR = V P S
where:
1
F.S. Lhabitant, Handbook of hedge funds, John Wiley & Sons, Ltd., Chichester 2006, p. 437. Note
that some analysts do not subtract the second term from the kurtosis. As a result, when T is large, the
threshold value for the normal distribution becomes 3 rather than 0.
2
F.S. Lhabitant, Handbook of hedge funds, John Wiley & Sons, Ltd., Chichester 2006, p. 436 437.
3
F. Duc, Y. Schorderet, Market Risk Management for Hedge Funds.Foundations of the Style and
Implicit Value-at-Risk, John Wiley & Sons, Ltd., Chichester 2008, p. 163 164.
4
P. Best, Warto naraona na ryzyko. Obliczanie i wdraanie modelu VaR [Value at risk. Calculating
and implementing the VaR model], Dom Wydawniczy ABC, Krakw 2000, p. 27.
V variance of rates of returns of the asset

P the value of the investment
S the number of standard deviations below the average
Case study I
Lets assume that a hedge fund invests its assets of 100000000 USD in crude oil
futures. Lets calculate value at risk for different confidence levels for a 10 day
holding period, provided that the daily volatility is counted for the period 2005
2010 (see chart 1).
Chart 1. The impact of the confidence level on VaR changes for crude oil daily
rates of return.
The positive relation between the confidence level and value at risk is not a sur-
prise, but it is worth emphasizing that the higher the confidence level is, the higher
is the sensitivity of VaR changes to it. Thus, these are especially high levels of con-
fidence at which the risk management is the most difficult and mistakes are most
severe. Besides, the standard deviation level taken for the above calculations was
counted for the six-year period starting from 2005 and ending with 2010. If it was
calculated for a three, four or five-year period, the result would probably change.
Another measure that influences the VaR value is volatility. It is shown beneath that
one-day volatility levels for different periods of time differ from each other. As it is
depicted in chart 2, one-day volatility for six-year data is 2,46. It reaches its peak
for three-year data and falls down up to one-year data.
Chart 2. Crude oil futures volatility for daily logarithmic rates of return for differ-
ent time intervals.
Source: Author.
Case study II
Lets assume the same hedge fund which invests its assets of 100000000 USD in
crude oil futures. Lets calculate value at risk for different confidence levels for a 10
day holding period, provided that the daily volatility is counted for such periods
as: 2006 2010, 2007 2010, 2008 2010, 2009 2010 and 2010.
The results of calculations are depicted in table 1 and show that the period of
data taken for calculating the standard deviation influences VaR significantly for all
analyzed confidence levels.
Table 1. Value at risk for investments in crude oil futures for different time inter-
vals assumed for volatility calculations.
VaR confidence level 6-year 5-year 4-year 3-year 2-year 1-year
period period period period period period
VaR 90% 10035172 10364223 11045585 11956483 10943497 7366353
VaR 91% 10424132 10765937 11473708 12419913 11367664 7651871
VaR 92% 10968676 11328337 12073081 13068714 11961497 8051596
VaR 93% 11513220 11890736 12672454 13717516 12555330 8451320
VaR 94% 12135557 12533479 13357451 14459003 13233996 8908148
VaR 95% 12835685 13256564 14128074 15293176 13997496 9422080
VaR 96% 13691397 14140335 15069945 16312721 14930663 10050219
VaR 97% 14702694 15184792 16183066 17517638 16033496 10792564
VaR 98% 16025158 16550619 17638686 19093299 17475662 11763324
VaR 99% 18125543 18719875 19950552 21595818 19766161 13305119
VaR 99,99% 30261010 31253354 33308004 36054821 33000158 22213267
Source: authors calculations.
Case study III

Under the same assumptions, lets calculate the VaR for Goldman Sachs CDS
contracts and copper futures contracts. Results are depicted in tables 2 and 3.
Charts 3 and 4 show volatility smiles for analyzed assets.
Table 2. Value at risk for investments in CDS contracts for Goldman Sachs for dif-
ferent time intervals assumed for volatility calculations.
VaR 90% 20766270 22257125 24644853 25134496 17108837 17879395
VaR 91% 21571165 23119804 25600080 26108701 17771970 18572394
VaR 92% 22698017 24327555 26937397 27472588 18700357 19542594
VaR 93% 23824868 25535306 28274715 28836476 19628743 20512794
VaR 94% 25112699 26915593 29803078 30395204 20689756 21621593
VaR 95% 26561509 28468416 31522486 32148774 21883396 22868993
VaR 96% 28332276 30366310 33623985 34292025 23342289 24393593
VaR 97% 30425001 32609276 36107575 36824959 25066436 26195392
VaR 98% 33161641 35542386 39355347 40137257 27321088 28551591
VaR 99% 37508070 40200854 44513572 45397965 30902008 32293790
VaR 99,99% 62620769 67116447 74316649 75793169 51591764 53915383

Table 3. Value at risk for investments in copper futures for different time inter-
vals assumed for volatility calculations.
VaR 90% 9358895 9871090 9862978 10307372 9097520 7220662
VaR 91% 9721643 10253690 10245264 10706882 9450137 7500532
VaR 92% 10229490 10789331 10780465 11266197 9943801 7892351
VaR 93% 10737337 11324971 11315665 11825512 10437465 8284170
VaR 94% 11317734 11937132 11927323 12464729 11001652 8731963
VaR 95% 11970680 12625813 12615437 13183847 11636362 9235730
VaR 96% 12768725 13467534 13456466 14062771 12412120 9851445
VaR 97% 13711870 14462295 14450410 15101498 13328924 10579109
VaR 98% 14945213 15763136 15750182 16459834 14527822 11530669
VaR 99% 16904051 17829178 17814527 18617191 16431954 13041970
VaR 99,99% 28221785 29766310 29741849 31081919 27433606 21773933
Chart 3. CDS contracts for Goldman Sachs volatility for daily logarithmic rates of
return for different time intervals.
Source: Author.
Chart 4. Copper futures volatility for daily logarithmic rates of return for differ-
ent time intervals.
Source: Author.
The influence of different periods taken for volatility calculations on VaR level
are summed up in table 4 which shows that fluctuations can even reach 32,69%
(received for crude oil contracts).
Table 4. Percent changes of VaR.

Fluctuations of VaR
Time interval
Crude oil futures CDS for Goldman Sachs Copper futures
5-year period vs 6-year period 3,28% 7,18% 5,47%
4-year period vs 5-year period 6,57% 10,73% -0,08%
3-year period vs 2-year period 8,25% 1,99% 4,50%
2-year period vs 3-year period -8,47% -31,93% -11,74%
1-year period vs 2-year period 32,69% 4,50% -20,63%
If a hedge fund invests in many assets, these are not only problems with vari-
ance, skewness or kurtosis which are to be considered, but also correlation coef-
ficients between investment assets are important. Correlation as a measure of de-
pendence has some disadvantages. First of all, it measures linear dependence, which
means that if it is low, it does not mean that dependence of examined variables is
weak. Besides, models assume that it is unchangeable, whereas in fact it fluctuates.
In perfect conditions, monitoring of all these measures in order to capture the real
risk at a given point in time would have to be done continuously, which would
cause costs of portfolios modifications to be extremely high. The correlation coef-
ficient is given as:5
cov( ri , r j )
ij =
V iV j
where:
V i standard deviation of rates of return on the i portfolio
j standard deviation of rates of return on the i portfolio
cov(ri,rj) covariance between rates of return defined as:
Cov(x,y) = cov(y,x) =
where:
, avarage values of examined variables
In order to calculate VaR for a portfolio, one can use the following formula:6
p =
where:
p portfolio volatility
5
G.W. Snedecor, W.G. Chochran, Statistical Methods, The Iowa State College Press, Ames, Iowa
1956, p. 168; M. Sobczyk, Statystyka. Podstawy teoretyczne, przykady, zadania [Statistics. Theo-
retical foundation, examples, assignments], Wydawnictwo UMCS, Lublin 2000, p. 240 241; J.
Jwiak, J. Podgrski, Statystyka od podstaw [Statistics from the rudiments], Polskie Wydawnictwo
Ekonomiczne, Warszawa 2000, p. 48-49.
6
P.Best, Warto naraona na ryzyko. Obliczanie i wdraanie modelu VaR [Value at risk. Calculating and
implementing the VaR model], Dom Wydawniczy ABC, Oficyna Ekonomiczna, Krakw 2000, p. 36.
share of instruments A and B in the porfolio

A and B volatility
correlation coefficient between A and B
In practice portfolio VaR is calculated with matrixes formulas:7

VaRP =
Where:
VaRP portfolio VaR
V row vector of VaR values for each individual position
C correlation matrix
VT transposed matrix V
Case study IV
Lets calculate correlation coefficients for crude oil futures contracts, copper fu-
tures contracts and Goldman Sachs CDS contracts for different periods of time:
2005 2010, 2006 2010, 2007 2010, 2008 2010, 2009 2010.
Correlation coefficients for analyzed assets are depicted in charts 5,6,7. It is
unquestionable that they are not unchangeable. For crude oil futures and CDS
contracts, the shorter and more up to date the period of time, the lower the correla-
tion is. For oil and copper, the shorter the period of time and the more recent the
data, the higher the correlation is. And for CDS and copper, correlation goes down
and up when the period of time shortens. Thus, apart from the fact that correlation
changes in time, there are no clear trends for these changes.
7
Ibidem, p. 37.
Chart 5. Correlation coefficients for crude oil futures and Goldman Sachs CDS
contracts for daily rates of return for different periods of time.
Chart 6. Correlation coefficients for crude oil futures and copper futures con-
tracts for daily rates of return for different periods of time.

Chart 7. Correlation coefficients for copper futures and Goldman Sachs CDS
contracts for daily rates of return for different periods of time.
Case study V
Lets assume that a hedge fund constructs a portfolio made of three assets: crude
oil futures contracts, copper futures contracts and Goldman Sachs CDS contracts.
The value of each asset in the portfolio is equal to 1000000 USD. Assess the portfo-
lio VaR for correlation coefficients for different periods, provided that the standard
deviation does not change.
Table 5. Correlation coefficients of analyzed assets in 2005 2010.

Correlation coefficients Crude oil futures Goldman Sachs CDS contracts Copper futures
Crude oil futures 1 -0,09 0,43
Goldman Sachs CDS contracts -0,09 1 -0,13
Copper futures 0,43 -0,13 1
Source: Author.
Assuming that standard deviations computed above are given with 99% prob-
ability, row vectors are the following:
1000000 0,024617 = 24617
1000000 0,050906 = 50906
1000000 0,022942 = 22942

Thus, the portfolio VaRp is equal:
VaRp = = 100471 USD
Provided that standard deviations do not change, portfolio VaR for other corre-
lation coefficients will change (see chart 8). It rises in the five-year period compared
with a six-month period, next it falls down and is the lowest in a one-year period.
Chart 8. The influence of correlation coefficients calculated for different periods

on portfolio VaR.
Source: authors calculations.
Case study VI
Lets calculate portfolio VaR for standard deviations and correlation coefficients
taken for different time intervals. Results are depicted in chart 9.
Chart 9. Changes of portfolio VaR in relation to standard deviation and correla-

tion coefficients fluctuations.
If we take real values of both standard deviations and correlation coefficients,

portfolio VaR fluctuates. First it starts to move up, reaching its peak in a four-
year period and next it decreases up to a one-year period. If we look at percentage
changes of VaR (see table 6), if correlation changes, they are not so substantial,
however if we consider both correlation and volatility, they can be significant (from
3,46% to 16%).
Table 6. Percent changes of portfolio VaR.

Time interval taken for Fluctuations of portfolio VaR
correlation coefficient and
volatility calculations For changes of correlation only For changes of both
(standard deviation assumed to correlation and standard
be unchangeable) deviation
5-year period vs 6-year period 1,06% 8,60%
4-year period vs 5-year period -0,39% 6,67%
3-year period vs 2-year period -0,54% -3,46%
2-year period vs 3-year period 1,37% -16,82%
1-year period vs 2-year period 2,94% -16%
CONCLUSIONS AND FINAL REMARKS FOR FURTHER STUDIES

The introduction of different assumptions into risk models causes the im-
proper risk level valuation by their users. It creates the need to develop risk
management systems in financial institutions that consider the model risk.
It has been known for many years that rates of return of the majority of assets
are not normally distributed, as well as variance and correlation are change-
able. However, any model is a simplification of reality. So, these are not
inadequate models but unsuitable people who do not take these simplifi-
cations into consideration and thus inadequate risk management systems
that do not consider the model risk created by them. The matter of model
assumptions and model risk should be better emphasized in the process of
teaching finance at universities. Models show the results which depend on
our expectations of the market situation, which means that they incorporate
our subjective appraisal. If risk of hedge fund investments is undervalued by
banks, it will have consequences for the global financial market.
It is not hedge funds and other institutions business to show what the risk
generated by them really is, but banks should be interested in measuring and
managing it properly. If banks manage their exposures to hedge funds cau-
tiously, the risk for the global financial market will be reduced. The model
risk should be incorporated into bank management systems. When they ap-
ply models, they should assume safety margins for the model risk.
Ratings given to hedge funds and other alternative investment vehicles by
one international supervisory institution could reduce the problem of the
moral hazard. If there are a few rating agencies, the competition induces the
moral hazard and increases the risk of the human factor. At the same time no
one can expect that the systemic risk can be reduced only by the supervision
of hedge funds. They cannot be controlled in full, which means that these are
banks attitudes to transactions with hedge funds that should be verified, not
only hedge funds themselves. It is widely acknowledged that stress tests can
largely improve risk evaluation procedures. However, it is especially vital for
transactions conducted with hedge funds because of their non-linearity and
complexity. Whats more, risk management of and in the hedge fund indus-
try should be done with methods that include extreme risk measures and the
asymmetry of financial instruments.
The credit risk transfer from hedge funds and other financial institutions
into other parts of the financial market cannot be stopped but it can be man-
aged by a better cooperation among banks and the integration of their risk
management systems by supervisory institutions. In such a case warning systems
could work better and contribute to the decrease of the systemic risk.
And last but not least: it is not a matter of making models too complex, but
of leaving some safety margins for the model risk. Models must be as simple
as possible but not more.
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582 Bodo Runzheimer
FAIR VALUE MEASUREMENT - THE NEW IFRS 13 -

CONCEPTUAL SUITABILITY AS A DATA BASIS FOR
CONTROLLING AND IMPACT ON PERFORMANCE
MEASUREMENT
Bodo Runzheimer, Ph.D.1
1
Hochschule Pforzheim University, Federal Republic of Germany
Abstract
The issue is examined whether the growing importance of providing information
to investors accompanied by the increased impact of IFRS, which is the dominant
accounting system around the world, has ignited the discussions on the necessity
of separated external and internal accounting so much that fresh possibilities of
convergence of accounting standards have come to the forefront.
Within IFRS, fair value accounting is both very significant and controversial.
In May 2011 the IASB released a new standard regarding fair value measurement;
IFRS 13 was intended to provide a uniform regulation for this central valuation. It
is examined whether fair value is conceptually appropriate for use in controlling if
the new IFRS 13 is adhered to. Admittedly, the new IFRS 13 brings no significant
improvements in terms of taxation. Fair value balancing does have certain
implications for performance measurement, shown in balance sheet ratio. This,
however, can be assessed only for each individual case, and not across the board.
Using fair value accounting, value-driven single-period performance measures
such as EVA have a potentially better database, which reduces only the number of
transitional positions.
JEL classification: M4
Keywords: International Financial Reporting Standard 13 (IFRS 13), Internati-
onal Accounting Standards Board (IASB), Fair-Value-Measurement, Performance-
messung und Contolling
FAIR VALUE MEASUREMENT THE NEW IFRS 13 CONCEPTUAL SUITABILITY AS A ... 583
Einleitung
Die Bedeutung der Kapitalmrkte fr die Unternehmen nimmt zu und damit
wachsen auf Unternehmensebene die Anforderungen an die Informationsversor-
gung von Investoren und gleichzeitig der Stellenwert der Internationalen Rech-
nungslegung. International herrscht Einigkeit darber, dass prinzipienbasierte
Rechnungslegungsstandards notwendig sind, um entsprechend des angestreb-
ten true and fair view vereinheitlichte Bewertungen vornehmen zu knnen.
Die International Financial Reporting Standards (IFRS) stellen inzwischen das
weltweit dominierende Rechnungslegungssystem dar (vgl. Winkler, C., S. 354).
Bis Mrz 2002 wurden die IFRS als IAS (International Accounting Standards)
bezeichnet. Die IAS sind weiterhin gltig, sie werden laufend berarbeitet und
angepasst. Neue Standards tragen dagegen die Bezeichnung IFRS. Die IFRS wer-
den von einer internationalen Organisation erlassen, dem International Accounting
Standards Board (IASB) mit Sitz in London. Trgerverein des IASB ist die Inter-
national Accounting Standards Committee Foundation (vgl. Grnberger, G., S. 1
ff.). Der Rat der europischen Union stimmte mit groer Mehrheit 2002 einer
Verordnung zu, mit der der Anwendung der International Accounting Standards
(IAS, neu: IFRS International Financial Reporting Standards) ab 2005 fr die
Konzernabschlsse von kapitalmarktorientierten Unternehmen verbindlich vorge-
schrieben ist (www.ax-net.de). Die Standards sind in den Amtsblttern in der
jeweiligen Landessprache der Mitgliedsstaaten verffentlicht (vgl. Hoffmann, W.-
D./Ldenbach, N.: IAS/IFRS-Texte). Die IFRS werden nun regelmig unter
Bercksichtigung einer interessierten ffentlichkeit weiterentwickelt (www.ax-
net.de).
Zum aktuellen Stand des von der EU (Europische Union) vorgeschriebenen
Endorsement- bzw. Komitologieverfahrens der bernahme von IFRS in euro-
pisches Gemeinschaftsrecht - vgl. www.efrag.org. Im Einzelabschluss und fr die
Steuerbemessung sind die IFRS in Deutschland und sterreich bisher nicht ma-
geblich. Kapitalmarktorientierte Konzerne mssen in diesen beiden Lndern daher
zustzlich zum IFRS-Konzernabschluss auch Einzelabschlsse nach nationalem
Recht (HGB in Deutschland) erstellen (vgl. Runzheimer, B., 2010, S. 825 ff.).
Gerade die Zielsetzung der IFRS, den Investoren entscheidungsntzliche In-
formationen zu vermitteln (vgl. Runzheimer, B., 2010, S. 830 f.), hat auch zu
einer Renaissance der Diskussion um die Notwendigkeit der Trennung von ex-
ternem und internem Rechnungswesen gefhrt (vgl. Winkler, C., S. 354 ff.).
584 Bodo Runzheimer
Es drfte Investoren nur schwer vermittelbar sein, dass die operativen Einheiten
des Unternehmens nach konzeptionell anderen Ergebniszielen (gem internem
Rechnungswesen, B.R.) gefhrt werden (Kting, K./Kaiser, T., S. 380), wie den
Kapitalmrkten berichtet wird.
Der neue IFRS 13 (zum Aufbau der Standards und Zitierweise vgl. Grnber-
ger, G., S. 2 ff.) regelt in einem eigenen Standard die Definition und die Ermitt-
lung des Fair Value (des beizulegenden Zeitwerts).
Die Fair-Value-Bewertung ist innerhalb der IFRS inzwischen der konzepti-
onell bedeutsamste aber auch weiterhin der umstrittenste Teil der IFRS (vgl.
Winkler, C., S. 354; Runzheimer, B., 2010, S. 820 ff.). Auf die umfangreiche
und berechtigte - Kritik reagierte der IASB, der fr die Entwicklung der IFRS
zustndig ist, mit dem neuen IFRS 13 zum Fair Value Measurement. Dadurch
soll eine einheitliche Regelung fr diesen zentralen und fundamentalen Wertansatz
geschaffen werden; verffentlicht wurde IFRS 13 am 12. Mai 2011. IFRS 13 ist
verpflichtend anzuwenden fr die Geschftjahre, die am oder nach dem 1. Janu-
ar 2013 beginnen. IFRS 13 beinhaltet ausschlielich Regeln, wie ein beizulegen-
der Zeitwert zu ermitteln ist. Ob oder was und wann ein beizulegender Zeitwert
fr die Rechnungslegung von Bedeutung ist, wird in anderen Standards bestimmt
(vgl. Althoff, F., S. 333). Gerade fr die deutschen Unternehmen erffnete die
Zielsetzung der IFRS - Kapitalgebern entscheidungsntzliche Informationen
zu vermitteln - neue Mglichkeiten einer Konvergenz des Rechnungswesens (vgl.
Winkler, C., S. 354).
In diesem Beitrag soll errtert werden, inwieweit IFRS 13 geeignet ist, konzep-
tionell durch die Fair-Value-Bewertung den Einsatz im Rahmen des Controllings
fr Steuerungsaufgaben zu bernehmen.
Fr die Steuerungsaufgaben des Controllings ist es wesentlich, die Auswir-
kungen einer Fair-Value-Bilanzierung auf die Kennzahlen zur Performancebeurtei-
lung zu kennen (Winkler, C., S. 354). Zunchst werden folglich die Aufgaben des
Controllings mit den Anforderungen an Steuerungsrechnungen errtert; anschlie-
end die Grundlagen der Fair-Value-Bilanzierung mit den neuen Regelungen
nach IFRS 13. Darauf aufbauend wird die konzeptionelle Eignung der Fair-Value-
Bewertung fr Controllingzwecke kritisch beurteilt und die bedeutenden Auswir-
kungen der Fair-Value-Bewertung auf die Performancemessung untersucht.
1. Aufgaben und Datenbasis des Controllings sowie Anforderungen an

Steuerungsgren
Controlling ist die zielorientierte Steuerung durch Information, Planung und
Kontrolle. Controlling soll die Realisierung der obersten Unternehmensziele durch
ein Informationssystem sicherstellen und dient dem Management als Servicefunk-
tion (vgl. Winkler, C., S. 355; Franz, K.-P./Kajter, P., S. 473). Die Kernaufga-
be des Controllings wird in der Koordination des Fhrungssystems gesehen. Als
wichtigste Teilsysteme zur Fhrung von Unternehmungen kann man Planung und
Kontrolle, Organisation, Personalfhrung und Unternehmensrechnung unter-
scheiden, deren Koordination ber das Controlling erfolgt (Kpper, H.-U., S.
22). Bei Entscheidung und Verantwortung sowie dem Werte- und Zielsystem als
die wichtigen Komponenten der Planung und Kontrolle, der Personalfhrung und
Organisation sowie der Unternehmensrechnung bestehen auch Bezge zur Unter-
nehmensethik (vgl. Kpper, H.-U., S. 22 ff.; Runzheimer, B., 2013, S. 67 ff.).
Das Management trgt die Ergebnisverantwortung, legt die Ziele fest und ent-
scheidet. Das Controlling trgt dabei die Verantwortung fr die Ergebnistranspa-
renz und untersttzt mit entscheidungsrelevanten Informationen die Zielplanung
(Entscheidungsuntersttzung) und Zielverfolgung (Verhaltenssteuerung) (Wink-
ler, C., S. 355). Zur Wahrnehmung dieser Aufgaben bedient sich das Controlling
verschiedener Informationsquellen; die wichtigste Quelle dabei ist die Unterneh-
mensrechnung, und hier insbesondere die Jahresabschlussrechnung, die Kosten-
und Leistungsrechnung sowie die Finanzrechnung (mit Einzahlungen/Einnahmen
und Auszahlungen/Ausgaben). Darauf aufbauend hat das Controlling die Aufgabe,
die Wertmanagementsysteme zu entwickeln (Winkler, C., S. 356). Bei der Un-
ternehmensrechnung wird zwischen dem externen und internen Rechnungswesen
unterschieden. Im externen Rechnungswesen (Jahresabschlussrechnung) wird mit
pagatorischen Werten, im internen Rechnungswesen (Kosten- und Leistungsrech-
nung) mit kalkulatorischen, zweckorientierten Werten (vgl. Schmalenbach, E., S.
32) gerechnet.
Welche Anforderungen sind bei der Vielzahl von mglichen Steuerungsgr-
en an die Datenbasis zu stellen? Die Kriterien zur Auswahl sind zweckbezogen
und basieren auf Plausibilittsberlegungen. An erster Stelle mssen die Daten das
Kriterium der (1) Entscheidungsrelevanz erfllen, denn Planung umfasst Ent-
scheiden. Weitere Kriterien sind fr die Wahrnehmung der Kontrollaufgabe die
586 Bodo Runzheimer
(2) Anreizvertrglichkeit und die (3) Durchschaubarkeit der Daten. Zudem ist
bei Steuerungsrechnungen eine mglichst
weitgehende Manipulationsresistenz sicherzustellen. Nicht zuletzt muss auch ein
Steuerungssystem dem Postulat der Wirtschaftlichkeit gerecht werden (Winkler,
C., S. 358). Aber auch die Wechselwirkungen und Zielkonflikte zwischen den ein-
zelnen Anforderungen sind zu bercksichtigen; so drfte beispielsweise zwischen
dem Kriterium der (4) Manipulationsresistenz und dem Kriterium der (5) Wirt-
schaftlichkeit ein Zielkonflikt bestehen. Die Sicherstellung einer hohen Manipu-
lationsfreiheit setzt nmlich erhhte Aufwendungen voraus.
Das Steuerungssystem versucht durch Bewertung von Konsequenzen mehrerer
Handlungsalternativen die optimale Entscheidung im Sinne des Gesamtunterneh-
mens und unter Bercksichtigung der zeitlichen Dimension zu treffen. Vorausset-
zung hierfr sind entscheidungsrelevante Informationen. Diese Entscheidungs-
relevanz der Daten setzt die Bercksichtigung ihrer inhaltlichen und zeitlichen
Verbundenheit voraus. Die Entscheidungsverbundenheit zielt auf die verursa-
chungsgerechte Zuordnung der Ergebnisse auf die sie zu verantwortenden Ent-
scheidungstrger ab. Damit soll sichergestellt werden, dass z.B. nur demjenigen
Geschftsbereich die Erfolge zugerechnet werden, der diese zu verantworten hat,
so dass eine Vergleichbarkeit zwischen den Geschftsbereichen geschaffen wird
(Winkler, C., S. 359).
Die vielfach arbeitsteilig sowie divisional und hierarchisch organisierte Un-
ternehmenspraxis bedingt die Notwendigkeit zur Anreizvertrglichkeit von In-
formationen fr die Kontrollzwecke des Controllings. In diesen Strukturen (mit
mglicher Interessendisharmonie und asymmetrischer Informationsverteilung) ist
eine Verhaltenssteuerung notwendig, damit alle Hierarchieebenen im Sinne der
obersten Unternehmensziele entscheiden (Entscheidungssteuerungsfunktion des
Controllings) (vgl. Winkler, C., S. 360).
Die Anforderung der Verhaltenssteuerung durch Steuerungsrechnungen setzt
die Durchschaubarkeit (Verstndlichkeit) der Daten voraus, durch die Anreize zur
Verhaltensnderung kommuniziert werden sollen; darber hinaus sind diese Infor-
mationen auf die jeweilige Zielgruppe (Hierarchieebene) der Steuerungsrechnung
auszurichten (vgl. Franz, K.-P./Winkler, C., S. 67).
Grundstzlich gilt auch fr die Steuerungsrechnungen das Kriterium der Wirt-
schaftlichkeit. Obwohl mit dem Steuerungssystem die Wirtschaftlichkeit von
Projekten und Geschftsbereichen beurteilt werden soll, kann die Wirtschaftlich-

keit des Steuerungssystems regelmig kaum beantwortet werden (Winkler, C.,
S. 362). Sptestens bei der Zurechnung des Informationsnutzens der Steuerungs-
rechnung sind bemerkenswerte Probleme zu erwarten (vgl. Franz, K.-P./Winkler,
C., S. 72).
Die dargestellten Anforderungen an Steuerungsrechnungen decken sich weit-
gehend mit den Rechnungslegungsgrundstzen der IFRS (vgl. Franz, K.-P./Win-
kler, C., S. 76; Grnberger, D., S. 29 ff.).
2. Fair Value (beizulegender Zeitwert)

2.1. Grundlagen
Der Fair Value auch beizulegender Zeitwert - fasst unterschiedliche Wertan-
stze zusammen. Definitionsgem ist der Fair Value der Betrag, zu dem zwischen
sachverstndigen, vertragswilligen, voneinander unabhngigen Geschftspartnern
ein Vermgenswert bertragen oder eine Schuld beglichen werden kann (vgl. IAS
17,3 und IAS 38,7). Vertragswillig bedeutet in diesem Sinne, dass keiner der
Vertragspartner sich in einer Notlage befindet, aus der sich ein Zwang zur Tran-
saktion ableiten lsst (Winkler, C., S. 362). Ausschlaggebend ist der Exit-Preis
(absatzseitig; Exit-Value-Konzept), Grundlage der Fair-Value-Bewertung ist der
Abgangspreis; dies fhrt zu einer marktbasierten (Market Approach) und nicht
unternehmensspezifischen Bewertung. Trotz des konsequenten Marktbezugs weist
die Definition des Fair Value (IFRS 13) darauf hin, dass es sich um eine fiktive
Transaktion handelt, die an dem zu betrachtenden Stichtag durchgefhrt werden
knnte. IFRS 13 definiert erstmalig den beizulegenden Wert eindeutig als Exit
Value, der sich vom Entry Value vor allem durch die Transaktionskosten unters-
cheidet (vgl. Kumaul, H., S. 185). Der Fair Value ist Bestandteil des true-and-
fair-view-Konzeptes und der fair-presentation der IFRS (vgl. Runzheimer,
B., 2012, S. 890 ff.). IFRS 13 beinhaltet eine bergreifende Funktion in der
Rechnungslegung nach IFRS, hier ist geregelt, wie (nicht ob, was und wann) an-
dere Standards eine Bewertung zum beizulegenden Zeitwert vorsehen (vgl. Althoff,
F., S. 333).
IASB und FASB sind berzeugt davon, dass entscheidungsntzliche Infor-
mationen fr Investoren mit dem Fair Value am besten erreicht werden knnen.
Die Bewertung von Vermgen und Schulden in der Bilanz mit dem aktuellen Fair
Value statt mit historischen und veralteten Anschaffungs- und Herstellungskosten
588 Bodo Runzheimer
scheint unmittelbar einzuleuchten und ist unter rein theoretischen berlegungen

und Modellannahmen durchaus berzeugend. Zudem setzt der geschickt gewhlte
Terminus alle anderen mglichen Werte dem Verdacht aus, zumindest nicht in
gleichem Ma fair zu sein (Kting, H.-U./Kaiser, T., S. 375). In der Unternehm-
enspraxis sind jedoch objektive Marktwerte oft nicht verfgbar. Um das Problem
des Fehlens eines geeigneten Marktes zu lsen, erweitert der IASB die grundstzlich
marktorientierte Bewertung des Fair Value mit dem Stufenkonzept (Fair-Value-
Hierarchie) als Bestandteil des neuen IFRS 13, welches sich nach dem Grad der
Verlsslichkeit der zugrunde liegenden Wertgrundlagen richtet (vgl. www.iasplus.
com/en/standards/ifrs13 sowie Winkler, C., S. 363).
2.2. Bemessungshierarchie (Fair-Value-Hierarchie nach IFRS 13)

Die intensive Kritik an den Regelungen zum Fair Value hat den IASB veran-
lasst, den beizulegenden Zeitwert (Fair Value) eindeutiger zu definieren, um dem
Ziel einer objektiveren Bewertung eher gerecht zu werden. Zu diesem Zweck
sollten auch die Angaben zu den Bewertungsprmissen erweitert und ein robuster
Standard zum Fair Value Measurement erarbeitet werden (Deloitte, S. 2). Mit
IFRS 13 strebt IASB an, die Einheitlichkeit und Vergleichbarkeit bei der Bemes-
sung des beizulegenden Zeitwerts und der damit verbundenen Angaben ber eine
Bemessungshierarchie zu erhhen. Die Fair-Value-Hierarchie teilt die in den
Bewertungsverfahren verwendeten Inputgren in drei Stufen ein (Stufenkonz-
ept). Sowohl bei der Bewertung als auch bei der Einstufung innerhalb der Fair-
Value-Bewertungshierarchie wird zwischen beobachtbaren und nicht beobacht-
baren Bewertungsparametern unterschieden (vgl. www.idw.de). Beobachtbare
Bewertungsparameter (observable inputs) basieren auf Marktdaten (z.B. Brsen-
kursen, Preisstellungen durch Maket-Maker oder Hndler) und ffentlich verfg-
baren Informationen in Bezug auf aktuelle Vorgnge oder Transaktionen. Nicht
beobachtbare Bewertungsparameter (unobservable inputs) sind jene Faktoren, fr
die Marktdaten nicht verfgbar sind. Sie basieren auf bestmglichen verfgbaren
Informationen ber die Annahmen, die Marktteilnehmer bei der Preisfindung fr
den Vermgenswert oder die Schuld verwenden wrden (Anhang A) (Grnberger,
D., S. 243 f.). Das Bilanzierungsobjekt aus Sicht des IFRS 13 bezieht sich entweder
auf einen allein stehenden Vermgenswert bzw. eine allein stehende Schuld oder
auf eine Gruppe von Vermgenswerten, eine Gruppe von Verbindlichkeiten oder
eine Gruppe von Vermgenswerten und Schulden (vgl. Grnberger, D., S. 244).
Die hchste Kategorie in der dreistufigen Fair-Value-Hierarchie - Stufe 1/

Level 1 - fr die Inputdaten hinsichtlich ihrer Objektivitt zur Ermittlung des Fair
Value steht fr notierte Preise an aktiven Mrkten, und zwar fr identische Ver-
mgenswerte bzw. Schulden (IFRS 13:76). Eine Marktpreisnotierung auf einem
aktiven Markt wird ohne Anpassung bei der Bemessung des Fair Value verwendet,
wenn immer das mglich ist, wobei begrenzt Ausnahmen bestehen (IFRS 13:77).
Die zweithchste Kategorie in der dreistufigen Fair-Value-Hierarchie ist Stufe
2/Level 2, falls kein Marktpreis ermittelt werden kann. In diesem Fall soll ein
anderer Bewertungsansatz zum Zuge kommen, bei dem die relevanten beobacht-
baren Inputfaktoren maximal und die nicht beobachtbaren Inputfaktoren mini-
mal bercksichtigt werden. Dabei soll von einer Transaktion auf dem vorrangigen
Markt (principal market) ausgegangen werden. Falls ein solcher Markt nicht iden-
tifiziert werden kann, muss im nchsten Schritt der vorteilhafteste Markt (most
advantageous market) herangezogen werden (vgl. www.iasplus.com/de/standards/
standard13 ).
Inputfaktoren auf Stufe 2 beinhalten (IFRS 13:81):
- Preisnotierungen fr hnliche Vermgenswerte/Schulden auf aktiven Mrkten
- Preisnotierungen fr identische oder hnliche Vermgenswerte/Schulden auf
Mrkten, die nicht aktiv sind
- Andere Inputfaktoren als Preisnotierungen, die fr den Vermgenswert/die
Schuld beobachtet werden knnen
- Inputfaktoren, die vorrangig im Wege der Korrelation oder auf anderem Wege
aus beobachtbaren Marktdaten abgeleitet oder von ihnen gesttzt werden
(marktgesttzte Inputfaktoren).
Inputfaktoren auf Stufe 3 sind nicht beobachtbare Inputfaktoren fr den Ver-
mgenswert/die Schuld (IFRS 13:86):
Solche Faktoren werden zur Bemessung des beizulegenden Zeitwerts nur in dem
Mae verwendet, wie relevante beobachtbare Inputfaktoren nicht zur Verfgung
stehen. Ein Unternehmen entwickelt nicht beobachtbare Inputfaktoren unter
Verwendung der in diesem Umstand bestmglich verfgbaren Informationen, was
unternehmenseigene Daten beinhalten mag. Dabei sind alle Informationen ber
die von Marktteilnehmern gettigten Annahmen zu bercksichtigen, die vernnft-
igerweise verfgbar sind (IFRS 13:87-89) (www.iasplus.com/de/standards). Sind
590 Bodo Runzheimer
also keine Marktpreise verfgbar, so soll mit Hilfe eines Bewertungsmodells der
beizulegende Wert geschtzt werden. Vom Standardsetter werden die Bewertungs-
verfahren vorgegeben, wobei keine Prferenz ausgesprochen wird (IFRS 13:62):
1. Beim marktbasierten Ansatz (market approach) werden die Preise und weit-
ere Informationen von Markttransaktionen identischer oder vergleichbarer
Vermgenswerte/Schulden in die Bewertung einbezogen
2. Beim kostenbasierten Ansatz (cost approach) werden die gegenwrtigen
Wiederbeschaffungskosten unter Bercksichtigung der Abnutzung ermit-
telt, welche insbesondere bei materiellen Vermgenswerten relevant sind
3. Beim einkommensbasierten Ansatz (income approach) werden zuknft-
ige Zahlungsstrme auf den heutigen Wert diskontiert (Ertragswert- oder
Discounted-cashflow-Verfahren).
Die Bewertungsmodelle sind fr gleichartige Bewertungsobjekte konsistent und

ber die Zeit stetig anzuwenden. Zudem hat ein Unternehmen diejenigen Infor-
mationen offen zu legen, die es dem Adressaten erleichtern, die Bewertung nach-
zuvollziehen (IFRS 13:72).
Zusammenfassend kann festgehalten werden, dass der IASB mit IFRS 13 ein-
en wesentlichen Schritt in Richtung Vereinheitlichung des zentralen Bewertung-
sansatzes Fair Value geschaffen hat (Winkler, C., S. 367), und zwar durch die
Definition des Fair Value als reinen Exit-Preis und die Konzentration der Bew-
ertungsverfahren auf die beobachtbaren Input-Faktoren. Damit unterstreicht der
IASB, dass der Fair Value aus der Perspektive der Marktteilnehmer zu ermitteln
ist; gleichzeitig wird damit rein auf unternehmensinternen Daten basierenden Be-
wertungen eine Absage erteilt (vgl. www.kpmg: First impressions: Fair value mea-
surement, 2011). Mit dieser Konkretisierung korrespondieren auch die erhhten
Anforderungen an die zu publizierenden Angaben im Anhang (Winkler, C., S.
367; IFRS 13:91 ff.).
3. Fair Value-Measurement nach IFRS 13 und Controlling

Es soll untersucht werden, inwieweit die neuen Regelungen zum Fair Value
(beizulegenden Zeitwert) nach IFRS 13 konzeptionelles Potential zur Nutzung
fr die in Abschnitt 1 beschriebenen Anforderungen an Steuerungsrechnungen
(Controlling) haben. Wie schon festgestellt, es ist zu begren, dass der Standard-
setter (IASB) eine einheitliche Regelung zum Fair Value anstrebt und dies auch im
IFRS 13 umsetzt. Die darin beabsichtigte Konvergenz zwischen US-GAAP (vgl.
Runzheimer, B., 2010, S. 822 ff.) und IFRS ist positiv zu beurteilen. So defini-
ert der Standardsetter (ASB) den Fair Value (beizulegenden Zeitwert) in IFRS 13
konsequent als Veruerungspreis (exit price). Problematisch bleibt auch an den
neuen Regelungen des IFRS 13 der Tatbestand, dass hypothetische Transaktionen
unterstellt werden mssen, wenn ein aktiver Markt nicht herangezogen werden
kann. Denn ein Fehlen von Markttransaktionen ist ja hufig ein Signal dafr,
dass es (derzeit) keinen Abnehmer fr die entsprechenden Vermgenswerte gibt. In
diesem Zusammenhang schlieen Berndt/Eberli, dass in () der Konzeption des
IASB () der einzelne Bilanzierende also schlauer als der gesamte Markt sein muss
(Winkler, C., S. 369; bzw. Berndt, T./Eberli, P., S. 897).
Vergleicht man die Anforderungen an Steuerungsrechnungen mit den Regelun-
gen der Fair Value-Ermittlung nach IFRS 13, so ergibt sich ein unterschiedliches
Bild. In Bezug auf die (1) Entscheidungsrelevanz wird der Standpunkt vertreten,
dass prinzipiell Wiederbeschaffungswerten, die dem Prinzip der Substanzerhaltung
dienen, im internen Rechnungswesen gegenber Anschaffungs- und Herstellung-
skosten, aktuellen Tagesgebrauchs- sowie Tagesneupreisen der Vorzug gegeben
werden sollte (vgl. Schweitzer, M./Kpper, H.-U., S. 15). Allerdings schliet der
Fair Value zuknftige, ber den Bilanzstichtag hinausgehende Wiederbeschaffung-
swerte nicht ein, so dass selbst nach einem Full-Fair-Value-Ansatz der entsche-
idungsrelevante Wiederbeschaffungswert nicht erreicht werden knnte. Demnach
ergibt sich auch in Bezug auf die zeitliche und sachliche Entscheidungsverbun-
denheit kein Vorteil fr den Fair Value (Winkler, C., S. 370; vgl. auch Ewert, R.,
S. 21 ff. sowie Kramer, D.). Im Hinblick auf die Entscheidungsrelevanz ist der
Fair Value im Vergleich zu den Anschaffungs- und Herstellungskosten konzeptio-
nell ganz klar berlegen. Allerdings ist dieses Relevanzprinzip nicht auf unterne-
hmungsintern typische Entscheidungssituationen gemnzt. Spezifische Informa-
tionsbedrfnisse von Auswertungsrechnungen, die auf die unternehmensinterne
Entscheidungsbelange ausgerichtet sind, knnen damit nicht vollstndig gestillt
werden (Tromann, E./Baumeister, A., S. 646; vgl. auch Pfaff, D., 298 ff.).
In Bezug auf die weitere Anforderung an Steuerungsrechnungen, nmlich der
(2) Anreizvertrglichkeit wird argumentiert, dass Verhaltenssteuerung zukunfts-
bezogen sei und somit das Verhalten ex-ante in die richtige Richtung gelenkt
werden msse, wozu auch eine ex-post gerichtete Erfolgsmessung einen Beitrag
592 Bodo Runzheimer
leisten kann. Ebenso ist dem beizulegenden Zeitwert eine Zukunftsorientierung

immanent, denn der aktuelle Marktpreis enthlt die Erwartung der Marktteilne-
hmer ber zuknftige Entwicklungen (Winkler, C., S. 370; vgl. auch die kritisch-
ere Stellungnahme von Pfaff, D., S. 317).
Der Anforderung (4) Manipulationsresistenz soll durch Sicherstellung einer
grtmglichen Objektivitt begegnet werden. Hierbei geht es um die aus dem
Principal-Agent-Verhltnis resultierenden mglichen Probleme zwischen der
Zentrale und den Geschftsbereichen. Fair Values, die auf Marktpreisen basieren,
sind in aller Regel problemlos nachvollziehbar (Anforderung (3) Durchschau-
barkeit/Nachvollziehbarkeit) und mithin nicht besonders anfllig fr Manipu-
lationen. Viel problematischer ist die Prfung von geschtzten Fair Values, wobei
eine Orientierung am Prfungsstandard Nr. 315 des Instituts fr Wirtschaftsprfer
e.V. (IDW PS 315: Die Prfung von Zeitwerten) hilfreich sein drfte (vgl. IDW
PS 314.29). Diese Prfungsnorm besagt, dass der Abschlussprfer zu ermitteln
hat, ob sich die vom Unternehmen angegebenen Werte innerhalb der Bandbreite
der Ermessensspielrume bewegen. Zunchst hat der Abschlussprfer festzustel-
len, ob die einzelnen Werte des Fair Value innerhalb der vom Prfer festgelegten
Soll-Bandbreite liegen (vgl. Weimann, M.). In einem zweiten Schritt ist zu beur-
teilen, ob die betrachteten Fair Values in ihrer Gesamtheit systematisch am oberen
oder unteren Rand der Bewertungsbandbreite liegen und ob eine Verzerrung des
Jahresabschlusses in eine Richtung erfolgt (Winkler, C., S. 370; IDW PS 314.29).
Hier wird deutlich, dass bei der Ermittlung des Fair Value mehrere Freiheitsgrade
ausgefllt werden mssen (vgl. KPMG, S. 189 ff.). Auf der Grundlage der Ma-
nipulationsresistenz lsst sich aber gegenber den relevanten Vergleichswerten fr
Steuerungszwecke des Controllings keine Aussage fr oder gegen den Fair Value
rechtfertigen. Trotzdem ist die wechselseitige Beeinflussung von verlsslichen In-
formationen und Anreizvertrglichkeit zu bercksichtigen (vgl. Unrein, D., S. 233
ff.). So erhht ein Mehr an Verlsslichkeit nicht zwingend die Entscheidungsnt-
zlichkeit, whrend umgekehrt die Entscheidungsntzlichkeit von Informationen
umso geringer wird, je weniger verlsslich sie sind mgen sie auch konzeptionell
relevant sein (Obermaier, R., S. 546). Wenn aber der Adressat wei, dass der im
Jahresabschluss angegebene Wertansatz nur ein mehr oder weniger willkrlich aus
einer groen Bandbreite gewhlter Wert ist, oder wei, dass dies so sein knnte,
dann ist die Abschlussinformation nicht oder nur in einem sehr eingeschrnk-
ten Mae entscheidungsntzlich (Ruhnke, K./Schmidt, M., S. 580). Das in der
Kostenrechnung gelufige Opportunittskostenkonzept widerspricht der Ver-
trauenswrdigkeit von Informationen und ist daher mit dem Fair Value nicht ver-
einbar (vgl. Winkler, C., S. 371 sowie Tromann, E./Baumeister, A., S. 646).
Unabdingbar ist, dass nur das entscheidungsrelevant sein kann, was hinreichend
vertrauenswrdig ist. An dieser Verlsslichkeit des Fair Value sind, zumindest nach
den aktuell gltigen Standards, begrndete Zweifel festzustellen. In Bezug auf die
Konvergenzbestrebungen in Richtung eines vollstndig harmonisierten Rechnung-
swesens ist durch den Fair Value kein entscheidender Ansto zu erwarten (Win-
kler, C., S. 371).
4. Wie wirkt sich die neue Fair-Value-Bilanzierung nach IFRS 13 auf die
Performancemessung aus?
Investoren leiten den Unternehmenswert aus den Informationen der externen
Rechnungslegung ab, die erheblich durch die Fair-Value-Bilanzierung nach IFRS
13 beeinflusst wird. Bei der ex-post-Beurteilung - also der Performancemessung -
der abgelaufenen Abschlussperiode, die blicherweise mit Hilfe eines Kennzahlen-
systems arbeitet, wird darauf geachtet werden mssen, welche Auswirkungen die
Fair-Value-Bilanzierung hat. Um Investoren ber die externe Rechnungslegung die
entscheidungsntzlichsten Informationen zu liefern, msste das durch die Bilanz
ausgewiesene Eigenkapital (bilanzielles Eigenkapital) den Unternehmenswert
widerspiegeln. Aber auch durch die IFRS kann dieses Ziel nicht erreicht werden.
Ein Haupthinderungsgrund dafr besteht in der nicht konsequenten Anwendung
des Fair-Value-Konzepts (mixed model). Auch bei einer konsequenten Benutzung
des Full-Fair-Value-Konzeptes wird der Unternehmenswert nicht gezeigt, da die
Synergien zwischen Vermgenswerten und Schulden infolge der Einzelbewertung
unbercksichtigt bleiben. In den Unternehmen sind asset-Kombinationen reali-
siert, die bekannt sein mssen, um fair values einzelner assets zu bestimmen, die
anteilige Synergien beinhalten oder highest and best use entsprechen. Soweit die
Beitrge des Markts zur Wertermittlung lckenhaft bleiben oder nicht wirtschaft-
lich erschliebar sind, mssen sie durch Ermessen ersetzt werden (Schildbach, T.
2012, S. 522). Weiterhin bleibt aufgrund der Aktivierungsverbote fr z.B. selbst
geschaffene Markenwerte eine in der externen Rechnungslegung unvermeidliche
Differenz zwischen bilanziellem Eigenkapital und Unternehmenswert.
Die blichen Performancemessgren wie Ergebnisausweis vor oder nach Steu-
ern, der Return on Capital Employed basieren auf Informationen der externen
Rechnungslegung. Die Verfgbarkeit dieser Daten ist durch die Rechnungsle-
594 Bodo Runzheimer
gungsvorschriften im allgemeinen gegeben, die Hauptkritikpunkte bestehen aber

weiterhin: mangelnder Strategiebezug, mangelnde Zukunftbezogenheit, fehlende
Vollstndigkeit, Vernachlssigung des Zeitwertes des Vermgens, erschwerte Be-
wertung der erreichten konomischen Leistung eines Unternehmens aufgrund der
gegebenen Ansatz- und Bewertungswahlrechte, geringe Korrelation mit der Wer-
tentwicklung am Kapitalmarkt sowie fehlende Bercksichtigung und Abbildung
von Risiken (Winkler, C., S. 372).
Infolge dieser Defizite werden verschiedene Kennzahlensysteme zur Beurteilung
der Werteschaffung eines Unternehmens verwendet. Dabei spielen regelmig sog.
einperiodige Residualgewinngren wie Economic Value Added (EVA - bzw. Ge-
schftswertbeitrag /GWB, also eine absolute Nettoge des Gewinns nach Ab-
zug der Kapitalkosten fr das eingesetzte Gesamtkapital) oder Cash Value Added
(CVA) eine wesentliche Rolle (vgl. Pfaff, D., S. 299 ff.).
Um die operative Leistung eines Unternehmens unabhngig von der jeweili-
gen Finanzierungsstruktur des Unternehmens zu quantifizieren, wird die operative
Ergebnisgre NOPAT (net operating profit after taxes) um die Finanzierungsauf-
wendungen reduziert. Die Kapitalsumme CAPITAL wird in der Regel von der
Vermgensseite der Bilanz (Aktivseite) aus ermittelt. EVA wird wie folgt berechnet:
EVA = NOPAT CAPITAL * WACC
(WACC weighted average cost of capital - bezeichnet den gewichteten durch-
schnittlichen Kapitalkostensatz des Unternehmens vgl. Coenenberg, A. G./Fink,
C., S. 147).
Sowohl die Kapitalgre CAPITAL als auch die Gewinngre NOPAT
werden aus den buchhalterischen Werten abgeleitet und um verschiedene ber-
leitungspositionen an die Zwecksetzung der wertorientierten Performancemessung
angepasst (Winkler, C., S.372), dies sind nach dem EVA-Konzept gebotene Ad-
justierungen (Conversions). Beispielsweise werden die Kapitalgre um nicht
betriebsnotwendiges Anlagevermgen und der Gewinn um auerordentliche Bes-
tandteile korrigiert. Mit den Funding Conversions (vgl. www.wiwi.uni-muenster.
de/irw/downloads) sollen die vollstndige Erfassung aller Finanzierungsmittel des
Unternehmens sichergestellt werden, fr die durch das Vermgen Kapitalkosten
erwirtschaftet werden mssen (vgl. Weienberger, B. E., S. 267). Es werden also
die Finanzierungen bereinigt, z.B. auch versteckte Finanzierungen wie Miet- und
Leasingobjekte werden bercksichtigt, die sich nicht aus der Bilanz ergeben. Im
Rahmen der Shareholder Conversions werden sog. Equity Equivalents wie Forsc-
hungsaufwndungen , Markterschlieungskosten oder Markenwerte, die in der ex-

ternen Rechnungslegung unbercksichtigt bleiben, eingerechnet. Insgesamt vern-
dern diese Differenzen sowohl die Ergebnis- als auch die Kapitalgre. Durch die
Fair-Value-Bilanzierung fllt an erster Stelle auf, dass die Anzahl der Positionen
in berleitungsrechnungen abnimmt, da im Idealfall durch den Fair Value die
tatschlichen Marktwerte bereits bercksichtigt sind (Winkler, C., S. 372).
Auf berleitungsrechnungen (Adjustierungen, Conversions) wird jedoch nie
vllig verzichtet werden knnen, da die Fair-Value-Bewertung nur partiell erfolgt
und gewisse Ansatzverbote weiterhin bestehen bleiben. Bei den berleitungsrech-
nungen ist sorgfltig darauf zu achten, dass fr die korrekte Ermittlung der Per-
formancegren eine konsequente Adjustierung von Kapital- und Ergebnisgren
notwendig ist. So mssen Fair-Value-nderungen erfolgswirksam verbucht werden,
damit es nicht zu einer doppelten Bercksichtigung kommt (vgl. Winkler, C., S.
373 sowie Weienberger, B. E., S 13). Im brigen leistet die Fair-Value-Bewertung
nach IFRS 13 aufgrund des strkeren Zukunftsbezugs einen Beitrag zur Erhhung
der Entscheidungsrelevanz (Winkler, C., S. 373).
Als Schlussfolgerung wird festgestellt, dass eine zunehmende Fair-Value-Bilan-
zierung nach IFRS 13 zu einer Vernderung der bilanzanalytischen Kennzahlen
fhren wird: Bei Auflsung von stillen Rcklagen erhhen sich die bilanziellen
Vermgenswerte und damit die Kapitalbezugsgren von Kennzahlen. Im einge-
schwungenen Zustand wird erwartungsgem eine hhere Volatilitt verzeichnet,
da zumindest die Marktwerte geringere Freiheitsgrade zur Sachverhaltsgestaltung
bieten, die wiederum hufig zur Ergebnisglttung verwendet werden (Winkler,
C., S. 373). Inwiefern diese auf der Fair-Value-Bilanzierung basierenden Anstze
zu einer hheren Entscheidungsrelevanz bzw. einer hheren Verlsslichkeit fhren,
drfte im Einzelfall sowohl von der Verfgbarkeit von Marktwerten als auch von
der Fhigkeit der bilanzierenden Unternehmen abhngen, zuverlssige Werte im
Rahmen der Fair-Value-Bewertung zu erzielen.
5. Zusammenfassung
Der Fair Value (beizulegender Zeitwert) ist zwar der bedeutendste, aber auch
der umstrittenste Wertansatz der IFRS. Durch den neuen Standard IFRS 13 zum
Fair Value Measurement (seit 1. Januar 2013 in Kraft) wurden einige Kritikpunk-
te an den bisherigen Standards aufgegriffen und Verbesserungen vorgenommen.
Nicht zuletzt die einheitliche Regelung in einem eigenen Standard sowie die
596 Bodo Runzheimer
Fokussierung auf die jeweiligen Inputfaktoren anstatt auf die zugrunde liegenden
Bewertungsmethoden ist als bedeutende Verbesserung zu werten. IFRS 13 bein-
haltet ausschlielich Regeln, wie der Fair Value zu ermitteln ist. Ob bzw. fr was
und wann ein Fair Value fr die IFRS-Bilanzierung von Bedeutung ist, wird nicht
in IFRS 13, sondern in anderen Standards des IFRS-Regelwerks festgelegt (vgl.
IFRS 13.5, IFRS 13.8). IFRS 13 kommt insoweit eine bergreifende Funktion
in der IFRS-Bilanzierung zu, wie andere Standards eine Bewertung zum Fair Value
vorsehen (vgl. Althoff, F., S. 333).
Die Schnittstellen zum Controlling liegen auf verschiedenen Ebenen (vgl. Win-
kler, C., S. 373). Einerseits fungiert das Controlling als Methodenlieferant bei Fair-
Value-Bewertungen auf den Hierarchiestufen zwei und drei, andererseits bestehen
beachtliche berschneidungen im Rahmen der Steuerungsrechnungen sowie der
Performancemessung. Die neuen Regelungen des Standards IFRS 13 haben im
Hinblick auf Steuerungszwecke zu keinen signifikanten Verbesserungen gefhrt,
so dass die konzeptionelle Eignung unverndert kritisch beurteilt werden muss.
Wesentliche Prinzipien aus der entscheidungsorientierten Kostenrechnung (Mar-
ginalprinzip, Relevanzprinzip) werden durch die IFRS-Rechnungslegung nicht
vollstndig bercksichtigt (Winkler, C., S. 374).
Die Fair-Value-Bilanzierung nach IFRS 13 hat Auswirkungen auf die Perfor-
mancemessung. Unmittelbar wird dies dazu fhren, dass die Bilanzanalyseken-
nzahlen angepasst werden und diese im Einzelfall zu beurteilen sind, da sie nicht
pauschal in die eine oder andere Richtung wirken. Im Idealfall der hinreichenden
Verfgbarkeit von Marktwerten erhht sich die Entscheidungsrelevanz der Daten
in der externen Rechnungslegung, da der Zukunftsbezug durch Marktpreise, die
die Erwartungen der Marktteilnehmer widerspiegeln, zunimmt (vgl. Winkler, C.,
S. 374). Die Verlsslichkeit dieser Wertanstze ist aber letztlich auch davon abhn-
gig, in welchem Umfang Marktpreise zur Verfgung stehen, oder ob alternative
Schtzverfahren (Hierarchiestufen zwei und drei) zur Anwendung kommen ms-
sen. Positiv ist in diesem Zusammenhang, dass bei den Schtzverfahren die am
Markt beobachtbaren Inputgren durch die neue einheitliche Regelung in IFRS
13 an Relevanz gewinnen; dies untersttzt die Verlsslichkeit. Einperiodige Bilan-
zanalysekennzahlen wie der EVA (Economic Value Added /Geschftswertbeitrag )
werden durch eine Fair-Value-Bewertung
nur in der Anzahl der Positionen in den berleitungsrechnungen (Adjustierun-
gen, Conversions) tangiert.
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598 Bodo Runzheimer
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in: Kapitalmarktorientierte Rechnungslegung, 9.Jg., Heft 10, 2009, S. 545 554.
24. Pfaff, D.: IFRS und Wertorientierte Investitionssteuerung Zur Anreizvertrglich-
keit der IFRS, in: Kajter, P./Mindermann, T./Winkler, C. (Hrsg.): Controlling
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wirtschaft, Mnchen 2005, S. 575 600.
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forschung VIII, Osijek 2012, S. 889 904.
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kovic, D./Runzheimer, B. (Hrsg.): Interdisziplinre Managementforschung VI,
Osijek 2010, S. 820 842.
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600 Nikolina Smajla
MEASURING FINANCIAL SOUNDNESS OF INSURANCE

COMPANIES BY USING CARAMELS MODEL CASE OF
CROATIA
Nikolina Smajla, univ.spec.oec.1
1
Ph.D. Candidate, Polytechnic of Karlovac, Republic of Croatia, nikolina.smajla@vuka.hr
Abstract
Insurance companies are institutions that mobilize risk from individuals and
companies through insurance contract making exposure to risk to the whole econ-
omy lower. Their financial soundness is a key to their success and stability of this
part of financial sector and therefore regulators have developed different kinds of
models to evaluate their work.
The main purpose of this research is to explain one of the recent models used for
analyzing financial soundness of insurance companies, CARAMELS model, and to
understand the level of soundness of Croatian insurance companies. Methodology
used to control and regulate insurance sector in Croatia is different from presented
model, so this work gives a different view of the sectors soundness.
Some conclusions regarding given categories of financial soundness of the sec-
tor will be made based on data from global database of insurance companies (ISIS
database). At the end of the paper recommendations for further research are made.
Keywords: insurance companies, financial indicators, CARAMELS model
1. Introduction
Insurance sector as a part of financial sector has grown in past decades in devel-
oped as well as in developing countries. The main business of insurance companies
is risk mobilization of individuals and companies based on the system of pooling
and diversification. It also strengthens the linkages with other sectors of the econo-
my promoting growth and stability, and creating a sizeable impact on the national
income of the country (Simpson and Damoah; 2008, 2).
MEASURING FINANCIAL SOUNDNESS OF INSURANCE COMPANIES BY USING ... 601
Individuals or companies can reduce their risk by forming a pooling arrange-

ment which is not costless to operate the cost of organizing and operating pooling
arrangements is the main reason why insurance companies exist and why most pool-
ing arrangements take place indirectly through insurance contracts (Harrington
and Niehaus; 2004, 63). Insurance activity is characterized by the reversal of the
production cycle because premiums are collected when the contract is signed and
claims and costs arise only if specific event occurs (Simpson and Damoah; 2008, 3).
Therefore management of insurance company and the evaluation of their work
is very complex. As insurance sector is currently facing many challenges such as
increased competition, consolidation, solvency risks and a changing regulatory en-
vironment, maintaining the sound financial health of insurance industry is most
challenging job for regulatory agencies while its contribution to the economy and
society is noteworthy (Ghimire; 2013, 1).
2. Evaluation of insurance companies financial soundness

By doing their core business, insurance companies are exposed to different types
of risk, starting from underwriting risks that are accepted from insurers, through
investment risks to the non-technical risks such as management risk, business risk
and legal risk. The main task of evaluating financial soundness of insurance sector
is therefore to explore risks to which insurers are exposed and to find a way to man-
age them.
Because of high growth rate of the sector, supervisors and regulators have de-
veloped different models to evaluate and control business activities of insurance
companies and to achieve contribution of insurance sector to economic growth.
In many jurisdictions, the regulators evaluate insurers from their financial reports
usually used in accountancy: balance sheet, profit and loss account and additional
notes, and different (annual, quarterly, monthly) statements concerning solvency
margin, premium income, losses, reservs etc. Some of the indicators used for evalu-
ating financial health of insurers are Financial soundness indicators developed by
World Bank and International Monetary Fund.
2.1. Financial soundness indicators

Financial soundness indicators (FSI) are indicators of financial stability of the fi-
nancial institution (World Bank, IMF, 2005). They can be measured for individual
institution as well as for the whole market in which the institution operates. Main
602 Nikolina Smajla
goal of calculation of FSIs is to support macroprudential analysis, to assess and en-

sure surveillance of the strengths and vulnerabilities of financial system, to enhance
financial stability and to limit the likelihood of a failure of the financial system.
International Monetary Fund has provided the guidance on the concepts and
definitions, and sources and techniques for the compilation and dissemination of
the FSIs (Compilation Guide on Financial Soundness Indicators, IMF 2004). It con-
tains a discussion of the distinction between a core set for which data are gener-
ally available and are found to be highly relevant for analytical purposes in almost
all countries and encouraged set for which data are not as easily available and
whose relevance could vary across countries (World Bank, IMF, 2005).
FSIs are a comprehensive set of indicators used in economics statistics that reflect
a mixture of influences. Some of the concepts are drawn from prudential and com-
mercial measurement framework, which have been developed to monitor individual
entities. Other concepts are drawn from macroeconomic measurement frameworks,
which have been developed to monitor aggregate activity in the economy.
2.2. Financial soundness indicators for insurance companies CARAMELS model

FSIs used for banking sector are known as CAMELS framework (Capital ad-
equacy, Asset quality, Management soundness, Earnings and profitability, Liquid-
ity and Sensitivity to market risk) are routinely used and have shown good results
in financial soundness measurement.
In insurance companies performance, quantitative soundness indicators are pre-
sented in CARAMELS framework (Capital adequacy, Asset quality, Reinsurance,
Adequacy of claims and actuarial, Management soundness, Earnings and profit-
ability, Liquidity and Sensitivity to market risk), which adds the reinsurance and
actuarial part to the CAMELS framework. It is important to note that some indica-
tors used for banks are different in construction when used for insurance compa-
nies and require different interpretation.
Das, Davies and Podpiera (2003) have proposed a set of indicators for the in-
surance sector (grouped separately for life and non-life insurance) that should be
compiled and used for surveillance of financial soundness of insurance companies
and the insurance sector as a whole. Previous works have been concentrating on
the banking system, and quoted work is the first scientific approach to indicators of
financial stability of insurance market. The set of indicators are presented in table 1.
Although the overall financial soundness of the financial institution depends

on many factors such as quality of management or organizational structure, these
indicators are verified to achieve an acceptable degree of reliability (Das, Davies and
Podpiera; 2003, 21). Many of them are common for life and non-life insurance
companies, but it is important to realize that for deeper analysis, different lines of
business needs to be analyzed separately.
Table 1: Insurance Financial Soundness Indicators: Core Set
Category Indicator Non-life Life

Capital Net premium/capital x
adequacy Capital/total assets x
Capital/technical reserves x
Asset quality (Real estate+unquoted equities+debtors)/total assets x x
Receivables/(Gross premium+reinsurance recoveries) x x
Equities/total assets x x
Nonperforming loans to total gross loans x
Reinsurance Risk retention ratio (net premium/gross premium) x x
and actuarial Net technical reserves/average of net claims paid in last 3 years (survival x
issues ratio) x
Net technical reserves/average of net premium received in last 3 years
Management Gross premium/number of employees x x
soundness Asset per employee (total assets/number of employees) x x
Earnings and Loss ratio (net claims/net premium) x
profitability Expense ratio (expense/net premium) x x
Combined ratio = loss ratio + expense ratio x
Revisions to technical reserves/technical reserves x
Investment income/net premium x
Investment income/investment assets x
Return on equity (ROE) x x
Liquidity Liquid assets/current liabilities x x
Sensitivity to Net open foreign exchange position/capital x x
market risk Duration of assets and liabilities x
Source: Das, U., Davies, N., Podpiera, R. (2003): Insurance and Issues in Financial Soundness,
IMF Working Paper No. 3/138, p. 28
604 Nikolina Smajla
Comparing to other frameworks used for financial evaluation of insurers (Simp-

son and Damoah; 2008, 12), CARAMELS model has developed two significantly
important parts of analysis: the issue of management soundness and actuarial issue.
According to Das, Davies and Podpiera (2003), sound management is vital in the
assessment of the financial strength of an entity, it is crucial for financial stability
of insurers, though it is very difficult, to find any direct quantitative measure of
management soundness. The core set of Insurance Financial Soundness Indicators
use the survival ratio (net technical reserves to average of net claims paid in last 3
years) for non-life insurance, which shows the quality of companys estimate of the
value of the reported and outstanding claim.
3. Insurance sector of the Republic of Croatia

In the Republic of Croatia insurance sector is regulated by Croatian Financial
Services Supervisory Agency (CFSSA). It has grown rapidly from 2003 till 2008
when it started perceiving the influence of economic crisis in the country. Gross
written premium has grown from 2003 till 2008 at the rate of more than 10% and
then started declining at the rate of 2,8% (in year 2009 in comparison to 2008),
1,7% in 2010 in comparison to 2009, 1% in 2011 in comparison to 2010 and
1,1% in 2012 in comparison to 2011.
The Croatian insurance sector in 2011 consisted of 27 insurance companies and
1 reinsurance company. Six of them conducted life assurance business only, ten
insurance companies carried on non-life insurance only and ten companies carried
on both life and non-life business (composite companies). One company, Wsten-
rot ivotno osiguranje d.d. obtained operating licence from the Agency but did not
start performing insurance activities in the same year (Croatian Financial Services
Supervisory Agency, 2011). Situation in 2012 was similar, there were 27 licenced
insurance companies and one reinsurance company in the insurance market. Seven
of them pursued only life activities, ten companies carried on non-life insurance
only and ten companies were composite companies.
4. Using CARAMELS model in Croatian insurance companies

Financial evaluation of insurers in the Republic of Croatia hereafter will be
made using CARAMELS methodology. Although some of the indicators are very
similarly used by Croatian Financial Services Supervisory Agency, the whole meth-
odology is not used in Croatia.
Data for the analysis is taken from the ISIS database which contains compre-
hensive information on insurance companies across the globe; private and public
insurance companies. It is owned by Bureau van Dijk and contains detailed fi-
nancial statements of the companies as well as some information like ownership,
geographical coverage, types of business and stock data for listed companies. In-
formation for analysis is taken from the ISIS database because of future possible
cross-country comparability using the same set of information.
The last available information from the Database are data for the year 2011,
which are analyzed hereafter. In the ISIS database, there are total of 24 companies
in Croatia with data for 2011: one of them is reinsurance company, 10 composite
companies, 8 non-life and 5 life insurance companies. The analysis will be made for
23 companies which is 85% of total number of insurance companies in Croatia in
2011 and 95,95% of gross written premium of all insurance companies (Croatian
Financial Services Supervisory Agency, 2011).
Composite companies for which the data is available are: Croatia Osiguran-
je, Allianz Zagreb, Kvarner Vienna Insurance Group, Grawe Hrvatska, Basler
Osiguranje Zagreb, Triglav Osiguranje, Helios Vienna Insurance Group, Generali
Osiguranje and Uniqa Osiguranje. Non-life companies are: Euroherz Osiguranje,
Jadransko Osiguranje, Sunce Osiguranje, HOK Osiguranje, BNP Paribas Cardiff
Osiguranje, Velebit Osiguranje, Hrvatsko kreditno osiguranje and ERGO Osigu-
ranje. Life companies taken into analysis are: Agram ivotno Osiguranje, Erste
Osiguranje VIG, ERGO ivotno osiguranje, Societe Generale Osiguranje and KD
ivotno Osiguranje.
FSIs have been calculated according to Das, Davies and Podpieras methodol-
ogy taking into account differences between life and non-life companies and are
presented in table 2. If a indicator has to be calculated only for, for example, non-
life companies, composite companies have been also taken into account because
they are carrying on both life and non life businesses. Some of the indicators (for
example from category of Sensitivity to market risk) could not be calculated due to
the absence of information.
606 Nikolina Smajla
Table 2: Insurance Financial Soundness Indicators for Croatia, 2011.
Category Indicator Non-life Life Composite Total

Net premium/capital 5,70 - 4,30 -
Capital
Capital/total assets 0,06 - 0,06 -
adequacy
Capital/technical reserves - 0,12 0,07 -
(Real estate+unquoted equities+debtors)/ 0,20 n.a. 0,22 0,20
total assets
Receivables/(Gross premium+reinsurance 0,22 0,00 0,21 0,20
Asset quality
recoveries)
Equities/total assets 0,00 0,00 0,01 0,01
Nonperforming loans to total gross loans - n.a. n.a. -
Risk retention ratio 0,96 1,00 0,84 0,88
Reinsurance Net technical reserves/average of net claims 2,94 - 5,33 -
and actuarial paid in last 3 years (survival ratio)
issues Net technical reserves/average of net - 3,97 3,11 -
premium received in last 3 years
Management Gross premium/number of employees 664,77 170,39 930,34 906,39
soundness Asset per employee 1.482,72 487,47 3.166,88 3.039,31
Loss ratio 0,39 - 0,59 -
Expense ratio 0,75 0,98 1,11 1,01

Combined ratio 1,15 - 1,70 -
Earnings and
profitability Revisions to technical reserves/technical - n.a. n.a. -
reserves
Investment income/net premium 0,04 - 0,19 -
Investment income/investment assets - 0,04 0,06 -
Return on equity (ROE) 0,79 0,28 0,05 0,22
Liquidity Liquid assets/current liabilities 133,16 117,76 60,82 98,36
Sensitivity to Net open foreign exchange position/capital n.a. n.a. n.a. n.a.
market risk Duration of assets and liabilities - n.a. n.a. -
Source: ISIS database
Listed hereafter, indicators are explained for each category separately.

1. Capital promotes the stability and efficiency of financial system and indicates
whether the insurance company has enough capital to absorb losses arising
from claims. Higher capital adequacy ratio means capital is sufficient to the
smooth run of the business (Ghimire; 2013, 3).
First indicator in category of capital adequacy (net premium/capital) is cal-

culating only for non-life companies and amounts 5,70 (4,30 for compos-
ite companies). The highest indicator is measured for Euroherz osiguranje
(31,38), therefore this company has used its capital to collect the biggest
amount of premium. Second indicator is showing the ratio of capital to
total assets. For non-life and composite companies it amounts 0,06 and
the highest indicator is calculated for Hrvatsko kreditno osiguranje (0,96).
Third indicator (ratio of capital to technical reserves) is calculated for life
and composite companies: for life companies it is 0,12 and for composite
companies 0,07. KD ivotno osiguranje has the biggest indicator of all life
insurance companies (5,48), and Kvarner Vienna Insurance Group of all
composite indicators (0,19).
2. Indicators in category of asset quality do not show some mayor differences in
life and non-life companies. Ratio of the sum of real estate value, unquoted
equities and debtors in relation to total assets is 0,20 for non-life companies
as well as for all companies in Croatia. Ratio of receivables in relation to sum
of gross premium written and reinsurance recoveries is 0,20 for all compa-
nies in Croatia, 0,22 for non-life and 0,21 for composite companies.
3. Interesting indicators for insurance companies are those in the category of
reinsurance and actuarial issues. Risk retention ratio (net premium/gross
premium) is a measure of how much of the risk is being carried by an insurer
rather than being passed to reinsurers. Non life companies have ceded 4%
of risk to reinsurers (risk retention ratio equals 0,96), composite companies
16% (risk retention ratio equals 0,86) and life insurance companies have
ceded almost nothing (their risk retention ratio is 1,00). In the whole in-
surance sector of Croatia 12% of collected premiums have been passed to
reinsurers.
4. As it was noted before, management soundness issue is significantly impor-
tant part of analysis in CARAMELS model. First indicator, Gross written
premium in comparison to number of employees shows how much pre-
mium is collected per one employee in the company. It is a good indica-
tor of management soundness because it is important to have appropriate
number of employees who are able to collect big amount of premiums, in
other words management efficiency and soundness is outcome of operational
efficiency of the company (Ghimire; 2013, 3). For non life companies the
608 Nikolina Smajla
indicator is 664 thousands kuna, for life companies is lower (170,39 t kn)
and for composite is the biggest (930,34 t kn). The best indicator is of Croa-
tia Osiguranje, composite company and the biggest company in the whole
sector (measured by the amount of collected premiums).
Asset per employee is another indicator of management soundness issue con-
nected to the amount of asset per one employee. The biggest ratio is once
again at the composite companies (3.166,88 t kn), but this time Croatia
Osiguranje is not leading, but Merkur Osiguranje (8.843,09 t kn).
5. By category of earnings and profitability there is a set of seven indicators that
show how profitable insurance companies are. Composite companies show
the best results in every indicator because they have the biggest amounts of
premium collected as well as the best results in investment business. But,
return on equity is the greatest for non-life companies (0,79) and the lowest
for composite companies (0,05).
6. Indicator of liquidity (liquid assets/current liabilities) is not showing good
results, especially for composite companies (60,82). Life and non-life com-
panies have better liquidity (life: 117,76, non-life: 133,16) which means that
they dont have problems with the amount of liquid asset for paying their
current liabilities. Composite companies have some problems with the issue,
mainly due to the situation of illiquidity of the whole economy.
5. Conclusion
Based on the secondary information from the ISIS database, some conclusions
of financial sector soundness in Croatia can be made. Regarding capital adequacy
ratios, Euroherz osiguranje has achieved the best results, which can show how sta-
ble their business is. Composite companies have shown that they use reinsurance
service more than other companies because their risk retention ratio is the lowest.
Composite companies also have the healthiest management, above all the biggest
insurance company, Croatia osiguranje. Composite companies have also the great-
est profitability indicators, but the lowest return on equity. Above all, the worst
indicators are indicators of liquidity that can represent serious problems for insur-
ance companies.
Insurance regulatory authority of Croatia, Croatian Financial Services Supervi-
sory Agency should pay proper attention to capital adequacy and liquidity indica-
tors of insurance companies, as well as their management soundness because these

categories pay major role in total financial soundness of the sector. Insurers also
must be aware of their financial health to ensure stable and sound business.
Some of the major limitations of the study are concentration to one country
and data for one year. Therefore, recommendations for further research is to make
analysis for more years in Croatia, to make deeper analysis separately for life and
non-life companies and to make cross-country comparability using the same set of
information.
References:
1. Das, U., Davies, N., Podpiera, R. (2003): Insurance and Issues in Financial
Soundness, IMF Working Paper No. 3/138
2. Ghimire, R. (2013): Financial Efficiency of Non Life Insurance Industries in Nepal,
The Lumbini Journal of Business and Economics, Vol-III , No.-2 , ISSN 2091-1467
3. Harrington, S. E., Niehaus, G. R. (2004): Risk Management and Insurance, Mc-
Graw Hill, New York
4. http://www.hanfa.hr/en/nav/258/insurance-market.html Pristup: (12-03-2014)
5. http://www.hanfa.hr/getfile/39347/HANFA_Annual%20Report%202011_
WEB%20Publication.pdf Pristup: (08-03-2014)
6. http://www.hanfa.hr/getfile/40363/GI_2012_eng.pdf Pristup: (08-03-2014)
7. IMF (2004): Compilation Guide on Financial Soundness Indicators
8. Simpson, S. N. Y, Damoah, O. B. O. (2008): An Evaluation of Financial Health of
Non-Life Insurance Companies from Developing Countries: The Case of Ghana,
21st Australasian Finance and Banking Conference, December 16-18, 2008, Sydney
9. World Bank; International Monetary Fund (2005): Financial Sector Assessment: A
Handbook, Washington, DC
610 Milan Stani Melita Cita Berislav Bolfek
ADVANTAGES AND DISADVANTAGES OF

PRE-BANKRUPTCY SETTLEMENT
Milan Stani, univ.spec.oec., Melita Cita, M.Sc., Berislav Bolfek, Ph.D.
Polytehnic of Slavonski Brod, Republic of Croatia, milan.stanic@vusb.hr
VERN Polytechnic, Republic of Croatia, melita.cita@vern.hr
University of Zadar, Republic of Croatia berislav.bolfek@gmail.com
Abstract
The Act on Financing and Pre-bankruptcy Settlement entered into force on
October 2012. Government proposed Act as a response to fast growing illiquidity
and insolvency. Years of irresponsible business operations brought many enterprises
to the edge. There were two excuses for bringing Act. First one objected that most
of enterprises are in situation where regular bankruptcy would lead to cessation of
business. Second was connected to first one, stating that bankruptcy means loss of
work places. Idea was to allow debtors to continue business by reprogramming and
writing-off of part of debt with consent from majority of creditors.
Financial and operating restructuring plan, a key part of pre-bankruptcy settle-
ment, sets how enterprise will operate and what is necessary for continuation of
business. However, by accepting plan, creditors agree that some of their claims will
not be settled. Therefore, Act approves non-payment of some of the debts, directly
damaging creditors and other enterprises that pay on time. Reasonable question is:
do saving enterprises and jobs justify unpaid debts? Moreover, there are no grants
that enterprises who successfully settle will operate positive; and, if not allowing
them to continue business will only make new debts. Through three case studies
paper shows how pre-bankruptcy settlement is conducted and what are advantages
and disadvantages of settlement.
JEL Classification: G33, G34
Keywords: Pre-bankruptcy settlement, Financial and operating restructuring
plan, Enterprises, Creditors.
ADVANTAGES AND DISADVANTAGES OF PREBANKRUPTCY SETTLEMENT 611
1 Introduction
The Act on Financing and Pre-bankruptcy Settlement (later: the Act) was
brought on October 2012. It was government response to growing problem of il-
liquidity and insolvency. Years of irresponsible business brought many companies
to position where they could not operate. There were two excuses for the Act: wish
to preserve companies and wish to preserve job places. Idea was to allow companies
continuation of business with unblocking companys account and with write-off of
part of debt. Everything should go with coordination between debtor and credi-
tors. Therefore, idea where companies that are at the doors of bankruptcy which
would probably lead to cease of business would be allowed to continuo business
operation, seemed as good solution and was welcomed in part of public. However,
soon after the start of implementation of the Act, many problems came into light,
and because of that Law had been changed four times in such a short period of
time. Despite this fact, some of the major problems still exist: weak role of the
Court, determination of claims, and legal relations after signing the settlement.
Paper is consisted from two parts. In first part is briefly explained pre-bank-
ruptcy procedure: course of procedure, procedure authorities, and operating and
financial restructuring plan. Second part offers critical review of pre-bankruptcy
settlement in practice. Also, three case studies are used in paper. Paper aim is to
critically evaluate pre-bankruptcy settlement, and to conclude can advantages of
procedure overcome all disadvantages that are brought by it.
2 Pre-Bankruptcy settlement
Pre-bankruptcy settlement was imagined in the Act as a procedure which will al-
low entrepreneurs in financial problems to continue business operations. According
to Act, entrepreneur is natural or legal person, who by itself manage economical or
professional activity in order to gain income or other benefit. Aim is restitution of
liquidity and solvency of debtor; the Act dictates that debtors who fulfil conditions
from the Act are obliged to initiate the procedure. Key part of procedure is oper-
ating and financial restructuring plan. If creditors realise that proposed operating
plan cannot guarantee positive business and income of additional money flows in
future, and proposed financial restructuring plan is not supporting whole process
of revitalization of company so that it can pay its debts on time, pre-bankruptcy
settlement would be pointless, and for those companies bankruptcy would be bet-
ter solution. (Garfuli, 2013, 28)
2.1. Pre-bankruptcy procedure

Procedure can be conducted over legal person and over individual debtor (sole
trader and artisan), and cannot be conducted over natural person. Procedure can
be initiated only by debtor. He is obliged to initiate procedure in case of illiquidity
and insolvency. Illiquidity appears when entrepreneur is not able to pay in time his
liabilities. Entrepreneur is considered illiquid if in 60 days with financial restructur-
ing outside of pre-bankruptcy settlement, is not able to reinstitute liquidity. Also he
is illiquid if he is late more than 30 days with wages in amount from work contracts
alongside with contributions.
Insolvency appears when entrepreneur becomes unable to pay or when he be-
comes overdue. He is overdue when he cannot in longer period of time respect his
liabilities in period longer than 60 days. It is also considered that entrepreneur is
overdue if value of his assets is lower than his debts.
There are two types of procedure: short procedure and regular procedure. Short
procedure is conducted when liabilities do not cross amount of 2 million Kunas, and
debtor do not employs more than 30 workers. In short procedure debtor is obliged
to bring verification of signed agreements with creditors about their acceptance of
operating and financial restructuring plan (http://www.porezna-uprava.hr). Regular
procedure is conducted in all cases when two conditions for short procedure are
not cumulative fulfilled. Pre-bankruptcy settlement procedure is urgent procedure
and has to be over in 120 days, unless council allow to postpone it for maximum
90 days. Short procedure has to be over in 100 days. Proposal for pre-bankruptcy
settlement debtor submits to Financial Agency (FINA). Procedure cannot be initi-
ated over debtor who is in bankruptcy procedure. If there is negative outcome of
settlement, ex officio is started bankruptcy procedure and which is aimed only on
liquidation of debtor, end of his existence and erasing from register. Before bring-
ing the Act in Bankruptcy Act were two possible solutions for companies who end
up in bankruptcy. One was liquidation, and other was so called bankruptcy with
restructuring. Other solution was for those companies who could survive on market,
but was rarely used. Because of the Act Bankruptcy law had to be changed, where
bankruptcy with restructuring has been abandoned (Barii, 2013, 18)
2.2. Authorities in procedure

Authorities in procedure are: Settlement Council and Pre-bankruptcy settle-
ment Commissioner. Settlement council has a formal role, their task is to: lead pro-
cedure, bring solutions and conclusions, publish decisions and other documents
on Financial agencys website, submit a proposal to institute bankruptcy procedure
against debtor, name Commissioner, give instructions to Commissioner and super-
vise his work. As it was already mentioned Commissioner is named by Settlement
council from bankruptcy trustee list. His tasks are: questioning the credibility of
the documentation submitted by debtor, reviewing submitted claims, supervising
debtors financial business, notifying Council if debtor makes payments opposite
to The Act, supervising payoff of costs of the procedure, supervising fulfillment of
debtors obligations towards creditors in contest of pre-bankruptcy settlement and
performing other duties as requested by the presiding council.
When we speak about creditors, in order of deciding on a financial restructuring
plan they are divided into three groups. One of the groups is consisted of public
administrations and companies with majority state ownership. Second group is
consisted from financial institutions and third group are other creditors. Creditors
make decision by voting about the plan. They are allowed to vote in writing voting
form which must be delivered to Settlement council, no later than beginning of
hearing to vote. Creditors whos claims are determined have right to vote. Plan is
considered accepted if is voted by creditors whose claims exceed half of value of es-
tablished claims for each group of creditors, or if is voted by creditors whose claims
exceed 2/3 of the value of all established claims.
2.3. Operating and financial restructuring plan

As it was already mentioned operating and financial restructuring plan is key
part of settlement. It is responsible if there is going to be settlement or not. If
creditors accept the plan, debtor is obliged to respect everything from it. Debtors
task is to convince creditors that pre-bankruptcy settlement is way better solution
for them than the regular bankruptcy procedure. He needs to convince them that
through settlement they will collect more than by selling all of his assets.
Nevertheless, in most cases value of assets is several times lower than liabilities;
with regular sale of assets part of creditors would not be settled. In opposite case,
where assets would cover majority of liabilities, creditors would not be ready to
write-off debt, rather to collect from debtors assets. According to Article 43 of the
Act, plan needs to incorporate facts from which can be red reason of deficiency of
liquid fund. Also, there need to be calculation of deficiency of funds on day when
financial report is presented. After that, there is description of measures for finan-
cial restructuring and calculation of their effect on profitability of business and

elimination of insolvency. Those measures should ensure fresh capital for debtors
and by that revitalization of business operation; often through inflow of new capital
or from bank loans or by entrance of new owner.
Actually, whole plan goes around measures of operative restructuring and cal-
culation of their effects on positive business, which should lead to revitalization of
solvency. This measures should be sort of turnaround in business; while old way
of business have brought company into problems. There should be strategically
changes like change of targeted market, outsourcing, withdrawal from some servic-
es, wider range of service, change in number of employees, and all other measures
for restructuring with which company can change temporally situation (Garfuli,
2013, 28). It is on debtor to offer creditors reduction of their claims. The Act holds
some restrictions in this part. If debtor suggests reduction of liabilities, percentage
that he offers to pay to creditors cannot be smaller than 30% if he is to pay in
period to maximum four years or smaller than 40 % if period is longer than four
years. What is noticeable in practice is that debtors usually use maximum reduc-
tion when it comes to debt towards state or state companies, but towards banks
and bigger suppliers they are usually more careful, because those creditors in many
cases cannot afford themselves to lose such big amount of claims, and would not
vote for it. However, as it is to be shown later in paper, sometimes banks are against
settlement but they do not have enough votes to stop it.
3 Pre-bankruptcy settlement in practice

It can be said that none act can predict all cases in practice; however, when one
act needs to be changed four times in less than year, it is clear that first solutions
where deeply wrong. Exactly that happened to the Act, it has been changed two
times in 2012 and two times in 2013. Nevertheless, act still have numerous prob-
lems, what will be shown in paper. There are few illogical regulations: role of the
Court, procedure for determination of claims, and legal relations during and after
signing the settlement.
3.1. Role of the Court in Pre-bankruptcy settlement

In Article 26 of the Act, pre-bankruptcy settlement procedure is conducted in
regional centres of Financial Agency, whose territorial jurisdiction is in registered
office of debtor. As it was already mentioned plan is considered accepted if is ac-
cepted by creditors with at least half of claims from every group or by creditors with
2/3 of claims. Until procedure is not over commercial court has no role. In Article
66 of the act stands that Court will with decision approve settlement if debtor
and necessary number of creditors give their consent in hearing for conclusion of
settlement, and if court approve that content of settlement is in accordance with
general rules of court settlement, and its content is in essential manners adequately
accepted plan on operating and financial restructuring plan. Therefore, we can say
that judge is in position of Public Notary, he can only confirm settlement. What
is not allowed for him is to question status of debtor and creditors, justification of
certain claims and legality of whole procedure.
3.2. Pre-bankruptcy settlement case study

With proposal for initiation of settlement, debtor is obliged to bring report on
financial status and business. Therefore, he is obliged to report all his debts and
claims. However, after proposal is accepted, FINA calls all creditors to deliver their
claims. On tree case studies paper tries to show some advantages and disadvantages
of institute of pre-bankruptcy settlement. All documentation used in this part of
paper is available on Internet pages of Financial Agency (http://predstecajnena-
godbe. fina.hr). On Internet page for public publication can be found all docu-
ments connected to certain pre-bankruptcy procedure. Basic criteria for searching
documents are OIB or name of debtor. Software application usually shows primary
results, like those brought by settlement council. (http://www.fina.hr)
First case is one of the most popular cases in media, case of company VOX.
VOX has submitted proposal for initiation of pre-bankruptcy settlement, in which
stands that VOX has one employee and debts which: definitely goes above 10 mil-
lion Kunas. Than after request for amendment of proposal, VOX delivers docu-
mentation according to which debts are 12.3 million Kunas. Afterwards, proposal
is accepted and creditors are called to deliver their claims. At the end, all claims
were more than 77 million Kunas. Therefore, claims at the end of procedure were
60 million higher than in first proposal.
Second case is company METAL-COLOR. In proposal there is debt in amount
of little less than 5.5 million Kunas. After call for creditors to deliver their claims
amount rises above 28 million. Here we can also see that amount is 23 million
Kunas higher than one in proposal.
Third case is company ENERGOTIM. In its proposal debts are 3.3 million Ku-
nas, and after call for creditors to deliver claims amount drops down to 2.4 million.
In this case we see that debt is actually lower than debtor has applied.
From all these cases logical conclusion is that debtors usually do not know how
big their debt is. Sometimes it is because of bad accountancy. However, it is pos-
sible, and what will be shown in this paper, that some of claims are not real, and
that are applied only to gain necessary number of votes. Therefore we can say that
there is serious question of fictive claims. Claims are not questioned in special pro-
cedure, it is only necessary to bring document proving that claim exists. Document
itself is not questioned in any procedure. In Article 60/2 of the Act, existence and
amount of claim for which there is consent of debtor and creditor, and claims for
which there is writ of execution, are considered determined claims, unless debtor
has public document that proves that claim does not exist anymore.
Therefore, it is enough that debtor accept debt and it is considered determined.
This opens doors for various frauds, and what is directly connected with last chap-
ter inability of judge to indentify fraud. Consequently, it is possible that fictive
claim appear only in order to ensure necessary majority for voting and for accept-
ing settlement. How voting looks in practice we can see on case of VOX settlement
where there were more than 53 million Kuna of debt written-off. From all claims
that creditors held for acceptance of settlement voted 67.80 %, what is little more
than 2/3. Against settlement were all creditors from second group of financial in-
stitutions with claims of more than 15 million Kunas, but that was not enough to
change decision. In Plan for VOX it was proposed to write-off:
All regular and penalty interests and 70% of principal for claims from group
companies in which state has major holdings, big suppliers, state bud-
get and financial institutions. Rest of debt would be paid with grace period
of one year in equal monthly amount in four years,
All regular and penalty interests and 60% of principal, with payment in 12
same monthly amounts for claims from group small suppliers,
Workers claims will be paid at latest in 12 months from the day settlement
is done,
Interests (regular and penalty) for all groups of creditors are to be write off in
whole amount.
Two more problems can be detected here. As it was said the Act was brought
with idea of saving companies and work places. Question is if it is reasonable to
save company which has only one employee? On the other hand, 1/3 of creditors
claims do not have any rights if majority decides to approve settlement. In VOX
case that is 15 million Kunas. Nevertheless, considering possibility of fictive claims,
it is clear that real creditors because of whose protection the Act was brought in
first place can find themselves in situation where they cannot participate in mak-
ing decisions.
In this part it is also important to note Article 60/8 where stands that if percent-
age of denied claims is more than 25% of amount of all claims, procedure of pre-
bankruptcy settlement is dismissed. After dismiss, automatically starts bankruptcy
procedure. Therefore, if there is some fictive claim which court is not allowed
to question and debtor denies more than 25% of it, procedure is automatically
dismissed. This Article allows third persons to fraudulently apply fictive claims and
with that to stop settlement.
Second case METAL-COLOR suggested write-off:
40 % of liabilities to Ministry of Finance to amount of 1.044.724 Kuna, 40
% of liabilities towards suppliers to amount of 529.400 Kuna, and 40% of
others short-term liabilities to amount of 500.981 Kuna. The income from
depreciation allocated amounts total 2.075.105 Kuna.
60% of taxes and contributions is transferred to long-term debt (payment in
installments), amount of which is 1.410.379 Kuna. Also 60 % of debt to-
ward suppliers is transferred to long-term debts amount of which is 794.101
Kuna. Same way, 60 % of other short-term liabilities will result in amount of
751.471 Kuna. Total transfer towards long-term liabilities is 2.955.951Kuna.
After conducting of financial restructuring plan short-term liabilities is reduced
for 5.031.056 Kuna and now it amounts 405.692 Kuna. This amount could be
covered by receivables dues from customers.
It is evident that in case of conducting financial restructuring plan company will
become solvent and will be able to continue business operations. However, ques-
tion is still if this plan is conductive, since it is based on predictions about positive
business future.
4 Post-settlement time
By pre-bankruptcy settlement debtor is exempt from paying to creditor amount
that overgrows percentage agreed in settlement; deadlines are also determined in
settlement. Nevertheless, all enforceable documents for claims inside of settlement
lose their strength towards debtor in amount that is paid. (Cuveljak, 2012, 27).
However if debtor pay any of these debts he was freed from he cannot ask for return
of that amount.
In Article 82 it is explained what happens if settlement is not conducted entirely.
In this case, creditors settled in amount from settlement do not have to return what
they have been paid, but are considered as settled. Next, creditors who have been
only partially settled can apply in bankruptcy procedure only rest of amount from
settlement. At the end, creditors who did not get anything can apply in bankruptcy
procedure only claims in amount from pre-bankruptcy settlement.
Possibly this is the biggest absurdity in whole Act. Creditors go into a pre-bank-
ruptcy settlement mainly because it is considered that they can get more claims
from settlement than from simple bankruptcy. After settlement is signed, nobody
guaranties that it will be respected. Therefore, company who positively ended set-
tlement is now allowed to continue business and also to create more debts and
even to reduce its assets. If they do not respect settlement, and therefore comes
to bankruptcy procedure, creditors do not get their rights before pre-bankruptcy
settlement. And what is more, there is big possibility that they cannot collect any of
their claims what they might have been able to do if there was no settlement and
just regular bankruptcy procedure. What is even worse, since there will be some
creditors that got priority in settlement and succeeded to collect their claims, it is
highly possible that others will not be able to collect even decreased amount from
settlement.
Connecting fictive claims whit Article 82 it is not hard to imagine scenario
where pre-bankruptcy settlement would be initiated only to pay some of creditors;
and then after there is nothing left in company to start bankruptcy procedure. In
regular bankruptcy procedure maybe those creditors would not have priority to
collect their claims, and in pre-bankruptcy settlement it can be done by putting
this in settlement.
Also, creditors with priority maybe would not be able to successfully vote against
settlement because they would be in minority. Considering that there is no effec-
tive control over collecting claims and over operating and financial restructuring
plan, this scenario is possible. We need to wait year or two to see will this occur in
practice, since there is small number of approved settlements which could already
be breached.
5 Conclusion
The Act on Financing and Pre-bankruptcy Settlement is in force less than 20
months. For sure, it is too soon to see big positive or negative effects of it. The Act
is brought with idea to allow entrepreneurs in problems clean start with fresh cash
flow. Idea by itself is good and positive. What is not positive is way that this idea is
implemented into the Act. In this paper we saw only few examples of Acts illogic
solutions. Act that is currently in force allows several frauds, what can be seen from
case studies. What is necessary is to increase role of court, so that it can stop fictive
claims and fraudulent behaviour. Besides this, it is necessary to defend debtor from
fictive claims which not exists and from which he will not be able to defend him-
self. It is obvious that legal effects in case of dismiss of pre-bankruptcy settlement
and start of bankruptcy procedure, are not fair and needs to be changed. Whit
those articles whole idea of settlement is automatically violated.
Advantage of this procedure is that some of companies will be saved from bank-
ruptcy, mostly in cases where his liabilities are several time larger than assets. How-
ever, there should be some defined terms when it is possible for company to success-
fully continue with business, and that is something that cannot be left exclusively
to debtor to decide if he had know how to successfully run the business he would
not be in position where he is. It must be noticed that there was sort of settlement
in old Bankruptcy Act, called bankruptcy with restructuring, where creditors were
those to decide should company continue to operate. However, there are only few
cases where this possibility was exercised. It is obvious that creditors did not trust
companies in bankruptcy and were not ready to take that risk. They did not trust
that restructuring of company would help them to collect more of their claims. At
present time situation is somehow completely changed. It should be mentioned
one more time, that idea of settlement is not bad, but there must be some serious
changes in the Act. Measures that should be added to settlement is necessity to do
changes in management, easier entrance of creditors into ownership and choosing
team of experts who would estimate can company effectively continue business or
not, and who would create plan for that. It is in interest of everybody: owner, work-
ers, creditors, and state to allow business which can continue business operations to
do so. However, that needs to be fair towards all of them.
References
1. Barii, D., Novela Steajnog zakona i Zakona o financijskom poslovanju i
predsteajnoj nagodbi, Inenjerski biro, 2013.
2. uveljak, J., O predsteajnoj nagodbi prema Zakonu o financijskom poslovanju i
predsteajnoj nagodbi, Pravo i porezi, br. 10, 2012.
3. Garofuli, A., Plan financijskog i poslovnog restrukturiranja, Financije pravo i porezi,
br. 6, 2013.
4. Zakon o financijskom poslovanju i predsteajnoj nagodbi, Narodne novine 108/12,
144/12, 81/13, 112/13.
5. http://predstecajnenagodbe.fina.hr, (pristup 10-02-2014).
6. http://www.fina.hr/Default.aspx?sec=1550, pristup (15-02-2014).
7. http://www.porezna-uprava.hr/bi/Stranice/Predstecajna-nagodba.aspx, pristup
(12-02-2014).
PUBLIC
ECONOMICS
STATE OWNERSHIP AND CORPORATE GOVERNANCE OF ENTERPRISES IN CROATIA 623
STATE OWNERSHIP AND CORPORATE GOVERNANCE OF

ENTERPRISES IN CROATIA
Boris Crnkovi, Ph.D.1, eljko Poega, Ph.D.2, Goran Sui, Ph.D.3
1
Republic of Croatia, bcrnko@efos.hr
2
Republic of Croatia, zpozega@efos.hr
3
Faculty of Philosophy, University of Split, Republic of Croatia, goran.sucic@ffst.hr
Abstract
Views towards state-owned enterprises on the one hand and private property
on the other side through history have changed often. However, strengthening the
role of the state in the economy, which is driven by a major economic crisis in the
late twenties to thirties of the last century, and continued with the completion of
the Second World War led to a significantly more active role of state ownership in
many economies. In the late seventies state enterprises began to fade in importance
due primarily to overcome the perception of their inefficiency. It has been listed
perception and source of many of the privatization process which culminated at
the beginning of the transition. Privatization process, which took place in Croatia
back the last two decades through the transformation and privatization, was very
complex due to the fact that it took place in transitional and war environment, and
today, two decades since the beginning of the privatization private sector share in
GDP of the Republic of Croatia is still too small with a large number of enterprises
that have remained in state ownership. It is clear that due to political and economic
reasons huge progress in the privatisation process in Croatia cannot be expected
soon and therefore it is necessary to ensure efficient management of the whole state
portfolio. Focus of a large number of scientists is the question of microeconomic
(in)efficiency of state-owned enterprises. Exactly with this purpose this paper will
analyze the financial performance Croatian state-owned enterprises.
JEL Classification: G34, L33
Keywords: Corporate governance, State-owned enterprises, Privatization, Pub-
lic sector
624 Boris Crnkovi eljko Poega Goran Sui
Introduction
The role and importance of state-owned enterprises have changed throughout
history, from the period in which there was almost no state-owned enterprises, to
the period in which it is played a significant role in the economy. Historically, state
enterprises began to play an active role since the Great Depression in 1929. year as
an active agent of economic recovery. The above trend continued after the Second
World War, when in many countries SOEs wore foundation of the entire post-war
reconstruction. In the seventies of the twentieth century, due to raising awareness
about the inefficiency of state-owned enterprises have begun trends of privatization
of state enterprises that continued at the beginning of the transition of the former
socialist countries.
In addition to political and ideological motivation for the establishment of
state-owned enterprises, according to Toninelli (2000), there are three key reasons
for their existence: market failure, promoting economic growth based on long-term
planning; industrial and financial rehabilitation as a consequence of the economic
crisis.
Megginson (2005) also states that the role of state ownership often changed
through history, and contemporary economic theory supporters justify the exis-
tence of state ownership through three key arguments: The first reason is the fact
that state ownership is considered a good way of ensuring balance between eco-
nomic and general social goals in companies and avoiding the orientation of afore
mentioned companeies on solely maximizing profits; Second, state ownership is
motivated as a response to problems and questions of market faliure, especially the
challenges of the economic feasibility of natural monopolies and challanges of in-
ternalization of externalities (such as pollution, for example); And third, state own-
ership is justified in circumstances where there is information asymmetry between
the principal (society as whole) and agent (company leadership), when complete
and quality contracts cannot be made and carried out.
The assumption justification of state ownership in all three cases is that the
governments act benevolently and accordingly with the goal to increase the gen-
eral social welfare, and that consequently the property of the state is economically
efficient. Certainly, the state property was also imposed a lot of times in history
with stances of certain political parties or ideologies especially as a precondition for
the redistribution of wealth and income from less to more deserving members of
society, but this issue is primarily a question of political power and the justification
of an ideology, not issue of serious economic analysis.
However, the global financial crisis in the second half of the last decade (since
2008. onward) stops the trends of privatization on the one hand, and on the other
hand is forcing many states to enter the ownership of numerous private companies
affected by the crisis, thus the importance of state-owned enterprises becoming
increasing. Accorting to Pargendler (2012) this is best shown by the fact that SOEs
are now responsible for approximately one-fifth of global stock market value, which
is more than two times the level observed just one decade ago. Even before the crisis
in many countries, SOEs had a significant share in the gross domestic product and
employment. The crisis has aforesaid share further increased. The importance of
state-owned enterprises is further emphasized by the fact that they are still domi-
nant in infrastructure sectors such as water, energy and transport and therefore
their business is not only important for themselves but it affects the entire economy
and the general population of a country. Consequently, the governance of SOEs
will be critical to ensure their positive contribution to a countrys overall economic
efficiency and competitiveness (OECD, 2005).
This paper is organized as follows. Section 2 through literature review describes
the latest scientific knowledge of corporate governance in SOEs. Section 3 presents
the development and current state of the portfolio of state-owned enterprises in the
Republic of Croatia. Section 4 describes the current state of corporate governance
in state-owned enterprises in the Republic of Croatia. Finally, Section 9 presents
our conclusions
Corporate governance of state owned enterprises theoretical owerview

The globalisation of markets within most industries, technological changes and
liberalisation in many infrastructure sectors has made readjustment and/or restruc-
turing of the state-owned sector often necessary. The need to clearly separate state
ownership from the regulatory role, and the necessity to put in place more effi-
cient decision making processes and governance structures have been highlighted
in many instances, including when it has been necessary to avoid failures or restruc-
ture after failures. (OECD, 2005)
According to World Bank (2010) SOEs face significant corporate governance
challenges, driven by a wide separation of ownership (by the state on behalf of
the citizens of a country) from control (by the directors and managers that run
the company). Many government bodies influence SOEs (one or more ministries,
cabinet, an ownership entity specifically created to oversee SOEs, the Parliament),
and each may potentially use the companies to achieve short-term political goals,
undermining their efficiency and opening the door to corruption. SOEs and their
owners typically face five corporate governance challenges (World Bank, 2010:1):
Unclear ownership objectives: Although there is general acceptance of share-
holder value as the goal for privately held companies, SOEs have been given
a wide range of goals and objectives. SOEs may face price controls, output
targets, requirements for comprehensive service (e.g., rail, telephony, mail),
employment goals, community development targets, pressures to correct past
social injustices, requirements to provide social services, and financial targets
such as returns on capital.
Weak owners: In many or most countries the state exercises its ownership role
through weak institutions, sets inconsistent goals, does not monitor company
performance, is unable to make changes to correct poor performance, and
cannot supply capital. Increasing the professionalism and capability of the
states ownership function is a major corporate governance challenge.
Low levels of transparency and disclosure: Although publicly owned, many
SOEs lack transparency. They tend to have no public reporting requirements,
and their accounts and other information may be treated as a state secret.
Opacity undermines performance monitoring, limits accountability at all
levels, conceals debt that can damage the financial system, and creates condi-
tions under which corruption can flourish.
Unprofessional boards of directors: SOE boards rarely play a true corporate
governance role. Boards tend to act as a parliament representing various
stakeholders. SOE boards in many countries include elected officials, civil
servants, and employee representatives, all of whom may have agendas that
conflict with the interest of the company as a whole. Unsurprisingly, SOE
boards are weak, and decision-making is heavily influenced by the govern-
ment. Improving SOE boards requires many of the same steps as in private
companies, including increased authority, autonomy, and professionalism.
Poor relationships with other shareholders and stakeholders: SOEs face power-
ful stakeholders, including consumers or communities, state-owned creditors
and employees. SOE employees may have a greater say in governance than
employees in the private sector do. Many SOEs also have minority share-
holders. As with other controlling shareholders, the state may abuse minority
rights.
In order to carry out its ownership responsibilities, the state can benefit from
using tools that are applicable to the private sector, witch is especially true for listed
SOEs. However, acording to OECD (2005:3) SOEs also face some distinct gover-
nance challenges. One is that SOEs may suffer just as much from undue hands-on
and politically motivated ownership interference as from totally passive or distant
ownership by the state. There may also be a dilution of accountability. SOEs are
often protected from two major threats that are essential for policing management
in private sector corporations, i.e., takeover and bankruptcy. More fundamentally,
corporate governance difficulties derive from the fact that the accountability for
the performance of SOEs involves a complex chain of agents (management, board,
ownership entities, ministries, the government), without clearly and easily identifi-
able, or remote, principals. To structure this complex web of accountabilities in
order to ensure efficient decisions and good corporate governance is a challenge.
(OECD, 2005:3)
Fundamental principles for ensuring efficient decicions making and goog cor-
porate governance in SOEs are according to OECD (2005):
Ensuring an effective legal and regulatory framework for state-owned enterprises:
The legal and regulatory framework for state-owned enterprises should ensure
a level-playing field in markets where state-owned enterprises and private sec-
tor companies compete in order to avoid market distortions.
The state acting as an owner: The state should act as an informed and ac-
tive owner and establish a clear and consistent ownership policy, ensuring
that the governance of state-owned enterprises is carried out in a transparent
and accountable manner, with the necessary degree of professionalism and
effectiveness.
Equitable treatment of shareholders: The state and state-owned enterprises
should recognise the rights of all shareholders and ensure their equitable
treatment and equal access to corporate information.
Relations with stakeholders: The state ownership policy should fully recognise
the state-owned enterprises responsibilities towards stakeholders and request
that they report on their relations with stakeholders.
Transparency and disclosure state-owned enterprises should observe high standards

of transparency: The co-ordinating or ownership entities should develop con-
sistent and aggregate reporting on state-owned enterprises and publish annu-
ally an aggregate report on SOEs.
The responsibilities of the boards of state-owned enterprises: The boards of state-
owned enterprises should have the necessary authority, competencies and ob-
jectivity to carry out their function of strategic guidance and monitoring of
management.
Evolution of state ownership in Croatia

Privatization process, which took place in Croatia back the last two decades
through the transformation and privatization, was very complex due to the fact
that it took place in transitional and war environment, and the fact that it had to
take into account the achievement of three types of objectives: economic, political
and social. The model of privatization in Croatia was based primarily on privati-
zation from case to case, and it had a large role serving as a social program: for
example, through free allocation of shares to social groups that have suffered most
in war (soldiers, exiles, refugees).
The entire process started with the adoption and implementation of the Law
on Transformation of Socially Owned Enterprises of 1991, and continued with
adoption and application of the Law on Privatization of 1995. The first crucial
step in the process of privatization was the conversion of former socially-owned
enterprises into companies with known titular ownership (which was essential-
ly the state, which led to significant natonalization of social assets), after which
privatization followed. Since 1991 until now the process of transformation and
privatization covers slightly less than 3000 of former socially-owned enterprises.
However, despite the large number of companies included in the transformation
and privatization, the overall progress of Republic of Croatia in the entire process
is extremely weak.
Although data on the number of state-owned enterprises change almost on a
daily basis, according to available data on the date 15.03.2013. in the portfolio of
the Republic of Croatia there were 631 enterprises. 555 of these 631 enterprises
555 is in the minority state ownership (up to 49.99% of shares), 61 enterprise is in
majority state ownership (over 50% of shares), while 15 companies are not active.
From the analysis of the portfolio is evident (Strategija, 2013):
In March 2013. the share of state ownership exceeds 50% in only 61 com-
pany or cca. 10% of the active portfolio In remaining 555 enterprises the
states share is below 50% of the shares, which represents about 90% of the
active portfolio.
From a total of 555 companies in 420 minority-owned enterprises are stocks
that are fully or partially available for sale, while 135 enterprises there are
no shares available for sale, which makes about 24% of the total active state
portfolio.
Majority the portfolio can be divided into enterprises available for sale (total
36 enterprises), companies under the reservation that are currently not avail-
able for sale (a total of 2 companies) and enterprises of special state interest
(total 23).
According to FINA in 2011., 85 leading enterprises in Croatia had revenues
of 228.7 billion kuna, of which 50.1% realized enterprises in foreign owner-
ship (or 114.5 billion kuna), 25.4% domestic private enterprises (58,1 billion
kuna), and the rest is revenue of state owned companies (56 billion kuna).
On the list of 85 largest companies operating in Croatia, 35 are foreign
owned, 29 in domestic private enterprises while 21 are state-owned.
Thus in Croatia state-owned enterprises represent a significant portion of the
gross domestic product, employment and market capitalization. Companies owned
by the state prevailing in the energy and transport, and are very important for
employment and significantly contribute to the overall economic activity. Exactly
therefore an effective corporate governance is of utmost importance.
Corporate governance of state owned enterprises in Croatia

The global economic phenomena and economic crisis affecting the world econ-
omy, especially the Croatian economy, put new challenges for the holders of corpo-
rate governance of state owned enterprises. That is why the Croatian Government
adopted a new strategy for the management of state assets (Strategija, 2013) in
which there is one special section dedicated to the management of state-owned
enterprises. The strategy was made for a period of four years and with it are deter-
mined medium-term objectives and guidelines for managing the assets of Republic
of Croatia. The strategy was made with the aim to ensure long-term efficient and
transparent management and disposition of assets Republic of Croatia whose sus-
tainability is important to the life and work of current and future generations, and
in order to ensure that the state assets of will bi at the service of economic growth
and the protection of national interests.
In accordance with the Strategy main task of managing and disposing of the
assets of state-owned enterprises is to realize economic growth, development, em-
ployment and financial benefits, and existing portfolio of companies in which the
government holds shares in the future will be organized into three groups (Strate-
gija, 2013):
1. Enterprises of strategic and developmental importance which are determined by
the strategy (owned by state 50% or more):
a. Strategic enterprises that generate revenue from use of public authority and in
which the state participates in the pricing of products and services: Enterprises
of strategic importance which generate revenues based on the assigned
public powers in which the state participates in the pricing of products
and services are those in which the state as a shareholder, except economic,
achieves strategic objectives: legal and effective exercise of the transferred
public powers, security, health insurance, critical infrastructure, uninter-
rupted supply of population and businesses, and commercial insurance
services in the interest of the citizens and the state. For such companies
exists long-term social need.
b. Enterprises of developmental importance in which state has a majority stake:
In this group are enterprises that are of importance in the developmental
role in which state has a majority stake, and which are not from the sec-
tor of infrastructure, energy, etc.. Specified enterprises need restructuring,
recapitalization and privatization, in whole or in part. Shares in these com-
panies are government investments reaching high added value and profits.
It is expected that these enterprises invest in above-average investments,
research and development. Those enterprises with its production potential
must contribute to the stability and development of countries and regions,
and their profits will be an important revenue of the state budget.
2. Enterprises whose shares are listed on the regulated market of the capital, in
which stete has total ownership of less than 50%.: For enterprises whose shares
are listed on the regulated market of the capital, in which the state has total
ownership of less than 50%, the government is trying to reach the primary
goals of economic and usually along with other private investors, ie, under
the same conditions as the other investors, and driven by the same interest.
3. Other enterprises in which the state holds shares and stocks (state share less than
50%).
a. Enterprises with a state share to 25%: For enterprises in the state portfolio
in which the state has less than 25% of the shares (which do not have
greater developmental significance), is planned within two years carry out
the restructuring, their public listings and selling, donation and / or the
formation of a venture capital fund.
b. Enterprises with state share of more than 25%: For companies that are owned
by the state more than 25%, predict the same objectives and procedure as
in the previous group, but over a period of three years
Conclusion
Views towards state-owned enterprises on the one hand and private property
on the other side through history have changed often. However, strengthening the
role of the state in the economy, which is driven by a major economic crisis in the
late twenties to thirties of the last century, and continued with the completion of
the Second World War led to a significantly more active role of state ownership in
many economies. In the seventies of the twentieth century, due to raising awareness
about the inefficiency of state-owned enterprises have begun trends of privatization
of state enterprises that continued at the beginning of the transition of the former
socialist countries. The global financial crisis in the second half of the last decade
(since 2008. onward) stops the trends of privatization on the one hand, and on
the other hand is forcing many states to enter the ownership of numerous private
companies affected by the crisis, thus the importance of state-owned enterprises
becoming increasing.
Exactly therefore increases the importance of effective corporate governance
in state-owned enterprises, which induces five constraints: unclear ownership ob-
jectives; weak owners; low levels of transparency and disclosure; unprofessional
boards of directors and poor relationships with other shareholders and stakehold-
ers. Therefore, corporate governance in state-owned enterprises should be based
on the following fundamental principles: ensuring an effective legal and regulatory
framework for state-owned enterprises; the state acting as an owner; equitable treat-
ment of shareholders; transparency and disclosure state-owned enterprises should

observe high standards of transparency; the responsibilities of the boards of state-
owned enterprises.
In Croatia state-owned enterprises represent a significant portion of the gross
domestic product, employment and market capitalization. Companies owned by
the state prevailing in the energy and transport, and are very important for employ-
ment and significantly contribute to the overall economic activity. Croatia should
speed up the restructuring and privatization of remaining state portfolio, however,
that privatization should not be a goal but a mean of raising the efficiency of state
enterprises, and thus the economy. Exactly therefore an effective corporate gover-
nance is of utmost importance.
References
Hrvatski Sabor (2013): Strategija upravljanja i raspolaganja imovinom u vlasnitvu re-
publike hrvatske za razdoblje od 2013. do 2017. godine, Narodne novine br. 76/2013,
Zagreb, 2013.
Megginson, W. L. (2005): The Financial Economics of Privatization, Oxford University
Press, New York, 2005.
OECD (2005): OECD Guidelines on Corporate Governance of State-Owned En-
terprises, Available at http://www.oecd.org/dataoecd/33/31/34051587.pdf (accessed
18-01-2014.)
Pargendler, M. (2012): State Ownership and Corporate Governance, Fordham Law
Review, Vol. 80, No. 6, 2012. Available at SSRN: http://ssrn.com/abstract=1854452
(accessed 11-01-2014)
Toninelli, P. (2000): The rise and fall of state-owned enterprise in the western world,
Cambridge University Press, Cambridge, 2000.
World Bank (2010) Improving the Corporate Governance of State-Owned Enterprises:
The Approach of the World Bank http://www.ifc.org/ifcext/corporategovernance.nsf/
AttachmentsByTitle/Improving_+CG_SOE/$FILE/Improving_CG_SOE.pdf (ac-
cessed 28.9.2013.)
THE EFFECTS OF THE ECONOMIC CRISIS ON BEVERAGE SALES IN CATERING FACILITIES 633
THE EFFECTS OF THE ECONOMIC CRISIS ON BEVERAGE

SALES IN CATERING FACILITIES
Branimir Markovi, Ph.D. 1, Domagoj Pavi, B.Sc.2
1
Republic of Croatia, markovic@efos.hr
2
Vodovod-Osijek Ltd., Osijek, Republic of Croatia, domagoj.pavic@vodovod.com
Abstract
At the end of 2008 a period of long recession in Croatian economy began,
which has lead to a deceleration in economic activities and the general economic
situation has worsened. The crisis is reflected in all aspects of everyday life, and also
in beverage consumption in catering facilities.
In our paper we will research the scope in which the crisis has affected Croatian
caterers, how they have adjusted the prices of their products and to what extent
consumers have maintained the consumption. We will compare the total of de-
clared sales, as well as the sales of beverages which fall into the category of con-
sumption tax in the same period. In this way we will answer the main question of
the paper Has the crisis affected outside-of-household beverage consumption
habits of Croats?
Keywords: crisis, beverage, catering industry, sales
INTRODUCTION
According to a Marketing Dictionary (Rjenik marketinga), recession (German:
Konjunkturrckgang, Rezession) is the occasional deceleration in economic activ-
ity of a country accompanied by a simultaneous deterioration in general economic
climate (a decline of income, an increase of unemployment, a low degree of pro-
duction capacity utilization). Recession is less profound and serious than a de-
634 Branimir Markovi Domagoj Pavi
pression. It is repeated in intervals of a few years, usually begins in one country and
takes a few months or quarters to move to others.1
The global financial crisis, caused by the breakdown of subprime mortgage mar-
ket in the USA in late 2008, has not bypassed Croatia. Government measures have
not proven adequate in avoiding the recession. In the following period Croatia has
had a decline in GDP, a decline in household consumption, decrease of invest-
ments and a decrease of export. The causes are only partly connected to global
events. In Croatia the main reasons for the recession are transition, war devastation,
badly executed privatization, and most of all the incorrectly conceived economic
policy, which did not stimulate development of the economy, alongside constant
foreign debt accumulation.
Beverage consumption in catering facilities, which we will here divide in two
groups: food facilities and beverage facilities, has been a part of Croatian cul-
ture and customs for a long period of time. The assertion we will test here is that a
change in consumer behavior and uncertainty brought on by recession give scope
for vice industry, which always grows in times of crisis. This is not surprising when
considering that a crisis is a time of increased tension and stress, which people wish
to decrease. Betting houses, casinos and other gambling games, as well as alcohol
and tobacco consumption, offer an escape from problems and a quick distraction.2
LEGISLATIVE REGULATIONS
According to Zakon o financiranju jedinica lokalne uprave i podrune (region-
alne) samouprave3, article 31:
Consumption tax is paid for the consumption of alcoholic beverages (wine, spe-
cial wine, brandy, schnapps and strong drinks), beer and non-alcoholic beverages in
catering facilities. The taxpayer of consumption tax is the legal and natural person
that provides catering services. The base for consumption tax is the selling price for
beverages in catering facilities. The accounting and paying of consumption tax is
regulated by city, i.e. district decrees.
1
http://limun.hr/main.aspx?id=10180
2
Ratka Jurkovi Top 10 poslova koji cvatu u recesiji http://www.svanconsulting.com/svanconsult-
ing_files/slike/files/poslovni.hr-Top_10_poslova.pdf
3
Narodne novine, broj 117/93,33/00, 73/00, 59/01, 107/01, 117/01, 150/02(proieni tekst)
The highest allowed consumption tax rate can be 3%, as is in Osijeko-baranjska

County.
Value added tax was introduced on 1st January 1998, in the amount of 22% for
all beverages sold in catering facilities. On 1st August 2009 the rate of the value add-
ed tax was changed from 22% to 23%, and on 1st March 2012 from 23% to 25%.
On 1st January a lower rate of value added tax was introduced for wine, beer,
non-alcoholic beverages and other catering products excluding alcoholic beverages,
in the amount of 10%, but only in case the service is provided in the catering facil-
ity. This was in force until 1st January 2014, when it was increased to 13%. At the
same time the rate for alcoholic beverages stayed the same; 25%.
MONTHLY SALES OF SURVEYED FACILITIES

In this paper we have surveyed turnover in catering facilities in the period from
2008 (the beginning of the recession) until 2014. The object of the survey were
eleven food and beverage facilities, or more accurately six food facilities, including
restaurants, ice-cream shops, grilled-meat stands, pizzerias, bistros, taverns, cot-
tages and pubs; and five beverage facilities, including coffee-shops, bars, saloons,
alehouses and inns.
Average monthly sales according to years were as follows:
Table 1: Average monthly sales

2008 2009 2010 2011 2012 2013 2014
Facility A 20.586 102.065 103.906 125.309 672.089 578.096 861.356
Facility B 58.652 55.952 45.546 60.151 86.605 115.494 140.390
Facility C 126.349 130.994 46.849 51.774 55.963 74.904 75.697
Facility D 160.064 251.845 256.576 296.227 333.499 501.424 754.781
Facility E 133.848 173.726 124.611 184.479 142.644 126.388 109.505
Facility F 77.591 113.832 121.571 124.502 131.477 127.157 148.426
Facility G 30.209 47.595 28.977 12.681 29.718 29.888 10.228
Facility H 59.335 75.256 34.697 57.974 41.240 60.558 64.895
Facility I 21.189 26.564 29.457 33.918 33.686 62.883 170.005
Facility J 120.137 121.710 125.507 130.547 123.368 126.286 153.014
Facility K 40.546 42.463 47.088 29.068 29.394 72.528 75.536
Source: Information system of the Tax Administration, calculations by authors
The data is relatively unrealistic in showing the actual sales success when ac-
counting for the different number of employees. In order to adequately compare
the data we have reduced the average monthly turnover into average turnover per
employee, which has varied in the surveyed period. The previous table then looks
like this:
Table 2: Average monthly sales per employee

2008 2009 2010 2011 2012 2013 2014
Facility A 2.941 11.341 11.545 11.392 12.446 14.452 18.327
Facility B 8.379 11.190 11.387 12.030 14.434 16.499 17.549
Facility C 9.719 10.076 5.205 5.753 5.596 10.701 12.616
Facility D 12.313 11.993 12.218 12.343 13.340 17.908 24.348
Facility E 13.385 15.793 11.328 16.771 15.849 14.043 15.644
Facility F 12.932 16.262 17.367 17.786 18.782 21.193 24.738
Facility G 10.070 11.899 5.795 6.341 5.944 9.963 10.228
Facility H 14.834 18.814 17.349 19.325 20.620 30.279 32.448
Facility I 5.297 5.313 4.910 6.784 6.737 12.577 34.001
Facility J 20.023 20.285 20.918 21.758 20.561 21.048 38.254
Facility K 20.273 21.232 23.544 29.068 29.394 36.264 37.768
The average monthly sales for Facility A in 2008 was 20 586 HRK, and in
2014 it was 861 356 HRK, which constitutes an increase of 4084%. However, it
should be emphasized that at the beginning of the surveyed period there were seven
employees, and in 2014 there were 47. Accordingly, the turnover per employee in
2008 was 2941 HRK, and in 2014 it was 18 327 HRK, which is an increase of
523%.
At the same time, facility G had an average sales of 30 209 HRK in 2008, and
10 228 HRK in 2014 (decrease of 66%), while sales per employee has increased
from 10 070 HRK to 10 228 HRK (increase of 2%). The reason for this is reducing
the number of employees from three to one.
Comparison in the surveyed period shows that eight objects have had a turn-
over increase, while three have had a decrease. When analyzing average sales per
employee all the facilities have had an increase of turnover.
Retail prices in the surveyed period have not changed significantly and the cause
of turnover increase is not the cause of price increase. The changes of VAT also did
not affect the significant changes of the total turnover, whether it be increase or
decrease.
WINE CONSUMPTION
After comparing the monthly consumption tax base from the PP-MI-PO form
data we have found the actual increase of turnover is as shown in the following
table:
Table 3: Average monthly consumption tax base per employee wine

2008 2009 2010 2011 2012 2013 2014
Facility A 332 569 579 432 395 594 883
Facility B 0 0 0 0 0 0 0
Facility C 677 623 503 592 593 915 1.035
Facility D 153 122 114 115 16 115 87
Facility E 491 462 301 492 470 853 1.093
Facility F 51 82 35 43 35 54 51
Facility G 82 182 105 372 111 0 0
Facility H 291 247 447 508 566 749 786
Facility I 155 170 181 204 214 243 305
Facility J 277 276 225 255 392 809 1.262
Facility K 224 306 311 771 723 782 876
Most cases have recorded an increase of sales, except facilities D and G, which
have changed the category of their business, and did no longer offer wine. Facility
B was classified as a grilled-meat stand which has never offered wine, so it could
also not be included here.
Chart 1: Average monthly consumption tax base per employee wine
The chart shows a continued trend of increase of sales for most of the facilities.
The only irregularity is the decrease in 2012. A change of VAT rate occurred
this year, from 23% to 25%. Caterers have compensated for this by increasing the
price of their product instead of decreasing their margin. This is why we can see a
mild decrease in sales, which is not long-term, due to the continuing recession and
fiscalization in 2013.
ALCOHOL CONSUMPTION
Tax definition of alcohol denotes beverages which contain alcohol, but are not
wine or beer (brandy, schnapps and strong drinks4).
4
NN 147/2003 lanak 1.
Table 4: Average monthly consumption tax base per employee alcohol

2008 2009 2010 2011 2012 2013 2014
Facility A 65 285 306 303 296 469 486
Facility B 0 0 0 0 0 0 0
Facility C 374 323 303 294 296 463 488
Facility D 201 154 149 100 119 84 72
Facility E 509 671 769 834 787 915 893
Facility F 123 197 84 103 109 131 139
Facility G 472 473 464 451 422 509 720
Facility H 627 827 928 919 927 1.288 1.343
Facility I 415 505 427 531 560 602 651
Facility J 778 1.181 874 805 824 1.209 1.288
Facility K 910 688 824 1.433 1.413 1.671 1.841
The data shows that in most facilities consumption has stagnated during the
years with a slight increase; but year 2013 is positive for all the facilities. The imple-
mentation of fiscalization starting from 1st January 2013 has prevented from hiding
actual turnover, and it shows an apparent flourishing of Croatian catering industry.
The actual growth is present, but far from the numbers shown in the chart.
Chart 2: Average monthly consumption tax base per employee alcohol

BEER CONSUMPTION
Table 5: Average monthly consumption tax base per employee beer

2008 2009 2010 2011 2012 2013 2014
Facility A 256 356 368 412 406 563 605
Facility B 486 726 641 632 668 998 1.029
Facility C 323 311 322 306 313 411 474
Facility D 363 365 467 382 459 520 438
Facility E 748 985 1.023 1.210 1.110 1.473 1.601
Facility F 254 367 372 455 467 577 588
Facility G 509 574 472 633 715 1.085 1.258
Facility H 1.400 1.654 1.624 1.775 2.162 5.367 5.446
Facility I 698 777 709 765 709 2.076 2.191
Facility J 2.204 2.389 2.262 2.696 2.539 3.094 5.772
Facility K 2.565 2.618 2.379 2.471 2.674 3.108 3.170
Consumption of beer, as expected, has increased over the years. It is a beverage

widely accessible, and the realized sales only confirm the statement consump-
tion is growing, even up to 289% in case of facility H. Again, there is a non-linear
growth starting with 2013 caused by fiscalization. Facility H records an increase of
beer sales of 148%.
Chart 3: Average monthly consumption tax base per employee beer
NON-ALCOHOLIC BEVERAGE CONSUMPTION

Table 6: Average monthly consumption tax base per employee non-alcoholic
beverage
2008 2009 2010 2011 2012 2013 2014
Facility A 691 1.235 1.184 1.205 1.395 1.881 1.834
Facility B 1.613 1.842 1.791 1.779 2.590 3.316 3.564
Facility C 304 326 430 353 339 603 626
Facility D 787 797 822 822 828 1.055 1.053
Facility E 1.163 1.120 1.042 1.770 1.527 2.135 2.359
Facility F 275 265 210 258 213 326 303
Facility G 780 878 675 811 590 1.404 1.528
Facility H 2.580 3.261 3.782 3.241 3.107 3.378 3.483
Facility I 361 338 438 661 584 1.692 1.647
Facility J 2.657 2.440 2.702 2.942 3.355 3.915 4.664
Facility K 1.240 1.552 2.111 1.867 1.984 2.161 2.295
Average monthly consumption of non-alcoholic beverages fluctuates the most.

However, the only common thing with the rest of the sales is, again, the growth in
2013.
Chart 4: Average monthly consumption tax base per employee non-alcoholic

beverage
CONCLUSION
In the service of providing lodging and food and beverage service (catering in-
dustry) small legal and natural persons have, in 2013, declared taxable deliveries
in the amount of 40%, i.e. 2.6 billion HRK more than in 2012. Natural persons
have declared 55% of this, i.e. 1.5 billion HRK, and small legal persons 30%, i.e.
1.1 billion HRK5, as the Tax administration has announced on 18th March 2014.
Considering that the Fiscalization Act for cash transactions came into effect on
1st January 2013, and that by 1st January 2014 all taxpayers have conformed to it,
a great increase of declared deliveries by comparison of VAT forms from January
2013 and the same month of 2014 was not expected.
5
http://www.porezna-uprava.hr/HR_Fiskalizacija/Aktualnosti%20dokumenti/Priop%C4%87enja/
Fiskalizacija180314.pdf
A portion of the turnover increase came from increasing the sale volume, not
from the changes in VAT rates over the years, because the base for the tax remained
unmodified the whole time.
This only confirms the assertion from the beginning of the paper Croats indeed
do drink more since the recession. The reason for this, except the above mentioned
fiscalization, which has affected realistic declaring of sales, is also that in times of
crisis people turn more to vice gambling, games of chance, tobacco and alcohol.
References:
1. Blai, H. (2004.) Trokovi oporezivanja u Hrvatskoj: trokovi poreznih obveznika
i trokovi poreznih vlasti, Financijska teroija i praksa, 271-291
2. Ministarstvo Financija (2013) Fiskalizacija
3. Ott, K. (2012.) O poreznim promjenama i novom proraunu, Banka, 6-7
4. Ured dravne uprave u Splitsko-dalmatinskoj upaniji (2013) -Turistika kultura
5. Zakon o izmjenama i dopuni Zakona poreza na dodanu vrijednost - NN 22/2012
6. Zakon o financiranju jedinica lokalne uprave i podrune (regionalne) samouprave
NN 73/2008
7. Zakon o fiskalizaciji - NN 133/2012
8. Zakon o izmjeni i dopuni Zakona poreza na dodanu vrijednost - NN 136/2012
644 Ana Udovii Katarina Maroevi Katarina Arnold Brati
SOCIAL ENTREPRENEURSHIP IN CROATIA

Ana Udovii, univ.spec.oec.1, Katarina Maroevi, univ.spec.oec.2, Katarina Arnold Brati, mag.oec3
1
Polytechnic of ibenik, Republic of Croatia, ana_u@vus.hr
2
Faculty of Law, Josip Juraj Strossmayer University of Osijek, Republic of Croatia, kmarosev@pravos.hr
3
IPK Tvornica ulja epin Ltd., Republic of Croatia, katarnold85@gmail.com
Abstract
Today, social entrepreneurship attracts growing attention in different sectors..
During the last two decades social entrepreneurship becomes focus of the research-
er and theorist. Social entrepreneurs are seen as reformers that transform ways of
performance in social and business sphere. The term of social entrepreneurship in
different contests provides information about strategies of few highlighted organi-
zations that encourage social progress In Croatia social entrepreneurship came in
focus over the past years but it is still insufficiently explored.
This paper explores differences between entrepreneurship and social entrepre-
neurship. This paper is concerned about social entrepreneurship as a new hybrid
phenomenon that appears between public, private and sector of civil society.
The purpose of this paper is to give an insight in social entrepreneurship in
Croatia. Moreover, the goal of this paper is to determine the social frame that had
impact on the social entrepreneurship and to identify the factors and processes that
encourage and limit the development of social entrepreneurship.
JEL Classification: A13, M14, O35
Keywords: entrepreneurship, social entrepreneurship, social economy.
Introduction
Even though the concept of social entrepreneurship exists over a hundred years
it recently became an interest for researchers and organizations as a way for re-
sponding to growing global problems of unemployment, global warming, excessive
environment pollution, inadequate health conditions and other. Social entrepre-
SOCIAL ENTREPRENEURSHIP IN CROATIA 645
neurship presents crating social-economic structures, connections, institutions, or-

ganizations and measures that can enhance the quality of live in areas where private
sector failed.
Croatia has just recently introduced the concept of social entrepreneurship even
though this concept has been present on global level for years.
The purpose of this paper is to present a theoretical background of the social en-
trepreneurship and to present the current situation of this phenomenon in Croatia.
The concept of social entrepreneurship

Social entrepreneurship as a concept integrates creating social and economic val-
ues is present in theory and in practice for over a decade. There are different views
concerning the definition of this concept. The first group of scientists looks at social
entrepreneurship as nonprofit initiative in search for alternative strategies and man-
agement schemes and all for the purpose of creating social values. The other group
of researchers defines social entrepreneurship as a social responsibility of commercial
organizations involved in partnerships while the third group looks at the term as a
mean for resolving social problems and catalyzing the transformation of the soci-
ety in a whole. Social entrepreneurship presents crating social-economic structures,
connections, institutions, organizations and measures which result in sustainable
benefits. It presents using the entrepreneurships behaviors more for social and not
so much for profit goals. In economic theory social entrepreneurship is defined as
a sum of entrepreneurships organization, managing, leading and innovation capa-
bilities. It includes all the entrepreneurs activities directed toward investment and
combination of required inputs, expansion on new markets, and creation of new
products, new consumer and new technologies with the emphasis on new market
conditions, crisis and changes in environment. (krti and Miki, 2007: 155-156).
Social entrepreneurship is increasingly being acknowledged as an important con-
tributor to economic and social well being. The body of research on social entre-
preneurship, however, is much less developed than of commercial entrepreneurship.
Much of the research on social entrepreneurship has focused on defining it in rela-
tionship to its similarities and differences with commercial entrepreneurship. Despite
these attempts to describe it, the concept of social entrepreneurship is still poorly de-
fined. In a broad sense, however, researchers use the term to describe ventures which
employ strategies to create superior social value as a priority over generating superior
profits. Although researchers have not agreed upon a definition for social entrepre-
neurship, they have generally reached consensus on its goal. Social entrepreneurship
strives to change the social equilibrium. (Swanson and Di Zhang, 2010: 71-72)
Table 1. Dimensions of social entrepreneurship

Social dimension
Explicit goal is social mission, action directed toward the general
wellbeing of the society
Initiative managed by citizens group which presents collective
dynamic that is the foundation of social entrepreneurship
Democratic form of management (usually based on the concept
one member one vote), regardless the ownership structure
Participative nature of social entrepreneurship which includes
participation of different participants (not only owners and
members)
Limited profit distribution that limits individual profit
accumulation
Economic dimension
Existence of industry economy and/or sales of products and/or
services
High level of autonomy which implies that organizations
are founded by and run by a group of individuals, and not
government institution or private organization
Taking over considerable level of economic risk in activities
market activities
Minimal amount of paid labor even though within organization
can exist different forms of labor (voluntary, unpaid).
Source: Vidovi, 2012: 36.
The thing that differentiates social from traditional entrepreneurs is the social
benefit gained by social entrepreneurship. Social entrepreneurship is characterized
by three components (Perin, 2001: 12):
1. Identification of unfair balance that causes exclusion, marginalization or suf-
fering part of the population which are in need for financial means or politi-
cal power in order to gain any useful changes.
2. Recognition of opportunities in unfair balance, developing socially useful
entrepreneur ventures, using inspiration, creativity and readiness for action
for maintaining benefits for creating stability on defined area.
3. Creation of new, stabile balance that uses available potential and resources
and in that way modifies and creates the better future for a society as a whole.
Social entrepreneurship as a concept which integrated development of econom-
ic and social importance has been present on the global level both in theory and
in practice for more than hundred years. Entrepreneurship in private sector can
operate in social spirit. Most companies and organizations in the private sector are
creating a considerable social value through employment, improvement of working
conditions, competitive environment and providing necessary product and servic-
es. Furthermore, taxes that those companies are paying are used in social purpose.
(krti and Miki, 2007:153).
Types of social entrepreneurship

Since social entrepreneurship is relatively new pheromone many authors have
tried to define and bring understanding and recognition of social-entrepreneurship
initiatives by developing types of these phenomena (Vidovi, 2012: 43)
Masseti (2009) had constructed so called Social Entrepreneurship Matrix. The
goal of matrix is to simplify the understanding of this complex phenomenon by
defining the possible shapes of social entrepreneurship through four areas. Quad-
rants, as showed in Picture 1. are divided concerning the bigger focused of social
entrepreneurship toward social or market goals and by the ways they are using
profits. (Vidovi, 2012: 43)
Picture 1. Social Entrepreneurship Matrix
Source; Vidovi, 2012: 43.

Perhaps, the most fully- recognized model of social entrepreneurship is that

elaborated by Mort et al. (2003). They argue that social entrepreneurship is a
multidimensional construct formed by the intersection of a number of defining
characteristics. Referring to a variety of scholarly work on entrepreneurship they
explicate the specifically entrepreneurial component of social entrepreneurship in
the following way. Social entrepreneurs first of all exhibit a balanced judgment, a
coherent unity of purpose and action in the face of complexity. This propensity,
Mort et al. argue, allows the social entrepreneur to balance the interests of multiple
stakeholders and to maintain his/her sense of mission and taking advantage of op-
portunities to deliver in a superior way the social value they aim to provide. Finally,
social entrepreneurs exhibit in the social arena the risk tolerance, innovativeness
and proactiveness displayed by commercial entrepreneurs in their setting. (Peredo
& McLean, 2006: 10)
According to Peredo and Mclean (2006) classification showed in Table 2. differ-
ent types of social entrepreneurs are ranged concerning the position and relation-
ship of social and market goals. (Vidovi, 2012: 44)
Table 2. Types of social entrepreneurship

Position of social goals The role of commercial trade Example
Goals are exclusively social No commercial trade Traditional non-government
organizations
Goals are exclusively social There is a defined degree of Grameen Bank
commercial trade, and any kind of
profit is invested in social needs or
for the support of activities which
lead towards social goals
Goals are mostly social, but Commercial trade does exist, and Missouri Home Care
not exclusively profit is partially used for social
goals
Social goals are above other Commercial trade exists and gaining Ben & Jerrys
organizations goals profit is equal important goal
Social goals are among other Commercial trade exists and gaining Commercial organizations that
organizations goals, but are profit is primary goal and above have so called cause-branding
submitted to others other goals (some sort of social responsible
business)
Social entrepreneur
Social entrepreneurial ventures and social entrepreneurs must be distinguished
from other types of organizations and individuals as a prerequisite to conducting
research in this area. Martin and Osberg (2007: 39) defined a social entrepreneur
as an individual who:targets an unfortunate but stable equilibrium that causes
the neglect, marginalization, or suffering of a segment of humanity; who brings to
bear on this situation his or her inspiration, direct action, creativity, courage, and
fortitude; and who aims for and ultimately affects the establishment of a new stable
equilibrium that secures permanent benefit for the targeted group and society at
large. This description is consistent with the idealized definition of social entre-
preneurs developed by Dees (2001: 4) that includes the following set of criteria
against which the actions of individuals can be assessed to determine whether they
are socially entrepreneurial. Social entrepreneurs play the role of change agents in
the social sector, by:(Swanson & Di Zhang, 2010: 73)
Adopting a mission to create and sustain social value (not just private value);
Recognizing and relentlessly pursuing new opportunities to serve private
mission;
Engaging in a process of continuous innovation, adaptation, and learning;
Acting boldly without being limited by resources currently in hand; and
Exhibiting heightened accountability to the constituencies served and for the
outcomes created
One criticism of the Dees (2001) criteria is that they do not include earned
income. According to Boschee (2008), this oversight enables some organizations
to claim to be socially entrepreneurial without the need to maintain sustainable
or self sufficient operations. Boschee (2008) argued this is inconsistent with the
view that social entrepreneurs are as passionate about their self-sufficiency as they
are about their social mission. Social entrepreneurs do not want to be perpetually
dependent upon the generosity of others as they pursuit their mission. They view
their ventures sustainability through self-generated revenue as a key to protracting
their socially conscious work. Unless organizations with missions to fulfill social
needs are also self-sustaining through their own earned income or through a
combination of earned income, philanthropy, and subsidies they cannot be con-
sidered to be socially entrepreneurial. (Swanson and Di Zhang, 2010: 73-74)
Entrepreneurship in Croatia
Croatian economies before transition belong to liberal economies of socialistic
regime, especially in comparison with other republics in alliance, with exception of
Slovenia. Croatian society in early beginnings of transition was defined with weak
legal state and with undeveloped democracy that had led to development of capital-
ism. Transition to market economy started with the process of privatization. By the
end of 1995. former social organizations become private ownership of individual
stakeholders or large organizations and bank stakeholders (51 %) of that state or
foundations (44 %). Large organizations were defined as strategically important
(INA, HEP, H, HPT, HRT) stayed in state ownership. Only small organizations
were privatized 4000 of them. With intensive activation of new organizations,
number of small organizations in first year of transition had grown in about 10,000
per year and their share in total economy income had increased with less than 10
% in 1990., to 35 % in 1995. By the end of first decade the picture of economic
structure had changed in favor of small and medium entrepreneurship (as shown
in Table 3.) (Vidovi, 2012: 144-145).
Table 3. Structure of Croatian economy

199- 2001
No. of organizations % No. of organizations %
No. of employees No. of employees
SME (total) 10,259 94,47 56,416 99,00
Small 8,815 81,17 54,213 95,13
Employment 130,805 9,16 247,340 34,01
Medium 1,444 13,29 2,203 3,86
Employment 342,517 30,24 161,426 22,20
Large 600 5,53 571 1,00
Employment 686,390 60,59 318,467 43,79
Total (organizations) 10,859 100,00 56,987 100,00
Total (employees) 1.132,766 100,00 727,233 100,00
Entrepreneurship discourses become more popular and dynamic after 2000.

and the change of the regime. From that period starts social entrepreneurship
treatment of certain social groups, like woman, children and disabled since it was
considered that entrepreneurship can easily generate employment for marginalized
groups at labor market. This was the period of development of entrepreneurship

zones, entrepreneurship centers, regional development agencies and entrepreneur-
ship incubators. Until 2006. , system of supporting organizations had included 6
development agencies, 235 entrepreneurship zones, 16 entrepreneurship incuba-
tors, 4 technology parks and 27 entrepreneurship centers.
Analysis of social entrepreneurship in Croatia

Social entrepreneurship since recently started to appear in state development
strategies and politics in relevant areas, but it still has fully marginalized place.
There is no specific politics directed toward social entrepreneurship but it appears
as a part of other politics and strategies and in frame of strategies of entrepreneur-
ship development, social exclusion and development of civil society. In Croatia, the
definition of social entrepreneurship in state politics is still primary linked to sector
of civil society. Only in document that are directed toward development of this
sector, social entrepreneurship is explicitly identified as a special form of action. In
other documents, which are concerned with social-economic development, entre-
preneurship development and suppression of social exclusion, social entrepreneur-
ship is not used as a specific term. This all shows that there is insufficient knowledge
and understanding of social entrepreneurship phenomena at institutionalized level.
There are several document, programs and laws that directly or indirectly are con-
cerned with social entrepreneurship and give picture of current institutionalized
frame:
National strategy for creating supporting environment for development of
civil society from 2006. 2011. the only document that directly speaks
about social entrepreneurship and defines concrete measures for promotion
this type of action.
Table 4. Goals of measures directed toward social entrepreneurship

Promotion of SE programs, social economy and social employability through creation of simulative
legislative frame for business and nonprofit organizations
Development of measures of continuous following of effects and evaluation of investment in nonprofit
entrepreneurship in relation to economic and social effects
Identification of subject that can be carriers of programs of social employment
Systematic development of measures for building the capacities and infrastructure support for all the
subjects of SE
Development of center for SE support and regional and national forums for SE
Consideration of possibilities for financial support for investment in development of social
entrepreneurship project and for maintenance in later phases of development
Encouragement of profit sector for active inclusion in programs of social employment and other forms of
support and cooperation
Encouragement of common programs for social employment of social, business and nonprofit sector on
local levels through public-private partnership
Insurance of special tax conditions for programs of non profit entrepreneurship
Calculation and inclusion of economic indicators of social economy in GDP-a calculation
Encouragement of networking with related organizations in Europe and world
Source: Vidovi, 2012, 187-188.
Cooperation program of Government of Croatia and nonprofit, non-gov-

ernmental sector in Croatia document that directly mentions terms social
entrepreneurship and social economy but without any precise definition.
Strategic frame for development 2006. 2013. in this document, which
represents the ground state document for social-economic development, de-
fines priority gorals for defined period. Social entrepreneurship is not men-
tioned at any page. In Strategic frame, entrepreneurship is recognized as a
fundamental factor of economic development, but also as a factor of social
cohesion and social-economic security.
Program for small and medium entrepreneurship development 2008. 2012.
Program is not concerned explicitly at social entrepreneurship but it is men-
tioned through systems of entrepreneurship incentives for special groups,
woman and youth entrepreneurship and co-operative entrepreneurship.
Joint Inclusion Memorandum this document that is concerned on social
politics and liabilities to be fulfilled was signed in 2007. According to this
Memorandum, Croatia has an obligation to develop a strategy of social in-
clusion and to adjust its system to European. Even in this document, social
entrepreneurship is not defined as a special activity defined measures only
partially are concerned with the social-entrepreneurship activity.
Short overview of strategic documents relevant for social entrepreneurship clear-
ly shows that there is not enough knowledge for understanding this phenomenon
among key institutions. As a result, social entrepreneurship is not included in ma-
jority development strategies.
In 2005. NESsT1 has conducted a research about social entrepreneurship in

Croatia. According to this research Croatian organization are facing on daily basis
with uncertainties when it comes to sustainability. Almost any of the organizations
dont have insured basic financing which forces organizations to rely primarily an
uncertain inflow of project funds. Foreign donors have mostly withdrawn from
Croatia due to the planned accession to Europe Union which represents the trend
in financing present also in other countries in region. There is very small amount
of alternative sources of financing that can fulfill the void other than several donors
such as National foundation for development of civil society which donates institu-
tional support of different amount in order to help organizations of civil society in
achieving sustainability. Large numbers of associations are turning toward market
in attempt to achieve profit for financing of their work. Great number of projects
for social entrepreneurship is consisting of product sale or of fees for certain services
(consults, terming services and other). Still, some of them have applied innovative
approaches that create great public interest such as eco-tourism. Until today, all of
the projects of social entrepreneurship were initiated by organizations with little
support from the outside. Even though, the project of social entrepreneurship wit-
ness about inventiveness s of nonprofit organizations, great number of them are
managed on improvised and non-effective ways, without planned or preparation
and with insufficient access to financial capital and support. One of the key reasons
is the lack of capacity, human resources and capacities needed for activation of so-
cial entrepreneurship. Despite mentioned obstacles, organizations of civil society in
Croatia have very positive attitude toward possibilities of social entrepreneurship.
(Varga & Varga, 2007: 8).
Conclusion
Social entrepreneurship presents crating social-economic structures, connec-
tions, institutions, organizations and measures that can enhance the quality of live
in areas where private sector failed
Croatia has just recently introduced the concept of social entrepreneurship even
though this concept has been present on global level for more that hundred years.
1
NESst (Nonprofit Enterprise and Self-sustainability Team) is a catalyst for social enterprises in
emerging markets and worldwide. Since 1997. NESsT has developed sustainable social enterprises
to solve critical social problems in emerging market countries through capacity support, investment
and social capital. More available at: http://www.nesst.org/
Croatian organizations are facing on daily basis with uncertainties when it

comes to sustainability. Almost any of the organizations do not have insured ba-
sic financing which forces organizations to rely primarily an uncertain inflow of
project funds. Social entrepreneurship presents crating social-economic structures,
connections, institutions, organizations and measures that can enhance the quality
of live in areas where private sector failed. In Croatia there are 47 000 registered
nonprofit associations but it does not represent the picture of the social entrepre-
neurship. The concept of social entrepreneurship in Croatia is still insufficiently
explored.
References:
1. Perin, M.: Socijalno poduzetnitvo, Organizacija za graanske inicijative, 2001., p.
1-35.
2. Peredo,M.A., Mclean, M.: Social Enterpreneuship: A Critical Geography of the
Concept, Journal of world business, 2006., p. 1-15.
3. Swanson. L.A. , Di Zhang, D.: The Social Enterpreneuship Zone, Journal of Non-
profit Sector Marketing, 2010, 22:71-88.
4. iki, M., Miki, M.: O socijalnom poduzetnitvu u svijetu i u Republici Hrvatskoj,
Zbornik Ekonomskog fakulteta u Zagrebu, godina 5, 2007., p. 155-163.
5. Varga, L., Varga, P.: Iskustva odrivog socijalnog poduzetnitva u Hrvatskoj, NESsT,
2007., p. 1-65.
6. Vidovi, D.: Socijalno poduzetnitvo u Hrvatskoj, Filozofski fakultet u Zagrebu,
2012.
HEALTH,
EDUCATION
AND
WELFARE
METACOMPONENTS OF INTELLECTUAL AUTONOMY AS HIGHER EDUCATION ... 657
META-COMPONENTS OF INTELLECTUAL AUTONOMY AS

HIGHER EDUCATION TEACHING QUALITY INDICATORS
Grozdanka Gojkov, Ph.D.1, Aleksandar Stojanovi, Ph.D.2, Aleksandra Gojkov-Raji, Ph.D.3
1
Preschool Teacher Training College M. Palov Vrsac, Republic of Serbia, g_gojkov@open.telekom.rs
2
Teacher Training Faculty, Belgrade University, Republic of Serbia, aleksandar.stojanovic@uf.bg.ac.rs
3Teacher Training Faculty, Belgrade University, Republic of Serbia, rajis@open.telekom.rs
Abstract
The paper presents findings of an explorative research (non-probable sample,
N-147), aiming at considering the level of development of meta-components of
learning autonomy, (metacognitive abilities, learning strategies and critical think-
ing), as indicators of higher education teaching quality, which were involved as
components of the European qualification framework. Theoretical grounds of the
paper are contemporary didactical concepts of emancipatory learning, implying
intellectual autonomy as outcome of didactic approach to learning in teaching,
meaning that those who learn manage themselvesduring learning so that they
gradually take responsibility for their own learning.
Basic finding refers to the following: there is a small number of students with
developed metacognitive abilities, expected levels of critical thinking and efficient
learning strategies, implying poor reaches of higher education teaching in view of
meta-components of intellectual autonomy, anticipated as components of Euro-
pean qualification framework. Furthermore, this implies that more attention in
teaching is paid to self-organized and self-determined learning, so that the greatest
change introduced by realization of learning autonomy and anticipated by Eu-
ropean qualification framework is the change of didactic approach to learning in
teaching, arising out of contemporary didactic concepts of emancipatory learning,
according to which teaching and learning lead in the direction opposite to the one
which existed before, meaning that those who learn manage themselves during
learning so that they could gradually take responsibility for their own learning.
JEL Classification: I21, I23, I25, I28
658 Grozdanka Gojkov Aleksandar Stojanovi Aleksandra Gojkov-Raji
Keywords: intellectual autonomy, higher education teaching quality, emancipa-

tory didactics.
Introduction
European educational policy has been focusing on higher education quality,
especially now when education is being reflected upon once again, having in mind
that the new wave of changes on the world scene of economy and social relations
expects new competencies of an individual, conditioning the need to make new
moves within reform of education. European qualification framework has also paid
attention to this, emphasizing the notion of competence, aiming at encouraging
not only knowledge, but also other complex abilities development if there are
appropriate training procedures. However, many authors like e.g. O. Kruse (2011)
consider that what is being emphasized by the document is nothing new, but only
a continuation of certain ideas that used to exist back in Humboldts tradition.
In other words, competence oriented teaching saw studies as a field of training
and education of intellectual and methodological abilities long ago and to much
greater extent that it has been done today within the Bologna reform. The very
term competence is, as it was noted by the author, new and drives more intense
didactisation of academic learning. Apart from the mentioned standpoint, there are
other assessments which can be heard nowadays in Serbia, according to which the
new approach to learning within the Bologna process, i.e. didactisation of learn-
ing, leads to losing of what used in Humboldts view, to be essential for university
studies: for students to be seen as partners in collaborative process of learning and
research. Students have become an object of didactics and they have disappeared as
actors and personalities in learning arrangement. Briefly, quality of studies has been
more and more characterized by instrumentalized knowledge, utility, since knowl-
edge is seen as goods created to be sold. In other words, European qualification
framework views quality of university studies through complex abilities, i.e. com-
petences. The aim of the present research is to consider the level to which certain
of those qualities have been developed as indicators of higher education teaching
quality. Therefore the text below deals with notional determination and theoretical
frame, followed by research findings.
Notional Determinations and Theoretical Framework

What has also been emphasized by the reform of studies in regard to education
quality, apart from competencies, are standards of education (Klieme et al, 2007,
as cited by O. Kruse, op. cit), which have, as current approaches to educational
quality, introduced the culture of verification grounded on external control of the
outcomes based on mechanicistic-technicistic oriented values and actions, norma-
tive philosophy and pedagogy, and finally, logics of economy. Therefore numerous
authors (Klieme et al, 2007, as cited by O. Kruse, op. cit) advocate for creation of
a different concept of quality which has to be contextualized, implying that all
the actors create mutual understanding of quality and search for more adequate
ways of reaching it; such a standpoint is complementary to the views given in the
introductory part of the paper.
Argumentation of alternative understanding, defending various attitudes, is in
favour of the fact that learning autonomy cannot be standardized, that unrepeat-
able differences of individuals do cannot be subjected to achievement criteria, at
least not in such a defined way. What is today expected from a new competence
oriented viewpoint, refers to less ambiguous explanation of abilities which are to
be acquired and it might be positively considered from the angle of didactical con-
tribution to encouragement of intellectual autonomy of learning, but this is annu-
lated by the narrowing of the field of autonomy in the process of studying. Training
of competence of survival has been emphasized due to instrumentally oriented
factography of examination demands, putting critical and independent thinking
into second place (O. Kruse, op. cit), together with other abilities underlying it,
like e.g. meta-cognition and learning strategies. While real developments in the
field of higher education head towards scolarisation, critical thinking is considered
a central point within European policy of development. Through formulation of
system of descriptors educational a frame has been created, supposed to define the
demands for quality in the whole Europe (www.jointquality.org). In the last step
of defining of qualification framework for life long learning (European Council,
2008), descriptors are divided in eight levels, out of which the levels 6 8 related
to study cycles 1 3 within the field of higher education. They describe learning
outcomes in the headings knowledge, competences and professional qualifications.
First two categories are compared in Table 1.
Level Knowledge Competence

6 Advanced knowledge of a field of manage complex technical or professional activities
work or study, involving a critical or projects, taking responsibility for decision-making
understanding of theories and in unpredictable work or study contexts; take
principles responsibility for managing professional development
of individuals and groups
7 Highly specialised knowledge, some of manage and transform work or study contexts that
which is at the forefront of knowledge in are complex, unpredictable and require new strategic
a field of work or study, as the basis for approaches; take responsibility for contributing to
original thinking and/or research; professional knowledge and practice and/or for
Critical awareness of knowledge issues reviewing the strategic performance of teams
in a field and at the interface between
different fields
8 Knowledge at the most advanced frontier demonstrate substantial authority, innovation,
of a field of work or study and at the autonomy, scholarly and professional integrity and
interface between fields sustained commitment to the development of new
ideas or processes at the forefront of work or study
contexts including research
Table 1: European qualification framework: knowledge and competences in the

levels 6 8 Bachelor-Master- and postgraduate level
(www.jointquality European Coucnil 2008)
The comments on European qualification framework and defining of complex-
ity of the levels are in favour of the statements that they have reanimated pre-
established aims, compatible with Humboldts traditions; on the other hand, it has
also been noticed that the conditions of studies, created by the Bologna process are
not in harmony with the aims of qualification framework.
Didactics of Metacognition, Critical Thinking and Intellectual Autonomy

It is beyond dispute that what has been stressed by the Table above and defined
by the European qualification framework for the higher education level implies
complex abilities, so that critical thinking is not a unique competence, it is not
mastering of a technique, and as such it cannot be taught or trained in teaching.
Critical thinking essentially means stepping beyond common currents of thinking
and learning how to re-examine something which has already become generally
accepted knowledge (Facione, P. A., 2000). At the same time, this does not refer
solely to competence formation; it rather refers to development of personality, i.e.
a person who can have critical attitude in learning about reality, who can critically
think and consider from a number of standpoints, value according to more aspects,
search for other solutions, verify (O. Kruse, op. cit). In order to reach this, it
is necessary to have in mind long developmental perspective. As a consequence,
didactics of critical thinking is not only a matter of designing of a course, it is also
a matter of designing of a curriculum, or, it might even be said, a number of sup-
porting curricula (Halpern, D. F., 1998). If a curriculum does not involve critical
thinking as an explicit goal, it is highly likely that we can reach nothing more but
incoherent patches of learning contents and teaching events, even though cur-
ricula creators might think that it transfers inter-correlated knowledge. European
qualification framework has provided legitimacy for curricula to become explicitly
oriented to education of critical thinking. However, it does not guarantee that it
will be developed, having in mind that in order to nurture critical thinking it is
necessary to have didactic support suitable for encouragement of intellectual au-
tonomy of students. On the other had, autonomy concept implies that a student
is focused on a process, rather than the product, stressing the need to encourage
a student develop ones own learning needs and see learning as a life long process.
Consequently, only those students are autonomous who understand why they learn
about certain topics, who bear responsibility for their own learning, take initiative
in planning and realization (Lalovic, Z., et al, 2011); this also implicitly involves
readiness to responsibly evaluate ones own learning (Little, D., 2000). First step
in autonomy development is seen by Dam, L (1995) in the acceptance of respon-
sibility for ones own learning, which is a matter of full awareness and intentions,
implying that a student has a space to develop autonomy. This can be done only if a
student is provided with a possibility to participate in formulation of learning aims,
realization of tasks and activities, individually or as a team member, to apply self-
evaluation and think about ones own experiences in learning process. Autonomy
implies development of skills of reflection and analysis, i.e. meta-cognitive abilities,
so that a student could plan, monitor and finally evaluate his/her own progress;
this is manifested in such a way that accepting responsibility for ones own learn-
ing becomes a matter of commitment, leading to development of metacognition,
reflective management in learning, while success drives intrinsic motivation. Leni
Dam (op. cit) defines learning environment as one where students can be consci-
entiously involved in their own learning, so that through their active engagement
they can become aware of various elements in learning process. Group activities
have very important role to play in this process, having in mind that a student
could get to know learning strategies much faster when he/she cooperates with
colleges, rather than with a teacher exclusively (Jacobs and Farrell, 2001). Thus it
could be concluded that the greatest change implied by realization of learning au-
tonomy and encompassed by European qualification framework refers to a change
of didactic approach to learning in teaching, resulting from contemporary didactic
concepts of emancipatory learning, according to which teaching and learning lead
in the direction opposite to the one which existed before, meaning that those who
learn manage themselves during learning so that they gradually take responsibility
for their own learning.
Methodological Framework
The aim of the he above outlines of changes in understanding of the function
of higher education was to make a framework in which knowledge acquisition has
a different sense, different purpose, emphasizing abilities implied in the complex-
ity of the notion of competence, involving autonomy, which cannot exist without
developed metacognition, reflective management in learning and efficient learning
strategies, as well as success which drives intrinsic motivation. This is actually a
framework in which the question underlying the text was created, referring to the
following: what is the extent to which the indicators of education quality, such as
metacognition, critical thinking and learning strategies, are developed. It was a
starting point for making further conclusions on autonomy of learning of students,
as essential element of quality of studies.
An attempt to have a glimpse into the mentioned elements of quality of higher
education refers to the intention to consider metacognitive abilities of students,
strategies they use in learning and level of development of their critical thinking
through an explorative empirical research. In other words, we wanted to test the
thesis on the level of meta-components of intellectual autonomy development as
indicators of higher education quality. This can further lead to reflections on the
utility function of knowledge and role of education liberating in Aristotelian
sense creation of free people with high aims and open spirit, which are essential
elements of the components of European qualification framework. The problem
could be explicated in a number of ways. What is significant to us in this context
is that research (Gojkov, G., et. al., 2013; Gojkov, G., and A. Stojanovi, 2011; O.
Kruse, 2011) have shown that there is decreasing number of students with devel-
oped meta-cognitive abilities, expected level of critical thinking and efficient learn-
ing strategies, indicating that the reaches of higher education teaching are poor in
view of meta-components of intellectual autonomy (Ibid).
The findings presented in the paper are a part of a broader explorative research
conducted according to the method of systematic non-experimental observation.
Manipulation of variables, in order to intentionally change them, was not carried
out. However, statistical replacements were done according to statistical analyses
with the purpose of their experimental control. Apart from empirical method, ef-
forts have been made to transform quantity into quality, in order to find the cor-
relation between the obtained data and theoretical framework. Thus, systematic
approach was in a sense used through the synthesis of data in research. Basic argu-
ment for such a choice lies in the examined phenomenon itself, i.e. in the complex-
ity of education and the relation among the observed meta-components of learning
autonomy, and even broader, in philosophy of upbringing and conceptual changes
in pedagogy. It was used as a starting point in considerations of importance of all
this for empowerment of empancipatory potential and personal autonomy in the
process of learning as social context it is possible to reach emancipation only
through critical self-reflection.
The data for observation of the assumed relations among meta-components
of intellectual autonomy were collected according to the questionnaires MUS1
metacognitive abilities, SUS1 learning strategies, construed for the purpose of the
present research. The sample is non-probable, including 147 students of Teacher
Training Faculty, Belgrade University Teaching Department in Vrsac and Pre-
school Teacher Training College Mihailo Palov in Vrsac.
Findings and Interpretation

The correlation between the set of variables referring to learning strategies and
the set of variables referring to critical thinking and metacognitive abilities was
examined according to canonical correlation analysis. Table 1.1 shows that 7 pairs
of canonical variables were identified. Furthermore, the correlations in the case of
first three pairs of canonical variables are of moderate values.
Table 1.1 Canonical correlations

1 .573
2 .424
3 .373
4 .295
5 .215
6 .155
7 .049
Table 1.2 Significance tests of canonical correlations

Wilks Chi- DF p
lambda square
1 .402 111.256 70.000 .001
2 .599 62.623 54.000 .197
3 .730 38.405 40.000 .542
4 .848 20.155 28.000 .859
5 .929 9.047 18.000 .959
6 .973 3.279 10.000 .974
7 .998 .298 4.000 .990
Table 1.2 shows that only the first pair of canonical varaibles is in statistically sig-
nificant correlation.
Table 1.3 Canonical loads for learning strategies
1 2 3 4 5 6 7
VAR00002 .499 -.347 .340 -.498 .350 -.344 -.083
VAR00003 .227 -.483 .278 -.258 .213 -.480 .365
VAR00004 .516 -.311 .302 -.142 -.147 -.369 .498
VAR00005 .852 -.085 .017 -.005 .033 -.304 .336
VAR00006 .678 -.488 .201 .344 .236 -.022 -.014
VAR00007 .667 .167 .171 -.261 .027 -.458 .134
VAR00008 .745 -.113 .432 -.180 -.094 .002 .108
VAR00009 .403 -.479 .238 .289 -.285 -.545 -.176
VAR00010 .417 -.537 -.117 -.510 -.163 -.012 .138
VAR00011 .478 -.486 .188 .025 -.236 .034 .063
Table 1.3 shows that the first canonical variable, as a set of variables referring
to learning strategies is defined, before all, by: success in the following: text interpre-
tation, making analogies, giving subtitles to parts of the text (see a list of variables in
the footnote).1
1
VAR 2 level of success in identifying the main notions in the given text; VAR 3 level of success
in identifying the main ideas in the given text; VAR 4 level of success in making abstracts of the
text; VAR 5 level of success in text interpretation; VAR 6 level of success in content reconstruc-
tion; VAR 7 level of success in giving subtitles to parts of the text; VAR 8 level of success in making
analogies; VAR 9 level of success in application of ideas offered in the given text; VAR 10 level
It can be seen that students have different characteristics manifested in their

learning strategies and it seems that they are inclined to learning through memo-
rization (making notes and learning them), while the characteristics we could clas-
sify within self-reflective critical thinking (manifestation of networked, complex,
or systematic thinking; manifestation of sceptical thinking; complex or systematic
thinking, raising critical questions, making relations between ideas, etc) are rarely
present.
A conclusion could be made that most often students have expressed the style
of learning characterised by reading until memorizing; they repeat aloud what they
have read from their notes, learn parts, some of them even by heart. There is a small
number of students whose learning styles characteristics are: reading the text as a
whole, raising questions after reading the text, making syntheses, comparing with
other ideas, positioning new knowledge in the context finding examples, search
for the better ways of presenting contents, regroupings of ideas, questions referring
to the ways of easier ways to solve a problem, acquire new knowledge, critically
reconsider contents, evaluate ones own learning strategies. This means that major-
ity of students have poorly developed metacognitive components, or that they do
not pay sufficient attention to them in learning: they learn from notes, abstracts,
thesis and in some case even by heart, aiming at memorizing drafts; understand-
ing, connecting, comparisons, synthesis and other learning styles are rarely met.
What is also easily noticed is that there is a small number of students who have
manifested ability to elaborate and awareness on the ways to use prior knowledge,
while the lack of resourcefulness is evident in contents structuring, organizing, pay-
ing attention to main ideas, etc. This is an indicator of inadequacy in monitoring
and managing ones own work, due to the lack of raising new questions, meaning-
ful organizing of material, reconsideration of other possibilities, questions on the
importance of revealing meaning and fitting what has been noticed into existing
knowledge.
In the text step canonical loads of critical thinking and metacognitive compo-
nents were considered, showing that there is poor manifestation of critical thinking
(VAR00013-.891-level to which sceptical thinking is expressed and VAR00017-.571-
level to which networked, complex or systematic thinking is manifested. In other words,
according to Table 1.4 it is evident that the components opposite to critical think-
of success in making questions related to the text; VAR 11 level of success in making network of
notions and ideas given in the text.
ing are expressed, without scepticism, complex consideration of relations between

ideas and notions, etc.
Table 1.4 Canonical loads for critical thinking and metacognitive abilities2
1 2 3 4 5 6 7
VAR00012 -.017 .790 -.443 .100 .175 -.196 -.317

VAR00013 -.891 .172 .291 .106 -.039 -.175 .222
VAR00014 -.423 -.403 -.206 -.249 -.292 .350 -.588
VAR00015 -.107 -.195 .077 .295 .656 .653 .004
VAR00016 .059 -.160 -.436 -.660 .445 .103 .370
VAR00017 -.571 -.239 -.301 .382 .327 -.385 -.354
VAR00018 -.413 .114 -.546 .534 -.274 .126 .377
Table 1.4 shows that the first canonical variable including the set of variables
referring to critical thinking and metacognitition is defined, before all, by thinking
which is opposite to skeptical and networked, complex thinking.
In an attempt to summarize the previous findings we could say that there is
moderately expressed tendency that the greater success in text interpretation, mak-
ing analogies and establishing a network of notions, less skeptical, networked
complex thinking is. This means that majority of students have poorly developed
metacognitive components, so that they are insufficiently consciously immersed
into problem understanding and question analysis, so that they do not manifest
ability to elaborate and dwell on the ways to use prior knowledge, while the lack
of resourcefulness is evident in contents structuring, organizing, paying attention
to main ideas, etc. This is an indicator of inadequacy in monitoring and managing
ones own work, due to the lack of raising new questions, meaningful organizing
of material, reconsideration of other possibilities, questions on the importance of
revealing meaning and fitting what has been noticed into existing knowledge.
2
VAR 12 the level of logical thinking; VAR 13 the level of sceptical thinking; VAR 14 the level
of independent thinking; VAR 15 the level of natural-scientific thinking; VAR 16 the level of
systematic, methodological thinking; VAR 17 the level to which networked, complex or systematic
thinking is manifested; VAR 18 the level of self-reflective and metacognitive thinking.
Concluding Considerations
Previous findings clearly point to confirmation of the assumption on short-
comings of the outlined changes in understanding of function of reformed higher
education, since knowledge acquisition has not get its expected sense, i.e. purpose,
through the Bologna process. Furthermore, the emphasis of abilities implied in the
complexity of the term of competence, involving autonomy, has still, at least in
the presented explorative research, not gained characteristics which would indicate
the expected levels of development of intellectual autonomy. Such an autonomy
is tacitly involved in previously sketched competences of European qualification
framework: knowledge and competence in the levels 6 8: bachelor master
postgraduate degree (www.jointquality.org, European Council, 2008), and these
are, before all: critical thinking, innovative approaches to thinking in research,
critical awareness, in order to manifest successful solving of complex, unpredict-
able problems in special working or learning fields. This is not possible to achieve
without developed metacognition, reflective management in learning and efficient
learning strategies, i.e. without developed indicators of quality of education, like,
e.g. meta-cognition, critical thinking and efficient learning strategies, which, as it
was found by the research, are not at the expected level. Expectations of European
qualification framework that knowledge and competence will be in the function of
education of intellectual and methodological abilities, i.e. autonomy of education,
are not realistic. If we further made a conclusion on students autonomy of learn-
ing, as an essential element of quality of studies, it could be said that these findings
lead to thinking about utility function of knowledge - in Aristotelian sense liberat-
ing creation of free people with high aims and open spirit, which are essential
elements of the components of European qualification framework, as it had already
been stated in the theoretical part of the paper. The findings indicatively indicate
that there is a need for different didactic approaches to learning at the levels prior to
higher education, so that knowledge acquisition should be oriented towards higher
levels, synthesis and evaluation in solving of significant problems in the field of
science and/or innovations and in broadening of newly defined existing insights or
professional practices. This further requires didactic models of learning according
to which learning with the characteristic of critical thinking, i.e. critical awareness
will find its place.
Finally, it seems that the findings have also confirmed the standpoints frequently
heard in the academic circles in Serbia, according to which the new approaches to
learning within the Bologna process, i.e. didactisation of learning, have led to a sit-
uation in which students have become an object of didactics, disappearing as actors

and personalities in learning arrangement. As a consequence, quality of studies has
been more and more characterized by instrumentalized knowledge with utilitarian
value, while complex abilities, i.e. competencies expected by European qualifica-
tion framework have not been found in quality indicators to desirable extent. The
findings could also lead to a conclusion that current approaches to educational
quality, grounded on the culture of verification relying on external control of the
outcomes based on mechanicistic-technicistic oriented values and actions, norma-
tive philosophy and pedagogy, and finally, logics of economy is not a concept ensur-
ing the expected outcomes of quality, so that we should advocate for creation of a
different concept of quality which has to be contextualized, implying that all the
actors create mutual understanding of quality and search for more adequate ways of
reaching it. It is clear that the emphasis on instrumentally oriented factography of
examination demands puts critical thinking and other abilities, like, e.g. metacog-
nition and learning strategies, into second place; as a consequence, current trends
in higher education teaching are heading towards scolarization, which resulted in
positioning critical thinking into the limelight within European policy of develop-
ment. Formulation of the system of descriptors has created educational framework
which defines quality demands in this sense in the whole Europe. What seems
necessary now is for higher education didactics to enter the scene and encompass
critical thinking in curricula as an explicit aim, in order to get to incoherent parts
of learning contents and teaching events which are suitable for encouragement of
intellectual autonomy of students. This means that a student is focused on the pro-
cess, rather than the product, stressing the need to encourage students to develop
their own learning needs and see learning as life long process, understanding why
they learn certain topics, bear responsibility for their own learning, take initiative
in planning and realization (Lalovic, Z., et al, 2011), to take responsibility to evalu-
ate their own learning (Little, D., 2000). This is how the first step in autonomy
development will become visible, as it was proposed by Dam, L (1995), i.e. the
students will accept responsibility for their own learning, which is a matter of full
awareness and intentions, implying that a student has a space to develop autonomy.
This can be done only if a student is provided with a possibility to participate in
formulation of learning aims, realization of tasks and activities, individually or as
a team member, to apply self-evaluation and think about ones own experiences in
learning process, and this was found only in a small number of students (around
30%). In such a way autonomy will imply development of skills of reflection and
analysis, i.e. meta-cognitive abilities, so that a student could plan, monitor and
finally evaluate his/her own progress; this will be manifested in such a way that
accepting responsibility for ones own learning becomes a matter of commitment,
leading to development of metacognition, reflective management in learning, while
success drives intrinsic motivation.
Having said all the above, it might be concluded for current practice that the
greatest changed introduced by realization of learning autonomy, implied by Eu-
ropean qualification framework is the change of didactic approach to learning in
teaching, resulting from contemporary didactic concepts of emancipatory learning,
according to which teaching and learning lead in the direction opposite to the one
which existed before, meaning that those who learn manage themselves during
learning so that they could gradually take responsibility for their own learning.
References:
1. Dam, L., (1995), Learner Autonomy 3: From Theory to Classroom practice, Dublin: Authentim.
2. Facione, P. A. (2000). The disposition toward critical thinking: Its character, measurement,
and relation to critical thinking skill. Informal Logic, 20(1), 6184.
3. Gojkov, G., i A. Stojanovi (2011), Participativna epistemologija u didaktici, Vrac, VV.
4. Gojkov, G. (2013), Fragmenti visokokolske didaktike, Vrac, VV.
5. Halpern, D. F. (1998). Teaching critical thinking for transfer across domains: Disposi-
tions, skills, structure training, and metacognitive monitoring. American Psychologist, 53(4),
449455.
6. Jacobs,G.M.&Farrell,T.S.(2001), Paradigm Shift: Understanding and Implementing Change
in Second Language Education. Retrieved 01 01, from TESL-EJ: Teashing Englisch as a sec-
ond or foreing language: htt://teslej.org/ej17/a1.html
7. Kruse, O., (2011), Kritino razmiljanje u znaku Bologne: Retorika i realnost, u: Monika
Rumller, Neue impulse in Hochschuldidaktik, Berlin.
8. Lalovi, Z., et.al.(2011), Metode uenja - nastave u koli, Naa kola, Zavod za kolstvo Crne
Gore, Podgorica.
9. Little, D. (200), Learner autonomy and human interdepedence: some theoretical and practi-
cal consecuences of a social-integrative view of cognition, learning and language. In: B. Sin-
clair, I. McGrath and T.Lamb (eds), Learner Authonomy: Future Directions, 15-23, Harlow:
Longman - Pearson Education. www.jointquality.org Evropski Savet (2008).
670 Nevenka Kova
QUALITY MANAGEMENT IN HEALTH CARE - CONTRIBUTING

TO PATIENT SAFETY AND EFFICIENCY OF BUSINESS
OPERATION
Nevenka Kova, M.D.,M.B.A.,M.Sc.C.C.1
1
Special hospital for orthopaedics, neurology and physical medicine and rehabilitation
St. Catherine in Zabok, Republic of Croatia, nevenka.kovac@svkatarina.hr
Abstract
In order to ensure efficient and effective health care, of equal high quality and
accessibility, at all the levels of healthcare and across the entire Croatian territory, all
operators in health services are required to establish, develop and maintain a system
for assuring and improving the quality in healthcare. Legal requirement to intro-
duce quality management systems into healthcare institutions notwithstanding, a
quality management system is equally important in regard to the provision of cross-
border healthcare, which guarantees to the patients from other EU countries that
they would receive treatment under clearly defined standards of quality healthcare,
ensuring safe and high-quality medical services. For this very reason it has become
imperative that exact criteria for the basic standards of medical services and for the
needs of medical tourism be determined, as so far they have neither been defined
nor harmonised. To compete in foreign markets it is necessary to possess quality
certification for both healthcare facilities and business processes, with the overarch-
ing goal of ensuring as good and as safe medical services as they are possible. The in-
stitution which holds a clear classification and/or accreditation for its facilities and/
or services receives more recognition and has more competitive potential in foreign
markets. Considering that the system for assurance and improvement of quality in
healthcare represents one of the Croatian accreditation standards, introducing in-
tegrated systems for healthcare quality management has recently gained significant
importance.The quality management system according to the ISO 9001 standard
is employed today worldwide, and certifying the system is a generally accepted way
of proving that the product or service meets the requirements of quality. The ISO
9001 standard is a generic standard that defines certain requirements for the qual-
QUALITY MANAGEMENT IN HEALTH CARE CONTRIBUTING TO PATIENT SAFETY AND ... 671
ity management system which are applicable to all organizations, regardless of their
type and scope, and consequently to healthcare organisations as well. Preparing to
enter the demanding market of medical tourism, St. Catherine Specialty Hospital
has introduced a quality management system as the first stage on its course to ob-
taining an international accreditation. St. Catherine Specialty Hospital received its
first certification in 2013 for six quality improvement goals (diagnostics, treatment
and rehabilitation of diseases and injuries of the locomotor system, magnetic reso-
nance imaging of children and adults, minimally invasive interventions and spine
surgery, acute pain treatment, one-day surgery and nursing care) and fourteen qual-
ity improvement indicators, the achievement of which was confirmed at the begin-
ning of 2014 in the re-certification procedure which renewed its ISO 9001:2008
standard certification.
Keywords: quality management, quality improvement indicators, ISO
9001:2008, certification, accreditation standards, accreditation
1. Why quality management system in health care?

The quality of health care is a result of measures undertaken on the basis on
modern insights regarding healthcare procedures, and which ensure the most fa-
vourable treatment outcome possible, as well as reduce the risk of adverse conse-
quences for human health.All patients are guaranteed universal and equal right to
quality and continuous healthcare suitable to their state of health, in accordance
with generally accepted professional standards and ethical principles, in the best
interest of the patients and with respect to their personal views. In order to ensure
efficient and effective healthcare, of equal high quality and accessibility, at all levels
of healthcare and across the entire Croatian territory, all operators in health services
are required to establish, develop and maintain a system for assuring and improving
the quality in healthcare in compliance with the Plan and programme of measures
adopted by the Minister of Health at the proposal of the Agency for Quality and
Accreditation in Health Care and Social Welfare.
So as to avoid unfair competition, it has become imperative to determine the
exact criteria for the basic standards of medical services and for the needs of medi-
cal tourism, which is, according to UNWTO, the fastest growing tourism industry
with an annual growth rate of 15-20 % at the global level. The strategies of both
the Ministry of Tourism and the Ministry of Health have identified this form of
672 Nevenka Kova
tourism as an important segment of tourism in Croatia, with a great potential to

launch a number of parallel services. It represents a real opportunity for Croatia
to take advantage of its potentials: quality medical service, highly qualified medi-
cal staff, competitive prices, well-equipped and staffed private healthcare sector,
tradition, preserved environment, a healthy and diverse wine and food offer and
priceless natural riches and its healing factors. Specifying the basic service standards
would achieve a higher quality of service and lead to it being more highly valued.
To compete in foreign markets it is necessary to possess quality certification because
an institution which holds a clear classification and/or accreditation for its facilities
and/or services receives more recognition and has more competitive potential in
foreign markets. The number and type of certified and accredited institutions, and
of licensed personnel, is an essential reference in the international market, both for
the institutions and for the country as a whole.
The quality management system is equally important for the implementation of
Directive 2011/24 EU which concerns cross-border healthcare, and which enables
every EU citizen to receive treatment in any of the EU countries under clearly
defined standards of healthcare, which guarantee safe and quality medical services.
The safety of patients and the standardised quality of healthcare services are pre-
cisely some of the most important reasons underlying the introduction of quality
management systems into healthcare facilities worldwide. In Croatia, most medi-
cal institutions in public health have failed to recognise the the need to introduce
this type of system, while on the other hand there are hardly any major private
medical institutions that have not implemented some form of the quality manage-
ment system and which are not in the course of preparing themselves for obtaining
an accreditation.
2. Healthcare facility accreditation

Accreditation represents an external evaluation of quality of healthcare institu-
tions. It is a process voluntarily undergone in order to establish the compliance of
a healthcare institution with the accreditation standards, its validity is limited in
terms of duration and it relies on periodic audits. An accreditation is controlled by
an agency that sets the standards and schedules the visitations from quality assess-
ment teams (who are trained to assess the extent to which a healthcare facility com-
plies with the prescribed standards). If a healthcare facility meets the prescribed
standards it receives the accreditation. The umbrella organization for the accredita-
tion agencies is the International Society for Quality in Health Care (ISQua), with
its headquarters in Ireland, while in Croatia this role is occupied by the Agency for
Quality and Accreditation in Health Care and Social Welfare. ISQua has 25 mem-
ber agencies throughout the world (the most important representatives are JCI -
Joint Commission International, ACI-Accreditation Canada International, DNV
Healthcare Inc. and ACHS-Australian Council on Health Care Standards) which
conduct 57 accreditation standards programmes.The accreditation standards are
the foundation of accreditation programmes. The standards represent a document
which is adopted by consensus and approved by a competent body, which, for the
purposes of general and ongoing application, establishes the rules, guidelines and
prescribed features of services, or their aimed results in terms of striving to achieve
the highest degree of standardisation in the given context. The accreditation stan-
dards are part of the ongoing effort to improve the quality of healthcare. They are
focused on the patients as end-users of healthcare protection and are founded in the
current legislation. The accreditation standards serve as a framework for achieving
quality; however, they do not prescribe how to reach the goal, but rather describe
the path towards it, which may differ from one country to another, as well as on
the level of healthcare institutions. Indicators are an integral part of accreditation
standards, and are applied as a tool to concretely measure the compliance with
the standards. In accordance with the Regulation on accreditation standards for
hospital healthcare institution (OG 3111) the Croatian accreditation standards are
the following :
System for assuring and improving the quality of healthcare
Hospital healthcare institution management
Hospital healthcare institution employees
Overview of the use of healthcare services
Rights of patients
Medical records service
Nursing care and hospital discharge planning
Infection control and the safety management system
The Croatian Agency for Quality and Accreditation in Health Care and Social
Welfare is currently developing a national accreditation programme and plans to
obtain an international ISQua accreditation for the Croatian accreditation stan-
dards for hospitals in the course of this year. Considering that the system for assur-
674 Nevenka Kova
ing and improving the quality of healthcare protection is also one of the accredita-
tion standards, and that all operators in healthcare services in the RoC are required
to establish, develop and maintain it in accordance with Article 10 of the Act on
the Quality of Health Care, it is becoming increasingly important to introduce the
system of quality management into the healthcare.
3. Quality management system

A management system is a system that uses an established policy to fulfil the or-
ganizations objectives. Management systems in organizations can be implemented
and maintained individually; however, the use of integrated management systems
has been on the rise. The most common examples of implemented integrated man-
agement systems relate to the management systems which are dedicated to quality,
environmental protection, health and safety protection. Each management sys-
tems has a different focus. The quality management system is focused on customer
needs, the environment, energy efficiency and the like. The historical development
of quality management goes back to the distant past when the Babylonian king
Hammurabi imposed order on the business activities of his subjects, introducing
his famous law on the protection of customers and small businesses from fraud
around 2100 b.c. It is anticipated that the 21st century will be the century of qual-
ity, which is to say that the consumers (patients) will prefer only the highest qual-
ity products and services regardless of their geographic and national origin. In the
Croatian practice the most commonly applied standards and management systems
are the following:
ISO 9001:2008 quality management system
ISO 14001:2004 environmental management system
OHSAS 18001:2007 occupational health and safety management system
ISO 22000/HACCP food safety management system
ISO 26000:2010 social responsibility management system
ISO 27001:2005 information security management system
ISO 50001:2010 energy management system
ISO 9001 is the most widely used international standard that sets the require-
ments for the establishment and maintenance of quality management systems, and
is applicable to all types of organizations (profit/non-profit, product/service, small/
medium/large). This standard is most commonly used in Croatian practice as it
allows organisations to establishment good preconditions for the implementation

of other management systems. A well developed and maintained quality manage-
ment system will positively contribute to the achievement of business operation
goals, improving customer satisfaction and trust, as well as the overall results and
performance. The impact of an implemented quality management system can pro-
vide organisations with numerous advantages over their competitors. How quality
affects the companys business revolves around two key aspects: the impact on costs
(quality means the absence of errors, higher quality simply means fewer errors,
fewer deficiencies) and the impact on revenue (quality represents those features that
meet the requirements of customers, such features ensure customer satisfaction,
higher quality means the higher number of features that ensure satisfaction). The
advantages of organisations which have implemented quality management systems
according to the ISO 9001:2008 standard may be divided into external and inter-
nal. The internal advantages are defined as those that the organization may gain
within its processes (greater employee satisfaction, increased employee and process
efficiency, reduced operating costs and increased revenue) and the external advan-
tages are those that the organisation gains in relation to other organizations (a more
competitive marketing position, the status of a more desirable employer, easier ac-
cess to the global market, easier recognisability of the quality of the organisation
and its product in the previously unknown markets and brand strengthening).
4. ISO 9001 standard

Following the introduction of mass production in the 19th century there has
been an increasing need for quality and for setting up the standards that define it.
The first conference on standardization was held in Dresden in 1886, and the first
national standardization organization was founded in 1901 in the United Kingdom
(BSI - British Standards Institution). In 1906 in London, the first international
standardization organization was founded, the IEC (Electrotehnical Commission),
and in 1926 the International Standardization Association (ISA) was founded
which was the predecessor of ISO (International Organization for Standardiza-
tion). ISO is an international non-governmental organization for standardization
that has existed since 1946 when it was founded in Brussels, and it covers the stan-
dardization across all the fields except electrics and electrotechnical engineering,
which falls into the domain of IEC (International Electrotechnical Commission).
In 1987 the International Organization for Standardization issued international
standards of the ISO 9000 series, which were adopted by all the members of ISO,
676 Nevenka Kova
including Croatia. The ISO 9001 standard has undergone two revisions since its es-
tablishment (in 2000 and 2008). The currently valid version is the ISO 9001:2008
standard. The ISO 9001 standard is a generic standard that defines certain require-
ments for the quality management system which are applicable to all organizations,
regardless of their type and scope. This standard prescribes how an organization
needs to set up, document, implement and maintain a quality management system
and continually improve its effectiveness. In 1987, when the standards prescribing
quality assurance were introduced, a need occurred to provide certification of qual-
ity management systems.
5. Certification
The term certification implies a process of verification conducted by a third par-
ty, i.e. in which an independent organization, based on the assessment of compli-
ance establishes whether a product, process, management system or persons meet
the criteria contained in a relevant standardisation document. Certification bodies
can be divided into certification bodies for products, persons and management sys-
tems (e.g. the ISO 9001 standard on quality management systems). Certification
bodies prove their competence by undergoing an accreditation procedure which is
conducted by a national accreditation body, in which case it is required to bring
its management systems in compliance with the requirements of relevant interna-
tional standards (which is in Croatia the HRN EN ISO/IEC 17021 standard for
the certification bodies in charge of management systems). A certification body
that is carrying out a certification procedure evaluates the documentation and work
conducted in practice by the organisation which wishes to obtain a certification in
accordance with relevant standardisation documents. On the basis of conducted
conformity assessment, the certification body awards a certificate, if all the condi-
tions prescribed by the standardisation documents have been met. In Croatia there
are 21 certification bodies in charge of quality systems certification. According to
the ISO Survey, in 2012 there were issued worldwide: 1,101,272 certificates for
ISO 9001, out of which 43% in Europe (474,574), in the U.S. 3.5% (38,586), in
Croatia 0.2% (2614), in Slovenia 0.14% (1614), and 0.11% in BiH (1239).
6. Quality management system at St. Catherine Specialty Hospital

St. Catherine Specialty Hospital for Orthopaedics, Surgery, Neurology and
Physical Medicine and Rehabilitation in Zabok is a European center of excellence
with the most advanced infrastructure for diagnostics, therapy and rehabilitation.
The hospital employs the latest technology and methods of treatment in collabora-
tion with leading European and American institutions and professionals, which is a
guarantee of excellence for the work performed at the hospital in accordance with
the highest international standards of good medical practice. Considering that the
potential of this hospital extends beyond the boundaries of the Croatian market, a
plan has been made to introduce it into the market of medical tourism. Therefore
it was necessary to set up a quality management system as a preparatory step on the
way to achieving international accreditation, and the fact that the European market
has become open to cross-border healthcare services has only further emphasized
the need to do so. Consequently, in the course of 2012, relying on its own means,
the hospital began the process of implementing a quality management system ac-
cording to the ISO 9001:2008 standard, by means of introducing quality improve-
ment indicators which are based on international accreditation standards, as well
as the international guidelines and recommendations that contribute to increasing
patient safety.
St. Catherine Specialty Hospital received its first certification in 2013 for di-
agnostics, treatment and rehabilitation of diseases and injuries of the locomotor
system, magnetic resonance imaging of children and adults, minimally invasive
interventions and spine surgery, treatment of acute pain, one-day surgery and nurs-
ing care. Every segment of the process has with it associated quality improvement
indicators and goals which are to be achieved within one year. The quality improve-
ment goals for 2013 were set as very demanding (85% -100% achievement rate was
required), and many were correspondingly established. For six quality improve-
ment goals seventeen quality indicators were set up: four indicators associated with
diagnostics, treatment and rehabilitation of injuries and diseases of the locomotor
system and one-day surgery, three indicators associated with magnetic resonance
imaging of children and adults, two indicators associated with minimally inva-
sive interventions and spine surgery, two indicators associated with the treatment
of acute pain and six indicators associated with the nursing care. The set quality
improvement goals and indicators were defined by the teams for their respective
hospital domains and organisational units. The aim was that all hospital staff would
become involved in the defining of the quality improvement goals and indicators,
as well as of the ways in which they might take part in their daily tracking and
achievement.
The World Health Organization (WHO) launched five years ago an initiative to
increase patient safety in operating rooms in order to reduce the number of surgical
678 Nevenka Kova
deaths. The aim of this initiative was to assist the teams in operating rooms with
reducing the number of undesirable events such as: inadequate anaesthesia, surgi-
cal infections and poor communication among team members. For this purpose, a
number of safety checks in the operating room were identified that should contrib-
ute to the prevention of errors and omissions, and reduce the mortality of patients
undergoing surgery. The intention of the WHO is that the implementation of the
surgical safety checklist becomes a standard procedure for the assessment of all the
hospitals around the world. This list was integrated at the St. Catherine Hospital
as part of the standard surgical procedure and in a way that one of the quality
improvement indicators requires 100% of the patients undergoing surgery to have
a completed surgical safety checklist for verification purposes. In this manner St.
Catherine Specialty Hospital has became the first hospital in Croatia which has
introduced this document, which is recommended by the World Health Organiza-
tion for the daily practice of surgical teams in operating rooms.
Figure 1: Surgical safety checklist in the St. Catherine Specialty Hospital and Sur-
gical safety checklist recommended of the World Health Organisation
Department: Page 1 / 2
ST. CATHERINE Operating block and sterilization Issue: 2/ 01/01/2014
SPECIALTY HOSPITAL Name: Designation:
Surgical safety checklist OPR-OBR-i2
Patient name: No: Number of op. protocol:
Date:
BEFORE PATIENT LEAVES OPERATING

BEFORE INDUCTION TO ANAESTHESIA BEFORE START OF PROCEDURE
ROOM
Has the patient confirmed: Confirm all team members have Nurse/technician verbally confirms:
identity introduced themselves by name and Name of procedure
role
name of the procedure Instrument and needle counts
site of the procedure Bandaging material counts
consent Verbally confirm patient name, type How sample data are labelled
and site of procedure
Whether there are any technical
issues which need to be reported
Has the site of procedure been Instructions for proper care and
marked? rapid patient recovery:
Yes Has antibiotic prophylaxis been given
within the last 60 minutes?
No applicable Med. nurse/technician
Does patient have any known Anaesthesiologist:

allergies? Does patient require specific care?
Yes Is radiology imaging displayed?
Yes
No No
Is there risk of difficult intubation or Critical event anticipation: surgeon Operator:
aspiration risk? Unwanted course of procedure
Yes, and equipment is available ________
No Procedure duration
__________
Anticipated blood loss
__________
Anaesthesiologist:
Additional venous access in case of
>500 ml of blood?
Yes
No
Performed: _______________ Performed: ________________ Performed: _______________

Source: St. Catherine Specialty Hospital documentation
680 Nevenka Kova
Suorce: WHO, (2008).WHO surgical safety checklist. Available at www.who.int/patientsafty/

en/ (13 February 2014)
One of quality improvement indicators associated with the nursing care is the
prevention of patient falls in accordance with the Morse scale for assessing the risk
of patient fall incidents (with the goal of preventing fall incidents in 90% of patients
under this risk). The World Health Organisation (WHO) and the World Alliance
for Patient Safety have defined 200 opportunities for the five moments for hand
hygiene of healthcare staff engaged in the nursing care. The quality improvement
indicator at St. Catherine Hospital requires that 90% of medical nurses/technicians
adhere to the concept of five moments for hand hygiene in accordance with the
recommendations of the WHO. It has been determined that a 10% increase in the
proportion of nurses holding higher education degrees, reduces patient mortality
by 5%. For this reason, the continuous and permanent education of nurses at St.
Catherine Hospital has been set up as a quality improvement indicator in the fol-
lowing manner:90% of nurses/technicians with secondary education will acquire
20 points for continuous professional education in accordance with the regulation
of the Croatian Nursing Council, 90% of nurses/technicians with bachelor degrees
will acquire 25 points for continuous professional education in accordance with the
regulation of the Croatian Nursing Council, and 95% of nurses/technicians will
once a year attend education on the basic resuscitation procedures in case of emer-
gency. All these quality improvement indicators directly contribute to the safety of
patients of St. Catherine Hospital and in this way improve the quality of health-
care services that the hospital provides. All this has been recognised by patients
themselves, 93% of whom, in an anonymous survey, expressed the level of their
satisfaction with the quality of medical service at St. Catherine Hospital with an ex-
cellent grade.A year from receiving the certification, an analysis was conducted for
all fourteen quality improvement indicators, eleven of which had been achieved,
while it was determined that for three of them it was required to employ a differ-
ent methodological frame (their achievement was not fully within the competence
of the hospital staff, for example, the surveys which the patients were required to
return by mail after having been released from the hospital).
During 2013, 35 business processes were changed because the quality manage-
ment system revealed opportunities for improvement. This resulted in savings be-
ing made in the course of business operation and the quality management system
in the first year already demonstrated how it could contribute to cost rationaliza-
tion. Furthermore, it was determined that new indicators for 2014 need to be set
up (introducing daily monitoring of the technical condition of operating rooms
through the so-called health technology assessment). The quality management sys-
tem at St. Catherine Specialty Hospital has in this way become a powerful tool for
the monitoring of our business processes, with the overarching goal of improving
the quality of the offered medical services and the safety and satisfaction of patients.
The certification procedure has aided the emergence of the culture of quality
which is crucial for the process of obtaining an international accreditation, which
St. Catherine Hospital plans to embark on (the first contact has been made with
the JCI, the first world accreditation agency for hospital accreditation). In the be-
ginning of 2014, St. Catherine Hospital underwent a procedure of re-certification
in accordance with the ISO 9001:2008 standard.
Conclusion
Croatian healthcare has a highly educated and expert medical staff, there are
few healthcare institutions that have an implemented quality management system
and there are fewer still that hold an accreditation. Legal requirement to introduce
682 Nevenka Kova
quality management systems into healthcare institutions notwithstanding, doings

so is equally important in regard to the provision of cross-border healthcare, which
guarantees to the patients from other EU countries that they would receive treat-
ment under clearly defined standards of quality healthcare, ensuring safe and high-
quality medical services. In order to avoid unfair competition, a need has arisen
to establish exact criteria for the basic standard service and the services related
to medical tourism. The institution which holds a clear classification and/or ac-
creditation for its facilities and/or services receives more recognition and has more
competitive potential in foreign markets. For this reason, St. Catherine Specialty
Hospital introduced a quality management system in compliance with the ISO
9001:2008 standard for six quality improvement goals and fourteen quality indica-
tors and obtained the first certification in the beginning of 2013 (for diagnostics,
treatment and rehabilitation of diseases and injuries of the locomotor system, mag-
netic resonance imaging of children and adults, minimally invasive interventions
and spine surgery, acute pain treatment, one-day surgery and nursing care). The
set quality improvement goals and indicators encompass all the activities of the
hospital and the organisational unit and in this manner all hospital staff are actively
involved in their day-to-day tracking and achieving.The quality management sys-
tem has revealed many opportunities for the improvement of work processes and
rationalization of costs. A series of indicators have been set up in accordance with
international guidelines and recommendations for the betterment of patient safety.
St. Catherine Hospital is in this respect unique in Croatia. The quality manage-
ment system at St. Catherine Specialty Hospital has in this way become a powerful
tool for the monitoring of our business processes, with the overarching goal of
improving the quality of the offered medical services and the safety and satisfaction
of patients. The culture of quality which has flourished at the hospital since the
implementation of the quality management system is also of importance for the
process of obtaining an international accreditation, which St. Catherine Hospital
plans to embark on.
References:
1. EU Directive for the Recognition of Professional Qualifications (EC2005/36). Avail-
able at www.eur-lex.europa.eu (17 February 2014)
2. Croatian Nursing Council, Sestrinske dijagnoze, ISBN: 978-953-95388-4-2 , Zagreb
3. Heuvel, J. van den. (2006) The Effectiveness of ISO 9001 and Six Sigma in Health-
care, ISBN 978-90-809277-6-6 , Rotterdam
4. Price, M., Fitzgerald L. & Kinsman, L. (2007.).Quality improvement: the divergent

views of managers and clinicians, Journal of Nursing Management 15, 4350
5. Sveti ii, R., Gaina S., Hrdan N., Metelko ., Sokoli L. (2008.). ISO quality
control system in nursing,Nursing Journal (2:67-72)
6. WHO, (2009). Hand Hygiene Technical Reference Manual and Implementation
manual. Available at www.who.int/patientsafty/en/ (13 February 2014)
7. WHO, (2008).WHO surgical safety checklist. Available at www.who.int/patient-
safty/en/ (13 February 2014)
684 Nedeljko Kovai
GLOBALIZATION AND THE IMPACT OF GLOBALIZATION ON

THE HEALTH INDUSTRY
Nedeljko Kovai, Ph.D.1
1
Community Health Centre, Donji Miholjac, republic of Croatia, ravnatelj@dz-donjimiholjac.hr
Abstract
Globalization is the key challenge for public health care and primary health
protection, given the links between globalization and health care, which are very
complex today, the emphasis increasingly being on developing countries, in which
group is also Croatia. Although there are numerous papers available on this subject,
it is necessary to provide an institutional framework for the assessment of direct
and indirect health impacts of various aspects of globalization.
Therefore, this paper presents a conceptual framework between health care and
globalization based on the works of David Woodward and Nick Drager, with the
purpose to serve as a guideline for the synthesis of existing papers in this field, as
well as the search for new cognitions, which can ultimately contribute to the devel-
opment of national policies on health.
When we talk about the conceptual framework, then by all means we need to
pay attention to the indirect effects on health, as well as the direct impact on the
population on the level of individual risk factors on health and the health care sys-
tem as a whole. The paper will pay particular attention to the general objectives of
the activities to optimize the health effects of economic globalization.
Keywords: Globalization, public health, population health, health risk, concep-
tual framework.
1. Introduction
Good health for all people is accepted as a general objective in the field of health
care in the international framework set by the World Health Organization (WHO).
GLOBALIZATION AND THE IMPACT OF GLOBALIZATION ON THE HEALTH INDUSTRY 685
It is obvious that there is inequality in health between rich and poor, while the future
health prospects depend primarily on the growing relations between the globalization
processes in the world. Not so long ago, we looked upon globalization, more or less,
as economy processes. Today it is considered as a contemporary phenomenon that is
determined by many factors and events that are rapidly changing our society. Through
this paper, I will try to show an imaginary frame in which globalization significantly
affects the health of the population. The imaginary frame has two functions:
1. Serves as an imaginary frame and
2. Provides the basis for the development of future scenarios in the field of
health care.
Existing contemporary models relating to globalization and health are those that
were developed by Woodward and his associates, and Labonte and Torgerson. Con-
sequences which were spotted by Woodward and his associates are more critical for
the health of the population and are mostly the result of economic factors. Labonte
and Torgerson primarily focus on the impacts of economic globalization and inter-
national domination. In our view, paths that lead to globalization are very complex.
Therefore, the conceptual framework that affects the health of the population and
the consequences of the globalization process require a more holistic approach and
should be the foundation for a generally extended model, which should consist of,
the affect on the health of the population, as well as the process of globalization.
In the last two decades, world trade has tripled, and trade services on the level of
the world economy has increased more than 14 times (UNDP, 2009,17-19), so there
has been a significant increase in the production of information, knowledge and
new technologies. However, on a global scale, not all have the same benefits of these
significant changes. Globalization under the concept of free markets has contributed
more to the development of the industrial countries and the strong economies in re-
lation to developing countries. This is best shown in the example that in the last two
decades, the difference of the average GDP per capita between industrial countries
and developing countries has increased 12 times, while the share of developing coun-
tries in world trade has declined from 4% to 1% (UNDP, 2009, 21).
Poor countries have difficulties in developing their national economies and seek
their opportunity in international investments or commerce. The debts of these
countries have significantly increased due to personal consumption and reduction
of development potential. In the current conditions, the income of of the worlds
population has dropped significantly, and in some regions and national economies,
686 Nedeljko Kovai
there appear imbalances in the economy and health. Many countries are therefore
investigating the impact of globalization on the standard of living, as well as the
impact on their health (Loewenson, 2001,863).
This paper will try to show the impact of globalization on the health of the pop-
ulation, thereby focusing on its negative effects, and recommendations for some
possible solutions that will reduce the negative impacts on the populations health
inequality in our country.
2. Definition of globalization
There are various definitions relating to globalization. According to some, glo-
balization has increased the significance of the integration of national economies
in the global market through trade, investment and financial impact. Looking at it
another way, this means a strong and complex global exchange of goods, services,
finance, productivity and people. Banoob (2002) defines globalization as a free,
comprehensive and fast movement, exchange and transfer of information, knowl-
edge, finances, goods, services and people between national economies globally.
Globalization is not just a simple phenomenon, and not just an economic process,
it contains new trends in the economy, leading to significant changes in the alloca-
tions of labor, as well as reorganization and relocation of companies.
Since there is no consensus on a uniform definition of globalization, there is
some consensus that globalization is a form of accelerated international economic
activities that require rapid movement of information, capital, goods and services.
This is a more dynamic process than a phenomenon which in itself involves and
transfers many aspects of financial, technological, economic, social, cultural and
geopolitical activities. This process is institutionalized in openness and the strength-
ening of international understanding in trade, technology and financial flow that
affect the price and allocation of resources, including manpower in a way that re-
duces the impact of national policies (Frankel, Romer, 1999, 379-399).
Thus, globalization stems from the development of communications and inter-
national transport, sharing hereby certain rights and responsibilities. Globalization
represents the trend of unfulfilled desires of human society with the aim of prevent-
ing unjust social and natural disasters. The trend of globalization in the field of
health care has expanded from the impact on the individual, to the impact on the
community, from the technical health care problems to social problems. The rela-
tionship between individual doctors and patients has become the relationship be-
tween physicians and the community. The relationship within the socio-economic
system and a combination of social value create the health care system.
3. Characteristics of globalization
To get closer to the notion of the conceptual framework in which globalization
works, we should understand the basic features of the overall process of globaliza-
tion, which consists of: a new global management structure, world market, global
communications and information dissemination, global mobility, cultural diversity
and global changes in the environment, as follows:
1) The new global governance structure - globalization generally affects the
independence of the sovereignty of national states adhering to the principles
(needs to change) new management structures on the global level;
2) World markets - globalization is characterized by changes on the global level
in the economic structure and a very significant impact by world markets
and the global trading system;
3) The global communication and information dissemination - globalization
greatly influences the dissemination of information and exchange of experi-
ence on all kinds of problems;
4) Global mobility - is significant primarily in increased extension, intensity
and rate of change, as well as various types of mobility;
5) The diversity of cultures - globalization significantly affects the occurrence of
interactions between the elements of culture, globally, as well as at the local
level, and
6) Global changes in the environment - global change poses a constant threat to
the ecosystem, including climate changes, loss of biodiversity, global damage
to the ozone layer, and a significant reduction in the natural environment.
4. The conceptual model of the globalization of health care

Previously we concluded that the changes are necessary that are occurring
through the process of globalization of the new management structure on the glob-
al level, the new structure of the world market, cultural diversity, global mobility,
as well as changes in the environment as a very important feature of globalization.
Regarding this, we can conclude that all of these features work systematically on
the determinants in health care and affecting factors such as policies relating to
health care, economic development, trade, social cooperation, knowledge and the
688 Nedeljko Kovai
supply of the ecosystem with goods and services. Therefore, these factors affecting
the changes have a significant impact on the development restrictions of health
care, as well as the effects on health. In this connection is the conceptual frame-
work of globalization defined which is closely related to the previously mentioned
characteristic features of the globalization process and influences the development
of health care (Dodgson, Lee, Drager, 2002, 5-27).
The following chart shows us best how these features within the system have
an impact on healthcare. It is also very important to note that these features are
directed towards the globalization of healthcare. That does not mean that globaliza-
tion is an autonomous process: globalization has an impact on other levels, but, for
simplicitys sake, are not included in the chart below. In addition, only feedback
can be regarded as an institutional response. One thing is for sure, we have to bear
in mind that these restrictions of certain levels work together, giving an even greater
importance to this model. The display of the models follows:
Chart 1: Conceptual model of the effects of globalization on healthcare
Source: Huynen, M, Martens, P, Hilderink, H. (2005), The Health Impacts of Globalisation:

A Conceptual framework, Available at http://www.globalisationandhealth.com/con-
tent/1/1/14, p. 5.
Based on this model, the global management structure is gaining increasing im-
portance in the formulation of health policy. According to Dodgson, the most im-
portant institutions in the area of healthcare in global terms are the World Health
Organization (WHO) and World Bank (WB). WHO plays a very important role
in the global scale regarding the importance of health to economic development
that is aimed at achieving the Millennium Development Goals. The World Bank
also plays a very important role that has an impact on health policy in coopera-
tion with the International Monetary Fund (IMF) through structural adjustment
programs (SAPS). To give importance to countries with low per capita income,
the IMF and the WB conducted since 1999 an access Poverty Reduction Strategy
(IMF, 2004, 4-18).
Another significant development momentum going in the direction of an in-
crease in private-public partnerships in health care, since the Governments are try-
ing to attract private companies to take over the duties and obligations for which,
in previous periods, state institutions were responsible. On a global scale, public-
private partnerships are increasingly being accepted as the future shape of pub-
lic administration and may have significant implications on health, as well as the
implementation of health policies in the global environment (Labonte, Torgerson,
2002, 3-6).
The following chart shows how globalization affects the determinants on the
populations health through policy development, knowledge and global change.
690 Nedeljko Kovai
Chart 2: Globalization and the determinants on the populations health

p p
Source: Huynen, M, Martens, P, Hilderink, H. (2005), The Health Impacts of Globalisation:

A Conceptual framework, Available at http://www.globalisationandhealth.com/con-
tent/1/1/14, p. 6.
In the chart above, we see that the world market should allow economic and
existential growth which should insure the general health of the population in the
world. This conclusion is based primarily on researches, in which was found that
the reason for reduced inequality between and within countries is the process of
globalization. They agree with the fact that some nations have become richer, but
it is an undeniable fact that the absolute poverty has been reduced which is good
for the health of the poor (McMichael, 1993,25-36). On the other hand, the pes-
simists are concerned that due to health achievements, such nations are excluded
from the world market. In fact, despite of some spectacular growth rates in the 80-
ies of the last century, especially in East Asian countries, per capita income in this
period was reduced in almost 70 countries. Therefore, there is a legitimate concern,
what will happen with these countries that do not participating in world trade?
Knowledge is becoming more valuable asset whose influence increased due to

the development of global communications and global mobility.
The term globalization of education, is considered as the need for education
in every part of the world. Because of the accessibility of new technologies, most
colleges and universities in the world are able to collaborate with scientists from
different countries; students are given the opportunity to study abroad and the de-
velopment of virtual camps is taking place. Accessibility of new technologies has
enabled scientists to collect and process the data without increasing the amount of
time data. Scholem believes that the ability to use a computer has become more
important than the ability to read and write.
In addition, it is important to note, that television, film and computer graphics
have significantly increased the visual dimension of communication. All in all, in
the future it is expected that all of the above can, to a large extent, affect the health
and education of the population.
Finally we should mention that the changes in the environment can signifi-
cantly affect the production of goods and the provision of services in the world.
The discussion of Governments on climate change found that the expected climate
change may result in significant disruption of the ecosystem and threaten the devel-
opment of natural resources (forests, water, air pollution, etc.). In addition, many
authors point out that it is necessary to maintain a certain level of biodiversity, in
order to uninterruptedly maintain the bio-system in the world. Accordingly, we
can conclude that the ecosystem needs to have a function in meeting the needs of
people for food, drink, clean air, clean water, and soil, to prevent the spread of dis-
ease among the population (Pimentel, Harvey, 1995, 1117-1123). Finally, we need
the ecosystem to provide medical and genetic resources, which we need to prevent
the spread of disease.
5. Globalization and the populations health

The process of globalization refers to a variety of interrelated processes. In fact,
there are two primary components of globalization and can be associated to the
deregulation of markets and investments. Then, the next on importance follow the
globalization of technologies (ICT), and cultural globalization. It is also important
to note the emergence of globalization of ethical and judicial standards, which
should ensure the social and individual rights.
692 Nedeljko Kovai
From the standpoint of public health, globalization has a different meaning.

On the one hand, rapid economic development and advanced technology have en-
abled health improvement and extension of the age of the population in the world.
If we look at it in short terms, new developments and the modernization of society,
and various medical and public-health programs have enabled the better health
of the population. On the other hand, the impact of globalization jeopardizes the
health of the population through the worsening social and economic conditions,
the division of labor, increasing the gap between rich and poor, and the rapid
expansion of consumption of consumer goods (Sholte, 2005, 49-85).
Economic globalization, in fact, has long-term features that prevail in
the world especially in the developed countries of the world. The processes of
globalization in such a way become the main determinants of national, social and
economic policies. Therefore, although the responsibility for health and public
health care system remains on national governments, the fundamental social,
economic and environmental determinants of health of the population exceeds
national boundaries. It became clear that a combination of global liberal economic
structures and national policies promote socio-economic inequality and political
instability, each of which adversely affects the health of the population. Although
the role of the state is moderate, the strengthening of international agencies has
increased the competition for scarce global resources, and has disturbed the relations
among states, local and global environment and the health of the population (Swart,
Raskin, Robinson, 2004, 117-146).
One of the aspects of the growth in international trade, which has as a
consequence the disturbing of relations in public health, is the escalation of the
arms trade. The nature of such contemporary conflicts is that the most threatened
is the civilian population, including children and women who are the most
threatened. The primary health risks, if the result of the globalization of society and
the environment include, are (Axford, 2013, 130-135):
An increased gap in income, thus creating grounds for poverty, and are
closely related to the health conditions of the poor;
The fragmentation and weakening of the labor market as a result of the inter-
nationalization of mobile capital. This has led to job insecurity, a decrease of
standards, which is a common denominator of worsening conditions for the
health of workers and their families;
The consequences of global environmental changes (including changes in

the composition of the atmosphere, soil degradation, exacerbated biological
diversity, the spread of invasive species, and the dispersion of persistent
pollutants)
Prevalence of diseases associated with smoking and the globalization of the
tobacco industry;
Diseases associated with excessive eating;
The growth of urban obesity
Strengthening of international narcotics trafficking, the exploitation of the
urban poor class population;
Infectious diseases that are now spreading faster due to increased traveling by
the population;
The occurrence of depression and mental health disorders in aging and so-
cially fragmented urban population.
6. The globalization of the environment and the health of the population

The main reason for the increase in the number of companies in the world is
global changes in the environment. Although these changes are not directly affect-
ed by the globalization, global environmental changes reflect the attitudes of com-
munity members towards modern market-oriented economies. Humanity now is
globally disrupting life systems that have supported the stability of the environ-
ment, biological productivity, clean air and water and recycling of nutrients. It is
also important to emphasize, that humanity has now gone so far as to change the
composition of the atmosphere, there appears to be a lack of cultivable land, the
fish stocks in almost all oceans of the world are destroyed, almost all the water sup-
plies which were irrigating agricultural land are destroyed, and has without prec-
edent, come to the disappearance of many living species (Woodward, Drager, Lip-
son, 2001, 876). It is estimated that 1/3 of the worlds reserves of natural ecological
resources disappeared since 1970. These above mentioned changes in the earth,
basic life supporting processes, are long-term risks to the health of the population.
7. Conclusion
The process of globalization is causing a very deep and complex change in the
very nature of our society, contributing to new business opportunities, but at the
same time, new risks. In addition, the effects of globalization affects our increased
694 Nedeljko Kovai
concern for health and sustainable development forces us to think about the right
of future generations to a clean environment and healthy life.
Despite some empirical studies that show significant correlation between the
efforts of the globalization process and the specific impact on health, the existing
weaknesses in the empirical evidence are more linked to the problem of globaliza-
tion and health. Mention of the conceptual framework could make a major con-
tribution to further empirical research that should serve as a well structured model
for further consideration. This clearly shows the need of interdisciplinary approach
towards globalization and health, which will draw knowledge from relevant fields,
such as medicine, epidemiology, sociology, political science, health, education, the
science of ecology and economy.
Besides, the study of possible future impacts on health of different ways of glo-
balization using scenario analysis could provide a useful contribution to future
discussions on globalization and health. These scenarios can be described as prob-
able, but a simplified description of how in the future a coherent and internally
consistent set of assumptions may develop about key driving forces and relation-
ships. At the end of this study, we can conclude that this conceptual framework
can provide valuable insights on how to organize complex phenomena that are
involved in studying the health effects arising from the globalization process. We
can say that this approach has logic and some useful features. Firstly, through it is
embedded a holistic approach towards globalization, since we experience globaliza-
tion as a comprehensive process in which multiple processes simultaneously take
place in different areas of activity.
Furthermore, this conceptual framework creates a holistic approach to the
health of the population. As a result, it is evident that globalization affects the
institutional, economic, socio-cultural and ecological determinants of population
health. Besides, the globalization process mainly operates on the contextual level,
while the impact on health is more like a distal and proximal determinant.
References:
1. Axford, B. (2013), Theories of globalisation, Polity Press, Cambridge, ISBN-13:978-
0-7456-3475-3, p. 130-135.
2. Dodgson, R., Lee, K, & Drager, N. (2002), Global Health Governance: A Conecep-
tual Review, Centre on Global and Health, London School of Hygiene and Tropycal
Medicine.
3. Frankel, J., Romer, D. (1999), Does trade cause growth? American Economic Re-
view, Vol. 89, No. 3, p. 379-399.
4. Huynen, M & Martens. P. (2005), The health impacts of globalisation: a concep-
tual framework, Netherlands Environmental Assessment Agency, Bilthoven, p. 5-12,
Avaiable at: http://www.globalisationandhealth.com/content/1/1/14, last appraoch:
March, 19th, 2014.
5. IMF (2004), Evaluation of the IMFs role in Poverty Reduction Strategy Papers and
the Poverty Reduction and Growth Facility. International Monetary Fund; Washing-
ton D.C., ISBN: 1-58906-367-8.
6. Labonte, R., Torgerson, R. (2002): Frameworks for analyzing the links between
globalization and health. Draft report to the World Health Organization. Saskatoon,
SPHERU, University of Saskatchewan.
7. Lee, K. & Collin, J:. (2001), Review of existing empirical research on globalization
and health, World Health Organization; Geneva.
8. McMichael, A. (1993), Planetary overload: global environmental change and
the health of the human species, Cambridge University Press, Cambridge,
ISBN:9780521457590.
9. Pimentel, D. & Harvey, C. (1995), Environmental and economic costs of soil ero-
sion and conservation benefits. Science 267, p.1117-1123.
10. Scholte, J. (2000), Globalization: a critical introduction, Palgrave, New York,
ISBN-13:978-1-4039-0448-5.
11. Swart, R., Raskin, P. & Robinson, J. (2004), The problem of the future: sus-
tainability science and scenario analysis, Global Environmental Change, No.14,
p.137-146.
12. United Nations (2005), Millennium Goals, United Nations, Geneve.
13. United Nations (2000), Global Environment Outlook 2000, Environment Pro-
gramme, Nairobi
14. United Nations (2009), Annual Report, United Nations Human Settlements Pro-
grame, Nairobi, ISBN 978-92-1-132233-0.
15. Woodward, D., Drager, N., Lipson, D. (2001): Globalization and Health: a frame-
work for analysis and action, Bulletin of the World Health Organization, Volume
79, p. 875-881, Geneve.
696 Maja Lamza-Maroni Ivana Ivani Mira Majstorovi
THE ROLE OF VOCATIONAL EDUCATION AND TRAINING IN

THE YOUTH EMPLOYABILITY
Maja Lamza-Maroni, Ph.D.1, Ivana Ivani, univ.spec.oec.2, Mira Majstorovi, M.Sc.3
1
Faculty of Economics in Osijek, Josip Juraj StrossmayerUniversity of Osijek,
Republic of Croatia, maja@efos.hr
2
Economic and trade school Ivan Domac Vinkovci, Republic of Croatia, ivanai753@gmail.com
3
High-school of Economics Vukovar in Vukovar, Republic of Croatia, mimajstorovic@gmail.com
Abstract
The current slow economic development and high unemployment in the EU
have increased the need for policies that have a real impact in the short term. The
pressure of high unemployment, especially high youth unemployment is growing.
Investment in skills is a challenge and the policy agenda in Europe has put more
labour market relevant vocational education and training (VET) in the scope of
strategies for economic competitiveness. VET is designed to enable participants to
develop practical skills and understanding needed to find employment in a particu-
lar occupation. It is at the core of Europes response to the economic crisis and is an
essential part of the Europe 2020 strategy. In Europe, about half of all jobs require
a medium level qualification, primarily acquired through VET.
There is no single European VET system. It is very diverse with the variations in
systems, providers, regions and sectors. Croatia is involved in VET modernization
through new regulations in order to speed up the process of change.
This article provides a discussion of the role of VET in the youth employability
in the EU and Croatia. It poses two main goals: first, systematically analyzing and
presenting the issue of youth employability and the second, analyzing the system of
Croatian VET in the European environment.
JEL Classification: I21, I25, I28
Keywords: vocational education and training, labour market, unemployment,
youth employability
THE ROLE OF VOCATIONAL EDUCATION AND TRAINING IN THE YOUTH EMPLOYABILITY 697
Introduction
Vocational education and training (VET) has in recent years experienced a re-
vival in academic research as well as in the economic and political area. For in-
stance, the World Bank advocates vocational education to reduce poverty, promote
economic growth and increase competitiveness (Biavaschi et al.; 2010). Also, it is of
particular interest because there are reasons to believe that it is superior to general
education from the social point of view, as well as in promoting access to the labour
market (Nilsson; 2010). Therefore, the global economic system requires urgent and
innovative responses in the field of technical and vocational education and training
services so the demand for skills is now higher than ever before (Maclean and Lai;
2011).
According to the Organization for Economic Co-operation and Development
(OECD; 2009) there are three factors that stand out as reasons for the growing
interest of policy makers in VET today. Many OECD countries are concerned
with ever-increasing global competition. Since OECD countries cannot compete
with less developed countries on labour costs, they will need to compete in terms of
the quality of goods and services they provide. That means a highly skilled labour
force, with a range of mid-level trade technical and professional skills. VET is seen
as the right vehicle for up skilling those who would otherwise be unskilled and
ensuring a transition into the labour market. VET can play a central role in prepar-
ing young people for work, developing the skills of adults and responding to the
labour-market needs of the economy. Despite this role, it has been neglected and
marginalised in policy discussions, often overshadowed by the increasing emphasis
on general academic education and the role of schools in preparing students for
university education.
Many of the unskilled jobs existing a generation ago are disappearing fast be-
cause they have been replaced by technology. Provision in vocational programmes
reflects fast-changing employer needs. It means building a foundation of basic and
transferable skills into vocational qualifications, to reflect a world of career flow and
development rather than one job for life. Also, it means an effective partnership be-
tween government, employers and unions to ensure that the learning is connected
at all levels with the world of work. Strong vocational programmes increase com-
petitiveness but many programmes fail to meet labour market needs. Countries
need to compete on the quality of goods and services require a well-skilled labour
force, with a range of mid-level trade, technical and professional skills alongside
those high-level skills associated with university education. More often than not,
the skills are delivered through vocational programmes.
The concept of VET is a multidimensional concept and it is constantly chang-
ing. Because its relation to the other parts of education system and working life
differs among countries and changes over time, it is not possible to give one defini-
tion. One of them is given by the European Centre for the Development of Voca-
tional Training as all structured activities that aim to provide people with knowledge,
skills and competencies necessary to perform a job or set of jobs, whether or not they lead
to formal qualification (CEDEFOP; 2009, 8).
In a European context, VET is seen as a major tool in the transformation of
the European economy. Needing to modernise education and training systems,
the European Union launched the Copenhagen process (European Commission;
2002) to strengthen cooperation in vocational education and training. To build
on progress, at Bruges (Council of the European Union; European Commission;
2010), the Member States and social partners established a new framework for Eu-
ropean VET policy for 2010-20, which included qualitative priorities to support
the Europe 2020 strategy for smart, sustainable and inclusive growth (European
Commission; 2010a).
In a Croatian context, recent authors (Bejakovi; 2004, Lamza-Maroni &
Glava; 2008, Matkovi; 2011) investigate problems to match education system
to labour market. Therefore, this research represents a contribution to the develop-
ment of this phenomenon analysing the role of VET in the youth employability
into three parts. The first part deals with the youths labour market situation. This
section explains how youth unemployment rates in European Union are affected
by the transition of young adults from education to thelabour market. The second
part presents the European countries vocational education systems and their main
differences. The cross-country analysis presents that beyond the core of general
education, VET is a valued alternative, with the dual system seeming to be more
effective than school-based VET. In the third part of this paper there is an analysis
of the research results. In many countries, strengthening the vocational part of the
educational or schooling system and bringing existing vocational education and
training systems closer to the current needs of the labour market would help young
people have a smoother transition into work.
1. Youth unemployment: general economic problem

The youth unemployment statistics on the global level is concerned. Unemploy-
ment rates among youths (aged 18 to 24) have soared since the Great Recession
of 2008, doubling that of the adult population in many developed and developing
countries. The global youth unemployment rate, estimated at 12.6% in 2013, is
close to its crisis peak. This means that 73 million young people were unemployed
in 2013. Youth unemployment increased by as much as 24.9% in the Developed
Economies and European Union between 2008 and 2012. On current projections,
the youth unemployment rate in the region will not drop below 17% before 2016
(ILO; 2013).
While many young people have responded to the sluggish labour market pros-
pects by continuing tertiary education and investing in their human capital, others
have altogether withdrawn from education, training and employment. Within its
abilities, the European Commission tries to fight youth unemployment by targeted
stimulus and to support reforms in the member states. First, the program Youth on
the Move, existing since 2010 as a part of the Commissions strategy for a Europe
2020, needs to be mentioned. This program aims at improving the general educa-
tion, vocational training, higher education, the mobility of young apprentices and
job seekers as well as to support start-ups and the labour market entrance of young
people in EU countries with youth unemployment rates above average (European
Commission; 2010b). At the same time, the program Youth on the Move intends
to implement a European Youth Guarantee that enables every EU inhabitant aged
15 to 24 to claim the right for employment, vocational training, or participation
in a training programme.
Youth unemploymentincludes all the youth between the ages of 15 and 24 who
areunemployed. The main indicator of youth unemployment is theyouth unem-
ployment ratefor the age group 15-24. This uses the same standard definition as
theunemployment ratefor the population of working age. For a given age group,
it is the number of those unemployed divided by the total number of people in the
labour market (employed plus unemployed).
As figure 1 shows in theEU-28in 2012, there were on average 5.6 million
unemployed people aged 15-24 and 24.4 million persons of that age group in the
labour market, according to the EU labour force survey. This gives a youth unem-
ployment rate of 23.0%.
The dimension of the problem can be illustrated by statistics.1 The unemploy-

ment rate among young persons in 2012 was higher than the rate for those aged
between 25 and 74 in all Member States. In Greece (55.4 %), Spain (53.2 %),
Portugal (37.7%), Italy (35.3%), Slovakia (34.0%) and Ireland (30.4%) youth
unemployment rates were particularly high. Germany (8.1%), Austria (8.7%) and
the Netherlands (9.5%) were the only Member States with a youth unemployment
rate below 10%.
Figure 1 Population employed/unemployed/inactive, 2012.
Source: Eurostat, http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Youth_unem-

ployment [12/01/2014]
Croatias youth unemployment rate average in 2013 reaches up to 51.2 % plac-

ing it at the very top of the infamous chart of EU youth unemployment record
holders. According to Eurostat (Figure 2) youth unemployment rate in Croatia
increased to 49.80 % in December of 2013. It averaged 33.95% from 2000 until
2013, reaching an all time high of 51.20 % in April of 2013 and a record low of
21.50% in July of 2008.
1
Following data was generated through the database of the Eurostat Service on http://epp.eurostat.
ec.europa.eu/statistics_explained/index.php/Unemployment_statistics , (15.01. 2014)
Figure 2 Croatia youth unemployment rate
Source: Eurostat, http://www.tradingeconomics.com/croatia/youth-unemployment-rate

[10/01/2014]
From a school-to-work-transition perspective, the target destination is satisfac-

tory integration into the labour market (Ryan; 2001).
In addition to, in the next chapter we shall analyse connection between youth
unemployment with a school to work transition perspective which serves as a
framework for analysing an individuals path from education to stable employment
on an institutional basis.
2. Development of VET across the Europe

VET around the world can be classified into three different systems: (i) a school-
based education, (ii) a dual apprenticeship system combining school training with
a firm-based approach, and (iii) informal-based. The supply of VET by the govern-
ment through the educational system can be justified as a means to improve the
opportunities of youths who lack the skills demanded in the labour market, or the
ability or motivation to continue with higher education. Individuals might prefer
this option to academic education as it implies shorter investment of human capital
and facilitates earlier entry into the labour market.
Evidence available from cross-country comparisons in Europe (Woessmann;
2008, CEDEFOP; 2013) points to several systematic elements of VET success:
(i) To ensure relevance of curricula, all stakeholders (government, employers,
social partners, educational institutions) are involved in its development.
(ii) To maintain a close contact to the labour market, a system of continuous

feedback from employers and private-sector institutions is required.
(iii) To maintain a high level of training quality, a decentralized system of ac-
creditation and quality assurance is important.
Despite many European countries maintain a large vocational schooling system
as a part of their upper-secondary education, they generally differ with respect to
how the vocational system is operated (CEDEFOP; 2013). Only few countries
have well-developed dual training systems which are basically apprenticeship sys-
tems. By linking training with workplaces these systems have the advantage that
they are able to impart competences needed in the world of work. Therefore, we
start our analyzing European VET systems with this.
2.1. Dual VET System

The term Dual System (Deissinger; 2007, 365) refers to an institutional frame-
work including legal provisions and training arrangements which is determined by
the partnership of two learning sites: the firm providing the apprenticeship and
the vocational part-time school.
The system is more complex than the term indicates as it unfolds a network of
private, semi-private and public interests and responsibilities including the trade
unions and, above all, the chambers (of industry and commerce, the crafts and the
professions) which are in charge of monitoring in-company training and off hold-
ing exams.
Dual VET is common in Austria, Denmark and Germany and partly in France.
This countries share some common and distinctive features in the set-up of the dual
vocational education, which we outline using the example of Germany (Eichhorst
et al.; 2007), with the four key institutional elements of the dual system described
below:
A high degree of formalization that only provides training in centrally ac-
credited occupational qualifications. The training content is continuously
adapted to meet the changing requirements of the labour market.
Strong involvement of social partners in developing and maintaining cur-
ricula at the governmental and federal level, through representative advisory
boards. The implementation and monitoring is undertaken by regional trade
and/or occupational committees.
The school-based part of the dual apprenticeships is provided by vocational

schools, covering both general and occupation-specific education. The costs
of training in the schools are financed by the government.
Firms have to meet certain technical standards to be accredited as a training
firm. Offering apprenticeships is optional for companies, with a match be-
tween firms and trainees following standard application procedures. The costs
of training within the firm are covered by the training companies.
The advantage of VET in Germany was grounded in the fact that on the one
hand companies could train a well-prepared work force, and on the other hand
young people with low levels of qualifications from basic schooling could be in-
tegrated into professional life. Young people with learning difficulties and early
school leavers could pass into the less qualifying dual training programs.
Austria and Denmark are most similar to Germany in also relying on a strong
dual apprenticeship system as part of their upper secondary vocational education.
However, variations in the institutional details arise across the respective countries
due to institutional, political and economic differences. Differences between the
Danish and German system arise in terms of a more decentralized planning of the
educational content in the vocational schools in Denmark (Cort; 2008).
While the German system issues training plans in the school-based part at the
state level, the local entity in Denmark is much smaller and represented by 115
vocational colleges. Furthermore, these colleges enjoy a higher level of autonomy
in terms of designing curricula, as the Ministry only issues directives rather than
concrete plans. In contrast, the Austrian system is entirely centralized, with school
and firm curricula developed at the state level. This leads to a higher degree of
standardization of the occupational degrees, potentially enhancing the mobility of
workers across firms and regions (Ebner; 2009).
All countries face the problem of cyclical variations in the supply of apprentice-
ship places due to the voluntary participation of the firms in dual apprenticeship
systems, which might leave youths entering unemployment before integrating in
VET. Hence, incentive mechanisms have been implemented for firms to stimulate
supply.
For instance, Austria offers financial incentives for firms to become a training
company or increase their training activities (Ibw; 2009). In Denmark, an em-
ployers reimbursement fund was established already in 1977, with all compa-
nies having to contribute as a function of their company size, yet independent of

whether they participate in the system. When they participate, 90 percent of the
wages paid to trainees during the school-based training periods are financed by this
fund (Cort; 2008).
2.2. School-based vocational education

VET in Southern European countries such as Spain, Portugal, Italy and Greece
as well as France only plays a marginal role, and is largely school-based. There are
only 4% of those in vocational upper-secondary education in Spain combining
school and work-based training, in contrast with the 74% share in Germany, where
dual VET is most prominent (CEDEFOP; 2010). The relatively marginal role of
VET in these countries can be explained by a limited interest of employers in more
formal VET and also by strong expectations of young people and their families,
thus creating strong preference in academic training. Finally, the focus on subsi-
dizing youth employment in these countries has backfired. Over the last 30 years,
Spain has reduced employers costs of hiring young workers via subsidies. Similarly,
there has been a long tradition of subsidizing temporary employment and training
contracts in both Italy and France (Eichhorst et al.; 2007).
In the countries of Eastern Europe such as Poland, Czech Republic, Hungary,
Estonia, Latvia, Lithuania and Romania there is an expansion of a general educa-
tion and the dilution of vocational education to the technical variant which typi-
cally has mixture of theoretical and general subject matter. This meant that students
from these tracks are not successfully progressing to higher education and have
no very specific vocational skills to enter the labour market. This has frequently
given rise to the expansion of post-secondary, non-tertiary programmes taken im-
mediately after secondary education. Hungary is a good example (West; 2013). Its
4-year technical stream has now become largely pre-vocational and its students who
do not go onto higher education specialize vocationally, often at the same institu-
tion, for further 1-2 years. Romanias Post High Schools are somewhat similar.
As part of the modernization programme many countries have undertaken a
curriculum reform. This has not only involved up-dating vocational curricula to
reflect changes in the industrial and commercial world, but introducing entirely
new syllabuses (typically in IT, mechatronics and business services).
2.3. VET in Croatia

VET schools in Croatia are technical, industrial, trade and others. They are
defined by the type of instructional plan and program they offer, carry out an in-
structional plan and program of from one to five years, at the end of which students
receive a secondary professional degree, and programs of from one to two years, at
the end of which students receive a basic professional degree.
There are two separate systems of training for professional occupations in Croa-
tia. Within the dual system for the crafts there is a standardized system of vocational
education training programs that connect theoretical and practical training. On the
other hand, there are four-year vocational training programs with a low share of the
practical training. The framework of vocational education is divided between the
short professional profile, most of which are less attractive due to poor promotion
opportunities and the long vocational profile which mainly aim to continue their
education and their content is too often focused on theory.
3. VET education: chance for the youth employment

VET is frequently perceived as a solution to improving the opportunities of the
youth who lack the resources, skills or motivation to continue with higher educa-
tion. It provides useful skills to prepare the youth to enter into the labour force and
improve their chances of a successful professional career. Figure 3 presents the role
of VET in the youth employment.
Therefore, the young people in countries with strong VET systems, with a close
connection between school and work-based components, are much more likely to
be employed than their general education counterparts and to benefit from a faster
transition to the labour market.
Factoring in differences in national labour market institutions and policies
suggests that success or failure of education programme orientation depends on a
complex interaction between policies and institutions that are particular for each
national context.
It is generally found within cross-country comparisons that those maintaining
a substantial dual apprenticeship system, such as Germany, Austria and Denmark
exhibit a much smoother transition from school to work (CEDEFOP; 2013).
Figure 3 The VET and the youth employment

Role of vocational Major features of Major outcomes Main challenges
training vs. general the labour market regarding youth
education
Continental Dominance of dual Relative resilience of Relatively smooth Labour market
Europe, mainly vocational training employment transition from school integration of youths
German speaking to work, low youth failing to enter
countries unemployment vocational training
Mediterranean Some school-based Severe dualization High youth Bringing academic

countries, in vocational training, with fixed-term unemployment, education closer to
particular Spain but general education contracts, subsidized mainly unstable jobs the labor market,
tends to dominate, forms of employment for young people strengthening
problem with early apprenticeships,
school leaving prevent youth
exclusion
AngloSaxon Clear division In general, relatively Strong youth Ensure better general
countries between school flexible and volatile unemployment schooling completion,
based education and labour markets increase during the establish links
learning on the job economic crisis between schools and
world of work
Transition Dual vocational Ageing issue, Youth often in volatile Expand existing
countries (Croatia training declined, moderate economic positions vocational training to
included) now mostly school- growth, low include employers
based, expansion of employment
tertiary education protection, poor
enforcement of labour
laws
Source: adapted according to Biavaschi et al. (2012; 22)
For the case of Germany, study by Deissinger (2007) shows that participation
in the dual apprenticeship has a particular advantage compared with other options
of the vocational schooling system of improving an early labour market attachment
and a faster and more structured integration into the labour market.
Dual VET aims to combine general, transferable skills acquired during class based
VET with structured learning on the job and actual work experience within a train-
ing company. In a world of technological change, a dual VET system is expected to
be less prone to problems of an educational mismatch early in the career, with firms
expected to timely adapt their training curricula to changes in the skills demanded.
While the adaptation of school-based education crucially depends on continu-

ous and accurate labour market feedback, firm-based training is expected to lead to
a natural levelling of labour supply and demand. In addition, with the immediate
putting-into-action of acquired skills and the exposure to an adult working life,
the dual system might provide a more beneficial learning and working environ-
ment for practically oriented youths, increasing their motivation and engagement
in training. Finally, by establishing an early contact to firms and work experience,
the youth enter faster into the labour market and learn about the types of jobs and
occupations that they may prefer.
The youth in Southern European countries such as Spain, Portugal, Italy, Greece
as well as Croatia face particular difficulties when trying to enter the labour market,
with these long-standing problems aggravated by the recent economic crisis.
Despite having above-average the youth not in employment, education or train-
ing (NEET) rates, labour market entry is difficult for both low and high skilled
young people. One major factor is the deep segmentation of the labour market
between permanent and fixed-term contracts, which can be attributed to strict
dismissal protection and largely liberalized temporary employment. In these coun-
tries, transition to a permanent position is difficult.
While dual training exhibits advantages from a societal and individual perspec-
tive, establishing an efficient dual apprenticeship system depends crucially on the
willingness of firms to participate. The loss of enterprises linked to schools, par-
ticularly to the lower vocational (typically 3 year) stream, has meant that obtaining
practical work for students has become a challenge. A response was to increase
theoretical and general elements in the curriculum. Both responses were expensive
and risked irrelevance to the new labour market. So drives to promote real work
experience have been a feature in many countries. This is often referred to as ap-
prenticeship, but is probably more correctly described as alternance, since in most
cases there is not a contract of apprenticeship between an employer and an indi-
vidual student. Poland seems to be the only country with a sizeable and distinct ap-
prenticeship sector, accounting for something like 15% of VET students (OECD;
2009).
Smaller apprenticeship arrangements are present in Latvia, Slovenia and Croa-
tia, organized through craft chambers, and half of the Hungarian basic vocational
school students have individual contracts with employers for their work experience.
A number of countries (Estonia, Lithuania and Romania) have recently introduced
regulations to recognize apprenticeship as an educational form, but so far take-up

seems very limited. Despite these attempts to secure employer involvement in one
way or another, a lot of practical work in the region is still undertaken in, often
poorly equipped, school workshops.
In addition, the results of CEDEFOP (2013b) research indicate that VET is
able to speed up the transition from education to work. Relative to medium-level
general education graduates, VET graduates enjoy a faster transition to work, are
more likely to have a permanent first job, and are less likely to find a first job with
a qualification mismatch. In interpreting these results, it should be remembered
that general education programmes tend to orient their graduates towards further
education. They are more likely to continue studying, with lower participation in
the labour market, particularly in the younger age groups. In contrast, VET gradu-
ates are more likely to participate in the labour market. The report also shows that,
in terms of labour market outcomes, there are substantial cross-country differences
in the returns to VET.
Conclusion
The research reviewed in this paper highlights that VET systems can enhance
employability and increase the chance of entering into a stable job if employers are
involved systematically.
While dual vocational training facilitates a relatively smooth transition from
school to work, international experiences show that attempts at implementing such
schemes often fail. Dual vocational training and vocational training in general
only works sustainably if there is significant institutional support and acceptance
by major actors. Dual vocational training can only be effective if employers engage
with this type of structure and systematic training and if training curricula are up to
date. This requires the participation of employers in the design of training schemes
as only they know their current and expected needs. Furthermore, vocational train-
ing only works if it is generally accepted as an attractive option for starting a career
in a given national labour market.
School-based vocational training clearly shares some of the potentials of the
dual model as it can also contribute to the acquisition of occupation specific skills,
but school-based vocational training tends to lack a clear link to current needs of
employers. Problems arise in such a system if it relies on outdated training stan-
dards or on declining sectors. These systems must be adapted to changing econom-
ic structures and new types of occupations and jobs. Hence, vocational schooling
needs to be kept up-to-date by bringing employers in. Otherwise it runs the risk of
become obsolete and unattractive to both employers and youths. Particular prob-
lems arise in countries with a strong expansion of tertiary education where young
people expect to enter the public sector. If this fails, their formal qualification is of
questionable use as their skills are quite detached from private sector needs.
In particular, vocational education provided in the framework of secondary
schooling should be modernized and complemented with phases of practical work
experience, such as internships or passing the final year with an employer. Employ-
ers should also be consulted regarding the design of vocational schooling curricula,
which requires a systematic coordination with networks or associations of employ-
ers. Furthermore, in order to avoid a negative perception of vocational education
as a dead-end option, transition to further education, including tertiary education,
should be facilitated. Finally, reducing vocational education fees can help to raise
enrolment in some countries.
While the recent economic crisis has shown that youth integration into the
labour market is problematic, some countries have been able to maintain stable
employment over the last years, also in times of recession, while elsewhere unem-
ployment rates increased steeply. This clearly shows that institutional settings and
public policies play a prominent role in influencing the transition from school to
work.
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712 Katarna Letovancov Mria Dvidekov
IMPACT OF SCHIZOPHRENIA ON THE LIFE QUALITY

Katarna Letovancov1, Mria Dvidekov, Ph.D.2
1
American University Girne, Faculty of Law & PhD. Candidate
St. Elisabeth University Bratislava, Slovak Republic
2
University of Trnava, Department of Health and Social Work,
Slovak Republic, maria.davidekova@ucm.sk
Abstract
Mental illness makes the man avery different person, especially when he lives
a normal life before the outbreak of a disease. Schizophrenia is one of these ill-
nesses. It begins most often at the age of 15-35. It causes large health problems and
also social difficulties. It participates in deterioration in quality of life. To be able to
help people suffering from this disease, it is necessary to understand the problem.
At the turn of 2012/2013 we therefore realized the research that revealed ahuge
amount of problems rising after the outbreak of the illness in ahumans life.
Keywords: Health, Schizophrenia, Impact, Social problems, Quality of life.
INTRODUCTION
Schizophrenia is one of the hardest and most serious mental illnesses because it
destroys not only the intellectual and personal life of aman but an emotional and
social part of it, too. (Mal, Pavlovsk, 2002)
Approximately one percent of population suffers from it. It represents circa fifty
thousand people in Slovakia. (o je schizofrnia, www.dusevnezdravie.sk)
Schizophrenia is aserious mental illness and its cause is not clearly revealed until
now. It appears at the age that is supposed to be the most active one. We mean the
age from 15 to 35. At this age aperson just forms his vague ideas about his life,
makes plans and dreams about everything he will be able to do in the future. After
the outbreak of schizophreniaall the unfulfilled ideas fall apart. Schizophrenia ap-
IMPACT OF SCHIZOPHRENIA ON THE LIFE QUALITY 713
pears very unexpectedly and it disrupts life of not just the suffering person but also
lives of his relatives. It causes the deterioration in the quality of life and causes many
social problems.
Schizophrenia is not the only cause of deterioration in quality of life of people
suffering this disease. Large proportion is attributed to the society itself, too. In the
public there is agreat lack of information about this mental illness, resulting into
many prejudices and myths. On this basis, people suffering from schizophrenia are
stigmatized and their integration into normal life is much more difficult.
This attitude of the society is explained by Hell and Schpbach (2004). They
point out the fact that prejudices are the result of lack of information. Society tries
to replace the unusual by something usual. If these explanations are kept in minds
of people, they result into prejudices.
As it follows, people suffering from schizophrenia are confronted with many
social problems. It is necessary to understand the problems of this target group of
people in detail in order to provide them with as effective help as possible.
METHODOLOGY
To better understand the problem and feelings of people suffering from schizo-
phrenia, we realized aresearch at the turn of 2012-2013. Its objective was to deter-
mine the impact of schizophrenia on lives of aperson suffering by it.
To carry out the research we chose amethod that we perceive to be the most
suitable one for meeting our scientific objectives. Since we focused mainly on
persons feelings, experience and perception of agiven situation, we decided to use
the qualitative research method.
The basic technique used to collect the data for our research was asemi struc-
tured dialogue. Our dialogue was formed by open questions. They consisted of
main research questions supplemented by the subsidiary ones whose aim was to
provide the participant with atool for better orientation and better understanding.
These were fixed. Within the dialogue we asked also the other question required
by the situation and we modified them according to changing circumstances. All
the dialogues were recorded with the agreement of participants on Dictaphone
allowing us to collect the accurate data. Based on ethical considerations, in ac-
complishing the qualitative research it was important to highlight the fact that the
dialogues will be completely anonymous and the participants names or details that
may reveal their anonymity will not be used. Recorded dialogues we transcribed
into text. They were then analyzed. In the analysis we used the inductive method
of creating categories under which we set the problems appearing in life of people
suffering by schizophrenia.
Participants for our research were chosen by anon-random, purposeful selec-
tion. We did the selection based on the preset criteria. That ensured us to choose
participants of our research that share similar denominators. In total, there were
three participants taking part in our research.
The research was carried out in aTake - care center.
Table n. 1: Descriptive data of the sample 1

Number of participants: Women 1
Men 2
Age (average) 37,6 (from 35 to 40)
Marital status: Single 2
Married 1
Qualifications: Higher education 3
Occupation: Unemployed 1
Full disability pension 1
Job in asheltered workshop, disability pension
1
Housing: With primary family 2
With husband/wife and children 1
Disease duration (average) 7 (from 3 to 12)
In our research there was amain objective and some partial objectives, too. The
main objective was to find out about the impact of schizophrenia on apersons life.
On the basis of the specified partial objectives we wanted to find out the changes in
life of aperson after the disease outbreak - an impact of it in the working and finan-
cial sphere of his life. We were also interested in whether the illness influenced the
family relationships or relationships with people in their community. We observed
the process of adaptation, too. We tried to find out more about the situations that
people suffering from schizophrenia perceived to be stigmatizing and discrimina-
tory (if that appeared in their lives).
RESULTS OF THE RESEARCH:

Through analyzing transcriptions of dialogues realized with participants suf-
fering from schizophrenia, we found out several problems. According to common
denominators we classified them into four main categories. We talk about health
barriers, employment barriers, barriers in social interaction and emotional experi-
ence of an illness. These categories reveal that in life of a person suffering from
schizophrenia there are serious problems taking part in deterioration in it. A men-
tally ill person is not able to solve such a huge amount of problems himself. There-
fore it is necessary to increase our assistance and attraction towards people suffering
by schizophrenia. Here are the following results of the research:
1. Category : HEALTH BARRIERS:
Limitation in form of disease symptoms
Negative effects of medication
Frequently held long-term hospitalizations
2. Category: EMPLOYMENT BARRIERS:

Financial limitation
Loss of a job
Inability to find anew job
Stigma in the workplace
3. Category: BARRIERS IN SOCIAL INTERACTION:

Fear of prejudices
Keeping the illness as a secret
Break of contacts
Isolation
Searching for acompany of people with the same problem
Changing attitude towards the community
Family conflicts
Denial of an illness by relatives
Stigmatization
4. Category: EMOTIONAL EXPERIENCE OF AN ILLNESS:

Feelings of shame and sense of inferiority
Looking for adeeper sense of the illness
Belief in the recovery
The need to protect the family against the illness
DISCUSSION:
When analyzing the collected data we traced many problems that occur in life
of aman suffering from schizophrenia after the disease outbreak. These problems
and subjective difficulties experienced by them were divided into four categories.
All the categories are interrelated and affect each other.
The first category deals with health barriers. As mentioned above, schizophre-
nia is one of the hardest mental illnesses. Therefore, it is natural that it has serious
impact on aman. Our participants mentioned most often the limitations in form of
disease symptoms. Symptoms of schizophrenia are: formal thought disorder, content
thought disorder, emotive disorder, disorders of perception and personality disor-
ders. They are the crucial reasons of changes in life of aman suffering from schizo-
phrenia. Participants in their dialogues mentioned how the symptoms change their
lifestyle. Everything in their lives has adapted to the illness. Schizophrenia is such
a serious illness that it needs a long-term hospitalization that can last for several
months. The same happened in lives of our participants. They also mentioned the
negative effects of treatment which causes that aman feels completely different than
before the outbreak of an illness and has to fight many different undesirable symp-
toms of medicament treatment.
Prznovsk (2001) claims that the treatment side effects may become areason
for separation of aman from the community. It is apainful moment for aperson
suffering schizophrenia because there is usually no change in his intelligence at all.
The second category deals with employment barriers. In this area, there was
aresearch held by Dci (2003), who came to the result that 73,74% of99 patients
suffering schizophrenia received disability pension and 92 of them were not work-
ing at all. The research revealed the need of financial and material help from the
family, too. Also the fact that employers do not want to employ people suffering
from mental illness was revealed.
The same results were proved in our research. Since it was a quantitative re-
search, thanks to this research method and the choice of participants we explored
the problem in more detail. We found out several causes and consequences of an
invalidization mentioned above. We write about the choice of participants to stress
that we carried out the research with people visiting Take - care center. These people
are more integrated into the everyday life than patients during aseveral-months
long-lasting hospitalization. Our participants hardly bear the loss of job. Despite
the attempts to work they have not found ajob and it was difficult to bear the fact
that they are not able to find their job just because of their disease and health barri-
ers resulting from it. Our participants encountered stigma in the workplace that
makes the entry onto the workforce much more difficult, too. Anegative image of
people suffering mental illness is deeply rooted in society and we can see it also in
the job area.
An opinion of Wenigov (2010) just supports our findings that problems with
getting and keeping ajob are to acertain extend aconsequence of stigmatization.
For all the mentioned problems arise into financial difficulties, these people are
dependent on the help from their relatives and the state. This puts them to the mar-
gins of society. One of the participants even stated that financial limitations cause
by his lowered social contacts, which leads us to the next, third category.
The third category deals with barriers in social interaction and it is the most
extensive category in our paper. Problems stated within it, mentioned by our par-
ticipants, are interrelated and depend on each other. Participants mention e.g. the
fear of prejudices that was the reason why they decided to keep the illness as asecret
not just from the community, but also from the relatives. They got scared that if
the people knew about their illness, they would see them as madmen, and they
would underestimate them and perceive them to be deficient. One of participants
stated that before he got ill, he shared the same ideas and is afraid that these preju-
dices are still present in society. This fact was areason why he hesitated to look for
the special assistance and undergo the treatment. Regarding their fear, participants
isolated themselves from the community and even broke contacts with their friends
and acquaintances. Although they mention isolation also from their environment,
they said themselves that it is their inner fight that does not allow them to cross
this barrier and get into contact with friends again. Participants mentioned break of
contacts not just with friends but also with relatives. It was caused on one hand by
the fear of prejudices and on the other hand it was aconsequence of family conflicts
because of adisease. Two of our participants experienced family conflicts caused

also by rejecting the illness by the family members and their impossibility to accept
this serious fact. Therefore in the beginning our participants were confronted with
accusations and blaming in families. In our research we also analyzed stigmatiza-
tion within social interaction situations in which the participants were underes-
timated and discriminated. To the previous categories we included stigmatization
and stigma at the workplace because in this case stigma was an employment barrier
and it had financial impacts on their everyday life. All the mentioned facts led our
participants int searching for acompany of people with the same problem. They per-
ceived them as people of the same blood groupand with them they felt safe. These
newly formed friendships are very important to them. They share experience and
advice with each other, and this helps them to overcome the consequences of their
illness. From the other point of view we can classify it as limitations of contacts just
to acertain groups of people and its consequences are the above mentioned isola-
tion and break of contacts with friends.
Our research findings are confirmed by many authors in the theoretical part of
our diploma thesis. Markov et al. (2006) claims that people exposed to stigmatiza-
tion usually decide for change in social behavior. They then limit the social contacts
with the community, isolate themselves, communicate very prudently and search
for acompany of people with the same problem who would not judge them.
Wenigov (2010) writes about other facts established also by us in our thesis.
These are: isolation of people suffering from schizophrenia is rising, which causes
that people following stigmatization refuse treatment in order not to be classified
as mentally ill people. The greatness of the stigmatization and prejudices in society
we can see in marking it as asecondarily disease.
The fourth category is emotional experience of adisease. Getting over schizo-
phrenia is not easy. Participants are deeply affected by the illness. In our collected
data we analyze e.g. afeeling of shame and sense of inferiority of the participants.
They mentioned feelings of shame associated with receiving a disability pension
and their unemployment. One of the participants perceives sense of inferiority in
meeting with his acquaintances based on the fact that he does not work. Based on
the feelings of shame and inferiority, the participants tend to isolate themselves and
keep the disease as asecret.
This fact proves an argument that people suffering from a mental disease can get
the sense of inferiority as aresult of the lowered social status of aperson. The way
aman sees himself is to some extend areflection of the societys viewpoint. It is

one of the next causes of isolation and social exclamation. (Repkov, Por, olts,
2003)
Before the outbreak of adisease our participants lived anormal life. They were
working, studying and living acommunity life. The outbreak of adisease and prob-
lems accompanying it are amajor trauma for them. Therefore they are searching for
adeeper sense of an illness. They try to look for the cause of it in faith. Despite all
the mentioned difficulties and miseries that schizophrenia causes in life they do not
lose the faith in recovery. They have their desires and goals. They would like to fulfill
them using medical treatment, psychotherapeutic assistance and afaith. They try
to have an optimistic point of view. These people are constantly searching for new
information that might be helpful for them in the healing process and integration
into life. Into the category of emotional experience of an illness we included also
the need to keep the illness as asecret within the family in order to protect them
against suffering and sorrow. Based on their statements, they tried not to bother
them with their own problems.
We noticed that for people suffering from schizophrenia having a job is an
important pillar of integration into the society. It is the most important for our par-
ticipants to participate in creating the social values. It is the missing link that would
enable them to feel useful again, not just for the society but also for themselves.
CONCLUSION
By the means of qualitative research using the analysis of dialogues we identi-
fied the impact of schizophrenia on life of a man, his family, so that the scien-
tific objectives are fulfilled. People suffering schizophrenia fight against the fear of
prejudices, they keep their disease asecret, not just against the community but also
against their relatives and tend to isolate themselves. The isolation results from the
mentioned employment barriers. They sense inferiority and feel ashamed especially
because of receiving disability pension and not having an opportunity to work.
Schizophrenia has agreat impact on the emotional aspects of life, too.
Our research indicates that people suffering from schizophrenia perceive unem-
ployment as amajor limitation. Nowadays, when we see the increasing unemploy-
ment rate, it is important to create special conditions for mentally ill people.
Being aware of these problems can help us to increase empathy towards this
group of people and gradual elimination of asocial stigma. Information can help
in the field of social work, as well. The social services can be more precisely targeted
and provided not just for people who suffer after the outbreak of this illness.
References:
1. o je schizofrnia. [online]. [citovan 2010-10-23]. Dostupn na internete: <http://
www.dusevnezdravie.sk/schizofrenia.html>.
2. DCI, I. 2003. Socilne problmy pacientov so schizofrniou. In Psychiatria. ISSN
1335-423X, 2003, ro. 10, . 1, s 6 - 9.
3. HELL, D. - SCHPBACH, D. 2004. Schizofrnie. Trenn: F, 2004. 159 s. ISBN
80-88952-19-0.
4. MAL, E. - PAVLOVSK, P. 2002. Psychiatrie. Praha: PORTL, 2002. 144 s. ISBN
80-7178-700-0.
5. MARKOV, E. - VANGLOV, M. - BABIAKOV, M. 2006. Psychiat-
rick oetovatelsk pe. Praha: GRADA PUBLISHING, 2006. 352 s. ISBN
80-247-1151-6.
6. PRZNOVSK, R. 2001. O schizofrnii a chorch na schizofrniu. In Podpora
zdravia. ISSN 1335-3179, 2001, ro. 5, . 2, s. 4 6.
7. REPKOV, K. - POR, L. - OLTS, L. 2003. Zdravotn postihnutie vkontexte
novodobej socilnej politiky. Bratislava: INFORMAN KANCELRIA RADY
EURPY, 2003. 214 s. ISBN 80-89141-03-X.
8. WENIGOV, B. Stigma apsychiatrie. [online]. [citovan 2010-10-8]. Dostupn na
internete: <http://www.stopstigmapsychiatrie.cz/stigma-psychiatrie-napric-casem-
wenigova.html>.
QUALITY IN HIGHER EDUCATION WHICH DIMENSIONS CAN BE IDENTIFIED FROM ... 721
QUALITY IN HIGHER EDUCATION WHICH DIMENSIONS

CAN BE IDENTIFIED FROM THE RESPONSES OF STUDENTS
OF ECONOMICS
Mirela Mabi
1
Faculty of Economics, University of Mostar, Bosnia and Herzegovina,
mirela.mabic@tel.net.ba; mirela.mabic@gmail.com
Abstract
Detailed consideration of quality in higher education requires identifying the
primary users of service in higher education because the educational process in-
volves many stakeholders - students, parents, teachers, government, enterprise... It
is generally accepted that students are the primary customers because they are in-
volved in different roles: they are the product of the process, the internal customer
for campus facilities, the labourers of the learning process and the internal cus-
tomer of the delivery of the course material. So, it becomes necessary to identify the
determinants of service quality from the stand point of students being the primary
customer. Developing a service quality model to measure the students perception
on quality is a very complex and tedious task because the service quality dimensions
cover many areas. Naturally, defining the dimensions of quality in higher education
is based on the dimensions of service quality in other areas. Exploring quality in
different areas, authors state different dimensions, i.e. they explore different aspects
of users satisfaction with some services. Different dimensions of service quality
are used for different industries but there are some similarities between them. But,
researchers agree that there is no single dimension which can be applicable for all
the service sectors.
In the literature, one can find different articles that deliver results of identifying
dimensions of quality in higher education based on research conducted in different
regions of the world, but literature is scarce when analyzing the research conducted
in the area of B&H. This prompted the implementation of this research. Further-
more, each state has a specific educational system and it is necessary, to continu-
722 Mirela Mabi
ously explore and upgrade the models of service quality in higher education and its
dimensions of quality.
The aim was to offer students as many as possible statements about the quality
of the educational process in order to be able to identify the relevant dimensions of
service quality in higher education.
JEL Classification: I23
Keywords: dimension of quality, higher education, quality, students,
stakeholders
INTRODUCTION OR QUALITY IN HIGHER EDUCATION

The main responsibility of universities is to provide and educate expert human
resources, create new knowledge through conducting research as well as increase
and disseminate knowledge. Consequently, this has resulted in the development of
higher education and rapid increase in a number of universities, majors and levels
of study as well as number of students (Farastkhah & Kebriyaie, 1998). The men-
tioned competition significantly promotes the signing of the Bologna Declaration
- a declaration on harmonization of the European higher education area.
Signing of these declarations has set a new scale of success which all higher edu-
cation institutions must reach in order to survive in the market and thereby achieve
excellence, which is inextricably linked with the quality. That imposes the need
for achievement of quality, development of continuous monitoring, measurement,
management, and enhancement
As it is quite difficult and complicated to give a single definition of quality, it is
also very difficult to unambiguously define the quality of education, regardless of
the level of education observed (primary, secondary, higher education) [Houston,
2008, Voss, et al., 2007]. The situation is further complicated when one considers
the fact that the educational process involved a multitude of directly / indirectly,
more / less involved stakeholders (students, parents, teachers, government, com-
panies ...). Any interested party experiences quality in their own way, valuing the
different phases and components of the education process (input, process transfor-
mation, output), and everything under the influence of their role in the process and
their expectations, desires and goals.
Besides the above mentioned reasons, the inability of a single definition of qual-
ity in higher education is the result of a number of other facts (Mabi, 2011):
Higher education has been developed in varying degrees and at different
times in different countries.
A growing number of higher education institutions as the education sector is
slowly turning into a market with strong competition
Institutions of higher education are not the purpose for themselves.
Education is a service.
The quality of education is not necessarily associated with the process of
learning itself (acquisition of knowledge and skills) and its results.
Education includes: input, process, output, mission, vision, goals ...
Due to the strengthening of multidisciplinary aspirations clear boundaries
between plans and programs are repealed.
Dimension of quality in the higher education

Detailed consideration of quality in higher education, at the beginning, requires
identifying the primary users of service in higher education. Namely, the educa-
tional process involves many stakeholders - students, parents, teachers, govern-
ment, enterprise... Students are the most numerous stakeholders and are involved
in different roles: they are the product of the process, the internal customer for
campus facilities, the labourers of the learning process and the internal customer
of the delivery of the course material. (Sirvanci, 1996). However, it is generally ac-
cepted that students are the primary customers and other prospective customers are
such as alumni, parents, employers, employee, government, industry and society
may be considered secondary customers (Ramaiyah et al., 2007).
Consequently, it becomes necessary to identify the determinants of service qual-
ity from the stand point of students being the primary customer. Developing a
service quality model to measure the students perception on quality is a very com-
plex and tedious task because the service quality dimensions cover many areas and
therefore, and it is not possible to cover all (Hadikoemoro, 2002).
Naturally, defining the dimensions of quality in higher education is based on
the dimensions of service quality in other areas. Exploring quality in different ar-
eas, authors state different dimensions, i.e. they explore different aspects of users
satisfaction with some services. Different dimensions of service quality are used for
724 Mirela Mabi
different industries but there are some similarities between them (Lagrosen et al.,
2004). Also, researchers agree that there is no single dimension which can be ap-
plicable for all the service sectors (Carman, 1990; Brown et al 1993; Cronin and
Taylor, 1994). So, in the literature the most frequently mentioned authors and
their dimensions, as for higher education, as in other sectors, are:
Parasuraman et al (1991) initially developed ten dimensions (research in
1985: reliability, responsiveness, competence, access, courtesy, communica-
tion, credibility, security, understanding the customer, tangibles) and later
reduced it into five dimensions (research in 1988: tangibles, reliability, re-
sponsiveness, assurance, empathy).
In paper in 1988 Gronroos had identified six criteria of good perceived ser-
vice quality: professionalism and skill, attitudes and behaviour, access and
flexibility, reliability and trustworthiness, recovery, reputation and credibility,
and in paper in 1990 he stated that the quality dimensions can be classified
into three groups: technical quality, functional quality and corporate image.
Lehtinen and Lehtinen (1991) also identified three areas of the quality: physi-
cal quality, interactive quality and corporate quality.
According to Carney (1994) variables of colleges image are: student qualifi-
cation (academic), student qualities (personal), faculty-student interaction,
quality instruction (faculty), variety of courses, academic reputation, class
size, career preparation, athletic programs, student activities (social life), com-
munity service, facilities and equipment, location, physical appearance (cam-
pus), on campus residence, friendly, caring atmosphere, religious atmosphere,
safe campus, cost/financial aid.
Athiyaman (1997) used eight characteristics to examine university education
services: teaching students well, availability of staff for student consultation,
library services, computing facilities, recreational facilities, class sizes, level
and difficulty of subject content and student workload.
Lee et al (2000) explained that the two of the total quality experience variables
overall impression of the school and overall impression of the education
quality are the determinant variables in predicting the overall satisfaction.
Brooks (2005) recommended the following criteria to assess a quality of a
university: reputation, faculty research productivity, and student educational
experiences and outcomes which include program characteristics, program

effectiveness, student satisfaction, student outcome.
Sangeeta et al (2004) noted five factors/constructs: competence, attitude,
content, delivery, reliability.
In his empirical research, Hadikoemoro (2002) identified following five di-
mensions: academic services, readiness and attentiveness, fair and impartial,
tangible and general attitudes.
Owlia and Aspinwall (1996), recommended six dimensions as follows: tan-
gibles, competence, attitude, content, delivery and reliability.
Analyzing the listed dimensions, authors have come to the following conclu-
sions (Ramaiyah et al., 2007):
1. There are significant similarities and also differences in the dimensions of
service quality developed and used by various researchers.
2. Each of the developed dimensions is unique, therefore that supports the hy-
pothesis that there are no single set of dimension of service quality which are
applicable and suitable for all types of service quality research.
3. Service quality dimension varies according to customers, research objectives,
institution, situation, environment and time.
4. All the chosen dimensions for each of the studies are tailor made to meet
different customers perceptions and expectations
5. Items used to explain each dimension varies according to research objective
and customer group.
6. All dimensions used are acceptable and correct with qualitative and quantita-
tive justifications.
7. None of the dimensions are applicable for all types of service quality research
without making necessary modifications.
8. The best way to identify the dimensions of service quality is by asking the
customers.
9. It is not possible to study all the dimensions of service quality under one
survey.
726 Mirela Mabi
Differences in the models and their dimensions are the result of:
a variety of purposes and reasons for conceiving models and measurements
of attitudes,
different numbers and types of dimensions measured by some model,
varying degrees of the scale used in the measurement,
measurements of various objects - expected / perceived quality,
variety of mathematical and statistical methods used to validate the placed
model.
These items are essential modifications of existing models in use in different
areas. This state of the literature itself suggests that it is impossible to create a uni-
form model of service quality which could be uniformly applied in all sectors, but
it is necessary to continue with continuous research in order to improve existing
and develop new models (Ladhari, 2008; Martnez & Martnez, 2010; Seth et al.,
2005; Srikanthan & Dalrymple, 2002; Mabi, 2011).
EMPIRICAL RESEARCH
Objective of the research
In the literature, one can find different articles that deliver results of identifying
dimensions of quality in higher education based on research conducted in different
regions of the world, but literature is scarce when analyzing the research conducted
in the area of B&H.
The above mentioned prompted the implementation of this research. Further-
more, each state has a specific educational system and it is necessary, to continu-
ously explore and upgrade the models of service quality in higher education and its
dimensions of quality.
The aim was to offer students as many as possible statements about the quality
of the educational process in order to be able to identify the relevant dimensions of
service quality in higher education.
Empirical research
Empirical research was conducted among students of the undergraduate and the
graduate studies at the Faculty of Economics, University of Mostar during 2011.
177 of randomly selected students participated in the research.
The original questionnaire was used. The first part of the questionnaire consisted
of questions about gender, year of study and the achieved grades; the second con-
sisted of 59 items related to the teaching staff (expertise, availability, productivity),
teaching (atmosphere, convenience, modernity), information and communication
technology (communication, education ), curriculum (modernity, mobility, adapt-
ability), library (working hours, equipment, modernity), professional practice, sci-
entific research, knowledge, infrastructure, time organizing classes and exams, of-
fice hours, sharing, extracurricular activities, administrative staff.
All the items are marked form 1 to 5 (Likert scale of 5 degrees with meanings: 1
- cannot agree, 2 - more disagree than agree, 3 - neither disagree nor agree, 4 - agree
more than not agree, 5 - strongly agree).
Data processing is done in the statistical program SPSS 17.0 by using multivari-
ate statistics (factor analysis).
A total of 177 questionnaires were returned and found to be useful, which rep-
resents 79.1% of response rate.
Characteristics of the sample:
Distribution according to the year of the study: 37.9% the third year, 28.2%
in the fourth year and 33.9% the first year of graduate study,
Distribution according to the gender: 34.5% men, 65.5% women,
Distribution according to the grade in the index (which is the most frequent
grade) 27.7% sufficient (2), 55.9% good (3), 11.9% very good (4), 4.5%
excellent (5).
RESULTS
Initially, the suitability of the data for the use of factor analysis was tested. Sig-
nificant result of Bartletts test of sphericity (2=6932.062; p=0.000) is a clear in-
dication of suitability of factor analysis. The Kaiser-Meyer-Olkin measure is a sign
for adequacy for factor analysis (KMO=0.872).
After the implementation of the factor analysis, it was found that, according
to the respondents, the claims can be grouped into 12 latent factors. The number
of claims per factor, Cronbachs coefficient for each latent factor and claims in-
cluded in each factor are shown in Table 1.
728 Mirela Mabi
Table 1.
Factor Name N Cronbachs
F1 Administrative staff 10 0,958
F2 Curriculum 6 0,729
F3 Accessibility of the teaching staff 6 0,844
F4 Physical Environment - interior 6 0,862
F5 Involvement in research 5 0,809
F6 Library 3 0,871
F7 Accompanying activities 4 0,782
F8 Classes - Lectures 4 0,702
F9 Informed by the teaching staff 3 0,795
F10 Convenience of lectures 2 0,797
F11 The competence of the teaching staff 2 0,770
F12 Time management 2 0,628
Eight items did not enter into any one of latent factor so, in further analysis,
they should be analyze separately. The Cronbachs value of twelve factors ranged
from 0.628 to 0.958 indicates that the scales are internally consistent and reliable.
Comparison of these factors with the factors set forth in the preamble, which
were given by other authors, shows many similarities although it is, numerically,
found significantly more factors. Since students are the primary customer in higher
education sector the study has concentrated on student customer only, but it is
identified that education sector has other potential customers as a part of whole
education process who must be satisfied.
For continuing the analysis it is necessary to expand the sample, primarily from
the perspective of students (to include students with different profiles) and struc-
ture the questionnaire - four parts with their claims that will be used to isolate the
latent factors for each part - teaching staff, administrative staff, teaching, support-
ing educational and organizational activities.
CONCLUSION
Presented results of the study only confirm the state of the literature - the quality
is a complex concept and it is very difficult to define it precisely. It is viewed from
the different points of view and a lot of factors influence on it. Therefore, as it is
presented in the introductory part, analysing and measuring of service quality in
higher education has resulted and will result in a multitude of dimensions. Reasons
for that are many, but two are the most important: 1) different stakeholders of the
educational processes that have different needs, desires, goals and who must be
satisfied 2) the duality of educational services - teaching process and administra-
tive services. Even when we add the features that arise from scientific fields that
are applicable to individual colleges, the story becomes significantly complicated.
Therefore, there is a need for continuous researching, monitoring and improving
the quality of the educational process. Accordingly, this research, also, requires to
be continued. In addition, except the adjustment of the questionnaire, the next re-
search should also include students from other faculties, as well as other stakehold-
ers, primarily academicians, supporting staff and administration staff, because they
are in a continuous and direct communication with students.
REFERENCES
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The case of university education, European Journal of Marketing, 31(7/8), 528-540
2. Brooks, R.L. (2005). Measuring University Quality. Review of Higher Education,
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732 Ivan Mikulin Ivan Ambro Maja Mikulin
PRODUCTIVITY LOSSES FROM ROAD TRAFFIC

DEATHS IN CROATIA
Ivan Mikulin, B.Sc.1, Ivan Ambro, mag.ing.comp.,ing.el.2
1
Hypo Alpe-Adria-Bank JSC, Republic of Croatia, ivan.miskulin@hypo-alpe-adria.hr
2
Vukovar-Srijem County Development Agency Hrast Ltd., Republic of Croatia, iambros@ar-hrast.hr
Abstract
The importance of road traffic injuries in Croatia is not generally appreciated
due to lack of knowledge of its economic burden. The total years of potential life
lost (YPLL), potentially productive years of life lost (PPYLL) and the valued years
of potential life lost (VPYLL) from road traffic mortality are calculated in order to
estimate the cost of productivity losses from road traffic deaths in Croatia. Road
traffic deaths costed Croatia approximately 62,694,077.4 in 2011 in productivity
losses alone. Croatia needs to implement cost-effective interventions to reduce the
economic burden of fatal and non-fatal road traffic injuries.
JEL Classification: I11, I13, I15, I18
Keywords: Croatia; road traffic deaths; cost of road traffic deaths; productivity
loss
Introduction
Injury is a major, preventable public health problem in terms of morbidity,
premature mortality or disability. Worldwide about 5.8 million people die every
year as a result of an injury and the projections for 2020 show that 8.4 million
deaths are expected annually (Alexandrescu et al.; 2009, 226). Moreover, injuries
are an important source of direct medical costs as well as indirect costs resulting
from economic production losses; in the Netherlands for example, the direct costs
of injury represents 5% of the health care budget whereas in Spain the total costs
associated with road traffic crashes alone account for 1.35% of the gross national
product (Alexandrescu et al.; 2009, 226).
PRODUCTIVITY LOSSES FROM ROAD TRAFFIC DEATHS IN CROATIA 733
Within the EU-region, each year injuries result in an estimated 256,000 deaths,
7,200,000 hospital admissions, a further 34,800,000 emergency department at-
tendances and 18,600,000 other medical treatments, totaling 60,600,000 medical
treatments (Rogmans; 2012, 19). Injuries are commonly defined as being caused
by acute exposure to physical agents such as mechanical energy, heat, electricity,
chemicals, and ionizing radiation interacting with the body in amounts or rates
that exceed the threshold of human tolerance. In some cases (e.g. drowning and
frostbites) injuries result from sudden lack of essential agents such as oxygen or
heat (Rogmans; 2012, 19).
In the Republic of Croatia, in year 2009 injures were on third place within the
mortality cause scale just behind the cardiovascular diseases and malignant neo-
plasms. That year in Croatia there were 2,986 deaths caused by injuries, accounting
for 5.7% of the total mortality (Brki Bilo; 2011).
Among all injuries, traffic injuries is one of the most common preventable causes
of death and disability worldwide with great burden on communities and health
care systems worldwide (Lindqvist & Dalal; 2012, 216). Traffic injuries present a
higher than average rate of serious injury than any other type (Lindqvist & Dalal;
2012, 216).
Road traffic injuries continue to be a major public health problem worldwide
(Naci & Baker; 2008, 19). Annually, road traffic crashes kill over 1.2 million peo-
ple and cause over 50 million injuries worldwide (WHO; 2009, 1-2). Of these,
over 90% of the deaths occur in low and middle income countries (Nguyen et al.,
2013, 79). According to the World Health Organization road traffic injuries are
the eighth leading cause of death globally, and the leading cause of death for young
people aged
1529 years. Road traffic injuries are increasing, notably in low- and middle-
income countries, where rates are twice those in high-income countries. Current
trends suggest that road traffic injuries will become the fifth leading cause of death
by 2030, with the disparity between high- and low-income countries further ac-
centuated (WHO; 2013, 1).
In Croatia, traffic injuries are a significant public health problem. They are the
leading cause of death in children and young adults, and the leading cause of pre-
mature mortality per person. In year 2011, there were 418 deaths due to traffic
injuries in Croatia (Volarevi; 2012, 3). According to the World Health Organiza-
tion data estimated road traffic death rate per 100,000 population in Croatia is
10.4/100,000 which place Croatia in the middle of the European mortality scale
from road traffic accidents (WHO; 2013, 244).
The economic cost of road traffic crashes globally has been estimated at US$
518 billion. Road traffic crashes cost most countries between 12% of their gross
national product, although this can reach up to 5% (for example, in the cases of
Malawi and Vietnam) (WHO; 2010, 12).
To the authors knowledge, there have not been any attempts to estimate the
economic burden of the road traffic injuries in Croatia. The aim of this study is to
estimate the true financial burden of productivity losses due to road traffic deaths
in Croatia. The total years of potential life lost (YPLL), potentially productive years
of life lost (PPYLL) and the valued years of potential life lost (VPYLL) from road
traffic mortality are calculated in order to estimate the cost of productivity losses
from road traffic deaths in Croatia.
Methods
In order to estimate the true scope of the financial burden of productivity losses
from road traffic deaths in Croatia, the Croatian road traffic fatality data for year
2011 obtained from Ministry of Interior of the Republic of Croatia were analyzed.
This study employed three different methods to estimate the impact of pre-
mature mortality and productivity losses caused by road traffic deaths in Croatia.
These methods were: 1) YPLL; 2) PPYLL; 3) VPYLL. All three methods were used
in an effort to improve the robustness and comparability of the findings. YPLL,
PPYLL and VPYLL were calculated for deaths due to road traffic injuries. Age
specific death estimates used in all three analyses were provided by the Ministry of
Interior of the Republic of Croatia.
1) Years of potential life lost - YPLL

YPLL was used to estimate premature mortality due to road traffic deaths in
Croatia. YPLL is a method developed by the United States Centers for Disease
Control. It is a function of the age at death and the number of deaths at that age. In
order to calculate YPLL, 65 years was used as the cut-off age for premature mortal-
ity. The number of deaths at each age group was multiplied by the number of years
of potential life remaining for the mid-year of that age group. Then, total years of
potential years of life lost were summed up. With this method, deaths at younger
age groups receive a much greater weight in calculating the YPLL than do deaths at
older age groups. With YPLL, only those deaths occurring before a fixed age limit
are considered premature.
The following formula was used to calculate the YPLL:
where i = age group, ia = mid-age of age group, di = number of deaths at age group
and N = upper cut-off age.
Information used in the calculation of YPLL is shown in Table 1.
2) Potentially productive years of life lost - PPYLL

In order to assess the economic impact of road traffic deaths on the Croatian
economy, PPYLL were calculated (Zhou et al.; 2003, 125). This method makes it
possible to see the productivity losses caused by road traffic deaths, which is useful
in calculating the indirect cost of fatal motor vehicle crashes on the Croatian econ-
omy. In PPYLL calculations, the age limit was also 65 years. The PPYLL method
assumes that productive years are from 18 to 65 years; i.e. 18 years of age is the start
of the working age period and 65 years is the end, with a total of 47 working years.
The assumption is that children who lost their lives due to road traffic crashes be-
fore age 18 would have worked for a total of 47 years if the crash had not occurred.
The loss of potentially productive years of life for children is discounted back to
the midpoint of their age group. Recognizing the economic principle that years in
the future are worth less than years in the present, the PPYLL method applies a 3%
discount rate, compounded, for years of life in the future lost to premature death.
A compounded annual discount rate of 3% is used, which is the standard level
used by the World Bank and World Health Organization (World Bank; 1993, 26).
The method calculates future years lost from deaths in each 10 year age group from
the midpoint of that period. The PPYLL calculations are exactly the same as the
YPLL calculations, except that future years are discounted in the calculation of the
PPYLL for each age group and the non-working years below age 18 years are not
counted. Details of the calculation were tabulated in Table 1 and Table 2.
3) Valued years of potential life lost - VPYLL

The VPYLL has incorporated a refined concept of economic productivity ac-
cording to the lifetime development of individuals. In this model, the lifetime
of each individual is divided into three segments: investment years, production
years, and consuming years. The investment and the consuming years represent the
amount of economic resources the individual receives from society, whereas during
the production years the individual gives back to society. The VPYLL is the result
of a balance among these three components (Lam; 2004, 555).
Lost economic productivity is addressed fully by valued years of potential life
lost calculation (elb emerl & eok; 2002, 440). For the purpose of our analysis,
we used the following formula:
where i = age group, Li = life expectancy at age group, I(j) = value at age j, and di =
number of deaths at age group.
The value of I(j) is addressed by investment-producer-consumer model. Accord-
ing to economic productivity, the lifetime of each individual is divided into three
segments: investment years (aged 0-19), producer years (aged 20-64), and con-
sumer years (aged > 65). We considered the value of each year to be equal. During
investment and consumer years the individual is receiving from society (negative
value for society), whereas during the producer years the individual is giving back
to society (positive value for society). We calculated the valued years of potential
life lost weights for each age group in Croatia 2011 (Table 1), using life expectan-
cies model. The net investment made by society is the amount received by the
individual during years 0-19 and over 65, less the amount produced during age
20-64. The total potential loss to society is the net investment at death plus the po-
tential years in which deceased would not have been a producer, less the additional
amount of years in which he or she would not have been a consumer, up to life
expectancy year. We used this model with a cut-off point at age 65.
Table 1. Information used in the calculation of YPLL, PPYLL and VPYLL.

Demographic Lifetime segments (years) according to economic productivitya
data 0-17 18-64 65 or > Net Potential
Age Midage Life Received Did Produced Did Consumed Did investment loss
(yrs) (yrs) expectancyb not not not
(yrs) receive produce consume
0-6 3.0 74.0 3.0 15.0 0 47.0 0 12.0 3.0 23.0
7-13 10.0 67.0 10.0 8.0 0 47.0 0 12.0 10.0 37.0
14-17 15.5 61.5 15.5 2.5 0 47.0 0 12.0 15.5 48.0
18-24 21.0 56.0 18.0 0 3.0 44.0 0 12.0 15.0 47.0
25-34 29.5 47.5 18.0 0 11.5 35.5 0 12.0 6.5 30.0

35-44 39.5 37.5 18.0 0 21.5 25.5 0 12.0 -3.5 10.0
45-54 49.5 27.5 18.0 0 31.5 15.5 0 12.0 -13.5 -10.0
55-64 59.5 17.5 18.0 0 41.5 5.5 0 12.0 -23.5 -30.0
a
Lifetime segments: investment years (aged 0-19), producer years (aged 20-64), and consumer years (aged > or =65)
b
Life expectancies taken at midpoint age from Croatian 2011 life tables.
c
Net investment = (received) + (consumed) (produced).
d
Potential loss = (net investment) + (did not produce) (did not receive) (did not consume). Note: negative
investments and negative losses are gains to society.
Table 2. PPYLL, discounted PPYLL, YPLL and VYPLL by age group.

Age group Discounted
PPYLL YPLL VYPLL
(yrs) PPYLL
0-6 47.0 17.0 248.0 620.0
7-13 47.0 17.0 495.0 1,188.0
14-17 47.0 17.0 742.5 1,425.0
18-24 44.0 25.0 3,564.0 3,807.0
25-34 36.0 22.0 2,449.5 0
35-44 26.0 18.0 1,785.0 -2,100.0
45-54 16.0 13.0 1,007.5 -2,600.0
55-64 6.0 5.6 170.5 -930.0
Indirect costs of road traffic injuries

Indirect cost was defined as foregone contributions to Croatian economy and
society as a whole. Therefore, indirect costs include not only foregone earnings of
those employed in the formal sector, but also the contributions of individuals who
are not formally employed, such as those involved in farming.
The indirect costs of loss of contributions from premature mortality were calcu-
lated. The indirect cost of road traffic deaths were estimated by taking the human
capital approach since this has been the most widely applied framework in eco-
nomic evaluation studies. According to this theory, individuals provide the society
with services and goods, which are in turn valued by the society. In this study, these
goods and services were valued using average annual labor cost levels. The value of
years of potentially productive life is then the discounted future contributions.
According to the Central Bureau of Statistics of the Republic of Croatia the av-
erage monthly gross earning per person in paid employment in Croatia in 2011 was
1,036.3 , yielding the average annual gross earning per person in paid employ-
ment of 12,435.6 . The indirect cost associated with road traffic deaths was calcu-
lated by multiplying the mentioned annual gross earning per person by discounted
PPYLL from premature mortality. The findings were adjusted based on the formal
unemployment rate of 13.4% in 2011 (World Bank; 2012) in an attempt to derive
a more conservative estimate.
Results
Mortality data
According to the Central Bureau of Statistics of the Republic of Croatia, in year
2011 traffic injuries are the third leading cause of death from injury with a share of
18% behind the falls and suicides with age-specific rate of 11.3/100,000. In Croa-
tia, from traffic injuries dye nearly four times more men than women. The highest
mortality rates were observed in age over 65 years (19.8/100,000) and aged 15-24
years (16.0/100,000), and in all age groups were significantly higher in men than
in women.
According to the Ministry of Interior of the Republic of Croatia data among
418 persons killed in Croatia in 2011 due to the traffic injuries the majority of
them were from age group 18-24 years 81/418 (19.4%). It is also important to em-
phasize that majority of killed persons were from active, working population aged
18-64 years 316/418 (75.6%) (Table 3).
Table 3. Persons killed due to the traffic injuries in Croatia in 2011 according to
the age group.
Persons killed due to the traffic injuries
Age group
N %
0-6 years 4 1.0
7-13 years 9 2.2
14-17 years 15 3.6
18-24 years 81 19.4
25-34 years 69 16.5
35-44 years 70 16.7
45-54 years 65 15.6
55-64 years 31 7.4
65 or more years 74 17.7
Total 418 100.0
Source: Ministry of Interior of the Republic of Croatia
YPLL, PPYLL and VPYLL

Table 4 summarizes the results of YPLL, PPYLL and VPYLL calculation in
Croatia for the year 2011.
Table 4. Years of life lost (YLLs) and rates of years of life lost (/100,000 persons)
due to road traffic deaths in Croatia in 2011 expressed through different
quantitative measures (YPLL, PPYLL and VPYLL).
YLLs Rate/100,000
Road traffic deaths
YPLL PPYLL VPYLL YPLL PPYLL VPYLL
10,462.0 6,297.6 1,410.0 296.7 178.6 40.0
Productivity losses from road traffic deaths

Road traffic deaths costed Croatia approximately 62,694,077.4 in 2011 in
productivity losses alone.
Discussion
The results of this study have confirmed that traffic injuries are significant cause of
mortality in Croatia with very important implications regarding productivity losses.
The results of this study are similar to the results of similar study conducted in Slovenia
(elb emerl & eok; 2002, 442) and lower in comparison to study conducted in Chi-
na (Zhou et al.; 2003, 125) and study conducted in Turkey (Naci & Baker; 2008, 22).
The three quantitative measures used in this study are rooted in the same fun-
damental concept but represent slightly different outcome assessments. While the
YPLL has been recognized as the standardized assessment of the impact and burden
of premature death on the community, it only represents the magnitude of loss of
life in terms of years of healthy living. Embedded in this measure is the assumption
that every healthy living year has an equal value disregarding the characteristic of
the individual, including age and sex, at his/her time of death. The PPYLL takes in
the consideration the economic value of the healthy living years of an individual.
The emphasis is the probable years of economic production if the person had sur-
vived the premature death. Utilizing the economic model of investment-produc-
tion-consumption years of an individuals life span, the VPYLL is a refined measure
that provides a more realistic estimation of the economic value of the healthy living
years of an individual (Lam; 2004, 557-558).
The economic implications regarding road traffic deaths in Croatia have not
been studied thus this study gives first insight in this subject. In terms of public
health policy and economic strategies for future national productivity develop-
ment, the benefits of investing in injury prevention are certain.
Some limitations have been identified in this study. One is that it contains only
mortality information and thus it only reflects the burden of death due to injury.
Without any assessments on morbidities, direct and indirect costs on disability, the
economic impact of injury cannot be fully estimated. The calculation of productiv-
ity lost is based on the assumption that there is not differential value of productivity
among different subgroups in the population according to certain characteristics
such as gender and economic classes. There is also an implicit assumption that an
individual would provide full productivity and enjoy the benefit of healthy life if the
premature death is prevented without further risk of premature death later in his/her
life. This assumption may not be true in reality, and the current model has no con-
sideration of this scenario. These issues should further be explored in future studies.
Conclusion
This study has shown that traffic injuries are significant cause of mortality
in Croatia with very important economic implications in terms of productivity
losses. These findings are even more important bearing in mind that those road
traffic deaths can be successfully prevented through cost-effective public health
interventions.
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742 Sunica Oberman-Peterka Nada Bosanac Darko Matotek
ANALYSIS OF EFFICACY OF STUDYING OF THE

FIRST GENERATION OF STUDENTS WITH NATIONAL
MATRICULATION
Sunica Oberman-Peterka, Ph.D.1, Nada Bosanac, B.Sc.2, Darko Matotek, B.Sc.3
1
Faculty of Economics in Osijek, University of Osijek, Republic of Croatia, suncica@efos.hr
2
Republic of Croatia, nbosanac@efos.hr
3
Ph.D. Candidate at Faculty of Organization and Informatics, University of Zagreb, Republic of Croatia,
dmatotek@foi.hr
Abstract
The Bologna process and the introduction of national matriculation imple-
mented major changes in higher education institutions.
The abolition of entrance exams at most faculties, as a consequence of introduc-
tion of national matriculation, simplified and accelerated enrolment in faculties.
Due to extensive preparations for the implementation of national matriculation
and numerous checks that students had to pass in order to successfully pass the na-
tional matriculation exam, it was assumed that the enrolled students would achieve
better results than the previous generation.The motivation for this research is to
determine whether this was the case, that is, is the generation of students that took
the national matriculation exam more successful than the previous generation of
students,which did not.
This paper aims to investigate whether the introduction of national matricu-
lation has resulted in enrolmentof higher quality students, who achieve higher
average grade, better pass rate and completion within the stipulated duration of
studies, than the students enrolled prior to introduction of national matriculation.
The indicators that are analysed in this paper are interest in the study, structure of
enrolled students (vocational school or gymnasium, gender), pass rate per study
program, average grade, pass rate and average grade in relation to the number of
examattempts,analysis of the number of graduates, average length of study and
average grade of the entire study.
ANALYSIS OF EFFICACY OF STUDYING OF THE FIRST GENERATION OF STUDENTS ... 743
The research was conducted using the available data on the 2009/10 generation
of full-time studentsof undergraduate university studies, as the last generation of
students who were enrolled in the first year of studywithout national matriculation,
and the 2010/11 generation, as the first generation of undergraduate university
studies that was required to pass the national matriculation exam and was enrolled
in the first year of study based on the results of the national matriculation exam.
JEL classification: I21; I23
Keywords: higher education, efficacy of studying, national matriculation
Introduction
The topic of this paper is the analysis of students study performanceafter the
introduction of national matriculation.Introduction of national matriculation
caused significant changes in the method of organization of enrolment in faculties,
which ultimately affected specific indicators of success in studying.The abolition
of entrance exams at most faculties, as a consequence of introduction of national
matriculation, simplified and accelerated enrolment in faculties.Similar enrolment
systems exist in other countries in the world, e.g. in Israel (Oren; 2014).Some fac-
ulties have chosen not to abolish their entrance exams, since general frameworks
provided by national matriculation did not meet their requirements for selection of
students. These are mainly academies of art, medical schools, etc.
This paper aims to show in what manner did introduction of national matricula-
tion affect enrolment of higher quality students, who achieve higher average grade,
better pass rate and completion within the stipulated duration of studies, than the
students that were enrolled prior to introduction of national matriculation.
The indicators that we track in this paper are:
interest in the study,
structure of enrolled students (vocational school or gymnasium, gender),
pass rate per study program,
average grade,
pass rate and average grade in relation to the number of exam attempts,
analysis of the number of graduates, average length of study and average grade
of the entire study.
The research was conducted using the available data on the 2009/10 generation
of full-time studentsof undergraduate university studies, as the last generation of
students who were enrolled in the first year of studywithout national matriculation,
and the 2010/11 generation, as the first generation of undergraduate university
studies that was required to pass the national matriculation exam and was enrolled
in the first year of study based on the results of the national matriculation exam.
Due to extensive preparations for the implementation of national matriculation
and numerous checks that students had to pass in order to successfully pass the na-
tional matriculation exam, it was assumed that the enrolled students would achieve
better results than the previous generation.The motivation for this research is to
determine whether this was the case, that is, is the 2010 generation more successful
than the 2009 generation.
The paper consists of several parts:theoretical framework, overview of research
methodology, presentation of research results and conclusions, limitations of the
research, and recommendations for further research.
Theoretical framework
The biggest reform of higher education (Bjeli; 2008,9)on European territory
began in 1988 in Bologna, with an university charter of rectors of European uni-
versities, the aim of which was to establish a common European educational space,
in order to create common higher education area and ensure mobility and employ-
ment of citizens throughout the European Union.
The Bologna Declaration and the documents related to the Bologna Process are
achieving common objectives in the area of higher education in the EU.The Bolo-
gna Declaration was signed on June 6, 1999 in Bologna, initially by 29 countries,
while a total of 46 countries1 participates in the Bologna Process today, all of them
striving to create competitive common European higher education area.
The Republic of Croatia joined the Bologna Declaration in May 2001 in Prague.
1
Albania, Andorra, Armenia, Austria, Azerbaijan , Belgium (Flemish and French community), Bosnia
and Herzegovina, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France,
Georgia, Germany, Greece, Vatican, Hungary, Iceland, Ireland, Italy, Latvia, Liechtenstein, Lithu-
ania, Luxembourg, Malta, Moldova, Netherlands, Norway, Poland, Portugal, Romania, Russia,
Serbia, Montenegro, Slovakia, Slovenia, Spain, Sweden, Switzerland, Macedonia, Turkey, Ukraine,
United Kingdom.
Bolognais designed so that each signatory country adapts it to its needs and
capabilities within frameworks they have accepted.The main objective of the Dec-
laration is to create a European space for higher education in order to enhance the
employability and mobility of citizens and to increase the international competitiveness
of European higher education2(cited byObermanPeterka; 2008),taking into account
diversity of cultures, languages and education systems in Europe.
Bologna reform places studentsat the very centre of the education system, im-
proves their mobility and quality of studying by introducing ECTS credits and
harmonizing the structure of studies.
The objectives of the Bologna Declaration are3:
Adoption of a system of easily readable and comparable academic and voca-
tional degrees and implementation of the Diploma Supplementfor easier and
faster employment and international competitiveness of the EHEA.
Adoption of a uniform system of two cycles of studying: undergraduate and
postgraduate. The first three-year study is a requirement for qualification in
the European labour market, while the second cycle leads to the master and/
or doctorate degree.
Establishment of a system of credits(ECTS). Credits can also be acquired in
non-higher education contexts, through the so-called lifelong learning.
Promotion of mobility and overcoming obstacles to free movement of stu-
dents and teachers.
Promotion of European co-operation in quality assurance.
Promotion of the necessary European dimension in higher education.
The importance of Bologna, increased autonomy and accountability, and in-
stitutionalization of higher education have prompted the introductionof quality
assurance as one of the important factors of comparability of quality of study pro-
grams, introduction of a common education system and mobility of students and
teachers.
2
The Bologna Declaration, on the European space for higher education: an explanation, prepared
by the Confederation of EU Rectors Conferences and the Association of European Universities,
February 29, 2000
3
http://public.mzos.hr/Default.aspx?sec=2280accessed onFebruary 10, 2014
All study programs conducted at Croatian higher education institutions and

all the new programs are aligned with the Bologna principles and evaluated by the
National Council for Higher Education with the expert support of the Agency for
Science and Higher Education.
The implementation of the Bologna process is monitored by the Ministry,
through its Decision on appointing the National group for monitoring the Bolo-
gna Process.The National group for monitoring the Bologna Process is composed
of representativesof the National Council for Higher Education, the Agency for
Science and Higher Education, the Independent Union of Research and Higher
Education Employees of Croatia, the National Competitiveness Council and the
civil society.
Quality assurance systems at all levels require relevant objective statistical in-
dicators and analyses, which are the basis for assessing the situationand making
strategic and development measures.
Strategic plan for building a quality assurance system at the J.J. Strossmayer
University of Osijek emphasizes the importanceof management and improvement
of quality at the University, which is based on the mission, program and organiza-
tion of studies, scientific, research and professional work, infrastructure, employees
and students, as well as mechanisms of control and adjustment of the quality im-
provement system (Barkovi, D., 2012).
Introduction of the national matriculation also introduced the external evalua-
tion system, which represents an objective criterion for the assessment of secondary
education. External evaluation is an educational policy where quality of education
is measured according to results of standardized tests drawn up by a designated
independent body. In Croatia, that body is called National Centre for External
Evaluation of Education.4
The original goal of national matriculation (osi, 2012) was not to equalize
all the secondary schools and their programs. Instead, the objective of this type of
external evaluation was aimed at raising the quality of education, since education is
the key component of development of todays societies.
4
www.ncvvo.hr, accessed on February 12, 2014
Methodology
Used in the research were descriptive statistical methodswith standard indica-
tors, such as: mean, standard deviation, median, mode, in order to better describe
the phenomena.In order to test the stated hypotheses, t-test was used, with the as-
sumption that the (actual) variances are equal. Also, with the assumption that the
(actual) variances are unequal, Welchs t-test was used. Welch Two Sample t-test is
an adaptation of Students t-test intended for use with two samples having possibly
unequal variances.
Data available in the Information System for Higher Education Institutions
(ISVU) for the observed two generations of students was used. Research was con-
ducted using data for full-time students of the Faculty of Economics in Osijek. The
sample consists of full-time students enrolled in undergraduate university study in
academic year 2009/2010 and academic year 2010/2011. The sample is comprised
of 419 studentsenrolled in 2009 and 357 students enrolled in 2010. The structure
of enrolled students is given in the below table:
Table 1: Structure of students by completed secondary school and vocational

area
Completed secondary school Vocational area
2009 2010 2009 2010
Gymnasium Vocational Gymnasium Vocational Economics Other Economics Other
163 256 180 177 237 19 146 31
Source: Authors processing of the ISVU data
Regarding the generation enrolled in 2009, there is a higher proportion of stu-

dents with completed vocational school in relation to students with completed
gymnasium, while in 2010 this number was almost equalized. This was not expect-
ed, because the prevailing opinion in the media and the scientific public (Bezinovi,
2009) was that students with completed vocational schools have little chance to
successfully pass the matriculation. In vocational area, the most represented were
the students with completed economics school which was to be expected.
Table 2: Structure of students by gender

2009 2010
Number Percentage Number Percentage
Male 157 37.47 % 170 47.75 %
Female 262 62.53 % 186 52.25 %
Source: Authors processing of the ISVU data
Compared to 2009, there is a noticeable increase in the proportion of male stu-

dents in 2010,from 37% to almost 48%. We can say that proportion of students
by gender has equalized.
Regarding the identified problem, the following hypotheses have been set:
H1 :There is a statistically significant difference in the average grade between the

generations enrolled in 2009 and in 2010.
H2 :There is a statistically significant difference in the exam pass rate between
the generations enrolled in 2009 and in 2010.
Results and discussion

The conducted analysis has resulted in the following descriptive statisticsindicators:
Table 3: Average grade at the study

2009 2010
Mean 3.655 3.700
Median 3.588 3.603
Mode 3.412 3.235
Standard Deviation 0.468 0.512
Sample Variance 0.219 0.262
Minimum 2.588 2.882
Maximum 4.892 4.765
Count 157 82
Source: Authors calculation
Hypotheses areH0 : 1 = 2versus H1 : 1 2 using t-test, the p-value is 0.05009

which is greater than 0.05, therefore the null hypothesis is accepted, i.e., there is
no difference in average grade between the 2009 and 2010 generations. Here it is
assumed that the (actual) variancesare equal. Let us assume that the variances are
unequal(Welchsversion of t-test). Again, the p-value is 0.5133, which is greater
than 0.05, therefore, the null hypothesis is again accepted, i.e., there is no differ-
ence in average grade between 2009 and 2010 generations.
Table 4 : Exam pass rate

Exam pass rate 2009 2010
Mean 0.803 0.883
Median 0.796 0.909
Mode 0.972 0.972
Standard Deviation 0.136 0.107
Sample Variance 0.018 0.011
Minimum 0.461 0.547
Maximum 1 1
Count 157 82
Source: Authors calculation
HypothesesareH0 : 1 = 2versus H1 : 1 2 using t-test, the p-value is 5,754

* 10-6, which is lower than 0.05, therefore the null hypothesis is rejected, i.e., there
is a statistically significant difference in exam pass rate between the 2009 and 2010
generations. Here it is assumed that the (actual) variances are equal. Let us assume
that the variances are unequal(Welchsversion of t-test).Again, the p-valueis 1.264
* 10-6, which is lower than 0.05, therefore the null hypothesis is again rejected, i.e.,
there is a statistically significant difference in exam pass rate between the 2009 and
2010 generations.
Results were partially not in line with our expectations.With regard to introduc-
tion of national matriculation, an increase of average grade was expected because of
the more demanding enrolment system.On the other hand, the difference in exam
pass rate is statistically significant. This could have been affected by various factors,
such as the introduction of the system in which the number of exam attempts is
limited to four exam attempts in an academic year, and the fourth exam attempt
takes place before examination committee (Regulation on studies and studying,
2010).
Conclusion
Both generations continue to show great interest in studying at the Faculty of
Economics in Osijek, which is confirmed by the number of student applications
with regard to enrolment quotas.The previous indicators were not relevant because
of different criteria and methods of evaluation of the knowledge of students who
are continuing their education at faculties and colleges.With the introduction of
national matriculation, the comparison of acquired knowledge of secondary school
graduates will be interesting, measurable and will show the real state, structure and
quality of the enrolled students.
Using the available data and applying appropriate scientific methods, the first
hypothesis is rejected.There was no increase in average grade in students that have
passed the national matriculation exam in relation to students enrolled a year ear-
lier.The second hypothesis is accepted. Students of the 2010 generation are achiev-
ing better exam pass rate than the students of the 2009 generation.
Limitations of the research are the following: data from only one higher edu-
cation institution and one component of that institution was used, only the data
for students who have fulfilled their obligations in time was observed.It would be
interesting to repeat the study at some other higher education institution (or at
some other components), as well as on students who are lagging behind in fulfilling
their obligations, anddetermine the causes of higher exam pass rate of students with
passed national matriculation exam.Also, a similar research should be conducted
once it becomes possible to compare several generations of graduated students en-
rolled based on their success at the national matriculation exam, since data for just
one generation of graduated students is currently available.
References:
1. Barkovic, D. (2012) Strateki plan sveuilita - polugakonkurentske prednosti
Sveuilite J.J.Strossmayera u Osijeku, Ekonomski fakultet u Osijeku, ISBN:978-
953-253-112-1, Osijek
2. Bezinovic, P. (2009) Dravna matura kao zapreka pristupu visokom obrazovanju,
Revija za socijalnu politiku, Vol.16 No.2
3. osi, I.(2012) doktorat na Sveuilitu Cambridge, http://www.h-alter.org/vijesti/
kultura/cemu-sluzi-drzavna-matura accessed: (10.02.2014)
4. Ministarstvo znanosti, obrazovanja i sporta (2008).U susret dravnoj maturi. Zagreb:
MZOS.
5. Ministarstvo znanosti, obrazovanja i porta (2009).Dravna matura, Zagreb: MZOS.

6. Oren,C. +, et all (2014) Demonstrating the validity of three general scores of PET
in predicting higher education achievement in Israel, Psicothema Vol. 26, No. 1,
117-126
7. Oberman Peterka, S. (2008),Poduzetnika sveuilista u funkciji efektivne disemi-
nacije intelektualnog vlasnistva sveuilista, doktorska disertacija, Sveuiliste J.J.
Strossmayera u Osijeku, Ekonomski fakultet u Osijeku
8. Pravilnik o polaganju dravne mature. Narodnenovine87/2008
9. Pravilnik o studijima i studiranju na Sveuilitu J. J. Strossmayera u Osijeku, Osijek
(2010)
10. Slapniar, I.(2008). Bolonjski proces Informacije za gospodarstvo, Sveuilite u
Zagrebu, ISBN 978-953-6002-35-1
11. http://public.mzos.hr/Default.aspx?sec=2280 accessed: (10.02.2014)
12. www.ncvvo.hr, accessed:(12.02.2014)
752 Klara uka Isabella Beli Miroslav Jari
ROLE OF MANAGEMENT IN ORGANIZATION OF PRIMARY

HEALTH CARE IN UNITS OF REGIONAL GOVERNMENT
Klara uka, univ.spec.oec.1, Isabella Beli, univ.spec.oec.2, Miroslav Jari, univ.spec.oec3
1
Brod- Posavina County, Republic of Croatia, kscuka@bpz.hr
2
Brod- Posavina County, Republic of Croatia, izabela.belic@bpzupanija.t-com.hr
3
Brod- Posavina County, Republic of Croatia, mjaric@bpz.hr
Abstract
The role of primary care is of great importance for the proper functioning of the
health system. Social transformation in the last twenty year resulted in a fall of the
interest of health care professionals to work in this segment of health care. At the
same time, as a result of improving communications and increasing the available
information, interested of individuals for their own health is growing. The first
contact with an individual health care is in primary care segment, which must be
equally accessible to all residents of Croatia, regardless of whether they live in rural
or urban areas. Due to the reduced number of medical professionals who choose to
work in primary health care, negative transformation of the health system and dis-
connect segments of primary health care that are organized through health centers,
group practice or independent dealers, health care is not at the level of availability
that is expected because the organization primary health care system has been left to
the individual - doctor. Primary health care system lacks organization, which can be
achieved by establishing health management at the level of regional governments.
JEL Classification: I11, R51
Keywords: health care, primary health care, management, regional governments.
Introduction
Health facilities in Croatia operate as public and as private. Public health insti-
tutions have agreements on financing the health care with the Croatian Institute
for Health Insurance. Private health institutions can make agreement on health
care services with the Croatian Institute for Health Insurance or may operate ac-
cording to market principles. Since 2010. health care at the primary level operate
ROLE OF MANAGEMENT IN ORGANIZATION OF PRIMARY HEALTH CARE IN UNITS ... 753
with a concession given by the regional authority. The regional authority on its
territory, in accordance with the Law1, are taking custody for the health care or-
ganization and coordinate the work of institutions, companies and individuals in
their area . Mayor role in primary health care have family doctors which connects
the entire health care system. A health management, which has the task to organize
a functional and organized primary health care by family physicians in the field of
regional government, will largely depend on the specialist health care. When the
primary health care is available, and doctors in family health care are well coordi-
nated, as result will be a reduction in the waiting lists, tensing and overloading the
system at secondary and tertiary levels. The task of management is to coordinate
regional government and linking different levels of health care.
1. Analysis of the regional authority health care system the on the example of
the Brod posavina County
Health care in Brod- Posavina County takes place at primary and secondary
level. The County is the founder of the five health clinics: Medical Centre Slavonski
Brod, Medical Centre Doc. Andrija tampar Nova Gradika, Institute of Public
Health of Brod Posavina County, the Institute of Emergency Medicine of Brod
Posavina County and Health facilities and pharmacies Slavonski Brod.
The county s foundering rights, in accordance with low which refers to the
rehabilitation of public institution2 : the institution of the General Hospital Dr.
Josip Benevi Slavonski Brod and General Hospital of Nova Gradika, by Deci-
sion of the County parliament to invite the Croatian Government on the imple-
mentation of rehabilitation of 27 March 2013th, have transferred to Croatian Gov-
ernment. The reason for transferring the founders rights are debts of health care
that the County could not be restored from the original income. Debts incurred as
a result of reduced payments by the Croatian Institute for health insurance.
1.1. Primary health care

There are many definitions of primary health care. Primary health career present
the integral part of the health system of the state, whose function and main focus
of the overall social and economic development of the community. It is the first
1
Public institution rehabilitation law, (Official Gazette nr. 136/12)
2
Law on Rehabilitation of public institutions (Official Gazette br.136/12.)
level of contact of individuals, families and community with the national health
system, approaching health care as much as possible to the place where people live
and work, creating the first element in a continuous process of health care3.
Primary health care in Brod- Posavina County has carried out in health centers,
private practice based on concessions, in County Department of Emergency Medi-
cine and in the Department of Public Health of the County.
1.1.1. Health Centers

There are two health centers in the County. Health centers employs 61 physi-
cians (of which 20 specialists) and 114 medical technicians / nurses. At the level
of health centers the following activities has been accomplished: general (family)
practitioners, visiting health care, health care for preschool children, dental care
(multi-purpose), womens health care, medical transportation, palliative care pa-
tients, health care, occupational medicine.
1.1.2. Private practice based on the concessions
Since January 1, 2011th primary health care activities in general (family) medi-
cine (59 teams), dental care (47 teams), the health care of infants and preschool
children (4 teams), womens health care (2 teams), laboratory diagnostics (2 teams),
health home care ( 50 teams ) and occupational health (4 teams) performed pursu-
ant to a concession.
Table 1: Projected number of teams in the Network of primary health care in BP

Number of teams Number of
Health
Nr. Health activities in the planned filled teams in Concession
center
Network the Network
1. The general (family) medicine 92 77 59 18
2. Dental Health Care 85 67 50 18
3. Health of infants and preschool children 11 7 4 3
4. Health care for women 11 10 2 8
5. Health care in the home 51 51 51 0
6. Laboratory diagnosis 4 4 4 0
7. Health care in the home 8 8 4 4
Source: Department of Health and Social Welfare BP
3
Joseph Mesari: analysis of key aspects of conflict management in the field of primary health care:
Economic Journal, No.1., July 2012th
1.1.3. County Institute of Emergency Medicine

County Institute of Emergency Medicine was founded in the 2010th, imple-
menting the measures for emergency medicine in the BP County, providing co-
operation in emergency medicine with neighboring local (regional) self-govern-
ment, ensures and provides filling the teams in the area of the County, ensur-
ing the implementation of identified equipment, vehicles and health care workers
standards,provide emergency medical implemented standards for emergency medi-
cal transport by road, ensures the implementation of quality standards of work,
participates in the planning and implementation of the education of health profes-
sionals, conducts technical and scientific research in the field of emergency medi-
cine in cooperation with the Croatian Institute for emergency Medicine.
The Institute of Emergency Medicine has 95 employs 95, including 69 medical
and 26 non-health professionals.
1.1.4. Institute of Public Health of the Brod-Posavina County

Institute of Public Health, the County conducts its activities in two locations in
Slavonski Brod . The Institute counts 60 employs.
Institute of Public Health has an important role in the implementation of pre-
ventive measures to protect the population the County. The significant role of the
Institute is to take preventive health care of children in primary, secondary schools
and colleges, to perform microbiological activity, to analyze the suitability of water,
the water supply situation, the safety of food and general items . Department of
Public Health, mental health, prevention and outpatient treatment is the main
carrier of prevention programs and non-institutional addiction treatment in the
County .
1.1.5. Pharmaceutical activity

In the area of the BP County pharmacy services performed 38 pharmacies, of
which eighteen (18) pharmacies in Slavonski Brod, four (4) in Nova Gradiska.
Other pharmacies are located in community centers.
Pharmacy institution (founded by the BP County) its principal activity con-
duct through 9 pharmacies, four are located in the city of Slavonski Brod and 5
pharmacies in municipalities of County. The Institution employs 48 staff, of which
17 full-time employees pharmacists and 18 pharmacy technicians. This institution
is part of a team of primary health care, and pharmacists are the most easily avail-
able workers in primary health care. As, the primary disease prevention is focused at
healthy people - through patient education about health and healthy life, advisory
role in the pharmaceutical field is unavoidable.
1.2. Secondary health care

Stationary health care is carried out through the activity of hospitals in Slavon-
ski Brod and Nova Gradika.
1.2.1. General Hospital Dr. Josip Benevi Slavonski Brod, location

Slavonski Brod
Medical institution conducts its primary activities within the specialist-advisory
activities, hospital activities, supply of drugs and other medical products. Besides
health activities Hospital performs the following activities: scientific- research ac-
tivities, teaching and educational activities, publishing technical information and
publications, professional and administrative work and service and support opera-
tions. Considering the number of departments, employees, the scope of the work
performed and the number of patients, hospital activity has sub-regional signifi-
cance and the following categorization of hospitals, according to the Regulations
on the conditions for classification of hospitals will establish hospital to be classified
in category II of county hospital regional importance.
The hospital employs 222 physicians: 163 specialists and 59 residents, the hos-
pital has 511 beds contracted.
The hospital has a medical following organizational units : Department of Sur-
gical Diseases, Department of Urological Diseases, Department of Anesthesiology,
Resuscitation and Intensive Care, Department of Internal Medicine, Department
of Dermatology and Venereology, Department of Infectious Diseases, Department
of orthopedic diseases, Department of mental illness, the Department of nervous
diseases, Department of Ophthalmology, Department of ear, throat, nose and head
and neck surgery, Department of Obstetrics and Gynecology, Department of Pedi-
atrics, Department of Rheumatic Diseases, physical Medicine and Rehabilitation.
The hospital performs activities of health care at the level of daily hospital with-
in specialist - consultative health care for the treatment of acute patients.
1.2.2 . General Hospital Dr. Josip Benevi location Nova Gradiska

Institution is taking care for approximately 58,000 insured persons who live in
the western part of Brod Posavina County (former municipality Nova Gradika),
and provides health care at the level of secondary health care, as well as at the level
of primary health care ( laboratory ) .
The hospital employs 63 doctors of which 41 specialists and 18 residents, 13
interns, disposes with 160 beds.
According to the Regulation on conditions for classification of hospitals, hospi-
tal is classified in the city category (local category) with following medical orga-
nizational units:
Activity of Internal Medicine, the surgical disease activity, activities of Gynecol-
ogy and Obstetrics, the activity of Pediatrics, department of Neurology and Psy-
chiatry, diagnostic and other specialty services, emergency medical services (emer-
gency medical admission).
2. Human resources in health Brod- Posavina County

At the end of 2012., in the Croatian health care there were constantly employed
74,241 workers ( 2011th - 73,434 ) . Of these, 56,598 are health workers and as-
sociates, 5,173 are administrative and 12,470 are technical staff . In the structure of
full-time employees, the proportion of health care workers with secondary school
education is 37.8 %, administrative and technical workers participate with 23.8
% (2011th - 23.6 %), 17.3% of physicians, health professionals associate with
high degrees 11.1 %, dentists 4.3%, pharmacists 4.0%, medical assistants with
university degrees ( psychologists, speech therapists, social workers, special educa-
tion teachers and others ) 1.2 % of employees and health care workers with lower
qualifications are 0.5 % .
Employed at a definite period of time, there have been 7,149 ( 2011 th - 8418
) of health care professionals and associates, and at the day 31.12.2012. was em-
ployed, for an indefinite and definite period of time, 63,747 ( 2011th - 64,255 )
health workers and associates .
Formation of 12,810 permanent staff physicians in the primary place of em-
ployment: 9705 works in institutions owned by the state, counties and city of
Zagreb, 658 in private health institutions, and in private practices 2,447, of whom
1,798 worked in the offices with the concession contract. In Brod- Posavina in the
health care system employs a total of 1,777 employees.
Graph 1: Composition of employees in health care in medical institutions in

Croatia
Source: Health Statistical Yearbook 2012th
Graph 2: Structure of employees in the health institutions in the area of the

County
Source: Calculated by the survey authors believe

Health facilities in the Brod- Posavina County are in average of Croatia accord-
ing to number of health and non-health professionals, and in a favorable relations
for specialists whitch have worked in 20 departments and services in the General
Hospital Dr. Josip Benevi Slavonski Brod and in 14 departments and services
in the General Hospital Nova Gradika.
In the area of the County lives 163 322 insured persons, in conformity with,
which is visible, in Brod- Posavina County is lack of primary care physicians and
primary health care is not equally available to all residents of the county. In the
future we should take into account the investment in infrastructure of ambulances
and equipment for the same to create conditions for completing the Network and
better availability online and available primary health care to all residents of the
county.
3. The management of health institution

In practice, we find different definitions of management and Heinz Weihrich
defines management as a process of designing and maintaining an environment in
which individuals, working together in groups, effectively generates selected tar-
gets. According to that, the key determinants of the process of management is to
make decision, to influence, to communicate, coordinate and to connect. The key
role of managers is to making decisions4 independently how much are they heavy
and how they, in short term, brings negative publicity to the company or health
organization. Top managers must make decisions that will have long-term effects
and which are oriented towards to service users or patients.
The role of management in the health system regional government can be ob-
served on the level of primary health care through voluntary participation of doc-
tors in a special duty, which is not required by law, but it has been given the pos-
sibility of contracting with the Croatian Institute for Health Insurance .
In Brod- Posavina County, in the area of family medicine, works 77 physicians,
59 physicians based on concessions, given by the District and 18 physicians which
are working in health centers.
4
Tom Peters; Robert H.Wateman, ml.: The pursuit of excellence, Profile, Zagreb (2008)., P.62
County, based on the low5, coordinate the work of health institutions and all
natural and legal persons in their area . County, by the Administrative Depart-
ment of Health and Social Welfare, has invited practitioners to participate in the
implementation of a special duty, witch will be organized on Saturdays after 15
pm, Sundays and holidays . Considering the number of family physicians, which
works in the County, special duty will be manned by doctors 3-5 times per year in
one shift . Doctors were offered an agreement with HZZO to a payment duty (55
kn per executed inspection) . Based on experiences, the number of patients which
comes to doctors on duty is 50-80 patients per shift . The ability to income, trough
enforced contracts, is in the amount of 2750-4400 kn. The result of the survey was
disappointed, 59 of surveyed family physicians ( 18 physicians, which works in
health centers ) only 14 of them accepted the work of the special duty.
Table 1: Survey of doctors on the implementation of a special duty

Accept special duty Do not accept duty Accept with conditions Did not answered Total
14 17 1 27 59
23,73% 28,81% 1,69% 45,76% 100%
Figure 3: results of a survey on the participation of physicians in a special duty

to BP
30
25
20
15
10
5
0
Accept Donot Acceptwith Noanswer
specialduty accept conditions
5
Article 9., Health Care Act, Official Gazette . 150 / 08th, 71/10. 139/10., 22 / 11th, 84 / 11th
12/12., 35/12., 70/12. 144/12., 82/13
The results indicate the needs for a different organization of health management
to plan, to organize, to motivate and make decisions that will ensure a complete,
functional and accessible health care in the county . Chester Barnard talks about
management that there is no doubt that the development of the crisis which oc-
curs, due to an unbalanced treatment of all factors, is opportunity for correct
functioning of executive directors who have a sense of complete picture. Formal
and orderly perception is rarely present, perhaps even rarely possible, except for the
few people which are executive genius or in several executive organizations, whose
staff are very sensitive and well integrated6 .
One of the important role of management is to motivate all factors and all
employees in the system and in management system in to increase system effec-
tiveness. When we talk about the management of health care, specific medical in-
stitution cannot be considered as a unit, but the system as a whole, there must be
communication managers of various health institutions in order to organize health
care in which the patient will be satisfied with the quality, efficiency and availability
of services .
Conclusion
The organization and management of primary health care is fragmented and
inefficient. Decisions are made autonomously in some clinics, without sufficient
information and looking at the whole perspective. Such a decision-making process
result in a disorganized system. In Brod- Posavina County, decisions are made in
64 units ( 59 concessionaires and 5 medical institutions ). This results in making
decisions which are opposite with the fundamental principle that health care must
be complete, comprehensive and acceptable. Improvement of the system is only
possible by connecting the management of all units which operates on the prin-
ciple of contracting health care with the Croatian Institute for Health Insurance.
Management will then make decisions which will be enforceable and binding for
all participants in the health care system. Regulation and better organization of pri-
mary health care will create preconditions for better and more efficient operation of
the entire system of health protection at the local level and will reduce errors caused
by organizational problems.
6
Tom Peters; Robert H.Wateman, ml.: In pursuit of excellence, Profile, Zagreb (2008)., P.119
References :
Barkovi, D. (2009). Menadersko odluivanje, Sveuilite Josipa Jurja Strossmayera
Ekonomski Falultet, Osijek
Barkovi, D(1999). Uvod u organizacijski management,, Sveuilite Josipa Jurja Stross-
mayera Ekonomski Falultet, Osijek 1999.
iin-ain, D., pred.: Skripta iz osnova menadmenta, Visoka kola za turistiki
menadment ibenik
Peters, T.&Watwrman, R. H.(2008): U potrazi za izvrsnou,Profil, Zagreb
Weihrich, H.& Koontz, H. 1994). Menadment, Mate, Zagreb
Robins P. S.& Judge A. T. (2009):Organizacijsko ponaanje,Mate d.o.o., Zagreb
Markovi, B. & Vuki, S.: Modeli organizacije i financiranja zdravstvenog sustava u
odabranim zemljama svijeta,
Gorjanski, D. (2009) .Je li hrvatski zdravstveni sustav sustav?, Matica hrvatska
Ogranak Osijek, Osijek
Kova, N. (2013) - Financiranje zdravstva situacija u Hrvatskoj, Ekonomski vjesnik,
hrcak.srce.hr
Mesari J. (2012): Analiza kljunih aspekata upravljanja konfliktima u podruju pri-
marne zdravstvene zatite: Ekonomski vjesnik, No.1., srpanj.
www.journals.lww.com/jphmp/Fulltext/2014/03000/A_Simple_Strategy_to_Trans-
form_Health,_All_Over.1.aspx (20.03.2014.)
http://www.akaz.ba/Publikacije/Dokumenti/prirucnici/Prirucnik_za_menadzere_ZR_
revizija2.pdf (27.03.2014.)
WHO, 2013. World health statistics 2013.: European health for all database (HFA-
DB),World Health Organization Regional Office for Europe,Updated: July 2013:
http://www.euro.who.int/en/data-and-evidence/databases
Zakona o sanaciji javnih ustanova (Narodne novine br.136/12.)
FREE HOSPITAL CHOICE IN SWITZERLAND PATIENTS DECISION CRITERIA AND ... 763
FREE HOSPITAL CHOICE IN SWITZERLAND PATIENTS

DECISION CRITERIA AND SOURCES OF INFORMATION
Dirk Wiedenhfer1, Sonja Keppler, Ph.D.2
1
Verein Outcome, Zrich, Swiss Confederation, dirk.wiedenhoefer@vereinoutcome.ch
2
Cyprus International University, Republic of Cyprus, sonja.keppler@eu-edu.ch
Abstract
Since 2012 Swiss DRG (diagnosis related groups) allows patients to choose a
hospital for elective treatments in acute care. The so called free hospital choice
enables patients with basic insurance to choose a public or private hospital located
inside or outside the canton of residence. These options apply to inpatient treat-
ment of acute diseases (somatic and psychiatry) as well as to inpatient medical
rehabilitation. There is a lack of data in Switzerland on patients decision behaviour
regarding hospital choice for elective treatments and there is only little information
on patients decision criteria. However, hospitals would benefit from such data,
which would support strategy development and positioning of the hospital in com-
petitive environments.
Studies conducted in other European countries show that patients obviously
use a mix of information sources. References of the general practitioner or physi-
cian and recommendations of family members and friends are the most important
sources. Personal experience also affects hospital choice, although it is mentioned
in two studies. Patients characteristics like age, sex, health status, and the level of
education influence the kind of information sources used. Qualification of physi-
cians and nurses, treatments state of the art, specific competence of the hospital,
patients involvement, cleanliness, friendliness of the staff and satisfaction with the
hospital are factors influencing hospital choice and patient satisfaction.
JEL Classification: I10, I11, I12
Keywords: Hospital choice; Swiss DRG; Information Sources; Decision Crite-
ria; Patient; General Practitioner.
764 Dirk Wiedenhfer Sonja Keppler
Introduction
There is a permanent change in the Swiss hospital market. In 2010, 299 health-
care providers were counted, which maintained activities at 482 locations. A lot of
facilities are located in the cantons of Berne, Zurich and Vaud. 121 hospitals offer
services for inpatient care. 30 hospitals can be assigned to the group of large hospitals
like university hospitals or cantonal hospitals, 91 hospitals are considered as regional
hospitals. In total, the number of hospitals decreased by 34.6% between 2000 and
2010. In the same period the number of beds decreased by 12.8%. In 2002, patients
spent on average 9.1 days in hospital, in comparison to 6.7 days in 2010 (BFS, 2012).
In the future, two trends are expected in the Swiss hospital market: The first
trend is a shift of treatments from the acute care sector to the ambulatory sector.
This process will reduce the length of stay in hospitals and the beds capacity. The
second trend is the growth of the healthcare market and an expected increase of the
need for services. The growth will depend on the region: Regions like Zurich, Lake
Geneva, and Central Switzerland will grow above-average. Especially in regions
with a low need and a high concentration of hospitals, it will be a challenge for
smaller hospitals to survive. This shows that cooperation between hospital provid-
ers could be essential. Currently, 98.4% of the population of Switzerland reach a
hospital in less than 20 minutes (Credit Suisse, 2013).
One of the most important drivers of these developments was the launch of
Swiss DRG (Swiss Diagnosis Related Groups) in 2012. Swiss DRG represents a
patient treatment classification system for inpatients. Each acute case is classified by
diagnosis or procedure, i.e. by economic (e.g. costs of operation) and medical crite-
ria (e.g. severity of operation). The earnings per DRG compute from the base rate
(one price for the treatment of the patient; the base rate is equal in all Cantons of
Switzerland) multiplied by the cost weight (average treatment cost factor). The base
rate is fixed by the health authorities once a year. The hospital can earn a higher in-
come if it treats more cases and inpatients with a higher cost weight. Hospitals have
to adapt and control their processes, to be able to treat inpatients in the optimal
length of stay and within a shorter time (Beng, 2010; Malk and Beth, 2010). The
new financing system should give a better overview about treatment costs, enhance
transparency of costs and quality, and allow patients to choose a hospital for elec-
tive treatments in acute care (Swiss DRG, 2012; NZZ, 2012). The so called free
hospital choice enables patients with basic insurance to choose a public or private
hospital located inside or outside the canton of residence. These options apply to
inpatient treatment acute diseases (somatic and psychiatry) as well as to inpatient

medical rehabilitation. In order to guarantee assumption of the costs by canton and
health insurance, the hospital must be approved by the health authorities (Swiss
DRG, 2012; Universittsspital Basel, 2012).
Currently, there is a lack of data in Switzerland on patients decision behaviour
regarding hospital choice for elective treatments. It is not known, whether patients
choose their hospital actively, i.e. if they invest time and effort in taking their deci-
sion. There is only little information on patients information sources or factors in-
fluencing the decision which hospital to choose. However, hospitals would benefit
from such data, e.g. for strategy development, positioning of the hospital in a com-
petitive environment and for improving public relations. Finally, such data could
help a hospital to improve its services and to attract new patients for elective care.
Hospital concentration in Switzerland

Figure 1 presents the length of trip to the next general hospital in Switzerland.
The distances were calculated from the midpoint of the community.
Figure
g 1: Length
g of trip
p to the next
g general hospital
p in Switzerland
Source: Credit Suisse, 2013

Despite difficult geographic conditions, 98.4% of the Swiss population reach a

general hospital within 20 minutes by car. The high concentration of hospitals is
cost-intensive, but patients have the chance to choose a hospital actively (Credit
Suisse, 2013)
Figure 2 shows the growth of needs until 2040 and locations of general hospitals
in Switzerland. The legend of the left side illustrates the growth, divided into red
sectors and blue sectors. Regions marked in red will develop above average. The
demand will rise in regions like Zurich, central Switzerland and around the Lake
Geneva. In contrast, regions marked in blue, especially the region of Berne and
Bale, will show a need below average. The circles in yellow or green colour show
different hospital types (university hospital, city hospital or primary health care).
The size of circles reflects the size of the hospitals, independent of the colour. The
largest green circle is a university hospital and the smallest yellow circle is small re-
gional hospital (Credit Suisse, 2013). As figure 2 shows, the hospital concentration
is impressive in Switzerland.
Figure 2: Growth of needs until 2040 and locations of general hospitals in

Switzerland
Source: Credit Suisse, 2013

Literature Review
Generally, patients want to choose the hospital, in which they will be treated
(Coulter and Jenkinson, 2005). Patients in acute care show expectations and pref-
erences, which are different from those of patients in chronic care. Differences can
also be found for male and female patients (Schaeffer, 2006). The typical patient
does not seem to exist: different patients make different choices in different situa-
tions (Viktoor et al., 2012, p. 1).
There are six characteristic criteria relating to patients expectations on inpatient
care:
Reliability
Expertise and specific know, competence
Relationship to the patients
Communication and information
Organization and management of the hospital care
Atmosphere and surrounding facilities
All these expectations are relevant for inpatient care, i.e. for patients who stay
in hospital. There is no evidence that these criteria have an impact on the patients
hospital choice, but it can be assumed (Dierks and Schaeffer, 2005).
Patients information sources for hospital choice

The general practitioner is the most important and main source of information
of all patients, who are allowed choose their hospital themselves. Patients are more
sensitive to critical references than to suggestions (Birk and Henriksen, 2012). Pa-
tients prefer verbal information and use written information in addition (Schaeffer,
2006). For decision-making, they use different sources of information, in particular
the sources listed below:
References from the physician or general practitioner
Recommendation, reports, experiences of family members, friends and for-
mer patients
Those are found to be highly relevant to the hospital choice of patients (Schaef-
fer, 2006; Victoor et al., 2012; Laverty et al., 2013). Furthermore, the patients own
experience plays an important role (Laverty et al., 2013).
Elderly people and less educated patients follow the suggestion of the physician.
Comparative information of different healthcare providers is used for treatments
which are planned with a longer time horizon, but the value of such comparative
information is only marginal for patients with less health literacy. Other factors
like the patients own experience are more relevant, i.e. a positive experience with a
provider has positive influence on the future choice (Victor et al., 2012).
Crupp and Geraedts (2011) find in their cross-sectional study that family
members, friends and discussions with the physician are the most important in-
formation sources. Patients use additional information before hospital stays and
participate in information events before treatment. Quality reports are mostly un-
known or are not used for hospital choice. Specific patient groups like pregnant
women search the internet for general information such as diagnosis or therapy
procedures offered.
In 2012, the Swiss health insurance group Helsana asked their clients how they
choose a hospital. The majority followed the reference from general practitioner or
specialist. Other criteria were: short distance to the hospital or recommendation of
family members and friends (Helsana, 2012).
Table 1 gives an overview on literature findings. It shows that patients use mixed
information sources.
Table 1: Patients information sources for hospital choice

References Recommendation
from general and reports of family Own Internet Quality
practitioner members, friends and Experience Search Reports
or specialist former patients
Birk and Henriksen, 2012 x
Schaeffer, 2006 x x
Victoor et al., 2012 x x x
Crupp and Geraedts, 2011 x x x
Laverty et al., 2013 x x x
Helsana, 2012 x x
Total 6 5 2 1 0
Source: Authors research
Criteria for hospital choice: view of patients

Patients most important criteria for choosing a hospital are: quality of care,
cleanliness, standard of facilities and the hospitals reputation, whereas patients
with a lower level of education reported that location and appointment times were
important (Laverty et al. 2013). In 2006, a representative survey on different health
topics was conducted in Germany. Insured persons were asked to rank their criteria
of hospital choice. In this context, 10 criteria were ranked as most important:
qualification of the physicians
cleanliness of the clinic and patient rooms
qualification of the nurses
treatments according to state of the art and best available procedures
friendliness of the staff
patients involvement (shared decision-making between physician and patient)
specific competence of the hospital
satisfaction with the hospital
success rates and complication rates
recommendation through a specialist
Whereas all criteria are considered important, patients mostly have limited ac-
cess to this information. Some information like qualification of personnel or spe-
cific competences of the hospital is available in quality reports of hospitals, but
those play a secondary role as information source (Geraedts, 2006).
Criteria for hospital choice: view of physicians

Physicians who assign patients to hospitals manage patient flows and therefore
regard good communication between hospital and physician as a key factor. Good
communication and high medical competence are fundamental for close collabora-
tion, whereas insufficient communication is one reason for refusing the physicians
collaboration with a hospital. Another criterion influencing the physicians decision
is a specific wish pronounced by the patient during the decision-making process.
Physicians or general practitioners will e.g. offer an alternative hospital if patients
report bad experience made by family members or friends. In general, patients trust
the opinion of general practitioners. If e.g. a patient wants to be treated in a specific
hospital department and the physician offers a better department or a better physi-
cian, the patient will decide for the better option (Borges, 2003).
General practitioners choose the hospital in the name of patient, which means
that the patient delegates the decision. Short distance to the patients residence is
the most important decision criterion reported. Besides this, other criteria are a
good collaboration between hospital/department and general practitioner, a former
stay of the patient in the same department, and the hospital taking the referral seri-
ously. Public information about quality of care or process parameters (like waiting
times) is less relevant. Informal reports from patients or colleagues on information
flow, experiences made with a hospital, collaboration between the hospital/depart-
ment and the general practitioner are also ranked high (Birk and Henriksen, 2012).
Discussion
The implementation of Swiss DRG in 2012 initiated a big transformation in the
healthcare sector of Switzerland. The launch of Swiss DRG and their consequences
are described in detail in literature, e.g. the increasing reorganization of medical
services based on principles of business administration, the reduction of the length
of hospital stay, the consolidation of hospitals, the development of horizontal and
vertical cooperation and the impact of discharge management, the relationship to
general practitioners as well as the enhancement of case numbers (Feuchtinger,
2010; Wiedenhfer, 2007). Acute care patients benefit from Swiss DRG, because
they are allowed choose a hospital for elective treatments, irrespective of the hos-
pitals location.
In Switzerland, only one study investigated patients criteria for hospital choice
and there is no empirical research answering the question whether patients choose
their hospital for elective treatments actively. The topic is highly relevant for hos-
pitals, particularly for economic reasons and long-term survival. At the moment,
hospitals have no systematic reports about decision criteria, information sources,
patient flows or factors, which influence patients decisions. The relevance of this
information will grow in the future, since transparency increases in particular
because of the internet. In Switzerland, patients have access to different informa-
tion platforms like www.spitalinformation.ch. On this platform patients can se-
lect a hospital by region and treatments offered. Quality reports are also available.
For one year the national association of quality development in hospitals has been
publishing a minimal data set on patient satisfaction in the acute care sector. The
benefit and the relevance of this information for hospital choice have not yet been
researched.
Literature findings clearly show that patients use a mix of information sourc-
es. References of the general practitioner or physician, recommendation of family
members and friends are the most important sources. The own experience affects
hospital choice, although it is mentioned only twice (Viktoor et al., 2012; Laverty
et al., 2013). One reason might be that only a small number of patients included
in the sample stayed in a hospital before. Patient characteristics like age, sex, health
status, and the level of education (Viktoor et al., 2012) influence the kind of infor-
mation source used. The level of education (Laverty et al., 2013) also affects criteria
considered important for hospital choice. Criteria reported e.g. for hospital choice
in Germany (Geraedts, 2006) could be relevant in Switzerland as well, but may
be subject to cultural differences and differences in the healthcare systems. Some
studies have limitations in terms of representativeness. For instance Swiss Helsana
asked 5.000 insured persons to take part in their survey, but there is no informa-
tion about the response rate. Another limitation is that all insured persons were
interviewed, i.e. the sample has not been selected according to previously defined
criteria and thus provides mixed results. Patients included in the sample reported
e.g. an emergency admission as a reason for hospital choice which is usually a
situation in which the patient has no choice. Other studies show limitations like
different health care systems and reimbursement systems, access barriers like wait-
ing times and differences in the concentration of health care providers. Examples
for the mentioned limitations are the studies of Schwartz et al. (2005) or Birk and
Henriksen (2012).
Conclusion and Implications for Future Research

Literature analysis helped to identify criteria for hospital choice and informa-
tion sources in other European countries. Apart from the Helsana study, there is no
research in Switzerland. Hospitals are interested in getting more information about
decision-making processes, decision criteria of patients and general practitioners
and the use of hospital information. These data may enhance optimal positioning
and development of future strategies to improve the relationship between the hos-
pital, the physician and the patient. Future research in Switzerland should focus on
qualitative patient surveys in areas with a high concentration of hospitals - that is
where patients have a real choice. The target group of patients should be acute care
patients, ideally with frequent treatments or surgery. Criteria applied by pregnant
women will probably be different from those applied by patients needing ortho-
paedic surgery.
References
1. Beng, M. (2010). Medizincontrolling aus der Sicht der Spitaldirektion. In. Malk, R.
(Hrsg.): Medizincontrolling Schweiz. Eine ganzheitliche Betrachtung der Medizin
im Zeitalter von DRG und Tarmed. Bern, Hans Huber, pp.55-72
2. BFS (2012). Gesundheitsstatistik 2012. http://www.bfs.admin.ch/bfs/portal/de/in-
dex/news/publikationen.html?publicationID=5027 (Accessed November 6, 2013)
3. Birk, H.O. and Henriksen, L. O. (2012). Which factors decided general practitio-
ners choice of hospital on behalf of their patients in an area with free choice of pub-
lic hospital? BMC Health Services Research, http://www.biomedcentral.com/1472-
6963/12/126 (Accessed August 6, 2013)
4. Borges, P. (2003). Zusammenarbeit mit den niedergelassenen rzten - Kommunika-
tion ist der Erfolgsfaktor Nr. 1. http://www.aktiva-gesundheitswesen.de/dl/Kommu-
nikation2003.pdf (Accessed August 6, 2013)
5. Credit Suisse (2013). Spitalmarkt: Die Hoffnung auf mehr Wettbewerb. https://
www.credit-suisse.com/ch/de/news-and-expertise/news/economy/switzerland.ar-
ticle.html/article/pwp/news-and-expertise/2013/08/de/the-hospital-market-hoping-
for-more-competition.html (Accessed August 27, 2013)
6. Crupp, W. and Geraedts M. (2011) Wie whlen Patienten ein Krankenhaus fr
elektive operative Eingriffe? Bundesgesundheitsbl 54 (8), 951957.
7. Coulter, A. and Jenkinson C. (2005). European patients view on the responsiveness
of health systems and healthcare providers. Eur J Public Health 15 (4), 355-360.
8. Dierks, M.-L. and Schaeffer, D. (2005). Informationen ber die Qualitt der gesund-
heitlichen Versorgung Erwartungen und Forderungen der Patienten. In: Klauber,
J./Robra, B.-P./Schellschmidt, H. (Hrsg.): Krankenhaus-Report 2004. Schwerpunkt:
Qualittstransparenz. Stuttgart, New York: Schattauer, pp. 135-150
9. Feuchtinger, J. (2010). Entlassungsmanagement und DRG. In Wiedenhfer, D.,
Eckl, B., Heller, R., Frick, U. (Hrsg): Entlassungsmanagement: Versorgungsbrche
vermeiden, Schnittstellen optimieren. Bern, Hans Huber, pp.37-50
10. Geraedts, M. (2006). Qualittsberichte deutscher Krankenhuser und Qualitts-
vergleiche von Einrichtungen des Gesundheitswesens aus Versichertensicht.http://
www.bertelsmann-stiftung.de/bst/de/media/xcms_bst_dms_20030_20031_2.pdf
(Accessed August 6, 2013)
11. Helsana (2013). Dr. Michael Willer, Einnahmen durch innovative Kooperationen
mit Krankenversichern in den Zusatzversicherungen als Alternative nutzen: Das
Fallbeispiel Helsana. http://www.medicongress.ch/kongresse/2013/Rueckblicke/
Spitalmanagementsymposium_RB2_2013.php (Accessed August 12, 2013)
12. Malk, R., Beth, C. (2010). Einfhrung in das Medizincontrolling. In. Malk, R.
(Hrsg.): Medizincontrolling Schweiz. Eine ganzheitliche Betrachtung der Medizin
im Zeitalter von DRG und Tarmed. Bern, Hans Huber, pp.19-29
13. NZZ (2012). Braucht es noch Krankenkassen-Zustze. Das kostet die freie Spital-
wahl. http://www.nzz.ch/aktuell/wirtschaft/nzz_equity/das-kostet-die-freie-spital-
wahl-1.17597961, (Accessed Oktober 4, 2013)
14. Schwartz, L.M., Woloshin, S. Birkmeyer, J.D. (2005). How do elderly patients
decide where to go for major surgery? Telephone interview survey. http://www.bmj.
com/highwire/filestream/388029/field_highwire_article_pdf_abri/0.pdf, (Accessed
March 17, 2014)
15. Schaeffer, D. (2006). Bedarf an Patienteninformationen ber das Krankenhaus.
http://www.bertelsmann-stiftung.de/bst/de/media/xcms_bst_dms_20028_
20029_2.pdf, (Accessed Oktober 19, 2013)
16. Swiss DRG AG (2012). Ausserkantonale Hospitalisationen. http://www.swissdrg.
org/assets/pdf/Freie_Spitalwahl.pdf, (Accessed August 6, 2013)
17. Universittsspital Basel (2012): Freie Spitalwahl Ist hier drin, was drauf steht
? http://www.unispital-basel.ch/zuweiser/patientenueberweisung/freie-spitalwahl/,
(Accessed June 3, 2013
18. Wiedenhfer, D. (2007) SwissDRG: Qualitt der Spitalaustritte ist bereits mess-
bar. comptence, 04, 22-23.
19. Victoor, A., Delnoij, D. MJ., Friele, R. D. and Rademakers, J. JDJM. (2012).
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cessed August 6, 2013)
774 Martina kov Thorsten Eidenmller
NATIONAL DIVERSITY AT UNIVERSITIES IN SLOVAKIA

Martina kov, Ph.D.1, Thorsten Eidenmller, Ph.D.2
1
Trnava University in Trnava, Faculty of Health Care and Social Work, Slovak Republic,
martina.zakova@truni.sk
2
American University Girne, Faculty of Law, Republic of Cyprus, eidenmueller@eu-edu.de
Abstract
Slovakia is in its history and these days connected with emigration and also with
immigration. It led to clashes and mutual influence of different cultures during
amount of migration flows. Jewish, Hungarians, Roma people, Germans, Croa-
tians, Serbians and other nationalities gradually come to our area. These groups
interacted with one another and together created what is now called Slovak cul-
ture. Of course, migration to our country continues and they create so called new
minorities. (1)
However, we can not say with certainty how many foreigners/migrants are in
our country. Police has only anumber of foreigners/migrants who either applied
for any type of residence or they were stopped as illegal immigrants. 68405 for-
eigners/migrants with legal residence were in Slovakia till 30 June 2013, of who
42876 (62,7%) were citizens from E. U. countries. (2) We can say that appopriate
0,5% from all citizens are residents who do not have our citizenship. (3) 19,3 % of
our country population has another nationality as Slovak. (4)
Next part of our presentation is concered on adescription of study opportu-
nities at universities in Slovakia and there also is the number of foreign students
studing at these schools. (8) We also note some attitude of Slovak high students to
migrants.
Ethnic diversity is anatural part of our of our history and therefore it is neces-
sary to also reflect this.
We consider, it is necessary to pay attention to diversity management in schools
in connection with the above information. In Slovakia, this issue hardly pays at-
tention. In doing research for this presentation, we found that in Slovakia, there
NATIONAL DIVERSITY AT UNIVERSITIES IN SLOVAKIA 775
was realized one research which was, however, focused only on primary schools pu-
pils and an article titled The Diversity of the School Enviroment from ateachers
perspective. Even at the website of Ministry of Education, Science, Research and
Sport of the Slovak Republic, we did not find any information on this issue. We
think this is due to afact that in Slovakia there is still asmall number of migrants
and there is noserious problems in acoexistance of minorities. Hovever, we should
learn from good practice abroad, in order to avoid serious problems.
Keywords: Social Work, Welfare, Education and Welfare
Introduction
This article is devided into three parts. First part is about numbers of foreigners
and migrants in Slovakia. Slovak legislation does not know aterm migrant only
foreigners, in some of oficial data is complicated to identify how many of them are
foreigners and how many are migrants. In this situaton we are using both of terms.
Second part of this article is focused on information about numbers of foreign stu-
dents at Slovak universities and the last part is dedicated to the research, in which
we have investigated, what is an opinion and attitude of Slovak university students
to migrants in Slovakia.
Foreigners/migrants in Slovakia
Slovakia is in its history and these days connected with emigration and also with
immigration. It led to clashes and mutual influence of different cultures during
amount of migration flows. Jewish, Hungarians, Roma people, Germans, Croa-
tians, Serbians and other nationalities gradually come to our area. These groups
interacted with one another and together created what is now called Slovak cul-
ture. Some groups assimilated over time, others will still retain some differencesin
term of belonging to the group. Therefore, today, it can not be said that Slovakia is
acountry of Slovaks.
Of course, migration to our country continues and they create so called new
minorities. (1)
However, we can not say with certainty how many foreigners/migrants are in
our country. Police has only anumber of foreigners/migrants who either applied
for any type of residence or they were stopped as illegal immigrants. Statistics are
published every six months.
68 405 foreigners/migrants with legal residence were in Slovakia till 30 June

2013, of who 42876 (62,7%) were citizens from countries of European Economic
Area. Citizens of third countries participated in the total number of foreigners/
migrants 37.3%, which was 25529. The highest number of third country nationals
camefrom Ukraine (6472), Serbia (3766), Russia (2485), Vietnam (2069), China
(1868), Korea(1574), etc. (2)
Country Number
Ukraine 6472
Serbia 3 766
Russia 2 485
Vietnam 2 069
China 1 868
South Korea 1 574
U. S. 905
Macedonia 622
Croatia 504
Turkey 376
Tab 1: Third country nationals with lawfully residence in Slovakia on 30 June

2013
We must not forget the illegal immigration. For the first half of this year 507
illegal migrants were seized. The most illegal migrants were from from Ukraine
(156), then from Somalia (46), Gruzia (31), Eritrea (30), Moldova (28), etc. (2)
Country Numbers of illegal migrants
Ukraine 156
Somalia 46
Georgia 31
Eritrea 30
Moldova 28
Vietnam 20
Russia 19
Afganistan 14
Pakistan 14
Macedonia 9
Serbia 8
Croatia 7
Kuwait 7
Libya 7
Iraq 6
Kosovo 6
Syria 6
Belarus 5
... ...
Tab 2: Ilegal migrants according their country of origin

More precise data on the number of migrants living in Slovakia were obtained
from data collected during the 2011 Population and Housing Census. According
to this census, there were 0.5% of the population another than Slovak nationality
residents representing 26752 persons. We can say that appopriate 0,5% from all
citizens are residents who do not have our citizenship. (3)
Total resident population SR - 5 397 036
SR total 92,2 %
SR - with multiple citizenship 0,2
Citizenship Others 26752 - 0,5%
No citizenship 0,0
Not specified 7,3
Tab. 3: SR population by nationality (3)
In Slovakia, there are 14 recognized nationalities 80, 7% of citizens are Slo-

vaks. 19,3 % of our country population has another nationality - 8,5% are Hun-
garians, 2,0% - Roma people. (4) But in Slovakia, there are more Roma people,
but only 2% of them written their nationality as Roma into a census form. 0,6% of
citizens has Czech and Ruthenian nationality, etc. In next table you can see infor-
mation about population by nationality according to last three census.
Nationality 2011 in % 2001 in % 1991 in %

Slovak 80,7 85,8 85,7
Hungarian 8,5 9,7 10,8
Roma 2,0 1,7 1,4
Czech 0,6 0,8 1,0
Ruthenian 0,6 0,4 0,3
Ukrainian 0,1 0,2 0,3

German 0,1 0,1 0,1
Polish 0,1 0,0 0,1
Croatian 0,0 0,0 x
Sebrian 0,0 0,0 x
Russian 0,0 0,0 0,0
Jewish 0,0 0,0 0,0
Moravian 0,1 0,0 0,1
Bulgarian 0,0 0,0 0,0
Other 0,2 0,1 0,1
not specifled 7,0 1,0 0,2
Tab 4: Population by nationality (4)
Here we also provide an information on the percentage of the population by

their mother tongue.
Mother tongue 2011 in % 2001 in %
Slovak 78,6 83,9
Hungarian 9,4 10,7
Roma 2,3 1,8
Ruthenian 1,0 1,0
Ukrainian 0,1 1,0
Czech 0,7 0,2
German 0,1 0,9
Polish 0,1 0,1
Croatian 0,0 0,1
Yiddish 0,0 0,0
Bulgarian 0,0 0,0
Others 0,3 0,1
not specified 7,5 1,2
Tab 5: Population by mother tongue (5)
The number of migrants/foreigners in Slovakia is indeed avery low in compari-

son with traditional minorities, but their presence creates the potential for awhole
new type of coexistance. In this way, we consider it is important to pay attention to
how cultural diversity is changing the structure of the company, which has implica-
tions for its function and what causes these changes.
However, migration now assumes the proportions, which has no history. It is
also linked with globalization, through which the world is shrinking. There is
a significant expansion of communication networks, the boundaries of nation-
states gradually lose their importance, which is related to the weakening of the
importance of national identity and the growth of cultural diversity. (1)
Foreigners/migrants at Slovak universities

But we start with information about possibility to study at Slovak universities.
According to the Constitution citizens of the Slovak Republic are entitled to free
education at primary and secondary schools and depending on abilities of the in-
dividual and potential of the society, also at universities . (6) In Slovakia, there are
30 universities, studing in English is possible at 10 of them.
In Slovakia, there are public, private, and state universities. The public universi-
ties are established pursuant to the Act on Higher Education. Private universities
are established by legal entities with registered office in Slovakia upon the state ap-
proval. All universities provide studies in accredited study programs.
An institution, which does not provide higher education, can, however, also
participate in higher education (Slovensk akadmia vied - Slovak Academy of Sci-
ences). (7)
Part-time studies and the study at private universities are paid. Anuniversity
can also require a tuition fee from students, who take longer to finish their study
than its normal length.
In case of foreigners, the school will set the tuition fees and other payments re-
lated to the studies. It may involve a fee for the entry examination, for dissertation,
for the study documents, diploma in a foreign language or a fee for recognition of
foreign educational documents. All above-mentioned fees form an income of the
school. The Rector can lower or forgive the fees, or he can postpone the payments.
The language preparation for the studies can form a so-called Zero level, accord-
ing to the rules, which apply to the specific school. The language courses are run by
theInstitute for Language and Academic Preparation for foreign students.
It is possible to grant scholarships. The rules for granting scholarships are set in
the Edict on Social Scholarships. This Edict applies to Slovak students as well as
foreign students with a legal permanent residence in Slovakia. Based on this edict,
the high student can apply for: a state social scholarship, a scholarship from the
funds of the particular school. (7)
We also list an information on the number of full-time students with slovak
citizenship by their nationality. The 31 October 2012 we have 134747 full-time
university students, the most of them studed at public universities. You can see that
Hungarian students were the second largest group of students in our universities.
This nationality is also the second largest nationality in Slovakia. At this time, here
were only 9 Roma high school students.
Nationality of students of slovak citizenship in full-time study
University Nationality
Czech
Rutha Hunga
Together Slovak Moraw, Ukrainian Polish German Roma Other
nian rian
Silesian
Public 123283 117046 204 106 101 5615 14 34 163
Private 9749 9205 258 9 9 228 1 3 9 27
State 1715 1627 4 81 3
Tab 6: High schools 31 October 2012 full-time study
If we could know more about citizenship of university students in Slovak school,

we can see it in next tables. Information is to 31 October 2012
Students - foreigners Students - foreigners

by citizenship by citizenship
Public universities Private universities
permanent permanent
together residence together residence
in Slovakia in Slovakia
Study I and II degree 4014 239 Study I and II degree 409 38
Afganistan 6 0 Armenia 1 0
Albania 3 1 Bahrain 1 0
Angola 1 0 Belarus 1 0
Azerbaijan 4 0 Bulgary 12 3
Bangladesh 1 0 Finland 3 1
Bosnia and Herzegovina 8 1 France 1 0
Brazil 6 0 Georgia 1 1
Bulgary 5 2 Indonesia 1 0
Czech Republic 410 35 Iraq 1 1
Montenegro 3 0 South Korea 1 0
na 14 0 Canada 1 0
France 30 1 Camerun 1 0
Greece 1051 5 Namibia 1 1
Israel 106 0 ...
Jordan 4 0 Ph. D. study 49 0
South Korea 1 0 Armenia 1 0
Austria 4 0
Canada 6 0
Haiti 1
Kazakhstan 11 3 Cambodia 5 0
Kenya 8 2 Germany 25 0
Kirghizia 3 0 Kenya 4 0
Republic of Congo 1 0 Malaysia 1 0
Lithuania 12 0 Russia 1 0
Latvia 15 3 Somalia 4 0
Macedonia 18 4 Swiss 1 0
... Ukraine 2
Ph. D. study 169 27
Armenia 1 0
Benin 1 0
Bosnia a Herzegovina 1 0
Brazil 1 1
Czech Republic 44 3
France 1 1
Georgia 4 0
Libya 15 2
Serbia 16 2
Sudan 7 0
Vietnam 1 0
....
Tab. 7: Some countries of origin of university students in public and private uni-
versities in Slovakia
And students in state universities by their country of origin we can see in next
table:
Students - foreigners by citizenship
State universities With permanent residence
Together
In Slovakia
Study Iand II degree 7 3
Azerbaijan 1 0
Czech Republic 3 0
Greece 1 1
Serbia 1 1
Turkey 1 1
Tab 8: Numbers of foreign university students at state schools
Numbers of foreign part time students are 486 (59) at public universities I. and
II. grade of study, 608 (28) at Ph. D. study. Situation at private universities was
diferent 4075 (65) foreign students of I. and II. grade of study, foreign Ph. D.
students were 109 (4). State universities, there were 231 (3) foreign students of I.
and II. grade of study and 12 (1) foreign Ph. D. students. (8)
Third part of this presentation is focused on anext reaserch whiach Irealized
with my Ph.D. student. The main goal was to identify the views of the public on
migrants and their integration into our society. Integration of migrants into major
society is important and it was precisely areason why we decided to realize this re-
search. For purposes of this presentation, we have chosen some of the question and
answers of universities` students. It was arepresentative research. Authors evaluated
1120 questionnaires and universities` students were 83 (7,4%) from all of universi-
ties in Slovakia.
We gave statements to our respondents and we wanted to know if they agree or
disagree with these statements. Answers are in next tab:
Definitely Rather Rather Definitely I do not

Statements
agree agree disagree disagree no
Migrants are mostly take jobs 4,80% 28,90% 47,00% 15,70% 3,60%
Migrants and their culture can
enrich us, it is good that they come 9,60% 47,00% 24,10% 6,00% 13,30%
to Slovakia
Migrants occupy jobs that are
financially unattractive and that 6,00% 36,10% 20,50% 12,00% 25,30%
Slovaks do not want to carry
It does not matter where migrants
act, belongs to other cultures and it 2,40% 9,60% 48,20% 31,30% 8,40%
can bring chaos to Slovakia
Migrants are involved in raising 2,40% 25,30% 37,30% 14,50% 20,50%
crimes in Slovakia
Tab 9: Agreement/Disagreement with statements
Universities` students agreed with the statement: Migrants are mostly take
jobs. at least. Whole population rahter disagreed with this statement.
Migrants and their culture can enrich us, it is good that they come to Slova-
kia. Universities` students agreed the most with this statement. Whole population
rather disagreed.
Migrants occupy jobs that are financially unattractive and that Slovaks do not
want to carry the most from whole population disagreed with this statement,
while universities` students the most agreed with this statement.
It does not matter where migrants act, belongs to other cultures and it can bring
chaos to Slovakia the most from whole population rather disagreed with this
statement and universities` students the most disagreed.
Migrants are involved in raising crimes in Slovakia the most respondents rath-
er disagreed, while universities` students the most disagreed with this statement.
How domigrants integrate into our society? %

They should take the culture and traditions of our country and they leave the
original habits of their country 9,60%
They should carefully preserve the culture and traditions of country of their
original and they geared to the culture of our country 1,20%
They should maintain the original culture and habits of their countries of origin
and they also respect the culture and habits of our country 89,20%
Tab 10: Opinions of universities` students for an integration of migrants
On this question, respodents were asked to choose one of three forms, as they
should integrate migrants into our society. With that migrants should take the
culture and traditions of our country and they leave the original habits of their
country agreed 9,6% of students and 1,7% of whole respondents.
18,5% of all respondents and 1,2% of universities` students identified with
the statement that migrants should carefully preserve the culture and traditions of
country of their original and they geared to the culture of our country.
79,1% of all respondents and 89,2% of universities` students agreed with the
statement that migrants should maintain the original culture and habits of their
countries of origin and they also respect the culture and habits of our country.
How do you personaly perceive migrants who came to our country and they decided
In %
to live in Slovakia
Positive 8,40%
Rather positive 26,50%
Neither positive nor negative 56,60%
Rather negative 6,00%
Negative 2,40%
Tab 11: Perceptions of migrants by universities` students
Respondents perceive migrants who came to Slovakia and they decided to live
in our country rather positive than negative while universities` students did not
express astrong position, neutral answers prevailed.
We wanted to know what is the most influenced their attitude to migrants living
in Slovakia. Eight different options they were offered. These options are in next tab:
What is the most influenced your attitude to migrants living in Slovakia %
by culture of their country of origin 26,20%
by ignorance of the culture of their country of origin 10%
by personal expierence with migrants 15,00%
by the number of migrants living in our country 1,20%
by media 16,20%
by public opinion 1,20%
by insufficient information 27,50%
other 2,50%
Tab 12: Influence of universities` students attitude to migrants
An attitude of all respondents and also universities` students to migrants living

in Slovakia was influenced by insufficient information the most and by the number
of migrants living in our country and by public opinion at least.
Would you agree if No, I would not agree Yes, I would agree
migrants lived in your city 4,90% 95,10%
migrants lived in your neigbourhood 9,60% 90,40%
migrants were your close collegues 3,70% 96,30%
migrants became a part of your family 27,70% 72,30%
you received blood from migrants 20,70% 79,30%
Tab 13: Agreement with

The most of all respondents and also universities` students would agree if mi-
grants were their close colleugues or lived in their city . The most of all respondents
and also universities` students would disagree if migrants became apart of their
family and if they received blood from migrants.
The influx of migrants in Slovakia is associated not only with the increasing cul-
tural diversity of the population, but it is also achallenge forpublic policy makers
and the Professional discussion at universities.
We consider, it is necessary to pay attention to diversity management at univer-

sities in connection with the above information. In Slovakia, an attention is not
devoted to this issue. In doing research for this presentation, we found that in Slo-
vakia, there was realized one research which was, however, focused only on primary
schools pupils and an article titled The Diversity of the School Enviroment from
a teachers perspective. This article is also concentrated on a school enviroment
diversity in primary or secondary schools. (9) Even at the website of Ministry of
Education, Science, Research and Sport of the Slovak Republic, we did not find
any information on this issue. We think this is due to afact that in Slovakia there
is still asmall number of migrants and there is noserious problems in acoexistance
of minorities. Hovever, it does not mean, that some problems can be in future and
we should learn from good practice abroad, in order to avoid serious problems.
References:
1. Gallov, E. et al.: Kultrna rozmanitos ajej vnmanie iakmi zkladnch kl na
Slovensku. Bratislava : OSF, 2009
2. tatistick prehad leglnej a neleglnej migrcie v Slovenskej republike. I. polrok
2013. Bratislava : Prezdium Policajnho zboru, rad hraninej acudzineckej pol-
cie, 2013
3. Obyvatestvo SR poda ttnej prslunosti. [online]. [cit. 2012-08-07]. Dostupn
na: http://portal.statistics.sk/files/tab-8.pdf
4. Obyvatestvo SR poda nrodnosti. [online]. [cit. 2012-08-13]. Dostupn na: http://
portal.statistics.sk/files/tab-10.pdf
5. Obyvatestvo SR poda materinskho jazyka. [online]. [cit. 2012-07-31]. Dostupn
na: http://portal.statistics.sk/files/tab-11.pdf
6. Vysok koly na Slovensku vzdelvanie cudzincov. [online]. [cit. 2013-09-03].
Dostupn na: http://mic.iom.sk/en/social-issues/education/60-vysoke-skoly-na-
slovensku-vzdelavanie-cudzincov.html
7. Institution of Higher Education. [online]. [cit. 2012-08-24]. Dostupn na: http://
office.studyin.sk/
8. tatistick roenka vysok koly. [online]. [cit. 2013-08-09]. Dostupn na: http://
www.uips.sk/prehlady-skol/statisticka-rocenka---vysoke-skoly
9. Polakoviov, R.: Diverzita kolskho prostredia zaspektu uiteov. In: Technolgia
vzdelvania, vol. 16, No.9, pp 8-11. ISSN 1335-003X
INTERNATIONALISATION OF THE UNIVERSITY OF PCS, HUNGARY 787
INTERNATIONALISATION OF THE
UNIVERSITY OF PCS, HUNGARY1
Zsuzsa M. CSSZR, Ph.D.1, Gbor CSLLG, Ph.D.2, Norbert PAP, Ph.D.3
1
University of Pcs, Faculty of Sciences, Department of Political Geography, Development and
Regional Studies, Pcs, Hungary, cszsuzsa@gamma.ttk.pte.hu
2
Etvs Lorand University, Faculty of Sciences, Department of Environmental and
Landscape Geography, Budapest, Hungary g.csullog@gmail.com,
3
Regional Studies, Pcs, Hungary, pnorbert@gamma.ttk.pte.hu
Abstract
A new age was opened for higher education with the start of the 21st century.
The number of students studying abroad increased and the process of the interna-
tionalization in higher education began. The best known indicators of these were
the student and the teaching staff mobility. In 2011, the number of the foreign
students was about 4.1 million. This paper conceptually and contextually reviews
the internationalization and examines the characteristics of Hungarian higher edu-
cation, the network of cities and also the numerical and territorial expansion of the
structure of higher education. This paper outlines the competition force nowadays
because of the financial problems and of the applying students declining num-
ber. In this context, the institutions of higher education try to create and form
their trainings to build on international relations. Nevertheless, in this they can
only be effective in cooperation with the cities and there are some cities which
have recognized the advantages of this process, for example, Pcs, the centre of the
Transdanubian region in Hungary, along the border with Croatia. The university
has a significant role in the life of the city and it can be a major factor in the devel-
opment of the new function of the former industrial city. The authors examine the
role of the foreign students in the University of Pcs through educational statistics
1
This paper made after a study was published in Internationalisation of a University the Secret
Weapon for the Development of the Hungarian Provincial City of Pcs, Hungary JOURNAL OF
SETTLEMENTS AND SPATIAL PLANNING 4:(2) pp. 215-225. (2013)
788 Zsuzsa M. Csszr Gbor Csllg Norbert Pap
and through interviews with leaders of the university, and with experts of foreign
affairs. This paper also analyses the national composition of these students, the
spatial structure of their origins and the present foreign students influence on the
development of the city.
JEL Classification: I23
Keywords: higher education, internationalisation, student mobility, University
of Pcs, Hungary
1. INTRODUCTION
1.1. The internationalisation in modern higher education
According to Hungarian and foreign experts in the research of education, a new
age was opened for the higher education with the start of the 21st century. In Hun-
gary, Bercs J. and his colleagues published the results of their research on this topic
in the last years [1], [2], [3]. The main important result in the international bibli-
ography was published in the Project Atlas in 2013 [4]. But the work of R. Brooks,
J. Waters and T. Davis had also a great effect on the research of internationalisation
in modern higher education. [5], [6]. Primarily, the number of the students study-
ing abroad increased due to globalization and the process of internationalisation in
higher education began. According to OECD data [7], in 2010 approximately 3.7
million foreign students were studying in institutions of higher education in vari-
ous countries of the world. In 2011, the Project Atlas (2011) mentioned about 4.1
million foreign students and that number would continue to grow according to the
projections and their number would be up to 6-8 million in the next 10-15 years
[4]. Most of these students are learning in the U.S., in the UK and in France, but
the reception of students significantly increased in Canada and in China, too (the
number of approx. 250,000 incoming foreign students and the outward travelling
mobility of Chinese students are also outstanding).
Hungarian higher education is in a very good position, because it has become
more popular among foreign students considering the mid-European relations [3],
[4]. Each year there is a 5% increase in the number of foreign arrivals. We may be
able to discuss the internationalisation of higher education in so many ways and on
many levels which include the cross-border institutional relations and co-operation
and also student mobility above the national level as the international academic
performance, foreign publications, and research collaborations, the common re-

search projects or educational programs abroad [7].
The best known indicator of internationalisation is student and teaching staff
mobility [1]. Studies supported through scholarships, self-financed training, and
the variety of international participation in exchange programs can be classified as
student mobility. The latter methods most popular form is the Erasmus program
in Europe. In Hungary, most of the research on the topic of internationalisation
focuses on student mobility [8], [9], [10].
1.2. The spatial structure of Hungarian higher education

A strong growth in the number of cities connected to the economic and social
changes started to begin in Hungary after the Regime Change. Every year, more
and more municipalities received a city status, their number increasing from 162
(in 1989) to 346 (in 2013) [119]. However, the hierarchy system of municipali-
ties formed until the 20th century has not changed. Most of the industrial centres,
which were developed in the socialist era, started to decline. The transformation
of the economic spatial structure brought about a serious crisis and sometimes a
significant rate of unemployment in many areas.
In contrast to the previous, socialist management plan, the investments of for-
eign companies mainly formed the regional distribution of the economy in the
nineties [12]. These investments primarily were built on skilled labour, on geo-
graphical location and on the earlier, but not outdated infrastructure. Therefore,
these investments strengthened the position and the advantages of Budapest, of
Central-Hungary, and of Central and Western Transdanubia.
Competition opened up among cities to diversify their functions and they start-
ed to search for a long-term and good position in the rapidly expanding urban net-
work. One of the important means was the expansion of the institutional system of
higher education, because the politics promised a major role for the higher educa-
tion in catching up to Europe and in quickening economic development [13]. This
was reflected in the rapid growth of the number of new students in higher educa-
tion. The existing universities expanded, in many cases, integrations were created,
new (state, church and private) universities and faculties appeared. Institutions of
higher education were settled in many other provincial cities; especially the number
of colleges increased [14]. In most of the cities where there was a small opportunity
for the existence of some level of higher education this was supported by the local
politics, because they saw an important strategic fact in the expansion of higher
education.
Despite this expansion, the national and regional important ratios of higher ed-
ucation have not changed. The dominance of Budapest is still outstanding in both
the number of the institutions and of students. Debrecen and Szeged that could
be considered as the real university cities in the socialist decades because of their sci-
ence and medical universities have maintained or even improved their positions
[15], [3]. The other three regional centres, Pcs, Gyr and Miskolc have made a
serious step forward and they have also used the opportunity to build a similar lev-
elled and sized structure of higher education. All three cities started differently. The
heavy industrial university was developed at Miskolc, to offset the demography and
industry of the city. The process was much more difficult to place at Gyr, although
this was where industrial and economic development could provide a serious back-
ground to the development, but that tradition was missing, which could be a really
important factor in this process in Hungary. Pcs could create its multifunctional
university from a better position than the other cities because of its medical univer-
sities and of other higher educational institutions. So the city of Pcs does build a
regional and a national attraction circle. In addition to the above centres, Kaposvr,
Sopron and Veszprm also have universities with important functions, for example
with a lot of unique faculties.
Nowadays, there are 19 public universities, 10 state colleges, 25 church and
14 private institutions which form this structure [15], [16]. The system of higher
education is very fragmented with many distanced places and stations (fig. 1). In
this structure, we can examine the strengthening of the centres of higher education
of provincial cities (such as Debrecen, Szeged, Pcs, which are intending to fill the
regional role in education and we can notice also the strong central character of the
capital. The colleges which are operating in the medium-sized towns or a placed
unit of another larger institution of higher education can function as the engine of
the town and sometimes as the only local economic power.
From this point of view, it can be stated that the operation of an institution of
higher education in the life of the Hungarian medium and large-sized towns has a
great importance for society and economy.
Scientific papers, articles, various analyses on this topic and the in-depth inter-
views we realized have also confirmed that Hungarian higher education is interest-
ed in receiving a larger number of foreign students. Financial and economic factors
can play a role in this. Otherwise, there is a competition emerging among institu-
tions for getting international students. The presence of these students can mean
serious revenue for universities, especially because of the economic crisis which led
to financial contraction or withdrawal of funds. This can give a life belt to sup-
port the function of the institutions of higher education. Naturally, beside the rev-
enue, it is also important to increase the reputation of the university and to think
about the expansion of international relations. Foreign students living in university
cities play a major role in both economic vitality and cultural diversity, and this fact
also has to be considered. In addition, because of the unfavourable demographi-
cal trends, the number of students getting into the national higher education has
decreased [17] and this loss can be balanced by foreign students. The important
result of internationalisation is knowledge transfer ensured by the foreign students
between the sending country and Hungary. The process has a strategic importance
for the national economy and it can expand and form the basis for the international
relationships of Hungary.
Fig. 1. The spatial structure of the Hungarian higher education: a). no. of stu-
dents; a1). private higher education; a2). church higher education; a3).
state higher education; b). no. of universities and colleges; c). affiliated
faculties.
2. THEORY AND METHODOLOGY
2.1. Pcs in the Hungarian urban network

Pcs is the fifth most populous city in Hungary which has diverse cultural char-
acteristics. It lies south of the Mecsek Mountains, 30 km distance to the Croatian
- Hungarian border, and 40 km to the Danube. Its population is over 150,000,
but it is surrounded also by a ring of urban agglomerations. The city dates back to
Roman times. One of the oldest universities in Central Europe was founded here
by Louis the Great of Anjou in 1367. The first public library of Hungary was also
established in Pcs. During the Turkish occupation, this was the spiritual centre
of this part of the country and it had strong relations to Bosnia. However, its real
Golden Age only started in the 19th century, when coal mining began around the
city and it was followed by a significant industrial development (leather, porcelain,
red granite, musical instruments, and tobacco and food industry). The uranium
mining began in the middle of the 20th century and that had a big influence on
populations growth and on the structure of the city. So the city benefited by these
economic sections and it reached its demographical peak. After the Regime Change
in Hungary, mines were closed and industrial activity largely ceased or dropped off.
Currently, the city is looking for a way to the future. The urban institution
which has the largest budget and which is the biggest employer is its university.
Pcs (fig. 2) lies in a transitional area between the defining spatial structural lines.
Its regional role is evident due to its demographical, institutional, cultural, and po-
litical weight. But its role was questioned for several reasons by the disappearance
and the transformation of the mining and energetic sector, which during the last
decades indicated its development. The switching function (it became a modern
service-industrial centre from the earlier mining-industrial centre) was partly spon-
taneous and partly organized because of the economic difficulties after the Regime
Change. However, the loss of its industrial jobs and its top functions could not be
fully compensated, which was probably the main reason of the current crisis and
sense of crisis there. The city is represented by its state administrative health, social,
educational, cultural, and commercial functions. The evolved retail capacity has
a very important and decisive significance for the entire geographical region. The
educational functions are mainly related to the university, as well as to some of its
high schools.
Fig. 2. The spatial structure of the South Transdanubian region of Hungary: a).
Trieste Budapest Axis; b). Danube Axis; c). Urban Areas; d). Transitional
Areas; e). Peripheries.
The 11 national minorities of the 13 recognized minorities in Hungary have a

minority government in Pcs, supplemented by a number of cultural institutions.
The city is primarily the cultural centre of the Hungarian Germans and Croats. It is
also one of the reasons why Pcs is considered to be one of the most exciting multi-
cultural centres with southern features, characteristics that may create a possibility
for the integration of foreign students.
2.2. Foreign students in Hungarian higher education

For Hungarian higher education, which undergoes considerable transition now-
adays, the internationalisation has a major competitiveness factor. The process of
internationalisation is revalorized due to three factors. Firstly, there is a greater
chance than ever for Hungarian students to study abroad. Another factor is the de-
ferred studying by Hungarian students because of financial factors. The last factor
is the declining number of Hungarian students because of demographical reasons.
This trend can be examined in the developed regions of the world, after the second
half of the 20th century [17]. The United Stated have become the goal country of
the international learning mobility, and then, at the turn of the millennium, the
European universities (primarily the Western European universities) seemed to be
more attractive due to the Bologna reform. Even nowadays, the emerging institu-
tions of higher education of the Asian Region are also wanted [18].
The Hungarian government planned the transformation of higher education as
part of reforming the major social distribution systems in 2012 [19]. One of the
objectives of this reform program was increasing international students number
and after there was a governmental decision about that in April 2013 [20]. Ac-
cording to that decision, the government intended to make bilateral scholarship-
cooperation agreements along the foreign policy priorities and to measure the other
international needs. The preferred countries and regions were defined by the prin-
ciple of taking into account the policy of global opening for eastern governments
[21]. Therefore, for example Azerbaijani, Georgian, the Armenian students or pu-
pils from Africa, South Sudan, China, or from Vietnam as well may get Hungarian
scholarships.
The presence of foreign students in Hungary is not a new phenomenon. A fair
number of students also arrived in Hungarian universities from the developing
world in the time of socialism, primarily for the medical and engineering courses.
After the Regime Change, some new initiatives has been introduced for starting
foreign language courses, especially in the medical and economic fields. In addi-
tion, an increasing number of scholarship seats opened for young Hungarians liv-
ing in neighbouring countries, which provided for their further studies in Hungary.
At the beginning of the 21st century, the accelerated migration with studying goals
also reached Hungary and it increased the number of arrivals of finance for educa-
tional programs [8].
An important element of international student mobility was the international
exchange program and its best known form was the Erasmus program, which as a
European commitment was used by all institutions of higher education in Eu-
rope. In 1997, Hungary joined the exchange program [22]; the number of partici-
pants continued to rise. In 2012, the number of incoming and outgoing students
reached 8,000 people, of which the incoming students were 3,000 people [23].
Most of these students came from Germany, France, Spain, Italy and Turkey.
The largest group of the student mobility was represented by the foreign stu-
dents participating in graduate courses. Their number was constantly growing, in
2012 it was over 20 thousands, and their majority were involved in daily training
(17,112 persons) [23]. We could conclude from the statistics that the number of
the students who were involved into the full-time training continued to increase.
This number was only 11,783 persons in 2001, 18,154 people in 2011, while in
2012 it was 20,146 people.
In addition to the growing number of share, their rate of symmetry also showed
an emerging trend beside a decreasing number of national students. The rate of
symmetry in 2012 was over 7%, while in 2001 it was just 3.4%. According to
statistics [23], more than a third of them matriculated to medical faculties, but
they appeared in the economic courses and also in engineering faculties. They were
also present in the humanities or in teacher training as well as in the social sciences
and in law, especially in the case of through students from without the borders of
Hungary. Analyzing the geographical distribution of the foreign students origin,
more than 72% of them come from European countries. Taking into account the
European sending countries, Germany, Norway, and Sweden were the most impor-
tant; the students from these usually choose medical universities. Arrivals from
other continents showed that Asian students number increased, too. There were
especially students from Iran and Turkey, but the number of Chinese students also
increased. From the other continents, Israel, Nigeria and the U.S. are the major
sending states.
A significant proportion of foreign students (45%) came from neighbouring
countries and with negligible exceptions their mother tongue was Hungarian. Most
of them arrived from Romania (their number was over three thousand) and from
Slovakia, Ukraine, and from Serbia. Their number was constantly increasing, but
their symmetry was decreasing relative to the other foreign students.
According to the examination of Takcs and Kincses (2013) [24], the dominant
part of the Hungarian students from the four cross-border countries mainly chose
Budapest and Pest county as a place for their studies, while a smaller proportion
got accepted to institutions of higher education of micro-regions such as Szeged,
Pcs, Gyr, Sopron, Miskolc, Debrecen and Nyregyhza. The authors indicated
that for the students coming further the capital, Budapest, was the primary goal
[17]. Several studies showed that the majority of cross-border Hungarian students
did not return to their home town after graduating in Hungary, but settled down
in Hungary, though nowadays the Western countries had also an increasing attrac-
tiveness among them.
Most of the foreign students studied at those universities which had a medical
faculty, and we underline the example of the University of Debrecen [1]. If we
compare the rates of foreign students enrolled in the Medical School of Budapest
and in other universities with all the matriculated students, then we conclude that
the largest proportion (49.3%) of foreign students was at the Medical School of the
University of Pcs.
2.3. Methods of analysis

In this study, the role of the foreign students at the University of Pcs was exam-
ined using educational statistics and interviews with leaders of the university, and
with foreign affairs experts. This paper also analysed their national composition,
the spatial structure of their origins and the present foreign students influence on
the development of the provincial city.

Today, the University of Pcs has become one of the leading and most famous
regional universities in Hungary, with a high-quality training along the full spec-
trum of the higher education in its ten faculties. It is one of the largest universities
of Hungary and the knowledge centre of the South-Transdanubia with its almost
24,000 students, and 2 thousands professors and ten faculties (2012 autumn data)
[16). The strength of one the leading research university of the country appears in
its faculties, such as the ones of medicine, of law, of economics, of humanities, of
natural sciences, and of unique fine arts and music education.
3.1. Student and teaching staff mobility at University of Pcs

The University of Pcs provides a colourful training structure among the na-
tional enrolled student, and it has an active participation in the most important Eu-
ropean mobility programs (Erasmus, CEEPUS, Leonardo da Vinci, and Erasmus
Mundus). It has attracted the foreign students participating in foreign-language
training programs since more than a decade. The Erasmus program is the most
popular exchange program to study abroad with due it intent. The University
of Pcs has currently a bilateral agreement with 27 EU countries and with more
than 330 institutions of higher education in subject areas. Similar to the national
average, the number of incoming students has been also increasing at Pcs. In the
academic year 2012/2013, the university has reached the top with 243 foreign
people. This university gets the 4th place in Hungary, but we have to underline that
this means the first place among the institutions of provincial cities. Therefore not
only the capital, but this city is very popular among foreign students, too.
During the interview with the coordinators of the Erasmus program in the Uni-
versity of Pcs, we found out that the foreign students had to fill in a questionnaire
when they arrived and also before their leaving. The information in this question-
naire could provide many lessons for the international relations of the university. In
the last two years that their choice was mainly attributed to the following: former
Erasmus student a family member or a friend or the international/Erasmus Office
recommended this university and they were influenced by the seduction of the city
of Pcs. Their motivation was effected by the claim of learning about the Hun-
garian culture, the positive impression of school, the language of instruction, the
course offer, the level of education, the citys accessibility, the information about the
city, as well as the cost of living.
According to respondents, there were two main elements in their choice to at-
tend the University of Pcs. Firstly, the university offered good education. It had
tradition and in fact it was one of the oldest universities in Europe. A significant
number of respondents related the institution of higher education to the city in
their choice. They usually related to the city through the title of 2010 European
Cultural Capital, when they chose their education at Pcs. The most outstanding
students positive experiences during their stay were the city and its people. They
mentioned the new relationships, and acquaintances with Hungarian and other
ethnic students among their positive experiences.
A statistical analysis of the data showed that most of the students came from
Spain, Germany, France and Turkey (fig. 3). The majority of them chose the cours-
es of the Faculty of Humanities (BTK) and of the Faculty of Economics (KTK).
This was possible because of the good relations between the foreign partners and
the professors of these departments. Otherwise these students could easily latch on
to the foreign language specialist trainings. Finally the special fields of foreign lan-
guage training (Polish, Latvian, Lithuanian, and Slavic Studies) might be attractive
to the arrivals from Poland, Lithuania, etc. In contrast, there was a very low par-
ticipation of them in full-time education at the Faculty of Medicine (OK), which
was the most beloved faculty among other foreign students, but we could see this
example in the entire country.
The number of incoming professors was continually growing after 2000. There
were 530 teachers at Pcs. But this amount is less than the number of the other
three knowledge universities (ELTE, the University of Szeged and the University
of Debrecen). In the case of the teaching staffs mobility professors came from Ger-
many, Finland and Poland. The Faculty of Humanities and of Law was the most
attractive for them.
We have to also mention the CEEPUS connections: there are six operating net-
works at Pcs, but the number of incoming persons is very low. In 2010, there were
10 students and 9 professors from the Czech Republic, Austria, Poland, Slovenia,
from and Romania.
3.2. Undergraduate foreign students at the University of Pcs

The University of Pcs (PTE) has a tradition of educating foreign students. The
general medical training may make a boast of its almost three decades of English-
speaking and one decade of German-speaking full-time training. Some courses on
foreign languages of the Faculty of Economics (KTK), of the Faculty of Law (JK),
and of the Faculty of Humanities (BTK) date back to the 1990s. The university has
had continually cross-border students for more than two decades.
Table 1. Countries sending more than 10 students to the University of Pcs dur-
ing the 2011/2012 academic year.
Country No. of students
The United States 29
Austria 20
Greece 14
Croatia 53
Iran 135
Ireland 11
Israel 26
Japan 39
Canada 28
China 19
Korean Republic 85
Poland 10
United Kingdom 13
Germany 571
Nigeria 19
Norway 225
Italy 11
Romania 44
Spain 59
Sweden 59
Serbia 82
Slovakia 52
Turkey 14
Ukraine 22
Edited by Zsuzsa M. Csszr according to the data of the Educational Directorate of the Uni-
versity of Pcs.
The national data showed that the presence of students studying in foreign lan-
guages focused on a specific field [23]. In particular, their participation was out-
standing in medical training considering the whole country, but they were best
represented in economic courses (in the capital, at the Corvine University). So this
was a big question for the leadership of the University of Pcs: for which disciplines
there was a demand and which high-level foreign language courses would be pre-
sented to the international demand?
The number of international students at the University of Pcs showed a slight
growth compared to previous years, it reached 1,764 persons in the academic year
of 2011-2012. Students from abroad could be divided into two groups. First, there
was a group of students from cross-border neighbouring countries, from the Hun-
garian-speaking areas and, on the other hand, the others were the foreign-speaking
arrivals. The number of candidate students from the former group (from Romania,
Serbia, Slovakia, Ukraine and from Croatia) was of 253 persons according to the
data from October 2011. This was 14.4% of all foreign students. Understand-
ably, most of them came from Serbia (82 persons) and from Croatia (53 persons)
because of their geographical proximity. Most of them studied at the Faculty of
Humanities (BTK) (there were 106 students), the others at the Faculty of Econom-
ics, at the Faculty of Engineering and Information (PMMIK), and the Faculty of
Natural Sciences (TTK).
We compared the cross-border areas attracted by the University of Pcs and the
number of the arrivals with the number to the University of Debrecen and to the
University of Szeged and we noticed an arrearage in some of the countries. It is clear
in the case of Romania and Serbia: students from both countries chose the other
two universities due to their relatively better geographical positions. Although the
proportion of students at Budapest from both areas was high, but in the case of
Serbia, the University of Szeged successfully took up the competition with a high
attraction of the capital and its three major universities (Corvinus University of Bu-
dapest, Etvs Lornd University, Budapest University of Technology). We believe
that some of the young Hungarians from Vojvodina, especially those living in the
western part of the region could be attracted by Pcs with a more effective enroll-
ment policy as this could be achieved in the case of Croatian Hungarian young
people. For many, it may be a surprise that the University of Pcs only wins the one-
third of the students studying in Hungarian higher education from Croatia and the
majority chooses the capital, when Pcs, the city of the university is the closest town
to the country. The factor that the direct rail connection between Eszk and Pcs
is eliminated, also plays a role in that, while Eszk is the centre of this Hungarian
habited region where there is the only Hungarian secondary school in Croatia.
According to 2011-2012 data, the other larger proportion (85.6%) of incom-
ing students for full-time language training came from Europe and from outside
of Europe (fig.4). Germany (571), Norway (225 people), Iran (135 people), Korea
(85 persons) stood out among the sending countries. The number of incoming
students of the named countries was increasing considering the last 4 years, espe-
cially obvious in the case of Iran, from where the students started to come in large
numbers probably because of a well-prepared recruitement for the first time
in 2008, as a result, students presence has tripled during the period. Concern-
ing the geographical distribution of incoming students, Europe was the winner by
far. The two countries mentioned with the largest numbers, in addition, Sweden,
Spain, Italy, Austria, Greece, Great Britain and Poland were sending more than ten
students (table 1). Except for the latter, where the majority of new arrivals studied
at the Faculty of Humanities, while the other students in medical training. It was
clear that the main reason of this choice was the high level and the recognition of
Hungarian medical education level, but we could not forget the cheap cost of living
and the relatively safe environment.
The second biggest interest was from Asia. Not only the Iranian and Korean
students had a large number, but also the Japanese, Chinese, Israeli, and Turkish
students. The expansion of the latter was really spectacular not only in Hungary,
but also in other European countries. They were interested in four different train-
ing fields and the city was one of the important strategic directions during the
recruiting. From the American continent, the biggest interest came from Canada
and from some American states, but it was low (28 persons) and only in medical
training. The African continent was the least affected, there were only some Nige-
rian students in medical training.
Fig. 3. The distribution of students and professors coming in the Erasmus

program by countries, in the academic year of 2011-2012: a). Professors;
b). Students; c). Professors and Students Number. Edited by Zsuzsa M.
Csszr according to the database of the Erasmus Office of University of
Pcs for the academic year 2011/2012.
93.2% of the 1,513 foreign speaking students attended medical training, and
only 18 people of the foreign students arriving with the biggest national represen-
tation in the city chose a different specialty than medical training.. Considering all
the students learning in foreign-language training, most of them studied at General
Medical Sciences (Faculty of Medicine), the others studied at the Faculty of Hu-
manities (63), at Faculty of Economics (30), and at other faculties (1-2). The tra-
ditional Faculty of Economics successfully operated Bachelor and Master courses
in foreign languages. A considerable number of the students were Hungarians who
wanted to get a degree in a foreign language. So the existing capacity could be ex-
panded with foreigners. Giving common degrees among the faculties, started to be
popular and intense and especially the Faculty of Humanities, the Faculty of Law
and the Faculty of Economics initiated this kind of cooperation. We can also set
an example that the education has been placed abroad by a concrete faculty, such
as the Faculty of Medicine and Health Sciences did in Norway and in Germany
(PTE IFT 2012).
The leadership of the University of Pcs gives a major role to the education of
foreign students in its development plans in the academic year 2013/14. It would
like to balance the decreasing number of students because of demographical and
other reasons. All faculties work and focus on this question, and the medical train-
ing is the pattern. The new accepted strategy is to open to Asia, especially to Turkey
and to China.
Table 2. The distribution of Erasmus students at the University of Pcs by

faculties, between 2006 and 2013.
Faculty 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013
JK 6 5 9 11 11 22 22
OK 1 10 10 7 13 9 9
BTK 31 24 36 38 50 68 80
ETK 8 11 10 9 7 7 8
FEEK 4 4 2 14 10 11 3
IGYFK 10 10 3 3 1 4 9
KTK 38 40 55 52 40 59 64
MK 9 9 13 7 8 8 4
PMMK 10 9 13 16 13 22 21
TTK 13 24 9 17 21 13 23
Altogether 130 146 160 174 174 223 243
Edited by Zsuzsa M. Csszr according to the database of Erasmus Office of University of Pcs
The important effect of foreign students presence was that the international
reputation of the institution could strengthen and their international relations also
could expand. We can find examples that real cooperation can take place between
two partners in the Erasmus program and this can result in common research proj-
ects. In fact, it happened when the reputation of the university was taken to the
home countries of the Erasmus students and thus contributed to the growth of the
number of participating foreign students in full-time training in Hungary. Student
mobility which played a major role in the internationalisation of higher education
could support the renewal of a concrete institution and the awakening of the
teaching department towards the quality of education. Of course, it is important to

develop the linguistic competence training. For getting professors interest, medical
training can show a pattern, where they attend to a professional foreign language
preparation and they hold their high quality courses for high wages.
3.3. The city and the university

It can be demonstrated in the case of Pcs, like in other university cities, that the
institution of higher education has a great socio-economic influence on the city.
A large number of students generates positive processes (recovery of economy and
cultural diversity), but also causes some tasks for the university and for the city, too,
like the organisation of transportation, or the building of bike paths, etc. The last
one seems to be resolved in the future in relatively short time. This development
has begun between the Eastern and Western Campus of the city and the centre,
particularly for the safety of cyclist transportation which is favoured by the West-
ern Europeans, especially by German students. For the foreign student studying in
Hungary, we can not only count on the income of school fee, but on significant
national economic revenue. The increasing number of consuming international
students can be the true secret weapon against the economic difficulties with which
the city is struggling.
In 2011, the research at the Medical Faculty of the University of Pcs, coordi-
nated by the sociologists Zsuzsa Fzesi and Laszlo Tistyn [25] made a very impor-
tant discovery about the presence of foreign students, namely, thattheconsiderable
school income increases the revenue of the state and thus it is a major contribution
to the operation of the university. The research found that a fifth of these students
had a local job. The students of the Faculty of Medicine spent 3.8-4.1 billion forints
(13 million euros) over the school fee in Hungary, and mainly in Pcs. This amount
is 400 million forints per month (their presence in the city with the hospital prac-
tice is approx. 10-11 months in a year). This money was spent for education. In
addition, they spent a significant amount on consumer goods, on appearance and
on fashion (clothing, body care, hair stylist etc.), on safeguarding their health, on
recreation (sports), on entertainment, on travelling (going home, excursions), on
transport in Hungary and on communication (internet, phone). The fact that the
city centre and the part of the city next to the Medical School expanded with some
clubs, sport facilities and services as cosmetics, etc. could be interpreted as the effect
of foreign students presence [18]. The university campus, the city centre and the
frequented ecsek mountains were the only areas of the city where recently some
new constructions and buildings appeared. The apartments and the villas served
the increasing and exacting demand. Foreign students bought the equipment for
these apartments, primarily the technical articles in the commercial units of the
city. The foreign students became some of the most important customers of the
biggest shopping centre of Pcs. The taxi-services benefited seriously from these
students (around 2,000 persons). Finally, we cannot forget that the GDP growth is
not only an advantage for the city but for the state, too, because, for example, every
fifth student has and keeps a national workplace [19].
Fig 4. The foreign students distribution according to countries at PTE

(2011/2012). 1: Students are not from these countries; 2: 1- 5; 3: 6-10; 4:
11-50; 5: 51-100; 6: 101-500; 7: Above 500; Edited by Zsuzsa M. Csszr
according to the data of the Educational Directorate of the University of
Pcs.
4. CONCLUSION
The foundations and building of institutions of higher education, which are
not always rationally implemented because of local interests and political forces,
cost a lot and sometimes cannot be realized only with private investors in Hungary.
Nevertheless, this was less of a burden for the country, than to finance continu-
ously and on a long-term the operation of these institutions and the paying back
of the credits. Because of the economic crisis, after 2008, the rationalization of the
structure became a more relevant question, but it seemed hardly feasible because of
the diversified political and social consequences of the terminations of institutions.
Most institutions and local policy together tried to find a way out of this situation.
The major universities of bigger cities have a better chance, because their attraction
is wider, their training is based on long-term, on traditions which are more durable
and they have a greater proportion of qualified professors than other universities
[19]. Therefore, these are more suitable for extending the foreign language trainings
and for attracting the solvent foreign student, consequently, also for the force of
competition by the external international factors and political leadership.
Finally, higher education really needs this, because the decline of the number of
the Hungarian students can be balanced by the growth in the number of foreign
students. The leadership of bigger cities is also interested in this, because the foreign
students presence might cause economic and social development and vitalization,
which can help to get a central function in the competition among cities and also
to avoid decline. The case of Pcs might be a really good example where the uni-
versity, which can keep a larger number of students, consciously builds that kind
of training which focuses on foreign students. All this is well illustrated in the case
of Pcs, where the relatively large-sized university consciously builds up this kind
of training.
We can conclude that the foreign students presence at the University of Pcs in
Hungary can be considered a serious factor. Their number has intensively increased
in recent years, and with the participants of the exchange program has reached
2,000 persons. If we study the world map we notice the large geographical area
from which students come. Most of them arrive from Europe, and particularly
from Germany, due to the historical and economic relations and traditions among
these countries. There is a large number of foreign students who are Hungarians
living in neighbouring countries, even though there is a lot of unused items in their
case like to relating and attracting them to Pcs. Finally, we can see the Asian pres-
ence of foreign students in Hungary, especially from Iran, and this area has large
reserves for Hungarian higher education, including for the University of Pcs. The
greatest winner of the foreign students presence is the city itself, which can hope
of a certain financial source, approximately 4 billion forints per year. In addition,
their presence has also an influence on the estate business, on trade, on services and
on the development of transport.
5. ACKNOWLEDGEMENTS
Interviews with Gyula Zeller DR, the strategic Vice Dean of the University of
Pcs; with Attila Lengvrszki, the Educational Director of University of Pcs; with
Judit Nmeth, a Coordinator of the Educational Direction of PTE; with Gyngyi
Pozsgai, the Director of the Department of International Relations of PTE, and
with Ella Kajdy lmosn, the Director of the International Studies Centre.
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the Erasmus) Available at: http://www.tpf.hu/pages/subpage/index. php?id=936&page_
id=. Last accessed 2013. 12. 20.
[23] Oktatsi Statisztika vknyv 2011/2012 (Yearbook of Education 2011/2012),
Available at: http://www.kormany.hu/download/8/f9/b0000/Oktat%C3%A1si_%C3
%89vk%C3%B6nyv_2011_2012.pdf.- last accessed 2013. 05.14, Last accessed: Sep-
tember, 20, 2013.
[24] Takcs, Z., Kincses, . (2013), A Magyarorszgra rkez klfldi hallgatk terleti
jellegzetessgei, In: Terleti Statisztika vol. 53. issue 1. (The Areal Characteristics of the
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pest, Hungary, pp. 38-54.
[25] Fzesi, Zs., Tistyn, L. (2013), Az egszsggyi felsoktatsban tanul klfldi dikok
az egyetem s a vros letben, In:M. Csszr Zsuzsa, Kurth G, Mayer L, Farkas Gy, Plfi
M (ed.): A felsoktats terleti dimenzii, avagy oktatsfldrajzi vizsglatok a hazai s
a nemzetkzi trben (Foreign Students in Medical Higher Education in the Life of the
City and the University, In: M. Csszr Zsuzsa, Kurth G, Mayer L, Farkas Gy, Plfi M
(ed.): The Areal Dimension of Higher Education, Analysis of Education Geography in
the International and in the National Area), Pcsi Tudomnyegyetem, pp. 18-24.
[26] Makkai, B., Gyre, J. (2012), Coexistence of Different Social Groups around One of
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Maribor, Slovenia, pp. 99-111.
LAW
AND
ECONOMICS
ECONOMIC ANALYSIS OF LAW: CRIMINAL OFFENSES AGAINST PROPERTY 811
ECONOMIC ANALYSIS OF LAW: CRIMINAL OFFENSES

AGAINST PROPERTY
(Larceny and aggravated larceny)
Pavao Gagro, LL.M.1
1
Notary office Ruzica Gagro in Valpovo, Republic of Croatia, pavao.gagro@os.t-com.hr
Abstract
The aim of economic analysis of law is to analyze the legal system by applying
economic theories and methods. Economic analysis of law can greatly contribute
to the efficiency and effectiveness of the legal system. The points of contact between
law and economics, the impact of economics on the legal system and the brief his-
torical review of the origins of interdisciplinary economics and law are presented
in the introduction of this paper. Furthermore, economic methods applied in the
analysis of law will be listed and presented indirectly through the analysis of crime
offenses against property - larceny and aggravated larceny. The analysis will be based
on statistical data and a theoretical example, and finally the theory of compensation
of total damage caused will be presented as economization of sanctions imposed.
JEL classification: K11, K14
Key words: economic analysis of law, criminal offenses against property, lar-
ceny, aggravated larceny, compensation of total damage incurred, sanctions
1. Introduction
Close connection of social sciences of law and economics is reflected in the fact
that the legal standards that govern different areas of labour (labour law), property
( Law on Ownership and Other Property Rights ), agreements (Civil Obligations
Act) , offenses ( Criminal Code ) very often have an impact on the distribution of
goods. In the same way, the economic science by applying its methods can positively
influence and contribute to solving legal problems and institutions. Interdisciplin-
ary cooperation of law and economics can greatly affect the economic security and
efficiency and rationality of the judicial system and law enforcement. An example
812 Pavao Gagro
of the impact of the economy in the legal system is reflected in Article 10 paragraph
1of the Civil Procedure Act: The court is obliged to conduct the proceedings without
causing any delays, within a reasonable time, and with the minimum of costs, and pre-
vent any form of abuse of rights in the proceedings (Principle of efficiency)1
As early as in the 18th century British philosopher and reformer judicial system
Jeremy Bentham developed a philosophical idea and moral system based on the
idea that man is a rational and selfish creature , and aims to achieve maximum
benefits . His ideas are based on the fact that the legal sentences should be such as
to prevent individuals from committing illegal acts . Long after Jeremy Bentham
, in the 20th century , new authors emerged who e continued to develop inter-
disciplinary collaboration of legal and economic sciences ( Ronald Coase , Guido
Calabresi).Economic analysis of law can greatly contribute to faster operation
of the judicial system in terms of reducing the number of old cases, the efficiency
of judicial processes (reducing costs) , faster resolution of cases ( abandonment of
certain archaic formalities) , reducing the number of criminal offenses committed.
In this paper I will focus my attention on criminal offenses against property, and
will analyze them theoretically.
2. Methods
Economics tries, with the help of its methods, to predict the impact of various
changes (in this case, I think of the impact of legal sanctions) on the behaviour
of people. Different types of court proceedings can also be analyzed in terms of
economics. In the analysis various economic theories and methods are used (maxi-
mization, balance and efficiency, the theory of choices and benefits, the theory and
curve of supply and demand, the price elasticity of supply and demand, the price
theory, the game theory, statistics, Pareto efficiency). The interdisciplinarity of law
and economics aims to predict the impact of legal sanctions on behaviour.
Economics tries, with the help of its methods, to predict the impact of various
changes (in this case, I think of the impact of legal sanctions) on the behaviour
of people. Different types of court proceedings can also be analyzed in terms of
economics. In the analysis various economic theories and methods are used (maxi-
mization, balance and efficiency, the theory of choices and benefits, the theory and
1
Official Gazette no.: OG53/91, 91/92, 58/93, 112/99, 88/01, 117/03, 88/05, 02/07, 84/08,
123/08, 57/11, 148/11, 25/13
curve of supply and demand, the price elasticity of supply and demand, the price
theory, the game theory, statistics, Pareto efficiency). The interdisciplinarity of law
and economics aims to predict the impact of legal sanctions on behaviour.
Coase examines the efficiency as an expected and realized impact of a particular
legal system, law or legal institution. Efficiency is described as the ratio between the
total beneficial effects (cost), changes in law and the total cost. 2 (Coases theorem).
3. Criminal offenses against property (Larceny and aggravated larceny)

Criminal offenses against property are listed in Chapter XXIII of the Criminal
Code3 and they involve: larceny, aggravated larceny, robbery, larceny by coercion,
embezzlement, unauthorized use of other persons movables, malicious mischief
other persons property, fraud, unauthorized game of chance, misuse of insurance,
misuse of a check and a credit card, misuse of trust, violation of other persons
rights, usurios contract, extortion and concealing.
According to statistics, the share of criminal offenses against property in relation
to all other criminal offenses in the period of 2002 2011 amounts to 56.5%4,
of which larceny accounts for 17% and 29.1% to aggravated larceny, respectively.
As criminal offenses and aggravated offenses (46.1 %) account for a large portion
of total criminal offenses committed in the Republic of Croatia during the above
9-years period, it is interesting to analyze these criminal offenses.
4. Legal description of criminal offenses and stipulated sanctions

4.1. Larceny
Whoever takes away the movable property of another with an aim to unlawfully
appropriate it commits the larceny5 and shall be punished by a fine or by imprison-
ment for six months to five years.If the stolen property is of small value and the
perpetrator acts with an aim to appropriate the property of such value, he shall be
punished by imprisonment up to one year.
2
Dea Milkotin Tomi, Ana ega: Ekonomska analiza prava: razvoj i aktualnost, page 369
3
Official Gazette125/11 and 144/12
4
Pregled osnovnih pokazatelja javne sigurnosti u Republici Hrvatskoj 2002.-2011. Ministry of Inte-
rior of RoC
5
Article 228 of the Criminal Code, Official Gazette 125/11 i 144/12
814 Pavao Gagro
4.2. Aggravated larceny

Aggravated larceny6 includes the larcenies committed:
a) by breaking in, entering by force or otherwise overcoming great obstacles in
order to come to property within closed buildings, rooms, safes, wardrobes
or other closed rooms or enclosed areas;
b) in a particularly dangerous or particularly brazen manner;
c) by taking advantage of conditions caused by a fire, flood, earthquake or an-
other calamity;
d) by taking advantage of the helplessness or some other particularly difficult
situation of another;
e) if the stolen property is of great value;
f ) if weapons, ammunition, missiles, mines and explosive devices, combat unit
or parts of combat unit that serve the needs of defence are stolen;
g) if the stolen property is used for religious purposes or if the property is stolen
from a church or other building or room serving for the practice of religion;
h) if a piece of cultural heritage, or an object of scientific, artistic, historical or
technical significance is stolen, or the stolen property is included in a public
collection, a protected private collection, or is exhibited to the public;
i) if the perpetrator has in his possession a weapon or dangerous instrument for
the purpose of attack or defense;
j) as an official when performing his duty or public powers;
Imprisonment for one to eight years shall be inflicted on a perpetrator who
commits an aggravated larceny .
5. Statistics
Despite the amount of prescribed punishment stipulated for offenses of larceny
and aggravated larceny which became even stricter in the observed period (2002 to
2012), statistical data show that number of these offenses has not decreased.
6
Article 229 of the Criminal Code, Official Gazette 125/11 i 144/12
Table 1 Criminal offenses reported from 2002 to 20012

Criminal offenses reported from 2002 to 20012
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Larceny 12,867 14,421 15,085 13,807 14,231 13,400 13,069 12,378 13,296 15,208 16,090
Aggravated larceny 24,922 26,089 28,665 23,532 22,546 21,181 19,303 18,777 20,128 21,282 21,527
Source: Basic indicators of public safety in the Republic of Croatia 2002.-2011, Ministry of
Interior of the Republic of Croatia
According to statistical data of the Croatian Bureau of Statistics, Statistical Year-

book, in 2010 total of 4,024 (1754+2270) persons were convicted for larceny and
aggravated larceny, of which 3,967 ( 1730+2237) were sentenced to imprisonment,
a conditional sentence was applied to 2731 (1348+1383). It shows that conditional
sentences account for 68.8%.7
Table 2 Convicted perpetrators of criminal offenses larceny/aggravated

larceny and pronounced sentences
Total convicted Imprisonment Conditional sentence
Larceny 1,754 1,730 1,348
Aggravated larceny 2,270 2,237 1,383
Total 4,024 3,967 2,731
Source: State Bureau of Statistics of the Republic of Croatia: Adult perpetrators of criminal of-
fenses reports, accusations and convictions in 2010
6. Analysis
A perpetrator of criminal offense larceny/aggravated larceny acts with the aim
of unlawfully appropriation of other persons property. This reflects the perpetra-
tors intention to increase own benefit at the expense of someone else. The stated
aim of the perpetrator, in most cases, is preceded by his state of scarcity and the
need for certain goods. The situation of scarcity of an individual is reflected as a
consequence of the post-war crisis in the Republic of Croatia as well as the current
international crisis, which has additionally affected the economy of the Republic
of Croatia.
7
State Bureau of Statistics of the Republic of Croatia: Adult perpetrators of criminal offenses reports,
accusations and convictions in 2010, page144.
816 Pavao Gagro
Taking into account that each individual is trying to think rationally, it can be
said that the perpetrator of the criminal offenses also thinks rationally and makes
efforts to maximize his benefit through realization of a criminal offense. Namely,
the collected statistical data show that the number of criminal offenses did not
decrease through the observed period 2002 to 2012 g despite stricter criminal sanc-
tions available by amendments to the Criminal Code. It can be concluded that
amendments of the Criminal Code relating to punishing the perpetrators were not
successful. If the penal/legal sentence (imprisonment) is considered as the price for
the committed criminal offense, it can be said that the price increase has not led to
reduced demand (did not influence on the reduction in the number of offenses of
larceny /aggravated larceny). From the point of view of perpetrators of criminal of-
fenses larceny /aggravated larceny (taking into account that they think rationally),
larceny is the easiest way to get money and valuable material resources. According
to the presented statistical data, they are not exposed to great risk because almost
70% of detected perpetrators are punished only by suspended sentence. Such pun-
ishment to perpetrators is not effective in educational terms because the number
of recidivists is increasing. From the above it can be concluded that the sanctions
imposed are inefficient.
In commission of a petty larceny (value of a stolen item to kn 1,000.00) the
prosecution is left to a private plaintiff. From the point of view of a private plaintiff,
a private claim is not payable (the plaintiff has costs that rarely can be collected, and
he fails to return the stolen item, especially if it is in the form of money).
6.1. Example analysis

If an example of aggravated larceny is analyzed which is committed by a perpe-
trator with no job and no property who broke the door and broke into a safe and
took kn 150.00 repeating similar offense several times, it can be finally concluded
that commitment the criminal offense is profitable for him. Such perpetrator will
never compensate for the damage caused to victims. In addition to stolen money,
he also caused a material damage to the victims by breaking, and he also caused
high costs of legal proceedings and other proceedings to find him, and finally, when
he is imprisoned the burden will fall on the state budget . Sending the perpetrator
to jail will not indemnify the victims nor will compensate the costs of his prosecu-
tion, the perpetrator will represent an additional cost to the state budget. Because
the perpetrator has no property or income, either damage could not be collected
from him or the proceeds of the criminal offense could be taken from him ( money
is spent immediately or it is difficult to be found)
Pursuant to the Execution Of Prison Sentence Act (Article 7) Inmates shall not
bear costs of the execution of prison sentence, and they shall not have to pay the
fees for submissions, official actions and decisions related to the application of this
Act (Official Gazette no.: 128/99, 55/00, 59/00, 129/00, 59/01, 67/01, 11/02,
190/03, 76/07, 27/08, 83/09, 18/11, 48/11).
The Report of the Ministry of Justice on the work and the condition of peniten-
tiaries, prisons and correctional institutions in 20118 shows that, the average cost
per prisoner is kn 283.16 per day compared to total expenses. The same Report
shows that the largest proportion of inmates is those who have committed criminal
offense against property (33.7%).
If we compare the data from the Report of the Ministry of Justice on the work
and condition penitentiaries, prisons and correctional institutions for the 20109
and data presented in section 3 it can be concluded that the largest share of the
prison population consists of perpetrators of criminal offenses of larceny and ag-
gravated larceny.
7. Theory of compensation of total caused damage

Pursuant to Article 54 of the Criminal Act, the court may at the same time
decide that such punishment, with the consent of the convict, be replaced with
community service. In this manner the purpose of punishment can be achieved and
other more useful way. Community service shall be at freedom is determined for
a minimum of ten to a maximum of sixty working days depending on the imposed
imprisonment. By community service the perpetrator of the criminal offense will
not indemnify the affected persons but he will replace the pronounced sentence
of imprisonment, however, the issue of the damage he caused to affected persons
remains and the question arises regarding the level of usefulness of such work.
Theory of compensation of total committed damage would be based on perfor-
mance of public works by a convict, and thus the convict would not work his im-
prisonment, but he would have to work for total damage he caused by the criminal
offense of larceny or aggravated larceny . In this way, the purpose of punishment
8
http://www.mprh.hr/izvjesce-o-stanju-i-radu-kaznionica-zatvora-i-odgo
9
http://bs.scribd.com/doc/83531567/9/Struktura-zatvorenika-prema-dobi
818 Pavao Gagro
would be raised to a higher level since the convict would pay off the damage by
money (he would return the stolen money or the monetary equivalent of stolen
property to the affected persons, and settle the court and other costs). The convict
would be actually employed in public works for which he would receive a salary
from which the affected persons would be indemnified as well as the costs of the
proceedings.
This way of compensation of damage would have much stronger effect on the
re-socialization and reintegration of the convict than imprisonment, and pur-
pose of punishment stipulated by Article 4110 of the Criminal Cod would be fully
achieved.
According to this theory, the guilt and the total damage made would be estab-
lished in the criminal proceedings, and not the sentence of imprisonment and the
convict would be sent to work instead to the prison.
It opens a possibility of co-financing of local and regional self-governments by
the state through labour force for public works. For example, instead of engaging
expensive working machines in public works, these works can be performed by
convicts who would receive for their work from local or regional governments cer-
tain (symbolic) remuneration that would be paid to his victims and for other costs
of proceeding. In this manner both local and regional governments would benefit
as the price of public works would decrease significantly. In this manner the maxi-
mization of efficiency and legal norm would be achieved, and the price of commit-
ting the criminal offense of larceny/ aggravated larceny would be high which would
surely significantly influence on reduction of committing these offenses and the
efficiency of the legal system would be significantly increased.
According to the theory of games the risk for potential perpetrators of a criminal
offense of larceny would be much higher than it is now. If convicted for the crimi-
nal offense, he invests what he does not want to invest to get a profit (earning) at
all costs i.e. his personal work. Thinking rationally, a potential perpetrator would
rather choose honest work than to commit a criminal offense.
10
The purpose of punishment is to express social condemnation for a criminal offense, to strengthen
the public confidence in the legal system based on the rule of law, influence the perpetrator and
all others not to commit crimes through raising awareness of the danger of committing criminal
offenses and justice of punishing and allow the perpetrator reintegration into the society. Official
Gazette 125/11 and 144/12.
8. Conclusion
According to statistics presented for the observed 10-year period it is obvious
that in the Republic of Croatia criminal offenses committed against property, i.e.
larceny and aggravated larceny are the most committed offenses.
It is clear that the perpetrators of criminal offenses are rational and want to
maximize their benefits by selecting to commit the offenses of larceny or aggra-
vated larceny. The above criminal offenses are the most suitable to get money or
other material benefits in easy and quick manner. At the same time, perpetrators
- recidivists , having the experience regarding the ineffectiveness of legal protec-
tion (sanctions) reduce the risk of committing a criminal offense to imposing a
suspended sentence. Although the Criminal Code enables that the judge replaces
the imprisonment with community service, it does not compensate the damage to
affected persons or other expenses ( of investigations, arresting, criminal proceed-
ings ) . On the contrary, if the convict is sentenced to imprisonment the damage
resulting from committing a criminal damage offense is increased by the costs of
prison accommodation.
In order increase the efficiency of legal protection and to reduce the number of
perpetrators of larceny and aggravated larceny it is necessary to make the sanction
more stringent. Tightening up the sanction should not be based on raising their
imprisonment sentence since the imprisonment represents a financial burden to
the society. Instead of its the model of compensation of total compensation damag-
es caused by the convict through the execution of public works should be applied.
Perpetrators of criminal offenses- larceny and aggravated larceny should experience
a public condemnation which should be based on the re-socialization and overall
compensation for damage caused by a criminal offense.
References:
a) Books and trade journals
1. Barkovi Ivana, Ekonomska analiza prava: mogunosti i ogranienja, Pravni vjesnik
2009, broj 2
2. Milkotin Tomi Dea, ega Ana: Ekonomska analiza prava: razvoj i aktualnost, page.
369, Zbornik Ekonomskog fakulteta u Zagrebu, Vol. 4 No. 1 December 2006
3. Shavell, S.: Foundations of Economic Analysis of Law, The Belknap Press of Harvard
University Press, Cambridge, Massachusetts, London, 2004
820 Pavao Gagro
b) Laws and regulations

1. Kazneni zakon: Narodne novine 125/11 i 144/12
2. Zakonu o izvravanju kazne zatvora: Narodne novine broj: 128/99, 55/00, 59/00,
129/00, 59/01, 67/01, 11/02, 190/03, 76/07, 27/08, 83/09, 18/11, 48/11
3. Zakon o parninom postupku: Narodne novine broj 53/91, 91/92, 58/93, 112/99,
88/01, 117/03, 88/05, 02/07, 84/08, 123/08, 57/11, 148/11, 25/13
c) Internet sources
1. http://www.mup.hr/UserDocsImages/statistika/2012/javna_sigurnost_02_11.pdf
Pregled osnovnih pokazatelja javne sigurnosti u Republici Hrvatskoj 2002.-2011.
Ministarstvo unutarnjih poslova Republike Hrvatske (accessed 7.3.2013.)
2. http://www.dzs.hr/Hrv_Eng/publication/2011/SI-1451.pdf Dravni zavod za statis-
tiku Republike Hrvatske: Punoljetni poinitelji kaznenih djela, prijave, optube i
osude u 2010. page144. (accessed 7.3.2013.)
3. http://www.mprh.hr/izvjesce-o-stanju-i-radu-kaznionica-zatvora-i-odgo (accessed
7.3.2013.)
4. http://bs.scribd.com/doc/83531567/9/Struktura-zatvorenika-prema-dobi (accessed
7.3.2013.)
PRINCIPLE OF FAIRNESS IN REGARD TO PERSONAL INCOME TAX 821
PRINCIPLE OF FAIRNESS IN REGARD TO

PERSONAL INCOME TAX
Renata Peri Ph.D.1, Emina Jerkovi, Ph.D.2
1
Republic of Croatia, rperic@pravos.hr
2
Republic of Croatia, ekonjic@pravos.hr
Abstract
Any tax that achieves the desired and anticipated economic impact may
be considered fair. Croatian positive tax system is justified by the Constitution
which states that everyone must participate in the settlement of public expenses
in accordance with their capabilities. Accordingly, the tax system is based on the
principles of fairness and equality, therefore taxation should be the least property
limitation. Tax on personal income is the instrument of tax policy that with its
inevitable fiscal objective has a much more important objective of a social nature-
alleviate regressivity of VAT. Most financial scholars, lawyers or economists,
agree that the principle of fairness is tried to be put into practice just by applying
progressive tax rates on income. In some counties of Eastern Europe though, a flat
personal income tax system has been introduced, also in order to increase the level
of fairness. Thus this paper analyses personal income tax system, by focusing on
the different types of income, tax base, tax rates and tax credits. The other issue
of taxation that is scrutinized is the formation of an optimal tax burden, which
means a continuous balance searching. This procedure and the related arguments
are presented in this paper.
JEL Classification: D14, K10, K34
Key words: personal income tax, fairness, progressive tax rate, flat tax rate, tax
burden
822 Renata Peri Emina Jerkovi
1. Introduction
Croatian positive tax system is justified by Article 51 of the Constitution which
states that everyone must participate in the settlement of public expenses in accor-
dance with their capabilities and that the tax system is based on the principles of
fairness and equality. The notion of fairness is difficult to define due to its abstract
nature. History has shown us that the concept of fairness extremly changes with
passing of time and that each historical period has its own vision of fairness. There-
fore it is impossible to determine the general definition of the term that has been
elusive. So to the question whether a tax is fair or unfair we have no correct answer
that would be based on some generally accepted principles. Tax practitioners, how-
ever, whether they are lawyers or economists, do not attach any special meaning to
the concept of fairness.
In fact, any tax that achieves the desired and anticipated economic impact they
consider fair. (Lonari-Horvat, 2010, 182) However, most financial scholars,
whether they are lawyers or economists, agree that the principle of fairness is tried
to be put into practise just by applying progressive tax rates on income.
One of the most important and most present division of taxes is the one that
separates direct and indirect taxes. When it comes to direct taxes redistribution role
is possible because the concept of progressivity is not applicable when it comes to
indirect taxes. One of the most important direct taxes is personal income tax which
is in most developed countries one of the most fiscally abundant tax and the tax by
which progressive taxation is introduced in tax systems. Tax on personal income is
the instrument of tax policy that with its inevitable fiscal objective has a much more
important objective of a social nature-alleviate regressivity of VAT.
2. Concept of fairness
Whether a tax regime of a country is fair or effective, depends on the applicabil-
ity of the principles, proportionality, progressivity, and the exemptions provided.
(Deak, 1997, 317) The analysis of the rule of fairness in tax law should begin with
the definition of fairness itself. The concept of fairness alludes to the social, legal,
political order, which we collate with extant relations, often with a critical aim.
That contains such ethical principles and rules, which could accede to form the cor-
rect order of human coexistence. In relation to tax law this means that we should
locate the tax burdens to the members of society, fairly and in consideration of their
tax ability. (Peri, Szilovicz, 2011, 307) Financial theory has concept of fairness in-
terpreted in accordance with two principles: principle of usefulness and principle of

tax power. These principles are used by economists in their attempt of justification
and realisation of rational tax system. Proportional lay out of tax burden (in accor-
dance with individual tax power) derives from comlete tax system. Certainly, the
most important role goes to taxation of employment income, which also encloses
other types of income, aswell as an answer which part of income is to be spent and
which part is to be spared.
Contemporary thesis on tax fairness show that the public interest for these type
of questions is declining. The clasical term of tax fairness is shifted from the sphere
of allocation of tax burden to the care of how will tax revenue be spend. The de-
crease of interest for the principle of fairness is understandable, because citizens
perceive tax system as unclear, tax payments are absract, and awareness of public
consumption (how the revenue will be spend) becomes more important area of
public interest.
Question of fairness is not related to any specific structural principlethat would
aplly only to taxes. First and primary goal of taxation, that is achieved by actually
paying taxes, is to secure the state financial means for coverage of public expendi-
ture. However, it has often been accented, that this fiscal goal should cede its place
to another, equally important goal- just allocation of tax burden. (Lonari-Horvat,
2010:187)
Fairness does not mean that income is taken away from the rich and given to the
poor; it rather means that it should not create inequalities and additional problems
in society. Accordingly, justice and fairness mean at least that the government deter-
mines the tax levels with self-restraint and limiting itself to the necessary minimum
and distributes them equally to the sections of society, while putting them into an
ethical, transparent, and efficient use with the help of the principles public finance.
(Wagner, 2007, 200) This would be the full-value definition of fairness-accuracy.
Most financial scholars, lawyers or economists, agree that the principle of fair-
ness is tried to be put into practice just by applying progressive tax rates on in-
come. Recently, however there have ben rapid swerve when it comes to progressive
taxation of personal income. A great number of countries, primarily countries of
Eastern Europe and Central Asia, have implemented flat rate income tax into their
tax systems.
Within the flat tax system, all the groups and taxpayers of the society take part
the same rate in contributing to public funds irrespectively of their amount of
income. Obviously their nominal contribution differs, and the rich pay more, but
the same proportion, which might sound fairer than taking more proportion of
their income. This could lead to a more balanced and proportionate tax payment
system: the taxpayers of higher amount of income pay more anyway, taking part in
contributing to public funds according to their ability to pay.
The flat tax provides a stronger motive for the taxpayers to realize higher amount
of income, since they can achieve a higher amount after tax in case they work more
and make higher revenue. Thus despite their tax due is higher, still a higher amount
can be used as per their sole decision.
In the progressive structure it is not worth for the taxpayer to invest more en-
ergy in obtaining a higher amount of income, since the amount taken as tax is
proportionally higher as well. In other words, it establishes a psychological limit
to the activities out of which income is derived. For instance, the taxpayers do not
take an additional job, or apply for other grants or subsidies if they get to a higher
tax bracket accordingly, and by paying higher amount of tax due to the applica-
ble higher tax rate, and therefore they take less money home. The higher tax rate
increases the level of redistribution, but decreases the employment rate. As John
Stuart Mill stated in 1848: the progressive tax levies a higher rate of tax on the
higher income, therefore it definitely punishes the hard working taxpayers.
In modern state every tax and its elements are brought into the system by means
of law. Accordingly, fairness of any tax system is determined by legislator.
The most important headquarters of taxation according to economic strenght is
income, which taxpayer actualizes on market for certain work or provided services.
(Lonari-Horvat, 2010:188)
Income tax is the type of tax by which we want to achieve fiscal, political, social
and economic goals.
Most developed countries consider income tax as most significant and most
prominent source of public revenue which implies at its role in realization of fiscal
policy.
3. Types of personal income in the Republic of Croatia1

In the Republic of Croatia there are 6 types of income:
a) Employment income
b) Independent personal services income
c) Income from property and property rights
d) Investment income,
e) Income from insurance
f ) Cathegory of other income.
In this paper we are going to elaborate two most important types: employment
income and independent personal services income.
Progressive taxation rests on fact, that person who has bigger income should pay
bigger tax. On the other hand, person who earns smaller income should pay smaller
tax. That means that persons with different economic strenght should pay different
amounts of tax,- vertical tax fairnes. (Lonari-Horvat, 2010:192)
The tax base on income for the taxation of income tax from employment and
income from self-employment is divided into three tax brackets.
Income tax is paid at a rate of 12% on taxable income over single of the basic
personal deduction.
Income tax is paid at a rate of 25% of the difference between the tax basis of
single and quadruple of the basic personal deduction.
Income tax is paid at a rate of 40% on taxable income over four times the
amount of the basic personal deduction.
This essentially means that after the decline of the gross salary required to con-
tribute to the basic personal allowance taxable income on a monthly basis is taxed
as follows:
- Up to 2.200,00 HRK pay tax at a rate of 12%
- above 2.200,00 HRK to 8.800,00 HRK (ie further 6.600,00 HRK) pay tax
at a rate of 25%
- above the total amount of 8.800,00 HRK pay tax at the rate of 40%.
1
Personal Income Tax Law, Official Gazette, 177/04, 73/08, 80/10, 114/11, 22/12, 144/12, 43/2013,
120/2013, 125/2013, 148/2013
Table 1. Tax rates

Tax rate Monthly basis (HRK) Yearly basis (HRK)
12% - 2.200,00 - 26.400,00
25% 2.200,01-10.800,00 26.400,01-105.600,00
40% 8.800,01 - 105.600,01 -
The essential issue is how business players react on taxes. High and progressive
taxes cut back performance and will not stimulate production. (Streissler, 90, 79)
Beyond not making the pursuing of activities appealing, high tax rates encourage
taxpayers to search for legal and illegal ways of tax evasion (the back door methods,
such as the permanent investment account, the calculation of cost invoices for in-
dividual entrepreneurs, or when real estate or other property is sold2). I believe that
tax planning performed by the taxpayer in such ways is by no means harmful, but
its wide option much rather promotes that taxpayers accept tax law, because the
taxpayer is happy to pay less tax feeling that implicitly he/she received more money
or actually more stayed in his/her pocket. This will mean more revenue for the state
or eventually in terms of the personal income tax for the budget of local munici-
palities than as if with regard to the high tax payment obligation or by some tax
fraud techniques, no revenue would flow in or the tax base would be significantly
lower due to hidden incomes.
When it comes to defining economic strenght, both jurists and economists,
although by different means, come to same conclusions. In fact, they both accent
that tax basis of income tax must be decreased for expenditure necessary for assur-
ance of minimal existential costs. (Lonari-Horvat, 2010:189)
Excluded from taxation is part of income that is necessary for taxpayer to fulfill
his existential needs. This part of income is usually called existential minimum.
Term non-taxable part of income is used in tax terminology, and in Croatina In-
come Tax Law term personal allowance is used. Article 36. of Income Tax Law says
that the full amount of realised income should be reduced for pesonal allowance in
the amount of 2.200,00 HRK for each month of taxable period. This amount of
personal allowance is enlarged for dependent mamebers of family and children. In-
come Tax Law presumes that the amount of 2.200,00 HRK is enough for taxpayer
to cover his basic extistential needs. (Sindii, 2010)
2
The effective regulation has retained taxpayers opportunity to deduct three types of cost: the amount of
income shall be established by deducting the expenditure related to the acquisition, the costs of value-
added investments, and the costs in connection with the transfer can be deducted from the revenue.
It should be noted that personal income tax is most fiscally abundant tax form
especially when it comes to municipalities and towns. Revenue from income tax is
divided between:
a) municipality/town 56,5%
b) county - 16%
c) part for decentralized functions - 12%
d) part for position for aid of accommodation for decentralized functions
- 15,5%.3
Decentralized functions are social care, education, health care and fire depart-
ment. But it is very important to emphasize that the operational side of these func-
tions is financed through Personal income tax. When it comes to personal income
of people employed or taking care of these functions, their income derives from
state budget. Operational side includes mostly material costs (buildings, equip-
ment, furniture etc.) in connection to performing these functions.
4. Conclusion
The notion of fairness is difficult to define due to its abstract nature. Therefore it
is impossible to determine the general definition of the term that has been elusive.
Legal norms can represent some kind of justice, which is a talent, a social and cul-
tural product. History has shown us that the concept of fairness extremely changes
with passing of time and that each historical period has its own vision of fairness.
However, regarding tax law, fairness is that the tax burdens are located fairly with
regard to tax capacity. The most important problem of the perception of fairness is
that individuals, in most cases, do not get any direct countervalue in return to their
tax payments.
According to P. Bejakovi, tax system should be simple, foreseeable and with
less changes. In the Republic of Croatia, politicians like to explain these income tax
changes as means to introduce elements of fairness into the tax system.
Income tax is one of the basic tax forms which is relatively easy to adjust to eco-
nomic strength of citizens so that the wealthier ones pay relatively more tax, and
poorer ones pay less, and by which it can be influenced on just and fair splitting of
3
Law on Financing of Local and Regional Self-Government Units, Official Gazette 117/1993,
92/1994, 69/1997, 33/2000, 73/2000, 127/2000, 59/2001, 107/2001, 117/2001, 150/2002,
147/2003, 132/2006, 26/2007, 73/2008, 25/2012
income so it can be said that income tax has attributes of progression. With income
tax we try to fix injustice that is brought by consumption tax (VAT and excise
duties) that relatively more burden poorer citizens. Also, income tax has distinct
and automated ability of adjustig to current economic state of any country (built-in
flexibility).
It should be emphasized that there is no optional fairness, and not all of soci-
eties have the same concept of fairness. However, moral aspect of taxation should
eaqully apply both to state and taxpayer. That means that duty of every state is to
develop fair splitting of tax burden, i.e. taxpayers should pay taxes in accordance to
their economic strenght and the state should rationally spend collected means. On
the other hand, duty of every taxpayer is to bare fair amount of public expenditure
in accordance to his or her economic abilities.
References:
1. Dek, D. (1997), Justice in Hungarian tax system: A case study of a legislative pitfall,
51 Jogtudomnyi Kzlny, 7-8
2. Personal Income Tax Law, Official Gazette, 177/04, 73/08, 80/10, 114/11, 22/12,
144/12, 43/2013, 120/2013, 125/2013, 148/2013
3. Law on Financing of Local and Regional Self-Government Units, Official Gazette
117/1993, 92/1994, 69/1997, 33/2000, 73/2000, 127/2000, 59/2001, 107/2001,
117/2001, 150/2002, 147/2003, 132/2006, 26/2007, 73/2008, 25/2012
4. Lonari-Horvat, O. (2010), Pravedna i socijalna porezna drava?, Znanstveni skup
Uloga drave u socio-ekonomskom razvoju nacionalnog gospodarstva, Zbornik ra-
dova u povodu 80. godinjice ivota prof. emeritusa Boidara Jelia, Visoka po-
slovna kola Libertas Zagreb, Zagreb
5. Mill, J. S. (1848), Principles of Political Economy, London, Longmans, Green and
Co.
6. Peri, R. & Szilovicz, Sz. (2012), Personal income tax: Provisions regarding fairness,
Contemporary legal challenges: EU-Hungary-Croatia, Pecs-Osijek, SUNICOP
7. Sindii, P. (2010), Naelo pravednosti u poreznom sustavu RH, Znanstveni skup
Uloga drave u socio-ekonomskom razvoju nacionalnog gospodarstva, Zbornik ra-
dova u povodu 80. godinjice ivota prof. emeritusa Boidara Jelia, Visoka po-
slovna kola Libertas Zagreb, Zagreb
8. Streissler, E. (1990), Theoretical economic doubts regarding the rationality of pro-
gressive income tax 1 Kzgazdasgi Szemle
9. Wagner, R. E. (2007), Fiscal Sociology and the Theory of Public Finance (Chelten-
ham Edward Elgar Publishing Limited)
INFRINGEMENT OF PRIVACY VIA INTERNET 829
INFRINGEMENT OF PRIVACY VIA INTERNET

Vjekoslav Puljko, Ph.D., Mirela upan, Ph.D., Josipa ivi, LL.M.
1
Josip Juraj Strossmayer University of Osijek Faculty of Law, Republic of Croatia, vpuljko@pravos.hr
2
Josip Juraj Strossmayer University of Osijek Faculty of Law, Republic of Croatia, mzupan@pravos.hr
3
Attorney officeVladimir Domac, Osijek, Republic of Croatia, josephinezivic@yahoo.com
Abstract
The development of the Internet has enabled instant access to information and
its global transfer worldwide. Information whose content represents an infringe-
ment of personality rights and which was placed online on the Internet will go
around the world in a moment. The question may be raised as to where the harm-
ful event occurred, entailing the need for new legal regulation to possible privacy
infringements. EU legislation that regulates this area has been placed to creative
interpretations as it has been applied successfully in recent cases of damage inflicted
by placing on the Internet content that infringes personality rights. Interpretation
of the European Court of Justice is found unsatisfactory to majority of experts in
private international law because it represents a limitation of the application of the
relevant applicable law determined by conflict-of-law rules of a certain Member
State for the purpose of ensuring the free movement of information society ser-
vices. Many open questions regarding the Internet still need to be addressed by
legislators and the entire legal profession.
JEL Classification: K36
Keywords: EU regulations, international jurisdiction, infringement of person-
ality rights, Internet.
I Introduction
In 1993, X, of German nationality, was sentenced by a German court to life
imprisonment for the murder of a famous German actor, whom he, according to
the verdict, murdered in 1990 together with his brother. An Austrian Internet por-
tal owned by the companye Date Advertising, which is established in Austria, on
830 Vjekoslav Puljko Mirela upan Josipa ivi
the pages dedicated to old news published a report on the murder identifying the
perpetrator by his full name. X subsequently brought an action against eDateAd-
vertising before the German courts. He called upon eDateAdvertising to refrain
from using his full name when reporting about the murder of the actor1. eDate
Advertising contested the action by calling into question the international jurisdic-
tion of the German civil court.
Another controversial issue in this case is the question of which substantive law
is to be applied, German or Austrian, and in this regard, the interpretation of the
provisions of Article 3(1) and (2)of the Directive on Electronic Commerce2.
This case and the judgment of the European Court of Justice of 25 October
2011 (which will be discussed later) are a good introduction to the issues of ju-
risdiction and applicable law in the case of indemnification of damage caused by
placing online on the Internet content that may harm a person and violate his/her
fundamental human rights.
The technological revolution we have witnessed in the last several years has
greatly changed our lives and habits. The development of a new medium, the In-
ternet, has enabled instant access to information and changed the way of com-
munication, but it has also created the need for new legal regulation since it is a
global medium that transfers information placed online today in Austria instantly
to interested consumers in Japan. Information whose content represents an in-
fringement of personality rights and which was placed online on the Internet will
go around the world in a moment. Consequently, the question may be raised as to
where the harmful event occurred.
Legislation that regulates this area is insufficient, but by means of creative in-
terpretations it has been applied successfully in recent cases of damage inflicted by
placing on the Internet content that infringes personality rights. However, there
are many open questions regarding the Internet that still need to be addressed by
legislators and the entire legal profession.
1
Case C-509/09 eDate Advertising is available at: http://curia.europa.eu/jcms/jcms/j_6
2
Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000 on certain le-
gal aspects of information society services, in particular electronic commerce, in the Internal Market.
II The jurisdictional issue

For cross-border cases, jurisdiction is determined according to the rules con-
tained in Article 5 of the Brussels I Regulation3 (hereinafter referred to as: the
Regulation). A general principle of the Regulation is that the rules of jurisdiction
must be highly predictable and founded on the principle that jurisdiction is gener-
ally based on the defendants domicile4, save in situations in which other linking
factors are allowed that are more closely related to the subject-matter of the litiga-
tion or that are determined by parties themselves. The domicile of a legal person is
defined autonomously so as to make the common rules more transparent and avoid
conflicts of jurisdiction.
Matters that are the subject of this paperfall under Article 5(3) of the Regula-
tion that deviates from the principle of jurisdiction of courts where the defendant
is domiciled (court determined), i.e.,that prescribes the rule of special jurisdiction
in such a way that a person domiciled in a Member State may, in another Member
State, be sued (3)in matters relating to tort, delict or quasi-delict, in the courts
for the place where the harmful event occurred or may occur. If the Internet is the
medium through which the information causing violations of privacy and rights
relating to personality, then there is no simple answer to the question referring to
the place where the harmful event occurred, i.e., the place in which an action may
be brought. Is it the court of each Member State in which the contested content
may be accessed? Or is it the court in which the operator of the website where con-
tent is placed is established? Can an action be brought before a court of a Member
State connected with the casein some another special way, for example, in the state
in which the operator of the website would address the target user group, or in the
State with the greatest number of visitors to the contested content, or in the State
that has an objective connection to the contested content?
In addition to the aforementioned questions, can we claim with certainty that
the former article (Article 5(3)) of the Regulation implies that the court of the
Member State where the damage occurred is responsible for making a decision on
an infringement of personality rights committed by placing online content on a
3
Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition
and enforcement of judgments in civil and commercial matters, OJ 2001 L12/1, as Regulation (EU)
No 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdic-
tion and the recognition and enforcement of judgments in civil and commercial matters (recast).
4
Recital 11 in the preambletoCouncil Regulation(EC) No44/2001.
particular Internet site run by a legal person in another Member State and mainly
intended for the public in that second State, and published in a foreign language?
The European Court of Justice, from which the German Federal Supreme Court
requested the former interpretation following an appeal filed by eDateAdvertising,
resolved the dilemma as follows. The Court finds that jurisdiction should be de-
termined according to Article 5(3)of the Regulation for the place where the harm-
ful event occurs or may occur has a special connection with the place where the
court is placed so this special domestic connecting factor is a crucial factor due to
which, in this case and in other similar5 cases, jurisdiction shall be determined in
this way6, and not pursuant to the general rule set out in Article 2 of the Regula-
tion according to which jurisdiction is provided for the court of the defendants
domicile. It is important to note here that the replies that the Court provided to
the aforementioned questions partially used arguments from previous cases7which
also dealt with violations of the right to privacy, but by virtue of content published
in newspaper articles. However, newspapers and similar publications differ from
the Internet insofar as the information published on the Internet goes around the
world in an instant and a large number of users around the world gain access to this
information, regardless of whether it was the intention of the authors who placed
content online on the Internet or not. Publications relate to a specific area and the
Internet is ubiquitous, which brings us back to the complex issue of the place where
the harmful event occurred. When it comes to the Internet, damage can occur in
any part of the world, and a person whose right has been violated may also bring
5
Case Olivier Martinez and Robert Martinez v MGN United, C 161/10 is available at: http://curia.
europa.eu/jcms/upload/docs/application/pdf/2011-10/cp110115en.pdf; The French actor Olivier
Martinez and his father Robert Martinez brought an action before the Tribunal de grande instance
de Paris due to an infringement of the right to privacy and of the right of Olivier Martinez to his
own image, that is, in their opinion, violated when the information was published online on the
website of the British newspaper the Sunday Mirror. Namely, on 3 February 2008 a text written
in English appeared on the website www.sundaymirror.co.uk with details of the meeting between
Olivier Martinez and Kylie Minogue and their alleged relationship. An action was brought in the
court pursuant to Article 9 of the French Civil Code, which protects a persons right to private life,
against MGN Limited, a company governed by English law, that operates the contested website.
6
Similar positions are also advocated by T. Hartly, Cross Border Privacy Injunctions: the EU Dimen-
sion. Law Quarterly Review 2012/128, p. 197, M. Bogdan, Defamation on the Internet, forum
delicti and the E-Commerce Directive: Some comments on the ECJ judgment in the eDate case,
Yearbook of Private International Law, Volume 13(2011), pp. 483-491.
7
Case Shevill v Presse Alliance, C 68/98 is available at: http:/eurlex.europa.eu/smartapi/cgi/sga_doc?
smartapi!celexplus!prod!CELEXnumdoc&lg=en&numdoc=61993CJ0068.
an action for damages in a court of any EU Member State where the damage oc-
curred. This makes way to a risk of abuse from foreign courts in relation to a more
favourable choice of law (forum shopping). In addition, thispower of universal
jurisdiction8 can also be generally used to intimidate or silence the publisher9.
Can an action be brought only before a court of the Member State in which
there is a special connection with the contested content or the website on which it
was placed online? If such a special domestic connecting factor is necessary, what
are the criteria which would determine that connection? Therefore, the European
Court of Justice holds that the impact which content placed online is liable to have
on an individuals personality rights might best be assessed by the court of the place
where this individual has his/her centre of interests because there is a special
connection with the court of that place. This connection fully meets the criteria
of predictability and legal certainty. At the time of placing the contested content
on the Internet,the defendant (i.e., the person responsible for the placing online
of content on an Internet website) is capable of identifying the centre of interests
of the person whose rights might be violated by this actand he/she can also easily
assume which court should be addressed for protection.
The alleged victim of defamation on the Internet still has the option to file a
lawsuit before the court of any State on whose territory the damage occurred, i.e.,
in which the infringing online content was available.
The place where a person has his/her centre of interest corresponds in general to
his/her habitual residence, but depending on circumstances, it can be somewhere
else, e.g., the place of business, or the place, i.e., the state in which family members
and closest friends of the person whose right has been infringed10.
Another link that may be applied in such cases pursuant to the general principle
is the place in which the person responsible for placing on the Internet content that
caused harm to others is established.
8
L. Levi, The Problem of Trans-National Libel, American Journal of Comparative Law 201/60, pp.
512-523.
9
M. Reymond, Jurisdiction in case of personality torts committed over the Internet: A proposal for a
targeting test, Yearbook of Private International Law, Volume 14(2012/2013), p. 209.
10
M. Bogdan, Defamation on the Internet, Forum Delicti and the E-Commerce Directive: Some
comments on the ECJ judgment in the eDate case, Yearbook of Private International Law, Volume
13(2011), p. 486.
III Restrictions on applicable law the interpretation of the E-Commerce

Directive
One of the questions submitted by the German Federal Supreme Court for a
preliminary interpretation of the aforementioned case of X v eDate Advertising was
whether the definition provided for in Article 3(1) of theE-Commerce Regulation
is to be interpreted as having a conflict-of-laws character. This question has often
been asked by experts in the field of private international law who consider this
Regulation as one of the most controversial parts of the EU legislation11.
But, first things first. Point 22 in the preamble to the Directive highlights inter
alia the following: ; moreover,in order to effectively guarantee freedom to pro-
vide services and legal certainty for suppliers and recipients of services, such infor-
mation society services12 should in principle be subject to the law of the Member
State in which the service provider is established13, but in the point that follows,
point 23, it is said that This Directive neither aims to establish additional rules on
private international law relating to conflicts of law nor does it deal with the juris-
diction of Courts; provisions of applicable law designated by rules of private inter-
national law must not restrict the freedom to provide information society services
as established in this Directive. Point 25 in the preamble to the Directive reads:
National courts, including civil courts, dealing with private law disputes can take
measures to derogate from the freedom to provide information society services in
conformity with conditions established in this Directive. Mere superficial reading
of the text may indicate the problem. First,applicable law is proposed and then in
the next point it is stated that the goal of the Directive is not to establish additional
rules on private international law but to ensuring the freedom to provide informa-
tion society services.
11
M. Hellner, The country of origin principle in the E-Commerce Directive: A conflict with conflict
of laws? In: A. Fuchs et al. (Eds.) Les conflict de lois et le systemejuridiquecommunautaire, Paris,
2004, pp. 205-224.
12
Pursuant to point (18) in the preamble, information society services span a wide range of economic
activities which take place online; these activities cover in particular e-commerce services, online
information services, in so far as they represent aneconomic activity, they extend to the transmission
of information via a communication network, etc.
13
The place at which a service provider is established is defined as the place of the actual pursuit
of an economic activity. The place of establishment of a company providing services via the
Internet is not the place at which the technology enabling the provision of e-services is located
or a state in which its service is accessible but the place where it pursues its economic activity.
These inconsistencies, to put it mildly, given in the preamble are included, now
as part of the legal rules, in the general provisions of the Directive, i.e., Article 3(1):
Each Member State shall ensure that the information society services provided
by a service provider established on its territory comply with the national provi-
sions applicable in the Member State in question which fall within the coordinated
field14, and This Directive does not establish additional rules on private interna-
tional law nor does it deal with the jurisdiction of Courts15. It should be noted that
the requirements covered by the concept of the coordinated field are generally and
broadly defined to also include legal areas that are not unified in the EU and that
are general in nature, and they concern, inter alia, those applicable to advertising
and contracts, or requirements concerning the liability of the service provider.16
If the definition under Article 3(1) of the Directive is a conflict-of-law rule, then
the Directive contradicts itself, which is a problem on a theoretical level, but more
importantly, it also affects the application of the rules, hence the question arises as
to which law to apply, the law of the state in which the electronic service provider is
established, or the law referred to by the law of the state in which an online service
is provided. The definition under Article 3(1) can be understood as a restriction or
correction of the law that has been determined as applicable according to national
conflict-of-law rules, or it can be interpreted in such a way that the law of the
Member State in which the service provider is established17 should apply for the
purpose of ensuring the free movement of information society services between
the Member States18, or, in other words, conflict-of-law rules of the states in which
the service is provided should be replaced by a rule from the Directive.
In response to previous questions, the European Court of Justice clarified the
dilemma as follows. First, in addition to the rule itself, we should take into account
the context it originates from and objectivesmeant to be achieved by the rule in
question, as well as recitals that led to the adoption of the act (preamble). The
14
Pursuant to Article 2(h), coordinated field is defined as requirements laid down in Member States
legal systems applicable to information society service providers or information society services,
regardless of whether they are of a general nature or specifically designed for them.
15
Article 1(4) of the E-Commerce Directive.
16
Article 2(h) of the E-Commerce Directive.
17
The terms the country of origin or home country control are frequently used in the professional
literature.
18
Article 1(1) of the E-Commerce Directive.
objective is, as already mentioned, to ensure the free movement of information

society services between the Member States, which will contribute to the proper
functioning of the internal market. Obstacles to the proper functioning of the
internal market are differences in legislation and legal uncertainty with regard to
the national rules that must be applied to information society services19. The ob-
jective of the Directive is therefore not to harmoniselaw but to ensure the proper
functioning of the internal market,so that, pursuant to point 22 in the preamble
to the Directive, information society services should in principle be subject to the
law of the Member State in which the service provider is established. According to
the interpretation of the European Court of Justice, it is like that because at Eu-
ropean Union level there are no mandatory rules referring to harmonisation, only
the recognition of the mandatory character pertaining to national rules of the state
in which the service provider is established can guarantee full freedom to provide
these services.
The legal system of the Member State in which the service provider is established
includes the field of civil law20, and its application to the liability of service provid-
ers is expressly defined in Article 2(h)(i), inthe second indent of the Directive21,
which defines coordinated field. Although it is indisputable that the coordinated
field also includes the field of civil law, it does not mean that Article 3(1)22shall
replace provisions of private international law. Such a definition can be interpreted
19
Point 5 in the preamble to the Directive.
20
Point 25 in the preamble to the Directive states that National courts, including civil courts, dealing
with private law disputes can take measures to derogate from the freedom to provide information
society services in conformity with conditions established in this Directive and the Annex to the
Directive sating the civil rights and obligations to which the provisions set out in Article 3 do not
apply.
21
(h) coordinated field: requirements laid down in Member States legal systems applicable to
information society service providers or information society services, regardless of whether
they are of a general nature or specifically designed for them.
(i) The coordinated field concerns requirements with which the service provider has to comply in
respect of:
- the pursuit of the activity of an information society service, such as requirements concerning
the behaviour of the service provider, requirements regarding the quality or content of the service
including those applicable to advertising and contracts, or requirements concerning the liability of
the service provider.
22
Each Member State shall ensure that the information society services provided by a service provider
established on its territory comply with their national provisions that fall within the framework of
the coordinated field.
as an instruction to the court of a Member State in a specific case to correct or ad-

just the rule referred to by private international law such that it does not become a
hindrance to achieving the free movement of services.
If weadd the provision of Article 3(2), which prohibits Member States, for rea-
sons falling within thecoordinated field, to restrict the freedom to provide infor-
mationsociety services from another Member State, and the aforementioned pro-
visions and principles of the Directive which expressly set out that the objective
of the Directive is not establish new conflict-of-law rules, it follows that, if the
conflict-of-law rules of the Member State in which the service is provided do not
restrict the free movement of information society services, there is in principle no
obstacle to that State to designate applicable law pursuant to the provisions of its
private international law, but only if these rules do not provide for more stringent
requirements for service providers than in the state in which he/sheis established.
This interpretation of the European Court of Justice does not satisfy the major-
ity of experts in private international law, including the author of this text because
it represents a limitation of the application of the relevant applicable law deter-
mined by conflict-of-law rules of a certain Member State for the purpose of ensur-
ing the free movement of information society services. Definition of point 25 in the
preamble to the Directive23 speaks in favour of this position. In essence, it allows
the courts of the Member States, including civil courts, by resolving disputes of a
private law character, to take measures to reduce the freedom to provide informa-
tion society services, but againin accordance with the provisions of the Directive,
which essentially means that courts cannot ignore the provisions pertaining to the
application of law of the state where the service provider is established.
Based upon the response of the European Court of Justice to the aforemen-
tioned questions referred to it by the German Federal Supreme Court (do not
forget that it is the court of the Member State in which the service is received), we
may conclude that it would be better for the suitor to bring an action before the
court of the state in which the service provider is established than before the court
of the state in which the service is received because that court is obliged to correct
applicable law and align it with the law of the Member State in which the service
provider is established. In these proceedings, the outcome is always uncertain.
23
National courts, including civil courts, dealing with private law disputes can take measures to
derogate from the freedom to provide information society services in conformity with conditions
established in this Directive.
The provision pertaining to the state in which the provider of the information
society services is established can mean a lot in legal control of business activities of
service providers but it is not as good as a conflict-of-law rule.
In conclusion, we can say that the interpretation of the European Court of Jus-
tice, at least as far as the interpretation of the Directive on Electronic Commerce
is concerned, has not clarified doubts completely. There is still the impression that
the principles of private international law have been sacrificed for the purpose of
achieving the freedom to provide services.
References:
T. Hartly, Cross Border Privacy Injunctions: the EU Dimension. Law Quarterly Review
2012/128, pp. 382-411.
M. Bogdan, Defamation on the Internet, Forum Delicti and the E-Commerce Direc-
tive: Some comments on the ECJ judgment in the eDate case, Yearbook of Private
International Law, Volume 13(2011) 2012. pp. 483-491.
L. Levi, The Problem of Trans-National Libel, American Journal of Comparative Law
201/60, pp. 512-523.
M. Reymond, Jurisdiction in case of personality torts committed over the Internet: A pro-
posal for a targeting test, Yearbook of Private International Law, Volume 14(2012/2013)
pp. 205-247.
M. Hellner, The country of origin principle in the E-Commerce Directive: A conflict
with conflict of laws? In: A. Fuchs et al. (Eds.) Les conflict de lois et le systemejuridique-
communautaire, Paris, 2004, pp. 205-224.
INDUSTRIAL
ORGANIZATION
DISTRICT HEATING IN THE SERVICE OF DEVELOPMENT OF ENERGY EFFICIENCY ... 841
DISTRICT HEATING IN THE SERVICE OF DEVELOPMENT OF

ENERGY EFFICIENCY, COMPETITIVENESS AND SECURITY OF
SUPPLY
Dalibor Pudi, M.Sc.1, Ivana andrli-Danko, M.Sc.2
1
Croatian Energy Regulatory Agency, Republic of Croatia, dpudic@hera.hr
2
Osijek-Baranja County, Republic of Croatia, ivana.candrlic-dankos@obz.hr
Abstract
Since the 70s of last century, precisely in 1973th when the first oil crisis hap-
pened due to a sudden increase in the price of oil, and 1979th when the second
oil crisis happened, energy has become one of the priority themes of the European
Union. In terms of the common electricity and natural gas market through the Di-
rectivesof the European Union (2009/72/EC and 2009/73/EC),large progress has
been made. Transmission/transportation and distribution networks have become
associated entity which provides access to all producers and customers within a
single market of the European Union, with the aim of competitive production and
supply of energy. Increased number of bidders has forced companies to be more
competitive in production and to offer more innovative solutions. Due to the liber-
alization of the market,it is necessary to protect end users as well as companies that
have network (regulated) activity.In this case the national regulator has the essential
role to ensure safe and inexpensive transmission and distribution of energy to end
users through optimal investment costs, and in the same time to ensure return of
investments for energy operators. There is a large number of examples of bad prax-
iswhich influenced on the lack of competitiveness of individual energy systems,
and it is the reason why the national regulator is so important in protection of both
participants. The European Union did not deal with the district heating through
the Directives, due to the fact that the transfer of thermal energy among Member
States is not expected because of the large loss of the thermal energy over a long dis-
tances.Therefore, the district heating is left at the legislation of the Member States,
so that the intensity of development district heating, especially liberalization, de-
pends on the strategic development and knowledge of the country. Most transition
842 Dalibor Pudi Ivana andrli-Danko
countries did not recognize the importance of district heating in energy develop-
ment of the country, so they had bad experiences.However, district heating with a
well defined legal framework and of course, with a good awareness of the citizens
themselves, has great advantages. The most important thing is that one network
can receive thermal energy from different energy sources enabling diversification of
sourceswhich may have an impact onthe price of primary energy, and consequently
the price of thermal energy.
In Croatia, as well as in the most transition countries, there are huge problems
related to district heating.Almost all companies dealing with district heating and
central supply of thermal energy have had a loss in the amount of over 200 mil-
lion in last six years. On the other hand, consumers are dissatisfied with the price
of the service. Because of that, most of themhave disconnected from the central
production system and switched to use combi boilers that caused significant invest-
ment costs.
The aim of this study is to investigate the causes that have led to difficulties in
the business of energy operators and to point out the deficiencies of the existing dis-
trict heating systems. Also, we wantedtomake an overview of new measures needed
to be done in order to give encouragement to the development of district heating
systems as a competitive, safe and efficient system.
JEL Classification: Q41, Q48
Keywords: district heating, energy efficiency, competitiveness, entrepreneur-
ship, regulation
1. INTRODUCTION
Eropska Union on average imports more than 50% of energy (http://epp.eu-
rostat.ec.europa.eu/statistics_explained/index.php/Energy_production_and_im-
ports, date of access 03.03.2014.). The same situation is inCroatia whichstands
in the average of the Europian Union (http://www.eihp.hr/hrvatski/projekti/
EUH_od_45/EUH11web.pdf, date of access 03.03.2014.). Therefore, the Euro-
pean Union has set clear targets to be done by the end of 2020. Theyare known
as 20/20/20 - 20% reduction in energy consumption, 20% production from re-
newable energy and 20% reduction in CO2 emissions. (http://ec.europa.eu/clima/
policies/package/index_en.htm, date of access 03.03.2014.). Countries which
understand European targets in time and recognize theirs geostrategic advantages
and entrepreneurial resources will have the opportunityto take advantages of the
funds intended for such projects.Thus, those countries will be able to create their
own GDP and to solve the long-term environmental, economic and sociological
problems.An example of the best practice is Denmark, which hasused its wind po-
tential to develop wind power plants, so that today Denmark wind power plants are
installed worldwide, and this has resulted in the largest direct employment in wind
power plants industry in Europe by population (http://www.ewea.org/fileadmin/
ewea_documents/documents/publications/factsheets/EWEA_FS-employment.
pdf, date of access 03.03.2014.).Croatia should also recognize its potentials in the
energy sector which could be drivers of industrial and entrepreneurial develop-
ment. Also, the energy dependency could be reduced and competitiveness of the
energy sector increased. Today, we witness a great use of solar cells for electricity
production and also incentive prices for the production of electricity from such
sources, although the efficiency of solar collectors for heat production is more ef-
ficient solution,but rarely used in Croatia. The explanation lies in the fact that
production of such green electricity can be controlled because it ends in distri-
bution network, and there are less ability for manipulation withproduced energy.
Produced electricity is then used for heating domestic hot water. This is the sign
that the system of incentives in the Republic of Croatia needs to be changed.If en-
trepreneurshipdevelopment and increased employment are not the result of these
incentives, they did not achieve their purpose.Denmark usesits wind power plants
potentialsalso in district heating, in a way that they have seasonal tanks for district
heating so that in the case of the large amount of produced energy it is used for
heating the water for district heating (http://www.folkecenter.net/gb/rd/power-bal-
ancing/district-heating/, date of access 03.03.2014.).This is the part of the strategy
to produce all of its energy from renewable sourcesby the 2050, for which they
need the development of district heating system.In Denmark, the district heating
system is regulated, but on the existing network there are different producers who
sell their produced energy in the system depending on the price which they offer.
In Croatia, this system is also regulated, butcompanies that deal with district
heating have generated a loss over 200 million in the last 6 years. On the other
hand, consumers are dissatisfied with the cost of heating (not essentially with the
unit price of energy), which was often expressed by public protests, burning bills
and switching to combi boilers(http://www.tportal.hr/vijesti/hrvatska/239632/
Karlovcani-opet-palili-racune-za-grijanje.html, date of access 03.03.2014.), al-
though the central boiler system should be cheaper due to lower investment and
maintenance costs.The business results and public protests influence at the overall
bad external image of district heating in Croatia. On the other hand, the inner
picture is somewhat different and reflect the actual situation and problems of com-
panies dealing with district heating.
Croatia imports 50% of its energy needs, of which the major part is related to
fuel oil and natural gas largely used for household heating and heating of domestic
hot water.Thats why district heating has great potential in creating alternatives to
the primary sources of energy.The final product for end users would become heat
energy (not gas, wood, or even coal) and conventional energy fuel used to produce
heat would obtain a new cost-effective alternative to other sources such as biomass,
waste, solar, and other future energy resources, the energy sources can be replaced
by other profitable sources such as biomass, waste, solar, and other future energy
resources.
2. EXISTING SYSTEMS FOR PRODUCTION OF THERMAL ENERGY

In Croatia, the system of production thermal energy could be classified into two
categories. The first one, in which the thermal energy is produced from the ef-
ficient cogeneration plants (during the production of electricity in the combined
process), where the current price is almost twice lower than the price at which
energy consumers may purchase natural gas with the aim of production of heat in
the convential gas boilers.Delivery of such energy is carried by HEP Toplinarstvo,
company owned by HEP d.d.. In econd category, the thermal energy is produced
in the towns district heating plants that convert energy source (gas, oil) to heat en-
ergy and sell it to the citizens. Beside HEP Toplinarstvo, there are 12 other energy
operators which supply citizens with thermal energy.1
Production of thermal energy from cogeneration plants takes place in Sisak,
Osijek and Zagreb and in all three cities the prices range from 0.16 to 0.18 kn/
kWh for households, while the price of thermal energy for legal entities range
from 0.31 to 0, 34 kn/kWh (CERA Annual Report, 2013, 126). From the above
prices,one can see that there are some illogicalities, because there is no legitimate
reason that the price of legal entitiesshould be higher.When this information is
added to the price of gas from 0.30 to 0.34 kn/kWh (http://narodne-novine.nn.hr/
clanci/sluzbeni/dodatni/429837.pdf, date of access 03.03.2014.)it is clear that the
1
Croatian Energy Regulatory Agency, Annual Report for the 2012., 2013.
cost of thermal energy forhouseholdsis more than twice lower then its actualvalue.
In the case of rising prices for the householdsit would have to be gradual (during
two years) because of impact on citizens standard.It should be doneonlywith previ-
ous announcement and explanation to consumers.The cause of the aforementiond
prices dates from the past when HEP d.d. delivered electricity throughtout Croatia
without competition. On the other hand, HEP Toplinarstvo, although in Croatia
holding almost 90% market share of heat energy (CERA Annual Report, 2013,
120),represented less than 5% of the total income of HEP d.d.Hence,it was easier
to get increase in electricity prices by 1% rather than 50% increase in the price
of heat energy (the increase in revenue for HEP d.d. remaind the same). HEP
Toplinarstvo accomplished loss, and loss was covered by HEP d.d.In that way, all
Croatian citizens subsidized the price of thermal energy through the price they
payd for electricity,although most of them didnt use thermal energy. Today, when
the electricity market is liberalized, it is clear that the HEP d.d. can not keep a low
cost of thermal energy, because it cant be covered with electricity on the liberalized
electricity market.
The average energy consumption in buildings in Croatia is about 200 kWh/
m2annually and 87% of the building are considered to be a large consumers of
the energy. The largest consumers are buildings constructed between 1940 and
1970, with between 200 and 300 kWh/m2annually because of irrational collective
consumptionas well as theirpoor insulation (Stirmer et al, 2013, 380-381). The
example of comparisons of the heat energy consumption by theoperation areaof
distribution (HEP Toplinarstvo, Brod-plin, Tehnostan, 2011) is shown in Table 1.
Table 1 The example of comparisons of the heat energy consumption by the-

operation area of distribution (HEP Toplinarstvo, Brod-plin, Tehnostan,
2011)
Average Average annual
Number Price Consumption Floor
City Operator size of consumption
of flats kn/kWh kWh area m2
flat m2 kWh/m2
Zagreb HEP Toplinarstvo 31 0.12 334,000 1,629 53 205
Slavonski
Brod-plin 35 0.23 137,200 1,106 32 124
Brod
Vukovar Tehnostan 30 0.23 198,406 1,870 62 106
Source: Pudic et al, 2013, 149
Although cogeneration power plant is significantly better and more energy ef-
ficient than the separate production of electricity and heat because it can achieve
greater efficiency, there are cases that such plant does not always work as efficiently
as possible. Table 2. shows the usefulness of the cogeneration power plant TE-TO
Zagreb.We can see that power plant operates with the usefulness of 54-70% on
a monthly basis, and it means that the boiler plant can reach a level of efficiency
above 90%on a daily basis. So with better control, we can get a more efficient plant.
Table 2 Efficiency TE-TO Zagreb for 2012
Delivered Shareoffuelconsumed
Delivered Totalenergy Consumptionofnatural Totalfuel Usefulness
thermal Deliveredprocesssteam Consumptionoffueloil Thermal
2012. electricity delivered gas consumed drive Electricity
energy energy
[MWh] [MWh] [t] [MWh] [MWh] [m3] [MWh] [t] [MWh] [MWh] [%] [%] [%]
1. 223.843 151.477 34.831 29.026 404.346 47.962.000 455.772 14.044 156.005 611.777 66,1 36,6 29,5
2. 218.215 167.611 39.908 33.257 419.083 43.790.000 413.674 18.187 202.027 615.702 68,1 35,4 32,6
3. 185.626 85.225 20.744 17.287 288.138 45.013.000 423.888 595 6.609 430.497 66,9 43,1 23,8
4. 183.671 68.951 14.920 12.433 265.055 43.124.000 406.266 95 1.055 407.322 65,1 45,1 20,0
5. 156.261 22.420 15.005 12.504 191.185 35.124.000 336.520 0 0 336.520 56,8 46,4 10,4
6. 39.314 3.034 11.650 9.708 52.056 9.557.821 92.038 0 0 92.038 56,6 42,7 13,8
7. 162.446 16.445 14.677 12.231 191.122 36.801.861 354.193 0 0 354.193 54,0 45,9 8,1
8. 185.353 14.417 20.013 16.678 216.448 42.098.199 404.166 0 0 404.166 53,6 45,9 7,7
9. 156.208 15.472 14.814 12.345 184.025 35.615.049 339.904 0 0 339.904 54,1 46,0 8,2
10. 145.415 63.561 17.628 14.690 223.666 36.177.760 339.560 0 0 339.560 65,9 42,8 23,0
11. 113.572 92.225 15.995 13.329 219.127 33.579.120 315.178 194 2.155 317.333 69,1 35,8 33,3
12. 165.935 148.811 35.338 29.448 344.195 49.177.410 464.775 2.446 27.171 491.946 70,0 33,7 36,2
TOTAL: 1.935.860 849.649 255.523 212.936 2.998.445 458.020.220 4.345.935 35.561 395.023 4.740.959 63,2 40,8 22,4
Source: HEP Proizvodnja
The problem is that with the simultaneous production of electricity and heat
the plant does not operate in the most efficient mannerdue to the different needs
of energy, and it is not in the proportion of production that would be the most
competitive for both types of energy. Therefore, the plant should be optimized with
tanks for peak consumption and dimensioned so to works according to the needs
of thermal energy.
There are two types of district heating networks: hot water and steam. Both of
them are very poorly maintained, with large losses.The heat substation often belong
to the distributor of heat.Some of them are new, old, bigger or smaller.Thus, that
buildings need to have different prices, but the prices are the same for all of them.
Production of thermal energy in the district heating boilers ismainly produced
by fuel oil and natural gas. The prices of heat energy consist of the fixed and vari-
able heat components. Fixed component refers to the investment costs, amortiza-
tion, maintenance costs and salaries. The variable component refers to the cost of
heat energy. The fixed component of the costs is mainly covered, although there is
much scope for rationalization and modern technology. The variable component
ranges from 0.38 to 0.44 kn/kWh and now can cover costs of fuel, but in the past
it was quite difficult to operate because the income of the variable component did
not cover operating costs.
The calculation of approved costs of fuel consisted of the real costs of all energy
sources (gas, oil, etc.) from which was calculated the average cost of energy. In this
way, the building that used cheaper fuel paid a higher price due to higher fuel prices
which were used by other buildings (Banovac et al; 2007, 409-420).
Simple calculation shows that the tenants of one building could know whether
they pay more than they would pay to managethe heating plantthemselves, and
in the case of paying a bigger price they could request separation from the central
system or go into public protest. The comparison is simple. For example, we have
one company that manages with 50% power plants with one type of fuel, and with
50% power plants with the other type of fuel. In case of increase in the price of one
type of fuel for 10% all heating power plants would have increase in the price by
5%.Citizens whose fuel prices rose would not understand why their price rises by
5%, if they use a fuel whose prices were not rised. It is the same as identifying prof-
itable and unprofitable customer. If company has a non-profitable customers,the
loss of profits has to be covered with the rise of prices for profitable customers and
there is a risk that it will lose profitable customer or its profit.
HEP Toplinarstvo also has such local boilerplants, and which are used for heating
of households and legal entities in the areas of the cities of Velika Gorica, Zaprei,
Samobor and Zagreb. The heat energy tariffs in Velika Gorica, Samobor and Zaprei
are 0.30 kn/kWh for households and 0.34 kn/kWh for legal entities and they are
the same for all buildings, although as we mentioned above, buildings have different
types of fuels (natural gas, extra light fuel oil, light fuel oil) whose purchase energy
pricesvary from 0.30 to 0.34 kn/kWh for natural gas and up to 0.55 kn/kWh for
extra light fuel oil. It can be seen thatthe income of heat energy tariffs can not cov-
eredthe costs of fuels. Even worse situation with such a local boiler plants is in Za-
greb, where the energy prices are 0.17 kn/kWh for households and 0.34 kn/kWh for
legal entities, who are also using different types of fuel such as natural gas, extra light
fuel oil and light fuel oil.Households which are supplied by HEP Toplinarstvo have
much lower costs than they would have, if they would buy their fuel themselves.
With this price, HEP Toplinarstvo makes a loss of 22 million kuna ( 3 million)
only on theproduced heat energy for 29 of these boiler plants.This also means that
some other consumers and taxpayers subsidize for them. Tables 3, 4 and 5 compare
the costs and revenues of the local boiler plants owned by HEP Toplinarstvo.
Table 3. Natural gas boiler plants 2012 (25 boiler plants and approximately
7,000 households)
Quantity Price of Price of heat
MWh Fuel costs Heat energy costs Increase %
of gas gas kn/ energy
gas kn kn (4/6-1)*100
m3 m3 kn/kWh
0 2 3 4 5 6 7
13,822 1,865,719 3 5,597,157 0.17 2,349,740 138.20
5,373 725,250 3 2,175,750 0.17 913,410 138.20
2,767 373,536 3 1,120,608 0.17 470,390 138.23
2,297 310,053 3 930,159 0.17 390,490 138.20
2,485 335,458 3 1,006,374 0.17 422,450 138.22
1,683 227,151 3 681,453 0.17 286,110 138.18
2,130 287,513 3 862,539 0.17 362,100 138.20
3,011 406,380 3 1,219,140 0.17 511,870 138.17
1,046 141,130 3 423,390 0.17 177,820 138.10
1,140 153,893 3 461,679 0.17 193,800 138.22
1,013 136,783 3 410,349 0.17 172,210 138.28
4,812 649,479 3 1,948,437 0.17 818,040 138.18
3,850 519,605 3 1,558,815 0.17 654,500 138.17
3,764 508,027 3 1,524,081 0.17 639,880 138.18
4,497 606,602 3 1,819,806 0.17 764,490 138.04
2,763 372,944 3 1,118,832 0.17 469,710 138.20

1,984 267,849 3 803,547 0.17 337,280 138.24
1,806 243,760 3 731,280 0.17 307,020 138.19
4,538 612,476 3 1,837,428 0.17 771,460 138.18
1,722 232,461 3 697,383 0.17 292,740 138.23
326 43,992 3 131,976 0.17 55,420 138.14
2,541 342,960 3 1,028,880 0.17 431,970 138.18
4,164 562,010 3 1,686,030 0.17 707,880 138.18
1,632 220,267 3 660,801 0.17 277,440 138.18
1,655 223,404 3 670,212 0.17 281,350 138.21
76,821 10,368,702 3 31,106,106 0.17 13,059,570 138.19
Source: Done by the author
Table 4. Extra light fuel oil boiler plants 2012 (3boiler plants and approximately
500 households)
Quantity of Price of heat Heat energy
MWh Price of Fuel costs Increase %
ELFO energy costs
ELFO ELFO kn/l kn (4/6-1)*100
l kn/kWh kn
0 2 3 4 5 6 7
1,115 158,851 5.5 873,681 0.17 189,550 360.92
1,967 280,316 5.5 1,541,738 0.17 334,390 361.06
2,532 360,866 5.5 1,984,763 0.17 430,440 361.10
5,614 800,033 5.5 4,400,182 0.17 954,380 361.05
Table 5. Light fuel oil boiler plants 2012 (1 boiler plant and approximately 150
households)
Quantity Price of heat Heat energy
Fuel costs Increase %
MWh LFO of LFO Price of energy costs
LFO kn/l kn (4/6-1)*100
l kn/kWh kn
1 2 3 4 5 6 7
1,622 193,580 5 967,900 0.17 275,740 251.02
Tables 3, 4 and 5 show that buildings in Zagreb, 29 of them managed by HEP

Toplinarstvo, pay 14.5 million kuna ( 2 million) for heatenergy, while thefuel
costs of HEP Toplinarstvo for the same building are 36.5 million kuna ( 5 mil-
lion). Therefore, the loss is, as stated above, 22 million kuna ( 3 million).
In Zagreb, there are still hundreds of boiler plantswhich are independently man-
aged and maintained by their owners and their real costs are higher. We can see that
there differences between boiler plants, but the question is why?
The main problem in both cogeneration and local boilerplantsis collective con-
sumption and it is one of the reasons why people disconnect from the system of
district heating.In collective consumption system, consumers can not manage their
own consumption, andit depends on theirs neighbors in the same building.Con-
sumption in buildings in which heat cost allocatorsare not installed to the radiators
is 50-70% higher and its distributed according to the square area.This means that
all tenants, regardless of theirreal consumption, will pay the same price per one
square. It was a problem, primarily because when someone wasabsent from home
and did not heat his apartment (by closing the valve), he would have to pay the
same account as if he heated it. There were cases of buildings where 50-80% of all
apartments installed the heat cost allocators and then tenants who did not install
them got less accounts.This provoked them to removethe heat cost allocators and
return to the calculation without the heat cost allocators.
Another problem was the case where tenantsof the buildings heatedby energy
operators (legal entities) had to pay up to 40% more expensive gas for heating of
their households, because the price of gas for the legal entitiesin Croatia was more
expensive than for households, and the reason of that lays in the fact that the
Croatian Government had a social prices-policy. This was the cause of big losses for
companies which are dealt with district heating, because they had to buy expensive
gas which are then couldnt calculate to the households,because households would
pay 100% higher prices than households which usecombi boilers due to the irra-
tional collective consumption and higher gas prices.
3. DISTRICT HEATING AND HEATING WITH COMBI BOILERS

In each product, including the central heating plants costs per power unit de-
crease with the size of the plant, so combi boilers are significantly more expensive
per flat than the large heating plant. In addition, simultaneity factor for heating
domestic hot water used for only one flat is 1.15, while simultaneity factor for
heating domestic hot water decreases when number of flatsincrease. So the power
of the heating plant for heating a building is significantly lower than the overall
power of the all combi boilers in the building.Same goes for the use of renewable
energy sources in the application of solar collectors. The number of solar collec-
tors significantly reduces per flat unit with increasing number of flats because of
the simultaneity of using domestic hot water. Simultaneity factors for calculating
power are 1.15 for 1 flat, 0.47 for 10 flats, 0.32 for 50 flats and 0.28 for 100 flats
(Andrassy et al, 2010, 346).2Additionally, individual flats within a building can
not use solar panels, while common facility is not a problem. Share of energy for
domestic hot water in the total energy consumption ranges from 25% to 50% de-
pending on how the building is energy efficient in heating.3Therefore in buildings
which spend less energy for heating the share energy used for domestic hot water
ranges up to 50%, with the inefficient consumption of hot water, because there
is no measurement of consumption per flat unit. Ifmeters for domestic hot water
would be installed, consumption of hot water would decrease up to 40%.4In the
future, the measures that will be used in energy efficiency of buildings, primarily
insulation, will increase the share of energy for domestic hot water in relation to the
total energy consumption, and solar energy will have a significant impact on overall
energy consumption. Approximately 30% of the total heat energy consumption in
households is energy for domestic hot water.In continental part of Croatia, use of
solar panels can satisfy 60% of needs for hot water, while in the coastal region it can
satisfy about 85% of total needs. Data clearly show that we can significantly reduce
energy consumption by using solar collectors (Domac et al; 2012.,13).5
4. CONCLUSION
The price of heatenergy shouldas soon as possible be put to the market prices.
Also, energy poverty has to be defined as soon as possible, in order to make the
system of subsidies and help those citizens who need it, but not all.Citizens have
the wrong impression that energy is cheap so they waste it, and the government
subsidizes it from other revenue, which is again paid by citizens.Looking at all the
facts that are mentioned in the text, from the regulatory point of viewit is evident-
2
UNDP, Handbook for energy certification of buildings, 2010.
3
Source of data: Brod-plin d.o.o., Heat consumption 2011.
4
Source of data: Brunata d.o.o., Consumption in buildings in Zagreb, 1-9/2013. to 10/2013-1/2014.
5
Regional Energy Agency of Northwest Croatian, Brochure to promote renewable energy sources,
2012.
that the district heating system has toreduce losses and operating costs. On the
other hand, it is necessary that all households install heat cost allocators as soon as
possible, in order to pay for only what they have consumed.
Solar power plants in low-temperature heating will have a great role in reducing
consumption of fossil fuels, reducing CO2 emissions, developing entrepreneurship
and the competitiveness. The same goes with biomass plants. These renewable ener-
gy sources significantly impact on reduction in imports and an increase in GDP.On
the other hand, large facilities that can be connected to the district heating distribu-
tion network will certainly replace all small gas and oil boiler plants, so an efficient
energy mix that will be used for heat production (wind, solar, biomass, waste) will
increasethe purchasers negotiation positionregarding the fossil fuelsprice.All this,
together with the seasonal tanks the tanks of peak load, and with cheap surplus
of heat energy from the market and the industrial facilities are a prerequisite for a
secure, competitive and environmentally friendly heat energy supply.
REFERENCES
1. Banovac, E., Bogdan, ., Kuzle, I., (2007.), Choosing the optimal approach to de-
fine the methodology of a tariff system for thermal energy activities, Strojarstvo 49
(6), 2007., (409-420)
2. Banovac, E., Gelo, T., imurina, J., (2007.), Analysis of economic characteristics of
tariff system for thermal energy activities, Energy Policy, July 2007.
3. Pudi, D., Martinovi M., Lako, I., (2013.), The impact of prices rates on energy
consumption example and request Slavonija and Baranja, 2013., (147-157)
4. tirmer, N., Banjad Peur, I., Milovanovi, B., Carevi, I., The system of educa-
tion in the area of energy efficiency, 2013., (380-389) Available at (date of access
03.03.2014.) http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/
Energy_production_and_imports,
5. http://www.eihp.hr/hrvatski/projekti/EUH_od_45/EUH11web.pdf,
6. http://ec.europa.eu/clima/policies/package/index_en.htm,
7. http://www.ewea.org/fileadmin/ewea_documents/documents/publications/fact-
sheets/EWEA_FS-employment.pdf,
8. http://www.folkecenter.net/gb/rd/power-balancing/district-heating/,
9. http://www.tportal.hr/vijesti/hrvatska/239632/Karlovcani-opet-palili-racune-za-
grijanje.html,
10. http://www.hera.hr/hr/docs/HERA_izvjesce_2012.pdf
BUSINESS
ADMINISTRATION
AND BUSINESS
ECONOMICS
THE POWER OF SOCIAL NETWORK APPS: PHOTOCONTEST BASED APPLICATION STUDY 855
THE POWER OF SOCIAL NETWORK APPS:

PHOTO-CONTEST BASED APPLICATION STUDY
Antun Bilo, Ph.D.1, Davorin Turkalj, Ph.D.2, Ivan Rui, Ph.D. 3
1
Josip Juraj StrossmayerUniversity of Osijek, Faculty of Economics,
Republic of Croatia, abilos@efos.hr
2
Josip Juraj StrossmayerUniversity of Osijek, Faculty of Agriculture,
Republic of Croatia, dturkalj@pfos.hr
3
Republic of Croatia, ivan.ruzic@vspu.hr
Abstract
The Internet is definitely not a new medium any more. In its 20 odd year life,
it has changed and transformed almost every aspect of our social and business
interaction. However, it is still developing and it will influence the future with
global penetration and its technological capabilities. Futurists predict that a global
network such as Internet will not only connect all devices and things but living be-
ings as well. There is a lot of evidence to this theory even now. Parallel with strong
growth of global internet penetration, new forms of communication and advertis-
ing have been developing simultaneously. One of the major trends was and still is
social network utilization. Almost instantly, mass popularity and diverse interactiv-
ity rapidly attracted businesses to different social networks, with Facebook, Twitter,
Pinterest and Instagram currently being the most popular ones, even within differ-
ent businesses sectors. The most popular one is still Facebook with more than 1.2
billion monthly active users as of December 2013. Businesses are finding new and
different ways of interactive communication with their fans and target groups on
Facebook so its developers are constantly refining the communication process also
adding certain restrictions. This happens with 2 goals in mind: allowing users and
businesses to use the potential of this communication platform and steering the
ship in profitable waters. Along the typical Facebook based communication forms,
lots of businesses are using third-party applications within the same platform with
very impressive results. The aim of this paper is to explore the current forms of
856 Antun Bilo Davorin Turkalj Ivan Rui
different communication techniques for business pages on Facebook while talking

into account the relevant trends in social networking. In addition, this paper will
describe and evaluate a specific photo-contest based application within Facebook.
JEL Classification: D83, M15
Keywords: social networks, Facebook, apps, communication
1. INTRODUCTION
In the last 20 odd years, the Internet platform has been taken very seriously
in the business world and has been applied as an irreplaceable tool for operative
business efficiency. Its real value as a medium, market and communication and
distribution channel has become noticed over time (Berners Lee, 2014). Original
static brochure-like web sites have slowly been replaced by dynamic sites with sig-
nificant adaptations towards the end users and their needs. The adaptation towards
the end user and construction of social networks are significant trends of Internet
information space development on a global and local level. We are witnesses to a
dynamic and continuous transformation from the starting brochure-like Internet
space and traditional banner advertising to globally accepted social networks and
precise segmentation in direct advertising (Naughton, 2014).The implementation
of a sustainable e-marketing strategy is more than just a simple transfer of ads to
the web site i.e. the web environment is much more than a new marketing com-
munication channel. However, some time had to pass in order to understand all the
particularities of the new medium and communication channel.
2. THE RISE OF SOCIAL NETWORKS

Social networks are clearly one of the indisputable inheritances of Web 2.0.
All Internet users who are at least partially sensitive to fairly recent events in the
omnipresent Internet space are probably already acquainted with existing social
networks, if they are not members themselves. Statistical data speaks in favor of
the second assumption (Rui & Bilo & Turkalj, 2009, 29-33). Almost 200 dif-
ferent active Internet social networks i.e. active social network web sites exist today
(Smith, 2014).
At first, the largest number of business subjects which have been gripped by
the social networking trend has focused on just a few large networks among which
Facebook, Twitter and LinkedIn undoubtedly lead. However, new social networks
appear every day. While some are still quite small, new stars like Google+, Tum-
blr and Instagram have been born. These new networks give businesses a plethora
of completely new possibilities for creating interesting content in different forms
and allow them to reach completely new target groups. It has become natural for
businesses to research and experiment with social networks and networking with
the goal of reaching the maximum number of users, buyers and clients. This di-
versification has proven to bring results to many because, among other things, it
improves the value of the brand through better recognizability. A significant fact is
that search engines like Google give special content quality value to sharing on so-
cial networks because this form of virality is connected to a certain type of approval
by customers. When certain content is shared more it implies its higher quality
from the position of the user. Even though different user groups react differently
to social networks (Elliot &Polyakova, 2011), it is possible to greatly utilize social
networks for business purposes.
Business models on which social networks are based are different from service
to service; some charge for membership, others are financed through advertising.
There are some examples where the monetization hasnt started yet. At the same
time these autonomous business models form a contrast to traditional models in
which there are clearly determined boundaries between seller and buyer. On social
networks the users themselves are sometimes at the same time buyers, sellers and
even creators of communities with their content.
2.1 POPULARITY OF SOCIAL NETWORKS

Looking at the development of a broad area of social networking it can be con-
cluded that Facebook is the globally most popular network. Since 2008, when it
got ahead of the then market leader Myspace, until today Facebook has expanded
its user base and according to data from the beginning of 2014 it has 1,23 billion
active users on a monthly basis, of which 725 million visit the site daily (Facebook,
2014). At this moment, a social network that can exceed the popularity of Face-
book can hardly be imagined. However, in the turbulent digital market world big
changes can happen in a very short time, almost overnight because of the subjective
perception of the speed of certain changes (Barker & Barker & Bormann &Neher,
2013, 184-187, 198).
After the most popular Facebook, which the majority (51%) of Internet users
use, the next two social networks by popularity are owned by Google: Google+ is
in second place with 26%, YouTube is third with 25% of users according to the
GlobalWebIndex research for the first quarter of 2013. Google+ is a fairly new, but
very specific social network started in the middle of 2011 while YouTube is the
most popular network for video content reproduction and sharing. In the fourth
place we find the most famous microblogging network Twitter with 22% of users.
It is important to point out that although it is in fourth place according to the
number of active users, Twitter carries the title of the fastest growing social network
on a global scale and the 3 countries where it is growth the fastest are interestingly
Indonesia, Saudi Arabia and Singapore. After the 3 social network giants the big-
gest popularity enjoy local Chinese networks which is a reflection of the growing
technological progress of the most populous country in the world, but also of the
limited access to some other social networks. Very interesting networks with great
potential like LinkedIn and Pinterest have fewer than 10% of Internet users (eMar-
keter, 2013)
2.2 FACEBOOK FOR BUSINESSES

It was mentioned earlier that Facebook is currently the most popular social
network among Internet users. This social network has celebrated its 10th birthday
in February 2014. Apart from personal profiles Facebook enables the creation of
specific profiles which are not end user related. Companies, artists, bands and pub-
lic figures can create special user profiles using Facebook Pages. These profiles look
very similar to classic profiles, but are different in their objectives. The profiles have
a business character and companies use them for achieving their business goals. Us-
ers cannot be friends with these profiles, but they can express interest through lik-
ing a profile and connect in that way (Shih, 2011, 10-18). Although Facebook has
stopped using the term fans for such users, we will continue to use the expression
in this paper because of practical reasons.
Within the Facebook platform 5 steps can be achieved, which are available to
businesses for achieving their specific goals (Facebook for Business, 2014):
1) Set up your page, 2) Identify your audience, 3) Create compelling content,
4) Advertise and 5) Measure and adjust.
By creating a business profile, numerous possibilities for utilizing the poten-
tial that social networks have are opened. The real prerequisite for realizing the
potential is the identification of the target group. Business profiles are suitable for
creating and sharing content towards your fans and accomplishing different com-
munication and other business objectives like informing about products and ser-
vices, different events and special offers, directing users to your own web site and
receiving information from the target group (Zarrella&Zarrella, 2011, 151-155).
Apart from communication through publishing content and events and direct
communication with users, the Facebook platform enables users and businesses
to create special groups for communication in which a larger number of users can
take part. The entire communication process is helped by advertising possibilities
on Facebook. Advertisers have at their disposal an entire array of options which are
different according to the objective that is desired (Curran & Graham &Temple,
2011): Page Post Engagement, Page Likes, Clicks to Website, Website Conversions,
App Installs, App Engagement, Event Responses and Offer Claims.
A business subject can reach new fans by promoting its profile and through
specific ads it can direct users to other pages (e.g. its web site). The content which
is published can be promoted and the overall reach (the number of users who are
exposed to the content) can be expanded and/or strengthen the engagement. The
analytical possibilities of this platform are big and they give a large amount of infor-
mation on the achieved campaign results in order to create, test and improve new
campaigns. Only the number of fans was used at first, but it was soon established
that this was not a precise indicator although it is still used. The success of every
published post can be measured with the number of likes, shares and comments
and with the overall achieved reach. The engagement rate which represents the per-
centage of users which have seen the content and reacted to it is calculated based
on these parameters. These are not all metric indicators, but they are used the most.
Apart from the mentioned utilization possibilities of Facebook which are avail-
able to business users, there is a part of the platform where business subjects are
given free hand and creative freedom. Facebook apps enable this special kind of
interactivity.
2.3 FACEBOOK APPS

The basic functions of the Facebook platform from the users perspective in-
clude publishing posts, images and videos, creating groups and events and sharing
different content. These functions were developed by Facebook and are available
to all registered users. On the other hand, there is a large amount of applications
which were not developed by Facebook, but by private and business users. Such
applications are called third-party applications and they encompass a wider range
of interest spheres; from computer games and watching videos to restaurant and
club recommendations. Statistical data show that Facebook users on average install
around 20 million different apps daily (Statistic Brain, 2014).
Facebook apps can significantly change user experience and can additionally
enrich business profiles by differentiating that profile from others. A simple profile
can very fast become a very interesting site which contains videos, reviews and rat-
ings of products, games and virtual pets. App authors aim to make them interesting
and achieve a new level of interactivity which will motivate the user to visit them
and use them often (Zarrella&Zarrella, 2011, 111-128). However, it is important
to point out that one should be moderate when using these apps since activating
too many different apps can be pretty chaotic and directly influence users to ignore
them.
One of the main reasons why apps have developed a great popularity is the
fact that Facebook was rather restrictive in allowing the creation of competitions
and prize games through business profiles. This has strengthened the creation of
applications which were accessed through Facebook pages, but were situated on
a different server. However, since August 2013, Facebook has drastically removed
restrictions on creating promotional activities on business profiles, which has some-
what lowered the intensity of app development (Facebook for Business, 2013).
Nevertheless, the interactivity which apps enable and the creative space that is avail-
able to the developers is still a significant argument for creating apps in order to
achieve business objectives.
A commonly used promotion initiative which has found its home in the form
of Facebook apps is the photo-contest. Within a given time period the users are
motivated to take and share their photos by rewards. The reward model varies of
course, but the option where users vote for the winners themselves is the most com-
monly used. There are numerous solutions on the market, from commercial with
complex possibilities to simple ones (Dymski, 2013). The domestic app market
also has a number of solutions. The modern global digital market is also known for
ready-made digital products which are bought on stocks and customized according
to your own wishes. An example of one such application istested within this paper.
3. PHOTO-CONTEST APPLICATION STUDY

A specific photo-contest app was tested using the shopping mall promotion-
al activity. As it is the case with almost all similar shopping malls, this shopping
mall uses a wider array of online and offline communication activities because of
a broadly defined target group. The presence in individual communication chan-
nel is determined by the marketing department of the mall according to the yearly
budget allocation. The most significant online channels used by the mall were so-
cial networks and their official web site. The first among the social networks was
undoubtedly Facebook which was rated as the most important online communica-
tion channel according to the mall marketing department analysis. Together with
Facebook, the mall uses Twitter, YouTube, Google+ and some less significant social
networks. The mall uses most of the available communication possibilities on the
Facebook platform, from creating content and promoting it, organizing competi-
tions and prize games to promoting the business profile and external content. The
mall has already used photo competitions, although a Facebook app for this initia-
tive was used for the first time.
3.1 FINDINGS
The object of the testing was a shopping mall competition which was conducted
exclusively through Facebook apps. The mall bought a software solution as ready-
made digital product, adapted it to its needs and customized it visually according
to its own standards. The reason for this type of approach was the cost effectiveness
because financing service solutions which are used only for a limited period of time
was determined to be cost ineffective (comparative analysis commercial parameters
are available exclusively to the marketing department of the mall and are not the
subject of this paper). The application was formally placed on the mall server, but
was operated and accessed through the Facebook interface. The prerequisites for
participating in the contest included Facebook identification and confirmation of
shopping mall fan status (if the prerequisite were not already fulfilled). The user
sends his own photo and enters the contest as a participant. The photo reward
model was based on the votes of the users themselves who were able to give one
vote to each photograph. The prerequisites for voting were the same as for partici-
pating (identification and shopping mall fan status). The special Facebook rules on
competitions were in power at the time of application development. That is why
the voting was not based on likes, but based on a separate voting mechanism within
the app.
The users sent their themed photos and gathered votes through the app. The
mall promoted the app exclusively through digital channels, mostly Facebook.
With the competition rules the mall defined 3 cash prizes in the form of gift cards
for the first 3 places with a total value of 2300 HRK. The participants have pro-
moted their photosthrough Facebook functionalities and motivated friends to vote.
In this way a significant part of competition promotion was actually done by the
participants. The aim of the competition from a business perspective was shopping
mall promotion by using viral social network power through participation motiva-
tion and gathering new Facebook profile fans.The success of the competition can be
observed through two tested indicators: a) growth of the total number of fans dur-
ing the contest and b) comparative analysis with identical competitions conducted
on Facebook, but not with a Facebook app.
The tested competition took place during December 2013 and January 2014
lasting 27 days. In the mentioned period the mall had a rise in number of fans from
54.500 to 63.648 i.e. a growth of 16.9% or 340 fans daily(Figure 1).
Figure 1. Rise in total fans number over time
Source: authors research.
It was to be expected that a certain number of fans stop being fans after the
competition was over, which did not really happen (Figure 2). It is important to
point out that the increase and decrease in fans cant entirely be contributed to the
competition, but a significant influence is evident. Apart from the competition in-
fluence, we can see fan numbers peaking on the graph in May and June. Both cases
are connected with Facebook business profile promotional activities, although we
are speaking of weaker results compared to the tested competition.
Figure 2. Display of likes and unlikes over time
Source: authors research.
484 participants took part in the competition and 9898 votes were given. In
order to get some perspective we will use the same initiative that took place a year
earlier, although the competitors didnt use a Facebook app, but sent their photos
through e-mail and the voting on the winner was conducted through a Facebook
poll. Although there are significant differences in the way the competition was con-
ducted which directly makes a comparison more difficult and total cash prize was
smaller (1400 HRK), there were 110 participants in that contest and there were
no significant oscillations in fan numbers. In other words, photo contest based
on Facebook app was much more successful (more than 400% rise in number of
participants).
3.2 STUDY LIMITATIONS AND IMPLICATIONS FOR FURTHER RESEARCH

As we are talking about a relatively unexplored Facebook app area regarding pos-
sibility analysis and effect, we must establish some important testing parameters
which served as conditions for platform choice: a) the shopping mall uses Facebook
from the beginning of its business operation (more than 2 years), b) Facebook con-
stitutes a significant online communication channel (according to achieved commu-
nication and budget objectives) c) we are talking about a fairly large online popula-
tion that follows a shopping mall through Facebook (the category of 50 000 - 100
000 fans). Although it is hard to talk about standard conditions because similar
research is not available, we can assume that the mentioned parameters minimize
the influence of uncontrolled factors (e.g. special market sector and business subject
features, seasonality etc.) However, the minimization of influence does not imply its
non-existent. Every photo contest has its own peculiarities and is not standardized in
all its parameters so clear differences can be spotted. The mentioned factors directly
influence the achieved results and their interpretation. Further testing and research
of interactive Facebook communication and influence on achieving defined com-
munication (and other) goals of business subjects is needed because of this.
4. CONCLUSION
Parallel with strong growth of global internet penetration, new forms of com-
munication and advertising have been developing simultaneously. One of the ma-
jor trends was and still is social network utilization. Almost instantly, mass popu-
larity and diverse interactivity rapidly attracted businesses to different social net-
works, with Facebook, Twitter, Pinterest and Instagram currently being the most
popular ones, even within different businesses sectors. Businesses are finding new
and different ways of interactive communication with their fans and target groups
on Facebook so its developers are constantly refining the communication process
also adding certain restrictions. Along the typical Facebook based communication
forms, lots of businesses are using third-party applications within the same plat-
form with very impressive results.
The testing of a Facebook photo-contest application on the example of achiev-
ing specific objectives of a business subject was presented in this paper. A large
potential that applications have for achieving different objectives is apparent from
the results, mainly in the form of interactive communication and consumer partici-
pation motivation. With all the mentioned research limitations and special char-
acteristics, the Facebook photo-contest app has proven itself as a significant target
group interest generator and an interesting platform for conducting viral marketing
techniques. However, further testing and research of interactive Facebook commu-
nication and influence on achieving defined communication objectives is necessary.
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866 Sanja ori Danijel Bara
BUSINESS PROCESS MANAGEMENT IN INSURANCE

CASE OF JADRANSKO INSURANCE COMPANY
Sanja ori, M.Sc.1, Danijel Bara, MBA2
1
Jadransko osiguranje JSC, Republic of Croatia, sanja.coric@jadransko.hr
2
Jadransko osiguranje JSC, Republic of Croatia, danijel.bara@jadransko.hr
Abstract
Selling insurance products in conditions of todays modern technological solu-
tions is faced with numerous challenges. Business processes in insurance as well as
the results of these business processes are the real interface to policyholders. Model-
ing and analysis of business process in insurance ensure organizations to focus on
the customer and increase the efficiency and quality of work. Managing critical
business processes in every single organization, likewise in insurance is a key factor
for the success. To succeed in todays business environment, insurance companies
must possess two important things:
1. Business processes that are cost effective and error-free
2. Agility to quickly adapt to changes in strategy and business processes
Business processes should be controlled by an automatic system, including their
management and control system in real time based on the Balanced Scorecard con-
cept. In this paper we will analyze the model through which it is possible in a
relatively short time to ensure business processes mastering. Although the model
in this paper is primarily described for insurance companies, it can be applied to
other organizations.
Keywords: business process, business process management, business process
operationalization, insurance
BUSINESS PROCESS MANAGEMENT IN INSURANCE CASE OF JADRANSKO INSURANCE ... 867
Introduction
1.1. Data sources and collection methods
In this work both primary and secondary data are collected. The secondary data
used has been critically evaluated and has been collected from relevant domestic
and foreign literature, databases, international and national journals and internet
sources. The primary data is collected by semi-structured qualitative interviews
with experts in fields of BPM (Business Process management) as well as managers
from different organizations and on the basis of own experience of the authors.
1.2. The content and structure of work

This work will initially approach the problem of managing business processes
and then through the example of analyzing, modeling and management of business
processes in the Jadransko insurance on a concrete example to analyze and com-
ment on the results.
2 Business Process Management

Todays world economy, where large multinational companies spread their mar-
kets globally under the influence of modern technology, sharpens competition in
very way companies are trying to find ways to increase the efficiency and effec-
tiveness and at the same time cutting costs. Insurance companies also feel a lot of
pressure on their business, which is aimed at improving performance, increasing
profitability, quality implementation of user requirements and increase return on
investment. As a result of these circumstances and requirements of the business
process approach imposes itself as an important element in creating market advan-
tages (Zavacki, 2009, p.1.).
2.1. Business Process Definition

We can say that business process is described as a network of activities and buf-
fers through which the flow units have to pass in order to be transformed from
inputs to outputs (Laguna and Marklund, 2005, p.1). Unique and simple defini-
tion of a business process depends on the context of use and in reality does not
exist. Harrington (1991), Davenport (1993) and Martin (1993) defines a business
process as a sequence of logically related activities and companies resources, with
the ultimate aim of which is to achieve customer satisfaction with their products or
services of appropriate quality and price, within a reasonable time and the pursuit
of added value (Bosilj, Vuki and Kovai, 2004, p.9).
Business processes can be viewed as the sum of the activities with the need for
one or more types of input variables (input) which achieved a goal that has value to
the user (output) (Lonar, 2007th, p.8.).
In its definition of business processes in BPM Schurter assumes that key pro-
cesses are defined by business attributes, and not by the prevalence of tasks or steps,
routines, activities and rules in the process. He notes that much of the confusion
brought here by the fact that the processes are expressed through work assignments,
and such an approach emphasizes the software applications (Schurter, 2005).
Schurter argues that the process is in the service business functions and that it
is its primary determinant. As an example he cites the business process execution
orders: business purpose of the process in this case is the delivery of a specific prod-
uct to specific person at a specific time, based on outstanding orders. In this case,
it is the definition of a business process in the execution of orders, while a detailed
description of the steps necessary in its execution is not his definition, only folders
of the business process. Schurter further finds that the definition of a business pro-
cess does not contain a description of the minimum number of steps, actions, rules
or ways of working tasks. The definition of a business process according to him lies
in the specifics of organizing functions that are performed in the organization. In
most cases, business processes exist within a single functional segment of the orga-
nization. As with corporate business processes, business processes are not quantifi-
able criteria, but they are in most cases representing a specific business function
that is tightly integrated into the work tasks of the process (Schurter, 2005).
Business is a system of integrated business processes. Understand how to run
their business and communicating between employees, partners, customers and
suppliers may pose a significant competitive advantage and business.
Bosilj Vuki, Hernaus and Kovai (2008, p.19) defines the basic characteris-
tics of business processes as follows:
Each process has a purpose;
Each process has an owner;
Each process has a beginning and end;
Inputs are entering the process, outputs are exiting process;
Process is composed of sequential feasible activities;
Based on the inputs and outputs of the process can be easily determined by
the success of the process;
To survive the process should have known internal and external suppliers and
customers;
Process improvement is inevitable.
2.2. Business Process Classification

Depending on the context in which the business process is mentioned there are
several classification processes. Each company represents a special case and must
be viewed through the interconnection of business processes and their respective
dimensions. All organizations have a full range of common and similar processes,
as well as business dimensions, no matter how much it is special or think they are
special:
Division by the organizational structure;
Division at intervals;
Breakdown by territory;
Breakdown by category of products and services;
Division by the suppliers and customers.
According to the field of action process within the organization, they are divided
into three different types (Laguna and Marklund, 2005, p.3):
Individual processes are performed by individuals;
Vertical (function) processes that are part of the functional units or depart-
ments of the organization;
Horizontal processes that go through several functional units.
We can also distinguish three logical components of a business process (Ould,
2005, p.145):
management information process,
operating process,
Process management.
The control information process implies that a part of the overall management
information system is related to a specific business process. Operating process cre-
ates man, and consists of people, equipment, organization, policies and procedures,
all of which is aimed at ensuring the effective operation of the organization. The
control process also creates man, and consists of people, authority, organization,
policies and procedures with the aim of planning and control activities taking place
within the organization. Motor for focusing the attention on business processes can
be, regarded as M.E. Porter, who presented the concept of the company, as a value
chain (Bosilj Vuki, Hernaus and Kovai, 2008, p.30). Value chain comprises
multiple business processes, development of new products and ordering to sales
and customer support after the completion of the sale.
Figure 1 The division of business process activities
Source: M.E. Porter 1985, pp. 11-15
According to Porter, the value chain consists of primary and secondary (sup-
port) activities (Figure 1). All secondary activities must be included in the unique
value chain. Unlike the primary, secondary activity does not have direct value for
the company, but are necessary for its operation (Palai, 2009, p.7). The process
is part of the value chain, and depending on the complexity can be divided into
smaller parts, i.e. sub-processes. For example: the purchase of shares, on ordering,
negotiating, contracting, receiving, warehousing, payment, etc. The activity is the
smallest part of the process that makes sense to model and display the diagram.
Activity may appear relatively complex task that work for a particular project is
not necessary to examine in more detail, but the simplest operation that cannot be
further broken down and called the step (Bosilj Vuki, Kovai, 2004, p.9).
2.3. The concept of Business Process Management (BPM)

Business around the world is under enormous pressure of high competition
and the business environment that is rapidly changing and increasingly demanding
customers. There are three trends that contribute to this pressure, and these are:
Globalization,
Technological, legislative and regulatory changes,
More and more agile and flexible organization.
All these pressures have created an interest in analyzing how business can be-
come more flexible and effective. Each organization is defined with a lot of business
processes that describe the way in which the organization conducts its business.
Some processes are key to an organizations operations and make its comparative
advantage. Some are not so critical, but are still essential for its functioning. Busi-
ness processes are, in essence, the nervous system of each company (Khan, 2003,
p.15) and it is therefore important to manage them. Business Process Management
(BPM) combines a managerial approach with appropriate technology in order to
improve the performance of companies. BPM is a systematic approach to improv-
ing operations based on design, measurement, analysis, improvement and manage-
ment processes. BPM is based on a business approach to change management for
improving business processes with the ultimate goal of achieving business goals,
while changes include the entire life cycle of the process: from defining and model-
ing to implementation, analysis and optimization of the process (Figure 2).
Figure 2 Life cycle management of business processes
Source: Lonar, 2007, p.14
The first step in managing business processes is to design or to define business

processes. The owners of the business process at this stage have the most important
role because they have business requirements and available resources (Lonar, 2007,
p.14). The next stage of the business process is modeling and it involves collecting
sufficient detail in order to understand how the process works and then formalize
the flow of business processes using business process flow diagram. Business process
within the company then implements and executes the monitoring and monitored
Key Performance Indicators (KPI) companies. The collected data are analyzed to
identify unexpected behavior, non-optimized flows and bottlenecks, and on the
basis that optimizes process. With BPM companies can be achieved:
Higher quality;
Time reducing;
Cutting costs;
Improvement;
Business risk reducing.
Today, the BPM concept is an integral part of any organization that wants to
become and remain competitive.
2.4. The concept, development and the importance of process orientation

During the eighties the management prevailed functional i.e. vertical perspec-
tive that emphasized strict managerial control. Strong functional structure has led
to the creation of isolated departments so called silos operations of the company.
Business and operating results are tracked individually, at the departmental level,
and this has led to inefficient operations (Lonar, 2007, p.11). In the early nineties
the attention of the academic community and the business world began to attract
the concept of business process and orientation to business processes.
Table 1 Difference between traditional and process oriented enterprise

Feature Traditional enterprises Process-oriented company
Business view Business Function Business process
Organizational Unit Section Process teams
Work tasks, jobs Narrowly defined Flexible and our comprehensivenor
Focus staff The supervisor protected, managers Customers
The fee is based on Implementation activities Achievements
The role of leadership Supervision Mentoring
The key to a person Director of (the business functions) The owner of the business process
Business Culture The supervisor up area, conflicts Participation, cooperation
Source: Bosilj Vuki, V., Hernaus, T., Kovai, A. (2008.), pp. 53.-55.
Table 1 shows the differences in characteristics between traditional and pro-

cess oriented enterprises. Because of the business functions orientation, traditional
enterprise does not have a clearly defined image of the entire process. It is poorly
focused on the customers and there are unnecessary bottlenecks and barriers. Com-
munication and rivalry among organizational units were poor and there are con-
flicts between different departments.
The original theorists of process philosophy were W.E. Deming, M.E. Porter,
T.H. Davenport, M. Hammer, J. Champy, R. Coombs and R.Hull (Bosilj Vuki,
Hernaus and Kovai, 2008, p.22). According to the process, i.e. horizontal view
business processes constitute the core of the functioning of a particular organiza-
tion because the organization is primarily made up of the process, not the product
or service (Bosilj Vuki et al., 2006, p.7.).
In a process oriented companies focus on process provides a better focus on the
customer, determining the limits of the process, and customer and supplier pro-
cesses is achieved by better communication, specifying the owner of the processes
that are responsible for the process of avoiding the traditional fragmentation of
responsibility.
3. BPM in the Jadransko insurance company

As explained in the previous chapters, BPM is a business initiative, using software
tools introduces order in respect of due process procedures and allows the reporting
of companys business processes in real time. Concise explanation can be further
described with insurance companies requirement to rapid change adaptation.
Underwriting software, beyond which typically are large investments because
it is often based on its own development team, in most cases does not cover all
aspects of the process. The daily operations of insurance companies, with au-
tomated activities, which are often accompanied by good software solutions,
perform many of the activities that are dependent on the human factor. In order
to achieve full transparency of the performed work and to have constant access to
critical data about the business, it is necessary to measure the effectiveness of all
activities, regardless of their human or automated nature. In mastering the business
processes it is necessary to define the steps that follow one after the other in order
to subsequently make appropriate business decisions. Two steps to the beginning
of the process followed by the:
1) Documenting Business Processes,

2) Operationalization of Business Processes.
Today, documenting business processes is typically performed using tools
for Business Process Analysis (BPA) and then operationalized through systems for
Business Process Management Suites (BPMS). The description of these steps on
a concrete example, will give some practical tips and recommendations for the
implementation and optimization of processes in an insurance company, as well as
the benefits to society resulting from the automation of business processes, i.e. their
economic benefit.
According to leading business analysts researches (Gartner, McKinsey), business
processes are at the very top tier of business priorities since 2005. It is expected that
this will be a market with high growth in the next five years. The question that is
certainly troubling decision makers is why go into business process automation
precisely in moments of crisis, and not wait for a better time?
In order to obtain an answer to this question it is necessary to analyze the busi-
ness environment. The consequences of the analysis of the business environment
are reflected in the cessation of growth, or reduce the number of employees. Fur-
thermore, the volume of business has increased due to the impact of the crisis on
clients in the form of pressure on the technical departments due to the cancellation
of insurance, increasing the number of attempts at fraud claims, increasing the
amount of unpaid premiums, etc.
Figure 3 Hype Cycle for BPM, 2011.
Source: Gartner 2013.
3.1. The efficiency of the business in insurance company

In such a framework, in order to manage the new situation accompanied by
reduced capacity, the insurance companies have only one way out, which is to in-
crease the efficiency of the performance of business processes.
Insurance companies are continually faced with the pressure to improve per-
formance, increasing profitability, providing superior customer service, and return
value to shareholders. In the last few years in managing business processes winning
combination proved to be the one that helps insurers to achieve these business ob-
jectives and create competitive advantage.
The insurance industry is inherently paper-driven process by which the insurer
agrees to provide the contractor with a particular service, one day in the future. For
the conclusion of the contract, it is necessary to interpret information from differ-
ent sources as well as reaching certain conclusions. From the foregoing, it is evident
that the insurance companies are process-oriented companies, and that in any case
would benefit from the implementation of business process management.
3.2. Operationalization of the business process

Despite the obvious benefits of documenting business processes, only the opera-
tionalization of the business process allows full statement affirmation: Introducing
the BPM system, directors are provided with a tool for easy management of the company.
Why is this so? Just documenting business processes does not mean that the com-
pany has implemented a business process management.
The following problems still have a strong influence on the activity of the com-
pany: operational processes are not performed as described, operational processes
are inconsistent, there are some jobs that are duplicated and not standardized, per-
formed mainly by hand, with numerous paper documents, etc. Modern business
organization is composed of human and computer (automated) activities. Within
the process these activities are usually intertwined. The aim of the operationaliza-
tion of the business process is to create a system that can measure the performance
of the process and its actors (primarily those human).
In order to achieve this, based on a documented process of describing the stages
of the business process, graphics interface are made for human users (simple forms,
forms that are used to display and enter basic data required to perform certain
activities within the process) and integration among different computer systems.
The performance of each activity system are carefully recorded and based on
data collected allows different types of process analysis behavior. All of the above
methodology in the management of business processes is called the operationaliza-
tion of the business process. Depending on the role played by the user in an insur-
ance company, there are three ways in which user sees the business process:
Operating (ordinary) user
Process analyst or process owner
Administration and Management
4. Analysis of the business acquisition process in the Jadransko insurance

company
4.1. Initial recording business acquisition process
Figure 4 Discovery Map workshops held after 03.11.2010.
Source: Internal Jadransko insurance company data
With the onset of the global financial crisis and the recession that followed
thereafter, in the Jadransko Insurance appeared a necessity for more efficient
management of business processes. As the first and one of the most important
business processes, the process of obtaining car insurance policy represented the
initial process wanted to be completely mastered and it was decided that this should
be the first business process on which to apply the previously mentioned process
documentation and business process operationalization.
After initial talks and workshops, the first snapshot of the business processes of
car insurance policy acquisition was made, in the way the same process was seen by
managers and managing directors. Figure 4 shows the Discovery Map after initial
snapshot.
4.2. Results after two weeks of commenting on 16.11.2010

After the workshop 03.11.2010 Jadransko insurance employees were allowed to
comment on the process described. For the purpose of commenting, IBM Blue-
works tool is used (at that time was called Blueprint) in which in a very simple and
intuitive way it is possible to enter employees comments, comments from power
users, etc. During this period Jadransko insurance employees entered 158 changes
and comments to the Blueworks tool. User activity statistics (changes, comments,
answers, etc.) can be seen on the graphs shown below.
Figure 5 Statistics of Blueworks tools usage
The diagram shows that the activity about describing the process was highest in
the first days of the project. Statistical interest related to describing the process after
16.11.2010 is lower. Despite the explosion of the activity number and detailing the
process map, there were almost no comments from the Jadransko to any treatment
and a new description of the process.
4.2. The final version of the process - 05.12.2010 (Discovery Map)

Results of conversation with the proposed experts for specific activities and anal-
ysis of entered comments made detailed image of a business process which is in the
final version of the paper at the highest level seen in the fact that the process dia-
gram 03.11.2010 had 29 activities, and the final of 05.12.2010 had 94 (!) activities
in the primary process and the four sub-processes with their respective activities.
Figure 6 Final version of the process (Discovery Map)

4.3. The final version of the process - 05.12.2010 (Process Map)

In order to analyze the flow of activities in the process, Process Map was made,
which was associated with the activities associated received conditional branch-
ing. Such an image of the process described by recent instances of the process was
used to identify problematic situations in borderline cases that are subsequently
processed.
Figure 7 The final version of the process (Process Map)
Figure 7 is illustrative. This process was the subject of an initial separation Car
Insurance acquiring process under appropriate business decisions.
4.4. The distribution process

During the process analysis, it was concluded that it is not a single process, but
rather that certain elements of the process are shared with other types of insurance.
The first example of such a case is the separation Printed materials orders from the
process of Car insurance acquiring, because it is about specific activities, some of
which have no direct connection with arranging insurance (e.g. advertising folder).
Review of initial separation process of Car insurance acquiring in more specific
process vividly shown in the lower diagram.
Figure 8 Diagram of the distribution process of acquiring Car Insurance
With this stratification process, the process of contracting auto insurance has
become its lower part while further achieve the possibility of re-use process, the
more common type of insurance in several places in the companys business pro-
cesses [e.g. Property insurance].Description of the process
Following the distribution of these processes, in Blueworks tool was opened a
new project called Car-insurance - current process. Within it are all the processes
outlined in this document, which came as a result of the analysis.
Figure 9 The process of Car Insurance acquiring

Figure 10 Process map underwriting of Car Insurance
4.5. Recommendations after analyzing the business process

Following the analysis of business processes, detailed recommendations are
made for each process and for each sub-process. The document listed only some
recommendations in order to be able to gain an insight into the work, and to dem-
onstrate the systematic approach to solving every single problem.
These recommendations were needed to be discussed by several people who
work in the described activities, in order the solution is based on their feedback and
optimal found for all employees and subsidiaries of the company.
Recommendation 1 - Distribution of the description of the process for review
to all branch offices
In order to standardize and unified the process in each of the subsidiary compa-
nies, it is recommended that the results of the process are distributed to all branch-
es. For customers in the branches, the quickest way to achieve this would be to
open accounts in Blueworks tool [www.blueworkslive.com].
If this is not possible due to the limited number of licenses that are available
to the Company, the distribution can also be done by sending the documents in
electronic format: Word or PDF (Word is the preferred format because of the pos-
sibility to track changes). Distribute copies of the paper is not recommended.
Recommendation 2 - Unification of internal documents
During the analysis there are encountered significant deviations in the appear-
ance of the documents used to support some parts of the process in the branches
and the head office and among the branches. It is necessary to unify the look of all
the forms and documents at the level of company in order to facilitate users to work
with documents and consequently avoid mistakes.
Recommendation 3 - Customize the output specifications to user needs
Necessary data on discharge of the day and specifications associated with the
discharge of the day are different from user to user: sales, rentals and accounting.
Accordingly it is recommended to print tailored to the needs of individual users to
accelerate the control and conclude the day.
Recommendation 4 - Automatic tariff
Install the automatic tariff. For a growing number of Car Insurance policy (over
60%) it is possible to determine the parameters of control in a way that there is no
further need for physical policies control. In this case person who is tariffing would
only need to confirm that the policies are physically arrived in the office. The compa-
ny has already raised almost all the necessary parameters for this automated approach.
The parameters which must be comparable to the previous and new policies, to
make sure that the correct policy is going in the Insurance Bureau, or that tariffing
person does not have to check the attachments with the policy are:
The contractor (per PIN or VAT-in)
License plate
The correct jump premium grade and the same level of premium if the
policy has a 50% bonus
Premium group
Claim check
Chassis number check
Discount or allowance
For final confirmation it is recommended to use Web services HUO [Hrvatska
Udruga Osiguravatelja] control premium grade because it contains a sufficient set
of data that can unambiguously confirmed the correctness of the data on the policy.
Recommendation 5 - Improvement of IT
There is a common example of unintended replacement forms when printing
on printers or mixing strict records documents between different for producers. To
avoid this it is possible, instead of just printing the check numbers, for the strict
records documents to print a bar code, and using a reader always unambiguously
determine which strict records document are in order. This would almost com-
pletely avoid the need for subsequent adjustments to the system.
Recommendation 7 - Operationalization process
Document with which the process of obtaining Car insurance policy is ana-
lyzed, as well as the pertinent process, is fundamental document for the movement
in the operationalization of the business processes analysis, which is the ultimate
goal of any BPM project.
The recommendation in this direction has been made in order to make the
process of operationalization of priority identified in this document and the lead-
erships of the Company receive the mandate and resources (financial, human and
time) to automate every process.
Another recommendation is to automate the process one by one, maximum
atomized (as smaller projects with a limited scope, which include specific activities
that can be carried out separately and used within multiple processes).
This approach avoids the principle of the Big Bang where the full range of pro-
cesses implemented at the same time, which ultimately increases the duration of
the project and the necessary resources without achieving quick results. Before the
operationalization of any process, the recommendation is to communicate clearly
the objectives of the project under the top management of the Jadransko Insurance
and maximum transparency to systematize key performance indicators by which to
monitor the activities of employees in the process.
When selecting priorities for automation of the first implementations choose
Quick Win processes that will bring quick results and effective management to
justify the investment in business process management.
5. Conclusion
For success in todays competitive market managers necessarily requires the in-
troduction of changes. However, before that, it is necessary to detect and analyze
problems or trends to help them at all and could react and introduce some changes.
For example, the analysis of Car Insurance Acquiring business processes in

the Jadransko Insurance evident necessity for ongoing management of business
processes in order to achieve better efficiency and effectiveness as well as business
decisions.
Automation of business processes using modern BPM tools is therefore an es-
sential tool in todays competition. Business processes are constantly changing so
they should continually monitor and react to any changes or anomalies that occur
due to various circumstances.
If the company goes into the process automation of business processes, that
must be carried out systematically, organized and very carefully because the au-
tomation itself entails reducing the need for human resources which can lead to
large-scale resistance to the implementation. In this process, all employees must
find their place and well-being, and only that will lead company to success in BPM
project operationalization.
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ECONOMIC
DEVELOPMENT,
TECHNOLOGICAL
CHANGE
AND GROWTH
ECONOMETRIC MODEL FOR FORECASTING TRAFFIC ON CROATIAN MOTORWAYS 891
ECONOMETRIC MODEL FOR FORECASTING TRAFFIC ON

CROATIAN MOTORWAYS
Drago Pupavac, Ph.D.1
1
Polytechnic of Rijeka, Republic of Croatia, drago.pupavac@veleri.hr
Abstract
The basic objective of this scientific debate is to develop an econometric model
for forecasting traffic on Croatian motorways. After many trial and errors proce-
dures, two econometric models have been developed: one for the average annual dai-
ly traffic (Y=-2078,11-280,9GP+0,0012RV+0,695TA+4,129NE, r=0,85) and one
for the average summer daily traffic (Y=7452-1097,55GP+0,00746RV+2,076TA-
9,5NE, r=0,91). In both models, the GDP was dismissed as a variable which direct-
ly affects the traffic on Croatian motorways. In both models gasoline prices(GP),
the number of registered personal vehicles (RV), the number of tourist arrivals (TA)
and the number of employees (NE) were selected as explanatory variables.
JEL Classification: C01, C15, C51, C53
Keywords: econometrics, model, Croatian motorways, average traffic
1. Introduction
Forming the modern phenomena of global traffic and economic situation, there
are numerous infrastructural projects worth millions and billions of dollars. Mega-
projects mark the central point of a new policy concerning spatial and temporal
distance, so it is hardly surprising that certain infrastuctural projects bring together
governments, regional groupings, private equity and development banks. However,
there is also a paradox reflected in the fact that costs of these projects often twicely
exceed the anticipated costs, while the actual traffic demand is often twice as low
than indicated. The truth is that many of the infrastructural projects have become
infested with manipulation, deception and lies, and there is little to be trusted, in
particular not the scientifically based and factual figures of analysts. For instance,
John Perkins in his book Confessions of an Economic Hit Man describes the ac-
892 Drago Pupavac
curacy of an econometric model which he developed with Nadipuram Prasad, his

associate: I brought a young MIT mathematician, Dr. Nadipuram Prasad, into my de-
partment and gave him a budget. Within six months he developed the Markov method
for econometric modeling. Together we hammered out a series of technical papers that
presented Markov as a revolutionary method for forecasting the impact of infrastructure
investment on economic development. It was exactly what we wanted: a tool that sci-
entifically proved we were doing countries a favor by helping them incur debts they
would never be able to pay off. (Perkins, J., 2004, 102)
When this is taken into consideration, the idea of public debt monetization of
Croatian motorways using the mechanism of granting concessions for toll collec-
tion and motorways maintenance is not at all surprising. The future concessionaire
is supposed to take over the concession for toll collection, regular and emergency
maintenance and motorway management from companies HAC and ARZ (1049,7
km of ready motorway network) for a period of 30 to 50 years. One of the assump-
tions used in the study to calculate the concession fees is the annual increase in
traffic on Croatian motorways of 1,5% per year(Monetization AC, 2013, 60). If
the public partner guarantees minimal traffic to the concessionaire, that is, if the
minimal profitability is guaranteed, they should be extremely cautious and consider
the potential increase in traffic realistically. Otherwise, there is a great chance that
desired effects might be absent in the future.
Accordingly, the main objective of this paper is to develop an econometric mod-
el to function as a more accurate tool for traffic forecasting on Croatian motorways,
so that the Government would be able to achieve their goals and get the expected
concession fees over the next 30-50 years. In other words, if the investors assess
that the expected constant increase in traffic is not realistic, the Government could
get the desired concession fees only if the concessionare is to achieve considerable
business rationalization of Croatian motorways operators and/or if the tolls are to
be raised given the business costs (Grubii, 2013, 641).
2. Model selection and statistical data

The avaibaility of many different models would suggest that the best practice
would have been indentified leading to gihg levels of forecatsing accuracy. Un-
fortonately the accuracy of traffic forecasts is low as shown by table 3 for French
motorways.
Table 1: Actual against forecast traffic, Franch autoroutes

Number of autorute Autoroute section Acutal/forecast traffic (% error)
A8 Aix - Frjus -3,2
A61 Toulouse Narbonne +5,3
A10 Poitiers Bordeaux +6,3
A81 Le Mans Rennes -21,6
A40 Macon Genve +54,4
A42 Lyon Pont dAin +48,4
A62 Bordeaux Toulouse -5,8
A11 Angers Nantes -25,3
A31 Toul Langres +0,9
A11 Le Mans Angers +69,2
A72 Cleremont Ferrand Saint_tienne -21,2
A71 Bourges Clermont-Ferrand -12,5
A51 Aix Manosque -11,1
A26 Reims Arras -15,3
Mean -2,0
Izvor: SETRA, 1993., prema: Quinet, E., Vickerman, R..: Principles of Transport Economics,
Edvard Elgar Publishing, Inc. Norfolk, Great Britain, 2008., p. 112.
Although on average actual traffic was overestimated by a small margin of 2

per cent, there were enormous variations with over-estimations of 25 per cent and
under-estimation of 70 per cent. The UK National Audit Office (1988) came to
the similar conclusion, that traffic forecasts for British motorways. Flyvberg et al.
(2003) surveyed 210 projects (27 rail and 183 road) worldwide. For rail projects
they indentified that in 85 per cent of cases there was an error of more than 20 per
cent in forecasts and on average traffic was 39 per cent lower that that forecas (i.e. a
65 per cent overestimate on average). For road projects forecast more accurate, but
there were still 50 per cent of cases where the error was more than 20 per cent. They
identified seven reasons for inaccuracy: 1) methodological problems, 2) poor data,
3) behavioural change, 4) unexpected exogenous factors, e.eg. unpredicted changes
in fuel prices, 5) unexpected political factor, 6) appraisal bias of consultant, 7) ap-
praisal bias of projects promoter.
The application of econometric models in researches is preceded by the choice
of dependent variable. In this analysis, the dependent variable is the average annual
daily traffic, and the average summer daily traffic. This is followed by choosing in-
dependent variables which will be used to explain the value of dependant variable.
894 Drago Pupavac
In this analysis, these are: the price of gasoline, the number of registered vehicles,
the number of tourist arrivals and the total number of employees.
Empirical analysis of the multiple regression model is based on the values of
selected variables. It is assumed that for each variable there is a number of different
values at disposal, so the model is written in this form:
Yi = a + b1xi1 + b2xi2 + ... bjxij + ui. (1)
Table 2 shows data on the movement of variables to be subjected to regression

analysis.
Table 2. The movement of values of selected variables from 2000 to 2010.

Year GP (HRK) RV TA (000) NE (000) ASDT AADT
2005. 7,4 1790971 9995 1420 19713 10584
2006. 7,63 1866741 10385 1468 21000 12000
2007. 7,72 1949936 11162 1517 22894 12541
2008. 8,25 2021936 11261 1555 21656 12102
2009. 7,21 2005210 10935 1499 22702 12155
2010. 8,18 1969587 10604 1432 21404 11321
2011. 10 1969405 11456 1411 22062 11683
2012. 10,45 1863741 11835 1395 20832 11182
Source: INA, SLJH, various editions and Hrvatske autoceste Ltd.
Numerous studies confirmed that traffic depends on movement of the gross

domestic product. Thus, when drafting the Transport Development Strategy of
Croatia (NN 139/99), the starting point taken was the approximate projection of
GDP movement. Forecasting road transport demand was based on the assump-
tion of constant Croatian GDP growth until 2010. A similar approach was taken
in the published study Public Debt Monetization in Relation to HAC and ARZ
Companies. The cited study noted that the increase in traffic is positively correlated
with GDP growth, therefore 1,5% was chosen as a long-term average increase in
traffic to reflect the current economic development (Monetizations AC, 2013, 61).
Accordingly, and based on statistical data from Table 2, Paersons correlation co-
efficient was calculated to determine the relation between the average annual daily
traffic and the average summer daily traffic, both being independent variables with
selected dependent variables (cf. Table 3).
Table 3: Corelation results

Correlations (Autoceste1.sta)
Marked correlations are significant at p < ,05000
N=8 (Casewise deletion of missing data)
Variable Means Std.Dev. GP RV TA NE GDP ASDT AADT
GP 8 1,21 1,000000 -0,015682 0,767744 -0,557694 0,022035 -0,075332 -0,240416
RV 1929691 80486,34 -0,015682 1,000000 0,436238 0,594558 0,880301 0,808654 0,678449
TA 10954 601,42 0,767744 0,436238 1,000000 0,008413 0,535489 0,464578 0,320523
NE 1462 57,11 -0,557694 0,594558 0,008413 1,000000 0,769008 0,543424 0,772312
GDP 320 13,62 0,022035 0,880301 0,535489 0,769008 1,000000 0,708157 0,747870
ASDT 21533 1043,24 -0,075332 0,808654 0,464578 0,543424 0,708157 1,000000 0,862490
AADT 11696 635,10 -0,240416 0,678449 0,320523 0,772312 0,747870 0,862490 1,000000
The data in Table 3 confirm a statistically significant correlation between the

gross domestic product and the average annual daily traffic (r=0,74; p<0,5), or
between the gross domestic product and the average summer daily traffic (r=0,71;
p<0,5). However, gross domestic product was not selected as an independent vari-
able because of its statistical correlation with the number of registered vehicles
(r=0,88; p<0,5) and with the total number of employees (r=0,77; p<0,5) , so the
number of registered vehicles and the total number of employees were selected as
independent variables. The accuracy of this approach is confirmed by a statistically
significant correlation between the number of registered vehicles and the average
summer daily traffic (r=0,81; p<0,5) and between the total number of employees
and the average annual daily traffic (r=0,77; p<0,5).
896 Drago Pupavac
3. Research results
By feeding the data from Table 2 to Statistica, regression analysis of the average
annual daily traffic on motorways was made (cf. Table 4).
Table 4. A print of Statistica processing for annual daily traffic

Regression Summary for Dependent Variable: AADT (Spreadsh
R= ,85831660 R2= ,73670738 Adjusted R2= ,38565056
F(4,3)=2,0985 p<,28440 Std.Error of estimate: 497,80
Beta Std.Err. B Std.Err. t(3) p-level
N=8 of Beta of B
Intercept -2078,11 7441,634 -0,279254 0,798195
GP -0,536350 0,978658 -280,97 512,680 -0,548046 0,621806
RV 0,161982 0,438081 0,00 0,003 0,369753 0,736126
TA 0,658515 0,847867 0,70 0,895 0,776673 0,493967
NE 0,371346 0,660128 4,13 7,341 0,562536 0,613047
The data from table 4 show negative correlation between the price of gasoline
and the average annual daily traffic on Croatian motorways. Other variables have a
positive impact on the average annual daily traffic.
Regression analysis of the correlation between the annual daily traffic measured
by the number of vehicles, the gasoline prices, the number of registered personal
vehicles, the number of tourist arrivals and the total number of employees, offers
the following model of multiple linear regression:
YAADT = -2078,11 - 280,9GP + 0,0012RV + 0,695TA + 4,129NE (2)

Chart 1 shows the comparison between the real values and model predicted
values of independent variable. A satisfactory suitability of model values and the
actual values is fairly obvious.
Chart 1. The comparison between the results of the econometric model and the
actual data for the average annual daily traffic on Croatian motorways
Using the Statistica software and data from Table 2, a regression analysis of the
average summer daily traffic was made (cf. Table 5).
Table 5. A print of Statistica processing for average summer daily traffic

p p g g
Regression Summary for Dependent Variable: ASDT (Spreads
R= ,91382474 R2= ,83507565 Adjusted R2= ,61517652
F(4,3)=3,7975 p<,15087 Std.Error of estimate: 647,16
Beta Std.Err. B Std.Err. t(3) p-level
N=8 of Beta of B
Intercept 7452,93 9674,522 0,77037 0,497189
GP -1,27547 0,774558 -1097,55 666,511 -1,64671 0,198173
RV 0,57587 0,346719 0,01 0,004 1,66090 0,195318
TA 1,19698 0,671044 2,08 1,164 1,78375 0,172466
NE -0,52035 0,522458 -9,50 9,543 -0,99597 0,392670
898 Drago Pupavac
The data from table 5 show a negative correlation between the price of gasoline
and the average summer daily traffic on Croatian motorways, which was to be
expected. But the surprising fact is a negative correlation between the number of
employees and the average summer daily traffic. Other variables have a positive
impact on the average summer daily traffic.
Regression analysis of the correlation between the average summer daily traffic
measured by the number of vehicles, the gasoline prices, the number of registered
personal vehicles, the number of tourist arrivals and the total number of employees,
offers the following model of multiple linear regression:
YASDT = 7452 - 1097,55GP + 0,00746RV + 2,076TA - 9,5NE (3)
Chart 2 shows the comparison between the actual values and model predicted
values of independent variable. A satisfactory suitability of model values and the
actual values is fairly obvious.
Chart 2. The comparison between the results of the econometric model and the
actual data for the average summer daily traffic on Croatian motorways
4. Conclusion
For effective inclusion of private partners in management and maintenance of
Croatian motorways, and in order to calculate a more favourable concession fee,
it is necessary to make the assumptions crucial for decision-making as accurate as
possible. One of such assumptions is the estimated annual increase in traffic. This
means that the correlation between the average annual daily traffic and the average
summer daily traffic, as well as all the other variables affecting this traffic should be
established.
Such an analysis was presented in this paper, showing that the average annual
daily traffic and the average summer daily traffic are determined by: the price of
gasoline, the number of registered vehicles, the number of tourist arrivals and the
total number of employees. The main defect of this paper lies in the fact that the
average price per kilometer of motorway use was not included among the presented
econometric models as an independent variable. Its inclusion would allow for con-
sideration of competitiveness of alternative roads.
References
Croatian Ministry of Maritime Affairs, Transport and Communication (2013). Mon-
etizacija javnog duga vezano za drutva HAC i ARZ, Nacrt konanog izvjea u Fazi 1,
6. lipnja 2013., www.mppi.hr (last accessed: 1.02.2014.)
Flyvbjerg, B., Bruzelius, N., Rothengatter, W. (2003). Megaprojcets and Risk An Anat-
omy of Ambition, Cambridge: Cambridge University Press, ISBN 978-052100-946-1.
Grubii-eba, M. (2013). Moraju li se hrvatske autoceste dati u koncesiju?, (in english:
Do Croatian Highways have to be Given in a Concession?), Ekonomski pregled, Za-
greb, 64 (6), 630-660, ISSN 0424-7558.
Perkins, J. (2004). Confessions of an Economic Hit Man, Berrett-Koehler Publishers,
USA, ISBN 978-1-57675-301-9.
Quinet, E., Vickerman, R.(2008). Principles of Transport Economics, Edvard Elgar
Publishing, Inc. Norfolk, Great Britain, ISBN 978-84542-256-1.
900 Drago Pupavac
URBAN,
RURAL
AND REGIONAL
ECONOMICS
CLUSTER AS THE DEVELOPMENT TOOL OF RURAL TOURISM IN CONTINENTAL CROATIA 903
CLUSTER AS THE DEVELOPMENT TOOL OF RURAL TOURISM

IN CONTINENTAL CROATIA
Dejan Tubi, univ.spec.oec.1, Josip Britvi, univ.spec.oec.2, Boidar Jakovi, B.Sc.3
1
College for Management in Tourism and Informatics in Virovitica,
Republic of Croatia, dejan.tubic@vsmti.hr
2
Republic of Croatia, josip.britvic@vsmti.hr
3
Republic of Croatia, bozidar.jakovic@vsmti.hr
Abstract
Over the past few decades, in according with modern global economic trends
as preferences of modern turistic spenders, there has been a raising interest in rural
turism detected in the world, as its emeregent forms. However, overviewing the
current situation in Croatian tourist market,rural tourism is on a low development
branch regardless to the existing, rich resource basis of Croatian rural area as the
fact that rural area occupies 91,6% of total territory. By that, it definetly needs to
point out that there is territory fragmentation present and that the turist develop-
ment of continetal region is in big and even enormus development fall behind in
regards to the Adriatic region. For example, according to some statistic evaluations
and mesurements in Continental region of Croatia there has been achieved only
5% overnight stays of the total number. The main reason of the current condition
in the tourist sector of Croatia in domain of rural tourism is the previous focus of
national tourist politics exclusively on development and promotion of the tourist
product Sun, Sea and Sand. Building on the presented, there is absence of com-
mon cooperation culture among small economic subjects, in this case with other
tourist shares, which are geographically concentrated, and have potential effects in
the segment of rural tourism. Therefor the primary goal of this work is to identify
and show basic, development determinants in forming interest grouping, that is,
cluster. Besides, focus of the research work will be contained in the display, as in
analysis reason of un recognizing cluster as a tool for more successfull and efficient
904 Dejan Tubi Josip Britvi Boidar Jakovi
bussiness between rural tourist stakeholders. In order of getting relevant informa-

tion and cognition, there will be a empirical research on holders of rural tourism
offers in selected units of local (regional) government, that is, continental region
counties of Croatia.
JEL Classification: L83, R58
Keywords: cluster, rural tourism, development tool, continental Croatia
1. Introduction
Tourism is one of the greatest world industries. According to UNWTO (2012,
2.) there is a continuos growth ahead in international tourist bookings (average of
3,3% per year) in the interval between year 2010. and 2030. Further to, you can
conclude that in the past two decades one of the constants is a continuos growth/
development and resistance of tourism on economic and other changes. You can
note for tourism that it is an aggregate activity with a continuos and a very dynamic
development which comes out of the ways using free time of individuals and his
more complex needs and interests.
In support of the spoken, although tourism is predicted to further grow, it
should be noted that many contemporary global trends create a new behaviour on
the international market. Maga (2003) illustrationaly notes how this global trends
results by erasing of world borders or precisely speaking to merging of local,
regional and national market. Therefore, in that kind of a market enviroment the
market game is heating up. Also, intesive and permanent competition is present
and new market challenges between tourism destinations, whether in holding on
existing or in attracting the new.
Therefore, tourism destinations, independently which kind of tourism product
and service they provide, are constantly forced to make up new or innovate existing
market strategies in the field of tourism arrangements and packages and market
activities so they could insure uniqueness and universality on the more saturated
and competitive tourism market. In other words, authors Chan Chen et al. (2013)
speak of how tourism destinations have to be managed in that kind of market (tour-
ism) politics so they could satisfy preferences of more demanding contemporary
tourism spenders in terms of keeping the existing and attracting new. Analyzing
the available secondary literature sources (books, magazines, anthologies), accord-
ing to notes of Vrtiprah (2006); Blaevi (2007); Krei et al., (2010) Krajnovi et
al., (2011); avlek et al. (2011) you can conclude how contemporary (modern or
new) tourism spenders are becoming more demanding, they are well informed, un-
predictable, spontaneous, sensitive on quality of service, traveling more often and
shorter, seeking the value of money for the value of offered tourism service. In final,
it is not enough to offer them just a tourism product sun, sand and sea, but they
want meaningfully spent their active vacation, as they want to live up new tourism
experiences in a chosen tourism destination.
On the basis of noted characteristics of the modern tourism spenders, all pres-
ent global trends impose creating of specific products and developing new, specific
shape of tourism, that highlights rural tourism. Essentially, traditional motives
and products are substituted with motives and contents of tourism spenders in 21.
century.
2. Terminological definition of rural tourism

Terminological definition of rural tourism should be approached very carefully.
Dimitrovski, Todorovi and Valjarevi (2012) mention that the same expression is
hard conceptually to determine. In accordance with the noted, the conclusion is
that there is no universal, and therefore generally accepted, definition of rural tour-
ism. The reason to that surely lies in the fact that in the terminological definition of
rural tourism first you should define the rural area which is different from country
to country. For a more detail show of criterion defining rural areas see more in
publication OECD-a (1994) Tourism strategies and rural development. Further
below this work there will be shown the definitions of rural tourism given by recent
tourism authors.
One of the leading croatian tourism theorists in the field of rural tourism Pavlo
Rui (2009, 15) quotes a definition of rural tourism by Council of Europe from
1986. which says: rural tourism is a tourism that includes all activities in rural
area, and not just the ones that can be determined as farm or agrotourism. Croa-
tian chamber of economy (in further text HGK) in publication Tourism on rural
family economies defines rural tourism family economy as a smaller economic
whole centered in a tourism attractive area which provides a original product or
service of economy, in which in work is included every family member (HGK;
2002, 5.).
2.1. Rural tourism in continental region in Republic of Croatia

In the beginning of this chapter, it should be noted that the government of
Republic of Croatia agreed with Eurostat, in 2012. divides Croatia on two statistic
regions: Continental and Adriatic region (Ministry of regional development and
funds of European Union; 2012), as it is show on picture 1., Relevant pointers of
rural tourism development will be the data of HGK from 2007. which are related
on the real condition of agrotourism economies.
Picture 1. Statistical classification of Croatian

Source: Official pages Jutarnji list, available on
http://www.jutarnji.hr/hrvatska-u-dvije-regije--kontinentalna-i jadranska/1050208/ (2.3.2014.)
According to picture 1., it can be concluded tha continental region is made of

13 counties and Zagreb city, and the adriatic region of 7 counties. By reaserch of
HGK tourism sector (2007), territorial fragmentation is visible. Therfore the
tourist development of continental region is in a great, even enormous develop-
ment deficit. Corroborating the spoken there should be noted that of 352 regis-
tered tourist country family economies (in further text TCFE) in continental re-
gion are registerd 35,5% economies, and in adriatic 64,5%. It is good to note that
in 7 continental counites there is less than 10 registerd TCFE, and in 4 counties

there is none registerd TCFE (HGK; 2007).
The main reason of the existing condition in the tourist sector of Croatia in the
area of rural tourism is because the recent focus of national tourist politics was ex-
clusivelyon theproduct sun, sea and sand. Adding to spoken, culture of common
cooperation between small economic subject does not exist.
3. Clusters
In entrepreneurial Economy, cluster is determined as a common cooperation
between related groups in some social activity. The term itself marks a process in
which something is gathered in a group, which from an economic point of view
means common economic business or other subject who seek to realize common
goals (krti, 2005, 113). So, they arise as a result of innovations which are defined
as groups of competitive, cooperating and mutual dependent companies which are
in the same industrial environment and are focused in one geographical region.
The term cluster marks, inter alia crowd or mass, so from those things comes
out clustering, as a process in which comes accumulation of something on a mass
by the determined principles that are used in a organization form of a cluster.
Practical conduction of clustering is achieved by applying a system approach and
its principles, while respecting a certain hierarchical procedure. Result of that kind
of system approach are clusters which represent decentralized form of organization
like the one described by Brezniar in 2006.
Clusters are actually concentrated, geographically, mutually connected econom-
ic subject like specialized suppliers, service providers and connected institutions
which in certain area, by creating a common product, represent region or a state.
Inside each cluster some organizational units can act, as an independent profit cen-
ters, or independent business units.They have to bear responsibility for every busi-
ness success or failure, which can be applied very successfully on small and medium
company (krti, 2005).
Besides that, Horvat (2004) notes how clusters can be described as production
arrangements between participants, which are on small or big ways character-
ized by a strong cooperation between all subjects inside the grid, social culture
identity, institutional weapon, industrial atmosphere, support of local institutions,
the existence of coordinating institutions, high index of survival, dynamic weapon
and industrial competition, suitable local factors ( natural and human resources,
logistic, infrastructure) and strong economic connection between all subjects that
belong to clusters. Also notes that common areas to all who are concluded in a
cluster are promotion and marketing, procurement of raw materials, distribution,
maintenance, education and development of professional human potential, orga-
nized structure connection, development of techniques and information about the
competition.
In the practical act system of clusters has appliance in business systems which
in act form more different strategic market acts. That is how business subjects are
connected to merchants, raw material developers and all kind of parts. It can all
be copied to many small or medium companies and all kind of enterpreneurship.
Other form of a successful application of the mentioned system refers to achiev-
ing important business and profit success, and greater ability to compete on the
market. Entrepreneurs inside clusters can plan more accurate production processes,
lower costs of production, computerize whole processes and quickly response to
environmental changes (krti, 2005).
4. Work methodology
For needs of work besides secondary research the data given by primary research
is also being used, which is carried out by a questionnaire with the closed type
questions. Primary research is carried out in the beginning of 2014. In continental
region in Republic of Croatia on sample ofTCFE owner, as the main holders of
tourism offer in rural area. Research carried out on 23 TCFE owners, which is
18,4 % of all TCFE, only 5 TCFE on the tourism market are independent but are
cluster members also, and 18 TCFE which due to certain reasons conduct their
business only independently. Primary research was centered on determining devel-
opment possibilities and cluster activity which is used for more effective business
and development of tourist activities of TCFE on a rural area and determining
interests which prevail in merging. There is also determined why clustersare not
recognized as a tool for making more efficient business and development of rural
tourist activity from a TCFE owner point of view. This research can be a starting
point for further researches in the field of rural tourism or interest merging of rural
tourism offer holder.
4.1. Research results

Analyzing the data gathered by questioning TCFE owners, first of all an inter-
est level is determined for integrating the holder of rural tourism offer in a interest
merging the cluster. From total of questioned TCFE owners, only 27,7 % recog-
nized cluster as an ideal chance for more competitive business and development
of their activities on the tourist market, while the remaining 72,3 % TCFE, sees
cluster as a obstacle in development, perceives only negative sides of interest merg-
ing (picture 2).
Picture 2.: Inclusion of TCFE in their own activity development trough cluster
Source: calculate of author
Interests for merging which are carried out from TCFE owners point of view
are not different one from another. From the total number of questioners who
work trough cluster 60% of them said that they joined cluster because of making
an common tourism product, brand, offer standardization, more effective promo-
tion and promotion in all shapes and more intensive implementation of common
projects. Other 40% included all of above and also said that trough cluster they
can make a better position on the whole tourism market with making a bigger
economic use from agrotourism activity and equally set up a necessary formal and
non formal education of TCFE workers. Those who didnt recognized the cluster
benefits, think that the interest of joining is not a tool in strengthening competi-
tiveness of their business. They see it as an obstacle of further development of agro-
tourist activity. As the biggest negative sides they note the disbelief between cluster
members, inadequate leadership (political eligibility), unequal position in cluster
and not support of local and regional governments and institutions. From the total
number of questioners who do their business outside of cluster, 83,4% highlights
high level of mutual disbelief to the interest association.72,2% notes as significant
negative side inadequate leadership inside the cluster which is based on political
eligibility as an unequal position of members in making decisions, 55,5% thinks
cluster does not have the support of local and regional governments and institu-
tions, what also decreases interest TCFE in joining in cluster. At the end 16,6%
does not recognize development opportunities of cluster and thinks that there is no
use of joining in a cluster.
Picture 3.: Main reasons of TCFE owners not joining the cluster
Source: Calculate of author
5. Conclusion
The literature processed in work notes how clusters in tourism provide tourist
spenders a lot more than an individual economic subject from rural tourism sec-
tor. The role of clusters is especially evident on small farms where only merging
clusters can form a sufficiently broad and highly competitive Tourist offer. The
research conducted by the authors shows that awareness of TCFE owners about
the advantages of joining into the clusters are at very low level. Only 27,7% TCFE
owners recognizes cluster as a chance to increase competitiveness while 72,3% sees
clusters as a threat to their further development. On the basis of the study authors
concluded that it takes a lot of work to build mutual trust between the TCFE own-
ers. Also, the point of action should be on preventing the impact of politics on
cluster members, developing management mechanisms and procedures that will
contribute to mutual equality between cluster members. At last there should be an
increased involvement and support of local and regional authorities and institu-
tions. Promoting clusters trough presentations of successful examples of cluster
members, work on rising the awareness of advantages membership in clusters and,
in final, pointing to the fact that merging in clusters is one of the crucial competi-
tive advantages of TCFE should be a key activity to ensure further clustering but
also the growth and development of rural tourism in Croatia.
References:
1. Baac, R. (2011). Prirunik za bavljenje seoskim turizmom - korak po korak od ideje
do uspjenog poslovanja, Zagreb: Ministarstvo turizma Republike Hrvatske.
2. Blaevi, B. (2007). Turizam u gospodarskom sustavu, Opatija: Fakultet za turistiki
i hotelski menadment.
3. Chen, L. C., Lin, S. P., Kuo, C. M. (2013). Rural tourism: Marketing strategies for
the bed and breakfast industry in Taiwan, International Journal of Hospitality Man-
agement, Vol. 32: 278286.
4. avlek, N., Bartoluci, M., Prebeac, P., Kesar, O. i sur. (2011). Turizam: ekonomske
osnove i organizacijski sustav, Zagreb: kolska knjiga.
5. Dimitrovski, D.D, Todorovi, A.T., Valjarevi, Dj. (2012). Rural tourism and re-
gional development: Case study of development of rural tourism in the region of
Grua, Serbia. Procedia Environmental Sciences Vol. 14: 288-297.
6. Horvat, ., Kovaevi, V. (2004). Clusteri: put do konkurentnosti.Zagreb: Cera
Prom d.o.o.
7. Krajnovi, A., iin ain, D., Predovan, M. (2011). Strateko upravljanje razvo-
jem ruralnog turizma problemi i smjernice, Oeconomia Jadertina, Vol. 1., No. 1:
30-45.
8. Krei, D., Milievi, K., Borani ivoder, S. (2011). Utjecaj informacijskih i ko-
munikacijskih tehnologija na marketing turistikih destinacija, Zagreb: Znanstvena
edicija Instituta za turizma Izazovi upravljanja turizmom, str. 69-86.
9. Maga, D. (2003). Management turistike organizacije i destinacije, Opatija: Fakultet
za turistiki i hotelski menadment.
10. Ministarstvo regionalnoga razvoja i fondova Europske unije (2012). Nova statistika
klasifikacija prostornih jedinica RH - NUTS 2.
11. Miin, L. Maer, B. (HGK) (2008). Aktualno stanje turizma u ruralnom prostoru
Hrvatske 2008. Godine, Zagreb: Sektor za turizam HGK.
12. Organisation for Economic Cooperation and Development (1994). Tourism Strat-
egies and Rural Development Organisation - General Distribution, Paris.
13. Porter, M.E. (1998). Clusters and the New Economics of Competition. SAD: Har-
vard Busines Review.
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dvije-regije--kontinentalna-i jadranska/1050208/ (2.3.2014.)
15. krti, M. (2011). Poduzetnitvo. Zagreb: Singerija nakladnitvo
16. Vrtiprah, V. (2006). Kulturni resursi kao initelji ponude u 21. stoljeu, Ekonom-
ska misao i praksa, Vol. 15., No.2.: 279 296.
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2012.Edition.
CULTURE AND TOURISM AS MAJOR CATALYST IN CREATING COMPETITIVE ... 913
CULTURE AND TOURISM AS MAJOR CATALYST IN CREATING

COMPETITIVE AND MULTICULTURAL CITY IDENTITY
Iva Buljubai, B.Sc.1, Marta Bori, B.Sc.2, Bojan Bodrai, B.Sc.3
1
Republic of Croatia, iva1988@gmail.com
2
Republic of Croatia, martic57@gmail.com
3
Zavod za stanovanje Ltd., Osijek, Republic of Croatia, bojanbodrazic@hotmail.com
Abstract
This paper will present an interdisciplinary approach to the study of culture
and tourism on the identity of the city. It is based on the thesis, that culture as
a process, thanks to the tourism, is constantly transforming into the culture as a
product. Interaction of culture and tourism is the key prerequisite for the creation
of a competitive and multicultural city identity. Cultural tourism, as a main result
of interaction of culture and tourism, through interculturalism and multicultural-
ism makes the key prerequisite for the development of cultural identity of the city.
When it comes to a competitive identity, not only the interaction of culture and
tourism must be taken into consideration, but also people who live in the city, as
well as investments in culture, politics and the citys brands. The authors carried out
a research with the aim of gathering the information and drawing conclusions of
identifying elements with multiculturalism and identity of the city Osijek, Croatia.
The study was carried with the purpose of improvement cultural tourism in Osijek,
and indirectly with the aim of strengthening the culture in general.
JEL Classification: L83, Z11,
Keywords: culture, tourism, cultural tourism, multiculturalism, intercultural-
ism, multicultural and competitive identity of the city.
914 Iva Buljubai Marta Bori Bojan Bodrai
1. Introduction
Talking about culture, tourism mustnt be left out, as there mustnt be culture
left out either in the context of a citys tourism. One cannot exist without another
and there is a continual mutual interaction between them. In fact, the value of the
culture and the cultural heritage of a particular city are the key elements for the
creation of its multicultural identity. The main thesis, which is the backbone of
this paper is that culture, as a process, thanks to tourism, is transforming into the
culture as a product and they, in mutual interaction, are the key prerequisites for
the creation of a competitive, and also the cultural identity of the city. The con-
centration of cultural resources increases the value of the total tourism product, so
many destinations or cities in this case, are turning to the culture as a key means of
differentiation from competitors.
Therefore, tourism is seen as a complementary activity that helps in transform-
ing cultural resources as a tourism product. The purpose of this paper is to clarify
and discuss the role that tourism and culture, as well as cultural tourism, have in
creation of a competitive and multicultural identity of the city of Osijek.
2. The impact and importance of culture in creating the identity of the city
One of the commonest definition of culture is that culture represents a group of
peoples all the social heritage, i.e. learned thinking patterns, feeling and activities
of some group, community or society.
For some people, the culture is high art in the galleries around the world, while
others consider the culture to be everything that is learned and all the attitudes and
customs of a nation. All of these are correct, because the notion of culture is actu-
ally multifaceted and specific for certain organizations, societies, nations, cities and
states, and on the basis of it, it can be concluded that the culture actually penetrates
in all aspects of life.
This paper special emphasizes the thesis, that the culture itself is an indispens-
able element and that it represents one of the major determinants in creation of
a competitive identity of the city. Culture is a mirror of a city, and its importance
should be recognized in time, because it is the only possible way of creating the
recognizable and competitive identity of a city.
2.1. Characteristics of culture

Each culture has certain characteristic features such as:
- It is based on the symbols.
- People in the same society, by culture, share a common behavior and a way
of thinking.
- Culture is learned: as people biologically inherit many physical traits, in-
stincts, behavior, so is the culture inherited by society, i.e. a person must learn
the culture from other members of the society.
- Culture is adaptive: people use it for flexible and quick adjustment to the
changes in the world around them. (Williams; 1998, 48)
If we try to translate the standard features of the culture into the characteristics
of the city, we will get the following:
- Every city has its own coat of arms and a flag i.e. recognizable symbols that
have a specific meaning
- Residents of a city usually share common behavior and the way of thinking
- Residents of a city learn the culture of the city from other residents
- The culture of the city is adaptable, primarily because we live in a globalized
world which is full of changes to which you must be adapted if the city as it
is, wants to (become) remain competitive
- The culture of a city also makes a distinctive identity of the city.
2.2. Culture as a basis for urban development

As mentioned above, the culture actually penetrates all aspects of life, but today
the emphasis is more placed on the economic context of the cultural industry, and
it is of great economic importance especially at the local level ie at the city level. The
notion of cultural industries usually involves the production and consumption of
cultural goods. The process of constructing urban landscape does not result exclu-
sively in physical and economic changes, but necessarily entails social, cultural and
political changes, which further confirms the permeation of cultural and economic
development. In order to improve conditions at the local level, the strengthening of
regional cultural economy, and regional and urban development, the cultural sector is
becoming an attractive and important locational factor. (Goodwin; 1993, 145-162)
One of the best indicators of successful interaction of culture and economics is
the initiative of creative economy, which was launched in New England. UNC-
TADs definition of creative economy defines that creative economy is a develop-

ment concept based on creative assets, while also potentially generate growth and
development of an area.1 Exactly this initiative should predict or devise mark and
the identity of a given area, to attract visitors and to improve, first of all the quality
of life in the city through various cultural - creative events and projects. If a location
is desirable, known, or branded, it is logical to conclude that it will attract more
visitors, indigenous and foreign, and this will also lead to increased cultural con-
sumption. Precisely mentioned increased cultural consumption will be the lever of
urban regeneration and the basis of cultural production, which assume the condi-
tions of creative exchange, attracting more people with available income, creating
the image and identity of the regional areas. (Katavi, et al.; 2005., 25)
3. From culture and tourism to cultural tourism

Tourism numbered as one of the younger socio-economic phenomenon. It
started to be more seriously explored only at the half of the 20th century, when it
also began its extremely dynamic growth and development. As late as the meaning
of tourism in the economic development of many countries was comprehended,
the interest of scientists from field of economy and other social sciences for the
tourism began to grow swiftly. Then also was developing a multidisciplinary ap-
proach that explains and provides guidance for planning and development at all
stages and at all levels: local, regional, national and international.
Culture, as the highest expression of human creation implies a set of material
and spiritual values, which arose as the consequence of the material and spiritual
human intervention in nature, society and thought. (Mohorovii; 1997., 38) The
culture first of all represents: objects, places, people, activities that have properties
to enrich the human personality, widen horizons, raise the general cultural level
and develop communication.
Tourism is a set of phenomena which arise from people staying in places out-
side of their actual residence. These relationships and phenomena are the result of
human activities related to observing, experiencing and communicating in natural
and socio-cultural areas.
Cultural tourism is primarily considered as tourism of specialized interests, and
is defined as a visit of people outside of their permanent residence, motivated,
1
http://unctad.org/fr/Docs/ditc20082cer_en.pdf (15-01-2013.)
in whole or in part, by the interest in history, art, heritage and lifestyle localities,
regions, groups, or institutions. With this definition culture includes the so-called
tangible culture such as museums, galleries, concerts, theaters, monuments and
historic sites, as well as intangible culture such as customs and traditions, in accor-
dance with the Law on the Protection and Preservation of Cultural Property (Of-
ficial Gazette no. 69/1999. ), which puts under the protection immovable, movable
and intangible cultural assets.(Croatian Tourism Development Strategy; 2005., 5)
Also, if the tourists want to be regarded as cultural tourists, they must at least partly
be motivated to participate in cultural activities or they must be interested in cul-
tural heritage and cultural asset.
3.1. Competitive identity of the city

The term of competitive identity primarily means national, regional and local
identities and their strength, experiencing them as added value to states and na-
tions on the global market.(Anholt; 2009., 6) For competitive identity, the most
important is the treatment of the identity of the city, country or region, lives in
them as well as their behavior on the global market. Competitive identity repre-
sents primarily a prerequisite of success on the global market and the main movers
of change. Speaking about the competitive identity of a city, it refers primarily to
its tradition, natural sights, culture and way of life and this presents a unique com-
parative advantage under which the city is recognized in the world.
Development of a competitive identity primarily requires a clearly defined and
in a certain way set purposes. Competitive identity generally brings multiple ben-
efits. Competitive identity, as well as a magnet, has three characteristics: attracts
(consumers, tourists, investors, respect, attention), transfers the magnetism to the
other things (so for example, a small part of the magnetic attraction of the Ital-
ian brand is transferred to the Italian products and the Italians, and they become
equally attractive even when they are not in this context), and it can turn chaos into
order. (Anholt; 2009., 27)
There are six key elements; the competitive identity of a city is based on: tour-
ism, people, culture, brands, investment, and policies.
Tourism and touristic promotion of a city, as well as personal experience of
people during touristic and business visit, are the keys for creating brand of the city
and competitive identity of the city. Brand names include those products which
are branded and characteristic for particular city or country, and also world fa-
mous as Mercedes Germany, pizza Italy, Moscow vodka, etc. Policy implies
political decisions of the government related to foreign and domestic policy which
directly and indirectly influence the international and local population. Investment
involves the way the country attracts foreign investors in, employees foreigners in
a city or encourages exchange students. Culture includes cultural exchange and
cultural activities through recognizable manifestation or long term projects which
are characteristic for some city for example akovo akovaki vezovi, Vinkovci
Vinkovake jeseni, Valpovo Ljeto Valpovako, etc. People are residents of a city
and they also represent the way they are related to visitors, tourists and not only
in their own country but also abroad. All in all, a competitive identity of a city is a
kind of optimal interaction of the six key elements: tourism, brand of a city, policy,
investment, culture and people.
4. The role of culture and tourism in creating competitive identity of the city
Culture has actually a key role in improving the reputation of a city, state or
region because it encourages the public for longer and more complete understand-
ing of their unique identities. Culture provides, in a unique way the added dimen-
sion because consumers are suspicious of commercial messages, and culture is not
obviously for sale. Although culture seems slower, it is much more eloquent in
conveying the image of a national commercial brands. (Anholt; 2009., 92). This
means, that the mark of a city will always put on the first place commercial impera-
tives. In the context of a competitive identity, the culture of each country, city, or
region, as well as their geographical characteristics, truly represent their unique
characteristics. Culture can play a key role in the transformation of the current
image of a city into something more interesting. In fact, culture is essential for the
image of any place to become recognizable. Culture is actually very close to tour-
ism and cultural tourism is in fact often considered the most profitable and fastest
growing segment of tourism and this is the area where there could be established
links among the professions of people for a specific place. (Anholt; 2009., 96). For
example, if a city has a rich cultural life and cultural heritage, then it is not seen just
as a tourist destination, but also as a place that can be visited throughout the whole
year. What is crucial for the creation of a competitive identity of a city is no longer
just a cultural event, but a specific and unique kind of event for which people will
always want to come to this city. The creativity is what makes the difference be-
tween entertaining events that improve the quality of places and events that create
their own markets, which are magnetically attractive and thanks to that particular
place become a destination. (Anholt; 2009., 97) What a city or region needs are
primarily people with imagination, ambition, creativity and energy, the people who
make the existing cultural resources transformed into something attractive, appeal-
ing and very interesting.
5. Description of examinee in the sample and survey

Research was carried out in eastern Croatia, in Osijek, on a sample of 115 vari-
ous respondents. Data was collected by contacting respondents via e-mail so as
their responses. Examinees were mostly the students of Department of Culturol-
ogy, Osijek, employees and unemployed and others. Structured questionnaire was
divided into two parts. The first part of the questionnaire contained four general
questions like gender, age, years of working experience etc. The second part of the
survey contained couple of questions about culture, tourism and cultural tourism
in Osijek related to competitive and multicultural city identity of Osijek.
Chart 1. Distribution of sample by age Chart 2. Distribution of sample by

Education degree
0% 0% Noschool
11% 8% 18 20 14% Primaryschool
20 25
39%
25 30 Secundaryschool
36% 45% 30+
Highschoolorcollege
47%
Master'sdegreeor
PhD
Source: by authors Source: by authors
Chart 1 shows that the most of the examinees were between 20 and 25 years old
and least of them were between 18 and 20 years old.
Chart 2 shows that the most of the respondents graduated from the univer-
sity, school or college (47%) and also large number of examinees have a secondary
school or high school (39%). A small number of respondents have a Masters degree
or PhD (14%). When it comes to education, authors also made research about the
Department of Culturology, in which the 51% of the examinees are choosing and
49% are not choosing Department of Culturology for education.
6. Review of the research results
Chart 3. Notions of cultural tourism Chart 4. Elements that make up the

Competitive identity of the city of Osijek
4% Traditionalcultural 10%
2% Brand
13% 0% eventsandfestivals
Museumsandgalleries Policy
30% 9%
6% Investment
Archaeologicalsites
Culture
11% 38%
77% Culturalandhistorical
People
landmarks
Alloftheabove Tourism
Source: by authors Source: by authors
Chart 3 shows us that most of the respodents (77%) thought that cultural tour-
ism include all listed segments such as tradicional cultural events and festivals,
museum and galleries, archeological sites and cultural and historical landmarks.
13% of respodents thought that traditional cultural events and festivals are the
most important part of cultural tourism. No less important part of cultural tourism
are culturaln and historical landmarks (6%) and museum and galleries, too (4%).
None of the respodents thought that arcehological sites are important for cultural
tourism.
Analysis from chart 4 shows that respodents have been choosing culture (38%)
and tourism (30%) as key elements that make up competitive identity of the city
of Osijek. Culture represent cultural exchange and cultural activities through rec-
ognizable manifestation of long-term projects or related to a city, ie akovo
akovaki vezovi. Tourism is a set of phenomenons and relationships arising from
the interaction of tourists, service providers, state and local host communities in
the process of attracting and hosting tourists and other visitors. No less important
elements of comeptitive identity of the city of Osijek are inhabitants (11%), brand
(10%), investment (9%) and policy (2%).
7. Conclusion
For the formation of competitive and cultural identity of a city, there must be
the interaction between tourism and culture, and there must be a cultural tourism
as a result of their interaction. Tourism is characterized by the mixing of people
and their culture with the culture of a city or region, and together they constitute
the preconditions for the formation of a multicultural and competitive identity of
a city. Speaking of tourism, there mustnt be left out phenomenon of multicultural-
ism and interculturalism, keeping in mind that both are extremely important fac-
tors in creating multicultural identity of the city. Multiculturalism is the existence
of multiple cultures in a particular area and indicates the static and quantitative di-
mension of multiculturalism, but interculturalism is an interaction among cultures
and the recognition of the diversity of those cultures. If a city has a rich cultural
heritage it also has increased requirements for a competitive and recognizable iden-
tity. Competitive identity of the city is not only the interaction of culture and tour-
ism, but also interaction of people and various investment policies, and interaction
of brand and image of the city, too. From the research we can see that the most
examinees choose the culture as key elements that make up competitive identity of
Osijek, which means that cultural tourism should more explored and developed.
All in all, the culture and tourism are significant (if not the most important
remark of authors) catalyst in creating a competitive and multicultural identity of
a city.
On the basis of this study, it can be concluded that the relationship between
culture and tourism, and their mutual interactions are key prerequisites for the
creation of a competitive and multicultural identity of a city and also confirms the
thesis of this article, which assumes that the culture as a process, thanks to tourism
transformed into culture as a product and in interaction are key prerequisites for
the creation of a competitive and multicultural identity if a city. Also, the success
of forming a competitive and multicultural identity of the city will depend largely
on the development of cooperation between the cultural and tourism sectors of a
concerned city. If this cooperation is more intense and stronger, it will also boost
the competitive and multicultural identity of a city or region.
REFERENCES
1. Anholt, S.(2009.): Konkurentan identitet Novo upravljanje markama drava, gra-
dova i regija, M PLUS d.o.o., ISBN 978-953-95111-3-3, Osijek
2. Goodwin, M. (1993.): The city as commodity: the contested Spaces of urban devel-
opment, in Kearns, G. and Philo, C. (izd.),Selling places: the city as cultural capital,
past and present, Oxford: Pergamon Press, 145162.
3. Jagi. S. (2004.): Imanentnost interkulturalizma u turizmu, Sociologija sela, br. 42,
12 13, ISSN 0038-0326
4. Jelini, D.A (2008.): Abeceda kulturnog turizma, Institut za meunarodne odnose:

Meandarmedia, ISBN 978-953-7355-18-0, Zagreb
5. Katavi, S. , Horvat J., Sabli Tomi, H. (2005.): Moe li se izmjeriti kulturni iden-
titet, Kolo br.2, 25, ISSN 1331- 0992
6. Mohorovii, A.(1997.): Kulturno povijesni identitet, Rano doba hrvatske kulture,
AGM, ISBN 953-174- 0745, Zagreb
7. Strategija razvoja kulturnog turizma Od turizma i kulture do kulturnog turizma,
8. Vlada Republike Hrvatske, Ministarstvo turizma, Institut za turizam, Zagreb, 2003.,
9. Williams, R. (1998.): The Analysis of Culture, In J. Storey (izd.),Cultural Theory and
Popular Culture,London: Prentice Hall, 4857.
10. Zakon o zatiti i ouvanju kulturnih dobara, Narodne Novine 69 / 99
11. http://unctad.org/fr/Docs/ditc20082cer_en.pdf (15-01-2014.)
THE CURRENT STATUS, PROSPECTS AND CHARACTERISTICS OF POPULATION ... 923
THE CURRENT STATUS, PROSPECTS AND CHARACTERISTICS

OF POPULATION AGEING IN SLOVAK REPUBLIC
Lukas Pavelek, Ph.D.1, Thorsten Eidenmueller, Ph.D.2
1
University of Trnava, Department of Health and Social Work,
Slovak Republic, lukas.pavelek@truni.sk
2
American University Girne, Republic of Cyprus, eidenmueller@eu-edu.de
Abstract
Population ageing is a social problem whose consequences will soon have a sig-
nificant impact on various areas of human life. The ageing population is one of
many factors that significantly affect the changes in social conditions of peoples
lives. It is a process that affectss the emergence of new social risks and crises. This
causes the need to identify the consequences of these changes and appropriate mea-
sures to respond to them. This identification is not possible without a thorough
understanding of genesis and propable developments of the aging process. The fol-
lowing paper briefly describes the demographic aging of the population in Slovakia
and important context associated with this phenomenon.
Keywords: second demographic transition, population ageing, Slovak Repub-
lic, ageing index
Introduction
Europe today is facing major economic problems because of its aging popula-
tion and a decreasing number of the working population. The demographic aging
of population can be also considered a social problem, and its consequences will
soon have a significant impact on various areas of life - work, education, health etc.
It is believed that population ageing will place substantial additional pressure on
publicly-funded health, long-term and income support programs for older people
[1]. Population ageing is one of the many factors that significantly influence the
changes in the social conditions of peoples lives, but also the emergence of new
924 Lukas Pavelek Thorsten Eidenmueller
social risks and crises. This is caused by the need to identify consequences of these
changes, as well as appropriate measures to respond to them. Identification of the
impact of the changes is not possible without a thorough understanding of the
process of aging. The following paper briefly describes the contribution of demo-
graphic aging of population in Slovakia and important context associated with this
phenomenon.
The second demographic transition and population aging

Population ageing is an inevitable effect of so-called demographic revolution
in which there has been a shift from extensive to intensive demographic reproduc-
tions, characterized by low birth and death rates respectively. to prolonging human
life [2].
The term demographic revolution (demographic transition) was introduced by
the French demographer Alfred Landry in 1934 [3]. The transition is characterized
by a shift from low fertility and rising death rates among the elderly, leading to fur-
ther population aging and eventual population decline, assuming no net migration
[4]. Unlike the first demographic and low death rates to one of low transition
from high fertility and high death to low fertility and low death rateswhich
provides a period of demographic dividend [5], the second transition, is also
characterized by a demographic tax. Negative macroeconomic impacts can be
cited as one example of this phenomenons results.
The term population ageing describes the changes in the age structure, due to
the increasing proportion of elderly in the population. Today, ageing is a global
demographic process, manifested to greater extent in developed countries. This
complex process is the result of previous demographic trends and is directly related
to the first demographic transition and the overall modernization process after the
Second World War. Technological and scientific advances enabled the mortality de-
cline, which resulted in increasing life expectancy and better health. The twentieth
century was a period of the most influential extension of human life [6]. Modern-
ization processes also caused a decline in fertility and birth rates, thereby deepening
the process of demographic aging. While it may seem that the birth rate is low only
in times of momentary observation, researches show that it may remain below the
level needed to replace generations, which may lead to new demographic inequali-
ties. Effects of inequality become visible already. Low levels of fertility can now be
considered a major cause of rapid demographic ageing in the developed European
countries (as well as post-communist countries such as Slovak Republic). Eastern

European countries still have considerable room to improve the level of mortality
(infant mortality, seniors and over-mortality of men) and thus increasing life expec-
tancy, which in the future will certainly affect the process of demographic ageing.
Demographic ageing is reflected in the increase of older age groups.
The elderly population is usually defined by the age limit of 65 years. In Western
Europe this threshold usually coincides with the official retirement age. In Eastern
Europe it may be replaced by the age of 60 years. Such defined elderly population
is not internally homogeneous in terms of lifestyle, health, and thus in terms of
their attitudes towards society. For this reason, it is commonly subdivided. The age
group 65-74 is the called the third age (young-old), persons aged 75 + fourth
age (old-old). The term oldest old represents the population of 85 + year olds. To
reflect population ageing indexes can be used in addition to simple percentages of
selected population groups by age (0-14 (%) 60 + (%) 65 + (%) 70 + (%) 80 +
(%)). Among these the so-called Ageing index is propably the most used one. It
expresses the number of people in the post-working age to those in pre-productive
age and is usually expressed as a percentage. Another possibility to express the pro-
cess of aging is the Billeter index, which expresses the difference between the num-
ber of persons in the pre-and post-reproductive age to persons of reproductive age.
It is also expressed as apercentage [7].
Population ageing in European countries and in Slovak Republic

There is a high probability that in the future third of the population in various
regions of the European Union will be older than 60 years. At present, the propor-
tion of the population is about 20 percent [8]. Also the emergence of aging seniors
is anticipated. Today, the proportion of people aged over 80 in the population is
about 4 percent. By 2040, this percentage is likely to double. Dramatic changes
can be expected after 2040, when the age group will be hit by the baby - boom
generation (people born in the 60s of the 20th century). Proportion of seniors aged
80 will then exceed the limit of 12 percent of the total population.
Since the mid-60s significant changes occur in the CoE member states in all major
components of population development, lifestyle and layout of peoples lives [9]. To
a greater or lesser extent, this development takes place also in other European coun-
tries. It is emphasized that fundamental changes occur between European cohorts,
which significantly affects the economic and social situation of European countries.
Fig. 1. Mean Age of Inhabitants in Slovak Republic
Source: Statistical Office of the Slovak Republic
The value of the aging index for the Slovak Republic in comparison with other
European countries is still relatively low. Slovakia is now one of the youngest coun-
tries in Europe. But the changing demographic behavior over the last ten to fifteen
years has caused an acceleration of demographic aging. According to the latest fore-
casts, Slovakia, maintaining the current level of fertility, respectively. with its slight
increase happens to be in the mid 21 century, one of the oldest populations in the
world. The continued aging is terminated by the above-mentioned characteristics
of the average age and the aging index. Both of these characteristics record a long-
term growth, which is gradually accelerating. The current values of the average age
and the aging index in Slovakia are historically high [10].
Fig. 2. Ageing Index of Inhabitants in Slovak Republic
Over the past fifty years, numerous changes associated with the proportional
representation of seniors occurred in the Slovak population. Their pace has quick-
ened markedly during the nineties of the 20th century. The average age of the
population increased from 1950 to 2000, about six to eight years, from 29 to 35
years for men and from 31 to 39 years for women. The share of seniors has dou-
bled and mortality and improving health conditions add to changes of the internal
structure of this category of the population. Among seniors, women will continue
to dominate the age structure deformation due to war losses and over-mortality of
men. Noticeable is the doubling of the proportion of 85 + year olds. This propor-
tion is continually on the rise. As in other EU countries, in Slovakia we can record
a graduall aging population of seniors.
Fig. 3. Age Structure of the Slovak Population
Per 100 inhabitants below 15 years accounted for Slovakia in 2005 68 people
aged 65 and over (in 1995 it was only around 50 people). That is, the aging index,
in over ten years has increased by 38.6%.
The aging process takes place in all age groups of the population. The work-
ing population is aging due to sliding of more boomers to the elderly and their
replacement by weaker boomers. Strong post-war boomers from the 70s are slowly
beginning to abandon the age of highest fertility. Conversely, to the productive age
still come weaker boomers born in the 80s and 90s. This increases the process of
population aging.
Slovakia is not a homogenous country. Individual demographic processes take
place at different speeds and with varying intensity in different regions of Slovakia,
which also causes a marked differentiation in terms of demographic aging. Slovakia
still outnumbers young over older districts, as evidenced by the position of Slovakia
in the European countries. In the future it can be expected that aging is the result
of lower fertility and transition baby boomers in particular, to deepen mostly in

so-called average districts. However, the entire population of Slovakia will age.
In additon, it is still necessary to mention the specifics of the countries of Cen-
tral and Eastern Europe - the proportion of the Roma population in the total popu-
lation. Demographic, socio-economic and often also the personal status of many
Roma in Slovakia today is markantly different from the rest of the population [11].
The Roma population has different characteristics of fertility and mortality rates
than the rest of the Slovak population. Specific numerical estimates can finalibe
recorded only indirectly, as the movement data of the population of Roma nation-
ality do not provide real results on the reproductive behavior of Roma. According
to the latest available data were for the period 1970 to 1980 Roma men life expec-
tancy is about 54 years and Roma women about 58 years old [12]. In retrospect,
the demographics surveyed prior to 1989 in violation of human rights (for Roma
individuals were called by others). The structure and spatial distribution of the
Roma are changing relatively slowly, and therefore the data can be considered rel-
evant even today. The Roma population is from a demographic point of view a de-
veloping population, which is characterized by a progressive type of age structure.
Taking into account demographic patterns, the demographic situation of the Roma
is not uncommon, such a development is common in developing populations. A
change of reproductive behavior in developing populations is associated with the
change of living conditions, increased standard of living and increased education
levels. Due to the isolation of the Roma population these changes are realised more
slowly than in the rest of the population of Slovakia. It is believed that improving
the health status of the Roma population will decrease mortality and improve lon-
gevity. Demographic theories and laws based on estimates of the current situation
of the Roma population assume the aging of this population too.
Conclusion
It is very clear that the process of population aging is an inevitable process also
for a relatively young (young from ademographic point of view) country like
Slovakia. This process needs to be seen as a factor that may help the emergence of
new social risks and crises. Their consequences hit the hardest socially vulnerable
people, socially dependent, elderly and ill, long-term unemployed, minority com-
munities and the like. The situation today is more than ever the need for stabiliza-
tion of desirable social security, reduction and eventual elimination of those secu-
rity threats. Emphasis should be placed clearly on an interdisciplinary approach to

the investigation of those risks and threats. This is a complex process in which a
cooperation of responsible actors in the relevant area is necessary.
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sprvania na Slovensku ako vskumn problm, Trnavsk univerzita, Trnava, ISBN
80-8082-051-1
10. VAO, B. et al., 2005: Populan vvoj v Slovenskej republike 2004, Infostat,
Bratislava, 24-2005-A/9
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Bratislava, 22-2001-A/5
12. mrtnostn tabuky SR,VDC:Vskumn demografick centrum, Infostat, [online].2008
http://www.infostat.sk/vdc/sk/index.php?option=com_wrapper&Itemid=50
HUMAN RESOURCE DEVELOPMENT AS A POSSIBILITY FOR DEVELOPING ... 931
HUMAN RESOURCE DEVELOPMENT AS A POSSIBILITY

FOR DEVELOPING THE MOST UNDERDEVELOPED MICRO-
REGIONS OF HUNGARY1
Bernadett Glosi Kovcs, Ph.D.1, Norbert Pap Ph.D.2, Zsuzsa M. Csszr, Ph.D.3, Pter Remnyi, Ph.D.4,
Krisztina Kmves M.Sc.5, Andor Vgh, Ph.D.6, Aliz Horvth, B.Sc.7
1
Regional Studies, Pcs, Hungary, detty@gamma.ttk.pte.hu
2
Regional Studies, Pcs, Hungary, pnorbert@ttk.pte.hu
3
Regional Studies, Pcs, Hungary, cszsuzsa@gamma.ttk.pte.hu
4
Regional Studies, Pcs, Hungary, remko@gamma.ttk.pte.hu
5
Ph.D. student University of Pcs, Faculty of Sciences, Department of Political Geography, Develop-
ment and Regional Studies, Pcs, Hungary, komuvesk@gamma.ttk.pte.hu
6
Regional Studies, Pcs, Hungary, veghandor@freemail.hu
7
M.Sc .student, University of Pcs, Faculty of Sciences, Department of Political Geography, Develop-
ment and Regional Studies, Pcs, Hungary,
Abstract
Regional differences in development have further been increased in the lasttwo
decades. The most important question is developing the most underdevelopedre-
gions. Due to planning and project generating work, the micro-regions havedevel-
oped the project package within the centrally prescribed frameworks. Thechosen
areas for financing may have been influenced by political aspects aswell. The most
essential problems cannot be faced with the help of thismethod. We have con-
ducted research regarding the improvement of thedevelopmental work of the 8
1
This paper made after a study was published in Hungary AGRR- S VIDKFEJLESZTSI
SZEMLE 6:(Suppl 1) pp. 242-250. (2011)
932 B. Glosi Kovcs N. Pap Z. M. Csszr P. Remnyi K. Kmves A. Vgh A. Horvth
Transdanubian MD (Most Disadvantageous)micro-regions in order to summarise

the experience of the developmentprogramme. By the experience of micro-regional
planning, most problems occurin connection with unemployment and the related
underqualification, and withthe underlying drop-out from education.
JEL Classification: O15, R58
Keywords: regional development, MD micro-regions, flagship programme,
education, human resource
I. Introduction
Despite the oversized regional development institutions and multiplied devel-
opment resources, regional differences in development have further been increased
in the last two decades. Certain micro-regions have dropped behind the average in
the highest degree concerning the indicators and liveability; in certain places the
conditions suggest the level of Third World countries. These are the so-called most
disadvantageous or MD micro-regions. Facing this problem, the Hungarian gov-
ernment and the regional development institution system has worked out an own
development programme for the improvement of these regions. It is questionable
whether the regional policy shaped after the European patterns is suitable for the
solution of these problems.
One of the problems in regional development policy having been present for a
long time and presumably to remain for a long while is developing the most
underdeveloped regions. Unfortunately the difference between the developed and
the underdeveloped has increased in Hungary during the last two decades despite
the strengthening regional politics. These regions are usually afflicted with multiple
disadvantages, therefore it is not enough to explore and change only one cause lead-
ing to underdevelopment. It is of complex origin; the effect of several correlated
factor-layers can be observed. It is an elemental thesis in case of local improvements
that investing into human resources (to put it in an ordinary way, into people) and
improving the conditions of the population (qualification, healthcare, standards of
living, etc.) is one of the most efficient and less costly means to eliminate under-
development. Despite its cost-efficiency only long-term results can be expected;
in many cases it takes generations to benefit from the investment. In this work we
will review the conclusions and suggestions of the educational aspects of a complex
Hungarian development programme.
The governmental flagship programme No one will be left behind

In the summer of 2007 the government selected 33 micro-regions which are the
most underdeveloped and in which 10% of the population live, based on the clas-
sification according to the survey of the CSO and the complex indicator2 created
by the latter. 12 such micro-regions are located in Northern Hungary, 8 in szak-
Alfld (the North of the Great Plain), 5 in Dl-Alfld (the South of the Great
Plain), and 8 in Dl-Dunntl (Southern Transdanubia). Regarding the chosen
micro-regions the New Hungary Equalising Developmental Programme was an-
nounced with the motto of No one will be left behind.
Due to planning and project generating work, the micro-regions have devel-
oped the project package within the centrally prescribed frameworks for the entire
sum retained for the 33 micro-regions respecting the population and the number
of settlements. The chosen areas are characterised by a peculiar settlement structure
(disintegrated, lacking towns), a generally high rate of unemployment, a low ca-
pability for the absorption of resources, deficient lineal and human infrastructure,
and a high proportion of the Roma population. The choice for financing may have
been influenced by political aspects as well.
The aim of the programming is on the one hand the initiation of sustainable
development processes that, according to the expectations, may slow down or stop
dropping off and may enhance standards of living, environment and services, thus
the general welfare of the population, and therefore it may strengthen the capability
of settlements to retain their population. Thus the programme is aimed at targeted
human resource improvement, regional economic development, environmental
and infrastructure development in the micro-regions.
2
Statistical data used: income tax, rate of permanent employment-seekers, activity rate, number of
functioning enterprises, number of school classrooms, number of completed school grades, number
of persons with a secondary school leaving exam, number of recipients of social benefits, number of
GP visits, rate of population per the number of General Practitioners, mortality rate, basic access,
drinking water supply rate, sewage rate, waste collection rate.
Fig.1.: The most disadvantaged micro-regions in Hungary (MD)(Source: www.

nfu.hu)
The basic principles of the flagship programme for subsidy were the following:
resource-based development (advantage in accessing resources)
only plans developed together with local participants can be successful
it is not enough to develop infrastructure, it must be filled up with meaning
no investments only for the sake of prestige!
social integration of the Roma
planning in accordance with local needs
These principles were realised in a rather contradictory way:

resource-based development resources were collected on the basis of the
residual principle,
only plans developed together with local participants can be successful part-
nership is exclusively formal, marketing-viewed, actual local co-operation was
not needed, indicators were only quantitative,
it is not enough to develop infrastructure, it must be filled up with mean-
ing locals were not able to cope with this otherwise advised principle, they
did not need it, they attempted to satisfy it to a minimal degree, without any
enthusiasm,
no investments only for the sake of prestige! the meaning of these prestige-
investments was not defined,
social integration of the Roma the leaders of the Roma community partici-
pated in the programme only to a very small degree,
planning in accordance with local needs but there was not enough time nor
any way to survey local needs, and the NFU (National Development Agency)
has specified the directions of development.
Criticism of the programme

Those who dreamed up and realised the programme ignored several questions
that could have an essential influence on the realisation and success of the pro-
grammes. The first of these questions is the geographical character of the area, that
is, the fact that typically limitary regions are in question, the problems of which are
strongly connected to the questions of an isolated vicinity. The other one is that the
leaders of the programme at the national level did not comprehend the peculiar cul-
ture of the developmental target areas. This situation cannot be interpreted merely
by quantitative, extrinsic indicators. The development method adapted from West-
ern Europe (resource-based planning) had been developed for social conditions with
a high level of qualification, a well-developed, characteristically middle-class society.
However, the society of MD regions is not characterised by this. So even the most
essential problems cannot be faced with the help of this method.
Spatial structural aspect

15 out of 33 MD micro-regions are directly on the border of the state, and only
6 are located in a distance more than 50 kms away from the borders. Thus, more
than 80% of the area involved in the programme is in a limitary position. Therefore
it would be a mistake to plan development ignoring international dimensions that
span over the borders at the arrangement. Consequently, the main aspects to be
assessed are the following:
assessment of former and recent vicinity relations
the question of depopulation
conditions of traffic and transport
relying on a strong relationship system extending over the borders

Based on the above typology, the following can be stated about MD regions:
small-village, plain-type,
typically rural,
located on the inner and outer peripheries,
characterised by centres with a low capacity of attraction,
do not possess even the minimum resources for getting through,
regional development target areas,
which have a distinct ethnical character in several cases.
II. The outcome of our research

We have conducted research regarding the improvement of the developmental
work of the 8 Transdanubian MD micro-region in order to summarise the ex-
perience of the development programme. These were characteristically empirical
observations.
Summarising the experience of planners (based on the opinions of cca.20
planners)
Conducting a survey by questioning local partners (250-300 persons/50
respondents)
Evaluation of the nature of the projects that had been accepted
We examined in the following sections:
Method of planning
Communication
Principle of equal opportunities
Has co-operation been achieved?
Relationship with micro-regional centres the question of village-town
relationship
Innovations
Chances for recovery
Evaluation of emerging programmes
Chart 2. sums up the most important results of the survey.
Chart 2.: Classification of problems in the order of the need of modification

concerning the region
Problem Value
1. Unemployment 363
Lack of employers, new employment, enterprises with a strong balance sheet, industrial
2. 252
firms and industrial areas
3. Underdeveloped, deficient infrastructure 194
Unfavourable traffic options (deficient access, high rate of dead-end settlements, low level
4. 169
of public transport)
5. Low level of qualification, high rate of unqualified work force 165
Low, decreasing number of enterprises/will to venture, lack of capital, lack of investors,
6. 131
entrepreneurs lacking capital, weak enterprises
7. Deep poverty, low income level, dropped-off classes and settlements 121
8. Unfavourable demographic conditions (ageing, migration) 117
Unfavourable educational conditions lack of infrastructure and vocational training,
9. 96
decreasing standards of training
10. Deepening moral crisis, social disintegration 71
11. Social and ethnic problems, segregatums 60
12. Low standards of healthcare and social services 44
Settlement-geographical characteristics (locality, peripheral location, small-village
13. 43
structure)
14. Lack of financial subsiding, deficient financial condition of local governments 40
15. Lack of touristic developments, weak tourism 33
Difficulties in sales, low engross price for agricultural products, extremely low profitability
16. 32
of economic activities
Problems in management and decision making (lack of information for local management,
17. weak capability for enforcement of interests, self-interest of lobbying forces, lack of will of 28
government)
18. Lack of quality public services, cultural , educational and sports facilities and public scenes 28
19. Low level of co-operation 27
20. Lacking conceptions for enhancing economy 22
21. Lack of equal opportunities 12
Lack of a young, creative intelligentsia, and experts able to manage programmes; lack of
22. 11
forcefulness in the civic sphere, low participation rate in public affairs
23. Politics (political disintegration, lack of differentiated policies) 10
24. Draining effect of cities with a municipal/county authority strongly felt 6
Ed.: B. Glosi-Kovcs. N. Pap
In our opinion, local persons have an appropriate impression of their own con-
ditions and problems. It is interesting that in spite of the fact that they perceive the
phenomena of the social and moral crisis, and that its predominance is unquestion-
able, these phenomena can be found in a cluster in answers 7-12., following the
economic difficulties. This fact indicates that the weight of local problems has not
been recognised at its whole extent.
Finally we evaluated the projects which had been accepted for support. Despite
the fact that limitariness is a general feature of MD regions; their problems were in
a decisive relation with the cutting-off of the relationship system across the borders,
there is only one out of the hundreds of accepted projects which deals with this prob-
lem utterly (Kurilla. Orosz Pap, 2009). Human programmes potentially con-
tributing to social integration had come out rather weak. Almost none of the innova-
tive programmes able to compensate for social disintegration had been accepted (e.g.
the Micro-regional Universitas programme developed exclusively for this purpose).
III. The tasks of education in development

By the experience of micro-regional planning, most problems occur in connec-
tion with unemployment and the related underqualification, and inclusively
with the underlying drop-out from education. Micro-regional leaders consider lack
of human resources, the lack of a layer with secondary and higher education that
would be able to control changes as innovative agents, as an important factor of
underdevelopment. The questions of low standards of education, the poor quality
of public education and insufficient infrastructure arise as well.
Experience in planning show that, a massive layer of marginalised people have
evolved, being on the periphery of society with low qualifications, permanently
out of the workforce market, living in poverty as a result of the social-economic
changes relating to the change of regime. These living conditions have a seriously
negative impact on the childhood socialisation of the new generations and lead to
disadvantages that are very difficult to reduce later. Educators are forced to face seri-
ous difficulties and special pedagogical problems, when they have not received suf-
ficient professional and methodological implements and approaches during their
training, and schools are not provided with even the most elementary conditions
of efficient educational work in many cases. These problems have been emphasised
in all micro-regions. The above problems at micro-regional level are manifested by
a high rate of drop-outs and ethnic segregation.
Reducing drop-out in elementary and secondary education, proposals for

promoting talent management and training for educators with a special pro-
fessional attainment
Educational work needs modifications in content so that individual in-
stitutes could be able to educate disadvantaged pupils and students more ef-
ficiently. It can be encouraged by the central government in the framework of
normative additional subsidy and tendering system by its claims made on
local programmes and by further means of support, and some curbs can be
built in the system as well. The applicability of financing methods varies by
the levels of education. In our opinion, financing the owner of the school is
a viable way primarily for primary schools and pre-school education; second-
ary and higher education answers to be encouraged by individual support.
However, in case of primary and pre-school education, the problems of edu-
cation disadvantaged pupils are varied, therefore the same form of assistance
not necessarily will be successful in both cases.
A special financing source should be allocated in case of schools involving
remediation programmes in their programmes and curricula, which could
ensure the procurement of equipment. Educators attending such training
should gain benefits (number of lessons, income). For the realisation of re-
mediation programmes classes should be divided into smaller groups (not
optionally; it should be compulsory).
Providing schools with school counsellors/psychologists with appropriate
expertise.
Employing professional social workers.
The key for educating disadvantaged pupils is advanced educator training. It
should be achieved for every educator to attend compulsory advanced train-
ing courses. There are two solutions possible: it may be incorporated in the
existing compulsory 7-year-period training system, by making the choice of
at least one pedagogy/methodology course mandatory. A solution should
be included in teachers responsibilities as a new advanced training course.
The expenses of the training would be ensured by the government.
Consequently, it would be advisable to bind the range of training courses on
offer to a stricter accreditation procedure.
For schools to be able to apply new pedagogical methods different from the
recent practice, central government should support the development and
promotion of developmental pedagogy methods in specialised institutes.
It would be reasonable to follow up the application of the knowledge gained
at advanced training courses in practice more efficiently. This process needs
reconsidering and re-establishing the present quality control system affecting
the whole of the education system that can be regarded as unsuccessful.
There are several ways to interest educators via financial motivation. This
procedure requires an objective means of measurement or observing the eval-
uation provided by the school-inspection system mentioned above. Criteria
should include reducing the number of drop-out students.
The other way: rewarding teachers in the form of extra stipend or by lesson
allowances.
The above can be joined by a mentoring teacher system where the task is fol-
lowing up on individual lives, assisting students and talent management, and
the teachers work can be remunerated depending on the outcome
Another method can be suggested to increase educator interest: to support
self-organisation of schools compensating for drop-outs and disadvantages
after the followers of inclusive pedagogy, observing self-developing school
models.
Additional, capitation-style subsidies paid for local governments can mean
only a weak motivation.
The topic of learning organisation procedures is connected to the renewal of
teacher training. A motivation system for professionally and pedagogically
provided students should be introduced.
The conditions of drop-out students can be improved not only by educators
and school life and the transformation of institutional culture. This ques-
tion can be approached by the topics of students and educational scheduling.
Foreign experience is provided for the solution as well: it is made possible
for drop-outs to visit school with a flexible schedule, on days and at times
which are suitable for them.
Education in a module system, extending the duration of learning can also
mean a solution; flexible adaptation to individual needs and demands can
provide motivation not only in case of those exposed to failure.
Individual support, grants offer a suitable solution for the further educa-
tion of students in disadvantage. Financing system must provide an oppor-
tunity for individual further education, the government should increase the
inclination for further education.
Another solution for improving the conditions of students in a disadvantaged
situation is the improvement of a boarding-school system, where each stu-
dent would have an individual adult mentor to help him/her adapt, to share
problems with, to give useful advice. Social workers also can be employed.
Reforms and regulations aimed at reducing learning failures of students with
multiple disadvantages include an already existing pre-school programme,
especially in micro-regions populated by a high proportion of the Roma.
An opportunity for flexible, prolonged start, day-long schools should be
introduced at the primary level.
IV. Recommendations
1. The utilisation of targeted resources is a simple and welcome method.
2. The perspective of an economic rise is illusory; nearly all conditions are lack-
ing in case of MD micro-regions the aim can be ensuring liveability.
3. Each micro-region should thread an own path at its peculiar rate.
You cant fix in 1-4 years what have gone wrong in 200 years
4. Local societies recognised only partly that their integrity has been damaged
seriously; they are disintegrated, so-called wrecked societies.
5. The philosophy of development should be placed on a moral basis, on com-
pletely different social and individual motivation.
6. Enter a personal consultation / technical assistance opportunities
7. Realization real development tips and ideas
8. The separation of professional and political communication.
References:
1. G. Fekete, .Bodolai, . (1995): Kistrsgi szervezdsek megjelense a terlet-
fejlesztsben. MTA RKK szak-magyarorszgi Osztlya, Miskolc.
2. Hajd, Z. (2001): Magyarorszg kzigazgatsi fldrajza. Dialg Campus, Pcs-Buda-
pest, 334 p.
3. Glosi-Kovcs, B. Pap, N.Remnyi, P. (2009): Kistrsgi tervezsi tapasztalatok
Dl-Dunntl
4. Glosi-Kovcs, B. (2010): Krnyezetfejleszts a kistrsgekben. A krnyezettudatos
kistrsgfejleszts kziknyve. IDResearch Kutatsi s Kpzsi Kft. 248 p.
5. Kurilla, A.Orosz, .Pap, N. (2009): Httal a hatrnak. Nemzetkzi konferen-
cia, Debrecen
6. Nemes Nagy, J. (1997): Rgi, regionalizmus. Educatio, Vol. VI./3., p. 409.
7. M. Csszr. Zs. (2006): Alapfok oktats In. Lszl M. (ed.).: Kzszolglatsok
c. egyetemi jegyzet.
8. Lszl M.Pap N. (ed. 2007): A kzszolgltatsok szervezsnek alternatvi. Lomart
Kiad, Pcs, pp.69- 88
9. M. Csszr. Zs. (2006) Kzpfok oktats In: Lszl M. (ed.): Kzszolgltatsok
c. egyetemi jegyzet Lszl M.Pap N. (szerk. 2007): A kzszolgltatsok szervezs-
nek alternatvi. Lomart Kiad, Pcs, pp. 89102.
10. Pap, N. (2003): Geographic Aspects of Regional Development Policy. Develop-
ment and Finance, 3. issue. pp. 8187.
11. Pap, N. (2004): A kistrsgek helye, szerepe Magyarorszgon a 21. szzad els vti-
zedben. Tr s Trsadalom Vol. XVIII./2. pp. 2336.
12. Pap, N. (2007): Kistrsgfejleszts. Alexandra Kiad, 200 p.
THE IMPACT OF MIGRATION ON CROATIAN CULTURAL DIVERSITY 943
THE IMPACT OF MIGRATION ON

CROATIAN CULTURAL DIVERSITY
Sanja Kneevi, B.Sc.1, Anita Kula, B.Sc.2, Lena Duspara, B.Sc.3
1
Polytehnic of Slavonski Brod, Republic of Croatia, sanja.knezevic@vusb.hr
2
Polytehnic of Slavonski Brod, Republic of Croatia, anita.kulas@vusb.hr
3
Polytehnic of Slavonski Brod, Republic of Croatia, lena.duspara@vusb.hr
Abstract
Migration represents the movement of people from one place in the world to
another. There are several types of migration: intercontinental, intracontinental
and interregional. Today, one of the most significant types of migration is rural
to urban migration. The most important push and pull factors which may influ-
ence people in movements include environmental, political, economic and cultural
factors. Culture is a complex system of behavior, traditions, beliefs, values and ar-
tifacts, which is transmitted through generations. It represents a group or com-
munity who shares common experiences. Cultural diversity involves the cultural
differences that exist among people and the way communities organize themselves,
their understanding of morality and religion. It is also called multiculturalism.
With the accession to the European Union, Croatia faces an interesting set of
migration challenges and opportunities. The increase of migration leads to a greater
diversity of the population. As people move, their cultural characteristics and ideas
spread along with them, creating and changing cultural diversity.
Area of consideration will be substantiated by survey results, conducted at the
College of Slavonski Brod, direction Management. Analysis of the results will show
understanding the given terms in relation to students of professional study and
students of specialist graduate professional study. The survey aims to answer the
question what is the attitude of students towards the existence and preservation of
cultural diversity in Croatia because culture is the productive strength of society.
JEL Classification: F22, Z11
Keywords: migration, culture, diversity, Croatia, European Union
944 Sanja Kneevi Anita Kula Lena Duspara
1. Introduction
A movement, or better say migration of people has a long history. Today there
are several types of migration and they will be discussed better in another chapter.
It is important to say that possibilities of diversity are at the heart of most migra-
tion. Crossing the limits allows easier migration of population but it should be
aware that the increased migration leads to higher diversity among the population.
Therefore it is also important to explain what the affects of diversity are.
2. Migration
Migration represents the movement of people from one place in the world to
another.
Migration occurs at a variety of scales: intercontinental (between continents),
intracontinental (between countries on a given continent), and interregional (with-
in countries). One of the most significant migration patterns has been rural to ur-
ban migration the movement of people from the countryside to cities in search
of opportunities. (http://www.nationalgeographic.com/xpeditions/lessons/09/
g68/migrationguidestudent.pdf )
Migration could also be internal and external. Internal migration represents the
movement of people to other place within a country. External migration represents
the movement of people to other place in a different country.
The most important push and pull factors which may influence people in move-
ments include environmental, political, economic and cultural factors.
Choice of destination is influenced by social and economic factors. The most
economic factors include large wage, labour demand and low unemployment. The
most social factors include work, family and education. Work is the primary reason
to migrate. The second most important reason is accompanying family, family for-
mation and family reunification. It is important to say that educational movements
are on the increase because of a host of opportunities for study abroad.
Some research showed that some people are more likely to move than others, for
example better educated, young people.
The right to move and live freely within the European Economic Area (EEA)
is one of the foundational principles of the European Union. The movement of
people for work, study, family purposes, and retirement can yield a variety of ben-
efits to the citizens and countries of Europe. These include more efficient labour
markets, increased cultural exchanges, better-trained workers, and the opportunity
for citizens to broaden their horizons.
(http://www.emnbelgium.be/sites/default/files/publications/mpieurope-
freemovement-drivers.pdf )
According to the Thomas Hylland Eriksen, migration leads to an increase in
diversity. Just because of its diversity, migrants are often in disadvantaged position
toward the local population. Therefore, the aim of every country should be:
strengthening unity and citizenship by ensuring that all members of society
are treated fairly and justly,
promote diversity a national identity not based primarily on ethnic identity,
cultural and religious diversity must be seen to bolster as the fundamental
values,
ensure representation of diversity by deemphasizing ethnicity and religion in
the public sphere,
prevent discrimination in the labour market, higher education and unequal
outcomes and
diversity should once and for all replace multiculturalism as a descriptive
term because diversity is among all individuals, not just among ethnic or im-
migrant groups.
Demographic and economic trends will change the geography of migration in
the 21st century in ways that will have a profound influence on development. To-
days middle- and low-income countries will enjoy higher economic growth in the
coming decades, while current high-income countries will grow more slowly than
they have in the recent past. (Newland, (2013))
The free movement of European workers has a long history. (http://www.
emnbelgium.be/sites/default/files/publications/mpieurope-freemovement-drivers.
pdf)
3. Culture
The different cultures of the world are the essence of various human civiliza-
tions. Culture is very important in the life of every individual. Through a culture
we identify with the society in which we live, as well as we find ourselves through
culture. Every society has a different culture, which gives it an identity and unique-
ness. Identity indicates how individuals and groups perceive and to determine
similarities and differences with other groups and individuals. (Perotti, (1995), p.
22)
Culture refers to a complex system of behavior, values, beliefs, and traditions
which is transmitted through generations. It is an integral and strong part of every
society and peoples lives. There are some definitions of culture: Culture is that
complex whole which includes knowledge, belief, art, morals, law, customs and
other capabilities and habits acquired by man as a member of society. - Edward
Tylor (http://www.buzzle.com/articles/what-is-culture.html)
Culture is the general pattern of thought and behavior based on the values and
beliefs that develop and become common over time and differ a group (society)
than the other groups. (Bahtijarevi-iber, F. et al (2008), p. 401.)
Some functions of culture are: a source of social identity, provide a sense of
belonging, gives the uniqueness and distinctiveness in relation to other, provide
standards and standards of behavioretc.
4. Cultural diversity
With the new forms of mobility and migration which have arisen with the rapid
processes of globalization, new ways of interconnection, exchange and coopera-
tion, and new ways of intercultural communication have emerged. Globalization
provides both positive and negative influences on cultural diversity which can have
far reaching impacts. Diversity refers to the individual characteristics that shape
its identity and experience in society. (Certo, S. C. & Certo, S. T. (2008), p. 80.)
Diversity is related to many characteristics that exist between people, such as age,
gender, ethnic heritage, race, religion, education, language
Cultural diversity is becoming the principal challenge of our times. It is a source
of innovation and creativity for development. Cultural diversity widens the range
of options open to everyone; it is one of the roots of development, understood
not simply in terms of economic growth, but also as a means to achieve a more
satisfactory intellectual, emotional, moral and spiritual existence. (http://unesdoc.
unesco.org/images/0012/001271/127160m.pdf ) Today, cultural diversity is un-
derstood not only as the common heritage of mankind, which needs to be pro-
tected and promoted, but also as a resource, which needs to be managed in the
interest of peace building and development, conflict prevention, democracy and
human rights.
Cultural diversity is a dynamic process which promotes the exchange and in-
teraction among communities, organizations and institutions, whose fundamental
values and objectives are insufficiently recognized in their environment with the
aim of strengthening mutual respect and a better understanding.
In order to successfully communicate in a multicultural environment required
is to separate from all prejudices and stereotypes, to respect other cultures and be-
come intercultural sensitive. Confirmation of rights and values of different cultures
requires recognition of differences and their appreciation for the purpose of the
welfare of society and global communities. One of the European Union elements
of the common foreign and security policy concerns about human rights.
5. European Union and cultural diversity

Considering the increasing mobility of people due to the expansion of the EU,
people are becoming more international, and all of them are characterized by large
differences regarding the religion, ethnicity, cultural heritage....
United in diversity is the motto of the European Union. It signifies how Euro-
peans have come together, in the form of the EU, to work for peace and prosperity,
while at the same time being enriched by the continents many different cultures,
traditions and languages. (http://europa.eu/about-eu/basic-information/symbols/
index_en.htm)
Furthermore, EU has adopted European Agenda for Culture. Under this initia-
tive, the EU Commission and institutions jointly promote: cultural diversity and
dialogue, culture as a catalyst for creativity and innovation, culture as part of the EUs
international relations. (http://ec.europa.eu/culture/our-policy-development/
european-agenda_en.htm)
Membership in the EU means that Croatia with its unique national identity will
also enrich European diversity, and that Croatian citizens in the Union will acquire
the identity of EU citizens. Integration into the EU will Croatia actually helps to
preserve its identity and cultural diversity. Croatian citizens have the same rights as
other EU citizens, such as freedom to live, work and educate in other EU countries.
6. Analysis of the attitudes of students towards the existence and

preservation of cultural diversity in Croatia
Survey was conducted at the College of Slavonski Brod, direction Management.
Analyzed results show understanding of terms of cultural diversity in Croatia in
relation to 60 students of professional study and 27 students of specialist graduate
professional study. 22% male and 78% female student, mostly (more than 90%)
at the age of 18-30 years belong in interval between 18-30 years old. More than
85% is unemployed and students high school background is in 25% gymnasium,
56% economy school and 19% other schools. Place of the completion of secondary
education in 52% cases is Slavonski Brod.
6.1. Motives for migration

Migration is integral part of living and almost everyone have experienced some
form of migration (some types are known and familiar, but about some people still
do not know absolutely nothing). Migrations at some points were crucial for posi-
tive development. Certain forms of migration are positive for migrants and their
environment, but also there are those kinds of negative migration that nobody
made good. Migration is constant, independent of all regulation, laws and stan-
dards that will prevent the movement of people, and to stop any form of migration.
In the following Chart 1. below are shown forms and determinations that can be
very important motives for migration.
Chart 1. Migration motives
Source: Made by Authors

According the results from Chart 1. 58% thinks that education is very high
motivator for migration, 30% that is medium and 11% low. Working migrations
such as chances for employment and career development are high motivator for
76% student and more. The reason of this result is that internationalization of Eu-
ropean labor markets has led to more than 20 million people in Western, Central
and Northern Europe. Connected with education and working migration is phe-
nomenon known as brain drain defined as the departure of young people (stu-
dents) out of the country for better education abroad, but equally applies to highly
skilled workforce who have completed the process of education. Social security is
characterized as 46% high, 52% medium and 2% low motivator, almost same as
motivator of better medical services. On the other hand negative motivators such
as persecutions are high motivator in 10%, medium in 38 and low in 52%, but
almost same results are for conflicts, natural disasters and environmental contami-
nation. There is hope that positive migrations will overcome negative.
6.2. Migration and cultural diversity

Cultural diversity generally is understood as the quality of diverse or different
cultures. This diversity may typically include differences in race, ethics, age, gen-
der, religion, and cultural background though the list of factors reecting diversity
could be wider. Migration have a great role in cultural diversity, it has turned the
big cities and some regions in multicultural islands where ethnic networks have
created a visible minority. In Chart 2. below are shown opinions on importance of
certain claims about cultural diversity.
Chart 2. Migration and cultural diversity claims

According Chart 2., 41% of students think that claim that migration enriches
the cultural diversity of a given area is very important, 44% little important and
15% not important at all. More than 70 % of students have opinion that is very
important that cultural diversity in the world should be preserved, cultural diver-
sity is the wealth of mankind and every culture is worth of respect. In the world
there should be only one culture is not important claim for 86% of students. Last
two claims, diversity between cultures encourage communication and collabora-
tion and promoting cultural diversity contributes to global economic development
is very important for 56%, little important for 40% and not important for less that
4% of respondents.
There are some problems associated with migration and cultural diversity. One
of aims of this paper is to explore opinion of importance and impact of following
problems such as departure of educated young people, xenophobia, racism and
ethnocentrism, on migration and cultural diversity in Chart 3.
Chart 3. Problems associated with migration and cultural diversity
In Chart 3. it is presented how an important for respondents is problem based

on departure of educated young people from the country. Almost everyone, 96%
see that problem as very important for cultural diversity. On the other hand respon-
dents see problem of xenophobia, racism and ethnocentrism as a little important.
6.3. Croatian cultural diversity and European Union

Croatian has rich cultural and national identity conditioned by geography and
history (crossroads and a meeting place of great culture), good traditions of Central
European and Mediterranean circles. On the other hand, there is widespread fear
of the negative impact of the EU on Croatian national identity and culture. The
reason is non-settlement, unused and urbanized territory, preservation of nature

and environment, quality education for high technology, preserving ancient crafts
and traditional values. Opinions of respondents about Croatian diversity and cul-
tural heritage are shown below in Chart 4, and possibilities of loss of national and
cultural identity because of joining to European Union is shown in Chart 5.
Chart 4. Croatia is a country of natural diversity and rich cultural and historical
heritage
Chart 5. Croatia will lose cultural and national identity as a member of the EU
According to Chart 4. almost all respondents 92% answered that they think
that Republic of Croatia has natural diversity, rich cultural and historical heritage.
Insignificant is number of those who dont have positive opinion. In Chart 2 it is
presented opinion about possibility of losing of Croatian national identity by join-
ing to European Union. Results are equally divided: 40% think that Croatia will
lose national and cultural identity as a member of European Union, 33% think
that Croatian membership to the European Union wouldnt cause loss of national
identity, because what connects citizens of different European Union countries is
more important than what separates them. Other 27% dont have specific opinion
about set hypothesis.
7. Conclusion
Process of globalization, facilitated by the rapid development of new informa-
tion and communication technologies, also representing a challenge for cultural di-
versity. Cultural diversity is a mainspring for sustainable development for individu-
als and society. It affects everyone. Creating a community that supports cultural
diversity will enrich the whole society with new perspectives. Understanding and
valuing cultural diversity makes possible a better knowledge. Active co-existence
and knowledge of culture, history, and respect for diversity among cultures will
contribute to the preservation of minority cultural autonomy, and the absence of
conflict in multicultural society.
The survey found that the majority of respondents largely considered cultural
diversity as moving force of development, based on tolerance, mutual respect, un-
derstanding and acceptance. As an European Union member, Croatia will with its
exceptional diversity, heritage and identity considerably contribute although stu-
dents have divided opinions about this thesis.
References
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246-062-9, Zagreb
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4. Hylland Eriksen, T. (2013). Immigration and national identity in Norway, Transat-
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9. http://unesdoc.unesco.org/images/0012/001271/127160m.pdf (Access: 23-02-2014)
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cess: 25-02-2014)
MISCELLANEOUS
CATEGORIES
MEASURING THE SUCCESS OF E-LIBRARY

IMPLEMENTATION:
STUDENTS PERCEPTIONS AND USE
Darko Etinger, Ph.D.1, Jusuf ehanovi, Ph.D.2, Antonio Ribi, univ.bacc.oec.3
1
Juraj Dobrila University of Pula, Faculty of Economics and Tourism Dr. Mijo Mirkovi,
Republic of Croatia, darko.etinger@unipu.hr
2
Republic of Croatia, jusuf.sehanovic@unipu.hr
3
Republic of Croatia, antonio.ribic@unipu.hr
Abstract
The study examined the success factors for adoption of e-library information
system among students in Croatia, focused on undergraduate and graduate stu-
dents of Information Science at the Faculty of Economics and Tourism Dr. Mijo
Mirkovi. Using the DeLone and McLeans information systems (IS) success
model, a research model is developed. Data is collected through a survey among
students and web traffic analysis of the e-library IS. The key constructs of interest
in this study aree-library information quality, system quality, service quality, user
satisfaction, perceived net benefits and usage. To assess the measurement and struc-
tural model, the PLS-SEM (Partial least squares structural equation modeling)
approach is used. Implications for e-library management at universities is provided.
JEL Classification: D83
Keywords: E-library, Delone & McLean Model, Information Systems Success,
perceptions, use
1. INTRODUCTION
Technology has driven changes in communication, information-seeking behav-
iors and practices at universities, decreasing traditional visiting of the university
library. Frank et al. (2001, 92) note that as scholarly communication and infor-
mation-seeking gravitated toward online sources, customized Web portals, and

desktop access, students became more dependent on remote computer access but
at the same time more overwhelmed by information noise.As digital resources in-
creased exponentially over the last decade, academic libraries have heavily invested
in electronic books, research databases, as well as electronic journals, and made
them accessible via their library Webportals (Chen; 2011, 1).Chen furthernotes
that despite an overwhelming literature validating or extending theIS success mod-
els, theres a lack of studies examining the IS use patterns in research pertaining to
library information systems.This research focuses on students e-library perceptions
and use, exploring the e-library success drivers in semester-long time frame.
The digital repository of University of Jurja Dobrila of Pula, Department of
Economics and Tourism Dr. Mijo Mirkovi is located athttp://e-knjiznica.unipu.
hr and is based on EPrints software. The application itself is written in Perl relying
on the MySQL database and Apache while XML files are the most used configu-
ration. The e-library application is installed on a dedicated server with Ubuntu
Linux OS. Database and storage works on the same server, but they can be easily
relocated if needed. To make it more user friendly with no need for registration and
administration of user accounts, the application is using LDAP to link to AAI@
edu.hr system.
EPrints allows serving multiple separated repositories on one session, but this
possibility has not been used since the current repository is planned to expand for
the needs of the entire University. It is expected for the university library to contain
all relevant titles that are needed for mastering the course program. These include
lectures and exercises, textbooks, science books, journal articles, seminars, finals,
masters theses and doctoral dissertations, projects, studies, reports, etc.The appli-
cation itself contains a very elaborated categorization list (article, part of the book,
monographs, conference materials, workshop materials, books, theses, patent, ex-
hibition, performance, composition, design, image, video, audio, data set, experi-
ment, class materials, etc.). The list can be edited according to the user needs. Also,
the documents are assigned with element of the organizational structure and library
classification. It is used by departments and divisions and valid UDC.The system
advantage is the ability to index the entire contents of the documents, which results
in higher quality and more detailed results than the conventional search by key-
words. Google Analytics is used for usage monitoring since it is the simplest tool
available to collect and analyze a large amount of useful information.
2. LITERATURE REVIEW
University libraries have invested a large amount of resources into digitizing
information for the Web, yet scholars and practitioners question the value of this
investment due to a lack of use of university library website resources (Kim; 2011,
63). Chen (2011, 1) states that there is a common concern among academic li-
braries that their library Web portals are being underutilized.DeLone & McLean
(2003, 10) point that the measurement of information systems (IS) success or ef-
fectiveness is critical to our understanding of the value and efficacy of IS manage-
ment actions and IS investments.
2.1. Digital Library Evaluation Models

Vullo (2010, 172) states that concepts and models for evaluating digital librar-
ies come mainly from the research areas of library and information science (LIS)
studies, computer science studies, and human-computer interaction (HCI) stud-
ies, adopting the following types of approach: 1. content-based approach (e-library
as a collection of data and metadata), 2. technical-based approach (e-library as a
software system), 3.service-based approach (e-library as an organization provid-
ing a set of intangible goods, i.e. benefits), 4. user-based approach (e-library as
a personal and social environment).Kim (2011, 64) identified three perspectives
of e-library usage: 1. user perspective(if library users perceive online resources as
helpful, they are more likely to use the resources), 2. website design perspective(if
a website design is simple, people are more likely to use it) and 3. library service
quality perspective.
Schwartz (2000, 390) notes that evaluation might be concerned with usability,
looking at the efficiency, effectiveness, and satisfaction with which users can achieve
specified goals. Although measuring efficiency might be relatively straightforward,
Schwartz (2000, 390)stressed there is little agreement as to how to measure ef-
fectiveness and satisfaction in library contexts. Chen (2011, 1) points that some
libraries undertake usability initiatives to improve their Web portals in order to
provide users with better and easier access to their electronic collections and ser-
vices. Gonalves et al. (2007, 1416)developed a quality model for digital libraries,
while Xie (2008, 1346) argues there are many unanswered questions regarding e-
library evaluation from users perspectives.
2.2. Theoretical framework

There has been a considerable amount of research in the information sci-
ence and technology field examining the determinants of IS success. Userss satis-
faction has been widely adopted in information systems (IS) research as an indica-
tor of IS success and use (e.g. Delone & McLean; 2003, 23). According to DeLone
and McLean model of IS success (2003, 23), information quality, system quality-
and service quality significantly affect both use and user satisfaction. Chen (2011,
1) points out that IS success models have been empirically tested and expanded in
numerous studies (e.g., Wang, 2008; Hkkinen & Hilmola, 2008; Schaupp, B-
langer, & Fan, 2009).
The DeLone and McLeans (1992, 62) IS success model consists ofsix dimen-
sions of IS success: system quality, information quality, use, user satisfaction, in-
dividual impact and organizational impact. This comprehensive and multidimen-
sional model was updated in 2003 (DeLone & McLean; 2003, 23), with the advent
of e-commerce. The authors added the service quality measure as a new dimen-
sion and grouped the impact measures into a single impact or category called
net benefits. As Vullo (2010, 172) points out, this model is consideredrelevant
for building a global e-libraryevaluation framework. DeLone and Mclean (2003,
25) propose that a high-quality system will be associated with more use, more user
satisfaction, and positive net benefits. Lwoga (2013, 4) states that system quality,
service quality and information quality positively influence intention to use, actual
system usage and user satisfaction while intention to use, actual use and user satis-
faction influence net benefit (as shown on Figure 1.).
Figure 1. DeLone & McLeans updated IS Success Model
Source: DeLone & McLean; 2003, 24

The context of DeLone & McLeans IS success model variables applied to the
e-library information system can be explained as:
1. Information Quality measures the output produced by the e-library,
2. System Quality measures the quality of the e-library IS,
3. Service Quality measures the critical aspect of the e-library service,
4. User Satisfaction measures the users response to the use of the output of the
e-library,
5. Intention to use measures users attitude,
6. Net benefits integrated individual and organizational impacts e-library
provides.
Chen (2011, 3) argues that the relationships between Use and User Satisfaction,
as well as the correlation between Use and Net Benefits received moderate sup-
port from the IS literature. He concludes that although IS success model has been
widely applied to research in the areas of e-commerce, knowledge management
systems, and specialized business applications, library based studies grounded in
this conceptual model are minimal. Tsakonas & Papatheodorou findings (2008,
1234)demonstrate that several attributes of usefulness, such as the level and the
relevance of information, and usability, such as easiness of use and learnability, as
well as functionalities commonly met in these systems, affect user interaction and
satisfaction.
3. METHODOLOGY
The present study seeks to find the success factors for adoption of e-library
information system among students in Croatia, focused on undergraduate stu-
dents of Information Science at the Faculty of Economics and Tourism Dr. Mijo
Mirkovi.
Based on the DeLone and McLeans IS success model, the following hypotheses
are proposed:
H1a. Information quality positively affects Intentions to use e-library.
H1b. Information quality positively affects User satisfaction with e-library.
H2a. System quality positively affects Intentions to use e-library.
H2b. System quality positively affects User satisfaction with e-library
H3a. Service quality positively affects Intentions to use e-library.
H3b. Service quality positively affects User satisfaction with e-library

H4. User satisfaction positively affects Intentions to use e-library.
H5. User satisfaction positively affects e-library net benefits.
H6. Intentions to use positively affects e-library net benefits.
To test the proposed hypotheses, two tools are used: a) web traffic analysis of
the e-library usage, b) an online questionnaire survey and using partial least squares
structural equation modeling.The software tool WarpPLS 4.0 was used to assess the
measurement and the structural model of our research.The survey questionnaires
were composed of multiple choice questions (to collect demographic information)
and Likert scales (to measure students perceptions and use of the EPrints e-library
information system.In the process od development of the survey, the constructs
indicators were applied from previous instruments based on the literature review.
Each question was tailored to fit the contect of this study.The survey items related
to each of the constructs included in the model were measured using a five-point
Likert scale. All items ranged from 1 (strongly disagree) to 5 (strongly agree).

4.1. Descriptive statistics
A total of 236 valid surveys (out of 241 completed and 498 targeted) were col-
lected from February, 3rd to February 11th, 2014. Participation in the survey was
voluntary and students were informed that there were no right or wrong answers,
and their responses would be kept in confidence.Among the respondents, there
were 132 male and 104 female undergraduate and graduate students, with the
ditribution as follows: 169 of 373 undergraduate 1st year, 35 of 53 undergradu-
ate 2nd year, 23 of 37 undergraduate 3rd year, 4 of 10 graduate 1st year and 9 of
15 graduate 2nd year students. 16,52% students reported using the e-library IS
frequently, 69,49% reported using it during the semester and only 13,98% used
the e-library sporadically, rarely or never. Regarding the importance of the content
students are most interested using the e-library for, 55.5% reported books and
course books, 18,64% reported handbooks and seminars, 9,32% reported final
and graduation theses and 16,54% reported scientific papers and experts reports.
4.2. E-library system Usage

For the traffic analysis of the first semester in the academic year 2013/14 we
consider the time space between October 1st, 2013 and January 31st, 2014. Dur-
ing this time 21.041 unique visitors were logged making 28.817 visits. 77,95%
(22.462 visits) originated from Croatia following Bosnia and Herzegovina with
12,04% (3.469 visits) and Serbia 4,63% (1.333 visits).About 0,47% (136 visits)
is unknown with no information about country of origin.108.782 pageviews were
registered, with 46 seconds average time spent on page. Average visit duration is 2
minutes and 9 seconds.Registered bounce rate is 54,70% (15.764 visits), meaning
that in those visitsusers did not interact with the page in any way. Because of such
high percentage, bounce rate is an important factor to keep in mind during the
analysis of all visit data, and especially average values. Average pages per visit rate is
3,77, but if we exclude bounced visits we receive a significantly different number.
By deducting number of bounced visits from the total visit count we end up with
13.053 visits in given period, and similarly the pageview count must be diminished
by the same number resulting in 93.018 pageviews, or 7,13 pageviews per visit.
Browsing the repository meta information is publicly available and its indexed
by the search engines, so it doesnt surprise that majority of all visits were originat-
ing form organic traffic sources like search engines. As expected, those visits are sig-
nificantly shorter than other originating from referral traffic sources and are more
likely to bring users who have adequate credentials to access full documents.By
looking into a distribution of visits by numbers of visited pages during a single visit,
2,73% (786 visits) is accountable for 32,53% (35.386) pageviews during visits on
which users explored twenty or more pages. Visits with only one pageview are con-
sidered bounced since users did not engage additionally with the page. Similarly,
in the visits by visit duration distribution,it is visible that 58,85% (16.956) of all
visits lasted up to 10 seconds. In the longest visit duration group, the one contain-
ing visits lasting longer than 1801 seconds, 295 visits were registered responsible
for 17.293 pageviews. From the collected data it is obvious that number of pages
per visit increases with visit duration.
At the present moment there are 2.086 records published in the repository.
52,25% (1.410 records) consists of theses and the rest are books, book parts, ar-
ticles and other content. An important part to be considered while analyzing record
views is the fact that most of the non-thesis records were added during the observed
period of time while thesis records were earlier additions. Keeping this in mind its
not surprising that nine of ten most viewed records are thesis, and the remaining
onesare books. Interestingly, one book is the most viewed record with 574 total
and 363 unique pageviews. Along with being the most visited record its the one
with the shortest time on site, only 56 seconds. Knowing that this particular is
part of the obligatory literature for a class, leads to a conclusion that it is mostly
visited by students who are acquiring (downloading) literature for their classes. As
mentioned before, content of the faculty e-library is indexed by the search engines,
and is displayed in their search results, so it doesnt surprise that the rest of most
visited records consist of terms that are very trending in public. Average time spent
viewing those records varies from 2 minutes and 7 seconds up to 4 minutes and 35
seconds, suggesting that visitors were indeed doing research and reviewing infor-
mation displayed on that pages.
4.2. IS Success model assessment

The research model was assessed using a two-step approach. First, the mea-
surement model was analysed following the structural model analysis. The factor
structure matrix of item loadings and cross-loadings is shown in Table 1. The con-
vergent validity of each construct is achieved as the item loadings for each construct
are above the threshold of 0.708 (Hair et al.; 2014, 103). 5 items didnt meet the
minimum requirements and were removed from the model.
Table 1: Factor structure matrix of loadings and cross-loadings

INFOQUAL SYSQUAL SERVQUAL USE SAT NETBEN
INFOQUAL1 0.720 0.434 0.581 0.400 0.587 0.536
INFOQUAL5 0.854 0.452 0.591 0.457 0.510 0.411
INFOQUAL6 0.855 0.386 0.548 0.474 0.519 0.490
SYSQUAL3 0.469 0.836 0.574 0.388 0.592 0.533
SYSQUAL4 0.494 0.847 0.576 0.386 0.527 0.431
SYSQUAL5 0.369 0.748 0.493 0.479 0.420 0.402
SYSQUAL6 0.343 0.802 0.498 0.484 0.452 0.415
SERVQUAL1 0.559 0.523 0.811 0.427 0.591 0.513
SERVQUAL2 0.585 0.639 0.819 0.422 0.625 0.548
SERVQUAL3 0.550 0.563 0.809 0.466 0.551 0.485
SERVQUAL4 0.585 0.406 0.796 0.439 0.614 0.560
SERVQUAL5 0.509 0.495 0.729 0.499 0.638 0.605
USE1 0.520 0.531 0.568 0.806 0.662 0.638
USE2 0.394 0.391 0.424 0.825 0.501 0.525
USE3 0.421 0.444 0.432 0.846 0.453 0.504
USE4 0.473 0.397 0.446 0.820 0.455 0.462
SAT1 0.567 0.524 0.686 0.552 0.899 0.634
SAT2 0.584 0.501 0.649 0.486 0.891 0.634

SAT3 0.549 0.571 0.651 0.606 0.845 0.667
SAT4 0.593 0.561 0.660 0.543 0.846 0.630
NETBEN1 0.466 0.412 0.573 0.521 0.628 0.808
NETBEN2 0.459 0.406 0.514 0.541 0.592 0.819
NETBEN3 0.537 0.472 0.574 0.541 0.550 0.793
NETBEN4 0.466 0.467 0.515 0.512 0.614 0.836
NETBEN5 0.430 0.469 0.576 0.487 0.584 0.777
Source: Authors calculations
Table 2. indicates Composite reliability, the Cronbachs Alpha coefficient, Aver-

age Variance Extracted (AVE) along with the square roots of the AVE (highlighted
numbers in the diagonal) and the correlation between constructs.The verification
of the reliability of indicators was obtained using Cronbachs alpha coefficient
(Cronbach, 1970.), testing the contribution made by each indicator to be similar,
as well as the composite reliability coefficient (Werts et al., 1974.) which takes
respective indicators into account. Convergent validity, measured by Average Vari-
ance Extracted (AVE), represents the common variance between the indicators and
their construct and should be higher than 0.5 (Hair et al.; 2014, 103). In order to
confirm the discriminant validity among constructs (Fornell-Lacker criterion) the
AVE square root must be superior to the correlation between constructs.
Table 2: Cronbachs alpha (CA), Composite Reliability (CR), Average Variance Ex-
tracted (AVE) and Discriminant Validity of the constructs
CA CR AVE (1) (2) (3) (4) (5) (6)
INFOQUAL (1) 0.739 0.852 0.660 0.812
SYSQUAL (2) 0.824 0.883 0.655 0.520 0.809
SERVQUAL (3) 0.852 0.895 0.630 0.703 0.663 0.793
USE (4) 0.842 0.894 0.679 0.548 0.534 0.566 0.824
SAT (5) 0.893 0.926 0.758 0.658 0.618 0.759 0.627 0.871
NETBEN (6) 0.866 0.903 0.651 0.584 0.551 0.681 0.645 0.736 0.807
Note: Square roots of AVEs shown on diagonal.
After establishing the reliability for the items and the convergent and discrimi-
nant validity of the constructs, we examined the structural model. The results of
the PLS analysis for the hypotheses H1a to H6 are shown in Figure 2.
Figure 2: Structural model results
The model shows no collinearity problems, as the average block variance infla-
tion factor VIF (AVIF)=2,272 (acceptable if <=5) and the average full collinear-
ity VIF (AFVIF)=2,556 (acceptable if <=5). The average path coefficient (APC) is
0,278 (p<0,001) while the average R-squared (ARS) is 0,561 (p<0,001) and the
average adjusted R-squared (AARS) is 0,555 (p<0,001). The predictive capability
of the model is thus satisfactory because all R-Squares are higher than 0,10 and
they can be interpreted as moderate for Satisfaction (R2=0,62), weak for Intentions
to use (R2=0,46) and moderate for Net benefits (R2=0,60). Table 3. summarizes the
relationships between constructs, namely the direct, indirect and the total effects
of the varibles.
Table 3: The direct, indirect and total effects of variables

Direct effects Indirect effects Total effects
USE SAT NETBEN USE SAT NETBEN USE SAT NETBEN
INFOQUAL 0.177 0.218 0.083 0.174 0.260 0.218 0.198
SYSQUAL 0.187 0.176 0.067 0.153 0.254 0.176 0.173
SERVQUAL 0.022 0.486 0.186 0.277 0.208 0.486 0.332
USE 0.296 0.296
SAT 0.382 0.557 0.113 0.382 0.670
The structural model shows a significant positive relationship between all con-
structs except for the relationship between Service quality and Intentions to use.
Therefore, hypotheses H1a, H1b, H2a, H2b, H3b, H4, H5 and H6 are all sup-
ported (p<0,01). The hypothesis H3a is found positive but not significant, there-
fore it is rejected. These findings are mostly in compliance with the literature, ex-
cept H3a needs further investigation.
By analysing the direct, indirect and total effects, it is evident Service quality
affects Intentions to use indirectly through User satisfaction (=0,186, p<0,01).
Our interpretation is that User satisfaction mediates the relationship between Ser-
vice quality and Intentions to use. The R-squared of the construct Intentions to
use is very close to moderate, but still weak. Hence we conducted the web traffic
analysis to further assess the e-library usage. With increased e-library usage, better
insight into the usage patters could be obtained. Still, our findings show User sat-
isfaction with e-library system and the content it provides is the dominant driver
for continuous e-library use. In compliance with DeLone & McLean (2003, 18),
Service quality is the most important variable measuring the overall success of the
e-library IS. Close attention to Information quality should be directed, as sufficient
and useful content are important drivers of satisfaction and use, thus generating
net benefits in the form of completed students assignments and increased skills
and capabilities. University decision-makers should create a formal framework for
e-library content collection and relevancy assessment to include adequate content
into the e-library repository. The e-library IS should be promoted as a comprehen-
sive tool fitted to students needs and tasks.
5. CONCLUSION
Based on DeLone & McLean IS succes model, this study examined the e-library
usage through a web traffic analysis and success drivers via the partial least squares
structural equation modeling. The role of quality (information quality, system
quality and service quality) in affecting user satisfaction, intentions to use and net
benefits was examined on undergraduate and graduate students of Information Sci-
ence at the Faculty of Economics and Tourism Dr. Mijo Mirkovi in the e-library
IS.The findings resonate with prior studies to a great extent, validating the DeLone
& McLeans IS success model in the context of e-library.
This work could help e-library management formulate strategies to promote use.
It could help establish a quatitative evaluation program for continuous monitoring
and evaluation to enable periodic enhancements. With a careful content collection
framework, the e-library could be enriched bringing bigger benefits to the users.
All of this could help define guidelines for future e-library upgrades, ensuring the
quality of the content, the quality of the system, as well as the quality of the service.
References:
1. Chen, Y.-H. (2011). Undergraduates perceptions and use of the university libraries
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ly, 20(2), 169178. Retrieved from https://liber.library.uu.nl/index.php/lq/article/
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22nd, 2014]
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Techniques Using SmartPLS. Marketing Bulletin, 24, 132. Retrieved from http://
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2014]
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970 Monika Makinov Jana Keketiov Marta Vavrkov
THE IDENTITY OF GYPSY CHILDREN

IN FAMILY FOSTER HOMES
Monika Makinov, Ph.D.1, Jana Keketiov, Ph.D.2, Marta Vavrkov, Ph.D.3
1
St. Elisabeth University of healthcare and social work, Bratislava, Slovak Republic,
monika.mackinova@gmail.com
2
University of Trnava, Faculty of healthcare and social work, Trnava,
Slovak Republic, jana.keketiova@gmail.com
3
University of Trnava, Slovak Republic, marta.vavercakova@gmail.com
Abstract
There are gypsy children in institutional care who dont know their ethnicity at
all; they are not in touch with their gypsy parents or other relatives, so they dont
feel to be part of the gypsy culture. This often causes achaos in their identity, what
in the vast majority of cases persists to the adult age. They are raised by non-gypsy
educators most of the time. The aim of this thesis is to answer a question whether
it is necessary to work with Gypsy children in a different way than with non-gypsy
children and whether its necessary to develop and enhance their national and eth-
nic identity in the meaning of positive gypsy traditions.
JEL Classification: I 30
Keywords: Family foster homes, Foster home educator, Foster home social
worker, Gypsy children, Gypsy identity, Gypsy culture, Gypsy way of life, Gypsy
craftwork and traditions, Gypsy particularities
Introduction
Knowing of the personal identity is important for all of us. If we have wane
sense of identity, there is also weak ability to face new events and problems in life.
If the child has no sense of its own identity, it may happen, that child is overloaded
with its own past and cannot think about the future.
According to the Law of social protection of children and social guardianship
305/2005, the childrens home is defined as an institution of social services. It pro-
THE IDENTITY OF GYPSY CHILDREN IN FAMILY FOSTER HOMES 971
vides a care to children from birth to adulthood, or gaining independence, but the
longest till 25 year of age. Under this Act, orphanage is replacing natural family
environment for the child or alternative family environment. Child admission to
the foster home can be based on the:
- Final court decision ordering institutional care
- An interim measure
- Final court decision imposing the educational measure
In an emergency cases, especially if the child found themselves without any care
or if the life or health of the child is at risk, may be taken to a foster home with-
out any documents. These documents is the office for child protection and social
guardianship obliged to provide additionally.
Since January 1997, all foster homes are included under the competence of the
Ministry of labour, social affairs and family. Transformation of foster homes college
type to the foster family homes ran continuously and was legalized by adoption of
the Law 305/2005 Law of social protection of children and social guardianship.
Flawless operation of individual families in a transformed home warrants the fact,
that in this form of education:
- Individualized approach of the educator to the child creates bigger platform
for the cooperation with the biological family of the child, if there are appro-
priate conditions for such cooperation
- Is easier to stimulate real family atmosphere and running of the family, with
all its characteristics
- As far as possible an individual and differentiated approach is secured, in order
to prepare children for life in every aspect, including self-service works
- Children participate better and more often and they decide together with
adults about the general atmosphere in the group.
- Big noise is completely removed
- Prevents constant running of children from group to group during the day
and evening.
Personality of the social worker

The most basic principle of the social workers job has to be an interest of the
people. Help to the client cant be effective without the interest and social feeling.
Social worker of the foster home is primarily protector of the childs right. Mik-
losko (2008) indicates 6 basic points of the job description of the social worker at
foster homes.
1. Removal of the social isolation

For the avoidance of social isolation of the facility is important that public
should be informed enough about the facility and the events. Public should also
come to close contact with the facility, either through volunteers who can provide
new long-lasting relationships and positive role models to the children, or close
cooperation with the school or extracurricular organizations which children attend
or may attend.
2. Creating a space for communication between the child and its biological family
Children from foster homes usually yearn for their biological parents openly or
covertly. They want to see their parents or at least to be in contact with them and
feel the acceptance of their biological family by surroundings. If this need of the
personal integrity of child is not filled, its resulting to educational problems and
conflicts. Social worker should be aware of this (in the past very underestimated
and neglected) fact and in the cooperation with the other members of the team do
everything possible to help the child to cope with its conflicting feelings and work
on an adequate feelings and safe contact with biological family.
3. Creating conditions for substitute family care

Substitute family care may be one of the solutions for the problem of aban-
doned children. Its indisputable, that such a form as a foster care or adoption is still
maturing in Slovakia, compared with other industrialized countries.
4. Prevention
Prevention is vital job of social worker in close collaboration with the psycholo-
gist and special pedagogue inside the facility. This action can prevent internal and
interpersonal conflicts.
5. Creating conditions for the labour integration of the child

In this case, social worker should be active together with the child after leaving
the foster home.
6. Social reintegration
Its happening often, that child after leaving the foster home fails. In this case,
there is often nobody close whom can ask for a help. If is young person after the
leaving foster home in crisis, he/she should have the opportunity to find the social
worker and other members of the team.
Slovak gypsies have traditionally lived in gypsy settlements. These were either
the urban gypsy neighbourhoods which were located at the edges of cities, or gypsy
camps and settlements outside the built-up area, mostly at least one to three kilo-
metres distant from the towns and villages. In establishing these settlements the
natural conditions played a significant role, particularly whether water, forest and
building material were near and also if there is an opportunity for the barest liveli-
hood in the surroundings.
As a result of assimilating educational state policy towards several generations
of the Gypsies, which deepened social and educational deficit, decomposed their
original values which were passed through generations ten thousands of Gypsies
in Slovakia barely finished primary education in the lower grades of elementary
schools, but gradually more often in special schools. Several psychological and edu-
cational researches demonstrate that the shifting of gypsy children to special schools
for mentally retarded children was unfounded, the reason was more likely language
handicap associated with social deficits. Even during the period of transformation
after the year 1989 state couldnt find the solution for this situation. There are still
ten thousands of future unemployed graduates educated like this in special schools
or special classes. They will become a burden for the society. Very slow are as well
the steps in setting up the zero classes and using the gypsy assistants and other in-
novative and alternative teaching programs.
The main role for women in the family is to take care of children, their educa-
tion, and also for the household. The man is the head of the family, the master; he
is the one who decide how much a woman wants to have children. Gypsy family
lives together, usually we can find three or four generations in one house. All the
women in this family are involved in raising children, the oldest girls have to take
care of their younger siblings. Respect and esteem enjoyed by mostly elderly family
members. They are wise, giving advices. Causes of placing Roma children to foster
homes were (not so long ago) attributed to the interventions of the majority. Chil-
dren used to be taken from their families due to the parental criminality, the bad
care, for poor sanitary conditions in the family, etc. As a result of this situation
was that these children after leaving the childrens home had nowhere to return,
their biological family did not want them back, or the child didnt want to be in-
tegrated back into the family. The problem is that the integration of these children
to the society was very difficult because of prejudices of the majority.There are two
aspects of identity: personal identity and social identity.In the context with the
gypsy population we must mention the national identity, which is included in the
category of social identity.
A child brought up in a gypsy family is dependent on family whole life, either
psychologically and materially, is not independent, cannot reach the individual
personality. The result of this kind of parenting is called to be Gypsy, and gypsies
themselves consider it the most precious heritage. Such gypsy ethnicity includes all
elements of gypsy culture and form an indivisible unit (Sekyt 2003). One of the
most important parts of being Gypsy is that the individual is aware of belonging
to family and genus. The part of this awareness is preferring family members at
the expense of other people who are not part o fit, further respect of older family
members, taking care of children and helpless family members.
Gypsy ethnicity and gypsy identity, terms so important for gypsies and their
confidence are coming to the crisis these years. Many gypsies who want to live
differently than in the unsatisfactory social conditions and in need (gypsy intel-
ligence) cease to declare their ethnicity and they are rather approaching to the non-
gypsy population. Many of them are going abroad for higher quality life. Young
generation of gypsies have problem with where are they belonging, they dont hold
the traditions, dont speak the language, so they are somehow sidelined from the
community. But they are also not accepted by the society. These people usually do
not know where they belong, where their place is and even if they dont realize it
themselves, they are suffering by belonging nowhere.
Educator of gypsy children should bet on personality - but one that would de-
velop the positive attributes of gypsy ethnicity as far as possible. Personality that
would (with educator help) developed their gypsy identity with an effort to over-
come the negative characteristics for which child could be at the beginning even
admitted to foster home. This is important not only for the present but also for the
future of a multicultural society.
Gypsy children are not different only by the colour of the skin, they have their
specifics. They need to convey their culture, their ethnicity and this they cannot
do with the help of their parents, so they need the help of the educators and social
workers, even if those are not of gypsy origin. Our society is whether we want it
or not, insensitive to gypsy issues. We will never be able to protect gypsy children
against a variety of insults and shouting. But we can prepare them for that and sup-
port them to create healthy gypsy identity.
Survey
The aim of the survey was to determine the view of gypsy children in foster
homes to their ethnic identity, whether they are aware of their gypsy identity, who
they really consider themselves to be.
Exploratory question: How do the gypsy children living in foster homes see
their cultural identity?
Exploratory group consisted of 10 gypsy children living in the foster home in
Bratislava aged 6 to 16 years, 7 boys and 3 girls. Further, research attended 9 educa-
tors (6 women, 3 men) aged 24 to 46 years from different foster homes family type
who are attending specialization training for staff in childrens homes and special
schools in Methodological and Pedagogical Centre in Bratislava. Four respondents
have secondary education, and 5 of them are university graduates. Interviews with
the children lasted about 20 minutes, which was the limit (especially in small chil-
dren) in which they managed to keep the attention, or were motivated with sweet
reward.
Specific questions for children in foster homes:
1. How do you imagine your future? What would you like to be?
2. Can you tell me who you are? List the words that you can connect with your
person.
3. What is you difference from the other children? What is unique about you?
What are you good at?
4. What are your interests?
5. Do you feel to by Gypsy?
6. Who do you think are the gypsies? If somebody asked you who is gypsy, what
would you answer?
7. Have you ever being ashamed for being Gypsy?
8. Is there anything you dont like about the gypsies?
9. What do you like on them at the other side?
Future
They had very similar picture about their future as their contemporaries. Most
of the answers was that they want a good job and own family, although gypsy spe-
cifics is that they dont think much about the future, they live mostly in the present.
Uniqueness
This category includes activities that children enjoy and like to do. For boys, this
is mainly a sport in which they feel special; it was confirmed by four respondents,
2 with table tennis, 2 with football. Further it was dance, computers, painting,
singing etc.
Sense of the identity

All gypsy children whom we interviewed knew that they belong to gypsy eth-
nicity. All of these children have some contact with their biological family, or they
remember a time when they lived in the family. But this doesnt mean that they fell
to be gypsy. Some children never doubted that they are gypsy ethnicity.
Some children never doubted about their ethnicity. One respondent for the
question if he feels to by gypsy answered without any hesitation: Of course, I feel.
In the next part of conversation he said: I dont mind at all that I am a Gypsy.
Also respondents number 3, 7 and 10 are sure about their ethnicity and they feel
to by gypsies.
When asked what they like about gypsies, we received many responses. 5 of
them answered that they like music, singing songs, dancing, also they said that they
like the gypsy laugh, eyes and trips. One of the children answered that he doesnt
like anything about them, and one of the respondents liked the fact that they are
begging.
I am a Gypsy, but...
For some children, we observed some doubts whether they feel to be gypsies;
this aroused from the opinion that they want to have non-gypsy lifestyle in the
future. Respondent no. 5 answered for the question, whether he feels to by Gypsy:
Yes, I feel, but... but we could have seen some kind of awkwardness. Respondent
no. 4 said: Yes, I feel to by Gypsy, but different than the others. Some of the gyp-
sies look like you can never recognize that they are gypsies; they look like white
people and live like white people. So this is what I want in the future: to by a Gypsy,
but live like a white. Another one answered: I dont know who I am. Probably I
am a Gypsy.
I feel to be Slovak
In the third group of the children, based on the answer, were children who
didnt feel to by gypsies. Respondent no. 8 answered for the question if she feels
to by gypsy that she didnt. Also for the question whether she was ever ashamed
for being gypsy, she answered that never. Then she confirmed that even if she is
considered to be gypsy nationality, she feels more to be Slovak than Gypsy. The
biggest problem was with the respondent no.1. Gypsy not at all, more Slovak.
With these issues he was suddenly very different, angry and conversation began to
be very uncomfortable for him. For the next questions he answered: dont ask me.
If I were a gypsy, they all would curse me.
There is no clear answer for the exploratory question: How do they feel their
ethnicity, because every child is individual. All of them didnt doubt that they are
gypsies. Most of them also felt to by gypsies, some of them had but which one
of them couldnt specify and the other said that he feel to be gypsy, but wants to
live like white people. Two of them hey even said that they feel to be more Slovak
than gypsy, one of them said that he doesnt feel to be gypsy at all. Although the
particularity of the Gypsies is that they do not care about their future and live
mostly in the present, all child respondents would like to work in the future; three
out of ten would like to have a family of their own. Gypsies are special with their
musical talent and the talent for movement. 4 children out of ten feel to be excep-
tional in these areas, but also like to paint and sport. Children managed better to
characterize positive aspects of the gypsies. Only one respondent answered that he
liked nothing about the gypsies. As negative aspects of gypsies they stated noise,
dirt, stealing, swearing, but 4 children responded that they do not mind anything
at gypsies.
Specific questions for educators

1. Do you talk to the kids about their past, present and future?
2. Is work with gypsy different than with the other children? If yes, then what
is the difference?
3. What is the difference between gypsy and non-gypsy children?
4. Do you think that Roma children are interested in their origins?

5. Who do you think should convey to them they are gypsies and how?
6. What information do you think these children certainly should know about
the gypsies?
7. Do you think it would be appropriate to speak about the gypsies also with
non-gypsy children? Would it be useful?
8. Do you think it would be useful for children if gypsy personal were employed?
9. Are you interested in these issues? Do you have enough information about
this topic?
By analysis of interviews with the educators we identified the opinions of these
subjects about the identity and ethnicity of gypsy children. It should be noted that
originally 15 respondents were contacted, 6 of them refused to participate the talk
about the subject. As a reason they answered: Why to talk about this issue? or
For Gods sake, this no! Respondents, who agreed to participate, found several
features which is necessary to count with when you work with this ethnicity. The
most common terms used by respondents in relation to the specifics of gypsy chil-
dren were identified: temperament, temper, impulsivity, noise, lack of concentra-
tion, loss of their independence, the tendency of association, living and working
in a group, but also physical talent, dance, musical talent , focusing on the present,
emotion, unreliability, inferiority complexes, wanderlust, prone to lies, a different
set of values, avoiding responsibilities, servility, but also kindness, different culture,
different customs, earlier adolescence - especially in girls. Answers of the respon-
dents for the question no.6 show that information about gypsies should be mostly
positive, but there is no need to avoid the negative information too. All respon-
dents agreed that children should know first of all about the history of the gypsies,
the gypsy culture, the music, tales, dances and language. From the negative infor-
mation they stated, that children should know about gypsies without job, living on
social benefits. As a source of information four of them answered that it should be
an educator, but also gypsy educator, biological parents and history teacher. How-
ever, one respondent noted that educators often have the same prejudices against
gypsies like majority, further reinforced by the negative experience with the original
families of the children from the foster home. So it should be rather external worker
who can mediate information better than educators, mainly through discussions
with children. Eight of nine respondents also think that to mediate information
about gypsies is certainly beneficial, only one stated that this is not necessary. We
believe that the survey results cannot be generalized and even it was not the aim
of our research. Although respondents opinions are very interesting and certainly
useful for practice.
Recommendations for practice

- It is important that people, who work with gypsy children in the foster home,
whether it is an educator or social worker, had acquired information about the gyp-
sies. These workers should know about gypsy culture, about who the gypsies are,
and also to know about their history. This would help tutor to create with children
their identity, for example with reading them tales, speaking with them about their
culture, and introducing them important personalities.
- Social worker could for example invite important gypsy personalities, orga-
nize discussion about the culture, and invite gypsy music bands or other culture
attractions, to mediate a gypsy culture. Also should recommend a literature to the
children and to the school.
- its absolutely necessary to prepare children for that to be a Gypsy is a stigma,
and in our society there are many prejudices towards gypsies. Children should
know it and be prepared for it.
- To invite cooperation from gypsy educator. This person may be very important
for children by helping them answer the questions. He/she can be somebody with
whom they can identify. Great benefit can be that person especially for those chil-
dren who spend the majority of time in the foster home, so they have no contact
with community.
- The question of ethnic identity and everything that is included in this issue can
be difficult for orientation also for educators and social workers, it is therefore nec-
essary for people who work with gypsy children to create a support groups where
they can talk about everything with colleagues or with professionals.
- Implement activities to assist in the application of gypsy youth in the labour
market, start to provide advice to young people outside the school (e.g. courses
German or English) and also highlight the need for organizations to create more
job opportunities for gypsies.
References:
1. DODLOV, E. SWATON. A. 2003: Sksenosti z transformcie Detskho Domo-
va SLON v ariskch Michaanoch. In: Vychovvate. 2003, ro. 48, .9, s.25-28
2. MIKLOKO, J. 2008: Nhradn starostlivos. Bratislava: Vysok kola zdravotnc-
tva a socilnej prce sv. Albety, 2008, n.o., Slovak Academic Press, 94 s. ISBN
987-80- 89271-36-8
3. SEKYT, V. 2002: loha koly pi integraci Rom 2002[online] [citovan 20.11.2011]
Dostupn na internete: <http://www.vcvscr.cz/mensiny/konference/index.php?
co=narodni_prisp&kdo=sekyt>.
4. SEKYT, V. 2003: Romsk tradice a jejich konfrontace se souasnost (Romstv jako
znevhodujc faktor) [online] Zveren sprva projektu vskumu.30. novembra
2003.
5. [citovan 22.11. 2011 ] Dostupn na internete: <http://www.socioklub.cz/docs/vyz-
kum_situace_romske_populace.pdf>
6. KOVIERA, A. 2006: 10 dilem nhradnej vchovy. 1. Vydanie, Nov prca, spol. s.r.
o., Bratislava, 2006. ISBN 80-88929-81-4
7. KOVIERA, A. 2007: Dilemata nhradn vchovy. Praha: Portl, 2007. 144 s. ISBN
978- 80-7367-318-5.
8. Act NR SR . 36/2005 Z.z. orodine a o zmene a doplnen niektorchzkonov.
9. Act NR SR .305/2005Z.z. osocilnoprvnej ochrane det a o socilnej kuratele a
ozmeneadoplnen niektorch zkonov vznen neskorch predpisov.
THE INFLUENCE OF DESIGN CRITERIA FOR THE BRAND PERSONALITY 981
THE INFLUENCE OF DESIGN CRITERIA FOR

THE BRAND PERSONALITY
Ulrich Fhl, Ph.D.1, Felicitas Memer
Hochschule Pforzheim, Federal Republic of Germany, ulrich.foehl@hs-pforzheim.de
Abstract
As products in many industries are technologically at the same level, their suc-
cess depends increasingly on design, since functionality and quality are a given.
Still, the question remains open how far certain design features influence the per-
ception of a brand.
Taking the example of a car interior, an online study with 160 student par-
ticipants examined the relationship between design features and appraisal of brand
personality based on a model by Hieronimus (2003). Using images, the partici-
pants were asked to evaluate different car interiors, in which the colours and mate-
rials of certain components were systematically changed.
The study has shown some initial indications of the relationship between design
features and certain aspects of brand personality. Thus, different colours of the
interior resulted in different appraisals of the dimension trust and safety, whereas
materials were shown to have a particular impact on the dimension temperament
und passion.
JEL Classification: M31, M37
Keywords: design features, brand personality, brand perception, competitive
advantage, marketing
1 Einleitung
Zahlreiche Studien betonen die hohe Bedeutung des Produktdesigns fr den
Erfolg eines Produkts (Bloch, 1995; Hertenstein et al., 2005). Das Design ist in
der Regel eines der ersten Produktmerkmale, mit denen ein Kunde im Rahmen
eines Kaufprozesses konfrontiert wird. Weitgehend ungeklrt ist bislang allerdings
982 Ulrich Fhl Felicitas Memer
die Frage, wie sich mit Hilfe des Produktdesigns eine bestimmte Wirkung auf die
Wahrnehmung einer Marke erzielen lsst (Orth & Malkewitz, 2008).
Im Rahmen dieser Studie soll daher der Einfluss ausgewhlter Designmerkmale
auf einen Aspekt der Markenwahrnehmung, das Konzept der Markenpersnlich-
keit, untersucht werden. Als Produktkategorie wurden Fahrzeuge gewhlt, da auch
in der Automobilbranche das Design zunehmend als entscheidendes Element zur
Erzielung eines Wettbewerbsvorteils gesehen wird (Hicks et al., 2012; Warell &
Young, 2011). Zudem hat das Automobildesign einen sehr hohen Einfluss auf die
Markenwahrnehmung (Warell, 2008). Whrend sich bisherige Studien zum Fah-
rzeugdesign insbesondere mit der Gestaltung des Exterieurs beschftigt haben (Ke-
aveney et al., 2012), ist zur Wirkung des Fahrzeuginterieurs bislang noch wenig
bekannt (Herrmann et al., 2011), weshalb sich die vorliegende Arbeit auf diesen
Bereich konzentriert.
1.1 Markenpersnlichkeit
Das Konzept der Markenpersnlichkeit als Teil des Markenimages hat eine hohe
Bedeutung fr die Markenfhrung (Freling & Forbes, 2005). Aaker definiert den
Begriff der Markenpersnlichkeit als the set of human characteristics associated
with a brand (Aaker, 1997, S. 347). In Anlehnung an das Fnf-Faktoren-Modell
der menschlichen Persnlichkeit (McCrae & Costa, 1986) ermittelte Aaker (1997)
fnf Dimensionen zur Beschreibung einer Marke: Sincerity (Aufrichtigkeit), Excite-
ment (Erregung/Spannung), Competence (Kompetenz), Sophistication (Kultiviertheit)
und Ruggedness (Robustheit). Dafr konzipierte sie ein Messinstrument, das jede
Dimension noch in mehrere Unterbereiche, sogenannte Facetten, unterteilt, die
ber jeweils mehrere Items erfasst werden. Insgesamt enthlt ihr Fragebogen 42
Eigenschaftsbegriffe, nach denen sich Marken klassifizieren lassen. Zwar handelt
es sich bei diesem Ansatz um das bekannteste Modell zur Erfassung der Marken-
persnlichkeit, allerdings lieen sich die postulierten Dimensionen insbesondere
auerhalb der USA in vielen Studien nicht replizieren (Aaker et al., 2001; Mder,
2005).
Daher entstanden in verschiedenen Lndern kulturspezifische Messinstrumente
zur Erfassung der Markenpersnlichkeit. Im deutschsprachigen Raum erstellten
Hieronimus (2003) sowie Mder (2005) entsprechende Skalen. Whrend Mder
zwei umfangreiche Instrumente entwickelte, deren Itemzahl etwa der Skala von
Aaker entspricht, konzipierte Hieronimus ein auf nur zwei Dimensionen mit jew-
eils fnf Items bestehendes Inventar. Grundlage dafr bildete das Messinstrument
von Aaker, das Hieronimus in die deutsche Sprache bertrug und in mehreren
Testkonstruktionsstufen verdichtete. Die erste resultierende Dimension Vertrauen
und Sicherheit reprsentiert nach Auffassung Hieronimus die rationale Seite der
Markenpersnlichkeit mit Eigenschaften wie zuverlssig oder erfolgreich und en-
thlt zentrale Aspekte der Dimensionen Kompetenz und Aufrichtigkeit nach Aaker.
Die zweite Dimension, Temperament und Leidenschaft, mit Eigenschaften wie fan-
tasievoll, frhlich oder leidenschaftlich deckt eher emotionale Facetten einer Marke
ab und umfasst zentrale Bestandteile der Aaker-Dimensionen Erregung/Spannung
sowie Leidenschaft.
1.2 Produktdesign und Marke

ber die hohe Bedeutung des Produktdesigns fr die Bildung starker Marken
besteht weitgehend Einigkeit in der einschlgigen Marketingliteratur (Orth &
Malkewitz, 2008). Leder et al. (2007) skizzieren drei unterschiedliche Pfade, ber
die sich das Produktdesign auf das Bild einer Marke auswirkt. Bestimmte marken-
typische Attribute wie beispielsweise eine bestimmte Gestaltung von Fahrzeugs-
cheinwerfern oder der Khlergrill eines Fahrzeugs tragen demnach dazu bei, dass
ein Fahrzeug von Kunden einer bestimmten Marke zugeordnet werden kann. Des
Weiteren knnen Designelemente Informationen ber Funktion und Nutzung
eines Produkts kommunizieren. Durch eine organische Formgebung transportiert
beispielsweise eine Computermaus die Eigenschaft gute Bedienbarkeit, welche sich
auch auf das Image der betreffenden Marke bertragen kann. Schlielich knnen
bestimmte sthetisch attraktive Designmerkmale generell zu positiven Bewertun-
gen einer Marke fhren.
Bei allen drei Wirkpfaden stellt sich die Frage, welche konkrete Wirkung
bestimmte Gestaltungsmerkmale dabei jeweils erzielen. Diese Zuordnung von
Designmerkmalen zu Markencharakteristika stellt nach wie vor eine groe Heraus-
forderung fr Design- und Marketingforschung dar (Orth & Malkewitz, 2008).
Aufgrund der Vielzahl an gleichzeitig wirksamen Designmerkmalen eines Produkts
ist es schwierig, Gesetzmigkeiten zur Wirkung einzelner Gestaltungsmerkmale
wie etwa bestimmter Farben oder Formen herauszuarbeiten. Deshalb werden bei
Studien zur Wahrnehmung einzelner Designelemente hufig experimentelle Ans-
tze gewhlt, bei denen ausgewhlte Designmerkmale systematisch variiert werden,
whrend andere konstant bleiben. Leder und Carbon (2005) untersuchten beispiels-
weise im Rahmen einer experimentellen Studie die Wirkung von Merkmalen wie
Linienfhrung und Komplexitt auf die Bewertung von Fahrzeuginterieurs. Dabei
arbeiteten sie mit Interieurskizzen, bei denen diese Merkmale gezielt variiert wur-
den. So wurden bei der Variation der Linienfhrung eher kantige mit eher flieen-
den Formen verglichen, die Komplexitt wurde durch die Anzahl an Elementen
variiert, die eine bestimmte Skizze enthielt.
Auch die wenigen Studien, die sich mit der Beziehung zwischen Designmerk-
malen und Aspekten der Markenwahrnehmung befassen, nutzen teilweise experi-
mentelle Anstze. So untersuchten Grohmann et al. (2013) die Wirkung unter-
schiedlicher Merkmale einer Schriftart auf die Dimensionen der Markenpersn-
lichkeit nach Aaker (1997). Sie lieen Schriftarten bewerten, die sich in vorherge-
henden Studien als unterschiedlich im Hinblick auf Merkmale wie Natrlichkeit
und Harmonie erwiesen hatten, und konnten nachweisen, dass hohe Natrlichkeit
und Harmonie zu hheren Bewertungen auf der Mehrzahl der Markenpersnlich-
keitsdimensionen fhren. Pantin-Sohier und Bre (2004) fanden einen signifi-
kanten Effekt der Verpackungsfarbe auf die Dimensionen Erregung/Spannung und
Kultiviertheit nach Aaker.
Umfangreiche Arbeiten zur Analyse der Beziehungen zwischen Markenpersn-
lichkeit und Design stammen aus der Arbeitsgruppe um Ulrich Orth. Im Gegen-
satz zu experimentellen Anstzen, die einzelne Gestaltungsmerkmale in den Vor-
dergrund stellen, betont Orth die Bedeutung der holistischen Designwirkung, die
sich aus vielen unterschiedlichen Designattributen ergibt (Littel & Orth, 2013). In
einer umfangreichen Studienreihe (Orth & Malkewitz, 2008) wurde die Wirkung
unterschiedlicher Designelemente von Weinflaschen auf die Markenpersnlichkeit
nach Aaker untersucht. In einem ersten Analyseschritt wurde ermittelt, welche ho-
listische Wirkung bestimmte Designmerkmale erzielen. So zeigte sich, dass sym-
metrische Flaschen natrlich wirken, whrend groe Flaschen eher als massiv wah-
rgenommen werden. In einem weiteren Analyeschritt lieen sich diese holistischen
Designwirkungen zu den fnf Aaker-Dimensionen in Beziehung setzen. Flaschen,
die sehr kontrastreich wirkten, erhielten etwa hohe Werte auf der Dimension Er-
regung/Spannung, natrlich wirkende Flaschen wiesen hohe Werte auf der Dimen-
sion Aufrichtigkeit auf. Durch dieses mehrstufige Vorgehen konnte eine Vielzahl
von Gestaltungsmerkmalen bercksichtigt werden. Je nach intendiertem Marken-
persnlichkeitsprofil lassen aus diesen Ergebnissen klare Empfehlungen ableiten,
welche holistische Wirkung die zugehrigen Flaschen aufweisen sollten und welche
Gestaltungselemente jeweils dafr verantwortlich sind.
Whrend dieser Ansatz auf visuelle Aspekte beschrnkt ist, wird er bei Littel und
Orth (2013) auf haptische Aspekte ausgeweitet. Als Produktgruppe wurden dabei
Wasserflaschen gewhlt. Wie in der Studie Orth und Malkewitz (2008) fanden
sich signifikante Beziehungen zwischen Designwirkungen und Ausprgungen der
Markenpersnlichkeit. Durch die Wahl einer anderen Produktgruppe ergaben sich
allerdings teilweise andere holistische Designwirkungen als bei der Untersuchung
von Weinflaschen, was die Abhngigkeit der Ergebnisse entsprechender Anstze
von der jeweils untersuchten Produktkategorie unterstreicht.
Insgesamt weisen diese ersten Studien Beziehungen zwischen Design und
Markenpersnlichkeit nach, die allerdings noch nicht auf andere Produktgruppen
verallgemeinerbar sind.
2 Zielsetzung und Fragestellungen

Die aktuelle Forschungsliteratur zeigt einerseits die hohe Bedeutung des De-
signs fr die Wahrnehmung von Marken, offenbart allerdings auch den Mangel an
Studien, die diese Verbindungen fr verschiedene Produktgruppen systematisch
untersuchen. Im Rahmen dieser Studie sollte daher eine bislang nicht betrachtete
Produktkategorie, das Interieur von Fahrzeugen, nher untersucht werden. Gerade
Fahrzeuginterieurs werden im Gegensatz zum Exterieur bislang erst zu etwa 60 %
der korrekten Marke zugeordnet (Esch & Hanisch, 2012). Eine Marke scheint sich
bislang also noch nicht in dem Ma im Interieur zu manifestieren, wie dies bei
Exterieurs bereits der Fall ist.
Um eine eindeutige Verbindung zwischen Designmerkmalen und den Dimen-
sionen der Markenpersnlichkeit herzustellen, wurde ein experimenteller Ansatz
gewhlt. Zur systematischen Variation bestimmter Gestaltungsmerkmale wurde
der Umstand genutzt, dass gerade beim Fahrzeuginterieur von den Herstellern oft
unterschiedliche Designlinien angeboten werden, die sich lediglich in ausgewhlten
Merkmalen unterscheiden. Viele Hersteller bieten beispielsweise unterschiedliche
Farbgebungen fr das Interieur an. Da Farben generell einen hohen Einfluss auf
die subjektive Designwahrnehmung haben, wurde dieses Merkmal im Rahmen der
vorliegenden Studie betrachtet (Pantin-Sohier & Bre, 2004).
Gerade bei Fahrzeuginterieurs kommt zudem der Materialitt verschiedener
Interieurelemente eine besondere Bedeutung zu und beeinflusst sowohl die wah-
rgenommene Qualitt als auch andere Aspekte der Designwirkung (Ersal et al.,
2011). Deshalb wurde als zweite Variable die Materialitt der Zierelemente von
Fahrzeuge variiert, die typischerweise im Bereich der Tr sowie des Armaturen-

bretts angebracht sind.
Da die Studie im deutschsprachigen Raum durchgefhrt wurde, wurde anstatt
des Ansatzes von Aaker (1997) ein deutschsprachiges Modell zugrundegelegt. Auf-
grund des geringeren Itemumfangs sowie der im Rahmen der Testkonstruktion
engen Anlehnung an die Skala von Aaker (1997) wurde hierfr der Ansatz von
Hieronimus (2003) herangezogen.
Im Einzelnen wurden folgende Fragestellungen adressiert:
(1) Inwiefern lsst sich die Dimensionsstruktur des Markenpersnlichkeitsin-
ventars von Hieronimus im Fahrzeugkontext replizieren?
(1.1) Welchen Einfluss hat die Farbe eines Fahrzeuginterieurs auf die beiden
Dimensionen der Markenpersnlichkeit?
(1.2) Welchen Einfluss hat die Materialitt der Zierteile auf die
Markenpersnlichkeit?
Um die Strke des Einflusses der systematisch variierten Designmerkmale besser
einordnen zu knnen, wurden im Rahmen eines mehrfaktoriellen Untersuchun-
gsdesigns zustzlich Fahrzeugmodelle verschiedener Hersteller mit aufgenommen.
Bei Fahrzeugmodellen unterschiedlicher Hersteller variieren in der Regel vielfltige
Designmerkmale. Folglich sollten sich zwischen Interieurs verschiedener Hersteller
grere Unterschiede hinsichtlich der Markenpersnlichkeit zeigen als zwischen
Varianten innerhalb desselben Modells einer Marke. Zustzlich wird deshalb fol-
gende Fragestellung untersucht:
(3) Welchen Einfluss haben Designunterschiede aufgrund unterschiedlicher Fah-
rzeugmodelle verschiedener Hersteller auf die Markenpersnlichkeit?
3 Methode
Die Fragestellungen wurden im Rahmen einer Onlinestudie untersucht. Dadu-
rch konnte kostengnstig und effizient in kurzer Zeit eine angemessene Stichpro-
bengre erreicht werden. Die Stichprobe wurde aus Studierenden der Fakultt
fr Wirtschaft und Recht an der Hochschule Pforzheim rekrutiert. ber einen
Hochschulverteiler wurden alle Studierenden der Fakultt angeschrieben und hat-
ten ber einen Link die Mglichkeit, an der Befragung teilzunehmen. Als Anreiz
zur Teilnahme wurden mehrere Gutscheine im Wert von 20 EUR verlost. Aufgr-
und der Freiwilligkeit der Teilnahme ergab sich eine selbstselektierte Stichprobe.
3.1 Untersuchungsdesign
Insgesamt wurden acht Fahrzeuginterieurs betrachtet, bei denen Farbe beziehu-
ngsweise die Materialitt der Zierteile systematisch variiert wurden. Jeder Proband
bewertete eine Gruppe von vier Fahrzeuginterieurs. Die Zuteilung zu einer der
beiden Interieurgruppen erfolgte dabei durch den Zufallsalgorithmus des Unipark-
Befragungstools der QuestBack GmbH. Die Interieurs wurden mit Hilfe von Bil-
dern aus gleichartigen Perspektiven prsentiert. Sie zeigten jeweils eine Ansicht von
hinten auf das Fahrzeugcockpit, welche die gesamte Cockpitbreite vom Lenkrad
ber die Armaturen der Mittelkonsole bis zum Armaturenbrett vor dem Beifahrer
darstellte. Die Bilder wurden dabei mglichst groflchig dargestellt und nahmen
90 % der Seitenbreite ein. Zur Reduzierung des Markeneinflusses auf die Bewer-
tungen der Interieurs wurden smtliche Markenlogos (beispielsweise auf dem Len-
krad) mit Hilfe von Adobe Photoshop eliminiert.
Eine Gruppe von Interieurs bestand aus vier Modellen der Kompaktklasse.
Bei jeweils zwei Marken, einer Marke aus dem Premium-, einer zweiten aus dem
preisgnstigeren Volumensektor, wurde systematisch die Interieurfarbe des Arma-
turenbretts variiert. Dazu wurden die unterschiedlichen Farbausstattungslinien der
Hersteller genutzt, aus denen jeweils eine helle (grau) sowie eine dunkle (schwarz)
Ausstattungslinie ausgewhlt wurden. Die zweite Gruppe von Fahrzeuginterieurs
bestand aus vier Modellen der Mittelklasse. Hierbei wurde bei jeweils zwei Marken
deutscher Premiumhersteller systematisch die Materialitt der Zierteile variiert. Bei
jedem der beiden Fahrzeugmodelle wurde aus den Ausstattungsumfngen der Her-
steller jeweils ein Interieurkonfiguration mit Holzzierteilen im Bereich des Arma-
turenbretts sowie eine Konfiguration mit Aluminiumzierteilen ausgewhlt. Andere
Ausstattungs- und Gestaltungsaspekte blieben wieder innerhalb der beiden Mod-
elle einer Marke konstant.
Die Reihenfolge der Darbietung der einzelnen Modelle innerhalb der beiden
Fahrzeuggruppen wurde variiert. Dabei wurde sowohl die Reihenfolge der
Fahrzeugmarken als auch die Reihenfolge der jeweils zwei Ausstattungslinien
innerhalb einer Marke permutiert. Einen berblick ber die einzelnen
Stimulusvarianten zeigt Abbildung 1.
Abbildung 1. Experimentelles Untersuchungsdesign
(Eigene Darstellung)
3.2 Erhebungsinstrument
Jede der Interieurvarianten wurde mit Hilfe des Fragebogens zur Messung der
Markenpersnlichkeit nach Hieronimus (2003) auf 5-stufigen endpunktbena-
nnten Likertskalen bewertet (stimme berhaupt nicht zu bis stimme voll und ganz
zu). Dieser umfasst zehn Items, wobei je fnf Items die Dimension Vertrauen und
Sicherheit (zuverlssig, unverflscht, ehrlich, bodenstndig, erfolgreich) sowie die
Dimension Temperament und Leidenschaft (temperamentvoll, leidenschaftlich, fan-
tasievoll, frhlich, wagemutig) messen. Die Zwischenstufen blieben ohne verbale
Anker. Die Reihenfolge der zu bewertenden Items wurde zwischen den Probanden
randomisiert.
Nach der Bewertung der jeweils zwei Modelle einer Marke wurden die Pro-
banden um eine Markenzuordnung gebeten. Dabei konnte aus einer Liste von
insgesamt 13 in randomisierter Abfolge dargebotenen PKW-Marken (Audi, BMW,
Citron, Fiat, Ford, Mercedes-Benz, Opel, Peugeot, Renault, Skoda, Toyota, Volvo, VW)
eine Auswahl getroffen werden, zustzlich wurde die Option kann ich nicht sagen
angeboten. Durch die Erfassung der Markenzuordnung bot sich die Mglichkeit,
im Rahmen der Auswertung die Ergebnisse zwischen richtiger und falscher oder
fehlender Markenzuordnung zu vergleichen.
Des Weiteren enthielt die Studie weitere Befragungsinhalte, die allerdings im
Rahmen dieser Arbeit nicht dargestellt werden. Den Abschluss der Befragung bil-
deten soziodemografische Angaben zu Alter und Geschlecht. Insgesamt dauerte das
Ausfllen der Befragung im Mittel 13,6 Minuten.
4 Ergebnisse
Sechs Tage nach Start der Untersuchung wurde die Feldphase beendet. Es la-
gen Datenstze von 290 Personen vor. Nach Ausschluss unvollstndig ausgefl-
lter Fragebgen verblieben Daten von 160 Teilnehmern, welche die Grundlage
der weiteren Datenanalyse bildeten. Darunter hatten n1= 76 Probanden die vier
Modelle der Kompaktklasse bewertet, n2=84 die Mittelklassemodelle. Es nahmen
insgesamt 60 Mnner (37,5 %) und 100 Frauen (62,5 %) an der Studie teil. Der
Altersdurchschnitt betrug M = 24,0 Jahre.
Im ersten Schritt wurde die faktorielle Struktur des Markenpersnlichkeitsin-
ventars von Hieronimus (2003) berprft. Dazu wurde zu den bewerteten Items
jedes Fahrzeuginterieurs explorative Faktorenanalysen nach der Hauptkomponen-
tenmethode durchgefhrt, wobei nach dem Kaiser-Kriterium Faktoren mit Eigen-
werten grer als eins extrahiert wurden. Zustzlich wurde die interne Konsistenz
der beiden Dimensionen bei allen Fahrzeuginterieurs durch Berechnung von Cron-
bachs Alpha-Werten analysiert.
Nach Prfung der Homogenitt der Skalen wurden Skalenmittelwerte gebildet,
die als abhngige Variablen in mehrere Varianzanalysen eingingen. Fr jede der
beiden Interieurgruppen wurde pro Markenpersnlichkeitsdimension eine zwei-
faktorielle Varianzanalyse mit Messwiederholung auf beiden Faktoren berechnet,
wobei die einbezogenen Fahrzeugmodelle sowie die variierten Designmerkmale
(Farbe bei den Kompaktmodellen, Materialitt bei den Mittelklassemodellen) die
jeweils zweifach gestuften Faktoren darstellten. Allen statistischen Analysen wurde
ein Signifikanzniveau von 5 % zugrunde gelegt.
4.1 Dimensionen der Markenpersnlichkeit

Die durchgefhrten Faktorenanalysen lieferten durchweg akzeptable Kaiser-
Meyer-Olkin-Measure of Sampling Adequacy-Werte grer als 0,7. Alle Bartlett-
Sphrizitts-Tests fielen signifikant aus (p<0,05), was fr eine generelle Eignung der
Datenstze fr eine Faktorenanalyse spricht. Die Faktorstrukturen unterschieden
sich leicht zwischen den einzelnen Interieurvarianten. Einige Analysen lieferten
zwei Faktoren, die im Wesentlichen der Aufteilung in die beiden von Hieronimus
postulierten Dimensionen entsprechen. Teilweise wurden jedoch mehr als zwei
Faktoren extrahiert, wobei innerhalb eines Faktors in der Regel nur Items einer
Hieronimus-Dimension hohe Ladungen aufwiesen. Lediglich das Item erfolgreich
lud in einigen Analysen auf Faktoren, die auch Items der Dimension Temperament
und Leidenschaft enthielten. Tabelle 1 zeigt exemplarisch die Varimax-rotierte
Komponentenmatrix fr zwei der acht Interieurmodelle. Die Faktorladungen der
weiteren Modelle finden sich im Anhang. Die Varianzaufklrung der Faktorena-
nalysen lag zwischen 58,9 % und 74, 5 %.
Tabelle 1: Rotierte Komponentenmatrix fr zwei Interieurmodelle

Mittelklasse 1 Holz Kompaktklasse 1 hell
Item Faktor 1 Faktor 2 Faktor 1 Faktor 2 Faktor 3
Temperamentvoll 0,923 0,111 0,741 -0,025 -0,073
Fantasievoll 0,818 0,068 0,750 0,180 -0,011
Leidenschaftlich 0,793 0,319 0,841 0,025 -0,073
Frhlich 0,755 0,257 0,605 0,470 -0,158
Wagemutig 0,723 0,027 0,775 -0,046 0,232
Ehrlich 0,264 0,792 0,033 0,540 0,512
Unverflscht 0,284 0,772 0,252 0,600 0,238
Bodenstndig -0,170 0,703 -0,060 0,824 -0,035
Zuverlssig 0,086 0,680 -0,099 0,382 0,676
Erfolgreich 0,297 0,584 0,200 -0,123 0,824
Fett markiert: Dominierende Faktorladungen
Aufgrund der nicht ganz einheitlichen Lsungen der Faktorenanalysen wur-

den fr alle Interieurmodelle Cronbachs Alpha-Werte zu den Items der von Hi-
eronimus postulierten Skalen berechnet. Diese sind in Tabelle 2 dargestellt. Alle
Skalen weisen akzeptable Cronbachs Alpha-Werte auf, was fr eine hinreichende
Homogenitt der jeweiligen Skalen spricht (Cortina, 1993).
Tabelle 2: Cronbachs Alpha-Werte der Skalen

Modell Vertrauen/Sicherheit Temperament/Leidenschaft
Kompakt 1 hell 0,7 0,8
Kompakt 1 dunkel 0,7 0,8
Kompakt 2 hell 0,7 0,7
Kompakt 2 dunkel 0,8 0,8
Mittelklasse 1 Holz 0,8 0,9
Mittelklasse 1 Alu 0,7 0,8
Mittelklasse 2 Holz 0,7 0,8
Mittelklasse 2 Alu 0,8 0,9
4.2 Einfluss des Designs

Aufgrund der gegebenen Skalenhomogenitt wurden fr die Dimensionen
Vertrauen und Sicherheit sowie Temperament und Leidenschaft bei jedem der acht
Fahrzeugmodelle Skalenmittelwerte gebildet, indem die jeweils fnf zu einer Skala
gehrenden Items gemittelt wurden.
Die zentralen Ergebnisse der zweifaktoriellen Varianzanalysen mit den gemit-
telten Skalenwerten als abhngigen Variablen sind in Abbildung 2 dargestellt.
Abbildung 2. Ergebnisse der Varianzanalysen zum Einfluss des Designs auf die
Markenpersnlichkeit
Skala: 1= niedrige Ausprgung: stimme berhaupt nicht zu, 5= hohe Ausprgung: stimme voll und
ganz zu (Eigene Darstellung)
Die zweifaktorielle Messwiederholungsvarianzanalyse fr die Dimension Ver-

trauen und Sicherheit bei den Modellen der Kompaktklasse lieferte signifikante
Haupteffekte fr das Fahrzeugmodell, F(1,75)= 128,525, p<0,05, p2=0,631, sowie
die Farbe, F(1,75)= 9,314, p<0,05, p2=0,110. Das Interieur des Premiummodells
weist in beiden Farbbedingungen hhere Ausprgungen auf (M hell Modell1= 3,25, M
dunkel Modell1
= 3,37) als die beiden Varianten des Volumenmodells (M hell Modell2 = 2,45,
M dunkel Modell2= 2,60). Der Haupteffekt des Faktors Farbe basiert auf leicht hheren
Werten der dunklen Fahrzeuginterieurs gegenber den hellen Varianten, wobei die
Effektstrke p2 deutlich niedriger ausfiel als beim Haupteffekt des Modells. Die
Interaktion zwischen Modell und Farbe wurde nicht signifikant, F(1,75)= 0,088,
p=0,768, p2=0,001.
Die Analyse fr die Dimension Temperament und Leidenschaft lieferte lediglich
einen signifikanten Haupteffekt des Faktors Modell, F(1,75)= 31,324, p<0,05,
p2=0,295. Die Mittelwerte des Volumenmodells liegen hier etwas hher (M hell
Modell2
= 3,06, M dunkel Modell2= 3,05) als die Werte des Premiummodells (M hell Modell1 =
2,42, M dunkel Modell1= 2,62). Der Haupteffekt der Farbe, F(1,75)= 1,986, p=0,163,
p2=0,026, sowie die Interaktion, F(1,75)= 2,742, p=0,102, p2=0,035, wurden
nicht signifikant.
Die Betrachtung der Dimension Vertrauen und Sicherheit bei den Mittelklas-
semodellen ergab einen signifikanten Haupteffekt des Faktors Modell, F(1,83)=
5,695, p<0,05, p2=0,064. Modell 1 weist jeweils leicht hhere Werte (M Alu Modell1 =
3,22, M Holz Modell1= 3,28) auf als Modell 2 (M Alu Modell2 = 3,13, M Holz Modell2= 3,07). Fr
den Haupteffekt der Materialitt, F(1,83)= 0,000, p=0,984, p2=0,000, sowie die
Interaktion, F(1,83)= 3,176, p=0,078, p2=0,037, zeigten sich keine Signifikanzen.
Fr die Dimension Temperament und Leidenschaft wurden bei den Mittelklas-
semodellen die beiden Haupteffekte Modell, F(1,83)= 15,869, p<0,05, p2=0,161,
sowie Materialitt, F(1,83)= 9,261, p<0,05, p2=0,100, signifikant. Insgesamt wurde
Modell 1 bei beiden Ausprgungen der Materialitt etwas hher (M Alu Modell1 = 2,55,
M Holz Modell1= 2,29) auf der Dimension bewertet als Modell 2 (M Alu Modell2 = 2,18, M
Holz Modell2
= 2,05). Der Haupteffekt Materialitt basiert auf den etwas hheren Werten
der Interieurs mit Aluminium-Zierteilen gegenber den Modellen mit Holzausstat-
tung. Die Interaktion wurde nicht signifikant, F(1,83)= 1,353, p=0,248, p2=0,016.
Obwohl Markenlogos und namen auf den Interieurbildern entfernt wurden, ist
nicht auszuschlieen, dass Annahmen oder Vorwissen zu den einzelnen Marken ein-
en Effekt auf die Bewertungen gehabt haben knnten. Im Durchschnitt ber alle vier
Fahrzeugmodelle wurde die Marke lediglich zu 33 % richtig erkannt. Das Modell

Kompaktklasse 1 wurde mit 47,4 % am hufigsten richtig zugeordnet, Modell Kom-
paktklasse 2 mit 19,7 % deutlich seltener. Die beiden Mittelklassemodelle wurden
von 34,5 % (Mittelklasse 1) beziehungsweise 31,0 % (Mittelklasse 2) richtig erkannt.
Mit Hilfe von t-Tests fr unabhngige Stichproben wurden bei allen Modellen
die Mittelwerte der beiden Markenpersnlichkeitsdimensionen zwischen den Sub-
gruppen derer, die die Modelle der korrekten Marke zugeordnet hatten, und den
Subgruppen, die eine falsche oder keine Zuordnung vorgenommen hatten, vergli-
chen. Bei keinem der t-Tests ergaben sich signifikante Unterschiede, wobei durch
die weitere Subgruppenbildung die statistische Power deutlich reduziert wurde.
5 Diskussion
Mit Hilfe von Faktorenanalysen und Berechnungen zur internen Konsistenz
wurde in einem ersten Schritt die Dimensionalitt des Markenpersnlichkeitsmo-
dells von Hieronimus (2003) berprft (Fragestellung 1). Die zu jedem bewerteten
Fahrzeuginterieur separat berechneten Faktorenanalysen ergeben teilweise die von
Hieronimus postulierte 2-Faktorenlsung, die eher rationale von eher emotion-
alen Aspekten trennt. Einige der insgesamt acht Analysen liefern allerdings mehr
als zwei Faktoren. Dabei entstanden jedoch keine semantisch grundstzlich von
Hieronimus abweichenden Faktoren, vielmehr wurden die Items einer Hieroni-
mus-Dimension teilweise auf zwei Faktoren aufgeteilt. Wie in anderen Studien zur
berprfung bestimmter Modelle der Markenpersnlichkeit deutet dies auf die
Anflligkeit dieser Skalen fr die untersuchten Marken beziehungsweise Stimuli hin
(Kilian, 2011). Whrend bei der Entwicklung des Fragebogens von Aaker (1997)
viele unterschiedliche Marken bewertet wurden, wurden im Rahmen der vorlieg-
enden Arbeit lediglich einzelne Objekte bewertet, was mglicherweise die Varianz
in den Bewertungen reduziert haben knnte. Dies htte auch Auswirkungen auf
die Korrelationen und wrde die leicht schwankenden Faktorlsungen erklren.
Die Analyse der internen Konsistenzen zu den beiden von Hieronimus gebil-
deten Skalen liefert allerdings befriedigende Cronbachs Alpha-Werte fr alle bew-
erteten Interieurvarianten, was zwar nicht die Unabhngigkeit der beiden Dimen-
sionen beweist, allerdings fr die Homogenitt der beiden Skalen Vertrauen und
Sicherheit sowie Temperament und Leidenschaft spricht. Auf dieser Basis konnten
Skalenwerte gebildet werden, welche die Grundlage der weiteren Analyseschritte
bildeten.
Die varianzanalytische Betrachtung des Einflusses von Designmerkmalen und

Fahrzeugmodellen auf die Bewertung der beiden Markenpersnlichkeitsdimen-
sionen lieferte durchweg signifikante Unterschiede zwischen den untersuchten
Fahrzeugmodellen unterschiedlicher Marken (Fragestellung 3). Insbesondere beim
Vergleich von Kompaktwagenmodellen zwischen einem Premium- und einem Vol-
umenhersteller zeigen sich deutliche Bewertungsunterschiede. So erhalten die Pre-
miummodelle deutlich hhere Werte auf der Dimension Vertrauen und Sicherheit,
whrend die Modelle des preisgnstigeren Volumenherstellers hher auf der Di-
mension Temperament und Leidenschaft bewertet werden. Bei der Betrachtung von
Mittelklassemodellen zweier Premiumhersteller fallen die Unterschiede allerdings
deutlich geringer aus, was sich in durchweg niedrigeren Effektstrken niederschlgt.
Erwartungsgem fielen die Unterschiede zwischen unterschiedlichen Interieur-
farben und Materialien geringer aus als zwischen Interieurmodellen verschiedener
Hersteller (Fragestellung 2). Die Farbe wirkt sich bei der Gruppe der Kompaktwa-
gen lediglich auf die Dimension Vertrauen und Sicherheit aus, wobei eine dunkle
Farbgebung strker mit der Dimension assoziiert wird als eine helle. Bei der Grup-
pe der Mittelklassemodelle zeigt sich lediglich ein signifikanter Haupteffekt bei der
Dimension Temperament und Leidenschaft. Zierteile aus Aluminium wirken dabei
temperamentvoller als Zierteile aus Holz.
Insgesamt liefert die Studie somit erste Hinweise auf Beziehungen zwischen ge-
stalterischen Merkmalen und den Dimensionen der Markenpersnlichkeit bei Fah-
rzeuginterieurs. Wie in einigen anderen vergleichbaren Studien zeigte sich jedoch
eine sehr spezifische Wirkung der Merkmale auf einzelne Dimensionen (Orth &
Malkewitz, 2008; Pantin-Sohier & Bre, 2004). Eine umfassende Wirkung auf alle
Dimensionen wie etwa in der Studie von Grohmann et al. (2013) konnte nicht
gezeigt werden.
In der Marketingpraxis sind die Ergebnisse in mehrfacher Hinsicht nutzbar.
So lsst sich das Wissen um die Wirkung bestimmter Farben und Materialien fr
Kommunikationsmanahmen einsetzen. Wenn eine Marke beispielsweise eher
emotionale Aspekte wie Temperament und Leidenschaft transportieren mchte,
sollten eher Modelle mit Metall- beziehungsweise Aluminiumzierteilen prsen-
tiert werden. Zudem stellt sich fr stark auf emotionale Aspekte setzende Fah-
rzeugmarken die Frage, ob nicht generell auf Modelle mit Holzzierteilen verzichtet
werden sollte, da dies die Wirkung der entsprechenden Dimension der Marken-
persnlichkeit schwcht.
Aufgrund der geringen Unterschiede hinsichtlich der Markenpersnlichkeit zwisch-

en verschiedenen Premiumherstellern sollte zudem geprft werden, wie sich Premium-
marken noch strker auch bei der Gestaltung des Interieurs differenzieren lassen.
6 Limitationen und Ausblick

Eine wesentliche Einschrnkung der Verallgemeinerbarkeit der Studienergeb-
nisse besteht in der Stichprobe, die sich ausschlielich aus Studierenden zusam-
mensetzte. Zwar haben Studierende bereits Erfahrungen mit Fahrzeugen gesam-
melt, gehren aber im Allgemeinen noch nicht zur Hauptzielgruppe insbesondere
von Premiumherstellern. Deshalb sollte bei knftigen Studien geprft werden, in-
wieweit sich bei der Wahrnehmung bestimmter Gestaltungsmerkmale Unterschie-
de zwischen unterschiedlichen Zielgruppen ergeben. Im Rahmen dieser Studie lag
der Fokus allerdings auf dem Nachweis von grundlegenden Beziehungen zwischen
Designmerkmalen und bestimmten Aspekten der Markenpersnlichkeit, die auch
herausgearbeitet werden konnten. Inwieweit die Probandenurteile dabei reprsen-
tativ fr die jeweiligen Zielgruppen der untersuchten Marken sind, war zunchst
nicht Gegenstand der Arbeit.
Ein weiterer kritischer Aspekt stellen die eher kleinen Effekte dar, mit denen
sich die adressierten gestalterischen Aspekte auf die Markenpersnlichkeit aus-
wirkten. Dies deutet insbesondere daraufhin, dass beim Design eines Fahrzeugin-
terieurs noch zahlreiche weitere gestalterische Aspekte eine Rolle spielen, die nicht
betrachtet und bei der Gegenberstellung der Varianten konstant gehalten wurden.
Neben verschiedenen Facetten der Formgebung kommt gerade beim Interieurde-
sign anderen Sinnesmodalitten wie etwa der Haptik eine entscheidende Bedeu-
tung zu, die insbesondere die Materialitt noch deutlicher vermittelt als ber einen
rein visuellen Eindruck (Warell & Young, 2011).
Des Weiteren fehlen bislang weitestgehend Erklrungen fr die gefundenen
Beziehungen zwischen Designmerkmalen und bestimmten Ausprgungen einzel-
ner Dimensionen der Markenpersnlichkeit. Knftige Studien sollten sich somit
verstrkt der Frage widmen, weshalb bestimmte Gestaltungsmerkmale wie etwa
Farben, Formen oder Materialien bestimmte Wirkungen erzielen. Dazu sollten ne-
ben der Ebene der gestalterischen Merkmale und den Dimensionen der Marken-
persnlichkeit noch Wahrnehmunsgren wie Komplexitt, Harmonie oder Ver-
trautheit betrachtet werden, die das sthetische Erleben mageblich beeinflussen
(Hekkert & Leder, 2008).
Schlielich ist trotz der Beseitigung von Markenlogos und der insgesamt nur
moderaten Bekanntheit der untersuchten Interieurs unklar, ob die Bewertung der
Markenpersnlichkeit gnzlich von Annahmen zur Marke unbeeinflusst war. Eine
Mglichkeit, um den Markeneinfluss zu eliminieren, besteht in der Untersuchung
von knstlichen Stimuli wie etwa bei Leder und Carbon (2005), also Interieur-
darstellungen, die keiner realen Fahrzeugmarke zugeordnet sind. Alternativ wre
eine strkere Kontrolle von Markeneffekten ntig. Dafr wren grere Stich-
proben erforderlich, um auch bei der Analyse von Teilgruppen eine hinreichende
statistische Power zu erreichen.
Knftige Studien sollten folglich neben weiteren gestalterischen Merkmalen
insbesondere die Reprsentativitt der untersuchten Stichprobe sowie den Einfluss
der Marke auf die Bewertung der untersuchten Designstimuli bercksichtigen und
verstrkt Erklrungsanstze liefern, weshalb bestimmte Designmerkmale bestim-
mte Wirkungen auf die Markenpersnlichkeit entfalten.
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Appendix: Faktorenanalysen zur Prfung der Markenpersnlichkeitsdimensionen

(rotierte Komponentenmatrizen)
Kompaktklasse 1 dunkel
Item Faktor 1 Faktor 2 Faktor 3 Faktor 4
Temperamentvoll 0,351 0,741 0,185 -0,294
Fantasievoll 0,177 0,182 0,810 0,034
Leidenschaftlich 0,148 0,716 0,515 0,079
Frhlich 0,055 0,055 0,895 0,169
Wagemutig 0,032 0,892 -0,012 0,146
Ehrlich 0,231 -0,054 0,181 0,806
Unverflscht 0,724 0,146 0,203 0,211
Bodenstndig 0,027 0,074 0,041 0,880
Zuverlssig 0,824 0,060 0,025 0,135
Erfolgreich 0,771 0,129 0,085 -0,037
Kompaktklasse 2 hell
Item Faktor 1 Faktor 2 Faktor 3
Temperamentvoll 0,004 0,733 0,251
Fantasievoll 0,025 0,042 0,857
Leidenschaftlich 0,146 0,770 0,005
Frhlich 0,374 0,008 0,645
Wagemutig -0,116 0,472 0,621
Ehrlich 0,783 0,169 0,312
Unverflscht 0,743 0,164 0,045
Bodenstndig 0,650 -0,415 -0,180
Zuverlssig 0,675 0,301 0,074
Erfolgreich 0,278 0,692 0,006
Kompaktklasse 2 dunkel
Temperamentvoll 0,225 0,849 0,095
Frhlich 0,214 -0,044 0,882
Wagemutig 0,004 0,882 -0,038
Ehrlich 0,787 0,239 0,249
Unverflscht 0,847 0,161 0,031
Bodenstndig 0,647 -0,419 0,383
Zuverlssig 0,805 0,176 0,097
Erfolgreich 0,529 0,471 0,408
Mittelklasse 1 Alu
Temperamentvoll 0,856 0,176 -0,053
Frhlich 0,704 0,124 0,190
Wagemutig 0,780 0,049 0,014
Ehrlich 0,136 0,596 0,497
Unverflscht 0,362 0,621 0,284
Bodenstndig 0,010 0,072 0,921
Zuverlssig 0,160 0,757 0,179
Erfolgreich 0,172 0,830 -0,219
Mittelklasse 2 Holz
Item Faktor 1 Faktor 2
Temperamentvoll 0,856 0,164
Fantasievoll 0,857 -0,095
Leidenschaftlich 0,829 0,080
Frhlich 0,712 0,061
Wagemutig 0,733 0,098
Ehrlich 0,200 0,861
Unverflscht 0,178 0,704
Bodenstndig -0,254 0,681
Zuverlssig 0,107 0,716
Erfolgreich 0,598 0,475
Mittelklasse 2 Alu
Temperamentvoll 0,543 -0,129 0,578
Fantasievoll 0,826 -0,013 0,094
Frhlich 0,786 0,167 0,033
Wagemutig 0,789 -0,026 0,193
Ehrlich 0,102 0,787 0,092
Unverflscht 0,163 0,722 0,273
Bodenstndig -0,176 0,762 -0,261
Zuverlssig -0,001 0,686 0,561
Erfolgreich 0,096 0,180 0,845
Fett markiert: dominierende Faktorladungen
1000 Ivan Miloloa Helena Miloloa Emil Kuhti
CHALLENGES OF CROATIAN EXPORT

Ivan Miloloa, M.Sc.1, Helena Miloloa, MA2, Emil Kuhti, M.Sc.3
1
Munja JSC, Republic of Croatia, ivan.miloloza@munja.hr
2
Faculty of Economics & Business Zagreb, Republic of Croatia, hmiloloza@efzg.hr
3
Croatian Employers Association, Republic of Croatia, emil.kuhtic@hup.hr
Abstract
The intention of this paper is to analyze a set of factors that determine the chal-
lenges of the Croatian export sector during the past two decades and provide sug-
gestions and recommendations for the design of tailored and consistent national
policies in various segments, especially the industrial, research and development
and technology policy, they rely on the totality of Croatian economic relations with
foreign countries with the most significant part being exports. Along with the poli-
cies necessary to strengthen the administrative capacity of the system of economic
diplomacy, the agency for the promotion of exports and CCE. A key prerequisite
for the internationalization of the Croatian economy is comprehensively designed
to promote and encourage the further development of Croatian innovation, tech-
nology and export - oriented enterprises and their networking into clusters and
other internationally competitive organizational forms.
Keywords: exports, economic policy, innovative technology entrepreneurship,
economic diplomacy, clusters.
JEL Classification: E23, F13, F15
INTRODUCTION
Exports have a major impact and contribution to the competitiveness of the
national economy for a small open economy such as Croatia, especially in transi-
tion to a market economy and in the process of EU accession. Key factors in the
competitive export sector arising from the ability of economic policy in creating
the conditions and components for dynamic national economy and the ability of
firms to realize the circumstances entrepreneurial endeavors at the national and in-
CHALLENGES OF CROATIAN EXPORT 1001
ternational market. Croatia since its independence, and so far, has failed to largely
overcome the inherent weakness and challenges of the export sector, which charac-
terizes the small size, narrow base in terms of the number of exporters, unfavorable
ratio of products and services, unfavorable geographical structure, and inadequate
technological level.
From the business perspective, long - term structural weaknesses of Croatian
exports are; narrow base of products and services directed to a small number of
generally close markets, low level of technological complexity, low value - added
products and services, high proportion of seasonal services, and the disproportion-
ate ratio of exports of goods and services.
An extremely low, approximately 1/6 of the total revenue from businesses selling
goods and services to foreign markets, reflects a number of factors, the historical
heritage of the economy, the weakness of the transitional period, with emphasis on
de-industrialization, unstructured industrial sector, a large share of services of low
profitability, high cyclicality of the economy and an underdeveloped high value-
added service sector. Only one in eight Croatian entrepreneurs generates revenue
from foreign markets (Croatian Chamber of Economy, 2012).
Stagnant low share of income of entrepreneurs from foreign markets potentially
represents one of the major risks to the successful achievement of the economic cri-
teria for Croatia joining the EU, the Croatian economy for sustainable competition
in the single EU internal market (Djankov et al., 1997).
The aim of this paper is to conduct an analysis of the factors affecting the Croa-
tian export companies during the past two decades and provide suggestions and
recommendations for the design of national policies, with special emphasis on in-
dustrial policies as well as technology policies and research and development poli-
cies. Internationalization of the Croatian economy is comprehensively designed to
promote and encourage the further development of Croatian innovative, techno-
logical and export-oriented enterprises and their networking in clusters and other
internationally competitive organizational forms. The work is based on the fol-
lowing research objectives: (1) assess the state of Croatian exports, (2) analyze the
trends in Croatian exports in the year 2012, (3) analyze the trends of Croatian
exports from the previous period, (3) to evaluate the non / existence and non /
consistency of the export policy, (4) assess the appropriateness of administrative ca-
pacity for export expansion, and (5) On the basis of reflection and analysis suggest
recommendations to increase Croatian exports.
RESEARCH METHODOLOGY
The evaluation of Croatian exports was performed using the data of the Croatian
Chamber of Economy, the Croatian National Bank and other publicly available
data, the basis of which have been implemented graphical and analytical process-
ing and adopted conclusions on trends and perspectives. This analysis of secondary
data makes the first methodological support of this work.
Another methodological thrust of this paper is to investigate the field. The study
defined the problem had characteristics of exploratory research and the technique
of research on past experience (Marui et al., 2003). The past experiences tech-
nique was elected on the assumption that the use of existing knowledge, experi-
ences and ideas of people who are well versed in Croatian exports to gain insight
into the issue of this paper. Rather than carry out research on a number of subjects,
where to obtain the general thinking, we started conducting research on a sample
of connoisseurs. The author of this work presents the experience that he gained as
head of a Croatian firm that is export-oriented, but also the experience of many
businessmen with whom he had the opportunity to work through the Croatian
Employers Association, Chamber of Commerce and other institutions. In-depth
interviews were conducted following the framework of this study, but is in conver-
sation free discussion was used, which led to some very interesting conclusions and
information. The interlocutors were deliberately and specifically chosen because
they are more informed about the work than other experts, which allows conclu-
sions about the nature of the phenomena.
TRENDS IN CROATIAN EXPORTS IN THE YEAR 2012.

During the year 2012 the positive trend (started in 2011.) of rapid growth in
revenues from the sale of businesses with international markets continued. In the
first nine months of 2012 the revenue of Croatian entrepreneurs from selling goods
and services to international markets totaled 76 billion, an increase of 1.3% com-
pared to the same period in 2011. Trends of Croatian exports and imports in 2012
were mostly determined by the current economic situation in the country and the
most important trading partners.
Thus, the first drop in demand in the European Union, still the most important
partner of Croatia, has significantly limited dynamic growth of Croatian exports,
while the drop in demand in the domestic market limited the growth of imports.
Figure 1 outlines the same.
Figure 1 Croatian exports, imports and trade deficit 2006th-2012th
Changes of export and import prices affected the movement of value of trade,
although their influence was smaller than in the 2011th year. Due to the price in-
crease there has been an actual increase in the value of exports by 1.4%, and a slight
increase in the value of imports by 0.4% (HRK). Movement of the value of exports
is still and (nominally and really shown) was somewhat lower than of imports, so
that on an annual basis there was a minor decrease in the amount of trade deficit
(-1.1%) and a slight increase in the coverage of imports by exports with 58.9 % in
2011th year to 59.4% in the 2012th The (Croatian Chamber of Economy, 2013).
Due to the slight depreciation of the kuna against the euro in the 2012. The
data in the euro shows that export growth in the euro stood at only 0.3%, and
imports reported a decrease of 0.7%, while the trade deficit declined by 2.2% and
amounted to 6.6 billion euros.
In several export branches there was a significant increase in the value of exports
and a special distinguished production of petroleum products. In addition, the
export of crop and livestock production (in which there is a significantly increased
grain exports), fabricated metal products, except machinery and equipment (weap-
ons, aluminum construction, cast iron and steel), metal significantly increased. Un-
fortunately, there has been a substantial reduction in the value of exports of iron
and steel with a concurrent high export growth non-monetary gold and pharma-
ceutical products. The food industry (Podravka, Kra, Dukat, PIK, Ledo, Vindija
and other manufacturers) in relation to other activities, has maintained its presence
in foreign markets and generated exports of 3.5 billion, and increased international
revenues by 5.9 % in nine months in 2012.
On the other hand, the biggest drop in the value of exports was recorded in
manufacture of other transport equipment, which largely consists of shipbuilding.
The share of exports of this sector in 2011 was reduced from 11.8%. to 7.8% in
total due to reduced orders and ship deliveries. Along with shipbuilding, as a result
of a large decrease in exports of plastics in primary forms, the chemical industry has
the most reduced export value. This decrease is caused by the suspension of produc-
tion in companies DIOKI and DINA.
Not much has changed in the structure of exports by country of destination,
but there is still a slight decline in the share of exports in the EU27 Member States,
from 59.9% in 2011 to 58.3%. This decrease was mostly due to reduced exports to
France, Luxembourg, Malta and Italy for what was largely influenced by reduced
exports of ships, but also the economic crisis in the same countries. The largest in-
crease in total exports (both within and outside the EU) was recorded in Germany
and the Netherlands.
A share growth to 21.0% was recorded in CEFTA where the greatest increase
in the value of exports was recorded towards Montenegro, among other countries,
the most prominent increase in the value of exports was to Russia (Ericsson Nikola
Tesla). However, it is unknown how Croatia joining the European Uninon on
01.07.2013. will reflect export to CEFTA countries.
In the first 10 months of last year export to EU27 has increase by 9,7%, import
by 4,7%, which has led to decrease in trade deficit by 36,4%. in export, the value
of exported machinery, equipment and vehicles has increased most, as well as sales
on the U.S. market.
At the same time the growth of imports was still mostly influenced by ener-
gy imports, and in addition to imports from the United States where the highest
growth was recorded, a high growth was recorded in imports from Russia.
TRENDS OF CROATIAN EXPORTS FROM THE PREVIOUS PERIOD

PERIOD UP TO THE EARLY 2000 YEAR, AND PERIOD IN BETWEEN 2000. - 2008
Although often a declarative export strategy of the Croatian economy in the
independent Croatia was emphasized as a key to solving the most important prob-
lems in the Croatian economy, and as a basis for future development, the reality is
quite different.
During and immediately after the war, the cause of the low level of exports was
found to be because of the war devastation, the loss of the market of the former
Yugoslavia and the former Soviet Union, relations inherited from the former Yu-
goslavia, etc.
Rewiev of Foreign Trade of goods in the period in 1990. to 1995. is given in the
following Table.
Table 1 Foreign trade exchange of goods (U.S. $ million) in the period from 1990.
to 1995.
Year Merchandise exports Merchandise imports Total trade Trade deficit
1990. 4.020 5.188 9.207 -1.168
1991. 3.533 3.787 7.320 -254
1992. 4.445 4.431 8.876 14
1993. 3.910 4.658 8.569 -748
1994. 4.403 5.530 9.933 -1.127
1995. 4.517 7.352 11.869 -2.834
Source: CCE, authors calculations
From Table 1, we can see that Croatia has even surplus exports in the year 1992,
due to different calculation exports for the period in which the services are not en-
tered, a deficit is expressed. But Croatian export performance did not significantly
improve in the years after the return of occupied territories. On the contrary, the
state and tendencies of foreign trade getting worse which clearly shows a growing
trade deficit and the deficit of the current account deficit, which is evident from
Table 2.
Table 2 Foreign trade (million USD) in the period from 1995th until 2000. the
1995. 4.517 7.352 11.869 -2.834
1996. 4.644 7.784 12.427 -3.140
1997. 3.981 9.101 13.083 -5.120
1998. 4.517 8.276 12.793 -3.758
1999. 4.302 7.799 12.101 -3.496
2000. 4.432 7.887 12.318 -3.455
This period marks the fall of exports and a tremendeous increase in imports, on
which the wrong economic model implemented in Croatia has especially affected,
firstly in the deindustrialisation of Croatia and unreasonable growth rate of the
kuna, which has significantly favored imports and lead exporters into heavy loses
and lack of competitivness.
The stagnation of exports on the one hand, and some indicators of growth of the
Croatian economy on the other, point to the fact that the development is not based
on export growth, but on the growth in domestic consumption. Such a growth
model becomes acceptable in the long term and if held it is only a matter of time
when the external debt, which is based on consumption growth, will no longer be
able reapairable. In the period from 1995 to 2002 the stagnatation of Croatian
exports, which rose only 5.8%, and high import growth of 42.8% led to a record
high trade deficit in 2002 from $ 5.82 billion, an increase of 102.2% compared to
the 1995 deficit as is evident from the following Table 3...
Table 3 Foreign trade exchange of goods (U.S. $ million) in the period since 2000
to 2010
2000. 4.432 7.887 12.318 -3.455
2001. 4.666 9.147 13.813 -4.481
2002. 4.904 10.722 15.626 -5.818
2003. 6.187 14.209 20.396 -8.022
2004. 8.024 16.589 24.613 -8.565
2005. 8.773 18.560 27.333 -9.788
2006. 10.377 21.502 31.879 -11.126
2007. 12.364 25.839 38.203 -13.475
2008. 14.124 30.727 44.851 -16.603
2009. 10.492 21.205 31.697 -10.713
2010. 11.811 20.067 31.878 -8.256
Total generated deficit in this period amounted to over $ 32 billion. External

debt at the end of 2002 amounted to over $ 15 billion, with a tendency to further
increase, which led Croatia to the border between the central and highly indebted
countries. The only way out is a reduction in the trade deficit by increasing ex-
ports, but the problem is that in the last years the proceeds of the foreign borrow-
ing and foreign direct investment in the banking and telecommunications sector,
have not invested in production and investments that would stimulate exports,
but in consumption based on imports. In the period from 1995 to 2001. about
80% of imports are from the player and consumer goods, and products for invest-
ments, despite the rise in their share, still belongs to the smallest share. Trends in
total foreign trade Croatian was largely determined by developments in the field of
manufacturing industry accounting for about 95% of Croatian export and 85% of
imports. Thus, the export processing industry in the period 1995-year 2002. grew
at an average rate of only 0.6%, while the average growth rate of imports was 6.8%.
Export results are more unfavorable if shipbuilding were to be excluded from
statistical considerations, an activity with the highest cyclical movements, which has
from 1995 through 2002. increased its share in the structure of exports from 6% to
15%. In that case, the export manufacturing industry decreased by an average rate of
0.6% per year. The period since 2000. - 2008 marked further stagnation in exports
of goods and services, which is at 42% of the GDP od Croati, unlike the other new
members of the European Union which in the same period recorded a dynamic
growth in exports to a level of almost 70% of GDP (Slovenia) or to almost 90% of
GDP in Slovakia which is the size of Croatia, which is evident from Figure 2.
Figure 2 Exports of goods and services from 1999 to 2008,% of GDP
Source: Eurostat, the Croatian National Bank

In Croatia, in the period of from 2003 to 2008 a faster growth of exports in

goods than exports of services occured, which is particularly applicable to tourism
services so we have the fact that merchandise exports increased from 18.6% of
GDP for 2003. year to 20.7% of GDP in the year 2008, while the share of tourism
services decreased in those years, from 18.6% to 16.2% of GDP, and our desire to
be one of the leading countries that provide tourism services. It is significant that in
this period there was a supstantial increase in the share of investment, but it is not
reflected in the increase of exports.
Although export growth was significant in this period, and the same with the 5
billion in 2000. The increase of 9.2 billion euros in 2007 can seem quickly growing
and satisfying, but it is not so and the same status can best be seen in comparison
with other transition countries.
In that same period, Slovenia achieved twice the export of Croatias 18.9 bil-
lion Euro in 2007. and Slovakia had exports of nearly 42 billion euros. This is
the best display of the bad economic policy and economic model which Croatia
implemented.
The deficit in trade of goods and services in Croatia amounts to 8% of GDP,
the current account deficit was nearly 9.5% of GDP. Special disadvantage lies in
the fact that the cause of the deficit is increasing the share of capital goods, as their
share in this period decreased by 1.7% compared to the period from 2003 to 2007.
and increased the share of imports of consumer goods. Exports of goods and ser-
vices in this period of dominance in the market of the European Union and is the
largest in Italy, 33.6% in the 2004.
Particularly interesting is the concentration of manufacturing exports of Croa-
tia, or whether most of the exports consist of smaller or larger number of product
groups. Large countries have a wider range of exports to more products and small
countries have a higher concentration of manufacturing exports. Concentration of
exports is measured by Herfindahl index of concentration in Figure 3 shows the
same index of exports to the EU 27.
Figure 3. Herfindahlov index of concentration of exports in the EU27
From Figure 3 we can see that the production concentration of Croatian exports
is very low and much lower than the concentration of trade among the member
countries of the European Union.
It also reduces the concentration of exporters, and significantly increases the
concentration of the importer. The number of companies that export decreased
substantially during the period from 2003 to 2007.
A notable fact of slow growth of exports of goods and services of Croatia lies in
the fact of uncompetitive and weak competitiveness of Croatian products, but also
of the Croatian economy.
The reason for the above is primarily and predominantly inadequate economic
policies of the Croatian Government, sluggishness administrative system and huge
tax, out tax and other charges, whether at the national or local level.
While other countries, especially countries in transition (Slovakia, the Baltic
countries, Poland, Czech Republic) supported the development and investment in
their industry with stimulus measures intended for export production and create
additional value. For Croatia that is not the case, in Croatia the stimulating effect
on productive investments is completely ignored and dominant was the import and
investment in productive investments outside (eg shopping centers).
Although industry in Croatia was in front of these countries in the period up to

1990. In the period of independence Croatia lost that status, and the competitive-
ness of their products.
The data from the World Bank shows that the main driver of export growth in
transition countries and EU member states have been significant investments in
production, integration of producers in these countries and their integration (in-
tegration and investment) with final producers (usually in the form of ownership)
from other developed countries, due to the stimulation of economic policy in those
jurisdictions, primarily related to the product with a higher content of knowledge
and advanced technology, while Croatian exports were in labor and resource-in-
tense activity, which leads to stagnation in exports and addiction.
Croatian exports are characterized by unfortunately low content of knowledge
and technology, making it more expensive due to labor costs in comparison with
other transition countries (eg Romania, Slovakia ...) makes it even less competitive.
Although in recent years it changed and still is absolutely insufficient for the
competition, which has led to a further decline in the Croatian economy in the
period from 2007 to 2012 and the inability to exit from the economic crisis, all
these five years.
Interesting is the further fact that Croatian exports to the European Union,
from which we have become a permanent member, and remained stagnant from
year to year to around 0.12%. At the same time the share of exports to the Euro-
pean Union other transition countries, EU member states grew much faster.
It is a worrisome fact that the share of exports of the former countries of Ex-
Yugoslavia (Serbia, Montenegro and Kosovo) to the European Union increased by
almost 3.5 times and reached Croatian export share in total imports the EU 27
Croatia has a significantly higher share of services exports in total exports of oth-
er comparable countries, especially tourism, because of the geographic location of
Croatia, and the fact that we are a tourist country. Unfortunately, though tourism
is a very important export activity of Croatia, a decrease in its share of GDP was
recorded in the previous period, tourism was not the holder of export competitive-
ness. Exports of other services (transport, communications, business and financial
...) remained at the same level, while the collapse had construction services, as can
be seen from Figure 4
Figure 4 Exports of services in% of GDP
STATUS OF CROATIAN EXPORTS

Croatia has two economies in production: the state-public and private, the im-
port is completely private (Viduka, 2007). According to the registration of activi-
ties of entrepreneurs in Croatia trading enterprises dominate, and in the produc-
tion of reproductive entrepreneurs working on other peoples requests or samples.
Disbelief in the possibility that Croatia produces better industrial solutions and
products than imported are being sown by people who live well on imports and
encourageing imports.
An important factor in exports are products that are traditionally exported (so
called Old products), but also products that have recently appeared on the market
(so called new products). New Products in Croatia are based on new knowledge
and technology that is being adopted and the problem is that they are under the
perception of a foreign buyer, coming from a country that is no longer considered
industrial. Such products are being produced in Croatia by companies that want
to be leaders, at least in the region. New products require a large investment, high
risk and carry a big profit, which often involves direct foreign investment (Joi,
2008; Vuki, 2005). Electronics in the world achieves the greatest profits and ex-
pansion, and for us most of these companies disappeared (ATM, RIZ, TESLA, part
KONCAR-a).
Today the cycle of development and production is short. Exports of many com-
panies in Croatia, just sprung and should be helped. Fair costs are huge - cata-
logs, people, time, marketing. Exports of consumer goods are becoming less pos-
sible from small countries in transition. Croatian technical experts are increasingly
working in import companies, because they live good from it - thats why they go
to community college and we pay for and encourage it. Source resources in Croatia
and is now on the rise, and knowledge and technology in the fall. Highly qualified
and skilled personnel in Croatia are getting older. Fewer and fewer young people
have manufacturing knowledge. There is an outflow from the Croatian educational
and professional technical staff.
Exports are carried out in two ways. The first is a competition in international
tenders - where the competition is strong, the conditions for prequalification rig-
orous, it is a difficult passage for all Croatian companies. Another form of sales
over the factory or wholesaler abroad which Croatia does not have, or distributor
directly, (which our company practices the most) or through a network of agents.
National government enterprises, especially in the EU, ably protect local pro-
duce with specific requirements in the tender documents for major infrastructure
projects. In Croatia, it is not the case, and Croatia did not provide any compensa-
tion business, or offset for our production in those countries. This is the main chal-
lenge of the Croatian state in terms of export promotion in these countries.
The dynamics of globalization have already cost us industrial and technologi-
cal connections with the so - called transition countries which did not show only
one competitor, but it is in some sectors there is so large competition that we are
aking the question of the existence of these branches in our country).
Croatian companies in export markets, without foreign partners - integrators,
can hardly get a serious job. A large number of highly educated staff, the collapse of
the industry of the nineties, spilled into small firms or importers. With the disap-
pearance of integrators such as Koncar contacts were lost with the global interna-
tional market - there is no work for large or small, there is no new development,
there is no export and the circle of slowing down the industry is closed. For these
large systems: PRVOMAJSKA, KONCAR, JEDINSTVO, TESLA, ATM and oth-
ers, incurred numerous specialist companies. The largest number have become
service-oriented and import. Now foreign integrators use them for jobs in Croatia.
Specialization is an important prerequisite for export competitiveness (Buturac,
2006, Yilmaz, 2005).
In Croatia, the lack of real quality and risk funds. A growing shortage of pro-
fessional manpower of high technology. Students dont have opportunity to ac-
quire the necessary practical professional experience anymore. Croatian business
environment has so far stifled initiative oriented towards entrepreneurship based
on knowledge, intellectual capital and exports. In Croatia, the government still
has anti entrepreneurial views and new ideas difficult have difficulty finding their
way from idea to product. There is a growing apathy of the existing and potential
entrepreneurs in Croatia, exporters in the field of development and production of
innovative competitive enterprise and industry as such - which is actually the most
dangerous long-term consequences of the current situation. Lack of understanding
of the needs of the industry, and not taking any steps that would be global in any
sense of constructive help, is discouraging, cumulatively leads to increased feelings
of helplessness.
EXPORT POLICY - VOLATILITY AND / OR INCONSISTENCY

The current Croatian government has set an extremely ambitious export target
in its election program 21, before coming to power. The governments goal was to at
the end of the four-year term of office, ie until the end of the 2015th year, increase
the share of exports in industrial production from the current 30% to over 50%,
which corresponds to the level of successful CEE countries from the last round of
enlargement. This means that every year the share of exports should increase by ap-
proximately 5 index points in industrial production. At the same time it is one of
the few quantified economic goals of the 21st election program.
Although such an ambitious goal of the Croatian Government is the key require-
ment for a completely new integrated industrial policy, new technology and inno-
vation policy and, consequently, a new strategy for relations with foreign countries,
some of these development plans, after more than a year and a half of the current
mandate of the Croatian Government, are still in the preparation phase.
A stated objective of rapid jump in exports is something almost no one in the
current state Government doesnt even mention.
Seemingly absurd, essentially very logical. The current Government has contin-
ued to maintain their disorientation and / or wandering in the field of economic
relations with other countries in the independent Republic of Croatia. Two of the
developed market economies important roles of public authorities: structured de-
sign of the development of the state and nation, and prudently managing economic
relations with foreign countries, with an emphasis on exports politics have so far
not taken hold.
The current administration as well as most of the previous administrations in
independent Croatia in the structure of the state administration has not found it
necessary to form and establish a competent independent body which would be re-
sponsible for carrier management process (Process Manager) development of Croa-
tian society and the state, the holder of the preparation, design and supervision of
the implementation of national strategies development and other national strategic
documents, such as, for example, a national program for economic recovery. In the
short period when such a national body existed, its actual responsibilities were mi-
nor. SDF Croatian 2007-2013. prepared in accordance with the expectations of the
EU, largely as a basis for the use of pre-accession funds is operationalized through
sectoral and functional national policy.
The political elites in independent Croatia have from 1990. more or less secretly,
shown animosity towards community planning, emphasizing it mostly as a relic of
the previous socialist system. The consequence is that the knowledge and skills of
strategic planning in Croatia, at the national level, through two decades have atro-
phied, and the adoption of competing competencies and establishing processes and
systems of strategic planning at the national level needs much more than short, as
a rule, ad hoc seminars from inexperienced public servants.
The European Commission stresses that national policies for particular sectors
or areas will be an essential prerequisite for the nomination and the use of struc-
tural and cohesional funds for the next fiscal period until 2020. As in many cases so
far, the response of public authority in Croatia in the preparation of the European
Commissions expected national policies by 2020 is marked by delays, inefficiency,
partial access and improvisation. There is inappropriate behavior shown towards
social partners and other relevant stakeholders from positions of power marked by
uncooperation, lecturing, even arrogance. In this context, it is difficult to assume
the majority of the necessary documents will meet the expectations of the Euro-
pean Commission set criteria specified in the Framework for Cooperation Member
States with the European Commission for the period until 2020.
Regarding the Croatian strategy and policy of economic relations with foreign
countries, with emphasis on export promotion policy that would be based, as in
some EU countries, on integrated industrial policy, the situation is significantly
worse. Specifically over the past two decades of the independent Croatian state, an
integrated industrial policy, nor a policy of economic relations with other coun-
tries was attempted. Today, the state administration has no authority that would
be responsible for the policy of exports and not for the overall economic relations
with foreign countries, a similar situation occurred in most of the previous gov-
ernment. Such a situation conducive to different government bodies, associations
of businessmen and other institutions included in the rule, partly in the area of
economic relations with foreign countries, where their role and responsibility for
action is very often not in proportion. States, which exports are an important factor
in GDP growth and the development of the national economy, position themselves
to, sometimes to administratively camouflage promoting exports, often within the
Department of Trade. Examples are the Japanese MITI (interrnational ministers
of trade and industry), USA Ministry of Trade, the Chinese Ministry of trade or
KOTRA (Korea Trade).
Establishment and abolition of the Agency for the promotion of exports, which
has happened three times in the past two decades in Croatia is one the worst ex-
amples of improvisation in promoting exports of one of the countries in transition.
Such moves of economic policy are difficult to explain with economic reasons,
and of political reasons, we can only speculate. Possible consequences are virtually
immeasurable. Foreign diplomats in Croatia have accepted the moves around the
periodic establishment and abolition of the Croatian Agency for the promotion of
exports with a pronounced amazement. All countries of the new Europe, which
joined the EU in the last two expansions, have invested considerable effort in creat-
ing the administrative competence of such national agencies. The goal is to increase
the export competitiveness national economies and further enable companies, es-
pecially exporters of sharp and severe competitive match on a common internal
market of the EU for all countries.
This last goal has remained unrecognized for all the governments of the Repub-
lic of Croatia. Perhaps the best example is the organizational structure in the Czech
Republic. A very successful national agency Czech trade, as part of the continuity
and brand recognition, partly inherited competencies of the former Czech national
foreign trade organization, and has representatives in a number of Czech diplo-
matic and consular missions in the world.
CBRD is an example from which it can be inferred that the continuity of in-
stitutions and the immutability of its management, contributes to its quality and
reputation on the national and international level. However CBRD by its nature
isnt a classic export bank, but operates its numerous anti-recessionary programs.
The only attempt to create some export policies for a multi-year period was the
project of Croatian Export Offensive HIO from 2007 to 2010, under the auspices
of the MOE, launched in the second half of 2006 and presented to the public in
the beginning of 2007. The project remained at the level of the ministry and was
not accepted by the Government. After the parliamentary elections in the fall 2007
and changes of the minister, the project started off. Project HIO set itself ambitious
goals, but it lacked the quality of operationalization as well as execution control of
set objectives and measures.
Croatian exporters (CEA) is the only Croatian Chamber of voluntary associa-
tions, present back less than a decade, in which its focus was to promote exports.
The conclusions of the previous seven conventions were trying to draw the atten-
tion of economic policy makers on the importance, opportunities and problems of
Croatian export and Croatian exporters. Despite certain, usually temporary posi-
tive developments, they still continue to face systematic chaos in economic policy
and almost ignore and disregard by the Goverment.
The absence of a comprehensive policy of exports as part of an overall policy of
economic relations with foreign countries, public and national policies and strate-
gies that are related to or are the basis for export, at the present time, present a very
significant risk to the role of exports as a driver of the development of the Croatian
economy.
PUBLIC ADMINISTRATIVE CAPACITY - INADEQUATE FOR EXPORT EXPANSION

The findings and views on the basis of media reports and conventions of Croa-
tian exporters (CEAs) are that economic diplomacy does not work, there are a large
number of institutions and agencies with parallel action in the field of economic
relations with foreign countries; CCE, TIPA which overturned, HIZ, MFA , ME,
HOK, CEA. CCC only has a developed infrastructure for export promotion.
It is being thought about what kind of role in the development of a country de-
velopment of export-oriented small and medium-sized manufacturing companies
can have. In Croatia, it is officially still thought that only technology development
can deal with large state and social business (a lot of people and halls - a lot of
high-tech products), and the latter is craft. In the world, countries have carefully
organized technology parks (or Technopolis) who gather in their midst small high-
tech firms with the aim of retaining products that are among the technological and
manufacturing industries (India, Finland, China, Turkey, South Africa, Russia, EU
countries).
Finland and Slovakia are countries simillar to Croatia, but the explosion of
knowledge and production in these countries is the result of effective national stra-
tegic policy. Croatia is lagging behind because the state development institutions
do not focus efforts aimed at the economy. Technological independence is a con-
dition of independence of the state. Croatian companies are less connected and
developed as islands, not as clusters. As such they perform outside of the country,
because there arent any systems integrators and Croatian foreign companies for a
long time.
The state in Croatia remains the largest investor. It artificially maintains a market
unsustainable economic system. Large funds are still (instead of creating a knowl-
edge company) invested in the maintenance of certain systems that are doomed
to disappear, while neglecting the creation of business knowledge. This is reflected
in the Croatian economy as a whole and prevents the creation of development of
competing companies. In other transition countries, enterprises are privatized and
growing fast (eg Poland, Romania, Czech Republic), the absorption of new tech-
nology is faster.
Old companies in Croatia have inherited the building, technology, products,
brand and market. The state must help the newly created enterprises that create
innovative products based on its own development. Product development, proto-
typing, pilot production, certification and marketing, and the advent of the global
marketplace require major investments that carry a high risk, while many small and
medium enterprises can hardly bear such financial outlays.
Incentives for small and medium enterprisess, especially those for exporters
from the industry, are good but too small. Unfortunately, many of the products in
Croatia are subsidized.
Various government agencies sometimes act towards one another - which makes
parallel action. In Croatia, everything is full of institutions and programs that en-
courage entrepreneurship, funds that finance innovation and development proj-
ects, new technologies; interest are sometimes more large loans are easy to obtain,
but export performance has been poor. Blockages to real potential successful ex-
port projects are very subtle: meet many forms and reports, business plans, work
huge explanations of competitiveness. Of course money should not be shared the
easy way, but the problem is that in these instances, in quite a number of cases,
employed persons, who do not know how to assess the value of a single business
project, a product, or to distinguish the wheat from the chaff.
Croatia in its current economic policy has shown that it is unable to create in-
ternationally competitive internal and administrative capacities and institutions to
strengthen the export competitiveness of their national economies.
MODEL TO ENCOURAGE THE DEVELOPMENT OF CROATIAN EXPORTS: TEN

STEPS TO CROATIAN EXPORTS
The question is: What to do, how can Croatian companies orient exports? Based
on the experience of the author, and numerous interviews with entrepreneurs who
are struggling every day to survive, it is proposed to introduce a model of encourag-
ing the development of Croatian exports: Ten Steps to Croatian exports, which will
be briefly presented below.
Step 1: Set goals that can be measured
The system of Croatian economic goals in exports must be coordinated from
one place by vertical organization that is part of all the institutions of the state
that the system must respect and serve (CEPA). The key Croatian economic goal
should be to export from the current 40% of GDP, reaching over 65% of GDP by
2020. In the meantime, by 2016. it should reach 50% of GDP, accompanied and
stimulated by appropriate economic measures independently of the political option
that was.
Step 2: The formation of a single body to support exports and to strengthen
support for marketing
In Croatia, there is a large number of different agencies and institutions in the
field of economic relations with foreign countries, whose number should simply be
reduced. An establishment of such at the Zagreb Fair pavilion for one CROATIA
EXPORT PRODUCT AGENCY (CEPA) is proposed, one that would be the one
stop shop for export. In one place to gather the civil service, the archive exporters,
catalogs of companies by industry, space for presentations, meetings with exporters.
Modeled on HITRO.HR it isproposed to establish eg. IZVOZ.HR - EXPORT.

HR ie, establish the institution in which exporters will promptly receive all neces-
sary documents required for export products.
According to the investment in marketing of a company the ambitions of the
company can clearly be seen. It also can be a criterion in the selection and percep-
tions of companies that should be supported. A marketing analysis of a market
in principle must be carried out by economic diplomacy. For now the CCE is
the strongest in that field, it organizes trade fairs and connects us with strangers.
Daily inquiries from around the world are the result of exhibiting companies at
trade fairs, independently or within CCE. Such a presentation of the markets are
extremely expensive. Presentations are not any more favorable. And this is only the
first step in exports.
Step 3: Professionalize economic diplomacy
In the Croatian economy it is a commonly accepted situation that economic
diplomacy is often a good place for some unquality personel on budget financ-
ing so that they lose and so qualify some high quality staff. One should wonder
why economic diplomacy in Croatia has such a bad reputation. Is the problem in
the approach to the organization of the same, or in the chronic lack of staff, as a
consequence of the lack of tradition in the young country. Economic diplomacy
should be appointed by the Ministry of Economy (MoE) with the cooperation
of CEPA, CEA, because everything related to the economy must go through the
MOE, CCC, CEPA. The system of financing economic diplomacy should be such
that, for example the first 5 years it is financed from the budget, and then fund-
ing can be taken over by businesses that find interest in it. If no export or political
interests exist then why would Croatia have an embassy and diplomats in that
country?
Economic diplomacy is lobbying. The result of economic diplomacy does not
have to be immediately visible because of the nature of work, but its final perfor-
mance is systematic and organized approach. They need to create Business Intelli-
gence-track competitions, the business climate, to organize meetings, to know the
potential of individual companies and products. An annual meeting of economic
diplomacy without exporters is completely meaningless. Exporter and diplomat
must be as thick as thieves. Economic diplomacy, which should implement the
experts at our embassies, should play a major role, the possibility and importance.
However, it is almost non-existent because its users are not given tasks.
Step 4: Strengthen the role of the Diaspora and Croatian embassies

The ministry of Foreign and European Affairs and the ministry of the Croatian
economy would have to significantly improve the connectivity with the Croatian
diaspora. Croatian diaspora can be used in some countries as a springboard.
Croatian embassies in most countries should in the future be considerably more
a type of Croatian business centers in the world and not just politicall ones. Every
diplomat needs to build up a network of commercial representatives of Croatian
companies in the country, and the total amount of exports to be the result of his
work. Encouraging states in a way thet there will be a particular reward percentage
of sales to the representative, because in that way his work will turno from service
into professionalism which will again from generation to generation automati-
cally create highly experienced staff whose knowledge will be useful for Croatia.
Companies need specific reports from some markets. Lobbyist must be trained for
our interests in foreign countries. We should strive to prepare a favorable climate
for cooperation with Croatian companies, continuing to reflect and negotiate off-
set programs, compensation, and to be informed about future tenders in foreign
countries.
Step 5: Create new, non - traditional export products
Creating new, non - traditional exports is important for developing countries,
and makes the country less vulnerable to technologicaly advanced countries. Coun-
tries that attract foreign investors in manufacturing (and not in the trade and sub-
contracting) will develop a more competitive economy and increase the chance
of being successful exporters. Technology is the main weapon in the competitive
struggle. Hence the attraction of the technology industry is of paramount impor-
tance in terms of education and workforce development of domestic high-tech
industrial base. Only contractors who develop higher technology can provide for
economic growth. Technological independence is a requirement of independence,
and only market competitiveness through export carries new developments. And
with no new developments there is no technological independence.
Substitution import is an inevitable path to a competitive product. Substitution
of today no longer means merely copying imported products. Japan, Korea and
China have for thirty years carried the highest import substitution and export in
history. Experiences from different countries say - what a local company produces
with enough quality, can not have competition from imports and imported prod-
ucts even if they are cheaper. Import substitution is createing new products and
new export opportunities. The biggest opportunity of the Croatian industry, is
many small niche and high quality products. Different, previously imported equip-
ment in Croatia allows us acquire knowledge. When it comes to government pro-
curement infrastructure of high-tech equipment as this will reduce technological
dependence and the foreign trade deficit, import substitution is something states
support unreservedly. Substitution is a way of preserving jobs in Croatia. Experi-
ence tells us that we should not spend time and money on a mass substitution of a
low technological level.
Step 6: Strengthen the role of technology parks
Technology parks, at least in every four Croatian universities, should be the
core of development of production centers in Croatia. Their establishment is not
expensive because Croatia has immense untapped public spaces that do not require
large funds to put into operation. Technology parks are in many highly developed
and developing countries, nursery innovative entrepreneurs and high value-added
products for export. Each new company that declares itself to be high-tech, the
state should provide stimulus to the clear definition of the condition and under the
control of the technology park on product development.
Step 7: Strengthen green technology
The state should systematically promote and invest in the industry based on
green technologies, some advanced technologies such as electronics and automation
and robotics, energy and environmentally oriented transport, high - quality prod-
ucts based on natural resources, and high - quality intellectual and creative services.
Each State legislation provides an impressive array of references in their industry.
Step 8: Implement reindustrialization
There is significant human capital in Croatias IT industry, but is more related
to trade and services. Without significant products with high added value there
is no export. Therefore, we should create the conditions for re-industrialization -
Help Todays small and medium enterpeneurs to become larger with new products
and new technologies. The main exporter is everywhere industry.
Step 9: Provide support to small and medium enterpeneurs
Small and medium enterpeneurs can break into export markets, first with refer-
ences in Croatia, but this foreign integrators rarely allow. It is necessary to change
the philosophy. Clustering is necessary to ensure that foreign integrators work on

the extent that our company does technology can not reach. In this way, the small
and medium business that participates in the cluster gains experience, becomes
competitive, creates a reference.
One of the most important things in the export of the reference, is where to get
them, if not at home. The first placement, testing and development of new prod-
ucts and services can and must be done in a well-known domestic market. Each
export product of advanced technology and high-tech product should and must
be a national product. Very few Croatian companies are members of professional
associations and relevant international EU integration which would have to be
significantly encouraged.
Step 10: Provide training for personnel working in export
The State must organize training of existing and future staff for export. It should
be analysed where Croatian trained managers work, in commercial import or ex-
port companies.
Only countries with a high percentage of engineers and scientists have a high
growth of national income, and thus promoting technical and natural sciences
must be a national priority. Today, in a world dominated by the economy and the
companys knowledge, in which it is most important to have quality educated staff
and non-material resources - knowledge, patents, information, and speed develop-
ment time and quality. This requires an enabling environment and the ability and
willingness to constantly learn
CONCLUDING REMARKS
Theoretical discussions and strategies are essential and necessary but practical
life high-tech entrepreneurs in the Croatian environment suggests otherwise. In the
early 90s a lot of these companies were established and most of them have unfor-
tunately failed. Competition is the large multinational companies that use their in-
frastructure and high level of resources. Small Croatian company, without resources
and support from the state can not force competitors to respond to the Croatian
market. Thus, it was shown that the imperative of globalization of business activi-
ties and focusing strictly niche. Modern technology and communications skills and
expand the market of small businesses. Developer entrepreneurs in Croatia have
very well learned a lesson of how to, from nothing, do something, you really believe
that with a little more than nothing I can do more than anything. Entrepreneurs
are the vanguard of malcontents in the overall system, because these are people
who are looking for solutions to the problems and solutions are not being discov-
ered. Croatian innovators at world fairs receive numerous awards. So why is inno-
vation not converted into products? Because there is no organized approach to this,
there is no state agency that will consolidate all of these innovations, and give them
support in any form, there are companies that have development and production,
sales ambitions and abilities. The state has no funds for risky investments, small
and medium enterprises are not numerous enough and strong, and large Croatian
companies are not generally interested in the Croatian innovation.
Ot national level without a sense of urgency and materiality, commitment to
radical, systematic and comprehensive changes, as well as commitment to the
achievement of ambitious national development and export targets, it is difficult to
expect a significant positive step forward in the immediate future.
Only in this way will Croatian businessmen be able to make progress. With the
current approach, which always reacts after the problem occurs, which stifles proac-
tive rather than encourage it, development is not possible. It is only possible to sur-
vive, and the economic crisis has convinced us their reality, that this approach has
a limited shelf life. Without urgent action, we can only ask ourselves: What next?
REFERENCES
1. Buturac, G. (2006). Horizontal and vertical specialization in international trade:
The case of Croatian and Czech Republic, Economic Review, (57), 7-8: 475-489.
2. Djankov, S., Hoekman, B. (1997). Determinants of the Export Structure of Coun-
tries in Central and Eastern Europe, The World Bank Economic Review, (11), 3:
471-487.
3. Croatian Chamber of Economy (2012). Statistical data CCE Zagreb, period in 1990.
- 2012th years. Zagreb: Croatian Chamber of Economy.
4. Croatian Chamber of Economy (2013). Economic trends br.2/2013. Zagreb: Croa-
tian Chamber of Economy.
5. http://europa.eu.int/estatref/info/sdds/en/hrst/hrst_sectors.pdf
6. Josic, M. (2008). Foreign direct investment as a function of exports: The case of
Croatian, Proceedings of the Faculty of Economics in Zagreb, (6), 1: 13-27.
7. Marusic, M., Prebeac, D. (2004). Research tourist markets. Zagreb: Ljevar.
8. The National Competitiveness Council (2009). Annual Report on Croatian Com-
petitiveness for 2008th year. Zagreb: Croatian Chamber of Economy
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greb: ALTPRO.
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11. Yilmaz, B. (2005). The Foreign Trade Pattern and Foreign Trade Specialization in
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THE JOSIP JURAJ STROSSMAYER UNIVERSITY OF OSIJEK

FACULTY OF ECONOMICS IN OSIJEK - CROATIA

INTERDISCIPLINARY MANAGEMENT RESEARCH X

For the Publisher:

Language Editing and Proofreading:

Microeconomics, Macroeconomics and Monetary Economics

Health, Education and Welfare

Law and Economics

Bussiness Administration and Business Economics

Urban, Rural and Regional Economics

Es ist uns ein Vergngen, das Konferenzband Interdisziplinre Managementforschung

Die neueste Ausgabe von Interdisziplinre Managementforschung X / Interdisciplinary

Prof. Dr. Draen Barkovi

It is our pleasure to introduce the book Interdisziplinre Managementforschung X /

The latest edition, i.e. Interdisziplinre Managementforschung X / Interdisciplinary

Prof. Dr. Draen Barkovi

MEASURING PERFORMANCE OF MANAGEMENT IN

JEL Classification: O13, D78, E65

2. The structure of indicators for performances measurement of management

of non-economic and economic factors and resources; (7) Application of modern

Table 1. The implications of concept of rights implementation on the public

3. Principles for selecting the methodology for performances measurement of

Measuring the economic performances of management in agribusiness should

First, the principle of participation, that is appreciation of authentic interests in

4. The structure of indicators for measuring the quality of agribusiness and

this framework, the classification of indicators for measuring the performances of

1. On competitive advantages in general

1.1. Cost leadership

Examples of companies successful at applying differentiation in the Croatian

2. Analysis of the wood industry in Croatia

Table 1. THE NUMBER OF EMPLOYEES IN LEGAL ENTITIES ACCORDING TO THE

Table 2. FOREIGN TRADE OF WOOD PRODUCTS AND FURNITURE

2012 902 498 405 181

The long-term goal will be achieved through realization of short-term goals:

2.1. Measures to stimulate competitiveness

costs and differentiation. Competitive advantage is achieved and maintained either

INFORMATION TECHNOLOGY AND KPIS

Commission has continuously emphasized the role of universities in contributing

Table 1. High-level KPIs

Combination of these three types of monitoring tools (high-level KPIs, self-

1. Use of KPI in strategic management of public universities in B&H

2. Development of KPIs at the University of Mostar

3. IT support for KPI

Figure 1: Basic elements of USKPI software Main menu

Source: (Rezi et al; 2013)

Figure 2: Definition of indicators in USKPI software

Source: (Rezi et al; 2013)

Figure 3: Visual presentation of KPIs in USKPI software

Source: (Rezi et al; 2013)

Figure 4: Graphical data presentation in USKPI software

4. EC (2005a). Contribution to the Conference of European higher Education

PROCESS MANAGEMENT MODELS AND FUSION

4. Managing the processes

5. Elements of fusion organization

tion, virtual organization, project organization, learning organization and innova-

3. Knowledge storage and organization,

6. Elements of organizational culture

intellectual effort, innovation processes, creative potential of alpha employees and

ANALYSIS AND PERSPECTIVES OF TOURISM /

from neighboring countries and conducted questionnaires led to knowledge of

2. New products as elements of agrotourism development in leader

3. Leader Programme principles in function of development rural tourism

Bottom-up approach todays development is not possible without involve-