Business ethics and gender equality: the basis for a new leadership model

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STRATEGICAInternational Academic Conference

– Second Edition –

Bucharest, Romania, October 2-3, 2014

Management, Finance, and Ethics

Edited by

Constantin BrãtianuAlexandra Zbuchea

Florina PînzaruElena-Mãdãlina Vãtãmãnescu

STRATEGICAManagement, Finance, and Ethics

This volume comprises the full proceedings of the secondedition of the Strategica International Conference, held inBucharest, Romania, on October 2-3, 2014. The conferenceexplores the organizational strategic thinking, planning andaction in the context of new governments’ policies and inter-national institutions’ measures after-crisis, as well as con-sidering the evolutions within businesses. The focus is seton the relationships between management, finance andethics. As an overview, the conference papers are interdis-ciplinary and aim at exploring the shifts in management, aswell as the relevance of ethics, values and standards at indi-vidual, institutional and social levels in the world of financeand business, considering both the macro-level and themicro-level approaches.

Strategica International Conference is organized by theCollege of Management from the National University ofPolitical Studies and Public Administration, in partnershipwith the National Bank of Romania.

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Contents

Foreword / 11

ECONOMICS AND BUSINESS

Arsim GJINOVCIDi!culties facing the organization, promotion of HR and how to encourage or to motivate investments in organizations / 15

Eduart LIKA"e role of remittances in the Albanian economy / 31

Steliana MORARU"e impact of using mobile technology for the development of the Non-pro#t Sector in Romania / 51

Erdet KËLLIÇIIncrease organization overall performance through mobile technology. Albania case study / 75

Agata BALIÑSKAFactors determining the development of peripheral areas / 93

Dumitru IACOB, !tefan ST"NCIUGELUSocioenergy, co-existence and co-evolution: key factors of a Romanian national development strategy / 109

Denisa MAMILLO"e e$ect of organizational culture and uncertainty on supply chain collaboration. "e case of Albanian beer producers / 123

Cristian P"UN"e role of European Union Funds in economic development / 143

Andrei-Alexandru MORO!AN, Cristian-Valentin HAPENCIUC, Iulian CONDRATOV"e e$ects of structural funds absorption on the business environment in the North-Eastern Region of Romania / 165

Bajram FEJZULLAHU"e management of the privatization process in the republic of Kosovo - “sui generis” process / 181

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FINANCE AND BANKING

George BAKATSELOS, Anastasios KARAMANOSAbnormal stock market returns to announcements of M&A banking deals in Greece 1996-2013 / 199

Lauren#iu-Mihai TREAP"T, Ileana VELICU, Lucian Claudiu ANGHEL "e role of the banking loans in the management of the local development / 219

Yurii PASICHNYKTransformation of banking resources / 241

Anda GHEORGHIUCountry risk dynamics of Romania in the post-EU accession period / 261

Doina PALADE, Florentin TANAS"Foreign equity ownership, corporate governance and #nancial performance / 281

Loredana IVANGender di$erences in investing and savings behavior: the nesting e$ect / 295

Nicoleta SAVUGovernment accounts: below the line #nancing in Romania / 311

Alexandra VI$ELAR, Alina-Daniela MIHALCEA, Rodica-Maria S"VULESCUIs the European social and economic model still sustainable? A pragmatic approach from Romanian students on the future of the Eurozone / 331

MANAGEMENT AND LEADERSHIP

Carmen NOVAC, Alexandra MIHALCEA"e relationship between leadership, organizational culture and managerial culture through LEAN strategy in a multinational company / 349

Daniel POPESCUProject management for implementing Japanese methodology-KAIZEN at ASSA ABLOY Romania / 371

Cristina LEOVARIDIS, Gabriela POPESCUOrganizational innovation - a path to improve the working conditions in the knowledge economy / 387

Ramona LEONEmotional intelligence – the unseen face of the sustainable knowledge based organization / 407

Cristina MOUTA, Raquel MENESES"e in%uence of TMT in promoting trust within organizational networks / 431

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Lajos SZABÓ, Anikó CSEPREGIStrategy development of public organizations / 451

Kathleen WELSH VOGESDeveloping relevant MBA curriculum: A case study of business community perspective / 471

Ligia PETAN"e impact of transformational leadership on team performance and satisfaction: the mediating role of trust / 497

Dan ST"NESCU, M%d%lina IORGAAre through-timers striving more for results than in-timers? Time perspective, achievement motivation and self-regulation: an empirical study / 519

Elena-M%d%lina V"T"M"NESCU, Vlad-Andrei ALEXANDRU, Elena-Alexandra GORGOS"e Five Cs Model of Business Internationalization (CMBI) – a preliminary theoretical insight into today’s business internationalization challenges / 537

Dan NICU"e political strategic decision-making: towards an inferential model / 559

MARKETING

Dumitru BOR$UN"e need for a managerial and governmental strategy. Public Relations as an expression of strategic communication / 571

Ioana MANUSSOS, Dimitrios NIKOLAIDIS"e in%uence of Public Relations in nation branding: the case of Bucharest / 579

Andreia-Gabriela ANDREI, Adriana ZAI$Branding insights: an interdisciplinary journey from perception to action / 593

Valeriu FRUNZARU, Elena Monica POPAMaterialistic values, shopping, and life satisfaction / 605

Diana-Luiza DUMITRIUSport actors’ walk of fame: the Trojan horse of celebrity / 623

Marina OCHKOVSKAYAPerception and consumption of global luxury brands in Russia and Romania: comparative cross-cultural aspect / 651

Rare& MOCANUMarketing professionals: a managerial perspective / 669

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Ioana-Felicia CONSTANTIN, Vlad RÂMNICEANUOnline marketing for women. An analysis of online purchasing behavior of young women in Romania / 679

Cornelia MAXIM, Cristian VIDUModern marketing: Valenti & Performance / 699

Janard K. YADAV, Omkumar KRISHNANExperiential marketing of tourism: an exploratory model/ 723

Alexandra !tefania !TIRBUProduct placement in Romanian music videos / 737

BUSINESS ETHICS AND CSR

Andreea MITANDo Romanian youngsters envision a CSR-oriented world? A research regarding digital natives values / 763

Andreea -Denisa TUDORSocial Customer Relationship Management (Social CRM): sustainable relationship cultivation strategies into the social web of consumers / 781

Alin SPERIUSI-VLAD"e limitation of the freedom of commerce by intellectual property moral rights / 813

Camelia CRI!AN, Alexandra ZBUCHEA, Steliana MORARUBig Data - the Beauty or the Beast / 829

Mihaela DUMITRA!CU, Radu LOGHINResearch in the #eld of goodwill and corporate governance accounting: a synthesis bibliography in the 2011-2014 academic literature / 851

Robert SABOTICINation state, market and corporations in the context of globalization / 871Diana-Maria CISMARUPremises and recommendations for communication strategies on environmental policies in Romania / 891

Ardita TODRI, Francesco SCALERA"inking strategically-thinking green: Albanian economy case / 913

Maria MEDINA-VICENTBusiness ethics and gender equality: the basis for a new leadership model / 931

Foreword

!is volume comprises the proceedings of the Second edition of the Strategica International Conference, organized by the College of Management, from the National University of Political Studies and Public Administration, in partnership with the National Bank of Romania. !e "rst edition of the Strategica (June 27-28, 2013, Bucharest, Romania) academic conference# investigated the impact the nowadays technologies# and business climate have in the "elds of economics, business, media and communication in general. It was a great opportunity for discussion, sharing research, collaboration and intellectual exchange for business, economics, communication and public relations scientists, researchers and scholars from di$erent countries1.

!e second edition (October 2-3, 2014, Bucharest, Romania) of the Strategica conference seeks to investigate the evolutions of the business environment in the context of new governmental and international institutions’ measures after-crisis. It also aims at exploring the relevance of ethics, values and standards at individual, institutional and social levels in the world of "nance and business, considering both a macro-level approach and a micro-level one. !e world changed radically during the last decade, the worldwide economic crises having a leading role in the transformations registered by all economies. During the past few years, markets have struggled to manage the turmoil caused by the complex and global "nancial crisis, while the banking and "nancial sector seeks to handle more sustainably private and public "nances, to regain trust and repair responsibility de"ciencies. In this context, decision makers, as well as business leaders are still trying to adapt and search for sustainable business and communication models in which ethics and corporate social responsibility have more important roles. In this new, challenging environment, whether we speak about products and services, reestablishing trust, building understanding and cooperation or about advertising, ethics

1. Selected papers of the Strategica 2013 International Conference are available online at http://strategica-conference.ro//wp-content/uploads/2013%20STRATEGICA_Proceedings.pdf.

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or corporate social responsibility, companies will have to make way for new approaches and replace old models.

!erefore, it is relevant not only for the academic environment, but also for businesses today to investigate the relationship between management – !nance – ethics, in a strategic perspective. We should be able to learn from our past experience and build strategies for the future. !e papers included in this volume guarantee that the conference became a platform for interdisciplinary discussions and debates on the new business models arising, the new conducts in management and the role of ethics and corporate social responsibility, by bringing together international experts, researchers and scholars. It comprises scholarly research in various domains: Economics and Business; Finance and Banking; Management and Leadership; Marketing; Business Ethics and Corporate Social Responsibility.

!e variety of topics and perspectives approached by the research included in the volume illustrate the wide diversity of interests the academic world and professional economic environment share. We hope that the lecture of this volume will prove to be interesting and thought provoking.

We thank all the participants for their contributions, and we are looking forward for equally valuable contributions during the next editions of the conference.

!e Editors

ECONOMICS AND BUSINESS

Di!culties facing the organization, promotion of HR and how to encourage or to motivate investments in

organizations

Arsim GJINOVCI1

Abstract. Markets in which organizations operate today face various problems, both economic and non-economic in nature. !ey are also disturbed from long transitions, and weak development perspectives of some regions. In order to develop business in the long term and to stimulate investments, the challenges faced by organizations have been the focus of many research institutions in Kosovo, as well as of independent researchers. In this context, the high "nancial di#culties of businesses have been part of the analysis of many authors. !e purpose of this paper is to investigate the "nancial di#culties of companies operating in the Kosovo market and to o$er recommendations that can be useful for businesses interested in setting up and developing, as well as for other institutions. !e results of this analysis show that businesses are facing "nancial di#culties and lack of investment as a result of higher interest rates, administrative barriers, corruption, informal trade, unemployment, lack of reforms in the economy, monopoly, integration, etc. !e topics investigated may have special relevance for human resources wishing to make changes or for overcoming "nancial di#culties, stimulating investment, promotion and business development in the longer term.

Keywords: "nancial di#culties; informal competition; interest rates; advance of human resources, Kosovo economy.

Introduction!e models of modern organizations are considering new methods and mentality, which require dedication, determination and adequate knowledge from employees, as well as from managers. But organizations in southwestern Balkans still have di"culties of legal and ethical nature. A part of businesses are operating outside the legal system. In this way they negatively in#uence the market and contribute to wide spread of

1. Ph.D.$Candidate in Management Studies, European University of Tirana, Albania, [email protected].

Strategica 201416

informality in the economy and other negative impacts on the economic system.

In Kosovo, organizations lack long-term funding and capital. !erefore, measures should be taken to ensure accountability and inclusion, as well as to create conditions that make possible the provision of the necessary %nancial resources for investment. Business sustainability is essential for the country’s economy. !is is why they must be stimulated in order to have a more active stance against economic development, and exit from the current economic situation.

"e aims of the research In this study we are doing research in the %eld of resource management in organizations, respectively we investigate di"culties that organizations face and how to encourage or motivate investments, as well as in the %eld of human resource management. We analyze the impact of inclusive factors as: a) !e impact of interest rates on bank development organizations; b) Policies of competition in the country and beyond; c) Non-formal competition as a factor of instability organizations; d) Lack of professional human resources in speci%c economic activities.

Topics addressed in this research may be of particular importance for human resources that wish to make changes or analyzes of the impact of factors such as interest rate, informality, motivation of human resources in organizations operating in Kosovo market.

Methodology

For the preparation of this publication we reviewed the literature for the management of organizations, and human resource management. !e sample selection is based on the following criteria: a) the organization is operating in the local market and is a legally registered business;

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b) the organization o&ers accesible information. An analysis of documents and published data was carried on. Data, reports and surveys of participants were analyzed in detail, in order to create a clear picture related to research topics.

"e di!culties facing the organization and how to encourage or to motivate investment

Di"culties that organizations face today are numerous, such as: a) !e impact of interest rates on bank development organizations; b) Policies of competition in the country; c) Informal competition and destabilizing organizations; d) Lack of professional human resources in speci%c economic activities.

We will investigate in detail the above-mentioned factors.

"e impact of bank interest in the development of organizations Eight banks operate in Kosovo. 90% of total assets, more than 88% of deposits and about 80% of credits are concentrated in the three largest banks in Kosovo. !is situation is linked with high risk of credits, low e&ects of courts, judicial system, etc. (KCB, 2007).

!e research of the Institute of advancing study (GAP, 2013) shows that loan rates remain high and nevertheless no steps to get a better situation are taken. !e banks %nd it di"cult to operate in business and political environments that do not respect the laws in force and when courts do not do their job. High pro%ts of the banking sector are mainly based on high interest rates on loans. A characteristic of the banking services in Kosovo is that banks charge their users fees for many services that are o&ered for free elsewhere.

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But how could be overcome such a situation? It is thought that increased competition in the %nancial system of Kosovo would have resulted in the reduction of interest rates, which a&ect the growth of new investment interests in all areas of business.

!e development of the banking sector from 2000-2010 was associated with the establishment of new banks, with the expansion of products o&ered, as well as the extension of the geographical span to cover the whole territory of the country. Although a continue e&ort of banking operators to ensure a broad base of customers in the context of increasing competition is registered, this situation has not had signi%cant e&ects in reducing interest rates on loans and in narrowing the gap between interest rates on loans and deposits which is high (Authority Kosovo Competition Authority, 2011, p. 20). In general, the banking system in Kosovo is developing very fast. !is sector has been steadily increasing in value of assets while the level of bank deposits grew higher compared with the region. !e banking sector in Kosovo is characterized by a large presence of %nancial capital, which has contributed to the advancement of the %nancial system bringing advanced %nancial practices in the management of banking operations. Despite the rapid development of the banking system in Kosovo, interest rates have remained quite high. Especially for long-term investment needs they are among the highest in the region. !ese high interest rates directly lead to higher costs for businesses and impact the competitiveness in the local market, as well as outside it.

!e growth of the number of banks and development of the %nancial market in Kosovo are meant to lead to increased level of competition, but this has not happened until now (!e Kosovo Competition Authority, 2011). Interest rates for loans increased, as a result of growing demand for loans. High interest rates continue to remain an impediment to business activities in Kosovo. Reduction of banking interest rates would impact positively on the economy of Kosovo; would have direct implications on the establishment of new businesses and the development of existing ones. Also, increased competition through licensing of new banks and taking concrete measures are expected to reduce interest negative in#uence.

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"e impact of market competition policy in the country economy and beyondCompetition is an economic phenomenon, which manifests itself in a free market economy. Kosovo, as the newest country in the world and in southwest Europe, can be considered as the last country that is applying the principles of free market economy, after major changes in the political system. !e processes are complex. !e presence of high level of risk for business, unfair competition, as well as informal market in which some of the organizations operate are generating the instability of economic, business and organizations (Gjinovci, 2014).

In general, is hard to consider any real competition from businesses in Kosovo. Most of the organizations that operate in this market are still in an early stage of their development. Opportunities to develop faster are limited as a result of the economic policies applied. !e market faces a tough competition especially in food industry and construction by countries in the region: Serbia, Macedonia, Bosnia and Herzegovina, etc. As a result of the lack of administrative institutions and the establishment of international segments, for a long time products imported from these countries had tax and customs facilities. !ey have had direct in#uence on local organizations that already face numerous economic and non-economic problems. !erefore, a number of problems consist in weak competitive activities, loss of power when considering exporting organizations in Kosovo. !e current tax policy is to favor domestic productions.

!e nature of economic problems:- Lack of %nancial capital. To be more competitive in the market where these organizations operate, wider %nancial resources are required. !ey are di"cult to be obtained. Economic partnerships are di"cult to achieve under the current conditions, as banks o&er loans but bank interest rates are the highest in the region. High banking interests are leading to the extinction of many organizations.- Lack of experience in global markets. Organizations that operate in this market are quite limited; just a few businesses o&er services in the global market.- Lack of experts with designated pro%les. In recent years the number of professionals and their willingness to study has increased. Nevertheless

Arsim GJINOVCI

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some specialists and certain professions, including in the %eld of human resources (HR) are still missing in the region.- Weak promotional and marketing activities. - Weak legal infrastructure. Applicable laws are very democratic. For instance they o&er the opportunity to appeal, but expectations for the review of complaints are long, many times they extend over more years. Although for years in Kosovo international legal structures, as EULEX2, have been installed, citizens are facing di"culties in the protection of their rights; they are faced with the shortcomings of the justice system.- Lack of information. At the same time Kosovo is a country of diaspora, which is very rich/ generous and their %nancial resources could in#uence the development of the current organizations and set of new ones. But to have direct investments the interested sectors have to be informed, to decide in what to invest and which conditions are suitable. Increasing institutional support could lead to bene%ts both for society and for investors. Now organizations are faced with weak institutional support, as well as other administrative barriers.

Kosovo is going through a process of political and economic transformation. For instance it has to deal with the industrial structures inherited from the Yugoslav federation based on heavy industry. At the present Kosovo is still unable to face the requirements and standards of the market economy.

Kosovo is the last country that has entered the transition processes in southeastern Europe. As a result of local policies and con#icts, the country and the region have gone through a process of long and painful transition. Consequently Kosovo faces continue economic decline and recession and, therefore, di"culties in developing businesses. Kosovo companies face unfair competition created by businesses that cause adverse e&ects to consumers, as well as other unlawful practices such as the sale of goods of lower quality than is stated, false declaration of goods in order to avoid paying taxes, departure payment of income derived on account and payment of cash #ows of the gray economy, the sale of goods without the required accompanying documentation, keeping of irregular and inaccurate records on the movement of goods, etc.

2. EULEX, European Union Rule of Law Mission in Kosovo (date 19.05.2014).

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Informal competition as a factor of instability of organizations

!e phenomenon of informal economy characterizes all countries, and it has been present at all times. Today it is found in most developed countries, but in these countries it is always under control and not endangering normal economic movements.

!e informal economy is de%ned as the economy otherwise illegal, uno"cial, and parallel to the black market (Komoni, 2008). Among the key factors that in#uence the decision to enter into the gray area of business are: - Slow functioning justice system and law enforcement mechanisms; - Weak administrative control level towards economic liberalization;- Tax charges, macroeconomic instability and destruction of the payments system.

To understand the economy it is necessary to study its both parts, formal and informal. !e need for the study of unregistered economic activities primarily stems from the requisite for e&ective implementation of the macroeconomic policy of the state (Suceska, 2006). Informal economic forms di&er more or less from place to place. It appears in various practices and in almost all areas of economic activity:a) Import and export of illegal goods. b) Cash Flow outside payment services. It is typical for many countries the utilization of cash for business. !is form is quite common in the Balkan countries, and it seems that for a long period of time it will not be replaced. Doing business in cash is easy especially after the loss of con%dence in banking, and legal systems. !erefore, consumers as well as service providers prefer cash. !is phenomenon has a signi%cant impact on the growth of the informal economy.c) !e smuggling of various goods in the domestic market. Such action is quite easy considering the extent of the territory of Kosovo and the problems faced by neighboring countries.d) Elusion from paying taxes and fees, the tax evasion and the fraud of the tax system. !e period of economic transition, war, con#icts, su&ering, have resulted in uncertainty, as well as distrust in the state assistance.

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e) Misuse of o"cial duty, commercial or public. Absence for longest period of economic growth, lack of perspectives, and lack of personal ethics has created conditions for misuse of o"cial position or business.

Illegal economy has many negative impacts on the economy as well as for the society. Some consequences are unpredictable. A partial list of the e&ects is:- !e creation of unfair competition,- Erosion of morality in business,- !e creation of false statement on real income and- Negative impact on legal businesses.

Business models today are oriented towards new knowledge; this is the reason why more and more businesses are considering resources and human potential, requiring a new approach, a new model of thinking and a new structure. So a new way of approach of certain issues is necessary, businesses are required to put the individual in the %rst place.

Unemployment is an impediment to the business. In most countries of the world human capital is considered as the most important factor for economic growth, innovation and investment. !e quality and #exibility of the workforce is one of the main factors in#uencing the investment decisions of foreign investors. Kosovo faces high unemployment rate and in some cases the lack of appropriate quali%cations. !e main challenge for the country’s economy continues to be a high unemployment rate, which directly a&ects the development of genuine businesses. Based on the current trend of economic growth and the generation of new jobs in the economy of Kosovo can be considered that the unemployment rate is not expected to decrease signi%cantly in the medium term (BQK, 2010).

Based on data from the Statistical O"ce of the Republic of Kosovo (ESK, 2010), the unemployment rate in Kosovo exceeds 45%. According to the data published by SOK (2014) unemployment rate is 36.9% in total.3

3. http://ask.rks-gov.net/ (date 19.05.2014).

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Figure 1. "e key labor market in RKS, state statistic (http://ask.rks-gov.net).

Such high unemployment a&ects the purchasing power and thus the creation of new business ideas and new places to work.

"e role of managerial barriers, and the role of corruption in markets. Empirical and theoretical studies on this phenomenon show that a favorable condition for the existence of corruption exists when a public resource is brought under the control of a person or a group of administrative public workers (Corruption in AL, 2005). !e independence of businesses and anticorruption are some of the weakest political dimensions of South East European countries. While there are laws and institutions against corruption, little has been done for their implementation and enforcement; it has been in#uenced by factors indirectly (Transparency International, 2012). !e experience of developed countries shows that the high level of corruption impairs circulation of capital, the level of investment, economic growth, etc.

By all indications, corruption is a serious problem in southeast European countries including some European Union countries (EU anti-corruption report, 2014).Countries in the region, including Kosovo, are committed to: - adopt international anticorruption instruments, -strengthen of national legislation, - promote business integrity, - create a more active civil society in the %ght against corruption.

Arsim GJINOVCI

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Despite the measures undertaken and the adaptations to date, results have been limited to preventing or minimizing the barriers created by the administrators appointed to local or regional institutions including several European Union countries, which directly a&ect the investment or investor loss.

K. Shaipi (2008) underwent a study to assess, among other aspects, the di&erence between perceived and encountered corruption. When posed a straightforward question: ‘Have you ever o&ered bribes to institutional o"cials?’ most of the businesses do not have the courage to respond and the level of sincerity in their responses is doubtful. Some 52% of respondents refused to answer this question, which leads one to believe that they are not being quite honest in their responses. !e rationale behind such a claim is that if the respondents, indeed, have never o&ered bribes, they would not hesitate to answer, as a negative reply would not hurt their reputations. !rough that argument, one can conclude that the percentage of respondents who have o&ered bribes to public o"cials should be represented as an aggregate percentage of those who con%rm having o&ered bribes (over 14%) and those refusing to respond to the question. If the two percentages are added together, we get an alarming 66% of businesses interviewed that have o&ered bribes in the past.

Figure 2. "e experience in o#ering bribes

!is phenomenon occurs frequently and is common in countries that have problems with the rule of law, which characterize the administration especially in Eastern European countries. Corruption is present and quite problematic especially for countries that go through periods of transition; these countries are usually characterized as ine&ective in combating this phenomenon, which has a direct impact on business and beyond.

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Lack of professionals in speci!c economic activitiesFor an advanced economy, state policies should be directed at building professional human resources. !ese persons will be able to compete without any problems in the labor market, especially in the requirements of foreign companies, but also local ones that could be competitive on the global market. !e question which was addressed to the respondents was: How supported the advancement of sta& under preparation, education and occupation in your organization? From interviews held with employees in public organizations such as Post of Kosovo (PT) and Post Telecom of Kosovo (PTK), we notice that 90% of employees surveyed consider that their organization does not support the advancement based on professional preparation, based and experience or education. !ese organizations, as well as other organizations, do not distinguish between Bechelorit, Faculty, Masters and PhD graduates salary (Gjinovci, 2013).

Figure 3. "e supported the advancement of sta# under preparation, education and occupation in PT, and PTK

!erefore, why not make it a realizable dream to work in organizations that operate in Kosovo. !e strategy would be to determine the younger generations to orient themselves towards those professions needed most. For meaningful labor market professionals companies also are paying more. Lack of experts designated pro%les is hampering the local production to be more competitive. In recent years the number of professions and willingness to study have greatly increased. But still, certain professions and facilities are still missing in the region.

!erefore, food organizations should take positive measures for favoring and support experts in their organization. Especially, this applies to organizations that deal with the production of biscuits, milk, chocolate,

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Strategica 201426

etc. Studies conducted in several large commercial organizations operating in the local market; Viva, Super viva, Inetex, ETC, etc. Although Slovenian dairy products should be more expensive because of higher costs, as the labor force, distance, other operating costs. Making these products attractive would be the result of investment in improving their quality. But to achieve this, manufacturing organizations need to hire professional human resources. !erefore organizations should consider concrete advancement of human resources through: Hiring professionals outside (the external site), which in some instances is quite expensive, and to support human resources in specialized education, even when they are quite costly.

How to encourage or motivate investorsSome countries in the region have improved business environment, despite that the southwestern Balkan region as a whole su&ers from a negative image for the support of businesses and foreign investment. Developing marketing skills and learning how to promote the region as an attractive destination for foreign investment will be a priority in the future. But until today, there was no signi%cant change regarding encouragement and motivation of the serious investors and or for ideas. A challenge that characterizes the region, including Kosovo, is investment protection. But the risk of investment in the country and in the southwestern Balkans is very high. Most of investments are in individual businesses. Also there are missing %nancial consultants in the business service as well as specialized o"ces for advising and giving of recommendations for decisions related to the operations of banks and %nancial markets (Civici, 2009).

According to the World Bank report (2011), facilities for doing business put Kosovo in the 117th place, Albania on site 82, while Bosnia and Herzegovina in the 125th place. Problems that discourage businesses include: electricity, registering property, protecting investments, enforcing contracts, getting credit, etc. While, according to the World Bank report (2013), doing business positions Kosovo in the 98th place. Whereas in latest report (2014), Kosovo is ranked in the 86th place, but this position is still under desired level, and the country should do more to down below.

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Years PlaceKosovo Albania Bosnia and Herzegovina Montenegro

2011 117 82 125 /

2012 117 77 127 /

2013 98 85 126 /

2014 86 90 131 44

Figure 4. "e rapport of doing business in some states in Balkan region and in Kosovo

Regarding institutional support to businesses, Kosovo is far behind the countries of the region. Almost all countries have taken concrete steps to facilitate the administrative procedures of business registration procedures. Procedures referring to importing processing machinery, as well as manufacturing are simpli%ed.

Businesses in Kosovo are still at the stage of the impossibility of coping with challenges, especially with increased competition in the regional market, limited productions capacity, the low quality products and services, as well as no professional managers.

ConclusionsBusinesses face a lack of cooperation and joint investment with local and international partners due to major negative factors such as legal barriers, lacking of political and economic present stability, despite laws guaranteeing investment protection. By reducing interest rates banks will positively contribute to the economy of Kosovo, would have a direct impact on the establishment of new businesses and the development of existing ones. !e reform of the %nancial sector and the creation of %nancial markets are necessary. Other transformations required are essential changes in tax policy since the current tax policies do not favor domestic production, and discourages the development of manufacturing businesses in Kosovo. High interest rates adopted by the management of the banks are justi%ed by the high-risk loans, as well as the low e"ciency of judicial system.

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!erefore concrete steps should be taken to strengthen the judicial system (raising the performance of this system). Most of the investments are in individual businesses and when facing certain %nancial problems they remain at the mercy of the market. !e solution lies in %nding individual choice as institutional support is lacking. Institutions therefore need to support businesses in generally.

Implementing independent programs to stop economic crime, which is a syndrome of some European countries, including some EU countries. Tax and customs facilities are needed for businesses that use the region that means the application of tari& incentives for investors. It is about reducing customs duties on capital investment and reproductive material from 10% to 0, and reduction of the VAT rate on imports of capital equipment. Extension of the tax system would a&ect the growth of the number of taxpayers and certain tax deductions.

Employment in public administration is based on certain criteria, taking into account the professional training and experience of human resources. In many cases during the recruitment process of candidates do not met speci%ed criteria of human resources. Public administration reform is not only the responsibility of government but is also the responsibility of civil society including the business. Restructuring of the energy sector and support the privatization of distribution as a measure to overcome the energy crisis during which indirectly in#uencing the cost of setting up businesses. Promote investment, support businesses in improving competitiveness through increasing or improving productivity.

Kosovo border points should be covered properly in order to prevent the introduction of higher excise items through illegal routes as from the border with Serbia. Bilateral and multilateral agreements and respect the agreements signed. Obstruction of any direct or indirect interference in the justice system is necessary, by not ignoring the international institutions. Minimization of smuggling which is growing as a result of constraints and implications for the institutions to be called on behalf of the establishment and development of economic and legal systems.

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References Civici, A. (2009). !e "nancial or global crisis. European University of Tirana,

Albania, UET Press.Corruption in Albania (2005). Corruption in Albania, perception and

experience. Retrieved from http://www.vanderbilt.edu/lapop/albania/CorruptionSummaryFindings.pdf.

EU anti-corruption report (2014). Report from the commission to the council and the European Parliament, Brussels, 3.2.2014 COM (2014)38 %nal.

Gjinovci, A. (2014). Informal Economy and Ethics in Management of HR and Business in Kosovo. !e Role of Informal economy, corruption, tax evasion and ethics in management of human resource and business. Saarbrücken: Lambert Academic Publishing.

Gjinovci, A. (2013). !e trends in managing the human resource: Case study public organizations operating in the market. International scienti"c conference Management the economic resources in function of development the country in transicion (pp. 52-53). Pristine: University College “Pjeter Budi”, Institute for Studies in Prishtina.

Institute for advanced studies (2013). GAP institute. Retrieved from http://www.institutigap.org/publications, Pristine, pp 8-11.

Kadriu, S. (2002). Public "nances with special focus in Kosovo. Pristine: University of Prishtina Press.

Komoni, S. (2008). Public %nances. Prishtinë: University of Prishtina Press, RKS Kosovo,.

Kosovo agency of statistic (2014). Retrieved from http://ask.rks-gov.net/.Kosovo Central Bank (2009). Years report. Retrieved from http://www.bqk-kos.

org/. Kosovo Central Bank (2008). Years report. Retrieved from http://www.bqk-kos.

org/.Kosovo Central Bank (2007). Years report. Retrieved from http://www.bqk-kos.

org/. Kosovo Competition Authority, (2011). Analysis of Monitoring the competition

in the Banking Sector of Kosovo. Retrieved from https://ak.rks- gov.net/repository/docs/Analysis_of_Monitoring_BSK_311011.pdf.

Suceska, M. (2006). Basics of economic crime. Prishtinë: AAB University Press, RKS Kosovo.

Shaipi, K. (2008). Impact of Corruption on Kosovo’s Business Community. Research report, November 2008 in Prishtina, pp 6-21.

Statistical O"ce of Kosovo (2010). RK Kosovo, Prishtinë. Retrieved from https://ask.rks-gov.net/eng/.

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Transparency International (2012). Money, Politics, Power: Corruption risks in Europe.

Retrieved from http://www.transparency.org/enis/report.World Bank (2010). Doing business in a more transparent world. Retrieved from

www.world.bankorg.World Bank (2011). Doing business in a more transparent world. Retrieved from

www.world.bankorg.World Bank (2013). Doing business in a more transparent world. Retrieved from

www.world.bankorg.Years rapport (2010). !e Central Bank of the Republic of Kosovo. Retrieved from

http://www.bqk-kos.org/.

"e role of remittances in the Albanian economy

Eduart LIKA1

Abstract. !e potential of remittances to contribute to the economic development of a country depends on a number of factors, such as demographic characteristics of households, transfer methods and the use of "nancial institutions. Remittances could contribute, besides the consumption growth, also directly into productive investment, increasing the liquidity of banks, making it possible to grant loans to entrepreneurs with competing interests, creating an enabling environment for starting and expanding SMEs, facilitating attraction of emigrants to return to their countries. Economic and political systems in Albania have gone through rapid development since the collapse of the communist regime. However, the geographical coverage of the "nancial institutions is still weak in some parts of the country, especially in the rural areas. !e personal transport accounts about 60% of all remittances. !e proximity of the two host countries, Greece and Italy, allows the majority of legal emigrants to visit their country once or twice a year, which gives the opportunity to carry money in cash. !e World Bank characterizes the political and the "nancial environments in Albania as non–propulsive for entrepreneurs. Regardless of the size of remittances and their importance for the economy of Albania, there is a general lack of policies and strategies for management and use of remittances. Some of the factors that adversely a$ect the business environment can be addressed at national level, such as unstable supply of electricity and quality of infrastructure, or issues related to tax collection. For a better development of the Albanian emigration control, the National Strategy for Migration covers: protection of the rights of the emigrants abroad, building and joining the communities abroad, the orientation of remittances towards the investments, organizing an appropriate policy on migration for employment, the facilitating travel for the Albanian citizens and "nally, the development of an appropriate legal and institutional framework.

Keywords: Albanian emigration; remittances; the national strategy; economic development.

1. Ph.D. candidate, European University of Tirana, Tirana, Albania, [email protected].

Strategica 201432

IntroductionRemittances constitute a great potential for creating economic growth. Given the size of Diaspora and the fact that 55% of emigrants send money to their families in Albania, remittances are a major radix of the foreign currency and an important stimulus for the national economy. !e remittances constituted 13.5% of the GDP in 2004 (www.bankofalbania.org). !e largest value of the transfers from migrants to Albania belongs to 2007. It was about 952 million euro.

Table 1. "e value of the transfers from emigrants 2004 – 2013 (Albanian Bank 2014).

Years 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Rem

ittan

ces

774.

21

802.

11

937.

23

951.

71

833.

31

781.

32

689.

77

664.

53

675.

28

497.

21

Remittances have been destined mainly for the %nancial support of the family members. Most emigrants send money to parents, spouses and children. !ese two groups account for 90.5% of all recipients, while the relatives accounted for only 9.5%. !is evidence suggests that 90% of remittances are used for consumption and only 10% for investment (IOM and ILO, 2007, p. 9).

!e remittances which are a %nancial support for families tend to be small, which in most cases, are withdrawn immediately from bank accounts or other %nancial operators and money is kept at home. As a result, the capital representing money is not enough for productive investment purposes. It is estimated that 60% of remittances come from Greece and 30% from Italy (IOM and ILO, 2007 p. 10). 10% of them come from other countries like Germany, France, Great Britain, etc. Remittances go to rural areas in a proportion of 69%. (IOM and ILO, 2007 p. 10). Most remittances sent by the emigrants, are mostly irregular and seasonal #ows.

33

Financial service providers!e use of banks is relatively limited: only 26% of the households (ILO and IOM, 2007 p. 7) that receive remittances have bank accounts. Furthermore, the %nancial products always meet the needs and demands of households that receive remittances. !e low use of the banking services is partly in#uenced by a mistrust in the %nancial institutions for a part of the customers. !ere is a preference to hold cash rather than bank savings accounts (IOM and ILO, 2007 p. 11).

Money transfer methods are: the banking methods, the methods of the money transfer operators and the personal transfer method.

BanksBanks o&er a variety of standard %nancial products, including savings accounts and loans, and all provide transfer services. While banks provide transfers, there is still no coordinated e&ort to inform emigrants about these services. Some individual branches have begun in recent years to promote their services for emigrants at border crossings and ports.

While banks have developed a range of transfer products for expatriates and their families, some of them try to tie transfer services with other %nancial products they o&er. Currently the only product directly linked transfers is a mortgage that allows migrants and remittance recipients to buy real estate based on documented income of emigrants in host countries (IOM and ILO, 2007 p. 12).

Banks consider emigrants and their families that have a small potential as consumers, and banks are perceived by this group that have very little to o&er. Banks are seen as too complicated and bureaucratic and as o&ering slow transfer services. !ere is also a lack of knowledge of the products and services that banks propose. Given the fact that banks do not see this group as the main customer base, there is a limited selection of appropriate %nancial products. However, there are indications of an increase in transfers of remittances through formal %nancial channels. !ey are assessed on a scale from 39% in 2001 from 7% in 1994 (Uruçi and Gëdeshi, 2003).

Eduart LIKA

Strategica 201434

!is shows that emigrants’ con%dence in the %nancial system is rising gradually. !e con%dence in banks is also indicated by the deposit growth from 0.7 billion to 4 billion USD in 2004 (IOM and ILO, 2007, p. 13).

A particular issue for banks is the lending policies. !e policies vary from one city to another, but in general are restrictive. !ere is a great reluctance to provide credit to new SMEs. Some banks require 12 to 36 months being business to consider lending. !is is in addition to the collateral that must be 150% of the loan value. !is makes it impossible to access loans to start business and adoption of this policy is an obstacle for the economic development of Albania. While banks are limited in relation to urban SMEs, most of them do not provide loans to the agricultural sector. !is sector is considered high risk, given the problems that people face registering property and numerous legal disputes for the right of ownership of land, poor extension services available to the agricultural sector and the reports on the abuses of purchasers of the agricultural products from the monopoly and oligopoly positions. While there are a large number of recipients of remittances in rural areas, the population density is too low to be acceptable by the banks to expand their network in these areas. !ere is one exception, ProCredit Bank, which has previously been an MFI, and provides micro loans to farms except lending in urban areas.

Money transfers o"ers (MTOs)Western Union (WU) and Money Gram are two main MTOs in Albania and have a total of 300 o"ces together. WU has the advantage of a comprehensive network which means that it is better positioned to serve customers in the rural and marginalized areas where banks are not present due to non-pro%tability of the customer base, by including post o"ces. !e main reasons MTO’s success in capturing such large market are:

transferred money from abroad in Albania.

people with limited exposure to the formal %nancial system. Working with documents is limited and straightforward.

MTO does not require any document to small amounts. Banks often require documents to facilitate the transfer.

35

!e quick and easy service of MTO means that they, rather than banks, are used in emergencies and unforeseen expenses. However, the cost of using MTO is high, about 5 - 10% of the transferred amount. (IOM and ILO, 2007 p. 16). !is means that there are good opportunities to save by emigrants when they go to the traditional bank transfers. Although MTOs are part of the formal %nancial system, they have little potential to contribute directly to the economic development of the country.

Micro – !nance institutions (MFIs)Albania has a growing number of MFIs, with a market loans about 5% to the total loans (IOM and ILO, 2007 p. 16). !ey speci%cally target segments of society that are not served by commercial banks. MFIs provide loans to businesses (including start-ups) and also give credit for unregistered businesses. Although MFIs have enjoyed a huge increase, they are limited by law to savings. !is means that for example, NOA is bound to attract loans from commercial banks. !is is the reason that MFIs raise the cost of the %nancial products.

A separate provider of the %nancial services is !e Savings and Loan Association. It has the legal basis to accept savings and provide loans, but serves only to the association members and the local community. !ese associations are scattered across the country and have become the largest %nancial institutions in rural areas with 11,500 members, operating in 400 villages. (Uruçi and Gëdeshi, 2003). As MFIs they cover in rural areas.

Personal transportationPersonal transport is considered more reliable and cheaper than bank transfers. !e illegal emigrants, who cannot travel themselves, charge the others as couriers to bring their money home. However, personal transport is not safe and courier service is not free. A fee of 1% is the norm. Moreover, there is evidence that the money carried by couriers have not reached the destination (IOM and ILO, 2007 p. 18). But, nevertheless, the personal transport for illegal emigrants is the only solution. In both countries, Italy and Greece, banks require documentation to make the transfer, which means that illegal emigrants are e&ectively prevented from using banks for these services.

Eduart LIKA

Strategica 201436

Political environment!e link between remittances and the economic sustainable development should be done locally and the local government has a central role as coordinator and promoter. !ere are only limited e&orts to create proper infrastructure for emigrants, such as organizing information sessions prior to departure, or to support the launch of new businesses by emigrants. !e local government does not promote the use of formal %nancial channels for transferring remittances, or to provide training for %nancial aspects for emigrants and their families.

A separate issue is the large informal economy (IOM and ILO, 2007, p. 21). !e di"culties associated in starting a new legal business and the fact that SMEs can easily operate without permits and licenses, discourages entrepreneurs who have formalized their businesses. !is presents a number of concerns, but also presents a barrier to the economic development of the country in the long run.

Use of remittancesUse of remittances in Vlora (case study)!e district of Vlora is the part of the southern mountainous area of the country. It includes Vlora, Saranda and Delvina. !e region is very mountainous, but also has hilly meadows and valleys, enabling local people to earn a living through agriculture and livestock production (IOM and ILO, 2007 p. 31).

!is county has a population of 175,640 inhabitants (INSTAT, CENSUS 2011). A survey conducted by the ILO shows that the average household size is 3.8 persons and less than 13% of households can be characterized as large, with more than 5 people. 45% of families have children on the school age, although only half of them have more than one child in school. A relatively high number of household heads are retired (50 %)(IOM and ILO, 2007 p. 32).

As in all other parts of Albania, signi%cant changes occurred after 1990. Most of the population is now self-employed and working in small activities

37

in agriculture, services and tourism. Most enterprises in the region (95%) are small with 1 to 5 employees and the rest (5%) employ more than 6 persons. !ere are only a few large companies with over 80 employees, occupying 26.5% of the total number of employees in the region. Tourism is an important sector, which generates 23% of the revenue of the region. It is also considered the sector with high potential to promote economic development in the region (IOM and ILO, 2007, p. 31).

Figure 1. "e use of remittances (Vlora)Source: Albanian Government, IOM (2005).

Given the low level of income, 16% of respondents have savings as the main use of remittances and savings account for 22% of the total use of remittances (Figure 1). For a large majority of households spending pattern has not changed in the last %ve years. For those few that have changed the direction of spending, it seems that they have spent on education and savings.

According to a study made in Albania by AGENTA Institute in 2011, about 53.8% of families have received less money from emigrants in the last 5 years and approximately 57.6% of families at home have taken the money less than a year ago. !e 73.8% of remittances are mainly used for food. !eir use for consumption has fallen to 60.8%, for savings at 32% and 72% for investments. A portion of shipments, 11.1% spent on health expenses especially for more specialized health services.

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Eduart LIKA

Strategica 201438

"e national strategy for emigration!e Albanian Government, with the support of IOM has provided approval of the National Strategy for Migration. Emigration is a major concern for Albania because about 20% of the population has #ed the country for more than a decade, making Albania one of the countries with the highest level of migration #ows in the world. Migration is also an important aspect of Albania’s relations with the European Union member states as countries of destination for the majority of emigrants. Albania is in many cases considered by the EU as a third country where priority should be given to the %ght against irregular migration. Management of migration #ows is thus made an integral part of Stabilization – Association process.

!e aim of this strategy is to provide a more comprehensive policy on migration, a policy that mainly reacted on %ghting illegal #ows, in a more comprehensive policy on the management of migration, and in particular of the migration #ows. Below some of the points of the National Strategy for Emigration are selected brie#y for this presentation.

#e !ght against the illegal emigration. #e root causes of migrationIt is known that people migrate from their country when resources and opportunities to meet their needs and aspirations are lacking. !is is the situation of Albanian emigrants that left their home for a better life for themselves and their family. !e main factors are:- Economic factor. Albanians left their country mainly for economic reasons, such as the lack of employment opportunities, poor living conditions, especially in some areas that are short of the basic conditions as electricity, water and housing. !e high levels of unemployment have been the main factor for the massive emigration #ows in the 90s.- Public Safety. Albania is facing massive migration #ows as a result of the low level of public safety or riots in the country. A large number of quali%ed persons with good economic conditions have left the country for a more secure future for themselves and their families. !is has been particularly the case after the 1997 riots that was followed by another frenzy of the mass exodus (National Strategy on Migration and National Action Plan on Migration, 2005, p. 22).

39

Presentation of the current policy!e National Strategy for Socio-Economic Development approved in 2001 is the %rst step for the development of Albania through sustainable and comprehensive economic growth. Some of the goals of the strategy are: to reduce the number of citizens living in poverty, improvement of the infrastructure and related services, improvement of health and education etc. (National Strategy on Migration and National Action Plan on Migration, 2005, p. 23).

In March 2002 was approved the Rural Development Strategy which presents an approach focused on promoting economic growth and poverty reduction in rural areas. !is paper highlights the role that emigration plays in the loss of the active labor force in Albania, especially in rural areas, and emphasizes the need to combat the root causes of migration and not just limiting migration #ows.

!e Strategy for Employment and Vocational Training, adopted in January 2003, aims the creation of jobs by improving the labor market, by training sta& through continuous education and by supporting the development of small and medium size enterprises.

In order to improve the functioning of the state structures, Albania is engaged in many cases to take e&ective measures to combat corruption and strengthen the rule of law by the Anti-Corruption Strategy in 199,8 which is accompanied by an Action Plan 2002-2003 and 2003-2004 (National Strategy on Migration and National Action Plan on Migration, 2005, p. 23).

Assessment of the current and perspective policiesMigration in Albania is mainly treated in the framework of the measures against tra"cking and border management. Emigration cannot be fought only with repressive methods, but also requires preventive measures. !is concern is taken into account in the Rural Development Strategy and partly in the Strategy for Employment and Vocational Training, but not at the right level in the Strategy for Socio-Economic Development.

Eduart LIKA

Strategica 201440

!e rural Development Strategy takes into account the links between emigration and agriculture. !e high incomes obtained from emigration have reduced the agricultural activities of Albania. !is is one of the main reasons why Albania is obliged to import almost all agricultural products. If work will be evaluated properly, Albanian emigrants working in agriculture in neighboring countries such as Greece and Italy would prefer to do the same work in their country (National Strategy on Migration and National Action Plan on Migration, 2005, p. 24).

!e Strategy for Employment and Vocational Training touches issues of the vocational training for returning emigrants who are in di"cult economic conditions. !e focus of the strategy should be expanded in order to provide sustainable employment measures so that they do not leave the country again (National Strategy on Migration and National Action Plan on Migration, 2005, p. 24).!e Strategy for Socio-Economic Development does not address emigration in particular. Special attention should be paid to areas abandoned by emigrants due to lack of basic vital conditions such as water supply, electricity and infrastructure and to consider the ways to revive those areas (National Strategy on Migration and National Action Plan on Migration, 2005, p. 24).

#e return of migrants!e process of returning has been from voluntary to forced return and it is done through a series of ways (National Strategy on Migration and National Action Plan on Migration, 2005, p. 25). According to these return programs, the returnees are given %nancial and material assistance. A large number of them are expelled as a result of irregular entry or stay in European countries. Most of them are from Italy and Greece, where a large number of illegal emigrants stay, and the United Kingdom where emigrants have not been successful in their application for asylum.

!e return of the Albanian emigrants are often carried by air, however in the cases of Greece and Italy returns are made by land and from the ports of Durres and Vlora. After returning, the authorities select all individuals to ensure vulnerable groups, such as victims of tra"cking and children

41

(National Strategy on Migration and National Action Plan on Migration, 2005, p. 25).

!e way of return (voluntary or forced) has an impact on the sustainability of the return and the ability and desire of returning migrants for reintegration. Some sources suggest that returnees are especially young and unmarried.

Presentation of the current policyAll the readmission agreements are subject to third-country nationals and citizens of Albania. !ese agreements regulate matters concerning the administrative and procedural issues, which are the competence of the Ministry of Public Order.

!e National Strategy to Combat Tra"cking does not mention return as a phenomenon in itself, but uses it in the context of reintegration. !e national strategy to combat tra"cking of children is more comprehensive than the above presented strategy. It is focused on: the protection and reintegration of children victims of tra"cking, assisted voluntary return; the interaction of the participants engaged in the %ght against children tra"cking (National Strategy on Migration and National Action Plan on Migration, 2005, p. 25).

!e National Strategy for the Socio-Economic Development (2001) does not contain any reference to returnees and some law refers to consular functions, while in the framework of the national strategy on employment and vocational training (2003) it is necessary to enable the vocational training for the returning migrants to face the economic and social problems (National Strategy on Migration and National Action Plan on Migration, 2005, p. 26).

Assessment of the current and perspective policies !e current policy has demonstrated a clear commitment for the returnees as an element of the emigration policy, especially with the conclusions of the agreement between Albania and the EU. Its implementation has many

Eduart LIKA

Strategica 201442

advantages (National Strategy on Migration and National Action Plan on Migration, 2005, p. 26).

!e failure of the legal bases concerning emigration law for Albanian citizens for employment has determined that the proposed measures to provide assistance for migrants who have returned voluntarily are not completely e&ective. !e Council of Ministers must specify which categories of the voluntary returnees will receive reintegration assistance and what assistance will be o&ered. !is is because a number of people are not turning back willingly, therefore the strategy needs to adapt provisions which include other categories of returnees (National Strategy on Migration and National Action Plan on Migration, 2005, p. 26).

!e studies in the %eld of “return migration” suggest the need for the creation of small and medium enterprises as well as sustainable employment, instead of some vocational training provided by the strategy. All these measures can be considered as a key in the root causes of migration and in ensuring a sustainable return (National Strategy on Migration and National Action Plan on Migration, 2005, p. 26).

Migration and the development of Albania Improvement of the image of Albanian emigrants abroad!e image of Albania and the Albanian people abroad often carries negative e&ects that do not help in covering the major changes taking place into the country, which are positive in majority and improve the quality of life in a country that has emerged from 50 years of isolation. !e Albanian emigrants, especially those found in Greece and Italy, where is concentrated the bulk of them, have been at the center of a unfavorable climate, which in many cases it is displayed in the form of discrimination and xenophobia. Anti-Albanian propaganda has been undertaken by media in host countries (National Strategy on Migration and National Action Plan on Migration, 2005, p. 29).

One of the reasons that contributed to the creation of this image is the social composition of a category of emigrants, which is characterized by

43

persons with low educational and cultural levels (National Strategy on Migration and National Action Plan on Migration, 2005, p. 29).

Another factor is the expression of xenophobia in political and electoral debates about migration in the host countries, which has a major impact on the public opinion. According to the press, the Albanian emigration appears as a disturbing element in the host society. !is misconception states that the entire community of emigrants is involved in criminal activities, when in fact only a small part of this group is doing this (National Strategy on Migration and National Action Plan on Migration, 2005, p. 29).

Presentation of the current policyIn May 2003, the Albanian Cultural Institute was opened in Vienna, with the support of the President of the Republic of Albania and the Albanian Ambassador in Austria, with the %nancial contributions of the Albanian emigrants in Austria (National Strategy on Migration and National Action Plan on Migration, 2005, p. 29).

!e Program for the United Nations Development is implementing a project called “!e image of Albania” in close cooperation with the Ministry of Foreign A&airs and the European Integration Ministry. !e purpose of this project is to improve the quality and the quantity of the information that is available for Albania and the cooperation with the government partners, the media and the local governments to increase skills in creating a more positive image of Albania and its people (National Strategy on Migration and National Action Plan on Migration, 2005, p. 30).

Assessment of the current and perspective policiesCurrently there is no speci%c policy to improve the image of migrants in the host countries. As a result of the limited %nancial resources available for this purpose, this part of the strategy should focus on Greece and Italy, where most of the emigrants live. !ese communities may be urged to contribute %nancially or in other ways (National Strategy on Migration and National Action Plan on Migration, 2005, p. 30).

Eduart LIKA

Strategica 201444

Although the %rst institute of the Albanian culture opened in Vienna, where the number of emigrants is very small, the community showed the vitality and the willingness to cooperate in such projects. Bilateral cultural agreement must relate at least to Greece and Italy and provision should be taken for the implementation of the existing arrangements to increase cultural exchanges highlighting the common aspects of the heritage of the host countries and the countries of the emigrants (National Strategy on Migration and National Action Plan on Migration, 2005, p. 30).

Another way of improving the image of Albanians abroad is highlighting the successful cases of Albanian emigrants, as students who are achieving high results in schools, entrepreneurs who run companies, sportsmen, scienti%c researchers and artists. It ought to be launched an awareness campaign to award the title “Ambassador of Albania” and %nding the necessary %nancial resources for the media campaign to promote successful emigrants (National Strategy on Migration and National Action Plan on Migration, 2005, p. 30).

!e contribution of migrants in host countries and in particular in their economies is quite large. !e government should impose the duty to the Albanian Television to prepare a documentary on the Albanian migration with the positive and negative consequences for Albania and for host countries, in particular Greece and Italy. !e cooperation should be sought and the Greek and Italian televisions to facilitate the collection of the information in the host countries and to %nance the project (National Strategy on Migration and National Action Plan on Migration, 2005, p. 30).

E&orts have been made so far to address the migration and in particular to combat the organized crime related to it through the tra"cking and the smuggling with concrete and understandable data (National Strategy on Migration and National Action Plan on Migration, 2005, p. 31).

45

#e orientation of Remittances toward business investmentsAnalysis of the current situationRemittances are the main mechanism of the poverty reduction in Albania and increase of the income of families. !ey provide not only an important economic support for the families of emigrants, but also for the social and economic stability of the country. !ey are used mainly to meet the daily needs (food, clothing, etc.). Secondly, they are used to improve the quality of life (the electronic equipment, furnishing houses, etc.) !ird, they are used to expand and build new homes. A small portion of remittances are used to maintain traditions (marriage), etc., and kept in the bank or at home. Only in some cases remittances are used to purchase real estate in the services sector, agriculture, etc. (National Strategy on Migration and National Action Plan on Migration, 2005, p. 40).

!e importance of remittances for the Albanian economy can be understood by their contribution to the country’s GDP. !eir importance can be measured when compared remittances with the Foreign Direct Investment or the Foreign Aid for Development. Remittances play a major role in the partial %nancing of the large trade de%cit, but they cannot be considered as a permanent factor, as it is di"cult to predict the remittance #ows in the medium-term (National Strategy on Migration and National Action Plan on Migration, 2005, p. 41). Remittances play an important role in the country’s macroeconomic stability by %nancing imports, a&ect the value of the local currency and the rapid development of the construction and service sectors. As a result, remittances have been a major factor in determining a characteristic of the Albanian transition: the domestic consumption is higher than the national production.

!e transfer of remittances in Albania becomes possible through two channels, formal and informal ways. !e informal channels are the main ways of transferring remittances in Albania. !is is done mainly by emigrants themselves or from the wide circle of relatives and friends (National Strategy on Migration and National Action Plan on Migration, 2005, p. 41).

!e ways of transferring remittances in Albania depend on a number of factors, such as the status of Albanian workers in the host country, short-

Eduart LIKA

Strategica 201446

run or long-run migration, the development and the e&ectiveness of the banking system in Albania, the con%dence of the migrants in the banking system who broke sharply from the collapse of the pyramid schemes in 1997, the level of information of migrants or their relatives about the banking system, the high cost of transfers for a small amount of money, the existence and the e&ectiveness of the informal channels, the unwillingness of emigrants to show the quantities of the money they transferr to Albania (National Strategy on Migration and National Action Plan on Migration, 2005, p. 42).

!e remittances transferred in the informal way bear risks. A part of expatriates use couriers or other services to transfer money by paying a commission. !is element continues to be important, but virtually its accurately is impossible to study.

!e current policy!e Article 14 of Law no. 9034, dated 20/03/2003, for “!e Emigration of Albanian citizens for employment purposes” is the legal basis for the remittance policy, according to which “the Government of Albania creates favorable conditions for facilities and the distribution in banks of cash of the Albanian emigrants “ (National Strategy on Migration and National Action Plan on Migration, 2005, p. 42). Government through its 2002-2005 strategy aimed “to encourage absorption of formal remittances by providing a favorable environment for improving the relationship between consumption and long-run investments”. Measures to encourage the emigrants to invest their remittances in business activities are continuously undertaken in comprehensive reforms (National Strategy on Migration and National Action Plan on Migration, 2005, p. 42).

Progress has been made in promoting domestic and foreign investments. !e government has approved a medium-term strategy “for the development of small and medium-size enterprises”. !is strategic document aims to create a favorable climate for the establishment of SMEs (National Strategy on Migration and National Action Plan on Migration, 2005, p. 42).

Institutes of microcredit and micro%nance have been e&ective by serving those who do not meet the criteria for being clients of commercial banks.

47

!e importance of the Albanian microcredit institutes is a"rmed in the “Medium-Term Expenditure Framework for 2004 - 2006”, which is a budget program prepared by the Ministry of Finance in accordance with the National Strategy for the Social and Economic Development (National Strategy on Migration and National Action Plan on Migration, 2005, p. 42).

!e estimates of current and prospect policiesDespite the importance of the present policies to attract remittances, there is still no developed and re%ned policy about the management and the use of remittances in favor of social development. !e weakness of the %nancial system allows the exclusive use of remittances for the purchase of imported goods, and limits signi%cantly the positive e&ect that could have their use in the development of the national economic system (National Strategy on Migration and National Action Plan on Migration, 2005, p. 43).

For the management of migrant workers a coherent policy should be developed and further more should be implemented, for two reasons: %rst, considering the extent and the impact on the economy, and second, the #ow of remittances will probably decrease in long-run term due to continues integration of migrants in host countries (National Strategy on Migration and National Action Plan on Migration, 2005, p. 43).

Economic stability and favorable investment climate are the necessary conditions to implement any policy on migrant remittances. !e main aim is not only to increase remittance #ows, but to turn them into productive investment in Albania. Consequently, such a policy should identify measures to increase transfer of remittances through formal structures. High #ows of remittances of migrant workers who cross through uno"cial channels increase the demand for the improvement of o"cial channels in terms of e"ciency, safety, cost and anonymity. !e expansion of the banking system in the country and the creation of new opportunities for transfers of money are important elements of such a policy. In particular, the Albanian banks can receive remittances of Albanians working abroad through the mediation of the “correspondent banking institutes” in host countries and the Albanian organizations of micro-credit and micro-

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%nancing that can serve as local agencies that can channel this process (National Strategy on Migration and National Action Plan on Migration, 2005, p. 43).

!e impact of remittances in the development of AlbaniaUsually, emigrants are not the focus of banking services, because this client group is considered of unstable workers and their transactions have relatively low returns, while the cost of managing this service is high. For emigrants banks could provide various %nancial products. !is includes the relationship between remittances and investments (for example, the link of remittances #ows with the loans or the micro-credit products) and the support of the contribution of migrants and migrant associations to the development of Albania (National Strategy on Migration and National Action Plan on Migration, 2005, p. 43). Finally, the increase of the impact of remittances can be encouraged by strengthening the %nancial networks and the distribution network in the receiving cities of remittances in Albania, including the rural areas. !e e"cient distribution of remittances could be improved if would be authorized the micro - %nance institutions and / or the credit unions that have an extended %nancial network in the country, that dealing with the underlying population with low income, who participate in the remittances market, or as an external actor or as a distribution partner of the existing institutions (National Strategy on Migration and National Action Plan on Migration, 2005, p. 43).

Conclusion and discussions!e lack of the appropriate jobs for educated people in the service sector and the lack of the modern industrial production capacities remain the major problems in the labor market. Poverty is the main cause of migration. Many rural areas have become depopulated areas.

!ere are weak links between remittances, the formal %nancial sector and the contributing factors. Remittances represent a great potential for increased transfers and savings in the banking system, making funds

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available for the productive investment. !e new social, economic and political condition of Albania con%rms the need of a new Nation Strategy on Migration. !e European Union and the Government of Albania should consult with migrant workers and the organizations that represent them; so their voices and their families could be heard in debates about the development of migration policies. !e European Union should support the Albanian Government in the development and implementation of legislation and programs that will help vulnerable communities to obtain loans for the development of new businesses.

!e remittances should be channeled from consumption to investment and production activities taking multilateral policies that encourage the returned emigrants to invest their earnings back home. In this context, the government should consider the possibility of introducing %scal incentives to attract emigrants back home, such as: property tax exemption for returning emigrants to invest at home; the return of some taxes for the purchase of new equipment; and the return of new taxes or fees in the event that the activity launched by returning emigrant creates new jobs.

New policies should aim to increase the use of formal transfer channels (especially through banks) and to promote the use of savings accounts through %nancial awareness campaigns (for immigrants and their families), including information on the advantages and facilities of bank transfers, friendly treatment from banks, development of appropriate %nancial products for emigrants and supports for the emergence of SMEs.

An increased attention should be paid to the preservation and development of Albanian human capital, including preservation of cultural heritage and traditions in the country of emigration. !e Albanian language instruction for emigrants’ children abroad should be seen as a priority, while the Albanian government should support and encourage the creation of Albanian language courses through Albanian cultural centers abroad.

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ReferencesIOM, Albanian Government (2005). Nation Strategy on Migration and National

Action Plan on Migration, the road towards migration management. Tirana: Albanian Government.

IOM, ILO (2007). Remittances and "nancial products in Albania. Tirana: Albanian Government.

IOM, ILO (2007). !e growth of the remittances impact in Albania. A study of IOM and ILO. Tirana: International Organization for Migration (IOM).

Lika, E. (2008). !e dissection of the Phenomenon of Emigration and the Role of Remittances in Albania (1991 - 2006). MSc thesis. Tirana: Agricultural University of Tirana,.

Lika, E. (2013). !e Albanian population and migration in historic perspective. Journal for labour and social a$airs in Eastern Europe. Economic and social developments in south-east Europe (287-297). Baden-Baden: Nomos Verlagsgesellschaft.

Misia, V. (1998). International Migration in Albania during the transition period. Tirana: Marin Barleti.

Uruçi, E., and Gëdeshi, I. (2003). Working paper: Remittances management in Albania. Tirana: Centro Studi di Politica Internationale.

Online resources http://www.bankofalbania.org/web/Statistika_230_1.php?evn=agregate_

detajeandevb=agregateandcregtab_id=536andperiudha_id=5.

Emerging trend: the use of mobile technologies in Romanian nonpro$ts

Steliana MORARU1

Abstract. !is paper is an exploratory intercession in the way mobile technology is used by the Romanian nonpro"ts, including work activities, stakeholder engagement, and the perceived impact upon their mission ful"llment. !e purpose is to map the current state of use in order to identify the local trends and to shed light on how Romanian nonpro"ts can harness the entire potential of mobile devices. !e research is based on a self-administered questionnaire developed by the author, addressing issues related with daily work %ow, mobile applications, SMS campaigns and bene"ts of the mobile technologies for the organization. !e global tendency in what concerns mobile technology for nonpro"ts has shifted from administrative e#ciency towards delivering a mobile experience for the nonpro"t stakeholders, innovation in fundraising strategy, data analysis, integration of their activities with their own mobile application and changes in the way nonpro"ts drive their mission online and o&ine. !e "ndings reveal an increasing interest in the mobile technologies in the Romanian nonpro"t sector, including building their own mobile app or using SMS campaign for di$erent purposes, but the main activities are targeting the daily work routine and organizational administration.

Keywords: nonpro"t/NGO; mobile technology; nonpro"t development; digital technologies; information and communication technology (ICTs).

IntroductionMobile phones, smartphones, tablets, SMSs, applications, pictures, videos, and the near instantaneous ability to upload and share information on the Internet or within the personal online network are being integrated in the daily work #ow of present-day nonpro%ts2. !ese powerful tools allow direct communication with the entire world, and the advantages of

1. Ph.D. candidate in Communication Sciences, National University of Political Studies and Public Administration, Bucharest, Romania, [email protected]. 2. Various terms are used to refer to the target audience, from NGO, community bene%t organization (CBO), civil society organization (CSO), charity, nonpro%t and social

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these devices have only started to be discovered by the nongovernmental organizations (NGOs) as innovative fundraising campaigns, support for the e&orts to amplify and generate social change, in addition to increased ability to communicate directly with the stakeholders, donors, partners, and volunteers.

Research in the domain of the use of information and communication technology (ICTs), as well as mobile technology3 within NGOs has typically focused upon the impact associated with major events and activities, for example the use of smartphones for natural disaster relief in the aftermath of the Haitian earthquake (Reiersgord, 2011; Yates and Paquette, 2011). !ere is, however, little research underscoring how the nonpro%t sector integrates mobile technologies in their strategies, and which is the ultimate economic impact this has upon budgets and funding. !is article will focus on the way Romanian nonpro%ts make a strategic use of smartphones and tablets, in addition to how mobile applications (apps) allow NGOs to directly engage stakeholders and in#uence the donation process, being the %rst research in the country to address these issues.

Today, many nonpro%t organizations are seeking to go beyond simply using technology to strengthen operations; they are working toward transformational uses of these new tools and strategies to enhance their programmatic e&orts and to achieve social outcomes (Pelstein, 2011, p. 45). In this sector, technology has enabled organizations to change and to go beyond administrative e"ciency (Hacklet and Saxton, 2007, p. 474). As McNutt and Boland (1999) pointed, technology has the ability to enhance the playing %eld for organization of varying resource. Scheinder (2003) states that the nonpro%ts which lack the means to invest in technology (including %nancial and human resources) will fall even further behind in their quest to support and improve their programs. In what concerns the purpose of using technology, most of the nonpro%ts use ICTs to provide

bene%t organization (SBO). In this research, nonpro%ts and NGO are used as umbrella terms for the sector.3. !e mobile technology de%nition used for the purpose of this research is: all the means with cellular communication technology, including smartphones, mobile applications or apps (de%ned as software units available for download on smart phones with speci%c functions), and tablets (mobile computers that are typically operated by touch screen) (Boles, 2013).

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services to stakeholders (Hopkins, 2010). In addition, the successful usage of ICTs in the nonpro%ts enables the recon%guration of their internal structure, as well as their relationships, both within organization and outside the organization, helping them to improve their learning and knowledge management systems (Burt and Taylor, 2000).

Towards a mobile world, including nonpro$tsPortio Research (2013) shows that 1.2 billion people worldwide were using mobile apps at the end of 2012, and the market is projected to reach 4.4 billion users by the end of 2017. On the same subject, a report from Cisco Systems, Inc. (2014) a"rms that by 2018 there will be 4.8 billion unique mobile users, up from 4.1 billion in 2013. According to the same document, by 2018, there are projected to be over 10 billion connected devices, 8 billion of which will be personal mobile devices, and smartphones, laptops and tablets will generate 94% of all mobile data by 2018.

!ese numbers have the potential to dramatically impact the nonpro%t sector. Like their business counterparts, these technological transformations can readily be translated into increased e"ciency, greater impact upon the community, fundraising prowess, e&ective budget management, and eliminating or at least mitigating development barriers. In the report Technology for Good: Innovative Use of Technology by Charities, authored by TechSoup Global and !e Guardian, 10 primary domains have been identi%ed in which technology can have a major impact in this sector. Many of them are related with the mobile technology and derivate tools, such as mapping technology, social media and crowdsourcing, data management technologies, cloud technology, or portable networks. Other studies made across the United States show that the most frequent used technologies among nonpro%ts are websites, e-mail systems and databases, and only 35 % of the nonpro%ts use mobile technologies (Boles, 2013, p. 71).

Using mobile technologies, NGOs are a&orded the possibility of maintaining close relationships with individuals who support their cause, and %nd innovative solutions to deliver their mission. In the State of the Nonpro"t Industry (2012; 1500 respondents from nine countries:

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Australia, Canada, France, Germany, Italy, Netherlands, New Zeeland, Great Britain and the United States), two thirds of French nonpro%ts planned to implement at least one mobile strategy in their fundraising e&orts in 2013, and the majority of the UK organizations planned to use SMS/text giving as part of their fundraising strategies. !e same study indicates that by the end of 2013, two thirds of organizations will have mobile-optimized websites, and over one third of organizations plan to use at least one mobile application in their fundraising strategies.

Hacklet and Saxton (2007) have identi%ed six key strategic organizational competencies related with the ITC %eld for the nonpro%ts: IT planning; IT budgeting, sta"ng, and training; Internet and website capabilities and use; the measurement of IT e&ectiveness; board support and involvement in IT decision-making; and leaders’ understanding of the strategic potential of information technology.

Not only how technology is used within nonpro%ts is important for our study, but also it is relevant to have a look at the stakeholders’ behavior, especially the donors, in what concerns the use of technology. As mentioned earlier, important events a&ecting large communities, such as hurricanes, con#icts etc. have been triggers for a change in the donor behavior. Researchers state that, starting from 1999, the Internet fundraising has a major milestone. At that moment, Kosovo crisis and Hurricane Mitch spurred a massive increase in online giving, followed by 9/11 events, when online giving reached the hundreds of millions (Bhagat, Loeb and Rovner, 2010).

In the light of the mobile devices rise, it can be observed a change in the way donors interact with nonpro%ts. For example, the study conducted by Bhagat, Loeb and Rovner (2010), shows that 77% of the respondents heard something about mobile giving options for Haiti relief, 9% actually donated and another 22% say they considered it. !e results showed that 41 mil. USD have been raised through the SMS campaign. Other situation refers to the fact that individuals can donate money to UNICEF by texting FOOD, or give money to the International Rescue Committee by texting AFRICA (Linskey, 2011). In the survey conducted by Coda Research Consultancy, 40% of the respondents mentioned they had texted

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a gift after the 2011 Japanese tsunami and earthquake, 27% did so after the 2010 British Petroleum oil leak in the Gulf, and 18% gave a mobile gift to help those harmed by U.S. tornadoes in 2011 (Smith, 2012). A 2012 Pewinternet research asserts that over 50% of all donors already use mobile devices to access NGOs websites and to check their emails, while nearly 40% use a mobile device to make donations. !e facts above allow us to take into consideration the means technology brings both the NGO and the donor closer: donating via SMS, via an app, through special mobile devices etc. are all instruments a nonpro%t can use in its fundraising strategy. From this point of view, special attention should also be given to the mobile applications. Portio Research (March 2013) forecasted that 82 billion apps will be downloaded worldwide in 2013, and by 2017 there will be more than 200 billion downloads per year. Mobile apps can be used as both endorsement mechanisms for NGOs’ causes, and as a tool for fundraising.

An example of good practice in what concerns the mobile apps are the mobile applications that allow NGOs to enhance fundraising indirectly. Apps developed in order to manage donor databases, such as Blackbaud’s !e Raiser’s Edge and SofterWare’s Donor Perfect help fundraisers make updates regarding former pledges, to update contact information, and to siphon and sort demographic data. Other tools, such as FrontLine, a free, open source system4, and one of the %rst platforms to help harness the power of mobile technology for social change, allows NGOs and not only to distribute and collect information via$text messages, opening the door for increasing their capacity in what concerns the professional use of SMS to engage stakeholders.

Furthermore, there are numerous applications allowing for direct payments to NGOs for live events and donations. !ese applications have payment technologies available, such as point of sale (POS) that can be installed on mobile devices and work as a scanner for credit cards. Also,

4!"#$%&'()*+,%"()-./0+%!1#223"4(!,)5$*.%+"()-./0+%!/4.6"4.(!()*+,%",)7%!507%"080490:9%"0&7"94,%&(%7"/4.6"0!94,%&(%"4&"/64,6".6%!,)$;+4<6.!6)97%+"$+)847%(".6%"+4<6.(".)"(.*7;=",60&<%"0&7"74(.+4:*.%".6%"()-./0+%".)"0&;)&%"0&7"-)+"0&;"$*+$)(%!

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money transfers through SMS have gained success and developed in new directions of raising money. Vodafone launched in 2007 for Safaricom, Kenya’s leading mobile phone operator, M-Pesa (m$for “mobile” and$pesa, the Swahili word for “money”), a program regarding banking services through mobile technology and micro-%nancing service, without needing a banking infrastructure. Starting from Kenya, the services expanded to Afghanistan, South Africa, India and Eastern Europe, Romania included.

In what concerns the impact of mobile technology for the NGO employees, a research conducted by the United Nations and the Vodafone Foundation, reveals that 86% of NGO employees use mobile technology in their work. NGO representatives working on projects in Africa or Asia are more likely to be mobile technology users than their colleagues in areas with more wired infrastructures. Moreover, nearly a quarter describes this technology as revolutionary, while another 31% say it would be di"cult to do their jobs without it. !is %nding is supported by Hopkins (2012), who identi%ed the perceived value of smartphones in the workplace after adoption takes place. He found that 87% of respondents identi%ed with being able to send and receive emails at any time and place as the most valuable smartphone service. At a much smaller but still signi%cant rate, 30% of respondents found mobile Internet access valuable for business related purposes (Hopkins, 2012, p. 71).

Romanian nonpro$ts mobile landscapeIn what concerns the mobile technologies usage in Romania, a study conducted by Ipsos Group and Google (2013) in 84 countries across the world, revealed Romanians behavior when it comes to these types of devices. !e study shows that 28% of the respondents own a smartphone, and 90% of the ones with Internet access use this option daily. 71% of them access their mobile apps daily, and, on average, the Romanian user has 17 apps installed, 2 being paid apps. !e study also points out that 95% see advertisements on their mobile devices, o&ering this type of equipment a greater e"ciency (opportunity to see) than in other environments. Additionally, a research conducted by EuroGSM group, asserts that 80% of Romanian mobile users are Android based devices.

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Looking at the mobile for social good, in the last two years, have been several initiatives encouraging the use of apps to support Romanian nonpro%ts. Local and international companies, especially from the ITandC and telecommunication %elds, had calls for apps ideas or developed in house such tools. For example, the Romanian IT company ITNT5, launched in 2013 two social IT applications, an email application for vision de%ciency persons, and an audio guide for museums. 12 students under the supervision of the companies’ specialists built the apps during program training, ITNT Bootcamp. !e email application, called Echoes, allows the users to receive and to send emails from/to their mobile phone, using only gestures. !e audio guide, called Mooseum, available in several languages, allows visitors to use it directly from their mobile phones.

Mobile for Good, an international initiative of Vodafone Foundation had an echo in the Romanian landscape as well. Launched in 2012, this is one of the most important programs in Romanian tackling the way mobile technology can enhance the disadvantaged persons to have a better life. !e initial investment for this program was 500,000 euro from Vodafone Foundation, bene%ting in the same time from the Vodafone network and the associated services. !e %rst projects were developed for persons with diabetes, elderly who needed home care services and sportsmen with intellectual disabilities. For example, elderly persons have the possibility to bene%t from home tele-assistance. A project developed by Caritas Alba Iulia Association together with Vodafone Foundation o&ers special mobile phones, with panic buttons and bigger keys. When the button is pushed, a call goes to a server, allowing the nurses to get alerted. !e information provided to the hospital personnel helps them to know where to go and what they need to do for those persons. In 2013, 600,000 euro more were invested, growing in this way the number of bene%ciaries. Moreover, three new projects have been released: a 4G telemedicine solution for the new intensive therapy section for newborn from Marie Curie hospital in

5. ITNT is one the most successful IT entrepreneurial initiatives in Romania, being specialized in web, mobile, server side, desktop, marketing, sales, support, editorials development and having an international impact. One of their most successful project, Soft32, is one of the most renowned software platform in the world, hosting over 100 000 Windows, Mac and Mobile applications.

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Bucharest, a pediatric call-center in Cluj county and video telemedicine equipment for the SMURD6 ambulances in all over Romania.

Orange Foundation has a grant program, called the World through sound and color, which aims to %nd innovative solutions for vision and hearing de%ciency persons. In 2014 took place the second edition, and 9 projects were elected to bene%t from the grant, having and the total value of 357,724 euro. Among the proposals, there were ideas involving mobile technology. Elephant step is a project proposed by Urban Development Association. It aims to equip a special school for vision de%ciency persons with 10 tablets and software that can transform schemes, graphics and formulas in audio documents. MediaPro Foundation for Education and Development aims to develop with the help of the grant an application that can audio convert a series of news from several websites from their company’s portfolio, allowing the vision de%ciency persons to gain more independence in their access to information.

Related with using the mobile technology in order to fundraise, the Romanian nonpro%ts can bene%t from an American initiative. Vouchery, an American based company, with over 20 years experience in cause marketing, has launched Vouch!. !is mobile app allows the user to choose a local charity (in this case, a Romanian nonpro%t already listed in app), or an international one (there are over 900,000 causes displayed). After the app has been installed, all that the user has to do is to click the option Vouch, which is an action similar with the Check-in one. For every Vouch, the user receives a certain number of virtual cherries. When the user collects 10,000 cherries, he can monetize them into a donation for their cause.

In what concerns the SMS campaigns, according to ww.donatie.ro7, Romanians send annually 280,000 SMS to support humanitarian causes,

6. SMURD is an emergency rescue service based in Romania. !e name is the Romanian acronym for “Serviciul Mobil de Urgen'(, Reanimare )i Descarcerare”, which means Mobile Emergency Service for Resuscitation and Extrication. 7. Donatie.ro is a web-based platform developed by Community Relation Association during the program Easy Giving Mechanism. !is o&ers customized Client Relationship Management software that allows the use of two types of fundraising tools for the NGOs: donations through mobile phones – one-time donation of small amounts in response to a fundraising event or emergency; and Direct Debit donations – for recurring donations, based on a long term contractual commitment to a cause.$

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meaning more than 550,000 euro for projects lead by the local nonpro%ts. Between June 2012 and July 2013, 23 nonpro%ts developed 25 campaigns using the platform. Local telecommunication players, such as Vodafone, Cosmote, and Orange joined the program, allowing NGOs to raise more money for their projects. !e value of an SMS is 2 euro, and the donations went mostly to rehabilitation and equipment for hospitals (216,712 euro), human rights and children education (193,590 euro), hospice and health services (185,308 euro), as well as individual causes (18,962 euro). Additionally, the platform o&ers the direct debit option for fundraising.

In 2012, TechSoup Romania, together with TechSoup Global, conducted a survey regarding the use of cloud computing8 in the nongovernmental organization in Romania (250 local respondents, the results were integrated with an international survey9 on the same topic). Asked about what cloud based services they use in their daily activity, the respondents mentioned as primary tools email (83%), social media (69%), and web conferencing (45%). In what concerns the mobile, SMS (cloud based) is used by 12% and phone services by 10% (Figure 1).

Figure 1. Cloud based services used by Romanian nonpro$ts

8.!e de%nition of cloud computing used in this research is that cloud computing allows persons to access software via the Internet instead of from your hard drive or your local computer network. Cloud-based software is available anywhere through the Internet, not being limited to a certain space or place (e.g. the o"ce). 9. Over 10,500 respondents from 88 countries from Africa, the Americas, Asia Paci%c, Europe, and the Middle East took the international survey regarding the use of cloud computing in the nonpro%t sector.

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!e main challenges faced in terms of ICT were inadequate IT system (41%), insu"cient training for IT sta& (26%), and integrating data from di&erent systems (25%). Romanian respondents cited email (37%), client/CRM database (23%) and volunteer management (18%) among the cloud-based services they plan to start using in their daily activity.

Having these facts in mind, it can be observed that mobile technology is a key factor in what concerns the organizational development of the NGOs, their fundraising strategy and their relationship with the donor. Moreover, nonpro%ts are confronted now with the possibility to unlock the real potential of mobile technologies. Integration of their work together with the use of mobile o&ers them a new path for growth, innovation and joining the technological changes their stakeholders have embraced. Confronted with these tools, organizations can build towards smarter working space, increased e"ciency, new types of collaboration, stakeholder engagement, receive and give more information about their activities, measure their impact and their performances, as well as tackling new opportunities for fundraising. As seen above, there has been a continuous interest in the topic across di&erent countries, especially in Africa, the United States of America and Western Europe. Incorporating the mobile technology in their daily activities and delivering mobile experience, %nding supporters across the country and even from abroad, building their own applications, and including mobile technology in their fundraising strategies are emerging trends in these regions. !e global trend is going mobile when it comes to nonpro%ts, and it’s not limited only to the organization. !e current research was conducted having these trends in mind and the purpose was to map a picture about these shifts towards tech for social change in the country, as per date there were few studies regarding the Romanian landscape.

Research methodology !e current research, conducted in June-July 2014, aims to give a better understating of the mobile technology use in Romanian nonpro%ts, and future plans regarding the integration of technology in their activities. By looking at the current situation, as well as identifying trends and concrete examples of technology use in nonpro%ts, the %rst intention of

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the author is to shed light on how the Romanian nonpro%ts can harness the potential of mobile technologies. !e value of this research will be bene%cial both for the nonpro%t sector, as well for the ICTs companies which aim to develop new programs for the sector, showcasing di&erent trend and patterns in the local nonpro%ts.

!e research questions are: Q1. What are the main activities in which Romanian nonpro"ts use mobile technology? Q2. How do Romanian nonpro"ts use mobile technology to engage with their stakeholders, including fundraising? Q3. How do Romanian nonpro"ts perceive the impact of using mobile technologies in their activities?

!e research was conducted online, through a self-administered questionnaire made available using Google forms, during 15th of June and 10th of July 2014. !e questionnaire included 36 items, identi%cation questions, closed questions, multiple answer items, items with one answer and Likert scale items. !e author, for the purpose of this research, developed the questionnaire. !e questionnaire was sent to over 250 persons, nonpro%ts representatives. !e results of the research are based on 106 responses gathered in the period mentioned, from the representatives who answered the online form.

Questions 1-10 target general information about the organization: activity, localization, team members, budget, general view about technology and local ICT infrastructure (devices and Internet access). !e next questions focus on the current research topics. Questions 19-23 tackle the subject regarding how nonpro%ts use mobile technologies inside their organizations (correlated with research question 1). !ese items refer to the use of mobile technologies in general in the nonpro%t, the trend of Bring your own device, applications used by the respondents in his work activities, applications used in general in the organization. !e next couple of questions (24-27) are correlated with research question number 2. !e respondents had to answer if their nonpro%t has built its own application, what’s the purpose of it, if they ran SMS campaigns and what was their purpose. Questions 28 to 36 tackle the way respondents perceive the

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value and impact of mobile technology for their organizations, being correlated with research questions number 3. !is last set of items include the evaluation of the return on investment regarding mobile technologies, di"culties in accessing and implementing mobile technologies, and the impact correlated with speci%c activities (time management, budget economies, e"ciency, communication and interaction with their stakeholders).

Results Regarding the main activity of the organization, the focus is on education and activities related with it (Figure 1). !e majority of the respondents are from Bucharest (59%), followed by Cluj (3%) and Bacau (3%), other answers referring to various cities across the country. Most of the respondents have only one branch (83%), followed by 13% which have 1 to 5 branches, 3% between 6-10 and 2% more than 15 branches. In what concerns the employment, 36% have 1 to 5 employees, followed by 34% who do not have any employee. 13% of the respondents have more than 20 employees. In addition, 29% of the organizations have more than 20 volunteers, followed by 26% that have 1 to 5 volunteers and 24 % who have 6 to 10 volunteers.

Figure 2. "e main nonpro$t activities mentioned in the survey

!e top three biggest sums mentioned as annual budget are 5,000,000 euro, followed by a budget of 3,000,000 euro and 2,000,000 euro. !ere was one NGO that mentioned 0 euro, and the medium budget mentioned

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was more than 160,000 euro. In what concerns the o"cial position in the organization, 24% of the respondents were Executive Directors, followed by 12% project managers (Figure 3).

Figure 3. "e position of the respondents in their organizations

92% of the respondents use ICTs in their work, seen as the use of hardware devices and software, smartphone use and/or other portable devices (including the intention of buying this kind of devices), plans to employ quali%ed personnel and to train the current employees.

Figure 4. "e percentage of respondents who own 1-5 devices from each category mentioned in the survey (desktop PC, laptop/net book, tablets,

and smartphone)

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As we observe from Figure 4, there is a shift towards the use of mobile devices, the focus still being on laptops, followed by smartphones. Looking at the ownership of these types of devices from big size NGOs10 (12%), there are more desktops, laptops and smartphones within the organization and in small size NGOs11 (70%), there are more laptops, smartphones and tablets. Besides that, the trend Bring your own device has emerged among Romanian nonpro%ts as well, 42% of the respondents encouraging their team to use their own equipment, many of them being from small organizations. Reasons for the spike of this trend are numerous, including savings for the organizational budget, increased connectivity, more productivity and time #exibility. On the other side, nonpro%ts need to take into account the implications regarding data security, disaster recovery and speci%c IT policies in what concerns the work on the personal devices.

Figure 5. "e main activities involving mobile technologies, as used in the work routing by the respondents

Many of the respondents use the main functions of mobile devices, from email to social media applications, as it can be seen in Figure 4. Regardless, there is a number of respondents who add a series of other activities in which mobile technologies play an important role for them. !ese are:

10. Big NGO is going to be considered a nonpro%t having more than 10 employees, more than 10 volunteers, with more than %ve branches and a budget over 100,000 Euro. 11. Small NGO is going to be considered a nonpro%t having 0 or less than 5 employees, o or less than 5 volunteers, with one branch and a budget under 50,000 Euro.

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programming and design, eLearning, applications for their bene%ciaries (for children with autism), applications to gather physical and chemical parameters regarding the environment, applications for graphic design, applications for media live and on-demand, screen sharing for trainings, workshops and video production, applications for web audiences monitoring, applications to create presentations CAD applications, fax applications, data base management, remote control for desktop, event management applications. !ese additional responses show us that a new trend is emerging, which surpasses the administrative functions of mobile technology, and goes to the strategic use of it, %tting their speci%c mission and activities, and bridging the gap between the current and the maximum potential of ICT in their organization.

Figure 6. "e main activities using mobile technology involving the organization and its stakeholders

Concerning the use of mobile technology as a point of reference for engaging with stakeholders, many of the respondents use the Internet and its additional features, an important role playing coordination and monitoring activities, as well as communication. Findings reveal that, besides the activities mentioned in Figure 6, the respondents use mobile technologies for the following purposes: design (with pressure sensitive accessories), desktop publishing (for drafts and schemes), meetings management, web design and content creation, as well as fundraising. We %nd it important to mention that one person mentioned that the organization does not use any of the mobile technology tools in its activity, as well as one person who mentioned that the activity has shifted from working on laptops to working solely on tablets. !ese %ndings help us to better understand the current capabilities of the NGOs, as they foster a

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new set of practices. Interestingly, it is more likely for small and medium NGOs to invest in these types of tools rather than the big organizations.

Asked if they build their own mobile app, 9% mentioned they do have a mobile application build for the use and/or promotion of the NGO. Nevertheless, 45% said they do not have an app, but they intend to have one in the next three years, while 36% do not have an application and they do not intend to build one in the next three years. When detailing their own application, the nonpro%ts mentioned the following:

Table 1. Information about mobile application developed by the respondents

Name of the organization

Activity Domain

Name of the application Description of the application

Adept Foundation

Community promotion

Discover Tarnava Mare*

A touristic mini guide, allowing the users to visit and plan, overall, a walk through Târnava Mare, Transylvania.

*Besides this application, the organization mentions they have an application for time management, project timesheets, and daily activities.

Carpathian Transylvanian Society

Environment Geographic information system (GIS) of the protected areas

(development in progress) !e application will o&er information about the protected areas managed by the organization. It will o&er ecological education and ecotourism information, a virtual path paved with QR (quick response) codes.

Ecoteca Association

Environment Waste reporting !e application has the role to inform and educate about the selective waste collection.

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Legal Resources Centre, EPAS Association and Eruption anti-corruption Movement

Civil rights, Legislative activities

InfoCorruption Allows the user to report in an anonymously manner and to take notice regarding the corruption situations he encounters himself and/or situation in which he did not have to bribe, to be informed about anticorruption events across the country and to join the online community of the project.

MaiMultVerde Association

Environment First aid lesson Was developed together with SMURD and ING Life Assurance in order to o&er a prevention and education program to the most frequent emergency situations for persons without a prior medical training

Pro Romanian Diaspora Association

Community promotion

Access to forum and support Pro Romanian Diaspora

O&ers accessible information for the members of its community.

React Association

Health and additional services

Controllin Helps their diabetic bene%ciaries, o&ering glycaemia monitoring through a telemedicine system, showing data regarding the patient health evolution and real time information, sending alerts when there is a change in the information, as well as o&ers training regarding a healthy lifestyle

Reper21 Association

Social responsibility

Societal Was built in order to promote the homonymous project and the principles of social responsibility, based on the triple bottom line (environment, economy and society).

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Romania on bicycle

Sports and additional activities

Romania on bicycle

O&ers information about cycling roads in Romania. !e application allows the user the view a map with the roads and details about them, the type of recommended bicycle, and other needed data for the this type of activity, has a voyage data recorder and an alarm system alerting the user when he has lost the track.

Additionally, www.donatie.ro was mentioned among online tools used by the Romanian nonpro%ts.

!ese results reveal that the apps developed by each organization are in strong connection with their mission and they are used as promotional tools for the organization. Most of these apps can be found in Google Play Store, and not in other app stores, and they are free to install. As seen above, 80% of the market share is using Android system, allowing these nonpro%ts to target the mass of the population using the system developed by Google. Still, the evidence shows us a slow adoption of this practice and none of the above applications are used in fundraising purposes.

When it comes to the use of the SMS, 49% of the nonpro%ts said they did not have such a campaign and they do not intend to implement one in next 1 to 3 years. 12% said they did have a SMS campaign, while 35% said they did not have one, but they do intend to develop a strategy in this direction for the next 1 to 3 years. In what concerns the type of campaigns the nonpro%ts did their responses show the following activities: volunteers’ mobilization and coordination, campaign for 2% donation12, fundraising activities, promotion of the organization mission, information. !e speci%c examples the nonpro%ts gave are: 'tiri la zi (Daily news) - daily campaign implemented in order

12. 2% donation is a legal facilitation a&ording Romanians to distribute this respective amount from their tax on income for a nonpro%t.

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to send relevant information about the main areas of interest for the organization’s bene%ciaries), SMS alert campaign for the farmers in order to inform them about real time changes in what concerns the National Plan for Rural Development, Bistri(a mea, secretul meu! - online votes raising campaign developed in order to obtain the community support for a nonpro%t %nancing competition (twice), campaign to promote the foreign citizens rights in Romania, and Oltenians for Oltenians campaign.

!e numbers are surprisingly low for SMS campaigning, compared to their potential. !is type of campaigns are easier to develop and implement, being in the same time an e"cient and fast method to communicate the cause and to fundraise, not to mention the possibility to enlarge the donor data base and to start building on a long term relationship with the community. Moreover, SMS campaigning can also involve volunteering possibilities or can work as an informative channel, as seen from some of the responses. Looking the other way round, it is easier for the potential supporter to give money, to get involved in the organization’s activities or to keep him informed about the evolution of the programs he has donated for.

Figure 7. Main bene$ts of using mobile technology in daily work for nonpro$ts

Romanian nonpro%ts use mobile devices in order to perform basic work activities. Taking into consideration the advantages of using these types of devices, there is a strong correlation with the daily tasks, including communication with the team, access to information and better time management. Advantages like using them as fundraising tools or making a

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contribution to the organizations budget are still underrated advantages of mobile devices, the nonpro%ts could bene%t (Figure 7).

ConclusionsMobile technology can be used to serve a series of purposes and missions for nongovernmental organizations. !e NGOs examined show that nonpro%ts use technology mainly for increasing their e"ciency and communication purposes, but they also all likewise used them to raising funds, management team and volunteers; a&ord assistance or speci%c activities related with their mission. !e pro%le of the organizations that use mobile technology, both in terms of size and budgets (mid organizations, with 1 to 5 employees, 10 to 20 volunteers, medium budgets being around 110,000 euro), make us question if building an app would be as fruitful for small sized entities and why big organizations have not invested yet in developing their technological dimension. None of the three nonpro%ts having budgets over 1,000,000 euro has its own app or invested in SMS campaign, as well as their answers regarding the use of technology, in general, are situated below the average level. !is %nding is opposite to the ones from Hackler and Saxton (2007, p. 482), who found that less wealthy nonpro%ts are, less likely to have the organizational capacity, or IT savvy, that can facilitate the strategic utilization of information technology. !e organizations which invested in building their own app are rather small to medium size NGOs, and their interest is bigger not only in using, but also in investing in infrastructure (e.g. using tablets in their work). Although the international trend is the shift towards harnessing the potential of mobile technologies beyond increasing administrative e"ciency, in Romania the numbers are still showing us the fact that local nonpro%ts have not yet fully given the credit and explored additional options when it comes to mobile. Regardless of the route ultimately selected by an NGO, there remains a continuous growth of data collection, use of smart and handheld devices, and a host of options for donors and volunteers to utilize. Although, there is a promising path of integrating ITC in the daily work routine, seen as tools to make signi%cant developments for their strategic plans, currently nonpro%ts have not made a big step in what concerns their ITCs capabilities.

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In what concerns the perceived impact, the results are mixed. Mainly, nonpro%ts perceive technology rather as administrative tool, and focus on the basic ways to employ ICTs. Not many of the respondents believe IT can have a bigger impact in areas like research, donations, or stakeholder relationship management.

!is research could be a starting point for a wider debate in academic domains about the use of mobile technology for this sector. As new as it is, the subject has the potential to contribute to the development of the NGO sector, in at least three areas: donors behavior, fundraising development, and lastly opportunities for NGOs to deliver their mission goals more e"ciently and cost e&ectively. !e limited volume of academic articles on this subject was a point of particular di"culty, especially regarding the Romanian landscape.

Mobile devices will almost certainly become the instrument of choice in the nonpro%t assistance and fundraising sector if for no other reason than that is where the market is heading. In a donor driven world, where technology moves fast and funders possess a myriad of options, successful NGOs will modify their organizational behavior and use technology to directly reach out to, compartmentalize and understand the motivations of those who a&ord them funding, and to ultimately solicit future funding from donors.

Acknowledgements: !is paper is part of the grant Doctoral and postdoctoral scholarships for young researchers in the following domains: Political Sciences, Administrative Sciences, Communication Sciences and Sociology, POSDRU, /1.5/159/134650, at the Doctoral School in Communication, National University of Political Studies and Public Administration, Romania.

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Increasing organization’s overall performance through mobile technology. Albania case study

Erdet KËLLIÇI1

Abstract. Information, performance and cost saving are the key elements in which organizations are investing money, energy and e$orts. Any organization wants to o$er the best tools to its employees and also wants to increase its e#ciency by making them work o$site. In this study I will analyze the impact of the mobile technology implementation to end users and their behavior toward it. Part of this study shows how this technology helps the organization to reduce its impact on the environment and its operational costs. !is study shows how users from di$erent ranges of age and education react to mobile technology and analyzes the overall performance of these users and the processes related to their daily operation. Mobility of "eld employees is the key for increasing the organization’s overall performance, as well as the quality of data and it helps the organization to better manage its resources.

Keywords: mobile technology; performance; employee; environment; Albania.

IntroductionNowadays, mobile devices are not limited just to send SMSs and make phone calls; they are used for di&erent purposes like navigating the web, checking emails, playing etc. Mobile devices’ capacity of storing and processing information has increased a lot, and di&erent operating systems have made these devices easy to use for almost everyone, no matter his/her age or education.

“Native mobile applications make user interface transitions and interactions generally smoother” (Wroblewski, 2011, pp. 14-18) due to their direct access into handheld resources. All these features make mobile technology a suitable tool in order to replace the old PC at the o"ce. “!e key feature of mobile computing technologies is mobility/portability” (Karahoca,

1. Lecturer, Ph.D. candidate, Department of Informatics, Statistics and Economics, European University of Tirana, Tirana, Albania, [email protected].

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2012, p. 27). Every manager can go out of o"ce with his/her mobile device and access in real time all his o"ce applications, Information Systems (IS) and e-mails from his/her mobile device. He/she can even authorize or initialize some important operation directly from his/her mobile device. !is is possible due to the integration of mobile technology with other IS Components inside and outside the organization.

I consider mobility and convenience of the usage of mobile devices the key to the nowadays success and this is not just my opinion but it’s also the opinion of many managers operating in the retail sector, banking sector, utility sector etc. In 2011 mobile devices overcame PC shipments worldwide and this trend is not going to change according to Gartner (Gartner, 2013).

Information and Communications Technology (ICT) budget is reduced a lot due to the current economic situation. !e High Level managers in coordination with ICT Manager/s have to focus on how to spend this money in the most e"cient way in order to increase the company’s performance and decrease operational and maintenance costs.

Most of the organizations operating in Albania haven’t embraced the mobile technology due to di&erent reasons as mentioned below:

- !e workforce is not expensive. Integration and automation of processes through mobile devices in general reduce workforce.- Utilities’ price is low (electrical energy, water etc.). Mobile devices consume less power than Personal Computers.- Most of the high level managers are used to have his/her employees on site in order to control them.- Mobile Devices, Mobile Technologies and Applications are relatively expensive, complex and need investments in order to integrate with existing IS and work processes.- !e high management of the organization focuses more on o"ce workers rather than on %eld workers.

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However, things are changing in Albania and now the mobile technology is turning in a must for some important organizations like CEZ Shperndarje, Posta Shqiptare etc. In this paper, I will show the study conducted by me in coordination with managers of the subject organization.

!e company I’ll present in this paper is CEZ Shperndarje, the only Albanian power distribution company. !is company has more than 4,000 o"ce employees and more than 650 %eld employees for reading the energy meters of its clients that are located all over Albania. !e average age of a Meter reader is 47 and their education is at high school or lower level. CEZ Shperndarje has more than 1,200,000 active clients that should be visited by the readers once per month in order to get their monthly electrical power consumption. Also, these clients receive their bill every month, pay their bill every month and also they have the right to o"cially complain if the bill is not correct or mismatched. Due to this workload, the existing MIS system of CEZ Shperndarje is very complex and needs to be very accurate and updated with clients’ data. Adding to that complexity is the fact that individuals with various skills and abilities are responsible for executing business processes by using mobile technology (Monk and Wagner, 2013, p. 56).

Literature review!e impact of ICT in today’s organization on performance and qualitative terms has led to a wide range of studies. Some earlier analyses present contradictory evidence stating that there is a weak link or there is no link between ICT and performance (Weill, 1992; Brynjolfsson, 1993). Other studies (Baldwin, Sabourin and Smith, 2002, pp. 174-176) state that simply purchasing advanced technology does not lead necessary to success if they are not implemented correctly into the organization; the performance of enterprise is signi%cantly increased only when they reengineer the business to strategically align with ICT (Henderson and Venkatraman, 1993). Furthermore, productivity growth is slowing down due to migration from production to information sector (Shu, 2003, p. 367).

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Other studies (Brynjolfsson and Hitt, 1996, p. 557; Dewan and Min, 1997) indicate that there is a positive relationship between ICT and performance. Bresnahan et al. (2002) state that combination of ICT with organizational design increase productivity. Sarv Devaraj and Rajiv Kohli (2003, pp. 285-286) state that grater usage of ICT leads to better quality performance and %nancial results. Proactive attitude of Managers toward new technology will increase the impact and better results in organization (Gargallo-Castel and Galve-Górriz, 2007, pp. 51-52).

!e technology allowing computing capability on the move using portable devices through wireless networks is mobile technology (Varshney and Vetter, 2000; Malladi and Agrawal, 2002). Importance of mobile technology is increasing in organization (Gayeski, 2002; Andersen et al., 2003). !e main characteristics of mobile technology are mobility and reachability (Kim, Holmes and Mims 2005, p. 62; Karahoca, 2012, p. 27).

MethodologyMy approach to identify the e&ect of mobile technology on employee performance is by taking several variable data before the implementation of mobile technology and after the implementation of the mobile technology. !ese data are measured again and the comparison between them shows the real e&ect this technology has on the organization of this case study. !e organization studied in this paper is the biggest one in the energy sector in Albania.

In this study I focus on analyzing intangible and tangible bene%ts of mobile technology. I have studied and collected data from the biggest and the only electric power distribution company in Albania that has more than 4,000 employees where about 60% of them are working and gathering company data in the %eld.

Organization’s ChallengeCEZ Shperndarje is the biggest company in Albania with more than 4,000 employees where 60% of them have no %xed working place and

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about 17% of them collect data in the %eld every day. Before the company acquisition from CEZ Group, these data were manually collected not in electronic format and the operators updated the IS with these data manually. !e biggest problem of the company 4 years ago was the reading of all the meters in one month. !is was done using printed lists that were distributed to each reader for his/her zone. !e readers read the meters, wrote the results on papers and sent these papers back to their managers. !is was a very ine"cient way for this operation because of the following reasons:- !e process of printing lists, delivering these lists to the meter readers, gathering lists back again, input the data of the list to billing system is time-consuming. - Due to manual data entry from meter readers in their printed tables, and because of entering this information to the billing system by operators, there were a lot of human errors.- Printing costs were high, and in this case the environment should be considered too.- Processing the data in real time was impossible.- Implementation of automated checks during data entry in order to warn the end user (Meter Reader) in case of big di&erences in reading was impossible.

!ere were two ways to change the situation for CEZ Shperndarje using New Technology approach:1. !e %rst option was to change all the existing meters with GPRS capability meters in order to get meter data online using a GPRS Mobile Network. !is option was di"cult to implement, with high costs and the project implementation time was too long. !us, this option was not taken in consideration from the organization because of its di"culty to be implemented in a short period of time and because of its high costs.2. !e second option was a software implementation that uses Mobile Technology in order to read the meters online and send the data back to MIS Components in real time. By doing this, the organization expected to increase the e"ciency of the reading process, reduce operation costs and decrease human errors by implementing logical checks for each reading.

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Technical solution!e prerequisite of implementing Mobile Technology in order to integrate it with the existing IS components were as follow:-!e purchase of mobile devices for each employee in order to work in the %eld;-Implementation of a Software running on this device that can send data to the IS in order to integrate Mobile Technology (MT) with IS;-!e selection of a Mobile Network Operator (MNO) that will provide real time connectivity between mobile devices and MIS system; -!e integration between Smart devices and IS system in order to exchange information with each other; -!e creation of a central database in which the information will be sent directly by mobile devices and that can also be accessed from all users. “!is database minimizes data entry errors and provides accurate information in real time to all users” (Monk and Wagner, 2013, p. 184).

!e Smart Device selected for this purpose was Motorola PDA MC55 with a Windows Phone 7 operating system. !is device is shown in Figure 1.

Figure 1. Motorola MC55 Device

!e technical speci%cations of the device are as follows:- Bluetooth and 802.11a/b/g connectivity with #exible VoIP;- 2 megapixel auto-focus #ash-enabled optional color camera with decode

capability;- Multiple voice and data capture modes;- 3.5 inch high de%nition QVGA color display;

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- Available with a Magnetic Stripe Reader;- Bar Code Reader/GPS/Camera.“It is not acceptable to take a PC screen design and merely cut it to size to %t a PDA screen” (Buttle, 2009, p. 409) and in order to achieve this, specialized software is needed. !e software selected to integrate mobile technology with IS components was programmed by Kvados Company and this software is called myAvis. Data connection between PDA devices and IS components located in the main o"ce server was o&ered by MNO Albania Mobile Communications (AMC). !e integration between PDA and IS was made by Kvados Company in collaboration with the CEZ Shperndarje ICT Team. In Figure 2 is shown the interaction between di&erent myAvis components.

Figure 2. Process of communication among systems/ Kvados, a.s., MyAvis ecosystem

Information security is one of the key elements that the organization has to take in consideration during mobile technology implementation and integration with the existing IS. In this case, the MNO o&ered the %rst level of security regarding network issues by separating the public network from the organization’s network by using a dedicated APN. Further to this physical separation of networks, the software itself o&ered dedicated authentication through a username and a password for each employee working in the %eld. Also, the software limited the amount of data that a handheld device can contain. Due to this limitation, the mobile user had

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to synchronize its handheld data with the central system and during this synchronization the data was removed from the handheld device. In case of a lost handheld device, only a small portion of data could be found into the handheld device’s database because of this limitation.

Data analyses!e data shown in this study are gathered in two stages of the mobile project implementation and integration with IS and business processes:-!e situation before implementation of the new system that uses mobile technology and integrates the reading process with the components of IS.-Eighteen months after the implementation of the new system that uses mobile technology and integrates reading process with the components of IS.

!ese are the results of my analyses two months after the reading through mobile device method was implemented:

Table 1 and Table 2 show respectively the data belonging to the Meter Reading Department before Mobile Reading was introduced and after the implementation of mobile reading through Motorola MC55 and myAvis system.

Table 1. Data of MR Department before MT Implementation (CEZ Shperndarje, ICT, HR and Meter Reading Departments)

Description QTY Unit

Total Number of Meter Readers 704 PersonsPrinted Pages for reading purpose 227,270 PcsOperators for data entering 57 PersonsInformation exchange frequency/ per Meter Reader 4 Times/MonthMeter Readers visits at respective main o"ces 2,860 Times/Month

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Table 2. Data of MR Department eighteen months after MT Implementation (CEZ Shperndarje, ICT, HR and Meter Reading

Departments)


Total Number of Meter Readers 586 PersonsPrinted Pages for reading purpose 4,000 PcsOperators for Data assignment and analyses to Meter readers 44 PersonsInformation exchange frequency/ Per Meter Reader 40 Times/Month

Meter Readers visits at respective main o"ces 586 Times/Month

!e data shown in Figure 3 changes several parameters in MR Department between the two periods of data analysis and in this report I have listed the %ndings:

Figure 3. Data comparison between two stages of the project

!e number of Meter Readers decreased by 118. !e readings of all clients %nished in expected time. !e project implementation in#uenced directly better resource planning. Also because of the CRM information located on PDA, readers used the working time more e"ciently. !e number of pages printed every month for reading purposes decreased by 56.8 times after the implementation of myAvis project. !e operation costs on distributing and printing the reading lists were reduced. Also, the company had less impact on the environment by reducing printings.

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!e number of operators was reduced, but on the other side data analysts who were used to load the daily data for meter readers to myAvis system replaced them. Data analysts were used for analyzing and checking meter readers’ performance and data quality. In this case, the costs weren’t reduced, but the quality of data increased due to more frequent and real time controls performed by data analysts.

Information exchange between meter readers and centers increased 8.3 times. !e synchronization between meter readers and myAvis system was done twice a day using mobile devices. Before myAvis implementation, the information was exchanged 4 times a month for each meter reader and also the information, after being taken from the meter reader to the main regional o"ce, was entered manually by the operators in the main billing system. After the implementation of myAvis ,the data were synchronized directly from mobile devices to the billing system without the need of the operators. !e information after myAvis’ implementation was updated in real time using mobile technology. !is process increased the quality of data and reduced operation costs.

Each week the meter readers had to go to the meter reading center in order to deliver the readings and get the empty list for the next week reading. In rural areas this increased the costs for the company due to transportation costs and also a&ected directly the working hours of the meter readers due to the long distance between reading centers and meter reader area. After the implementation of myAvis the meter readers received the clients’ data directly to their mobile device and after reading, they sent them back to the system using GPRS Connection provided by the MNO.

Perception of mobile technology by employees!is analysis shows that the new technology a&ected directly the operation costs, the performance, quality of data and environment. But how did workers, in this case meter readers, react to this new technology?

Most of the meter readers had no experience with smartphones and personal computers. Also, at the beginning of the project, meter readers were not enthusiastic about the change in the traditional way of doing their daily job. However, later on, the mobile device was the main tool

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for them and they were happy to use it. In order to see how meter readers reacted to the new technology, I have made another analysis to %nd out the end user’s reaction to the new technology.

Table 3 and Table 4 show the data of the survey conducted by me in collaboration with CEZ Shperndarje ICT department and CEZ Shperndarje Meter Reading Division in two di&erent stages of mobile technology implementation/integration with the existing IS and processes.

Table 3. "e survey data two months after the introduction of mobile technology (CEZ Shperndarje, ICT Department)


Phone calls for technical support in the ICT Department 113

Phone Calls/Month

Satisfaction of meter readers regarding the new technology 3 0-10Number of visits of meter readers to ICT Department 40 Time/MonthAverage speed for entering a single reading in PDA 180 s/record

Table 4. "e survey data eighteen months after the introduction of mobile technology (CEZ Shperndarje, ICT Department)


Phone calls for technical support in ICT Depart-ment 17 Phone Calls/MonthSatisfaction of meter readers regarding the new technology 7.50 0-10Number of visits of meter readers to ICT Depart-ment 7 Time/MonthAverage speed for entering a single reading in PDA 50 s/record

!e data in Figure 4 shows the reaction of the employees toward the mobile technology and mobile devices based on the user’s performance, satisfaction and technical problems encountered during working processes.

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During the %rst months after myAvis was implemented there were di&erent kind of problems regarding the new technology. !e problems that appeared at this stage of the project were technical and psychological.

Due to the analyses of the data listed above I have listed the following %ndings.

At the beginning of myAvis project the frequency of the phone calls for technical support from mobile users were frequent. !is phone calls were frequent because of these reasons:- !e end users had no experience with mobile device and mobile

technologies.- !e end users had no experience on using myAvis software.- ICT Department had no experience on supporting mobile device and

mobile technology.- !e end users where not con%dent regarding the data entry to the mobile

device.

After 18 months, I conducted the same survey and the number of phone calls was reduced by 6.6 times. !is means that the end users and ICT department where con%dent with the new technology.

At the beginning of myAvis project the average time for entering an entry in the mobile device was about 180s. !is was not acceptable from the management and the normal time asked from them was 70s in order to meet the readings deadline. In order to have a better performance, the management started to push the readers to increase the speed of entering the data to their mobile devices. After 18 months the data analyzed showed that the average time for entering a single entry in the mobile device was 50s. !is shows that the meter readers have increased their performance due to experience, con%dence and due to the easy way of interacting between them and mobile technology.

Meter readers didn’t trust mobile technology at the beginning of myAvis project due to their little experience with this devices and also because the new way of interaction between them and the billing system. Now, they are

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directly responsible for the data they send to the system. So during the %rst survey, two months after myAvis implementation, they were not satis%ed with the new technology and the whole reading process. After 18 months of usage of mobile technology and meeting management requirements, meter readers change the perception toward mobile technology. !ey were con%dent with it and also managed their working hours and met their deadlines faster and in a more e"cient manner than before. During the second survey they looked satis%ed with the new technology and the new way of interacting with the system.

!e visits of meter readers to the ICT Department for technical support decreased because of their experience and con%dence gained during the working period with mobile devices and mobile applications.

Green IT implementationGreen IT is the conscious implementation of technologies, techniques and policies designed to reduce the carbon footprint of the IT function within the organization. Mobile technology is helping us to implement Green IT in the organization. !is case study’s data has shown that printing pages were reduced drastically by implementing mobile technology in a speci%c division of CEZ Shperdndarje. In Table 5 and Table 6 we can calculate power consumption for 1 hour for desktops, laptops or thin clients (http://michaelbluejay.com/electricity/computers.html). In this case study, most of %xed position employees were using desktops and total power consumption for 1 hour is:

Conventional Desktop PC(no power management) + LCD Monitor(19 inch) = 110W + 50W = 160W/h

Battery speci%cations for the PDA used by the organization are: Rechargeable Lithium Ion 3.7V, 3600 mAh Smart Battery (Motorola). A full recharge of the battery takes two hours with a 40W charger that means that for a single full recharge of PDA are needed 80w. With one recharged battery the employee %nishes its 8h working day most of the times and according to the survey I conducted in this organization, the

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performance of the battery is good for 2 years, so we can consider that the battery lifecycle for this devices is 2 years. !e cost of the battery is about 45$, that means that we have an extra cost of 22.5$ per year. By comparing costs of energy for each of the two elements that the organization is using, we can say that in a year, that has approximately 260 working days, a PDA consumes 20.8 kW and a PC consumes 332.8 kW. In Albania 1kW costs about 12c, that means that a PC consumes about 39.93 euro/Year and a PDA consumes 2.5 euro/Year. If we apply the cost of the battery 20 euro/Year, then we can say that the cost for the PDA on power consumption plus battery purchase is 22.5 euro/Year.

Table 5. Power consumption without Monitor

Table 6. Power consumption of Monitors

System Unit TypePower

Consumption (Watts)

Monitor typePower

Consumption (Watts)

Conventional Desktop PC – no

power management 110W

Conventional CRT monitor -

19 inch 140WConventional

Desktop PC – power management 90W

Conventional CRT monitor -

17 inch 80W

“Green PC” 80WLCD Monitor -

19 inch 50W

Laptop PC 60WLCD Monitor -

17 inch 30WNotebook PC 40W OLED Monitor 10W!in Client 15W

Source: Michaelbluejay (2013)

In one shift a single user consumes 160W * 8 = 1.28 kW/d and this is the best case scenario because some users may work more than 8 hours and many other won’t shut down their PC when they leave the o"ce. By implementing mobile technology the data will #ow from PDAs, tablets or mobile phones to the organization servers, and as a result of this new way of data #ow after implementing mobile technology, the number of back o"ce operators will decrease and this is not valid only for the organization studied in this paper, but for almost all organizations that have back o"ce operators that gather data from mobile users and enter those data to their

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system. Mobile technology will reduce the number of back o"ce operators and also, since the data is in electronic format, the number of printers and printing pages will decrease. Mobile technology helps the organization to reduce its operation costs and help it to be more green and friendly toward environment.

Conclusions and limitationsMobile technology is very complex and a&ects the organization processes and employees. Based on the data analyze, I have identi%ed two key %ndings:-Employee: Mobile technology is not easily accepted by employees and the performance using these tools was very low at the beginning but with the time employees increase their expertise on using the device and software. In this speci%c study I noticed by analyzing the data that employee performance on data entry is increased by 3.6 times in 18 months (Devaraj and Rajiv Kohli, 2003). Due to technology 16% of employees in Meter Reading department were laid o&, according (INSTAT, 2013) in Albania the unemployment rate was 15.6% at 2013 (INSTAT, 2013), by taking this in consideration the new technology had negative e&ect on employment for the speci%c case.- Environment: Mobile technology helps us to be more responsible toward the environment by reducing energy consumption, printed papers, fuel consumption and decreases the quantity of raw material needed for building a single device in comparison with desktop PC. In this study I found that printed paper for speci%c department was decreased by 56.8 times and power consumption was decreased 16 times.

!is study is conducted in a single utility company in Albania for a two year period, and does not contain cross-sector data source comparison of others companies in Albania or region. !is limits the study in analyzing speci%c e&ects of this technology between organizations.

!is study o&ers empirical evidence on this topic by analyzing a wide range of data in a country where mobile technology is perceived as a need rather than an opportunity. !e research in the sector will be extended in

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the future and will analyze cross-organization data regarding the impact of mobile technology in organization’s performance and data quality.

References Andersena, K.V., Fogelgren-Pedersena, A., and Varshneyb, U. (2003). Mobile

Organizing Using Information Technology (MOBIT). Information Communication and Society, 6(2), 215-228.

Baldwin, J.R., Sabourin, D., and Smith, D. (2004). !e Interaction between ICT, advanced technology use and human resource competencies, !e economic impact of ICT. OECD.

Brynjolfsson, E. (1993). !e Productivity Paradox of Information Technology: Review and Assessment. Communications of the ACM.

Brynjolfsson, E., and Hitt, L.M. (1996). Beyond Computation: Information Technology, Organizational Transformation and Business Performance. Management Science, 42(4), 541–558.

Buttle, F. (2009). Customer Relationship Management: Concepts and Technologies. Burlington, MA: Elsevier.

Dewan, S., and Min, C. (1997). !e Substitution of Information Technology for Other Factors of Production: A Firm Level Analysis. Management Science, 43(12), 1660-1675.

Devaraj, S., and Kohli, R.(2003). Performance Impacts of Information Technology: Is Actual Usage the Missing Link?. Management Science, 49(3), 285-286.

Gartner (2013). Worldwide Devices Shipments by Segment. Retrieved from http://www.gartner.com/newsroom/id/2408515.

Gargallo-Castel, A., and Galve-Górriz, C. (2007). Information Technology, Complementarities and !ree Measures of Organizational Performance: Empirical Evidence from Spain. Journal of Information Technology Impact, 7(1), 43-58.

Gayeski, D. (2002). Learning Unplugged. New York: AMACOM.IINSTAT (2013). Retrieved from http://www.instat.gov.al/media/237073/tregu_i_

punes_2013.pdf. Henderson, J.C., and Venkatraman, N. (1993). Strategic Alignment: Leveraging

Information Technology for transforming organizations. IBM System Journal, 32(1), 198-221.

Karahoca, A. (2012). Advances and Applications in Mobile Computing. Published by InTech, PP 27 -30, April.

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Kim, S.H., Holmes, K., and Mims, C. (2005). Mobile Wireless Technology Use and Implementation. TechTrends, 49(3), 54-63.

Malladi, R., and Agrawal, D.P. (2002). Current and future applications of mobile and wireless networks. Communications of the ACM, 45(10), 144-146.

Michaelbluejay (2013). How much electricity do computers use? Retrieved from http://michaelbluejay.com/electricity/computers.html.

Monk, E.F., and Wagner, B.J. (2013). Concepts in Enterprise Resource Planning, Fourth Edition. Boston, MA: Cengage Learning.

Shu, W. (2003). Information Technology Investment, Economic Growth, and Employment. 7th Paci%c Asia Conference on Information Systems. Adelaide, Australia, July 10-13, 2003.

Varshney, U., and Vetter, R. (2000). Emerging mobile and wireless networks. Communications of the ACM, 43(6), 78-81.

Weill, P. (1993). Strategic information technology management: Perspectives on organizational growth and competitive advantage. Hershey: IGI Publishing Hershey.

Wroblewski, L. (2011), Mobile "rst. Ingram.http://www.motorolasolutions.com/web/Business/Products/Mobile%20

Computers/MC55/_Documents/Static%20File/MC55-FAMILY-Spec-Sheet-1109-web.pdf.

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Factors determining the development of peripheral areas

Agata%BALI&SKA1

Abstract: !is paper reviews the main criteria for classifying the eastern Polish border region as a peripheral area. Apart from geographical location economic, social and cultural criteria have also to be considered. !e article refers to the economic, social and cultural conditions of local development. !e main direction of development of the eastern Poland is agriculture. !e area is also characterized by low population density. !is hinders the development of the area. It can also be an advantage, especially bearing in mind tourism development. !e paper discusses selected factors determining the development of eastern Poland. !e emphasis is put on their diversity and the fact that the interpretation of their actual impact remains inconclusive as it is in the case of the border itself. !e boundary state can be both a barrier and a stimulating factor. !e analysis justi"es the conclusion that each of these factors contributes to the development of border areas. !e strength of their impact depends on the strategy of development. !is article uses an analysis of source materials, as well as the author’s own observations arising from years of research conducted in this area.

Keywords: development factors; peripheral areas; eastern Poland.

IntroductionClearly, the environment of the border determines the development of the neighboring areas. According to Wi,ckowski (2010) borders are primarily barriers (spatial, economic and political). !ey act as a %lter, but they are also the contact zones between neighboring countries. Socio-economic and political changes in Europe, mainly in the countries of the European Union, lead to the marginalization of the function of boundaries. !e processes are most advanced in the Schengen area.

1. Ph.D., Department of Education Economics, Communication and Counseling, Faculty of Economic Sciences, Warsaw University of Life Sciences –SGGW, Warsaw, Poland, [email protected].

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!e situation of eastern Poland is particularly interesting as for 20 years the permeability of the border %rst increased signi%cantly (in the early 90s), and then it slowly sealed (mainly after 1 May 2004). !us, the analysis of factors determining the development of peripheral areas is illustrated with the example of the Polish eastern border provinces. !e main purpose of this article is to discuss factors in#uencing the growth of eastern Polish border region. !e study applies a deductive and reductive research approach. !e conclusions derived from secondary data analysis have been partially veri%ed by the author’s own empirical research. !e article uses the method research desk - an analysis of the literature and statistical studies. A critical analysis of the available literature was made. In formulating assessments, the author bene%ted from her research experience. Research on the eastern border of Poland has been conducted since 1999.

Polish eastern border region as a peripheral area!e term “periphery” can be seen in three contexts: geographical, economic and legal (Moraczewska, 2008). Grosse (2007) proposes a review of de%nitions of the term “periphery”. In the opinion of this author peripheral regions are areas: 1) sparsely populated, distant from economic centres and with restricted access to them due to poor transportation; 2) characterized by a low level of economic development (in the EU it is measured with GDP in purchasing power parity); 3) dominated by labor-intensive industries including agriculture and forestry; 4) characterized by underdeveloped infrastructure and a low level of entrepreneurship and innovation.

All these features are characteristic of studied area. One can also analyze the economic dependence of peripheral areas on economic and political centers and their distinct cultural, religious and political individuality. According to Ba-ski et al. (2010) it has been widely recognized that “[...] the eastern border region in our country shows the typical characteristics of geographic and economic periphery”. !is area has long been called “the eastern wall”, “Poland B”, and “a problem area” in the studies published by the Institute of Rural and Agricultural Development (Rosner, 2002; K.odzi-ski, 1999).

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Numerous studies provide credible evidence that the area situated along the eastern border meets the criteria set for a periphery (Dziemianowicz 2008). For example, Operational Program for the Development of Eastern Poland (OP DEP): lists the characteristics of this area, which allow us to classify it as peripheral:

10,097 EUR in border regions: Podlaskie – 7,160 EUR, Subcarpathian – 6,760 EUR, Lublin – 6,880 EUR (GUS, http://stat.gov.pl);

agricultural production, low level of entrepreneurship and the relatively low level of competitiveness and innovation;

including well developed urban agglomerations with metropolitan functions;

relationship between science and economy;

telecommunications and transport) and poor accessibility of the area.

An important problem in border areas is migration (W. Leimgruber, 1999). In border areas above all an overspill is appearing, of particularly young persons. It a&ects the development of this area negatively.

Characteristics of eastern Poland!e least populated province is Podlaskie in eastern Poland which occupies 14th position in the national ranking and in terms of population density ranks 16th.

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Figure 1. Population and population density regions in Poland

Source: Central Statistical of Poland, 2013. p. 556.

Podlasie province

Lublin province

Podkarpacki province

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!e greatest population density is in Podkarpackie (7tth position in the national ranking). !is province has also the highest (58.6%) share of people living in rural areas, which in the provinces of Lubelskie and Podlaskie amounts to respectively 53.4% and 39.4%.

Table 1. Development and population of the eastern Polish provinces in 2012 (own elaboration based on Central Statistical O"ce data from the series Local Government Statistical Handbook, www.stat.gov.pl)

Provinces Area in sq. km.

Share in the area (in %) Population

Agri-cultural

land

Wooded land

Land under water

Deve-loped land

Eco-logical

land and fallow

Total (in

thou-sands)

Per 1 sq.km.

Podlaskie 20187 60.3 31.8 1.4 3.6 2.9 1188.3 59Lubelskie 25122 70.8 23.6 0.8 3.6 1.1 2151.9 86Podkarpackie 17845 53.9 39.8 1.1 4.3 0.9 2103.5 118

!e unemployment rate in all studied provinces (Table 1) is higher than the national average which, at the end of December 2013, reached 13.4%. In studied provinces it amounted respectively: Podlaskie – 15.1%, Lubelskie – 14.4% and Podkarpackie - 16. 4%. (http://www.stat.gov.pl).

!e analyzed provinces are primarily agricultural-forestry areas, as shown in Table 1. !e Lubelskie province has the largest share of agricultural land and Podkarpackie has the largest share of forests and forest land.

Conditions for the development of peripheral regions in eastern Poland“It can be assumed that factors determining growth are elements of the structure of the territory, which are or may be activated to enable operations in the %eld of production, distribution, circulation and consumption” (Strzelecki, 2011). In literature we %nd a number of classi%cations of determinants of local and regional development (Geise, 2009; Dziemianowicz, 2008; Strzelacki, 2011; Zakrzewska-Pó.torak,

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2010; Przygodzki, 2007; Parysek et al., 1997). Due to the limitations of this study the analysis of each classi%cation cannot be provided. !erefore the categorization proposed by Parysek has been adopted.

Parysek (1997) observes that some factors “are universal, while others are activated only in certain places and certain moments in time” (Parysek, 1997). !e needs of local community are listed among the key factors determining local development. “Every economic development, including local development, is directly related to meeting the growing needs of the society [...] and is simply determined by these needs” (Parysek, 1997). It applies to common needs, typical for all people regardless of their demographic characteristics and place of residence rather than individualized needs originating in beliefs, standard of living and culture. !e needs which predominantly in#uence local development can be divided into the following groups: 1) existential (related to the functioning of households); 2) residential (involving the increase in the number of a&ordable houses improving the quality of life); 3) cultural (related to secondary education and high culture); 4) social (related to speci%c social groups, such as children, seniors, people with disabilities and large families). One can assume that most needs are universal.

Due to the character of the border area, security needs (which belong to existential needs) may appear to play a key role. A survey was conducted among residents of border communities in 2006 under the KBN/MNiSW 2P06R09628 project in the following communes: Szypliszki, Giby, P.aska, Krynki, Dubicze Cerkiewne, Mielnik, Rokitno, Wola Uhruska, Dorohusk, Horod.o, Lubycza Królewska, Hrubieszów, Horyniec Zdrój, Radymno. In 2012, it was repeated within the framework of statutory research of Warsaw University of Life Sciences. It showed that only 25% of 650 randomly selected residents see risks related to the proximity of the border. In 2012, the survey was repeated, and this share amounted to 30.9% (sample consisted of 600 people).

!e natural environment is another important factor determining the local development. !is category includes, in particular:

Basin), chalk in the Podlasie region, (especially in the area near Mielnik).

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provinces. Many of them are bottled and distributed all over Poland (e.g. Krynka, Cisowianka). Some are used in spa medicine, e.g. in Horyniec or PolanczykZdrój.

branches use signi%cant amounts of water. Its quantity and quality also a&ects the standard of living of local residents. Surface water is also an important tourist asset determining the attractiveness of the area and the development of tourist infrastructure. Bug River is a natural hydrographical Polish border.

development. !is applies in particular to agriculture, construction, transport and tourism. !e unique climatic qualities are also used by medical spas.

average in all border provinces the area has the largest share of Class IV soils (46% in Podlaskie, 37.25% in Lublin and 42.85% in Podkarpackie), and the share of soils classi%ed as Class I-III is the highest in the province of Lublin (39.74%), followed by Podkarpackie (29.65%) and much lower in Podlaskie (6.9%) (RocznikStatystycznyRolnictwa, 2011, GUS).

regulates water economy and has a bene%cial in#uence on residents living in the vicinity (air puri%cation, noise reduction). It is also a source of fruits of the forest, which is important especially in regions at risk of poverty and poor regions.

Most of these elements of natural environment are classi%ed in the group of natural assets. !is category also includes terrain, wildlife (especially protected species), as well as protected species and communities of plants. Exchanged elements of the natural environment are complementing each other mutually, and their meaning development dependent on accepted direction. !ese elements are appearing in the corner step on the remaining border area, particularly in length border west. However the quality of the natural environment on the eastern borderland is highest in Poland.

Another important factor determining local development is human capital, including: 1) age structure of the population (including the

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contribution of individual economic groups); 2) economic activity; 3) employment rates; 4) the level of education, professional quali%cations and occupational structure; 5) wealth of the population; 6) health status of the population (Markowski, 2008). Nowadays, the term social capital (a broader concept of human capital) is increasingly in use and is de%ned as “skills and physical, mental and intellectual abilities used in the economic life” (Potoczek and Stepien, 2008). It is spatially variable and, as noted by Markowski (2008), social capital (also known as relational capital), is not “any new economic category, but an asset whose importance in the modern organization of socio-economic processes is growing steadily. By enhancing relational capital it is possible to boost the local economy. !e attributes of social capital include (Markowski, 2008):- economic and social responsibility and willingness to save money;- willingness to take economic and professional risk; - entrepreneurship and hard work;- openness to new ideas;- willingness to learn and broaden the knowledge;- readiness for cooperation and exchange of experience, con%dence in institutions and partners on the market;- pro-social attitudes;- social discipline and willingness to conform to social norms;- the ability to compromise and dialogue, understanding the necessity to meet the priority needs in the process of cooperation.

Determining the attributes of human capital is easier than in case of social capital, which belongs to the scope of sociological research. According to the data contained in the “Strategy of Socio-Economic Development of Eastern Poland 2020” (www.mir.gov.pl) the level of human capital is insu"cient. !e author’s own research shows that only 14.7% of residents of border communes declare the need to increase quali%cations. It is a small part. For example, in Western Pomerania participation of people participating in training is 44.4%. (www.ewaluacja.gov.pl).

Another signi%cant factor determining local development is the state of technical and social infrastructure also called infrastructural investment (Parysek, 1997). Technical infrastructure development directly enhances

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the quality of life of local people, facilitates business operations and is an important argument for new investors to choose the site. !e villages with border crossing points have better developed infrastructure. !e rest of the area is continually developed, however the progress is still insu"cient (Weso.owska, 2011).

Local development also depends on economic potential. “Diversi%ed economic structure creates the atmosphere for local development, the atmosphere in which conditions are created for new entities to start business operations, conditions for cooperation with other entities and conducting complementary actions” (Parysek, 1997). Naturally, cities have greater economic potential, particularly those whose development is multi-functional. M. Slusarciuc stresses that the important issue of economic potential are small and medium-sized enterprises (M. Slusarcius, 2012) Rural areas due to the poorer socio-economic %nancial, educational and political structure are characterized by a much lower potential. On the eastern border the level of economic potential is positively correlated with the level of development of tourism (Transgraniczne).

Parysek (1997) argues that to recognize a market as a factor in local development is legitimate. He highlights the bipolarity of relations on the market (supply and demand). !ere is a local market and external markets. “!e second type of market orientation in local development is enabled especially by the use of unique local resources, unique manufacturing skills of the residents, professional traditions, heritage, local culture, etc.” In the study area these conditions are met only in case of tourism (in#ux of tourists from other regions of Poland and foreign tourists) and trade (demand for products from the citizens of neighbouring countries).

Also science and culture play an increasingly important role in determining local development. Scienti%c and cultural institutions are usually located in big cities. Although the EU assistance programs stimulate scienti%c and cultural activity in the study area it is accumulated mainly in the capitals of provinces. It is Kostro who is an advocate of inclusion of broad cultural context in economic studies and refers to Edward Hall’s proxemics (Kuci-ski, 2011). Culture has a signi%cant impact on decision-making processes, the location of business investments and %nally on local

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development. “Local cultural conditions become factors determining business location, [...] they transform other location factors, especially the soft ones[...], in#uence the perception of their bene%ts by the culturally di&erent investors” (Kuci-ski, 2011). Culture of the study area is di&erent than in any region of the country. It is connected with the history of this area, and most of all the changes of borders and population inhabiting di&erent nationalities (Poles, Belarusians, Ukrainians, Jews, Tatars) and religion. !is cultural diversity is used primarily in tourism development. It also results in greater openness and tolerance for other people, which has a positive e&ect on the development of the area.

Bearing in mind that the study area is located along the border of Poland, it would be justi%ed to focus more on the location itself. “!e bene%ts of a location, however complex in their nature, are a factor determining local development” (Parysek, 1997). !e location of rural communes relative to urban transportation routes and tourist attractions is a major factor in#uencing the scale and direction of their development. Usually, in literature, the term “location rent” is used, which can be de%ned as “potentially more or less tangible bene%ts of the location of an entity (such as a commune)” (Bartkowiak and Ossowska, 2010). Szewczuk (2011) uses the term “location bene%ts” and stresses that “villages and communes are considered attractive if they have unique assets and favorable location, regardless of whether they are natural assets, accumulated capital or economic potential”. Parysek lists the characteristics of a site that determine its value and economic potential: the location in the country (relative to national borders, border crossings, ports, major routes and hubs, business centers), technical infrastructure and the possibility to develop it, the type of soil and its agricultural utility (Parysek, 1997). It is di"cult not to agree with the statement of J. Parysek, that the particularly attractive sites include those “with unique assets and favorable location, regardless of whether they are natural or developed” (Parysek, 1997). An interesting approach to border location is provided by Bartkowiak and Ossowska (2010) who, relying on Doma-ski, argue “borders are an essential element of today’s economy [...]. !ey have multiple impacts on both international and inter-regional relations. Borders separate natural resources, and often act as a %lter, reducing the number of interactions between the regions. !erefore, the location near the border, or along the borders separating neighboring countries may prove advantageous.”.

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Similarly, other authors treat the border as “a source of location bene%ts stimulating local development” (Ba-ski at al., 2010). !e bene%ts derive from products and services provided to transit travellers and residents of neighboring countries and are visible mostly near border crossings. Also, the study prepared for the Ministry of Regional Development concludes that “Polish eastern border location provide both opportunities and threats for the region” (Transgraniczne). !e research study conducted by the author in border communes in 2012 shows that 39.7% inhabitants of the border areas recognize the bene%ts of the border proximity related to the development of trade and tourism.

K. Kuci-ski’s team proposes an interesting approach to location attributes. Analyzing local development in the context of globalization they introduce the term “glocalisation”, which is a synthesis of two concepts: globalization and localization. “It draws attention to the importance of local action and its place in the globalization process, as well as the importance of globalization in local development strategies” (Kuci-ski, 2011). In his discussion of the relationship between location and globalization, Kuci-ski cites scienti%c axioms of globalization, including the axiom of glocalisation, according to which “globalization makes it possible for the local communities to fully participate in this process. It creates a chance to overcome the isolation and economic and civilization backwardness for many regions which are underdeveloped, forgotten or even excluded from the globalization processes” (Kuci-ski, 2011). At the same time the author questions the truth of the axiom quoted, because, as he rightly observes, both foreign and domestic businesses tend to invest in relatively more developed regions.

Another major factor in local development and regional growth is international cooperation, which can be both %nancial and advisory in character. Financial support may include attracting foreign investors, but also the use of assistance funds. Consulting includes training, know-how or town twinning. Border areas, due to their location, can take advantage of cross-border cooperation within the framework of Euro-regions. Along the eastern border there are four Euro-regions: the Neman, Bialowieza Forest, Bug and Carpathian. !e activities of Euro-regions is the most positively evaluated (Borshch, 2014).!e level of this cooperation was discussed, inter alia, in documents prepared for the Ministry of Regional

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Development (Transgraniczne). Deppisch is an interesting example of cooperation between border areas (2012).

!ere are more factors determining local development, which should certainly be mentioned like the role of local authorities, state policy and the EU role in the development of peripheral areas. !is issue, however, is so extensive that requires a separate study. !e development of the border areas is also a&ected by global crises. Despite the crises, in the years 2007-2010 Poland was not adversely a&ected (Ignasiak-Szulc and Kosiedowski, 2011).

An important factor in the development is of course the political situation in Ukraine. While western Ukraine is not covered by military activities, but anxiety prevailing in the country a&ects arrivals residents of Ukraine to Poland. It also a&ects the cooperation of Polish companies with businesses in Ukraine. In this case the limit is primarily a barrier to development.

Conclusion !e Polish eastern border region is widely regarded as an area of unique development potential. Due to many years of investment neglect and the particular character of a border region, the main factors determining local and regional development are endogenous. !ese are mainly natural, cultural and social resources. !e role of the border in local development is still disputable. In the opinion of the author it can be both an opportunity and an obstacle to the development of the neighboring areas. In the literature, the many factors in the development of peripheral areas are investigated. According to the author, these factors are mutually reinforcing. Each of them is important, but the most important is the individual (human capital), which is able to use other factors.

It is also di"cult to answer the question if without the stimulation from the outside this region will develop. Previous experience with the use of various international instruments leads to the conclusion that it would be a di"cult task.

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Sparse population and lack of industrial centers can be used in the development of tourism. !e situation of the study area is also special because it is the eastern borderline of the European Union. !e political situation in Ukraine also a&ects negatively the area. It is di"cult to say what will be the direction of the development of the area after the accession of Ukraine to the EU.

References Analiza i ocena efektów wsparcia PO KL w województwie zachodniopomorskim.

Raport ko)cowy. Szczecin, 2013, 32-33.Ba-ski, J. et al. (eds.) (2010). Wp.yw granicy pa-stwowej na kierunki rozwoju

spo.eczno-gospodarczego wschodniej cz,0ci województwa lubelskiego. Studia Obszarów Wiejskich, XXI, Warszawa.

Bartkowiak, N., and Ossowska, L. (2010). Poziom pozaprzyrodniczych uwarunkowa- renty po.o1enia obszarów wiejskich Pomorza 2rodkowego. Journal of Agribusiness and Rural Development, 4(18), 15-28.

Borshch, O. (2014). Cross-border cooperation as a development factor for borderline territories of Ukraine. European Journal of Law and Economics, 37(3), 529-544.

Ch3dzy-ski, J., Nowakowska, A., and Przygodzki, Z. (2007). Region i jego rozwój w warunkach globalizacji. Warszawa: CeDeWu.

Deppisch, S. (2012). Governance Processes in Euregios. Evidence from Six Cases across the Austrian–German Border. Planning Practice and Research, 27(3), 315–332.

Dziemianowicz, W. (2008). Polska wschodnia wobec nowych wyzwa- rozwoju. In T. Markowski (Ed.), Koncepcja przestrzennego zagospodarowania kraju a wizje i perspektywy rozwoju przestrzennego Europy (pp. 124-144). Studia KPZK PAN, t. CXXII, Warszawa.

Geise, M. (2009). Wp*yw wybranych problemów gospodarki globalnej na rozwój lokalny. WSG Bydgoszcz.

Grosse, T.G. (2007). Innowacyjna gospodarka na peryferiach?. Fundacja Instytut Spraw Publicznych, Warszawa.

Ignasiak-Szulc, A., and Kosiedowski, W. (2011). Perspectives of regional development of north –eastern borderland of the UE in context of global %nancial crisis results. Human Resources – the Main Factor of Regional Development, 5(5), 128-136.

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K.odzi-ski, M. (1999). Aktywizacja gospodarcza obszarów wiejskich. Warszawa: IRWiR PAN.

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Changing Impact of Boundaries on Regional Development in Switzerland. In Nationalising and Denationalising European Border Regions, 1800–2000. !e GeoJournal Library, 53, 199-221.

Markowski, T. (2008). Teoretyczne podstawy rozwoju lokalnego i regionalnego. In Z. Strzelecki (Ed.), Gospodarska regionalna i lokalna. Warszawa: PWN.

Moraczewska, A. (2008). Transformacja funkcji granic Polski. Wydawnictwo Uniwersytetu Marii Curie-Sk.odowskiej, Lublin.

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regionalnego. Wy1sza Szko.a Gospodarki w Bydgoszczy, Program Operacyjny Rozwój Polski Wschodniej 2007-2013. MRR. Rocznik Statystyczny Rolnictwa (2011). GUS (Statistical Yearbook of Agriculture

2011, CSO).Rosner, A. (Ed.) (2002). Wiejskie obszary kumulacji barier rozwojowych.

Warszawa: IRWiR PAN. Slusarciuc, M. (2012). Risk and Uncertainty in the Companies from the

Crossborder Area Romania-Ukraine-Republic of Moldova. Economy Transdisciplinarity Cognition, 15(2), 146-152.

Strategia rozwoju spo*eczno-gospodarczego Polski Wschodniej. Dokument przyj,ty przez Rad, Ministrów 30.12, 2008 (Strategy for Socio-Economic Development of Eastern Poland. !e document was adopted by the Council of Ministers 30.12.2008)

Strzelecki, Z. (2011). Czynniki i bariery rozwoju polskich regionów i jednostek lokalnych. In Z. Strzelecki (Ed.), Gospodarka regionalna i lokalna w Polsce. Czynniki i bariery (pp. 49-80). Warszawa: SGH.

Szewczuk, A. (2011). Rozwój lokalny i regionalny - g.ówne determinanty. In A. Szewczuk, M. Kogut-Jaworska, and M. Zio.o (Eds.), Rozwój lokalny i regionalny. Teoria i praktyka (pp. 13-88). Warszawa: C.H. Beck.

Transgraniczne powi+zania województw Polski wschodniej. Ekspertyza wykonana na zlecenie MRR (Transborder Relations of Polish Eastern Provinces. A report commissioned by the Ministry of Regional Development).

Wi,ckowski, M. (2010). Turystyka na obszarach przyrodniczych. Warszawa: PAN IgiPZ.

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Zakszewska-Pó.torak, A. (2010). Wspó.czesne uwarunkowania rozwoju gospodarski regionalnej i lokalnej w Polsce. In R. Brol (Ed.), Gospodarka lokalna w teorii i praktyce. UE we Wroc.awiu, Wroc.aw.

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Socioenergy, co-existence and co-evolution: key factors of a Romanian national development strategy

Dumitru IACOB1

'tefan ST(NCIUGELU2

Abstract. !e Romanian society, as any other society, needs a dynamic, and balanced correlation of the individual with the community energies. Normally, the idea expressed above should be at the basis of any social construction program and of any national development strategy. As a part of EU and NATO, Romania has acted during the last decades in the same paradigm of the co-existence that was speci"c to the Cold War period. !e Russia-Ukraine war is the result of the co-existence paradigm. !e future of the international relations needs a paradigm shift - the replace of co-existence paradigm with the co-evolution paradigm, which Romania should be part of. A co-evolution paradigm based national and international politics for Romania might start from the Ministry of External A$airs and the National Bank of Romania as “islands” of stability within a too dynamic political environment between 1990-2014.

Keywords: social energy; anti-social energy; co-existence; co-evolution; mutual support.

We will say, as the chronicler, that the unfortunate man is “under the control of time”, his life and his belongings being directly in#uenced by the cycle of “times’. Of course, to a large extent the events in history have happened as the chronicler would tell us. However, man is not completely under the in#uence of time. By the power of his mind and arms, lasting life structures have often been built. And this happened when man knew how to work together with his fellows. When achievements reached “together” were possible, man’s enemies proved helpless. !e following

1. Professor, Ph.D., College of Communication and Public Administration, National University of Political Science and Public Administration, Bucharest, Romania, [email protected]. 2. Associate Professor, Ph.D., College of Political Sciences, National University of Political Science and Public Administration, Bucharest, Romania.

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demonstration centers on this idea. We aim to prove that the safest security source in the life of human communities lies in man and in the strength of human connections.

Our study is considering a simple hypothesis: a distinct form of energy, namely social energy, is generated and manifests itself in society’s life, as a result of the speci%c relationships between the signi%cant social players, individuals, groups and human communities (Iacob and Iacob, 2010, pp. 54-59). As we have already shown (Iacob and Iacob, 2006, pp. 39-44), the security of nations is strongly in#uenced by the force of social energy existing in a society, the relationship between the nations’ security and social energy being directly proportional.

About correlations between community and individuals For the beginning, we shall notice that in the social theory, in sociology, the concepts having paradigmatic value become possible only in terms of likely and desirable correlations between human community and individuals. A few examples may be useful:- !e social system includes a lot of “objects” that interact so strongly that their states are interdependent, the change of one of them leading to changes of all the others. Social systems tend towards balance. Social systems are dynamic systems, characterized by the fact that their internal changes are continuous, without reaching highly stable balance states. Essentially, balance represents a continuous process of balancing and rebalancing. - Social balance %nally means the capacity of a social system of compensating for the changes of certain constituents by the change of other constituents. Social systems are evolutionary due to their homeostasis. By means of feedback systems continually rebalance in relation with the environment, ensuring both their stability and evolution.- Social action takes into account both social stability and historical creation. To Max Weber, an action is social if and to the extent to which it modi%es depending on another’s individual‘s activity, on the basis of values or symbols shared by the members of a community. To Talcott Parsons, the social character of an action is given by an individual’s interpretation of the other individuals’ behavior. !e interpretation system of the “others’”

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behavior includes the following alternatives – type – orientation towards the self or the collectivity; particularism/universalism; quality/performance; a&ectivity/a&ective neutrality; and di&usion/speci%city. According to Parsons, a human action is social if, in a situation involving the interaction of at least two players, each of them aims to obtain the highest satisfaction, by selecting from the %ve pairs of alternative-constitutive pairs of variables of the social structure.

Considering what has been said above, we highlight two ideas. Firstly, the understanding of the social system is considered within a communicational paradigm. Both to Talcott Parsons, and to the representatives of the Palo Alto School, communication is a fundamental unit of the social, a social system that has the capacity of guaranteeing the production and reproduction of optimum communication. Actually, as understood by the Palo Alto School, the optimum social aggregation is the result of the normality of the social communication. At the same time, it is useful to remember one of Aristotle’s ideas (Encyclopedia of Philosophy and Human Sciences, 2004, p. 279); the Stagirite uses the concept of energy (“energeia”) related to the action by means of which potentiality is turned into action. Actually, according to our hypothesis, the social energy expresses the society’s capacity of turning the potential social relationships into deeds of social performance and national security.

!e premises of a possible de"nition of socioenergy are the following:- human societies develop within certain civilization contexts, by means of which certain relationships among individuals, groups and human communities are expressed; thus, there are socio-historical contexts, such as the western type ones, in which the individual’s role is predominant (civilizations and cultures centered on the individual), as there are contexts, such as the eastern ones, in which the community predominates (civilizations and cultures centered on community values); in both cases the social matrix (the type of social equation) is the result that highly depends on the historical context, the particular conditions under which one civilization or another has been created and developed; - the analysis of history and social life emphasizes a requirement of social performance, which is the essence of the performance capacity of the social structures - namely the dynamic balancing and the mutual intensi%cation

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of individuals, groups and communities, in their interdependency relationship; expressed in other words, it is not societies that are constituted by strong individuals, namely strong societies that are powerful and performing, but it is particularly those societies that succeed in multiplying the individual’s strength by means of an optimum connection with the power of the group, of the community and the other way round.

Basically, socioenergy is the distinct type of energy resulting from a permanent mutual intensi"cation of the energy of the individuals and the energy of the community. Against history and various civilization experiences, socioenergy has minimum values when the social cohesion is destroyed, when the connections between individuals and communities are broken, but also when, within the social equation, one of the terms dominates the complementary one. On the contrary, socioenergy will have high values within the civilization experiences where there exists the wisdom of generating social action forces by means of the cumulative action of all the social actors.

Socioenergy and anti-social energySocioenergy refers to positive processes in the dynamics of a community that take place under the sign of cooperation, openness, social construction, participation and engagement in joint activities whose purpose is in line with the common interest of a community. In a sense, social energy could for instance mean public decision of the elected representatives of local, regional, national and international community. !e social energy is the source of development projects and strategies of a community of di&erent size or of a social group.

Anti-social energy is the correlative concept of social energy. Social energy becomes destructive, inhibitory, and can become a hindrance for the community development to the extent that it takes the form of a con#ict on the basis of private or group interests, which may replace the common interest of the community members. !e anti-social energy is the source of con#ict that at some point of the accumulation can embrace physical violence, with its extreme form of armed war. !e anti-social energy can be found in physical and symbolical social violence whereby a part of the

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group or of the community tries to assume a private or a group interest for the resources or for the redistribution of resources of a community. !e anti-social energy may have as vectors political parties and pressure groups that de%ne common interest as private / group interest when they have access to public decision. An actor who uses anti-social energy can also be the state or an alliance of states that, in the absence of development, cooperation or negotiation projects in order to solve problems, chooses war violence or invents a reason to justify and use war violence.

Socioenergy or anti-social energy of a community uses as means of manifestation the accidental and the unplanned event, but also the project and the planned strategy of acquisition or maintenance or re/distribution of public resources of a wider national or international community. Finally, the two concepts aimed actions – planned or not – claim or set against the common interest. !e two forms of social energy are found in projects and cooperation actions: social, economic, political, cultural development projects, within a monopole or group actions over the resources of the community and their unethical distribution. !e construction and development project and the di&erent forms of social con#ict whose parts could no longer negotiate over a certain problem represent principal ways of manifestation of social and anti-social energy.

"e world of peaceful co-existence and the world of co-evolution !e two concepts acquire a signi%cant endorsement in the special context of communist and post-communist history after World War II. !e end of the war as a form of manifestation and concentration of anti-social energy at a peak level launches suddenly a second War - !e Cold War -, the concrete form of manifestation of negative social energy of the same type, in which the anti-social energy is ideologically based: !e Communist and !e Capitalist Alliance de%ne and build each other in a project for over a half century in terms of Good and Evil.From the perspective of the previously used conceptual pair social/anti-social energy, we deal with a world where the anti-social energy dominates, which rejects any common project, dividing the world into Good and Bad. We call this world the world of co-existence. Apparently, we have to deal with a peaceful world. !e physical war is avoided -


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which is %ne, but the history after WWII until the ‘90s is marked as a symbolic con#ict era: capitalism and communism co-exist peacefully. More speci%cally, the Cold War occurs, fueled by the logic of division and potential con#ict between East and West. It imagines the ideology of peaceful co-existence, which makes it less likely the hot con#icts, but does not generate a combustion development. Peaceful co-existence means delimitation of spheres of in#uence and a symbolic constant con#ict under an assumed ideology and permanent reactive strategies. Peaceful co-existence means separation and mutual denial, strategic defense and attack management, demonstrations and counter-demonstrations of power of di&erent kinds, testing and response tests or traps - a permanent symbolic war which eliminates the joint projects or the authentic dialogue.

In 1986-87 it seems that the Soviet leader Gorbachev realized that freedom of speech could become a development resource, because in freedom people can create and can participate to the creation of a more e&ectively future than under communist oppression. Moscow lost economic and military war because the single centralized party proved to be ine"cient in the battle with the free market, the multi-party competition and the economic development from the western world. !e development resource that Gorbachev wanted to use as a resource for conservation of the communist world in the same peaceful co-existence turned against the USSR and succumbed. !e Cold War ended with the defeat of the USSR at least at a formal level. In fact, the logic of this peaceful co-existence dominated federal political thinking of Russia after 1991 until today. Holder of energy that Europe needs Russia behaves in the same %eld of peaceful and anti-social coexistence. And the West reacts in the same way as in the Cold War, although the Cold War - formally - is over.

!e statement that we want to stress in this paper is that today, in the context of Russian-Ukrainian war, both Russia and the EU or the US think in the same logic of the Cold War - the two sides co-exist and seem incapable to think in terms of social energy constructive cooperation, evolution of one joint venture and joint development. !e Russia-Ukraine war is the violent answer, by anti-social energy at global level, which appears in the absence of any economic development projects and of increase of the living standards. Russia is using violence war because it played continuously in the logic of the Cold War after 2000 and its

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government today has resorted the violent means in order to compensate the lack of development projects.

From the conceptual perspective that we propose, this war, and also its continuation by apparently peaceful means of negotiation is the result of co-existence and of the inability to overcome this separatist logic, incapable to generate social energy of joint social development projects.

Such new logic entails co-evolution and the transition from a logic of con#ict to one of cooperation. Social energy is the means by which the model of co-evolution manifests - a response to the congestion created by the behavior based on the logic peaceful co-existence.

Co-evolution and the use of its elements at socio-political and economic level are equivalent to a shift of paradigm in the understanding and the projection of development at national and global community. !e logic of the Cold War should be replaced with a logic of participation and cooperation, of joint development projects, where con#ict and - his most destructive form - violent war block the resources of understanding and cooperation.

Socioenergy and the security values!e security values, as well as the insecurity ones of the socioenergy are easily visible. First of all, in the historical situations when socioenergy has minimum values, societies’ capacity of surviving throughout time is signi%cantly diminished, these societies running high risks of dissolution and chaos. To this end, it is useful to notice that, as a rule, under circumstances of anarchy and social violence, the main explanation consists in the serious imbalance of the relationship between individuals and community.

Out of what has been said before it results that, %nally, the most profound and severe form of aggression against a society is the triggering of the processes which destroy the balance between individuals and society, the social energy being dissipated in peripheral, disintegrating experiences. At


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the same time, it is obvious that it is essential that a national security strategy should rely on a social human-community construction program, in which individuals can %nd their optimum environment of existence within the community life.

"e American and the Japanese civilizations cases - a brief discussion In the following paragraphs we consider two historical cases, extremely complex, therefore di"cult to summarize. It is %rst of all, the American case, frequently mentioned in various contexts. From the standpoint of the current discussion, the experience of American history has in its forefront the individual’s dominant pro%le. It is the individual whose force actually builds a new community. In the American civilization the norm, as an essential expression of community life, is the major in#uence of the individual’s practical life. Basically, the force of the American society, its social e"ciency, is the result of this very relationship, constantly contradictory but permanently balanced, between individuals and community.

To conclude this brief remark on America’s power, we present a quotation from an analysis of American literature (Secolul 20, 1999, p. 250): “During our extensive discussions on American literature he showed me this paradoxical duality of the hero on the new continent: the need for community and the escape from the world, to reach solitude...” Actually the above quoted words are a concise formulation of the equation of the American social performance – the dynamic connection between “solitude” (individuality) and community.

!e other historical case we are considering, the case of Japanese civilization, expresses, in an exemplary way, a performing socioenergetic construction formula, based on the mutual intensi%cation of the individual and community energies. By comparison to the American experience, the Japanese case is more interesting as its historical beginnings are completely di&erent, the Japanese civilization relying on an intense community life. Japan’s entrance into modernity meant the very intense triggering of individual energies, without diminishing the community’s social signi%cance. !is sociohistorical construction process fuels Japan’s current

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prosperity and power. From what we notice, another signi%cant power of the 21st century is undergoing a similar sociohistorical construction process: it is China.

"e Romanian case For the Romanian case, we use as a reference Constantin Noica’s famous comment related to the word “longing for” (“dor” in Romanian) (Noica, 1987, p. 205): “When one wants to show that we mean something else by our words and that as a result of this, the Romanian language is entitled to exist in the world, the %rst word that comes to your mind is <longing>… !e word <longing> has in its structure a prototypical feature…, it represents a blending…” In line with Noica’s thinking, we can easily imagine the idea by means of which <longing> means the very need of blending between man and world, between individual and community. Obviously, starting from this idea, a likely rich social Romanian anthropology can be undertaken.

!e task of putting together the Romanians’ socioenergetic construction is a self-contained one. However, even considering things very broadly, it can be stated that the Romanian people’s socioenergetic core is healthy and resilient. !e tradition of community life, the village population and the strength that connects man, as an individual, to the land and the customs of life shared with others support this idea. !e overall context of the Romanian people’s history has indicated socioenergetic disturbances over the last decades. From this perspective, two major risks of manifestation of a socioenergetic de%cit in Romanian social life could be identi%ed: a) %rstly, the Romanian society has been a&ected by the experience of the pseudo-community life after years following the second World War; b) secondly, but not less negatively, there have been the processes of false development of human individuality, under the precarious normative circumstances of the social transition.

Lucian Boia (2012, pp.80-81) correctly noticed: “!e Romanian culture lacks the capacity of every-day democratic adjustment capacity, which would maintain things in balance, removing the risk of dangerous drifts. Romanians do not commit themselves, they look for insigni%cant


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individual solutions instead of searching for collective solutions, and then nothing fundamental will be solved while the tensions will continuously build. !e lack of a minimal dialogue, of a minimal protest, of a minimal compromise has generated the unexpected and huge explosion in December 1989”.

!is very situation of cultural de%cit, this precariousness of the community-democratic practice has generated, in our opinion, an extremely painful paradox. In December 1989, the Romanians had an issue, expressed essentially by the totalitarian pressure over people and communities. In December 1989, in the following months and years, Romanians dealt with the issue with which they were confronted, the totalitarian political structure being destroyed. However, the issue has been dealt with in a way that has generated many other issues, extremely serious. First and foremost, it is the issue of the political climate, the community behavior and the people’s frame of mind. It is di"cult to %nd a more telling example of the lack of public intelligence...

Along the ideas expressed above, the same Lucian Boia (2012, pp. 93-94) comments: “What does not work in Romanian society, or works with obstacles is the selection of values. !e dominance of personal or group relationships over institutional requirements: older faults, increased during communism, and left uncontrolled after 1989. Simultaneously with the overcoming of the totalitarian system, a sort of individualistic wilderness without rules has manifested itself, for securing a better position...”

Obviously, in order to survive in time, the Romanian society, as any other society, needs a dynamic, and balanced correlation of the individual energies with the community energies. Normally, the idea expressed above should be at the basis of any social construction program and of any national security strategy. We think that Romanian needs a paradigmatic shift in the strategic thinking for domestic and international politics. !e co-existence paradigm should be soon replaced by a co-evolution paradigm.

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Romania - the future has to be to be de$ned within the co-evolution paradigmRomania has been governed in the domestic and foreign policy by decisions and strategies belonging to the peaceful co-existence paradigm. !is Romanian approach is part of a global game that uni%es and divides Europe after the fall of communism. Although it changed the political sides, Romania participates today at the game of co-existence as part of the West. !e camps during the Cold War were rede%ned after the fall of the USSR, but the logic of Russia’s relations with the West remained the same – the peacefully co-existence generated by negative social energy.

What is sure today is the destructiveness of Russia-Ukraine war in Europe. Nothing suggests that there is some form of social energy this war may produce, even for Russia. Our hypothesis is that this extreme form of negative social energy at European level - the Russo-Ukrainian war - is the result of the absence of joint development plans of the EU, the US and Russia. It seems that the paradigm of peaceful co-existence came to a deadlock. !e result of lack of the economic development projects for Russia was the war violence - a social manifestation of the negative energies more manageable for Russia than projects and strategies of economic development.

What could Romania do in this context, as a part of the EU and NATO?

Romania’s internal di$culties Internally, it is hard to immediately identify a project for transforming the generalized symbolic political violence, based on the coexistence paradigm into projects of co-evolution and national cooperation. Cooperation projects, political alliances, coalitions of government are short and insigni%cant in relation to con#ict and political aggression - forms of manifestation of social negative energy. Social energy does not preclude con#ict, but getting over its limit to get cooperation and development in confronting di&erent views and projects. !e con#ict between two ruling parties concerning the number of vice-premiers is a con#ict that does not eliminate the co-evolution in the alliance of government. Nevertheless, the rupture and getting out of the government because the parties failed to agree over the attributions of a proposed vice-premier is a clear case of


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peaceful co-existence and anti-social energy. Romania cannot build inside a national policy shared in its principles and frameworks by a majority of the governing elite (political parties). Romanian national politics unfolds a quarter of a century still in the frameworks of anti-social energy that is speci"c to the paradigm of peaceful co-existence.

Domestic opportunities in Romania We believe, however, that we can identify in the Romanian public space islands of co-evolution and of allowing the creation and the manifestation of social energy. An optimistic outlook would suggest that, based on those islands, around them can coagulate important social and political actors that are able to generate a wave of change to a national co-evolutionary logic: Ministry of Foreign A&airs and the National Bank of Romania.

Try to consider these two areas are islands of co-evolution, which could generate cooperative and coagulation movements of development cooperation projects at the national level, by stimulating cooperation and co-evolution potentials of social energy at the political and civil society levels. We further operationalize the co-evolution potential that the Romanian Foreign Ministry owns (!e co-evolution potential of the National Bank of Romania represents the subject of another research project we are working on).Somehow away from the accelerated dynamics of change in depth, the Foreign Ministry has a stable body of expertise that may be used for projects in a co-evolutionary paradigm at international level, in which Romania may be an active part or even the initiator.

Such a development project could be represented by the proposal and by the organizing of Romania of a framework for discussion and cooperation on economic and social development projects in response to the war between Russia and Ukraine. Organizing an international Summit in Bucharest focused on economic development projects and solutions could be the o$er of social energy and a paradigm shift in the relations between the EU, the US and Russia, which is held today in the speci"c logic of the maximum manifestation of negative social energy - the violent war.

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A foreign policy of co-evolution could mean overcoming the con#ict and mutual potentiation of resources development. Romania could initiate with full coverage in the logic of history, co-evolutionary processes of the European Union and Russia. An international summit held in Bucharest, of the EU and Russia, with special guests to debate the common strategy of co-evolution (the US, China, Japan, and all countries with investment potential in the area), may represent the beginning of a paradigm shift at global level.

Co-evolution does not share Kant’s categorical imperative - it will be an utopia to invoke ethical values outside politics in the policy of states. Co-evolution means in this case win-win strategies. If we don’t see them, it doesn’t mean they don’t exist. !e international EU-Russia Summit in Bucharest, inviting NATO, the US, China and other international actors that could participate in socio-economic development projects would be a good opportunity to test the potential of the co-evolution. A logic similar to the Pascalian bet would suggest to calculate the odds of risk of this International Summit in the following terms:(i) If Romania is betting on the success of the proposed international summit in Bucharest and loses the bet, it does not lose anything - you cannot lose what you never had. (ii) If Romania is betting on the success of the proposed international summit in Bucharest and the summit will be successful, we will win everything is at stake (cooperation, joint EU-US-Russia economic and social projects, win-win social and economic projects of a global type, the elimination of the war violence). (iii) If Romania is betting on the failure of the proposed international summit in Bucharest and the Summit is a failure, we won the bet, but, in fact, we don’t win anything because we remain with the existing war situation. (iiii) If Romania is betting on the failure of the proposed international summit in Bucharest and loses the bet, meaning that it would be a successful summit, we will, in fact, never organize it, and therefore we will never know anything about its success.

Using the same Pascalian logic, one of the four hypotheses is preferred and has the biggest gains.


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A co-existence logic is compatible with the cases (i), (iii), (iiii).

!e paradigm of co-evolution is compatible with the rest.

References Boia, L. (2012). De ce este România altfel?. Bucharest: Humanitas Publishing

House.Enciclopedie de %loso%e )i )tiin'e umane (2004). Bucharest: ALL DeAGOSTINI

Publishing House.Iacob, M., and Iacob, D. (2010). Fondul ,i forma. O poveste cultural-. Bucharest:

Tritonic.Iacob, M., and Iacob, D. (2006). Socioenergy and the security of nations. In

Actualitate .i perspective în societatea înalt tehnologizat-. Bucharest: UNAp Publishing House.

Noica, C. (1987). Cuvânt împreun- despre rostirea româneasc-. Bucharest: Eminescu Publishing House.

Secolul XX (1999). A review of world literature, sciences and the dialogue of cultures, 7-8-9/1999

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"e e#ect of organizational culture and uncertainty on supply chain collaboration.

"e case of Albanian beer producers

Denisa MAMILLO1

Abstract. Supply chain uncertainty is higher nowadays due to the global crisis, the fast changing technology and the increasing vulnerability of supply chains. Companies use di$erent strategies to reduce uncertainty, like building agile supply chains, increasing resilience, postponement, etc. All these strategies require strong supply chain collaboration. Although research interest in supply chain collaboration is growing, no research has been done in Albania. !is paper is one of the "rst to investigate supply chain management practices and the extent of supply chain collaboration in the Albanian beer industry. !e aim of this research is twofold: "rst, to investigate how supply chain uncertainty in%uences the extent of collaboration with the supply chain members, and second, to analyze how organizational culture facilitates the collaboration process. !e research is focused on the Albanian beer producers because the beer producers have a global supply chain, and the consumption of domestic beer is increasing even after the crisis. Semi-structured interviews were conducted with the managers of the main beer companies. A guide questionnaire was prepared. It consisted of open and rate-scale questions about supply chain collaboration, supply chain uncertainty, supply chain management practices and organizational culture. !e research will show that a high level of supply chain uncertainty does not always bring a high degree of collaboration with the supply chain members. Organizational culture is the key driver of a successful collaboration. Not all types of culture can facilitate collaboration but only the ones with an external orientation. Albanian beer producers are aware of the many bene"ts of supply chain management, but the costs of implementing the supply chain practices are not justi"able especially due to lack of customer education in this "eld. !e focus on the focal company instead on the aggregate supply chain and on one industry are the main limits of this study.

Keywords: supply chain management; supply chain collaboration; supply chain uncertainty; organizational culture, beer industry, Albania.

1. Ph.D. candidate, Department of Management, European University of Tirana, Tirana, Albania, [email protected].

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IntroductionCustomers require more choices, better prices, high quality and better post sale services. Technology is changing quickly, and if a company does not catch the last trends, it may lose competitive advantage. It cannot satisfy customers and be at the leading edge of technology if suppliers are not reliable and consistent with the supply of materials.

Uncertainty from demand, technology and suppliers are the main sources of supply chain uncertainty (Chen and Paulraj, 2003). Today supply chain uncertainty is higher, %rstly because supply chains are more vulnerable. !ey have been always vulnerable, but today they are more vulnerable, as the companies are less vertically integrated, and their supply chain is located all over the world (Wagner and Bode, 2007).

Secondly, mentioned in the %rst paragraph, the current technology trends are increasing the supply chain uncertainty. !e technology changes quickly, and companies need to be innovative, to introduce new products in the market. As new products are frequently introduced, companies need to keep little inventory because many of the components will not be needed to produce the new products. Companies reducing inventory, rely on global sourcing, on lean manufacturing (Shah and Ward, 2003) and on just in time inventory management (Christopher, Lowsen and Peck, 2004), which require close collaboration with the supply chain members (Liker and Choi, 2004).

Lastly, the global crisis of 2008 ampli%ed the sources of supply chain uncertainty. We can mention sources like unstable trade and capital #ow, currency risk exchange, uncertainty about the environment regulations and an increase of uncertainty regarding the decision of choosing suppliers as companies in developed countries are becoming more credible (Malik and Ruwadi, 2014).

Reducing supply chain uncertainty is of strategic importance for companies. Strategies used by companies to reduce uncertainty vary from building #exible, aligned and agile supply chain (Lee, 2004), increasing resilience of supply chains (She", 2005), postponement, #exible supply base (Tang, 2006), etc. All these strategies require strong collaboration

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with the supply chain members. Many companies acknowledge their success to the relationships with their suppliers and buyers (Myers, 2010).

Research aim and hypothesis!e aim of this research is twofold: %rst to investigate how supply chain uncertainty in#uence the extent of collaboration with the supply chain members and second to analyze how organizational culture facilitate the collaboration process. !e research is focused on the Albanian beer producers.

!ere are two main reasons why I chose the Albanian beer producers for this research. Firstly, the consumption of domestic beer is increasing in Albania due to increase in quality and variety with reasonable price (Chan-Halbrendt and Fantle-Lepczyk, 2013). Second, the supply chain of the beer producers is a global one and so they can bene%t more from supply chain collaboration.

Chen and Paulraj (2003) found that the main sources of uncertainty are supply uncertainty, demand uncertainty and technology uncertainty. Supply and demand uncertainty depends on demand forecast and supplier reliability (Mc Laren, Head and Yuan, 2005). By collaborating with suppliers and customers more accurate demand forecast can be done, and long-term relationships can be built based on trust, respect and commitment. Also collaboration can reduce technology uncertainty, as by sharing information in real time with the chain members, you can catch the last technological trends quickly (Boon and Wong, 2011). !ese observations suggest the following hypothesis: As supply chain uncertainty increases, collaboration with the supply chain members also increases.

Collaboration requires sharing information, joint decision-making, commitment, trust, and respect (Laskowska-Rutkowska, 2009). In other words, collaboration requires focusing on building and managing relationships with the others. !is approach is easier for cultures with external orientations. Cameron and Quinn (2011) de%ne cultures with external orientations as the ones focused on interacting with others outside

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their boundaries. !is discussion suggests the following hypothesis: Organizational cultures with an external orientation facilitate the process of collaboration.

After the introduction section, there is a brief description of the Albanian beer industry, continuing with the relevant literature regarding supply chain collaboration, supply chain uncertainty, organizational culture and the relation of the last two with supply chain collaboration. !en, the methodology is explained. After the methodology section the %ndings are discussed, and I conclude with limits of the study and recommendations for managers and future research.

Albanian beer industryIn Albania, beer was %rst produced in 1928 with the establishment of the Korca Beer by the investor Umberto Umberti (Italy) and Selim Mborja from Korca. !ere was a production capacity of 20,000 hl beer/year (1 hectoliter = 100 liters). In 1960, Birra Tirana was founded, with a capacity of 50,000 hl beer/year. After 1991 other beer producers, Stela, Norga, Kaon and 80 mini-brewery entered the market (Kume, 2011).

Albanian beer market is growing even after the crisis. !is increase is shown by the improvement in the quality of Albanian beer, increased consumption of domestic beer compared with imported beer due to di&erences in price, increased variety of beer and huge innovations in technology (Chan-Halbrendt and Fantle-Lepczyk, 2013).

!e main players in the Albanian beer market are large and medium manufacturers, small producers that compete on low price and imported beers. !e large and medium manufacturers are dominated by %ve Albanian companies: Tirana beer, Stela beer, Korca beer, Kaon beer and Norga beer. Tirana beer is a joint stock company with a long experience and tradition in the Albanian market. It is the company that holds the highest market share, thanks to its long presence in the Albanian market (since the 1960s). Korca Beer is a well-known brand by customers because of its special taste. Stela beer is the second largest producer after Tirana Beer. Kaon and Norga

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beers are two new brands that have entered the Albanian market after 90s, and were able to catch a part of the beer market (Kume, 2011).

Literature reviewSupply chain collaborationToday companies are not competing with each other, but the competition is with supply chain versus supply chain (Ketchen Jr. and Hult, 2007). !is new competition requires a shift from open market negotiations to co-operation, which is the starting point for supply chain management. But co-operation is not su"cient, so the next transition is to co-ordination, when real-time information is exchanged with the trading members (Spekman, Kamau& Jr. and Mhyr, 1998). !e last transition is collaboration, based on trust and commitment with the supply chain members. It is obvious that supply chain collaboration is the key driver of e&ective supply chain management (Spekman, Kamau& Jr. and Mhyr, 1998).

Supply chain collaboration has become one of the most important topics in the business area not only of its importance in supply chain management, but because it also provides many bene%ts to the chain members (Min et al., 2005). !ese bene%ts are more than just improved e"ciency and e&ectiveness, including increased customer satisfaction (Myers, 2010), improved pro%t and market share (Myers and Cheung, 2010), reduced lead-time and improvement in innovation (Spekman, Kamau& Jr. and Mhyr, 1998).

Collaboration is easy with the right partners, so an important aspect of collaboration is the selecting of supply chain members. According to Barrat (2004) supply chain collaboration means sharing joint objectives, intellectual agility, trust, respect and commitment, to get the best outcome for each member. !e last three factors are the ones that companies value most when they select their partners (Spekman, Kamau& Jr. and Mhyr, 1998). A prime selection is done based on their reputation, quality issues, %nancial performance and past experience with the company (Du&y, 2014). Normally selection criteria will vary for each industry and company, but criteria like economic bene%ts, tax and environmental advantages, a high degree of integrity and the existence of synergy are the most important

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criteria for selecting the supply chain partners (Spekman, Kamau& Jr. and Mhyr, 1998).

After the selection of the appropriate partners, companies must decide the elements of collaboration. Many consider supply chain collaboration as a unilateral process that focus on one element like information sharing, co- managed inventory, process coordination and work#ow realignment (Lee, 2000). Simatupang and Sridharan (2005) argue that key elements of collaboration interact between them. According to them the key elements of collaboration include information sharing, decision synchronization and incentive alignment. Information sharing refers to the access in the personal data of the supply chain members. Decision synchronization is de%ned as the extent at which the supply chain members coordinate critical decision at planning and decision level. Incentive alignment refers to the sharing of costs, bene%ts and risks with the supply chain members. Based on these three elements of collaboration the mentioned authors developed a collaboration index that will be used in this research to measure the extent of supply chain collaboration.

Supply chain uncertainty A recent report, concluded that uncertainty is a&ecting supply chain in four ways: by adding costs, increasing inventory levels, increasing lead times and reducing speed to markets (Butcher, 2014). !e impact of these negative e&ects is sometimes felt in the long term, so reducing supply chain uncertainty is of strategic importance for companies. Strategies used by companies to reduce uncertainty vary from building #exible, aligned and agile supply chain (Lee, 2004), increasing resilience of supply chains (She", 2005), postponement, #exible supply base (Tang, 2006), etc. All these strategies require strong collaboration with the supply chain members. Many companies acknowledge their success to the relationships with their suppliers and buyers (Myers, 2010).

Lancaster, Simangusong and Lancaster (2011) argue that the main sources of uncertainty can be divided into three groups, uncertainty that come from the focal company (internal organizational uncertainty), internal supply chain uncertainty that comes from the relations with the supply

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chain members and external uncertainties that come from factors outside the supply chain. !is paper is focused on the internal supply chain uncertainty. Chen and Paulraj (2003) argue that internal supply chain uncertainty can be attributed to three sources: supplier uncertainty; demand uncertainty and technology uncertainty. Supply uncertainty relates with indicators of quality, timeliness and the inspection of supplier requirements. Demand uncertainty refers to #uctuations and variation in demands. While technology uncertainty relates with the technological changes within the industry.

Supply chain collaboration initiatives help to coordinate customer demand with supplier and manufacturer production plan, by reducing demand and supply uncertainty (Mc Laren, Head, and Yuan, 2005). Supply chain collaboration also can reduce technology uncertainty, as the continuous sharing of information makes more visible the recent trends in technology (Boon and Wong, 2011). I can conclude that collaboration with the supply chain members can reduce uncertainty deriving from supply, demand and technology.

Organizational cultureHofstede, Minkov and Hofstede (2010, p. 17) de%ne organizational culture as the “collective programming of the mind, which makes members of one group or category of people di$erent from those of another”. Cameron and Quinn (2011) developed a competing value framework to study organizational culture. !is framework focuses on two main dimensions: the %rst dimension di&erentiates criteria based on #exibility and dynamism versus the other criteria based on stability, order and control. !e second dimension di&erentiates criteria based on internal orientation versus criteria based on external orientation. !ese two dimensions are the main issues in supply chain management, so this framework is the most appropriate for examining the relationship between the organization culture and supply chain collaboration. From the combination of the two dimensions, four types of organizational culture arise: hierarchy culture, market culture, clan culture and adhocracy culture. !e characteristics of each type of culture are presented in table 1.

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Table 1. "e competitive value framework (adapted from Cameron and Quinn, 2011)

Dimensions Internal orientation External orientationFlexibility Clan culture

Shared values and goals Cohesion Collaboration Teamwork Main objectives are long term bene%ts and individual developmentIdeal for uncertain environment

Adhocracy culture FlexibleRisk takingAdaptable to new opportunitiesInnovativeAppropriate for hyper turbulent environmentMain objective is being at the leading edge of new product, services and knowledge

Stability Hierarchy cultureClear lines of decision-makingMultiple hierarchical levelsFormalized procedures and rulesConservatismMain objectives are stability, e&ectiveness and e"ciency

Market cultureOriented toward the external environmentHigh competitivenessMain objectives are pro%tability, secure customer base and strategic positioning

Supply chain management requires collaboration, which in turns requires membership, trust, commitment and sharing information (Laskowska-Rutkowska, 2009). Perhaps a culture with an external orientation will be the best, but there is little evidence in literature about the best type of culture that make easier the supply chain collaboration process in organization.

MethodologyFrom the main %ve Albanian beer producers, only four become part of the study, as the managers of one company did not agree to give information about the topics of the research.

Semi- structured interviews were conducted with the managers of each company. !e persons interviewed were purchasing managers, sale

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managers and in one case the owner of the business. In some companies was interviewed only one person, while in another company two persons were interviewed. All interviews were conducted face to face, and the con%dentiality of data was promised.

A questionnaire guide was prepared to support the semi-structured interviews. It has four main parts: supply chain management practices; supply chain collaboration; supply chain uncertainty and organizational culture. !e %rst part consisted of open questions and one-rate scale questions. !e open questions were about the supply chain management practices adopted by the companies in terms of collaboration with suppliers, collaboration with customers and information sharing. !e rate scale question was about the reasons for selecting the supply chain members. A list of reason was presented, and they were asked to give an evaluation from 1 to 5, when 1= strongly disagree and 5= strongly agree. !e interviewers were free to mention other reasons that were not in the questionnaire.

For the second part the collaboration index of Simantupang and Sridhran (2005) was used. !e authors measure collaboration based on three dimensions: information sharing, decision synchronization and incentive alignments. In Appendix 1 are listed the items for each dimension. !e respondents were asked to give an evaluation from 1 to 5, when 1= strongly disagree and 5= strongly agree, to each item. !e index score simply equals the sum of the aggregate scores of each dimension, assuming equal weight for each of them. Higher the index score higher is the collaboration between the supply chain members. Comparing the score of the collaboration index with the maximum score, I could evaluate if the level of collaboration is low, medium or high. !e maximum score of the collaboration index relates with the maximum score for each dimension (the respondents evaluate %ve each item).

To measure supply chain uncertainty, the study of Chen and Paulraj (2004) was used. As mentioned in the literature review, they identi%ed three sources of uncertainty: supply, demand and technology uncertainty. !e authors for each type of uncertainty provide a list of items that are presented in Appendix 2. !e respondents were asked to give an evaluation

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from 1 to 5, when 1= strongly disagree and 5= strongly agree, to each item. Regarding supply uncertainty, a total score of 10 signi%es that the suppliers ful%ll all the requests and o&er materials of consistent quality, so the supply uncertainty is low. An evaluation of 25 for the second dimension (in the case when the respondent evaluates with the maximum points all the %ve items) is related with high demand uncertainty. Lastly, high technology uncertainty relates with a total evaluation 20 (in the case when the respondents evaluate with the maximum points all the four items). !e scores for each source of uncertainty were compared with the maximum scores, to evaluate the level of uncertainty for the three sources of uncertainty.

!e last part was focused on organizational culture, and consisted of open questions.

!e questionnaire guide was %rst evaluated by academicians, and was tested in one of the companies that are part of the study. Some questions were improved and changed based on the feedback of the academicians and the result of the %rst interview.

!e most relevant ethical issues for this research are con%dentiality of data, avoiding causing harm and lacking respect, informed consent and promise to provide the participant with a copy of the study.

Research $ndings!e name of the beer producer will not be mentioned as they asked to be anonymous, so I will call them Beer producer A, B, C and D.

Supply chain member’s selectionTable 2 summarizes the %ndings of what participants consider important when selecting a supply chain member.

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Table 2. Supply chain member’s selection

What are the main reasons for selecting the supply chain members?!e most important !e less important

Beer producer A Is reliableHad been reliable in the past with usIs committed to usO&er economic bene%tsHelp to reduce the production costsHelp to reduce the workforce cost

O&er political advantagesO&er environmental advantages

Beer producer B Is reliableHas a high degree of integrityHas a good reputationHad been reliable in the past with usO&er economic bene%tsImprove our competitive positionHelp to reduce the production costs

O&er political advantagesO&er tax advantagesO&er environmental advantages

Beer producer C Is reliableO&er economic bene%tsO&er tax advantagesO&er environmental advantagesHelp to reduce the production costs

O&er political advantagesHas a high degree of integrity

Beer producer D Is reliableHas a high degree of integrityExist synergy between usO&er environmental advantagesHelp to improve the competitive position

O&er tax advantagesO&er political advantagesO&er economic bene%ts

All the beer producers seek members that are reliable and help to reduce the production costs. !ey do not consider tax and political advantages as important criteria. Beer producer D very di&erently from the others does not select the supply chain members based upon the economic advantages they o&ered.

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Supply chain practices!e suppliers of many beer producers are unique and strategic; sometimes they have the same supplier, which is consistent with the %ndings from the previous part (the most important selection criteria for supply chain members is reliability). Having strategic suppliers requires building strong relationships with them, which in turns requires collaboration. But the beer producers are engaged very little in supply chain management. !ere is little collaboration, synergy and information sharing between the supply chain members. Sophisticated supply chain processes like EDI and #exible manufacturing cells are not used. Even other sophisticated tracking mechanisms are not used, and many of them do not know about these mechanisms.

!ey do not have software to exchange information in real time with suppliers and customers due to the high cost of implementing the software. Suppliers and especial customers are also not accustomed to use software and to provide information for inventory level, price etc., considered by them personal and strategic, to the supply chain members.

Supply chain collaborationTable 3 reports the score for the collaboration index, expressed as the sum of the score of the three dimensions of the index, for each beer producer.

Table 3. Collaboration index

Beer producer Information sharing

Decision synchronization

Incentive alignment

Collaboration index

Beer producer A 15 17 17 49Beer producer B 38 35 14 87Beer producer C 30 26 14 70Beer producer D 25 17 11 53Maximum score 50 40 25 115

!e collaboration is at medium levels for the Beer producer B and C, and at low levels for Beer Producer A and D. It makes no sense to interpret these results alone, as the research aims to %nd the correlation that exists between supply chain collaboration and supply chain uncertainty. So I will analyze the %nding for supply chain uncertainty and then I will relate them with the present %ndings.

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Supply chain uncertainty!e sum of the evaluations given from the respondents for each type of uncertainty is presented in table 4.

Table 4. Supply chain uncertainty

Beer producers Supply uncertainty Demand uncertainty

Technology uncertainty

Beer producer A 7 19 13Beer producer B 8 16 12Beer producer C 9 11 8Beer producer D 10 6 10

!e data in table 4 shows that supply chain uncertainty is low for all the beer producers. !e demand uncertainty is high for the %rst beer producer, at medium levels for the other two beer producers and low for the fourth beer producer. Lastly, technology uncertainty is at medium- low levels.

!e overall supply chain uncertainty is at high- medium levels for the %rst three producers and at low levels for the last producer.

Beer Producer A has the highest level of supply chain uncertainty in comparison with the other beer producers, while it has the lowest score of the collaboration index. Beer producer C and D have a low level of supply chain uncertainty and low-medium score of the collaboration index, while Beer producer B has the highest score of the collaboration index and supply chain uncertainty at medium levels. !e literature and hypothesis 1 argue that when supply chain uncertainty is high more supply chain collaboration is required. !e research shows that this is not true in the case of Beer Producer A. Let’s analyze the %ndings related with organizational culture and then analyze more in detail this contradicting result.

Organizational culture!e framework used to analyze the organizational culture is the competitive value framework of Cameron and Quinn (2011). After carefully analyzing the elements of the organizational culture for each producer, I concluded that Beer Producer A has a clan culture, Beer Producer B a market culture while the others have a hierarchical culture. !e most important elements

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of the organizational culture for each beer producer are summarized in Appendix 3.

Beer Producer B has a culture with an external orientation and has a high score of the collaboration index while the other producers have organizational cultures with internal orientation and low-medium score of the collaboration index. !e %nding does not contradict hypothesis 2.

Beer producer A, with clan culture, has a high level of supply chain uncertainty but a low level of supply chain collaboration. !e lowest level of collaboration was at information sharing and decision synchronization. !e manager of Beer Producer A during the interview mentioned that for them privacy is important, so suppliers and customers do not need to have access to their personal information or participate in their decision making processes. !eir organizational structure is #at, and I noticed that they tended to work in group. It would be better that they adopt this spirit of collaboration even with the external members of the supply chain, to reduce the high demand uncertainty that they are facing.

ConclusionsAlbanian beer producers are aware of the many bene%ts of supply chain management, but the cost of implementing the supply chain practices are not justi%able especially due to lack of customer education in this %eld.

In general the level of collaboration in the Albanian beer industry is at medium levels, with an average score of the collaboration index of 65. Albanian beer producers do not like to share information with the supply chain members, but instead they argue that decision synchronization and sharing of costs and bene%ts with the supply chain members would bene%t everyone in the supply chain.

!e new business environment is facing more supply chain uncertainty that can be attributed to three sources: supply uncertainty, demand uncertainty and technology uncertainty (Chen and Paulraj, 2003). !e main source of uncertainty for the Albanian beer producer derives from demand while

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uncertainty from supply side is very low. !eir suppliers always ful%ll their requests and o&er materials of consistent quality.

!is research shows that there are cases when a high level of supply chain uncertainty does not bring to a high degree of collaboration with the supply chain members. Organizational culture is the key driver of a successful collaboration. !e %ndings of the present study show that not all types of culture can facilitate collaboration, but only the ones with an external orientation. As cultures with internal orientations are the most common between the Albanian beer producers, the implementation of supply chain collaboration practices will not be easy. !e next section provides some recommendations to help managers in dealing with supply chain collaboration, taking into consideration their organization culture and level of supply chain uncertainty.

Recommendations for managersBased on the %nding of the research my suggestions for the managers are the following:

Multiple sourcing versus single sourcing: We are living in an uncertain world, and it is better to have more than one supplier. Many companies keep one supplier to meet their normal demand of components and another supplier in case of a sudden increase in demand for components. Some companies rely on many suppliers, as they want to secure the #ow of components. If something happen to one supplier, the other supplier is available. But having many suppliers, means “destroying money and relationships”. Destroying money as you have to invest money to %nd and keep many suppliers. If you rely on many suppliers, you cannot build strong relationships with each of them. Before deciding to rely on one or more suppliers, analyze the competition to see if any of your competitors rely on the same supplier. If you share the same supplier with your competitors, it is necessary to create strong relationships with your supplier and to analyze the supplier market in case of any inconvenience by the supplier side.

Collaboration to detect the weakest link in the supply chain: Today many supply chains are global and complex, so it is di"cult to monitor and manage them. If one part of the supply chain is weak, all the supply chain

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will be weak. !e best suggestion for quickly discovering the weakest link is collaboration and continuous information sharing with all the companies in the supply chain. By collaborating with all the members in the supply chain, you can help them to meet your objectives and also you will know them better. Companies need to collaborate in normal times and especially in di"cult times. If you exchange real-time information about demand and supply with your members in the supply chain, you will notice immediately if something happen to them and vice versa. A small problem can bring big problems, so it is better to discover and solve it immediately.

Understand your organizational culture: Companies have di&erent cultures that sometimes help them to engage easily in supply chain collaboration and sometimes impose limits. So it is suggested to understand who are the strengths and limits of your corporate culture. When you decide to engage in supply chain collaboration, you have to consider these strengths and limits.

Organize internally and then externally: !e spirit of collaboration must exist %rst inside the company and then outside the company. If people in the company are not used to collaborate and work together as a team, it will be a waste of time trying to collaborate with other companies.

Limitations and recommendations for future research!e results of this study are relevant for the Albanian beer producer. Further studies should expand the study in other industries.

Another limitation of the study is the focus on the focal company. Future research may focus on di&erent companies in the supply chain, for example, the best case will be to conduct a study on the aggregate supply chain.

!e Albanian beer producer relies on one supplier for many products and they do not build strong and lasting relationship with them. Based on this %nding, one interesting area for future research will be the problem of single sourcing versus multiple sourcing. !e research will be useful in

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helping managers to understand if single sourcing or multiple-sourcing is the best option for their company.

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McLaren, T.S., Head, M., and Yuan, Y. (2005). Costs and bene%ts in supply chain collaboration. Në E. Li, and T.C. Du (Eds.), Advances in electronic business (pp. 258-284). Hershey, PA: Idea Group Pub.

Min, S., Roath, A., Daugherty, P., Genchev, S., Chen, H., Arndt, A., and Richey, G. (2005). Supply chain collaboration: what’s happening?. International Journal of Logistic Management, 16(2), 237-256.

Myers, M.B. (2010). !e many bene%ts of suply chain collaboration. Supply Chain Management Review, 8(6), 52-63.

Myers, M.B., and Cheung, S. (2010). Sharing global supply chain knowledge. Sloan Management Review, 49(4), 67-73.

Shah, R., and Ward, P. (2003). Lean manufacturing: context, practice bundles, and performance. Journal of Operations Management, 21(2), 129-149.

She", Y. (2005). !e resilient enterprise: Overcoming vulnerability for competitive advantage. Cambridge, Massachusetts: !e MIT Press.

Simatupang, T., and Sridharan, R. (2005). !e collaboration index: a measure for supply chain collaboration. International Journal of Physical Distribution and Logistics Management, 35(1), 44-62.

Spekman, R.E., Kamau& Jr., J.W., and Mhyr, N. (1998). An empirical investigation into supply chain management. A perspective on partnerships. Supply Chain Management, 3(2), 53-67.

Tang, C. S. (2006). Robust strategies for handling supply chain disruptions. International Journal of Logistics, 91(1), 33-45.

Wagner, S.M., and Bode, C. (2007). An empirical investigation into supply chain vulnerability. Journal of Purchasing and Supply Management, 12(6), 301-312.

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Appendix 1. Collaboration index

Information sharingOur business unit consistently shares the following information with our suppliers:1. Promotional events2. Demand forecast3. Points of sale (POS) data4. Price changes5. Inventory holding costs6. On-hand inventory levels7. Inventory Policy8. Supply disruptions9. Order status or order tracking10. Delivery schedules

Decision synchronizationOur business unit consistently incorporates our suppliers input to:1. Jointly plan on product assortment2. Jointly plan on promotional events3. Jointly develop demand forecasts4. Jointly resolve forecast exceptions5. Consult on pricing policy6. Jointly decide on inventory requirements7. Jointly decide on optimal order quantity8. Jointly resolve order exceptions

Incentive alignmentOur business unit consistently:1. Shared saving on reduced inventory costs2. Delivery guarantee for a peak demand3. Allowance for product defects4. Subsidies for retail price markdowns5. Agreements on order changes

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Appendix 2. Supply chain uncertainty measurement model Supply uncertainty

1. !e suppliers consistently meet our requirements 2. !e suppliers produce materials with consistent quality.

Demand uncertainty1. Our master production schedule has a high percentage of variation in demand. 2. Our demand #uctuates drastically from week to week. 3. Our supply requirements vary drastically from week to week. 4. We keep weeks of inventory of the critical material to meet the changing

demand.5. !e volume and/or composition of demand are di"cult to predict.

Technology uncertainty 1. Our industry is characterized by rapidly changing technology. 2. If we don’t keep up with changes in technology, it will be di"cult for us to

remain competitive. 3. !e rate of process obsolescence is high in our industry. 4. !e production technology changes frequently and su"ciently.

Appendix 3. Elements of the organizational culture

Beer producers Elements of the culture Type of cultureBeer producer A Risk takers

TeamworkCollaborationLow level of hierarchy

Clan culture

Beer producer B High level of hierarchyVery competitiveOriented toward pro%ts and strategic positioning

Market culture

Beer producer C High level of hierarchyIndividualismFormalized rules and proceduresHigh level of indulgence

Hierarchical culture

Beer producer D High level of hierarchyHigh level of indulgenceFormalized rules and proceduresIndividualism

Hierarchical culture

"e role of the European Union funds in economic development

Cristian P(UN1

Abstract. !e European Union project initially started as a peaceful solution for post-war reconstruction in Europe. European countries decided to cooperate rather to compete in an aggressive way. At the beginning, this project supposed market liberalization, trade barriers removals, market access improving (initially for coal, steel, energy and, later, for all goods, services, workforce and capital). Unfortunately, in the last decades, all these Single Market facilities have been backed by redistributive schemes, protectionist mechanisms, social engineering, subsidies and facilities packed in so-called ”EU policies”. New „European” institutions have been created; more and more funds have been involved to "nancially support this very complex redistributive intervention. Political dimension of the European Union project enhanced the economic dimension and constantly su$ocated private markets and economy. !e „incomes” of the European Union that fuel its "nancial support are coming from taxes and / or in%ation (better administrated after the introduction of Single Currency – euro). !is paper will discuss the relevance of European Funds for economic development, especially for new members in this project.

Keywords: European Union; European funds; economic integration; single market; euro.

Introduction!e European Union integration process is very complex and unique. !is process started as a common market for heavy industries (coal and steel) on 9 May 1950. !e project was presented to the public as a solution for cooperation among western European countries involved in a very destructive war and a peaceful project of economic development. !is process had di&erent stages: %rstly started as a free trade area consisting in the removal of trade barriers between founding countries for a speci%c

1. Professor, Ph.D., Faculty of Economics and International Business, Bucharest University of Economic Studies, Bucharest, Romania, [email protected].

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number of heavy sectors (coal, steel and later energy) in 1951; the process evolved to a generalized free trade area for all goods and services called „common market” and then to „single market” in 1992 supposing the four fundamental free movements of goods, services, people and capital (Wallace, Pollack & Young, 2010). Common institution with speci%c roles emerged: European Parliament (legislative), European Council (legislative), European Commission (executive), European Courts (control and judicial aspects) and, later, European Central Bank (monetary). !e next step in the integration process was the creation of a single currency area as a support for single market. Political union represents now the last challenge for the European countries. Common policies have been implemented: common agricultural policy, environmental policy, monetary policy, competition policy or common security and foreign policy (Cini & Borragan, 2013).

All the EU members have been „forced” to participate to the budget of the European Union administrated by the European Commission. A signi%cant part of local taxes have been transferred to this higher level. Taxation signi%cantly increased after `90s in all EU countries, in order to be able to support this project (Joumard, 2002, p. 93). After %nancing all operating expenditure for all EU institutions (including EU Parliament), the EU budget allocates important funds for %nancial support of common policies: the European Agricultural Guarantee Fund providing direct payments to farmers and European Agricultural Fund for Rural Development providing funds for rural development or LIFE Program for environment and climate action are relevant examples of such funds. Redistribution was reinforced by introducing more social sophisticated %nancing instruments such as European Social Fund with an allocation of 80 billion euro only for 2014 – 2020 period and extra 3.2 billion euro for Youth Employment Initiative for the same period, European Regional Development Fund, European Cohesion Fund that allocated 63,4 billion euro mainly for transport infrastructure and environmental projects and, recently European Union Solidarity Fund that provided 3.6 billion euro for 23 countries until now. Additional funds have been created to support sensitive sectors like SMEs or city areas are giving them a humanized name: JEREMIE - Joint European Resources for Micro to Medium Enterprises focused on providing %nancial support (guarantees, co-guarantees and counter-guarantees or equity guarantees), (micro) loans for small business ideas, credit insurance policies, securitization operations, venture capital

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funding, business angels funding and technology transfer %nancial support; JESSICA - Joint European Support for Sustainable Investment in City Areas ensuring %nancial support for developing urban infrastructure, improving cultural sites, commercial infrastructure for SMEs, IT or RandD sector, university buildings and JASPERS - Joint Assistance to Support Projects in European Regions providing funds for new comers in European Union for strengthening their capacity to submit %nancing project proposals (European Commission O"cial Website, 2014). For passing the crisis time, European o"cials created more sophisticated funds such as the European Financial Stability Facility (EFSF) created in 2010 with a total capital of 701.9 billion euro from which paid-in capital is 80.2 billion euro empowered with ability to borrow money to governments, to recapitalize banks that encountered problems or to directly purchase debt form primary or secondary debt market (ESM O"cial Website, 2014). More and more institutions and public servants are continuously added to the whole EU mechanism (for instance, for the administration of EFSF was created ESM – European Stability Mechanism with 130 public servants in present). !e idea of this paper is to analyze, from a theoretical perspective, the current European Union project and its relevance for economic development.

"e economic growth concept and its determinantsEconomic growth is a holistic concept and could be interpreted in various ways. Commonly it is associated to „the process by which a nation’s wealth increases over time” (Merriam – Webster Dictionary de%nition). !e way of measuring this economic growth consists in using a speci%c macroeconomic indicator called GDP – Gross Domestic Product adjusted with in#ation rate the result being real GDP growth rate. Business cycles are de%ned based on the same indicator: „a period of temporary economic decline during which trade and industrial activity are reduced, generally identi"ed by a fall in GDP in two successive quarters” (Oxford Dictionary de%nition). Additional indicators are proposed to measure economic growth: GDP per capita, national income per capita, national consumption per capita etc.

First of all, we should mark the severe inconsistence of the concept of economic growth: the nation’s health is di"cult to be measured being

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composed by individual wealth. How we can objectively estimate this individual wealth considering that various assets compose it: lands, buildings, %nancial assets (equities, debt instruments) that should be up-to-date evaluated at the market price? !e approximation of nation’s wealth with this GDP is far away from the reality. GDP is including the market value of the "nal goods and services produced by an economy within a speci%c period of time (usually a semester or a year). So, no intermediary goods and services are included in this GDP. But, intermediary goods are part of nation’s wealth. Lands, buildings or other kind of resources (raw materials) are part of a nation’s wealth. Any change in their market value from a year to another should be included in the concept of economic growth.

On the other hand, GDP is very problematic being aggregated in three di&erent ways (all of them being an approximation of nation’s wealth):

1. Production method consists in adding the total sales of goods and services made by all the companies in various sectors for a de%ned period of time (1 year) minus the intermediate consumption of these companies (this di&erence is called GDP at factor cost) and adjusted with the di&erence between indirect tax (VAT or sales tax for instance) and all kind of subsidies (GPD at producer prices). !e problem with this method consists in the fact that it is inappropriate to approximate nation’s wealth only with net pro%t of private business excluding public sector activities (public institutions such as universities are not selling anything) or by excluding balance sheet of all kind of operators (market value of their assets and liabilities are also signi%cant component of nation’s wealth). Ignoring the value of buildings or lands that could increase or decrease over the time is signi%cantly altering the measure of nation’s wealth and its change through GDP at producer prices. Moreover, money production (including credit expansion) is also part of this wealth. Barter economy and subsistence economy is not included in such sales. Underground economy (uno"cial economy that is never registered) is also not included in such estimation.

2. Income method is based on the classi%cation of incomes into few categories (wages, corporate pro%t, %nancial incomes including interest rate and dividends, income from agricultural business, and income and

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other incomes from unincorporated business). !e sum of these incomes adjusted with the di&erence between indirect taxes and subsidies and with the depreciation of %xed assets (that is added in this case) will generate GDP at factor income. Again, the income from the di&erence between market value of %xed assets (a land or a building have a changing value over the time) is not taken into consideration. Uno"cial sector and barter economy are also excluded from such estimation. Rentals are not included in this GDP at factor income. !erefore, an alternative method of computing GDP at factor income is adding the compensation of employees (all kind of compensation) to the gross pro%t of private business, to the gross result of unincorporated business and to the di&erence between taxes and subsidies. Another one is adding rentals to wages, pro%ts and interests and statistically adjusted incomes (corporate income taxes, undistributed corporate pro%ts and dividends). All these methods are an approximation of nation’s wealth. !is income method is very sensitive to money production and to credit expansion based on easy and cheap money policy. If the central bank will print money and will distributed this fresh money as pro%t or income, GDP will signi%cantly increase for a while even in real terms (until the in#ationary e&ect will be present in the economy).

3. Expenditure method is the common used method and consists in adding investments (I) to private (households) consumption (C), to government spending (G) and net exports (the di&erence between exports – X and imports M). Again, this method has a lot of problems: it is di"cult to establish when an acquisition is an investment or a consumption; investments are excluding the real estate investments or %nancial investments or savings; consumption is excluding the acquisition of a house or a land for personal consumption. Government expenditures are including those made by using a credit from a commercial bank that bought a treasury bill or bond and that discounted it to the central bank for fresh money. So, using this method, a government could increase GDP by increasing public de%cit and public debt. All these expenditure (C, G and I) are including only %nal goods and services and not intermediary goods used to produce %nal goods. In the wealth of a nation, these intermediary goods count too a lot.

Looking to all these di&erent methods of computing a nation’s wealth we see that it is very di"cult to measure such thing and to estimate its change

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over time with accuracy. Economic growth of a nation based on GDP is useless.

Secondly, economic growth should be measured in real terms. In#ation rate is used to correct nominal GDP. In#ation rate is also a problematic indicator. In#ation is de%ned as a generalized increase of prices in an economy, for a de%ned period of time. !erefore, when we are measuring in#ation, we should take into consideration all goods and services traded in an economy within that period of time. !is is an impossible task so, the o"cials proposed a harmonized prices index (consumers or production prices) at the level of EU countries. !is is an index based on a weighted average of the most important prices from those economise (not all of them). But this index is excluding some important prices such as %nancial assets prices, real estate prices, rentals, interest rate (the price of capital), exchange rate (the price of other currencies) etc. Moreover, this in#ation referrers to no one of us because is based on a basket of goods (a weight of the price for an automatic washing machine and the price for a manual washing machine, none of us will by both of them in the same time). No consumer’s behaviour could be associated to such an index. Additionally, monetary impact (the increase or the decrease of prices due to the increasing or decreasing volume of existing money or existing credit in the economy) could not be divided from natural impact (the increase of prices due to a higher demand or a lower supply on the market).

Who is in#uencing the economic growth? !e determinants of economic growth are considered to be: the volume of savings; the investments in capital goods; volume of exports; the human capital resources or technological progress that is in#uencing the productivity level (Solow, 1956; Perotti, 1996; Barro, 1998). !e public sector could in#uence this economic development in various ways (not necessarily positive ones): higher taxation will increase the underground economy and will transfer money from private economy for paying public expenditure, the result being lower economic growth rate; a lot of public investments %nanced from credit expansion or money production are in fact expenditures or public consumption of resources without important impact on economic growth (the allocation of these resources is merely arbitrary and politically reasoned than economically justi%ed); investments made by public sector have lower e"ciency than those made by private sector due to the existing

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moral hazard or the inexistence of bankruptcy (no one will assume the failure of political allocation of such resources).

!e implication in the European Union (a very complex system of treaties and agreements) complicated more the situation of economic growth by increasing the risk of crisis contagion or spill over among the members of the union. !e existing treaties force the members of the EU to act in the same way and to enter almost simultaneously in the same business cycle (it is problematic when this cycle means crisis or economic recession). A mistake or a problem registered at the level of one country (or few of them) could push the entire economic union in the crisis (the case of Greece, Ireland or Cyprus are relevant for this statement).

Concluding, the economic growth is not a clear concept that could be measured with accuracy. Real growth rate of GDP is inconsistent and any attempt to catch the impact of more integrated countries or the impact of the EU funds on economic growth will be biased, due to the signi%cant imperfection of this indicator to express the changes in the wealth of nations over the time. Moreover, the economic growth of a single country from European Union is signi%cantly a&ected by the situation of the other countries due not only the economic channels that spread the crisis (foreign trade with the other EU members or foreign investments made in a member country by the others) but due to the political channels (the treaties that force the countries to act as a whole not individually).

"e European Union’s $nancial support and the economic growth of the member countriesPublic intervention is merely viewed as something good and always generating a positive impact in the economic %eld. But the state intervention means „the intrusion of aggressive physical force into society; it means the substitution of coercion for voluntary actions” and the State is „is the only organization in society legally equipped to use violence and since it is the only agency that legally derives its revenue from a compulsory levy” (Rothbard, 2009, p. 877). In the same way, Mises (1998) de%nes state intervention as „an isolated order by the authority in command of the social power apparatus; it forces the entrepreneur and the owner of the means of production to use these

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means in a way di$erent from what they would do under the pressure of the market. !e order may be by command or interdiction” (Mises, 1998, p. 10). According with the same author, the State intervention could be divided into two di&erent systems: (i). a pure socialist / communist system (formerly applied in Eastern Europe) where any mean of production is owned by the state, there is no market cooperation, the prices and the allocation of resources, the production volume and structure is fully controlled and determined by the government and (ii) the corporatist socialist system (formerly applied in Germany) where the means of production are owned by private companies, the exchanges are privately done within the markets, but the government is establishing what should be produced, what should be bought or sold on the market, the level of prices and so on. !e interventionism is seen as a third viable system placed between socialism (where all the means of productions are publicly owned) and capitalism (where all the means of production are privately owned). In the interventionist system the means of production are privately owned, but the state is regulating the market conditions, the prices, the competition level, the consumers’ behaviour and so on. In fact, this system is close to the corporatist socialist system.

!e way in which the State is hampering the private exchanges and production could be classi%ed in various ways. !e most relevant could be the classi%cation proposed by Rothbard, (2009, pp. 1058-1059): 1. Autistic intervention that is „command an individual subject to do or not to do certain things when these actions directly involve the individual’s person or property alone”. In this case the coercer is not claiming something from the coerced subject. For instance, the State could force a company to apply speci%c environmental standards or to sell the production in a certain way to customers, by creating additional ”rights” to them (the ”right” to return a merchandise a speci%c time after purchasing it if the customer is not ”satis%ed” by it). 2. Binary intervention consisting in „a coerced exchange between the individual subject and himself, or a coerced “gift” to himself from the subject”. In this category we can include all direct and indirect taxes (income taxes, VAT, sell taxes). Compared with autistic intervention, binary intervention is claiming something from the coerced subject in exchange with a service provided by intervener (a tax for providing controlling services on the market or a tax for simply authorizing the access on the market or the production of a certain good). 3. Triangular

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intervention that is the situation when „the intervener compels or prohibits exchanges between sets of two other individuals, like are price control and licensing”. In fact, in case of triangular intervention, the state is intervening in the exchange of goods and services between market participants hampering the mutual voluntarily agreed contract between them. Often, the private contract is containing clauses or conditions that arbitrarily and aggressively established by a third party (the State) that has nothing to do with the parties involved in such contracts: sellers or buyers, employer and employee, saver and banker, investor and investment institution etc. State intervention is claimed to introduce more market order and to better regulate the commercial contracts signed between market participants. All these types of interventions are aggressively exercised by the State itself (through its public servants) or by agencies created and protected by the State. Sometimes, these kinds of agencies are considered to emanate from private market and to be privately created institutions such as central banks or capital market controlling institutions (SEC – Security Exchange Commission for instance). !ese agencies are not private and their „incomes” are in fact taxes applied to those who are acting in a speci%c sector or market.

!e European Union could not be considered a capitalist project. In many countries, the means of production are merely owned by private operators. But signi%cant products or services continued to be delivered only by the State, considering that this kind of sectors are too sensitive or are not interesting for private operators that could not obtain much pro%t from such activities: healthcare system remained publicly owned in a lot of the EU countries, educational system is publicly owned also in almost all of them (in Greece there are very few private universities, similar with France where about 80% of schools are public ones or Belgium where private schools are subsidized in the same way as public ones), pension funds are publicly administrated by State in a lot of countries (in Romania, for instance, the contribution to public pension scheme is compulsory and this scheme does not suppose an investment of these contributions but the payment of pensions for existing retired persons, similar with France that have a compulsory social security system on a ”pay as you go” scheme or in Italy where there is a similar „pay as you go” unfunded scheme for public pension system combined with a voluntarily private schemes). Research and innovation sector is also associated with the State, especially in the

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countries where education (universities) is merely delivered by public universities.

Another interesting example is that of introducing euro as a Single Currency for the Single Market. !e European Union eliminated in this way the competition between European countries in terms of money production and credit expansion. More State owned producers of money have been replaced by a single one fully controlled not directly by each country participating to this Single Currency Area. Even the production of money is less „competitive” now than initially was, generating more moral hazard and more power for the EU institutions.

!e European Union project started as a project that helped the market in few speci%c heavy sectors well a&ected by the WW2: coal, steel and later nuclear energy. !e state intervention in this sector was seen to be lowered by creating a common market without trade barriers between the Six founding countries. Less controls, less taxes, less trade barriers means lower state intervention. !e project continued in the same way, being extended to a larger number of countries in di&erent moments (now the European Union project has been extended to a number of 28 countries, the last one accepted in 2013). In the same time, the „freedoms” have been signi%cantly extended from (speci%c) goods to services, labour and capital. At the %rst sight, the Single Market project could be considered a liberal initiative meaning a lowering of state intervention at the level of member countries. In fact, this intervention was slightly moved from national level to supra-national level by creating new EU institutions with speci%c policies that are regulating the „free” movement of goods, services, capital and labour. Almost all of means of production, mostly privately owned, became dependent from the public support in a sort or another: - !ere are „sensitive” sectors like SMEs sector (Small and Medium Enterprises) or agriculture that are signi%cantly subsidised in di&erent ways: direct payments for animals and for cultivated surface; guarantees for private loans that increase the credibility and the borrowing capacity of SMEs or farmers; subsidised interest rate; guaranteed prices (minimum price for agricultural products); protection from external competition using pricing schemes;

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- !ere are many companies that are encouraged to develop their project and business ideas using a signi%cant co-%nancing scheme from EU funds that cover di&erent kind of expenditures in an important percentage (60% - 80%). !is kind of projects suppose the acquisition of new machineries for production purpose, the building of touristic facilities in rural areas, the human resources development programs, the acquisition of a patent or a production licence, the start-up of a business, the building of a technological park for SMEs;

- Another important intervention consists in %nancing an important value of projects developed by local public authorities (the water supply of a community, the sewing system for a village, the roads system, cultural heritage preservation, historical sites). Even the %nancing is granted by the European Union (there could be a co-%nancing part from local or national budget), the development of such projects supposes the subcontracting of them to private companies for construction, operating, maintaining the sites. !e connection with the State of private sector is present again in this case;

- Another form of intervention is to regulate the market. !e private operators should take care of so many regulations established by EU public servants that claims to take care of consumers or, sometimes, of producers. !is over care of European regulators about the market conditions are futile and very costly for private operators that are trying to remain competitive and connected to the real needs of their consumers. In a capitalist system, the consumers are the regulators of the market. !ey are sanctioning any entrepreneur that is increasing the operating costs by introducing unnecessary ones. !ey are sanctioning (by refusing to buy from them) any entrepreneur that will make a mistake or that will be far away from their needs. !e perspective of bankruptcy in this case is signi%cantly reducing the moral hazard of these entrepreneurs. In a socialist system, the power of market to regulate (or to correct / to adjust) the problems is replaced by the power of government. Without having any reason or economic logic, the European Union developed a huge and complicated regulating system trying to intervene in any sector as much as possible: they have forbidden the traditional sacri%ce of pigs with the occasion of Christmas Eve (the animal should be totally anaesthetised before). !e private markets are full of imperfections due to the fact that are based on

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cooperation between people interested to exchange goods and services. !e buyers and sellers are not robots or machines, they subjectively act, they have imperfect information, they have limited time to decide and they have limited capacity and resources to deal with existing data and information. Moreover, not all of them are honest with the others, trying to obtain maximum as possible from each market transaction. !e power of market to regulate and to correct all these imperfections is simply reduced to the elimination of those operators that are far away from the competitors. Replacing this power with the European Union institutions’ power to regulate the private markets is a huge mistake that will introduce more imperfections in the exchanges of goods and services at the level of Single Market. !e markets are always unstable, dynamic and full of unforeseen events. All these imperfection are part of uncertainty that is associated to economic decision. Without these imperfections the pro%t of entrepreneurs will be not present and the price of goods and services will be calculated at the cost level only. !e absence of this pro%t will determine the absence of entrepreneurs. !e way of dealing with these „imperfections” exercised by the State’s institutions is altering this natural state of markets and the e"cient allocation of resources. !e capacity of markets to correct such imperfections automatically is signi%cantly reduced. Finally we have more volatile markets (due to necessary correction and adjustments that occur from time to time and that are generally called „crises” or „economic depressions”), more imperfect markets and less „just” or „fair” prices and costs.

By looking to the current situation in the European Union we can simply state that this group of countries is promoting a more socialist than capitalist system. We can %nd all types of public interventions (autistic, binary and triangular interventions) exercised by the EU institutions in collaboration with the local administration. !e last economic crisis signi%cantly strengthened this intervention by creating new institutions and policy instruments (see the case of European Fund for Financial Stability). Private owners of production means are su&ocated by taxes, by increasing public debts that are producing nothing valuable for the markets, by increasing number of institutions and market rules or by increasing number of public servants never connected with real economy. !e allocation of resources based on market principles and needs is slightly replaced by an allocation signi%cantly controlled by the State (including

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here the European Union institutions). !e introduction of euro increased the capacity of such European Institutions to produce more debt and de%cits, providing the ability to issue debt securities on behalf of the EU tax payers. Unfortunately, the path is not in the direction of capitalism and free market but the opposite direction: more controlled and regulated markets.

!is evolution is not improving the wealth of the EU citizens. Day by day, this wealth is destroyed and transferred from more e"cient to less e"cient allocation. !e economic arguments are very simple:

1. All these state intervention mechanisms are in fact operating costs for private operators. !e private entrepreneurs have limited possibilities to deal with such additional costs. If they will try to transfer all these costs derived from higher taxation, higher bureaucracy and more complicated barriers in the %nal price of goods and services labelled EU origin, the prices will be higher than elsewhere and this entrepreneurs will become less competitive compared with others located outside the EU. If they try to support all these costs and not to transfer them in the selling price, their pro%ts will signi%cantly decrease. It will be more pro%table to locate the business outside the EU where the pro%t margins will be higher. Due to this lower pro%tability, the EU originating business will become less competitive than elsewhere;

2. All these restrictions, barriers, subsidies, %nancial support are a&ecting in an irreversible way the structure of production in a speci%c region or country. !e producers will be focused on supplying goods and services that are connected to the public funds provided by the European Union (it is well known the case of farmers that traditionally cultivated a speci%c type of plant or grow a speci%c type of animal and that changed their option in accordance with existing subsidies or cheap %nancings from the European Union). !e capital goods are channelled to the same direction. If the European Union is interested in „green energy”, all entrepreneurial e&orts are arti%cially connected to this public policy that means cheap %nance too. Competition policy, agricultural policy and %scal policy contain a lot of protectionist elements. By protecting European farmers for instance, the European Union hampered the market in a negative way

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creating huge surpluses of speci%c agricultural products (the EU countries are producing a surplus of 2 billion of wine bottles per year more than they can consume or sell as the result of decades of EU intervention in this sector). !e market needs are completely ignored and the allocation of funds (from taxes mainly) has a strong political nature: under pressure or lobby of speci%c groups of producers or consumers, European institutions are always changing / adjusting their priorities for public policies and %nancing mechanisms;

3. !e interventionist measures taken by European institutions created and protected di&erent privileges for speci%c groups of interests. In case of market economy everybody is free to enter in the market as entrepreneur or as employee. All the entrepreneurs are acting under the permanent pressure of consumers, controlling their costs and managing the uncertainty in the best way possible. !ere is no protection in the market for those who are not able to ful%l the consumers` needs accordingly. !ere is no privilege there. !e producers are enslaved to their consumers. If someone wants to be consumer and to dominate by his consuming decisions the actions of di&erent producers, this person should act as a producer and seller of something on the market. In the market economy everybody is in the same time producer and consumer of something. But before being consumer, we should %nd something to produce and to sell. !e wealth of everybody is linked to the production and exchange capacity. !e interventionism of the European Union created privileges for the producers of taxes (%scal entrepreneurs) and producers of money (monetary entrepreneurs). Without producing something valuable for the market, more and more privileged persons are increasing their wealth in an unfair way. In this system, keeping yourself outside of this interventionism seems not to be a pro%table choice. !e power and the %ght between di&erent privileged groups signi%cantly increased. Producing taxes (including in this category also those entrepreneurs that are %nancing the development of their business by using EU %nancings), regulations (working as a market controller) or money out of nothing is more “valuable” than supplying the market with needed goods and services.

Concluding, the European Union project is far away from market economy. Interventionism is su&ocating the private initiative and is forcing more and more entrepreneurs to be connected to this public intervention that

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is granting a lot of privileges and is redistributing the wealth by involving political means. All these privileges have a cost; they are %nanced from the others’ wealth (there is no „free lunch” in the economic system), usually those that are less (or none) connected to the public funds and subsidies voted and granted by central planner that is now moved from national level to the EU level. In a long run, such interventionist project will fail into a socialist one or will enter into bankruptcy due to the fact that it is impossible to create and to %nance privileges for everybody without producing notable disruptions and losses for somebody. !e last decades reveal a weak and reduced economic growth rate for almost all EU economies, with very few exceptions (Germany, Poland or Netherlands but for very short periods).

European Funds and the myth of their role in the economic growth!e European Union project is unique and full of contradictions. !e interest for this project signi%cantly increased in the last decades. A lot of former socialist countries decided for acceding into this project considered to have more bene%ts than costs. One of the reasons for those countries was the redistribution of wealth through so-called EU funds for di&erent purposes: regional development, rural development, increasing competitiveness, and economic development. Almost all European countries linked their economic growth to EU funding absorption capacity. !e impact of such funds on economic growth is inconclusive: countries with higher absorption rate have lower economic growth than countries with lower absorption rate (with very few exceptions). Countries that based their economic development on such funds (Spain, Italy, Portugal, Greece or Ireland) face now with long recession with clear recovery problems.

Why these funds are not so e&ective in ensuring a long term and sustainable economic growth, such as it is claimed in their very generous aims and objectives? In order to answer to this key issue it is very important to understand the complete mechanism of the European Funds. !e %rst step in this mechanism consists in the contributions made by each country to the European Union budget. Each country collects the annual subscription from their tax payers, in accordance with a local %scal code and collecting system. !ere is no uniform %scal code at the level of the European

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Union. !e main taxes are di&erent in terms of levels and even in terms of accounting and reporting procedures from a country to another. !ese taxes are collected with a cost by local administration. !is means that from 1,000 euro collected by local administration, a share of this amount is covering the collecting expenditures (including the operating costs and the wages of %scal operators). !e amount of money collected by local authorities is annually transferred to the European Union, where it is voted to be redistributed by the European Council and the European Parliament following a very complex procedure. !e European Commission should administrate this budget proposing programs and funding schemes for member countries in accordance with the principles and priorities of the European Union (as it is politically decided from time to time). !is means that o signi%cant part of 1,000 euro collected taxes transferred to the EU budget is used to cover the expenditures of all these EU institutions that take care of them. After these expenditures are paid, the European Union is transferring the funds back to the local authorities from eligible countries. We should notice that a signi%cant redistributive principle is applied, meaning that richer countries are receiving fewer funds than poorer ones and, locally, richer regions are receiving fewer funds than poorer ones. !e same redistributive principle is applied to selected economic sectors: agriculture or SMEs sectors are receiving more funds than other sectors. Local authorities are now responsible to distribute the EU funds in accordance with local %nancing programs and mechanisms. Speci%c institutions (di&erent than initial %scal collectors) are created to generate and to administrate such programs. Taxpayers support the expenditures of such institutions, too. !is means that a small proportion of initial amount of 1,000 euro taxes collected by %scal authorities from di&erent member countries is coming back into real economy. After a very expensive travel from pockets of tax payers to local %scal authorities and then to EU institutions in order to be sent back to local %nancing authorities in order to be distributed to eligible „private” applicants for such funds, the available amount of money that could be used for economic growth is substantially diminished.

!e economic growth of „private” sector interested to apply for such funds (farmers or entrepreneurs interested to develop a new business idea or an existing one) is signi%cantly harmed by economic growth of wealth of each political entrepreneur involved in such mechanism. If we take into

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consideration the entire bureaucratic system that is associated to the EU funds (including the auditors, the controllers, the regulators etc.) we will notice that the available funds for economic growth are much reduced. Instead of letting those 1,000 euro at the level of private operators to decide their allocation in accordance with market needs, the European Union considers that its funding mechanism could produce more positive economic e&ect, without revealing the fact that an insigni%cant part of this amount of money is returned in the markets. !is is the main problem with the European %nancing schemes. Money is coming from everybody and is very costly to be allocated in such way. Instead of taxing European citizens to create a funding mechanism to ensure the %nancing of building a road or sewage system in a village from a poor region, it could be better to let the market to decide if that village needs a new improved road or a new sewage system. It could be better and less expensive for all of us to be free to decide what kind of infrastructure or part of our existence need to be improved, to be free to enter in a private contractual partnership to generate such projects and to be to decide the conditions of such developments. !e way of dealing with market imperfections and negative externalities proposed by the EU project is too expensive for us.

Additionally, European Funds are public funds initially collected by %scal operators. !ese operators are submitted to be corrupted. In a country with weak state administration (like most of European countries are), this collection of taxes could be arbitrarily applied (deliberately or not). !e government could negotiate with selected groups of tax payers the deduction or the exclusion of them from paying certain taxes. !e tax collectors could negotiate with taxpayers their tax evasion (especially when taxes are too high or when the tax collectors are not well remunerated). European budget is voted and allocated in accordance with political agenda of certain countries or groups. After being transferred back to local authorities, these funds are redistributed by public institutions created in this respect (management authorities). In the case of a corrupted administration or a weak state (problems with justice and controlling authorities), this allocation could be politically in#uenced in a signi%cant proportion.

!e European Funds are allocated in accordance with voted priorities. It is clear that at the level of the European Union there is a competition

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among di&erent categories of operators. German farmers are not open to any subsidy that is granted to Romanian farmers from the Germans` taxes. !erefore, the priorities and eligible actions and %nancings are politically in#uenced. It is well known that the European Funds could be used only for established sectors and type of projects, especially for the case of funds allocated for agriculture and business sector (including SMEs). !is competition developed by existing producers’ taxes is not seen to be necessary so good. Many %nanced projects in agricultural sector from Romania encouraged the snail farming (heliciculture) or ostrich farming. In the same time, allocation for animals (per capita) was di&erent and signi%cantly below the allocations for former countries (France for instance).

Another problem with these funds, as politically distributed funds, is related to the fact that conditions for redistributing such money locally are established by public authorities with speci%c interests. All the guidelines elaborated by managing authorities are full of mistakes and incomplete, generating confusion and frustration at the level of applicants. It is not fair for the EU contributors to such funds to accept to %nance private small business developments with internal rate of return below 10% (the proposals with such return below 10% or 5% that is cost of capital are more rewarded than the proposals with high returns, meaning that EU is more interested to %nance ine"ciency and not to stimulate the performance). Moreover, after the project is accepted by taking in consideration such problematic criteria, the control after the implementation of such projects made by local authorities is also very weak. !e public controllers are very corruptible and disposed to close their eyes and to cover mistakes or frauds made by applicants. Due to the crisis (but not only) a lot of projects %nanced by EU funds encountered serious problems with the market (clients). Nobody was kept responsible for accepting such uncertain projects that had many errors in the market estimations from the beginning. Concluding, European Funds represents an interference of State in the economy that is contrary to the market economy. !is kind of public %nance represents a very negative impact on private by increasing the role of State in the allocation / redistribution of resources. It is an important source of moral hazard and source of entrepreneurial error. !is public intervention (consisting in gathering funds from taxes or in#ation and redistribution of them by public institutions) is altering the economic

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behaviour and it is creating an unfair competition among those who have a direct access to such cheap %nancings compared with those who are not able to obtain them.

ConclusionsEconomic growth became an obsession (or a nightmare) of each politician. !e absence of this growth is submitted to create social convulsions and violence. Everybody should be employed in a productive job and this „full” employment is stimulated only by economy that is growing. Stimulating instruments are used to boost the economy and to reduce, as much as possible, the recession period. In fact, the business cycles are very relative and measured by using composite indicators such as real GDP growth rate. !ese indicators are very inconsistent and unable to catch the evolution of an economy or of a group of integrated countries. Due to these inconveniences, any public policy applied to correct the economic situation is, in fact, a source of major errors at the level of real economy.

European Union and entire public policies (and instruments) proposed to improve the wealth of its citizens is more and more close to socialist economy than to market economy. !e production means are privately owned but fully controlled by public institutions that are in#uencing what should be produced and sold to the market, how the goods and services should be sold on the market, how the business should be organized etc. All these interventions became barriers against any entrepreneurial action. Strong additional costs are permanently added to any private business developed within the EU Single Market. !ese costs are a&ecting the price of goods and services making less competitive the EU economy or are a&ecting the pro%ts of private business determining a lower e"ciency of invested capitals with the clear result of re-allocation of such business elsewhere than EU area. Interventions promoted by European Institutions are creating privileges for selected groups of interests reducing the chances or the wealth of others. Redistribution of resources creates negative stimulus and increase the connectivity of private operators to the State. Redistribution based on political means and criteria is generating corruption and bureaucracy, increasing the costs and reducing the wealth of everybody. Interventionism is su&ocating the private initiative and is transforming

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the economy from one connected to the market to one connected to the State’s intervention. Socialist economy failed and signi%cantly reduced the wealth of everybody. !e failure of socialism was predicted before the bankruptcy of economies from Eastern Europe (the lack of market prices, the political allocation of resources, the error in the redistributive process etc.). No lessons have been learnt from the failure of socialist economies. Today, more and more institutions and State intervention measure are created by bureaucrats from European Union applied in combination with local public policies. !e crisis introduced the concept of “austerity” understood as State intervention reduction by reducing social assistance allowances, by cutting o& the wages in the public sector or by reducing the public expenditures and debt (including the reducing of employees in the public sector). !e austerity has a huge electoral cost for almost political parties that promoted this solution to %ght with economic crisis. Socialists with their propaganda won elections in almost important EU countries %ghting with this “wrong” idea of austerity in the public sector. !e logical solutions for economic crisis have been replaced with more State intervention: the banks have been saved by special created funds, more subsidies and more %nancial aids have been pumped in the economy from the European Central Bank (similar with “quantitative easing” from United States). Finally, after many years of recovery by refusing austerity and State intervention reduction, almost European Union is facing with problems of economic growth and employment. Competitiveness and innovation stagnate also.

European Funds are seen as a consistent support for weak economies of new EU members from Eastern European area. Local authorities are obsessed by “absorption rate”, “contracting rate” or “reimbursement rate”. !e entire EU allocated budget should be used for boosting economic growth. Of course, GDP increased in almost Eastern European Countries due to this redistribution from others’ GDP (Germany, France etc.). But it is very important to understand how this GDP increased in the last years. It is this growth consistent and durable without this strong %nancial support? Will create durable jobs and business such public funds? In these countries with weak public institutions and weak justice and anti-corruption services, these political allocated funds are submitted to create more bureaucracy and frauds than economic growth. Errors and moral hazard are present in any EU %nanced project. Controlling e&orts are altered by

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the quality of public institutions too. In this case, not only the allocation is submitted to be full of errors and frauds, but the implementation and after implementation phases too.

!e economic growth promoted by European Union intervention is not a durable one because is away from market conditions. !is intervention is more concentrated to equalize the incomes and wealth than to support the most performant sectors or regions to become more competitive. !is intervention is creating privileges and protection for di&erent groups of operators and costs for others. Finally, the intervention and the bureaucratic apparatus will become stronger. All these enthusiastic and ambitious social programs promoted by EU institutions (Horizon 2020 for instance) will fail into a bankruptcy, as Eastern European socialist economies %nally failed, after producing a lot of wealth problems for their citizens.

ReferencesBarro, R.J. (1998). Determinants of Economic Growth: A Cross-Country Empirical

Study. MIT Press Books. !e MIT Press, edition 1(0262522543), April 1998.

Cini, M., and Solorzano-Borragan, N.P. (2010). European Union Politics. 3rd Edition. United Kingdom: Oxford University Press.

European Commission O"cial Website http://ec.europa.eu/index_en.htm (Section Public Contracts and Funding for JASMIN, JASPERS and JEREMIE funding facilities). European Stability Mechanism O"cial Website http://www.esm.europa.eu/

Joumard, I. (2002). Tax System in the European Countries. OECD Economic Studies, 34(1), 91-151.

Mises, L.v. (1998). Interventionism: An Economic Analysis. New York, Inc. Irvington-on-Hudson: !e Foundation for Economic Education.

Mises, L.v. (2010). Human Action: A Treatise on Economics. 3rd Edition. Auburn, Alabama: Ludwig von Mises Institute.

Perotti, R. (1996). Growth, Income Distribution, and Democracy. Journal of Economic Growth, 1(2), 149-187.

Rothbard, M. (2009). Man, Economy, and State. A Treatise on Economic Principles. Scholar’s Edition (2nd edition). Auburn, Alabama: Ludwig von Mises Institute.

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Solow, R.M. (1956). A Contribution to the !eory of Economic Growth. Quarterly Journal of Economics, 70(1), 65–94.

Wallace, H., Pollack, M., and Young, A. (2010). Policy – Making in the European Union. 6th Edition. Oxford, UK: Oxford University Press.

"e e#ects of structural funds absorption on the business environment in the north-eastern region of

Romania

Andrei-Alexandru MORO)AN1

Cristian-Valentin HAPENCIUC2

Iulian CONDRATOV3

Abstract. To reduce disparities between the members of the European Community, the Commission has allocated signi"cant sums from the European Union’s budget to "nance the Regional Development Policy. Many authors have analyzed the absorption of European funds, focusing on various key aspects (e#ciency of institutions, sta$ training, the volume of funds absorbed, the impact generated by absorption or GDP growth attributable to these funds). !is article examines the e$ectiveness with which companies in the northeast region of Romania have used Structural Funds. Most papers dealing with this type of research have a macroeconomic perspective, but at that level of aggregation there are multiple factors of in%uence. !is research is done at the micro level, focusing on the comparative analysis of annual "nancial statements (this analysis has focused on the development of three key indicators: "xed assets, turnover, net income) of a group of businesses that have bene"ted from "nancial grants and a control group of businesses that haven’t bene"ted from this instrument. !e comparative analysis did not identify signi"cant di$erences between the two groups, leading to the conclusion that in the short-term, structural funds have had limited e$ect on the companies.

Keywords: Structural Funds; SOP IEC; ROP; microeconomic analysis; comparative analysis; Romania.

1. Junior teaching assistant, Ph.D. candidate, Department of Economics, Business Administration and Tourism, Faculty of Economics and Public Administration, “4tefan cel Mare” University, Suceava, Romania, [email protected]. 2. Professor, Ph.D., Department of Economics, Business Administration and Tourism, Faculty of Economics and Public Administration, “4tefan cel Mare” University, Suceava, Romania.3. Assistant professor, Ph.D., Department of Economics, Business Administration and Tourism, Faculty of Economics and Public Administration, “4tefan cel Mare” University, Suceava, Romania.

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IntroductionAs a member of the European Union (EU), Romania fully bene%ts from regional development policies %nanced from the Community budget. !e e"ciency with which these resources are used by the Romanian authorities, however, is questioned (Hapenciuc, Moro)an and Arionesei (Gaube), 2013).

!ere are several papers that analyze the absorption process, but the results are very di&erent. Some authors focus on the issue of absorption capacity (especially the e"ciency of the institutions involved and the procedures that are being used) claiming that the low absorption is attributed to ine"cient procedures and lack of sta& training in the system (NEI, 2002; Horvat and Maier, 2004; Horvat 2005; Oprescu, Constantin, Ilie and Pîslaru, 2006; Morovan, 2010; Jaliu and R(dulescu, 2013), other authors address the perspective of the impact that these funds have on economic development (Zaman and Georgescu, 2009; Cace, Cace and Nicol(escu, 2011; Zaman and Cristea, 2011).

!is paper falls into the second category, analyzing the impacts of the funds used. A major di&erence between existing work and this research is the level of aggregation of the analysis, if the mentioned work was carried out at macroeconomic level, in this paper the analysis is performed at the microeconomic level.

!e main objective of this work is to determine the impact that structural funds have had on businesses in the North Eastern Region of Romania. Starting from this objective, two hypotheses were stated:H1: Non-reimbursable "nancial aid has contributed, in the short term, to the increase of turnover of the bene"ciary company;H2: Non-reimbursable "nancial aid has contributed, in the short term, to the increase of net result of the bene"ciary company.

!e analysis performed focuses on the annual %nancial statements of companies that have bene%ted from this support during the period 2007-2012.

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MethodologyTo test these hypotheses we used a comparative analysis of the two groups of companies: one group consisting of businesses that have received %nancial grants (group 1) and the second group consisting of a sample of companies that have not received aid (group 2 is the series of control). !rough comparative analysis of several key indicators we would be able to quantify the e&ect that absorbed funds had on businesses.

!is approach is not new, professor Edward Altman used a similar analysis in the research “Financial ratios discriminant analysis and the prediction of corporate bankruptcy” published in “!e Journal of Finance”, September 1968. In that work, the professor of %nance analyzed the bankruptcy of several corporations during 1946-1965, focusing on a comparative analysis of two groups of %rms (group 1: industrial corporations that went bankrupt and group 2: industrial corporations which maintained their activity). Altman’s analysis focused on the %nancial statements of companies in the two groups (66 companies of various sizes were analyzed, ranging from total assets of 0.7 million U.S. dollars to 25.9 million dollars - the variation is relatively large).

!e main method used is the comparison method, both in time (“comparing phenomena in di&erent stages of evolution”) and in space (“structures or other companies with similar activities competing”)(M(rgulescu and Dumitru, 1994, pp. 38-39).

!e group of companies that have received %nancial grants (group 1) was built on the lists made public by the managing authorities of the Sectoral Operational Programme Increase of Economic Competitiveness (SOP IEC) and the Regional Operational Programme (ROP), which are the only programs that directly %nance companies (providing grants for productive investments)(Moro)an, Hapenciuc and Stanciu, 2014; Moro)an, Stanciu and Hapenciuc, 2014). !e control group (group 2) was built on random sampling principles of companies from the database of the Recom software (provided by the National Trade Register O"ce). !e construction of the control group was based on the structure of group 1 in terms of three criteria: territorial distribution (distribution among the six counties of North-Eastern Region of Romania), %eld of activity and business size.

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Annual %nancial statements for the two groups were obtained from the database of the Ministry of Public Finance (www.m%nante.ro). !e analysis focused on three periods: the project implementation period, the %rst year of operation compared to the start of implementation and the %rst year of operation compared to the year of completion of implementation (Moro)an, Hapenciuc and Stanciu, 2014; Moro)an, Stanciu and Hapenciuc, 2014).

Research resultsTo test the two hypotheses stated, the evolution of three key indicators was analyzed, namely: absolute change in %xed assets, absolute change in turnover and absolute change in net income during the three periods de%ned above.

Comparative analysis of !xed assets!e %rst analyzed variable is the change in %xed assets. !e analysis of this variable is divided into three sections, namely: analysis of histograms, comparative analysis of descriptive statistics and statistical t-tests on means.

Figure 1. Graphical representation of absolute change of $xed assets pre-post implementation group 1 and group 2. Source of data: SOP IEC MA and ROP MA

databases consultation in July 2013 and Ministry of Finance July-September 2013

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Analyzing the distributions shown in Figure 1 we can establish the existence of di&erences between the group of companies that have received %nancial grants (group 1) and the control group (group 2 - group with a similar structure built on random sampling principles). We see that in the %rst group changes close to the value to 1 million lei are predominant, while in the second group two changes close to 0 are predominant (for a large number of enterprises %xed assets decline).

Table 1. Fixed Assets Absolute Variation – Implementation Period

Group Group 1 Group 2 Total

Mean 831516,19 126348,83 470272,56

Median 808241,00 -1725,00 307511,00Std. Deviation 441364,365 444509,771 565877,152

Range 2200066 3104942 3119419Minimum 91556 -827797 -827797Maximum 2291622 2277145 2291622

Number of records 139 146 285Source: Calculations using SPSS version 20

Analyzing the data in Table 1, we can appreciate that the di&erence between indicators of central tendency of the two groups is very large. !e two groups have a similar standard deviation, which supports comparisons between groups. We appreciate that companies that have received %nancial assistance (grants) had undertaken larger investments, which is otherwise expected. Another aspect to note is that the maximum value is approximately equal, indicating that there are companies that have not received %nancial aid and managed to implement major investment.

Table 2. Comparison between means – Fixed Assets – Absolute Variation

Variable Group N Mean Std. Deviation

Std. Error Mean

Implementation Period

Group 1 139 831516.19 441364.365 37436.037

Group 2 146 126348.83 444509.771 36787.890


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First operating year compared to the start of implementation

Group 1 60 924221.05 777317.737 100351.288

Group 2 64 167675.47 655692.790 81961.599

First operating year compared to the year of completion of implementation

Group 1 53 -61983.58 131227.223 18025.445

Group 2 53 -35418.70 104720.030 14384.402

Source: Calculations using SPSS version 20

Analyzing the data in Table 2 we note that in the operating period, the di&erences between the means of the two groups are still large. In order to establish if the di&erences are statistically representative, t-test (Table 3) were applied for each of the three periods.

Table 3. Independent Samples Test - Fixed Assets – Absolute Variation

In the %rst analyzed period (implementation period) following Levene’s test of equal variance it was found that the variation between the two groups is not similar, thus the results in the second row of the table (“eq. var. not assumed”- equal variances not assumed) were interpreted. T-test indicates that the di&erence between the means of the two groups (705,167 lei) is statistically signi%cant, it can not be attributed to the sampling process. It can be appreciated with a 95% probability that the di&erence between the means will be within the range of 601,836 lei and 808,498 lei.

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Analyzing the di&erence between the average changes of %xed assets in the %rst operating year, compared to the start of the project in the two groups we %nd a positive result for Levene’s test (Sig. <0.05) the variance in the two groups is equal (in these circumstances we analyze row 3 of the table ‘eq. var. assumed “-” equal variances assumed “). !e di&erence between the means 756.546 lei, appears to be statistically signi%cant, but considering the con%dence interval generated by the software which is slightly wider (501,453 lei – 1,011,638 lei), which indicates the fact that the maximum error is higher than in the previous case.

Analyzing the last period in table 3, the %rst year of operation compared to the year of completion of implementation, we %nd that the variation recorded in the two groups is di&erent, therefore we will analyze the results given in the last row (“Equal variances not assumed “). !e results of this last test indicates that the di&erence between groups is not statistically signi%cant (t-test for Sig. is greater than 0.05).

As a result of these tests we can say that the main di&erence in terms %xed assets between group 1 (group of companies which have received grant funding) and group 2 (control group consisting of companies chosen by random sampling) is generated by the project. In the implementation period it is found that group 1 recorded the largest changes compared with group 2, these di&erences being statistically signi%cant.

Di&erences found in the case of other variables (turnover, net income) can be attributed to the %nancial aid received (the di&erence between the means of the two groups is close to the average value of the grant 667.406 lei - the value obtained after eliminating outliers).

Comparative analysis of turnover !e %rst result indicator analyzed is turnover. !is indicator represents the total revenues from the sale of products or services. !e analysis will be carried out similar to that of %xed assets.

!e two distributions plotted in Figure 2 shows some di&erences, but they are much smaller than in the case of %xed assets. In the %rst group


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there are fewer enterprises that recorded a decrease in turnover in the implementation period, compared with the control group (group 2).

Figure 2. Graphical representation of absolute change of turnoverpre-post implementation group 1 and group 2

Source of data: SOP IEC MA and ROP MA databases consultation in July 2013 and Ministry of Finance July-September 2013

Table 4. Turnover Absolute Variation – Implementation PeriodGroup Group 1 Group 2 Total

Mean 199326,29 -7876,06 95315,62Median 136228,00 -5961,00 37590,00

Std. Deviation 421289,322 325045,736 389411,138Range 1970108 1807993 1981793

Minimum -803949 -815634 -815634Maximum 1166159 992359 1166159


Analyzing the indicators of central tendency (Table 4) calculated for the two groups (mean and median) we observe that there are important di&erences. For group 1 these indicators have positive values (between 100,000 lei

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and 200,000 lei) while for group 2 they have negative values (they do not exceed -10,000 lei). Taking into account the fact that the indicators describe the same period, it can be appreciated that the Structural Funds have had a short-term e&ect on the activity of the bene%ciary enterprises. In terms of range, maximum and minimum values there is no signi%cant di&erence between the two groups.

Table 5. Comparison between means – Turnover – Absolute Variation

Group N Mean Std. Deviation

Std. Error Mean


Group 1 126 199326.29 421289.322 37531.436

Group 2 127 -7876.06 325045.736 28843.145


Group 1 61 384852.07 1057135.817 135352.372

Group 2 56 106968.09 808674.053 108063.616


Group 1 54 60012.63 299822.705 40800.702

Group 2 54 434.39 289466.930 39391.460


Analyzing the absolute change in turnover over the other two reference periods (Table 5), it is found that Group 1 recorded higher values in each case that group 2.

To determine whether the di&erences between averages are statistically signi%cant, t-test was applied in each analyzed period (Table 6). Before applying the t-test, the SPSS software tests whether the variation in the two groups (group 1 and group 2) are similar or not (for this Levene’s test of equal variance is used). In the %rst analyzed period (implementation period) the results show a similar variation between the groups (Sig. <0.05), while the last two test show a di&erent variation in the two groups (Sig.> 0.05)

In the implementation period, the di&erences between absolute changes in turnover between the two groups are statistically representative. In the


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two groups the di&erence between the means is 207,202 lei, but taking into account the possible errors, the mean di&erence will be with a 95% probability between 114,073 lei and 300,331 lei.

Table 6. Independent Samples Test - Turnover – Absolute Variation

In the other two analyzed periods the di&erence of the means are not statistically signi%cant (test-t Sig.> 0.05). !ese results suggest that the Structural Funds have had an impact only during the implementation period, development of the turnover in the %rst year of operation did not produce a di&erent pattern from that of the control group.

Comparative analysis of net pro!t (net result)!e second result indicator analyzed is the net result. !is indicator can be considered an indicator of the e"ciency of the company, showing the di&erence between total revenues and total expenses.

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Figure 3. Graphical representation of absolute change of net pro$t pre-post implementation group 1 and group 2

Source of data: SOP IEC MA and ROP MA databases consultation in July 2013 and Ministry of Finance July-September 2013

Looking at Figure 3, we can state that between the two distributions there are no signi%cant di&erences. !e evolution of the absolute change in net pro%t during the period of implementation is similar for the two groups.

Table 7. Net pro$t - Absolute Variation – Implementation Period

Group Group 1 Group 2 Total

Mean -6104,88 -2096,44 -4050,55

Median -2324,00 -596,00 -1762,00

Std. Deviation 53579,968 49192,388 51309,401Range 277431 256484 277431

Minimum -144726 -132813 -144726Maximum 132705 123671 132705



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Analyzing the indicators presented in table 7, we can state that between the two groups there are no signi%cant di&erences. Between the means there is a di&erence of less than 4.000 lei and between the medians there is a di&erence of less than 2.000 lei.

What is interesting is that the central tendency indicators of net pro%t present negative values , implying that most businesses have recorded a decrease in net earnings during the implementation process. Moreover, group 1 (the group of companies that have bene%ted from structural funds) declined more than group 2 (control group). !is can be explained by the evolution of the debt, %rms in group 1 contracted more credit during the implementation period than those from group 2.

Table 8. Comparison between means – Net pro$t – Absolute Variation

Group N Mean Std. Deviation

Std. Error Mean


Group 1 117 -6104.88 53579.968 4953.470Group 2 123 -2096.44 49192.388 4435.528


Group 1 53 -3007.83 93024.417 12777.886

Group 2 53 -176.49 61207.405 8407.484


Group 1 51 -15906.76 64171.157 8985.759

Group 2 52 -6935.69 55760.945 7732.652


Analyzing the reported net pro%t for the other reference periods (Table 8) we see that the situation is similar to the period of implementation. In all three analyzed periods, average changes of the net result are negative, and the values recorded for group 1 are lower than those for group 2.

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Table 9. Independent Samples Test – Net pro$t – Absolute Variation

Based on the results presented in table 9 we can say that the di&erences between the two groups are not statistically representative (test-t Sig.> 0.05 for all periods analyzed). We appreciate that the Structural Funds have had no e&ect on net pro%t of enterprises.

ConclusionsFollowing the analysis we estimate that the e&ect on short-term of structural funds is low. In terms of change of %xed assets, the di&erence between the two groups is large, which suggests that non-reimbursable %nancial aid contributed to the accumulation of capital in enterprises (exogenous and endogenous growth models consider this as a prerequisite for economic growth)(Hapenciuc, Moro)an and Arionesei (Gaube), 2013). However, the di&erence in turnover variation between the two groups is much smaller, being signi%cant only in the period of implementation, which involves partial acceptance of the %rst hypothesis. !e hypothesis is partially accepted because in the %rst year of operation there is no signi%cant increase in turnover of businesses that have bene%ted from %nancial aid grant (as one might expect).

Regarding the evolution of the net result, the Structural Funds have had no e&ect. Between the two analyzed groups there are small di&erences,


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statistically unrepresentative, which leads to the rejection of the second hypothesis of the study.

We can appreciate that the impact of structural funds o&ered by the EU is low in the short term. !is is mainly caused by the poor quality of projects, proposing unrealistic %nancial forecasts, and by the evaluators who do not pay enough attention to the %nancial evaluation (Moro)an, 2013).

Acknowledgment. !is paper has been %nancially supported within the project entitled „SOCERT. Knowledge society, dynamism through research”, contract number POSDRU/159/1.5/S/132406. !is project is co-%nanced by European Social Fund through Sectoral Operational Programme for Human Resources Development 2007-2013. Investing in people!”

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Funds in Romania. Romanian Journal of Economic Forecasting, 15(2), 84-106.

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Arionesei, G., and Moro)an, A.A. (2013). In#uence of EU Funds on Sustainable Development in the Young Members of the European Union. In Proceedings of STRATEGICA International Academic Conference. Strategic !inking in a Changing World (pp. 153-166). Bucure+ti: Comunicare.ro.

Hapenciuc, C.V., Moro)an, A.A., and Arionesei (Gaube), G. (2013). Absorption of Structural Funds International Comparisons and Correlations. Procedia Economics and Finance, 6, 259–272.

Horvat A. (2005). Why does Nobody Care About the Absorption? Some Aspects Regarding Administrative Absorption Capacity for the EU Structural Funds in the Czech Republic, Estonia, Hungary, Slovakia and Slovenia before Accession. WIFO Working Papers, No. 258 August 2005.

Horvat, A., and Maier, G. (2004). Regional development, Absorption problems and the EU Structural Funds; Some aspects regarding administrative absorption capacity in the Czech Republic, Estonia, Hungary, Slovakia and Slovenia. ERSA Conference, Austria, Viena.

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Moro)an, A.A. (2013). !e Territorial Distribution of Structural Funds in !e North-East Region of Romania. ECOFORUM Journal, 2(2). Retrieved from http://www.ecoforumjournal.ro/index.php/eco/article/view/60.

Moro)an, A.A., Hapenciuc, C.V., and Stanciu P. (2014). !e Impact of European Funds on Regional Development and Resource Consumption-!e Case of !e North East Region of Romania. Quality-Access to Success, 15(139), 328.

Moro)an, A.A., Stanciu, P., and Hapenciuc, C.V. (2014). !e Absorption of European Funds and !e Romanian Miraj of Sustainable Development. Quality-Access to Success, 15(139).

Morovan, I. (2010). Suntem în gra"c? 2010: primul bilan/ – Utilizarea fondurilor structurale (Are we on schedule? 2010: the "rst audit – !e usage of Structural Funds). Bucharest: Centrul Român de Politici Europene.

NEI Regional and Urban Development (2002). Key indicators for Candidate Countries to E$ectively Manage the Structural Funds. Rotterdam.

Oprescu, Gh., Constantin, D.L., Ilie, F., and Pîslaru, D. (2006). Analysis of Absorption Capacity of !e EU Funds in Romania. European Institute of Romania – Pre-accession impact studies III, Bucharest.

Zaman, Gh., and Cristea, A. (2011). EU Structural Funds Absorption in Romania: Obstacles and Issues. Romanian Journal of Economics, 32(XXI), 60-77.

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Government of Romania - Regional Operational Programme 2007-2013, June 2007 - http://www.mdrl.ro/_documente/POR/POR_august_07.pdf.

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Privatization process in the Republic of Kosovo as “sui generis”

Bajram FEJZULLAHU1

Abstract. Among the most important events of the last century in the countries of the former socialist block and states which formed from the fall of that system is the process of transformation and transition of the entire socio-economic and political systems. !is is especially worth for the world of socialist economies. !ese two processes were also introduced in Kosovo, where despite having similarities with other countries with a centralized and nondemocratic orientation, it also had its own speci"cs that di$ered from the other countries. !e privatization process in Kosovo in the "rst phase was conducted through the Kosovo Trust Agency where the international mechanisms (UNMIK United Nation Interim Mission in Kosovo) had the dominant role, whilst PAK (Privatization Agency of Kosovo) took charge of this responsibility in the second phase, when the executive power was passed on to the local employees. !e process of privatization of socially owned enterprises in Kosovo is still ongoing. As Kosovo’s case for many reasons is sui generis. !e process of privatization of the social property (although this process has not yet started for the public-state property) was adjusted to the after-war conditions in Kosovo, which were earlier unknown in the previous privatization processes in the rest of the countries where the process has been applied. !e experimental nature of the process has had negative consequences in Kosovo (unemployment, corruption etc.), far more than the positive impact it may have had. !e intention of this paper is to include all of what has happened and what is happening with the process of privatization. Nothing can be performed without any errors, and that is what encouraged us to do this work, looking for new solutions and ways to make the process more bene"cial. !e methods used in this paper are: the method of comparison, which will serve me for the comparison of the collected data about the course of events prior to privatization and after, the degree of e$ect on the livelihood and the success (or lack thereof ) of the privatization process in Kosovo. Analytical method - used as factor analysis, PEST analysis, comparative, and so on.

Keywords: privatization; transition; social properties; Kosovo.

1.Ph.D. candidate, European University of Tirana, Tirana, Albania, [email protected].

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Introduction!e fall of the Berlin wall, the transformation of property from public and socially owned to private, and the transition of political and economic system in Europe are the most celebrated events of the previous century. However, only in this century Kosovo has been part of these transformations.

After 1999, a military mission called KFOR was responsible to ensure security and protect Kosovo borders, whereas the economic and political life was administered by UNMIK (United Nation Mission in Kosovo). Whilst the presence of the KFOR was evident from the beginning, UNMIK on the other hand was being rather slow in organizing the civil life. !e bureaucratic methods of UNMIK contributed to slow economic recovering of the country. UNMIK had chosen the method of transforming the social property of Kosovo as a way to transition the political system, which later would be one of the main elements and will serve to proclaim the independence of the Republic of Kosovo. More than three years had to pass before the %rst legal regulations regarding the transformation of property in Kosovo took place (UNMIK Regulation no. 2002/12 of 13 June 2002). !is responsibility was given by UNMIK to the Kosovo Trust Agency, which was part of Pillar IV in accordance with 2002-12 regulation).

Kosovo is a “sui generis” case for many things. !e privatization process and the methods to privatize the property were special as well. In this paper we highlight the challenges, the methods and the progress in the process of privatization in Kosovo. Attempts to exhibit the bright and the dark side of this process will be made, by making suggestions and recommendations for the future continuation of this process.

Before Kosovo could become part of these changes, there was one more obstacle. !e process of transition should have been preceded by a process of transformation and to this process (by some logical order of processes) should have preceded a process of forming a state, which Kosovo lacked. However, the process from the very beginning was reversed. Namely the process of privatization of Public Enterprises preceded the forming of the country by UNMIK. !e successful %nalization of the privatization of the socially owned and public enterprises is a very important step towards

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Kosovo’s integration into the European family, as well as a way to political and economic stability.

"e methods of the process of privatization in the Republic of Kosovo!e process of the transformation of property and privatization %rstly of the state owned property has its beginnings in the 50s in the United Kingdom. !is process continues in many countries in present days. All the models applied after the process of privatization can be separated into two categories:1. !e model of fast privatization using the concept “shock therapy”. !e %rst model of privatization was characteristic in most transition countries, which had the support of the International Monetary Fund, whereby it came to quick results. !is model was implemented in Poland, in Russia during the %rst stage of reforms (Gajdar reform), in the former Yugoslavia through the reforms of Ante Markovic, in Bulgaria, Romania, Albania etc. 2. !e gradual model of privatization, known as “step by step”. !e gradual model, or “step by step”, was conducted in a small number of countries in transition. Despite the shortcomings that this model had, considering the past course of privatization, we can say that this model was more successful than the %rst.

!e %rst model (Bashota, 1998) proved to be quite successful. It was used in Poland, Russia, Former Yugoslavia (via the reforms of Ante Markovic), Bulgaria, Romania, Serbia, Macedonia, and Albania, among other countries. As a model for privatization, the methods it used included: a) !e direct method of selling, b) Privatization through shares c) Privatization using the return of property. Despite the fast results, this model is risky in terms of Macroeconomics.

!e second model, planned in phases, although fairly slow, turned out to be even more e&ective. !e gradual privatization (step by step) in its analysis emphasizes the complexity of the privatization process primarily on the establishment of legal regulations, especially in countries that need to go through the transition process. !e creation of e&ective institutions, according to this view, is a long process that involves much trial and error.

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According to them, it means that the reforms must be evolutionary as well as a process of pragmatically and gradually adjusting the existing institutions to match the new needs as they arise, as happened for example in China.

Other known models are:1. !e internal model of privatization (recapitalization, extension of common property). !e model of internal privatization represents a model where workers employ managers to buy the company, through internal shares with or without compensation. Signi%cant examples of this model are the model of recapitalization, and the etatization model of social assets and property (in former Yugoslavia) as a prerequisite for the transformation process.2. External model (public registration of stocks, private selling of stocks, selling the property of the common enterprise, loans and contracts with management, selling to the foreign investors, privatization of property through institutional investors). !e model of external privatization uses several methods through which it conducts sales of shares or the distribution thereof to the entire population or speci%c population groups.

Suitable methods of privatization were used, depending on the current situation of the countries. Each of these methods had its advantages and disadvantages.

In Kosovo’s case, the process of transformation of the property was a necessity, and turned out to be very complex. !e lack of independence made impossible for Kosovo to %nd a solution for itself. Both the choices and the solution were imposed to Kosovo.

"e organization of institutional life in Kosovo and the process of privatization through UNMIKAfter 1999 Kosovo was in a situation where almost everything had been destroyed. No cell of life was functioning normally. !e United Nations had decided that UNMIK (!e United Nations Interim Administration Mission in Kosovo) would be responsible to organize the civil life as well as

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the governmental institutions. !e situation in Kosovo is pro%led also by the following documents. United Nations Security Council on 10 June 1999, adopted Resolution no. 1244, which placed Kosovo under international administration (UNMIK and KFOR). According to this resolution Kosovo is an autonomous region within Yugoslavia. By the United Nations Mission in Kosovo (UNMIK - United Nation Interim Administration Mission in Kosovo), bring the decree no. 2001/XX, dated 20 May 2001, signed by the Special Representative of the Secretary General of the United Nations (Hans Hakerup), as a “Constitutional Framework for Provisional Self-Government”. After the UN Security Council Resolution 12 441 and Military-Technical Agreement on Kosovo (in Kumanovo), KFOR and UNMIK exercise rule over Kosovo. In Belgrade, on 5 November 2001, it was signed a “Joint Document of UNMIK and the Federal Republic of Yugoslavia” (Covic - Hakerup).

!e representatives of the special general secretary of UN had the right to govern Kosovo. UNMIK quickly started to organize the civil life in Kosovo through four Pillars, which served as ministries:1. Pillar I - Police and Courts2. Pillar II- Civil administration3. Pillar III- Democratization and building institutions4. Pillar IV- Rebuilding the Economy.

According to the 1244 UN resolution, these institutions were given temporary powers until the %nal solution of Kosovo’s status. UNMIK, through its fourth pillar (including trade and industry), according to the regulation 2002/12 of June 13, 2002 created the Kosovo Trust Agency as the only responsible institution to privatize the socially owned enterprises in Kosovo, and the Kosovo Chamber of Supreme Court, which would deal with legal issues. !is regulation was updated in April 22, 2005 with the regulation No. 2005/18. !e Kosovo Trust Agency was dominated by the international factors, who were serving as executive directors. !e Committee was composed of eight directors, including four international directors and four residents of Kosovo who have been appointed to the Special Representative of the Secretary General of the United Nations. !ree of the directors from Kosovo were also ministers in the self-governing institutions in Kosovo, one of which is of Serbian nationality,

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while the fourth director was the president of the Union of Independent Syndicates of Trade of Kosovo. Decisions were made by simple majority of the quorum, where at least %ve members must have been present. !e director and his two deputies determined the Board of the Kosovo Trust Agency.

One of the %rst problems for the o"cials of the Kosovo Trust Agency was that they didn’t understand the term “social property”. Social assets and social ownership, is a relatively new category of property rights and its analysis is relatively new. Because this category of property was introduced in the former Yugoslavia in the early 1950s, the theorists who have analyzed this aspect of ownership have pointed out that it cannot constitute a satisfactory theory as such, this type of property where there is a man deprived of ownership of the entire structure.

Regarding the de%nition of social ownership, there are various considerations. Some theorists believe social ownership as an ownership society of the wider community (not state), a community of all citizens. At present it is considered that all the citizens of the co-owners of property. !is explains the great interest in its preservation, as much for its constantly increasing (Mulaj, 2006).

Social property was created as a successor of state ownership in the former Yugoslavia during the introduction of a system of unknown and unique in the world “socialist self-management.” Historically, this type of property on the termination dates from the time of Yugoslavia’s relations with Russia, whereby state ownership is replaced with the social. While public ownership still retains the character of the state, where the state owns, the social property owner remains unde%ned (Knudsen, 2008). Without ever taking into account the opinion of the local people, KTA determined the methods of privatization, unseen before. Privatizing the socially property in Kosovo was approached in two ways:1. Selling the enterprise; selling what can be sold and using the money to pay the company’s old debts.2. Assets in the form of land given under lease for 99 years because of the di"culties that were ongoing in relation cadastral documentation, which was quite badly damaged or moved out of Kosovo.

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!e process of privatization used by the Kosovo Trust Agency had three methods:1. !e method of regular spin-o& - Rules of Tender for the spin-o& privatization (the circular closure, which involves only the sale of assets of enterprises, namely, within the existing company formed a new company that includes only the assets of the company, and shall remain in old company, which will later apply the process of liquidation, the funds from the sale go into a special fund under the control of the PAK and will be used to settle liabilities to creditors, owners and workers). !e model of an old company can develop more new enterprises, while funds raised during the sale of share in a way that 20% goes to workers while 80% goes to fund the trust that will serve to cover obligations made during the operation of the old company. Apart from a small number of obligations (property taxes for the past 12 months, payment of public services for the last 3 months), the new owner of the company being acquitted of all other obligations that the company had previously.2. !e method of special spin-o&: a part from the rules that are worth for a regular spin-o&, special spin-o& added to the model are still some limitations for the new owner of the company. In fact this model, the owner must complete the obligations that were in the process of tendering and to have: highest price o&ered in the tender; investments that will be the time period; continuing the existing contracts for the current employees, and generating new job positions. Privatizations through this model were not successful. 3. !e method of liquidation: !is is a method of selling the remaining assets of the enterprise from the previous process of privatization. Although proposed as a model for privatization of parts of companies or enterprises as a whole, during the existence of the KTA has partially implemented and as far as the liquidation process, it is not implemented. As a model could be implemented in a small number of %rms that were small-scale or those that have already been plenty of earlier stopped working and who have been in bankruptcy proceedings.

!rough Kosovo Trust Agency, until June 20, 2008, there have been 30 waves of privatization and 498 new enterprises have been created, this way raising 392 280 728 of euro, whilst the 397 selling contracts have been signed (PAK Annual Report, 2008).

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!e work of this agency terminated on June 30, 2008 and was substituted by the Privatization Agency of Kosovo (Law 03/L-067 of constitution of PAK).

#e beginning of the process of privatization of socially owned enterprises in Kosovo under the UNMIK administrationSimultaneously with the entry of NATO forces in Kosovo with the formations known as KFOR, came to power and civilian mission in Kosovo known as UNMIK. KFOR forces had the primary task of securing peace and creating a climate of security throughout the entire territory of Kosovo. UNMIK has as its priority set to create the social structure of both political and economic plans (UNMIK Regulation no. 1999/01 of July 25, 1999).

On the basis of resolution 1244 (1999) United Nations Security Council (UN and WB), 10 June, which acted through the United Nations Interim Administration Mission (UNMIK) took over responsibility for Kosovo draw credible conclusions. Responsibilities of the Special Representative of the Secretary General (SRSG), who is also the highest authority in Kosovo, was considerable and included the legal and executive powers and passing of various laws in terms of regulations and other auxiliary instruments (UNMIK Regulation 2002/12)

Pillar IV and Department of Trade and Industry; have invested a lot of e&ort to create a legal basis for the transformation of social property. At the beginning of this process was accompanied by doubts and politicization (three of members of board of directors in PAK were in minister range ) No studies that measure the local or international institutions in Kosovo have taken to resolving issues of property rights would not be complete if it touches issues of privatization. Privatization of public and social enterprise is a complex, political charged process in Kosovo. It a&ects a large number of people in all communities and raises serious questions about past and present injustices related to waves of nationalization, expropriation and con%scation of property.

In addition to potential long-term e&ects on economic development, the way it is enforced by privatization in Kosovo proved to be controversial.

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Concerns sparked, referring about abuse of authority of the relevant agencies with the issue and problematic provisions that could lead to discrimination. !e mere fact that domestic factors in the preparation of legal and other regulations for the privatization process was out of reach, beginning of the transformation of social assets should be considered in three time periods.

1. !e period from September 1999 to September 2000 - After quite of detailed research regarding the social forms of ownership (per cent of the international factor in this type of ownership was not very clear), Pillar IV UNMI, in the second half of 2000, coming up with a proposal known as “White Letter “Joly Dixon (Leader of the Pillar IV), which proposes and prioritizes the improvement of private sector in Kosovo and the beginning of the privatization process, which involves primarily:- !e creation of the Agency and the Privatization Fund, with the possibility of participation of workers 30-40%, as a complementary method, and;- Commercialization For Lease Company for a period of 10 years.

!e idea of privatization is not supported by the United Nations, and commercialization began and remained as an option, but with modest results. During the commercialization, DTI (Department of Trade and industries) o&ered contracts with long-term concessions (ten years) for the socially owned enterprises, selected through public tender (KIPRED- Kosovar Institute for Policy Research and Development, Prishtina).

!e investor who has won this tender is the right use of natural resources and manpower companies and the right of management of companies. However, the investor has not acquired the right of property companies, which is also a di&erence between commercialization and privatization.

2. !e period from November 2000-June 2001 - At the end of 2001 as Department of Trade and Industry giving a new proposal by the transformation of SOEs into joint stock companies, based on the “Law of Markovic-1989”, according which the majority of shares went to employees (60-70%), while the other part would be enabled sales to foreign investors and of this fund would be created for privatization. !is was considered

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a reasonable solution for the United Nations and the foreign investors. However, even this solution for the United Nations was not any better than the previous one and was not accepted (O"cial Gazette SFRJ No. 51/94). !e privatization was an option, but it is an incentive given to the provision that the earnings growth of employees may be paid only in shares. During 1990 reform, the privatization process included 1200 enterprises (Ante Markovic’s economic program-Prime Minister of Yugoslavia). In the end of 1993, a large number of companies, using the absence of provisions on revaluation of debt for in#ation, privatized completely.

During the June 2001-May 2002 period, UNMIK was committed to a completely di&erent model of privatization that allowed privatization without regard to property, which remains to be resolved by special procedures. !e process went towards a model of the “Spin-o&” that meant some sort of amputation, which means that this model of a social enterprise might have to create more new businesses which also implies the creation of subsidiary companies of assets of company without regard to the existing company’s property. All funds from the sale were held in a fund that was the “Trust” fund.

Its principal function was to “maintain or grow the value of the company” through the Kosovo Trust Agency. !e main advantage of this model is that new enterprises do not inherit any of the previous debt.

"e privatization process of the socially owned enterprises through the Privatization Agency of Kosovo (PAK)!e Privatization Agency of Kosovo was established based on article 03/L-067 which came into power on 06.15.2008, in accordance with the Constitution of the Republic of Kosovo (Law 03/L-067 2008). PAK is an independent agency (according to article 142 of the Constitution of the Republic of Kosovo), which will do its duties and %ll its responsibilities completely independently. !e agency has juridical rights to independently sign contracts, to take, withhold or sell the property and has complete competence to %nish the duties and use the authority given by the Law of Privatization Agency of Kosovo.

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PAK has authority over the socially owned enterprises including rights to privatize and liquidate enterprises. PAK uses this authority in accordance with article 159 of the Constitution of the Republic of Kosovo.

Declaration of statehood and independence of the Republic of Kosovo, the Kosovo Trust Agency (KTA) has stopped working. After a short delay, 15 Jun 2008 years promulgated the Law on the Establishment of the Privatization Agency of Kosovo (PAK). !e very beginning to drop was not very promising from the fact that it is not done regularly transfer, was even and positional disorder in the documentation, while one part of the documentation under mysterious circumstances had been burned. Data regarding to previous rounds were on the server, but lost and burned records creates many doubts and concerns. Soon PAK is reorganized and became operational.

!ere are 120 liquidation Commissions, which had already been established (all inherited from predecessor agencies (KTA). Any liquidation committee has international members, appointed by the International Civilian Representative (ICR) (9thchp. 2 Law on the Establishment of PAK). !e initial members of the ICO are set at the beginning of the 20 liquidation Commission respective Regional O"ces of PAK in 2009 in regard to preparation for the further sale of assets and liquidation of reviewing the appeals of various claimants. in 2010, all of the liquidation work in Certain liquidation committee, the regional O"ces in the implementation process of liquidation of companies as quickly as possible.During the mandate of its predecessor agencies (KTA) has not been uniform procedures and guidelines for the liquidation of which would help the liquidation commission in conducting their daily duties arising from laws that are applicable and operational policies of the Agency. For the above reasons, the Department of liquidation and experts from “Poll Consulting and Associates” (as support PAK has updated the liquidation of form (pattern) and create Instructions for liquidation of previous liquidation Commission.

Laws and regulations that govern the liquidation of the time-tested and are planned PAK abilities to meet all the necessary activities for the upcoming process of liquidation of SOEs. It is now apparent that while

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the liquidation is going through all the planned steps and it is considered that the time period (planned) of 34 months is quite an optimal process to be completed in its entirety. However, until now it is noted that the dynamics of planned activities not consistent with reality and can expect signi%cant improvements.

Delays in the process of liquidation of companies can be expected to create signi%cant problems in all units operating within the PAK. One such unit is the unit for a transition that is responsible to manage resources related to the company transition period. Transition period the company is the period between closing of tenders, the company is preparing to submit a new customer and begin the process to dissolve the company. During 2009.the Unit for the transition is managed to process 397 signed contracts for providers of services (195 transitions and 202 in liquidation). !ese are agreements signed with former employees of SOEs in order to prepare the archive privatized SOEs and started work on preparing a list of employees to compensation for sale of company shares from 20% of which belongs to them under the Act, as well as other items pertaining to the transitional phase of privatization and liquidation.

All units within the PAK are closely related to one another and thus form a whole. It closed completely in the process of selling and liquidation of an enterprise has an important role of the Unit for the closure of tenders, whose duty is to prepare a draft contract for the sale conducted by the PAK method through spin-o& and liquidation. Later, as the Steering Committee approves the sale and supply are fully paid, to close the tender unit begins with the preparation of draft contracts that include %xed assets, which was published in the tender, assets and liabilities and sent to the Legal department for legal review Liquidation Division is one of the two PAK pillars which deal with SOEs liquidation process. Liquidation process coordinates works and duties between HQ and Liquidation Department along with Heads of Liquidation Teams in PAK Regional O"ces. After tender procedures and signing of contract dated 10 July 2012 PAK has hired consortium Deloitte and Tashko and Pustina for the project “Professional Service Provider for liquidation of portfolio of the Socially Owned Enterprises in Republic of Kosovo” a contract which is managed by Liquidation Department within Liquidation Division (PAK Annual report 2012).

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One of the key assumptions, for the liquidation of SOEs and the process of compiling lists of workers who belong to the law 20% of the shares sold to the company. !e very skills of workers who are subject to this list are a process of research data.

Based on the above-mentioned can be considered that one company is fully privatized when it is complete and the process of its liquidation, or when they cover all possible liabilities that had a Social Enterprise. !erefore, all the units together with the liquidation committees are required in the implementation of this process in order to fully privatizing the company.

!e process of privatization of SOEs is quite complex in itself. In fact, there are cases where companies are not yet ready to initiate a process of privatization; it means that there is a time vacuum. On the basis of law PAK she is obliged to manage and social enterprises where there are no %nancial results or are damaged by any of the grounds to their privatization. !is is called the direct administration of PAK to be approved by the Board of PAK.

During 2010 -2014 work continued with the same pace of privatization in an attempt to end it as soon as possible this process to be as soon as possible the process of liquidation of SOEs, which also require a lot of work and e&ort.

!e beginning of PAK was not promising since there was no proper handover of the responsibilities, and due to other issues from rush or lack of knowledge. All this created real ground for suspicion. !rough PAK there have been 30 waves of privatization, selling enterprises using the method of spin-o& and 26 other enterprises were sold using the method of liquidation. It is estimated that over 630 million euro’s have been acquired. !e process of privatization itself and its consequent result, left their mark in economy, politics, social ethic and all other aspects of life sources.

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Conclusion!e wave of change that had been through the countries of the socialist block in the previous century also included the countries of former Yugoslavia. !e #ow of these changes could not have been predicted. Among eight units of former Yugoslavia, the changes came through bloody war in six of them.

!e UNMIK (1999) started organizing the economical, political and social life as fast as they could, being restricted by the circumstances. Kosovo was asked to satisfy “standards” so that it can connect to the democratic world. One of the standards included transforming the socially owned property. UNMIK, through the Pillar four, attempted rebuilding the economy of the country. !e department of trade was part of this Pillar too. Accordingly, the UNMIK formed the Kosovo Trust Agency, as the institution through which it would start transforming the property, privatizing the socially owned enterprises in Kosovo. Despite the internal and external pressure, Kosovo Trust Agency managed to %nish the job they had started.

!e public dissatisfaction appeared since the beginning of the process. !e expectations were that this process will reduce the unemployment, and this did not happen. Few were those enterprises that started working after the privatization. Controversy was raised about the methods of privatization, transparency, the money raised through this process and up to the process of selling itself the announcement of the independence of Kosovo on 02.17.2008 did not make signi%cant changes in the process of privatization. !e parliament of the Republic of Kosovo established the Kosovo Privatization Agency as a subsequent of Kosovo Trust Agency. !e privatization in Kosovo, although local people took charge, in essence remained the same. Some additional problems surfaced, among the most important ones was paying the 20% of the raised money to the workers, money that belonged to them by law.

Based on the overall past and current events, regarding the process of privatization in Kosovo, it can be said that so far the process of privatization has not ended for any of the socially owned enterprises. !e transformation of the property through selling of the socially owned enterprises is characterized by transferring the property to those who buy it

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for 99 years. Moreover, until the process of liquidation of these enterprises is not over, and until we are not able to answer the question what will happen to these properties after 99 years, the process of privatization shall not be considered complete.

ReferencesAnnual Report PAK (2012).Bashota, N. (1998). Ekonomija Politike. Universiteti Prishtinës, Fakulteti

Ekonomik, Prishtinë.Colombatto, E. (2000). On the Concept of Transition, ICER, Working Paper

Series, Torino.Ellerman, D. (Ed.) (1993). Management and Employee Buy-Outs as a Technique of

Privatization. Ljubljana: CEEPN.Fama, E.F., and Jensen, M.C. (1983). Separation of ownership and control.

Journal of Law and Economics, 26(2), 301-25.Limani, L. (2003). Makroekonomia Aplikativa. Prishtinë.Livoreka, R. (2003). Argumentet relevante përsh frytëzimin e mjeteve nga

privatizimi iekonomisë së Kosovës. Economia, 1-2.Mulaj, I. (2006). Rede%ning Property Rights with Speci%c Reference to Social

Ownership in Successor States of Former Yugoslavia: Did it Matter for Economic E"ciency?. Central European University, Budapest, Hungary, 5 – 7 May 2006.

PAK Law 03/L-067.Savas, E.S. (2000). Privatization and Public-Private Partnerships. New York: CQ

Press.Selmanaj, S. (1996). Sistemet ekonomike bashkëkohore. Prishtinë.UNMIK Regulation 2002/13UNMIK Regulation no. 1999/01 of 25 July 1999UNMIK Reregulation 12/1999

Bajram FEJZULLAHU

FINANCE AND BANKING

Abnormal stock market returns to announcements if M&A banking deals in Greece 1996-2013

George BAKATSELOS1

Anastasios KARAMANOS2

Abstract. !is study has undertaken a comprehensive empirical analysis of the wealth e"ects of bank M&A in Greece over the period 1996-2013 and it reports insigni#cant abnormal gains for acquiring banks, signi#cant positive abnormal returns at 7,44% for acquired banks, and 2,91% positive abnormal returns for the combined entity, in the event window [-10; +1]. !e #ndings indicate that, on average, the Greek bank mergers neither create nor destroy shareholder wealth. !is result is consistent with the #ndings of other Greek event studies, and the bulk of the US and European event studies on M&A wealth e"ects. On average, acquired #rm shareholders gain at the expense of the acquiring #rm and market value of the combined entity appears to have little improvement around the announcement of the transaction. Yet, mergers continue so there is scope to investigate other motives that drive M&As in the banking sector.

Keywords: stock market returns; M&A banking; Greece.

IntroductionDeregulation, globalization, advances in transaction and information technologies (technological progress), geographic shifts in growth opportunities, diversi!cation of risks, economies of scale and scope, cost reduction, !nancial synergies, tax advantages, the introduction of the euro and increased competition as well as, technological progress, fast expansion of client requirements, risk diversi!cation, regulatory policy, managerial hubris have all been broad well-known drivers for

1. MBA student, Business Administration and Economics Department, International Faculty of the University of She"eld, CITY College, #essaloniki, Greece, [email protected]. Lecturer, Ph.D., Business Administration and Economics Department, International Faculty of the University of She"eld, CITY College, #essaloniki, Greece, [email protected].

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consolidation in the banking sector (Amel et al., 2004; Ayadi, 2007; Beitel et al., 2004; Campa & Hernando, 2005; Chen et al., 2006; DeYoung et al., 2009; Demsetz & Strahan, 2007; Focarelli & Pozzolo, 2010; Hannan & Pillof, 2009; Hendricks, 2007). #e question whether or not M&As have contributed or not to improve banks’ e"ciency and pro!tability has not yet been convincingly answered in the literature given the restricted consensus on the impact of consolidation on banks’ performance. Up to present, the Greek banking sector has not been studied adequately due to data de!ciencies (Pasiouras & Zopounidis, 2008). #is paper thus !lls a research gap and it reviews the rationale behind banking consolidation in Greece and it uses market data to perform an event study on the stock market valuation of M&As in the Greek banking sector for 1996-2013. #erefore, the research hypothesis can be formulated as follows: A bank M&A has a signi#cant positive impact on the stock market price of both the acquirer and target.

Literature review on the e!ects of bank M&AsResearch literature on the e$ects of consolidation can be classi!ed: dynamic e"ciency studies, operating performance studies and event studies. #is paper follows the event study approach. #e basic idea of bank consolidation event studies is to determine if there are any value gains in the share prices of the bidders and/or of the targets, and/or of the combined entities around the announcement of a M&A. In general, !ndings are not consistent across event studies, as demonstrated in the review article by Beitel and Schiereck (2000). #e bulk of empirical research shows no evidence of value gains from bank mergers or from increased bank size per se beyond a small size. DeLong (2001), Becher (2000), Kane (2000), Beitel and Schiereck (2001), Hart and Apilado (2002), Campa and Hernando (2006), Becher (2006), Asimakopoulos and Athanasoglou (2009), and Intrisano (2012) studied abnormal returns of acquirers and they found that average cumulative abnormal returns of acquirers were negative around the merger announcement date. Studies by Hatzigayos et al. (2000), Cybo-Ottone and Murgia (2000), Duso (2010), Liargovas and Repousis (2011), Dishad (2012), Goddard et al. (2012) present no signi!cant value creation in the bidder share prices. Also of importance is the fact that only few studies o$er statistically signi!cant positive abnormal returns for acquiring banks as of Campa and Hernando

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(2004) and Davidson and Ismail (2005). Analysis of merger gains examining stock price performance of the bidder and target !rm around the announcement of a merger or acquisition indicate that overall wealth e$ects from bank mergers are positive over time (Pillof, 1996; Kwan & Eisenbeis, 1999; Beitel & Schierech, 2001; Becher, 2000; Hart & Apilado, 2002; Duso et al., 2010). Although European research on bank e"ciency has not matched the volume of the US studies this has began to change in recent years. #ere is some evidence that M&As in Europe increase combined value. A notable study of the European market is the recent work by Cybo-Ottone and Murgia (2000), who documented that there is a positive and signi!cant increase in stock market value for the targets and the combined entity at the time of the deal announcement. It should be noted that the sample used also contained cross-product deals in which banks expand into insurance or investment banking, since regulations allow EU banks to o$er both banking and insurance products. Beitel and Schiereck (2001), Hart and Apilado (2002), Campa and Hernando (2004), Davidson and Ismail (2005), and Duso et al. (2010) also studied value creation of European banking consolidation and reported positive !ndings for the combined entity and for the shareholders of the targets that earn considerable and signi!cant positive abnormal returns. #e results for the shareholders of the bidders are insigni!cantly negative. Tourani-Rad and Van Beek (1999) found that shareholders of the targets experience signi!cantly positive returns while abnormal returns for the bidding banks are very modest and not statistically signi!cant due to the relative small size of the target comparing to that of the bidder, while Dilshad (2012) report insigni!cant returns for both bidders and targets.

As far as M&As in the Greek banking sector as concerned, to our knowledge, Hatzigayos et al. (2000) is the !rst study that examines the consolidation of listed banks in the Greek market. #e authors investigate 4 bank deals over the period 1998-99 when the !rst merger wave took place in Greece. #e results point at insigni!cant negative abnormal returns for the bidding banks at a merger announcement mainly due to overpriced takeovers. Other studies on the shareholder value creation are that of Manasakis (2009), Mylonidis and Kelnikola (2005) and Asimakopoulos et al. (2005). Overall, these studies con!rm considerable wealth gains for both bidders and targets except the study of Manasakis

George BAKATSELOS, Anastasios KARAMANOS

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who reports negatively wealth gains. Relatively positive results to that of the aforementioned Greek studies are the outcomes o$ered by Vergos and Christopoulos (2011), whose focus is placed exclusively on the combined entity following the consolidation exercise.

Research setting: the Greek banking sectorIn 2012, the Greek banking sectors consisted of 62 credit institutions with 4,005 branches and 63,400 employees (EFB, 2012). A particular feature of the Greek commercial banking system is the central role of a few large banks, having substantial market power (EFB, 2012). Starting in 1999 a series of smaller-sized bank M&As occurred. #e leading role was held by Piraeus Bank, which acquired control of Chios Bank, founded in 1991. In addition, Piraeus Bank absorbed the branches of National Westminster Bank in Greece. Shortly thereafter, Piraeus Bank moved on to absorb the commercial banks of Macedonia-#race Bank and Chios respectively. In 1999, Egnatia Bank absorbs the Bank of Central Greece. In the 2000s, Egnatia Bank joins Cyprus Popular Bank to create the Mar!n Popular Bank, which later was named Cyprus Popular Bank. In 1998, two more historic banks disappeared from the bank charter, when the National Bank merged by absorption with National Mortgage Bank (which had been the outcome from the merger of two former subsidiaries, the National Mortgage and National Housing Bank). In early 2002, Piraeus Bank acquired control ETBA bank, founded in 1964 with the main purpose to contribute to the industrial development of the country.

After a lengthy period of more or less a decade, historical changes in the domestic banking system had begun in 2012 and haven’t stopped since the mid of 2013. Leading roles for Piraeus Bank and Alpha Bank once again. Speci!cally, in late July 2012, Piraeus Bank acquired the ‘healthy’ part of the Agricultural Bank. #ree months later, Piraeus Bank signed an agreement with Societe Generale to obtain the overall turnout (99%) of General Bank. In March 2013, Piraeus Bank also acquired the banking operations of Bank of Cyprus, Cyprus Popular Bank and Bank of the Greek in Greece and later acquired the Millennium Bank too. All banks acquired by Piraeus Bank will be fully absorbed by the end of 2013. In February 2013, Alpha Bank acquired all the shares of Emporiki Bank and

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in late June of the same year the acquisition was completed. #e New Proton Bank is also acquired by Eurobank, while in May 2013 the FBBank passed to NBG (Lidorikis, 2013).

MethodologyEvent studies#e event study methodology is widely used to investigate possible gains that are derived from stock prices of the consolidated institutions involved prior and following the announcement of an M&A (Dilshad, 2012). #e !rst step in an event study is to de!ne the event under examination and the timing of the event, hence, the event date. In addition, it is necessary to identify the period over which the stock price performance will be investigated, the event window. Following the identi!cation of the timing of the event, the event window should be determined [t1;t2], in other words, the time period surrounding the announcement date, over which the !rm’s stock price performance is under examination. We follow Warner and Brown (1985) in order to investigate market reactions to bank mergers taking place in Greece during 1997-2013, where di$erences in the stock returns between acquiring banks or target banks and the market are used as estimates of abnormal or excess returns for a 12-day window [-10;+1] around the merger announcement date, using the following model:

ARit = Rit – (ai + biRmt) (equation 1)whereARit= abnormal returns to bank stock i at time t Ru= actual returns to bank stock i at time t ai= ordinary least squares (OLS) estimate of the intercept of the estimated market model bi= OLS estimate of the market model slope coe"cient re%ecting change in the market return relative to the return for bank iRmt= actual returns to a market portfolio of bank stocks at time t, as proxied by, for example, the value-weighted index of bank stocks from the ASE.


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Deducting [ai + biRmt] from Rit , as shown in equation 1, neutralizes the e$ect of general market movements but does not neutralize !rm-speci!c price variations caused by events other than the merger announcement. To neutralize these !rm-speci!c price variations, the cross-sectional average of the abnormal returns for the total sample of bank stocks for each period is computed. For a sample of n bank stocks, the mean abnormal return for each day t is computed as:

(equation 2)

where t = -10,-9…0, +1. #e cross-sectional average neutralizes !rm-speci!c price variations that are unrelated to the merger announcements because each announcement did not occur at the same point in time for the n banks in the sample. Hence, the expected value of MARt is zero in the absence of abnormal returns due to merger announcements. #e !nal calculation of abnormal returns is to compute cumulative average abnormal returns from day t=-10 to t=0 and from day t=-10 to t=+1 using the formula:

!"#! "#$$"% %"#$$ "#

$"

(equation 3)

where t1 = {0, +1}, and !"#! "#$$"% is the cumulative average abnormal return for the sample of n bank stocks over the event period intervals from t = -10 to t = t1. #e expected value of CAR is zero in the absence of abnormal returns.

%"#$"&

"#'$' "

&

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Statistical analysisTo test the signi!cance of MARt, the average standardized abnormal return is estimated using the following statistic, as described in Dodd and Warner (1983):

("#$"&

"#'$)'$' "

&

(equation 4)

where sit is the estimated standard deviation of the abnormal returns for bank stock i in the event period t and is computed by:

)'$ ('&'" "*

!#+$ #+%&

!#+, #+%&, "

* ( (equation 5)

where

)'& = residual variance for security i from the market model regression

T = number of days in the estimation period (135)Rmt = rate of return on the market index for day t of the event periodRm = mean rate of return on the market index during the estimation periodRmk = rate of return on the market index for the day k of the estimation period

As shown in equation 5, the standard error of the forecast for the event period, sit, involves a slight adjustment from the standard error of the estimate, si. #is adjustment re%ects the deviations of the independent variables in the estimation period from the values employed in the original regression and are typically close to 1.

Statistical analysis of the combined entityMost studies examine the abnormal returns of acquirers and targets separately, but several papers analyze the total change in shareholder wealth.


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In such cases, the value-weighted sum of acquirer and target abnormal returns is the appropriate measure of overall gains stemming from merger and acquisition activity. #is measure quanti!es the value reaction that the market believes the merger will provide because false interpretations can be made when looking solely at the outcomes of the bidder or the target. Cumulative abnormal returns of the combined entity (bidder and target !rms together) are calculated by following the method outline in Houston and Ryngaert (1994): Combined Cumulative Abnormal Returns =

(equation 6)where Vi is the value of the bank’s stock –10 days before the merger announcement date for the bidder and target respectively over the 12-day window. To gauge statistical signi!cance, a z-test and subsequent p-value are calculated from the mean assuming a normal distribution using the suggestions described in Dodd and Warner (1983).

M&A data sources and sample selection criteria#e population under investigation consists of all Greek !nancial institutions that announced a M&A activity between the !rst of January 1996 and the thirtieth of July 2013. #is study relies on two data sources: #e Athens Stock Exchange (ASE) and the Economic Bulletins of Commercial Bank. #e ASE provides individual equity values (historical data for stock prices of banks involved in M&As), banking industry and market returns. #e exact announcement dates of M&As are not readily available (the Economic Bulletins of Commercial Bank provides only yearly tables of M&As in Greek banks), thus a lot of additional research on Greek !nancial newspapers like Imerisia and Kathimerini was required. For the analysis of additional data (e.g. total assets, total equity) based on bank balance sheets and income statements, the study relies on !nancial statements of the Greek banking system provided by the Hellenic Bank Association (HBA).

#ere were 33 bank mergers during the period 1996-2013 in Greece, but 19 were eliminated from the sample, as they did not satisfy the following criteria:

%!!%!

'$'-

'$'$'-'-

..!"#..!"#

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- Both, the bidding and the target banks are publicly traded banking institutions listed on the Athens Stock Exchange (ASE) for at least 252 trading days (a full year) prior to the announcement and 20 days after the announcement of a merger transaction.- #e merger or acquisition must have occurred before 31/7/2013.- Both of the merged banks must be healthy institutions at the time of the merger.- #e transaction has been closed – the deal status hence is “completed”.- #e M&A deal is a full merger of the two banks or entails the transfer of control from the target to the acquiring bank.

In particular, in sixteen (16) cases the bidding or target banks were not publicly traded banking institutions, which means that there were no share prices to perform event study methodology and in three (3) cases, Greek banks involved in the take-over of network of foreign banks). So, following the elimination, the total number of deals left for analysis is fourteen (14). #e !nal sample of the study is presented in Table 1.

Table 1. 1996-2013 Greek bank M&As

Year Acquiring Bank Target Bank Announcement Date1997 National Mortage National Housing 31/01/19971998 Piraeus Bank Macedonia-#race

Bank08/05/1998

Piraeus Bank Xiosbank 10/07/1998EFG Eurobank Bank of Athens 16/06/1998Egnatia Bank Bank of Central

Greece31/07/1998

National Bank of Greece National Mortage 27/05/19982011 Postal Savings Bank Aspis Bank 09/06020112012 Piraeus Bank Geniki Bank 19/10/2012

Alpha Bank Commercial Bank 16/10/2012Piraeus Agricultural Bank 23/09/2012

2013 Piraeus Bank Bank of Cyprus 03/03/2013Piraeus Bank Laiki Bank 03/03/2013EFG Eurobank-Ergasias Postal Savings Bank 14/07/2013EFG Eurobank-Ergasias Proton Bank 19/07/2013


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ResultsMarket responses to mergersFollowing the methodology outlined in the previous section, several event windows are used to calculate abnormal returns ranging in size from twelve days, spanning days [t = -10, t = +1] to only two days [t = 0, +1]. Table 2 provides the cumulative abnormal returns for bidders. In general, prior to the merger announcement date, bidders experience positive returns. Over the 11-day window [-10;0], bidder CARs are accounted for +1,74%, while the 3-day window [-2;0] o$ers +2,54% gains for the shareholders of the acquiring !rms. However, this trend seems to be altered exactly on the announcement date where bidder abnormal returns fall signi!cantly. #is is very clear in the 2-day event window [0; +1], where the losses for bidders reach –1,74%. Overall, this study !nds positive and statistically insigni!cant abnormal returns to acquiring !rms amounting to a twelve-day cumulative abnormal return of only +0,78%, a very modest average gain. One explanation for this slight increase in returns for acquiring banks is the fact that the considerable size of target banks in Greece along with their strong !nancial performance do not allow bidding !rms to exploit any signi!cant gains from e"ciency increase and cost savings.

However, the results validate the results of Liagrovas and Repousis (2011) who also report insigni!cant bidder CARs for an event window [-30; +30] and are not seriously di$erentiated with these of an earlier event study by Hatzigayos et al. (2000). #eir !ndings indicate that there is an insigni!cant negative reaction for shareholders of the acquiring !rms around the announcement of a bank merger in Greece. #e authors !nd a non-signi!cant negative reaction of –0,3% on days –1 to +5 after the announcement date. Nevertheless, the sample used in their work is somewhat smaller than that used in this study and the authors computed abnormal returns only for the bidders. However, both studies of Mylonidis and Kelnikola (2005) and Asimakopoulos et al. (2005) disclose considerable wealth e$ects for bidders at 4,9% and 25,1% respectively over a 40-day window [-20;+20]. It is worth noticing that Asimakopoulos et al. (2005) is the only Greek study that shows signi!cantly higher CARs for bidders as compared to the CARs of targets for a considerable period of time violating the e"cient market hypothesis and giving space to rumor dispersion e$ect and or to abuse of inside information prior the announcement of merger event.

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Table 2. Cummulative abnormal returns (CARs) of the acquiring banks in Greece between 1996-2013.

Bidders (N = 7)

Event windowCAR in %a Pos. Neg. Z-test p-value

[-10;0] 1,74 4 4 0,01 0,25477[-5;0] 1,88 3 5 0,03 0,19548[-2;0] 2,54 5 3 0,04 0,20358[-1;0] 0,08 4 4 0,25 0,22571{0} -0,78 2 6 0,50 0,11929[-1;+1] -0,88 4 4 0,22 0,11271[0;+1] -1,74 4 4 0,47 0,29943[-10;+1] 0,78 3 5 0,31 0,33732

Note: !is table presents the results for an event study examining 14 targets from Greek bank M&As. Abnormal returns were calculated using OLS-regression. OLS parameters have been estimated for a period of 135 trading days prior to the event window [-10;+1]. As market returns we applied ASE index (Athens Stock Exchange). Tests of signi#cance are calculated from standardized abnormal returns employing the Dodd-Warner (1983) procedure.a ***=signi#cant at the 1 percent level, **=signi#cant at the 5 percent level, *=signi#cant at 10 percent level.

Other previous European studies that look at the returns to bidders report insigni!cant !ndings for the shareholders of the acquiring !rms. #e results of Dishlad (2012), Goddard et al. (2012), Duso (2010), Cybo-Ottone and Murgia (2000), Beitel and Shierech (2004) and Tourani-Rad and Van Beek (1999) are basically the same. However, studies focusing on US M&As indicate signi!cant negative cumulative abnormal returns. Becher (2006) and Hart and Apilado (2002) show -0,61% and –0,63% losses respectively for a one-day event window [0]. In addition, DeLong (2001) !nds –1,70% return for a twelve-day window [-10;+1], while Houston et al. (2001) report –2,61% return for acquiring !rms. European studies that also conclude to negative bidder CARs are that of Intrisano (2012) !nding -3,7%, Asimakopoulos and Athanasoglou (2009) -0,79%, Campa and Hernando (2006) -2,37% #e !ndings for the bidders in this study seem to contradict the !ndings of major US studies, while tend to con!rm several studies conducted in European banking markets indicating neither


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success nor failure of wealth creation for the shareholders of acquiring banks.Cumulative abnormal returns for targets across event windows are reported in Table 3. #ere is no much to say about target returns. Like previous European and US studies, target banks in Greece have positive wealth e$ects in all event windows. As can be noted observing p-value of the z-test, all measures of CARs are highly signi!cant. #is work !nds a statistically signi!cant cumulative return +7,44% for the event window [-10;+1].

Table 3. Cumulative abnormal returns (CARs) of targeted banks in Greece between 1996-2013.

Targets (N = 14)


[-10;0] 5,43*** 5 3 0,96 0,00000[-5;0] 3,76*** 4 4 0,86 0,00000[-2;0] 4,54*** 6 2 0,29 0,00000[-1;0] 2,72*** 4 4 0,39 0,00000{0} 1,14*** 3 5 0,50 0,00000[-1;+1] 4,73*** 3 5 0,72 0,00000[0;+1] 3,15*** 4 4 0,67 0,00000[-10;+1] 7,44*** 5 3 0,58 0,00000

Notes: !is table presents the results for an event study examining 7 bidders from Greek bank M&As. Abnormal returns were calculated using OLS-regression. OLS parameters have been estimated for a period of 135 trading days prior to the event window [-10;+1]. As market returns we applied ASE index (Athens Stock Exchange). Tests of signi#cance are calculated from standardized abnormal returns employing the Dodd-Warner (1983) procedure.a ***=signi#cant at the 1 percent level, **=signi#cant at the 5 percent level, *=signi#cant at 10 percent level.

#e results of the present study con!rm the outcomes of similar Greek studies such as those of Mylonidis and Kelnikola (2005), as well as that of Asimakopoulos et al. (2005). According to Beitel and Schiereck (2004), in Europe, cumulative abnormal returns for targets account for +16,0% in a 41-day window [-20; +20]. #e results of Intrisano (2012) represent

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10.3% wealth creation for targets. Cybo-Ottone and Murgia (2000) also register signi!cant positive returns +16,1% for target banks considering the period of 11 days around the announcement, while Tourani-Rad and Van Beek (1999) show +5,71% wealth increase in a 81-day event window [-40; +40]. #e same results are found in all studies performed in USA too. Targets experience superior performance regardless of the days studied in the event windows (Hart & Apilado, 2002; DeLong, 2001). In other words, M&As in Europe and USA act in favor of target’s shareholders. #is outcome suggests that target management and shareholders may prefer to withdraw from deals where there are no signi!cant opportunities to exploit merger gains.

#e results of the event study for the combined entity are given in Table 4. Examining simultaneously both the acquiring and targeted banks, allows us to determine whether bank M&As create rather than transfer wealth. #e market reaction for the combined entity to a merger announcement for several days surrounding the merger announcement shows a slight increase in the combined abnormal returns for 14 pairs of acquiring and targeted banks in sample. Table 4 indicates that over the 11-day window [-10;+1], cumulative abnormal returns to the combined entity are +2,91%. Positive returns to targets are essentially o$set by insigni!cant returns to bidders. It is interesting to note, however, that this result is consistent with accounting-based studies that provide evidence for limited e"ciency gains from bank mergers (Duso, 2010; Davinson & Ismail, 2005; Hart & Apilado, 2002; Kwan & Eisenbeis, 1999; Pillof, 1996). However, Mylonidis and Kelnikola (2005) register a quite big CAR +9,1% for the and combined entity similarly, Vergos and Christopoulos (2008) +6% respectively regarding Greek deals. When comparing the results of this study with those reported in Table 3.1, Cybo-Ottone and Murgia (2000) !nds +4,0% increase in the market value for the combined entity in a sample of 46 European bank mergers.


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Table 4. Combined cumulative abnormal returns (CARs) from bank takeovers in Greece between 1996-2013.

Combined entity (N = 14)


[-10;0] 1,10*** 5 3 0,30 0,00056[-5;0] 0,24*** 4 4 0,22 0,00099[-2;0] 1,08*** 6 2 0,04 0,00268[-1;0] 0,85*** 4 4 0,23 0,00044{0} 0,44*** 3 5 0,50 0,00003[-1;+1] 2,42*** 3 5 0,42 0,00011[0;+1] 1,15*** 6 2 0,58 0,00005[-10;+1] 2,91*** 3 5 0,29 0,00413

Notes: !is table presents the results for an event study examining 8 targets from Greek bank M&As. Abnormal returns were calculated using OLS-regression. OLS parameters have been estimated for a period of 135 trading days prior to the event window [-10;+1]. As market returns we applied ASE index (Athens Stock Exchange). Tests of signi#cance are calculated from standardized abnormal returns employing the Dodd-Warner (1983) procedure.a ***=signi#cant at the 1 percent level, **=signi#cant at the 5 percent level, *=signi#cant at 10 percent level.

Beitel and Schiereck (2004) also study mergers in Europe and show +1,29% increase in combined value. Studies on the wealth e$ects of the US bank M&As, such as those of Houston et al. (2001), Becher (2000), and Houston and Ryngaert (1994) !nd that mergers can create little value on a net and aggregate basis. According to the aforementioned studies, this work is consistent with actual measured performance gains and the bulk of European and US event studies. For a more complete picture of the CARs during the investigation period for the bidders, the targets as well as for the combined entity, see Figure 1.

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Figure 1. CARs for the whole sample

Conclusions#is study has undertaken a comprehensive empirical analysis of the wealth e$ects of bank M&As in Greece over the period 1996-2013 and it reports insigni!cant abnormal gains for acquiring banks, signi!cant positive abnormal returns at 7,44% for acquired banks, and 2,91% positive abnormal returns for the combined entity, in the event window [-10;+1]. #e !ndings indicate that, on average, the Greek bank mergers neither create nor destroy shareholder wealth. #is result is consistent with the !ndings of other Greek event studies, and the bulk of US and European event studies on M&A wealth e$ects. Empirical evidence seems to contradict the theoretical background on performance e$ects of bank consolidation, particularly especially when one compares compare banks with non-merging banks (Behr & Heid, 2011). On average, acquired !rm shareholders gain at the expense of the acquiring !rm and market value of the combined entity appears to have little improvement around the announcement of the transaction. Yet, mergers continue. Perhaps managers are experiencing a kind of self-delusion, as Doukas and Petmezas (2007) stress out that optimism and overcon!dence on the managers side can lead to managerial ‘hubris’ that results in a misperceived ability that managers can improve the target.


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In this case, bidders can end up overbidding, a fact that seriously a$ect the returns to acquired banks (Malmendier & Tate, 2004). However, it is still di"cult to consider that a vast restructuring of the world !nancial structure is taking place simply because of a careless or thoughtless view of one’s own managerial talent. Another possible explanation rested on the assumption that managers are unethical, informing the shareholders that their only purpose is the value creation nevertheless they only taking care to increase their own power base and compensation. Still, regarding this issue, someone must be really sceptical to claim that big banking institutions have undertaken considerable acquisition plans with the consent of shareholders that do not bene!t from the exercise.

Limitations of the study As with any methodological approach, shareholder value creation studies themselves are not perfect. A well-known weakness of accounting data studies is the de!nition of inputs and outputs of a banking !rm, meaning that there is lack of consensus on the variables that entirely de!ne bank output. Another signi!cant drawback is the regular phenomenon of misleading manipulated accounting data (Liargovas & Repousis, 2011). Likewise, a drawback with event studies is that the origin of any value creation is not e$ortlessly traced, therefore, must be determined out of the data using a second-stage statistical procedure (for instance, positive abnormal returns could be interpreted as the outcome of either increased market power or improved e"ciency or both. In other words, observed returns may be ascribed to expected bank performance or the actual result may be entirely unrelated to the surveyed merger transaction. Nonetheless, the event study methodology is not left without criticism. Becher (2006) claims that event windows are not easy to trace and are regularly stringently characterized as mergers are anticipated by the market before they are actually announced publicly.

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"e role of banking loans in the management of local development

Lauren#iu-Mihai TREAP$T1

Ileana VELICU2

Lucian Claudiu ANGHEL3

Abstract. Looking from a European perspective and considering historic evolutions, for Romania local economic development is a challenge that must be succeeded by valuing any available resource at its best. Local resources are not always enough for #nancing the development needs of communities. For progressing, they must be completed with borrowed sources. !e banking loan, although it includes collateral costs and risks, represents a resource that must be kept in view and fructi#ed accordingly, for not losing the development opportunities. Having in mind the big variety of lending products o"ered by credit institutions, the #nancing needs - of the local public authorities and also of the economic agents and population - can be covered. !e capital insertion on the local market by baking loan generates economic increase, social development and can o"er new working places to the local community members. Good knowledge of the lending needs, of the advantages, of the costs but also of the associated risks of the lending activity are essential for fully bene#ting of such a resource in the local and regional economic and social development processes. Developing a partnership between the lending institutions and all the involved factors, local public authorities, economic agents and individuals, represents a measure that must not only be sustained by the state authorities in charge, but also implemented. An e$cient management of the development needs of local communities has o"ered opportunities for development to the ones that access loans. It also o"ers possibilities to the lending institutions that grant the loans, to obtain additional pro#t and restart the lending activity. In the present work, we present the way in which the banking loans may represent a viable option for an e$cient management of development process of local communities in Romania and also the ways and means for a responsible management of #nancial resources.

Keywords: banking loan; local community; economic development; local #nancial resources; insurance against non-reimbursement risk; Romania.

1. Lecturer, Ph.D., College of Management, National University of Political Studies and Public Administration, Bucharest, Romania, [email protected]. #e National Fund for Credit Guarantee SMEs, Bucharest, Romania.3. Lecturer, Ph.D., College of Management, National University of Political Studies and Public Administration, Bucharest, Romania.

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IntroductionIn Romania, the !nancing resources available for local development have, each of them, both advantages and certain limitations. While the European funds are limited from the value’s point of view and also from the destination’s they are granted for, the direct foreign investments are sensitive to the economic crisis, political instability, CDS value, as well as to the lack of predictability of the business environment.

Under the crisis’s e$ect, the bond market re%ects the investors’ lack of trust in the public sector, especially on a long term. In the public-private partnership, as a result of the diversity of the economic interests, delays in making decisions can occur and also an excessive bureaucracy, fact that limits the investors’ appetite. All these mentioned aspects entitle us to a"rm that, for the local economic development, the banking loan plays an important role, even if it is considered as a more expensive resource. #is !nancing resource is available both for local public authorities and for entrepreneurs and population, each of them bringing a contribution by their own welfare to the overall local development. By contrary, the recent reality gives us many solid arguments for the fact that the lack of !nancial resources for regional and local development can hold in place the local communities’ progress and welfare. #e only opportunity for progressing remains an active and e"cient management of the existing (insu"cient) resources and identifying attracted and borrowed sources.

#e conclusion that derives is that, in this moment, the partnership between local communities and banks is a bene!c one, the former as loans requesters and users and the later, as suppliers of !nancing sources. #e action and the proactive solutions are always welcomed rather than the inaction and appealing to motives and di"culties that might hinder evolution.

In the current paper we aim to analyze the actual context and to propose viable solutions for accommodating the strong need for !nancing of local communities with the need of banks to restart lending on healthy bases and by orienting the !nancial %ows in correct directions, namely where the real economy needs them: investments and sustainable development.

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"e need for lending in the local economy!e general purpose of this paper is to evidence the impact of banking loan upon local economic development process in Romania. #e local economic development varies from a region to another, from a county to another and even from a village to another. #is aspect is, of course, found also in other countries, the di$erence being that, in Romania, the discrepancies between the advanced or medium levels of development and the ones that were left behind are very big, For the later, the existence of !nancing resources remains vital, being the ”oxygen” source that allows them to survive. Except the allocations from the budget, the public authorities have alternatives to !nance the investments of public interest and also the activities that may have as a result economic and social development of the local community, from sources such as: local incomes, structural funds and of cohesion, instruments of public debt, direct foreign investments, etc.

In this context, the working hypothesis, we started the research from, is represented by the limited character and the pre-set destination of the resources, other than loans. #e o$er of the commercial banks, the banking loans and the letters of guarantee are !nancing alternatives for the investments or for certain activities, both for local public authorities and for entrepreneurs and individuals in any local community in Romania. #ey are, in fact, limited only by the capacity of reimbursing the loans, as proven by the forecasted cash %ow and by the collaterals the borrowers can o$er.

#e National Bank of Romania, through the interest rate, manages the expansion of the credit and of the scriptural currency. #is is why we can state that the interest rate is a fundamental instrument for the monetary policy. #e interest is used, with certain limitations, for in%uencing the in%ation and the de%ation, for gathering the temporary available savings and for determining the level of investments.

Looking also from the economic perspective, the level of the applied interest rate is one of the decisive factors that in%uence the investments. When the interest rate increases consumption and investments, which have the loan as !nancing source, decrease and also the investments (!xed assets of long use goods), as a result of the credit cost increase. In these

Lauren&iu-Mihai TREAP'T, Ileana VELICU, Lucian Claudiu ANGHEL

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conditions, for observing if the authorities create favorable conditions for encouraging the lending activity, we analyzed the evolution of two of the relevant macroeconomic indicators. #e analysis of the situation of the main macroeconomic indicators monitored in the lending activity, respectively the reference interest rate and the in%ation rate, re%ects their good management as led by Central Bank, even in crisis conditions. #e situation of these indicators, on the analyzed interval, 2008-2013, is as follows:

Table 1. "e level of the reference interest rate and of the in%ation rate between 2008 and 2013 (% per year)

Year

Indicator

2008 2009 2010 2011 2012 2013

#e Reference interest rate (% per year) 10.25 8.00 6.25 6.00 5.25 4.00

#e average in%ation rate 6.30 4.74 7.96 3.14 4.95 1.55

Source: NBR – Monthly Report (December 2008-2013). !e data re%ect the situation by at the end of the period.

Within the period 2008 – 2013, the reference interest rate followed a di$erent evolution compared to the average in%ation rate. In this time interval, the maximum level (10,25% p.y.) of the reference interest rate was reached in 2008 - the year when the !nancial crisis started, after that, following a descendent trend year by year, reaching 4,00%, in 2013. It is more than obvious that Central Bank - as the !nancial-monetary authority - decided, by its implemented policies, to give a clear sign to the market, of cheapening the loans and orienting them towards the real economy. More sensitive to the consequences and the e$ects of the economic crisis, the in%ation rate - although all along the analyzed time interval had a general descending trend: from 6,30%, in 2008 to 1,55% in 2013 – registered in 2010 a maximum level of 7,96% and also registered an increase in 2012 of 4,95% compared to the previous year. In its graphic representation, the evolution of the two indicators shows as follows:

223

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&'!C#%&%'

'&&# '&&D '&%& '&%% '&%' '&%)

1)2+

3"+-"0

&"

E:0:7/36137:71,F5: 131

E:0:76+GH,I117637B3F3B1, 7

Figure 1. "e Average In%ation Rate and the Reference Interest Rate between 2008-2013

Source: NBR – Monthly Report (December 2008-2013). !e data re%ect the situation by at the end of the period

#e curves of both indicators have a descendent trend, but for the reference interest rate we observe a better control and the lack of peaks, as registered in 2010 and 2012 for the in%ation rate.Despite all this descending trend of the two macroeconomic indicators, we consider that, the level to which the engines of the economy can start and the investments get the appropriate importance has not been reached yet. #e level of the banking interests is still too high. Our opinion is also sustained by a recent measure taken by European Central Bank (ECB), that, in June 2014, reduced the monetary policy interest, namely the interest for the re!nancing operations, from 0,25% valid for November last year, to 0,15%. #ey also reduced the interest for deposits from 0% to -0,1%, for the !rst time passing to the negative side. Banks must understand this signal given by ECB as the end of speculative operations and !nancial placements and as an immediate orientation towards lending SMEs and making investments in infrastructure, regional development and in real economy. ECB will grant banks an amount of 400 billion euro, for a price with only 10 b.p. higher than the re!nancing interest, that is now 0,15%. Just that, this time, banks will not be allowed to use the ECB funds for buying governmental bonds but only for !nancing SMEs and investments in local economy.

From the performed analysis upon the clear signals from the European Banking Authority, we can state that, also the national authorities in charge placed e$orts and created favorable conditions for reviving the lending activity. Yet, this signal must continue, namely for cheapening the loans that had to su$er all along the analyzed time interval (2008-2013) and does

Average In%ation RateReference Interest Rate


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not o$er real signs of recovery further on. #is is why, we consider that, creating partnership bridges between the ones in need of !nancing sources and the ones that need to !nd safe and healthy placements destinations, to be very important for re-launching lending. In the following pages, we will come back with scienti!c arguments for sustaining the fact that banks need as much to re-launch the lending activity and to !nd viable and serious clients, with a good reimbursement capacity, as local communities need the banks’ money. Like in any partnership, for completing the business, it is necessary to apply the win-win principle, for !nding a middle way on which, further on, each of the two involved parties to be able to go on. #e loans requesters, regardless how much they need the resources, cannot and must not accept just any price/interest conditions, as such an approach will come back to them as a boomerang, when not being able to pay their debts and interests. Such an unwanted situation would a$ect not only the borrower, but it is known that, it would also a$ect the banks’ !nancial results that thus have to record non-performance loans (the so-called NPLs). In this paper, we also aim to review the extremely delicate aspect of the huge NPL level, of approximately 22% within the total non-governmental loans granted by the banks activating in Romania. #e expenses with the speci!c risk provisions and the burdened !nancial statements with non-performance loans are the biggest worry for banks and also for prudential supervision authority currently have. #e later is trying and apparently succeeding to identify measures for coming back to normal. Consequently, we explained the need to !nd an equilibrium level in what the lending cost concerns - expressed mainly as the interest rate level – to be supported by the debtor and thus to allow the lender to go forwards. In what the average active interests’ rate applied by the commercial banks in Romania concerns, the situation is presented in the Table 2.

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Table 2. "e average active interest rate applied by the banks in Romania between 2008 and 2013 (% per year)

Year 2008 2009 2010 2011 2012 2013

Interest (%)RON 18,01 16,10 11,14 10,84 10,40 7,79

EUR 7,73 6,13 5,75 5,84 4,84 4,78

Average Rate

RON/EUR 3,68 4,24 4,21 4,24 4,46 4,42

Interest in Foreign

Currency (%)

Equiv. RON 4,89 3,8 2,65 2,56 2,33 1,76

Interest Report (%)

RON/EUR 2,33 2,63 1,94 1,86 2,15 1,63

Source: NBR – Data Series (2008-2013). Data processed by the authors.

For the time interval 2008-2013, both for the granted loans in RON and for the foreign currency ones, the average interest rate applied by the commercial banks had an obvious descending trend, respectively, for RON, from 18,01% p.a. in 2008 to 7,79% p.a. in 2013, while for euro, from 7,73% p.a. in 2008 to 4,78% p.a. in 2013.

From the presented data, there results that, in Romania, the average level of the applied interest rate for the loans in RON is, for the analyzed time interval, on average, approximately twice higher than the level applied to the euro loans, considering the fact that, the average exchange rate RON/EUR registered a constant increase, from 3,68 RON/EUR in 2008 to 4,42 RON/EUR, in 2013.

#e di$erence between the applied interest rate, for the loans in RON towards the level applied for the loans in EUR, explains the Romanians’ tendency to contract loans in EUR, forgetting, in general, about the exchange rate risk and about the fact that the borrowers’ incomes are not obtained in EUR. #is way, we reached a negative conclusion: due to the yet too high level of the banking interest rates applied by the commercial banks, and having in view the still low background in the respect of !nancial-banking culture some of the banks’ clients have - these do not protect themselves towards the negative e$ects of the interest rate risk and


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of the foreign currency risk, that eventually turn into non-reimbursement risk. Due to the two identi!ed root causes (high interest levels and the still reduced level of !nance-banking culture), part of the bank’s clients take these risks ignoring the negative !nancial e$ects they are exposing themselves to.

#e identi!ed risks are dangerous and we propose ourselves to transmit a warning signal and, if possible, to also o$er solutions for mitigating these risks. For example, one of the solutions for diminishing these risks might be assuring these risks with an assurance-reassurance company, that to undertake part of the negative !nancial e$ects if these risks produce e$ects.

Measuring the bene&ts brought by lending By attracting banking loans, the !nancing bene!ciaries can develop their activities and, implicitly, can contribute to the increase of the employment degree. On the other hand, the development of the economic agents’ activity generates working places – more or better paid – so that, the employed individuals can increase their degree of satisfying personal needs. #is way, the production or services are encouraged, also the needs for intellectual and, implicitly, professional development (payments for studies, for some quali!cation and specialization courses) or the personal investments (purchasing or renovating houses, cars acquisitions or some other long usage goods).

Starting from this conclusion, we demonstrate that the income input brought by the capital insertion coming from a lending institution into the economic activity of a community can be analyzed and measured at local level, by the functional relation of consumption - as a dependent variable towards the local budget income - as an independent variable (Velicu, 2012, p. 256).

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As a methodology of research, we started our analysis from the functional relation:

C = 800+0,8 x LI, where:C represents the consumption, and LI represents the income to the local budget brought by the collected tax per pro!t.

As other researchers in the !eld also argue (Popescu, 2008, p. 17), according to a mathematical relation as the one presented above, if the income increases with one monetary unit, the consumption will increase with 0,8 monetary units.

In an algebraically expression, C = 800 + 0,8 x LI, represents the equation of the functional relation of the consumption - as a dependent variable, towards the income to the local budget - as an independent variable.

(C = C2 – C1 or (C = 0,8 (LI2 –LI1)

By applying this mathematic formula we obtain results that entitle us to a"rm that the variation of the consumption ((C) is of c’ times equal with the variation of the income ((LI), respectively:

(C =(c’ x (LI

#e report between the variation of the dependent variable of consumption ((C) and the variation of the independent variable of the income ((LI) is equal with c’.

In the analyzed example, considering the source for LI to the local budget, we can state as follows:

!e capital insertion in local economic activity, by banking loan, contributes the more to #nancing the social activities, the lower the interest rate applied


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by the lending institution is. !e higher the capital insertion is, the more the local consumption ((C) may increase, and based on this, the local income will increase ((LI), from the taxes collected in relation with the salary income paid by the lent SMEs, with the additional pro!ts achieved, with the purchased real estate’s properties, etc.

As we stated all along this paper, both partners in the credit transactions should develop an e"cient activity. If until this point, we analyzed which are the bene!ts for those who borrow, in the following part, we will analyze the reasons banks are interested to restart lending.

In what the lending institution concerns, we will analyze the economic pro!tableness of the placement into the granted loan, by using the calculation formula for assets pro!tableness (ROA – Return On Assets), according to the well-known formula (Treap)t, 2011, p.101), as follows:

ROA = (NET PROFIT /TOTAL ASSETS) x 100#is indicator evidences best the capacity of the !nancial resources of the lending institution to generate pro!t.

Simplifying the example, in a working hypothesis, we considered the total assets as equal with the value of the placement made in a loan (RON 1,000,000 in equivalent currency), and, for the net annual pro!t we considered exclusively the value of the cashed-in interest and the tax per pro!t (16%) related to this income. In this context, by performing the respective calculations, in a systemized manner, the results are presented as follows:

Table 3. "e calculation of the economic pro&tableness (ROA) of a placement into a loan

Credit ValueInterest

Level

Total value of the cashed-in interest

(RON)

Tax on income

(16%) (RON)

Total net pro&t

(RON)

ROA

(%)

Cur-rency rate

(RON/EUR)

1,000,000 RON 10,08 306,600 49,056 257,544 25,75

4,4227,273 EUR 5,46 166,074 26,572 139,502 13,95

227,273 EUR 3,00 91,252 14,600 76,652 7,67

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!e authors succeeded in demonstrating that, for any of these lending options presented above, the ROA indicator calculated for the made placement is higher than 1, fact that evidences the capacity of the lending institution to generate pro#t by placing RON 1,000,000.00 in equivalent currency, even in price conditions considered to be favorable for the economic agents (Velicu, 2012, pp. 257-258). Moreover, the calculations made by the authors demonstrate that, even if the bank reduces the interest rate with 45%, namely from 5,46% to 3% per year, the pro!tability reserves would still exist for the banks. For an interest rate of 5,46% per year for EUR, there resulted a ROA indicator of over 13,95%, that, in our opinion is exaggerated. For a reasonable interest rate, of 3% per year for EUR, there resulted an indicator with a very good level of 7,67%. #e working hypothesis, subject to analysis and afterwards demonstrated by the authors by calculations in the Table 3, indicated the capacity of both partners (the lender and the debtor) to make a pro!table transaction for each of them, a guarantee for success in business.

"e collateral – burden or risk mitigation factor?#e collaterals that have to be constituted in the lending institution’s favor, at lending, represent an aspect that must not be neglected in the lending activity. From the perspective of the banking loan applicants, the collaterals are very sensitive points, especially for the economic agents in the start-up category, but not only. On one hand, developing a prosperous business - in absence of capital of own contribution and collaterals - is not possible. On the other hand, attracting, by banking loan, some useful resources for developing the business requires the existence of some collaterals. Particularly, when starting the business, few are the entrepreneurs that have the necessary collaterals for obtaining !nancing from the lending institutions. #is is why, there must be identi!ed a sustainable equilibrium between the capital provided by the borrower, the material collaterals and the capital o$ered as a loan by the creditor.

#e authors of the present work made a research upon the entire banking market in Romania, for providing comprehensive information to interested persons about the complete range of guarantees accepted by banks for the o$ered loans. From prudency reasons, the commercial banks request to their clients, according to the concrete situation of every loan requester,


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to bring one or more collaterals, as a mix of guarantees. We analyzed, for several banks in Romania, which are the most frequent types of collaterals they use in the relation with their clients. In the following part, we will present information about the most commonly used ones, respectively: guarantees (LG’s), the banking deposit (collateral cash), the assurance for !nancial risk, pledge, cession of receivables, mortgage, etc.

Some authors (Treap)t, 2013, pp. 65-69) brought the necessary arguments for showing that, for being accepted by the bank, the collaterals must ful!ll the following cumulative conditions:- to have the markets or the potential buyers for the goods proposed as

collaterals;- to be easily turned into cash; - to be materialized as a title or an authentic document, etc.;- the goods to be the property of the requester and not to be a$ected by

any receivables;- the owner of the goods to have the capacity of bringing them as a

guarantee. In the banks where we analyzed this issue, we acknowledged that, not ful!lling these criteria or not identifying further collaterals leads to the impossibility of granting the requested loan. We would like to underline that the loan requests cannot be approved based only on the fact that the goods o$ered as collaterals by the requesters’ can be easily transformed into cash. If, from the !nancial analysis and of the business plan results that the loan reimbursement and of the corresponding interest are not sure to come mostly from the liquidities generated by the developed economic activity - this being the main source for reimbursement while the collateral a secondary one - the loans are not eventually granted.

A principle met in the banks where we studied this subject requires that the loans granted by the bank and the corresponding interests must be fully covered with collaterals. #e value taken into consideration for the tangible and non-tangible assets accepted as collaterals by the banks is calculated by applying a variable margin, according to the dimension of the risk involved by their recovery, as presented below:

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Table 4. Types of collaterals admitted by the banks

"e Collateral Type"e Estimated

Value (%)

"e Value Accepted as Guarantee (%)

Non-conditional guarantees (LG’s) received from the Government

100 100

Irrevocable banking guarantees, received from 1st rank banks from the European Union

100 100

#e banking deposit (the collateral cash)

100 100

#e assurance contract against the risk of not paying the loan install-ments and the corresponding interest (!nancial risk assurance)

100 Up to 100 *)

#e mortgage 100 Up to 80 **)#e cession of receivables (in RON and FX)

100 75

#e real estate guarantees, out of which: - with dispossession 100 Up to 70 **) - without dispossession 100 Up to 80 **) #e personal pledges (surety ship guarantee)

100 Up to 100**)

#e company pledges 100 Up to 75 cash %ow ***)

#e business plan 100 * cash %ow ****) Other collaterals - -

Source: !e information’s at this Table were issued upon the information sources (norms, procedures, reports) in the banks where the research was done.

Table 4 Explanations:*) #e value accepted by the bank for the assurance contract for non paying the loan installments and the interest (!nancial risk assurance) is according to the clauses of risk coverage stipulated in the lending contract and it may vary between 80 - 100%.**) #ese values are upper limit, they usually having lower values keeping in mind the risk of recovery estimated by the bank.


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***) #e company guarantee is based on the !rm engagement from the debtor’s side, under authentic or private signature, to wind up the cash %ow from its current activity through the bank’s cash o"ces. #is is, in fact, a cession of receivables that is not necessary to be legally formalized. #e value accepted by the bank is according to the company’s !nancial standing, to the turnover run through the bank’s o"ces, to the company’s name and fame within the business community and may reach 75% of the total cash %ow run through the bank’s cash o"ces.****) #e business plan may be brought as a guarantee for loans, especially for the SMEs that do not have other types of guarantees available. #e bank may admit as a guarantee for the loans maximum 50% from the cash-%ow resulting from the business plan, under the condition that, according to the plan, the incomes to be higher than the expenses. Considering the di$erent liquidity of the various collaterals and the real possibilities the debtors have to issue these collaterals, our opinion is that the most recommendable solution is to use a mix of collaterals, namely, to request the debtors to issue collaterals in various forms and in di$erent shares (e.g. 25% collateral cash, 50% cession of receivables, 25% mortgage, etc.). #e banks can accept as collaterals for the granted loans also letters of guarantee issued by other banks and the insurance policies for the loans (the !nancial risk insurances) issued by the assurance-reassurance companies agreed by the lending bank.

Our aim in making this research upon the banking market in Romania for identifying the complete list of guarantees, is for being able to o$er the convenient options of collaterals both to the debtors (as can be seen, the value accepted by the bank is of minimum 75% from the estimated value on the market), and for the bank - this aiming to accept only sure and safe collaterals.

Assuring the lending risk, a &nancial stability factor both for the creditor and for the debtor#e actual banking reality shows us that granting loans that afterwards may become non-performance represents the main disturbing factor in banks’ activity. For reducing the loses from the non-performance loans,

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the persons that are involved in the lending activity of a bank must action responsibly when evaluating the risks involved by granting loans and make all the necessary e$orts for cashing-in at tenor, fact that, in the last few years became more and more di"cult. In this context, the assurance against the non-reimbursement risk for the granted loans protects the banks towards the risk of not cashing-in the due amounts from the bank’s debtors, this way preserving the bank’s cash %ow, its liquidity and pro!tability. But, in the same time, this measure for reducing the credit risk also protects the debtor in trouble, as this will not be forcefully executed and will not !nd himself in the situation of remaining without patrimonial elements, so necessary for developing the activity.

#is way, the assurance against the non-reimbursement risk for a loan, actions as a factor of !nancial stability. In this case, loans assurance actions as a particular assurance, whose scope is di$erent towards the other types of assurances. #is assurance implies, for the lending bank, the protection against two major types of risks: the !nancial risk - related to solvability, liquidity and the requester’s good will and the life risk - related to the possibility that, in the requester’s life, a major event to occur such as death or permanent invalidity, putting him in the impossibility to generate further incomes necessary for paying the loan back. In what the !nancial risk concerns, the banks own instruments and policies for appreciating and monitoring, veri!ed by a long previous experience, but, in what the life risk concerns, the actuarial experience of the assurers is considerably superior. #is is the reason why the banking international practice in the lending !eld requires the loan requester to sign a life insurance policy transferred in the lending bank’s favour, thus o$ering the guarantee of paying the borrowed amounts back, even in the situation in which the debtor !nds himself in an objective impossibility to obtain the necessary incomes.

#e life insurances assigned to the loans portfolios are much more advantageous if o$ered in a bank assurance partnership (Brophy, 2013). On one hand, the lending institutions obtain incomes from selling insurance products commissions, but also achieve a signi!cant cost reduction related to the loan administration and also the possibility to immediately and easily recover the loan assured this way, without following the speci!c steps of hard collections. On the other hand, the assurance companies have a relatively controlled market for selling their products. #is partnership


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arrangement can be pro!table for all the involved parties. Banks can earn additional revenue by selling the insurance products, while insurance companies are able to expand their customer base without having to expand their sales forces or pay commissions to insurance brokers. For the clients, the advantages the life insurance has are both of an economic nature and also subjective. #ese have the possibility to obtain at reduced costs the guarantee that, if the assured event occurs, the balance of the contracted credit will be paid by the assurer to the lending company. #is way, the goods objects to the collateral for the contracted loan remain unexecuted.

#e assured risks must be controllable. #is way, the insurer requests and the lending institution obliges itself to perform the !nancial analysis for the loans requesters, at high standards. #e simple accept to pay the cost of such a !nancial non-payment risk insurance, does not qualify the requesters for obtaining the loan if the economic and !nancial analysis performed by the lending institution does not conclude with the accepted values for the targeted !nancial indicators (Treap)t, 2011, pp. 252-256).

#e international commercial exchanges, the enlargement of the economic and !nancial cooperation among the states contributes to the local economic and social development. Using the credit for exports can facilitate these exchanges. Performing exports by means of credits engages risks both for the exporter and for the !nancing lending institution. #e risks assigned to the export activity, by their nature, can be grouped in: commercial risks, risks due to natural disasters or other acts of God, political risks and foreign currency risks. For assuring and guaranteeing the loans for export, #e Exports and Imports Bank of Romania (EXIMBANK) operates in the market similar to the other banks and assurance companies within the European Union. As Treap)t (2011) argues, EXIMBANK is not the only institution that supports the borrowers to obtain loans from banks, having collaterals o$ered by third parties. Assuring the loans against the non-reimbursement risk can be performed by specialized institutions, such as National Loan Guarantee Fund, Rural Loan Guarantee Fund and other assurance-reassurance companies agreed by the bank (Treap)t, 2011, p. 30). Where the classical assurance cannot take the risks over, the state interferes by its speci!c instruments and leverages (V)c)rel & Bercea, 2007, p. 284).

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Conclusions and solutions for optimizing the partnership based on loanWe appreciate that the banks should be interested in developing the community they are part of and, because of that, in our opinion, they should keep a balance between their own objective concerning the risk dispersion and the general interest, that aims the development of the area and of the region they are part of. #ey must prevalently sustain some branches considered to be strategic or potentially competitive on the external and internal market and must avoid concentrating the credit risk in sectors of activity that do not have development perspectives… (Treap)t, 2011, p. 29). #e actions of Corporate Social Responsibility – CSR (Wood, 1991) of those banks that have such an approach, represent a major bene!t that we identify as a result of the cooperation between the two business partners, the bank as a lender and the local authorities, as loans bene!ciaries. However, the banks may support the economic and social development at a local level, both by !nancing public interest investments belonging to the local administration and by supporting the current activity of the local entities by CSR actions.

#e investments made in production objectives or in the services area must be signi!cantly stimulated, so that their weights in economy become obvious. Such accomplishments can be supported by optimizing measures we promote:- increasing the entrepreneurial culture by programs of specialized studies, with strong applicability;- increasing the banking culture among the individual producers so that the partnership with the banks stop representing a “force majeure” only, but a current practice;- developing specialty consultancy activities in the !eld of investments, sustained by governmental programs, for stimulating the investments among the individual producers;-improving the lending activity by creating the lending products, with including some %exible components in what the costs (interests/commissions) concerns; -paying the lending costs with an active involvement from the lending institutions’ side, by granting some convenient and encouraging grace


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periods to the debtors and by o$ering them some instruments for assuring and guaranteeing, of the types previously presented in the current work;-increasing the e"ciency of the lending activity, by involving the lending institutions in the development of their clients’ businesses, cooperating with the local decision factors for identifying the investments areas that have to be stimulated, for assuring a good correlation and prioritization for the investment loans with the local priorities (e.g. investments in areas that create working places so that, after the investment is done, the occupied population also to access loans or other banking operations);-the banks have to give up on the immediate temptation to primarily look at the cost of the credit that was and is still high in Romania.

#e banks’ priority must become, in our opinion, the quality of their loan portfolio, knowing the fact that, the pro!t cannot occur from non-performance loans and either restarting the lending activity cannot be done with high interest rates and also big amounts of bad loans.#e banks’ problems usually re%ect the economy’s health. #e weight of the non-performance loans (NPL) in the total loans has permanently increased in Romania, starting with the crisis debut and reaching, in the moment of writing the current paper, an alarming level of approximately 22%. We cannot remain careless just thinking that NPL indicator reached a level of 32% in Greece and of almost 28% in Ireland. A reason for which we wrote the current work is, among the rest, because the bankers in Romania have constantly complained during the crisis times, about the lack of demand for loans. In the same time, they avoided to take too big risks in the economy, after the lending exuberance in the economic boom period was over and presented a big amount of non-performance loans and risk provisions that push on the incomes and pro!tability. #e non-performance loans reached, by the end of the second Semester of 2014, little over 22% from the total banking loans portfolio. We support the new Central Bank regulation to be applied, so that to allow banks to write-o$ the non-performance loans, that were fully provisioned and amounting EUR 1,3 billion equivalent, out the balance-sheet. Due to this measure, the non-performance rate would decrease with approximately 17%, and will allow banks to accelerate the lending activity.

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A solution of optimizing and stimulate the bene!c partnerships based on loans is, in our opinion, the loans securitization. #e Romanian banking system misses the loans securitization. In conditions in which the banking loan represents 97% from the !nancing resources, the di$erence of 3% (extremely small) being represented by the stock exchange and investment funds, the securitization would have transformed the loans in instruments for transitioning, fact that would determine an increase at the Stock Exchange level. #e securitization of the mortgage loans, by mortgage bonds issuing aims to sell the value papers to various investors, this way the banks obtaining additional funds for granting new loans and, in the same time, trying to achieve a corresponding dispersion of the risks assigned to every category assets.

And, at last, while being aware that we currently are in the 3rd millennium, we consider that the banks must turn to operations digitalization, virtual branches development and changing the way they interact with their clients. We believe that the banks have the moral obligation to be prepared to face the Y generation’s requirements that is an exponent of the digital natives (Dumitrescu, 2013) and the nursery for tomorrow’s banking clients, the ones that will technologically dominate the future of our country. Equally, the banks also owe something to those who want to physically enter the branches, to ask a councilor about the problems they are concerned about, and also to those who are not well familiar with the high speed internet, the 4G technology and with using the cloud data storage systems, technologies that push the elder clients o$ the new trends.

We appreciate that, the highest risk we seem to have reached is the fact that the !nancial and the lending products became so complicated that, the most of the clients cannot understand them anymore (Treap)t, 2011, p. 364). Besides this, there are more and more opinions according to which the change is not only necessary but also mandatory (Bridges, 2004), a change must overlap another one, and from end to end, everything has to be a continuous change.

We, the authors of this paper, consider that, the mirage of the change just for the sake of pro!ts must not be pushed to hazard, that the morality, the correct partnership between the bank and its clients and the presence


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of the equilibrium in all the actions and decisions, must remain the most important challenge for the transactions with banking loans. And this is why we elaborated this paper.

References Bridges, W. (2004). !e Management of Transition. Bucharest: Curtea Veche.Brophy, R. (2013). Bancassurance: an Insurance Concept from an Irish

Perspective. Journal of Financial Regulation and Compliance, 21(4), 319–333.

Coretchi, D.C. (2010). Rolul parteneriatului public privat la nivelul Uniunii Europene &i provoc'rile la nivelul pie(ei din România în contextul crizei economice interna(ionale. Working Papers Collection in Economic Sciences. ASE Bucharest.

Dumitrescu, D. (2013). Nativi digitali. Preg'ti)i-v'!. Bucharest: Tritonic.De Angelis, M. Calu+eru, G., and Bulboac), A. (2000). Dezvoltarea pie)ei

creditului Municipal în România. Cadrul legal *i politici de dezvoltare.European Commission (2010). Communication from the Commission, EUROPE

2020. A Strategy for Smart, Sustainable and Inclusive Growth.Iancu, A. (2003). Dezvoltarea economic' a României: Competitivitatea &i

integrarea în Uniunea European'. Bucharest: #e Romanian Academy Publishing House.

Iuhas, V. (2004). Dezvoltarea economic' regional' - implica(ii economice &i sociale. Bucharest: Emia.

Matei, L., and Anghelescu, S. (2009). Dezvoltarea local'. Concepte &i mecanisme. Bucharest: Economica Publishing House.

McWilliams, A., and Siegel, D. (2000). Corporate Social Responsibility and Financial Performance: Correlation or Misspeci!cation? Strategic Management Journal, 21(5), 603–609.!

Moisa, A. (2002). Modele pentru fundamentarea strategiilor de cre&tere economic' în vedere ader'rii la Uniunea European' - raport de cercetare. Bucharest: ASE Publishing House.

Mo,teanu, R. (2003). Finan(area dezvolt'rii regionale în România. Bucharest: Economica Publishing House.

Mihai, I. (2003). Tehnica *i managementul opera)iunilor bancare. Bucharest: Expert Publishing House.

Popescu, G.H. (2008). Economia României în complexitatea integr'rii. Bucharest: Economica Publishing House.

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Treap)t, L.M. (2011). Managementul i asigurarea riscurilor bancare în România. Bucharest: Economica Publishing House.

Treap)t, L.M. (2013). Manual de studii de caz *i bune practici bancare. Bucharest: Tritonic Books.

V)c)rel, I., and Bercea, F. (2007). Asigur'ri *i reasigur'ri. 4th Edition. Bucharest: Expert Publishing House.

V)c)rel, I., Anghelache, G., Mo+teanu, T., Bercea, F., Bodnar, M., and Georgescu, F., (2000). Finan)e Publice. 2nd Edition. Bucharest: Didactic and Pedagogic Publishing House.

Velicu, I.C. (2011). Utilizarea e!cient) a creditului bancar în dezvoltarea local). Tribuna economic', 40, 62-66.

Velicu, I.C. (2012). Rolul creditului bancar în #nan)area dezvolt'rii economico-sociale locale in România, Ph.D. #esis, ASE, Bucharest.

#e Agency of the United States for International Development. Programming the Capital Investments and the Financial Planning. Lending and Municipal Financing Component.

#e National Bank of Romania. Serii Statistice, December (2008-2013). Retrieved from http://www.bnr.ro.

* * * Legea nr.189/14.10.1998 privind !nan-ele publice locale, O"cial Journal no. 404, on 22.10.1998.


Transformation of banking resources

Yurii PASICHNYK1

Abstract. !is article deals with the current issue – the transformation of banking resources. !e role of the banking system in the functioning of the economy is shown. !e need to consider the “golden rule” in the activity of banks is proved. !is rule provides that the amount and timing of #nancial borrowing in the bank should be equal to the volume and timing of its obligations. Strengthening the #nancial base of banks is recommended for better banking functioning. For this purpose it is reasonable to introduce theoretical and professional work of bank managers towards the transformation of banking resources. Certain formulas used in the practice of French and Russian banks are presented. !ese formulas allow calculate the rates of short-term resources into the long-term ones. !e scheme of banking resources transformation is related to relationship between conditionally permanent part of banking current liabilities, urgent deposits and indicators, obligatory payments, reserves, pro#ts of banks. Particular attention is paid to the role and place of transformation processes of demand deposits. In particular, the views of scientists on the peculiarities of this banking operation are presented; positive and negative characteristics are revealed. !e problem of banking resources transformation in their variable part of current liabilities is analyzed in detail. Some common problems in the transformation of banking resources in the banks of Ukraine are singled out. In%uence of the processes of banking resources transformation on economic growth is analyzed. It is determined that banking resources are formed in open #nancial system, interact with securities markets, labor markets, resources, market of production. Supply and demand that determine the dynamics of economic growth are formed in view of the relations between the banking system and these markets. Mechanisms for balancing of supply and demand in consumer crediting of domestic products are graphically depicted. A procedure of taking concrete steps to improve the performance of banks – both Ukrainian and foreign – in the implementation process of banking resources transformation is o"ered. In developing these measures, feasibility of providing banking security is taken into account, as well as necessity for continuous monitoring of transformation processes that are in%uenced by adverse environmental factors, compliance with agreements under “Basel 3”, and personnel completing of banks with quali#ed professionals.

Keywords: assets; bank resources; demand deposits; transformation; Ukraine.

1. Academician, Professor, Ph.D., Academy of Economic Sciences of Ukraine, Cherkassy State Technological University, Cherkasy, Ukraine, [email protected].

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Introduction#e peculiarities of banking resources transformation are presented in this article. #e bank loan use analysis is done. De!nitions of foreign and Ukrainian scientists on transformation of banking resources are presented. #e in%uence of banking resources on economic growth is shown. Recommendations on the e$ective operation of banks are developed.

"eoretical approach#e global !nancial crisis has made signi!cant adjustments in the functioning of national banking systems. Today it is a necessary to form signi!cant reserves for banking security. National banking system is a guarantee for social and economic development, and therefore an important aspect of banking stability is the e$ective management of banking resources. Professionals working in the banking sector also share this opinion. #e French economist Jean Matoukou (1994) expresses the thought that the banking institution is obliged to ful!ll its debt obligations in full and in the due time; to pay the cash removed from the accounts through the o"ce; to return deposits in agreed terms and to be responsible for possible extra-balance obligations.

American economists E. Reed, R. Cotter and E. Hill (1991) believe that the amount of cash and other liquid liabilities, as well as the possibility of rapid mobilization of funds from other assets should be su"cient for the timely redemption of government and !nance commitment. #is point of view is also shared by the German economist B. Buchwald (2002), who evaluates the liquidity of the bank using the term “Liguiditat”; accordingly, the assets should be easily convertible into cash for fast implementation of commitments and payments of the bank.

According to “the golden banking rule”, the volume and timing of bank !nancial savings must be equal to the volume and timing of its obligations. However, such banking practice is rare. Maintaining a constant balance of assets and liabilities provides ensuring compliance of the “golden rule” with the practice.

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In this context, the securitization of assets is of great importance. According to A..Nechaev (2009), the mechanism of securitization was !rst introduced over 30 years ago in the U.S. and completely revolutionized the banking and !nancial sectors. Today it is often called one of the main innovations of the twentieth century, which gave impetus to the development of !nancial markets. In this case, the current situation on the !nancial market shows us the other side of the drastic process of securitization. #e increase of overdue loans and low liquidity have reduced the risk group of most securitized papers. Accordingly, a great negative revaluation of bank assets took place. As a result, banks specializing in investment operations su$ered heavy losses and were devastated. In September 2008, one of the largest U.S. banks, Leman Brothers, bankrupted. Also in September 2008, U.S. authorities took control of Washington Mutual (WaMu), the third largest in assets U.S. bank. By results of the agreement, according to which the government acted as an intermediary, !nancial company JPMorgan acquired most of its business for $.1.9 billion. #e acquisition of WaMu transformed JPMorgan into the largest depositary institutions in the country of customer deposits a total of over $ 900 billion. #e bankruptcy a$ected the British banks, too. #e eighth-largest asset and the !fth largest mortgage portfolio bank Northern Rock, went bankrupt in early 2008 and was nationalized by the power. Unlike most banks that !nance their business with clients’ deposits, the business model of Northern Rock was built around mortgages. Most of the funds were received in the wholesale bank credit market selling the debts in the form of bonds. #e demand for mortgage bonds (CDO) in the U.S. has led to problems in the !nancing of the bank.

As noted by Z. Gerasymchuk (2010), this case raises the issue of economic security banking, i.e. the condition for economic development and stability of the bank, guaranteed protection of its !nancial and material resources, the ability to adequately and economically respond to changes of internal and external situations. It should be noted that the particular importance of economic security in the system of bank security is conditioned by the desire of market entities to increase pro!ts, intense competition, the diversity of interests within business banking market, market entities desire to increase pro!ts, unstable economic situation and so on. #us, the current terms of banking services and the level of in%uence of factors threatening

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internal and external environment require of banking institutions to raise security measures.

A. Vovchak (2009) analyzes the problem of providing banking services in some countries and compares the corresponding situation with Ukraine, stating: “Accordingly, it is possible to conclude about signi!cant di$erence in the level of providing banking services across the country. #e relevance of this problem is compounded by the fact that, as the experience and statistics show, the better developed banking system in the region is, the better its business develops. Accordingly, economic processes are stimulated, which further leads to improved living standards. #e economy of some regions is not supported by the banking system, which adversely a$ects the socio-economic processes taking place there. And the least developed banking infrastructure is in regions with low socio-economic development.

As the studies show, Ukraine has neither policy, nor clear strategy for regional development of the banking system. Moreover, there is no clear legal and regulatory framework of the functioning of regional banks. #erefore, there is a need to review the strategic goals and objectives of the banking system of Ukraine, its organizational structure and functional orientation on the way of joining the global and national regional processes. Among these tasks a special place should occupy regional banking system development, its goals and directions.

#e essence of the process of regionalization is in the transfer of powers from the center to the regions. A vivid example of this process is the situation in the European Community. #e most important focus of policy here is the institutional and economic support to the regions, there was even a slogan proclaimed: “From the union of countries, to the union of regions.”

What place in the processes of regionalization in Ukraine does the banking system take and what are the dominant trends in its development? Having examined its organizational aspect, it can be argued that most Ukrainian banks position themselves as nationwide and carry out or intend to carry out its activities in several parts of the country. Regional banks are quite a few and they do not really a$ect the development of the whole economy and the regions where they are located. #ere is no segment of specialized

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banks in Ukraine, which would be involved in implementation of similar types of services; cooperative banks are absent, either” (Vovchak, 2009, p. 23).

To strengthen the activities of banks, it is advisable to strengthen the capital base of banks, which is an e"cient vector orientation of banks in the sector of resources transformation. Let’s consider some views of scientists on the problem of transforming banking resources.

German scientist J. Stein (1991) notes “An important task is the transformation of banks ... terms. Since the majority of depositors prefer binding equity for the short term, and funding for investment in the economy mostly requires long terms, banks should ensure coordination between the di$erent views on the timing of binding capital. #e task of transforming banks is also adapting to di$erent values to each other. It is based on the fact that a substantial number of small deposits opposed to a small number of large loans. Transforming risks, terms and values is the central function of banks in the economy.” (1991, p. 7).

#e transformation processes are quite reasonably justi!ed by M..Savluk, A.. Moroz and M.. Puhovkina (2001), who have discovered that transformation depends on variations in quality characteristics of the cash %ows that pass through banks. Changing quality means that the set of “short” money changes to “long” resources, and the set of minor deposits transforms into a signi!cant amount of resources able to meet customer needs in necessary capital to make required investment. #e essence of the transformation process is to stabilize the bank mobilized funds (Money and credit, 2001, p..450). E. Shirinska (1995) considers the problem of resources transformation not on the balance of some current accounts, but on current liabilities as a combination of the bank deposits. “#e basis of the bank’s funding base consists on attracted remedies which stability is one of the liquidity factors. By !xing terms, attracted resources are divided into two groups: managed resources and current liabilities. #e !rst group includes term deposits attracted by banks and interbank loans. #e second group includes the remains of the settlement, current accounts, correspondent

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loro accounts, and payables. Each group of liabilities should match its type of assets in terms of size and location. So, managed liabilities form the basis for targeted, program loans and current liabilities are the basis for market operations with “short” money.” (1995, p. 41).

Some authors distinguish between di$erent types of transformation. #us, M. Savluk, A. Moroz and M. Puhovkina (2001) indicate: “#e transformation of capital means that mobilizing large amounts of small contributions, the banks are able to accumulate large masses of capital to implement large-scale projects.” “Transforming the risk lies in the fact that banks whose activities are associated with high risk can reduce these risks to their investors and shareholders to a minimum by taking appropriate measures.” “#e space transformation means that banks can accumulate resources from many regions ... and send them to !nance projects in one region ... #ereby, the geographical scope of money market expands...”(Money and credit, 2001, pp. 450–451).

Vozhzhov A. (2006) summarizes the views of scientists: “Transformation of banking resources is the process converting accumulated assets in a condition that meets the requirements for placing them in the assets, i.e. the process of converting the accumulated funds in the form required for their transformation into resources and bank capital. #e processes of transformation are provided by a qualitative change of settings from the accumulated bank assets and bringing them into conformity with the requirements of lending, investment banking and maintaining the required liquidity. As a result, options of the entire set of the means being at its disposal are taken in accordance with the settings of all the pro!table bank assets in each present moment.”(2006, p. 35).

Deep analysis of the articles on issues of banking resources transformation has revealed di$erent approaches of the scientists re%ecting the economic relationships in a particular country, peculiarities of the banking system and the relationship “bank-client”. According to A. Vozhzhov (2006, p. 21), transformation here refers to the set of methods and means of the combination of short-term deposits and loans when a signi!cant part of the total volume forms a permanent, stable, or irreducible balance.

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Let’s consider some calculation methods of banking resources transformation made by the scientists from di$erent countries.

Here are the examples of French banks practice given by P..Konyukhovsky and O. Lavrushin (2001):

)"##((#/ (1)

with K as transformation ratio of short-term resources in long-term ones (used by French banks); R as short-term resources; S as short-term loans and capital investments (2001, p. 390; p. 30).P. Konyukhovsky (2001) takes it in relation to the Russian banks in such a way:

01

01* 2

3/ " (2)

with KT as transformation ratio of short-term resources in long-term ones (o$ered for the calculation by Russian banks); as debit turnover on issued short-term loans and other short-term deposits (up to one year’s term); as the credit turnover of capital in%ows on savings accounts (up to 1 year’s term) (2001, p. 31).

Accordingly, the scienti!c community has developed a theoretical and methodological support with speci!c analytical apparatus essential for the transformation of banking resources.

Taking into account the views of scholars, it is possible to depict the processes of transformation of banking resources (Figure 1).

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!"#$%&'()*+ *

+,-./012,3245678692:01,.:;01

<<8/02=0:8,>1

?:906@2>0=,18@1256>2-,561

A,6>8@8,65--B238C0>2=5:@2,3245672;.::06@2

-8548-8@801

D010:E0

F4-895@,:B2=5B/06@1

<:5613,:/5@8,62,3245672:01,.:;01

G0=,18@1

A.::06@2-8548-8@801

HI,:@J@0:/2-,561

Figure 1. Transformation of banking resources

As this scheme shows, by the e$ective management of inclusion and using bank resources in the process of transformation, the e"ciency of banks is achieved.

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It is necessary to explain the transformation peculiarities of the individual components of bank resources. Let’s start with the demand deposits. A. Vozhzhov (2006) mentions: “Bank provides essential work to build-up the volume of assets for individuals. Now in this section important role belongs to the introduction of “salary”, “pension” and other card designs. With small amounts of residues for each of the accounts, together they form signi!cant current liabilities. An important feature of current liabilities is that they are essentially the only cheap resource that allows you to receive signi!cant interest margin.” (2006, p. 70).

P. Rose (1995) states that “... demand deposits are the most volatile and least stipulated sources of funds provided by the bank, with the lowest potential terms ...” (2006, p. 361).

E. Zhukov (1997) says: “#e availability of customer accounts balances is related to settling funds for passive accounts in commercial banks during the period of time which is almost impossible to establish at the moment of revenues to the account... Payments by request are basically volatile, which limits the scope of their usage by commercial banks. For this reason, account holders are paid low or no interest at all.” (Banks and Banking, 1997, pp. 199-200).

O. Lavrushin (2000) has the opinion that the demand deposits are relatively cheap for the bank and “at the same time they are the least stable of the resources, banks need to have the higher operational reserve to maintain liquidity. #erefore, the best proportion of these funds in the bank’s resources is up to 30-36%.” (Banking, p. 361).

D. Oliynyk (2001) on the basis of empirical studies has come to de!nite conclusions on the possibility of placing demand deposits. “Exploring the dynamics of current accounts “on demand”, we can conclude that the total balances in such accounts has surprisingly high level of relative stability. #e obtained practical results of the study come in certain con%ict with the theoretical assumptions which characterize this group of bank liabilities. Results of empirical studies ... have shown that during the calendar year a signi!cant amount of balances “on demand” was not reduced below that level. #is situation actually makes it possible to include a signi!cant

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portion of current accounts of bank clients to medium and long term credit. #is means that the bank can a$ord to invest some part of balances “on demand” in the medium and long-term assets with no threat to its liquidity. #e main objective of the bank manager in this case is to determine the optimal investment horizons, namely, what part of the balances “on demand” and for how long the bank can invest with minimal risk to its liquidity.” (2001, p. 31).

#us, many scienti!c assertions consider that demand deposits play an important role in the transformation of banking resources. #ese processes are mutually bene!cial for both the bank and the client, as reported by A. Vozhzhov (2006): “Clients work with “reserve funds”, their accounts regularly form balances which dynamics indicates vigorous client activity. #ese customers are highly desirable for the bank: they are actively engaged in calculations (by giving commission income) and form cheap bank resources.”

Settling means on the account depends substantially on how skillfully and carefully the client manages its funds. A good customer makes sure that immediately after admission the funds are paid in accordance with his activity. #is reduces his loan arrears, strengthens his reputation as a reliable partner and allows him to do business with less leverage. On this basis it is possible to expect that this type of customer balances will be minimal. However, research has shown that a number of factors prevent it: !rst, the customer is forced to generate some savings for payroll, transfers of tax payments and so on, and this leads to the accumulation of account balance. But the main factor is the inability to reset the client’s current account with active credit turns on it during a business day. A customer transfers before the end of the operational time of the bank and means may come to his account even after that, till the end of business day. As a result, by the end of the day some balances are being formed even with the clients carefully handling their own means. #e more the turnover on the current account and the higher the intensity (frequency) of revenues during the day are, the more the minimum balance is. #e characteristic feature of the ordinary current account is its periodic resetting, the customers who work actively enough form their minimal balance even at high controllability account.

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#us, the reason of balance on the current account is the mismatch of revenue timing and its withdrawal from the account (account crediting and debiting) in the presence of constraints: preventing debit balance on current account and inability to account debiting by the customer at the end of the bank operation day as well as the need for the client to periodically accumulate funds on the account for obligatory payments. Balances on current accounts are formed as a result of the interaction of these factors and the dynamic balance revenues and out%ows in the general limits imposed by peculiarities of current accounts, banking services and characteristics of the client’s operations, including its desire to minimize the balance on current account at the end of each business day.” (2006,.pp..76-78).

We shall explain the features of the banking resources transformation. Transformation of means by request automatically results in the allocation to the conventionally permanent part of current liabilities which gives rise to its self-stabilizing. But for the increase of this important component, the bank must constantly work to increase the number of clients on cash and settlement services, to increase the number of accounts for both private and corporate clients. #erefore, e$orts of the bank management to improve const should be directed to attract and service new clients – legal entities and individuals, as well as to increase the number of correspondent banks that are active in loro accounts. Banks also have a direct interest in the prosperity and development of their clients, because the value of conditionally permanent part of current liabilities is directly proportional to the value of average balances in their current accounts.

Transformation of ultra-short unstable aggregate deposits in current liabilities with allocation of their conditionally permanent, irreducible part is the manifestation of “bank e$ect”. Transformation of ultra-short and small funds that are accumulated in the long and extensive resources shows the essence of creative banking with setting and stabilizing of resources made of unstable credit means on demand. It is often assumed that the banking activity is speculative – buying funds at a low price, followed by higher reselling. #is creates a somewhat negative attitude towards banking. Understanding the creative role of banks in establishing resources that meet the requirement of placing long assets should promote a positive attitude towards banking, awareness of the need for economic

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development. #e essence of the transformation process not only reveals the creative generating function of banks in the economic system, but also allows reasonable approach to assessing the deposit and resource risks in banking.

According to the theory of probability, the range dispersion of a random variable Xi with normal distribution is within – + < Xi < ++. In practice, the range of dispersion values is within well-de!ned range, which is "!3 . However, the situation may change in the force majeure circumstances that should be considered in practice and will be discussed further. To calculate the probability of normally distributed random variable hitting on the plot, symmetrical about the center of dispersion (m), we shall draw consecutive sections of length . Since the normal curve is symmetrical, it is enough to draw these segments in one direction only. #e graph in Fig. 3 shows the dependence of the probability (P) of hitting events in di$erent intervals. Probability of hitting a random variable Xi in the interval (t <Xi <t- ) is equal to 0.34, in the interval (t – <Xi <t – 2 ) is equal to 0.14, in the interval (t – 2 <Xi <t – Z ) is equal to 0.02. For normally distributed random variable the probability of hitting into the range Z is the sum of three values of probability (0.34, 0.14 and 0.02), that is 0.5 or 50% (Fig. 2).

3!C% #

"$###$KL

#$LM

#$N#$OM

#$#&

#$"O

#$PO,

Figure 2. "e probability hitting into the preset of random variable with normal distribution

253

#e probability that a random variable falls outside the range – 3 , is very small and makes 0.0027. #is means that under normal conditions, only 0.27% of the actual value of the conditionally permanent part of current liabilities const will be less than the estimated value, corresponding to a range of deviation . Such events are considered to be unlikely and usually not taken into account in practice. However, according to the theory of probability, even the lowest probability of an event cannot be excluded. So, the minimum balance ( const) is constant, but by the fact that probability of lowering the target still exists (especially in the emergencies), this component of current liabilities is legally called not constant, but the relatively-constant part (2006, pp. 113-115).

Another problem is the transformation of banking resources in their variable of current liabilities.

#e e$ect of this transformation is determined by the additional interest margin received by the bank using the variable part of current liabilities as a sustainable resource and is based on a comparison of interest margin derived by the bank when placing liability on the part of the short-term interbank market and when placed in terms of urgent assets.#e value of the additional interest margin is de!ned as follows:

((/ #%% (3)with:

M as extra interest margin, which determines the e$ect of transforming the variable portion of the current liabilities of the sustainable and managed resources;M as the value of the margin received by the bank after the transformation of the variable part of the current liabilities into the part of the sustainable and managed resources;RSS (Returns short-term sale) as income that the bank will receive when placing the total amount of the variable part of current liabilities in the interbank credit market (without using the mechanism of transformation).

When placing capitals in urgent assets, emergency funds and conditionally permanent part of current liabilities, all the variable of current liabilities

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(ranging A-C) can be placed on short-term interbank lending market. Revenues from the placement of variable part of current liabilities are determined by income from short-term interbank loans:

$4.# (((((( (4)with: VSS (Value short-term sale) as active volume of interbank transactions; ISS as the interest rate on short-term interbank loans; t as the time period for which the calculation is performed.

#e amount of resources in the range of A-B (ie, the entire range of scattering) is equal to the math expectation value of customer accounts balances, and the formula can be represented as follows:

$4+# (((( (5)with m as the mathematical expectation (average value) of the %ickering current liabilities.

Stabilization of liabilities in the range of A-K for the increase in immediate active operations will result in the periodic occurrence of temporary shortage of resources at the end of business day, requiring short-term borrowing in the short-term interbank market. At the same time reduced amount of active interbank transactions are now limited in the range of K-V. #e value of the interest margin to be received by a commercial bank after transformation is de!ned as follows:

/(((5

/!/ #6#% (6)

with /!# (Returns from credit) as revenues from resource allocation of

the variable part of current liabilities (range A-C) in urgent assets;

/((# (Returns short-term sale) as revenues from the placement of the

variable current liabilities (range K-V) in the interbank credit market;Esp (Expenses short-term purchase) as costs to attract short-term interbank loans (in the range A-K) to cover temporary de!cit of resources.

Evaluation of e$ect from the use of variable part of current liabilities is shown in Figure 3.

Figure 3. Evaluation of e!ect from the use of variable part of current liabilities for immediate active operations

#e e$ect of altered transformation of the current liabilities into part of the sustainable resources de!nes revenue from urgent loans and investments, formed by the fact that the bank sends means into the most pro!table active transactions that were previously placed in short-term interbank loans (2006,.pp..136-137).

#e following shows how it is implemented in practice in Ukraine in 2013:

Analysis of the structure of loans to non-!nancial corporations within regions proved that most loans were received by trade, car repairs, household appliances and personal use – 219,325 million UAH (36% of all

$4+# ((((

$4/# !!

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Evaluation of e$ect from the use of variable part of current liabilities is shown in Figure 3.

Figure 3. Evaluation of e!ect from the use of variable part of current liabilities for immediate active operations

#e e$ect of altered transformation of the current liabilities into part of the sustainable resources de!nes revenue from urgent loans and investments, formed by the fact that the bank sends means into the most pro!table active transactions that were previously placed in short-term interbank loans (2006,.pp..136-137).

#e following shows how it is implemented in practice in Ukraine in 2013:

Analysis of the structure of loans to non-!nancial corporations within regions proved that most loans were received by trade, car repairs, household appliances and personal use – 219,325 million UAH (36% of all

$4+# ((((

$4/# !!

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loans granted), manufacturing – 120,265 million UAH (20% of all loans granted) and real estate, renting and business activities – 105,021 million UAH (17% of all loans granted). #e worst situation is on crediting for education, health and social work, !shing and !sh farming. Amounts of funds received by these industries are so scarce that they make up almost 0% of total loans granted (2014).

Particular characteristic of this situation typical for Ukraine in recent years is provided by Z..Gerasymchuk (2010).

#e problem of regional economic development of priorities in the current banking system is being complicated. It is based on the stability of banks that is preventing the bankruptcy of banks, ensuring its safety for investors, when in the world practice investing is a !nancial transaction, an integral part of which is receiving interest income and, therefore, the adoption of a particular risk of no return on investment. #at is why it is necessary to slightly change the focus strategy of the banking system of Ukraine and to make it support the economy of the country and its regions. #e better the economy is functioning, the better the average of pro!tability will be, it will lead to the increase in average wages and will not trigger in%ation, as this increase will be underpinned by an increase in the mass of commodities and, consequently, will lead to the enrichment of the population. #is enrichment will stimulate an increase in the share of income that goes to savings and therefore will increase the deposit base of banks (2010, p. 10).

We will show how the processes of transformation of banking resources may a$ect economic growth by a$ecting the supply and demand (Figure 4) (Vozhzhov, 2006, p. 300).

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-.,"#/-.,"#/

01&&23

01&&23

<I023.6>12=:,>.;@8,62/5:70@2

D01,.:;01256>2-54,:2/5:70@

H0;.:8@8012/5:70@

Q054,2/5:70@

Figure 4. Economic growth with balanced supply and demand changes in the economic system market

#is !gure clearly shows the relationship between the most important markets of the !nancial system with the role of bank resources as a connector in these processes. #is means that any problems in the banking system, particularly in the transformation of their resources, due to open markets a$ect economic growth through supply and demand.

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Some situations in these relationships are caused as follows:- #e proportional balanced increase of supply and demand in the turn-o$ market; - Misbalance of supply and demand on the market of production with the delay growth rates in relation to the turn-o$ market;- Misbalance of supply and demand on the stock market with excess of demand over supply;- Misbalance of supply and demand on the labor and resources market with excess of supply over demand.

One of such possible situations is shown in Figure 5 (2006, p. 291).

P$# "$M

"$L

"$# "$M P$#

&$#

"$#

H.==-B$2G

R8145-56;02<FR!H.==-B22S2G0/56>%

R8145-56;02RAT!2H.==-B2U22G0/56>%

V68@85-21@5@0

456% 784

G0/56>$2GMCG ( ) – the market of capital goods;TOM ( ) – the turn-o$ market

Figure 5. Misbalance of supply and demand in consumer crediting of domestic products

As follows from Fig. 5, the use results of credit issue for the expansion of consumer credit on the purchase of durable goods of domestic production will lead in this case to the deregulation of both the market of capital

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goods and the turn-o$ market. In this case misbalance in MCG will be 0.2 D and in TOM – 0.2 D from the volume of emissions.

Conclusions and implications#is study, clarifying features of the functioning of the banking systems in individual countries and particularly in Ukraine, and analyzing transformation processes of banking resources, leads to the following conclusions. It is necessary to provide security for banking stability and dynamic development in any country of the world. #e transformation of banking resources is a complex and variable process so the bank managers should constantly monitor the banking resources. Today both theoretical and practical methods to control the transformation of banking resources are designed and implemented which contributes to stable operation of banks, in particular using the Agreement “Basel 3.”

Bank resources, formed in an open environment of !nancial system are movable, so it is essential to have quali!ed professionals in the management structure of the banks.

#ese recommendations will certainly contribute establishing e"cient operation of banks.

ReferencesBuchwald, B. (2002). Banking techniques. Moscow: Sirin. Gerasimchuk, Z.V. (2010). !e territorial organization of the banking system

of Ukraine’s regions: assessment and strategies to ensure its rationality: monograph. Lutsk: RVV LNTU.

Konyukhovsky, P.V. (2001). Microeconomic modeling of banking activities. SPB: Piter.

Lavrushina, O.I. (2000). Banking. Moscow: Finances and Statistics.Matoukou, J. (1994). Financial systems in France and other countries. Banks. Vol

1. Moscow: JSC “Finstatinform”.

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Nechaev, A. (2009). Concentration and securitization of assets. Modern Russian Economy: problems and perspectives. Retrieved from http://www.economyar.narod.ru.

Ol ynik, D. (2001). #e liquidity management of commercial banks based on the optimal use of current accounts of customers. Banking, 2, 31-34.

Peter, P.S. (1995). Bank management. Moscow: Delo ltd.Reed, E., Cotter, R., and Gill E.M. (1997). Commercial banking. Moscow: JV

“Cosmopolis”. Savluk, M.I., Moroz, A.M., and Pukhovk na, M.F. (2001). Money and Credit:

Tutorial. K.: KNEU.Shirinskaya, E.B. (2005). Operations of commercial banks: Russian and foreign

experience. Moscow: Finance and statistics.Shtein, Yu. Kh. (1991). Banking organization. Terroe. – Visbaden: Tabler. #e o"cial website of the NBU (2014). Retrieved from http://www.bank.gov.

ua. Vovchak, O. (2009). Causes and e"ects of the global #nancial crisis on the banking

and real sector growth in Ukraine. V snik NBU. (7), 22-25. Retrieved from http://www.bank.gov.ua.

Vozhzhov, A.P. (2006). !e process of transformation of banking resources: Monograph. Sevastopol: Vid-vo SevNTU.

Zhukov, E.H., Maksimova, L.M., and Markova, O.M. (1997). Banks and banking. In E.F. Zhukov (Ed.), A Textbook for High Schools. Moscow: Banks and exchange.

Country risk dynamics of Romania in the post-EU accession period

Anda GHEORGHIU1

Abstract. !is paper analyzes what is the evolution of the country risk following the adhesion of Romania to the European Union. Such an analysis is crucial for investors who would like to enter the Romanian market, for decision makers in the public sector, and for international banks. !e evolution of the Romanian economy was re%ected by ratings given by Standard and Poor’s, Fitch, Moody’s and Japan Credit Rating Agency for the long term foreign sovereign debt, starting from 1997 and it is fundamental to understand the reasons for the up and down movements of the ratings and how they have in%uenced investors perception over the social, political and economic development of the country after the accession into the European Union. !e methodology used is a combination of extensive literature survey and analysis of data. In addition, the paper presents an indicator meant for assessing the prospective of success or failure for a company trying to enter a new market by using an associative strategy. It was tested on a number of samples of 40 companies selected from Bucharest Stock Exchange. In order to take the right decision concerning the optimal market entry strategy, managers may use a software application, “AnBilan(”, created by a Romanian research team. !e paper enumerates several conclusions about Romania’s country risk, and, consequently, its economic growth and attractiveness for investors. Joining the European Union in 2007 has undoubtedly had a positive e"ect on the exposure of Romania’s country risk. Nevertheless, acquiring the EU membership was not su$cient for economic continuous growth. Fiscal measures undertaken thereafter and reforms initiated by Romania increased investor con#dence in the Romanian business environment and led to a general positive trend in sovereign rating. Nonetheless, administrative and judicial institutions do not function e"ectively, corruption remains systemic and regulatory level trading environment is high. On long-term Romania’s has to take steps to #ght against a serious demographic downturn and the environmental damage, with high restoration costs for water, air, soil.

Keywords: country risk; market entry, rating agencies; Romania.

1. Ph.D., College of Management, National University of Political Studies and Public Administration, Bucharest, Romania, [email protected]

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IntroductionFor more than a decade, after a slow start in the nineties, Eastern Europe enjoyed high economic growth thanks to domestic demand, credit boom, and capital in%ux into the increasingly more !nancially integrated region from highly liquid international markets. A large part of these in%ows was intermediated by the local a"liates of occidental banks, which had come to control most local banking systems. #e emerging Europe was hit by the !nancial crisis that followed the fall down of Lehman Brothers in September 2008. Many emerging economies from Eastern Europe, such as Hungary, Romania, Latvia and Ukraine, had then to ask to the International Monetary Fund (IMF) for assistance.

#e article analyses what was the evolution of the country risk in the years following the adhesion of Romania to the European Union. #e country risk is a collection of risks associated with investing in a foreign country. #ese risks include political risk, exchange rate risk, economic risk, sovereign risk and transfer risk, which is the risk of capital being locked up or frozen by government action.

"e years 2007-2008#e accession of Romania to the European Union on 1 January 2007 entailed clear bene!ts, such as increased %ows from the structural funds and more attractive business environment, developing capital markets, increasing foreign investment, access to the European labor market.

After long periods of !xed exchange rate, in 2007, a great %uctuation of the hard currencies exchange rate occur in Romania. A high currency appreciation was recorded in mid-August 2007, followed by a strong devaluation in late 2007. #is was an e$ect, on the one hand, to rising food prices due to the drought that has a$ected agriculture, and on the other hand to the global economic crisis caused by the falling of real estate markets in the US and the UK and to the soar of in%ation in the EU.#e global economic crisis has a$ected Romania since 2008, when the GDP fell more than 7%, the unemployment rate has doubled and the local currency, leu, has lost more than 15% against the euro currency. In

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the period before the crisis, the value of many local companies has grown to irrational levels, while after 2008, as an outcome of the worldwide trend, there was an accelerated reduction of their value. Furthermore, when the global crisis hit Romania, the in%ux of capital stopped, GDP fell more than 7% in 2009, unemployment almost doubled and the exchange rate weakened by more than 15 percent against the euro. In the years before the !nancial and economic crisis, the number of companies increased sharply. After 2008, their value has experienced a considerable decrease as a result of the worldwide trend. Investors’ perceptions of risk associated with investments in the capital market in Romania deteriorated in 2010 due to concerns about sovereign debt. Meanwhile, the stock market was characterized by high volatility, and the majority of shares were devalued by 70-80%. In 2008, the in%ow of FDI attracted by Romania registered a value of 9.024 billion euro, which was very close to the peak registered in 2006, being only 36 million less compared with that historical record of 9.06 billion euro.

Figure 1. FDI evolution in Romania in the regional context, in 2008 (million euro)

Source: www.wiiw.ac.at

#e ratings given by the Standard and Poor’s, Fitch, Moody’s and Japan Credit Rating Agency for the long term foreign sovereign debt, starting from 1997 have been the following:

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Figure 2. Sovereign ratings

Source: Romanian Minister of Finance

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So, all four agencies have slowly improved the sovereign ratings of Romania throughout the years of transition to market economy, as an e$ect of the creation of a competitive economic environment, privatization of the former stated-owned companies, and developing of the democratic institutions, due to the power shift of political forces. #e membership to N.A.T.O. and the accession to the European Union were the events that boosted the trust of investors in the economic potential of Romania, and, accordingly, the country’s ratings.

"e years 2008-2010Before 2009, the most signi!cant foreign capital in Romania consisted of direct foreign investment (especially capital ownership as a result of privatization), and other investments (such as loans from parent banks), while investment portfolio were generally low. After the start of the global !nancial crisis, the contribution of FDI was drastically reduced as re%ected by Figure 3, regardless of the fact that Romania has remained an attractive business destination.

Figure 3. FDI evolution in the regional context, in 2010 Source: Bloomberg, Erste Group Research

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In 2008 and 2009, the cumulative e$ects of the crisis based on relative change in real GDP, provides the following ""recorded values (see Figure 4).

Figure 4. Relative changes in real GDP in 2010 for EU developing countries Source: European Commission, 2014

In 2009, most liquid shares were devalued by 70-80%, which was one of the most signi!cant drops in the capital markets of the EU. #e Government started to have di"culties in paying pensions and salaries for civil servants. As a result, in March 2009, the government received a loan of / 12.9 billion from the IMF as part of a coordinated package of / 20 billion !nancial assistance. #at moment marked a decrease in the rating of the country of Romania. As such, Moody was the only rating agency evaluating Romania with a stable outlook, favorable investment while Fitch and Standard and Poor’s placed Romania in the category „junk” in the fall of 2008 as a result of the current account de!cit. Under these circumstances, the National Bank of Romania has asked the international rating agencies to assess the country risk, in order to obtain loans from international markets. #e access to the international !nancial markets could have opened up new funding opportunities for Romania, either by issuing Eurobonds or through syndicated loans. Romania National Bank intervened in the international capital markets in order to increase the hard currencies exchange reserves and, hence, to meet the requirements of the agreements with the IMF to attain a certain level of foreign reserves. #e stand-by agreement with the IMF was conditioned by the implementation of !scal and monetary policies, including !scal discipline, macroeconomic stability in the context of compliance and performance criteria, improved investor sentiment, stabilizing the

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foreign exchange market, sustainability and consistency of the economic policies, support the banking sector and its consolidation, including the recommencement of lending activity, both as for individuals and legal entities. #e positive e$ect of concluding this agreement was felt in March 2010, when the rating outlook of Romania was upgraded to “stable” by Standard and Poor’s, followed by Fitch Ratings in April 2010. Moody’s Investors Service was the only agency that has continued to classify Romania among the countries ‘investment grade’. Under these circumstances, the current account de!cit was reduced by more than half to about 4 percent of GDP and the structural !scal de!cit also declined. Pressures on the exchange rate have decreased in intensity while reserves have stabilized. Financial markets have reacted to all this by reducing pressure on sovereign spreads, which by the end of 2010 fell by almost 600 bps from their peak levels during the crisis.

Romania was among the best performing countries in the world in terms of reduction of country risk in the third quarter of 2010. #us, Romanian sovereign bond risk fell by 21.5 points to a level of less than 300 points. At the same time, several European Union countries registered increases the risk of the country, such as Ireland and Greece, which increases up to 640, respectively 1023 points.

In the !rst half of 2010, BET index recorded signi!cant %uctuations in growth - 27% in the !rst quarter, and decreased by 20% within 3 months. #e steepest declines were recorded in the !rst two months of 2009, when the BET declined 34.5%. BET then returned to an upward trend with 61.7% more than the previous year.

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Figure 5. Evolution of the volume of transactions on the BSE in 2008-2010 Source: Bucharest Stock Exchange, www.bvb.ro

In March 2011, Romania requested a successor Stand-By Arrangement (SDR 3.1 billion, 300 percent of quota) to continue the economic adjustment initiated under the 2009 SBA. #e main objectives of the new program, jointly supported by the European Union, were to provide precautionary support against external shocks and to advance economic adjustment.

"e years 2011-2013#e year 2011 marked a crucial step in the evolution of Romania’s sovereign rating; the country began to feel the positive e$ects of the Stand-by Agreement approved in 2009.

A new precautionary !nancial assistance program for Romania was o"cially closed in October 2013 for a total amount of EUR 4 billion, equally divided between the EU and the IMF by the end of September 2015. #is is the third program !nancial assistance granted to Romania by the EU, after the one in 2009-2011 reimbursed in full, and one in 2011-2013 which provided preventive care 5 billion euro, of which 1.4 billion from the EU and the authorities decided not to use, due to the improved economic and !nancial situation.

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#e e$ects were made visible in the review’s positive rating for Romania’s international rating agencies.

Figure 6. "e dynamics of Romania’s country rating, according to Euromoney

Source: Processed data from the database of Euromoney Country Risk.

Including bonds of Romania in the GBI index - EM: consequence of the &nancial assistance program provided by the European Commission and the IMF#e country’s economic performance, thanks to !scal changes of the legislation, and implementation of many structural reforms, contributed to a signi!cant improvement of investment environment. #e most important international recognition of the level of performance achieved by Romania came from the bank JP Morgan, which in 2013 included the Romanian bonds in emerging markets index. JP Morgan o"cials said their decision was based on the fact that Romania has met the conditions for market liquidity. With a market capitalization of US $3,482 bn (as of January 11th, 2013), Romania’s potential weight was estimated to be 0.54% in the %agship GBI-EM Global. However one has to note that the Romanian bonds included in the index rate of only 0.5% in the GBI-EM, while Hungarian bonds account for 5.5% and Poland for 10%. #e increasing of the attractiveness of Romanian international bonds had immediate consequences: - Low cost of !nancing for the Ministry of Finance with more than 1 percentage point in one month;

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- #e national currency has appreciated considerably, allowing the Ministry of Finance to borrow at record low interest on !nancial markets. #e Ministry of Finance has managed to attract capital from the primary market sources to yield 1.17 percentage points lower than the yield obtained at the auction of 13 December 2012, which demonstrates investor con!dence in Romania’s macroeconomic development.

Current period2013 recorded an encouraging evolution of the current account de!cit judged against the level recorded in the same period a year before; the most important aspect that supported this increase is the contraction of the trade de!cit, which fell in the analyzed period from EUR -5.7 bill. to EUR -0.65 bill. Lowering Romania’s current account de!cit has reduced the country’s dependence on international funding. GDP has also grown steadily and the perspectives for 2014 are also good (see Figure 6).

Figure 7. Romania, Real GDP Growth Projections (IMF Report, 2014)

An aspect that has contributed to improving the rating of the country of Romania was the absorption of EU funds, which had substantial grown in 2013, although it still remained as the lowest of the EU member states. In late January 2014, Romania managed to absorb 11.3 billion euro,

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representing a rate of 41.4% cumulative absorption of structural funds, cohesion and agricultural allocated for the period 2007-2013 (Table 1).

Table 1. EU funds absorption for Romania

Source: European Commission: Romania, Balance-of-payments assistance program mission report (21 January - 4 February 2014).

In the fourth quarter of 2013, the strong growth in Romania was in contradiction with the collapse of the governmental coalition. Consequently, Fitch con!rmed the rating of investment grade for sovereign debt of Romania (BBB-, with a stable outlook), while in November 2013 S&P revised the growth prospect rating of Romania (from ‘stable’ to ‘positive’).

Table 2. Romania country ratings in 2014 (Fitch Ratings, Moody’s, S&P)

Rating Foreign currency Local currencyMoody’s Baa3 Baa3

S&P BB+ BB+Fitch BBB- BBB

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According to the Fitch estimates, in 2014, Romania’s macroeconomic risks will remain balanced: even if !nal data on agricultural and industrial production for 2013 are better than expected, lending is still limited. Internationally, Romania remains vulnerable to negative developments on the international !nancial markets and slow growth in the euro area. An implementation of prudent policies, which contributed to a substantial reduction in spreads, will be crucial in maintaining investor con!dence.

#e conclusions of the 2014 IMF Report on Romania indicate that !nancial assistance from the IMF and European Union Romania ensured macroeconomic stability and policy credibility needed for a positive review or rating of the country to “investment grade”.

Moody’s (2014) draws similar conclusions, i.e. that the rating of Baa3 for the government bonds was determined by the !scal consolidation achieved in the last two years despite slow growth in GDP, but remains constrained by low economic growth.

#e report also states that the integration of Romania in the group of developed European economies will generate revenue and productivity gains in the medium term. In the short term, however, Romania’s economic recovery could be hampered by its exposure to the volatility of !nancial markets in Europe and the growth rate of GDP is likely to remain lower than other Member States with similar rating outside the European Union next year.

Euromoney Country Risk ECR-survey (2014) shows that the rating of Romania, has been on the rise since the start of 2013 and has continued to improve in the !rst months of this year, reaching 48.9 maximum 100 points, ahead of Hungary. After Romania has regained 69th place out of 186 nations included in the top global ECR, which means !ve places higher than the position held in June 2013, Romania is currently only two places under the third category rating of !ve levels calculated by the ECR, which would equate to a rating between BB + and A-, according to the rating methodology used by Moody’s. Romania is more risky than other countries in Central and Eastern Europe, like Czech Republic, Estonia,

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Slovakia and Poland that have higher scores awarded by ECR. #e country is menaced by uncertainty related to the presidential election this year.

#e visit of the IMF and the European Commission in Romania between January 21 and February 4, 2014 marked the end of the review of the Stand-By Agreement. #e failure to meet the target of reducing the arrears of state-owned companies in the last quarter of 2013 was the main accusation made ""by the mission; otherwise the assessment was generally favorable. #e mission announced that if no progress is being made to reduce arrears (in particular those from SOEs of rail transport sector), the IMF will not approve the agreement in April 2014.

In 2014, one can expect a !scal slippage, and a depreciation of the national currency as a result of the election year. However, it is unlikely that the rating of the country will be downgraded, due to political disturbances, for three reasons:- the European Union and International Monetary Fund will vigilantly monitor the continuity of government policies;- in the event of a change in the governmental coalition, it is unlikely that Romania’s major political parties will support a change in current policies that prove to be bene!cial at macroeconomic level;- these macro-economic bene!ts, as re%ected in the growth of Romania, in the !scal outlook and in the balance of payments, have strengthened the investors’ con!dence in Romania and, hence, they will limit the capital out%ows in response to political developments.

Solutions to improve the rating of RomaniaIn order to fall in the category of emerging markets, Romania needs a number of structural improvements conditioned by a sound public debt management. #e Stand-by Agreement includes measures to strengthen the progress made in the previous program and increase predictability of the Romanian state, through a solid presence on the !nancial market by issuing bonds according to a certain calendar, and consultations with market participants.

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Building a sovereign market infrastructure is another important objective, through the introduction of an automated platform for primary issuance of bonds, an electronic system for monitoring transactions on the secondary market, in order to optimize the functioning of the domestic !nancial market. #ese measures should improve the market e"ciency and help the Ministry of Finance to put up the yield curve of government bonds.

Romania’s main troubles are: the slow accessing European funds for investment projects, ine"cient energy and transport sector and pressures on public !nances, mainly due to a lower tax base, increased health costs and poor performance of SOEs. Standard and Poor recommends Romania to continue reforms and the budget de!cit under control, to improve the rating. In addition, S&P believes that structural reforms undertaken so far should help to rebalance the economy and would allow a solid growth medium. #e sovereign rating could su$er if the government will fail to continue the structural reforms and !scal consolidation. To take advantage of the opportunities o$ered by the economic relations with the EU, the government will need to continue structural reforms and make more e"cient the SOEs, at the same time as maintaining !scal cautiousness in the medium term. Decreasing health care costs would also be a wise solution to improve the sovereign rating. Comparative advantages of Romania at the sectorial level are various, but they are put in shade by drawbacks like the subsistence agriculture, tourism lacking a network of highways, a developing but chaotic IT sector, unsupported by adequate education and research). Romania will continue to bene!t from the gradual liberalization of world trade and of the trade integration in the EU (although joining the euro area is projected for 2019). Romania’s long-established reliance on exports of goods in sectors with intensive labor could become a burden on medium and long term. On short-term it is likely that Romania can maintain the good position currently held on the e$orts made ""by companies with headquarters in developed countries to move non-core activities in locations with small costs in order to increase pro!tability. But as the wage level increases, Romania will face tough competition from China, India and other emergent countries and the

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solution cannot be other than to move the production and exports on a higher position in the value chain.

Usefulness of the country risk analysis. “AnBilan#” software.#e risk management area has more and more become important for any company willing to enter new markets. #e country risk rating is essential for investors who wish to conquer new markets or to deinvest from dangerous states. A useful instrument for assessing the prospective of success or failure for a company trying to enter a new market by using an associative strategy is I, a risk indicator de!ned as follows:

I = N x F xF

<

DV22"DV22"

xF

<

DAW22"DAW22"

x X;,/=56B2

X;,/=56B22

2AH2+

where the factors are: -the country-risk of the target-market rating (N)-the degree of cultural and organizational compatibility (F)-the in%ation rate for the target-market ( <DV )

-the in%ation rate for the country of origin ( FDV )

-the rate of economic growth for the target-country ( <DAW )

-the rate of economic growth for the country of origin ( FDAW )-the social capital of the X !rm, the patrimonial entity that is used for settling an associative strategy (CS X !rm)-the economic value of the enterprise (VX !rm ), if the company is listed at the stock exchange, than VX !rm is the market value.

For anuanced analysis, one can apply the logarithm over I and the result is

I* = lg I= lg (N x F

<

DV22"DV22"

x F

<

DAW22"DAW22"

) + lg ( F x X2

X

;,/=56B2AH;,/=56B22+

).

#e !rst term re%ects the degree of risk of the target region/country, while the second characterizes the microeconomic risk. After testing the indicator

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over a sample of 40 companies listed on the Bucharest Stock Exchange, the conclusion was that the right values of the indicator are:-if I* < 0 and the country risk is more than 6, the factors which characterize the external environment being in normal limits, than the company envisaged for association is either less evaluated, or almost bankrupt, vulnerable, able to be taken over very easily -if I* > 5, under the same circumstances, than the company envisaged for association has a very good !nancial situation.

#erefore, !ve intervals of values for the I* indicator have been settled.

Table 3. "e evaluation of the microeconomic environment analyzed in rapport with the values on the grid of I*

"e values of

I* =lg(I)

"e evaluation of the microeconomic environment

"e optimal entry strategy

I* < 0 #e microeconomic environment likely to be entirely taken over

Direct green!eld investment

0 < I* < 1,6 #e microeconomic environment likely to be entirely taken over by a buy of the majority of stocks and joining the management team

Acquisition

1,6 < I* < 2 #e microeconomic environment likely to be taken over at a equal rate to that of the partner

Mergers, acquisitions

2 < I* < 5 #e microeconomic environment

favorable for economic cooperation

Licensing, franchising, strategic alliances

I* > 5 #e microeconomic environment hard to be approached through a partnership but favorable for trading operations

Export

Source,: Gheorghiu, 2009

In this context, a Romanian team formed by three researchers (Anda Gheorghiu, Ion Daniel, Anca Gheorghiu), has created a software application “AnBilan&” designed to be an helpful instrument in order to take the right decision concerning the global market entry and to choose

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the most advantageous strategy, such as export, franchising, licensing, merger/acquisition or building a shining new industrial unit from scratch. AnBilan& is a user-friendly and trustworthy tool in the decision process, especially in the case when the company intended to be acquired is not listed at a stock market, and, consequently, it should be thoroughly evaluated by using one of the classical assessment methods like Discounted Cash Flow or Adjusted Net Asset method. As AnBilan& is developed under Visual Basic 6 as an executable and runs under Windows operating system, it is able to identify and interrelate with various types of data !les or Database Management Systems (i.e. software systems that allows users to save retrieve and modify information) such as Microsoft Access, dBase, FoxPro, Visual FoxPro, Paradox, SQL Server, etc; it allows the access to documents and Internet/Intranet applications.

#e application is structured in four areas, speci!cally:

I. #e input area of comparative parameters between the target market and the country of origin, to be exact:

N-the country-risk of the target-market rating with values between 1-10 (10 for !nancially solid countriesF- the degree of cultural and organizational compatibility (F), with values between 0.1 (incompatibility) and 100 (full compatibility)

<DV - the in%ation rate for the target-market

FDV - the in%ation rate for the country of origin

<DAW - the rate of economic growth for the target-country

FDAW - the rate of economic growth for the country of originr -the discount rate, i.e. the rate at which costs and estimated future incomes of the investment are discounted to calculate the present value of itg- dividend perpetual growth rate.

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II. #e area that displays the values calculated according to the Discounted Cash Flow method (DCF) and Adjusted Net Asset method (ANC). After selecting the amount considered by the assessor as the most appropriate the software automatically calculates the indices I and I *= log (I), which asses the market environment of the target country / region and deliver the strategic investment recommendation.III. #e area of !nancial analysis applied to items selected from the balance sheet or pro!t and loss account, accompanied by graphic illustration of the dynamics of the economic factors.

IV. Copyright.

2 Figure 8. "e visual appearance of the application AnBilan#

Source: Gheorghiu, 2009

ConclusionsRomania’s country risk assessments by international agencies have revealed that joining the European Union in 2007 has undoubtedly had a positive e$ect on the exposure of Romania’s country risk. Nevertheless, acquiring EU membership was not su"cient for economic continuous growth. Fiscal measures undertaken thereafter and reforms initiated by Romania in this period increased investor con!dence in the Romanian business environment and led to a general positive trend in sovereign rating.

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Romania’s development prospects at the institutional level and with regard to the regulatory framework are not clear. EU integration has made solid improvements in the business environment. Nonetheless, administrative and judicial institutions do not function e$ectively, corruption remains systemic and regulatory level trading environment is high. #e potential for improvement in the regulatory framework is limited by the weakness of the state apparatus. However, ""national policies the government can facilitate progress, provided there is political will in choosing the best direction.

On long-term Romania’s development will de!nitely be in%uenced by two major factors: a serious demographic downturn that has deepened in recent years (decreasing population, including as a result of deployment abroad a few number million people in the active workforce, coupled with an aging population), with direct e$ects on social insurance budget and environmental damage, with high restoration costs for water, air, soil, etc.

Continuing the trend of Romania’s macroeconomic development, con!rmed by a higher grade of country rating will allow the state to ful!ll its management strategy established by the government for 2012 – 2014, through extending the maturity of government securities by issuing bonds principally on medium and long term. #is will reduce the !nancing needs, namely to reduce the volume of re!nancing bonds and consequently the risk of re!nancing.

ReferencesGheorghiu, A. (2009). Managementul riscului la p'trunderea pe pia)a

interna)ional'. Bucharest: Victor Publishing House.Bloomberg, Erste Group Research (2010). FDI evolution in the regional

context, in 2010. Bucharest Stock Exchange, Evolution of the volume of transactions on the BSE in 2008-2010. Euromoney reports 2007-2014.

European Comission (2014). Romania, Balance-of-payments assistance programme mission report (21 January - 4 February 2014).

International Monetary Fund Reports 2007-2014.

Anda GHEORGHIU

Foreign equity ownership, corporate governance and &nancial performance

Doina PRODAN PALADE1

Florentin-Emil TANAS$2

Abstract. !e increasing importance of the Foreign Direct Investment (FDI) is one of the most features of the world globalization. FDI is one of the key ways of economic development for emerging countries. It provides funding and expertise to help companies from the emerging markets to increase the international trading. !e present research is conducted to assess the impact of foreign ownership, aiming to determine if foreign ownership improves corporate governance, #rm performance and competitiveness and if foreign-owned entities over-perform domestic-owned companies. !e empirical literature reveals mixed evidence. An increase in FDI has a positive e"ect on economic growth rates in #nancially developed countries but foreign ownership has either a negative or a small e"ect on #rm performance in some emerging countries, like Croatia and the Taiwan. !e main #ndings of the research support the view of a positive connection between FDI and #rm performance. !is suggests that FDI should be encouraged by policies regarding foreign ownership to enhance #rm productivity and competitiveness in emerging markets.

Keywords: ownership; foreign equity ownership; corporate governance; #nancial performance.

IntroductionEntity ownership, corporate governance and !rm performance are key elements for economic growth in a globalized economy. To achieve sustainable economic growth, the emerging countries need large in%ows of foreign investments. #ere are three main forms of foreign investments: portfolio investments, foreign loans and Foreign Direct Investments

1. Ph.D. candidate, Doctoral School of Economics and Business Administration, “Alexandru Ioan Cuza” University of Ia+i, Ia+i, Romania, [email protected]. 2. Ph.D. candidate, Doctoral School of Economics and Business Administration, “Alexandru Ioan Cuza” University of Ia+i, Ia+i, Romania.

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(FDI). According to the International Monetary Fund (IMF), FDI is one individual business that owns more than 10% from the capital of a foreign company and thus has important in%uence on the company’s policies. FDI is one of the key channels and an important engine for economic growth, increasing the capital stock, creating employment and may bringing new technologies. Despite the fact that some researchers found no evidence of spillovers to the domestic economy due to FDI, most empirical studies have found evidence of increasing performance of the companies with foreign ownership.

Ownership structureAs according to the Oxford Dictionaries, ownership means the act, state or right of possessing something (Oxford Dictionaries, 2014). #e business ownership structure has an important impact upon the liability of the owners, the continuity of it if one of the owners dies or withdraws the kind of managements control, the level of additional capital, and the amount of taxes (Douma et al., 2012, p. 642). #ere are six main forms and four main types of ownership. #e most common forms of business ownership can be structured as follows: sole proprietorships, general partnerships, limited partnerships, corporations, limited liability companies and limited liability partnerships (Prescott, 2010, p. 30). As for the type of ownership, it can be: ownership concentration, public ownership, private ownership, foreign ownership (Aymen, 2014, p. 164). Business ownership structure can be represented by director ownership, foreign ownership and state ownership. Other important elements that have signi!cantly positive impacts on pro!tability are the board size, board composition, management skill level, Chief Executive O"cer (CEO) duality inside ownership, and family business (Abor & Biekpe, 2007, p. 288).

Foreign Direct Investment: de&nition and importanceForeign Direct Investment (FDI) is a direct investment into production or business in a country by an individual or company based in another country. According to the World Bank, FDIs are the net in%ows of investment to acquire a lasting management interest (10 percent or more of voting stock) in an enterprise operating in an economy other than that of the investor. FDI is one of the key ways of economic development

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for emerging countries and it boosts corporate performance indicators (Jurajda & Stancík, 2012, p. 322). It is widely known that foreign direct investment is a way for improving corporate governance, !rm performance and pro!tability (Aymen, 2014, p. 166). Among the e$ects of FDI can be mentioned: the transfer of new technologies and know-how, formation of human resources, integration in global markets, increase of competition, and !rms’ development and reorganization. Bokpin suggested that the more foreign owners a !rm has the less the company discloses and the less a company discloses the more foreign share owners it attracts. At the same time he found a positive and statistically signi!cant relationship between foreign share ownership and the market capitalization and insigni!cant relationship with Return on Equity (ROE) (Bokpin, 2009, p. 692).

Figure 1. FDI con&dence index, ranking and scores Source: Foreign Direct Investment (FDI) Con!dence Index®

Doina PRODAN PALADE, Florentin-Emil TANAS'

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Among the main determinants of FDI can be mentioned: proximity to markets or customers, skilled workforce availability, government support and lower costs (fDiIntelligence, 2014). Firms attracting foreign direct investment acquire su"cient internal funding and they do not need more debt !nancing to fund their capital expenditures compared to domestic !rms. #ey found increased capital investment for the !rms with foreign ownership than domestic ones (Gurunlu & Gursoy, 2010, pp. 21-29). Among the main determinants of FDI can be mentioned: proximity to markets or customers, skilled workforce availability, government support and lower costs (fDiIntelligence, 2014). In 2013, around 45% of FDI projects were driven by the access to domestic markets growth potential.

Figure 2. Inward FDI in%ows by economy, 2012 – excluding British Virgin Islands (based on data provided by UNCTAD)

Studying the FDI in%ows by economy, we observe that (Figure 2) Cayman Islands are placed on rank 2, after British Virgin Islands that have more than 81.82% of the world FDI in%ows in 2012 (World Investment Report).

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Figure 3. World and European Inward FDI %ows (World Bank)

#e European Union plays an important role in the global foreign direct investment (FDI), in terms of both inward and outward FDI (see Figure 3). #is means that EU companies can compete in markets inside and outside the EU. #e evolution European inward FDI %ows follow the world trend, reaching a maximum in 2007. It was FDI in%ows to the world and the EU were hit signi!cantly by the global recession between 2008 and 2009. It recovered between 2010 and 2011, but the recovery lessened during 2012, meaning a reduced capability of European !rms to invest abroad.

"e impact of FDI and corporate governance on &rm performanceCorporate performance can be measured by variables connected with productivity, pro!tability, growth and customer satisfaction (Barbosa & Louri, 2005). Firms are heterogeneous in terms of pro!tability due to di$erences in industry’s characteristics, proprietary technology and managerial expertise, industry concentration that leads to larger pro!ts, industry growth, and competitive environment. Among the elements that a$ect !rms’ performance can be mentioned: age, size and FDI. Older !rms can obtain superior performance due to their previous learning process. Larger !rms can exploit economies of scale and organize their activities e"ciently but they must cope with the increased bureaucracy that prevents them from acquiring higher performance and pro!tability.


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A main reason for investing in a company from emerging countries can be cheaper labor force and hence lower production costs. But foreign investors avoid investing in !rms with poor corporate governance structures and inadequate disclosure practices. An improvement in the corporate governance system can facilitate capital mobility across countries (Cueto, 2009, p. 146; Bowman, 2012, p. 47).

Examining the impact of corporate governance on corporate performance Nazli (2010) found weak evidence that companies which adopted good governance practices performed better than others. But companies with a larger proportion of foreign ownership were found to be more pro!table (Nazli, 2010, p. 117). Investigating a sample of 183 companies listed on the Amman Stock Exchange for the year 2010, Suwaidan, Abed and Al-Khoury (2013) showed that foreign owners play a very signi!cant role in improving corporate governance and are likely to export their higher standards and apply them to !rms in the host country. From the perspective of companies, foreign investor participation should improve the market value of their shares and thus lower their cost of capital. He found a positive relation between foreign share ownership and international audit !rm, but debt ratio had no signi!cant e$ect on foreign-Arab share ownership (Suwaidan et al., 2013, p. 21). Most studies indicate that foreign ownership has a positive e$ect on !rm performance. Foreign ownership helps increase !rm performance due to its monitoring role, foreign ownership has positive e$ect on !rm performance because foreign investors possess better !nancial and technological resources and experience. Based on !rms listed on Ho Chi Minh Stock Exchange between 2008 and 2011, Phung and Le (2013) found a negative impact of FDI on !rm performance and a positive impact of FDI on capital structure. #e reason for this result can be the lack of concentration of foreign ownership. As a result it cannot play a monitoring role in corporate governance and the investors cannot set out long-term goals for the company. As an example we can mention the case of Vietnam stock market where the foreign ownership is currently limited at 49% and it may not positively a$ect !rm performance (Phung and Le, 2013, p. 56).

Studying 202 Ukrainian medium and large enterprises for the period 1998-2000, Akimova and Schwodiauer (2004) found the impact of foreign ownership on !rm performance is non-linear, being positive

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up to a speci!c level. Stake holding ownership by customers a$ects sale prices and performance negatively. Many con%icts may arise in the case of ownership shared between several individuals with di$erent preferences about company goals. #ese con%icts a$ect the entity’s performance. In developed market economies partnerships are mainly formed by family business or by owners that have similar tastes (Akimova & Schwodiauer, 2004, p. 36). Ownership concentration has a positive and signi!cant e$ect of Jordanian banks’ pro!tability while foreign ownership positively a$ects their operating e"ciency. Foreign-owned banks tend to be more e"cient and less risky than domestic banks. Foreign ownership, measured by proportion of shares held by foreign shareholders, brings more e"ciency to bank operating and minimizes the total operating expenses (Al-Amarneh, 2014, p. 198). In Kenya foreign-owned banks had slightly better performance and they are more e"cient than domestically-owned banks (Mang’Unyi, 2011, p. 2). #e positive e$ect of ownership concentration on !rm performance matters more in countries with weak investor protection. Yang found that foreign ownership in Taiwan has a positive impact on the privatized !rms and their operating performance. Ownership concentration is negatively related to performance of privatized companies.

Studying the relationship between !rm performance evaluated by means of Assets Growth and Return on Assets (ROA) and FDI, on a sample of more than 400 companies from Czech Republic, Cástek (2013) found a positive e$ect of FDI in small companies. #e pro!tability was higher if the owners were present in the top management but the results were not conclusive in medium-sized and large companies (Cástek, 2013, p. 13). While traditional theories predict that !rms from developed countries acquire capital from entities located in emerging countries, Anusha, Chen and Dominguez (2009), observed foreign acquisitions of US !rms by entities from emerging markets, despite the input costs for investment. Among their motivations can be mentioned: access to the advanced technology and entering new markets. In the years following the acquisition, sales and employment decline while pro!tability rises, suggesting signi!cant restructuring of the target !rms (Anusha et al., 2009). Using a sample of 383 state-owned !rms from Taiwan between 1991 and 2002, Chen found that foreign investment had a positive impact on the long-run stock performance of equity issuers, suggesting that higher foreign ownership


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may increase the process of monitoring and reduce agency problems. It leads to better monitoring e$ects and thus increases !rm performance. Studying 84 !rms listed on Tehran Stock Exchange for a period of !ve years from 2007 to 2011, Moradi, Aldin, Heyrani and Iranmahd (2012) found that the percentage of institutional investors’ ownership has a direct relationship with !rm performance (Moradi et al., 2012, p. 91). Foreign ownership mitigates the agency problems of free cash %ows and optimizes the use of corporate resources for equity-issuing !rms (Chen et al., 2009). Using a data set of 434 foreign-invested !rms in Poland, Hungary, Slovenia, Slovakia and Estonia, Filatotchev (2008) showed that foreign investors’ ownership and control over strategic decisions are positively associated with export intensity, measured as the proportion of exports to total sales worsens (Filatotchev, 2008, p. 1145). Using a sample of 19 privatized !rms from 1994 to 2005 in Taiwan Yang showed that ROS, ROA and ROE did not improve after privatization. #e ownership concentration is negatively related to performance. Foreign ownership makes the performance of privatized !rms increase because foreign institutions require a higher level of information (Yang, 2008, p. 10). Examining the role of FDI on !rms’ performance, Barbosa and Louri (2005) found that multinational Portuguese !rms do not perform better than the domestic ones. FDI has a positive impact upon Greek entities’ gross return on assets. When net pro!tability is taken into account, the level of FDI has no e$ect on Greek corporations (Barbosa & Louri, 2005, p. 49). Studying the !rms listed on the Zagreb Stock Exchange in period 2003-2009, Dzanic (2012) shows a negative relationship between the presence of a large shareholder and Tobin’s Q value of the company. Tobin’s Q is calculated as the market value of the company divided by the replacement value of the !rm’s assets. High Tobin’s Q implies that the stock is overvalued. Also, he found no evidence that foreign ownership is better domestic ownership, as it usually is in emerging economics. Despite the fact that di$erent authors revealed the positive e$ect of foreign ownership on a !rm’s performance, the sample from Zagreb Stock Exchange - Croatia does not support this view. In the case of Croatian entities foreign ownership has either a negative or a small e$ect on !rm performance (Dzanic, 2012, p. 44).

Taking into account the e"ciency scores for measuring corporate performance, Huang et al. found a positive but weak e$ect of foreign ownership upon Taiwanese !rms (Huang et al., 2007, pp. 143-144).

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Bokpin (2011) shows that in Ghanaian entities foreign !rms’ appetite to accumulate more cash is more than twice local !rms. Foreign investors would avoid !rms with higher levels of insider ownership (Bokpin et al., 2011, p. 277). In India, where companies maintain their shareholding pattern over time and big corporate family prevails, ownership concentration increased the average company (Kaur & Gill, 2009, p. 25). #e more activist of foreign investors focused on obtaining key shareholdings in the largest of Australian corporations. #e ownership of Australian corporations has become more concentrated than before and more concentrated than in Canada. Also concentration in the hands of foreign !nance capital has intensi!ed (Murray & Peetz, 2013, p. 102).

ConclusionsFDI is an important engine for economic growth, increasing the capital stock, creating employment and bringing new technologies and skills, and technology, especially from industrialized to developing countries. Most studies indicate that foreign ownership has a positive e$ect on !rm performance because foreign investors possess better !nancial and technological resources and experience. FDI can help entities from developing economies coping with informational barriers, improper management, lack of !nancing, higher risks and costs entering new markets. Foreign-owned !rms can become more competitive, increase their pro!tability, shareholder’s value, and can easier access, expand and integrate into new and global markets. At the same time, reduces the agency costs within a corporation, improves the activity of managers, increases the quality of their auditing and reporting systems and thus result in higher performance and pro!tability. Due to its monitoring role, foreign ownership helps increase !rm performance, the capital stock and creates employment. Foreign investors can monitor more independently the company’s ways of spending capital and its managerial activity. For the investors’ point of view, FDI is associated with costs for acquiring information, monitoring and bonding expenses that tend to decrease the bene!ts of international diversi!cation. Due to the negative e$ects of expanding their business operations and disclosure of entities’ resources across di$erent business segments, FDI is not perceived as value increasing. #e empirical literature shows that FDI has a positive e$ect on the corporate governance, !nancial performance and the economic growth


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rates. #e impact of Foreign Direct Investment on domestic acquisitions is signi!cant and positive only in low international trading companies. On the contrary, services and manufacturing industries that are competing in international markets record smaller in%uence of FDI on corporate performance, productivity, and level of employment. One of the main reasons is that they are very competitive because only the most productive !rms are able to overcome the costs of entering the international markets. #e competitive exporting markets force exporters to be more e"cient (Kostevc, 2009). In Malaysia and Czech Republic, FDI has a statistically signi!cant and positively associated with company performance. When certain groups or families, like in Asia or in Jordan, where the banking sector is essentially built upon family businesses, mainly control companies, FDI has a weak in%uence on company’s performance. Also !rms with higher foreign ownership do not change their benchmark after equity issues. In Portuguese !rms there is no connection between foreign ownership and pro!tability. In Greek !rms, foreignness has a positive e$ect in terms of gross measure of pro!tability (Barbosa & Louri, 2005). #e non-linear e$ect of FDI on !rm performance from the emerging countries is due to their di$erent level of institutional environment that is still adverse to the foreign ownership.

#is study is a systematic literature review that has shed some light and provides evidence of the importance of Foreign Direct Investment for the !rm performance and productivity. As the results are mixed, further research is requested. It might be interesting to study the main determinants taken into consideration by the investors for their investment decisions: corporate governance, disclosure practices, the o"cial language, the market size, new trade agreements, the political climate, and the economic and business risks, that are country speci!c.

ReferencesAbor, J., and Biekpe, N. (2007). Corporate governance, ownership structure

and performance of SMEs in Ghana: Implications for !nancing opportunities. Corporate Governance, 7(3), 288-300.

Akimova, I., and Schwodiauer, G. (2004). Ownership structure, corporate governance, and enterprise performance: Empirical results for Ukraine. International Advances in Economic Research, 10(1), 28-42.

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Al-Amarneh, A. (2014). Corporate governance, ownership structure and bank performance in Jordan. International Journal of Economics and Finance, 6(6), 192-202.

Anusha Chari, A., Chen, W., and Dominguez K.M.E. (2009). Foreign ownership and !rm performance: emerging market acquisitions in the United States. National Bureau of Economic Research. Cambridge, MA 02138, Working Paper 14786. Retrieved from http://www.nber.org/papers/w14786.

Aymen, B.M.M. (2014). Impact of ownership structure on !nancial performance of banks: Case of tunisia. Journal of Applied Finance and Banking, 4(2), 163-182.

Barbosa, N., and Louri, H. (2005). Corporate performance: Does ownership matter? A comparison of foreign- and domestic-owned !rms in Greece and Portugal. International Journal of Industrial Organization, 20(4), 493-515.

Bokpin, G.A., and Isshaq, Z. (2009). Corporate governance, disclosure and foreign share ownership on the Ghana stock exchange. Managerial Auditing Journal, 24(7), 688-703.

Bokpin, G.A., Isshaq, Z., and Aboagye-Otchere, F. (2011). Ownership structure, corporate governance and corporate liquidity policy. Journal of Financial Economic Policy, 3(3), 262-279.

Bowman, R.G., and Min, B. (2012). !e positive impact of corporate governance on foreign equity ownership: Evidence from Korea. Rochester: Social Science Research Network.

0ástek, O. (2013). #e E$ect of Ownership Structure on Corporate Financial Performance in the Czech Republic. In M. #. Semmelrock-Picej and A. Novak (Eds.), Proceedings of the 9th European Conference on Management, Leadership and Governance (pp. 7-15). Reading: Academic Publishing International Limited.

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Gender di!erences in investing and savings behavior: the nesting e!ect

Loredana IVAN1

Abstract. Field studies and experimental studies show that women are more risk aversive than men. !e natural tendency of women to prefer lower risk behaviors, to reduce uncertainty and engage in protective behavior is referred in the literature as the nesting instinct. !e current paper investigates the e"ect of nesting instinct on gender di"erences in economic behaviors, particularly the entrepreneurial behavior and the preference for investing and savings plans. Using a comparative analysis of the current experimental and #eld studies addressing this topic, the current paper adds some nuances in the way we portrait men as risks seekers and women as risks aversive: 1) gender di"erences are more in the risk planning behavior: with women being more inclined to long term interest rates and men to short term capital gains; 2) women tend to undertake #nancial risks and stereotypical masculine leading behaviors when the real situation is requiring it: We reveal that innovation societies, with strong feminist movements and sustainable economies, have a relative low level of women entrepreneurship. Still, in these countries opportunity motivators de#ne women entrepreneurs. On contrary, in less developed countries, and with consolidate liberal position towards women rights (as in the Latin America), the number of women entrepreneurs is higher and de#ned by necessity motivators; 3) we suggest a potential dynamic of the phenomenon: increased risk aversion for women who are about to start a family and decrease risk aversion for women later in life; 4) di"erences in revenues between men and women are created not only by the way they approach #nancial risks, but also by their level of #nancial literacy. Finally, the paper discussed some arguments to support the idea that #nancial programs gender oriented could be successful. !e e$ciency of such programs needs further investigation in the context of relatively low #nancial literacy of women compare to men.

Keywords: nesting instinct; gender di"erences in economic behavior; necessity entrepreneurship; opportunity entrepreneurship; savings; risk behavior.

1. Associate Professor, Ph.D., College of Communication and Public Relations, National University of Political Studies and Public Administration, Bucharest, Romania, [email protected].

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Introduction#e fact that women are more risk aversive than men has debated in research studies conducted during past years (Brachinger, Brown, Gysler & Schubert, 1999; Rui & Sherman, 2005). Field studies (for a meta-analysis see Rutterford & Maltby, 2007) and experimental studies (see Crozon & Gneezy, 2004 for a review) con!rmed that women are more inclined to risk avoidance behaviors and, generally speaking, they prefer lower risks compare to men. #e researchers (e.g. Rutterford & Maltby, 2007) sometimes refer to this phenomenon as nesting instinct because they claim for a biological explanation: there is a natural tendency of women to caring and protective behaviors, to reduce uncertainty and protect the o$spring. A consequence of the nesting instinct for women’s !nancial behavior is the avoidance of the entrepreneurial actions and the general preference of saving plans over the investments. As most of the economic behaviors and particularly the entrepreneurial ones involve high risks and uncertainty, the nesting instinct could be an interesting feature to study when approaching gender di$erences.

Still, research studies that particularly addressed the issue of risk aversion and gender di$erences have produced more nuanced conclusions (Bertocchi, Brunetti & Torricelli, 2011; Schubert, Brown, Gysler & Brachinger, 1999; Sunden & Surette, 1998). For example, Bertolocchi et al. (2011) and also Barber and Odean (2001) show that single persons are more risk aversive than the married ones, and the e$ect is stronger in the case of women: married women are less risk aversive than single women. Such !ndings tend to support the nesting instinct explanation, suggesting also a potential dynamic of the phenomenon: increased risk aversion for women who are about to start a family and protect the o$spring and decrease risk aversion for women later in life, when family protection is not a priority anymore. #us, we can explain why women retired in pensions tend to be more inclined for investment behaviors compare with women at younger ages (see Rutterford & Maltby 2007).

When analyzing gender di$erences in !nancial risks behaviors, Bertocchi and collaborators (2011) show that gender e$ect is rather small and even not signi!cant, when we control for the occupational status: women in management positions tend to have similar !nancial behavior (pro!t

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oriented) as their fellow men. Bertocchi et al. (2011) claim that women from the business sector “have learnt” to overcome their natural risk aversion and to follow the !nancial paths, traditionally attributed to men, in order to get pro!t of their leading positions. Furthermore, when studying women in the business domain, Harrison and Mason (2007) reveal that they are more inclined to long term investments compare to business men from the same domain. In sum, a more nuanced approach also takes into account, besides gender, other socio-demographic variables (as for example marital status or profession) to a better understanding of the “nesting instinct” concept. Instead of an “instinct”, we can talk about a predisposition to approach risk in a certain way, which has some biological routes but it is shaped by other contextual factors and socialization processes that both men and women encounter through out their lives. #us, Bertocchi et al. (2011) indicate that di$erences between married and single women in the way they approach risk are stronger in the case of unoccupied women and decrease when we include their occupational status in the model. In turn, when focusing on women who are active on the labor market in the !nancial domains (where we presume they are socialized according to their profession), gender di$erences are more in the risk planning behavior: with women being more inclined to long term interest rates and men to short term capital gains.

#ere are also other factors that in%uence gender di$erences in approaching !nancial risks. Rutterford and Maltby (2007) mention: the educational level, the level of !nancial literacy and also the age category. #us, more aversive to !nancial risks seem to be younger women, with lower level of education and no !nancial knowledge, trusting less their abilities to handle !nancial tasks. #is group also has the highest aversion to the !nancial risks and avoidance to investments. Moreover, Rutterford and Maltby (2007) notice that age plays an interesting role in the investment behavior: younger women tend to be more risk aversive than younger men, whereas older women tend to be less risk aversive than their men partners. One can use the nesting instinct concept to explain gender di$erences between younger women and younger men in approaching !nancial risks: young women are more inclined to protect their new formed families, whereas young men are trying to gain “!nancial potency” – an aspect that

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is always speculated in the popular media. When they get older, the empty nest phenomenon – also analyzed in the literature (Adelmann et al., 1989; Roberts & Friend, 1998) – can be used as a potential explanation for the old women interest in activities outside family care (including investments and entrepreneurial initiatives). #e interplay between nesting and the empty nest phenomena deserve further investigation in order to explain the role switch in the investment behavior between men and women, once they grow older and their children lave left the home.

Statistics (see van Staveren, 2010; Schalatek, 2011) show that 90% of the women eventually have to take care of their own welfare (including !nancial decisions) because of the divorce or the death of their spouses – as the mean life expectancy is 5 years higher for women compare to men. #erefore, strictly for adaptive reasons, older women should engage more in investments and savings than their spouses because they live longer and they have more pressure to secure their ageing period of time.

In the current paper I discuss the in%uence of nesting instinct on women economic behavior, focusing on investing and savings plans. Using the current literature on gender di$erences in leadership style and entrepreneurship, the paper argues about the importance of introducing nuances in the way women are depicted as !nancial actors. #ree powerful contextual factors are introduced in the equation and debated bellow: 1) the importance of push versus pull entrepreneurship and the role of the institutional gender equality policies; 2) the demographic factors that urge women to act in order to secure their longer ageing period; and 3) their increased level of education and !nancial literacy that would eventually stimulate them to play a more active !nancial role.

Necessity entrepreneurship versus opportunity entrepreneurshipRisk aversion in the case of women and also men tendency to be rather risk seekers have as consequences di$erent !nancial behaviors. Researchers (Hinz, McCarthy & Turner, 1997; Whitaker, Bokemeiner & Loveridge, 2012) have identi!ed women’s tendency to access saving plan services, including long time savings and less banks credits for houses, stocks exchange or transactions on the stock markets. Contrary, men are the main

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clients of the !nancial investment services and they exchange more money, stocks and gold. In the case of women, they are more inclined to access health and life insurance, private pensions and other types of insurance for children (e.g. insurance for education). #ese patterns could be treated as consequences of the nesting instinct in the !nancial area. However, we should take into account that the investment behavior per se it is not preferred over the saving behavior. I agree with Bertocchi et al. (2011) point of view that gender di$erences in the !nancial risk behaviors should be analyzed by taking into account contextual factors. #us, during the !nancial crisis period of time, acting precautious and avoiding high risk or high incertitude could be an e"cient strategy, whereas in the economic boom situations, taking the risk to invest and looking for opportunities are probably preferred strategies because they generate higher pro!ts. Some studies (King & Sweetman, 2010; WIDE, 2010) even speculate on the fact that a global economic crisis, as the one we have lived for the past six years, could have been reduced or even prevented in a global !nancial market leaded by women. Such speculations are based on the observed gender di$erences in the !nancial risk behavior: men tend to be overcon!dent when they invest and to have a higher than mean level of trust in their abilities to return the investment and make pro!t and they also then to invest in stocks with 45% more then women (Barber & Odean, 2001).

We have no idea how the current economic crisis would have looked like in a world leaded by women, but there are some interesting research studies conducted in the US and Great Britain, just before 2007 (CATALYST, 2004; Krishnan & Park, 2005) showing a positive correlation between the number of women in the management positions and the company pro!t. Some authors (Fisher, 2012; Rosenblum, 2009) argue that the recent economic crisis has underlined the need for new leaders and gendered the discussion on the leadership e"ciency – the fenimization of the !nancial markets means actually the valorization of women as more conservatory and risk aware resurfaced economic actors. #e general conclusion was that companies with more women in the top management positions were more successful compare with those having few women in upper managerial work. #ose studies suggested that the number of women employed in top management positions could be used as an important predictor for the company pro!t. However, in such studies, the e$ect of the „company domain” has not been isolated and presumably we !nd more women in the

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managerial positions in the stereotypical feminine domains (as for example cosmetics, health care, beauty) and fewer women in the top management positions in the stereotypical masculine domains (such as construction work, cars, transportation). We argued before (see Ivan & Cismaru, 2010) that it is eased for a woman to gain and maintain the legitimacy of a leading position in a „feminine domain” because job expectations are similar with her sex role. #erefore there might be a non-signi!cant relationship between the number of women involved in the company management and the company !nancial performance, when we control for the domain, due to the fact that some of the „masculine” industries (e.g construction work) have encountered a signi!cant decline in the past ten years. Nevertheless, research studies that tried to prove that men and women have di$erent leadership styles have produced contradictory results (Bass & Avolio, 1994) and more indirect evidence (see Ivan & Cismaru, 2010 for a review). A meta-analysis on gender di$erences in the leadership style (Eagly & Johnson, 1990) showed that signi!cant results regarding di$erent leadership styles for men and women were found particularly in the experimental studies but not in the !led studies. In other words, the high stake of real management situations (that could not be created in the laboratory studies) could modify the leadership style adopted by women in the leading positions: they will tend to undertake risks and adopt leadership behaviors traditionally attributed to men, when they need it or when they have to in order to make they companies pro!table.

One particular argument supports our statement that women tend to undertake !nancial risks and stereotypical masculine leading behaviors when the real situation is requiring it: Data coming from the Global Entrepreneurship Monitor (2010) showed that in all 43 participant countries the number of men entrepreneurs overcome women entrepreneurs, but not in the poor countries having a democratic system in term of women rights (such as Bolivia, Angola, Ecuador, Peru, Argentina, Jamaica, or Dominican Republic). In those countries there was the highest number of women entrepreneurs, whereas the lowest number of women entrepreneurs was found in the developed countries (the so called “societies based on innovation”): France, Denmark, Finland. #e Global Entrepreneurship Monitor (2010) conclusion over this study is that women from the less developed countries are associated with necessity entrepreneurship (push entrepreneurship): they open businesses and undertake risks because they

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have “no other choice”, to support their families and get !nancial stability or minimum wage. More recent studies (Klyver, Nielsen & Rostgaard-Evald, 2012) con!rm the hypothesis about the negative relation between country development and women’s self-employment (including women entrepreneurship). #e authors (Klyver, Nielsen & Rostgaard-Evald, 2012, p. 171) argue that countries focusing on gender equality at the institutional level tend to have more policies to support women employment and fewer policies to encourage them for entrepreneurship, and this will paradoxically result in less self-employment for women. #us, the more prevalence of gender equality in a particular country (and this variable is generally found at high level in European developed countries), the less advantages women perceived in getting involved in self-employed activities and they will tend to become employers, situation in which their bene!ts are higher. #is particularly study conducted on 50 countries reveled the paradoxically e$ect of the welfare state over the decreased women entrepreneurship

When looking at the Romanian situation in the Global Entrepreneurship Monitor (2010) report, we notice that the number of women-entrepreneurs (2%) is rather low, close to the developed countries and similar to Russia, Belgium, Italy and Turkey. A possible explanation for the low number of women entrepreneurs in Romania could be found in the paternalist values shared by the two genders, as we can depict them from the Special Eurobarometer on Gender Equality in the EU (2009). Romanians’ opinions resulted from the Gender Eurobarometers are in favor of a gender role di$erentiation: men associated with the management positions and women with household duties. Global Entrepreneurship Monitor estimations about Romania are that 50% of the women entrepreneurs are driven by necessity (push) factors, whereas 20% of the respondents mentioned opportunities (pull) factors. In other words, most of the women entrepreneurs (50%) in Romania have answered that they decided to start a business because “they could not manage anymore” and 20% of then that “they found a good business proposal”. Still 30% of the women entrepreneurs that have answered to Global Entrepreneurship Monitor (2010) in Romania mentioned both necessity and opportunity as a starting point of their business. #is particular group are described as push-pull entrepreneurship and is signi!cant larger among the Romanian women who have started business over the past years.

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#e debate on the push-pull entrepreneurship in the case of women helps us to nuance the gender di$erentiation in the !nancial behavior, discussed above. #e fact that women from the developed countries tend to avoid entrepreneurial initiative constitutes an indirect evidence for the natural tendency of women to avoid risks and uncertainty. We reveal that innovation societies, with strong feminist movements and sustainable economies have a relative low level of women entrepreneurship, similar to the one existing in Romania. Still in these countries opportunity motivators de!ne women entrepreneurs. On contrary, in less developed countries, and with consolidate liberal position towards women rights (as in the Latin America) the number of women entrepreneurs is higher and de!ned by necessity motivators.

In sum, women risk aversion, or nesting instinct, as we prefer to call it here, is changing when the context is powerful enough: the data from the Global Entrepreneurship Monitor show that in the developing countries (as the ones mentioned above) the number of women entrepreneurs varies between 15% and 20%, being even ten times higher that in the developed countries. Indeed here we !nd more push type of entrepreneurship, based on necessity, but with high level of risks taken and high uncertainty about the level of success. Particularly, women entrepreneurship in Romania is more de!ned by necessity factors, with an important percent of women entrepreneurs being in a situation of mixed pull-push entrepreneurship – both opportunity and necessity driven. Although women entrepreneurs in Romania are mainly from the 35 to 55 age group, small scale local studies show an interesting dynamic in the 60+ segment of population: women retired in pensions tent to be more interested in the !nancial services than their spouses, including the !nancial services that involve considerable risks. Women in pensions seem to be also more involved in gold transaction compare to younger women. We use the same push-pull idea to explain why women in pension are changing their !nancial behavior and tend to undertake !nancial risks, including investments: because “they have no other choice”. In addition, this e$ect is met also in more developed countries, with strong policies regarding equality as Klyver, Nielsen and Rostgaard-Evald (2012) reveal in their analysis: most of the gender equality policies target women between 30 and 50, whereas, older women are not stimulated to get employed by welfare state bene!ts. #us, the negative e$ect of institutional gender equality on women self-

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employment is decreasing with age, so more self-employed women could be found in the 50+ age cohort, in the developed countries with stronger gender equality policies.

When combining the economic constraints with the demographic trends (women tend to have a longer ageing period than men), we can easy understand why older women are trying to undertake their !nancial welfare and get interested in di$erent !nancial services.

Nesting instinct and gender di!erences in welfare Researchers (Barber & Odean, 2001) discuss the fact that gender di$erences regarding risks perceptions and !nancial behavior are also linked with di$erences in revenues and welfare between men and women. #e fact that men tend to invest more than women and that the number of men entrepreneurs is larger than the number of women entrepreneurs are followed by gender di$erences in income and economic welfare. Barber and Odean (2001) show that when men invest up to 45% more than women, they have also two times more returns of the investment. When analyzing the returns of the investment, on long term, we observe higher pro!ts for men entrepreneurs, compared to women entrepreneurs and consequently di$erent welfare.

However, women’s risk aversively means also gender di$erences in the credit reimbursement: women have less non-performant credits compare to men and delays in credit reimbursement. Moreover, regarding long term deposits (consistent with women tendency to have long time savings), the number of deposits ended before time by women are smaller compare to the number of deposits ended before time by men (who have more heterogeneous behavior in the case of !nancial savings).

Di$erences in revenues between men and women are created not only by the way they approach !nancial risks, but also by their level of !nancial literacy. Financial literacy describes basic !nancial knowledge and also abilities to handle a bank account doing current !nancial operations (Lusardi & Mitchell, 2008, p. 414). Recent studies show that women

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have lower !nancial literacy compare to men and also lower con!dence in their abilities to handle !nancial tasks (see Financial Finesse Reports, 2012). #us, women are less active in transactions using their own bank account, they are less involved in paying the bills using the online baking account, passing such responsibility to their partners, and they have also fewer knowledge about taxes, debts and credits, than men. Women lower !nancial literacy comes in contractions with their natural tendency to organize the family budget and to take care of family duties and also to their preoccupations for long tern savings adjusted to the needs of each family member (found in research studies and discussed above). Still, having not enough !nancial knowledge and also not enough trust in their own abilities to handle a bank account would limit women’s possibilities to achieve welfare by using their natural skills: anticipation, risk adversity and tendency to protect the family using money saving.

Gender di!erences in &nancial behavior and adaptive strategiesWhen we consider that risk aversion is a natural tendency of women that has adaptive value and functional meaning, one can wonder why a society would like to have more women entrepreneurs than women involved in savings plans and if there is no better for women to invest less and save more as their natural tendency seems to be. #ere are at least three arguments to support the idea that women would bene!t from a change in their !nancial behavior, in the future and they will get more welfare if they decide to invest more:

1. First, in Romania and all around the world, more and more women have high education (Goldin, Katz & Kuziemko, 2006; Pricopie et al. 2011) and they have, as a consequence of their college graduation, higher !nancial literacy. #ose women are becoming !nancial independent, and embrace more independence values, getting also more con!dent in their own abilities to handle !nancial tasks. #ere are more and more women having leading positions in several organizations, including managerial positions, earning more and have more opportunities to invest or to become entrepreneurs.2. Gender equality debates and women access on the labor market has as direct consequence the fact that there will be !nancial o$ers special

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for them. More and more !nancial institutions will try to get women’s attention and to stimulate them to invest, as their !nancial resources become important.

3. Because life expectancy is higher in the case of women compare to men, we can talk of a gender di$erent !nancial planning for the retirement period. Women would have to save for a longer ageing period of time or to invest more in order to get welfare later in life, when most probably their spouses will not support them anymore. #e new debates about equal retirement age for women and men have already created some changes in the legislation inside the European Union. #ose social policies are trying to maintain women longer on the labor market and to reduce economic disparities between men and women, once they get older. #ey address a problem that is to be found in many European countries: large gaps between pensions and other !nancial bene!ts associated to work between old women and old men that are translated in di$erent poverty risks. #e legislative initiative attempting to increase the retiring age for women, have been quite unpopular in the European countries where it have been launched (including Romania). Still such measures can be also seen as attempts to reduce poverty risks for some groups considered vulnerable. #us, when analyzing women situation on the labor market and their revenues once they retired in pension, most governments concluded that older women constitutes a more vulnerable group than older men, in what concerns poverty.

Although women have lower level of pensions compare to their spouses, they spend more for health services than men and this aspect becomes also relevant when we talk about women’s attitude towards risks and !nancial investments.

Conclusion: future global developments Taking into account the particularities of women’s economic behavior, but also the demographic and economic trends at the global level, more !nancial institutions (see Climate Funds Updates, 2013) create !nancial services addressed to women or gender di$erentiated. #ere have already been launched some Trusting Funds special addressed to women: Global Fund for Women, EU Network of Mentors for Women Entrepreneurs,

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European Network of Female Entrepreneurship Ambassadors, which have also programs to support women entrepreneurship. Also, the new perspective in the global !nancial market is to focus more on the individual needs and particularities, the personalization of the !nancial services to adjust the solicitant socio-demographic and personality characteristics. Financial institutions admit that the bene!ciary are not a homogeneous group that would react in the same manner to the services they o$er, but rather a heterogeneous group with particularities that worth to be revealed.

We have presented in this paper some arguments to support the idea that !nancial programs gender oriented, which comprise their need for savings and investment, could be successful. Still, an issue that deserves further investigation is the e"ciency of such !nancial plans in the context of a relatively low !nancial literacy of women compared to men. #e !nancial literacy topic and its consequences are approached by a number of the recent studies (Fernandes, Lynch & Netemeyer, 2013; Lusardi & Mitchell, 2007). Moreover, the !nancial institutions that o$er investment plans are also more willing to educate and to invest in creating basic !nancial skills for the potential bene!ciary. #us, women are targeted in the programs of !nancial training and !nancial education and also in programs aiming to increase the entrepreneurial skills.

#e “!nancial literacy” is considered to be a key factor in the discussion about investing versus saving, in the case of women and also this factor plays an important role when !nancial institutions consider gender di$erentiated or personalized !nancial services. #e discussion is more about minimum competence to operate in the global !nancial market but also about trusting !nancial plans and individual’s interest to learn more in the !nancial and economic domain.We cannot ignore the role of cultural and religious values in the countries where the !nancial institutions or !nancial training programs operate. When “working with money” is seen more as a “man duty”, or as a “dirty job”, that would dis-honor women, the programs of !nancial literacy would face real challenges. Not only in the Muslim countries the number of women entrepreneurs is small (bellow 5%), but also in the countries when paternalist values are prominent and where there is a strong association

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between !nancial power and masculinity, as it has been found in research studies conducted in Romania, Russia, or Latvia (see GEM, 2010).

To analyze further developments in women entrepreneurship, the level of !nancial literacy and also gender di$erences in opportunity versus necessity entrepreneurship, we should take into account the dynamic of people’s value orientation regarding gender at European level, as depicted by Special Eurobarometers (i.e. Special Eurobarometer on Gender Equality in the EU, 2009) and worldwide (i.e. World Values Surveys - see Inglehart, Norris & Welzel, 2002 for an analysis). People’s value orientations in terms of behaviors and characteristics attributed to men and women in daily activities (including !nancial and economic activities) can nuance the research !ndings regarding women entrepreneurial behavior, their level of !nancial literacy or their con!dence in abilities to handle !nancial tasks. Such an approach would also help in estimating whether push or pull type of entrepreneurship will prevail.

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Loredana IVAN

Government accounts: below the line &nancing in Romania

Nicoleta SAVU1

Abstract. !e statistics represent data; the best decisions are based on information. Fiscal Noti#cation re%ects data and correlations between the most important indicators of Government Finance Statistics (GFS). !e annual budget programs, the international agreements for #nancial assistance and the empirical evidence show that #scal policy in Romania has targeted directly the budget balance (B9), acting only “above the line of B9”, on the non-#nancial accounts of Government sector (S13). Using the language of national accounts experts, it is called “B9 of S13 sector” the di"erence between government revenues and expenditures, the budget balance of the country according to the European System of Accounts (ESA95). One explanation may be that, so far, the European Commission has opened Excessive De#cit Procedure (EDP) only for countries that have exceeded the threshold of 3% GDP for budget de#cit, debt levels above 60% of GDP being not a prerequisite for triggering Excessive Debt Procedure. !e role of the Government in economy is manifested through #scal strategy, which should also cover items from “below the line of B9”, where are aligned the #nancial accounts of Government sector and thus, indirectly the public debt could be targeted, as one of the stock indicators composed by the liabilities side items of the #nancial accounts. !e purpose of this paper is not to characterize the #scal policy, which however has proved to be pro-cyclical during the entire period, but to #nd alternatives to improve the budgetary system, to take into account the statistics when formulating #scal strategy, the government #nance statistics, but not only the classical and evident indicators on revenues and expenditures, but also that coming from national accounts statistics, speci#cally the government #nancial accounts.

Keywords: EDP noti#cation; budget de#cit; public debt; ESA95; national accounts; Government sector; #scal strategy.

1. Ph.D. candidate, Doctoral School of Finance, Bucharest University of Economic Studies, Bucharest, Romania, [email protected].

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IntroductionFiscal Noti!cation is the procedure by which all the European Union Member States are obliged to send to Eurostat data and information about the Government de!cit and debt based on a common statistical methodology (ESA95), so that the European Commission can monitor compliance with !scal discipline in EU (article no. 126 of Treaty on the Functioning of the European Union - TFEU), according to the convergence criteria of the Maastricht Treaty, supervising that the results of the budgetary area are within the limits, maximum 3% of GDP for budget de!cit and 60% of GDP for public debt (Protocol annexed to the TFEU). Member States have to calculate and to transmit to Eurostat twice a year the tables concerning EDP noti!cation, in March and September, including annual data for the preceding four years and forecast for the current year. Commission publishes data on the Eurostat website, in April and respectively in October, after previously held rounds of clari!cations with each Member States so that Eurostat experts can conclude if the data are consistent with ESA95 regulations, otherwise to express their reservation on published data. Commission monitors public !nance indicators for each Member States and if the budget de!cit exceeds three consecutive years 3% of GDP and the structural de!cit on the medium term doesn’t frame within the limits imposed by the Stability and Growth Pact, respectively by the Convergence Program for the EU Member States outside the euro zone, then Excessive De!cit Procedure will be triggered for that country.

Targeting the budget de!cit was the main objective of !scal policy in Romania, in both periods, prior to the EU accession and also after 2007. Compliance with the !scal criterion requested to be met and maintained in order to have !scal stability before joining the European Monetary Union, has in%uenced the national authorities to take decisions with immediate impact on public !nances, that not always led to the best results on long term for the national economy as a whole. #erefore, the ad-hoc nature of the budgetary measures highlighted more the procyclical character of !scal policy.

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De&cit and debt axiom: 3% of GDP, respectively 60% of GDPLeading economists and politicians have met together at Maastricht in 1992 and have concluded, considering the need to strengthen !scal rules and taking into account the statistics and the various economic models, that a country’s economy is stable in terms of public !nance if the budget de!cit does not exceed 3% of GDP and public debt is within 60% of GDP. But rules on determining all values ""included in the analysis must be harmonized in all countries, in order to re%ect comparable realities. ESA95 standard governing elaboration of national accounts statistics, GDP being the most important indicator, it is also behind of government !nance statistics and therefore the government de!cit and debt follow ESA95 Manual, which has been updated into ESA2010 and included in 2013 in an EU regulation, thus having the force of law and being directly applicable in Member States. ESA2010 will enter into force in September 2014, for all the national accounts statistics reports.

Figure 1. Evolution of budget balance (ESA95) of Romania and the EU Member States

Source: Eurostat database

In the period 2008-2011, Figure 1 shows that in Romania the budget de!cit exceeded the threshold, because the European Commission opened the excessive de!cit procedure (EDP) for the country. EDP is triggered if the budget de!cit is three consecutive years more than 3% of GDP and

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suppose a !ne to be paid to the EU budget, amounting up to 0.2% of GDP of the country if in a set period, the public !nances doesn’t meet again the Maastricht criteria and also could be reason for exclusion from the EU. In 2013 the European Commission has decided to close EDP for Romania, being con!dent that the de!cit will not surpass 3% of GDP in the coming years. In April 2011, Eurostat express reservation on the Romanian data, because of uncertainty regarding the correct reclassi!cation of companies from non-!nancial corporations sector (S11) into the Government sector (S13) after applying 50% criterion (more than 50% of expenditures of the company are !nanced by government) for the period included in the noti!cation, between 2007 and 2011. But, fortunately, in April 2012, the speci!c reservations on the quality of the Romanian !scal noti!cation were withdrawn, after several technical, methodological, dialogue and upstream visits of the Eurostat experts, which involved all institutions responsible for compiling EDP Noti!cation, National Institute of Statistics (NIS), National Bank of Romania (NBR), Ministry of Public Finances (MoF), as well as some companies, ministries and agencies, as primary data sources for EDP Noti!cation.

Figure 2. Evolution of public debt (ESA95) of Romania and EU Member States

Source: Eurostat database#e Figure 2 illustrates that in Romania, the public debt has recorded levels well below the nominal convergence criteria, but once the !nancial crisis has started, the public debt has begun to accumulate pro-cyclical !scal policy outcomes, reaching the level of 38,4% of GDP at the end of 2013, two times higher than the outstanding level of the end of 2008, when the crisis began. However, noticeable is that the annual increase of public debt

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is reducing dynamics every year, as percentage of GDP, recording the peak of 10.2% in 2009 and the lowest increase in 2013, year coming only with an additional of 0.4% for public debt level.

"eoretical equivalences and practical discrepanciesESA95 manual de!nes general government sector (S13), as part of the national economy. Annual national accounts are transmitted to the Eurostat once a year, in September, with the EDP Noti!cation. Quarterly accounts of the national economy, both non-!nancial and !nancial accounts, have begun to be reported since September 2013 and are transmitted at a distance of a quarter (t+1). Speci!c to national accounts is the fact that all historical data have to be updated if occurre changes in terms of procedures, reclassi!cations, new information, in order to have comparability over the period.

#e time series used in analysis covers the period 1995-2013. As a EU Member State, Romania has to report !scal data according to ESA95 starting with 1995, compiling the standardized tables of EDP noti!cation, the sequences of non-!nancial accounts of general government sector and its subsectors and also the related !nancial accounts, the last category being excepted from reporting for years 1995-1997. All these data are public and could be found on dedicated category web page of national responsible institutions and also on the site of Eurostat, the Statistical Institute of the European Commission, which provides access to all member states government !nance statistics, as well as on the ECB database.

Government revenues and expenditures are transposed into budgetary resources and uses in order to determine B9, the net lending/net borrowing of general government, as is shown in Figure 3 (“B9 above the line”) and are also re%ected in the mirror, based on the double entry principle, on the !nancial accounts, which demonstrate the ways in which B9 was invested/!nanced, the di$erence of net %ows of assets and liabilities representing “B9 below the line”, summary called “B9F” in Figure 4.

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Figure 3. Revenues, expenditures and de&cit B9 of General Government in Romania (ESA95)


If budgetary revenues have been relatively constant as a percentage of GDP in the period 1998-2013, recording levels between 32-35% of GDP, budgetary expenditures has been %uctuated from 35% to 41% of GDP and as direct consequence have increased the budget de!cit. Fiscal policy has been built on spending programs based on optimistic forecast of tax collections to the state budget without taking into account the status of the economic cycle. #e !scal policy has proved to be pro-cyclical almost in all the last sixteen years, in time of growth the tax rates have been reduced (the introduction of %at tax in 2005) and in time of recession the expenditures have been cut and the tax rates have been increased (the increase of value added tax from 19% to 24%). Anyway, it is important that, in about three years of budgetary adjustments (2009 – 2012) after the crisis has started (end – 2008) and the de!cit surpassed the European target, the budget balance come back below 3% of GDP, this Maastricht convergence criteria being again ful!lled.

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Figure 4. Transactions with assets, liabilities and B9F of General Government in Romania (ESA95) Source: NBR, General Government Financial Accounts tables

B9F is simply represented in Figure 4 as the di$erence between the net acquisition of !nancial assets and net incurrence of liabilities. What is clear is that the values of B9F in Figure 4 are very close to those of B9 in Figure 3. In theory, B9 equals B9F, but in practice discrepancies arise. #e !scal noti!cation tables request this information to be compiled for each subsector of general government. It is tolerated and accepted the existence of a certain level of discrepancy, considered as being normal and varying from a country to another, depending on GDP level, complexity and size of transactions. Sometimes their absence raises doubts on quality data. #e reasons of discrepancies come mainly from data sources and also from time of recording of transactions, non-!nancial accounts and !nancial accounts being developed using di$erent !nancial statements.

It is evident therefore, that B9 di$ers from B9F at second decimal, as percentage of GDP. In practice, when considerable di$erences have occurred, Eurostat has requested to investigate causes and sometimes to recalculate B9, the balance of non-!nancial accounts %ows being monitored through EDP. In Romania, the NIS is the institution responsible for the transmission of !scal noti!cation to Eurostat, the tables being compiled by NIS together with MoF, NBR and the National Prognosis Commission, each having well-de!ned roles in the protocol of cooperation signed by these institutions. #e non-!nancial accounts are elaborated by NIS, the !nancial accounts by NBR and because MoF is coordinating !scal policy and annual state budgets, the ministry is also responsible for determination

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of cash budget balance, starting point for EDP Noti!cation indicators and in addition, it provides advice and most of the primary data, because of the role stipulated by law of collection of the !nancial statements of the entities from the economy.

As obviously, Figure 4 illustrates !nancial transactions in assets and liabilities of S13 sector, %ows between institutional units inside sector are consolidated; the data includes relationships with other sectors of the national economy and rest of the world. #e !gure shows that the total amount of asset transactions has recorded very low levels as a percentage of GDP, generally positive, except years 1998, 2006 and 2008, taking values between 0-2% of GDP. Fluctuating in the same trend as the budget de!cit B9, the total amount of liabilities transactions has recorded levels between 1.7-10.4% of GDP in the period under review. At !rst sight, therefore, it can be said that B9F sit on liabilities, Figure 4 is a chart so simple but saying a lot!

Fiscal Policy is targeting budgetary %ows … on debtEDP noti!cation is the radiography of Government sector, which captures !nancial %ows contributing to the change in public debt. Analysts could read the !gures of this blueprint from two perspectives:

a) National Competent Authorities explain public debt stock starting from the government %ows, the most important and the one that contributes the most to changes of the public debt, being the budget balance. #e classic formula governing elaboration of national accounts: “closing stock = opening stock + transactions + reevaluation + other changes in volume” can be applied also to calculate the stock of public debt. Figure 5 and Figure 6 show the direct and high in%uence that Romania’s budget de!cit has on change in government consolidated gross debt.

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Figure 5. Evolution of budget de&cit and of public debt (ESA95) in Romania Source: Eurostat database

Figure 6. Evolution of budget de&cit and change in Maastricht debt (ESA95) in Romania


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Figure 6 shows the almost perfect symmetry between budget de!cit and change in public debt in Romania, highlighting that the budget de!cit is a result of pro-cyclical !scal policy and an explanation for change in debt.

Eurostat, based on Table 3A of April 2014 EDP Noti!cation, developed an analysis called “Stock -%ow adjustment (SFA) for the Member States, the Euro area and the UE28 for the period 2010-2013”. EDP Table 3A, namely “Provision of the data which explain the contributions of the de!cit/surplus and the other relevant factors to the variation in the debt level (general government)”, is part of a set of harmonized tables reported for EDP purpose by all member states. #ese %ows are in deep monitored also during the upstream dialog visits by Eurostat, which are data quality check visits, organized by Eurostat in order to verify consistency of noti!ed data. #e authorities are tempted to hide behind these elements, %ows that actually should enter into the calculation of the de!cit and/or the debt. Sometimes, it is required the reclassi!cation of certain transactions that should have an impact on the budget de!cit/surplus. #us, this analysis highlights the main factors that contribute to changes in public debt other than the budget de!cit/surplus and assess the overall trend.

Figure 7. Evolution of stock-%ow adjustment in Romania Source: Eurostat database

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Buti, Martins and Turrini (2006) in the research concerning relationship between “budgetary rules” of Economic and Monetary Union (EMU) and the “political incentive for manipulating !scal variables” demonstrate that “during the run-up and in the early years of EMU”, “Governments used a number of operations to conceal the true size of their de!cits and put in place !nancial operations to stem the increase in the public debt”. #e conclusion shows that “increased weight to the de!cit criterion in the EU surveillance resulted into lower Maastricht de!cits but also into a higher incidence of stock-%ow adjustments potentially connected with accounting tricks to keep Maastricht de!cits low” and that “such incentives were reinforced in electoral periods” (Buti et al., 2006, p. 1038).

Certain studies demonstrate how some countries use the accounting rules and instruments in order to hide real level of de!cit and debt: Hagen and Wol$ (2004) measure the creative accounting by the stock–%ow adjustments.

In Romania, the low level of SFA shows that no evidence of hiding real !scal indicators is. #e total e$ect of SFA is very small (0.7% of GDP in 2013), but it should be investigated, because it may be the e$ect of compensations resulting from totalized values of individual factors Figure 7 reveals that, in the period 2005-2008, the stock-%ow adjustments were negative, the budget de!cit has surpassed the change in debt, on one side mainly due to the fact that the stock of debt must be recorded at nominal value and that period has been characterized by depreciation of foreign currency debt/ appreciation of national currency and, on the other hand due to the increase in net incurrence of other liabilities (trade credit and advances and other accounts payable), most result of entry and of no use of the EU funds before and after joining the EU, both liabilities items not included in the Maastricht debt. Figure 8 presents the transaction with !nancial assets, on the left side and the transactions with liabilities instruments on the right side, item not included in the Maastricht debt.

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Figure 8. Evolution of transactions with &nancial assets and liabilities (ESA95) in Romania


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Table 1. Contributions of the de&cit and the other relevant factors to the variation in the debt level

In the Table 1 it is obvious that the budget de!cit (B9) is the element contributing the most to the change in debt (77% in 2013).

b) #e EU Member States notify the Eurostat the budget balance as output of !scal policy of the Government, highlighting transactions on assets and liabilities with !nancial instruments by which the de!cit was funded or the surplus has been invested, thus the budget balance being justi!ed by the changes in government !nancial accounts.

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Figure 9. "e main factors contributing to change in Maastricht debt in Romania


Figure 9 shows that in Romania, in addition to budget de!cit, change in public debt is in%uenced also by the net acquisition of !nancial assets, the e$ect of other liabilities adjustments and by the discrepancies. According to the Protocol on the excessive de!cit procedure annexed to the EC Treaty, Maastricht debt is the consolidated gross debt of the whole general government (central government subsector, local government subsector, social security funds subsector), the outstanding amount at the end of the year at nominal value. According to the EU Regulation no. 479/2009, it includes the following categories: currency and deposits, securities other than shares excluding !nancial derivatives and loans.

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Figure 10. Evolution of budget de&cit and public debt (ESA95) in Romania Source: Eurostat database

#e management of government assets and liabilities that are not included in the Maastricht debt is missing (Figure 11). Figure 11. Evolution of stocks of &nancial assets and liabilities (ESA95) in Romania


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#e assets stocks of share and other equity are decreasing rapidly between 2004 and 2008, because of the privatization of public companies, structural operations that do not increase the net worth of Government because all receipts !nanced the budget de!cit in that period.

#e policymakers have to analyze and to take active action on asset stocks of shares and other equity, of other accounts receivable or of currency and deposits (F5, F7 or F2 – ESA95 codes) and also they have to take into account the liabilities stocks of shares and other equity and of other account payable (F5 and F7 – ESA95 codes). #e best solution when all options have already been exhausted is to !nd niches that even if at !rst view do not seem so important, through targeted strategies on medium and long term, they can drive to bene!ts.

Considering the IMF sta$ discussion note on de!nition of public sector debt taking into consideration 61 countries around the world, the gross debt is “headline indicator for risk-based assessments of the !scal position”, but also “net debt is important to any comprehensive analysis of a country‘s debt, debt sustainability and !scal risks. Net debt is calculated as gross debt minus the !nancial assets corresponding to debt instruments”. It could be seen as a new trend, “while much of the policy debate centers on government liabilities, some countries have begun to publish and focus policy analysis on net debt” (Dippelsman, Dziobek & Gutiérrez Mangas, 2012, pp. 3-4, 7-8). In Romania, the !nancial assets (F2 - currency and deposits and F4 - loans) related to debt instruments, as we see from Figure 11a, maintain relatively the same level during the analyzed period, respectively 10% of GDP, the decrease of loans being compensated by the increase of currency and deposits.

We conclude from both approaches that behind !scal noti!cation are the national accounts, as statistical standard and also as used, extracted and compared !gures.

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Conclusions and implications #e management of all !nancial assets and liabilities is essential; attention must focus not only on the liabilities items included in public debt but also on other !nancial accounts. To de!ne the strategy is needed, using models which change the routine and which do not look only at revenues and expenditures, to come up with innovative mechanisms if the classical does not proved any more e$ectiveness. Diversifying the existing framework, but using existing resources, use of the EU funds mainly can implement the management of !nancial assets and liabilities and determining !scal targets based on analysis of all economic sectors. S13 sector itself would consolidate its position by any step taken for development of the other sectors, which in return are paying taxes. #e management of the !nancial assets and liabilities means to develop strategies for existing stocks so that, with the lowest risk, considering that government sector are in the middle, whose role is not the same as for a company, maximization of pro!t, but the redistribution of revenues and a decent living for citizens so that to lead to value added into the economy and positive net wealth.

In formulating the !scal policy, analysis of budgetary indicators should be linked to national accounts statistics, especially to government !nance statistics and to all government accounts. Special attention should be given to stock indicator “net wealth”, which is equal to the stock of non!nancial asset plus net !nancial worth, calculated as di$erence between stocks of !nancial assets and liabilities (GFSM2001, IMF). By analogy with the fact that the budget balance is the main element de!ning the !scal policy, calculated as di$erence between revenues and expenditures or in terms of national accounts standards as di$erence between !nancial assets and liabilities transactions of government sector, any budgetary decision requiring the determination of the impact on the budget de!cit, the policymakers should give equal importance to managing stocks of assets and liabilities, whether they are !nancial or non-!nancial. Government sector net worth is as important as the budget balance in order to accomplish both objectives of !scal strategy, the stability of public !nances and economic growth. Last year, the Ministry of Public Finance has created a new department responsible for management of non!nancial acquisitions, which has begun activity with prioritization of public investment and inventory of state-owned !xed capital, being very important to update their book values to the market value.

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Regional !nancial companies having role of development agencies could be a solution for managing the !nancial assets and not only. #ese !nancial institutions can play the role of a bank or of an intermediary institution dealing with EU funds projects or also the role of direct business partner, according to the European regulations on state aid! #is is an idea to increase the stocks of shares and other equity and to use EU Fund in e"cient manner involving the private companies.

#e Government’s role in the economy could be met with e"ciency and e$ectiveness through !scal strategy, targeting directly government !nancial accounts counterparties, each balance of the national economy sectors, as classi!ed by ESA95 manual into the non!nancial corporation sector – B9 of S11, the !nancial corporation sector – B9 of S12, the households sectors – B9 of S14, the nonpro!t institutions serving households – B9 of S15. But which is the optimum level for each B9 of each sector? Perhaps at European level, it should be de!ned another axiom of B9 for each sector of the economy and also an EDP noti!cation for each sector. #en, the !scal strategy will target national macroeconomic policies coordinated at European level.

Acknowledgements. #is work was co-!nanced from the European Social Fund through Sectorial Operational Programme Human Resources Development 2007-2013, project number POSDRU/159/1.5/S/134197 „Performance and excellence in doctoral and postdoctoral research in Romanian economics science domain”.

ReferencesEurostat (1995). !e European System of National and Regional Accounts Manual

(ESA95). Brussels-Luxembourg: Publications O"ce of the European Union.

Eurostat (2014). Stock-%ow adjustment (SFA) for the Member States, the Euro area and the EU28 for the period 2010-2013, as reported in the April 2014 EDP noti!cation. Eurostat News, 2014. Retrieved from http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/STOCK_FLOW_2014_APR/EN/STOCK_FLOW_2014_APR-EN.PDF.

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Eurostat (2013). Manual on Government De#cit and Debt - Implementation of ESA95 - 2013 edition. Methodologies and Working papers. Publications O"ce of the European Union.

International Monetary Fund (2001). Government Finance Statistics Manual (GFSM) 2001. Washington, D.C.

Dippelsman, R., Dziobek, C., and Gutiérrez Mangas, C.A. (2012). What Lies Beneath: !e Statistical De#nition of Public Sector Debt. IMF Sta" Discussion Note. Retrieved from http://www.imf.org/external/pubs/ft/sdn/2012/sdn1209.pdf.

Buti, M., Martins, J.N., and Turrini, A. (2006). From De#cits to Debt and Back: Political Incentives under Numerical Rules. Retrieved from http://www.researchgate.net.

Von Hagen, J., and Wol$, G.B. (2004). What do de!cits tell us about debt? Empirical evidence on creative accounting with !scal rules in the EU. Discussion Paper Series 1: Studies of the Economic Research Centre No. 38/2004. Retrieved from http://www.bundesbank.de.

Nicoleta SAVU

Is the European social and economic model still sustainable? A pragmatic approach from Romanian

students on the future of the Eurozone

Alexandra VI'ELAR1

Alina-Daniela MIHALCEA2

Rodica- Maria S$VULESCU3

Abstract. In the light of recent events, the European project is still facing a series of crises on di"erent levels: economic, political, social and identity based ones. Although Eurobarometers emphasize the fact that young Europeans are more optimistic than older generations considering the future of the European project, they are also the ones labeled “the Lost Generation” (European Commission, 2012) due to the economic hardships. !is paper explores the impact of the economic crisis on Romanian students’ attitudes towards the future of the European Union as an economic project. In this regard, we approached the subject from a utilitarian perspective, focusing on the actual advantages of the Europeanization process and the sustainability of the European social and economic model in the current national economic context. !e results of our study indicate that although Romanian youth perceives the European project as a necessity to the current economic pressures driven by the process of globalization and the increasing competitiveness of the international markets, at the same time emphasizes its concerns regarding the sustainability of the European economic and social model in the current context.

Keywords: economic crisis; European social model; euro; EU attitudes.

1. Ph.D. candidate in Communication Sciences, National University of Political Studies and Public Administration, Bucharest, Romania, [email protected]. Ph.D. candidate in Communication Sciences, National University of Political Studies and Public Administration, Bucharest, Romania.3. Ph.D. candidate in Communication Sciences, National University of Political Studies and Public Administration, Bucharest, Romania.

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Introduction#e European Union is facing a state of profound uncertainty, as the European project is being put under scrutiny. Under the in%uence of the !nancial and economic crisis of 2007 – 2008 the pillars on which the EU stands no longer satisfy the demands and necessities of the European citizens (Van Ham, 2005; Habermas, 2012). Among the most a$ected categories are the young people, as the economic crisis has left them with little or no opportunities in terms of !nding a job, and building a future for themselves.

#is chapter sets out to re%ect on the attitudes of young Romanians towards the future of the European project from an utilitarian perspective. We begin by introducing the economic context that underlies all the challenges that the EU nowadays has to face. We discuss the e$ects of the !nancial and economic crisis on the young individuals, exploring the topic of self-interest in relation with the EU.

Although the economic crisis has raised many issues, highlighting the EU’s vulnerabilities, our results show that young Romanians hold a rather favorable opinion about the EU as long as they feel the bene!ts and the concrete advantages that derive from being a European citizen.

"e crisis of the European Union#e present day reality continues to be under the in%uence of the !nancial and economic crisis that started six years ago, and that still has serious e$ects on both the USA and Europe (Krugman, 2012; Verhofstadt, 2012). At the moment, the European Union has a heavy challenge to confront, as the crisis struck a Union that was under construction, and that had much vulnerability (Dobrescu, 2013; Bârg)oanu, 2011). #erefore, our aim is to highlight the key events that shaped the socio-economic context in Europe during the past six years, drawing attention, to the impact and e$ects of the !nancial and economic crisis on young people in Europe, and respectively in Romania.

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#e crisis of 2008 has highlighted great imbalances between the European Union member states (Kattel, 2010; Dobrescu, 2013). Radu, Bo-an and Corbu (2013) argue that the EU is divided into regions. In this sense, there is a clear distinction made by specialists (Dobrescu, 2013; Dobrescu and Palada, 2012; Buiter, 2011) in terms of core vs. periphery. #e distinction between ‘core’ and ‘periphery’ is, therefore, made when debating the newly integrated countries, referring to old versus new member states, on the one hand, and on the other hand when discussing the South versus the North, in terms of economic performance (Radu et al., 2013). Other specialists (Dobrescu & Palada, 2012; Buiter, 2011) state that the concept of “periphery” is used just in relation to the countries facing serious !nancial di"culties. #e economic crisis has underlined even further this division between member states, exposing the European project to much criticism in terms of the legitimacy of European integration (Wilde & Trenz, 2012).

#e Union’s main weakness was caused by its common currency: the euro. In this sense, Stiglitz (2012) states that the EU member states adopted the euro without making the necessary political and institutional arrangements to ensure its success and for this reason Europe will have to face a high price. #is viewpoint is shared by other specialists (Krugman 2009, 2011, 2012; Habermas, 2012; Costa Fernandes & Mota, 2011; Aslund, 2010), who also underlines that countries that share the common currency are highly vulnerable.

After 2007 and 2008 !nancial markets were greatly a$ected, and, as a consequence, the European Union was severely a1icted because of the increasing debt, while !scal de!cits rose for several countries with leading economies (Lapavistas, 2012). At the European level, the e$ects were seen in imbalances between member states that left the peripheral countries vulnerable to the crisis. Hence, the sovereign debt crisis that broke out was caused, as expected, by the !nancial and economic crisis of 2007-8, and in the same time, by the “precarious integration of peripheral countries in the Eurozone” (Lapavitsas, et al., 2012, p. 26). Nevertheless, Hall (2012, p. 361) comes with an explanation, stating that a “basic asymmetry was built into EMU from its inception”. #is asymmetry was given by di$erences between institutional frameworks in northern and southern political economies. On the one hand, northern countries had well suited policies and growth strategies that led to their economic welfare, and, on the other

Alexandra VI2ELAR, Alina-Daniela MIHALCEARodica- Maria S'VULESCU

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hand, southern economies entered the monetary union unprepared and ill equipped to the e$ective competition within the union (Hall, 2012). #ese imbalances that led to the sovereign debt crisis have brought about a great amount of stress concerning the cohesion of the Eurozone (Costa Fernandes & Mota, 2011). Similarly, Schmitz and von Hagen (2011) put forward the idea that while concerns about the sustainability of the monetary union have been risen, there is evidence that a deepening in !nancial market integration in the euro area is already taken place.

Moreover, the e$ects of the !nancial and economic crisis and the newly exposed %aws in the construction of the economic and monetary union made Eurosceptics to take a “reluctant step in the direction of integration” (Habermas, 2012, p. 129). #is context, hence, fuels more and more skeptical concerns in reference with the European project and European integration. Consequently, recent studies (Pew Research Center, 2013; Gallup, 2013; Eurofound, 2012) show that the level of con!dence in the European Union among its citizens has signi!cantly decreased due to the economic and !nancial turmoil. Attitudes towards the European integration may, therefore, be a$ected by this economic context that highlighted the Union’s many vulnerabilities. #is is in accordance with previous literature (Garry & Tilley, 2009; Eichenberg & Dalton, 2007; McLaren, 2006) that shows that economic factors are important determinants of citizens’ attitudes towards the EU. When it comes to attitudes in the European Union, they have always been divided, as there have always been supporters and opposers to the European integration. As Fliegstein (2008, p. 4) points out, the source of con%ict may arise from the gap between those who “participate and bene!t from Europe directly and those who do not”, especially at the moment, when this gap became more evident due to the disparities between member states caused by the crisis. Some authors (Wilde & Trenz, 2012) even put forward the idea the entire European project – with its basic purpose and rationale - is nowadays contested, along with its future trajectory.

#e situation is all the more dramatic for the young European citizens, as the e$ects of the crisis had taken a great toll in their concern. Since one of the immediate consequences was the sudden rise in unemployment (Krugman, 2012), the young people were among the most vulnerable. Krugman (2012) states that, now, it is the worst time to be a young

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individual in search for a job, especially if you live in Europe. If we take a look at the numbers, they illustrate an alarming situation: youth unemployment rate in EU28 is more than double than unemployment rates for all ages (Eurostat, 2014). According to Eurostat (2014) data the overall unemployment rate in the EU28 reached 10.8% in 2013, while youth unemployment reached at the end of the same year 23.1%. In what concerns the Romanian youth, their situation is even grimmer, as the rate of unemployment is higher than the EU youth average, reaching 23.6%.

As pointed before, young people are unemployed and due to the hardships and the labor market regulations, jobs scarce and unsecure. Moreover, Krugman (2012) underlines that about one in !ve graduates is unemployed or working part-time and is underpaid. #is situation described by Krugman (2012) is also concordant with the Romanian reality, as “half of high school and university graduates cannot !nd a job” on the Romanian market (FutureLab, 2013, p. 24). #e young people are “trapped in a limbo of unemployment, underemployment or an endless cycle of education because of a lack of job opportunities” (FutureLab, 2013, p. 4).

Hence, the young individuals, aged roughly between 18 and 35, belonging to the so called “lost generation”, are characterized to be overquali!ed, to have low salaries and low job security and satisfaction, in the best case scenario. On the other hand, in the worst case, young individuals have no quali!cations, no employment, and have even fewer opportunities on the labor market. #e major issues and concerns when it comes to the “lost generation” are that they face greater uncertainty and economic insecurity, that, in tour, cause them to be insecure about their future, to have a low self-esteem, to lose their sense of identity, to be disengaged from society and politics, to fail inadvertently to retain their freedom and independence, as they need to return to live with their parents (FutureLab, 2013, European Commission, 2012; Eurofund, 2012). Taking these facts into consideration, we can better understand the decline in trust when it comes to the European Union, as it is only natural for young individuals to become more pessimistic (Eurofund, 2012), as the Union’s promised welfare was not achieved in their concern.


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An instrumental approach on the attitudes towards the European Union By reference to the European Union and the enlargement process, identity represents a social construct and a catalyst for promoting peace, democracy and prosperity. #e emergence of a European identity based on the formation pattern of nation-states remains questionable due to the fact that on the pressure of globalization, the geographical and psychological barriers that demarcate the European space haven’t been clearly de!ned yet (Delanty & Rumford, 2005; Kaina & Karolewski, 2009).

#e concept of European identity can be analyzed from di$erent points of view taking into account its cultural, civic or utilitarian components (Jimenez, 2004). On the one hand, several theories emphasize that the individual’s emotional sense of belonging to the European community is shaped by elements such as historical heritage and a common European culture (Bruter, 2003, 2005; Inthorn, 2006). In contradiction with the thesis mentioned above, the theory on constitutional patriotism stresses that European identity is based on civic elements and represents a form of attachment of citizens towards political institutions through universally accepted democratic values (Lacroix, 2002; Habermas, 2004; Mueller, 2007).

In line with the instrumental approach, European identity is being conceived as primarily pragmatic. #erefore, individual’s membership towards the European community depends on the results of a cost-bene!t analysis of the economic consequences of the process of Europeanization on their lives (Kaltenthaler & Anderson, 2001; Hooghe & Marks, 2004; T)n)+oiu & Colonescu, 2008; Frunzaru & Corbu, 2012). As a consequence, individuals de!ne themselves as European citizens in accordance with the concrete advantages provided by the European integration process and their personal interests. When analyzing European identity, research indicates that young people internalize a sense of belonging to the European community mainly in pragmatic terms (Frunzaru and Corbu, 2012; European Commission, 2013; Udrea, Udrea & 2ugmeanu, 2013). Tfasos (2006) states that young Europeans have the tendency to share a collective identity only in good times, while in times of social and economic insecurity rely on their national identity. #is approach is inconsistent

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with the results of the most recent European Commission Report (2013, p.16) suggesting that despite the negative economic trends a$ecting the Eurozone, young Europeans are rather optimistic concerning their future as European citizen due to concrete bene!ts that are relevant to their needs and aspirations: obtaining appropriate quali!cations, building their professional career and securing good living conditions”.

When addressing attitudes of support or opposition towards the European integration process in relation to the utilitarian approach, we can distinguish between two divergent perspectives that take into consideration economic factors, respectively identity aspects. Lauren McLaren (2006) proposes two theoretical models that are predominant among utilitarian approach concerning individuals attitudes towards European integration: egocentric utilitarianism that emphasizes the fact that individuals support for the European project depends on the maximization of personal interests and economic bene!ts that directly impact the standards of living (Palmer & Gabel, 1999; Gabel, 2009); secondly, the sociotropic utilitarianism, that examines the attitudes of support towards the EU by taking into consideration the consequences of the European integration process on the national economy (Garry & Tilley, 2007). #e egocentric utilitarianism approach indicates that the demarcation between the winners and losers of the European integration process is made through the di$erentiated economic costs and bene!ts for each European citizen. #erefore, individuals with higher education and professional skills (students, managers, entrepreneurs etc.) show a positive attitude towards the European integration process can adapt more easily and are able to identify signi!cant opportunities in the context of the liberalization of capital markets. Conversely, European citizens with average education and low income express rather skeptic attitudes concerning the positive e$ects of the process of European integration on national economy (McLaren, 2006, p. 32).

Unlike the egocentric utilitarianism theory that analyses the political attitudes of individuals towards the process of European integration in relation to personal interests and social status, the sociotropic utilitarianism approach focuses on the consequences of the Europeanization process on national economy. #e support or opposition attitudes towards the European project are in%uenced by two major economic factors: in the


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!rst place, the European Union budget and the di$erentiated economic contribution of each member state causing a major gap between bene!ciaries and main contributors; secondly, the elimination of regulations and trade barriers in order to establish free trade zones for increasing competition across markets (McLaren, 2006, p.44). Despite the positive e$ects of the European integration process on national economies, the current crisis has generated „economic xenophobia” (Garry & Tilley, 2007, p. 184) and a defensive European identity against immigrants.

#e opposition attitudes against the European Union are grounded on utilitarian aspects, but are also in%uenced by the emotional attachment and loyalty of individuals towards the nation-state. Hence, the process of European integration represents a threat to the sovereignty of the nation-state, to national cultures and identities (Carey, 2002; Marks & Hooghe, 2003; McLaren, 2002, 2004; Netjes, 2004; Netjes & Kersbergen, 2004). Lauren McLaren (2002) emphasizes: „antipathy toward the EU is not just about cost/bene!t calculations or about cognitive mobilization …but about fear of, or hostility toward, other cultures” (p. 553). In speci!c contexts, through political discourses and the inference of politics in everyday life, national identity becomes dominant in relation to personal and economic interests. #erefore, the citizens perceive the process of European integration as a threat to the integrity of the nation state, the legitimacy of its political institutions and cultural heritage. #is idea is also supported by some authors indicating that euro, one the of the most representative markers of European identity and integration process is used as a tool for manipulating European citizens through the reproduction of national symbols (Bruter, 2003, 2004; Kaina & Karolewski, 2009). Conversely, Jacques Hymans (2004) suggests that euro currency represents an important indicator for the development of a European demos and not an instrument for indoctrination. Although, at a symbolic level, euro embodies the federalist vision on the European project, at present, values such as economic and political cohesion, no longer hold the same resonance and meaning for political elites and European citizens.

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Research design#is article aims to analyze from a utilitarian perspective the impact of the economic crisis on Romanian students’ attitudes towards the future of the Eurozone and, implicitly, towards their future as European citizens. #erefore, we focus on the following research questions:

RQ1: How do Romanian students imagine the future of the Eurozone?RQ2: Do Romanian students perceive the euro as threat to national economy and national identity?RQ3:In the aftermath of the European economic crisis, is the European economic and social model still sustainable?

In order to address these research questions we adopted a qualitative approach. Consequently, we conducted 3 focus groups. Our sample comprised 24 students, aged between 19 to 30 years, enrolled in Bachelor degree programs at the following public learning and research institutions: College of Management - #e National School of Political Studies and Public Administration; respectively, Faculty of International Business and Economics.- Bucharest University of Economic Studies. #us, our analyses comprises several questions regarding: the process of Europeanization and its e$ects on national economy; the impact of the economic crisis on the stability of the Eurozone, business markets and standards of living; the competitiveness of the European social and economic model on the global market; euro adoption in Romania.

Results and discussionRomanian students emphasize the fact that the process of European integration has improved the living standards and the economic development of the country but only at a small scale: We don’t need to wait for the EU to solve our social, political and justice problems ... but we must admit that di"erent aspects concerning corruption, unemployment have improved, but are not so noticeable (Bianca);It has helped Romania in certain ways, but Europeanization doesn’t mean economic equality like in the communist period (Mihai). #e negative references concerning the Europeanization process relate to the deliberate preservation of economic disparities and


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competition between member states but also to the incapacity of national institutions to adapt to the new climate of change imposed at a continental level. In this context, the promised economic welfare is seen only as an utopia and the Europeanization process only another form of oppression: !e Europeanization process has helped other countries but destroyed most of the Romanian economy (Radu); !ere will always be countries that work for others and this system of oppression will never disappear (Alexandra); EU has its own interests, they wanted us only as a name, for a more positive image and credibility (Adela).

For most of the respondents, the current economic situation has highlighted the fact that the European social and economic model is not sustainable and cannot be a source for gaining competitive advantage on a global market anymore: We are moving towards social collapse (Oana); We are not competitive with Americans, we do not have the same ways of making business on an international level, we still have taxes between us so it isn’t really a free trade zone. !ere is only a competition between member states (Andreea). One of the respondents states that the consumerist European model has lost its relevance in the current economic reality and that citizens must support economic recovery of Romania through the consumption of traditional products instead of those labeled under „Made in the EU”: !e model itself is a problem. Each country must protect its industry and we must be aware that we can have jobs only if we encourage the consumption of Romanian and not foreign products (Ioana).

#e current struggle that Eurozone is facing has been generated not only by economic factors but also by the hostility and lack of solidarity between member states causing a gap between the core and the peripheral areas of the European Union. Romanian students emphasized that economic cohesion between member states is a double-edged sword used by the most powerful countries of the Union to run in debt the bene!ciary countries: I do not believe in solidarity between member states regarding the economic crisis. It will always apply the law of jungle: the lion is the king (Mihai); !ere can’t be all for one and one for all. It’s not right that only some countries get help (M'd'lina); If to borrow money from the main contributors means solidarity this helps the country only in a short term ... with excessively high gearing and high rates of interest you can never recover (C'lin). Conversely, for some of the respondents solidarity remains a fundamental European value

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that stands at the core of the European project: !e negative e"ects of the crisis can be exceeded only through economic cohesion and solidarity between member states. After all, what’s the point of the EU if not unity? (Gabriela); !e social and economic problems must be solved through cooperation, it’s a partnership (M'd'lina).

A general opinion concerning the euro adoption in 2019 by Romania represents an unrealistic scenario due to the lack of economic competitiveness of the country and the fragile European economy. #e major concerns of the respondents in relation to Romania’s future status of becoming a member of the euro area are economic instability, high interest rates and higher prices, based on the major di$erences between Eastern and Western economies: Romania should keep its currency because it’s stable. Every time a national currency is changed a series of #nancial problems arise (Andrei); Romania adopting euro would mean national starvation (C'lin); We are too poor to join the Eurozone (Bianca); !e changes would be to high: the same wages, but higher prices of products ... Romania is not ready for this (Alexandra); Romania is not su$ciently prepared to adopt the euro (-tefana). Only one of the respondents states that Euro currency itself cannot generate bene#ts or ruin national economy. Other factors are involved (Ana), emphasizing the importance of politics on this matter.

In relation to the austerity measures that were taken by national governments and imposed at a continental level for the survival of the monetary Union, the respondents emphasized the fact that this measures were a necessity, such as the existence of the European project itself. At the same time, participants on this study appreciate that European Union interference in national economy through !scal policies and collecting taxes results from the obligations and responsibilities that derive from the status of being a member of the Union and a European citizen: As long as the future of the European Union is at stake they have the authority to impose certain rules (Andreea); When it comes to austerity measures you take it as a given (...) it is naturally to obey to this laws as a European citizen or you will not be part of the Union anymore (Laura);!ey have the right to collect taxes from citizens because we are part of the European economy... For example, most of the investors on FMCG industry are foreign, so the money returns to European Union (C'lin). In addition, participants stated that the economic crisis has a$ected them in terms of less job opportunities, less options


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when it comes to choosing a faculty: !e crisis has limited my options in choosing a faculty. Now, I have to be much more careful when I choose a faculty, a career (Silvia).

ConclusionEven though the economic crisis has underlined many vulnerabilities of the European project, Romanian young people do not seem to be very pessimistic about its future, although they have some reservations. Interestingly, Romanian individuals put under scrutiny the weak solidarity between member states and from here some issues might emerge in terms of the feasibility of the European project. Young people consider that the economic crisis has brought disparities between member states, highlighting the incapacity of national institution to adapt to the regulations imposed at the EU level. Hence, we can infer their lack of trust in national institutional management and their disbelief in an economic welfare in what Romania is concerned. #eir reservations are highlighted by the consequences of the economic crisis in terms of the unsustainable European economic and social model. #e crisis has taken its toll in young people concern, as they are a generation labeled ‘the lost generation’, as they have to face many di"culties such as unemployment and lack of opportunities, all under the context of a great !nancial and economic turmoil.

In the same time, our research reveals that the economic crisis has underlined the dichotomy between ‘core’ and ‘periphery’, referring to the fact that young people perceive a gap between Romania, an emerging economy and Western Europe, and older, more stable economies. Furthermore, the economic crisis brought much instability in the Eurozone and in young Romanians opinion the country is not ready to adopt the euro, emphasizing the importance of politics in this matter.

In relation to attitudes towards the European Union, young Romanians are not skeptical, as they admit that that European integration has brought economic development and higher living standards. Moreover, when it comes to the way they perceive the membership of Romania to the European community, the research showed that young individuals correlate it with the cost-bene!t of the economic consequences to the

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process of integration. #is !nding is in accordance with previous literature (Kaltenthaler & Anderson, 2001; Hooghe & Marks, 2004; T)n)+oiu & Colonescu, 2008; Frunzaru & Corbu, 2012), as young Romanians put a lot of emphasis on the bene!ts they gain as a result of the country’s membership, such as mobility and studying opportunities. On the other hand, a few concerns appear as the costs of the European integration may highlight the economic and social imbalances between member states. #erefore, we notice, once again, that the gap between poorer and richer European countries becomes a matter of interest for the young individuals. #ese inequalities, as seen before, are a consequence of the economic crisis that has underlined the di$erences between the North and the South in terms of economic policies.

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T)n)+oiu, C., and Colonescu, C. (2008). Determinants of Support for European Integration. #e Case of Bulgaria. European Union Politics, 9(3), 363-377.

Udrea, G., Udrea, M., and 2ugmeanu, A. (2013). National and European Identity: An empirical research on how Romanian students experience identities during their long-term studies abroad. Romanian Journal of Communication and Public Relations, 1(28), 17-35.

Wilde, P., and Trenz, H.-J. (2012). Denouncing European integration: Euroscepticism as polity contestation. Journal of Social !eory, 14(4), 537-554.

MANAGEMENT AND LEADERSHIP

!e relationship between leadership, organizational culture and managerial culture through Lean strategy

in a multinational company

Carmen NOVAC1

Alexandra MIHALCEA2

Abstract. !e special relationship between management, leadership and organizational culture in"uences any company, even if it is a multinational one or not. Current economic, social and cultural environments are based on these three concepts within organizations. Nowadays, the manager’s role is more complex, s/he will not act as a person who has absolute control, taking decisions that impose on others, but rather s/he acts as a mediator. Considering these, we aim to demonstrate that organizations will grow and "ourish by adding value, eliminating waste, reducing lead time and reducing total costs. Many researches have explored the concepts of leadership, organizational and managerial culture, but just a very few have investigated them together using the Lean culture (a methodology which focuses on eliminating waste, adding customer value and increasing speed). Relying on visible di#erences between the three concepts, we deliberately discuss management, leadership and organizational culture by $nding a link among them. For a better understanding of these three notions within a certain kind of climate into a multinational entity, we use the interview method on twelve people managers, scaling the answers with the questionnaire method at the end of the interview. !e objective of the research is to demonstrate that the Lean culture is the common denominator for all the three notions above mentioned. !e interview is based on the BMA Inc. Lean accounting questionnaire, which can be seen as a self-administered audit of the company’s opportunities to transform itself into a Lean business. Lean culture is often seen associated with the tools that are used to create e%ciencies and standardize processes. It has been demonstrated that the actual implementation of the tools represents almost 20% of the e#ort in Lean transformations. !e rest of 80% represents e#orts of changing leaders’ practices, behaviours and mind-sets. Considering the practical part of the research, we conclude that by using an e#ective Lean leadership style that includes coaching and empowerment of employees,

1. Lecturer, Ph.D., College of Communication and Public Relations, National University of Political Studies and Public Administration, Bucharest, Romania, [email protected]. Assistant professor, College of Communication and Public Relations, National University of Political Studies and Public Administration, Bucharest, Romania.

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the organization remains competitive globally and also survives present recession while retaining the brand leadership. !e straightforward approach is to maximize customer value while minimizing waste. !e main goal of the study is to develop a theoretical framework that suggests a di#erent, more detailed perspective of the Lean approach to the managers who consider implementing it as a possible direction towards achieving sustainable performance for their company.

Keywords: leadership; organizational culture; Lean tools and thinking; multinational companies; the missing link.

Introduction. Paradigm of leadership, organizational and managerial culture through Lean culture!is research is a theoretical study and it is based on a systematic literature review. !e main objective is to explore the process of implementation of Lean culture in a Romanian multinational company looking at the 3rd dimension of an organization. !e beginning of the research clari"es and de"nes three main concepts: leadership, organizational and managerial cultures. In this section, it can be observed how the implementation of Lean brings value to organizational processes and contributes to the achievement of operational excellence. !en the analysis is supported by open interviews - a qualitative method. !e conclusion includes discussions over the hypothesis considering Lean as the missing link in the 3rd dimension of an organization.

As stated by Cameron and Quinn (2011, pp. 2-5), organizational culture is one of the areas of management with a relatively recent history, and it is one of the most important predictors that have a high level of performance over time. Organizations that prosper have developed a culture that thrives based on the collective capacity of all members. !is situation is characterized by the presence of numerous “energizers” which positively in#uence the whole system, including embedded virtuous practices, adaptive learning, and full of meaning and purpose practices, as well as deeply involved members. Since the twentieth century, organizational culture has become a serious concern of researchers. Each "rm operates studies under the direct or indirect in#uence of human resource-related factors. !ese factors express the “personality” that plays a decisive role in

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the quality of results and e$ciency, in the #exibility of the activity and in the company’s ability to adapt to its business environment.

Leadership occurs when an individual exercises a great in#uence on the members of an organization in order to ful"l the objectives of that company. !is is one of the important functions of leadership: to provide assistance and support when the regular system is no longer e%ective or when signi"cant changes occur within an organization.

Culture is a powerful force and a leader knows this and tries to use it. Management and organizational culture usually act as a catalyst between paradigms, intellectual and emotional patterns. !ese models lead to the creation of an identity for an individual / corporate body that generates a sense of belonging, a sense of membership to a particular organization / society.

Typically, two of the points highlighted by researchers when de"ne the concept of leadership are: their individual perspectives about the research and the most engaging aspect presented to the audience. After a detailed review of the literature, Stogdill (1990, p. 21) concluded that there are as many de"nitions of leadership as persons who have tried to de"ne it. After this statement, new de"nitions have not ceased to develop, taking into account the behaviour that in#uences patterns of human interaction, roles and relationships.

A succinct point of view is stated by Nicolescu and Verboncu (2000, p. 208), who refer to the leadership “as the interpersonal in#uence that a manager exerts over his subordinates in the course of establishing and most importantly achieving objectives”. It is a synthetic approach, which highlights that leadership is not only a speci"c process in management, but also a mind-set that managers induce on subordinates in order to obtain performance. A leader is the one who o%ers better solutions and creates safety conditions that will lead people to new achievements.

!e Romanian organizational climate has positively changed over the years, even if the economic crisis has been seen as an interruption of this

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trend. Applying a consistent organizational culture is crucial in order to survive in the current context of strong economic and "nancial crisis. It includes a series of principles that guide the conduct of business to make it a success: love for the customer, prudence, openness to change, open door policy, meritocracy, results oriented attitude, and transparency in the work (Nistor, Nistor, Muntean and Istrati, 2013). Before discussing to determine the missing link in the 3rd dimension of an organization (leadership, organizational culture and managerial culture), we de"ne the concepts of Lean, which we will use in our research. Czabke, Hansen, and Doolen (2008) de"ne a Lean organization as an organization that implements the Lean practices only at the inside structures. When we refer at Lean culture, we think at problem solving with continuous improvement and learning. Culture is both a result and an enabler for sustainable and successful lean operations - goals and results. Also, lean improvement means organizational development.

Figure 1. Conceptual framework for studying lean thinking Source: Czabke, Hansen and Doolen, 2008, p. 78

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Lean is a methodology that focuses on eliminating waste, adding customer value and increasing speed. In the same time, Lean thinking is a management philosophy focusing on reduction of the eight wastes in products and services. Elimination of the waste determines an improvement of quality, reduction of processing time, and diminishment of costs. However, if Lean is considered only as a toolbox without taking into consideration the whole system in the spirit of Lean philosophy, the improvements obtained will only be existent for a short while.

It can be stated that no Lean instrument is valid, applicable and advantageous overall to an entire organization, regardless of its processes and activities. !e implementation of Lean tools should take place after the completion of some preliminary steps essential to long term success. Usually the application starts from value stream analysis and methodology for solving problems after the establishement of relevant indicators to monitor progress and changes needed to achieve clear objectives. Beforehand, however, conditions for improved results to become irreversible should be assured.

Patange (2013, p.38) states that Lean is a set of principles, concepts and techniques developed for a relentless pursuit of waste elimination and continuous improvement.

Some researchers view the concept of Lean as being very positive, and associate it with concepts such as e%ectiveness and e$ciency. Some see it as a complete management system, while others choose to de"ne the idea of Lean as a set of tools to achieve process improvement, or just an initiative to reduce costs.


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Figure 2. !e forth dimensions and their principles in Lean culture Reproduced after the white paper of Integris Performance Advisors,

2013, p. 5.

We consider that Henry Ford is the initiator of mass production process and the upholder of early Lean concepts. He started with the idea to eliminate waste, institute just-in-time delivery of inventory, and apply many other tools now identi"ed with lean. “We will not put into our establishment anything that is useless”, quotation that leads to Taylorism theory, still applied in many current organizations. Its foundation relies on that fact that every action of the workers is pre-planned and directed by the manager. Dr. Deming and his expertise on statistical quality improvement, and O. Taichi with his visionary thinking from Toyota took central stage in business improvement. O. Taichi (1988, p. 9) de"nes Lean as “all we are doing is looking at the timeline from the moment the customer gives us an order to the point when we collect the cash. Moreover, we are reducing that timeline by removing the non-value-added waste.”

Today, leaders are under pressure to create mega-"rms with the ability to react intuitively, for that you need creativity, learning ability and collaboration. !ese are the cornerstones for increased power retention and development of organizations. If today’s leaders must be strong, inspiring, and e%ective, corporate dilemma is facing these questions: How well prepared are tomorrow’s leaders? Who are they? How can we identify potential leaders? Do we need leaders? Similar questions have a%ected

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the business environment in the last 150 years. !e answers to the above questions provide the basis for achieving business success.

Before the 19th century, most organizations were under the same roof with the owner and the manager. Later in the same century, local small organizations or even complex entities had a single owner manager. !is situation has paved the way for the creation of middle management as a link between management and lower levels of the organization.

Figure 3. Evolution of the Lean model Reproduced after Ballé and Handlinger, 2012, p. 23.

Mann (2013, p. 16) states that there is a break in Lean and that missing link built from values and leadership structures forms a Lean management system. Lean management tends to create a clear division between instruments and thoughts. Most papers about Lean have focused on implementing tools in the industry, for example, creating #ows or determining production time (Womack and Jones, 1996). Other authors have explored the Lean tools in the medical system or product development system (Withers, 2008; Keyte and Locher, 2004; Swank, 2003), while others focused purely on leadership and not its tools (Mann, 2005; Spear, 2004).

Good leaders motivate people in a variety of ways, three of which are at the basis of the Lean approach. First, leaders de"ne the vision of the organization, in a way that highlights their group values; second, leaders support people’s e%orts to achieve a common vision through coaching, feedback, and modelling; and "nally, a good leader recognizes and rewards success. In retrospect, a good leader carries the ideology that work itself is intrinsically motivating (Lucansky, Burke and Potapchuk, 2006, p. 6). To


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develop and promote e%ective leadership, a corporate culture that creates challenging opportunities for young people must be present. Some well-known companies that have successfully used this approach are Johnson and Johnson, 3M, Hewlett Packard, Procter and Gamble and General Electric.

Presenting the research - organization under analysis!e purpose of this interview is to help managers of Alias organization to understand the bene"ts of Lean methods and tools, looking at the 3rd dimension of Lean thinking. It can be considered a self-audit of the company’s opportunities to turn into a Lean business that eliminates losses, adds value to customers and continuously improves performance.

Research questions are the following: Is there a Lean culture in Alias organization? And if so, to what extent is it operational? If we are "nding a Lean culture, it means that the 3rd dimension of Lean thinking is matching our research goal.

Figure 4. !e 3rd dimension of Lean thinking

Relying on the information indicated by Chelcea (2004, pp. 156-160), we chose for our research method the interview that uses both free and guided

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answers. !ere are "ve parts of the interview, each with subcategories of questions totalling 12 questions per interview:

1)Performance measurement; 2)Value Stream Mapping/Management; 3)Measurement of "nancial bene"ts; 4)Innovation team and respect for employees and environment; 5)Eliminating the steps that are ine$cient in the process. !e "rst three aspects are re#ecting the managerial culture of an organization; the fourth and "fth dimensions are related to the leadership part of our research. Organizational culture could be re#ected in all "ve areas of investigation.

In order to see if managers are using the 3rd dimension of Lean culture and if they are understanding to what extent it can be found in Alias, we have applied the open question interview method. It helps describing the tools, techniques, thinking capabilities of each manager to respond accurately and completely about the day-to-day activities.

!e studied sample is formed by 12 managers from "nancial and accounting departments from Bucharest, Romania, with a total of 350 employees. !e above-mentioned Romanian company, generically called “Alias”, is a multinational organization (approx. 325,000 employees), operating in various but interconnected "elds of activity. !e services provided to the Europe Middle East and Africa (EMEA), Americas (AMS) and Asia Paci"c Japan (APJ) region clients are based on outsourcing. !e managers have di%erent job levels, described as: team leader (grade 1), supervisor (grade 2), and operational manager (grade 3). !e selection includes 2 operational managers, 4 supervisors and 6 team leaders. Individuals were selected as to balance the gender criteria - 7 females and 5 males.

Average length of an interview was 21 minutes and every discussion was planned in advance, considering the availability of each person. For better quality, interviews were recorded and then processed.

At the end of the interview, each participant received a questionnaire with key questions to help our research to quantify the face-to-face discussions. !ey were asked to rate, on a scale from 1 to 8, their view of current Alias


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organizational framework: 1 and 2 = traditional organization, 3 and 4 = development organization, 5 and 6 = leadership through the value stream map, 7 and 8 = Lean organization.

Assessing and interpreting the results. Validation of the interviewIn order to achieve, as accurate as possible, the objectives of the study, we used the qualitative method of interview to highlight the general and unique feeling about current organizational environment among the selected managers. !e conclusion of the research is that most of the participants consider that their organization is rapidly moving to a Lean oriented organization. Managers believe that the value stream mapping and multiple Lean in#uences are widely characterizing their work environment.

Coding interview data, observational notes, and text into meaningful chunks is a challenging task. We started by creating the categories, subcategories and the conceptual notes, which helped the interviewer making speci"c observations during the face to face discussions.

Figure 4. !e CSC of Data Analysis: Categories, Subcategories, Conceptual notes

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Looking at Performance measurement, the "rst chapter of our investigation, in Alias there is a vast majority of employees that have used the verbatim de"nition of mission and vision. !ere were others who described them a little bit di%erent, which are worth to be mentioned:Mission is to achieve a pleasant atmosphere for customers within the organization and to ensure excellent service quality. Interaction with the customer is the most important step of achieving a great relationship and worth remembering every time.

Another manager added: Mission is to be more than a simple market competitor. Vision is to create talent to help develop the relationship with customers, permanently to create innovatively and carry out process improvement based on cost e#ectiveness. Alias’s mission refers to the invention of technologies and services that deliver value to businesses, creates social bene"t and improves the lives of customers, with a focus on a%ecting a large number of people. !e vision refers to diversity and implementation of creativity’s key elements, innovation and invention.

Another aspect of the "rst chapter is the actual way of measure performance. Here eight of the interviewees think that the introduction of the value stream mapping was a success, and the trend is to integrate Lean strategies and objectives in every team from the "nancial department. One of the managers explained: Our teams are continuously improving the process "ow using value stream measures to ensure permanent e%ciency. One of the respondents has placed performance in the development needs, which states that the organization has introduced performance measures in Lean production teams. !ese measures are focused on every workday production within teams. Objectives and targets are established within teams on Lean culture, from both "nancial and non-"nancial perspective. One of the managers declares: !ere are several criteria. First of all, performance is evaluated according to the objectives, classi$ed and arranged each year, depending on what counts in that year for the organization, these are presented for every individual in one to one meetings. Secondly, performance is compared with the requirements (if you deliver more or less than you are asked to), and thirdly performance is using KPIs to monitor the status and individual performances of employees.


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!ree respondents have a clearer view of the performances and con"rmed that they are already using Lean culture. Also, they consider that there is a statistical analysis of the performance measurement process, and they are highlighting objectives through Six Sigma (reducing variability of value stream). One of the managers responded as follows: …there are operational metrics; there are also customer satisfaction metrics, sta# satisfaction metrics and metrics to improve the value added measurement performance for those projects.

Moving to the next chapter in our research, Value stream mapping and management, we focus our attention on the overall organization, and then on the decision making process. After that we try to uncover more details in the budgeting and planning area, and we end with the actual role of "nance people.

Discussing "rst about the overall organization, six of the respondents agree that the organization works on value streams. Almost everyone is assigned (either directly or as a matrix) for a speci"c value stream. One of the managers responded as follows: …as processes we are organized per countries and regions, as management structure we have team leaders to who are assigned 10 people and supervisors who have 20 subordinates. !e division is also relying on support functions as Business Process Analysts, Subject Matter Experts and Lean Team members.

!ere is a complete transformation process, where people in the value stream can perform all tasks. !ere are some support departments working under a stream of non-value. Two managers believe that they have clearly identi"ed all value #ows. !ey have assigned value stream managers, and they have current and future state value stream maps that are used to guide business change. !ree people are con"dent that they have reorganized the company along value streamlines and have largely eliminated functional departments, or they have established an e%ective matrix organization providing clear value stream management. In the decision-making area, "ve of the respondents are positive about the process, framing organization undervalue stream pro"tability and cash #ow for all key decisions. !ey use value stream cost analysis and Box Scores to assess strategic decisions. One of the managers’ states: Usually,

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decisions are cascaded, but there is interference between levels, which requires feedback from lower levels and then go up to the top management. !e process can go from top to bottom and from bottom to top.

Two respondents feel that the organization has improved the decision-making process, and "ve people managers responded that the process is still under development, and there is a capital acquisition process, which supports Lean thinking. With this argument, the process could be found under recommendation.

Another manager divides decision typology into three sections: Depends on the decision type. !ere is a management decision area where decisions come from top to bottom, and there is the operational direction where the decision is split between top to bottom and bottom to top feedback. !e third category is the daily operational decisions, and these are taken based on operations procedures.

!e next topic is highlighting the budgeting and planning area. Seven respondents feel that the process is greatly simpli"ed by: eliminating the annual budget, reducing the amount of cost centres (part of an organization that does not produce direct pro"t and adds to the cost of running a company) and modify the accounting codes from the items that need to be budgeted.

!e remaining respondents are more optimistic; they create monthly rolling budgets for each value stream from their Sales, Operations, and Financial Planning process. !ey regularly include value stream objectives for waste disposal and increase available capacity by applying Lean initiatives. By adopting this approach, one of the managers considers that: Budgeting is ... in the long run, we are a cost centre3 and our budget is allocated from top management side. We are relying more on value stream map and driven planning processes.

3. A department within an organization that does not directly add to pro"t, but which still costs an organization money to operate. Cost centers only contribute to a company’s pro"tability indirectly, unlike a pro"t center which contributes to pro"tability directly through its actions.


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Next topic falls in the subcategory of roles and responsibilities of the "nancial analysts. Nine of twelve think that the "nance people are fully integrated into the value streams and are integral components of the value stream teams. Financial analysts have moved physically and organizationally within value #ows. !ey play an important role as change agents for improving the value #ow, and they are keen to drive innovation. One of the managers says: I believe we are rather detached from value stream team, but as a cultural aspiration everybody should consider himself as the CEO of his role and to work as if the organization have been under his authority. For this matter, you have more responsibility to take care of. Currently, we are dealing with few employees that are accountable and responsible for their role. !ere are countless other teams to interact with, and we need to be an example for all of them. !is will need to be part of our organizational culture.

!e rest are slightly more sceptical and say that analysts are assigned to support speci"c missions of the value stream. !ey have become experts in this "eld of business.

Next chapter has same objective, to measure the "nancial bene"ts through continuous improvement and implementation of Lean culture. !ese two aspects can be compressed into a single question: How can we meet the $nancial expectations of our shareholders?

Four of the respondents use the "nancial bene"ts information related to free up resource capacity in Sales, Operations, and Financial Planning to drive business strategy. Two of the respondents regularly monitor the achievement of actual bene"ts of Lean changes. As they identify the potential for eliminating waste and making capacity available, they create strategies for the pro"table use of this capacity.

Also managers were required to provide some examples of the day-to-day tools, processes and techniques. All managers have easily listed at least 2 tools that they use and which have facilitated their daily work. Here are some examples from three managers: I use Workday for HR-related information, and every day I use Lync conference instead of traditional conference via phone. Industrial Engineering is using an Access database, which is handier and very useful for me. Also, the Leasing tool can be another

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good example that facilitates my daily work. !ere is a tool that helps you upload and download more MALA and SAP invoices.

Moving to innovation and respect of the team, we observe the process of rewards and recognition within the organization. Competent employees, or even reserved ones, and also managers want to know if their job counts and helps the team to achieve company’s goals. It is not enough to reward only the employees, but it is necessary to turn the attention to managers as well. One of the managers explains: !ere is a lot of information related to rewards and recognition. Also, there are several categories in which you can be part of such as customer focus, processes improvement, leadership skills and the list continues. !ere is a tool kit that is available to all employees in order to be informed every time a category is changed, or admission criteria is modi$ed.

All twelve participants responded that there is in place a process of Rewards and Recognitions well documented and fairly split for both employees and managers. !is process is placed between traditional and Lean organization, where incentives are used within teams (based on the "nancial and non-"nancial measurements) for achieving value streams and individual goals. Discussing about empowerment and learning of the employees in order to accomplish more complex tasks, we saw that all respondents felt that they continuously support improvement of "nancial and non-"nancial performance, which is leading to improvement and learning. One of the managers says:

Each employee has her/his own path in life, and s/he develops di#erently and continuously. Our organization provides the necessary help in this development: $rst as a manager, then as a process improvement expert, or even becomes a trainer for others. !ere is another opportunity to change the department or to relocate to another country.

In Alias organization, the optimal solution to properly empower employees lies in training. As leaders, it is recommended to invest in employees and provide them more control, more power of decision. !erefore, a manager agenda is released, and the remaining time can be channelled to more pro"table action points. Empowering motivates and this is not a surprise for anyone. With each new responsibility, task, or job granted to an


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employee, his/her value increases in order to become a key person in the company.

!e last chapter is following two important topics of lean culture: elimination of unnecessary steps from the process, to reduce the loss variance and to remove the 7 wastes through amount of lag time and overhead cost. Most of the respondents, 10 out of 12 people, feel that the month end closing has been greatly simpli"ed based on standardizing the chart of accounts and cost centres from all operating units. Elimination of monthly commitments has been implemented in order to simplify the purchasing, accounts payable and inventory processes. One manager describes: From my end, it is quite free, but everyone else is very busy and active. !e department must reach the deadlines and satis$ed the customer with qualitative services. !ere is a period of 7-9 days in which the workload is increasing.

!e detailed tracking of labour has been removed. Also, updating and improving delivery accuracy allows automating labour through back#ushing (is a certain type of “postproduction issuing”, it is a product costing approach, used in a Just-In-Time operating environment, in which costing is delayed until goods are "nished.). After a discussion with all managers, the general approach is that they have removed detailed reporting of labour and overheads variations.

!e organizational climate revealed by the research in the multinational company is rapidly moving to a Lean structured organization. !e organization seeks to apply Lean culture, so there will be more opportunities to improve them. Lean models serve both as operational processes and as assumptions. !e assumption is that the current model is the best way that we currently known to perform the actual steps and procedures. !e implication is that the attendants and leaders are observing, recording data for the performance process, and actively participating in learning and training their employees.

In conclusion Lean requires a Lean management philosophy, as Womack (1996) says, Lean management system is the successor to obsolete modern management methods. Most managers and executives are futilely trying

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to "x their existing modern management systems, descended from methods introduced by Alfred Sloan in 1920s. When we are referring to corporate or semi-corporate organizations, we are mentioning the modern management as part of our daily work, with a lot of job levels and layers.

Conclusions and recommendations Until 1999 the repositioning of Lean thinking started. It is claimed that it can be applied in wider range of industrial settings (Womack and Jones, 1996). !at is the beginning of the awareness for "nding individual "rm’s solutions and their improvements throughout the value chain. !e results of the research show that the organizational type of Alias is called “thinking organization”. !e implementation of value stream mapping and the 5 Lean principles developed from Toyota are typical. Even though some of the practices and tools are questioned, a Lean organization at this stage ignores some other key processes as new product development, new business opportunities, which prevent the organization of achieving sustainability with constant improvement. In other words, if the value stream is using a cycle created based on understanding needs, which is building solutions and deployment, then Alias organization is more than viable for becoming a Lean organization.

!e methodologies, tools, and enabling technologies are available to streamline and optimize critical value delivery processes across the total value stream, which is considered “the language of Lean”.

As Burton said: “!ink of the organization as if it already relies on Lean Extended Enterprise4 concepts, principles, and practices. !en let your mind go and imagine Lean utopia”. Alias core corporate objectives are remaining the same over the years, customer loyalty, pro"t, growth, market leadership, commitment to employees, leadership capability, and global citizenship.

4. Integrate the total value stream, vertically, horizontally and laterally, and achieve success through empowered people and teams, cultural transformation, and an integration of Lean, Six Sigma, Kaizen, and enabling IT technologies such as ERP, SCM, CRM, PLM networks, exchanges and portals.


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As a "rst recommendation, in the managerial culture area, Alias needs to follow the framework of Lean thinking and relationships between the 3rd dimensions for a successful Lean implementation. (Liker, 2004; Shah and Ward, 2003; Shingo prize guidelines, 2005). It includes the practices, principles and processes needed for adoption of lean thinking within the whole organization. Lean thinking is operationalized as an integrated management approach that has an impact over the whole organization including its stakeholders – suppliers and other business partners, customers. Here it can be seen a touch in the organizational culture as well.

Moving to leadership area, it needs to exist a change in strategy targeted and holistic. Leadership is the turbo-charged engine that drives a successful Lean Extended Enterprise. In order to become one, Alias should consider the following observations. More focused training gives evidence for a better understanding of personnel of the key principles of waste elimination and #ow of value. More empowerment and training of employees lead to a better-positioned Lean organization.

Another factor at inter-organizational level is stated in a research based on the open interview method (Pius, 2006). !e study indicates that it is highly desirable to have a certain degree of communication skills throughout the company, long-term focus of management and strategic team while implementation of a new initiative. Moreover, the decision-making area, which most of the managers in our research stated that need improvement, is a key in transition to Lean.

Organizational culture re#ects that high-performing companies are those with a culture of sustainable and proactive improvement e%orts. In our study, it can be seen the ease of describing the processes and the way they were changed over time, reducing the time spend on doing a task and improving the quality of the process. !e skills and expertise of the employees highlight the characteristic of a way of adopting a Lean thinking. Staying competitive requires the use of intellectual capital and ability to innovate and di%erentiate. It can be seen that Alias employees are very well structured, with the possibility of relocation and growing within the job. !e most tangible examples are the roles of Subject matter expert and Lean business analyst which have been developed with the help

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of simple individual contributors. !is willingness to learn facilitates the transformation to a Lean organization. As Chandra said (2013, p. 4): “!e successful transformation journey in any organization may be di$cult, but may lead to achieving the mantra for waste management, process management”. !erefore, the management should have a blueprint tailored plan for successful application and e%ective results in the long term. Business process analysts’ guidance and support for Lean certi"cation will not only improve the understanding of the processes involved, but also keep the organization on track of continuous improvement to new achievements, as seen in Alias organization.

One of the "nding is that all the interviewed managers are also strong leaders. !e underlying key to maximize the success of Lean is actually to adopt the culture across all areas of the business (Baines, 2006, p. 1545). !erefore, they have the necessary skills to adopt a new way of doing things right.

What is the point of doing something very e$ciently that should not be done at all? (Drucker, 2007, p. 227). From our point of view, it can be seen from the face-to-face discussion that both leadership and managerial concepts are present in Alias organization. Leaders are advocating change, and they create an environment based on rules. !ey are also ensuring the correct organizational climate and implementation of change. !e "rst step is to change the mind-set and behaviour among leadership, and then gradually throughout the organization. In our research, we determined that the processes are relying on templates and best practices sharing.

Lean management system is the storyline of approach for any successful organization. !erefore, if you need to have an organization fully competent and globally competitive, you will need to keep the improvements up to date. !e 3rd dimension in any organizational climate should be based on Lean approach. Eventually, a Lean culture will grow from this consistent e%ort, and striving for perfection will become the way we do things here.


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the-art in lean design engineering: a literature review on white collar lean. Journal of Engineering Manufacture, 220(9), 1539-1547.

Ballé, M., and Handlinger, P. (2012). Learning Lean: Don’t Implement Lean, Become Lean. !e SoL Journal, !e Society for Organizational Learning, 12(1), 22-25.

Bass, B.M., and Stogdill, R.M. (1990). Bass and Stogdill’s Handbook of Lead-ership:&!eory, Research, and Managerial Applications, New York, USA: Simon and Schuster Publishing. Retrieved from http://books.google.co.uk/books?id=KxLizZ3aYmUCandprintsec=frontcoverandhl=ro#v=one-pageandqandf=false.

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Burton, T.T. (2003). !e Lean Extended Enterprise: Moving beyond the Four Walls to Value Stream Excellence. Florida, USA: J. Ross Publishing.

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Czabke, J., Hansen, E.N., and Doolen. T.L. (2008). A multisite "eld study of lean thinking in U.S. and German secondary wood products manufacturers. Forest Products Journal, 58(9), 77–85.

Doman, M.S. (2011). A new Lean paradigm in higher education: a case study. Quality Assurance in Education, 19(3), 248-262.

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Womack, J.P., and Jones, D. (1996). Lean !inking, New York, USA: Simon and Schuster Publishing. Retreived from http://xray-delta.com/2013/05/17/jim-womack-on-Lean-management/.


Project management for implementing Japanese methodology – Kaizen at ASSA ABLOY Romania

Daniel POPESCU1

Abstract. Prepared or not, Romania faces a moment of transformation; this comes as a result of the economic crises which exposed structural weaknesses of the Romanian economy and industry. In the meantime, long-term challenges – such as globalization, shift of power centers from the national level to international structures/bodies or scarcity of resources – intensify. Having this context, it is mandatory for Romanian companies to develop strategies aiming to maintain them competitive. !e paper propose an exploratory analysis regarding a Romanian company – part of an important international group – that was capable to build a strategic vision of its future, to de$ne a plan for change and to implement the necessary measures for the project success. In order to analyze the project of implementing KAIZEN methodology at ASSA ABLOY Romania the research initiative consisted both of in-depth interviews with two members of the company’s top management (the technical manager and one of the business units’ managers) and documents examination. !e research endeavor started from the assumption that if the KAIZEN system was adopted in the company the decision was appropriate, the results positive and the implementation process properly managed. !e paper analyse the project from the point of view of economic situation of the company and environment, time constraints, budget limitations, technical level/quality performance and risks. It is intended the conclusions to be useful for future similar projects either within the company under debate or by other organisations in similar situations.

Keywords: ASSA ABLOY; lean management; KAIZEN; door lock systems; Romania.

1. Bucharest-Ilfov Regional Development Agency, Bucharest, Romania, [email protected].

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IntroductionLean Production. Lean !inking. Lean PrinciplesProbably the most signi"cant operations and supply management approach of the last half of century is lean production. !e basis of lean thinking came from the just-in-time (JIT) production concepts pioneered in Japan at Toyota (Jacobs & Chase, 2013, p. 402). Even thought JIT gained worldwide prominence in the 1970s, some of its philosophy can be traced to the early 1900s in the United States at Henry Ford – who used JIT concepts as he developed his moving assembly lines to make automobiles.

Lean production is an integrated set of activities designed to achieve production using minimal inventories of raw materials, wok-in-process and "nished goods (Jacobs & Chase, 2013, p. 404). In the context of supply chains, lean production refers to a focus on eliminating as much waste as possible. Lean systems concentrates on pacing production and synchronizing delivery of incoming supply.

Kamau% (2010) mentions "ve principles of “lean thinking”:- Value: determine exactly what value means for the customer for a speci"c product (good, service, or combination).- Value stream: identify for each product or, in some cases, for each product family the entire value stream – the series of speci"c actions required to bring a speci"c product to the costumer.- Flow: make the remaining, value-creating steps "ow.- Pull: customers should pull products and services through their orders; the organization should not push its products and services.- Perfection: pursue perfection by reducing e%ort, time, space, cost and mistakes while o%ering products of ever greater value to customers.

!e success of lean systems in Japan and the United States has attracted keen interest among other traditional manufacturers. Nevertheless, transition to a lean system is not an easy process and planning a successful conversion is a challenge. To increase the probability of successful transition, companies should adopt a carefully planned approach that includes certain particular important elements (Stevenson, 2012, p.

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643). In this respect, one should make sure that top management is committed to the conversion and that they know what will be required. Also, management must be involved in the process and should know what it will cost, how long it will take to complete the conversion, and what results can be expected. !e operations have to be study carefully in order to decide which parts will need the most e%ort to convert. Likewise, it is important to obtain the support and cooperation of workers. Training programs that include sessions in setups, maintenance of equipment, cross-training for multiple tasks, cooperation and problem solving should be prepared and workers must be fully informed about what lean is and why it is desirable. Meanwhile, permanently reassure workers that their jobs are secure. Probably it is for the best to begin by trying to reduce setup times while maintaining the current system and enlist the aid of workers in identifying and eliminating existing problems (e.g. bottlenecks, poor quality). Later on, gradually convert operations, beginning at the end of the process and working backward. At each stage, one should make sure the conversion has been relatively successful before moving on and should not begin to reduce inventories until major problems have been resolved. As one of the last steps, suppliers should be converted to JIT and the company should be prepared to work closely with them. !e start is by narrowing the list of vendors, identifying those who are willing to embrace the lean philosophy. Preference should be given to vendors who have long-term track records of reliability. If quick response time is important vendors located nearby should be used. It is for the best to establish long-term commitments with vendors insisting on high standards of quality and adherence to strict delivery schedules. Last but not least one must be prepared to encounter obstacles to conversion.

But what kind of obstacles could hinder the process? Stevenson (2012) argues that some cultures relate better to the lean philosophy than others – not to forget that cultures vary from organization to organization. If a culture doesn’t relate, it can be di$cult for an organization to change its culture within a short time. Similar, manufacturers that operate with large amounts of inventory to handle varying customer demands may have di$culties acclimating themselves to less inventory. Other types of obstacles are in fact related to the above-described important elements. Management may not be totally committed or may be unwilling to devote the necessary resources to conversion – this is perhaps the most serious

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impediment because the conversion is probably doomed without serious commitment. Another issue could be that workers and/or management may not display a cooperative spirit. It must not be forgotten that the system is predicated on cooperation. Managers may resist because lean shifts some of the responsibility from management to workers and gives workers more control over the work. Workers may resist because of the increased responsibility and stress. Suppliers may resist for several reasons: buyers may not be willing to commit the resources necessary to help them adapt to the lean systems; they may be uneasy about long-term commitments to a buyer; frequent, small deliveries may be di$cult, especially if the supplier has other buyers who use traditional systems; the burden of quality control will shift to the supplier; and "nally, frequent engineering changes may result from continuing lean improvements by the buyer.

Masaaki Imai (1997) argues that the most important aspect of JIT or TQC (Total Quality Control) is a philosophy of continuous improvement. !is philosophy seeks to improve all factors related to the process of converting inputs into outputs on an ongoing basis (Stevenson, 2012, p. 392). It covers equipment, methods, materials and people. !e concept of continuous improvement was not new, but it did not receive much interest in the Western countries for a while; however, many Japanese companies used it for years, and it became a cornerstone of the Japanese approach to production. !e Japanese use the term kaizen to refer to continuous improvement. !e successes of Japanese companies determined other organisations to re-examine many of their approaches. !is resulted in a strong interest in the continuous improvement approach.

Although Westerners and Japanese both ascribe to improvement, the two cultures have di%erent concepts of what this term means (Fogarty, Blackstone & Ho%mann, 1991, p.569). Westerners think of improvement as a step function – a change represents a marked increase in performance. !at level of performance is held until the next performance leap is introduced. !e Japanese view continuous improvement as an upward sloping line – driven by numerous incremental improvements. Each improvement is in itself imperceptible, but collectively the changes made in a few months will represent a great deal of progress.

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!e Japanese developed a checklist, known as the 5S from the words seiri (sort and clear out), seiton (straighten and con"gure), seiso (scrub and clean up), seiketsu (maintain sanitation and cleanliness of self and workplace) and shitsuke (self-discipline and standardization of these practices). A development of this checklist (5Ss) that also provides an easy vehicle with which to assist the culture change that is often necessary to bring about lean operation comprises the following issues (Heizer & Render, 2014, p. 663):- sort/segregate: keep what is needed and remove everything else from the work area; when in doubt, throw it out; identify non-value items and remove them. Getting rid of these items makes space available and usually improves work#ow.- simplify/straighten: arrange and use methods analysis tools to improve work #ow and reduce wasted motion; consider long-run and short-run ergonomic issues; label and display for easy use only what is needed in the immediate work area.- shine/sweep: clean daily; eliminate all form of dirt, contamination, and clutter from the work area.- standardize: remove variations from the process by developing standard operating procedures and checklists; good standards make the abnormal obvious; standardize equipment and tooling so that cross-training time and cost are reduced; train and retrain the work team so that when deviations occur, they are readily apparent to all.- sustain/self-discipline: review periodically to recognize e%orts and to motivate to sustain progress; use visuals wherever possible to communicate and sustain progress.

US managers often add two additional Ss that contribute to establishing and maintaining a lean workplace:- safety: build good safety practices into the above "ve activities.- support/maintenance: reduce variability, unplanned downtime and costs; integrate daily shine with preventive maintenance.

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FindingsIn order to analyze the project of implementing KAIZEN methodology at ASSA ABLOY Romania I carried out a research consisting both of in-depth interviews with two members of the company’s top management (the technical manager and one of the business units’ managers) and documents examination. !e research endeavor started from the assumption that if the KAIZEN system was adopted in the company the decision was appropriate, the results positive and the implementation process properly managed. In one case the interview was audio recorded, in the second one the interviewed refused this approach.

!e sceneASSA ABLOY is a relatively young business group established in 1994 by the uni"cation of two companies. At that time, the two companies were leaders on their markets; one of the companies was from Sweden, the other one was from Finland. So, starting from ASSA Company and ABLOY Company the new established group was given the name ASSA ABLOY.

!e group decided an organic approach as strategy of development, in fact to buy the local and regional market leaders for their speci"c domains of activity – no matter the country or even the continent.

In Romania, the market leader was URBIS, a state owned company with a long and substantial tradition and brand name. ASSA ABLOY initiated the process of acquisition and "nally in 1998 the part of URBIS developing activities similar to those of the Swedish - Finnish group was bought – it seems that the price paid was close to 8 million dollars; it was the second type of production separated from URBIS after the acrylic baths.

!e factory’s personnel was very enthusiastic about the change of property; new methods and technologies were expected to be brought and implemented, it was a hope for new markets impossible to be approached until then. However, by the end of 2000 not to many things were changed, just some small production capacities were brought from

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the western countries – especially regarding hot processes sectors such as foundry and galvanization.

!e "rst signi"cant transfer of technology took place in 2001 when an aluminum foundry and galvanization production capacity was brought from Norway. !e period of time that followed, meaning the years 2002 – 2004, represented a permanent e%ort of assimilation of production capacities – another aluminum foundry from Germany, a door lock systems factory also from Germany and so on – mainly representing attempts to take advantage of the lower cost (both labor and energy) from Romania.

It did not take a long time for the company to get to a point where in fact “in the production facilities it was produced anything and everything”, says the technical manager of the company. By 2005 – 2006 the diversi"cation was way beyond imagination and organization’s members were “specialized in everything”. It is the "rst moment when the situation really seams concerning and there is an attempt to reorganize complex processes using manufacturing footprint approach. In fact, it was started a process of externalizing the hot processes sectors – also considering the reality that energy price, according to the agreements signed for joining European Union, were about to rise signi"cantly. Parts of the production processes are relocated to China and sometimes India, ASSA ABLOY Romania being decided to remain for the time being only with the fabrication of door lock systems. Why “for the time being”? Because the truth behind relocation decisions was that of complete closure of the company.

An argument in favor of this intention is also the fact that in 2006 it was appointed as general manager a person specialized in closing complex production facilities. Nevertheless, during the stage of analyzing and outsourcing fabrication processes the general manager together with the top management of the company came to the conclusion that parts of the activities could and deserve to be maintained and even developed. However, at certain moments some actions seemed eventually contradictory – due to the antagonism of initiating measures to close parts of the factory in parallel with actions to improve elements of the technological chain. But

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there is also a positive result: the group management starts to believe that there might be a chance for ASSA ABLOY Romania to remain functional – at least parts of it – and produce pro"ts for the shareholders. In this respect in November 2008 the general manager is replaced by one intended to identify ways to reconstruct the business in Romania and make the company reliable on the market. From now on only hard work and a little bit of luck might save peoples’ jobs.

!e "nancial "gures for the year 2008 were not good at all; in fact, at a level of 8 million euro sales ASSA ABLOY Romania encountered 4 million euro loss. !e relocation process, started in 2007, was under intensive implementation; as planned by the group, it was suppose to be "nished completely by the end of 2009 – hot processes sectors to China and India and door lock systems to a factory in Slovakia.

Here comes the drop of luck: the "gures for the Slovak factory for 2008 were much worse. In fact, having sales of 2 million euro, the Slovak company registered almost 3 million euro loss. It is for the "rst time when at the group headquarters rises the idea of maintaining door lock systems production at ASSA ABLOY Romania instead of closing it and to shut down the company based in Slovakia.

In 2009 the process of relocating the hot processes sectors from ASSA ABLOY Romania comes to the end. At the same time, at the beginning of the year the new general manager brings the top management together, speaks to them about the need for a new strategy, about reconstruction, about restructuring and development. !ese are good news for people – future might be positive and jobs could be maintained. !e members of the management team – and in fact the entire company – are with the general manager; everybody is minded for supplementary e%orts and full involvement.

!e project!e new general manager is a person with previous practical experience in LEAN management – experience acquired during several other assignments within Romanian branches of western companies. He is very

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determined to be successful also at ASSA ABLOY Romania, to bring the company to positive results and maintain peoples’ jobs.

!e general manager starts individual discussions with the members of the company’s top management team in order to identify each person’s strengths and weaknesses and capability/potential to contribute to the change process. An idea devolves upon people during discussions: it is necessary to develop a strategy if intended to maintain the company on the market.

!e general manager takes the management team outside Bucharest and spend we them several “thinking days”. !ey work as a group, as a team, and results do not wait to show up: a strategy is elaborated together, in common, people feel about it as being their baby, that it is part of them. !e general manager leads them during the process – but with intelligence and without direct and brutal involvement. At the very end of the thinking process, he declares: in two years I want other companies of the group to come and learn from us. It sounds as a dream, but people start to believe in this vision. Somewhere within the lines of the strategy, still foggy but steady supported by the general manager, LEAN and KAIZEN.

!e strategy was oriented on three axes: business development, business excellence and cost e$ciency. KAIZEN is included as part of the business excellence axis; based upon personal knowledge and previous practical experience the general manager draws a draft of KAIZEN’s implementation – structure, phases, means of insertion.

Time constraints!e period of time intended to be allocated for the implementation of KAIZEN at ASSA ABLOY Romania was proposed to be of three years, 2009 – 2012.

Budget limitations!e budget was not communicated to the management team. However, the general manager advanced a seven digits "gure as proposal to the group management – that for the three years mentioned above. It might

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look a lot, but compared to the "gures regarding the loss it really could be said that in fact it is not.

Technical level/quality performanceAs regards quality issues, the progress to be encountered during the implementation process was supposed to be based upon the ful"llment of the action plans established step-by-step, stage-by-stage. However, an important milestone de"ned from the very beginning was that by the middle of 2010 ASSA ABLOY Romania to reach break-even – objective that was in fact ful"lled.

Supplementary risksLike the internal problems were not enough, the situation – and consequently the implementation of the project – became more complex due to the group level decisions (code name: Dracula relocation program): four productions capacities from western countries – one of them being the door lock systems factory from Slovakia – were to be relocated at ASSA ABLOY Romania by the end of march 2011. !erefore, 2009 is an extremely di$cult year, with hot processes sectors leaving the company and other production capacities coming and replacing them. Once again, the need for a new way of organizing and doing things in the company became obvious. Moreover, at the beginning of 2010 ASSA ABLOY’s management is informed at a group meeting in Amsterdam that Dracula relocation program needs to be shortened with 6 months. !ey are told that if supplementary problems occur, no one would blame them; however, when it comes to practice, during the next months whenever something goes on wrong the company’s management is criticized. As it is said success has a lot of fathers but failure is orphan.

Project management teamIn fact, it cannot be identi"ed and discussed about a project team speci"cally designed to manage the endeavor of implementing LEAN and KAIZEN techniques at ASSA ABLOY Romania. !e general manager – relying on his previous experiences, assumed the entire management of the process.

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!e general manager is aware about the low level of cognition the top management team has about LEAN techniques. Bearing that in mind, at the end of 2009 he decides that if it is for KAIZEN’s implementation to be successful at ASSA ABLOY Romania it must be done with the help of professionals, of the best consultancy team available on the market in Romania: the KAIZEN Institute.

But is this a guarantee that everything would go on smoothly? It did not take a long time to have the answer to this question. A complex training program is designed by the Institute’s experts; it is composed both of training sessions out of Bucharest and workshops at the premises of the company. !e training program is split on segments following KAIZEN’s logic. However, after the "rst session of training the general manager is totally dissatis"ed and considers that the standard package o%ered by the Institute does not respond to the company’s practical needs. After a tense meeting between the ASSA ABLOY’s general manager and KAIZEN’s Institute manager it is decided that from that point forward the working procedure will be the following: the general manager proposes the theme, the Institute materials are tailored accordingly and than approved by the general manager. !e training sessions are featured as applicative, with lots of useful examples for the managers participating at them – the large majority being engineers. !e general manager was capable to put pressure on the Institute’s consultants – and that was an extremely important positive factor. After de"ning this procedure things developed orderly and in a constructive manner.

2010 was a cornerstone for acquiring the necessary knowledge for implementing KAIZEN. “KAIZEN is a methodology to be implemented from the top level to the bottom, but it becomes functional when it works according to a bottom-up approach” says the technical manager. Five training sessions were organized out of Bucharest with ten people representing the top management of the company. Each training session last two days – from Friday to Sunday – and the general manager participated side by side with his subordinates. From KAIZEN Institute there were two trainers permanently. At the same time, at the premises of the company there were organized twenty workshops with middle managers. Eight persons participated at each of these workshops and two external consultants were coaching them. Important aspect: the top

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management has to be present at the beginning and at the end of each workshop day! Also, at the end of each training session/workshop an action plan is elaborated – including milestones, deadlines, and responsibilities. By the end of the year a total budget of almost "ve hundred thousands euro was spent.

In 2011 the implementation process continued. It was the year when the main part of the e%orts was concentrated on middle management’s development. !e budget spent during that year totalized almost three hundred thousands euro.

!e insertion of KAIZEN techniques into the company continues even today. ASSA ABLOY Romania is still working with the KAIZEN Institute especially if it is to approach new areas to be developed – such as total service management, for example. !erefore, the 2014 budget does not reach more than about thirty thousands euro. Practically, the progress of the KAIZEN’s implementation project has been measured all the time using the evolution registered by the factory’s activities. Today, the company has a LEAN manager – member of the top management, subordinated directly to the general manager. !e LEAN manager generally leads the workshops and supervise the accomplishment of the action plans adopted during the workshops; also, he is auditing each business unit and is involved in the yearly LEAN assessment of the company within the group. In this respect, in 2009 ASSA ABLOY Romania was situated on the 26th place out of the 40 companies of the group. Since then, things changed signi"cantly: in 2012 the organisation was situated on the "rst place together with a German company and in 2013 on the second place.

So the general manager’s vision of having other companies from the group taking lessons from ASSA ABLOY Romania became true. Meanwhile the general manager was promoted in the management team at the group level – Chief Operating O$cer ASSA ABLOY Eastern Europe. During the last two years the LEAN manager delivered more training sessions to other companies from the group than internally. Paradoxically, this situation a%ected the company’s performance – mainly due to the fact that KAIZEN is not yet part of the sta% behaviour in an organic indestructible manner. It could not be said yet that people are coming up front with

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new ideas and new initiatives in a systematic manner. Quality problems reappeared, delivery time increased again. “We started teaching others and became careless” says the technical manager. “!at happened also having as background a huge extension of production: from four million euro sales in 2009 to nineteen million euro in 2013 and twenty two million euro estimated in 2014.”

As Professor Masaaki Imai – founder of KAIZEN Institute Global – stated when he visited ASSA ABLOY Romania, the company is a gold mine, meaning that there is a lot of work to be done to bring the gold at the surface.

Conclusions and implications!e experience developed at ASSA ABLOY Romania is an encouraging one. Despite tremendous drawbacks the company successful managed to cross the di$cult periods and implement a really signi"cant change within.

Nevertheless, some lessons should be drawn from the KAIZEN project’s implementation and the implications of speci"c actions – positive or not – remembered.

Deploying lean thinking often starts and is maintained through kaizen events. A kaizen event can take between two days and one week and is focused on creating signi"cant improvement in performance (quality, speed, cost) in one particular area of operations. An important point to understand about implementing lean is that deploying lean thinking may sound simple but is in reality very challenging. It is not a decision to be taken lightly or without a sustained commitment. It requires a change in philosophy and culture along with changes in practices.

A good start is to establish a team of employees to study the process/processes that needs improvement. !ese employees should come from di%erent functions and levels of the organization to represent all stakeholders involved with the process. It was not exactly the case for ASSA ABLOY Romania – mainly due to scarce training in LEAN management of the

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personnel. Nevertheless, the approach of de"ning together, as a team, during training sessions and workshops the action plans with deadlines and responsibilities is de"nitely a sound process.

!e above-mentioned team should place as central point and determine what the customer values. In the case analyzed by this paper the process was developed mainly under the threat of closure – so the company was already in the red zone. !e customer can be internal (the next process) or external to the organization. However, it must be not forget that the customer is the only one that can specify what is valued in the good or service.

As demonstrated during KAIZEN’s implementation, no doubt that the adoption of the 5S technique is useful in order to be able to construct a value stream map of all process steps and of the associated times or value that is added. !e analyze of the value stream map helps to eliminate non-value-adding activities. It is the customer demand that should be used to pull the #ow of work through the process. In fact, do not produce until output is required by the customer – let the customer signal when work from the process is needed.

ASSA ABLOY Romania implemented during the last "ve years a series of necessary changes identi"ed during training sessions and workshops in order to achieve lasting improvement. At this moment the company is in the situation of preserving the gains and then repeat the cycle on another process internally or extend lean implementation beyond internal boundaries to the processes of suppliers up the supply chain and, potentially, customers down the supply chain. Even if not completely, the cultural change took place and it can be concluded that at ASSA ABLOY Romania we witness Japanese methodology in our country. So why not disseminate it?

Acknowledgements. !e opinions presented in this work belong to the author entirely and do not imply or engage any institution he is a$liated to, in any way. !e author especially thanks to Dorin Dragulin, technical manager at ASSA ABLOY Romania for the enthusiastic support provided in elaborating the paper.

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Organizational innovation – a path to improvethe working conditions in the knowledge economy

Cristina LEOVARIDIS1

Gabriela POPESCU2

Abstract. !is paper provides an overview of the latest research, both academic and o%cial institutions, both theoretical and empirical, on organizational innovation. Organizational innovation is a new way of organizing the business practices of the organization, inclusive in knowledge management, in workplace organization or external relations, which have never been used before by that company. Knowledge-based organizations are built on intangible assets, on the knowledge, experience and competences of high-skilled human resources, who represent the most valuable resource of these organizations. In this context, based on a review of the literature published in recent years, both in Europe and worldwide, the paper synthesizes the di#erent approaches on innovation and knowledge economy, then to center on organizational innovation, recently called “workplace innovation” and mainly on the e#ects of innovative practices in the organization of work, on the employees’ quality of life, as they emerge from the empirical research conducted !!in di#erent organizations and countries; emphasis will be placed on identifying the extent to which these new practices have been introduced especially in organizations of KIBS (knowledge-intensive business services) sector, speci$c to knowledge economy, and their impact on the working conditions of highly quali$ed employees. Secondary data analysis we conducted showed that workplace innovation (including task variety, autonomy, participation at decision-making, teamwork, learning, self-assessment of work quality etc.) leads to employees’ welfare, health and therefore to their motivation and loyalty. Unfortunately, in the last $ve years, the percentage of European companies that adopt new, innovative forms of organization (“discretionary learning” forms), meant to ensure better working conditions, decreased. More, in Romania, there is a lack of harmonization between legislation and the development of activities speci$c to the knowledge economy; that is why as conclusions, the paper propose guidelines for Romanian business environment in order to improve the “goldern collars” employees’ quality of life.

Keywords: organizational innovation; knowledge economy; workplace innovation; knowledge-based organizations.

1. Lecturer, Ph.D., College of Communication and Public Relations, National University of Political Studies and Public Administration, Bucharest, Romania, [email protected]. 2. Assistant professor, College of Communication and Public Relations, National University of Political Studies and Public Administration, Bucharest, Romania.

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Innovation and organizational innovation – conceptual highlightsInnovation is a concept with a very large applicability, whose characteristics vary based on the "eld of reference. According to the National Institute of Statistics (2013, p. 394), innovation is an activity resulting in either a new product (good or service) or signi"cantly improved, a new process or a signi"cantly improved one, a new marketing method or a new organizational method. Glodeanu et al. (2009, pp. 32, 52) quote the de"nition of innovation established by the European Union as ”an accomplishment of a new idea in the current direct practice, either in a commercial manner, or in a voluntary and public sphere”, by ”the di%usion, assimilation and the usage of invention in di%erent "elds of the society”. Tudor Rickards emphasized the role of creativity in innovation, considering innovation as „a process beginning with a creative idea and ending with implementation, from which point execution becomes routine” (cited in Landry, 2008, p. 107) or as “those behavioural and social processes whereby individuals, groups or organizations seek to achieve desired changes or to avoid the penalties of inaction” (Rickards, 1999, p. 45). Other authors emphasize the innovation characteristic of being a process and a result in the same time: ”innovation is production or adoption, assimilation, and exploitation of a value-added novelty in economic and social spheres; renewal and enlargement of products, services, and markets; development of new methods of production; and establishment of new management systems; it is both a process and an outcome” (Crossan & Apaydin, 2010, p. 1155). A knowledge-based society can only be a society of innovation, and even more, a society driven by innovation, as, by its very nature, knowledge is continuously developing and this leads to innovation (Ho%man & Glodeanu, 2006, p. 119). As an expression of transforming knowledge into the main resource, innovation is the most important means of creating added-value (Nica, 2008, p. 229).

!e situation of Romania, compared with that of other European countries, has been highlighted by some studies of the European Union, of which the most referential one for the present topic is the Innovation Union Scoreboard series, initiated in 2001 and published annually. !e 2013 edition is grouping the European countries based on the values of the indicators referring to innovative performances, into four main groups (European Commission, 2013, pp. 5, 49): innovation leaders, innovation followers, moderate innovators, modest innovators. In this edition of the

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study, Romania is situated in the last group and on the 26th place among 27 member states, according to its innovative performances (measured overall). Our country’s strengths are constituted by the indicators grouped in the “human resources” and “economic e%ects” dimensions; while the weaknesses are in “linkages and entrepreneurship”.

In a large sense, the notion „organizational innovation” refers to the creation or adoption of an idea or behaviour new to the organization (Daft, Damanpour, cited in Lam, 2011, p. 115). According to Eurostat and OECD (2005, p. 17), organizational innovation consists in the implementation of new organizational methods, these can be changes in business practices, in workplace organization or in the "rm’s external relations. Armbruster et al. (2008, p. 645) details this, de"ning organizational innovation as “comprising changes in the structure and processes of an organization due to implementing new managerial and working concepts and practices, such as the implementation of teamwork in production, supply chain management or quality-management systems”. He elaborated a typology of organizational innovation, dividing it in four types: 1. structural organizational innovation, which may change the divisional structure of organizational functions, hierarchical levels and information #ow; 2. procedural organizational innovation, which may modify the process and operation routines within the "rms; 3. intra-organizational innovation, that takes place within an organization; 4. inter-organizational aspects of innovation, which refer to new organizational structures and processes that exist beyond the borders of the "rm (Armbruster, 2008, p. 646).

Also Lam (2011, p. 117) states that although di%erent researchers from classical literature on organizational innovativeness studied the in#uence of individual, organizational and environmental variables on organization’s propensity to innovate, most of them focused on organizational structure. Crossan and Apaydin (2010, p. 1154) establish a “comprehensive multi-dimensional framework of organizational innovation, linking leadership, innovation as a process and innovation as an outcome”; according to them, the factors that in#uence innovation are separated into three categories: leadership, managerial levers and business processes.

Cristina LEOVARIDIS, Gabriela POPESCU

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In this context, Nielsen and Lundvall (2007, p. 65) bring a new approach, referring to innovation from the perspectives of a social dimension and the relations between management and the employees of the innovative company, describing it as a process of creating knowledge, in which the speed and the direction of creating knowledge re#ect the organizational features of the company, and implicitly, the commitment of employees to various forms of direct or indirect participation to decision-making, as well as the investments made in increasing the competences of the employees.

Corriat (cited in Mako, 2013a, pp. 79-80) notices that it is di$cult to de"ne organizational innovation because of its “multidimensional character” and thus it can only be identi"ed as a “joint group of attributes”: organizational innovation consists of “a cluster of changes a%ecting the labour division and coordination patterns that prevail within a given organization, these patterns possessing a triple dimension (information, knowledge and know-how, interests)”. According to him, di%erent surveys use di%erent implicit notions of organizational innovation and it is not possible to give one unique and explicit de"nition of organizational innovation.

!eoretical aspects regarding the knowledge-based organizationsCompanies, organizations and business have always been centered on natural resources and technology, but are currently beginning to focus more on capitalizing knowledge. !is is the tacit knowledge, meaning ”the knowledge existent inside people’s heads in the shape of knowledge, intuition, opinions, abilities, competences, experiences, values, shared norms, learning motivations and capabilities, subjective emotions, cognitive, psychological, axiological and behavioral aspects that one might not be aware of” (!ite, 2004, p. 35). Within knowledge economy, the essential role is that of the work force and the freedom of movement of individuals, as owners of tacit knowledge. In order to generate and apply knowledge to goods, processes and services’ production, one needs new types of organization, new relations to customers and suppliers and the company needs to be seen as ”a knowledge system” (Alvesson, 2004, p. 5). On the other hand, explicit knowledge is ”the objecti"ed and exteriorized one, capable to survive through writing, speech, signs and products that incorporate knowledge: books, magazines, studies, presentations of

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experiences, patents, brands, disks, works of art, o$cial values and norms, CDs etc.” (Glodeanu et al., 2009, pp. 70-71). Lazonick (2011, p. 51) also highlights the role of the knowledge of expert-employees in de"ning the innovative company: ”in order to fully understand the mechanisms of an innovative company, one must fully understand the role of organizational learning processes – the relationship between tacit knowledge and codi"ed one, between individual and collective capacities and between what has been accumulated until a speci"c moment and what had resulted from accumulating that knowledge in time”.

World Bank (2011) states that a knowledge economy is „one where organizations and people acquire, create, disseminate, and use knowledge more e%ectively for greater economic and social development: there are closer links between science and technology; innovation is more important for economic growth and competitiveness; there is increased importance of education and life-long learning; and more investment is undertaken in intangibles (RandD, software and education) which is even greater than investments in "xed capital”. !is knowledge economy ensures the functioning conditions for the knowledge-intensive organizations, de"ned as ”organizations in which the main resource is not given by the "xed means, such as buildings, machines or "nancial capital, but rather employees and the competences they display (abilities, experience, knowledge and values), which are essential to the creation of the intangible goods produced here” (Leovaridis, 2008a, p. 849). !ese are companies depending on ”the production, usage and originality of their knowledge fund” (Donaldson, 2001, p. 957), ”companies in which most of the work is intellectual, and the employees who are quali"ed and highly trained are the majority of the workforce” (Alvesson, 2000, p. 1101).

!us, organizational innovation consists especially in giving a particular attention to the knowledge resources. Leovaridis (2008b, p. 258) approaches organizational innovation, by considering a knowledge-intensive organization an innovation in itself, because this type of organization changes a whole series of aspects regarding the organizational dimension and that of human resources (for instance, from using speci"c traditional resources – land, energy etc. – to the knowledge resources; from mass management to a more personalized one; from respecting job requirements to negotiating competences etc.).


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Knowledge management, often summed-up as ”the administration of intellectual capital”, represents ”an ensemble of practices and procedures which are intended to identify, organize and manage the knowledge owned by an organization”, which attracts ”a three-layered progress: people (culture), organization (discipline) and technology (tools)” (Staicu, 2011, pp. 34-35). Knowledge management and its strategies, also known as ”knowledge strategies” have been also approached by De Toni, Nonino and Pivetta (2011), who introduced a model to assess the coherence of the knowledge strategy applied by companies and advanced two conclusions: 1. as the coherence of company’s knowledge strategy with the competitive environment, organizational context and business strategy increases (decreases), the business performance increase (decrease); 2. the more the three fundamental knowledge strategies (development of knowledge - internal or external, sharing of knowledge - codi"cation or personalization strategy, exploitation of knowledge - internal or external) are coherently balanced with the company’s resources and with the competitive environment, organizational context and business strategy, the more the business performance increase.

!e more recent organizations are founded on the ”anthropocentric management”, de"ned as ”a new type of human resources management, based on training people and competences, o%ering an altogether di%erent vision on what human resources are (and what they should become)” (Leovaridis, 2011, p. 51). According to this new type of management, ”the aim is not to be able to use the human being (as a means) to a larger extent and better, but also to be able to consider the individual as the end goal and to see what the organization can and needs to do in order to help the respective individual become an accomplished person, but on a human level and through his work” (Ho%man, 1999, p. 50). Consequently, within a knowledge-intensive organization, the employee refers to the organization not only in traditional economic terms (payment, work conditions, duties), but also in psychological ones, through the manner in which the organization perceives and ”treats” him, allowing him to develop himself professionally.

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Here is a summary of the main features of knowledge-intensive companies, which di%erentiates them from other organizations by the nature of their work and the leadership and organization manners: highly quali"ed employees, who perform knowledge activities, using in their work both intellectual and symbolic abilities; a high degree of autonomy and #attened organizational hierarchies; the usage of #exible, adaptable and ad-hoc organizational forms; the need of an extended communication for coordination and problem solving, due to a high level of ambiguity; client-orientation, especially in the case of companies providing professional services; strength and information asymmetry given by the position of the expert (often favoring the profession to the disadvantage of the client); uncertain and subjective evaluation of the quality of the accomplished work results (Alvesson, 2004, p. 19). Ikujiro Nonaka (cited in Ho%man, 2004) classi"es the knowledge-intensive organizations thus: routine-knowledge organizations, expert-dependent organizations, symbolic analyst-dependent organizations and intensive communication organizations.

Recent researches on organizational innovation - a secondary data analysis Research methodology consists in a secondary data analysis on the latest research conducted both in academia and by o$cial institutions, on organizational innovation (and the related knowledge management topic) and its consequences on the working conditions of employees. Research objective is to identify the e%ects that the introduction of new forms of work organization reunited as the “workplace innovation” has on the employees’ quality of life, particularly those high-skilled in knowledge-intensive organizations, speci"c to knowledge economy.

One of the most recent researches establishes a relationship between knowledge management and networked innovation (Valkokari et al., 2012). !is research has been conducted in six business-to-business companies, of variable dimensions, with a number of employees between 20 to over 2000; over 10 in-depth interviews have been performed, as well as two focus-groups with 10-20 reprezentatives of these "rms (from entrepreneurs and chief executive o$cers to lawyers and patent engineers). !e main question of this study is exploring&how $rms manage knowledge


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in the context of networked innovation, for example collaboration and joint innovation involving multiple actors. !e Finnish researchers paper conclude that „with a strategic approach to knowledge management, "rms are able to utilize networked innovation when they understand their partner’s business models and strategic intents, for example their motivation to collaborate. !is understanding also enables "rms to negotiate about roles, responsibilities and rights between the collaborators. Moreover, the collaboration and interaction processes within networked innovation – rather than simply the formation of innovation networks – were found to play a crucial role” (Valkokari et al., 2012). Another important result of the research, from a theoretical point of view, is the distinction of the two basic collaboration models of networked innovation: transaction networks (within explicit knowledge such as intellectual property rights is simply transferred from one actor to another) and co-creation networks (within there are always relationships, communication and interaction of some kind between the actors, that is why the risks and opportunities of innovation are higher within these co-creation networks). !e authors recommend managers to establish the roles and responsibilities in network innovation management, to take into consideration both the objectives of their cooperation as well as the con#icts of interest, to create contracts based on mutual advantages and to share and combine knowledge in order to build a unique knowledge for all the actors of the network (Valkokari et al., 2012).

More and more, in recent years, organizational innovation is approached as innovation in work organization or innovation in the workplace, and the latter is treated in terms of social, human dimension, linked to improving the working conditions of employees. !us, workplace innovation has been recently de"ned as “the implementation of new and combined interventions in the "elds of work organization, human resource management and supportive technologies” (Pot, 2011, p. 405), being related to improvements in organizational performance on the one hand and in employee well-being and loyalty on the other hand. In this context, Eurofound (European Foundation for Improving of Living and Working Conditions) conducted a study, in 13 EU states, based on case studies carried out in di%erent companies where workplace innovations have resulted in positive outcomes. !e main aim of the research was to assess the impact of these innovations on the performance of an organization

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and the e%ects for employees. !e research methodology included face-to-face interviews and focus groups with various categories of employers and employees representatives, but also secondary data analyses based on websites, newspaper articles, company reports. !e research results showed that innovations implemented by the case study companies may be grouped in three categories: the "rst one is single primary focus aiming to improve “organizational performance, typically focused on lean manufacturing principles, organizational e$ciency and improved product quality (Bombardier, FAVI, Lufthansa, NUH, Radiometer), also service quality innovations (Finnish care home)”; the second type of innovations are parallel focus, “with multiple innovations, some aimed at organizational improvements and some aimed at bene"ting employees such as improved communication, autonomy for employees, training/performance management, #exible working opportunities combined with e$cient use of workspace (Elica, Kellogg, Rabobank, ROFF)”; the third category is hybrid primary focus with “innovations aimed at employees with consequent bene"ts for organization, for example health and well-being management and promotion initiatives (Slovenian retail group, Volkswagen Pozna')” (Cox et al., 2012, p. 69). !e research’ authors conclude that workplace innovations that facilitated task variety and decision-making, encouraged a sense of responsibility and autonomy had a strong impact on employees, increasing job satisfaction and improving the employees well-being and work-life balance, health and lifestyle.” An increase in overall employee motivation was gained through measures that included job enrichment, greater autonomy, skills variety and development, enhanced training, increased trust and support, enhanced job security and opportunities for suggestions or challenge” (Cox et al., 2012, p. 2). Unfortunately, workplace innovations consisted in increased autonomy, task variety, #exibility and decision-making authority had a negative impact, they led to more work pressure, workloads and a more rapid work pace.

Another important research conducted at European level, Working Conditions in the European Union: Work Organization (Valerye et al., 2009, pp. 12-14) identi"ed four types of organizations, according to the job characteristics related to work organization: discretionary learning forms (characterized by autonomy in work, learning and problem solving, task complexity, self-assessment of quality of work, autonomous teamwork), lean


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production forms (characterized by teamwork, autonomous or otherwise, and job rotation, particularly multi-skilling), taylorist forms (opposite of discretionary learning class, with low autonomy in work, particularly in the methods of work, with few learning dynamics, low task complexity, but constraints on the pace of work, repetitiveness and monotony of tasks, and quality norms), traditional or simple structure forms (traditional forms of work organization where methods are largely informal and non-codi"ed, simple organizational structure described by Mintzberg). Lundvall (2014) updates the original analysis of forms of work organization and show how the frequencies of the di%erent forms have evolved over the 2000s (Table 1). !e results show a slight increase (by 2%) in the discretionary learning forms during 2000-2005, counterbalanced by a decrease in the traditional forms. In 2010, especially because of the 2008 "nancial crisis, the data point out a signi"cant decline of discretionary learning forms, associated by an increase in the more bureaucratic lean forms and to a lesser extent by an increase in the traditional and taylorist forms.

Table 1. Frequencies of forms of work organization by three survey waves (!ird, Fourth and Fifth European Working Conditions Survey) %

Wave Discretionary Learning

Lean

Production

Taylorism Traditional Total

2000 35,1 28,2 17,4 18,3 1002005 36,8 28,6 17,8 16,8 1002010 31,8 31,3 18,6 18,3 100

Source: Lundvall, 2014, p. 4

A group of Hungarian researchers conducted a study with the objective of better understanding the di%usion and drivers of organizational innovation and the practice of knowledge development by comparing the knowledge-intensive business services (KIBS) sectors in Hungary and Slovakia. !e 200 Hungarian and 100 Slovakian with more than 10 persons, included in survey, covered both the manufacturing and the KIBS sectors. !e questionnaire, addressed to managers and owners of the surveyed companies, included items grouped in four sections: general characteristics of "rms, composition of management and institutional transfer of business practices, di%usion and drivers of organizational innovation, characteristics of knowledge development practice in the "rm

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(Mako et al., 2013b, pp. 137, 141-142). Regarding the di%usion and drivers of organizational innovation, structural organizational innovation is less often used than its procedural version, because structural organizational innovation a%ects both the core components and their relationships within the organization. !e survey showed signi"cant di%erences in di%usion of organizational innovations in the Hungarian and Slovak KIBS sectors: forms of structural (or radical) organizational innovation such as project-based work, #at organization and interdisciplinary working groups are more commonly found in Slovak KIBS company; regarding some procedural organizational innovations, di%erences are greater: teamwork (89.6% versus 41.7%), job rotation (28.9% versus 9.7%) are more used in Slovak than Hungarian "rms. On the other hand, in Hungarian KIBS companies, quality circles (23.7% versus 14.4%), benchmarking (37.3% versus 21.6%) and collecting suggestions from employees (49.7% versus 41.2%) are more common.

Table 2. Types of organizational innovations in KIBS sector (Mako et al., 2013b, p. 158)

Hungary Slovakia

Structural organizational innovation

Project-based work 34.8% 69.1%Flat or lean organization 10.7% 13.4%Inter-professional (interdisciplinary) working groups 13.4% 36.1%

Procedural organizational innovation

Quality Assurance and Auditing Systems (e.g., ISO and TQM)

21.9% 33.0%

Collecting suggestions from employees 49.7% 41.2%Teamwork 41.7% 89.6%Benchmarking 37.3% 21.6%Quality control carried out by rank-and-"le employees 23.7% 14.4%Job rotation 9.7% 28.9%

Based on their researches in di%erent companies, Maitland and !omson (2014, p.2) distinguish between “future work” and “#exible work”: #exible work arrangements derive from industrial age work model - "xed hours, "xed location and management by control, without fundamentally altering it, while “future work is a new model for the digital age, which


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measures and rewards people for results, not for hours (…) it gives people information, tools and clear objectives, and trusts them to get on with achieving those objectives in the way that works best, requiring a shift from command-and-control to management by trust”.

Another element of interest for the present study is the multicultural approach of knowledge management and organizational innovation. Magnier-Watanabe et al. (2011) present the case of a Japanese pharmaceutical company having subsidiaries in France, United States and China. !e Japanese researchers “evaluate the e%ects that leadership, organizational culture and control and work style have on knowledge management, all de"ned in terms of the socialization process, externalization, combination and internalization”. Based on the research using questionnaires, they “compare the manner in which the above mentioned organizational factors in#uence knowledge-management processes within the respective organizations”. !e research has shown that these factors have a di%erent in#uence on the knowledge management methods and practices based on the characteristics of each country and recommends that “knowledge-management activities need to be adapted to the idiosyncrasies of each local organization, without renouncing to the global vision of the company” (Magnier-Watanabe et al., 2011). In the same country, the company Toyota Motor Corporation chose to use the “learn local/act global” model and evolved from a mere transfer of knowledge from the Japanese company to subsidiaries to the major preoccupation of creating knowledge and collecting tacit local knowledge in foreign markets through its employees from the local level (Ichijo, Kohlbacher, 2008).

A research study conducted in an IT consulting company from India (Lam, 2005) shows the tight connection between knowledge management and knowledge culture. !e Indian company did not have any kind of knowledge culture. In addition to that, “company culture” was characterized by: strong competition between employees, lack of valuing knowledge and sharing with others, absence of reward or stimulants for sharing this knowledge, an exaggerated concern of keeping one’s work place, stigma associated with the reliance on someone else’s ideas, underestimation of employees, a preference for transmitting knowledge in a classic face-to-face manner, lack of trust in the quality of knowledge of the younger employees.

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Another research, conducted by Kathryn Van Treuer in Australian business environment (Van Treuer, 2006), studied the relationship between, leadership, organizational climate and innovation, on 142 administrative and health-care professionals from a medium sized private consulting "rm in Australia. According to the results of this study, the cohesion, autonomy and recognition, felt by employees, as well as the absence of pressure create an innovation climate, while excessive pressure in#uences it negatively: “within an innovative organization the sta% must feel a cohesive and shared purpose, and that they should not feel over pressured”; at the same time, the employees “need to feel autonomous, and need to feel that they will be recognized for their achievements (Van Treuer, 2006, p. 196).

In order to evaluate whether Romanian companies, especially form economical sectors speci"c to knowledge economy, embraces these workplace innovations, a research has been conducted on the life quality of the highly-quali"ed employee, in the knowledge-intensive organizations from "ve services’ sectors: marketing-advertising, ITandC, banking-"nances, research-development and higher education (KIBS sectors) (Leovaridis, 2013, pp. 192-194, 196). !e research used face-to-face in-depth interviews, for highly-quali"ed employees and managers in the knowledge sectors (68 employees and 12 managers, a total of 80 persons). !e questions referred to general, common dissatisfactions for this type of employees, but also to dissatisfactions speci"c to each sector of activity, regarding speci"c aspects of the quality of their professional life: health problems, working time, including atypical ones, the complexity and intensity of work, professional development opportunities, autonomy degree, decision-making manners and the leadership style both within the team and the organization, motivational techniques used, organizational climate, organizational culture and communication, measures to improve employee life quality etc. Of these, the actual paper shall refer only to those that could be related to various forms of organizational innovation. Regarding the cognitive dimension of the work, three quarters of the people interviewed from the advertising sectors, two thirds of the IT and banking sectors and all those of the RD and the higher education sectors admit that more than half of their daily activities are creative ones, percentages ranging between 50-90% in the advertising, RD and higher education sectors, 50-80% in the IT sector, and 50-70% in the banking sector. Work in the higher education, advertising and banking sectors consists of solving


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and adapting to new, unpredictable things, while the employees of the IT and RD sectors admit to having to solve complex issues. Learning new things is speci"c to the IT, RD and higher education sectors.

When discussing the professional development of employees, those of the banking and IT sectors have bene"ted from courses either paid by their companies or o%ered in-house; this was not the situation in the higher education and RD sectors. Autonomy at workplace is expressed by the possibility to choose or change work speed, order of tasks and work methods. !is is allowed in the RD and higher education sectors, and more moderate in the sectors in which deadlines need to be met, such as the advertising, IT and banking sectors. !e possibility to take decisions and in#uence one’s work is restrained in the higher education and IT sectors, moderate in the banking and advertising sectors and very high in the RD sector. Teamwork is a feature of the advertising, IT and RD sectors (and teams have a high autonomy), whereas in the case of higher education and banking, this is rarely the case (but when it happens, teams have autonomy, too). In the sectors of privately-infused capital and multinational companies (advertising, IT and banking), the important decisions regarding strategy are taken by the organization’s management, following the instructions from the mother-company; in the IT and advertising sectors, relations between managers and subordinates are on equal footing, whereas in the banking sector this case is very rare. !e IT and banking sectors have internal order regulations to follow, which is not the case in the advertising sector. !e control of employees is both directly through supervision, and indirectly on the basis of results. In the RD and higher education sectors, infused with state capital, important decisions are taken by the Scienti"c Board/ Faculty Board and the University Senate, but only sometimes after consulting the researchers/professors in extended meetings; there is cooperation between managers and subordinates, but only in a hierarchical manner. !ere are also internal regulations to be followed in all cases and employee control is performed especially indirectly, based on results – through regular reports including opinions from colleagues and students etc. Decisions within the team are taken after consulting members, based on the existing equality relations.

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DiscussionsOrganizational innovation, or workplace innovation, as recently called, is one of the most important factors leading to organizational performance, in actual conditions, when competition between organizations in the knowledge economy takes place on the "eld of knowledge, of competences held employees and not of their physical power or tangible goods owned by the organization. As our secondary data analysis showed, workplace innovation (including task variety, autonomy, participation at decision-making, teamwork, learning, self-assessment of work quality etc.) leads to employees’ welfare, health and therefore to the motivation and loyalty of them.

However, in the last "ve years, in Europe the percentage of companies that adopt new, innovative forms of organizations (“discretionary learning” forms), meant to ensure better working conditions, decreased considerably: “the deterioration of the quality of work has implications both for Europe’s growth prospects and for the welfare of workers. In a learning economy a reduction in participatory learning undermines the long term competitiveness of Europe as well as workers’ welfare” (Lundvall, 2014, p. 5).

Despite the rapid evolution of economy and its passing towards the knowledge-driven economy, and given the fact that the issue of knowledge-intensive organizations and knowledge workers will become more and more present and pressing in the Romanian reality, we believe that current legislation in the "eld in our country is not su$ciently adequate to these new demands from the knowledge economy. !ere is also a lack of harmonization between legislation and the development of activities speci"c to the knowledge economy, as one of the interviewed experts in the Romanian presented research stated that “work protection legislation is still in the industrial time”.A knowledge-based economy imposes, within current organizations of the services sector, organizational innovations based on a management style focused on the expert-employees, as an essential resource of the organization, and on the negotiations with them. Currently, there is a new organizational context, in which the "nancial stimulation of the “golden collar” employees is insu$cient, requiring other motivational factors in


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order to ensure their loyalty. Here are some of the suggestions made by the Romanian interviewed highly-quali"ed employees of various knowledge-intensive sectors, in order to improve the situation on a micro-level and to increase their life quality: reducing overload, o%ering opportunities of professional development, consulting employees with regard to the tasks given to them, as well as regarding the major decisions to be taken for the organization, organizing socializing activities between co-workers and creating a climate that could emphasize friendship, mutual aid between colleagues and informal communication etc. (Leovaridis, 2013, p. 222).

Far from having fully covered the topic of organizational innovation in the knowledge-based economy, the present paper draws an overview of the international and especially Europan concerns, as well as those of national researchers, in the large "eld of knowledge-based economy and highlights certain theoretical and practical aspects which are speci"c to the Romanian society. !e paper can be continued with a quantitative, comprehensive and systematic content analysis, of all articles on organizational innovation in a number of Romanian and international academic journals (for the past "ve years, for example).

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Emotional intelligence – the unseen face of the sustainable knowledge based organization

Ramona – Diana LEON1

Abstract. Since the failure of traditional business models determined practitioners and academics from the management $eld to focus their attention on the intangible aspects of an organization, we aim to determine if emotional intelligence could be the missing part from the sustainable knowledge based organization (SKBO) development. In order to achieve this goal, we employed an ethical and empirical research that focused on identifying the characteristics and in"uence factors of SKBO. First, we made a critical analysis of 70 articles that had been published, from 2000 until 2012, in international databases. !en we developed a survey based on questionnaire that focused on identifying SKBO’s characteristics and in"uence factors. Using a snowball sampling, we collected 268 questionnaires from Romanian and Spanish knowledge management specialists. After data analysis, we have noticed that the most important characteristics of SKBO focus on human resources. When it came to identifying the in"uence factors, the respondents emphasized the importance of employees’ adaptability, satisfaction, education and also work relationships. Using an inductive – deductive approach, we demonstrate that emotional intelligence is taken for granted and not perceived as an independent variable. None of the 268 knowledge management specialists present emotional intelligence as a characteristic or a strategic factor of SKBOs. But, all of them highlight the importance of an open organizational culture, transformational leadership, human resources adaptability, and employees’ satisfaction. Each and every one of these is linked to emotional intelligence development.

Keywords: emotional intelligence; knowledge management; sustainability; human resources; transformational leadership.

IntroductionIn the context of a dynamic, complex and uncertain economy, the traditional business models and principles have failed. As a result, managers and researchers attention switched from tangible to intangible

1. Ph.D., Faculty of Economics and Business Administration, “Alexandru Ioan Cuza” University, Ia(i, Romania, [email protected].

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assets. Some concentrate on creating, disseminating and using knowledge (Drucker, 1988; Millar and Choi, 2010) while others focus on developing and using employees’ emotions (Gardner, 1983; Goleman, 1995) in order to increase company’s performance.

!e "rst aspect represents an interesting topic for the knowledge management researchers. On the one hand, they highlight that knowledge is a critical organizational resource that may increase company’s value. On the other hand, they emphasize the processes that stimulate knowledge creation, dissemination and use namely, creating a trustful environment in which employees can feel free to share their knowledge, ideas and experience; organizing the activity around teams; developing open organizational culture etc.

!e second aspect constitutes a research theme for the psychology and management specialists. !ey present the concept of emotional intelligence as “an array of non-cognitive skills, capabilities and competences that in#uence a person’s ability to cope with environmental demands and pressures” (Martinez, 1997, p. 72). It’s main characteristics – self-awareness, self-regulation, motivation, empathy and social skills – are determining the success factors in individual’s career and personal life (Goleman, 1995) and also are improving work performance, job satisfaction, organizational commitment and leadership (Gooty et al., 2014; Papathanasiou and Siati, 2014).

!ese two elements are correlated since each organization is based on knowledge and is usually described as an “emotional place” (Armstrong, 2000), “incubator of emotions” (Muchinsky, 2000) or “emotional arena” (Fineman, 2000). Besides, we must take into account that creating and disseminating knowledge implies using abilities, skills and emotions. In order to create and disseminate knowledge, people need a proper work environment (an open and trustful culture etc.) and also must have developed speci"c abilities and skills (teamwork abilities, initiative, communication skills etc.). Starting from this point, we ask ourselves what is the place of emotional intelligence in a sustainable knowledge based organization?

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!e answer to this question will be presented in the following sections. Next, we will highlight the nexus between emotional intelligence and knowledge management. !en we will bring forward the research methodology that we used and we will continue by presenting the main results. We will emphasize what a sustainable knowledge based organization is and how it is related to emotional intelligence. In the end, we will close this article with a couple of conclusions and further research directions.

Emotional intelligence – a tool for knowledge managementSince 1990 when the concept of “emotional intelligence” was coined, four types of models have been developed in order to facilitate its analysis. !ese included: traditional models (Cheung and Tang, 2012; Salovey and Mayer, 1990; Wong and Law, 2002), trait models (Petrides and Furnham, 2003; Petrides et al., 2007), mixed models (Bar-On, 1997; Goleman, 1998) and modern models (Maul, 2012; Schutte et al., 2013). Although the perspective from which the concept is addressed (Table 1) varies from a situational level (according to the traditional models) to a complex one (in the modern models), from a cognitive approach to a social one, they all bring forward the necessity of recognizing and understanding individuals’ emotions.

Table 1. Popular approaches on de"ning and analyzing the concept of “emotional intelligence”

Type of model

Emotional intelligence

Perspective Dimensions Description

Traditional model

emotional intelligence re#ects individuals’ ability to recognize and control their emotions.

self-emotion appraisal

it re#ects individuals’ ability to understand their own emotions.

other emotion appraisal

it re#ects individuals’ ability to understand and be sensitive to the feelings and emotions of others.

regulation of emotion

it highlights individuals’ ability to control their own emotions.

use of emotion

it emphasizes individuals’ ability to use their emotions to improve their performance and achieve personal goals.

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Trait model emotional intelligence is a personal trait that re#ects individuals emotion-related disposition and self-perception of emotional experience.

well-being it re#ects individuals’ generalized sense of being in peace with themselves, happy and ful"lled.

self-control it emphasizes individuals’ capacity of regulating external pressure, stress and impulses.

emotionality it describes individuals’ sense of perceiving and expressing their emotions in order to develop close relationships with others.

sociability it re#ects individuals’ capacity of listening and communicating clear and con"dent with people from diverse backgrounds.

Mixed model emotional intelligence combines personality traits, motivation and a%ects in order to recognize and regulate emotions in ourselves and in others.

self-awareness it describes individuals’ ability to identify emotions in one’s physical states, feelings and thoughts.

self-regulation it re#ects individuals’ ability to control and redirect impulses and moods, to prioritize thinking by focusing on important information that explains why feelings are being experienced.

motivation it re#ects individuals’ inner vision of what is important in life.

empathy it is the ability to identify emotions in other people, design, artwork etc. through language, sound, appearance and behavior.

social skills it describes individuals’ pro"ciency in developing and managing relationships.

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Modern model

emotional intelligence is a set of competencies of perception, understanding, using and managing emotions e%ectively in the self and others comprise.

competency in perception of emotions

it involves recognizing the emotions incorporated in the body state, facial and voice cues of himself/herself and others.

competency in understanding emotions

it emphasizes the capacity of identifying various emotions and anticipating their causes and consequences.

competency in using emotions

it involves putting emotions into action and harnessing their e%ects.

competency in managing emotions

it highlights the capacity of regulating emotions in order to make them compatible with certain situations or individuals’ goals.

Mixed model emotional intelligence combines personality traits, motivation and a%ects in order to recognize and regulate emotions in ourselves and in others.

self-awareness it describes individuals’ ability to identify emotions in one’s physical states, feelings and thoughts.

self-regulation it re#ects individuals’ ability to control and redirect impulses and moods, to prioritize thinking by focusing on important information that explains why feelings are being experienced.

motivation it re#ects individuals’ inner vision of what is important in life.

empathy it is the ability to identify emotions in other people, design, artwork etc. through language, sound, appearance and behavior.

social skills it describes individuals’ pro"ciency in developing and managing relationships.


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Modern model

emotional intelligence is a set of competencies of perception, understanding, using and managing emotions e%ectively in the self and others comprise.

competency in perception of emotions

it involves recognizing the emotions incorporated in the body state, facial and voice cues of himself/herself and others.

competency in understanding emotions

it emphasizes the capacity of identifying various emotions and anticipating their causes and consequences.

competency in using emotions

it involves putting emotions into action and harnessing their e%ects.

competency in managing emotions

it highlights the capacity of regulating emotions in order to make them compatible with certain situations or individuals’ goals.

Emotions occur at individual level, are engraved in behaviors and in#uence groups’ dynamics (Blattner and Bacigalupo, 2007; Brunetto et al., 2012). As a result, the researchers from organizational studies concentrate on analyzing the in#uence of emotional intelligence in the workplace. !ey demonstrate that emotional intelligence extends employees’ trust, loyalty and commitment within their selves, their teams and their "rm and it is correlated with job satisfaction (Brunetto et al, 2012; Chiva and Alegre, 2008; Papathanasiou and Siati, 2014; Weng et al., 2011), job performance (Gooty et al., 2014; O’Boyle et al, 2011; Shih and Susanto, 2010), transformational leadership (Hess and Bacigalupo, 2010; Lam and O’Higgins, 2013; Lopez-Zafra et al., 2012), motivation (Christie et al., 2007), and organizational commitment (Brunetto et al., 2012). !ese relations are usually moderated by organizational culture, structure, practices and policies (Dumbrav+, 2011; Hess and Bacigalupo, 2010).

Given their importance in the organizational environment, emotions and emotional intelligence are taken into account by knowledge management researchers. Br+tianu (2007) brings forward the concept of emotional knowledge in order to describe the role of emotions in decision making and mental processes while Hess and Bacigalupo (2010) describe emotional intelligence as an organizational development tool which increases employees’ responsibility in meeting the needs of the organization. But what is the purpose of emotional intelligence in a sustainable knowledge

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based organization? What inputs does it use and what outputs does it generate?

Methodology!e purpose of this research is to identify the position that emotional intelligence is occupying in a sustainable knowledge based organization.

From a methodological point of view, we used a documentary study – represented by a review of the literature in the knowledge management and emotional intelligence "eld – and an exploratory research that concentrated on the Romanian and Spanish knowledge management specialists.

In order to achieve the research goal, we employed an ethic approach and realized a review of the articles and studies from the knowledge management and emotional intelligence "eld. First, we had searched in the Emerald Publishing, ScienceDirect, EBSCO and Sage databases articles that had been published during January 2000 – March 2012 and had included in title, abstract or key words at least one of the next phrases: “sustainable organization”, “knowledge based organization”, “sustainable knowledge based organization”, “emotional intelligence”. !en we analyzed the articles in order to determine their relevance for the research problem and we identify 70 articles. In the next phase, we applied a content analysis to the selected articles in order to determine what a sustainable knowledge based organization may be and what could be the role of emotional intelligence.

!e goal of the exploratory research was to identify the position that emotional intelligence should have in the process of developing SKBOs from knowledge management specialists’ point of view.

During February 2011 – March 2012, we conducted a survey based on questionnaire. !is included 29 items that were focusing on "ve major aspects: de"ning the sustainable knowledge based organization, identifying its characteristics and in#uence factors, determining the most important elements that can guarantee company’s sustainability in the current economic environment and identifying the respondents’ socio-


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demographical characteristics. For the "rst, fourth and last aspects, items were designed using a multiple choice scale. A "ve point Likert rating scale was used for identifying the main characteristics of the sustainable knowledge based organization. In this case, 1 represented “little importance” and 5 “extremely important”. !e questionnaire reliability was proved using Alpha Cronbach coe$cient which had a value equal with 0,873.

Since national culture includes sets of values, beliefs, ideas, attitudes and morals that guide individuals (Vitell et al., 1993), we assumed that it may in#uence the way in which the concept of “sustainable knowledge based organization” is perceived. As a result, the investigated population was represented by the knowledge management specialists from Romania and Spain, two countries that share almost the same cultural pro"le (Table 2), according to Hofstede’s dimensions (1980).

Table 2. Comparative analysis between Romania and Spain, based on Geert Hofstede’s dimensions (Itim International, 2012)

Country

DimensionRomania Spain

Power distance 90 57Individualism 30 51

Masculinity / Feminity 42 42Uncertainty avoidance 90 86Long term orientation 19

A starting point in selecting the Romanian subjects of this study was represented by Romanian Knowledge Management Community database. According to this, from 2009 until 2011, 170 persons had been certi"ed as knowledge management specialists.

In the case of Spain, we identify 548 specialists that were members of the Research Center of Knowledge Society (Centro de Investigación sobre la Sociedad del Conocimiento); the University Institute of Business Administration from Autonomous University of Madrid (Instituto

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Universitario de Administración de Empresas de la Universidad Autónoma de Madrid); the Spanish Association of Accounting and Business Administration (Asociación Española de Contabilidad y Administración de Empresas) and the Scienti"c Association of Economy and Management (Asociación Cientí"ca de Economía y Dirección de la Empresa). !ey were selected based on their experience in investigating subjects of knowledge management or managing activities or department from the same area. Each of them was invited to submit the questionnaire – that was distributed using Google Docs application – and to o%er the contact details of another person that could be interested in participating to this research. So, a snowball sampling was used and data were collected from 268 persons: 134 Romanian specialists and 134 Spanish specialists.

!e distribution of Romanian and Spanish samples by occupation, age and type of formation were similar and is presented in Figure 1.

Figure 1. Sample distribution by occupation (a), age (b) and formation type (c)

Source: Bueno and Leon, 2012

Despite all these, we recognize that the number of keywords searched in the international databases limits the research. What we found in the literature is just a fraction from what had been written about the role that emotional intelligence has in the development of new companies but still is capable to re#ecting the evolutionary processes that occurred.


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!e research is also limited by the fact that the respondents share almost the same cultural pro"le and area of specialization. Another issue to consider is that the research took place in the time of an economic recession. Due to these aspects, respondents tended to focus more on the intangible elements of the business environment, the aspects that in#uence the processes of knowledge creation, dissemination and use. As a result, they valued more the human resources and technological factors than the social and political issues. !e situation could have been di%erent if the respondents would have been specialized in the area of environmental protection, sociology, natural resources management etc. or they would have belonged to di%erent cultures.

!e sustainable knowledge based organization (SKBO) from the emotional intelligence perspectiveAccording to knowledge management specialists, SKBO is a formal entity that combines economic, environmental and social aspects in order to adapt to the micro- and macro-environment challenges (Figure 2). Hence, most of the respondents (46,80%) present it as a structure in which sharing knowledge between employees is the key to gain competitive advantages at economic, environmental and social levels while 20,80% described it as a complex and adaptive system based on self-organized teams. Only 15,00% of the specialists sustain that it is a way of adapting to the current economic environment.

Figure 2. Possible de"nitions of the sustainable knowledge based organization, according to the Romanian and Spanish knowledge management specialists

Source: Leon, 2012, p. 276

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Synthesizing all these responses, we claim that the sustainable knowledge based organization is an economic entity that concentrates on increasing its market value (on short, medium and long term) by dealing with knowledge, economic, social and ecologic issues. Its main characteristics focus on short, medium and long term planning; organizational culture, leadership and motivation; organizational structure; resources and reputation (Table 3).

!"# Table 3. SKBO’s speci"city

Dimension Characteristics

Planning on short, medium and long term

establishing knowledge, economic, social and ecologic objectives for short, medium and long term.

Organizational culture, leadership and motivation

open organizational culture;

programs and activities that stimulate knowledge sharing among employees and also develop their capacity of taking decisions;

transformational and charismatic leadership.

Organizational structure

activity is structured around self-organized and interdependent teams;

reduced number and roles of "rst and middle managers;

#exible organizational structure;

outsourcing secondary activities.

Resources

specialized employees preoccupied with developing themselves and the environment in which they live;

an internal knowledge base;

investments in research and development activities;

an increased level of innovations’ absorption.

Reputationprograms that bring bene"ts to employees, customers, suppliers and to other members of the community.

On the one hand, each and every SKBO’s characteristic encourages the development of emotional intelligence competencies at the organizational level (Table 4). Some of them highlight the conditions that must be met


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in order to sustain emotional intelligence development (namely, #exible organizational structure, self-organized and interdependent teams, open organizational culture, transformational and charismatic leadership etc.) while others are presenting the e%ects of using it (like, internal knowledge base, reputation).

Table 4. Common points between emotional intelligence and SKBO

Dimension of emotional intelligence

Using emotional intelligence in a SKBO

Inputs Outputs

Awareness of own emotions open organizational culture;

trustful environment;

employees’ interest in developing their abilities, skills and competencies.

knowledge creation;

employees’ development.

Ability to discuss own emotions

activity based on self-organized and interdependent teams;

open organizational culture.

sharing knowledge;

developing the internal knowledge base.

Ability to control own emotions to facilitate thinking

employees’ interest in developing their abilities, skills and competencies;

open organizational culture;

activities that develop employees’ capacity of decision.

knowledge creation;

employees’ development.

Ability to recognize emo-tions others

activity based on autono-mous and interdependent teams;

open organizational cul-ture;

activities that develop em-ployees’ capacity of deci-sion.

knowledge creation and sharing;

developing an inter-nal knowledge base;

employees’ develop-ment;

transformational and charismatic leader-ship.

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Ability to manage emo-tions of others

transformation and charis-matic leadership;

open organizational cul-ture;

activity based on self-orga-nized and interdependent teams;

#exible organizational structure.

knowledge sharing and using;

developing the inter-nal knowledge base;

improving company’s relationships with its stakeholders.

As we may notice transformational and charismatic leadership acts as both output (from employees’ perspective) and input (from organization’s perspective) of emotional intelligence. !is is a consequence of the fact that it is emotion-oriented and is based on leaders’ self-awareness. So, "rst of all, leaders need an environment in which they can develop themselves. !ey need an open organizational culture, a trustful environment in which they feel free to express themselves, to share their ideas, their emotions without being criticized. !is type of environment may be found in a SKBO where employees are valued for their interest in developing themselves (where development becomes synonym with sharing ideas, emotions, knowledge and acquiring new ideas, emotions and knowledge). Second of all, leaders need their followers and a context that will allow them to develop their followers’ self-con"dence, self-e$cacy and self-esteem. !is context is provided in a SBO under the form of a #exible organizational structure and organized activity around self-managed and interdependent teams. !ese facilitate both leaders’ and followers’ development.

On the other hand, taking into account the speci"city of this kind of "rm, the knowledge management specialists consider that the most important categories of strategic factors are the ones that focus on the owners of the critical resource – knowledge – and on the environment in which this will be capitalized (Figure 3). We remark that the "rst three positions are occupied by human resources (with an importance coe$cient of 16,33%), technological environment (13,89%) and economic environment (12,31%). !e "rst one provides the “raw material” of the sustainable knowledge based organization while the other two capture the environment in which knowledge becomes action.


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Figure 3. !e importance coe#cients of the most important strategic factors, according to the Romanian and Spanish knowledge management

specialists

Placing customers on the fourth position re#ects that SKBO’s managers are not oriented towards hunting their clients but rather on attracting them with better goods and/or services. !ey are aware that company’s existence and their success depend on the category of customers they attract. Besides, they know that improving continuously their goods and services is the best way to succeed in a context in which customers’ preferences are changing faster than it used to do.

Last but not least, we notice that the importance coe$cients that had been distributed to the nine categories of strategic factors are oscillating in a range of almost ten points (from 7,44% to 16,33%). !is re#ects the close connection that exists between them and also the strong impact that each and every one of them has it on SKBO’s development. Everything that is related to company’s human resources de"nes the "rms’ strategic capacity but it may be useless if it is not correlated with the changes that occur in the technological and economic environment. On the other hand, knowledge enjoyment and exploitation is useful only if it allows anticipating and addressing customers’ needs. !is requires focusing on customers and on the changes that may occur in the socio-demographical environment.

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Human resources seem to be the core of the SKBO since it owns the most critical organizational resource – knowledge – and at the same time, is the engine of emotional intelligence. Hence, in order to react to the challenges that may appear in the internal and external environment, employees must possess the characteristics that are usually associated with emotional intelligence: self-awareness, self-regulation, motivation, empathy and social skills. !erefore, the Romanian and Spanish knowledge management specialists are pointing out four elements that are fundamental for company’s adaptation to environment and knowledge sharing (Figure 4) namely, human resources’ adaptability (30,70%), employees’ satisfaction (24,59%), employees’ level of education (24,20%) and workplace relationships (20,51%).

Figure 4. !e most important strategic elements that focus on human resources, according to the Romanian and Spanish knowledge management

specialists

!e identi"ed elements concentrate directly and indirectly on knowledge. On the one hand, we have the employees’ level of education which certi"es a certain variety and volume of explicit knowledge. On the other hand, we have employees’ adaptability, satisfaction and workplace relationships that describe individual’s a$nity for knowledge creation, dissemination and use and the organizational environment in which this could happen. !e elements included in the second category are related to individual’s emotional intelligence (Table 5).


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Table 5. !e relation between the SKBO’s strategic factors and emotional intelligence

SKBO strategic factors Aspects regarding emotional intelligence

Human resources’ adaptability

according to Reuven Bar-On (1997), it is a dimension of emotional intelligence which re#ects individual’s capacity of being #exible, realistic and capable of solving problems in the moment that they appear;

highlights employees’ need for more complete and accurate knowledge about themselves and for maintaining an equilibrium between a clear sense of self and appropriate responses to the challenges that appear in the environment;

its development depends on the level in which employees are involved in problem solving, activities that imply sharing ideas with others and learning from mistakes, taking decision in uncertain situations.

Employees’ satisfaction represents a positive emotional state that appears as a result of a job experience;

employees with a higher level of emotional intelligence are more satis"ed with their job;

the relation between satisfaction and emotional intelligence is mediated by organizational culture, interactions with external environment, communication, collaboration, the level of involving employees in decision making.

Employees’ level of education

o%ers information regarding employees’ knowledge and competencies;

re#ects the area in which the employee is specialized;

there are no previous research concerning the relationship between emotional intelligence and education.

Workplace relationships are guided by emotions and re#ected by the quality of teamwork and cooperation with other "rms;

are supported by the organizational culture and employees’ capacity to communicate with others, to be #exible and to deal with the perceptions, views, attitudes and responses of their colleagues.

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Human resources’ adaptability re#ects their ability to adapt to changing situations and to overcome obstacles. It also emphasizes their capacity of being #exible, realistic and capable of solving problems in a timely manner. Employees with a high level of adaptability are capable to gather important information from the internal and external environment, to respond appropriately to workplace conditions (by collaborating with their colleagues and producing the necessary changes) and to the emotional behavior of their coworkers (disseminating and creating knowledge). In other words, human resources’ adaptability is an emotional intelligence input that supports company’s adaption to a turbulent environment and also, facilitates knowledge creation, dissemination and use.

Employees’ satisfaction is an emotional state that appears as a result of a positive job experience. Although it is based on emotions, it may be correlated with emotional intelligence only if the relation is mediated by organizational culture and climate. In other words, people have a higher level of job satisfaction when they have the opportunity to use their skills and competences (both personal and social) in a propitious work environment. If the organizational culture encourages teamwork, risk taking, dialog, commitment etc. and the employees have self-con"dence, initiative and team capabilities then they will be satis"ed. !ey will be capable of using their knowledge in company’s purpose. As a result, they will contribute to their own development and also to "rm’s development.

As we have noticed earlier, SKBO o%ers an auspicious work environment for developing employees’ and organizational emotional intelligence. It is built on an open organizational culture and teamwork, two elements that facilitate the appearance of transformational and charismatic leaders and also the development of employees’ self-con"dence, self-e$cacy and self-esteem.

Employees’ level of education guarantees the existence of a certain quantity and diversity of knowledge and certi"es the development of social skills while the workplace relationships re#ect the e$ciency of using emotional intelligence. In other words, based on these, the employees will be able to develop relationships with their coworkers, to communicate and to


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collaborate with one another. !ey will be capable of accessing their colleagues’ knowledge and disseminate their own.

Although some di%erences appear between the Romanian and Spanish samples (Figure 5), regarding the value of the importance coe$cient, the order remains the same.

Figure 5. Comparative analysis between the Romanian and Spanish sample regarding the human resources’ strategic factors

Source: Bueno and Leon, 2012

Besides, the di%erences between the Romanian and Spanish samples are not statistically signi"cant (Table 6), although Spain has a greater history in analyzing and investing in knowledge management issues than Romania. !is situation emphasizes that human resources adaptability, employees’ satisfaction and education, and workplace relationships have a powerful impact on the process of managing strategically the human resources of a SKBO.

Table 6. Analyzing the di$erences between the Romanian and the Spanish sample

Strategic factors regarding human resources Chi-Square ( ) Df. Sig.

Chi-Square theoretic

( )

Employees’ education 0,163 1 0,688 0,161Human resources’ adaptability 4,965 1 0,026 4,956

Employees’ satisfaction 0,021 1 0,892 0,018Workplace relationships 13,035 1 0,001 10,827

a. Kruskal Wallis Testb. Grouping variable: nationality

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So, when we analyze SKBO from the emotional intelligence perspective, the emphasis is on employees’ capabilities and resources – knowledge, skills and abilities –, on developing a conductive environment for knowledge creation, dissemination and use but also on creating and developing emotions. It is envisaged that any experience or knowledge employees possess can remain dormant if they do not have a proper environment in which to exploit it.

Conclusion and further research!rough this methodological approach, we found that SKBO is an economic entity that focuses on increasing its market value on short, medium and long term by dealing with knowledge, economic, social and ecological issues.

In order to adapt to a dynamic and uncertain environment, managers of these companies have to know what is happening inside and outside company’s boundaries and they have to develop robust and resilient strategies. So, it is necessary for them to take a closer look to company’s human resources, to the changes from the technological and economic environment.

Human resources’ importance is re#ected by the very nature of the organization, namely – knowledge based. In other words, the fact that the main “raw material” of this type of companies is represented by knowledge – an intangible asset which can be found in employees’ mind and which is available only if it’s owners are willing to share it – has a strong impact on strategic orientation. !erefore, the manager of a SKBO will focus more on its employees and will take into account their level of education, satisfaction and adaptability. !e "rst one will be based on individual’s emotional intelligence and will ensure company’s access to a high quantity and diversity of knowledge while the second one will o%er the necessary conditions for sharing knowledge. !e employees’ adaptability is important due to the strong interrelation that exists between individuals and organization; a company cannot react in a timely manner to the changes that occur in the environment if its employees manifest a strong aversion to change or they are unwilling to cooperate.


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Taking all these into account, if we compare SKBO with an iceberg, we notice that its reputation, objectives and programs are representing its visible side while the elements that focus on human resources, organizational culture, motivation and leadership sustain employees’ and organizational emotional intelligence. As a result, we may claim that the last one represents the invisible side of the iceberg. Hence, the elements that encourage emotional intelligence development at individual and organizational levels (namely, human resources’ adaptability, organizational culture, leadership, workplace relationships, employees’ satisfaction etc.) cannot be so easily observed from the outside but are fueling the implementation of "rm’s programs and the achievement of economic, social, environmental and knowledge objectives.

!erefore, we argue that emotional intelligence is taken for granted in the sustainable knowledge based organization since its structure and its strategic factors focus either on the elements that stimulate developing emotional intelligence (namely, organizational culture, leadership etc.) or on the e%ects produced by its use (like, employees’ satisfaction, development etc.). So, emotional intelligence is an implicit dimension of the sustainable knowledge based organization since it represents:- an input – through the characteristics that employees possess; - a process – since "rm’s design (organizational culture, structure etc.) sustains its development;- an output – because its re#ected company’s reputation (namely, programs that bring bene"ts to employees, customers, suppliers and to other members of the community and sustain the "rm’s collaboration with its stakeholders).

Starting from this point, we aim to evaluate the correlation between emotional intelligence and performance of a sustainable knowledge based organization. In order to achieve our goal we will identify the sustainable knowledge based organizations from the Romanian and Spanish business environment and then we will measure employees’ emotional intelligence by using the emotional quotient test developed by Goleman (1995).

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!e in%uence of TMT in promoting trust within organizational networks

Cristina MOUTA1

Raquel MENESES2

Abstract. !e rapid technological changes, the shifting patterns of international trade and the di#erent competition modes forced the birth of a new organizational form called “dynamic network” by Miles and Snow (1986). !is paper, of conceptual nature, aims at analyzing the importance and role of Top Management Teams, according to Hambrick (1984), in creating an organizational culture favorable to the establishment of dynamic networks, in the development of trust and in promoting commitment within the network by reviewing a set of concepts like networks, trust, commitment and organizational culture. !erefore, the role of top management teams in building strong form trust will be analyzed by using the existent theory to establish the relation among the concepts of “dynamic networks”, top management team, commitment and the concept of trust introduced by Sabel (1993). As networks are not discrete events in time, they involve continuous relationships and this means commitment among all the members of the network. It then presents a discussion of some empirical and theoretical implications of the analysis. !e originality is in the combination of the various theories, namely the “dynamic network” of Miles and Snow (1986), the Upper Echelons !eory (Hambrick & Mason, 1984) and the concept of “trust” of Sabel (1993) to prove that top management teams have in"uence in the development of trust. While some authors argue that top management actions have direct implications in the company’s performance, others argue that the strategic success of a business depends on the ability of the top management team to build strong forms of trust within global networks, and then by being part of a network companies will have access to a wider variety of resources, to more knowledge, capabilities and technology. !e challenge abides on showing how an organizational culture, trust and commitment in exchange relationships within a dynamic network can enhance or be a source of competitive advantage for organizations.

Keywords: top management teams; network; trust; commitment; organizational culture.

1. Ph.D., College of Economics, University of Porto, Porto, Portugalia, [email protected]. 2. Ph.D., College of Economics, University of Porto, Porto, Portugalia.

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Introduction!e shifting patterns of international trade, the new forms of competition and the rapid technological changes have forced many "rms to rethink their market approaches, and consequently their strategies, structures and management processes have been combined and resulted in a “dynamic network” (Miles & Snow, 1986).

A change can also be observed in the focus of organizational theory away from the internal processes of organizations towards the organization–environment interface (Häkansson & Snehota, 2006).

According to Hambrick and Quigley (2014) executive actions substantially shape the fate of enterprises and as Hambrick (1987) argues the strategic success of a "rm depends not only on one person, but on the entire top management team, therefore the relevance of exploring the role and the importance of the top management team within organizations and even more importantly when relating to other "rms and members of the same network.

In fact, Kiessling and Harvey (2004) defend the idea that the top management team (TMT) will be central in the development of networks between organizations, in particular the personal interactions that are of great importance for building strong forms of trust.

For all this, it is very important to analyze the available literature regarding top management teams, network and dynamic network, trust, commitment and organizational culture to be able to determine how TMT in#uence the creation of an organizational culture that promotes trust and commitment among individuals and other organizations.

!is topic is particularly interesting as some researchers, like Bower (1970) have highlighted the role of CEOs in shaping organizational architecture through their decisions about structure, executive sta$ng, incentives and metrics. Others, such as Hambrick and Finkelstein (1990) focused their attention on establishing a relation between TMT tenure and organizational outcomes. Or, Hambrick and Quigley (2014) who have

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studied for twenty years the in#uence of the CEO on a "rm’s performance. !ere appears to be a substantial lack of research in exploring the role of TMT in creating an organizational culture capable of promoting a strong form trust within dynamic networks.

Literature ReviewOnce the aim of this study is to understand the role and importance of top management teams in creating an organizational culture favorable to the establishment of dynamic networks, a review of the main contributions, approaches and theories related to the “role of top management teams in the organizations”, “network”, “organizational culture”, “trust” and “commitment” will be carried out. !e concepts of “trust” and “commitment” will also be reviewed as they are intimately connected to the de"nition of networks and as top management teams may have a huge in#uence in creating trustworthy relations within a network and therefore committing to the other members. In fact, Kiessling and Harvey (2004) argue that the top management team is instrumental in the development of trust between organizations, and that the personal interactions have an important contribution for building a strong form of trust. !ese authors also defend that strong form trust will open the network to more knowledge exchanges and therefore reduce any opportunistic behavior.

Top management team (TMT)!e concept of “Top Management Team” appeared in the academic literature around the eighties, with the Upper Echelons !eory (Hambrick & Mason, 1984) as a reference, and now it is widely used by both academics and practitioners representing an important advance since the management of a "rm is commonly a team activity. In fact it usually refers to a small group of the most in#uential people within an organization. Sometimes this group can be named after “management committee” or “executive committee” (Hambrick, 1995).

Kiessling and Harvey (2004) defend that the Top Management Team (TMT) must be included in strategic decisions as they in#uence the attitudes within their "rm and in their future relationships. Hambrick (1995) argue that the Top Management Team task is rather complex, once

Cristina MOUTA, Raquel MENESES

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they are bombarded with information, some are ambiguous and for this reason it is relevant to focus on the role of the TMTs. As a result the characteristics of the top team will largely in#uence the way they scan and interpret the environment and the decisions they make. To reinforce this aspect, Hambrick (2007) state that the executives’ values and personalities have great in#uence on the way they interpret the situations they face, and how this can determine their decisions.

In fact, the Upper Echelons !eory (Hambrick, 1984) defends the idea that the organizational outcomes, in terms of strategic choices and "rm’s performance levels are partially in#uenced by the top management background characteristics, namely their values and cognitive bases. !e central idea of this seminal paper is focused on how executives behave based on their personalized analysis of the strategic situations they face, and that these analysis are a product of the executive’s experiences, values and personalities.

Bowman and Kakabadse (1997) argue that the Upper Echelons perspective appeared as opposition to the argument of Hall (as cited in Hambrick & Mason, 1984, p. 194) that “large organizations are swept along by events or somehow run themselves” and also to put into a more coherent framework a set of fragmented literature on the characteristics of top managers.

Later in 1987, Hambrick recognizes that it is possible to reconcile these two opposing views depending on how much managerial discretion exists. One implication of managerial discretion for the Upper Echelons approach is that this theory o%ers good predictions of organizational outcomes in a direct proportion to how much managerial discretion exists. Managerial discretion refers to the "eld of action available to top executives and discretion refers to the di%erent levels of constrain that di%erent TMTs face. When managerial discretion is low, the action of the top management is limited, when high top managers are allowed to “shape the organization”, and leave their marks on the organization (Hambrick, 1990).

Hambrick and Finkelstein (1987) state that managerial discretion can be determined by three sets of forces. Firstly, the degree to which the environment allows change and variety; secondly, the extent to which an

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organization allow the top executives to plan and implement the strategy; and lastly, the degree to which the top manager is capable of creating multiple paths.

However the resource availability and the presence of some inertial forces may limit or enhance managerial discretion. Large organizations and inertia tend to inhibit managerial #exibility in some critical domains. And the same happens when the "rm o%ers a reduced number of options to managers (Hambrick & Finkelstein, 1987).

In 1981, Hambrick had already distinguished two main sources of relevant contingencies for organizations: strategy and environment and defended that executives who could cope with both would have relatively great power within their organizations. !e author also noticed that there are four parts of the environment that managers can scan, following the classi"cation of the three top management tasks introduced by Miles and Snow (1978): Entrepreneurial task - related to the identi"cation of market/product trends; Engineering Task - focused on external developments that can contribute to the improvement of processes; Administrative environment - concerned with the impact of external developments on the roles and relationships in the organizations; Regulatory environment: related to taxes, government regulations, accreditations and sanctions.

TMT by performing the top management tasks identi"ed by Miles and Snow (1978) and screening the environment will notice the rapid technological change, the shifts in competition modes and international trade and recognize the need for a new organizational design. In this case, the administrative task happens as a consequence of the entrepreneurial and of the engineering tasks.

According to Miles and Snow (1986) there is a new organizational form called “dynamic network”, hence the importance of trying to fully understand what they represent, how do they work and what is their impact in an organization.


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Network!e network approach developed by the Industrial and Marketing Purchasing Group (IMP Group) describe the industrial systems in terms of three basic variables; actors, activities and resources (Häkansson, 1987, as cited in Brito & Roseira, 2005). !is is called the ARA (Actors, Resources and Activities) model (Häkansson, 1987, as cited in Brito & Roseira, 2005). !e actors are those who perform activities and control resources according to their goals and they can be individuals, "rms, and groups of individuals, groups of "rms or even parts of "rms. !e activities can be either transformation or transfer (Häkansson & Snehota, 1995). !e "rst ones are directly controlled by one actor and change or improve the resources, the transfer activities link transformation activities and transfer the direct control over a resource from one actor to another. !e resources can be subdivided into three main categories: physical, like equipment and buildings, "nancial and human resources such as labor, knowledge and relationships. Resources can be accessed directly through ownership, or indirectly through relationships (Brito, 2006). And, it is the structure of the relationships established among these three elements that can be referred to as networks. !is happens because activities can be linked in a great variety of ways, providing “the backbone of any organization or inter-organizational relationships” (Geo% and Leney, 2009, p. 553). Actor bonds, as they are social in nature and tend to create, nurture and sometimes destroy relationships through interaction with other actors. Resources can also tie in once they are in contact with di%erent resource types both tangible, like equipment and intangible like knowledge and skills (Häkansson & Snehota, 1995).

!e ARA model represented a major step forward in terms of conceptualizing B2B relationships and networks. Although each ARA element is di%erent from the other, their close relationship o%ers an excellent overview of how both organizations relate within a network (Geo% & Leney, 2009).

However, according to Brito (2006), the dependence between the members and the possible complementary objectives may conduct to a division of tasks within the network that makes the coordination of all activities an important issue in industrial networks.

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In fact, Davies, Leung, Luk and Wong (1995) argue that the management of a network constitutes an important element of strategic behavior and the networking paradigm is a way of understanding the totality of relationships. !ese authors also defend that networks may help a "rm to enhance their competitive advantage once a network provides external access to tangible and intangible resources of other network members.

Furthermore, Scott and Laws (2010) present two approaches to the concept of a network: it may be a sensitizing metaphor (a purely descriptive label given to an activity such as a networking meeting); or it can be a conceptual representation of social structure and how it is manifested based on theorizing of social interactions. !ese two approaches cover a wide range of inter-organizational networks since formal structured alliances, joint-ventures and partnerships to informal information gathering and support networks, being in their opinion, the most relevant elements of the actors and the relationships.

A network can also be de"ned as an organizational form featured by repetitive exchanges among semi-autonomous organizations that rely on trust and embedded social relationships to protect transactions and reduce their costs (Borgatti & Foster, 2003).

Miles and Snow (1986) go further by introducing the concept of “dynamic network”, as a way "rms have to react to the new competitive environment. !is new organizational form is “a unique combination of strategy, structure and management processes” (Miles & Snow, 1983, p. 62). !e dynamic network suggests that its main elements may be easily assembled and reassembled so as to meet the changing competitive requirements. !e characteristics of a dynamic network are: Vertical disaggregation (Business functions as product design, marketing and manufacturing.); Brokers (Business groups); Market mechanisms (contracts and payment for results are frequently used); Full-disclosure information systems (broad access to information systems).

!e dynamic network can be viewed either from the perspective of each individual element or from the network as a whole. For a "rm, the main advantage of being part of a network is the opportunity to gain access to


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a particular resource, so each member should be seen as complementing rather than competing with the other members.

If the network is seen as a whole, then when a part is missing or performing poorly it means that the network may be performing below the desirable levels for a while, however as organizational relationships are a result of the relationships established among people working in the organizations, and not among organizations, the more people interact, the more they will be contributing to the success of the dynamic network.

!e arrival of this concept forced managers, especially the ones in position to redesign their organizations, to change the way they viewed the future directions of their "rms and also the approaches they used to manage the existing structures (Miles & Snow, 1986). So, the ability to develop trust and commitment and a strong organizational culture favorable and open to the outside world is most relevant to the success of networks.

Trust!e concept of trust has been used in a large number of research domains with various methods and measurement instruments, however it has seldom been explicitly examined (Geyskens, SteenKamp & Kumar, 1998).

Menko% (1993, p. 44) comments: “To be trusted by others and to maintain one’s trustworthiness are frequent explanations for success to business a%airs and the continuation of commercial relations”.

!e trust building between businesses is rather di$cult in particular when assumptions about anybody’s goodwill are made. However, Kiessling and Harvey (2004) believe that trust within global relationships may result from two main sources: the context and the relationship. In the "rst case, trust comes naturally as a consequence of having adopted a relevant behavior or knowledge of how e%ective the interaction and/or communication is with the other members. When trust appears as a result of the relationship it is a product of the actors’ interactions.

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Trust is “the mutual con"dence that no party to an exchange will exploit the other’s vulnerabilities” (Sabel, 1993, p. 1133). !is author refers to three di%erent types of vulnerabilities: “Adverse Selection Vulnerability” – exists when parties "nd it di$cult to evaluate the quality of resources or assets of the other member; “Moral Hazard Vulnerability” – appears when the elements "nd it costly to evaluate the quality of the resources; and “Hold-up Vulnerability” – is found when members make large or asymmetric transactions.

Despite being a precondition of social life and an attribute of relationship between exchange partners, if trust is missing, no one will be tempted to risk and move "rst.

Barney and Hansen (1994) found three types of trust in exchange relationships. !e "rst - Weak form trust – happens when there are no vulnerabilities, so chances for opportunistic behavior are limited, and also when the quality of goods and services is not costly to evaluate; the second form - Semi-strong trust – is found when signi"cant exchange vulnerabilities exist and so parties should be protected with some governance devices to limit opportunistic behaviors from other members; the third - Strong form trust - Emerges in the face of signi"cant vulnerabilities, whether there are any governance mechanisms or not. Geyskens, SteenKamp and Kumar (1998) "nd that trust contributes to satisfaction and long-term orientation over and beyond the e%ects of economic outcomes of the relationship.

Berry and Parasuraman (1991) sustain the idea that relationships are developed on the basis of existing mutual commitment. Following the idea of Morgan and Hunt (1994) that commitment and trust encourage the existence of relationship investments through the cooperation between exchange partners, limit the attraction of short-term alternatives once higher long-term bene"ts are expected. So, commitment and trust lead to cooperative behaviors. !erefore, the need to "nd out what the concept of commitment means and what it implies becomes essential.

Commitment!e concept of “commitment” has been de"ned several times according to the area of research. !e most common de"nition comes from the Human


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Resources "eld and is related to the commitment of an employee to the organization, however this is not the de"nition that matters for this study, this research is more focused on the commitment among organizations.

Wilson (1995) de"nes commitment as being the desire to maintain a relationship and ensure that it lasts. For Ramasamy and Goh and Yeung (2006, p.134) a relationship commitment relates “to the desire to continue a business partner relationship and the willingness to put in the e%ort to ensure long-term relationship”.

Lenney and Easton (2009, p. 553) de"ne commitment as “agreements between two or more social actors to carry out future actions” and range from the speci"c and everyday actions to the general and strategic ones. According to these authors the concept of commitment happens among actors, as one may be fully committed to another and the other actor may not be committed at all. Additionally this term may be used to enrich the ARA (Actors, Resources and Activities) model, by showing why actors, resources and activities are linked and helps to explain interaction and network outcomes. Following these authors’ idea, actors are usually driven by goals, which imply actions.

Goals are seldom reached in isolation. !ey are realized and achieved by continuously creating and maintaining business relationships.

Nevertheless, this study will focus on the commitment among organizations. Morgan and Hunt (1994) are of the opinion that if a committed partner believes that an ongoing relationship is working on and makes all the e%orts to sustain and endure it inde"nitely, then it is a relationship commitment. !e de"nition of commitment of Morgan and Hunt (1994) was also applied to the organizational commitment scales they developed. !ese authors recognize that commitment among exchange partners are fundamental to achieving “valuable outcomes” for themselves, and so partners will make all the e%orts to develop and maintain their relationships. So, they state that commitment is fundamental when relational exchanges occur between a "rm and its partners.

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Geo% and Leney (2009) argue that commitments can be considered a resource within the network, but a resource that orients the activities and re#ects the goals of members (actors).

Commitment can be caused by tangible elements such as large and irreversible capital investments or intangible elements like wanting to seem consistent with their prior actions and pronouncements (Hambrick, Geletkanycz & Fredrickson, 1993). When it is caused by intangible elements, it requires a further research on what the "rm values and beliefs are behind the actions taken or the behaviors adopted, therefore, it would be valuable to develop a research on the organizational culture.

Organizational Culture !ere are many de"nitions of organizational culture, however organizational culture usually refers to the values and beliefs that provide norms about expected behavioral patterns that employees might follow (Schein, 1992). !ose shared values work most of the times as guidelines to members’ behavior. Mumford, Scott, Gaddis and Strange (2002) reinforce this idea by arguing that the senior management of a "rm can exercise in#uence within the organization through values. In fact, by emphasizing certain values and by creating norms for expected behaviors, managers can build an organizational culture with a powerful in#uence on employee behavior. Values and norms can in turn manifest itself in artifacts (e.g., organizational rituals, language and stories, and physical con"gurations) and lead to desired or accepted behaviors.

Edgar Schein (1985) presents culture as a set of assumptions one makes about a group they belong to. !e assumptions are grouped into three levels: artifacts, espoused beliefs and values, and basic underlying assumptions di%erentiating the levels at which organizational culture manifests. Organizational norms derive from values and manifest in artifacts, which represent the most visible layer of the organizational culture once they became evident in symbols, rituals, physical workspace evidence and type of language (Schein, 1992).

Although organizational culture is a largely invisible social force, it is very powerful within an organization. For this reason, Hogan and Coote


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(2013, p. 1609) state that “organizational culture is a powerful means to elicit desired organizational outcomes”.

!eoretical frameworkOnce this paper is of conceptual nature, the research started with a literature review to be able to develop some propositions, which can be tested in a following stage.

For now, this research paper intends to address the following propositions taking into account the general theoretical approach/framework applied:

First Proposition - Top Management Teams are able to create and promote the organizational culture

Second Proposition – Top Management Teams are crucial in the developing of trust and commitment

!ird Proposition – !e role of trust and commitment in the management of a "rm’s network

Anderson, Rungtusanatham and Schroeder (1994) defended that top management leadership is important to create and communicate a vision for continual improvement in order to enhance the viability of the organization. Finkelstein and Hambrick (1990) argue that it is important to understand the background, the experiences, and values of top managers to explain the choices they make. And, the Upper Echelons !eory (Hambrick & Mason, 1984) is based on the idea that top management teams highly in#uence a "rm’s outcomes, in fact it is expected that strategies and performance re#ect the management characteristics. Furthermore, Finkelstein and Hambrick (1990) noticed that a management team tenure in an organization in#uence their commitment to status quo, their attitude to risk and its informational diversity, which will a%ect the organizational outcomes. So, "rms with long tenure teams will tend to follow persistent and stable strategies due to long-term acculturation of the managers which

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creates a common organizational vision and also because they are not willing to take unnecessary risks.

!e values, behaviors and experiences of the Top Management Team, following Schein (1992) concept of culture will shape the culture of the organization, as organizational strategy, actions and decisions will re#ect the visible layer of the organizational culture.

Culture represents a collective social construction over which Top Management Teams have a relevant in#uence on, in fact Schneider (1987) argues that the kinds of people in a place determine the organizational behavior, in other words, people de"ne the way the places look, feel, and conduct’s itself. !erefore, leaders de"ne the culture of the organization.

Once trust within global relationships result mainly from context and/relationship, then according to Kiessling and Harvey (2004), if managers adopt a relevant behavior or have knowledge on how to e%ectively interact and communicate (context), and/or are aware of the consequences of their interpersonal interactions (relationship), then a favorable atmosphere is created within which trust can be developed in an organization. In fact, these authors defend that the top management team is crucial in the development of trust among organizations, in particular because the personal interactions are highly important for building strong forms of trust.

Trust grows with repeated use over time so it is usually studied and observed in long-term relationships; therefore it is most likely to create commitment in turn (Kiessling & Harvey, 2004). According to Salancik (1977), commitment molds people’s attitudes and maintain their behavior even when possible tangible rewards or positive feedback is absent, so there is commitment when one is bounded to his acts. Salancik (1977) recognizes commitment as being a “powerful and subtle form of coopting the individual to the point of view of the organization” (Salancik, 1977, p. 80).


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Morgan and Hunt (1994) argue that when both commitment and trust are present, they produce outcomes that promote e$ciency, productivity and e%ectiveness. In short, commitment and trust lead directly to cooperative behaviors, the kind of behaviors "rms should have when they are members of a network.

A "rm is nothing more than a complex network of internal and external relationships among people, functions, and departments that constitute the starting point to develop and implement strategies (Ritter, Wilkinson & Johnston, 2004). And, Davies, Leung, Luk and Wong (1995) argue that managing a network is an important aspect of any strategic behavior and networking which implies an understanding of the totality of the relationships.

Hence, two more propositions come up:

Fourth Proposition – Top Management Teams characteristics impact on network of business relationships

Fifth Proposition – !e type of organizational culture may in#uence the management of networks.

Managers who can combine the two sources of critical contingencies: environment and strategy, are likely to have greater in#uence within their management teams (Hambrick, 1981). !e dynamic process of adjusting to environmental change and uncertainty involves a wide range of decisions and behaviors (Miles & Snow, 1978). Usually, managers make their strategic decisions based on their views of the environment and of the resources of their organizations, which implies that if managers perceive the network approach as being a competitive advantage then they will make all the necessary e%orts to con"gure the organizational structure and resources to meet the new environmental challenges (Miles & Snow, 1986).

If, according to Schneider (1987), top managers shape the culture of an organization through their beliefs, actions, values and behaviors

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and if they understand the network approach as a possible competitive advantage, once the organization gains access to other members’ resources (tangible and intangible), then when taking decisions and con"guring the organizational structure, top managers will also consider the resources available in the network into their actions and behaviors (Miles & Snow, 1986). Actions and behaviors that help to in#uence the organizational culture are as follows.

!"# Figure 1. Design of the theoretical framework

!erefore, if Top Management Teams’ values, beliefs, actions and behaviors in#uence organizational culture, if the culture of an organization re#ects the characteristics of their leaders according to Schein (1992), if their Top Managers manage to build trustworthy relationships and create commitment within the organization, then it is most likely that Top Management Team characteristics will have an important role to play in the management of dynamic networks, as shown in "gure 1.Conclusions

!is conceptual paper uses the available literature to extract some prepositions for further research.

!is paper is a "rst attempt at understanding all the complexities in relation to the impacts of Top Management Teams on creating and promoting organizational culture and on the management of business networks. It is


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also expected to acquire an understanding of the role of trust, commitment and of the culture of an organization on a "rm’s network of business relationships.

So far, the literature has been used to extract and con"rm the propositions, however this paper lacks some empirical con"rmation. In any subsequent papers on this subject area, more research on the importance of culture as a mechanism of behavior control, on the role of commitment in the management of networks, on the process of building strong forms of trust and on the process of creating or shaping organizational culture by top management will have to be carried out. !e idea of the subsequent second stage when conducting further research to collect some empirical data through semi-structured interviews, and then confront continuously the theoretical framework with some empirical work, until it reaches a theoretic saturation and the propositions are con"rmed.

However, further theoretical framework may be necessary in order to frame the empirical data in the second stage of this research.

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Hogan, S.J., and Coote, L.V. (2013). Organizational Culture, innovation, and Performance: A Test of Schein’s Model. Journal of Business Research, 67(8), 1609-1621.

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Strategy development of public organizations

Lajos SZABÓ1

Anikó CSEPREGI2

Abstract. Nowadays, a number of studies are published on how organizational strategy is developed, what management tools and methods top managers use for formulating organizational strategy. However, these studies have focus mainly on the companies of the private sector. In many cases, even the representatives of the public sector emphasize that the approaches, tools and methods used in the private sector cannot be applied in the public sector. In this paper, using the example of a university faculty, we present that the methods used in strategy development can successfully be transferred from the private sector to the public sector.

Keywords: strategy development; tools and methods; vision and mission statement; balanced scorecard; benchmarking; customer relationship management; Hungary.

University of Pannonia, Faculty of Business and Economics !e University of Pannonia is a signi"cant university in Hungary. !e educational and research activities are carried out in several cities in a unique matrix organization structure. !e university was founded in 1949. In the beginning its operation was characterized by engineering, primarily chemical engineering education and research. After the transition, "rst the teacher education, then the business and economics, and information technology became important. With the integration of the Georgikon in Keszthely, as an independent agricultural faculty, the University has become a University with "ve faculties.!e University of Pannonia began its business and economic programs in the 1970’s with the Engineering in Industrial Chemistry program and it continued with the Engineering and Management program from 1993 - the latter was the "rst of its kind in the country. !e university founded the Institute of Economics in 2000, which became the Independent Institute of Economics in 2001. !e Institute was

1. Ph.D., Associate Professor, Dean of Faculty of Business and Economics, University of Pannonia, Veszprém, Hungary, [email protected]. Lecturer, Ph.D., Department of Management, Faculty of Business and Economics, University of Pannonia, Veszprém, Hungary.

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responsible for the economic programs within the Faculty of Engineering until September 2003, when the Faculty of Economics was established. In 2012, in accordance with the double pro"le the name has been o$cially altered to Faculty of Business and Economics.!e primary objective of the Faculty of Business and Economics is the education of businessman, economists, engineering managers and the further education and retraining of executives. !e aim is to produce professionals who are capable of creating, managing and leading systems of enterprise and national importance.!e Faculty of Business and Economics of the University of Pannonia is recognized as a constantly growing and important intellectual center in the Transdanubia region and contributes to the functioning and improvement of the public and civil society with its high quality education, research and development. In cooperation with the companies of the Central Transdanubian and Western Pannonian regions, the Faculty promotes the realization of regional and cross-border education research and development programs.

Organizations of the private and the public sectors!ese days the leaders of public sector organizations often ask the following question: How are their organizations di%erent from the private sector organizations? !e di%erence, of course, is that the primary goal of private sector companies is to operate for pro"t maximization, while public sector organizations serve the public good. However, today these di%erences appear rather in terms of the philosophy of organizations and the purpose of their foundation. Using the example of the Faculty of Business and Economics, University of Pannonia we present that a public organization has the same basic characteristic as a private sector organization has.

Competition Organizations are competing with products and services they o%er in a given market. A higher education institution in the educational market competes with the products and services of the other higher education institutions. !e products and services in this case are certain academic programs, courses, trainings and research results, i.e. publications, research

453

reports, innovations, patents. As in many "elds of business, in Hungary as well, the trend shows that the government decreasingly "nances academic programs, which thus has to be "nanced through private sources. !e same is true for academic and applied research. !e competition of business schools thus is not only symbolic, but it is also a real competition the same way as it is among the organizations of the business sector.

Pro"t maximizationBased on the previously discussed topic it follows that to operate successfully on the long-term the higher education institutions have to reduce their costs and increase their income. !e cost savings can be achieved by internal rationalization, structural and other changes. Attracting new students, the acquisition of corporate research, sponsor involvement and increasing tender projects can increase the income.

Customer orientationIt is important for a higher education institution to identify its customers. From the primary customers the students, the companies and organizations employing graduate students, and the high schools educating prospective students should be highlighted. Besides the traditional educational programs, talent management platforms provide an opportunity for these two stakeholders to build close collaboration with the involvement of the business school.

Willingness to changeOne of the greatest challenges of the Faculty is to adapt quickly to the changes of market conditions. !e introduction of the Bologna system, the changes in the "nancing system, in the higher education law, and in the technical progress are changes that the Faculty needs to respond to. !is can only be achieved by #exible and adaptive structure.Improvement of internal processes!e improvement of the e$ciency of internal operations is a key point for the success of every organization. In recent years the Faculty has developed the basis of distance learning and e-learning. In order to increase the internal cohesion the organizational structure of the Faculty has been reformed, and the separated departments have been integrated into institutes. !e

Lajos SZABÓ, Anikó CSEPREGI

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Centre of Marketing and International Relations has been established to communicate better with the external stakeholders.

Quality awarenessIn 2008, the Faculty of Business and Economics, University of Pannonia was the "rst to win the Hungarian Higher Education Quality Award in the country, and since then only one Faculty in the country has been able to reach such a high level of performance. A professional jury of national experts based on strict valuation criteria awards this prize. !is means that the Faculty was found the best in the country in the complex evaluation of education, research performance, value creating processes, as well as the services provided for the customers such as students, partner organizations and companies. !e Faculty also decided to achieve more challenging goals instead of trying to win this award again. By introducing the AACSB standards the leadership of the Faculty is working on acquiring an international accreditation being among the "rst faculties in Central and Eastern Europe.

Strategy development: vision – mission – strategic goals!ere are several approaches to create a strategy (Hunger and Wheelen, 2011, p. 3). However, they all share a common feature that the foundation of a successful strategy is the analysis of internal conditions and the external environment. During the analysis of internal conditions the strengths are collected and the weaknesses are faced, then an attempt is made to adjust these to the market opportunities and threats. !e best solution in analyzing the external environment is to have an integrated approach to analyze the di%erent environmental segments (legal, economic, political, cultural, and geographical). As the result of these analyses a decision can be made upon those business areas on which the operation has to focus in the future (Luthans and Doh, 2012, p. 280).

!e next step is the formulation of the vision and the mission statement. !e vision describes the desired future state of the organization. !e vision does not contain numerical values to be obtained, however it outlines those conditions the organization will endeavor to achieve in the coming period. !e mission is the formation of the guideline of the core

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of the organizational strategy and values which is a guiding principle for managers and employees.

!e statement of the vision and mission is essential because during the development of the strategic goals, the determination of the operational and action plans, the development of the control system, and the future management decisions the achievement of the goals and objective de"ned in the vision and mission has to be taken into consideration.

!e organizational goals, compared to the mission, are more speci"cally de"ned. !ey are the core elements of the organizational management system (Luthans and Doh, 2012, pp. 283-284). !e quantitative determination should be kept in mind when they are formed. !e path toward the goals is built up as a series of strategic programs which are divided into speci"c, short-term operational plans.

!e mission statement of the Faculty of Business and Economics is formulated as follows:

MISSION OF THE FACULTY OF BUSINESS AND ECONOMICS !e Faculty of Business and Economics is to contribute to the socio-economic development of the Central and Western Transdanubian Region as well as Hungary through state-of-the-art education, research and services based on the stakeholders’ demand.!e Faculty of Business and Economics improves and develops its operation according to the following stakeholders’ expectations: current and future students, alumni, employers of its graduates, the University community, the public and private sectors including regional businesses and non-pro"t organizations, and the Hungarian and international academic community. !e Faculty of Business and Economics aims to provide its current and future students with high-quality, up-to-date portfolio of educational programs that includes business skills and ethical and value-based competencies for undergraduate students. It strives to ensure distinctive professional development for Master’s degree students to enable them to meet the requirements of competitive and challenging economic development, guide and prepare doctoral students for an academic career, and provide iterative professional development, corporate network and services for the alumni. !e Faculty of Business


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and Economics has a major stake in contributing to the enhancement of the international academic prestige of the University and to "nding solutions to the complex economic problems a%ecting the University. !e Faculty of Business and Economics meets the requirements of the public and private sectors through the availability of competent undergraduate and graduate students and through direct access to the research-based know-how residing with the members of the Faculty of Business and Economics. As one of the most signi"cant higher educational and research institutions of the Central Western Transdanubian Region, the Faculty aims to strengthen its social responsibility.

!e vision of the Faculty contains the following:

VISION OF THE FACULTY OF BUSINESS AND ECONOMICS1. !e Faculty is a recognized and de"ning participant in the higher education for business and economics in the Central and Western Transdanubian Region.2. Its role and position are based on its educational programs in compliance with the international norms.3. !e Faculty’s scienti"c research centers, furthermore the research and innovation achievements exceptionally serve the community and the development of the economy.4. Its organizational culture supports the increase of the colleagues’ and the students’ willingness to improve and the international competitiveness.By ful"lling the vision, the Faculty of Business and Economics, University of Pannonia will strengthen its position amongst the leading Hungarian higher educational institutions.

Management methods and toolsSeveral management methods and tools can be used during the process presented in the previous chapter.

Since 1993, Bain and Company has surveyed executives around the world about the management tools they use and how e%ectively those tools have performed. !ey focus on 25 tools and re"ne the list each year. !e tools included in the survey must be topical and measurable, and they need to

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be relevant to senior management. With the Bain and Company 14th Management Tools and Trends survey, they have now compiled a database of more than 12,000 respondents, which enables us to systematically track the e%ectiveness of management tools over any given time period (Bain and Company, 2013, p. 12).

Based on the survey the following table contains the ranking of the 25 most important tools.

Table 1. Top 10 most used management tools (Management Tools and Trends, Bain and Company, 2013, p. 9)

Global North America

EMEA APAC Latin America

Strategic Planning 1 (t) 2 (t) 5 (t) 9 2

Customer Relationship Management

1 (t) 4 (t) 2 (t) 1 7 (t)

Employee Engagement Surveys

1 (t) 1 7 6 10 (t)

Benchmarking 4 2 (t) 2 (t) 13 (t) 19

Balanced Scorecard 5 6 (t) 1 7 (t) 16 (t)

Core Competencies 6 (t) 10 9 3 5

Outsourcing 6 (t) 6 (t) 5 (t) 4 (t) 22

Change Management Programs

8 8 (t) 4 20 7 (t)

Supply Chain Management

9 8 (t) 14 (t) 4 (t) 13 (t)

Mission and Vision Statements

10 14 (t) 10 16 20

Customer Segmentation 11 (t) - 8 - 4

Total Quality Management

13 - - 2 -

Satisfaction and Loyalty Management

16 - - 7 (t) 10 (t)

Business Process Reengineering

11 (t) - - 10 1

Strategic Alliances 14 (t) - - - 3

Big Data Analytics 17 - - - 7 (t)

Open Innovation 22 - - - 6Note: (t)=tied


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Balanced ScorecardA Balanced Scorecard de"nes what management means by “performance” and measures whether management is achieving desired results. !e Balanced Scorecard translates Mission and Vision Statements into a comprehensive set of objectives and performance measures that can be quanti"ed and appraised (www.bain.com).

!e balanced scorecard supplemented traditional "nancial measures with criteria that measured performance from three additional perspectives—those of customers, internal business processes, and learning and growth. It therefore enabled companies to track "nancial results while simultaneously monitoring progress in building the capabilities and acquiring the intangible assets they would need for future growth. !e scorecard wasn’t a replacement for "nancial measures; it was their complement (Kaplan and Norton, 2007, p. 2).

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Figure 1. Balanced Scorecard: the four perspectives (Kaplan and Norton, 2007, p. 4)

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!e Faculty of Business and Economics used the Balanced Scorecard to determine its strategic goals. !e original scorecard has been re-interpreted, taking into consideration the most important features of the Faculty’s operation. !e four key perspectives received new interpretations as well, and were determined from the Faculty’s mission and vision.

EducationEducation belongs to the fundamental issues of the Faculty. On undergraduate level higher-level vocational trainings, on the graduate level bachelor and master programs are o%ered to our students. With the aim of knowledge renewal, extension and deepening we recommend our short-time programs, trainings and 1-2 year-long postgraduate specialist training courses adjusted to the market needs providing a wide range of possibilities of lifelong learning. !e Doctoral School in Management Sciences and Business Administration opens up dimensions to become immersed in sciences to those who are interested in academic career.

Research – Development – Innovation!e research – development – innovation de"nes the scienti"c potential of our Faculty. !e researches cover the "elds of economics, business and management. In the matter of development and innovation, the process, organization and marketing innovations are the key factors in our Faculty’s life. Besides the academic and research R+D+I, student talent management plays a de"ning role in our Faculty’s life.

Brand buildingWe are extending our reputation, national and international recognition on the basis of accumulated knowledge, operational model, external a%airs and especially graduate students at our Faculty. !e way we do it enhances the prestige and the reputation of the Faculty of Business and Economics, University of Pannonia.

Learning organizationAs a learning organization, the Faculty improves its problem-solving and renewal skills. Making the organizational processes more e%ective and establishing and operating knowledge transfer platforms are the tools of that.


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At our Faculty, organizational learning is a process in which our colleagues manage the culture of the organization and not the organizational culture manages the people. It de"nitely relies on the awareness of all the levels of the organization, especially the awareness and the guide of the faculty leadership.

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Education

OBJECTIVE TIME HORIZON INDICATOR

Programs and subjects in foreign languages

5 years – continuous

!e number of subjects in a foreign language must exceed 50

3 years To launch a new program in English

Hosting foreign students

5 years - continuous 10 foreign students / term

Hosting native academics


At least 3 native guest lecturers must declare a subject yearly

feasible within 5 years

A Fulbright Scholarship lecturer within 5 years

Supply of national and international open courses and trainings

2 years To deliver the "rst open training

2-5 years - continuous

To deliver at least 1 open training yearly

To launch consulting activity

1 year To sign the "rst consulting order

1-5 years - continuous To sign an order every two years

To clean the educational portfolio, curriculum development (competence-based curricula, more powerful market orientation, internal rationalization)

1 year Competence-based BA program curricula

2 years Competence-based MA program curricula

1 year Request a permission to launch BA in Commerce and Marketing

3 years Request a permission to launch MA in Marketing

Academic training development


Support trainings (professional, methodological, pedagogical, linguistic)


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Research-Development-Innovation


Nationally and internationally recognized researches and research centers

3 years

Research centreAt least 1 professorAt least 3 sta% members of Doctoral SchoolAt least 2 research projectsAt least 3 national and 1 international A-D categorized publication every year

To publish in national and international peer-reviewed journals

5 yearsEach quali"ed colleague must publish 1 national and 1 international A-D categorized publication within 5 years

Support of scienti"c progress

5 years - continuous Support ("nancial and professional)

Talent management

5 yearsPhD students (!e ratio of obtained degree/admitted, obtained "nal certi"cate/admitted must grow to 20%)

5 years

Scienti"c Student Research Projects belonging to at least group 2 on the grounds of participants and place winners

5 yearsHarsányi Youth Hostel (accreditation, János Harsányi Conference, bridge-role, secondary school talent management)

5 years Case Study Club and competitions

5 years Business Lab

5 yearsHungarian Economic Association Veszprém County Organization Youth Committee

5 years PENGE (Genius Club, University of Pannonia, Nagykanizsa)

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Brand building


To earn faculty accreditation 2 years Full-time student quota/ full-time

quali"ed lecturers’ quota

To earn international accreditation

1 year AACSB membership

2 years Successful AACSB monitoring

3 years AACSB accreditation

To organize international conferences

5 years - continuous

To organize 1 international conference annually

International peer-reviewed faculty journals


Regular publication of Pannon Management Review

To participate in national and international professional organizations


Each quali"ed faculty member must be a participant of at least 1 national or international organization

Client-centered marketing

1 year New faculty website (in Hungarian and English)

1 year

Faculty brochuresIntroduction of the Faculty (PR brochure in Hungarian and English)Brochure for companies in Hungarian (education, trainings, courses, studies, competences, references)Introduction of BA, MA and postgraduate specialist training courses (in Hungarian and – in case of programs in English – in English)Brochure to school foreign students (in English)

1 year Style Guide

2 years Short "lm presenting the Faculty (in Hungarian and English)


Cooperation agreements – at least 2 agreements every year


BA and MA schooling (at least 2 BA Open Days, at least 2 MA Open Days at the Faculty, reaching at least 30 secondary schools yearly)


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ALUMNI


Our stakeholderGold – Silver – Bronze (criteria system)!" referee’s report!" controlling internship!" consultant!" chairman of "nal exam committee!" "nancial support


To inform the alumni about the opportunities at the Faculty (professional development and networking possibilities, advisory services) via the website (making an extra subpage).


At least 1 event involving alumni every year

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Learning organization


To balance education – research – project work

5 years-continuous

Each lecturerTo ful"ll educational instructionsTo meet research requirementsTo participate in at least 1 project

To launch benchmarking system serving strategy realization

1 year To approve the new benchmark by the Faculty Board

1-5 years Executive review of benchmarks, feedback

Rewarding prominent achievements

1-5 years – continuous

To reward the top employees working in the new benchmarking system ( in each category)

Student support (mentor program)

1 year At least 1 lecturer and at least (student quota/10) student per program

5 years - continuous To run the teaching assistant program

Transparent and sustainable function and guidance


To increase own revenue: !e pace of the own-revenue increase must exceed the degree of state revenue reduction

1 year To work out policies meeting the AACSB standard requirements

1-5 years - continuous

To announce the evaluation results based on strategic index system (1 evaluation day yearly)

1 year To set up Faculty Advisory Board


To evaluate faculty leadership (once a year)

E$ective working of Doctoral School in Management Sciences and Business Administration


To increase the number of sta% members with 1 person

To strengthen internal communication


FBE circular e-mail (monthly in term-time)FBE sta% member meeting (1 meeting/term)on-line internal access of submissions and resolutions


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BenchmarkingBenchmarking is the measurement of the quality of an organization’s policies, products, programs, strategies, etc., and their comparison with standard measurements, or similar measurements of its peers.!e objectives of benchmarking are:- to determine what and where improvements are called for;- to analyze how other organizations achieve their high performance levels; - to use this information to improve performance. (http://www.businessdictionary.com).

Benchmarking improves performance by identifying and applying best demonstrated practices to operations and sales. Managers compare the performance of their products or processes externally with those of competitors and best-in-class companies and internally with other operations within their own "rms that perform similar activities. !e objective of Benchmarking is to "nd examples of superior performance and to understand the processes and practices driving that performance. Companies then improve their performance by tailoring and incorporating these best practices into their own operations—not by imitating, but by innovating (www.bain.com).

Benchmarking plays a signi"cant role in the practice of the Faculty. In the following few examples are listed:

BCG matrix. !is matrix is a simple 2x2 matrix that crosses market share (relative to competitors) and market growth to yield four quadrants. Each of the "rm’s products is plotted into one of the cells of the matrix identi"ed as stars (high share/high growth), question marks (low share/high growth), cash cows (high share/low growth), and dogs (low share/low growth). Di%erent strategies are designated for each quadrant based on the combination of market share and market growth. It is a strategic allocation model that shows how money can be transferred from areas of strategic weakness to opportunity. Based on these classi"cations, the "rm then assesses the health of its portfolio. !e goal is to continuously generate

467

future cash cows. Money earned from cash cows is invested into question marks with the intent of turning them into stars. As the market matures, stars will degenerate into cash cows and the process is repeated. New cash cows give the "rm a steady source of funds to pursue future avenues of growth. !e path to success is not foolproof as the "rm can also follow paths to failure. !e matrix can also be used to project the "rm’s trajectory. !e Faculty of Business and Economics regularly perform analyzes using BCG matrix to develop the Faculty’s educational programs. With the BCG matrix the market position of the educational programs compared to the most signi"cant competitors’ academic education programs are examined.

Workshops on business topics. !e Faculty often organizes workshops with the participation of national and international experts. !e workshops are designed to present best practices, mainly focusing on subjects as business communication, project management, supply chain management, tourism and hospitality management.

International and national conferences. !e Faculty organizes national and international conferences to present the achieved results and best practices of research, development and innovation, to support the exchange of knowledge, experience. !e main topics are strategic management, production management, maintenance management, human resource management, knowledge management, tourism management, regional development.

Customer Relationship ManagementCustomer Relationship Management (CRM) is a process companies use to understand their customer groups and respond quickly—and at times, instantly—to shifting customer desires. CRM technology allows "rms to collect and manage large amounts of customer data and then carry out strategies based on that information. Data collected through focused CRM initiatives help "rms solve speci"c problems throughout their customer relationship cycle—the chain of activities from the initial targeting of customers to e%orts to win them back for more. CRM data also provide companies with important new insights into customers’ needs and behaviors, allowing them to tailor products to targeted customer segments. Information gathered through CRM programs often generates


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solutions to problems outside a company’s marketing functions, such as supply chain management and new product development (www.bain.com).

!e Faculty of Business and Economics places great emphasis on regular contact with clients, on the recognition of customer needs and on the e%ective responds to these. Key clients are the students, the companies and organizations employing graduate students, and the high schools educating prospective students. Accordingly, the most important CRM platforms are as follows.

Student evaluation on teacher’s performance. !e opinion and needs of the student as the most important client is of high priority. A survey is carried out among the students of the Faculty for all courses at the end of every semester with a questionnaire developed with the help of the Student Union. In this questionnaire the students can share their opinion on the course and the instructor (teacher) of the course. After evaluating all the results the experiences are integrated into the teaching-methodology as well as into the curriculum development programs.

Consultation with the Chamber. !e Faculty regularly consults with the regional leaders of the Chamber of Commerce and Industry. !e participants review the key labor market trends and demands, which are also integrated into the Faculty’s training development program.

Consultation with CEOs and CFOs. Every business program ends with a "nal exam. During the "nal exam the students demonstrate what knowledge and competencies they have acquired during their studies. !e chairs of the "nal exams are the CEOs and the CFOs. !e chairs share their experience with the program directors after the "nal exam through oral interviews and questionnaires. !ese experiences are also integrated into the development plans of the programs.

Consultation with high school directors. Regular connection with high schools from where the most students and the students with the highest

469

points are admitted to the Faculty is of high importance in the life of the Faculty. !us the Faculty signs a corporation agreement with these high schools with the principals of which there are regular consultations and the students of which are o%ered to participate in academic programs.Survey of HR Managers. !e Faculty regularly conducts surveys among the HR managers of those companies and organizations that employ graduate students of the Faculty. !e purpose of the survey is to learn about the expectations and needs of the companies, organizations regarding the graduate students’ skills and competences. !e results are integrated into the development plans of the programs.

ReferencesHunger, J.D., and Wheelen, T.L. (2011). Essentials of Strategic Management.

New Jersey: Prentice Hall.Kaplan, R.S., and Norton, D.P. (2007). Using the Balanced Scorecard as a

Strategic Management System. Harvard Business Review, July-August, pp. 1-14.

Kaplan, R.S., and Norton, D.P. (1996). !e balanced scorecard: translating strategy into action. Boston: Harvard Business School Press.

Luthans, F., and Doh, J.P. (2012). International Management. New York: McGraw-Hill.

Management Tools and Trends. Bain and Company Report (2013). Retrieved from www.bain.com.

Developing relevant MBA curriculum: a case study of business community perspective

Kathleen WELSH VOGES1

Abstract. Developing relevant curriculum for MBA programs has become increasingly more challenged. At issue is the need to address multiple stakeholder perspectives from varied levels of student preparedness, to institutional pressure to be more e%cient in the delivery of course content, to the demands of complex business interest. !us, e#ectively identifying speci$c knowledge and skills in an MBA program that are of value is of importance. Based on an approach which recognizes the contribution of higher education in the development of strong economic industry clusters (Porter & Kramer, 2011), this paper provides a case study of a regional college of business in a large urban area in the southwest United States. Local business community members (n=48) responded to a survey which identi$es their perspective of who in an organization would bene$t from holding an MBA degree, as well as which course topic categories are of most importance. !e result was that the MBA degree becomes signi$cantly more important as one advances in an organization. Secondly, while a signi$cant di#erence was not found between analytical, functional and soft-skill course topic categories, soft-skills are signi$cantly more important than ethical or global course topics. Finally, when testing for a di#erence amongst respondent types there was a signi$cant di#erence between human resource recruiter and manager responses; of note, is that managers placed a signi$cantly higher importance on the soft-skill course categories. !e results are compared with the current curriculum o#ered at the college of business of interest. Recommendations and implications of these results provide a basis for suggesting revisions to the MBA curriculum so as to be more relevant.

Keywords: MBA curriculum; business community stakeholders; economic development.

IntroductionDeveloping relevant curriculum for MBA programs has become increasingly more challenging. Not only is there concern for the provision of course

1. Associate Professor, Ph.D., Faculty of Management, Texas A&M University, San Antonio, Texas, [email protected].

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content which meets the demands of increasingly complex business interests, but also a pronounced advocacy to address concerns related to the cost/ bene"t of a higher education. !e challenge is compounded further with expectations such as incoming students’ need for #exibility and interest in programs which are shorter than a traditional 2 year programs (Crisp, 2012; Damast, 2009). Yet, there is concern that students may not be adequately prepared to enroll in an MBA program noting that in the United States MBA applicants undergraduate degrees range vastly with approximately half holding non-business degrees (GMAC, 2012). In short, addressing today’s goals from multiple constituents stresses a need to be both e%ective and e$cient in developing relevant MBA programs.

Research and debate in the academic community has long questioned the usefulness of MBA programs addressing a wide range of concerns from courses o%ered in MBA curriculum to relevant learning outcomes (Rubin andDierdor%, 2013). Divergence exists between what would be o%ered in an ‘ideal’ MBA curriculum and what is currently o%ered. An overweighed focus on functional and analytical course topics o%ered by top-ranked MBA programs (Navarro, 2008) compliments previously voiced concerns that MBA programs focus too heavily on the development of specialized skills, as opposed to the more essential interpersonal and soft-skills necessary to manage others (Mintzberg, 2004; Porter and McKibbin, 1988). !e result is a misalignment between what the business community expects and what is typically taught in a MBA programs (Rubin & Dierdor%, 2011). Further, debate ensues that providing a narrow specialized MBA curriculum as opposed to a more general MBA curriculum dampens the ability for one to transfer amongst various industry segments (Rubin & Dierdor%, 2009). In all, the ability to develop a relevant standardized approach to the development of MBA curriculum is questionable.

Yet, despite these concerns, formal training programs such as found in MBA programs is considered to provide an e$cient path to gaining business knowledge and skills (Pfe%er & Fong, 2002). And, research has found that there is a positive relationship between holding an MBA degree and performance outcomes at both the individual and organizational level (e.g. Connolly, 2003). In the end analysis, business schools are perceived by stakeholders to be a legitimate provider of such training (Rubin & Dierdor%, 2013). At a societal level, educational institutions are viewed

473

as viable contributors in creating value for economic clusters. However, the demographic pro"le of economic clusters varies from region to region (Porter & Kramer, 2011). For example, one economic cluster region may have a concentration of high tech service organizations, while another may be oriented toward the oil and gas organizations.

In all, a well-founded approach in the development of relevant MBA curriculum may be to consider a more nuanced approach which incorporates the in#uence of speci"c career contexts on relevant MBA curriculum options (Rubin & Dierdor%, 2013). !at is, the study of how best to develop relevant MBA curriculum may be best focused at the local university level (Hammond & Moser, 2009). !e orientation of a localized view complements Porter and Kramer’s recognition that educational institutions play a vital role in creating value by enhancing cluster business environments (2011). Further, the approach may of a particular value for those MBA programs which do not enjoy automatic legitimacy from being a top tier ranked program (Rubin & Dierdor%, 2013). Further, the approach aligns with AACSB accreditation standards, which have evolved from a universal application of appropriate standards to a more customized mission driven focus (AACSB, 2012).

A more localized approach in MBA curriculum development suggests input from relevant stakeholder groups; namely, internally from faculty at the local university, and externally from local business community members. While faculty has a long-term view based on expertise in the "elds in which they teach, and are the gate keeps of curriculum development, external groups have a nearer view of knowledge and skills needed for the current business environment (Hammond & Moser, 2009; Kleinman & Kass, 2007). !e above noted misalignment between the two constituencies (Rubin & Dierdor%, 2011), and limitations from both groups with regard to a comprehensive understanding of relevant MBA curriculum suggests that a collaborative approach to facilitate a common understanding of relevant MBA curriculum content would be bene"cial. I propose that seeking input from local business community members to identify the importance of holding an MBA degree and the importance of speci"c MBA courses to their organizations would generate a suitable foundation from which faculty can develop relevant MBA curriculum content. !us, generating answers to research questions 1) who in the local business

Kathleen WELSH VOGES

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community would be best served by holding an MBA degree, 2) which course topics are most important to include in the MBA curriculum, and 3) what are the di%erences in assessment between various local business community group would be of interest.

!e purpose of this paper is to present a case study which provides the results from the administration of a survey intended to generate information related to the above listed research questions from members of a local business community in a large U.S. metroplex. In the "rst section, I present a discussion of brief background used to develop support for items included in the survey, as well as testable hypotheses statements to allow for analysis of the survey responses. In the second section, I present a case study application of the survey including a description of the contextual setting and research methodology. I conclude with a discussion of the "ndings including limitations, as well as recommendation for future research.

Background Presented in next few pages is a brief discussion of previous research and background related to each of the three research questions posed. Following the discussion of each research question a hypothesis statement is presented to be tested. !e intended outcome is to provide objective information from the external stakeholder group, local business community members to be used as a basis for faculty to critique the current MBA curriculum.

Question 1: Who in the local business community would be best served by holding an MBA degree?

!e MBA degree was developed to provide knowledge and skills related to managing people for those whose previous training was technically skilled in domains outside of the "eld of management (Kleiman & Kass, 2007). In a classic sense as one advances within an organization from a doer to a coordinator, the focus on skill set shifts from technical (front-line management level) to human (mid management level) to conceptual (executive management level) (Katz, 1974). !e pursuit of an MBA degree

475

is viewed as a path which allows for one to facilitate career progress; that is, ‘climb the corporate ladder” (Rubin & Dierdor%, 2013) with “…between 68% and 91% (depending upon the industry) [to] be placed into “midlevel” or “senior-level” positions (GMAC, 2007 in Rubin & Dierdor%, 2009).” !us, the research question in this paper considers, “who in the local business community would be best served by holding an MBA degree”, which is examined by asking local business community members about the relationship between management levels in their organizations and the necessity of holding an MBA degree. !e "rst hypothesis statement to be tested is o%ered to examine this relationship.

Hypothesis 1: Employers in the local business community place a higher importance on holding an MBA degree as one advances to higher management levels in an organization.

Question 2: Which course topics are most important to include in the MBA degree curriculum?

!e determination of which course topics should be included in a general MBA curriculum remains a central issue. Original curriculum focused on the provision of functional skill training (e.g. marketing, corporate "nance) for those without a business background. Criticism ensued that these programs were more vocational than academic which prompted revisions to include analytical training (e.g. quantitative analysis, decision analysis). Recent trends have infused the addition of contemporary topics such as globalization, ethics and MIS. A study by Navarro (2008) identi"ed 26 course topics o%ered at the top 40 MBA programs which included a predominance of speci"c function and analytic course topics, and minimal exposure to soft-skill, socially responsible and global course topics. !e resulting institutionalized pro"le is that MBA programs are relatively similar (Kleiman & Kass, 2007).

Given the overarching similarity in course topics across MBA programs, the use of these as items in a survey is thought to provide insight to address two concerns in developing e%ective MBA curriculum. !e "rst address is that use of the 26 MBA course topics would facilitate mapping between the two key stakeholder groups allowing for a more successful collaborative


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approach. !at is, members of the business community are assumed to be able to adequately convey their assessment of the importance of generally recognized course topic labels. In turn, faculty is provided with commonly understood information to assess di%erences between current and stakeholder-focused MBA curriculum emphasis.

!e second address would allow for consideration of the local business community’s assessment of the extent to which there is a di%erence in importance between "ve course topic categories. !e "ve course topic categories (Speci"c function, Analytic, Soft-skill, Socially Responsible and Global) are based on a consolidation of the list of the 26 MBA course topics in the Navarro study (2008). !e interest at the course topic category level is to bring to the forefront consideration of long debated issue with centers on the extent to which soft-skills (i.e. leadership, communication, and organizational behavior) are more important that other MBA course topic categories. Research "ndings reveal that the overall MBA programs emphasis of course o%erings continues to be dominated by the functional and analytical course topics (Navarro, 2008). However, studies and discussion suggest that employer interest lies in its managers possessing soft-skill capability and in the ability to manage human capital over the need to manage its task environment, such as logistics and technology (Navarro, 2008; Rubin & Dierdor%, 2011; Shuayto, 2013). However, there is also evidence that some employers are interested in the “T” professional who possesses both skill sets; variation in an interest in balanced capabilities may be in part, based on variations in an organization’s demographic such as size or industry type (CERI, 2012).

Recognizing that industry clusters are varied in their demographic pro"les, a localized view of MBA curriculum development would logically assume that there may be distinct needs in the local business community with regard to the importance of soft-skill ability. !us, the second hypothesis statement to be test is o%ered to examine the importance placed on each of the "ve MBA course topic categories with an emphasis on the soft-skill course topic category.

477

Hypothesis 2: Employers in the local business community place a higher importance on the soft skill topic category o#ered in an MBA program as compared to other MBA course topic categories.

Question 3: What are the di%erences in assessment between various local business community groups?

As previously discussed, some of the confusion in the determination of which MBA course topic categories are of greatest importance may rest in the variant demographics of the stakeholder groups surveyed. !is assumption prompts not only taking an overall approach of assessing local business community member needs, but also of recognizing that there may be divergence of need within the local business community. Divergence may be especially evident if there are multiple economic clusters within the same geographic region. !e Collegiate Employment Research Institute (CERI) which studies U.S. national employment trends has found that although there is a tendency for employers to seek balanced recruits, there is evidence of di%erences based on industry type, regional location and organization size (2012). For example, hospitality and non-pro"t organizations tend toward a balance of speci"c and soft skill ability, while oil and mining, and construction organizations tend toward more speci"c skill ability. Further, recruiters have been found to o%er confusing directive by indicating a higher importance on soft-skills but hiring based on analytic ability (Rynes, Trank, Lawson and Ilies, 2003). Understanding this "ner grain view of local community need can be useful in consideration of the extent to which a general MBA curriculum approach is suitable versus a need for the ability to o%er speci"c industry clustered tracks. !us, the third hypothesis set to be tested is o%ered to examine di%erences in assessment of MBA course topic categories by employer demographic in the local business community.

Hypothesis 3: Employers in the local business community with responses di#erentiated by (3a) size, (3b) type, (3c) location (3d) position are di#erent in the importance placed on speci$c functional /analytical /soft-skill/ socially responsible, global skill categories o#ered in a general MBA curriculum.


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Application of the survey instrument: a case studyContextual SettingBusiness School Pro$le. !e MBA program of interest is associated with a public university which is part of a large well known state university system. Its campus is located in a large urban metropolitan area in the southwest region of the United States. !e focus of the MBA program is noted as “preparing students for executive level career positions”. !e general MBA program curriculum requires 36 semester credit hours of coursework (i.e. 12 courses) with 24 semester credit hours classi"ed as core (i.e. eight courses). Core courses are similar to those o%ered at top ranked MBA programs (Navarro, 2008) with a managerial focus on speci"c functional course topics of Accounting, Finance, Economics, Marketing, IT Applications, Management and Policy; one analytical course, Management Science, and one soft-skill course, Organizational Behavior. !e program also o%ers students the option of participating in various concentrations including international business, international economics, international "nance, health administration, project management and supply chain; suggested course sequences are provided for each concentration area. !e program which began enrollment in 2008 has grown rapidly with a current enrollment of approximately 400 students. In parallel with the university mission, the college of business attracts "rst generation and non-traditional student groups; a majority of the students reside and work in the metropolitan area.

Business Community Pro$le. Information obtained from county and city economic development sources provides a relevant business community pro"le. !e information is based on 2012 to 2013 data; speci"c reference to sources has been omitted to retain appropriate anonymity of the study. !e metropolitan pro"le re#ects a signi"cantly higher level of management, technical and professional employment than both the state and national level at 31.3% of total employment vs. 25.63% and 26.21% respectively. !is employment segment typically requires advanced degrees of education. !e associated industry clusters include architecture and engineering, lawyers and actuaries, and the physical and life sciences. Overall, employment is led by the industry segments of manufacturing, education and health services, as well as leisure and hospitality. !ere is a higher employment percentage in the industry segments of health care, and accommodation and food services as compared to both the state

479

and national levels. !e military is recognized as an important industry segment, while the mining/lodging segments are recognized as the fastest growing. Further, the Brookings Institute as ‘globally #uent’ has recently recognized the metropolitan region.

Research methodologySample and sampling procedures. !e study re#ects responses to a web-based survey instrument to determine the necessity of holding an MBA degree, as well as to identify which general MBA course topics were essential to businesses with a presence in the metropolitan region. !e sampling design and procedures included pre-testing the survey by a member of the college’s advisory board to determine the clarity of the questions and the extent to which a respondent would be willing to provide the requested information. An email alert provided the potential respondent with a survey link to Surveymonkey, an overview of the purpose of the study, a statement as to why the potential respondent had been selected to participate, and a request to forward the survey to another colleague in his/her organization if the potential respondent did not feel quali"ed to answer the survey questions. !e survey instrument contained an agreement with university contact information to participate in the on-line study, and background for answering the survey questions. Speci"cally, the background information provided the respondents with an overview of the knowledge and skills typically developed in an MBA program according to AACSB standards (Standard 18, AACSB, 2012). It stated: “A general Master’s level degree develops in an integrative, interdisciplinary fashion capacities to 1) lead in organizational situations, 2) apply knowledge in new and unfamiliar circumstances based on a conceptual understanding of relevant disciplines, 3) adapt and innovate to solve problems, and 4) understand management issues from a global perspective”.

!e email alert was distributed to individuals who were members of three groups associated with the university. Although the three groups are associated in di%erent ways with the university, the overarching demographic of interest is that all individuals are members of the local business community; the primary focus of the research conducted. !e "rst group list was derived from the College of Business’ Advisory Board


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(n= 14), the second group list was derived from the university’s career services contacts (n= 144), and the third group list was derived from a local human resource management association that a business faculty member was associated with (n=633). !e association membership consisted of employed and retired members (indistinguishable) and student representatives. Given that the survey was intended to assess desirable MBA skills for an organization, it was assumed that students would not be viable potential respondents and thus were deleted from the list (revised n = 572). !e email alert was distributed to potential respondents one time during the month of July, 2013. Approximately, 125 contact email messages were returned because of errors in contact information and/or blocked access. Survey responses submitted were reviewed for completion and those with missing information related to the four demographic questions were eliminated. !e number of usable surveys was 48 (6.6% of net potential respondents, 730).

!e low response rate may be attributed to a number of reasons. First, the email alert was only sent one time to avoid possible duplicate responses. Second, a majority of potential respondents were in the community at large and did not have a direct association with the university. Despite an introductory message identifying the purpose of the survey, the potential respondent may not have had an interest in participating and/or may have considered the email as junk or spam. !ird, those who received the email alert may not have felt comfortable or were unable to provide responses relevant to an organizational level preference. For example, the list from the professional organization contained retirees whose status was not identi"able from the demographic information provided.

Survey and measures. In addition to the consent and background information presented above, the survey contained the following questions used for analysis in this study. !e "rst question set was designed to identify the necessity of holding an MBA degree by management level with choices of (1) Required, (2) Not required by highly desirable, (3) Not required but preferred and (4) Not required; skills not needed. !e lower the response, the more important holding an MBA degree becomes. !e second question set was designed to identify the importance of 26 MBA course topics and the "ve MBA course topic categories derived from the study conducted by Navarro (2008) of MBA curriculum. Respondents were asked to select

481

from three options the extent to which the course topic/category was (1) Essential, (2) Desirable or (3) Little Value. Each option was speci"cally de"ned: 1) Essential: “Managers in our organization will not be able to succeed without having the knowledge, skills and abilities (KSAs) covered in this topic, 2) Desirable: “Although not essential, managers in our organization would bene"t having the KSAs covered in this topic, and 3) Little Value: !e performance of a manager in our organization would not be enhanced with having the KSAs covered in this topic (Kleiman & Kass, 2007). !e lower the response, the more essential the topic category is for those who are managers in the respondent’s organization.

As with the design of any survey instrument there was interest to prompt a high response rate while collecting relevant data for the purpose of the research agenda. Given the use of a web-based medium to administer the survey, of particular interest was to design the two question sets to be as clear and convenient to complete as possible (Baatard, 2012). When surveying members of the business community the use of questions presented that allow for a quickly decided response is best. Historically, there has been considerable debate regarding the optimal number of response categories. Research results are mixed ranging in recognition of the ability to use a minimal number of two choices (e.g. agree-disagree) to extremes such as 21-points. !e end result is that the selection of scalar granularity becomes a trade-o% with low granularity consideration of quickness to answer versus availability of suitable response options, and high granularity inclusiveness of all response options versus respondent impatience. In all, the de"ning characteristics of a Likert scale is that there is a distinct cut-o% points with an assumption of linearity and equal intervals between responses (Pearse, 2011). !us, use of an instrument with a few response choices or low scale granularity was considered suitable (i.e. a four point scale for the MBA degree necessity question set and a three point scale for the course topic and category question set).

In the third question set, respondents were asked for self-report demographic information to allow for study of di%erences between industry sector, organization size, organization location and respondent job title. !e industry sector question presented a list of 22 industry segments and one option for ‘other’ based on the state’s industry pro"le list used for economic and public reporting systems. Results were coded to di%erentiate responses


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as either 1) manufacturing/retail, or 2) service/education/government. !e organization size question presented a list of six employee levels ranging from less than 20 to greater than 1,000. !e results were coded to di%erentiate responses as either 1) small (less than 500), or 2) medium/large (more than 500). !e organization location question presented "ve options to indicate where the respondent’s organization operates distinguishing metropolitan region, state, national and international options. !e responses were coded to di%erentiate responses as either 1) domestic, or 2) global. Finally, the respondents were asked to choose from a list of four options the job title which best re#ected employment status at the organization. !e responses were coded to di%erentiate responses as either 1) recruiter/non-manager, or 2) general/ executive manager titles. !e coding schemes complement approaches in previous studies and allows for comparison of results to be discussed in the later portion of this paper.

ResultsDescriptive ResultsOf the 48 usable responses, the frequency of response by the respondent demographics, industry sector was 13 (27%) manufacturing/retail responses, and 35 (73%) service/ education/government responses. For the respondent demographic, organization size, there were 24 (50%) small-sized organizations with less than 500 employees, and 24 (50%) medium/large-sized organizations with more than 500 employees. For the respondent demographic, organization location(s) there were 34 (71%) domestic location only organizations, and 14 (29%) globally located organizations. Finally, for the respondent demographic, job title there were 24 (50%) recruiter/non-manager, and 24 (50%) general/executive manager responses.

Descriptive results of the survey responses to the three question sets are found in Figures 1, 2 and4. In Figure 1, Expectation for MBA Degree by Management Level, responses for the front line/operational management level indicated zero (0%) responded MBA degree required, seven (14.6%) responded MBA degree not required but highly desirable, "ve (10.4%) responded MBA degree not required but preferred, and 35 (72.9%) responded MBA degree not required; skills not needed; one respondent

483

(2.1%) did not answer. For the mid-management level three (6.3%) responded MBA degree required, 14 (29.2%) responded MBA degree not required, but highly desirable, 22(45.8%) responded MBA degree not required but preferred, and seven (14.6%) responded MBA degree not required; skills not needed; two respondents (4.2%) did not answer. Finally, for the executive management level 12 (25.0%) responded MBA degree required, 22 (45.8%) responded MBA degree not required but highly desirable, 10(20.8%) responded MBA degree not required but preferred, and zero (0%) responded MBA degree not required; skills not needed; four respondents (8.3%) did not answer.

Figure 2, MBA Course Topic Category Ratings presents descriptive information for the "ve course topic categories (speci"c function, analytical, soft-skill, socially responsible and global) which were assessed by the respondents for the importance the organization placed on the KSAs associated with each course topic category. For brevity, only the results which re#ect the respondent selection of the ‘Essential” response (Managers in our organization would not be able to succeed without having the KSAs associated with this course topic category) are discussed in this section. For the Speci"c Functional course topic category 19 (39.5%) responded that the category was essential. For the Analytical course topic category 13 (27.1%) responded that the category was essential. For the Soft-Skill course topic category 20 (41.7%) responded that the category was essential. For the Social Responsibility course topic category 13 (27.1%) responded that the category was essential. Finally, for the Global course topic category six (12.5%) responded that the course topic category was essential.

Figure 3, MBA Course Topic Ratings presents descriptive information for the 26 course topics which were assessed by the respondents for the importance the organization placed on the KSAs associated with each course topic category. For brevity, only the results which re#ect the respondent selection of “Essential” response (Managers in our organization would not be able to succeed without having the KSAs associated with this course topic category) are discussed in this section. Under the Speci"c Function course topic category eight courses were presented. For Marketing, seven (14.6%) responded that the course topic was essential. For Finance, 13 (27.1%) responded that the course topic was essential. For Financial Accounting, 15 (31.2%) responded that the course topic


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was essential. For Supply Chain, 11 (22.9%) responded that the course topic was essential. For Strategy, 24 (50%) responded that the course topic was essential. For Cost Accounting, 19 (39.5%) responded that the course topic was essential. For MIS, 14 (29.2%) responded that the course topic was essential. For Operations Research, four (8.3%) responded that the course topic was essential.

Under the Analytical course topic category, three courses were presented. For Managerial Economics, 12 (25.0%) responded that the course topic was essential. For Quantitative Analysis, 14 (29.2%) responded that the course topic was essential. For Decision Analysis, 25 (52.1%) responded that the course topic was essential.

Under the Soft-Skill course topic category, nine courses were presented. For Communication, 33 (68.8%) responded that the course topic was essential. For Organization behavior, 22 (45.8%) responded that the course topic was essential. For General Management, 35 (72.9%) responded that the course topic was essential. For Leadership, 38 (79.2%) responded that the course topic was essential. For Human Resources Management, 17 (35.4%) responded that the course topic was essential. For Organization Design, "ve (10.4%) responded that the course topic was essential. For Negotiations, 14 (29.2%) responded that the course topic was essential. For Career Planning, eight (16.7%) responded that the course topic was essential. Finally for Entrepreneurship, "ve (10.4%) responded that the course topic was essential.

Under the Socially Responsible course topic category, three courses were presented. For Ethics and Socially Responsible 23 (47.9%) responded that the course topic was essential. For Business and Government Relationships, 14 (29.2%) responded that the course topic was essential. For Business Law, 12 (25%) responded that the course topic was essential.Under the Global course topic category, three courses were presented. For Macro Economics, "ve (10.4%) responded that the course topic was essential. For Global Strategy Management, eight (16.7%) responded that the course topic was essential. For International Business, four (8.3%) responded that the course topic was essential.

485

Table 1, Rank Order of Course Topics presents in rank order the 26 courses considered by the respondents. !e course topics of Leadership, General Management, Communication, Decision Analysis and Strategy assumed the top "ve places. Of note is that three of the courses are Soft-Skill courses (Leadership, General Management and Communication), while Decision Analysis is an Analysis course and Strategy is a Speci"c Function course. Additional discussion comparing this list with the course o%erings by the business college of interest in this case study will be presented in the next section.

Figure 1. Expectation for MBA degree by Management level (N=48)

Figure 2. MBA course topic category ratings (N=48)


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Figure 3. MBA course topic ratings all courses (N=48)

Table 1. MBA course topics by rank order

Rank Course Topic Category Rated Essential

1 Leadership Soft-skill 382 General Management Soft-skill 353 Communication Soft-skill 334 Decision Analysis Analytic 255 Strategy Speci"c Function 246 Ethics and S. Responsible Socially Responsible 237 Organization Behavior Soft-skill 228 Cost Accounting Speci"c Function 199 HR Management Soft-skill 1710 Financial Accounting Speci"c Function 1511 MIS Speci"c Function 1411 Quantitative Analysis Analytic 1411 Negotiations Soft-skill 14

11Business and Government Rela-tionships

Socially Responsible14

12 Finance Speci"c Function 13

13 Managerial Economics Analytic 1213 Business Law Socially Responsible 12

487

14 Supply Chain Speci"c Function 1115 Career Planning Soft-skill 815 Global Strategy Global 816 Marketing Speci"c Function 717 Organization Design Soft-skill 517 Entrepreneurship Soft-skill 517 Macro Economics Global 518 Operations Research Speci"c Function 418 International Business Global 4

Hypothesis test resultsWhen testing each of the hypotheses, in cases where there was missing data, the assumption is that the data was missing completely at random (MCAR); a listwise deletion of cases with missing data was elected. Although this approach results in the reduction of the sample size and a loss of power it is the most accurate regardless of the source of data loss (Switzer, Roth and Switzer, 1998). !e number of usable respondents will be identi"ed during the presentation of results for each of the three hypotheses.

Hypothesis 1 was tested to examine the necessity of holding an MBA degree at higher managerial levels in an organization. Analysis results are presented in Table 2. !e data contained four missing data points for this question (n= 44). !e mean responses for executive level managers was 1.98 (range from 1.74 to 2.17 at 95% CI), for mid-level managers was 2.75 (range from 2.50 to 3.00 at 95% CI) and for front line managers was 3.64 (range from 3.42 to 3.85 at 95% CI). !us, at the executive management level respondents indicated that holding an MBA degree was not required but highly desirable, at the mid-level management level the requirement was relaxed to preferred but not required, and at the front line management level the expectation relaxed to slightly indicate MBA skills were slightly more than needed but not required. Given the assumption of equal variance, a paired t-test was conducted to determine if there was a signi"cant di%erence between the three managerial levels. !e results of the t-test indicate that there is a signi"cant di%erence between


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all three managerial levels. Overall, the requirement to hold an MBA degree becomes more important as one progress up the managerial career ladder; further there is a signi"cant di%erence in expectation to hold the degree or associated skills associated with the degree. !us, Hypothesis 1 is supported, a di%erence in the value of holding an MBA degree was found in the three managerial levels.

Table 2. MBA degree necessity, paired sample t-test (n= 44)"

Mean s.d. t Df sign.Front Line- Midlevel 0.886 0.618 9.511 43 0.00 **Midlevel-Executive 0.795 0.701 7.522 43 0.00 **Executive-Front Line 1.682 0.771 14.474 43 0.00 **

Hypothesis 2 was tested to speci"cally examine if employers place a di%erent value on the course topic category of soft skills as compared to other course topic categories typically covered in a general MBA course curriculum. Analysis results which compare the Soft-Skill course topic category with the other four course topic categories are presented in Table 3. !e data contained six missing data points for this question (n= 42). Results indicate the mean response for each of the "ve course topic categories; speci"c function, topic category (1.62), analytical topic category (1.76), soft-skill topic category (1.62), socially responsible topic category (1.88), global topic category (2.17). In order of mean response, the most essential or desirable course topic categories are both the soft-skills and speci"c function topic categories followed by analytic topics and social responsible topics with the global topic category being viewed as the least important. !e mean response is below the mid-point (2) for four of the "ve categories suggesting that these topic categories are essential or desirable for management success. Given an assumption of equal variance, a paired t-test was conducted to determine if there was a signi"cant di%erence between the soft-skill topic category and the other four categories. A signi"cant di%erence was found between the soft-skill and social responsible topic category (p = .047) and the soft-skill and global topic category (p = .002). Further, there was a signi"cant di%erence between the speci"c function topic category and these two topic categories (p = .032 and .009 respectively). !e results suggest that there is not a signi"cant di%erence in the extent to which employers consider speci"c

489

function topics, soft-skills and analytic topics to be essential or desirable. However, there is a signi"cantly di%erent and higher importance placed on the knowledge and skills related to the soft-skill topics as compared to socially responsible or global topics. !us, Hypothesis 2 is partially supported. !at is, employers place a higher importance on soft-skill topics as compared to socially responsible and global topics but not as compared to speci"c function and analytic course topic categories.

Table 3. MBA skill categories, soft-skill paired sample t-test (n=42)

Mean s.d. t df sign.Soft-Skill - Speci"c Function 0.00 0.671 0.00 41 1.00 "

Soft-Skill -Analytical 0.146 0.823 0.14 41 0.26 "

Soft-Skill - Social Responsible -0.268 0.837 -2.05 41 0.05 *Soft-Skill – Global -0.512 0.978 -3.35 41 0.00 **"Hypotheses set 3 was tested to examine if di%erences in responses for the importance of the "ve course topic categories are evident based on respondent demographics of industry type, organization size, organization location and respondent job title. Given the low response rate to the survey, for examination of this hypotheses set the responses used to determine the extent to which MBA skills/topics were pooled to re#ect the di%erence between ‘essential’ and ‘other’ (i.e., desirable or little value). Further, given that some response cells were still below the threshold frequency of "ve, a Fisher’s Exact test was conducted to detect signi"cant di%erences from expected results. No signi"cant di%erences were found for industry type, organization size or organization location (range of p-value from .466 to 1.0 for industry type, from .193 to 1.0 for organization size, and from .211 to .750 for organization location). Signi"cant di%erences were found based on respondent job title (p-value ranged from .039 to 1.0). In the interest of brevity only the results for the respondent job title are presented in Table 4. Signi"cant di%erences were found between job title groups in responses for the analytical topic category with a frequency of 12.5% by recruiters/non-managers vs. a frequency of 41.7% for general/executive managers (p= .049). !at is, recruiters and non-managers rated the analytical topic category as being signi"cantly less essential as compared to managers. Signi"cant di%erences were also found for the soft-sill topic category with a frequency of 25% by recruiters/non-managers vs. a frequency of 58.3%


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for general/executive managers. Again, recruiters/non-mangers rated soft-skill topics as being signi"cantly less essential as compared to managers. Figure 3 presents a graphical illustration accentuating the di%erences in the responses between the two groups. While there is agreement in the extent to which the speci"c functional course topic and global topic categories are essential and a somewhat consistent pattern for the social responsible topic category, there is noted divergence for the analytic and soft-skill topic categories. Based on the results of the Fisher Exact Test, Hypotheses set 3 is partially supported. !at is, there is a di%erence in essential rating responses for the MBA course topic categories of analytical and soft-skills by a respondent’s job title.

Table 4. MBA skill categories rated essential by job title (n=44 function/48 others)

Category Job Title " Fisher’s

"

Recruiter/non

(percent)

Manager

(percent) Exact p-value

Functional 0.45 0.42 1.000Analytic 0.13 0.42 0.049 *

Soft-skill 0.25 0.58 0.039 *

Social Responsible 0.17 0.38 0.193Global 0.10 0.17 0.670

Figure 4. MBA skill categories rated essential by job title

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Discussion!e development of relevant MBA programs given the multitude of issues related to both the diversity of student educational background and the needs of the business community creates challenges for those responsible for relevant curriculum development. As suggested by Rubin and Dierdor% (2013) approaching the task in a more nuanced fashion with a focus on career development can lead to e%ective contemporary programs. !e presentation of this case study is intended to illustrate how a local level view approach can facilitate the development of a more meaningful approach. !e approach complements expectations from accreditation bodies such as AACSB, as well as an orientation of creating value for economic clusters on a local scale (Porter & Kramer, 2011).

!e signi"cant results found in testing for Hypothesis 1 implies that for the local business community of interest those in lower levels of the organization do not need to hold the MBA degree. However, as one advances in an organization the expectation shifts notably to the need to have the advanced degree. !us, the timeliness of pursuing the degree may be to seek it as one becomes ready to advance rather than immediately following the achievement of an undergraduate degree. From a recruitment perspective, the business school may do well to recruit those already in the workplace as opposed to its recent graduates. !is stance also displays sound community stewardship in the guidance of its primary constituency who has predominantly "rst-generation and non-traditional backgrounds. Although not hypothesized for this study of note is the "nding of a signi"cant di%erence for mid-level management by industry type. !e service, education, government respondents placed a higher value on holding an MBA degree (mean 2.68) as compared to the manufacturing, retail segment (mean 2.92). !us, given that the metropolitan region has a higher than average presence of the later industry type holding an MBA degree may be more important than what is needed on average in the national business community. In all, the research "ndings contribute from local level insight into the question posed by Rubin and Dierdor% (2013, p. 136), “For whom and under what circumstances should an MBA be pursued?”


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!e results found in testing Hypothesis 2 is that the importance of the soft-skill topic category was not found to be signi"cantly di%erent than functional skill or analytical course topic categories, but is signi"cantly more important than the socially responsible and global course topic categories. While the small sample size may explain the inability to "nd a signi"cant di%erence between soft-skill and functional and analytic topic categories, it is possible that there may truly be a similar level of importance for MBA skill ability between the three course topic categories. !is interpretation would complement the CERI study results for a balanced or “T” type professional (2012). However, the result as presented in Table 1 that three of the "ve course topics are soft-skills (i.e. leadership, general management, communication) lends that a de"nitive conclusion of course content mix is not readily apparent. Nevertheless, when comparing survey results to the course topic category pro"le o%ered at the local business school of interest there is enough information to begin a fruitful dialogue to address the gap between research results and what is currently o%ered.

!e predominant focus of the discussion rests in assessing the pro"le of the core course topics o%ered in the MBA program. At the very least, there is notable misalignment between the local business community members’ assessment of the importance of the functional, analytic and soft-skill course topic categories with the pro"le of the currently o%ered core MBA courses. Broadly, of the eight required courses o%ered, "ve are from the speci"c functional course topic category (62.5%), two are from the analytical topic category (25%) and only one is from the soft-skill topic category (12.5%). Not evident from course titles and in need of additional input from MBA faculty is a deliberate and more re"ned understanding of speci"c course content. Further, although the socially responsible and global course topic categories were not found to be as important as the other three course topic categories, the recent emphasis by AACSB suggests that course content should be evaluated for inclusion of these topics as well. A suggested approach would be for MBA faculty who teach core courses to calculate a weighted allocation of current content delivery for each of the course topic categories. !ese proportions can then be compared with the local business community responses to generate a deeper level of discussion.

493

Finally, the results found in testing Hypotheses set 3 were that a signi"cant di%erence was not found in responses between organization type, organization size, and organization location. It is assumed that this result is related to the small sample size and that future research e%orts to attract a higher response rate would be bene"cial. Given the noted di%erences in skill capability found in the CERI study, it is anticipated that signi"cant di%erences exist. Of more important consideration with this hypotheses set is that a signi"cant di%erence was found in the response patterns between recruiter/non-managers, and general/executive managers. !e "nding suggests that speci"c respondent agenda may play a role in the assessment of which MBA topic categories are of greatest importance. Of speci"c interest is in the divergence in responses pertaining to the importance of the soft-skill topic category. !ose in managerial positions clearly place higher importance on soft-skills than any other topic category; further, they place a signi"cantly higher importance on this category as compared to those who are not managers. It is possible that recruiter’s role to provide an organization with suitable employees is easier to demonstrate with evidence of speci"c functional capabilities as de"ned by MBA course topic titles found on formal documents such as transcripts compared with the less easily de"ned soft-skill capabilities which may be embedded in MBA course content. Managers on the other hand, who are challenged with performing job duties that by de"nition are oriented to ‘getting things done through and with people’ (Daft, 2012) are more aware of the importance of having capabilities which a%ord an ability to lead and communicate. For MBA faculty, bringing attention to this discord in the discussion of developing relevant and e%ective MBA curriculum would be bene"cial.

As with any study there are limitations which need to be noted. At the onset it is duly noted that given the small sample size there is reduced power in establishing signi"cant results. However, generating a suitable sample size at a local level can be a challenging task. Similar studies have been faced with noted limitations (e.g. Shuayto, 2013); even large scale national studies have low response rates by local contribution (e.g. CERI studies). Future research e%orts of local stakeholder views which devote speci"c attention to the generation of larger survey sample responses would help to improve an understanding of speci"c populations (e.g. industry clusters) of interest. Second, while the list of course topics and course topic categories are commonly found in most MBA curriculum, and the survey instrument


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was pre tested for ease of completion and understanding, it is possible that the respondents may have di%erent expectations of speci"c content contained in each course topic category. !e integration of qualitative study methodology such as focus groups and semi-structured interviews to allow for dialogue to more clearly identify course topic content would generate a richer understanding of the local business community’s interests (Yin, 2003). Finally, with regard to the overall development of e%ective MBA curriculum there are a number of additional issues, which were not considered in the study. For example, understanding the role of course delivery methods and the use of experiential learning experiences also play an integral part in the development of MBA programs (Rubin & Dierdor%, 2013). Consideration of these issues would likewise bene"t from a local view with inclusion of other key stakeholder groups such as currently enrolled MBA students and alum.

ConclusionAttention to the development of relevant MBA programs will continue to be a challenge as the business world rapidly evolves with advances in technology and global reach. !e inclusion of relevant stakeholder groups such as employers in the discussion of how best to address issues related to the development of e%ective MBA curriculum is vital. A call for the construction of MBA curriculum which complements career development of its constituents is seen as a way to address this challenge (Rubin & Dierdor%, 2013). In this regard, the focus of this paper was intended to convey that there is value for business schools to view at the local level the e%ectiveness of their MBA curriculum. !e results presented from the case study illustrate that input from the key stakeholder group; the local business community can be used to prompt an objectively based faculty discussion to critique current curriculum. !e localized approach complements not only AACSB guidelines for business schools to be mission driven but also encourages the economic development of local industry clusters. !e results clearly indicate that holding an MBA degree in the local business community of interest is recognized as a requirement as one advances in his/her career. On a broader scale, the research results contribute support to the debate position that the MBA degree is an important mechanism from which to secure KSAs to be an e%ective manager. Further, the results suggest that the continued debate as to which courses would be most

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e%ective depends in part on the perspective of the respondent, but in all, e%ort to provide more emphasis on soft-skill development is bene"cial. !e presence of misalignment between the local business community and what is o%ered in the local MBA curriculum accentuates broader "ndings and emphasizes the need for continued e%orts actively seek key external stakeholder perspective. It is from this approach that the understanding of how best to develop relevant MBA curriculum will advance.

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!e impact of transformational leadership on team performance and satisfaction: the mediating role of

trust

Ligia PETAN1

Abstract. Much of the research in leadership focuses on investigating the types of leader behaviors that determine positive follower outcomes. Due to the increasing global dimensions of today’s business practice and the growing collaboration between employees based in branches from companies around the world, it has become more important than ever to understand which leadership styles are most appropriate in determining positive follower outcomes. In the search for potential determinants of positive team outcomes, transformational leadership and trust have emerged as two important factors. According to Bass (1985), transformational leadership motivates followers by making them more aware of the importance of task outcomes, determining followers to transcend their own self-interest for the sake of the organization or team, and through activating follower higher order needs. Leaders with transformational leadership style characteristics are supportive, encouraging, and able to provide the necessary help in the face of obstacles and hardships. In addition, when employees trust their leaders, they are likely to perform better and be more satis$ed. Drawing on previous research of transformational leadership, trust in the leadership, team performance, and satisfaction, the present endeavor develops a model, which proposes that transformational leadership positively in"uences team performance and satisfaction, both directly and indirectly, being partially mediated by trust in the leader. !e paper tested the impact of transformational leadership on team performance and satisfaction, while considering the role of trust, among employees (N=121) of face-to-face and virtual teams from various industries mainly in Romania and USA. !e results indicated that transformational leadership had only a direct in"uence on team performance, and a direct and indirect positive in"uence on team satisfaction. !e impact of transformational leadership on team satisfaction was partially mediated by follower’s trust in the leader. Based on the results

1. Ph.D. candidate, School of Business and Leadership, Regent University, Virginia Beach, U.S.A., [email protected].

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of the present research, implications for leadership theory and practice of leadership are discussed.

Keywords: transformational leadership; performance; satisfaction; trust.

IntroductionAfter more than 20 years of research, transformational leadership behavior has been associated with a variety of positive outcomes (Bommer, Rubin, & Baldwin, 2004) such as employee satisfaction (Podsako%, MacKenzie, Moorman & Fetter, 1990), organizational commitment (Bycio, Hackett & Allen, 1995), extra e%ort (Seltzer & Bass, 1990), turnover intention (Bycio et al., 1995), and organizational citizenship and employee performance (Podsako%, MacKenzie, Paine & Bachrach, 2000; MacKenzie, Podsako% & Rich, 2001). At the same time, there have been rapid developments in communication technology, which changed the dynamic of current organizations and enabled the development of virtual teams. !e need to study leadership styles appropriate for both face-to-face and virtual environments soon emerged and led to new conceptualizations such as e-leadership (Avolio, Kahai & Dodge, 2000). Avolio and Kahai (2003) supported e-leadership must be set in the context of de"ning leadership in general. Previous studies associated transformational leadership with positive outcomes and follower perceptions in virtual teams as well (Kahai, Sosik & Avolio, 2003; Ruggieri, 2009; Purvanova & Bono, 2009). Trust in the leadership is considered one of the key elements, necessary in determining whether the leader will manage to bring about organizational e%ectiveness at all levels (individual, team, and unit) (Burke, Sims, Lazzara & Salas, 2007). !e present endeavor builds on previous research, which links transformational leadership to positive team outcomes, while considering the mediating role of trust. More speci"cally, the study investigates the direct and indirect impact of transformational leadership on two outcomes, team performance and satisfaction.

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!eoretical background and hypothesesTransformational leadership According to Bass (1985), transformational leadership motivates followers by making them more aware of the importance of task outcomes, determining followers to transcend their own self-interest for the sake of the organization or team, and through activating follower higher order needs. Leaders who present transformational leadership style characteristics are supportive, encouraging, and able to provide the necessary help in the face of obstacles and hardships. Yukl (2006) emphasized the in#uence of such leadership determines followers to feel trust and exceed expectations. Transformational leadership includes four types of behavior: idealized in#uence, individualized consideration, inspirational motivation, and intellectual stimulation. Idealized in#uence appeals to follower emotions and determines identi"cation with the leader. Individualized consideration refers to the provision of support, encouragement, and coaching to followers. Inspirational motivation involves the transmittal of vision by using symbols to channel follower e%ort and model behaviors. Lastly, intellectual stimulation is a behavior that appeals to follower awareness of problems and in#uences the follower to “view problems from a new perspective” (Yukl, p. 262).

When discussing the in#uence process, Yukl underlined that transformational leadership behaviours like inspirational motivation and individualized consideration are likely to increase the self-e$cacy of individuals and the collective e$cacy of teams (the con"dence of team members in the ability to achieve the set objectives). !us, self-e$cacy closely relates to team performance, but is not identical to it. Yukl also noted that leaders could improve the performance of their team through motivating team members to commit to attaining shared common objectives, clarifying tasks, team organization, support mutual trust, and cooperation within the team. According to Yukl, trust and cooperation play an important role since “even a talented, well-organized team may fail in carrying out its mission unless there is a high level of cooperation and mutual trust among its members” (p. 327). Bass (1999) argued that unlike transactional leadership, which practices contingent reinforcement of followers, the transformational leader inspires, intellectually stimulates, and is considerate of them. Bass and Avolio (1998) supported that transformational leaders are role models for followers and “can be counted

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on to do the right thing, demonstrating high standards of ethical and moral conduct” (p. 136). According to Avolio, Zhu, Koh, and Bhatia (2004), transformational leaders may use individualized consideration and intellectual stimulation to empower followers by challenging their beliefs, mindsets, and values.

Transformational leadership and follower performancePrevious research associated transformational leadership with follower performance in various domains. In a study of the in#uence of transformational and transactional leadership on the performance of sales people, MacKenzie et al. (2001) found that transformational leadership in#uenced the sales people in the sample to perform above their normal duty and had a stronger direct and indirect e%ect with sales performance as compared to transactional leadership. Kahai et al. (2000) showed that transformational leadership is likely to contribute to group performance by overcoming social loa"ng among group members.

Dionne, Yammarino, Atwater, and Spangler (2004) discussed the speci"c link between transformational leadership and team performance. In their conceptual model, Dionne et al. posited that idealized in#uence/inspirational motivation, intellectual stimulation and individualized consideration could produce intermediate outcomes such as shared vision, team commitment, and empowered team environment, and functional team con#ict. !e researchers argued these intermediate outcomes might positively a%ect team communication, cohesion and con#ict management. Pillai and Williams (2004) found that transformational leadership was related to perceptions of unit performance and commitment thorough self-e$cacy and cohesiveness. In addition, transformational leadership also in#uenced commitment and perceptions of unit performance directly. Menges, Walter, Vogel, and Bruch (2011) showed that transformational leadership climate positively in#uences the organization’s a%ective climate and its workforce performance.

Transformational leadership and follower satisfactionBono and Judge (2003) found a positive relationship between transformational leadership and job satisfaction. !eir research indicated that when external factors (such as transformational leadership) can

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in#uence the extent to which individuals perceive their work activities to be important and self-congruent, and when individuals have such perceptions, they experience job satisfaction and are more willing to work harder on a simple task. Medley and Larochelle (1995) found that transformational leadership style was positively related to nurse satisfaction. Nielsen, Yarker, Randall, and Munir (2009) went further into researching the mechanisms that link transformational leadership to follower satisfaction and considered the mediating role of team e$cacy. !ey found that team e$cacy partially mediated the relationship between transformational leadership and job satisfaction.

Trust in leadership!e present endeavor is mainly concerned with trust in the leader, which has been considered one of the most important variables that mediates the e%ectiveness of transformational leadership (Podsako% et al., 1990; Yukl, 2006). Kirkpatrick and Locke (1996) supported transformational leadership increased follower trust by leader demonstrating concern for followers’ needs, capability and persistence in achieving the vision and possibly through showing that he/she is able to sacri"ce for the sake of the group. !e process of building trust in the leader also involves empowerment of the followers to make their own decisions (Avolio & Bass, 1995) and leadership role modeling (Bass & Avolio, 1990). Arnold, Barling, and Kelloway (2001) found that transformational leadership increased trust, commitment and team e$cacy, recommending that transformational leadership style is a better way to engender trust.

In virtual teams, the development and maintenance of an appropriate level of trust is associated with an exchange of both verbal and non-verbal cues, which involves the use of both emailing and video conferencing (Zaccaro & Bader, 2003). According to Zaccaro and Bader (2003), e%ective teams gradually develop high degree of cohesion and trust. Previous studies underlined that in the speci"c virtual team context, the role of the leader consists of making sure that the team has the cognitive, social, and material resources to achieve tasks and goals, and that leaders play a critical role in creating an environment of trust where people can open and share their thoughts and feelings (Zaccaro & Bader, 2003; Ze%ane, 2010). Acknowledging the importance of trust in virtual teams, Jarvenpaa

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and Shaw (1998) argued that trust is the only thing that prevents “geographical and organizational distances of team members from turning into unmanageable psychological distances” (p. 47).

A direct link between transformational leadership and trust was found by Gillespie and Mann (2004), who showed that transformational leadership behaviors were positively correlated with team members’ trust in the leader. !e leader builds trust in the team members through providing rewards contingent upon achievement of objectives, consulting team members when making important decisions, and by communicating a collective value-driven vision. Connell, Ferres, and Travaglione (2003) found that transformational leadership was a signi"cant predictor of trust in leadership and that turnover intent and commitment were signi"cant outcomes. !us, the process of building trust represents an important step for the leaders to obtain positive work-related outcomes from their followers. Regarding the mediation, previous research indicated that trust appeared as an important mediator in the relationship between transformational leadership and some measures of performance, including satisfaction, in traditional teams (Jung & Avolio, 2000). Jung and Avolio (2000) found that transformational leadership had both a direct and indirect in#uence on follower performance. Trust in leadership had a mediating e%ect on the relationship between transformational leadership and follower performance (measured in terms of quality of outcomes and satisfaction with the leader). When employees trust their leaders they are likely to perform better and be more satis"ed. As seen above, previous research indicated that transformational leadership is positively related to trust (Yukl, 2006) and various positive team outcomes. Yukl (2006) highlighted that trust in the leader helps followers exceed expectations in their performance. !e in#uence is direct and indirect, mediate by follower’s trust in leadership (Jung & Avolio, 2000). !e present research proposes the mediating e%ect of trust extends from satisfaction with the leader to team satisfaction as well. To sum up, the present model proposes that transformational leadership is positively related to both team performance and satisfaction (as perceived by the team members). !e positive in#uence of transformational leadership is both direct and indirect, mediated by trust in leadership. Considering the above-described relationships, the present model proposes to test both the direct and

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indirect e%ect of transformational leadership on team performance and satisfaction as follows:

H1: Transformational leadership positively in#uences team performance.H2: Transformational leadership positively in#uences team satisfaction.H3: Trust will partially mediate the positive e%ect of transformational leadership on team performance and satisfaction.

MethodParticipantsPart of the participants in the present study come from a convenience sample in a large company based in Romania (N=28). !e greater part of the surveys (N=93) was gathered with the help of snowball sampling. !e sample consisted of 121 respondents (44.6% male and 55.4 female) mainly from Romania (63.6%) and the USA (30.6%), with one additional respondent from each of the following countries: Italy, Mexico, UK, Mexico, Norway, Spain, Rwanda, and Brazil. In what the typology of the team is concerned, most individuals worked in face-to-face teams (65.3%), followed by individuals who were part of a mixed type of team (32.2%), and virtual team members (2.5%). !e other demographic characteristics are presented in Tables 1-3 below.

Table 1. Demographic information (Age)

Age Employee % 18-24 15.7% 25-30 39.7% 31-40 31.4% 41-60 13.2% Over 60 years old -

Table 2. Demographic information (tenure with leader)

Tenure Employee % Less than 2 years 50.4% 2-5 years 33.9%

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5-10 years 12.4% Over 10 years 3.3%

Table 3. Demographic information (industry type)

Industry type Employee % Aerospace/Aviation/ Automotive 23.1%

Agriculture / Forestry / Fishing .8%Business / Professional Services 9.1%Communications .8%Education 14.9%Finance / Banking / Insurance 7.4%Food service 1.7%Government/Military 6.6%

Healthcare / Medical 5.0%Legal .8%

Manufacturing .8%Marketing / Market Research / Public Relations 2.5%Media / Printing / Publishing 6.6%Retail -Telecommunications 1.7%Other 18.2%

Measures!e questionnaire includes questions on all the variables under study, as follows. !e Global Transformational Leadership Scale (Carless, Wearing & Mann, 2000) was employed to measure transformational leadership. Carless et al. developed a questionnaire that covers the following leadership aspects: vision, sta% development, supportive leadership, empowerment, innovative thinking, and lead by example, and charisma. !e response format is a 5-point Likert scale ranging from “Rarely or never” to “Very frequently, if not always”. !e employees were asked how frequently the leader engaged in the described behavior. Support for convergent and discriminant validity was found in the study that validated Global Transformational Leadership Scale. !e seven items that make up the scale

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measure a single construct. Cronbach’s alpha indicated a value of .93. One sample item is “My team leader fosters trust, involvement and cooperation among team members.” !e performance and satisfaction of team members were assessed through the nine items from Lurey and Raisinghani (2001). !e items were used to assess performance and satisfaction in virtual teams, and they are considered appropriate for the context of the present study as well. !e virtual team phrase in the following item “In the future I would be interested in participating in another virtual team” was replaced with “In the future I would be interested in participating in another similar team” to better re#ect the context of the present research. !e items are part of an extensive virtual team survey, which aimed to "nd information about how virtual teams were designed, the systems used to support teams, and these have/have not helped the team succeed in achieving business objectives. !e response format is a 5-point Likert scale ranging from “Strongly agree” to “Not applicable.” One sample item is “In the past, the team has been e%ective in reaching its goals.” !e reliability measures indicated a value of .82 for both of the dimensions. Lastly, the twelve perceived trustworthiness items developed by Mayer and Davis (1999) were employed to assess trust in leadership. !e instrument was developed to measure perceived trustworthiness along its three main dimensions: benevolence, integrity, and competence. !e items are designed from the trustor’s point of view with regard to the trustee. !e response format is a 7-point Likert scale from “Strongly disagree” to “Strongly agree.” As in previous research, the items will be aggregated to compute an overall measure of trustworthiness. A sample item is “!is manager has a strong sense of justice.” Cronbach’s alpha indicated a .94 value. !e word “manager” has been replaced with “team leader” to better "t the purpose of the present research. . !e reliability scores for the present sample are presented in Table 4. Table 4. Reliability of the Scales

Scale Number of items Cronbach’s Alpha

!e Global Transformational Leadership Scale 7 .921

Performance 4 .756

Satisfaction 5 .803

Perceived trustworthiness 12 .961

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In addition, the study included the following control variables: team typology, tenure with the leader, frequency of communication, culture (country), industry type, and team size. Team typology refers to whether the individual works in a face-to-face, virtual or mixed team. Because of the global context in which teams operate, national culture was also found to in#uence team dynamics and trust. Data on culture will be obtained by asking participants to "ll in the country of origin and will be coded according to Hofstede’s (1980) classi"cation of countries as having individualistic or collectivistic cultures.

A small-scale pilot study was conducted with 10 respondents who gave feedback on the questionnaire. !e sample consisted of respondents from Romania, Sweden, and the USA. !e respondents reported they understood the questions. Cabanda, Fields, and Winston (2011) noted that a pilot study would help ensure items in the questionnaire are valid and reliable. !e scales that will be used are developed and have been validated by previous studies, thus ensuring content validity.

Procedure!e research was conducted via online Google Docs Forms survey system through the administration of questionnaires. In order to have a better view of how transformational leadership in#uences team performance and satisfaction of team members, the present endeavor used team members from a large company in Romania and from various other industries with the help of snowball technique. !e survey contained 36 questions and based on pilot testing, took approximately 7 minutes to complete. !e questionnaire was administered in English. In the pilot test phase, the Romanian respondents reported a good understanding of all the items in the questionnaire. In many companies in Romania, employees use English on a daily basis. !e respondents from the large company were recruited with the help of a contact from inside the company. Upon signing a con"dentiality agreement, the HR Department agreed for the author’s contact inside the company to send the link to the survey. !e other participants were recruited through Facebook. !e author sent personal messages to contacts in Facebook, asking them to "ll out the survey and to forward it to their contacts as well. Each questionnaire had an opening statement regarding the purpose of the research and an informed consent

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making the participants aware that the completion of the survey represents the agreement to participate in the study.

Results!e survey results were entered into SPSS (version 18.0). Descriptive statistics revealed the characteristics of the sample. Apart from the demographic characteristics, a few other features of the sample are worth noting. Regarding the frequency of communication, 54.5% respondents reported communicating with their leader more several times a day, 10.7% once a day, 22.3% several times a week, and 12.4% every other week. In what the size of the team is concerned, 24% participants reported being part of a team with less than 5 members, 37.2% respondents reported being part of teams with 5-10 members, 20.7% indicated being part of teams with 10-15 members, while 18.2% reported working in teams with over 15 members.

!e reliability analysis indicated acceptable values, with Cronbach alpha values over the .7 (Kerlinger and Lee). Following the reliability analysis, the items that comprised each scale were computed and the aggregated variables for transformational leadership, performance, satisfaction, and perceived trustworthiness were further employed for testing the hypotheses. Correlation analysis was employed to see whether there were any signi"cant correlations between the dependent, independent and control variables. Pearson’s Product Moment Correlations Matrix (Table 5), indicated a few signi"cant correlations. Team performance was signi"cantly correlated with team satisfaction (r=.43, p<.01), transformational leadership (.44, p<.01), trust (r=.36, p<.01) and signi"cantly and negatively correlated with the age of the respondents (r=-.23, p<.05). Team satisfaction was signi"cantly correlated with transformational leadership (r=.68, p<.01) trust (r=.70, p<.01) and gender (r=.20, p<.05). Transformational leadership was signi"cantly correlated with trust (r=.84, p<.01). !e results indicated other signi"cant correlations between trust and gender (r=-.18, p<.05), age and tenure with the leader (r=.27, p<.01), country and tenure (r=.29, p<.01), age and communication frequency (r=.29, p<.01), industry type and communication frequency (r=.26, p<.01), country and age (r=.21, p<.05), and industry type and country (r=.19, p<.05). !e means and

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standard deviations for the criterion, predictor, and control variables are shown in Table 6.

Table 5. Pearson’s Product Moment Correlations Matrix

Table 6. Descriptive Statistics (N=121)

Variable M SDTeam performance 3.8760 .58641Team satisfaction 3.9669 .61174Transformational leadership 3.5348 .86002Trust 5.2073 1.31441Team typology 1.6694 .93442Tenure 1.6860 .81683Communication frequency 1.9256 1.12669Team size 2.3306 1.03592Gender 1.5537 .49917Age 2.4215 .91060Country 1.5950 1.28179Industry type 7.3223 5.48971

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Multiple linear regression was employed to investigate the ability of transformational leadership to predict team performance and satisfaction as perceived by the team members, and the mediating e%ect of trust in the team leader. To test the "rst hypothesis, the control variables of team typology, tenure with the leader, communication frequency, country, industry type, team size, and age were entered in the "rst step, while the predictor, transformational leadership, was entered in the second step. Age was included because of the signi"cant correlation with team performance. Hair, Black, Babin, Anderson, and Tatham (2006) mentioned that 15-20 observations per independent variable are required with multiple regression in order to make generalizations. !e present model follows the minimum of 15 observations per independent variable guideline. !e "rst model did not signi"cantly contribute to explaining the variance in the dependent variable (p=.11). !e second model was signi"cant, indicating that transformational leadership explains 18% of the variance in team performance (R-=.28, F(8,112)= 5.349, p<.001). Transformational leadership signi"cantly predicted team performance ( =.44, p<.001) in support for the "rst hypothesis. In addition, age signi"cantly and negatively predicted team performance ( =-.23, p<.05).

To test the second hypothesis, the control variables of team typology, tenure with the leader, communication frequency, country, industry type, team size and gender were entered in the "rst step, while the predictor, transformational leadership, was entered in the second step. Gender was added to the control variables due to its signi"cant correlation with team satisfaction. !e "rst model with the control variables was not signi"cant (p=.42). !e second model was signi"cant and transformational leadership explained 44% of the variance in team satisfaction (R-=.50, F(8,112)=13.953, p<.001). Transformational leadership signi"cantly predicted team satisfaction ( =.69, p<.001) and thus supporting the second hypothesis. In addition, communication frequency signi"cantly predicted team satisfaction ( =.18, p<.05).

!e mediation hypothesis was tested through regression analysis following Baron and Kenny’s (1986) guidelines. In investigating whether trust mediates the relationship between transformational leadership and team performance a series of linear regressions were performed. !e "rst part of the mediational hypothesis was not supported (Figure 1). Transformational

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leadership was signi"cantly related to both the proposed mediator – trust (R-=.70, F(1,119)=288.608, p<.001) and the outcome variable – team performance (R-=.20, F(1,119)=29.051, p<.001). When controlling for the independent variable, the mediator did not have a signi"cant relationship with team performance (p=78), thus rejecting the mediation hypothesis.

!e second part of the mediational hypothesis was supported (Figure 2). Transformational leadership was signi"cantly related to both the proposed mediator – trust (R-=.70, F(1,119)=288.608, p<.001) and the outcome variable – team satisfaction (R-=.46, F(1,119)=100.424, p<.001). When controlling for the independent variable, the mediator continued to have a signi"cant relationship with team satisfaction, thus con"rming the mediation hypothesis. Finally, when testing for the direct e%ect of the independent variable on the dependent variable and controlled for the mediator, the relation remained signi"cant indicating a partial correlation. !e beta value for the moderator (.48) is greater than the beta value for the independent variable (.27), indicating a considerable mediating impact. According to Preacher and Hayes (2004) there are several ways to calculate the indirect e%ect of transformational leadership on team satisfaction. One way is represented by c-c’=.402 in Figure 2.

Discussion!e "rst two hypotheses were supported, while the third hypothesis was only partially supported. First of all, the results indicate a positive and signi"cant direct relationship between transformational leadership and team performance. !e result is in line with the work of Pillai and Williams (2004), who showed that transformational leadership in#uenced perceptions of performance directly, and Jung and Avolio (2000), who showed the direct e%ect of transformational leadership on follower performance. An unexpected negative signi"cant relationship between age and team member performance was also found, indicating that the younger the respondents, the greater the level of perceived team performance. A signi"cant relationship was also found between transformational leadership and team satisfaction. !is "nding supports previous research by Bono and Judge (2003), who also found a positive

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Figure 1. Model testing hypothesis that trust mediates the relationship between transformational leadership and team performance. * p <.05. **

p<.01. ** p<.001.

Figure 2. Model testing hypothesis that trust mediates the relationship between transformational leadership and team satisfaction. * p <.05. **

p<.01. ** p<.001.

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direct relationship between transformational leadership and satisfaction. While Bono and Judge measured job satisfaction, the present study was more speci"c in testing satisfaction within the team. !e indirect e%ect of transformational leadership on team performance and satisfaction was also tested. !e result of the multiple linear regressions indicated that trust only mediates the relationship between transformational leadership and team satisfaction. !e lack of mediation for team performance is contrary to the "ndings of Jung and Avolio, who found that trust had mediating e%ects on the relationship between transformational leadership and various measures of performance. !is may be due to the fact that Jung and Avolio measured performance with the help of external evaluators, who evaluated performance in terms of quality. Further analysis is required to explore the mediating e%ect of trust on follower performance within the context of teams. Taking further the work of Jung and Avolio who evaluated the mediating e%ects of trust on the relationship between transformational leadership and satisfaction (with the leader), the above analysis also con"rmed a mediation e%ect when satisfaction was measured by assessing the satisfaction of the respondents with their respective teams.

!e present descriptive cross-sectional study gathered data from respondents coming from a variety of industries in nine di%erent countries. Considering the topic of the research and the measures involved, self-reports were considered appropriate to evaluate the leadership of the team leader, perceived team performance and satisfaction, and follower’s trust in the leader. !e questionnaire assembles di%erent scales and appropriate reliability evidence was displayed in support for the inclusion of the scales. According to Conway and Lance (2010), this constitutes an important step in ruling out substantial method e%ects. !e limitation of the study refers to the fact that much of the variance in team performance remained unexplained. As seen above, transformational leadership accounts for 18% of the variance in team performance. Future research should take into consideration other variables that in#uence team performance, such as type of communication used by teams, trust climate (Cur eu, 2006; Lin et al., 2008) or other leadership styles. To strengthen the internal validity of the study, an experimental approach to studying the proposed hypotheses could be adopted.

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!e present research links transformational leadership to team performance and satisfaction, while considering the mediating role of trust in the leadership. Prior studies indicated that transformational leaders positively in#uence follower’s trust, which in turn leads followers to exceed expectations in their performance (Yukl, 2006). !e model tested the positive in#uence of transformational leadership on both team performance and satisfaction and the mediating role of trust in a sample with members of teams from nine countries and various industries. As teams, both face-to-face and virtual, become increasingly frequent in large companies, understanding the impact of leadership team performance and team satisfaction is critical. Unlike previous studies, which have employed teams from various universities (Jung & Avolio, 2000; Jarvenpaa & Leidner, 1999; Arnold et al., 2001), the present research studied the proposed relationships in face-to-face and virtual teams working from various industries, thus making possible the generalization of results to various domains. !e results revealed that transformational leadership has a positive and signi"cant relationship with team performance and team satisfaction. In addition, trust was found to partially mediate the relationship between transformational leadership and team satisfaction. !e results are relevant for programs developing leadership in teams, which should consider including aspects of transformational leadership because of their positive in#uence on team performance and satisfaction in employees from diverse cultural backgrounds. In addition, due to the large sample of Romanian employees included in the study, the results indicate transformational leadership is e%ective to maintain the satisfaction of Romanian followers.

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Ligia PETAN

Are through-timers striving more for results than in-timers? Time perspective, achievement motivation

and self-regulation: an empirical study

Dan Florin ST&NESCU1

Elena M'd'lina IORGA2

Abstract. !e ways in which individuals develop temporal orientations that divide the "ow of personal experience into the time zones of past, present or future in"uence decision making and action taking, in terms of dominant temporal orientation. Research so far has already highlighted the link between speci$c time orientations (mainly future) and a series of behaviors associated with health, risk taking or academic achievement. Although time perspective was investigated as a cognitive-motivational concept with important implications on learning outcomes and behavior, there is little or no evidence concerning the e#ects of time perspective on work related achievement motivation. Similarly, albeit time perspective was studied in relation with other individual variables that might provide insights for a better understanding of its volitional nature (such as, locus of control, optimism/pessimism or self-determination), self-regulation was not yet considered. Based on these assumptions, the present study investigates the possible associations between di#erent time perspectives, self-regulation and achievement motivation. It was conducted using a survey method on a convenience sample of 67 MA students. Results show positive associations between future time perspective and self-regulation, and negative associations between present fatalist and self-regulation, respectively past negative and self-regulation. Likewise, achievement motivation seems to be positively related to future time perspective and negatively related to past negative and present fatalistic. Moreover, these correlations are supported at subscale level. !e present $ndings advice for taking into account the way in which individuals assign the personal and social experiences to time frames, that help them give order, coherence and meaning in work settings. Since career, as well as schooling is by de$nition future-oriented, identifying the dominant time perspective and its relation to behaviors associated with planning and achieving one’s goals might help better understand career choices. Concurrently, since time perspective is associated

1. Lecturer, Ph.D., Head of Communication Department, College of Communication and Public Relations, National University of Political Studies and Public Administration, Bucharest, Romania, dan.stanescu@comunicarero. 2. Assistant Professor, Ph.D., College of Communication and Public Relations, National University of Political Studies and Public Administration, Bucharest, Romania.

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with problematic behaviors, it could be included in the study of work related behaviors (counterproductive or organizational citizenship behaviors) along with self-regulation.

Keywords: time perspective; achievement motivation; self-regulation; goals; behavior.

IntroductionTime perspective, time attitude, time orientation or time perception, they all point out that individuals are aware of the passing of time and therefore try to make sense of it, either by exerting di%erent a%ective responses towards the past, the present or the future (time attitude) (Nuttin, 1985) or by establishing which of these frames one tends to favor (temporal orientation) (De Volder, 1979).

However, in the attempt to determine the sense of time, which lately “has become the most precious commodity and the ultimate scarcity” (Robinson & Godbey, 1997, p. 25), the term time perspective was coined as the most representative concept in investigating the association between time frames and personal experiences.

Time perspective was initially referred to as “the totality of the individual’s views of his psychological future and psychological past existing at a given time” (Lewin, 1951, p. 75 cited in Boniwell, Osin, Linley & Ivanchenko, 2010). Subsequently, de"nitions focused on the cognitive, a%ective and volitional aspects of the construct: “a cognitive operation that implies both an emotional reaction to imagined time zones (such as future, present or past) and a preference for locating action in some temporal zone” (Lennings, 1996, p. 72).

Whilst the notion was measured and operationally de"ned in a variety of ways, currently, the most widespread conceptualization of time perspective is that proposed by Zimbardo and Boyd (1999, p. 1271), as “a nonconscious process whereby the continual #ow of personal and social experiences are assigned to temporal categories, or time frames, that help to give order, coherence and meaning to those events”. Further, as stressed by Hall (1983), these are cognitive frames that vary in terms of cyclicity,

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since they can re#ect either repetitive temporal patterns or unique events in one’s life.

Moving forward, the formation of speci"c time perspectives is based on both contextual and dispositional factors. Speci"cally, such processes as socializing, modeling and education, as well as cultural and environmental factors in#uence whether one focuses on past, present or future when making decisions and taking actions (Seginer, 2003). Similarly, even situational factors like going on vacation, status change or being exposed to stressful events can favor a certain time perspective (Zimbardo & Boyd, 1999).

All the same, despite all these environmental and contextual aspects, “when a tendency develops to overemphasize one of these three temporal frames when making decisions, it serves as a cognitive temporal bias toward being past, present or future oriented” (Zimbardo & Boyd, 1999, p. 1272). !at is, when a particular temporal bias mostly in#uences one’s views and behavior, the respective time perspective becomes characteristic and predictive of preferred reactions in daily life choices. Still, in order to avoid the overuse, respectively the underuse of di%erent time perspectives, a balanced time perspective (BTP) has been proposed (Boniwell & Zimbardo, 2004; Boyd & Zimbardo, 2005). !is approach provides a more positive alternative to making sens of time, since “in an optimally balanced time perspective, the past, present and future components blend and #exibly engage, depending on a situation’s demands and our needs and values” (Zimbardo, 2002, p. 62).

Another important contribution of Zimbardo and his colleagues in the study of time perspective refers to elaborating a reliable measure of multiple time frames/temporal pro"les, assessing broader dimensions of time perspective, based on motivational, emotional, cognitive and social processes that are interrelated to time perspective (the Zimbardo Time Perspective Inventory). By identifying such factors as Past Negative and Past Positive, along with Present Hedonistic, Present Fatalistic and Future, the scale addresses the lack of empirical evidence regarding the in#uence of past on one’s decisional behavior.

Dan Florin ST.NESCU, Elena M+d+lina IORGA

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Existing research has already shown that one’s perception of time plays an integral role in the selection and pursuit of social goals, with important implications for emotion, cognition and motivation (Carstensen, Isaacowitz & Charles, 1999), since the past, present, and future temporal frames a%ect the encoding, storing and recalling of experienced events, as well as the forming expectations, goals, and possible scenarios. For instance, a Past Negative orientation was associated with problems with interpersonal relationships, lack of physical exercise, and an a$nity towards gambling, even with a general dissatisfaction of present life circumstances (Zimbardo & Boyd, 1999).

Equally, those who live in the here and now (Present oriented) report higher scores on risky driving, frequent smoking, and consumption of alcohol and drug use (Keogh, Zimbardo & Boyd, 1999). Concerning the speci"c present time orientations, Present Fatalistic was associated with aggression, anxiety, depression (Zimbardo & Boyd, 1999), and with avoidant procrastination, while Present Hedonistic was associated with arousal procrastination (Ferrari & Diaz-Morales, 2007).

Moreover, prevalence in both Present Fatalistic and Past Negative frames was shown to discriminate between severe suicidal ideators and nonideators among high school students (Laghi, Baiocco, D’Alessio, & Gurrieri, 2009). !e same time frames were also indicated as predictors of problematic internet use (Chittaro & Vianello, 2013).

As for the future oriented, negative associations with behaviors that might jeopardize future goals, such as aggression, ego under control, impulsivity, and risk taking were identi"ed. Further, the future time perspective factor also correlated signi"cantly with conscientiousness, consideration of future consequences, and preference to consistency, whereas negative correlations were reported in the case of sensation seeking, anxiety and depression (Zimbardo & Boyd, 1999).

In another study (Epel, Bandura & Zimbardo, 1999), "ndings suggest that time perspectives can even predict the behavior of unemployed people, who either use their time constructively to seek jobs (future-oriented), or

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waste time watching TV and engaging in other avoidant coping strategies (present-oriented).

!e temporal perspective was also examined in relation to aspects of self-concept. Markus and Nurius (1986, cit. in Boniwell, 2005) found that a general locus of control is related to time perspective. Speci"cally, if past or present life events were associated with a sense of helplessness and frustration, one would be more prone to feel out of control over future events, hence the focus on the past or the present. Further, these results can be interpreted with the lens of the “uncertainty orientation” (Sorrentino & Short, 1986, cited in Trommsdor%, 1994). !us, in order to satisfy the need for security, individuals want to “know” what the future will be like. Expectations, evaluations, and beliefs about the future and about ways of controlling outcomes include beliefs about the self and about the relation between the self and the environment in the future. And these form the future time perspective and the control orientation.

Based on this, expectations in#uence behavior when they are connected to certain control beliefs. For instance, in achievement situations, people who expect success and with an internal rather than external locus of control attribute their success to themselves; in turn, this leads to a positive self-concept regarding achievement, in terms of goal setting, and behavior (Weiner, 1992). Apart from the relation between expectations and control beliefs (which are a%ected by the preferred temporal orientation), individual di%erences in achievement were as well explained by di%erences in self-regulation (Magar, Phillips & Hosie, 2008).

De"ned as the ability to develop, implement, and #exibly maintain planned behavior in order to achieve one’s goals (Brown, Miller, & Lawendowski, 1999), self-regulation has been shown to be related to general adjustment (Kuhl, 2001), emotional states (Fröhlich & Kuhl, 2003; Schneider, Bös, & Rieder, 1993), health-related habits (Mezo & Heiby 2004), and sport performance (Barkho%, 2000; Beckmann, 2001; Beckmann & Kazén, 1994; Kane, Baltes, & Moss, 2001; Singer, 2002).

Being essential to planned behavior, low generalized self-regulatory capacity was proved to lead to poor capacity to develop adaptive goals and


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monitor current status toward those goals. Furthermore, individuals with lower self-regulatory capacities were more prone to engaging in activities that provide immediate grati"cation (Neal & Carey, 2005).

Miller and Brown (1991) designed a seven-step model of behavioral self-regulation. Initially aimed at speci"cally studying addictive behaviors, it comprises general principles of behavioral self-control which can be applied irrespective of context, namely: receiving relevant information, evaluating the information and comparing it to norms, triggering change, searching for options, formulating a plan, assessing the plan’s e%ectiveness.

When considering goals, the temporal distance towards them is a key factor and previous research took into account the role of time perspective on self-regulated learning, while considering the self-determination theory (de Bilde, Vansteenkiste & Lens, 2011). Results show that being future oriented seems to contribute to a stronger personal endorsement of one’s present study activities, being consistent with other "ndings (Simons, Vansteenkiste, Lens & Lacante, 2004) pointing out that future time perspective increases the individual amount of motivation and e%ort-expenditure, but might also be associated with a qualitatively di%erent type of engagement in the activity at hand.

Other investigations focused on the time perceptions associated with regulatory activities (Vohs & Schmeichel, 2003). !e "ndings suggest that time in#uences the extent to which self-regulatory endeavors will continue to be pursued, since perceptions that a regulatory task lasted overly long seem to reduce subsequent self-regulatory capacity. Further, these results may have implications for achievement and performance, since temporal perceptions on managing the planned behavior can determine avoidance or approach behaviors.

Achievement motivation was already identi"ed as the second best predictor (along with cognitive abilities) of high levels of performance (Eckardt & Schuler, 1992). Atkinson (1964, as cited in Singh, 2011) states: “the theory of achievement motivation attempts to account for the determinants of the direction, magnitude and persistence of behavior, unlimited but very important domains of human activities.” Being a composite construct,

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achievement motivation reunites a series of aspects that drive individuals to meet both personal and professional goals, such as: persistence, con"dence in success, internality, engagement, competitiveness, eagerness to learn, self-control, goal setting etc.

Despite the fact that research so far has explored mostly the associations between future time perspective and academic achievement (Harber, Zimbardo & Boyd, 2003), the interest in how people imagine upcoming events (Johnson & Sherman, 1990; Ross & Buehler, 2001) is not new. In fact, there is considerable evidence that generating mental images of future success can sometimes increase achievement motivation, e%ort, and performance (Johnson & Sherman, 1990; Karniol & Ross, 1996; Taylor, Pham, Rivkin & Armor, 1998). Moving forward, research examining possible selves (Markus & Nurius, 1986; Oyserman, Bybee & Terry, 2006; Ruvolo & Markus, 1992) has already been associated with future time perspective (Greene & Wheatley, 1992).

Methodology Objective!e present study aims to determine the relations between time perspective, self-regulation and achievement motivation.

Research questionsGiven the complexity of the time perspective construct and the previous empirical "ndings which stated that time perspective has an important in#uence on behavior, the following research questions emerged:

RQ1: Is self-regulation associated with di%erent time perspectives? RQ2: Is there a relation between time perspective and achievement motivation?

Instruments !e Zimbardo Time Perspective Inventory (ZTPI, Zimbardo & Boyd, 1999) was utilized for this study. !e ZTPI assesses individual di%erences in


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terms of attitudes believed to identify persons of past, present or future orientation. According to Zimbardo, this inventory identi"es tendencies towards a Hedonistic Present (living present life in enjoyment), a Fatalistic Present (perceiving own life under the control of external events), a Positive Past (an orientation towards pleasant past memories), a Negative Past (living a past of unpleasant and painful events), and Future Orientation (the tendency to planning and anticipating events). Items of this inventory are assessed on a 5–point Likert scale, according to how characteristic each statement is to the respondent. Reported reliabilities for the validation of the measure ranged from .70 to .80. (Zimbardo & Boyd, 1999).

!e Achievement Motivation Inventory (AMI, Schuler, !ornton III, Frintrup & Mueller-Hanson, 2002) was used to measure a broad construct of work related achievement motivation. It enables us to measure 17 di%erent facets of achievement motivation - Compensatory E%ort, Competitiveness, Con"dence in Success, Dominance, Eagerness to Learn, Engagement, Fearlessness, Flexibility, Flow, Goal Setting, Independence, Internality, Persistence, Preference for Di$cult Tasks, Pride in Productivity, Self-Control and Status Orientation. !e AMI consists of 170 items to be responded on a 7-point-Likert format. Reliability reported for the total score is = .96 and ranges from = .66 to = .83 for single scales.

!e Self-Regulation Questionnaire (SRQ, Brown, Miller & Lawendowski, 1999) was developed as a "rst attempt to assess the self-regulatory processes through self-report. Items were designed to mark each of the seven sub–processes of the Miller and Brown (1991) model, forming seven rationally-derived subscales of the SRQ. Reliability of the SRQ appears to be excellent .91 (Aubrey, Brown, & Miller, 1994). All 63 items are answered on a 5-point Likert scale, starting from strongly disagree to strongly agree.

Participants Sixty seven individuals (8 males and 59 females) participated in this study. All participants were students enrolled in a Human Resources master program. !e age ranges from 21 to 43 years (M=25,32, AS=4,52).

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ResultsIn order to answer to our previously stated research questions, correlations between all of the time perspective variables and the composite score of self-regulation were used. As shown in Table 1, no signi"cant correlations were obtained between self-regulation and present hedonistic and past positive time orientations. !is suggests that being present hedonistic or past positive oriented, although re#ects a hedonistic, risk-taking attitude toward time and life and an orientation toward present pleasure with little concern for future consequences, is not necessarily related with a low level of self-regulation.

Additionally, similar to previous research (Zimbardo & Boyd, 1999), past negative orientation is negatively associated with self-regulation (r=-,359, p<0,01) and with present fatalistic orientation (r=-,520, p<0,01). Future orientation correlated positively with self-regulation (r=,546, p<0,01), mirroring the results obtained by de Bilde, Vansteenkiste and Lens (2011).

Table 1. Correlations between Time perspective and Self-regulationPast

negative

Present

hedonistic Future

Past

positive

Present

fatalisticSelf-Regulation

Pearson Correlation -,359** -,065 ,546** -,068 -,520**

Sig. (2-tailed) ,003 ,602 ,000 ,582 ,000

By conceptualizing future time perspective as having a dynamic and a cognitive aspect, we are more able to understand its relation with both self-regulation and achievement motivation. !e dynamic aspect of future time perspective is formed by the disposition to ascribe high valence to goals in the distant future. On the other hand, the cognitive aspect of it is formed by the disposition to grasp the long-term consequences of actual behavior, as re#ected in the concept of instrumental value of a behavioral act (De Volder & Lens, 1982).

Starting from the second research question, "rstly the Pearson correlations between all of the time perspective scales and the composite score of achievement motivation were calculated. !e results presented in Table


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2 show negative associations between achievement motivation and past negative (r=-,440, p<0,01), respectively present fatalistic time orientation (r=-,517, p<0,01). It seems that those two time orientation perspectives might in#uence the level of the achievement motivation. By having a generally negative, aversive view of the past, one can bring this attitude in present situations due to the reconstructive nature of the past. As for the present fatalistic orientation, which reveals a helpless and a hopeless attitude towards present and future in life, projecting future goals through these lens might be further associated with avoidant procrastination (Ferrari & Diaz-Morales, 2007) or anxiety and depression (Zimbardo & Boyd, 1999).

Similarly with the previous analysis, achievement motivation positively correlated with future time orientation (r=,487, p<0,01), meaning that, while being future oriented one’s behavior is dominated by a strive for future goals and rewards (Zimbardo & Boyd, 1999) and therefore having an implicit motivation to achieve those goals.

Table 2. Correlations between Time perspective and Achievement motivationPast

negative

Present

hedonistic Future

Past

positive

Present

fatalisticAchievement motivation

Pearson Correlation -,440** -,016 ,487** -,073 -,517**

Sig. (2-tailed) ,000 ,899 ,000 ,559 ,000

Following the same pattern identi"ed for self-regulation, no signi"cant correlations were obtained between achievement motivation and present hedonistic and past positive time orientations.

Moving forward in the analysis, an exploratory analysis was undergone at subscale level (Table 3), in order to better understand the higher order correlations already identi"ed. As expected, a series of AMI subscales correlated negatively with past negative and with present fatalistic time perspective and positive with future orientation, namely: persistence, con"dence in success, internality, preference for di$cult tasks, self-control and objective setting.

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Persistence is described as the willingness to exert large amounts of e%ort over long periods in order to reach a goal. Individuals who score high on this dimension are able to concentrate fully on the task at hand without being distracted. !ese individuals could be described as tenacious or energetic in striving to complete a task. Of course that goals are placed in near or extended future and therefore, a positive correlation (r=.321, p<.01) with future orientation makes sense.

Con$dence in achieving success even when there are obstacles to overcome is positively related with future orientation (r=.378, p<.01). People who score high on this dimension anticipate that their e%orts will lead to success. !ese individuals are con"dent in achieving their goals even when facing new and di$cult tasks. !eir con"dence stems from a faith in their knowledge, skills, and abilities as opposed to a belief in luck or fate which explain the negative correlation (r=-367, p<.01) with present fatalistic time perspective.

Table 3. Correlations between Time perspective and Achievement motivation domains

Past

negative Future

Present

fatalisticPersistence Pearson Correlation -,510** ,321** -,536**

Sig. (2-tailed) ,000 ,008 ,000Con"dence in

Success

Pearson Correlation -,460** ,378** -,367**

Sig. (2-tailed) ,000 ,002 ,002Internality Pearson Correlation -,453** ,365** -,627**

Sig. (2-tailed) ,000 ,002 ,000Preference for Di#cult Tasks

Pearson Correlation -,341** ,278* -,391**

Sig. (2-tailed) ,005 ,023 ,001Self-control Pearson Correlation -,433** ,501** -,480**

Sig. (2-tailed) ,000 ,000 ,000Goal Setting Pearson Correlation -,241* ,430** -,399**

Sig. (2-tailed) ,050 ,000 ,001


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Regarding Internality, which is de"ned as the belief that one’s successes are due to internal causes rather than to situational variables, the negative correlation (r=-.627, p<.01) with present fatalistic is clear, having in mind the fact that present fatalistic time perspective is an external locus of control type of perspective (e.g. item: My life path is controlled by forces I cannot in"uence).

Another AMI scale which correlated with future orientation was Preference for di%cult tasks. !e tendency to seek out challenging rather than easy tasks, and the desire to seek greater challenges once one has already completed a di$cult task is positively related with future orientation (r=.278, p<.05). People who score high on this dimension prefer to take on di$cult tasks with a high risk of failure to easy tasks with a low risk of failure. !is tendency is negatively correlated (r=-.341, p<.01) with past negative time perspective which is based on a negative reconstruction of past and reactualization of failures or traumatic events.

In the present research context, Self-control is operationalized as the ability to delay grati"cation and to organize oneself and one’s work. People who score high on this dimension are able to make long term-plans. !ey do not procrastinate and concentrate on their work with a great deal of self-discipline. !erefore, a strong positive correlation with future time perspective (r=.501, p<.01) is explained by the fact that future time perspective necessitates the belief that a behavior performed in the present increases the probability that a desired future goal will be attained, and thus leads to a higher valuation of goals having future attainment possibilities (Jones, 1988).

!e last AMI scale analized is Goal Setting, respectively the tendency to set goals and to make long term plans for achieving these goals. People who score high on this dimension are future-oriented (r=.430, p<.01) and have high standards for what they want to achieve.

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ConclusionsAlthough the importance of how people make sense of time has already been investigated in relation to one’s thoughts, emotions and behavior (Zimbardo & Boyd, 1999; Zimbardo, Boyd & Keogh, 1999), there are still a lot of underexplored areas regarding the attempt to put time into perspective. For instance, albeit time perspective was associated with health, risk taking or academic achievement, research is scarce with regards to the possible implications of di%erent time biases in work settings. !is direction is advisable even more, since career, as well as learning is by de"nition future oriented and such behaviors as goal setting and planning are key factors to success.

!erefore, the current research addressed the need to place time perspective in occupational context, by examining the possible associations between temporal orientations and achievement motivation. Additionally, self-regulation was included, since it refers to the ability to develop, implement, and #exibly maintain planned behavior in order to achieve one’s goals.

Results are consistent with previous studies, showing positive associations between future time perspective and self-regulation (Bilde, Vansteenkiste & Lens, 2011) and negative associations between present fatalistic and self-regulation, respectively past negative and self-regulation (Zimbardo & Boyd, 1999). !e "ndings thus suggest that individuals who are concerned with future goals and rewards also prove to be better at managing their behavior towards achieving those goals. Concurrently, those who often feel out of control in the situations that they "nd themselves in and those who ruminate over past unpleasant experiences seem more likely not to be able to manage planned behavior.

Likewise, achievement motivation seems to be positively related to future time perspective and negatively related to past negative and present fatalistic. Temporal perceptions on managing the planned behavior can determine avoidance or approach behaviors, meaning that the direction, magnitude and persistence of behavior in meeting goals are either enhanced or, on the contrary, suppressed depending on the dominant time perspective. Moreover, these correlations are supported at subscale


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level, namely: persistence, con"dence in success, internality, preference for di$cult tasks, self-control and objective setting.

Of course, the present results must be discussed in terms of the strengths and limitations of the study. !e "rst limitation is that the study employed a convenience sample, making it impossible to generalize the results. Further research should focus domain-speci"c "lters, since achievement motivation in the workplace can be in#uenced by domain features. Similarly, the sample size was reduced - future research should consider a larger sample. Finally, the measures employed are self-report, participants being thus more prone to engage in self-deception by o%ering socially desirable responses. However, giving the subjective nature of the variables investigated, the use of self-reports is advisable. !is limitation can further be addressed either by replicating the study in a longitudinal design, or by using mix methods. !e present investigation con"rms that a greater attention must be given to the way in which individuals assign the personal and social experiences to time frames, that help them give order, coherence and meaning in work settings. In this respect, future endeavors could consider the impact of time perspective on career choices (both in the case of young people, as well as in the case of those who are experiencing transitions). Similarly, since time perspective has already been associated with a wide array of behaviors (health, risk taking), taking it into account in the study of speci"c organizational behaviors might bring valuable insights.

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!e Five#Cs Model of Business Internationalization (CMBI) – a preliminary theoretical insight into today’s

business internationalization challenges

Elena – M'd'lina V&T&M&NESCU1

Vlad – Andrei ALEXANDRUElena – Alexandra GORGOS

Abstract. Nowadays, the forces of the global market reach every corner of the world, every industry and every organization. Staying or thinking locally in a globalized world stands for an imminent menace for the organizational development and even for the organizational survival. !e exigency for being or becoming competitive is mandatory and management has to deal promptly and professionally with the new market conditions. Most of the times, opportunities come and go and a late managerial or entrepreneurial reaction may generate high losses for the organization. With a view to discuss these issues, the present work relies on personal theoretical contributions at several levels. Firstly, it proposes a synopsis of the extant studies on the business internationalization "ows by underlining the main research directions. Secondly, it advances a new theoretical model for interpreting and analyzing the process of business internationalization, a multidimensional and interdisciplinary approach on the psychological, social, cultural, professional and business interaction and communication at an international scale. As a signally theoretical endeavor, the Five#Cs Model of Business Internationalization (CMBI), as we have named it, is yet to be developed, extended or improved. Keywords: business internationalization; SMEs; Five# Cs Model of Business Internationalization.

1. Lecturer, Post-doctoral researcher, College of Management, National University of Political Studies and Public Administration, Bucharest, Romania, Ph.D. candidate in Economics and International Business, Bucharest University of Economic Studies, [email protected].

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IntroductionMany times, the topics addressed by the Romanian and foreign literature regard the dynamics of large corporations whose multinational or transnational dimensions have triggered the public attention more than the small and medium enterprises (SMEs). Nevertheless, the small and medium enterprises should not be ignored as they stand for important organizational actors, especially for the developing countries. In fact, they are liable to be seen as relevant indicators of the national economy strategy towards the necessity of taking part to the international and global market #ows and rhythm.

By considering the market challenges and imperatives, the present work brings to the fore a conceptual framework for a new business internationalization model. Its scope covers multiple facets and is focused on the advancement of new ways of thinking and approaching businesses nowadays. !e great challenge is to step forward to the global market, to move on in order to achieve and maintain the organizational competitiveness independent of the local or regional constraints.

Free trade, multiculturalism, open mentalities and cross-border business networks are several cues of the international environment. !ese are reliable incentives for the managerial decision to explore fruitful business opportunities and to try the internationalization options. Still, organizations should experience the closer marketplaces and establish reference frames for their progress on the international arena. !is is the point where CMBI objectivizes its importance as a gradual approach towards business internationalization at all the process levels – socio-economic, professional, cultural and psychological. Moreover, this is the point where the competitiveness challenge is mediated by commonality, compatibility, credibility and connectivity of or between international business partners.

An insight into the main models of business internationalizationWhen discussing the businesses internationalization, one milestone to be considered focuses on three di%erent patterns – the progressive, the contingency and the interactive internationalization models which are summarized in the table below.

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Table 1. !e main coordinates of the internationalization models (Sorensen, 1997, pp. 4-5)

!e "rst type of the presented models – the progressive models of the business internationalization – assumes internationalization as a progressive process which unfolds during several stages. In this category lies the Uppsala model which relies on learning and knowledge, stressing that the companies’ lack of knowledge is a decisive barrier for the emergence and growth of international actions. !e adherence to knowledge and to learning programs is a key factor for going international (Lakomaa, 2009, p. 14).

An insight on the Uppsala model requires the mentioning of its three main scopes. Firstly, it is indicative of how companies manage to learn and share knowledge during the internationalization actions. !e knowledge involved is both objective and market speci"c knowledge which is earned through experience and generates business opportunities at a global scale. Secondly, the model shows that knowledge limits the risks of approaching new markets and strengthens the access to the new market opportunities. !irdly, the model accounts for the relevant points of selecting target markets (Lin, 2010; Laghzaoui, 2009; Khayat, 2004). As practice reveals, the internationalization of businesses is gradual, starting with the investigation of similar psychological and geographical countries before testing unknown markets, a fact which is illustrated in the "gure below.

Elena – M+d+lina V.T.M.NESCU, Vlad – Andrei ALEXANDRU,Elena – Alexandra GORGOS

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Figure 1. !e progressive internationalization (adapted from Hollensen, 2008, p. 57)

!e second model of the progressive internationalization is the model of the product lifecycle. !e basis of this theoretic perspective is the association between the successive phases of internationalization and the product lifecycle. In Sorensen’s (1997) opinion, the lifecycle model has three di%erent stages – the stage of the new product, the stage of the major product and the stage of the standardized product. Passing through a certain stage triggers knowledge and cost reduction. !is is why by accomplishing the entire process, SMEs can gain valuable experience and major capabilities for extending on new markets.

!e second category of the business internationalization models addresses the contingency models which comprise two main directions – the transaction cost model (Hollensen, 2008) and the eclectic model (Dunning cited in Buckley and Hashai, 2009). !ese models posit that the internationalization process of businesses relies on the environment forces of the foreign market. !e dynamics of these factors makes it di$cult for the company to embrace a static manner of going international (Sorensen, 1997). !is is why the imperative implied by the contingency models is that

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business people should treat their companies as open systems and should have multiple choices at their disposal. In other words, the management has the crucial role of venturing into new markets by potentiating the strength of their business. Being capable of analyzing thoroughly the environment con"guration and the best way to internationalization becomes a managerial exigency and a prerequisite for making optimal decisions.

!e third category refers to the interactive models of the internationalization of businesses or companies. !e main hypothesis of this model is that anonymous actors who have a sustained interaction and long-term business relationships are the ones who form the real market. At this level, the model of business network attaches great importance to commercial and personal bonds between businessmen. Furthermore, the organizational network stands for a fundamental impulse towards internationalization while the resources produced by businesses are a result of partners’ interaction. !e place occupied by a certain organization inside a network has a major impact on the network model as it de"nes its actual control and access to the network resources (Rubaeva cited in Danciu, 2012).

!e internationalization process according to the business network approach follows three main strategies: extension, penetration and coordination. !e "rst one refers to the fact that the organization establishes bonds with enterprises and networks in new markets, the second one focuses on the relationships’ development as an inherent component of an international network, while the third one refers to the improvement of relationships in the context of distinctive networks and in di%erent markets (Rubaeva cited in Danciu, 2012). Practically, the internationalization of a speci"c business or organization is determined by its position inside the network and on the overall context – the degree of internationalization of the industry or market, as the "gure below shows.


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Figure 2. !e company’s position according to the internationalization degree (Hollensen, 2004, p. 62)

As an early starter, the organization has not established any business ties with foreign organizations. It is likely that the company may resort to a gradual exploratory action in the foreign markets using an agent or creating a subsidiary. !e lonely international is the phase where the organization has already gathered a relationship experience in foreign countries, but its competition and clients have a lower level of internationalization. At this point, the company’s mission would be to develop new bonds and strengthen the existing ones. !e late starter de"nes the organizations or businesses which are still locally concentrated while other industry enterprises have already joined teams with foreign partners. !e shortcoming for the late starter is the di$culty to identify the non-approached partners and to settle new positions in a thoroughly con"gured market.

!e international among others describes the organizations and businesses which have the opportunity to take advantage of the position held in one network in order to venture into new networks and to establish new partnerships. As the international business networks are evolving with a rapid rhythm, businesses should be #exible enough in order to adapt to the market transformations. !erefore, the good coordination of members within target network should be seen as an added value for the company’s revenues.

By embracing a critical approach, Hampton and Rowell contend that the classic models of the business internationalization process are liable to be

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challenged by the contemporary international context (Hampton and Rowell, 2013). !is aspect was discussed by the prior research of Malhotra et al. (2003) who proposed a collective approach on the explanatory factors of the process in discussion. !e international business ties and partnerships should be treated within an overall updated and ongoing perspective which uses the traditional theories of internationalization as premises, but lays emphasis on strategic and networking character of internationalization.

Towards a new approach of business internationalization A rapid increasing number of organizations with an international vocation surpass boundaries and follow their own logic and dynamics, bringing together people from all over the world. !e prevalence and evolution of international businesses as an expanding organizational actor is liable to alter the interpretative perspectives on intercultural human interaction. By creating the organizational framework of communication between di%erent nationalities, traditions and histories, rituals and values, norms and actions etc, international managers settle the parameters of a symbolic domain where di%erent cultures interact and interfere on a daily basis. Although it has been proven in time that similarity has a positive impact on social interaction and cooperation (Morry, 2007), the future opens its gates to diversity at all levels.

As promoters of international businesses, managers are prone to face diversity in their current collaborations – their partners may be of a di%erent nationality, culture, religion, way of thinking and of expressing feelings and so on. Subsequently, the transformative action of individuals (nationally and culturally speaking) brings about the emergence of a speci"c reaction toward “the others”, a cultural disposition of overprotecting our own identity – the fear of being a/icted by another business model acts as a restraining factor against the others. It is most likely that the cultural collision produces not only remote disruptions, but overall consequences, at the international level.

Malhotra et al. (2003) made attempts to elaborate on a multi-theoretical model for analyzing international businesses. Being aware of the fact that


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a single perspective approach is a limited one, the authors underlined the necessity of developing new frameworks for understanding the processes and interactions taking place at international levels. !ey shed light on the fact that the use of one-sided factors in describing and explaining international businesses is counter-productive. !e only way of having pertinent perspectives on the internationalization process is to consider the convergence of multiple factors which provides of holistic and viable framework for the internationalization of businesses. !is is consistent with Danciu’s (2012) view who believes that none of the existing internationalization business models manages to cover and clarify the speci"city of the phenomenon.

More recently, Hampton and Rowell (2013) suggested that a holistic view of the challenges characterizing the international business relationships is yet to be approached. Moreover, they believe that the existing literature has clari"ed only a shallow range of factors which lack interdependencies. !e elaboration of linear models does not fully uncover the dynamics and the broad context of the cross-border business arena.

!is is why the success of international businesses "rmly requires pertinent business models driven by proactive managers who do not wait for positive outcomes to come naturally, but instead totally assume the international business environment and focus their e%orts and interests on the cross-cultural arena. !ese e%orts must become a key point on every manager’s agenda, starting from the moment when competitiveness becomes a condition for organizational survival and development. All these facts involve di%erent people who must integrate as well as possible in the new global social system as a condition for achieving their goals. Moreover, the international manager prototype will set himself up as a milestone and driving force of mobilizing the inner organizational cleavages toward an e%ective framework for the well-being of the business.

!e framework of a new business internationalization model!e premises of a new approach rely on a whole new repertoire of intercultural and international issues which spring o% in the varied kinds of competitive organizations within today’s global environment. Business

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interactions between several national cultures have a major problem of developing reliable communication, although managers may speak the same basic language. It is likely that di%erent meanings are attributed to words, di%erent rationales, and di%erent approaches on what is formally relevant or not. At this level, only by creating active intercultural negotiation is there a chance to overcome inevitable defensiveness and the illusion of similarity. Once the mutual interests are brought to light, culture becomes the main hidden component to deal with.

!e adjustment and accommodation processes should be orchestrated by a new managerial prototype – the “5 Cs international businessman” - who assumes a crucial position in coping with the present-day and near future challenges. He stands for a proactive and farsighted frontman within an organization who deeply understands facts, foresees tendencies and acts e%ectively in managing the international climate and its inherent forces. !e international businessman approaches intercultural negotiation as a decisive factor for the emerging of the international-open culture and as a key point for the organization’s well-being.

In fact, the concept of “5 Cs international businessman” re#ects the future status of leaders who are liable to face stronger cross-cultural realms and pressures and the only viable solution would be managing diversity and harmonizing cultures within a global adjustment process. !e 5 Cs international businessman cannot be traced and de"ned unilaterally through sociology, social psychology, economics, human resources management, social responsibility and so on. He is an intricate dynamic actor who possesses knowledge and competences in all these "elds and he succeeds in applying them within the leadership process. He is a multivalent "gure who makes the best of his abilities when dealing with the international organizational social system.

!e “5 Cs international businessman” is de"ned within the framework of a personal conceptualization called !e 5 Cs Model of Business Internationalization which is meant to readjust the manager’s position in the near future. From an international and cross-cultural standpoint, the crucial hypostasis of the businessman lies in his international vocation as he manages the background and unseen negotiations between values and


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social systems and operates on "ve di%erent levels. !is perspective on leadership is consistent with the Global Leadership and Organizational E%ectiveness Program (GLOBE) which focuses on leadership in an intercultural context (Festing & Maletzky, 2011).

!e idea of the model and the de"nition of the “5 Cs international businessman” came from learning, seeing and observing the emergent realities and challenges met by managers, leaders, owners in an open economy where going international becomes mandatory regardless of the organization’s scope or size. Almost always, the functionality and e$ciency of these for-pro"t entities lie in the human relations system, in personal and interpersonal factors and social networks. !e core of their driving force comprises people, cultures and interactions. Facing “the others” (di%erent from a national or organizational standpoint) involves a process of accommodation, of managing di%erences, which is di$cult to apply at a personal level, through an isolated e%ort. !is is why this kind of endeavors should be addressed and carried out by the “5 Cs international businessman” who has a pertinent intercultural perspective on the organizational mechanisms.

As di%erent organizational cultures interact within global market, the most important imperative for businessmen is to assure the appropriate frameworks for interaction, communication and cooperation. !ese three processes require interpersonal and inter-organizational adjustments, which can be achieved through coherent strategic projects.

At this level, the "ve elements of the model were summarized as gradual levels, after going through a consistent body of literature, which approached varied factors and variables of the businesses internationalization processes, but embraced one-sided directions of investigation. !e "rst element of the model describes a present condition for the survival and development of companies – becoming competitive in a highly competitive environment. !is very moment engages all the following steps to be taken in order to acquire e$ciency and sustainability on a specialized market.

Once "nished, the "rst level is closely followed by natural interaction between organizations and businessmen within the interest framework.

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At the second level, the international businessman observes the new international context, gathering information about its characteristics and possible outcomes by joining international thematic events, conferences, fairs, exhibitions, seminars, workshops and so on. It is now when managers assess the opportunity of designing new interaction patterns in order to establish pro"table connections in their area of interest. !erefore, commonality stands for a decisive context for similar or subsidiary organizations to interact and approach common interests.

After the "rst contacts and agreements are settled, the main catalyzer of the international partnership is gaining credibility through win-win transactions and operations, through long-term cooperation and trust. !e 5 Cs international businessman possesses the art and the science to develop consistent and complex strategies to catalyze the cross-cultural and cross-border accommodation of businesses. Although credibility plays an important role in maintaining international business relationships, only the success of long-term partnership relies on reaching compatibility between the business models.

Compatibility is a consequence of adjusting organizational systems created and developed within di%erent cultural, social and economic backgrounds. In this light, the 5 Cs international businessman understands that international relationships may generate win-lose facts at the beginning, but in time, the realoutcome will be a win-win achievement for the organization as a whole. Furthermore, he shares with his partners a fair perspective on concession and he embraces the role of a mediator between people and between cultures. !us, he becomes the driving force of the organizational collaboration. !rough coherent endeavors and strategies, the international manager prescribes the ce-existence of speci"city as a process of continuous adjustments and consistent harmonization. He plays the role of a creator, building his strategies in the human being nature of seeking order, understanding and partnership in dealing with common goals. Compatibility is the outcome of a gradual process and not the immediate result of an agreement settlement. !Finally, the 5 Cs international businessman is liable to generate strong business networks in time, through direct or mediated connections:


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he sees his business as an inherent component of a larger network on which he depends and whose well-being has a substantial in#uence on his organization; he truly believes in the cardinal role of interconnected businesses, in strong ties and nodes; he provides solutions, strategies and plans to deal properly with the network contingencies and maintenance, even more when it comes to the challenges of a globalized world. In this world, the 5 Cs international businessman places himself in the core of both wired and wireless networks, ranging from business people and organizations to the permanent bonding through new media.

Figure 3. Graphical representation of the model

!e Five Cs Model of Business Internationalization has a circular character as the emergence of and support for business networks reiterate the imperative of being competitive in order to preserve and develop the position in the international business network.

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!e Five Cs Model of Business InternationalizationCompetitiveness (business as a condition)!e business internationalization is one of the main projects which de"ne the growth and the development of the organization. !e international business development has to be seen as a condition for the organization progress independent of its "eld of interest or size. In this respect, the global economy has consistently encouraged the internationalization of economic relations through cross-border cooperation – decrease of custom tari%s, the increase of operational and "nancial #ows, the reduction of the cost of transport, the numerous and rapid communication channels, the international vocation of the global citizens etc.

!us, going international is a condition of existence and adaptive exigency for businesses in a global settlement. In order to have better economic results, to become more competitive, to adapt wisely to the conditions of the market, to be proactive and dynamic in an active organizational environment, the imperative is to approach new markets, new targets and new business networks.

In V. Danciu’s (2012) opinion, the internationalization of businesses has a strategic nature and has to conform to three main conditions with a view to have a promising beginning and a sustainable growth (as shown in the following "gure).

Figure 4. !e main conditions for business internationalization (adapted from Danciu, 2012, p. 20)


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As the internationalization of business is an organizational project, management is attributed a crucial role in handling the drivers of the foreign markets of cross-cultural interactions, of cross-border challenges.

Commonality (business as a context)

!e international businessman observes the new international context, gathering information about its characteristics and possible outcomes by joining international thematic events, conferences, fairs, exhibitions, seminars, workshops and so on. It is now when managers assess the opportunity of designing new interaction patterns in order to establish pro"table connections in their area of interest. !erefore, commonality stands for a decisive context for similar or subsidiary organizations to interact and approach common interests.

Feld, 1981, p. 1016). Additionally, in the opinion of Festing and Maletzky (2011, p. 191), “social structures enable and restrict interaction at the same time. Rules guide the agents’ behaviour within the social system and provide insights into what is right and what is wrong. !ey give meaning (signi"cation) to the interaction and provide certain information on what is legitimate in a certain social system (legitimation)”. !erefore, in international realm, new interaction patterns must be designed with a view to overcome di%erences and guarantee the coordination of the organizational systems.

Another important aspect related to business as a context refers to businessmen’s choices when approaching a target market. Due to the

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fact that every managerial action should reduce risk and uncertainty, commonality understood as both psychological and geographical proximity is taken into account. Before sounding out a far market, the 5 Cs international businessmen explore the nearer markets and business environments which have several things in common with the origin market. Although nowadays the “born global” organization is no longer tied by physical distances, a progressive geographical venture into close markets would be a wiser choice of doing international businesses. At this level, Etemat and Ala-Mukta (2009) believe that after gaining knowledge on similar markets, the organization may step to the next level and enter further di%erent markets. Compatibility (business as a catalyzer)As previously described, the 5 Cs international businessman is a realistic "gure who strives for winning the war, but at the same time accepts minor defeats. He is aware of the fact that concessions are necessary in order to bene"t from successful common results. Whenever a potential partner has a di%erent way of doing things, managers are likely to persuade others, sometimes challenging their rationales or visions (Schein, 2009).

In line with Schein, Festing and Maletzky (2011, p. 193) underline “the process of structuration and adjustment is imbedded in structures of meaning. It takes place on the basis of intercultural communication and is in#uenced by interpretative schemes. !e decision to change depends on the signi"cation and interpretation of the situation, the personalities of the leader or follower, the self-concepts of both as well as the interpretation of the other; they may also depend on interpretations of the situation of cultural overlap in general, drawing upon stereotypes etc.”. !is is the point where the new businessman prototype is ready to get past the di%erences and to lay emphasis on similarities. !e dialogic and negotiation approach is the key for creating a setting in which partners suspend their need to win arguments and to focus on the win-win achievements and rewards.

Approaching the issue of intercultural interaction, Rodriguez and Wilson (2002) insisted on the fact that the lack of similarity has a considerable impact on the objectives, strategies, management and operations. At this level, they believe that one of the best answers to international contact


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is "nding a way to potentiate compatibility. A similar study conducted by Hampton and Rowell (2010) underlined the same conclusions as the existence of compatibility is a key concept of going international. A long-term business relationship relies on the compatibility imperative although this variable is not always easy to measure. Leonidou (2004) had also embraced this vision as he believed that a source of competitive advantage lay on getting along with your international partners, on creating added value which is mutually bene"cial.

In this respect, the manager performs a speci"c function because he has to become a negotiator in a multicultural environment. In pursuing the business goals and in order to ful"ll the pro"t expectations, managers have to negotiate every aspect of the business life and this is why the emergence of compatibility derives from the negotiation skills. International businesses and managers meet whenever mutual interests occur. Given the increase in globalization and diversity over the past years, varied beliefs, attitudes and cultural backgrounds may face each other but the superior purpose of a successful business places diversity in a similar situation and therefore managers seek to build international relationships for their companies’ sake (Testa, 2009).

In view to acquire compatibility, initial concessions may be necessary. As an example, Schein believes that each culture has opinions and biases about “the other”, starting with the premises that our own way is always the “right” one (Schein, 2009). Also, House and Javidan (as cited in Festing & Maletzky, 2011, p. 194) posit that there is a practice in intercultural or international contexts to rely on interpretations and assumptions of the partners’ background. When international businesses and partners meet the main obstacle is to "nd resources for compatibility, to align values, behaviors, opinions with the economic interests (Caliguri & Tarique, 2012). As Rodriguez and Wilson (2002) also posited, perceived structural interdependency is a premises to preserve and grow social dynamics and compatibility in a business relationship.

At this point, the international businessman has to perform a catalyzing action, to stimulate through both formal and informal interactions the meeting and acceptance of di%erent cultures, the discovery of their

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a$nities and divergences, the establishment of a common strategy for achieving the same goal. Understanding the stereotypes and overcoming the cultural barriers describe the prototype of an actual international "gure. Approaching this perspective, Barnes et al. (2012) lay emphasis on avoiding the opportunistic behavior. !ey insist on the fact that a merely self-centered approach, without taking into account the other party’s interests is a menace for the well-being of a partnership and a disruptive factor for consistent cooperation.

A synopsis of the 5 Cs international businessman through the lens of compatibility would reveal his communication and negotiation skills, his predisposition to seeking e%ectiveness in his partnerships and in assuming cultural learning. !is perspective is consistent with Pettigrew and Tropp’s (2006) contact theory that experiences provide meaningful peer-level interactions and stimulate opportunities to work together towards a common goal, and an environment that supports the interactions.

Credibility (business as a consequence)After establishing the incentives of compatibility, international businesses should pay attention to earning credibility. In this way, Rodriguez and Wilson (2002) deem that international managers are prone to develop partnerships where trust and professionalism are core values. !ey speak about the mixture of structural and social components in developing a strong relationship while structural ties relate to economic exchanges and to negotiation, the social ties refer to friendship resources. In other words, the researchers posit that the power of a relationship is linked to the settlement of a wide range of inputs from business factors to personal bonds. Analyzing the lifecycle of relationships, Hampton and Rowell (2013) stress on the graduation of accountability from uncertainty to ultimate con"dence and commitment. After the “uncertain” business contact is made, the international partners have certain hold-backs concerning the viability and the professionalism of the new partnership. Still, after several successful operations and transactions, the level of credibility increases as a natural consequence and it becomes the driving force for long lasting commitments.


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Rodriguez et al. consider that both the economic and the social dimensions are sources for the overall satisfaction which enhances the chances for maintaining and developing international businesses. At this level, a successful transaction stands for a credibility milestone and for a future promise of continuing the partnership (Rodriguez del Bosque Rodriquez et al., 2005). Other researchers take the analysis to the next level. !ey study the phases of partnerships and they establish that communication and compatibility are the prerequisites of cooperation in the initial phase. Getting along during the "rst business agreement is a sign for keeping the relationship alive and a proof of initial credibility. !e unfolding of successive businesses settles new drivers for long-run relationships, a second phase of substantial credibility (Hampton and Rowell, 2013).

Connectivity (business as a connection)!e "fth element of the model – connectivity (business as a connection) – starts from D`Andrea, Ferri and Grifoni’s (2010) perspective which addresses the concept of social networks. !ese are characterized by nodes (actors) and ties (connections) with di%erent degrees of interdependency and in#uence. As Scott (2000) also deems, the positions and connections between nodes may provide the importance and the function of an actor in a social network (system). Focusing on international businesses, the role of the network seems to be crucial for the organization development. Danciu (2012) emphasizes the importance of personal and professional relationships between businessmen in their international endeavors.

Social exchange through international business networks stands for a prerequisite of the growth strategies of organizations. With a view to achieving competitive advantages, the 5 Cs international businessmen should be open both to its internal resources and to the network’s resources and to act accordingly. Creating a capital of trust and support reinforces the position of the business within the network framework and generates incentives for the system development. According to Möhring’s (2002) theory of business internationalization, organizations have di%erent paths of going international starting with becoming a key component of a value-added chain, of providing raw material or even "nal products for foreign industries, of exploiting business opportunities through di%erent

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international collaborations or of generating innovation and information exchange in order to consolidate the position on the international markets.

At this point, the creation of the network is strongly related to the commonality element of the model as business contacts are made by attending speci"c thematic events de"ning the organization’s area of interest. In addition, the connectivity perspective adds up D. Held et al.’s (2004) consideration on globalization – the escalade of the global interconnectivity – through multiple and varied channels and connections. !ese vary from the international institutionalized social relationships and from the cross-border #ows of goods, information, individuals and social and cultural practices to the new technological opportunities provided by new media, and even social media. For example, the emergence and development of online professional social networks as LinkedIn or the growth of professional virtual communities focused on speci"c businesses or industries create viable parameters for stimulating business networks through mediated contacts and constant open channels.

Conclusions and future perspectivesOn the path of becoming reliable international businessmen, managers will have to face cross-cultural and cross-border experiences, to build relationships, to create and extract value, to listen and observe, to manage others etc., in order to be able to survive and succeed within the competitive turbulent environments. Any type of activity they will have to lead should impose through creativity, innovation, quality, strong, but #exible strategies and projects that will assure the long-term success and survival of their organization.

!e Five#Cs Model of Business Internationalization (CMBI) was created as a theoretical framework liable to propose a multidimensional and multidisciplinary approach on the logic and dynamics of today’s business internationalization. !e elaboration of the model relied on the study of the existing literature which addressed di$erent models for the internationalization of businesses and intended to mark a step forward to the present and future challenges of going international.


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Still, in spite of its multidimensionality, the proposed model is "rst of all focused on the socio-economic, professional, cultural and psychological components of the international business interactions. !e "nancial and technical components are marginal within the framework analysis. Although mentioned in several variables, the aforesaid components are left aside as the purpose of this research is to explore the latent drivers of the internationalization endeavor and not the obvious facts and "gures related to gaining pro"t or seizing one-time opportunities which cannot be maintained in the long run.

Also, it is very important to mention that the current businessman prototype and business internationalization model do not exclude the relevance of other components as the informational, interpersonal and decisional functions of the leader, but these aspects are not related to the core of the present investigation. !e model has its own logic and follows the main coordinates which encompass the facades of international business practices and relationships, assuming the importance and relevance of the business internationalization models presented in the "rst chapter. Obviously, a more elaborate version of the model and businessman prototype would be more than recommended for the future theoretical foundation.

ReferencesBarnes, B.R., Leonidou, L.C., Siu, N.Y.M., and Leonidou, C. (2010).

Opportunism as the Inhibiting Trigger for Developing Long-Term-Oriented Western Exporter-Hong Kong Importer Relationships. Journal of International Marketing, 18(2), 35-63.

Buckley, J.P., and Hashai, N. (2009). Formalizing internationalization in the eclectic paradigm. Journal of Internationalization Business Studies, 40(1), 58-70.

Caliguri, P., and Tarique, I. (2012). Dynamic cross-cultural competencies and global leadership e%ectiveness. Journal of World Business, 47(4), 612-622.

D’Andrea, A., Ferri, F., and Grifoni, P. (2010). An Overview of Methods for Virtual Social Networks Analysis. In A. Abraham, A. Hassanien and V. Snasel (Eds.), Computational Social Network Analysis Trends, Tools and Research Advances (pp. 1-26). Springer-Verlag London Limited.

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Danciu, V. (2012). Models for the internationalization of the business: a diversity-based approach. Management and Marketing Challenges for the Knowledge Society, 7(1), 29-42.

Etemat, H., and Ala-Mukta, J. (2009). Growth and Internationalization Strategies of Rapidly Growing and Internationalizing Enterprises from Canada and Finland. Niagara Falls, Ontario: ASAC.

Festing, M., and Maletzky, M. (2011). Cross-cultural leadership adjustment — A multilevel framework based on the theory of structuration. Human Resource Management Review, 21(3), 186-200.

Feld, S.L. (1981). !e Focused Organization of Social Ties. American Journal of Sociology, 86(5), 1015-1035.

Hampton A., and Rowell, J. (2013). An Evolution in Research Practice for Investigating International Business Relationships. Management Dynamics in the Knowledge Economy, 1(2), 161-177.

Hampton, A., and Rowell, J. (2010). Leveraging Integrated Partnerships as a Means of Developing International Capability: An SME Case Study. International Journal of Knowledge, Culture and Change Management, 10(6), 19-30.

Held, D., McGrew, A., Goldblatt, D., and Perraton, J. (2004). Transform(ri globale. Politic(, economie +i cultur( [Global tranformations. Politics, economics and culture]. Traducere de Ramona – Elena Lupa,cu, Adriana 0traub, Bordea, Mihaela, Turcu Alina – Maria. Ia,i: Polirom.

Hollensen, S. (2004). Global Marketing, a decision-oriented approach, third edition. Harlow, Essex: Pearson Education Limited.

Hollensen, S. (2008). Essential of Global Marketing. Harlow, Essex: Pearson Education Limited.

Khayat, I., (2004), L’internationalisation des PME: vers une approche integrative. 7ème Congrès International Francophone en Entrepreneuriat et PME. Montpellier.

Laghzaoui, S., (2009), Internationalisation des PME : apports d’une analyse en termes de ressources et competences. Revue Management and Avenir, 2(22), 52-69.

Lakomaa, E. (2009). Models for internationalization. A study of the early steps of the internationalization of Scandinavian media companies. Stockholm School of Economics, Sweden.

Leonidou, L.C. (2004). Industrial manufacturer-customer relationships: !e discriminating role of the buying situation. Industrial Marketing Management, 33(3), 731-742.


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Lin, S. (2010). Internationalization of SMEs: Towards an integrative approach of resources and competences. “1er Colloque Franco-Tchèque: “Trends in International Business”, France.

Malhotra, N.K., Aggarwal, J., and Ulgado, F.M. (2003). Internationalization and Entry Modes: A Multitheoretical Framework and Research Propositions. Journal of International Marketing, 11(1), 1-31.

Möhring, J. (2002). SMEs and cluster internationalisation. East West Cluster Conference. Paris, OECD.

Morry, M.M. (2007). Relationship satisfaction as a predictor of perceived similarity among cross-sex friends: A test of the attraction-similarity model. Journal of Social and Personal Relationships, 24(4), 517-533.

Pettigrew, T.F., and Tropp, L.R. (2006). A Meta-Analytic Test of Intergroup Contact !eory. Journal of Personality and Social Psychology, 90(5), 751-783.

Rodriguez, C.M., and Wilson, D.T. (2002). Relationship Bonding and Trust as a Foundation for Commitment in U.S.-Mexican Strategic Alliances: A Structural Equation Modelling Approach. Journal of International Marketing, 10(4), 53-76.

Rodriguez del Bosque Rodriquez, I., Collado Agudo, J., and San Martin Gutierrez, H. (2005). Determinants of economic and social satisfaction in manufacturer-distributor relationships. Industrial Marketing Management, 35(6), 666-675.

Schein, E.H. (2009). !e Corporate Culture Survival Guide. New and revised edition. San Francisco: Jossey-Bass.

Scott, J. (2000). Social network analysis. A handbook. London: Sage.Sorensen, J.O. (1997). !e Internationalization of Companies. Di%erent

Perspectives of How Companies Internationalize. International Business Economics, Working Paper Series, No. 23, Aalborg University, Centre of International Studies, Copenhagen.

Testa, M. (2009). National culture, leadership and citizenship: Implications for cross-cultural management. International Journal of Hospitality Management, 28(1), 78-85.

!e political strategic decision-making: towards an inferential model

Dan NICU1

Abstract: In this paper I design a comprehensive strategic decision-making model for conceiving the process of political strategic decision, from its emergence as an idea to its $nal evaluation from the point of view of its general estimated utility, passing through ten phases that include formulating strategic purpose(s), estimating time limitations and evaluating utility. !e objectives of the paper are to discuss on the issue of strategic decision in the particular area of politics and the state, rather than in private companies, then to propose a logical-mathematical cumulative model of political strategic decision-making, one that could be applied either for deconstructing and analyzing decisions taken by politicians and/or state o%cials, or for conducting the process of taking decisions. Keywords: inferential model of strategic decision-making; strategic decision; public administration.

IntroductionStrategic decision is particularly important in politics. !e politicians are a social group which, besides members of Parliament, also includes high-ranking o$cials and public servants from the executive branch of the Government, both at the central level of administration, and at the regional (local) one. !ese people can determine the fate of a country, region or city, simply by using the power with which their constituencies invest them once in a given number of years. Some long-term decisions that politicians assume are crucial for the development, stability and even peace in a country or in the world. !e importance of strategic decisions of politicians, therefore, surpasses by far that of strategic decisions of "rm directors or CEOs of corporations. !is happens because the rational economic aspect covered by business cannot replace or exclude, by

1. Ph.D. candidate in Sociology, National University of Political Studies and Public Administration, Bucharest, Romania, [email protected].

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itself, the social aspect which comprises a great amount of irrationality manifested in forms of social and/or political a$liation, frequent taking parts and switching sides on occasions such as trending public subjects and the “breaking news” topics from the news. By the other hand, politicians are directly interested both in the rational economic aspect, in order to obtain funding for their elections, and in the irrational social aspect, in order to obtain: 1. votes from their constituencies and 2. the popularity needed both in order to win the elections and to keep their o$ces after they begin serving their terms. !is would make the social component of the politicians’ motivation far more important, in a democracy, than the economic component. Also, it would imply that an e$cient model of political strategic decision cannot be conceived otherwise than by taking into account all incentives that determine that motivation. In this paper, I will try to design such a model.

Models of strategic decision-making.In their paper, Strategic decision models: integrating di#erent perspectives, Hitt and Tyler (1991, p. 327) introduce three models and perspectives of strategic decision-making: - !e normative model, whereas “executives examine the $rm’s external environment and internal conditions and, using the set of objective criteria derived from these analyses, decide on the strategy”- !e strategic choice model developed from the normative model, which focuses on strategic change and “emphasizes the e#ects that executives can have on strategic decisions.”- !e external control perspective views strategic decisions as being “largely constrained by the external environment” (external towards the internal environment of the organization).

One can see that these models and approaches focus on "rms and organizations and are, therefore, methods of describing facts that happen mainly in economy. !ey make an analogy that some of their authors (Eisenhardt & Zbaracki, 1992) believe should be taken for granted, namely the one that organizations are also political systems, or can be viewed as such for reasons of commodity, allowing to draw scienti"c conclusions

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about a society by describing relations between a few people and linking those relations to a more general given context.

Also, it should be noted that the rational choice theory with its methodological individualism views institutions as sets of rules applied to individuals who conduct rational actions. !is approach has its roots in economic thought and economic analysis, thus allowing "nding common characteristics and relevant similarities between collective action in private institutions such as "rms, corporations, other business companies, and state/public companies, such as government departments, ministries, and agencies. !is is what allows to import methods of analysis of the private sphere into the public one. I ellaborate on the strategic decision in the public sector starting from these theoretical grounds.

I will further argue the capacity of these models of comprehending political strategic decision-making. One important aspect of the way strategic decision is perceived in politics is the fact that scholars and authors have treated it mainly from the point of view of deliberation, not of administration. !e mainstream political perspective on strategic decision-making comes from observing and analyzing the legislative process. Instead, the political executive branch with its administrative sphere was researched using, mainly, the incomplete tools of institutional analysis and pretending this would be, somehow, “rational”. !e results were a rigid, cold and often unreadable literature that practices scienti"c irrationality exactly by claiming rationality, because it fails to conjoin the bureaucratic, institutional analysis (the hierarchic orders and regulations that compose it – for example, the so-called “emergency ordinances” that determine many actions the central executive power in Romania) and the analysis of the so-called “political arena”, or “political échiquier“, which is the dominant approach in the mass-media and focuses mainly on representatives, not on executives. “!e roots of the political perspective on strategic decision-making lie in the political science literature of the 1950s. Various authors of that era developed a view of decision making in government which emphasized the con"ictual nature of the legislative process. !at view held that decisions were the result of a process in which decision makers have di#erent goals; they come together through coalitions, and the preferences of the most powerful triumph. !is paradigm was obviously well-suited to the legislative branch of government where there are competing interests, sharply

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de$ned coalitions, and clear winners.” (Eisenhardt & Zbaracki, 1992, p. 22). Eisenhardt and Zbaracki further a$rm that “the heart of the political perspective is the process by which con"ict is resolved among individuals with competing preferences.” (Eisenhardt & Zbaracki, 1992, p. 23). When they turn to methodology, they "nd that “there are two streams of research within the political perspective. […] One consists of vivid case studies illustrating the political perspective in a variety of contexts. !e other contains a series of deductive studies, many of which were conducted by Pfe#er and his colleagues in the 1970s, that demonstrate the power of the political model.” (Eisenhardt & Zbaracki, 1992, p. 23).

At the organizational level and inside the organizations, however, environmental interaction seems to be the primary factor in determining departmental in#uence on strategic decisions at the expense of internal organizational activities, namely the ones that the mainstream rational choice theory claims as basis for the rational collective action, due to their high potential of creating interpersonal ties. Such are the results of a "eld study conducted in 1981 in 15 organizations (Jemison, 1981). One can easily see the prevalence of internal organizational activities in corporations even today (at an even higher degree than in 1981), where executives use team-buildings and recreational activities provided for free or at a reduced price in order to keep their employees in a pro-active condition for as long as possible and enhance their working capacity.

An inferential model of political strategic decision-makingIn a political context, where the act of governing a state through administrating decision making in institutions with di%erent levels of subordination and/or collaboration both at the central and at the local levels of administration has to coexist with party interests considered as modus operandi for gaining political power in order to perform the act of public a%airs administration, strategic decision making may be regarded on holistic grounds. Decision makers that we call “politicians” at a common knowledge level are, generally, required to take into account a large number of facts and to judge over a certain amount of personal and group interests in order to attain the capability of taking a good strategic decision, that is, one that would please as many as possible and

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generate as little losses as possible in terms of image, money, freedom, etc. When regarding strategic decision making as being projected and taken by a personal agent (as in strategic choice perspective), the whole process from beginning to end can be conceived in the light of following steps that compose an inferential model of strategic decision making to be formulated here in a summary manner as a coherent structural ensemble of ten logical sentences comprising ten steps to be further developed, expressed and explained in II.1, II.2 and II.3. !e ultimate goal of my model is to reach both the strategic decision making level and the strategic decision making evaluation level and to be useful for political decision making in any political context. My model is best "t for the analytic work of advisers, counselors and other employees whose job is to provide guidance for a sole decision maker from the executive branch of political power, either president, prime minister, minister or mayor of a big city. It can be used also by think tank experts in order to analyze and evaluate strategic decisions taken by some of the same o$cials.

!e inferential model of strategic decision has been inspired by the work of David A. Kenny Correlation and Causality, a “general introduction to the topic of structural analysis” (Kenny, 2004, p. i). I use correlation because “"rst, correlational means a statistical relationship between a set of variables, none of which have been experimentally manipulated.” (Kenny, 2004, p. 1). In the "eld of political strategic decision it is fairly essential to anticipate in time potential #aws and to bypass obstacles in order to maximize outcomes, this is why it seemed to me that neither the normative rational model with its upgraded variant of strategic change approach, nor the external control model fully cover the need for theorizing upon political strategic decision. !at’s because all three strategic decision models mentioned above cover the institutional, bureaucratic type of activity alone. Introducing the political aspect into a comprehensive, holistic approach of the strategic decision is the stake of this paper, and I shall leave this scienti"c subject open for further contributions that would succeed in developing the topic of my modest endeavor to the extent of its true importance.

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!e inferential model of strategic decision-making1. Giving a certain initial idea, collect as much information as possible in a particular context of interest in which there is a scarcity of information (variables i and y, i inferred from y, or y i); 2. Using analyzed information I to de"ne the purpose (variable p);3. Estimating available resources and their limits (variables r and l r=R);4. Rethinking the purpose into strategic purpose according to usable resources R (variable R variable P);5. Taking into account the former steps to de"ne a set of tactical actions that are purpose oriented (set A = {aP, bP, cP…nP}; P S);6. Taking into account time limits (variables t and l t = T); 7. Implementing each tactical action in a given moment in time (set T = {t1, t2, t3 … tn}, f: A T result set A (T) = {aPt1, bPt2, cPt3…nPtn } ;8. Estimating utility according to P – P U; set u= {u1, u2, u3... un}9. Evaluating utility function for each step: set U = f: A (T) set u { aPt1u1, bPt2u2, cPt3u3… nptnun}; 10. Estimating general purpose utility U (P).

Explanation of the mathematical and logical apparatus used for the inferential model of strategic decision-making!e logical-mathematic methodology allows clarity and strengthens the capability of designing a neutral, detached, based-on-facts-only analysis. I use inference ( as an operation taken from the "eld of logics in order to explain strategic decision according to its subsequent tactical steps that, especially in a political context, depend in a high degree on irrational aspects such as behaviour of large groups of people. Inference is a logical operation that provides a greater power of theorizing than the plain implication.

From the algebra "eld, I use the theory of sets and the theory of functions (functions with two variables – grade II functions, and functions with three variables – grade III functions). I correlate a set of actions (A), a set of correspondent points in time (T), and a set of corresponding values of utility (U) in order to obtain a proper tool of analysis of strategic decision. If one gives particular values to each variable and resolves the correspondent

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equations, these functions could be represented on bi-dimensional tables (f(x) and f(y) scale) and at a three-dimensional level using space geometry.

Textual explanation of the 10 steps composing the inferential model of strategic decision-making1. By collecting information from a particular context of interest, one gathers useful data to serve in the estimation of goals to achieve. It is, in my opinion, the most important part, the basis of any decision of strategic importance. One cannot hope to maximize the rate of success of any endeavor, regardless of its nature, in the absence of data the "delity of which is hard to contest using only common knowledge.2. De"ning the purpose as logic, causal collection of goals, is a stepping-stone towards the achievement of a strategic outcome. It is important to know exactly what is there to do, as, perhaps any important decision grounded in the public sphere and the political world is, in fact, a sum of simpler actions. Each of these actions has its own ends and employs its own means to achieve those ends.3. Resources are vital in any strategic decision. Evaluating resources and knowing exactly how are they to make ends meet the proposed purpose is a step that cannot be avoided, because any #aw at this level would cause a further, graver #ow in the end, and would endanger the "nality of any endeavor.4. Only after the correct evaluation of resources and the de"ning of a resource frame, the sum of particular goals can, as well, become a single, logical sentence that we would call purpose. 5. Knowing the purpose, one can start de"ning particular steps headed at its achievement, with the necessary condition of not deviating from the purpose. !ese requirements being ful"lled, any action will lead its agent towards the achievement of the proposed purpose. 6. Taking into account time limits is a fundamental prerequisite for a strategic decision. It would allow any strategist to plan e%ectively. Strategic decision depends on planning in a decisive manner.7. Putting actions on a timetable is the next necessary condition to be able to implement strategic decisions. It requires taking each particular step headed at the achievement of each particular goal at its particular time.

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8. Implementation phase is followed by an estimation of usefulness (utility), depending on the general purpose (P) and in the context of the general strategic decision. 9. !e next phase assumes an estimation of the utility of each and every tactic decision taken in order to achieve the ultimate goal, de"ned by the general strategic decision.10. A "nal evaluation of the way in which the strategic decision was implemented is needed for being able to see, at a last glance, how necessary it is, how well would it be brought into life and what would be its consequences on a long run.

ConclusionsPolitical strategic decision-making is dependent, primarily, on the long-term strategic purpose that its agent foresees, and, secondarily, on his/her capacity to maintain the desirable course of action. Strategic decision-making in politics and state administration can be conceived as a set of actions that start with observing a necessity, collecting information, formulating a general purpose and intermediate operational purposes, and start implementing by coming up with actions taking into account time and other limitations, followed by estimating general utility of the decision, and particular utility at each phase of implementation. !e inferential model of the strategic decision-making comprises, in a logical deterministic order, the steps needed to take in the process of strategic decision-making in the public sphere and the "eld of public policies.

ReferencesEisenhardt, K.M., and Zbaracki, M.J. (1992). Strategic Decision Making.

Strategic Management Journal, 13(Special Issue: Fundamental !emes in Strategy Process Research, Winter, 1992), 17-37. Retrieved from http://www.jstor.org/stable/2486364..

Hitt, M.A., and Tyler, B.B. (1991). Strategic Decision Models: Integrating Di%erent Perspectives. Strategic Management Journal, 12(5), pp. 327-351. Retrieved from http://www.jstor.org/stable/2486562.

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Jemison, D.B. (1981). Organizational Versus Environmental Sources of In#uence in Strategic Decision Making. Strategic Management Journal, 2(1), 77-89. Retrieved from http://www.jstor.org/stable/2485992. .

Kenny, D.A. (2004). Correlation and Causality. Connecticut: Storrs.Nutt, P.C. (1998). Framing Strategic Decisions. Organization Science, 9(2), 195-

216. Retrieved from http://www.jstor.org/stable/2640353.Schwenk, C.R. (1984). Cognitive Simpli"cation Processes in Strategic Decision-

Making. Strategic Management Journal, 5(2), 111-128. Retrieved from http://www.jstor.org/stable/2486171.

Dan NICU

MARKETING

!e need for a managerial and governmental strategy.Public Relations as an expression of strategic

communication

Dumitru BOR"UN1

If this study was entitled “Strategic Communication and Its Enemies”, the list of such enemies would include: 1. Ignorance, which supports the identi!cation of Public Relations either with propaganda (majority of politicians) or with advertising (majority of managers) or with customer service (majority of Romanians); 2. Underground economy, which gives transparency a wild berth; 3. Clientelistic business, where neither brand nor market positioning is required; 4. Underground politics, which communicates perfectly with the clientelistic business but poorly with society; 5. Clientelistic politics, which communicates well with the clientelistic business and the underground economy, but for which state institutions are some forms without content; 6. Pre-modern organizational culture, with ascendant in Feudalism which impairs the e"cient communication not only in trading companies but also in public institutions, where the clan objectives are more important than the managerial goals.

In order to honor the title of the conference organized by the National School of Political Studies and Public Administration, my aim is to develop the last point since a prevailing trait of the pre-modern organizational culture is the lack of strategic thinking and, consequently, of development strategies, managerial strategies and communication strategies. My examples here are taken from the public relations sphere.

We often hear the statement that Romania needs a favorable image. Whenever someone speaks of “favorable image” or of “positive image”, it’s certain that we are not dealing with a professional. A public person,

1. Associate Professor, Ph.D., College of Communication and Public Relations, National School of Political Studies and Public Administration; President of the Honorary Jury, Romanian Association of Public Relations, Bucharest, Romania, [email protected].

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an organization or a country does not need a favorable image but rather an adequate image. #e following question pops up: “Adequate … to what?” #e answer is simple: the public image must be adequate to the objectives (economic, political or geostrategic). Because public image is not a panacea, it is merely an instrument used to reach the objectives of a strategy, as it is a strategic element by itself.

It is not fortuitous that the notion of Public Relations is also de!ned, brie$y, as “strategic communication”. #e image strategy must be only a part of a more comprehensive, holistic strategy. Whoever begins with an image strategy without referring !rst to a business strategy (if we are dealing with a company), a political strategy (in case of a political party) or a government strategy (if we are dealing with a government) profoundly misapprehends this concept? #ey put the cart before the houses! Why have we been failing to implement an e"cient country image strategy? #at is because we lacked a social development strategy springing from a society project.

I may be taunted with the fact that we disregarded a great post-Decembrist accomplishment: the famous Snagov Strategy. And I label it “famous” because the parties and the governments after 1995 treated it like a legendary document: they all heard of it but nobody had ever seen it! I met high o"cials who had no idea whatsoever about the chapters of the Strategy. When asked about the Snagov Strategy they used to call they secretary of chief of cabinet, gesture which reminded me of a saying belonging to journalist Marius Tuc%: We, Romanians, when we hear the word “strategy” we immediately go fetch the dictionary…We don’t even think strategically and as the saying goes: God, give Romanians l’esprit de l’escalier!, which means the we are very smart, analytical and wise only after we hit the upper threshold. Our goal is not to avoid the threshold but to think anticipatively. Each year the !rst snow catches us unprepared as if we were a tropical country. #e $oods have always taken us short although the !rst catastrophic $oods occurred in 1970, then in 1975 and since then they have kept repeating regularly.

I have presented only a part of the causes for which in Romania Public Relations come into prominence with great di"culty in their professional

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version. As a rule, they are practiced as propaganda or advertising; because it is easier to force the “story” down other people’s throats or pay an advertising company than drafting a development strategy. I have noticed that the disease of advertising touched the country image as well. After renaming “country image” as brand, the government entrusted Romania’s branding as tourist destination to… two associated advertising companies: Asesores en Turismo, Hoteleria y Recreacion SA and Taylor Nelson Sofres. But the concept of brand is not only a matter of creativity; !rstly it is a matter of strategy. Advertisers play in this game a part that comes later, as operators of some massages that stem from the objectives of the image strategy. In their turn, such objectives derive from the economic and political goals of Romania and from the information on target-publics which are delivered by research surveys.

In default of a long-term all-embracing vision, these objectives do not exist and without it Public Relations has its hands tied and cannot do anything consistent or sustainable. Public Relations can shape a reality but cannot substitute one. #ey are neither literature nor advertising or propaganda or religion, because they do not create a parallel universe or a transcendental universe, beyond reality. In a smart organization, public relations are a function of the management and in a country with smart elites – a function of the government. #e organization, as the country, must adapt beforehand, entertain a bidirectional communication with its publics – be them internal or external, know how it is perceived by the interested publics and take those practical measures meant to give birth to a new reality, more adequate to the public’s expectations. Public relations represent the very precocious alarm system that warms the organization (the country) regarding the new trends as well as the misperceptions that ba&e the success of its managerial (or governmental) objectives.

For decades it has been said that Public Relations are the “small $ywheel” of the organization. Of course, the “big $ywheel” is the management but whenever the latter is in crisis, public relations have a decisive contribution in overcoming the managerial crisis. #e same thing applies to a country; all we have to do is to replace “management” with “government”. I hope that it is clear now for all our readers why in the last 24 years we had numerous “image strategies” on paper but no real strategy. No government dared to appropriate such a strategy as part of its governing tasks. What

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would it have actually meant? To be more eloquent, I shall refer to a “smart organization” as all successful companies are. If the PR expert informs the Board of Directors (on a periodical basis!) that, for instance, the clients perceive the sta( as poorly quali!ed, a decision is taken for the implementation of an in-service training of the personnel. #e Public Relations department has the mission of informing the stakeholders on this policy and its outcomes and not to replace such a policy with messages such as “Our personnel is very well trained”. Mutatis mutandis, if the Bucharest Government !nds out that in the interested countries Romania is perceived as a corrupt country, it must opt for and enforce the cessation of this reality and go down to business, rather than denying it or !nding excuses. One of the Romanian image campaign objectives is to make the results of the new policy known by the stakeholders.

#erefore, the !rst rule in the elaboration of an image strategy is to admit that you have a problem. #e one who breaches this rule stops making an image strategy and launches a justi!cation campaign, stops looking for solutions and begins seeking for alibis; stops giving smart answers and begins throwing polemic replies. #ere is nothing more detrimental than surround ourselves with walls of justi!cations. After all, we end up their prisoners while reality moves on…

Public relations as strategy #e concept of public relations as strategy originates from the management function of public relations, as de!ned by the scienti!c community in the !eld (Grunig, Dozier, Harlow and others): „#e activity of public relations represents a standalone function of leadership; a means of achieving understanding, acceptance and cooperation; a way to manage problems and controversies; a form of stimulating the leadership’s responsibility to serve public interest; a system of early warning; an objective and honest activity” (Harlow, 1976).

As I have shown elsewhere, „the most important phenomenon in the second half of the 20th century was the generalization at macro-social level of the techniques and procedures speci!c to public relations, their coming out of the „mother’s nest” (the organization). In my opinion, the phenomenon

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represents an adaptation reaction to the social system, thus ensuring its self-balance and self-reproduction as the industrial civilization was becoming post-industrial. It’s about the adaptive function which public relations have had since the beginning within those organizations which regarded them as a managerial activity. But now, this function has started to play its role at the level of the societal system” (Bor)un, 2012).

However, the emergence of new media and the worldwide economic-!nancial crisis has brought again into the spotlight the role of public relations in terms of the way in which organizations adapt to the environment. Moreover, these events have brought about the interest given to strategic public relations (public relations as management function, operating with medium and long term objectives), thus distinguishing ever more clearly between the latter and tactic public relations (public relations has support for marketing and image-building, operating with short-term objectives). Strategic public relations are those having at the core not sales objectives, but rather development objectives, which are responsibly planned in relation to the set target, but also in relation to the impacts on the publics and environment where they activate.

#e role of public relations in the organizations’ adapting to the environment has very important consequences on the public relation profession. Once the signals received from the environment have been interpreted, the public relation advisor has to cooperate with the managers in order to establish the strategy for organizational change, as well as strategic plans of reacting to refractory events (foreseeable con$icts, possible crises etc.). #is is how Grunig and White describe this function: “#e successful PR advisor continuously keeps watch over the environment, trying to extend the visibility over this scope beyond the current horizon. (…) In principle, the attempts to see clearly and to anticipate help the organization buy time to plan activities, allowing it to foresee and not just to react to changes (Grunig & White, 1992, pp. 43-44). From this standpoint, the role of public relations is to provide a “radar” for anticipating opinion trends and the topics of public debates which will a(ect the organization and its publics.

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Unfortunately, in most Romanian public institutions it is thought that the public relations specialist must be !rst of all an employee and only secondly a specialist, a vision which corresponds to the “closed systems” approach. In almost all ministries and government agencies, PR specialists have the status of civil servants, the heads of departments included. When it comes to the departments in public institutions, the employee’s mentality translates into a “humble servant” behavior, which calls o( the role he has to play in an intelligent organization.

PR employees tend to maintain and promote an organizational image as favorable as possible, starting from the premise that if the organization is “sympathized”, its messages will also be received with good will under any circumstances. Employees only deal with supplying information about the organization outside it, but not with delivering to the organization information about the environment. #at is why they cannot be part of the decision-making process; they have too little to say about WHAT is said, their main focus is HOW things are said. Sometimes, information about the environment is sent daily, but after they were forged: for example, as I myself discovered some years ago, in a Romanian ministry, the periodic press monitoring reports include more positive news about the respective ministry than were actually published, in order to save the honor of the press bureau.

Unlike the PR employee, the PR specialist is the icon of an open approach, which operates changes both within the organization as well as in its environment. He has the ability to o(er advice and has a major impact on the decision-making process. In this view, public relations become e(ective in the prevention of crisis situations. As I said earlier, if the “big $ywheel” of the organization remain the management, public relations are the “small $ywheel”, capable of removing the “big $ywheel” from the dead point (from the managerial crisis).

From the two approaches of public relations, two di(erent methods of practicing the profession also derive: a technical one, where the specialist is just a doer, and a strategic one, where he participates to the decision-making process. James Grunig and James White refer to these two alternatives

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“handiwork public relations” and “professional public relations” (Grunig & White, 1992, p. 44).

As a technician, the PR person describes the receiving environment in order to render the organizational communication as e"cient as possible; as a strategist, the PR person participates to the decision-making process, that is: he is part of the dominating coalition (dominant decision making coalition). Jon White and David Dozier argue “#is dominant coalition needs information in order to make decisions. #erefore, information is often supplied in a discriminatory manner, by the persons within the organization, who interact frequently with the organizational environment and who collect, select the information originating from this environment and transmit them to those who make decisions in the majority coalition” (White & Dozier, 1992, p. 93).

#is is why I am participating in this conference: I want to plead in favor of the professionalization of the institutional communication in Public Administration in Romania – both in the central and local administration. Even at the cost of a new legislation, regulating the rights and obligations of the communicators in public institutions, de!ning the status of the communication specialist as civil servant with special status and, at the same time, binding employers to select the communicators only from the graduates with studies in the !eld. Without such a revolution, which I am tempted to call “professional revolution”, it is impossible to imagine a more e"cient, less corrupt and more citizen-dedicated administration. #e much-proclaimed “modernization of the state” cannot take place without the modernization of its communicational structures.

Edward Bernays (1891-1995), known as “the father of public relations”, considers that this activity can turn competition, an engine of free societies, into something more e"cient and more productive: like all things, ideas compete to gain the interest and support of the public. #e public relations activity can make a public adhere to current beliefs and actions or to convert to new ones – for instance, the Romanian civil servants’ body may switch from the values of the clientelistic pyramid to the modern values focused on merits. In a famous paper, published in 1923, Edward Bernays called this “creating a public conscience”, which he considered the noblest

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meaning the PR profession may have: “I consider that the highest mission of the public relations advisor in the society he lives in is to create a public conscience” (Bernays, 2003, p. 162).

References Bernays, E.L. (1923/2003). "e Public Opinion Crystallization. Bucharest:

Comunicare.ro Publishing House.Bor)un, D. (2012). Public Relations and the New Society (2nd ed). Bucharest:

Tritonic Publishing House.Grunig, J.E., and Grunig, L.A. (1992). Models of public relations and

communication. In J.E. Grunig (Ed.), Excellence in Public Relations and Communication Management (pp. 285-326). Hillsdale, NJ: Lawrence Erlbaum Associates.

Grunig, J., and White, J. (1992). #e E(ects of World views on Public Relations #eory and Practice. In J.E. Grunig (Ed.), Public Relations and Communication Management (pp. 31-54). Hillsdale, NJ: Lawrence Erlbaum Associates.

Grunig, L.A., Grunig, J.E., and Dozier, D.M. (2002). Excellent public relations and e#ective organizations. A study of communication management in three countries. Mahwah, NJ: Lawrence Erlbaum Associates.

Harlow, R.F. (1976). Building a public relations de!nition, in Public Relations Review, 2(4), 34-42.

Hon, C.L., and Grunig, J.E. (1999).*Guidelines for measuring relationships in public relations. Gainesville, FL: #e Institute for Public Relations.

White, J., and Dozier, D.M. (1992). Public relations and management decision making. In J.E. Grunig (Ed.), Excellence in Public Relations and Communication Management (pp. 91-108). New Jersey: Lawrence Erlbaum Associates.

!e in#uence of Public Relations in nation branding: the case of Bucharest

Ioana MANUSSOS1

Dimitrios NIKOLAIDIS2

Abstract. "is study aims to explore why public relations play an important role when discussing about place branding. "e economic crisis that hit the market in 2008 has left as a consequence negative aspects upon many countries and places in the European Union. Intense competition between places together with fast movement of globalization, require the action of branding places. Public Relations represent the main activity that could still get audience’s interest about the certain topic. "e current paper starts by an analysis of the academic literature on the importance and elements of place branding, place marketing and city branding, and brie$y also on suggestions made by practitioners towards the proposed topic. Furthermore, after the literature !ndings, research objectives have been established. Some of the objectives that are going to be discussed are related to: the theory of place branding, place marketing and city branding, key elements in$uencing or contributing towards place branding, the current image of Bucharest in communication with place branding professionals, as well as to explore the importance of PR in sustaining place branding in Bucharest. After establishing the objectives mentioned before, the research methodology process has been discussed. Regarding the methodology that is going to be implemented, a qualitative approach is going to be used in order to have valid data. "e data are going to be collected in the geographical area of Bucharest, Romania. After doing an in-depth analysis of articles published regarding the proposed topic, academics and practitioners suggest that 15 to 20 interviews can provide us with accurate results. "e interviews are going to be audio-recorded and transcribed in English. "e limitation that this type of methodology has is that after interpreting the data !ndings, the results cannot be generalised.

Keywords: public relations; nation branding; Bucharest.

1. Master student, International Faculty of the University of She"eld, CITY College, #essaloniki, Greece, [email protected]. Senior Lecturer, Ph.D., Head of Business Administration and Economics Department, International Faculty of the University of She"eld, CITY College, #essaloniki, Greece, [email protected].

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Introduction #e economic crisis that hit the market in 2008 has left as a consequence negative aspects upon many countries and places in the European Union. Intense competition between places together with fast movement of globalization, require the action of branding places.

In the recent years, understanding and managing the marketing of places as brands (product) has shown an increase demand in the research area. Similar to companies, places have started to brand themselves in order to increase tourism expenditures, attract investors, number of visitors, international media, driving up exports, as well as to create a reputation.

Globalisation has pushed developing places into a competitive arena where the main players are the older established places (Hanna and Rowley, 2008). Places are branded for so many years and some of them even commercialise their brand name and logos such as New York, Paris or even London. In the Balkan region, place branding is a topic which slowly starts to have a meaning.

When discussing about place branding in the literature, practitioners and researchers use terms such as place marketing, urban marketing or even city branding. Some of the players that help constructing a place’s image and reputation are governments, public relations agencies, publicity agencies, as well as local communities.

#is study aims to explore why public relations play an important role when discussing about place branding. Moreover, branding a place usually means increase a place’s image, as well as a place’s reputation. #us, Public Relations represent the main activity that could still get audience’s interest about a certain topic, given the fast movement of technology that we live in which people are beginning not to trust advertisement anymore.

#e further research will likely contribute to the academic and practitioner knowledge regarding the process of place branding during a crisis periods and the importance that public relations have in branding a city.

581Ioana MANUSSOS, Dimitrios NIKOLAIDIS

Literature review Branding Branding is a term usually known for products and services, but in the last two decades practitioners and researchers have shown that it can also be used when talking about cities, countries or even regions (Anholt, 2010; Upadhyaya, 2012; Cozmiuc, 2011; Crombie, 2011; Lindstedt, 2011).

Usually a brand is perceived as an image which has a network of people working for it and who has built a community in the scope of achieving “entrepreneurial activity, innovation and economic development” (Crombie, 2011, p. 16). An interesting statement has been emphasized by Mayes (2008) that questions concerning “not only what a brand does and for whom, but also to whom and by whom” ( p. 134) should be addressed before starting a branding strategy.

Anholt (2003) stated that branding places is di(erent from branding products. On the other hand, Stachow and Hart (2010) mentioned that places can be branded in a similar way as products do.

Place brandingBecause globalisation has pushed places in the competitive arena, limitations in the di(erentiations between places do exist. First, in order to be di(erent, a place has to point out to its target audience what another place does not have. Secondly, place branding should meet and satisfy the needs of the potential target audience (Mayes, 2008). Branding is considered one of the most powerful tools in order to increase pro!t in the commercial sector (Cozmiuc, 2011).

Kavaratzis (2004) mentioned that in order to develop a city’s brand, a city marketing strategy should be stated which actually leads to the understanding of a city’s image and perceptions. As Martinez (2012) stated, practitioners refer to the !eld of promotion, with references being made sometimes to marketing, sometimes to branding. #is fact lead to interpret what Karavatzis (2004) mentioned that ‘stories’ need to be developed for places by the development of infrastructure and afterwards these stories should be communicated and promoted.

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According to Upadhyaya (2012) places exists as “holistic entities or as collections of contributory elements or individual services or facilities” (p. 41), fact that emphasizes that place branding di(ers from region to region. #e aims of place branding are to achieve economic, social and cultural bene!ts (Mayes, 2008). Skinner (2008) emphasizes that unlike products, places do not begin with a development phase. Often, the marketers’ implications towards branding places are limited due to the fact that local communities develop the cultural environment, invest in heritage and infrastructure. When discussing about topics such as place branding and place marketing, terms such as ‘branding’, ‘’brand’, ‘brand image’, ‘brand identity’, ‘brand personality’, ‘place image’ (Gertner, 2011) and ‘location’, ‘destination’ (Hanna & Rowley, 2008) are frequently used.

As stated by Pryor and Grossbort (2007), academics and practitioners use the term place branding in accordance to place marketing, place promotion or concepts related to tourism marketing. When discussing about products and services, branding has become an important element which led companies emphasize their competitive advantage. When talking about cities, regions or countries, place branding is developed with the help of companies from local industry, as well as tourist o"ces, playing the role of the “marketplace actors co-producing marketplace meanings” (Pryor & Grossbort, 2007, p. 302).

Place branding is the concept of marketing, promoting, branding and regeneration of a city, country or region (Lucarelli & Brorström, 2013; Herstein et al., 2014). Anholt (2010) stated that it is the main tool to attract customers, visitors, traders or even investors. Furthermore, strategic place marketing (a concept developed by Kotler et al., 1993) explains that places have to promote themselves in the same way as businesses do. #e end-user is the main decision-maker for the positive or negative image that a place has (Anholt, 2010).

Usually, when discussing about place branding, a place image is the main element coming into people’s mind. #e image of a place is shaped up by

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the local communities’ perceptions towards the place, as well as external target audience. #e di(erence between a place’s internal and external image is that the !rst one is perceived as part of the ‘place’s identity’ (Lindstedt, 2011). People’s perceptions about the image of a place is highly dynamic, the images are actually based on a stereotype. In order to create a powerful place image, a lot of time and e(ort should be invested (Avraham, 2009; Martinez, 2012).

Mayes (2008) emphasizes the fact that place identity is built from the internal features and history of a given place. Before starting any branding campaign, the identity of the city or place should be investigated focusing on the people’s beliefs, cultural history and values (Martinez, 2012). Gotsi et al. (2011) argues that companies can be one major factor in$uencing the increasing image of a place.

Figure 1. !e concept of place brand perception (Zenker & Martin, 2011)

Zenker and Martin (2011) argue that a place brand represents the perceptions and expressions that the target audience has in their minds and leads to two brand e(ects that can be measured such as: willingness to stay at the place and the satisfaction of the residents.

#e term ‘branding’ is considered to be quite new when it is related with place marketing policies (Metaxas, 2010).

Place marketingAs it is mentioned by Zenker and Martin (2011, p. 33), place marketing’s aim is to share a customer-oriented approach by “creating, communicating, delivering and exchanging” the city’s historical value with its end-consumers : visitors and local community.

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Place marketing enhances people’s perception about places. #e elements that compose the image of a city or country are the ‘location, leadership, type of regime, economic situation, government stability and more’ (p. 197). Advertising, public relations, direct mailing/marketing and sales promotions are the main major techniques in$uencing the way a place is perceived by media, international organizations or publics. #e main goals of place marketing are to create a distinct identity of a place (Avraham & Ketter, 2008) and to increase social and economic bene!ts (Zenker & Marting, 2011).

As positioning a company’s product or service is important to the target customers and a(ects choice decisions, the same element is applicable to the process of place marketing. #us, a clear positioning strategy can ensure that all the marketing elements are consistent and supportive (Walker, 2011).

City brandingCozmiuc (2011) introduces the concept of city branding when talking about place branding. City branding is a(ected by several !elds such as: marketing, public policy, public relations, tourism, economic development and international relations. Nowadays, municipalities, media and local government invest a lot of money in branding a city. #e main reason for investing amounts of money is because they want to di(erentiate from their neighbours, meaning to emphasize their competitive advantage. City branding has two main objectives: increase investment and tourism expenditure and achieve community development (Herstein et al., 2014).

As mentioned by Kotler (1993), visitors, residents and workers, business and industry and export markets are considered to be the main target groups when developing a branding strategy for a city (cited in Herstein et al., 2014; Crombie, 2011).

On the other hand, Rizzi and Dioli (2010) discuss about place marketing and city branding as two di(erent terms. Place marketing is the

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“indispensable instrument in terms of operative implications associated with a speci!c place” (p. 303), while city branding is a strategy in which a place brands itself having as a result a positive or negative image associated with that speci!c place.

Suggestions Metaxas (2010) explained that place marketing is a strategic process and it has to be developed in the same way as products and services. After emphasizing the competitive advantage (characteristics, values etc.) that a place has, the ‘!nal provided good’ has to bene!t of a good and well-structured marketing mix. Objectives, strategies and techniques have to be established. Skinner (2011) suggested that a broader understanding of the terms place marketing and place branding should be researched, as well as the practices associated with the two terms. Moreover, Gertner (2011) stresses out the fact that practitioners should develop more in-depth the terms of place marketing and place branding towards a more structural framework in order to emphasize the competitive areas, as well as e(orts done by specialists, residents, visitors and other entities participating in this process to be analyzed more. When discussing about branding and place, important elements should be closely examined such as: Public relations strategies, foreign direct investment, advertising and promotion (Anholt, 2010).

According to Szondi (2010), one of the main issues when talking about place branding is that the Public Relations !eld is usually ignored, being the main concept of relationship building or engagement with stakeholders. Facing an economic crisis, communication during and after crisis is realised with the help of Public Relations. In order to gain attention, press agentry / publicity help the creation of favourably or negative image through pseudo-events related to a certain place. PR is considered to be the main actor in the relationship between institutions and its audience, by creating an ‘internal brand culture’ which can afterwards be shared with the publics. Involving citizens to create the brand of a place is another task realised by PR practitioners.


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Research aim#e purpose of this research is to explore the evolution of place branding during the recent years, as well the in$uence of Public Relations nowadays when communicating information about a place to potential target audience.

From the research aim and literature review mentioned before, the research objectives are stated: - Indentify the theory of place branding, place marketing and city branding- Indentify the key elements in$uencing or contributing towards place branding- Determine the current image of Bucharest in the opinion of place branding professionals- Explore the importance of PR in sustaining place branding in Bucharest.

Methodology Methodology refers to the speci!c principles implemented in the research activity such as rules, principles and formal conditions that can guide scienti!c research into a logical framework that emphasize ways to solve the problem questioned (Gelo et al., 2008). After doing an in-depth analysis of articles published regarding place branding and place marketing topics, Gertner (2011) sustains that a predominant number of them are of qualitative nature in the form of essays or editorials, and that a ” small set out of the large number of qualitative articles made an attempt to adopt a specific method, such as ethnography, textual analysis, focus groups, in-depth interviews, literature review, historical approach or hermeneutics” (p. 96).

#e objectives mentioned before are going to be achieved through the collection of both primary and secondary data. Secondary data will be gathered by examining closely the literature review about place branding, place marketing and city branding theories, elements and implications. In order to have a strong view about literature !ndings, the results will be compared and contrasted.

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Figure 2. Di$erence between quantitative and qualitative approaches Source: Gelo et al., 2008

Discussions about qualitative and quantitative research have been debated in the academic literature, mainly because of the implications and outcomes they can provide (Gelo et al., 2008; Barnham, 2012). As it is stated in Figure 2, besides the di(erence between the two approaches regarding the sample size, sample criteria and questioning route, a major di(erence exists in the validity, explanation and comprehension of the data !ndings.

Moving on, regarding the primary data collection for the proposed paper, a qualitative research approach is going to be used. #e qualitative research approach will be applied in the form of interviews containing unstructured questions. According to Barnham (2012), qualitative research help interviewers to go in- depth with the research questions in order to have a better understanding about the interviewees’ perceptions and associations with the topic.


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Interviews are considered the best research technique when gathering information because they can provide more details and explanations about participants’ perceptions, associations, beliefs, strategies towards a certain topic (Stathakopoulos, 2005).

Sample #e information that will help the author analyze further the research objectives mentioned has to be detailed and reliable. #us, participants who are going to be involved in the research process have to have knowledge about topics such as: place marketing, place branding, city branding, Public Relations. #ey have to be professionals working with this kind of terms in their daily lives. #e most suitable persons for providing the information needed are PR and place branding professionals. Because the proposed approach is a qualitative one, the sample will be non-random and in order to contact them, the snowball e(ect is going to be used. Area sampling is going to be Bucharest, Romania.

Sample sizeIn comparison with the quantitative research methods, the existing literature does not provide a certain sample size for qualitative research (Marshall et al., 2013). According to Marshall et al. (2013), it is suggested that in order to have conclusive data around to 30 interviews should be done, while for a single case study, like the one presented in the current paper, around 15 to 30 interviews are considered enough. As stated by Francis (2010) in interviews “sample size is often justi!ed on the basis of interviewing participants until ‘data saturation’ is reached” (p. 1229). Glaser and Strauss (1967) explain that data saturation emphasizes the fact that no additional data can be found for conceptual category (cited in Francis, 2010).

#us, for the proposed topic, 15 professionals working in the PR and place branding !eld are going to be interviewed in order to acquire valid data.

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Data collection#e method applied in order to get the information needed is going to be through face-to-face interviews. Gelo et al. (2008) stated that in qualitative research, data collection allows an “in-depth understanding of the participants’ perspective” (p. 275) towards a certain phenomena. In order to ensure the quality of the data collection, interviews are going to be audio- recorded and transcribed. Due to the fact, that the topic area is going to focus on Romanian professionals, interview questions are going to be provided in English and in Romanian for professional not speaking English.

According to the objectives previously mentioned, the research questions have been elaborated and can be seen in the Appendix 1.

Data analysis and interpretation After gathering !ndings of the research, a content analysis is going to be provided. #e author is going to group the data by means of ‘coding system’. As stated by Gelo et al. (2008), coding system re$ects the process of grouping di(erent sections in the interview answers in order to acquire broader perspectives. Qualitative research !ndings are based on ‘inductive interference’ (Gelo et al., 2008).

Pilot testing In order to observe if the interview questions decided are understandable by the participants and help at providing the information needed, a pilot testing will be done. #e pilot test will be realised upon 3 participants in order to observe their reactions towards the questions. Pilot testing is a useful way to assist the limitations, $aws or other weaknesses that the research design might have (Turner, 2010).

LimitationsCurtin and Fossey (2007) state that qualitative approach cannot provide a generalization of the !ndings, which lead us to the limitations, that this type of approach provides. Furthermore, the results of the study may be in$uenced by the certain characteristics of the country.


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London, UK, 213-226.Anholt, S. (2010). De!nitions of place branding – Working towards a

resolution. Place Branding and Public Diplomacy. 6(1), 1-10.Avraham, E., and Ketter, E. (2008). Will we be safe there? Analysing strategies

for altering unsafe place images. Place Branding and Public Diplomacy, 4(3), 194-204.

Avraham, E. (2009). Marketing and managing nation branding during prolonged crisis: #e case of Israel .*Place Branding and Public Diplomacy, 5(3), 202-212.

Barnham, C. (2012). Separating methodologies?.*International Journal of Market Research, 54(6), 736-738.

Cozmiuc, C. (2011). City branding- just a compilation of marketable assets?.*Economy Transdisciplinarity Cognition, 14(1), 428-436.

Crombie, B. (2011). Branding Cities and Clusters for Economic Development.*ISM Journal of International Business, 1(3), 1-20.

Curtin, M., and Fossey, E. (2007). Appraising the trustworthiness of qualitative studies: Guidelines for occupational therapists.*Australian Occupational "erapy Journal, 54(2), 88-94.

Francis, J. (2010). What is an adequate sample size? Operationalising data saturation for theory-based interview studies. Psychology and Health, 25(10), 1229-1245.

Gelo, O., Braakmann, D., and Benetka, G. (2008). Quantitative and Qualitative Research: Beyond the Debate. Integrative Psychological and Behavioral Science, 42(3), 266-290.

Gertner, D. (2011). Unfolding and configuring two decades of research and publications on place marketing and place branding.*Place Branding and Public Diplomacy, 7(2), 91-106.

Gotsi, M., Lopez, C., and Andriopoulos, C. (2011). Building country image through corporate image: exploring the factors that influence the image transfer.*Journal of Strategic Marketing, 19(3), 255-272.

Hanna, S., and Rowley, J. (2008). An analysis of terminology use in place branding.*Place Branding and Public Diplomacy, 4(1), 61-75.

Herstein, R., Berger, R., and Ja(e, E. (2014). Five typical city branding mistakes: Why cities tend to fail in implementation of rebranding strategies. Journal Of Brand Strategy, 2(4), 392-402.

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Kavaratsis, M. (2004). From city marketing to city branding: Towards a theoretical framework for developing city brands.*Place Branding, 1(1), 58-73.

Lindstedt, J. (2011). Place, identity and the socially responsible construction of place brands.*Place Branding and Public Diplomacy, 7(1), 42-49.

Lucarelli, A., and Brorström, S. (2013). Problematising place branding research: a meta-theoretical analysis of literature.*Marketing Review, 13(1), 65-81.

Marshall, B., Cardon, P., Podar, A., and Fontenot, R. (2013). Does Sample Size Matter in Qualitative Research? A Review of Qualitative Interviews in IS Research.*Journal of Computer Information Systems, 54(1), 11-22.

Martinez, N. (2012). City marketing and place branding: A critical review of practice and academic research. Journal Of Town and City Management, 2(4), 369-394.

Mayes, R. (2008). A place in the sun: #e politics of place, identity and branding.*Place Branding and Public Diplomacy, 4(2), 124-135.

Metaxas, T. (2010). Place marketing, place branding and foreign direct investments: De!ning their relationship in the frame of local economic development process.*Place Branding and Public Diplomacy, 6(3), 228-243.

Pryor, S., and Grossbart, S. (2007). Creating meaning on main street: Towards a model of place branding.*Place Branding and Public Diplomacy, 3(4), 291-304.

Rizzi, P., and Dioli, I. (2010). Strategic planning, place marketing and city branding: #e Italian case.*Journal Of Town and City Management, 1(3), 300-317.

Skinner, H. (2008). #e emergence and development of place marketing’s confused identity.*Journal of Marketing Management, 24(9), 915-928.

Skinner, H. (2011). In search of the genius loci: #e essence of a place brand.*Marketing Review, 11(3), 281-292.

Stachow, G., and Hart, C. (2010). Exploring place image: Formation and measurement. Place Branding and Public Diplomacy, 6(2), 145-155.

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Upadhyaya, M. (2012). In$uence of Destination Image and Destination Personality: An Empirical Analysis.*Journal Of Marketing and Communication, 7(3), 40-47.

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Branding insights: an interdisciplinary journey from perception to action

Andreia Gabriela ANDREI1

Adriana ZAI%2

Abstract. Our interdisciplinary study examines the brand’s perceived intentions and ability, as predictors of consumer behavior. In an attempt of answering a call for research in the branding area, we found out contradictory views, both of them based on strong arguments, including empirical results. Each view has been examined by the lens of branding, social cognition and behavioral theory. We found convergent !ndings from cognitive psychology and behavioral theory to support one of the two views and to extract a hypothesis. "us, we hypothesized that an e#ective branding process, meant to achieve both consumer trust and sales objectives, should address the brand’s perceived intentions before ability. We suggest that further empirical studies are needed to test the hypothesis, although for some particular cases, tests con!rmed the priority of intentions. Overall, our paper o#ers an integrative view of consumer underlying behaviors revealed by results of other social sciences and how should be used in brand construction process. "e bene!ts of updating branding theories by integrating results con!rmed by other social sciences are discussed. Keywords: branding; brand perception; brand image; brand trust; warmth; competence; intentions and ability.

IntroductionBad news about big companies are not surprising anymore. We !nd out about such things even on TV, since in the recent years the cases of companies successful-until-yesterday that now are losing ground to smaller

1. Post-doctoral Research Fellow, Department of Management and Marketing, Faculty of Economics and Business Administration, “Alexandru Ioan Cuza” University of Ia+i, Romania, [email protected]. Professor, Ph.D., Department of Management and Marketing, Faculty of Economics and Business Administration, “Alexandru Ioan Cuza” University of Ia+i, Romania.

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companies have increased. Independent lines of research, some of them starting from very di(erent points, have warned about this phenomenon.

Although most studies have explained how Internet and technology have challenged marketing communications practice (Qualmann, 2009; Dann, 2010; Universal McCann McCann, 2012, 2014), we focused on the works that went deeper to consider the underlying behaviors that would explain market twists.

#erefore, our paper comprises three main parts. #e 1st part explores studies that have identi!ed inadequate branding as the failure cause, pointing out the lack of consumer trust on one side and brand dilution or „impersonal aloofness” (Malone & Fiske, 2014, p. 9) on the other side. #e second part presents recent branding-related !ndings and how are they supported or not by literature and empirical results from cognitive social psychology and behavioral economics. #e third part of the paper points out theoretical contradictions, extracts a hypothesis to be further tested, discussing !ndings and implications.

Branding and consumer trustAlthough the literature of the past decade discusses about a profound paradigm shift facing the marketing theory and practice; an earlier groundbreaking insight we !nd in Anderson’s view of brands evolution.

Anderson (2005) explained how product brands evolved in the mass marketing times and why the product-centric approach became obsolete in today’s customer-centric world. #e author envisions a new age of „customer-centric brands” belonging to those companies able to develop fully customized o(ers and a high level of trust in brand promise of serving individual preferences better than others. Published on July 15, 2005, in the online article “Brands: #ink people, not products”, the Anderson’s view about migration of brand strength from products to customers has been explained as an historical transformation driven by scarcity. Anderson explained that the scarcity of consistently high quality products have generated the success of product branding, and consequently, a period of product brands prevalence in the !rst half of the 20th century. As easily one can notice, the time period of product brands prevalence referred by Anderson, is, in fact, the same period of time well known for the rising up of the standardized goods consumption and mass marketing that generated

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the marketing mix theory of the 4 P’s (McCarthy, 1960), still dominant marketing paradigm. #e author described that „over time, more and more products entered the market and shelf space became the scarce good. Power shifted to retailer brands. Now ... the shelf space constraints evaporate ... and the scarce good become customer’s attention. We are moving from product-centric brands to customer-centric brands.” Product-centric brands represent promises about products (or retailers) – “buy this product from us because you can trust that it will be a quality product at good value.” Customer-centric brands o(er a radically di(erent promise – “buy from us because we know and understand you as an individual customer and we can tailor an appropriate bundle of products and services to meet your individual needs better than anyone else” (Anderson, 2005).

Yet, Malone and Fiske (2013) are the !rst authors to clearly indicate that although mass marketing belongs to the past, it is still the main practice, and a lot of companies remained captives of what authors call „the Middle Ages of Marketing”. Pointing out that trust is a prerequisite for human relationships, the authors explain how mass marketing erodes trust instead of brand nurturing. #ey show that the lack of trust drives customers away, and loyal brand buyers are replaced by circumstantial consumers that randomly choose between proximity and discounts. Supporting the assumption that the extended lack of trust was generated by the mass marketing practice, Malone and Fiske present the result of 10 separate studies that evaluated by the lens of Fiske’s cognitive theories (2002, 2007, 2008) more than 45 companies and brands, and reveal that most brands fail the test of consumer’s trust. #e authors explain this situation by the increasing brand abstractness that drives clients away because it opposites their natural need for humanity in relationships with product provider, and by the fact that “the constant pressure for faster and larger pro!ts has steered companies into violating all the prerequisites for trust that we all unconsciously expect of them” (Malone & Fiske, 2013, p. 8). Malone and Fiske (2013) conclude that brands should show a human face driven by good intentions in order to be trusted by their customers.

Branding and consumer’s perception of brands: intentions and abilityRecent research apply cognitive theories to the consumer-company context (Aaker, Vohs & Mogilner, 2010; Aaker, Vohs & Garbinsky, 2012; Kervyn, Fiske & Malone, 2012; Malone & Fiske, 2013). Researchers test stereotypes of warmth (intentions) and competence (ability), to !nd out if and how these would operate on the consumer-brand relationship.

Andreia Gabriela ANDREI, Adriana ZAI,

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Although Aaker et al. (2010, 2012) use the terms of “warmth” and “competence” to report !ndings of their empirical studies, while Kervyn et al. (2012) use adapted terms: “intentions” (to name “warmth”) and “ability” (to name “competence”), all researchers have applied the same fundamental dimensions of social cognition to measure consumer’s perceptions on warmth and competence. Warmth and competence stereotypes correspond to the two fundamental dimensions of survival and social integration: warmth is about intentions towards others (good or bad), and competence is about the ability of carrying out these intentions (Fiske et al., 2002, 2007). Warmth (intentions) relates to other-pro!table intent, including traits such as: good intentions towards others, communion, friendliness, morality, trustworthiness etc. Competence (ability) relates to self-pro!table ability, containing traits such as: agency, intelligence, skill etc. (Fiske et al., 2002, 2007; Abele, 2003; Abele & Wojciszke, 2007, 2008, 2009; Wojciszke, 1887, 1988; Cuddy et al., 2007, 2008, 2009). Warmth and competence stereotypes are known to be central for human cognition, the main source of bias and discrimination that arise in all social contexts between persons, groups or cultures: (Fiske et al., 2002; Cuddy et al., 2007, 2008, 2009; Casciaro & Lobo, 2005, 2008; Durante, Volpato & Fiske, 2009). Aaker et al. (2010) show that warmth and competence stereotypes operates between consumers and organizations, and people perceive for-pro!t companies as being less warm, but more competent than nonpro!ts. Moreover, their empirical results revealed that willingness to buy is driven by perceptions of company’s competence, while admiration and increased desire to buy are directed to those organizations that are perceived both warm and competent (Aaker et al., 2010, 2012).

Kervyn et al. (2012) adapt the Stereotype Content Model of social perception to o(er a new approach of consumer-brand relationship: BIAF - Brands as Intentional Agents Framework. BIAF con!rms that warmth and competence stereotypes operate between consumers and organizations, showing that consumers perceive and behave towards brands in a similar way they perceive and behave towards people. Kervyn et al. (2012) report empirical evidence to support BIAF prediction that the 4 combinations resulted from perceptions regarding brand intentions (high vs. low) and ability (high vs. low), lead to 4 distinct emotions and drive 4 di(erential brand behaviors.

Results show that only popular brands are seen as both warm and competent, while high levels of perceptions on both warmth and competence dimensions are needed to attain trust, admiration and brand loyalty. In this regard, authors points out that very few of the companies

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included in their study attained high levels of both perceptions, receiving low rates either on intentions (warmth), either on ability (competence), but most of them failed the test of consumer’s trust: consumers do not believe that they would be well-intentioned (Malone & Fiske, 2013).

Contradictory visions on how to attain admiration, trust, salesOverall, previous research found empirical evidence that companies are able to nurture high perceptions on both dimensions, and admired brands are both warm and competent (Aaker et al., 2010, 2012, Kervyn et al., 2012, Malone & Fiske, 2013). While high levels of perceptions on both dimensions lead to: increased willingness to buy (Aaker et al., 2010, 2012), admiration (Aaker et al., 2010, 2012, Kervyn et al., 2012, Malone & Fiske, 2013) and brand loyalty (Kervyn et al., 2012, Malone & Fiske, 2013), researchers show that ambivalent judgment prevails (Fiske et al., 2002, 2007, 2012,2013), and most organizations are seen as either warm either competent, but not both (Aaker et al., 2010, Kervyn et al., 2012, Malone & Fiske, 2013).

An additional hint, about how di"cult it is to establish high levels of both perceptions, is shown by cluster statistics regarding some well-known brands such as: Rolex, Rolls Royce, Porsche, Mercedes (Kervyn et al., 2012). Instead of admiration, feelings of suspicion and envy are found to be aimed towards these brands. All well known for their high quality, these brands are reported as being perceived as highly competent but not so well intended, which suggests they should seek for warmth perception improvement.

Although researchers (Aaker et al., 2010, 2012, Kervyn et al., 2012; Bennett & Hill, 2012) consider that organizations are able to nurture both competence and warmth, it is unclear which perception should be established !rst. Addressing a call for research to study which should be !rst, Aaker et al. (2010) suggest that establishing organizational competence before warmth (vs. reverse) “may be more e(ective for long-run success” (Aaker et al., 2010, p. 289). In favor of their suggestion, Aaker et al. (2012, p. 193) suppose that “warmth judgments may be easier to credential after a brand’s competence has been established”, and adding “small touches of warmth to a competent !rm might be su"cient to o(er a burst of warmth to their brand image”.


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Although transition from ‘low warmth; high competence’ to ‘high warmth; high competence’ was not tested, Aaker et al. (2010) studied perceptions improvement from ‘high warmth; low competence’ stage, as an e(ect of endorsement. Results show that endorsement signi!cantly increased perceived competence of the warm company, but only when coming from a highly reputed media outlet. Although their study reveals that competence boosting by endorsement is possible, generating high levels of both perceptions, the feel of admiration and an increased willingness to buy, researchers assume that boosting perceptions of competence might encounter di"culties related with gaining an e(ective endorsement, since endorsement should come from a highly credible source (Aaker et al., 2010).

Certainly, since Aaker et al.’s (2010, 2012) research results indicate competence as the main driver of willingness to buy, their assumption is driven by sales-relates arguments. Indeed, the same premise of establishing competence before warmth is also underpinned by dominant management practice and marketing theories (Ries & Trout, 1981; Kotler & Keller, 2006; Grandey et al., 2005). But, if nothing is wrong with this approach, how is it possible such an increasing consumer distrust (Gerzema, 2009 cited in Aaker 2012, Malone & Fiske, 2013), and suspicious feelings reported by consumers towards high quality and respected brands such as Rolex, Rolls Royce, Porsche, Mercedes as indicated in Kervyn et al. (2012)?.It is an intriguing question to be answered.

Since consumers judge companies as they judge humans (Aaker et al., 2010, Kervyn et al., 2012), and people are hard wired to instantly detect intentions of others (warmth) and secondly to asses the ability they seem to possess of carrying out those intentions (competence) (Fiske et al., 2002, 2007), we embrace Malone and Fiske’s (2013) suggestion of considering consumer-brand relationships like people to people. In this light, consumers judge brand’s warmth before competence.

Bearing in mind that consumer perception asses brand’s warmth before competence (Fiske et al., 2012; Kervyn et al., 2012; Malone & Fiske, 2013), a cold but competent brand will fall on !rst impression, while a warm but less competent brand will pass on. #is contradicts the suggestion that establishing organizational competence before warmth might be a more e(ective way of attaining perceptions of both warmth and competence. At least apparently, the brand focus on establishing competence before warmth would lead to an undesirable !rst impression, while the warm

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but less competent brand would attain a good !rst impression, passing on the !rst test of consumer’s trust, and consequently starting with better chances.

#erefore, establishing warmth before competence, seems more promising on Fiske et al.’s (2012) light of treating consumer-brand relationships as people to people. Yet, the question remains: Intentions followed by ability, or reversed? #ere are two opposite views, and both are based on strong arguments, including empirical results: client’s trust in company’s intentions supports one view and willingness to buy induced by ability of providing quality supports the other view. #us, we explored trust-related literature to !nd out additional hints.

Trust behavior: emotions and rational considerationsSocial literature is abundant of studies showing that trust shapes both the economic and social life. On one side, trust drives to economic e"ciency due to the increased trust between partners and the decrease of transaction costs (Fukuyama, 1995), providing competitive advantage (Barney & Hansen, 1994; Dyer & Chu, 2003) and growth (Woolcock, 2001). On the other side, trust drives to increased quality of social life, generating a plurality of positive in$uences at societal level such as: income, health, longevity (Wilkinson 1996), education (Coleman, 1988), child protection and the reduction of the abuse (Cote & Healy, 2001), lower rates of crime (Halpern, 2001), the decrease of corruption and the maintenance of democracies and governments (Putnam, 2000).

Moreover, it has been shown that trust enables trade, since basically “every commercial transaction has within itself an element of trust” (Arrow, 1972, p. 357), and it often explains the business success of those trusted (Menko(, 1993). Although rational choice scholars claim that people trust others to maximize their own utility when they expect to attain positive outcomes (Coleman, 1990), recent empirical studies of behavioral economists and psychologists reveal by contrast that people base their trust decisions on motivations unrelated to the utility maximization (Berg et al., 1995; Fetchenhauer & Dunning, 2009, 2010 cited in Mensching, 2011).

Behaviorists consider that the interplay of emotions (coming from the intuition system that is fast, spontaneous and e(ortless) and rational considerations (coming from the reasoning system that is slow, controlled,


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rule-based and e(ortful) determines trust behavior, while immediate emotions in$uence the decision to trust to a greater extent than rational expectations (Dunning, Fetchenhauer & Schlösser, 2012).

Discussions and concluding remarks Corroborating the aforementioned idea that trust is incorporated in every commercial transaction (Arrow, 1972), with the recent results of behaviorists stating that spontaneous emotions, coming from intuition, in$uence the decision to trust to a greater extent than rational considerations (Dunning et al., 2012), we are tempted to believe that: (1) consumer propensity to establish relationships with companies (commercial transactions) would depend on trust, and (2) the positive emotions towards company would in$uence decision to trust it to a greater extent than rational evaluations.

In other words, (1) and (2) would mean that (3) emotional trust* (fostered by the company’s good intentions) would in$uence the consumer decision to trust the company to a greater extent than rational trust** (coming from perception that company is able to enact its intentions).#us, (4) consumer decision to establish relationships with company is in$uenced by perceived intentions (good or bad) to a greater extent than perceived ability.

#e notions of emotional trust* and rational trust** are used above as indicated by Aaker et al. (2010, p. 289): “research suggests there are two types of trust: sensing that another has one’s best interests in mind (emotional or warm trust) and believing that another can enact the behaviors to accomplish the given task (rational or cognitive trust; McAllister, 1995).”

Following (1)-(2)-(3)-(4) reasoning route, we assume that: (5) consumer perception regarding company’s intentions might in$uence company’s trustworthy and consequently, client relationships to a greater extent than its abilities, which would mean that (6) companies should establish perceptions regarding their good intentions before ability related ones, in order to nurture trust, customer-brand relationships, and consequently commercial transactions and sales.

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#erefore, knowing that warmth is about intentions and competence is about ability of carrying them out (Fiske et al, 2002, 2007), it appears that trust-related literature (Arrow, 1972, Dunning et al., 2012) provides additional inputs to support the hypothesis we have found following Fiske et al. ‘s (2012) view of treating consumer-brand relationships as people to people: (H) Brands should establish warmth before competence, not the reverse.

Although research results for the very speci!c case of a for-pro!t social entrepreneur (Andrei & Zai-, 2014) indicates the same ‘warmth - competence’ path of nurturing high levels of brand perception on both dimensions, further empirical studies are needed to test the hypothesis.

To conclude, our paper sheds a light on the controversy regarding brand’s perceived intentions and ability as predictors of consumer behavior. We !nd out convergent results, from cognitive social psychology and behavioral theory, to support the hypothesis that brands should establish warmth before competence in order to nurture trust and customer-brand relationships, as carriers of their commercial transactions and sales.

Without neglecting sales-related arguments coming from marketing theory and practice, we think that a broader, integrative view of consumer underlying behaviors revealed by results of other social sciences would make a step forward. Ultimately, consumers and companies are social entities operating in the social world, thus, branding, marketing and all business theories would bene!t from being updated and strengthened by integrating results from other social sciences.

Acknowledgements. #is work was supported by the strategic grant POSDRU/159/1.5/S/133652, co-!nanced by the European Social Fund within the Sectoral Operational Program Human Resources Development 2007 – 2013.

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Materialistic values, shopping, and life satisfaction

Valeriu FRUNZARU1

Elena Monica POPA2

Abstract. Various studies have shown that materialists are less happy in general than those lower in materialism. Several studies con!rm that people who have a lower level of life satisfaction are more interested in shopping, therefore materialism determines directly and indirectly (mediated by life satisfaction) the desire of going shopping. "ere are only few studies that approach this topic within Romanian consumers. "e conceptual model proposed here was tested on a convenience sample of 390 Romanians. Using structural equation modeling, our !ndings con!rm only partially the hypothetical model. Materialism leads to life dissatisfaction and shopping, but life dissatisfaction does not increase shopping. To the contrary, there is a positive relationship between life satisfaction and desire for shopping. One possible explanation is that Romanians perceive materialism as a positive thing. Anyway, nuances should be done regarding the role of money and possession in bringing life satisfaction.

Keywords: materialism; materialist scale; shopping; life satisfaction; Romania.

IntroductionAfter the fall of the communist regime, the Romanian society has been living the experience of the market economy, characterized by a&uence of products and services, advertising that exhilarates consumption and hope of a life full of satisfaction, respectively by the presence of materialistic values. #e product and service purchase, the contentment achieved after exploiting them and the belief that, for instance, owning a bigger house, a more expensive car or famous branded clothes represent indicators of success. #e presence of the materialistic values is associated with the opinion that achieving certain goods or some high earning will lead to a

1. Associate Professor, Ph.D., College of Communication and Public Relations, National University of Political Studies and Public Administration, Bucharest, Romania, [email protected]. “Nicolae Titulescu” School, Bucharest, Romania.

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happier life. In this context of consumption society boost it is necessary to study the relationship between materialism, shopping, and life satisfaction in the Romanian society.

Since the 19th century #orstein Veblen (1889/2009) has tackled the issue of the ostensive luxury and consumption as indicators of the material wealth. Goods consumption represents a proof for the pecuniary power to the leisure class, and ”in order to gain and to hold the esteem of men it is not su"cient merely to possess wealth or power. #e wealth or power must be put in evidence, for esteem is awarded only on evidence.” (Veblen, 1989/2009, p. 43). #e American economist and sociologist with Norwegian roots critically analyses the life style of wealthy people, who are mostly preoccupied with spending money on products, which are not really necessary, and spending their time pro!tlessly. After a century since the appearance of #orstein Veblen’s well known work, Marsha L. Richins and Scott Dawson (1992) approach the issue of materialism starting from the idea that the American society is consumerist, the life style being characterized by a strong interest in product purchase. #erefore, the economic development of the American society has been related to extending the importance granted to consumerism from a limited group of the population, leisure class, to a wider segment, datum that lead to naming the whole society consumerist.Some researchers associated the increasing of incomes not only with the development of the consumption-based behavior but with the direction towards other satisfactions than the materialistic ones. In this regard, Amitai Etzioni (2001/2002, p. 70) states that in the post-abundance society people become the advocates of the “voluntary simplicity”, that is abandoning, at will, the materialistic sources in favour of the spiritual satisfaction sources. As early as 1971, Ronald Inglehart revealed that, once the economic security achieved, the young generations attach importance to “a set of «post-bourgeois » values, relating to the need for belonging and to aesthetic and intellectual needs” (Inglehart, 1971, pp. 991-992). After three decades, Roy and Anderson (2000) show that there are people in the USA that share the values of the creative culture, namely values oriented, among other things, towards interpersonal relationships, expressing one’s self and spiritual progress. A research on the Romanian students points out that people who share the values of the creative culture are rather interested

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in the spiritual values and having a professionally stimulating job, even if it is associated with a lower salary (Frunzaru & Ivan, 2011).

#is paper presents the results of a survey that has as a general objective the understanding of the relationships between the materialistic values, consumption behavior and life satisfactions. #e literature in this !eld of study can be divided in three sections. Firstly, we analyze the concept “materialistic values” speci!c to consumption society, in which advertising plays a key role in stimulating the purchase of products and services. Secondly, we tackle the relationship between materialism and consumption behavior. #irdly, we investigate the relationship between materialism and overall life satisfaction, and particularly satisfaction regarding family, friends, and income.

Materialistic values – de&nitions and measurementApproaching the materialistic values, as well as any other values, implies the risk of ideologization the scienti!c discourse. A critical analysis of the contemporary society can be achieved from the perspective of the arguments brought against the world that attaches more importance to material goods and less importance to spiritual goods. For instance, Jean Baudrillard (1970/2005, p. 29) considers that multiplication of the material goods and services lead to an opulent life in which people are no longer surrounded by other people, but by objects. Karl Marx (1867/1960, p. 110) had a critical perspective a hundred years ago, stating that, similarly to religion, ”the products of the human brain appear as autonomous !gures endowed with a life of their own, which enter into relations both with each other and with the human race”. #us, goods are seen as objects, without noticing the social relations among them, fact named by the author: “commodity fetishism” (Marx, 1867/1960, p. 110). #erefore, discussing the materialistic values and operationalizing this concept pose theoretical and methodological problems. However we will use the terms: “materialistic values”, “materialism”, or “materialistic people” without giving them negative connotations.

We have to mention that materialistic values do not have any connection (a direct connection, at least) with the philosophical concepts which explain

Valeriu FRUNZARU, Elena Monica POPA

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the ontological reality through the existence of matter, but they represent the importance given to materialistic goods by individuals as members of the society. In Dictionary of Sociology, edited by Gordon Marshall (1994/2003, pp. 350-351), the concept “materialism” is de!ned from three perspectives, the !rst one confers a derogatory connotation to the term, and the others refer to metaphysical or Marxist approaches. Hereby, from the !rst perspective, materialism refers to the prevalent aspiration to sensuous pleasures, material possession or physical comfort, detrimentally to any superior spiritual or moral values (Marshall, 1994/2003). In "e Blackwell Dictionary of Sociology, Allan G. Johnson (1995/2007) considers that “materialism” has two acceptances: one as a cultural value and the other as a materialistic explanation of social life (referring to Karl Marx). We can notice that, if in the !rst de!nition the materialistic values are associated with hedonism o(ered by material possession, in the second de!nition, which is similar to #orstein Veblen’s approach, the materialistic values o(er the possession of objects a role of social dignity.

More dimensions of materialism are underlined by Marsha L. Richins and Scott Dawson (1992), who consider that people, who share these values are focused on the purchase of goods, think that purchase of goods is a way of obtaining happiness and the possession of goods is an indicator of success (Richins & Dawson, 1992, p. 304). #erefore, the two authors developed a materialism scale with three subscales: “centrality”, “happiness”, and “success”. Hence, the materialists place possessions and getting them in the centre of their lives, aim at pursuing happiness rather through the purchase of goods than other means (such as interpersonal relationships or life experience), and tend to judge their or others’ success by the number or quality of possessions achieved.

#e importance of material goods considered to be necessary in the pursuit of happiness is underlined by Marsha L. Richins (1987), who states that the materialistic values speci!c to the consumption society correspond to the “idea that goods are a means to happiness; that satisfaction in life is not achieved by religious contemplation or social interaction or a simple life, but by possession and interaction with goods” (Richins, 1987, p. 353).

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Russell W. Belk (1985) developed a materialism scale with three subscales to measure possessiveness, nongenerosity, and envy. Compared with Richins and Dawnson (1992), Belk (1985) de!nes materialism focused on interpersonal relationships, taking into consideration the in$uence of people’s feelings about objects on their interaction with other people. “Possessiveness” is the inclination to retain control or ownership of one’s possession, materialistic persons being worried about people taking their possessions. Belk (1985) de!nes “nongenerosity” as an unwillingness to give or to share possessions with others. In this regard, a materialistic person agrees with the item “I don’t like to lend things, even to good friends”. Belk (1985) consider that “envy” is the desire for others’ possessions, be they objects, experiences and persons. #erefore, another distinction between Richins and Dawson’s (1992) and Belk’s (1985) scales is that in the !rst scale there is only one subscale that measures how materialists compare themselves with other people (subscale “success”), when in the second scale all three subscales focus on this trait aspects of living in the material world. In order to measure the relationship between media exposure, materialism, and life satisfaction, Richins (1987) elaborated a more simple scale, a six item-scale, where four items measure “personal materialism” and two items measure “general materialism”. #e personal materialism consists in the fact that people consider that they would be happier if they had enough money to buy anything they want. General materialism re$ects a general belief that money can bring happiness. #erefore Richins’s scale (1987) underlines the importance accorded to possessions and to the belief that owning goods can bring happiness.

To sum up, we observe that materialism means the emphasis on material things; people that share these values consider that owning and possessing commodities bring happiness and o(er a higher prestige. As personality trait, materialism is shared by people that are possessive, not generous, and envious. In this article, we focus only on the materialism de!ned as the appreciation to a higher extent of the possessions seen as source of happiness and success.


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Materialism values and consumption societyNumerous studies done on all continents, in di(erent cultures, have shown that there is a signi!cant relationship between materialism and consumption. A cross-cultural study in the US and South Korea shows that for Korean sample materialism might have a stronger impact on consumption, and for the US sample there are higher levels of brand engagement (Flynn et al., 2013). At the same time, this study shows that even if materialism scales performed well in the translated form, the failure of the factor analysis proves that “materialism is culturally dependent and so materialism measures are culturally dependent too” (Flynn et al., 2013, p. 62). A survey undergone in India shows that the more materialistic Indian consumers tend to have a more favorable attitude to television advertising and display higher consumption innovativeness (Mishra & Mishra, 2012). At the question if materialism is an universal construct that can be measured through the same scale everywhere, the authors show that Richins and Dawson (1992) scale of materialism administrated on an Indian sample has high reliability, convergent validity, and discriminant validity.

A research conducted in Malaysia con!rms that materialism has a signi!cant in$uence on compulsive buying. Moreover, credit card misuse was directly related to materialism, budget constraint, impulsive buying and compulsive buying (Asiah et al., 2014, p. 66). Consequently, the authors consider that the relationship between materialism, compulsive buying and credit card misuse raise the problem of the need to educate the public about prudent !nancial planning and responsible credit card usage.

For Nigeria, Steven Lysonski and Srinivas Durvasula (2013) measured the acculturation to global consumer culture and the consequences regarding consumer behavior and materialism. #e !ndings show that acculturation leads to materialism to some extent, in the context where the respondents were exposed to marketing activities of multinationals, English language usage, social interactions, and global mass media.

In Europe, Otero-Lópezn et al. (2010) analyzed the relationship between materialism, life satisfaction and addictive buying on a Spanish sample.

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Using structural equation modeling, the !ndings show that materialistic people determine addictive buying directly and mediated by life satisfaction. A study done on a Spanish female sample proves that anxiety and depression mediates the e(ects of materialism dimensions on addictive buying (Otero-López & Villardefrancos, 2013).

In summary, we consider that materialism values and consumption society are interrelated. Consumption society through advertising encourages the presence of the materialistic values and, in the same time, materialism emphasizes the acquisition of goods speci!c to consumption society. Much more, for materialistic people buying famous brands, sometime in a compulsive way, is a solution to own products that show their (material) success.

Materialism and life satisfactionStudies consistently show that materialists are less happy in general than people lower in materialism (Nickerson et al., 2007; Sirgy et al., 2012; Sirgy et al., 2013; Atay et al., 2010; Otero-López et al., 2010; Baker et al., 2013). Nickerson et al. (2007) make an elaborated analysis of the studies regarding the impact of materialism on human life. For example, the authors underline studies that show that materialism negatively relate to agreeableness, self-esteem, self-actualization, educational level, openness to experience, and religious values. At the same time, materialism positively relates to narcissism, Machiavellianism, right-wing authoritarianism, hedonistic values, importance of security, need for recognition, and !nancial security. #e survey conducted by Nickerson et al. (2007) proves that the stronger are the !nancial aspirations, the lower is the overall life satisfaction. #erefore, materialism correlates with a series of constructs, particularly with !nancial aspirations, that diminish overall life satisfaction.

A survey done by Sirgy et al. (2012) in Australia, Bosnia and Herzegovina, Germany, Egypt, Korea, Turkey, and the US shows that the exposure to advertising, perceived to be materialistic, contributes to materialism. In turn, materialism leads to various standards of comparison in making judgments about standard of living. #e higher is the level of aspirations the more negatively is evaluated the standard of leaving. A similar study


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published in 2013 by Sirgy et al. shows that materialism may lead to life dissatisfaction when people evaluate their standard of living using fantasy-based expectations. Consequently, not materialism per se brings unhappiness, but how people establish their standard of living: using fantasy-based or reality-based expectations. A similar explanation of the relationship between materialism and life satisfaction is brought by Atay et al. (2010), where Joseph Sirgy is one of the authors. #ey discuss ideal expectations (people compare their own standard of living with those who are “!lthy rich”), deserved expectations (about what people consider they deserve), and minimum-need expectations (people consider that they need more money to make ends meet). #erefore, when people’s expectations are not based on their past material possessions, they become unhappy because of the gap between what they have or can have and what they would like to have.

A particular situation can be found in more religious countries. A study realized in Malaysia shows that stress partially mediates the relationship between materialism and life satisfaction (Baker et al., 2013). #e authors suggest that “materialistic values in such cultures are in con$ict with religious beliefs and such values tend to create stress that adversely a(ects one’s well-being” (Baker et al., 2013, p. 559). #us, for more religious people materialism can lead to life dissatisfaction directly and mediated by stress brought by the incongruence between materialistic values and religious values.

Even if there are numerous studies that show the correlation between materialism and life dissatisfaction, only few of them present systematically how materialism leads to unhappiness. Based on a survey done on a random sample in the US, Marsha L. Richins (2013) analyzes if the attainment of products makes materialistic people happier. #e !ndings show that materialistic people, compared to their peers, have higher positive emotions before purchase followed by hedonic decline after purchase. #erefore, acquisition brings to materialistic people happiness especially before the purchase and to a lesser extent shortly after the purchase of a desired object. Nevertheless, even if buying things brings happiness on a short term, research consistently shows that high-materialism consumers are less happy than others (Richins, 2013, p. 14).

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Joseph Sirgy (1998) considers that materialistic people experience life dissatisfaction because they have in$ated and unrealistically high expectations regarding possessions. People that share materialistic values have a#ective-based expectations that are ideal and in$uenced by the comparison with the standard of living of others from their community, town, state, country, or other countries. #e nonmaterialistic people have cognitive-based expectations that are predictive, past, and ability based expectations. #ey compare their material situation with the wealth, income, and material possessions of the family, friends, neighbors, and colleagues; therefore they compare themselves with people like them. Based on these comparisons, when there is a higher gap between reality and expectations, people experience higher feelings of inequity, injustice, anger, or envy, fact that diminishes overall life satisfactions.

Many studies underline the negative impact of materialism on di(erent aspects of living that consequently diminish life satisfaction. Materialism can lead to loneliness (Pieters, 2013), work-family con$ict (Promislo et al., 2010), negative job satisfaction (Sardz ska & Li-Ping Tang, 2012; Richins & Dawnson, 1992, Deckop et al., 2010), or psychological traits like low self-esteem, low level of self-actualization, and narcissism (Nickerson et al., 2007).

If materialism leads to unhappiness, the satisfaction regarding family life, friends and money leads to overall life satisfaction. Joseph Sirgy et al. (1998) show that there are top-down vertical spillover and bottom-up vertical spillover that explain the relationship between material satisfaction and overall life satisfaction. Generally, “overall life satisfaction is held to be a function of satisfaction within each life domain (job, family, personal health, leisure, material possessions, and so forth” (Sirgy et al., 1998, p. 105). Consequently, overall life satisfaction is negatively determined by materialism, and positively determined by satisfaction to family, friends and money.

In summary, materialism leads to life dissatisfaction not only because of the negative correlation between the !nancial or material aspirations and the overall life satisfaction. #ough, in this paper we focus on the relationship between the desire of acquisition and possession of commodities and


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life satisfaction. Accordingly, it is proposed that the higher is the level of materialism, the lower is the overall life satisfaction and the higher is the desire for shopping.

Materialism, shopping, and life satisfaction. A possible explicative model for RomaniansOnly few studies examine the presence of the relationship between materialistic values, life satisfaction and behavior consumption in Romania. Based on comparative qualitative research conducted in Romania and Turkey, Belk and Ger (1994) show that in Romania consumption is seen as a good thing and it is associated with the prosperous life in the western European society. Compared to Turkish buyers, Romanians want to buy everything, are more innocent, confused, and frustrated. A study done by Ger and Belk (1996) on 12 countries, including Romania, shows that there are di(erences regarding how students see materialism in di(erent countries. For example, if the American students see materialism as a weakness and an excessive behavior, Romanian students see materialism as an empowerment expression of control and freedom. #is qualitative and quantitative study revealed that Romanians are the most materialistic, followed by students in the US, New Zeeland, Ukraine, Germany and Turkey.

#e studies done by Belk and Ger (1994) and Ger and Belk (1996) were conducted immediately after the fall of the communist regime, when Romanians discovered the free market and the possibility to buy everything they wanted (if they had money). #is paper aims to see if there is a relationship between materialism, consumption and life satisfaction after more than two decades since the end of the Ceau.escu’s regime. Based on the theory presented in the !rst part of this article, we develop a theoretical model that presents the direct and mediated (by overall life satisfaction) relationship between materialism and level of interest in going shopping (Figure 1). We hypothesize, also, that the overall satisfaction is positively determined by satisfaction

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regarding family life, friends, and income, and negatively determined by materialism.

Figure 1. Hypothesized model of the relationship between materialism, shopping, and life satisfaction

MethodSampleWe conducted a sociological survey based on a convenience sample of Romanian consumers (N = 390). #e majority of the respondents were women (57,8%), with higher education (58%), and employed (71,4%). #e respondents’ age was between 14 and 78 (mean= 29,5, S.D.=10.6) and the majority of them (70%) was younger than 30 (skewness = 1,62).

Measures#e materialistic values were measured with a six item-scale developed by Martha Richins (1987) translated and adapted into Romanian. Coe"cient alpha was .62 for all six items and 0.77 if the item “People place too much emphasis on material things” were deleted. Because this item was one of the two items that measure general materialism (the other four measure individual materialism) we counted a single mean score for the scale based on the other !ve items (see Appendix). To test convergent validity we asked the respondents what their income was (no matter the


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sources – salary, family, etc.) during the last month and what the monthly income would be in order to satisfy their needs. According to Richins and Dawnson (1992, p. 311), “people who desire a lot of possessions will need more money to acquire those possessions and thus are expected to report a higher desired level of income”. Our !ndings show that respondents high in materialism consider they needed signi!cantly more income compared to those lower in materialism (r=.26, p<.01). #us, we can consider that the materialist scale translated into Romanian has convergent validity.

#e overall life satisfaction, satisfaction regarding family life, friends, and income were measured on a Likert 5 point scale (from “1” – “not at all satis!ed” to “5” – “very satis!ed”). We measured the pleasure of shopping on a Likert 5 point scale (from “1” – “very little” to “5” – “very much”), as well.

Results#e positive signi!cant relationships between overall satisfaction and satisfaction regarding family, income and friends con!rm the theory developed by Joseph Sirgy et al. (1998) concerning bottom up vertical spillover (Table 1). Moreover, results show that materialistic people are less satis!ed with life in general and with their income, and have higher shopping satisfaction. In contradiction with other studies (Otero-López et al., 2010; Asiah et al., 2014), our !ndings indicate that people who like to spend their leisure time shopping have higher overall life satisfaction and higher satisfaction regarding family.

Table 1. Correlations between variables

* 1 2 3 4 5 61. Overall life satisfaction

1.000 .48** .45** .39** -.17** .15**

2. Satisfaction regarding family

.48** 1.000 .25** .28** -.04 .19**

3. Satisfaction regarding income

.45** .25** 1.000 .17** -.13** .06

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4. Satisfaction regarding friends

.39** .28** .17** 1.000 -.09 .08

5. Materialism -.17** -.04 -.13** -.09 1.000 .26**6. Shopping satisfaction

.15** .19** .06 .08 .26** 1.000

**. Correlation is signi!cant at the 0.01 level (2-tailed).To investigate the hypothesized model (Figure 1), we used the EQS program for structural equation modeling and the !t indices show that the model !ts the data (SRMR=.042, CFI=.0.978, RMSA=.058). Even if the Chi-Square value was signi!cant ( !(6, N=390)=13.73, p=0.3), because this statistic “nearly always rejects the model when large samples are used” (Hooper et al., 2008: 54), we can say that our model !ts the sample data.

Standardized solutions reveal that materialism has a small but a signi!cant negative impact on overall life satisfaction and, as expected, have a signi!cant positive impact on how much people like shopping (Figure 2). Satisfactions regarding family life, friends and income have positive signi!cant impact on overall life satisfaction. People with higher overall life satisfaction like more to go shopping.

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*. Standardized solution is signi!cant at the 0.05 level (2-tailed).Figure 2. Observed Path-Analytic Model for the relationship between

materialism, life satisfaction(s), and shopping pleasure


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DiscussionsOur data con!rm only partially the hypothetical model regarding the relationship between materialism, shopping and overall life satisfaction. #e positive relationship between the pleasure of going shopping and the overall life satisfaction in the Romanian sample do not !t other !ndings that show that the lower is the level of life satisfaction the higher is the pleasure of shopping experience (Otero-Lópezn et al., 2010; Otero-López & Villardefrancos, 2013; Teleci, 2013; Asiah et al., 2014). #erefore we have to answer to the following question: what is the nature of the relationship between life satisfaction and the pleasure of going shopping in our sample? Is there any causal relationship between these two variables? If yes, what is the direction of this causal relationship? #e statistical relationships among the variables may not re$ect causation. Nevertheless, prior research regarding materialism showed that Romanians see consumption as a good thing, as an empowerment expression of control and freedom (Belk & Ger, 1994; Ger & Belk, 1996). #us, one possible explanation for the positive relationship between life satisfaction and shopping stems from the fact that Romanians perceive purchasing commodities as a good thing. Consequently, people who like to go shopping are people with a high level of satisfaction regarding life. Shopping has not (only) a therapeutic role for life dissatisfaction, but it is a source of satisfaction obtained in leisure time.

Nevertheless, future research should be conducted, both qualitative and quantitative. A qualitative exploratory study would be necessary for a deeper and detailed understanding of how Romanians perceive materialism, shopping and di(erent sources of life satisfaction. Our study should be replicated with a survey that takes into consideration how mass media (television, advertising, social network websites, etc.) determines materialism within population.

Beyond these limitations, our !ndings bring into discussion two things: a methodological one and a theoretical one. First, we observe that the materialism scale developed by Richins (1987) has high reliability and convergent validity, fact that con!rms other studies (Mishra & Mishra, 2012) that argue that materialism is a universal construct. Second, the negative relationship between materialism and life satisfaction raises

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questions concerning the happiness in a consumption society. #e desire of possessions and the importance allocated to commodities (considered as source of happiness and prestige) diminish the level of overall life satisfaction. Materialism or what Marx called “commodity fetishism” (Marx, 1867/1960) can be a source of alienation. Eric Fromm (1983, p. 133) considers that, originally, the idea of consumption of more and better things meant to bring people a better and happier life. Consumption was considered a source for happiness, but afterward it became a goal per se.

Nevertheless materialism is not a negative thing per se. Belk (1985, p. 266) underlines that if the opposite of materialism is ascetism, the self-denial of material source of satisfaction can lead to masochism, self-hatred, anorexia nervosa or other psychopathologies. Richins and Dawson (1992) point out that the desire for owning goods may cause employees to work harder or longer enhancing their incomes and standard of living. Moreover, the two authors stress the possibility of “instrumental materialism”, when people want, for example, a bigger house not for them, but for their family to have a better life. #erefore it is important not only the desire of having more money but how to spent the money, as well. In this regard, Dunn et al. (2011, p. 115) bring arguments that “money is an opportunity for happiness, but it is an opportunity that people routinely squander because the things they think will make them happy often don’t”. #us, money is a source of life dissatisfaction because we don’t know how to spend it. It should be invested in experiences, to the bene!t of other people or to buy many small pleasures rather than fewer large ones. Likewise David G Myers (2000) and Leaf Van Boven (2005) underline the positive role of relationships and of investing resources in life experiences in bringing happiness. Concerning this Eric Fromm (1976) proposed to shift our lives from “having” to fully “being”. #erefore, only !nancial aspirations associated with the ultimate goal of possession of things, and not related with experiences and o(ering to others, lead to life dissatisfaction.

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Sirgy, J.M., Gurel-Atay, E., Webb, D., Cicic, M., Husic, M., Ekici, A., Herrmann, A., Hegazy, I., Lee, D.-J., and Johar, J.S. (2012). Linking Advertising, Materialism, and Life Satisfaction. Social Indicators Research, 107(1), 79-101.

Sirgy, J.M., Gurel-Atay, E., Webb, D., Cicic, M., Husic, M., Ekici, A., Herrmann, A., Hegazy, I., Lee, D.-J., and Johar, J.S. (2013). Is Materialism All #at Bad? E(ects on Satisfaction with Material Life, Life Satisfaction, and Economic Motivation. Social Indicators Research, 110(1), 349-366.

Veblen, T. (2009). Teoria clasei de lux. Bucharest: Publica.

Appendix

Martha Richins (1987) materialistic scale1. It is important to me to have really nice things.2. I would like to be rich enough to buy everything I want.3. I’d be happier if I could a(ord to buy more things. 4. It sometimes bothers me quite a bit that I can’t a(ord to buy all the things I

want. 5. People place too much emphasis on material things.3

6. It’s really true that money can buy happiness.

3. #is reverse item was removed to increase the reliability of the scale.

Sport actors’ walk of fame: the Trojan horse of celebrity

Diana-Luiza DUMITRIU1

Abstract. Sport actors rank among the most prominent and in$uential public !gures, as sport has become a resourceful !eld for the entertainment industry and object of various identitary social practices. Media’s centrality within the sport world continues to play a key-role in providing us with spectacular rises and falls on the celebrity stage, keeping sport actors under a close public scrutiny. "e main aim of this paper is to focus on the challenges that the celebrity status brings for both sport actors, as well as for the brands that consider associating themselves with a sport star. What can sport actors and the brands they endorse win or lose on the celebrity battle!eld? In discussing the risks embedded in the celebrity status, I choose to address !ve interrelated dimensions of sport actors” walk of fame: the marketing instrumentalization of sport actors’ private life, the time constrains of the professional sport career, the winning-losing dialectics of competitions, the sport actors’ complex repertoire of identities and the a)nal branding network build around sport actors. All of these aspects attest to the media-dependency of sport actors, but, more important to the face threatening nature of celebrity and the importance of impression management for consolidating sport actors’ brand value.

Keywords: sport commodi!cation; sport celebrity; impression management; a)nal branding; face management strategy; media exposure; brand value.

Introduction: the media grounds of sport commodi&cation

Living in a time when public exposure, entertainment and spectacular seem to have conquered many social !elds, attesting to the structuring e#ect that media exert, especially, upon the cultural production !elds (Bourdieu, 1996, p. 64). #us, there is no wonder that the interest in the society of spectacle (Debord, [1967]1994) and the literature on celebrity

1. Post-doctoral researcher in Communication Sciences, National University of Political Studies and Public Administration, Bucharest, Romania, [email protected].

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is constantly growing (e.g. van Krieken, 2012; Leslie, 2011; Marshall, [1997]2004; Rein et al., 1997; Rojek, 2001).

In this context, sport has been one of the most resourceful !elds for the celebrity market, as it is also one of those forms of culture that has increasingly been subject to high “mediazation” and “mediatization” (#ompson, 1990). Media facilitated sport’s entrance under the commodi!cation radar and played a signi!cant part in the emergence and diversi!cation of sport-related products and markets. #e symbolic power of sport and its instrumental value for other social !elds, such as media, is related to more than the general popularity of sport. It covers “the combination of success and product image” (Weis, 1986, p.242), which makes it a resourceful input for business purposes in general and for the spectacular socio-economic dynamics of celebrity in particular (Andrews & Jackson, 2001; Jackson & Andrews, 2005; Ogden & Rosen, 2010; Smart, 2005).

Similar to media, sport is another “victim” of the primacy of audience, which seems to have become the main performance indicator. Neither sport, nor media can exist without the public, as every outcome of their action is meant to gain the public’s attention. Hence, through this audience pressure, “the market logic ends up dominating the !eld of cultural production” (Bourdieu, 1996, p. 29) and manages to rede!ne it in terms of both content and design.

#e instrumental role that sport and media play one for the other has consolidated their “marriage of convenience” (Lever & Wheeler, 1993, p. 130), converting it into a win-win relationship. While the popularity of sport competitions works as a resourceful input for media, providing large and heterogeneous audiences, media assure the most e"cient means for sport events to reach up to their distant publics and “to bene!t from an inordinate amount of free publicity” (Smith, 1976, p. 5).

Behind the obvious success of the sport-media relationship, the long “honeymoon had begun for the ménage á trois among owners, broadcasters and advertisers” (Lever & Wheeler, 1993, p. 130). Sport actors and sport events work as commodities and also as commercial bait for selling other

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products and services, as well as for providing consistent (media) audiences’ $ows. Every actor from this circle of promotion plays multiple roles, generating a complex set of direct and indirect !nancial interdependency chains. From the big banners and billboards that wrap up the !eld, to the logos on the sport actors’ out!t and the time-outs ads on the stadium screens, sport events act as a framework for a public collage of competition, advertising and entertainment elements. Fans are no longer the romantic supporters, but rather the pragmatic consumers who become more and more aware of their key-role in the wider circle of promotion that the sport actors are engaged in.

Increasing both their number and their power, these “interconnections between sport, the media and advertising have helped to create the impression that the pivotal social and personal experience of the modern age is to be a consumer”, even when addressing cultural forms such as sport events (Craig & Beedie, 2008, p. 130). #is is why sport events need to go beyond the competitive frame and to enrich their functional and emotional bene!ts by becoming a hybrid form of performance.

#e commercial common grounds of both sport and media increased the interdependency between the two social !elds and lead to a hybridization processes between the two, which explains why “the new cultural visibility of sport, in turn, stimulated a rapid growth in sport-branded merchandising” (Whannel, 2009, p. 206). Moreover, the success of this sport and media joint–venture (Dumitriu, 2014) inside the commodi!cation framework has generated not only new products, but also new commercial !elds per se, providing us with both new spectatorship and customer experiences.

In this context, the paper will focus on the most glamorous dimension of sport marketization process that is the sport actors’ performances on the celebrity market. While most studies have laid stress on the celebrity’s bene!ts and the central role of media in creating highly marketable sport products, I want to discuss some of the most important challenges and risks that come along with this celebrity status of sport actors. What do sport actors win or lose throughout their transition from public !gures to celebrities? What do they have to cope with while enjoying their walk

Diana-Luiza DUMITRIU

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of fame? What do marketers should be prepared for when deciding to associate a sport celebrity with their brand?

Given the media’s centrality inside the social !eld of sport, as well as their constitutive role in crowning public !gures with the celebrity status, I will rather insist on those walk of fame aspects for which media’s coverage and framing process play a key-role. #e problematization of sport actors’ performances on the celebrity market will thus bring to the fore aspects related to their brand value, as well as to their engagement in preparing and mobilizing certain face management strategies. Aside from discussing how the celebrity status a(ects sport actors’ life and public image, I will also address the challenges that their celebrity status rise for marketers in terms of brand associations with certain sport stars.

Sport actors on the celebrity market #e law of public visibility rules at every level of sport dynamics, but it reaches its climax when celebrity and spectacular aspects take the lead. Due to the symbolic nature of sport competition, that lies beyond the tension and the meritocratic aspects of the performance, sport works as a “natural source of prestige” (Allison & Monnington, 2005, p. 9) and a resourceful !eld for new born stars and impressive walk of fame stories. #ough, as natural as it seems, placing sport inside the celebrity framework requires some problematization over the !ne line between sport performances per se and fame-related social practices and representations. Moreover, it brings out signi!cant aspects regarding the impression management and face management strategies (Go(man 1967, 1971; Brown & Levinson, 1987).

Joining their forces in order to cope with the dominant culture of the spectacular, sport and media are constantly involved in !nding or creating sport stars. However, winning competitions or breaking records is no longer enough if these achievements do not become the object of further media interest and coverage. To some extent we can even say that media bring the ultimate social validation of sport success, by converting sport performance into celebrity capital. Moreover, we can speak of some sort of a tacit media initiation ritual that marks the transition of sport actors from “anonymity” to “celebrity”, from “sport actor” to “sport star”. If sport

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actors manage to bear up well during this spotlight over$ow, as celebrity ceremonial practice, then they prove themselves worthy of such public exposure and praise that come along with the celebrity status.

Achievements on the !eld are a good start for the exiting walk of fame, but they are never enough for holding the front page. Celebrity is not just about sport achievements, but rather “it is constituted discursively, by the way in which the individual is represented” (Turner et al., 2000, p. 11) by the media. #is is why it can be said that sport actor’s achievements in competitions provide only the input for what media turn into genuine celebrity o(spring.

Sport personalities such as Michael Jordan, Messi, Rafael Nadal, Usain Bolt, Michael Phelps or Nadia Com%neci have become a brand in their own right, providing us with a whole social imagery revolving around their global superstar status. #e global nature of sport “introduces and promotes new heroes; individuals whose triumphs are appreciated and assessed on a global scale” (Gammon, 2014, p.247). However, despite their outstanding sport achievements, the media are responsible for activating those “chains of attraction” that assure their actual rise to fame, acting as “cultural intermediaries” (Rojek, 2001, p.10). #is golden aura of fame is accompanied by a high level of social expectations, as well as a moral responsibility to behave both as role model and hero, which, in turn, give rise to more face threatening acts that come together with such high public exposure.

On the fame battle!eld, no public battle can be won without having media on your side, as the “celebrity as role model is both made and undone by press and television coverage” (Smart, 2005, p. 8). As attractive as it is for sport actors, the (super)star status comes along with a role-play dilemma: how to !nd the perfect balance between the glamorous and restless celebrity lifestyle and the restrains and moderation required for sport performance?

Nowadays, the public appearances of sport actors reach far beyond the actual sports events and competitions’ settings, covering a wide range of commercial and entertainment contexts that are more or less sports-related. Sport personalities that are “blessed” with personal charisma and


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enjoy media indulgence are destined for fame as their rise to the celebrity status is actually the outcome of sport’s and media’s “complicit, mutually dependent commercial relationship” (Nicholson, 2007, p. 208).

#e fascinating power of fame transforms almost every sport actor into a potential advertising endorsement for consumer products. To some extent you can even rewrite the history of sport legendary performance by using the Nike or Adidas commercials. However, from sport related products and brands, sport actors have gradually entered new markets and, due to their large addressability and attractiveness in terms of “followers”, they are the new brand ambassadors for banking services, shampoos, cars, deodorants, wines, vitamins, cereals, margarine, watches and the list can go on from mass products and services to luxury ones, from local to global brands.

All in all, media managed to push sport actors on the celebrity market, transforming them into some kind of kaleidoscopic public !gures that anchor their fame into sport achievements, but go far beyond it in order to keep themselves in the foreground. #e kaleidoscopic pro!le of sport superstars refers to the changing public images that a sport actor is related to on the celebrity stage. From successful athlete, to smart businessman, from the image on the red carpet, to the one in the shampoo add, from the press conference setting to paparazzi shots, these multiple re$ections of the same public !gure stand out as a proof of sport actors’ celebrity status and require a good impression management. However, as I will discuss in the next sections, the celebrity status comes with a high level of public exposure and, therefore, with a high vulnerability in terms of face management, with signi!cant implication for both sport actors’ reputation as well as for their brand value.

Impression management on the marketing &eld: the ups and downs of sport celebrity Changing the coordinates of the sport acts by synchronizing them with the commercial dynamics, media managed to lead sport into the commodi!cation temptation and once it entered this path there was no turning back to the platonic stage of sport competitions. #is recon!guration of sport experiences did not altered only the nature of sport acts and the

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spectatorship experience, but also the mere “condition” of the sport actor himself. In order to gain or maintain their success inside the sport world, sport actors had to adapt and internalize the ruling principles and values that de!ne the marketization of this social !eld, using them as guiding lines in their overall impression management (Go(man, [1959]/2003).

A !rst aspect that sport actors had to cope with during this recon!guration process was that, along with sport events becoming a product on the entertainment market, they themselves have been subject to the commodi!cation process. Sport success is no longer just a matter of results and impressive track-records; it also covers a signi!cant !nancial component and an active role on the commercial battle!eld. #ere is no wonder that on a recent Forbes World’s Highest-Paid Athletes Top, the top 3 athletes according to their Endorsements’ deals reach to more than $50 millions (Tiger Woods, golf player - $55 millions, LeBron James, basketball player -$53 millions and Roger Federer, tennis player - $52 millions).#e need for becoming a highly marketable product is part of sport actors’ success and it re$ects not only a personal agenda, but also institutional constrains, as sport actors’ have to prove their pro!tability for their clubs and sponsors and to provide a consistent brand image.

Athletic talent is, without any doubt, the main condition for sport success, but, today, it is no longer enough for guaranteeing the laurels of glory. Faced with this !nancial dependency of success, sport actors had to learn how to sell themselves on the sport market, how to attract powerful investors and how to convince major sport clubs that they are or have the potential to become a pro!table investment. Take for example the market of sport transfers2: whether we speak of national or global markets, athletes act as any other commodity that is been subject to an economic rationality and a dynamic negotiation process. Owners of these “goods” are interested in maximizing their pro!t by selling sport actors on the open sport market, while buyers are looking for a perfect balance between their initial investment and the expected return of investment.

2. According to Forbes, the most expensive transfer in soccer’s history belongs to Cristianio Ronaldo, when Real Madrid bought him from Manchester United in June 2009 for £80 million or $141 million in today’s dollars - see http://www.forbes.com/pictures/emdm45eedgk/1-cristiano-ronaldo/.


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#e pro!tability barometer of sport success gave rise to some referential battles of titans in terms of !nancial and fame capital, like the El Clasico, the famous confrontation between Real Madrid’s “galactics” and Barcelona’s “aliens” or the Super Ball, which was the most valuable sport event brand worldwide in 20133 (brand value of 464 million U.S. dollars, calculated by Forbes). In every sport discipline, there is this mirage of creating a team of sport stars not just for increasing the chances of winning major sport competitions, but also for gaining a signi!cant competitive advantage in terms of brand value. #is is because sport celebrities bring fans and, along with them, media’s attention, sponsorship support and marketing opportunities.

However, in the next part of this article I will argue that sport celebrity and sport actors’ endorsement is not necessary or always a commercial Eldorado, as the sport-media-marketing equation is far more complex and can bring to the fore signi!cant constrains and face threatening situations. Rather than providing an extensive analysis of all possible problems that sport celebrities might have to cope with, I will focus on !ve dimensions that address both the brand value of sport actors, as well as the consequences of their high level of media exposure: the marketing instrumentalization of their private life, the time constraints of the sport celebrity status, the winning-losing dialectics, the complex repertoire of identities of sport actors and the a)nal branding network build around sport celebrities.

Bringing private lives into the spotlight: sport celebrities’ performances in and outside the !eldIncreasing sport acts accessibility and spectacularity meant also rede!ning the line between the public and private life of sport actors. #eir celebrity status brought along media’s chase for unrevealing those aspects that go beyond the sport performance itself. People became interested not only in sport actors’ achievements on the !eld, but also in their performances outside it. #us, as any other public !gure, the sport actor found himself object to the overall tabloidization approach embraced by media.

Little by little news about sport achievements and game evolution left room for news about sport actors’ lovers, parties, disputes, their food and music

3. http://www.statista.com/statistics/253353/brand-value-of-sport-events-worldwide/.

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preferences or the “dirty” details of their divorce. Today athletes’ wives, ex-girlfriends, drivers or hair dressers become public !gure themselves and hope for gaining their own celebrity free pass under the spotlights.

Media found the sport actors’ private life to be a resourceful input for adding more drama and fussiness to the sport performance on the !eld. Similar to other social areas, media played a central role in the sport tabloidization process, mainly by modifying the boundaries of perception (Go(man, [1959]/2003, p. 131) and the public visibility regions. However, the line between these regions (front stage, back stage, zone of transition, residual region) is so !ne, that, in many cases, under the pressure of world’s hypervisibility and transparency (Baudrillard, [1987]/1997), even the backstage and transition zone become subject to sport actor’s performances as an act of staging the audience’s inopportune intrusion into a space that was supposed to be close for its scrutiny.

Bringing training and private aspects under the spotlight, media manipulate the public-private dichotomy and create that exposure e#ect that brings salient aspects of sport celebrities’ life into the open. In trying to bring the backstage to the forefront and to increase the proximity towards sport actors, media had to permute what was meant to be private into public issue, generating a hybridization of the performance regions. #is, in turn, provided a good tool for amplifying the sensationalism and spectacularity of sport performances as media events, but it also generated a high pressure in terms of face management for the sport starts.

In terms of media coverage and attractiveness, news regarding sport actors’ private life end up competing with those regarding their public performances on the sport !eld. Moreover, private issues become the input for sport pseudo-events, which are “made for and by media” (Sartori, [1997] 2005, p.65). Product of this Big Brother chasing of sport actors outside the sport !eld, sport pseudo-events are built on converting private aspects into objects for public debate.

Athletes getting drunk, coaches’ refusing paternity tests or going for a shopping session draw as much public attention as a sport performance itself. It is not the sport actor who gets to decide where the line between his


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private and his public life is, but rather it is up to media to decide to what extent this private-public hybridization can go. Media go for disclosure in digging up into sport actors’ private life, converting private aspects into public ones. To what extent is this public-private mixture bene!cial for the sport actors? What are the marketing implications of this high media exposure of the sport celebrities’ private lives?

On the one had celebrity is de!ned by high public visibility level, which media exposure of sport actors’ private life undoubtedly provides. When sport performance can no longer buy you media converge, your private life can do that instead, keeping you under the spotlight. Moreover, many would argue that these private-life aspects humanize sport celebrities and bring them closer to their publics, which !nd it easier to identify with them. At !rst glance, it seems that everyone is winning: media, fans, sport stars and companies they “sell” for. Where’s the harm in that?

On the other hand converting private aspects of the sport celebrities’ life into public ones is rather a Pandora box than a golden goose, become this process is out of sport actors’ control. #is means that high media exposure involve high face management vulnerability. If inconsistency between the image that sport stars have built and projected on the public stage and their actual performances in private context is high, than this can turn into a harmful boomerang e#ect of celebrity. Improper behavior or language, personal preference in clothing, music, food or travel destinations, hobbies, friends or family history (divorce, !ghts, problems with the law et.) can become signi!cantly face threatening for sport celebrities, as people usually project in them socially desirable values and role-models.

When and if these expectations are not met or, more important, if there is a powerful cognitive dissonance between the public image that sport actors’ built for themselves and the one re$ected by the private aspects revealed by the media, people feel not only disappointed, but also fooled. #is is the turning point when admiration is converted into disgrace, when loyal or potential followers are lost for good. It is also the point where reputational crisis may emerge (e.g. Tiger Woods in!delity story, Adrian Mutu’ s drug problem).

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#ere is also the problem of professional versus personal media coverage balance. While, at !rst, there is a consistent demand for more information about a rising sport celebrity from the public’s part, the high level of media exposure usually leads to a suprasaturation point. #is comes with a resistance position from the audiences’ part, as they feel like there is a signi!cant discrepancy between news about the sport celebrities’ performances in and outside the sport !eld. People start to question the professional value of sport actors’ and even criticize them for engaging more in the showbiz-performances than in their professional sport ones. #eir “omnipresence” on the screen, at parties, events, in ads or public scandals is perceived as a proof of neglecting their sport career and, to some extent, as a way of falling into the fame-sin, which are both face threatening.

Moreover, the high media exposure of private aspects, may bring to the fore the glamorous nature of their life style and the signi!cant discrepancy between their social status before and after their celebrity rise, as well as between them and most of their fans. From genuine envy to moral problematization of sport celebrities’ extravagances and opulence, revealing too much about the private life of sport celebrities might bring more harm than bene!ts for their public image.

In the end of this section I would argue that this e(ect of the media exposure upon sport celebrities has lately been ampli!ed by the sport actors’ own presence in social media, which are mainly used as Krieger observes for self-disclosure (cited in Frederick et al., 2012). #ey de!nitely allowed a higher interaction between athletes and their fans (Sanderson, 2010), but have also provided a new way to convert private aspects into public ones. Social media are a more controllable way of revealing private aspects, although they have also become a great source for traditional media to get access to sport celebrities’ private life and contributed to the overall increase of sport tabloidization.

"e time constraints of sport celebrity Unlike other !elds of celebrity, the time pressure that sport actors have to cope with is signi!cantly higher. #ere are two time-components of sport celebrity that I want to address in this section, both of them important in


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terms of managing the public image of the sport actors and their brand value. On the one hand there are the constrains of a rather short career as top level performers, due to less controllable reasons such as aging or high injury risks. On the other hand there is the continuous change of the front-stage actors on the celebrity market and the need to freshen-up the sport stars that people (thus customers) related to.

Most studies regarding the time-frame of sport careers have been focused on the psychological and social implication of the athletic career termination or transition (Lavallee et al., 2000; Schlossberg, 1981, Stambulova, 1994; Kerr & Dacyshyn, 2000; Taylor & Ogilvie, 1994, 2001), focusing on the individual experiences of the sport actors and the way they handle the traumatic character of their “retirement” from the sport elite world. Moreover, these studies provide a rather problem-oriented perspective, with models and suggestions aimed to facilitate sport actors’ process of copping with the adjustment di"culties associated with this process. What was constantly neglected by these studies and what I want to bring into discussion are the “costs” of failing to handle the retirement from the elite sport career in terms of celebrity capital.

#e emotional and !nancial impact that the sport actors’ career termination is ampli!ed by the fact that popularity and social status are important aspects for many athletes’ self-concept (McPherson, 1984). Moreover, we are looking at an overidenti!cation (Go(man,1963) process or what Turner (1978) referred to as “role-person merger”, laying stress on the high identi!cation and attachment to a social role that make sport actors unwilling to give up to this role despite the availability of more attractive role alternatives that they can turn to.

Used to the $ash-lights, the public attention and veneration, the media interest and exposure, as well as the challenging competition calendar, most athletes have a rather hedonistic approach of their celebrity experience with no back-up plan or strategic way of converting this symbolic social death into a form of “social rebirth” (Allison & Meyer, 1988). However, the end of their professional sport career can be perceived as a “role-exit process” (Ebaugh, 1988) and managed appropriately. #e celebrity capital gained during their careers as top level athletes can be more than just a source for

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frustration. It can work as a solid anchor for a new career path, having a great (re)generative potential if it is wisely and strategic used.

Along or aside from the organic relation between sport performance and fame, which re$ects rather a synchronism between the two (sport achievements bring and feed the celebrity $ame), there is also a strategic approach of fame as a gateway. Aware of the short period of glory on the !eld, as the life cycle of great performance is very limited, many sport actors build on their “golden age” achievements a fame capital that, in time, could become an input for fame reproduction. In other words, while throughout their careers as active athletes/coaches sport achievements can generate fame, after their retirement from sport competitions, their superstar status should be strong enough to keep them on the front page.

Sport actors’ training and experience on the celebrity stage prepare them for a smooth transition to other fame-related areas like !lm, television, modelling or fashion. Take for example David Beckham: from perfume, to underwear, from acting to humanitarian campaigns or modelling, he built for himself alternatives fame gateways to make up for his football career input of fame. And if there is life after (sport) retirement, for certain there can also be fame after it.

Pele, Mike Tyson, Nadia Com%neci, Anna Kournikova, Hagi, Andre Agassi or Michael Jordan are a few other examples which con!rm that the end of the sport “mastery performances’ “ cycle as elite athletes doesn’t need to ring down the curtain over the celebrity status. On the contrary, it is an opportunity to identify, explore and invest strategically in new ways to trade on it, adapt and accept new forms of celebrity re-contextualization.

As I have already mentioned at the beginning of this section, the time constrains of sport celebrity are also related to the constant need for change in terms of leading and secondary characters on the celebrity stage. For this reason, media are engaged in a dual process of identifying/creating and dismissing old sport stars, so that they provide the public with (fresh) new celebrity o(spring. Once you have reached the celebrity climax in terms of media exposure, public interest and mastery performances on the !eld, it is very hard to maintain this level for a long term, so you inevitably face


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a receding tide. #e celebrity market is very dynamic and goes through rapid updating processes, generating concentric circles of celebrity statuses based on the intensity of media exposure and spectatorship engagement. #e hard core circle of celebrity is always time-dependent, favoring the snapshot hierarchy of professional value and image capital, thus present-oriented.

Turning to sport actors who are on the rise and enjoy their celebrity bloom, they provide marketers better chances of reaching to a wide spectrum of customers, as their notoriety is a great starting point. Nevertheless, the marketing campaigns involving sport actors and sport-related products or services show that choosing from the hard core circle of celebrity is the (predictable) dominant approach that companies turn to, as this involves a lower risk level that they are expose to .

"e winning-losing dialectics Although it is easier (and mostly) related to glory and praise, the sport celebrity market is not only about positive turnouts. To be put under public scrutiny by media makes sport actors as in for admiration and support, as they are for disregard and contempt. Winning and losing, through their high emotional engagement, are both a resourceful media input in terms of spectacularity and dramatisation potential.

Whether it is about glorious moments or shameful ones, fame does its part in bringing the sport celebrities on the front page and feeding them with public visibility. Fame has a consistent face threatening component embedded in it and, thus, is strongly dependent on sport actors’ impression management e"cacy.

#e celebrity or the hero status of sport actors is not always related to winning situations, as sometimes might be about losing with grace or failing courageously (Pivato, 1996; Rauch, 1996). #e runner-ups, the great performances of outsiders or the close defeat in a David versus Goliath confrontation, can bring the loser a higher image capital than to the winner. #e manner and the context of a sport performance can be more important in building up sporting heroes (Gammon, 2014; Hughson, 2009) than the actual winner or loser status.

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Dramatic defeats themselves can work as great marketing stories, bringing to the fore values such as courage, perseverance or total engagement and, thus, playing the empathy card. #e emotional intensity of losing and the life-lesson it can provide make the loser-corner as resourceful for sport celebrity as the winner’s one. As Whannel (2004, p. 482) pointed out, where else would consumers (referring merely to football fans) maintain high levels of consumption even if the quality (success) of the sport performance declines? Where do customers (fans) continue to support and even become much more present in supporting their favorites if not in sport? For sport customers (fans) losing situations provide the perfect context to test and con!rm their true commitment, which marketers perceive as a high level of customer loyalty.

Despite “the fetishization of success and winners on television” (Whannel, 1985, p. 61), the dominant competitive experience is that of the losers, not the winners. #ere are always much more losers in a competition than winners. Moreover, sooner or later, even great champions !nd themselves coping with failure. Such upsets become a subject of public debate, and media are always there “to encompass the athlete’s betrayal of the public’s trust and the fans’ emotional investments” (Ogden & Rosen, 2010, p. 3). Putting pressure on sport celebrities, media force them to be always prepared to turn to remedial/ redressive face management strategies (Go(man 1967, 1971; Brown & Levinson, 1987) in order to save their public face and the brand value attached to it .

#erefore, sport celebrity is not all about winning, but rather about the manner of winning and losing. In this context, what really makes the di(erence on the short-run is the face management strategies that the sport actors engage in coping with the success or defeat. Nevertheless, we cannot deny the fact that, on the long-run a series of well managed losing situations values less than a series of winnings in terms of brand value, as sport remains the “ultimate meritocracy” global referent (Bell, 2009, p. 54).


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"e multiple identi!cation pitfall of sport actorsDue to the symbolic value attached to sports, “questions of identity and identi!cation are of critical importance both for the routine functioning of sports and for some of the problems recurrently generated in connection with them” (Dunning, 1999, p. 3), such as the marketing ones. #e constitutive nature of identity and identi!cation for the sport dynamics works as a solid premise for its successful adaptation to the consumer culture, in which consumption is understood as “an activity in and through which identity is constructed” (Smart, 2003, p. 74).

Celebrity is not only about the sport actor himself, but also his complex repertoire of identities and the wide range of communities he belongs and connects. From national, to regional or organizational (sport club) identi!cation, the sport celebrities work as community coagulator agent, thus a resourceful “relationship marketing catalyst”(Magnusen, Kim & Kim, 2012). All these overlapping communities that the sport celebrities keep together mean not only fanatic supporters or rather silent ones, but also loyal, occasional or potential customers. #erefore, the sport communities build around these sport stars can act as customer-communities and be targeted as such by companies. But how stable and homogenous are these sport celebrity-based communities?

#e most politicized dimension of sport community, and yet, the most stable one is built around sport actors’ national identity. International competitions give “nations a chance to show their power through sports and give people a chance to feel proud of their nation” (Li et al., 2010, p. 128). And who can best represent us if not our national sport stars? Sport actors are invested with both the right, as well as the duty to play for an entire nation, their performances during major international competition acting as a “public diplomacy tool” (Manzenreiter, 2010, p. 29). #e symbolic capital of sport performances is related to a signi!cant a(ective power, as the competition between nations on the sport battle!eld is able “to arouse strong emotions in a direct manner and, in a less direct way, to create a sense of belonging and national pride” (Hilvoorde, Elling & Stokvis, 2010, p. 92). It is thus not surprising that most sport-related communication campaigns focus on emotional arguments, but most of all on pride and the feeling of belonging to a (national) community.

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Sport actors and their achievements act as important resources for identitary stories and national branding anchors that are globally accepted. #e spontaneous association between countries and sport celebrities (ex. Romania - Hagi, N%stase, Nadia, Brazil - Pele/ Neymar/ Ronaldo, Russia - Plushenko, Sharapova, Argentina - Maradona, Messi, the UK - Beckham, Murray, Holmes etc.) attest to the resourceful (para)diplomatic and marketing value that they have for their country promotion. On the global scale, many people hear about and discover a county through its sport stars, which makes sport celebrity a signi!cant component in branding a nation, with or without a clear strategy of its instumentalization.

When we speak about the organizational level of sport communities or the sport-club communities, which have a rather global dimension, identi!cation dilemmas might arise. #e “citizenship of convenience” (Campbell, 2011) and the increasing phenomenon of sport migration de!ne a professional sport !eld dominated by transnational sport actors. How many of Hypo Handball Club’s players are Austrian? How many of Manchester City Football Club’s players are English? Performance and !nancial reasons have become more important than national or spatial criteria, as both clubs and individual sport actors are interested in becoming more and more competitive and achieving greater results. National community or sport community identi!cation becomes salient when Real Madrid meets Barcelona or when Chicago Bulls meets L.A. Lakers team, as people de!ne themselves !rstly by referring to their club community, which is transnational and, moreover, primary about shared emotions and common competitive interests.

#is is why we are facing a rather circumstantial sport-community identi!cation for both sport celebrities and fans. #is network model of sport community islands (Dumitriu, 2012) means that, depending on the context, sport stars and supporters activate a certain community-identi!cation mechanisms, while making the other identities silent. #us, the same volleyball player for example could relate to its club community on the National Championship stage and to its national community during a World Championship, competing against its club teammates that play for other countries. In terms of marketing implication, these alternative sport community islands mean distinct markets and public targets, working as segmentation platforms for companies’ campaigns. Moreover, they


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provide a widening of the potential customers, as using Cristiano Ronaldo as brand endorsement means addressing both Portuguese community, as well as Real Madrid community or football fans in general as professional community. It is hence no surprise that he is the second World’s Highest-Paid*Athletes in 2014, according to Forbes4, having 11 endorsement major partners like Emirates, Nike, Samsung Electronics and Toyota Motor that generate $28 million a year in income and one of the biggest social media network-community followings on the planet with 83 million Facebook fans and 26 million Twitter followers.

However, the real problems in terms of face management and marketing consequences begin when sport celebrities switch team, especially well-known rival like Real Madrid and Barcelona (football) or Györi Audi ETO KC and Larvik (handball). Both clubs and sport actors as brands are losing followers, while marketers have to !nd out the proper strategy to bene!t from these fan-community recon!gurations. Moreover, sport actors have to cope with contradictory situations generated by the globalizing stage of sport; for example FC Barcelona’s hero (Messi) is not a Spanish football player although FC Barcelona is one of the most powerful Spanish brands, becoming, in march 2014, the !rst sport team to have 50 million Facebook*fans and being valued at $2.6 billion, almost double what the team was worth in 20125. We can thus revaluate the marketing and PR costs of sport celebrities` performances - both on the sport !eld and outside it - by relating to the impact that they might have upon the recon!guration of the sport community islands built around a sport star.

A#nal branding: the marketing crossroads of sport celebrity #e previous sections of this paper have already discussed the marketing value of both sport actors and events, as well as of sport-related products and services. #e high level o popularity and the wide addressability of sport acts are the main reasons that explain the rapid ascension of sport, “as it carries very strong images, has a mass international audience, and appeals

4. http://www.forbes.com/sites/kurtbadenhausen/2014/06/11/$oyd-mayweather-heads-2014-list-of-the-worlds-highest-paid-athletes/ , last accessed on 27.06.20145. http://www.forbes.com/sites/mikeozanian/2014/01/03/barcelona-becomes-!rst-sports-team-to-have-50-million-facebook-fans/, last accesed on 20.06.2014

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to all classes” (Gwinner & Swanson, 2003, p. 275), providing higher levels of brand or corporate exposure (Kropp, Lavack, Holden, & Dalakas, 1999, p. 49). Moreover, it seems that the consumers’ general positive attitude towards sport has a moderation e(ect on their overall attitudes toward the advertising content (Pyun & James, 2011). Audiences’ sport-related “excitement” and “emotional attachment” (Copeland, Frisby, & McCarville, 1996, p. 33) is somehow transposed in their attitude towards advertising, setting important premises for a successful persuasive message delivery.

Along with actors, singers or (catwalk) models, sports celebrities are the spoilt o#spring of advertising. #e way from promoting products, to sport actors themselves becoming the product is quite short when it comes to a celebrity-saturated world where everyone seems to be involved in either producing or consuming celebrities (Rein et al., 1997).

Hence, sport actors entered the short list of the most wanted celebrity category and the mere fact that they have become brands in their own right converted them into what can be called a brand-bond, connecting a wide and, sometimes very heterogeneous, set of brands. From clothes and face-cream, to cars, banking services or hotels brands, sport actors are engaged in promoting almost any kind of product, service or social cause.

#is branding network build around a sport actor, along with the high level of media exposure he has to cope with due to his/her celebrity status makes sport actors very vulnerable in terms of face management. #e vulnerability brought by this multiple-roles that spot actors have to perform on both the public and the private scene has less prominent implication for the brands he endorses. Each of these brands requires a speci!c role-play from the sport actor’s part, in agreement with the brand values and the ad-hoc marketing approach, as well as with the sport actor’s personal branding concept.

However, as wider and diversi!ed is the brand-association portfolio of a sport actor, higher is the face threatening pressure he has to cope with and higher the risks that each brand associated with him/her has to run. #is potential domino mechanism is strongly dependent on the


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messages and brand values’ consistency between the sport actor and the brands he endorses, as well as between all the brands that he promotes. In most cases, a wider portfolio is more likely to involve a high level of product diversi!cation, increasing the challenges for both sport actors and marketers.

If sport actors (and their PR sta() have to answer to the question: “Is this product/service/ company/cause compatible with my brand image?”, the marketers should also keep in mind if the other products the sport actor promotes are a proper branding peer group to be associated with by the public. Does my bank or car brand bene!t or stand to lose from this mediated association with the soft drink brand X, perfume brand Y or the shampoo brand Z the sport actor endorses? How exclusive or permissive should these commercial relationships be so that each brand would bene!t the most from it? On the one hand, more brands promoted by a sport actor means a higher level of exposure and notoriety for him and a wider addressability, but, on the other hand, it is harder to provide and maintain a brand-value consistency between all the brands connected by this public !gure.

In this context, we should keep in mind that the use of advertising through sport rises questions regarding customers’ identi!cation and di#erentiation (Lyberger & McCarthy, 2001, p. 431). Brought together by the same sport actor, brands should take a more cautious approach of the implications of this a)nal branding association mechanism, anticipate and prevent potential crisis generated by brand value inconstancy. What might happen when the same sport celebrity who enjoys fast-food products on TV ads and billboards is also engaged in a social campaign promoting a healthier food-style? How can a luxury perfume brand work with been associated with the same sport actor involved in a mainstream shampoo brand ad campaign? To what extent can these work together without generating strong cognitive dissonance that customer will react to and that might a(ect the credibility of a brand?

Another dimension that can lead to such situations can be related to the potential discrepancy between the role-play on the commercial stage and the real life consumer behavior of the sport actor himself. How e(ective is

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an ad if it is well know that the sport actor uses or even is a loyal customer of other competitor brand? As much as they like a sport celebrity, when seeing him driving other car brand then the one he so convincingly endorses on TV or de!nitely using other beauty products then the one he is so found of in the last adds, customers may call this inconsistency on the sport actors and reprobate their commercial (pro-pro!t) versatility.

Once they have entered the public eye, facing the Big Brother e#ect of celebrity, sport actors engage in a role-playing act that is meant to impress, while maintaining the coherence of their character. From appearance, to joy manifestations on the !eld, from TV interviews to fan’s meetings and joining social causes, the sport actors have !nd a way to make his public scripts (commercial or not) !t in their overall personal branding concept and be consistent with the role expectations attached to each one of them. Nevertheless, improving their role performance requires constant time investment and attention in choosing the proper face management strategies, which reveal the mere dramaturgical dimension of sport’s dynamics.

I will thus argue that the recon!guration of the sport experiences generated by the commodi!cation of these social !led and the high level of public exposure of sport acts gave rise to a hybrid pro!le of the sport actor himself in terms of role performance. #is, in turn, requires a consistent concern for impression management from both the sport actors’ part, as well as from the marketers one, so that the brand associations with a sport celebrity be a win-win situation.

Conclusion#e centrality of media inside the sport world and their high involvement in the overall process of sport marketization, impelled sport actors to enter and generate new competitive markets, exploiting their commodity value, as well as their role as performers on the spectacular scene of entertainment. #us, the moment they step into the spotlight, sport actors !nd themselves subject to constant public scrutiny and their performance on the !eld is no longer enough to measure up to the social expectations related to their celebrity status.


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#is paper brought to the fore not only the common grounds of sport and media in fuelling sport actors’ walk of fame and the marketing potential of a strong brand value built around a sport celebrity, but also the challenges and marketing risks imbedded in this celebrity status. Contrary to the celebrity magnetism that Holt and Mangan admit when claiming that sporting public is too busy worshipping to re$ect on the objects of its fascination (Holt & Mangan, 1996, p. 5), I will argue, base on all the aspects that I have discusses in this paper, that we are rather facing a time when the spectatorship experience is more evaluative. #e public has higher expectations from sport actors in terms of their performances in and outside the !eld. Along with the high level of media exposure, this places sport celebrities in a very face threatening context of professional and personal performances, requiring the mobilization of a wide spectrum of face management strategies.

#e marketing instrumentalization of sport actors’ private life, the time frame of the golden age of elite sport performances, the winning-losing dialectics, sport actors” complex repertoire of identities and the a)nal branding network build around them attest to the dynamic and complex nature of sport celebrity, addressing both the bene!ts of this status, as well as its potential costs in terms of reputational and !nancial capital. Moreover, this article lay stress not only on the challenges that sport celebrities have to cope with in their walk of fame, but also on the challenges that marketers who want to associate their brands with sport celebrities have to consider and take on.

Another important aspect that this problematization of sport actors’ celebrity status brought out, in line with previous studies, is the decisive role that media play in creating sport celebrities, helping or preventing them from maintaining this status, extending or shortening their celebrity story. #is is why a good media relations management can constitute not only a competitive advantage, but rather a surviving strategy within such a high competitive market as the celebrity one. Moreover, the way media played this winning marketization card in regard to the sport world has led to a structural change in terms of behavioural and discursive practices, from both inside and outside the sport !eld. #is, in turn, has generated

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a recon!guration of the whole social imagery of sport and spectatorship experiences, leading marketers to capitalize more and more on the sport actors’ brand value.

Acknowledgements. Bene!ciary of the program: Doctoral and postdoctoral scholarships for young researchers in Political Science, Administrative Science, Communication Science and Sociology, POSDRU/1.5/159/134650.

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Perception and consumption of global luxury brands in Russia and Romania: comparative cross-cultural

aspect

Marina OCHKOVSKAYA1

Abstract: It seems very interesting to compare luxury consumption in Russia with the post-communist countries of the former Soviet bloc. "e aim of this research is to !nd out the common and speci!c about an attitude to global luxury brands in Russia and Romania. We investigate the motives for buying luxury brands in these two countries, as well as the brands’ preferences for Russian and Romanian consumers. Furthermore, the portrait of an average luxury consumer in Russia and Romania is introduced and analyzed in the study. "e current investigation consisted of two parts. First, it was qualitative research, as in-depth interviews with luxury brands consumers. It allowed us to formulate the hypotheses. "en to verify the hypotheses, we conducted on-line survey in which 45 female respondents from each country took part. As can be seen from the study, Russian and Romanian luxury brands connoisseurs have much in common. Both of them prefer global brands to local ones. "e majority of Russian respondents agree that luxury brands are bought to demonstrate the status and welfare or at least it is a kind of reward for being hard working. As for Romanians, the key reason for luxury consumption is a very high quality and perfectionism in details. Although the consumers from the countries have shown some common characteristics, they are di#erent in their attitude to Louis Vuitton (LV is not 1 in Romania). What is more, the brands ratings and products choice are completely di#erent in Russia and Romania. All our respondents have very strong cultural background: they visit opera, museums, listen to classical music and read serious books. Furthermore, their touristic destinations have cultural purposes as well. It means that people appreciate not only material brands, but also try to do their best to follow the cultural life style. "is research contributes to some extent to the understanding of luxury brands consumption in Russia and Romania. "e study can be useful for luxury companies, which plan to do business in these countries or already have been presented there.

Keywords: luxury brands; conspicuous consumption; connoisseur and star luxury brands; Russia; Romania.

1. Associate Professor, Ph.D., Marketing Department, Faculty of Economics, Lomonosov Moscow State University, Moscow, Russia, [email protected].

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IntroductionLuxury has always been the inalienable part of human life since the time passed away. People of di(erent age, gender and social status always wanted to belong to the luxury world. Historically Russia had strong appreciation of luxury since tsarist time. #en after the revolution and during Soviet era the di"culties to access to this magic world were arti!cially created. However eventually from the end of XX-th century the new non-Soviet Russia again has strong admiration to luxury brands. #e country is open to the world now and many global luxury brands have opened its boutiques there. Louis Vuitton brand (LV), which is a symbol of luxury presence in the country, was opened in Moscow in 2003. LV is considered one of the strongest luxury brands in the world and if it is introduced in a country, it means that the country has global luxury. In Bucharest LV boutique was open at June 2008.

Nowadays it seems very interesting to compare luxury consumption in Russia with the post-communist countries of the former communist bloc. #e aim of this research is to !nd out the common and speci!c about an attitude to global luxury brands in Russia and Romania. We investigate the motives for buying luxury brands in these two countries as well as the brands’ preferences for Russian and Romanian consumers. Furthermore, the portrait of an average luxury consumer in Russia and Romania is introduced and analyzed in the study.

Although Russia is considered as one of the prospective countries for global luxury brands consumption, there is a lack of academic research publications about the speci!city of luxury brands consumption in the country. Although the Romanian researchers (Pop, Ciornea and others) study luxury in terms of its value, luxury consumers’ segmentation and drivers of customers’ satisfaction with luxury fashion products, we haven’t found any academic paper about key motives for luxury consumption in Romania as well as brand preferences. Anyway, our preliminary observation research has shown that Romanian people have very high aesthetic taste so they really appreciate luxury brands, as Russians do. In our opinion, the luxury brands “starvation” stems from communism epoch, when luxury consumption was not encouraged and almost prohibited.

653Marina OCHKOVSKAYA

#e paper is structured in the following way. First, we brie$y summarize the relevant literature about luxury brands and motives for their consumption as well as di(erent segments of luxury brands customers. Second, we present the primary research about luxury brands consumption in these two countries. Finally, we provide the research limitations and give some recommendations about luxury brands development in Russia and Romania.

Literature review Luxury brands and its typesLuxury consumption does not depend on economic level, it is determined as a cultural phenomenon. In developing countries (as China, India) people can buy brands that hardly suit to their pocket. #ey have to save money for very long time and !nally purchase something that is very expensive and beautiful. People buy luxury to di(erentiate themselves and raise their social status. Otherwise, in such developed countries with socially oriented culture as Germany, Austria or Sweden brands do not mean much to people. It is considered improper to demonstrate luxury. Wealthy people do not buy very expensive car or watch. #ese material artifacts have low value there. People can stand out for their prestigious education or scienti!c degree. So, admiration for luxury stems from culture.

Kapferer (2013), speaking about luxury, refers to such metaphor example as a peacock. It is extremely expensive, very beautiful but has very low level of functionality. So speaking in a metaphor term, luxury is a peacock. In most cases, luxury is strongly connected with a brand. As Kapferer writes: “Only diamonds are luxury objects appreciated without brand. For everything else, there is no luxury without brands…” (Kapferer, 2009). Although there are a lot of de!nitions of what brand is (given by Aaker, Keller, Kapferer and others), “there is still no corresponding delineation of what constitutes a luxury brand” (Berthon, 2009). Klaus Heine describes luxury brand as “as images in the minds of consumers that comprise associations about a high level of price, quality, aesthetics, rarity, extraordinariness and a high degree of non-functional associations” (Heine, 2012). In this de!nition, Heine does not mention the history of a luxury brand and personalities of the brand creators. In our opinions, these two elements are

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very important for luxury brands perception. For example, such brands as Chanel, Dior, Saint Laurent have very strong personalities of their creators. #e personalities give more values to luxury. Luxury brands have three dimensions as functional, emotional and symbolic. #e emotional and symbolic meanings are much more prevalent for luxury brands in comparison with functionality.

Figure 1. Rolls Royce decorated with LV monogram

#e Rolls Royce decorated with LV monogram (picture 1) goes far beyond its functionality. Of course, this car is bought not as a mean of conveyance. #is vehicle signals not only about the highest level of admiration for LV, but also about wealth and prestige. Luxury brands are very di(erent. #e brands can vary in such criteria as prices, level of awareness, geographic presence and the other criteria. In this article we consider the luxury brands classi!cation based on level of awareness and recognition. #ere are possible two kinds of brands: star and connoisseur brands (Nueono & Quelch, 1998). Accordingly, loud products constitute star brands and quiet products are underlain in connoisseurs brands. #e more people hear about star brand the better. #e examples of star brands are LV, Gucci, Rolex, connoisseurs – Bottega Veneta, Azzedine Alaia, Lange und Soehne. Even though if star brands are available only for a few people, many people preferably should know them. One of the possible motives for luxury star brands consumption is to demonstrate wealth to other people, who cannot a(ord these luxury products (Heine, 2012). Usually this fact has place in developing economics with very

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heterogenic level of income. For example, in China brands should scream about status and be easily identi!ed by other people.

For example, Azzedin Alaia has no explicit logo strategy. You can !nd the logo only inside. So it makes his bags unrecognizable to the majority of ordinary people and identi!able only to those “in the know” (Young, Nunes & Dreze, 2010).

Brand: Louis Vuitton Brand: Azzedin Alaia

A loud product of the star brand

Reference no. 1: http://www.louisvuitton.com

A quit product of the con-noisseur brand

Reference no. 2: http://www.net-a-porter.com/prod-

uct/385167/AlaiaFigure 2. Examples of the star and connoisseur brands

It is important to notice that star brands can have quiet products as well. Even LV has products with no explicit logo. #ese products are intended for mature consumers, mainly for Europeans for whom very knowable brands with logos are a kind of bad taste.

We mentioned before that there is no brand without luxury. Moreover, it is very important for luxury brands to be international (Kapferer. 2013). Although in our opinion luxury brands can be local (for example artisanal products), the luxury consumers prefer brands that are internationally famous and recognized in other countries.

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Luxury consumers

Brands allow their consumers to express themselves (Young, Nunes and Dreze, 2010). Kapferer (2013) stressed that it is not obligatory to be extremely wealthy for buying luxury brands. He gave example of two groups who are not necessarily rich: the ordinary of extraordinary and the extraordinary of ordinary people.

!e ordinary of extraordinary people

!e extraordinary of ordinary people

Figure 3. Segments of luxury brands consumers

#e !rst group is about creative elite that include famous artists, musicians, politicians and others. #e second segment is about usual people who would like to feel themselves very special and become closer to the !rst group.

Young, Nunes & Dreze (2010) o(ered the classi!cation based on two criteria: level of prosperity and demonstration e(ect.

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Figure 4. Segments of luxury brands consumers Source: Young, Nunes and Dreze, 2010

Patricians are very wealthy and far from conspicuous consumption before masses. #ey want to be one of patricians and some quiet luxury branded products allow them to associate themselves with the other patricians. In our opinion, patricians can have aristocratic roots as well as they can be self-made people with high intellectual level and aesthetic taste. #is group of people prefer mainly quiet products of brands. Some of the real luxury brands they can consume: Lange und Soehne (watches), Krug (champagne), Alaia (clothing), Wellendor( (jewelry). #ese brands are not very famous for broad masses.

Parvenus want to show everybody that they are wealthy and can a(ord to buy luxury brands. #ese brands should be easily recognized and their products must not be quiet. Paris Hilton with her pink Bentley is relevant to this segment.

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Figure 5. Paris Hilton with her pink Bentley (http://www.modi!cationcars.com/pink-cars-modi!cations-valentine.html/paris-hilton-pink-cars-

modi!cations)Poseurs like to show o( but because of small income they often cannot a(ord to consume an authentic product of a luxury brands. So if their cultural background is not very high, the people from this segment can buy even a knock-o(. Anyway, poseurs have more chances to become successful luxury brands consumers in future and move to parvenus segment. Poseurs strive hard to achieve success. As for parvenus it can be very di"cult for them to move to patrician segment because as luxury creators and experts like to tell: “Luxury is not about money, it is also about culture”. In some rare cases this movement seems to be possible, when parvenus work hard and increase their cultural level.

As we mentioned before, the brand Louis Vuitton has both the loud and quiet products, so both patricians and parvenus can satisfy their needs in di(erent products of LV.

Alma GM, $ 10,900 Majestueux Tote MM, $ 7,450

Figure 6. Quiet and loud products of LV (http://www.louisvuitton.com)

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Majestueux Tote MM bag has strong visible LV identity as it combines famous monogram with parts of di(erent leather. It costs a fortune as well as the bag for patricians, but it can be easily recognized in masses although the Alma GM is known among only connoisseurs. #e choice between loud and quiet products depends on cultural level and values of customers. Some European consumers consider if brands can be easily identi!ed it’s a mauvais ton. In our opinion, there is no need to take into account proletarians - the people who do not strive for buying luxury.

If we do not analyze the way of getting money for buying luxury brands, we can use rather simple classi!cation as “show-o(ers” and “connoisseurs”. However the way of getting rich is important. As in some cases when young people do not come into fortune, the luxury brands consumption can be the one of the incentives for getting prestigious education and well-paid job. People who inherit money they usually do not have to work hard. In this paper, we would like to o(er the classi!cation of luxury consumers based on need for showing o( and way of getting rich.

Figure 7. Classi&cation of luxury brands consumers

In this classi!cation self-made connoisseurs are free from logo mania. #eir choice is based on high quality, aesthetic and utilization. #ese people do not inherit money, so they have to work hard to achieve prosperity and

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status. Self-made connoisseurs are usually very broad-minded, travel a lot with cultural purposes and have prestigious education.

Achievers are also in a self-made category. #ey probably are born in small cities and then move to the capital for education and job. #eir income is high but the cultural background is yet not enough to understand that show-o( is shallow and funny. #ey are not broad-minded in comparison with self-made connoisseurs and prefer rather simple life style. #eir life is primarily a combination of hard work and entertainment such as going to movie and café. #ese people are familiar with rather limited quantity of very famous luxury brands and think that their environment should recognize brands. Probably achievers will be able to move to a group of self-made connoisseurs if they work hard on their self-development and manage to raise their cultural level.

Self-su"cient aristocrats do not have to work hard because they have money and status by birth. Commonly they have a brilliant education and perfect taste. #ey visit opera, concert of classical music booking the best places in the best theaters and concert halls in the world. While going out they wear luxury clothing and jewelry that demonstrate their irreproachable taste and high social status. In most cases the self-su"cient aristocrats work and their work have strong social value. #ey can be professors, architects, actors, writers, even doctors or have family business. #ey do not understand how it can possible to do nothing. #ese aristocrats are of bene!t to society in their deeds.

#e last segment is conspicuous successors. #ey are usually children of achievers. #ey do not need to work hard for achieving high standard of living. #eir close environment, which is achievers, determines their range of interests. #ey consume famous conspicuous items of luxury brands to make people know that they are luxury consumers. Moreover, their knowledge about brands can be rather narrow and based on advertisement. Besides, they cannot know about brands valuable among connoisseurs and aristocrats, as their cultural background is not very deep. #ese people rarely or never visit opera and concerts of classical music.

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Methodology approach #e current investigation consisted of two parts. First, it was qualitative research as in-depth interviews with luxury brands consumers. #e 4 in-depth interviews (2 from every country) were carried out. #e people involved in luxury industry as the brand manager and fashion blogger from Russia and the researcher with the image consultant from Romania were interviewed. #e interviews with Russian experts were organized o(-line and lasted during 1 hour. Romanian qualitative part of research was done via Skype and also lasted during an hour with the every respondent. It allowed us to formulate the following hypotheses (research questions):

H1: Romanian consumers prefer global luxury brands as well as Russian consumers.H2: Both Romanian and Russian consumers buy the brands primarily to demonstrate their well-being.H3: Luxury brands should be well known and with high level of awareness to be bought by both Russian and Romanian consumers. H4: Louis Vuitton is 1 (the most preferred luxury brand) in Russia and Poland. H5: Consumers are ready to save money in favor of buying of luxury brands. H6: Luxury brands consumers have higher education and strong cultural background.H7: Real luxury is out of material artifacts.

To prove these hypotheses we conducted on-line survey in which 45 female respondents from each country took place. All our respondents consume luxury from time to time, represent intelligent group of society and have income that is higher of an average country level.

#e set of di(erent questions, presented below, was asked.

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1. Please, value your reasons for buying luxury brands (5 - is the highest gauge, meaning the most

important motive):

Luxury brands have very high quality and perfectionism in details.

I like the atmosphere in luxury brands boutique.

I appreciate the history, the legend inherent in luxury brands. More-over, famous people around luxury brands a(ect my decision.

I appreciate luxury brands because my environment (as colleagues, friends) sets so much store by these brands.

Luxury brands are about reward of my success and achievement of welfare. I want that people know I can a(ord the luxury brands.

2. Which one of the following statements do you agree with:

#e luxury brand must have some visible symbols (as logo, design, print and etc.) recognized by di(erent people (the more people recog-nize the better).

#e less luxury brand is recognizable in the masses it is better. 3. Choose the one item from LV (&gure 1) you are ready to buy:

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4. Would you please identify your brand 1 in the following categories:

Clothing

Accessories (like bags, belts, etc.)

Perfume

Watches

Shoes 5. How often do you buy luxury brands?

1 item per 24 months

1 item per 12 months

1 item per 6 months

1 item per 3 months

I buy luxury brands as often as I want 6. Are you ready hypothetically to save money to buy something

from luxury brands?

Yes

No 7. Please, indicate:

Your favorite composer

Your favorite movie

Your favorite book

Your favorite tourism destination

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8. Some social and demographic information about you:

Your age

Your gender

Your city where you are living now

Your professional activity 9. In your opinion the real luxury is... (your answer can be phil-

osophical)

Findings#e results of our research allowed us to check the hypotheses (answer the research questions) and to illustrate and compare luxury consumption in Romania and Russia. All our respondents from the both countries are from the segment of self-made connoisseurs. #ey have good education, high cultural level and work hard to keep high level of living. #eir age range starts from 30 y.o. #e eldest respondent is 47 y.o.

As can be seen from the study Russian and Romanian luxury brands connoisseurs have much in common. Both of them prefer global brands with some reasonable awareness to local ones. So the H1 and H3 were proved. Besides, the Kapferer’s (2013) opinion that luxury brand must be international is true for Russia and Romania.#e majority of Russian respondents agree that luxury brands are bought to demonstrate the status and welfare (76%) or at least it is a kind of reward for being hard working (64%). So the H2 is true for Russians. As for Romanians, the key reason for luxury consumption is a very high quality and perfectionism in details (81%). Moreover, Russians appreciate more the atmosphere in luxury boutiques in comparison with Romanians. #is fact can be positive for luxury on-line selling in Romania.

Although the consumers from the countries have shown some common characteristics, they are di(erent in their attitude to LV (LV is not 1 in Romania). What is more, the brands ratings are completely di(erent in Russia and Romania.

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Table 1. Brands ratings in Russia and Romania

Product categoriesBrands preferences

Russians Romanians

Clothing Armani Dolce GabbanaAccessories Louis Vuitton FurlaPerfume Dior ChanelWatches Rolex Swatch

(it was the most frequent answer, although this brand is not considered luxury)

Shoes Manolo Blahnik Louboutin

So, H4 about LV is true for Russians. Russians, as well as Chinese, are ecstatic about this brand. If we compare what product from LV Russians and Romanians chose, we notice the evident di(erence. Russians chose the aesthetic and almost non-functional small bag with LV monogram, Romanian choice was a big bag, a kind of briefcase which is functional and also well-known because of the monogram. Romanians are more functionality-oriented, in Russia beauty is on the 1 place.

Russian choice Romanian choiceFigure 8. Russian and Romanian choice

Almost all our respondents can be called excursionist (Dubois, 1995). Russian respondents (80%) buy 1 luxury item per 6 months. Romanians (80%) buy 1 luxury item per 24 months. According to the survey, absolutely all Russians are ready to save money in favor of buying something from

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luxury. As for Romanians, only 51% are willing to set aside money for luxury brands. It means that H5 is true again only for Russians.

All our respondents, as we mentioned before, have very strong cultural background: they visit opera, museums, listen to classical music and read serious books. Furthermore, their touristic destinations have cultural purposes as well. So, H6 was completely proved for the both countries. It means that people appreciate not only material brands, but also try to do their best to follow the cultural life style.

Both Russian and Romanian respondents were close in their answers about real luxury. Real luxury goes beyond material artifacts. Luxury brings some philosophical meaning. According to opinions of respondents from the countries, it is not about expensive things but about family, health, friends, passion… So, the last H7 was completely proved.

Conclusion #is study is only a !rst step to understanding the speci!city of luxury consumption in Russia and Romania. Moreover, it entails some limitations. #e research covered only limited quantity of cities from Russia and Romania as Moscow, Saint-Petersburg, Bucharest, Brasov. So, it does not re$ect the whole countries. Besides, the limited quantity and quality of respondents were included in the sample (only 45 females from the each country). Moreover, one of the strongest limitations is basic statistics. Besides, the only genuine luxury brands were studied in the paper, the replicated versions left outside of our research. In future we hope to continue our mutual research with Romanian colleagues and include more consumers in our sample as well as to cover more cities.

In a nutshell, the research contributes to the general understanding of luxury brands consumption in Russia and Romania. #e consumption is determined by di(erent motives as mainly showing-o( in Russia and rationality (craving for high quality) in Romania. Although both Russian and Romanian prefer international brands, their brands preferences are di(erent as well as attitude to the place where the brands are bought. It

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can be explained by di(erent tastes and reasons for buying the brands. Besides various brands can be presented in the country and have di(erent level of awareness and acceptance in the country. #e study could be useful for both global and local companies, which plan to do business in these countries or already have been presented there.

ReferencesBerthon, P., Pitt, L., Parent, M., and Berthon, J.-P. (2009). Aesthetics and

ephemerality: observing and preserving the luxury brand, California Management Review, 52(1), 45-66.

Chevalier, M., and Mazzalovo, G. (2008). Luxury brand management: a world of privilege, New York: Wiley.

Ciornea, R. (2013). Drivers of consumer’s satisfaction with luxury fashion products and overall satisfaction’s impact on repurchase intention. Proceedings of the International Conference Marketing – from information to decision, 6th Edition 2013 (pp. 51-67). Cluj, 8-9 November 2013.

Dubois B., and Paternault C. (1995). Understanding the World of International Luxury Brands: #e Dream Formula. Journal of Advertising Research, 35(4), 69-76.

Heine, K. (2012). "e Concept of Luxury Brands. Retrieved from http://www.concepto$uxurybrands.com.

Kapferer, J.-N., and Bastien, V. (2009). "e luxury strategy. Break the rules of marketing to build luxury brands. London: Kogan Page.

Kapferer, J.-N. (2013). Speech by Kapferer Jean-Noel at the International Conference Is luxury history?. Retrieved from http://www.youtube.com/watch?v=uEKikA$Gqk.

Nueno, J., and Quelch, J. (1998). #e Mass Marketing of Luxury. Business Horizons, 41(6), 61-68.

Young, J.H., Nunes, J.C., and Dreze, X. (2010). Signaling status with luxury goods: the role of brand prominence. Journal of Marketing, 74(4), 15–30.

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Marketing professionals: a managerial perspective

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Abstract: "e marketing literature intensively has debated in the last decade the evolution of marketing, the shifting framework, the challenges it faces as well as the relationship to management. "e technological development, the changing patterns in consumption, the economic crises, as well as the increased business constraints are some of the most important factors that are changing the way marketing is developed. In the new economic context, managers seem to be increasingly more dissatis!ed with their marketers, considering them attached too much to qualitative results, on the expenses of !nancial outcomes. Considering these evolutions and discussions, the present paper investigates how the Romanian managers evaluate their marketers. In-depth interviews are conducted with managers from all sorts of companies, considering both their !elds of involvement and their dimensions. "e results largely con!rm the studies around the world, as well as the concerns expressed by academics.

Keywords: marketing; marketers; managers on marketing; Romania.

Introduction#ere seem to be a wide-spread agreement amongst academics and practitioners that marketing professionals, including marketing managers in all types of corporations, have lost their in$uence on the long-term strategies of their organizations (Reibstein, Day & Wind, 2009; Seth & Sisodia, 2005; Verhoef & Lee$ang, 2009; Webster & Lusch, 2013; Wirtz, Tuzovic & Kuppelwieser, 2014). Marketing seems to be at a crossroads (Gronroos, 2006; Gummesson, Kuusela & Narvanen, 2014; Klaus, Edvardsson & Maklan, 2014). Maybe this is the result of increased complexity and interdisciplinary of marketing. Marketers must master several domains: strategy, creativity, and analytics amongst others. #ey must have the ability to timely identify business opportunities and to

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accelerate performance. If they actually achieve these aims and their managers agree with this are other concerns.

How satis&ed are managers with their marketers? #e Fournaise Marketing Group (2011) interviewed more than 1,200 large corporation and SMEs CEOs and decision-makers in North America, Europe, Asia and Australia. One of the striking !ndings was that 80% of CEOs admit they do not really trust and are not very impressed by the work done by Marketers – while in comparison, 90% of the same CEOs do trust and value the opinion and work of CFOs and CIOs.

#e core source of the problem is that 80% of CEOs believe Marketers are too disconnected from the short-, medium- and long-term !nancial realities of companies. And that’s because 78% of these CEOs think Marketers too often lose sight of what their real job is: to generate more customer demand for their products/services in a business-quanti!able and business-measurable way:

a) For B2C CEOs, more customer demand means more products o( the shelves, more sell-in, more sell-out, more sales volume, more sales revenue.

Unfortunately, 69% of B2C CEOs believe B2C Marketers now live too much in their creative and social media bubble and focus too much on parameters such as “likes”, “tweets”, “feeds” or “followers” – the very parameters they can’t really prove generate more (business-quanti!able) customer demand for their products/services, and the very parameters judged “interesting but not critical” by CEOs.

b) For B2B CEOs (and B2C CEOs in prospect-driven industries such as education and insurance), more customer demand means fuelling more quali!ed or sales-ready prospects to the sales pipeline – prospects that can then be converted faster into actual revenue by Sales Forces.

Unfortunately, 71% of these CEOs believe that while B2B Marketers are focused on the latest marketing technologies (such as marketing

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automation, lead management and CRM) supposedly to generate customer demand, they are still failing to deliver the level of incremental customer demand expected of them.

c) Among the opinions expressed by these top management representatives about the MBA talent being recruited by their organizations are that MBA’s all tend to think alike, to approach problems the same way, to be risk averse, to obscure a problem with excessive number crunching and analysis, to want to move into general management too quickly, to be unwilling to stay in a position long enough to develop competence and learn the details of the business, and to have no interest in sales and sales management careers.

#ese CEOs feel Marketers are too distracted and sucked into the technological $urry (and jargon) related to system integration, funnels, processes and scores, and have forgotten that technology is only a support tool that does not create demand per se – only accurate strategies and campaigns pushing the right products, product bene!ts, content and customer value propositions do.

#ese CEOs also feel B2B and prospect-driven Marketers have been so desperate to prove their worth that they’ve started to (wrongly) focus on performance indicators that are actually not theirs, such as prospect conversions and revenue. #ese Marketers have lost sight that these are primarily Sales Force-related performance indicators, and that they should focus instead on the customer demand-related indicators directly linked to their job and for which they have 100% control.

To earn the CEOs trust, Marketers will need to transform themselves into ROI Marketers.

75% of CEOs think Marketers misunderstand (and misuse) the “real business” de!nition of the words “Results”, “ROI” and “Performance” and therefore do not adequately speak the language of their top management: these CEOs fail to understand why Marketers cannot zoom in on a few critical key business performance indicators to precisely measure, quantify

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and report on the level of customer demand they are asked to deliver, instead of drowning everybody with data and analyses that are too remote from the P&L.

CEOs believe they trust CFOs and CIOs because they are 100% ROI focused – where every dollar spent must have a measurable, quanti!able and positive impact on the company’s P&L and operations. To earn the CEOs’ trust and prove that they can be solid business generators, 74% of CEOs want Marketers to become 100% ROI-focused: they call them “ROI Marketers”.

In this context, CEOs have a clear vision of what they expect from ROI Marketers:

a) 82% of B2C CEOs would like B2C ROI Marketers to focus on tracking, reporting and very importantly boosting four Key Marketing Performance Indicators: Sell-in, Sell-out, Market Share and Marketing ROI (de!ned as the correlation between Marketing spending and the gross pro!t generated from it).

b) While 85% of B2B CEOs (and B2C CEOs in prospect-driven industries) would like prospect-driven ROI Marketers to focus on tracking, reporting and boosting four Key Marketing Performance Indicators: Prospect Volume, Prospect Quality Rate, Marketing E(ectiveness Rate (de!ned as the percentage of Marketing spending that directly generated prospects) and (business potential generated by Marketing).

“People trust doctors, surgeons, lawyers, pilots or accountants: simply because they know these no-nonsense professionals are trained to focus on the right set of data to take the best decisions and achieve the best outcomes possible. CEOs trust CFOs and CIOs for the same reasons. It’s not a game of data, but rather a game of the “right & relevant” data for the right purpose and the right decision-making, with no $u( around” said Jerome Fontaine, CEO & Chief Tracker of Fournaise.“Marketers will have to understand that they need to start “cutting the rubbish” if they are to earn the trust of CEOs and if they want to

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have a bigger impact in the boardroom” he explained. “#ey will have to transform themselves into true business-driven ROI Marketers or forever remain in what 65% of CEOs told us they call Marketing la-la land. At the end of the day, Marketers have to stop whining about being misunderstood by CEOs, and have to start remembering that their job is to generate customer demand and to deliver performance. #is is business. When is the last time you heard CFOs whine about being misunderstood by CEOs?” Fontaine concluded.

#e four main accusations towards marketing managers are:- #ey focus too much on tactical issues and use an out-of-date skill kit.- #ey do not connect enough the marketing e(orts to the !nancial returns. - #ey are obsessed and over-rate new technologies. - #ey use unsuitable indices to measure e(ects.

“CEOs want a lot out of their marketing managers – but the things they want may be di(erent than what most marketing managers think,” said email certi!cation and security company Return Path CEO Matt Blumberg in an interview with CMO.com (2014). “CEOs expect their marketing managers to run a pro!t and loss (P&L) [not just a cost budget], set priorities and make trade-o(s, orchestrate marketing sub disciplines, and be great business partners to the rest of the organization. CEOs want marketers who can move seamlessly between being proactive and setting strategy and being appropriately”. But then again this is the complexity of the marketing function.

Marketing is positioned at the intersection of multiple corporate needs such as innovation, customer experience, sales, and operations. Rarely, however, do they own any of the processes associated with them.

#e need for broader experience and a strong understanding of what drives a company’s pro!t and loss (P&L) makes a direct transition from marketing manager to CEO a bridge too far for most individuals wanting to make the leap. In an investigation of what is required to move from marketing manager to CEO, consulting !rm Spencer Stuart !nds, “To become a CEO a marketing manager must always make a double transition, out of their

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function, and into a new company. #e obstacles that marketing managers or directors facing with ambitions for the top job are considerable and are likely to be too great for those unwilling to step out of their comfort zone and test themselves in unfamiliar roles” (Birkel & Harper, 2009, p. 1).

Re$ecting on the presented !ndings one might argue that it features multiple contradictory propositions and arguments from CEOs about why marketing is seen as non-strategic.

On the one hand, marketing managers are viewed as lacking !nancial accountability, and obsessed with technology rather than delivering revenues. On the other hand, CEOs confuse sales indicators with demand-related indicators.

Methodology #e main aim of the present investigation is to understand how managers see their marketing professionals. Not only managing directors were considered, but also marketing executives. Semi-structured in-depth interviews were conducted with top management representatives from 27 Romanian companies, both business-to-businesses and business-to-consumer corporations. All of them have more than 50 employees.

Results and discussion#e principal issues that were uppermost in the minds of the executives interviewed were related to lack of innovative and entrepreneurial thinking, inability to de!ne new methods for promoting products to customers in the face of major increases in the costs of media advertising and personal selling; a tendency for product managers and higher levels of management in the product management organization, all of whom have similar education, training, and experience, to approach problems in the same way; attempting to meet signi!cant new competition with traditional ways of doing business.

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Generally, inter-departmental relationships are of concern when considering the e(ectiveness of marketing. ”In addition, we had to take in consideration the organizational arrangements made to facilitate two-way communication between marketing and other departments or business units”. Several of the respondents noted these connections and commented that these were a top management responsibility. One chief executive observed that the budget planning and review process encouraged marketing managers to stick to the proven path therefore truly innovative and distinctive marketing approaches have a low probability of surviving the hierarchical budget planning process.

Skills that marketers are expected to have included leadership, management, sales and intuition. Most senior managers asserted that the marketer’s background does not necessarily have to be in the same industry, unless the marketer cannot function in that industry without an extensive knowledge of its workings. However, based on the argument senior managers make that marketing skills are generally transferable, the marketer needs to demonstrate they have delivered commercial outcomes in previous employment, in whatever industry, to be considered credible.

#ere was virtual unanimity among these executives that marketing is the critical management function in their !rms from a strategic viewpoint and that it is likely to become even more important in the current decade. In the most sophisticated marketing organizations, marketing is the line management function and the marketing concept is the dominant and pervasive management philosophy. In the rest of the companies in the sample, however, there appeared to be an incomplete acceptance of the marketing concept. In the most obvious situation, the respondent executive could point to an absence of any senior executive with clear responsibility for marketing within the organization. In these instances, there had been a history of strong production-, technical- (engineering or R&D), or sales-oriented thinking dominating the !rm. Another symptom of the problem was an absence of any market segmentation strategy. #ere also were a few cases where the respondent executive felt that marketing weakness was due to a failure by top management to devote the necessary !nancial and managerial resources to the marketing task.

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In the industrial products and services !rms especially, and also in some of the consumer products !rms, marketing and sales were organizationally distinct, with sales being seen as a line function and marketing as a sta( responsibility, often associated with the corporate planning function. #e marketing function in these circumstances was said to be responsible for long-range marketing planning and market development, whereas the sales function was responsible for current year sales volume and pro!t performance through the implementation of marketing plans through speci!c sales and promotion programs. Not all of these top managers would agree that the separation of marketing and sales within the organization is evidence of incomplete acceptance of the marketing concept.

One senior executive made the important observation that getting the marketing concept understood and accepted is still the biggest challenge faced by any organization, despite the fact that the concept is now more than a quarter-century old. In his extensive experience in the top ranks of both industrial and consumer products !rms, he noted that marketing “tends to degenerate into a sales orientation and an exclusive concern for marketing communications.” He felt that there was an inevitable tendency in industrial !rms for large customers, because of their importance, to bring pressures on the !rm that create a very short-term orientation and a concern for speci!c orders and problems. He also pointed to sheer numbers of sales personnel compared with marketing as another reason why sales tends to dominate marketing. While these particular observations are attributable to a single CEO, they capture a set of issues of concern to a signi!cant portion of this sample.

Conclusion#ese chief executives and top managers believe that marketing is the most important management function in their businesses, and they see it becoming more important in the future. Whether they come from a marketing background or not, they believe that the development and maintenance of an e(ective marketing organization is a major requirement for success in the economic environment of increased competition and ensure growth. Having said that, however, these executives are critical of their marketing managers for a failure to think creatively and innovatively

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and to understand the !nancial implications of their decisions. #ey see marketing costs increasing faster than the e(ectiveness of those expenditures.

Some Implications and Suggestions for Future Research Although these concerns of top management are interesting for their own sake, and suggest some directions in which the marketing profession might look to !nd areas for improved management e(ectiveness, they also point to some underlying basic issues. #ese issues can be phrased as questions requiring further research and discussion.

How Does Management Performance Evaluation Impact on Marketing Performance?#ere has been only minimal cooperation between organizational behavior and marketing scholars as revealed in the research literature, yet some of the most interesting and important issues of marketing decision-making may be those that relate to the human side of enterprise. Criticism of marketing for failure to innovate and take risks is an obvious area where behavioral issues are at the core, not technical issues of marketing science and decision-making. Part of the issue here is to explore relation-ships between various corporate !nancial goals and marketing performance as they are mediated through formal and informal performance appraisal systems. While recent months have seen some discussion of this issue in the management literature, it is an area that needs a great deal more management attention and academic research. Investigators need to look at relationships between measures of a !rm’s innovativeness, such as the rate of new product introductions, and how management in that !rm is evaluated and rewarded. Marketing scholars need to become familiar with the work of scholars in organizational behavior on such topics as risk taking, organizational structure, and innovativeness, and integrate this into their own investigations of marketing performance and organizational e(ectiveness.

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References Birkel, F., and Harper, J. (2009). From CMO to CEO: the route to the top,

Spencer Stuart. Retrieved from http://content.spencerstuart.com/sswebsite/pdf/lib/CMOtoCEO.pdf.

CMO.com (2014). Slide show: 5 steps to ‘marketing CEO’ success. Retrieved from www.cmo.com/content/cmo-com/home/slide-shows/slide-show-5-steps-to-marketing-ceosuccess.

Fournaise Marketing Group (2011). FournaiseTrack – media releases – 73% of CEOs think marketers lack business credibility: they can’t prove they generate business growth. Retrieved from www.fournaisegroup.com/Marketers-Lack-Credibility.asp.

Gronroos, C. (2006). On de!ning marketing: !nding a new roadmap for marketing. Marketing "eory, 6(4), 395-417.

Gummesson, E., Kuusela, H., and Narvanen, E. (2014). Reinventing marketing strategy by recasting supplier/customer roles. Journal of Service Management, 25(2), 228-240.

Klaus, P., Edvardsson, B., and Maklan, S. (2014). Editorial – back where we belong: marketing as the organization’s core strategy. Journal of Service Management, 25(2), 166-170.

Reibstein, D.J., Day, G., and Wind, J. (2009). Guest editorial: is marketing academia losing its way?. Journal of Marketing, 73(4), 1-3.

Sheth, J.N., and Sisodia, R.S. (2005). Does marketing need reform?. Journal of Marketing, 69(4), 10-12.

Verhoef, P., and Lee$ang, P. (2009). Understanding the marketing department’s in$uence within the !rm. Journal of Marketing, 73(2), 14-37.

Webster, F.E. Jr., and Lusch, R.F. (2013). Elevating marketing: marketing is dead! Long live marketing!. Journal of the Academy of Marketing Science, 41(4), 1-11.

Wirtz, J., Tuzovic, S., and Kuppelwieser, V.G. (2014). #e role of marketing in today’s enterprises. Journal of Service Management, 25(2), 171-194.

Online marketing for women. An analysis(of online purchasing(behavior of young women in Romania

Ioana – Felicia CONSTANTIN1

Vlad RÂMNICEANU2

Abstract. Many researchers (Barletta, Peters, Qualman) consider women the most important global consumers because women usually take the purchasing decisions, if we are talking about commodities, household purchases, clothes, cosmetics, books or goods or services that are not necessary associated to women, such as small consumer electronics, computers, etc. In a society which has gone digital, we observe that women use social networks di#erently than men. For example, women usually use Pinterest, while men mostly use Google Plus. According to various studies, women interact more with brands in social media and use more often the mobile phones to access social networks, compared to men. "ose !ndings are important for marketers when they target women in their online brand campaigns. "e present paper researches online purchasing behavior of women in Romania, using both quantitative and qualitative research, to determine key groups of online young women by analyzing their behavior on social media and some other aspects like: what do they want from brands in social media, why and how they buy online.

Keywords: social media; Facebook; digital users; digital divas; digital cultures.

IntroductionSociety as a whole and the relationships between individuals have been strongly in$uenced in the past decades by changes that occurred at the level of di(erent factors: economical, technological and socio-cultural. Globalization as a process and, mainly, the constant innovation in technology constitute the basis for the change of societies and individuals. #e present society is a digital one, networked, directly in$uenced by

1. Ph.D. student in Economics and International Business, Bucharest University of Economic Studies, Bucharest, Romania, [email protected]. 2. Master student, College of Communication and Public Relations, National University of Political Studies and Public Administration, Bucharest, Romania.

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the new technologies, by the ascension of mobile Internet and electronic commerce, as well as the appearance of digital cultures.

In the specialized literature (Qualman, 2009; Castells, 2009; Creeber, 2011), a globally connected society is discussed, de!ned by a series of elements that act simultaneously: the online information volume doubles roughly every 11 hours (Dumitrescu, 2013, p. 29); social media becomes the most popular activity on the internet, as well a majority individuals aspire to be a part of (Qualman, 2009, p. 1).; through social media the global society becomes a network society in which the users develop o cultural world di(erent from the classical interaction space and is modeled after their own values and interests (Castells, 2009, p.120); the development of the internet of all objects; the ascension of m-commerce and mobile applications.

Social networks, especially Facebook, are spaces in which several factors act simultaneously (the users’ friends, commercial brands, news channels, the pages dedicated to certain activities or hobbies, the public !gures which wish to establish a personal brand for themselves, etc.) competing for the time allotted by users to the online environment. #is means that brands must use personalized and original strategies to attract attention and di(erentiate.

#e online environment lately revealed an aspect that brands and marketers ignored or started to harness only of late: women are the ones that make the most acquisitions and the most valuable ones from a !nancial point of view (element that was observed for online purchases and online purchase behavior). Physical markets begin to orient themselves toward this valuable segment and in the online environment companies intensify their strategies.

Literature reviewFrom web 1.0 to social media and user generated contentWeb 1.0, considered by Berthon et al. (2012, p. 261) as a “technological tsunami” that allowed consumers to interact with the companies, has

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rapidly become a space in which the latter disseminated commercial and entertainment-oriented content. Although the internet appeared for a time as an environment in which companies held !rm control, web 2.0 and the new wave of technologies have again modi!ed the frame of reference, and social media has rapidly become the most popular online activity and has recon!gured local and international marketing models, communication paradigms and commercial activities. Currently we don’t only discuss physical markets, but e-commerce and m-commerce as well. And social media was, in our opinion, the dynamo of this accelerate changes.

But, before discussing social media we must de!ne the concepts of “web 2.0” and “new media”. What sets them apart from web 1.0 is the fact that users are now able to generate and reutilize content. A few examples are: Facebook, YouTube, Wikipedia, Flickr or the blogs (Creeber, 2011, p. 3). Web 1.0 meant a series of concepts such as mp3, Britannica Online and personal sites and web 2.0 – Google Ad Sense, blogs, cost-per-click, search engine optimization etc.

Beyond all this, fundamental changes occurred regarding communication standard. Even since 1996, in the specialized literature some authors (Ho(man & Novak, 1996, p. 4) debated the birth of a new communication pattern directly in$uenced by the online environment evolution. As such it was the transition to the “many-to-many” communication model. Consumers interact with the environment and among themselves; companies disseminate content and respond to the environment; consumers can also generate commercial content. #is communication model is currently much more visible by way of social media and contributes to the forming of digital cultures (Creeber, 2011, p. 3).

Erik Qualman (2009) talks in Socialnomics. How social media transforms the way we live and do business, about the fact that today, news and information !nd us. We are talking about the fact that social media has become the most popular activity on the Internet and that individuals wish to obtain and access information fast and with ease. #e environment that social networks build is, in fact, a manifestation of space and space is, together with time, what determines human experiences and social relationships, according to Manuel Castells (2009). Blanchard (2011) considers that

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the reason for which social media has known this kind of spread among individuals is because it helps them inter-connect in a manner that has value for them in regard to their social and personal experiences.

We are talking today about a “networked society” in which “individuals do not retreat in the isolation of virtual realities, but on the contrary, they expand their social relationships and selectively use the richness of available communication networks, thus building their own cultural world in terms of preferences and projects and modifying this newly built world according to their own interests and values” (Castells, 2009, p. 120).

During a research focused on social media users, Williams (2013) has identi!ed a series of elements that constitute the purpose for which individuals use social media. Amongst these we recollect: social interaction, entertainment, relaxation, expressing opinion, disseminating and !nding information. One must take into account the fact that social media users have gained a sort of multi-functionality and a distributive attention when it comes to messages. As such, a user can read a press article, discuss with a friend on Facebook and read the messages of a brand, all at the same time (Papachirissi, 2010).

However, social media, especially Facebook and Instagram, has become what Qualman (2009, p. 43) called the competition between users on the subject “who does the most interesting things”. #e photographs that the users upload on Facebook are part of this competition, are taken with the precise purpose of being uploaded online and represent a manifestation of one’s self, giving information about the user’s activities, status and preferences etc. (Qualman, 2009, p. 119). #e image itself is associated by Marshall to an expression of narcissism (2006, p. 639, in Creeber and Martin, 2011, p. 120). Moreover, according to Marshall, Creeber and Martin (2011), mobile internet has contributed even more to the development of social networks and the dissemination of content such as photographs and real time sharing of opinion.

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#e users’ pro!les recon!gure the image of self by “remembering, transforming and adjusting the information” and the images of self in the virtual world are simultaneously constructs of the spirit and the result of the negotiation process with the electronic application (Georges, 2010, p. 69; V%t%m%nescu, 2012, p. 91). #e users’ pro!les are a control instrument in social media by making use of the ability to set visibility of content policies and the messages that other users post on their friends’ pro!les augment or decrease the degree of visibility (Papacharissi, 2010).

As for the interaction with the brands, TechInfogra!cs (2013) has realized toward the end of the year 2013 a division of social media users in regard to their attitude toward brands. Amongst the typologies identi!ed: the silent fans, the occasional fans, unsatis!ed consumers, loyal fans. One of the categories, the unsatis!ed fans, highlights the importance of image management in social media, because research shows that internet users expect to receive an answer from brands within one hour from the moment they sent a direct or indirect message concerning the company. #e silent fans, instead, the category of users that follows the content of brands because they like the variety of posts on their pages, but don’t make their opinion public. However, we believe that these categories of users or fans represent up to a certain point latent audiences that will manifest when brand messages or the quality of products or services will in$uence them to have positive or negative reactions. #is means that brands need to select more carefully the type of messages that they distribute or associate with.

Social media and the recon!guration of digital environment #e development of mobile devices and “the Internet of all objects” were in$uenced not only by technological innovation, but also by the extent that social media and mobile internet have experienced in recent years. Today, mobile devices (smart phones, tablets, etc.) are those that not only facilitate communication and social interaction, but also real-time access to information from almost any place on Earth. #e digital society of today, thanks to “the Internet of all objects”, is expected to reach the paradox that by 2020 the number of devices that are connected to the Internet will be larger than the number of people in the world (Dumitrescu, 2013, p. 27).


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Contemporary society is heavily in$uenced by mobile internet and apps on smart phones (Martin, 2011). With these devices individuals check from trivial information such as weather, up to professional or business information such as stock prices or transactions, apply for jobs, make online purchases, pay bills online, answer emails, connect to social networks, etc.

Qualman (2014) conducted a series of statistics about social media on users and their purchase behavior. #us, more individuals own a mobile phone than a toothbrush, 20% of the searched terms each day on the Internet were not previously searched, 53% of Twitter users recommend products in their posts, 93% of purchasing decisions are in$uenced by social media while only 14% are in$uenced by advertising, 90% of consumers have greater con!dence in the recommendations received from their Internet surfer friends for the products they intend to acquire. At the beginning of 2014 statistics indicated that there are more Facebook pro!les created every minute compared to the number of births, daily in America more adults use YouTube channel with a higher frequency as compared to using cable television, every second 2 new users sign up on LinkedIn and 80% of companies use Facebook as a recruitment environment.

In terms of purchasing behavior, a global study (Stadd, 2014) shows that Facebook (21%) and Pinterest (25%) are the most used social networks for acquisitions, while Twitter has the most in$uence when discussing product recommendations. Most users utilize Twitter (19%) for complaints about brands, while YouTube channel is least used for such cases (9%). #e same study shows that YouTube (61%) is the most used online environment by users when they want to learn about products, the second being Pinterest (56%) and Facebook.

Consumer and purchasing behaviorWhen talking about marketing addressed to women, one should keep in mind that we are talking about women as the most important consumers of brands. If in the past we referred to women as a market segment or niche based on companies’ pro!les, today we talk about a market in the true sense.

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#eorists who have written about marketing addressed to women draw attention to the fact that today women are “the most important global consumers” (Barletta, 2007, p. 21), and companies need to reinvent themselves by a “total repositioning of the methods of recruitment, sources of employment, reward systems, promotion, organizational structure, business processes, estimates, overall strategy, vision and leadership” (Peters, 2010, p. 469).

Underhill (2000, p. 116) shows the behavior of women when shopping as follows: if they do not feel comfortable with their purchase, they will not stop looking until they !nd the desired product or service and, in addition, women will not purchase products requiring a minimum of e(ort in terms of information on the characteristics.

Regarding social media, women access social networks di(erently. For example, Google Plus, Instagram, YouTube and Twitter are the social networks with the youngest female users, while on Pinterest typically the users consist mostly of mothers and housewives. #e female users of Instagram, LinkedIn and Twitter have the highest incomes (WeberShandwick, 2013).

In America, social networks (except for LinkedIn social network) have more women users than men. Also, more women interact with brands in social media than men and use more frequently their mobile phones to access social networks (Cli(ord, 2014). A study by the Women’s Marketing Inc. and SheSpeakes (2014) shows that women are more inclined to purchase products and services from the brands they interact with in social media, and their presence on social networks has as main argument the desire to form lasting bonds.

A survey conducted by the Pew Research Center and Burst Media (2014) shows that gender di(erences are found beyond the personal and professional relationships in the way we perceive information, and entertainment idea is re$ected in consumer behavior online. #e study shows that 38% of women use the mobile phone for online games, a


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rate that exceeds by 10% the number of men who use the phone for the same purpose (2014). #e research reinforces the !ndings of other studies showing that women ignore online paid advertising and tend to be more willing to interact with brands, as compared to men.

At the same time, women choose to interact with brands in social media to conclude transactions (71% as compared to only 17% for men users) and only 39% of female users scan QR codes, compared to 56% men (2014). Finance Online (2014) shows that women prefer visual sites, with photos and videos. #is explains the success that Pinterest has among its users.

A survey conducted by Business Insider (Adler, 2014) indicate that 60% of time spent on social networks is from mobile and tablet devices, which shows that, in fact, women consume more time online than men following the latest news from social media using mobile technologies. #e same Business Insider research shows that the most used social networks through mobile phones and tablets are Facebook, Instagram, Twitter and SnapChat (Adler, 2014).

Ernst & Young (2014) conducted a research on consumer behavior of women and men online consumers in America, and the results of the study indicate that the favorite sites of both categories are Amazon, Barnes and Noble and CDNow. Regarding the categories of products purchased, !rst three places in the ranking are occupied by books, computers and CDs. Women buy more toys, baby products and care products, as compared to men.

Ogilvy and Microsoft Agencies (2013) conducted a study on the online behavior of women and created a typology of them. #e most interesting one is called Digital Divas. Users falling into this category stated that mobile phones brought them closer to brands, 1 in 5 users in this category has more than 900 connections online, and they shop online at least once a day.

#e !ndings show that Digital Divas not only have Facebook or Twitter accounts, on which they are active and do not prefer online games, they

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are constantly connected to brands and want their brands in the online environment to provide them as many valuable experiences as possible. #ey are rather interested in purchasing online than social networks themselves. #ey use social networks to !nd the most interesting information, to make recommendations, for information on the products and services o(ered by brands online.

For the market in Romania, studies show that 83% of Romanian women daily access Facebook social network, and 45% say they would like to buy from Facebook (Dobre, 2013). A survey conducted by Research and Consultancy Exact Digital Barometer in 2013 shows that 45% of Romanian women use mobile phones to surf the Internet, compared with 2011, and that the number of LinkedIn Romanian female users increased by 10%. In addition, 40% of Romanian women aged between 15 and 49 years use weekly other social networks and 48% of them use the Internet to search for videos or movies (Cr%ciunescu, 2013). Regarding e-commerce in Romania, women make most purchases. Among the most acquired products are cosmetics. Also, 57% of online services that Romanian women use fall into bank -!nancial category.

Reiterating Peters’ idea from "e Innovation Circle that brands need to constantly reinvent themselves, and to gain a piece from the market that women represent, one needs to properly understand their lifestyle, needs, purchase behavior and consumption patterns. We consider that brands that will pay attention to the construction of personalized messages for women will be able to succeed in attracting attention and have loyal consumers. Studies indicate the fact that women are more inclined to remain loyal to brands with whom they reach relationships based on sensory elements.

But in the online, consumer behavior of women depends not only on age or social status, but depends on the communities to which they belong, the circle of friends online, lifestyle and social media projected image. Some consumers are leaders of opinion for the other Internet users, and as for the others, they constitute a latent public that only seeks information and follows the activity of the former.


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#e question is, however, what are the main pro!les of online consumers, with what their preferences di(er when it comes to classic brands and brands online, and especially what motivates them to make purchases, recommendations or criticisms addressed to brands in social media.

MethodologyTo determine the characteristics of Romanian female users of social networks we have conducted a research that employs both quantitative methods (applied research survey on 211 respondents aged between 19 and 48 years) and qualitative methods (three focus groups applied on 24 participants aged between 19 and 22 years).

#e purpose of research is to determine the main characteristics of Romanian users of social networks. We constructed the questionnaire and interview grid used for the focus groups by considering three main dimensions: social media users’ behavior, self-reporting and virtual friends on social networks, attitudes towards brands in social media.

"e general objectives of quantitative research are: to determine the speci!c characteristics of female Romanian social media users, online behavior and determining online purchase patterns, reporting at brands in the online and o&ine environment, self-reporting and friends on social networks, factors in$uencing the purchase of products and services.

"e general objectives of qualitative research are: revealing perceptions about brands online, the determination of self-perception in social media, determine the perception of virtual friends, user pro!ling for Romanian female social media user aged between 19 and 22 years.

#e main research questions are:- What are the main characteristics of Romanian female users of social networks? - What are the target users’ perceptions of social media on brands and their promotional activities on social networks?

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- What are the most used social networks by our target users and which activities are undertaken by them in social media?

Discussions – the results of quantitative researchBehaviors in social media, self-reporting and virtual friends reporting#e questionnaire quantitative research was administered online on 211 female respondents aged between 19 and 48 years. Concerning the amount of time spent on social networks we di(erentiate two main user categories: 35% that allocate between 3 and 5 hours daily sur!ng said networks, and 26% that spend more than 5 on social media. At the opposite pole there are the users that spend less than 1 hour on social media (6%). Generally, our respondents have between 2 and 3 social media accounts (100% have a Facebook account, while 51% have a Google+ Account, 30% - a Twitter account, 32% - an Instagram account, and 29% - a Pinterest account). We consider that the high presence on Google+ is owed to the Gmail accounts that automatically generate the Google+ accounts. #e results of the questionnaire are in accordance with the Romanian Copywriter statistics (2013) for the Romanian market, statistics that already indicated that the most popular social networks among Romanian people are Facebook and Twitter.Regarding the number of friends on Facebook, 31% of the respondents have between 300 and 500 contacts, 24% have between 100 and 300, 19% have over 900 contacts and only 1% have under 100 contacts.

#e electronic device most used for accessing social networks accounts by our respondents is the desktop computer (57%), while the mobile phone and tablet reach only 39% and 9%, respectively. #e mobile phone is the device most used to connect to social networks by the respondents that spend on average between 3 and 5 hours online each day. An aspect of note is that respondents aged below 23 years mostly utilize the computer and not the mobile phone. However we need to mention that these results generated by the administration of the questionnaire on our 211 respondents don’t fall into the global tendencies that emphasize the fact that women tend to use more the mobile phone to access their social network accounts.


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For the reasons why our subjects utilize Facebook we mention: 45% responded that they mostly use Facebook to chat with friends; 42% of Romanian women who answered the questionnaire said they use Facebook heavily to !nd updated information about the program at college or at work; 19% of Romanian women who answered the questionnaire said that they use the social network to a minimum extent to read the press, while only 10% said they use Facebook heavily to read the press; 57% of people surveyed said that they use very little the social network for the gaming applications. #e criteria that are important when respondents befriends someone on Facebook, we noticed the following: for 36% of them matters a lot how interesting the posted content by someone is, while for 12% this matters to a reduced extent; for 29% it matters if the post contains interesting photos; to 76% is very important if they are also friends in real life; for 37% matters a lot if the person is a friend of their friends, while only for 7% this matters very little; for 33% matters very little whether the potential friend is a public !gure, while for 5% is very important; for 34% doesn’t matter if they know the person in real life.

Regarding self-reporting and friends-reporting in the virtual world, we have noticed some issues in the quantitative research: 11% of subjects strongly considered that they distribute more interesting content than their friends; 15% of respondents agree with the statement: “when posting on Facebook, I censor my opinions more than in real life”, while 6% strongly agree with the statement above.

Reporting to brands, the interaction with companies and online acquisition behaviorCompanies in social media act in the same space and time with users and their virtual friends answering a dual challenge: to generate content more interesting than their direct competitors and generate messages more attractive than online consumers’ friends. Given that they characterized both personal and friends’ activity on Facebook, respondents were asked to express why they choose to be friends with brands on Facebook social network. In general, participants said they give likes to brands’ pages with which they have interacted also in the o&ine environment, from which

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they use to consume products or services, or brands that are notoriously high.

To the question: To what extent you use Facebook to interact with brands? (likes, shares, comments), 27% of respondents estimated that they utilize the social network to a small extent, and only 7% access it to a very high extent to interact with brands. 38% of the women that were questioned declared that they use Facebook to a minimum extent to recommend brands, while only 2% declared that they recommend brands on Facebook.

It should be noted that 35% of respondents largely agree with the statement: "ere is no major di#erence between brand products and ordinary ones, instead I pay the brand, and 12% agree to a large extent. Only 9% agreed to a small extent with the statement above. #ese results come as a practical background to the specialized literature which introduced the idea of “consumers do not believe that there is a major di(erence between products” (Klein, 2006, p. 39), and di(erentiation comes from the emotional connection that brands succeed in creating.

30% of respondents agree with the statement: I usually buy from leading brands because their products/services are of a higher quality, and 5% strongly agree with this statement. Only 11% agree to a lower extent to this. 28% of respondents agree with the statement: I often buy from discounts/sales, no matter the brand, 9% strongly agree, and only 10% agree to a small extent. #is shows that there is no high degree of loyalty toward brands, if the di(erentiator is given by discounts. 8% strongly agree with the statement: I buy from the brands with the lowest price, because I don’t want to pay advertising costs, 16% agree with the statement, and 25% agree to a small extent.

#e results of the questionnaire revealed that 46% of respondents agree to a small extent with the statement: I used to do often recommendations about products / services on Facebook, and 6% largely agree. Regarding denouncing the negative experiences they had with brands, 56% of respondents have stated that they use less the social network in this regard, and 25% seldom. 28% of women who answered the questionnaire said they used Facebook to learn about new products and services, while just 5% say they


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use the social network heavily on this. 31% of people who answered the questionnaire said they largely agree with the following statement: Brands censor messages that do not express positive opinions about products / services, and 7% said they agreed with the statement in very small measure.

For online purchases, 36% of respondents said they purchase online every two - three months, and 28% once a year. While only 10% make purchases online at least once a month. An interesting aspect is that about 26% do not shop online at all, and the highest percentage is found among girls under 23 years. Regarding respondents who make online purchases we noticed that the main categories of products purchased are: clothes and shoes (26%), books (18%), electrical equipment (17%), care products and cosmetics (9%). Other product and service named are: jewelry, handmade articles, tickets to theater, !lm and opera, etc. Regarding sites that they buy from: 66% of respondents said they use to purchase online from sites in Romania, while only 9% buy from sites abroad. Regarding the allegation: Online purchases are unsafe, 43% of respondents don’t have a clear opinion whether online purchases are safe or unsafe. However, 8% of women who responded largely agree with the statement, while 24% agree to a small extent.

Results of the qualitative researchGiven the results of quantitative research, in the three focus groups we rather paid attention to characteristics and perceptions in relation to the Facebook social network than competing products, given the fact that it is the most notorious in Romania and the most used equally by women and by companies.

#e discussion started at a general level, the participants being asked to divulge what social networks they have accounts on and what the motivation behind the creation of these accounts was. During all three focus groups the most mentioned social network was Facebook. Other social networks that were cited: Instagram, LinkedIn, Twitter, YouTube, and Pinterest. Only one respondent speci!ed Google+, but she directly associated it with the automatic generation via the Gmail account.

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Regarding their motivation for opening these social network accounts, the most cited argument related to Facebook and was peer pressure (be it the school group or the friend circle). #is sustains the theory from specialized literature that social networks constitute a majority that most individuals wish to be a part of (Qualman, 2009).

We noticed the fact that respondents aged 19-22 consider Facebook as a channel through which they communicate with friends and faculty colleagues rather than an information source or a way to interact with the brands. Also, one can notice that even though they have multiple accounts on di(erent social networks, they are seldom or not at all used.

Regarding the criteria on which respondents said they befriend new people on Facebook three in particular stood out: to be friends in real life, have friends in common, the person in question to have interesting pictures. #ese arguments con!rm the results of quantitative research which indicated the same motivations. Some interesting aspects would be that: respondents do not believe that people have many virtual friends are popular, they appreciate their friends’ activity on Facebook as either boring or irritating through the large number of posts such as check-ins or photos.

Further, Facebook being the most mentioned social network, participants in the focus-groups were asked to imagine that Facebook is a live person and should enter the room where the interview took place. In this context, they had to perform a characterization of the social network. Responses were of the most varied and creative, but have distinguished some common elements that were repeated. Among them we mention that Facebook is seen, through the young women’s eyes, as corresponding to a woman and has features such as: active, sociable, popular, independent and optimistic. Other features mentioned by respondents were: “It would be multilaterally developed; it would be trendy and have double, triple personality, or even multiple personality; actual, in phase with the news and a large circle of di#erent friends “,” time consumer”, “a bookworm “.

Regarding the reference to brands, the focus group participants said they choose sites to be friends with on Facebook from amongst the ones they know or from which they usually buy from. However, an interesting


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aspect is that the respondents admitted that they deleted from the list of considerations speci!c brands because they provide information about products that they could not a(ord for !nancial or health-related reasons, and were, as a result, creating a sense of frustration.

Next, respondents were asked to indicate which they consider to be the most active brands on Facebook. #e listed brands were those that produce cosmetics and care products, jewelry, clothing, food and news channels. Among the frequently mentioned brands were: KFC, H&M, Promenade Mall, telecom brands Vodafone and Orange. #e Romanian traditional brands mentioned are: Rom chocolate and Napolact. Regarding interaction with brands via likes, share of links or comments, most respondents said they do not usually comment on posts because they do not believe that their opinions are valued by brands and they also believe that brands sort public messages received from consumers so that they could project a positive image.

Another interesting aspect of the results in both studies is that the respondents don’t have the inclination to be loyal to brands, but buy according to the mood or discounts and promotions. #ese issues do not fall into the mainstream global thinking in the literature showing that women tend to be more loyal to brands they interact with and use to make recommendations of products and services both online and o&ine.

Final discussions. Romanian female social media user pro&leFollowing the questionnaire on 211 respondents and therefore the achievement of the three focus groups we came to a series of common characteristics that generally apply to Romanian female social media users, mainly for those aged between 19 and 22 years since this age group constituted the base of our qualitative research, giving detailed answers.

We built the user pro!le considering three dimensions: social media behavior, self-reporting and to virtual friends in social media, attitudes towards brands in social media.

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For the “social media behavior” factor we considered the number of social media accounts that respondents own, the average number of friends on Facebook, time spent online, online purchases. In regard to self-reporting and reporting to virtual friends, we considered their perception on the activities conducted by them and their friends in social media, their perception on the new social media tendencies (sel!es, for example), the degree of online exposure, and in regard to attitude toward brands we considered the interaction with brands via likes, shares, comments, the criteria that determines their appreciation of a brand (to “like” something of Facebook) and the way they perceive the promotion activity of brands through social media.

#us, in our view, we can distinguish between two main categories of users. For social media behavior, the !rst category consists of the users that: average 300-500 friends on Facebook; have more than 2 accounts active on social networks (usually, Facebook and Instagram / LinkedIn), but also a number of accounts on other networks that were created out of curiosity, but do not use them (e.g. Pinterest, Google+ or Twitter ); spend on average three hours online daily; generally, the main activity on Facebook consists of conversations with close friends; don’t make purchases online at all or very seldom; rarely post on Facebook and created the account as a result of peer pressure; mainly use their Facebook account to track activity of other rather than post themselves; don’t publicly expose through posts about their personal life; prefer the classic environment interaction.

#e second category consists of users that: average 700-900 friends on Facebook; have accounts on most social networks and constantly generate content on at least three of them (usually, Facebook, Instagram and Twitter / Pinterest); spend !ve hours online; generate content about personal life and exhibit it publicly; want to show their virtual friends what they do through pictures or virtual check-ins; make purchases online often; usually are trendsetters for their virtual friends; are always up to date with new information about applications, gadgets, brands, clothing, etc.

Regarding self-reporting and to virtual friends, users of the !rst category consider friends in the online environment annoying, think about


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themselves that are not popular and produce content that does not bother others. #ey are rather introverted people online, they express by distributing messages and pictures that show professional messages that do not exhibit their personal life; consider sel!es, check-ins and the large number of virtual friends that their friends have on Facebook as an expression of frustration and need for attention.

Users of the second category generate a lot of content on social networks because they feel that it best expresses them, they need to provide information about places they’ve visited and people they interacted with. #ey expose their personal lives, use to generate a large number of pictures (usually sel!es) and check-ins, see the social network as a personal diary that they share with the virtual community.

Regarding interaction with brands on social networks there are a number of similarities between the two categories identi!ed. Among them: the weak interaction through comments, perceptions that brands will only promote their products and services, perceptions related to the fact that paid ads on social networks are annoying and invading the private space by substituting content generated by friends. However, users of the second category are more open to make recommendations on brands in the online environment, to publicly express their grievances in relation to brands on social networks.

#ese typologies are strictly generated by the results of our research and are not o"cial types of Romanian social media users. #e research has a number of limitations related to the number of respondents and the age segment of the participants in focus groups. Of course, users of social media in Romania can be !tted intro global typologies as the one by Ogilvy and Microsoft, that present the Digital Divas type (very connected to the online environment, in line with trends, easy-going in their interaction with brands and eager to expose themselves , passionate online purchasers). #is typology is most often represented in Romania by female bloggers who work in !elds related to fashion, beauty, feminine lifestyle or culinary, as well as public !gures. #ey generally

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have a number of friends that exceeds 1,000 and are active on most social networks (especially on Facebook, Pinterest, Instagram and Twitter).

References Adler, E. (2014). Social Media Engagement: #e Surprising Facts about

How Much Time People Spend On #e Major Social Networks, BusinessInsider. Retrieved from http://www.businessinsider.com/social-media-engagement-statistics-2013-12#!H9ufP.

Barletta, M. (2007). Marketingul adresat femeilor. Bucharest: Brandbuilders.Berthon, P.R., Pitt, L.F., Plangger, K., and Shapiro, D. (2012). Marketing

meets web 2.0, social media, and creative consumers: implications for international marketing strategy. Business Horizons, 55(3), 261-271.

Blanchard, O. (2011). Social Media ROI: Managing and Measuring Social Media E#orts in your Organization. Bucharest: Editura Que.

Castells, M. (2009). "e Rise of the Network Society: "e Information Age: Economy, Society and Culture. New York: Wiley-Blackwell.

Cli(ord, C. (2014). Women Dominate Every Social Media Network -- Except One. Entepreneur. Retrieved from http://www.entrepreneur.com/article/231970.

Creeber, G., and Royson, M. (2001). Digital Cultures. Understanding New Media, New York: Mc Graw Hill.

Cr%ciunescu, M. (2013). Marketing for Women: Jum%tate din tinerele din mediul urban vor s% arate bine doar când ies din cas%. Smark. Rerieved from http://www.smark.ro/articol/26403/marketing-for-women-jumatate-din-tinerele-din-mediul-urban-vor-sa-arate-bine.

Cr%ciunescu, M. (2013). Femei vs. B%rba)i în social media. Smark. Retrieved from http://www.smark.ro/articol/26411/femei-vs-barbati-in-social-media.

Dobre, M. (2013). 91% dintre femei se simt neîn)elese de advertiseri. Cariere Online. Retrieved from http://www.cariereonline.ro/articol/91-dintre-femei-se-simt-nein%C8%9Belese-de-catre-advertiser.

Dumitrescu, D. (2013). Nativi digitali/Preg'ti(i-v'!. Bucharest: Tritonic.Ernst andYoung (2013). Men and Women Have Di#erent Online Spending

Preferences. PRNewswire. Retrieved from http://www.prnewswire.com/news-releases/men-and-women-have-di(erent-online-spending-preferences-72606272.html.

Ho(man, D.L., and Novak, T. (1996). A new marketing paradigm for electronic commerce. "e Information Society, 13(1), 43-54.


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Ogilvy and Microsoft (2013). Digital Divas: "e women leading a cross-channel shopping revolution. Ogilvy. Retrieved from http://www.ogilvy.com/On-Our-Minds/Articles/May-2013-Digital-Divas-2.aspx

Qualman, E. (2009). Socialnomics. How social media transforms the way we live and do business. New Jersey: John Wiley and Sons, Inc.

Qualman, E. (2013), 19 Social Media Facts #at Every Marketer Shoulds Know. Marshable. Retrieved from http://mashable.com/2014/04/23/social-media-marketing-facts/

Martin, C. (2011). "e third screen. Marketing to your customers in a world gone mobile. London: Clays Ltd.

Peters, T. (2010). Cercul Inova(iei. Drumurile b't'torite nu duc spre succes. Bucharest: Publica Publishing House.

Papacharissi, Z. (2010). A Networked Self: Identity, Community, and Culture on Social Network Sites. New York: Routledge Taylor and French Group.

Stadd, A. (2014). How social media in$uences purchase decisions. Media Bistro. Retrieved from http://www.mediabistro.com/alltwitter/social-media-purchase-decisions_b54296u.

Underhill, P. (2000). Why we buy: the science of shopping (2nd edition). New York: Simon and Schuster.

V%t%m%nescu, E.M. (2012). Similaritatea în cadrul comunit'(ilor virtuale. Bucharest: Universitar% Publishing House.

Digital Women Influencer Study: #e women of social media (2013). Webershandwik. Retrieved from http://www.webershandwick.com/uploads/news/!les/WomenofSocialMedia.pdfhttp://www.newmediaandmarketing.com/what-woman-want-and-need-from-brands-on-social-media/

How We Use Mobiles and Facebook: Men and Women use social media di(erently – Women Play More Games, Men Use QR Codes (2014). Lbszone. Retrieved from http://lbszone.com/2014/04/02/use-mobiles-facebook-women-play-games-men-use-qr-codes/.

Modern marketing: Valenti & Performance

Cornelia MAXIM1

Cristian - Mihai VIDU2

Abstract. "e real and the virtual world of the contemporary society, based on the components and tools of the super technological forms of human communication and relationship already exists as a modern integrated system, dominated by the dynamics of competition and performance in areas such as E-Economy, E-Business, E-Marketing, E-communication, E-socialization, E-education, E-media, e-culture, e-Career, E- democracy etc.. "e economy and the business of the new millennium have su#ered a deep and rapid transformation both globally and speci!c (national / regional / local / organizational). In less than two decades, a complex new E-economy has emerged with multiple links between market actors and the powerful functionality of the virtual world networks. Marketing as a philosophy and instrument of business is an economy has experienced profound transformations having been subject to changes in structure and content, approach and use, resulting in the modern E-marketing (characterized by the new E-marketing mix: Cyber-marketing; Relationship marketing; Viral marketing; Green Marketing and other de!ning entities. "e E-economy and E-business environments have demonstrated mobility and $exibility, quick adaptability to changes and challenges, performance and high-performance under a !erce and aggressive competition. "ey became environments in which the relative limits and restrictions of the present generate challenges and opportunities of the future. All this being done under the terms of existence and dynamic integration of components and tools for E-marketing, E-communication, E-socializing etc.

Keywords: marketing; e-marketing; cyber-marketing; relationship marketing; viral marketing; green marketing.

1. Lecturer, Ph.D., College of Communication and Public Relations, National University of Political Studies and Public Administration, Bucharest, Romania, [email protected]. Assistant professor, Ph.D. Candidate, College of Management, University of Political Studies and Public Administration, Bucharest, Romania.

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Introduction#e contemporary society of the third millennium exists and is growing dynamically by two mega entities: the real world and the virtual world. #e existence of these two worlds, with di(erentiating identities and characteristics that customize them (as in individuals, groups, organizations, etc.) has become a dynamic generator in an exponential stream of challenges and development opportunities in all environments and human communities.

#e complex and diverse reality of contemporary results in the virtual world has proven that the virtual environment has become the real support of human communities, that its members successfully interact real-virtual between the two distinctly personalized worlds.

#e complex research, the real world results and e(ects of the challenges and opportunities of the virtual world are marked by integrating results and performances of these two worlds in all macro and micro !elds of the contemporary society.

#e modern society of the real world whilst based on the technological components of the virtual world is dominated by strong competition in areas such as: E-Business, E-Marketing, E-economy, E-communication, E-socializing, E-education, E-media, E-culture, E-career E-democracy, E-policy, etc. Each of the aforementioned areas provide the guarantee of the performance for existence, life and activity integrated between the two worlds: real and virtual. #e business environments of the !rst decades of the third millennium (both on a global and on a speci!c scale) are highly dynamic and can be found in a state of constant $ux. #ese environments are characterized by mobility and $exibility, quick adaptability to changes and challenges, performance and high-performance under a !erce and aggressive competition. #ese are environments in which the relative limits and restrictions of the present generate challenges and opportunities of the future under the conditions of existence and dynamic integration of the two worlds: real and virtual.

As justi!cation, this article aims to provide a detailed and convincing approach to modern business success in the real world using the super performing tools

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of modern marketing, built on a network of “E-....”s of the virtual world: E-business, E-communication, E-economy, E-marketing, E-Technology, E-socializing, E-identity, E-education, etc..

Finally, “E-marketing” has become the support tool and generator of ongoing challenges and opportunities of modern society, a society characterized by the e(ects and performance, impact and results of multiple and various “E-....”s, found in all areas of existence, life and work of the contemporary world.

Contemporary Marketing: Evolution vs. Realities"e society and economy of the third millennium experienced profound changes caused by the existence and dynamic development of two mega entities: the real world and the virtual world. #e existence of these two worlds with identities and characteristics that di(erentiate them and customize them (individuals, groups, organizations, etc.) has become a dynamic generator in an exponential stream of challenges and development opportunities in all environments and human communities. In these circumstances there has been a profound shift from the “old” economy to the “new” economy with multiple and complex links between the market players under the generic term of network economy (Kotler et al., 2008, p. 19). Such an economy required the creation of process modeling for business and trade based on typological structures and new collaboration and exchange between bidders and buyers. Marketing, the philosophy and tools of doing business in the economy, did not remain immune to these profound changes and has been subject to changes in structure and content, approach and use.

"e stages of development for contemporary marketing highlight how the focus of marketing activities and tools have evolved over time, with each step leading towards a certain type of decision-making guidance. #e transition from consumer orientation to sales then to competition and further towards the environment has led companies to focus approaches from market orientation - a speci!c stage of extensive marketing development to a customer orientation – a characteristic of intensive development marketing (Bruhn, 2001, pp. 17-20).

Cornelia MAXIM, Cristian - Mihai VIDUA

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Traditional marketing approach has proven e(ective in various economic and social areas up to a certain historical stage, a stage marked by the transition from the industrial economy and society to the informational and communication based society. #is was based on technological and diversifying media and means of communication, on the information and knowledge, all resulting in a rapid general integration of the real world to the premises of the virtual world. Such a step is found in the last decade of the second millennium and the beginning of the third millennium. #e emergence of World Wide Web has opened a new era of marketing. One of the !rst concepts that revolutionized the marketing businesses and the market as a whole was the Cyber-marketing, which launched marketing with the Internet as the primary channel of communication.

Cyber-marketing as the !rst form of modern marketing is de!ned as “the use of the power of computer networks and online communication and of the digital interactive environment to achieve the marketing objectives” (Orzan & Orzan, 2007, p. 23). #is is considered as a online information policy or a consumer-centered online marketing and is characterized by addressing the intersection of three areas: marketing, economics and technology; process of creating and maintaining customer relationships through online activities to facilitate the exchange of ideas, targeting the consumer market; include integrated brand management, sales, market research, advertising and online assistance; using tools such as e-mail, online advertising, newsletter, websites, etc.

#e Traditional Marketing - Cybermarketing comparative approach highlights the relevant general and speci!c issues, resulting in the conclusion that Cybermarketing di(ers from traditional marketing through clearly superior facets and tools related to: Costs; Time; Interactivity; Globalization; Availability.

#e traditional marketing mix, known as the 4P model includes four controllable and combined elements / tools: the Product, the Price, the Market / distribution and the Promotion, being used by any !rm / company in order to produce the desired reaction in the target market. It has its applicability also in marketing conducted online, established under the

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name of E-marketing mix (online marketing). In this context, the impact of the Internet on each of the four elements was essential and controversial from the point of view of specialists. #us, with respect to the concept of E-marketing mix, the opinions are diverse, and even so far a common view on this concept was not reached. Compared to the traditional marketing mix, the E-marketing mix has a number of elements that overlap with the conventional mix, but also some elements that are speci!c to the digital environment. #e online marketing mix means the application of the 4Ps to be adapted in order to identify and meet the consumer’s interests, a goal that required two other components in the virtual environment: the interactivity process and the databases. #ese new components created a new formula, speci!c for the online marketing mix, set up as 4P + 2D, where the !rst D is the dialogue (feedback) and the second D is represented by the organization of data in the form of databases and data warehouses. In the online marketing mix the 4Ps turn in the sense of acquiring other meanings in$uenced by the speed of deployment of economic activities (Kotler et. al., 2008).

In conclusion, the E-Marketing mix must provide the present and create at the same time the future of the business success of a company / !rm. Sales promotion, distribution and pricing tactics can a(ect the sales and pro!ts. But the real art is to do these things so that at the same time they can be a support for the future.

A comparative analysis of the promotion techniques within the traditional marketing and within cybermarketing (http://www.scribd.com/doc/137171840/Cybermarketing-Manual.pdf ), shows an unprecedented development of the E - marketing !eld, of some new policies, strategies and tools in the !eld of marketing, a !eld subject to constant change due to technological and social in$uences on the customers’ consumption and acquisition behavior.

Given that traditional marketing is an intensive process that involves high consumption of time, human and !nancial resources, and sometimes even ine(ective, the E-marketing (online marketing) has become a powerful alternative to traditional marketing.


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#e key factor of online marketing consists of an element of which the traditional marketing does not bene!t, namely the possibility for the customers / consumers to directly engage and e(ectively participate in the online marketing processes carried on.

#e online marketing adds more interactivity, more choice possibilities for the consumer, more informative value to the products and services, reducing the costs and removing the geographical boundaries. It operates with the new tools of the virtual world: blogs, email marketing, forums, chats, online books, corporate websites and online media. And as promotion methods in E-marketing the following are used: newsletters, mailing lists, spam and speci!c forms of marketing: with permission (permission marketing), relational, environmental (green), viral.

Relational marketing #e relational marketing / relationship marketing concept is based on three distinct theoretical approaches, which are in an e(ective practical interdependence: behavioral approach, communicational approach, and managerial approach. #e three types of approach aim, in the context of the concept of relational marketing, the signi!cant changes in the management process of human resources and relations within the !rm / company, but also in relation to third parties. Conceptualization of the relational marketing has driven marketing schools and experts in the !eld, during the last two decades 1990 - 2010 to create a support with multifunctional and integrative valences designed for the business in the third millennium. #e concept of relationship marketing is continuously evolving (Zbuchea, Pînzaru & Galalae, 2009).

Relational marketing expresses a strategic dimension of the marketing concept, consistent with the !rm’s / company’s strategic management approach. It is based on the relational capital of the !rm / company, consisting of a synthesis of knowledge, experience and trust built up over time by the !rm / company based on its lasting collaboration with the suppliers, customers, employees and other stakeholders. It is a totally interactive marketing that e(ectively leverages the technical support created by the “digital revolution” (Kotler et al., 2008, p. 38).

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Relational marketing is based on seven key principles: Intention of creating a unique relationship; Interaction with trade act partners; Selectivity to various categories of customers; Integrating the customer in product / service evaluation; information about the customers; Investing in customers; Individuality for customers.

#e business environment in Romania also faces the challenges of relational marketing. #e new competitive framework that Romania’s accession to the European Union created required the local economic operators, !rst of all, to operate a change of mentality. #e performance of this type of marketing is assessed by the ability to identify and develop medium and long business in areas where it is able to meet all requirements of quality management and competitiveness. It is for the academics and researchers in the !eld to provide a rigorous conceptual framework for the relational marketing in Romania, as well, and to determine as such it to be successfully applied. Without this e(ort of scienti!c creativity, the relational marketing is at risk to fail in punctual applications of its tools meant to promote sales.

Viral marketing#e viral marketing is an online advertising method in which the advertisement is transmitted from one person to another without direct intervention of the person making the promotion. #e name is given by the manner in which viruses spread through e-mail, multiplying themselves on many levels by social networks speci!c for online environment. It has as its reference support the cybermarketing and its communication channels: Internet, Intranet, Extranet, local area networks (LAN), metropolitan area networks (MAN), CDs, multimedia means, on-line and o(-line systems.

#e viral marketing aims at overcoming the normal limits of any sales market in a real space. #is type of marketing presents many advantages over traditional marketing, including: the number of people that can get the message, the high speed with which the message is spreading using the existing social networks, reliability, low cost, propagation range, choosing the target consumer and people (age, gender, preferences, hobbies).


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Internet, viewed as a medium for the propagation of viral marketing campaigns, overcame the “through word of mouth classic” marketing. In the online media the implementation of spoken communication attained an unimagined scale, the message going to an unlimited number of people, and the blogosphere and other media were those virtual structures that underlay the viral marketing campaigns.

#e Word of Mouth Marketing Association includes the viral marketing in the list of marketing subtypes of word of mouth marketing. #e classi!cation is made according to the method of transmission of the message and includes the following classes of oral marketing: opinion formers’ marketing, buzz marketing, viral marketing, marketing through blogs and marketing through the channels of the online application Really Simple Syndication (RSS). Some of these types can be used as channels through which the viral messages can be transmitted, such as the blogs or the RSS application channels. Viral marketing also operate with buzz marketing type messages. #e buzz marketing is a way to get people to talk, generating agitation about a subject through its very nature (http://womma.org/wom101).

#e viral marketing uses the opinion formers’ ability to set an example for the blogosphere community and to send the message to a large number of receptors, counting on them to disseminate the information in the social groups to which they belong. Facebook, Twitter or Youtube applications, based on the same concept of interactivity, are extremely e(ective in spreading viral campaigns because they easily identify the target audience through the pro!le created on these social networks. #e message can be directed to a selected group of people based on their characteristics and preferences.

#e viral marketing has been structured according to another method of classi!cation in the following categories (http://www.clickz.com/831941): value viral marketing, guile viral marketing, vital viral marketing, spiral viral and vile viral marketing.

#e value of viral marketing consists in sharing valuable information between the users about a product or service, and the positive impression

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made will be sent to friends and acquaintances, urging them to try it. Examples of products and websites representative of this viral marketing strategy can be considered Hotmail, Harry Potter books, Amazon.com and Yahoo.com.

#e guile viral marketing uses skillful techniques by which the supply of information, sale of a product or the inclusion of other people in a system is based on a reward or commission. Amway and Tupperware are products examples of this tactic, and Quixtar.com and My Points are examples of web pages.

Vital viral marketing refers to the sharing of information that requires a product to be used as support. If a user wants to share an experience to an acquaintance, that person must try that experience by means of a product. Macromedia Flash, Adobe Acrobat, eBay.com and AOL are examples of this type of viral marketing.

Another type of viral marketing is the spiral viral, by which interesting or funny experiences are transmitted motivated by the desire to share the same feeling with the receiver of the message. Hampster Dance, Frog Blender and numerous games can be given as examples. #e negative viral marketing (vile viral) tries to prevent other possible users of adverse e(ects from the use of a product or service. An example of this type of viral is Crystal Pepsi. By its negative nature, this message is the most probable viral success, by its fastest spreading and by the most users reached by it.

#e viral marketing uses three types of viral messages (Zimmerman, 2005): pass along, incentivised viral and undercover, which include items by means of which the attention of the people is captured, causing them to spread the information to their acquaintances.

Channels of transmission of viral message must be known and chosen so that a viral marketing campaign can be successful and avoid failure. #e Internet is an ideal medium for this purpose because of the multiple pathways it possesses, the very low cost, the high speed of propagation


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of information, the ease of use and the large area of propagation. Given the multiple facilities and the complexity of Internet, it is normal for the arrangements for a viral marketing campaign to be carried on to use a wide range of options as distribution. #ese options include: e-mails, instant messaging links, e-books, e-postacards, web sites, distribution of free software, web hosting, free templates, forums, using electronic gift certi!cates, blogs, newsletters, email marketing, online games and banners.

#e viral marketing involves a high degree of creativity in making a campaign so that it will have a strong impact on the target audience, to generate responses, to infect (virus) both the current and the potential customers. For this purpose a strategy is used, which combines the message, the channels and the list of recipients so that their potential can be used to the maximum in order for the intended objectives to be achieved. #is marketing strategy should consider both the advantages and the disadvantages of the viral marketing speci!c techniques.

#e advantages of viral marketing as compared to the traditional marketing concern: the number of people that can get the message, the message spreading high speed using existing social networks, reliability, low cost, propagation area, choice of the target consumer and public (age, gender, preferences, hobbies) etc.

But the viral marketing presents a number of disadvantages that should be considered in the specialist’s strategies and successful use of marketing technology in online media, which refers to: the unexpected extent that the message can take, the lack of control of the message spreading, message distortion, size and format used, and the attachments.

#e viral marketing involves major risks to be assumed, which sometimes may adversely a(ect the business / company, but the “di"cult mission is for the viral elements to produce value” http://studentsonmarketing.wordpress.com/2009/01/21/a-!-or-not viral/).

Knowing the advantages and disadvantages that characterize the viral campaigns a series of examples that showed a notable success can be

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analyzed. Viral campaigns were created, which have been a huge success and remained in public memory as fun, innovative, useful or shocking.

#us, Hotmail is the example of a viral campaign successfully used, the company becoming a leading provider of free e-mail services. #e launching of the new Seat Leon car model has used the viral marketing, as part of the strategy, which consisted in sending by e-mail and by instant messaging programs the news of the publication of the 3 episodes presented in the form of comics, which did not present the car, but the emotions created by the publication of these episodes, by visiting three di(erent addresses: “www.episodul1.ro - #e Beginning”; “www.episodul2.ro - It is coming”, “www.episodul3.ro - Published”. Also, discussions on the campaign were generated and maintained on various forums. #ese elements contributed to capture the public attention on the vehicle launching campaign and to increase the tra"c on the websites.

Regarding the Romanian viral campaigns, the campaign started by the television station Acasa TV was called “Hacking Acasa.ro”. Reviving the Acasa.ro portal included a step that simulated a cyber attack, which had a duration of four hours. Knowing the high levels of tra"c registered on this site, the “Hacking Acasa.ro” proved to be really successful.

Marketing 3.0 / Green MarketingAs seen by Kotler (2010), Marketing 3.0 is the new trend of !rms / companies to reach the consumers by unifying strategies focused on human resources as the key resources of an organization, with the strategies focused on pro!tability. By adopting and implementing a set of positively centered values the company can improve its image, both to the customers and to the partners and the employees. Marketing 3.0 approach is based on “the new wave technology” generated by the !fth-wave computing. #e convergence between the new wave technology and the new consumers’ purchasing trends is the focal point of the marketing strategy that aims to reach the target customer as soon as possible, a strategy called by Tasner (2010) “Web 3.0 Marketing”.


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An important feature of web 3.0 Marketing is represented by the activities of Corporate Social Responsibility (abbreviated as CSR). #e CSR concept varies depending on the entity de!ning it, so that it may be di(erent in the corporations’ vision as compared with the vision of the nongovernmental companies (Crane et al., 2007). According to Mallin (2009), CSR activities are de!ned by the !rm’s initiative to create and change its values and behavior consistent with the stakeholders’ (partners, investors, consumers) expectations.

United Nations initiative called “Global Compact” (UNGC), aims at encouraging the businesses worldwide, so that they generate sustainable and socially responsible activities. UNGC has adopted the CSR concept as being the full involvement of companies in sustainable economic development, working with employees and their families, the local community and society at large to improve their living standards.

Marketing 3.0 includes a special component, called green marketing, which brings strategic bene!ts for the companies that use this market approach. In this context, environmental activities developed by various companies improve their image in front of consumers, investors, employees and the general public. In recent years, a growing number of consumers show a growing interest in ecologic products and a company that has these products will thus attract these consumers (Dahlstrom, 2011). Green Marketing related studies show that over 64% of consumers think that the environment must be protected and used rationally, the contemporary consumers being willing to sacri!ce their comfort or their money in order to get ecologic products.

Sustainability, in Marketing 3.0 concept, is not a risk factor for management, but an element of the marketing strategy, source and potential of growth and innovation. Large companies that survive in the present, and possibly in the future, are those companies that have adopted the sustainability concept, which o(ered them a competitive advantage and therefore pro!tability (Iannuzzi, 2012).

#e consumer is considered the cornerstone in the development of Marketing 3.0. #e consumer’s role in the successful application of web

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Marketing 3.0 can be provided by meeting three objectives: innovation, creation of stories which to a(ect and involve the consumers and, consumer’s empowerment (Kotler, 2010).

Virtual world and the digital market of modern society have created a vast and solid connection among people around the world, between suppliers of products / services and their customers (Ryan, 2009). #e companies / !rms focused to be active in this globalized market, and in recent years they quickly and successfully implemented, CSR type activities, green marketing, sustainability or any other strategic aspect of Marketing 3.0.

Also in Romania, in order to highlight the market success of Marketing 3.0 activities, namely corporate social responsibility, the green marketing and the sustainability activities, some generic events have been organized by three Romanian companies: Avon Cosmetics Romania (“Smile Festival “); Petrom “Andrei’s Country” - planting “); Enel Energie (“Plant the Bill”). #e analyses of the three events highlight the fact that for each of the target groups, the speci!c marketing 3.0 objectives have been met with results that exceeded the initial estimates. #e target audience had a positive attitude regarding the companies’ initiatives and supported them in achieving these objectives and events.

Relevant research synthesisViral marketing / marketing campaigns: Transylvania Bank and CTM COSMOTE#e objective of the research focused on the impact that two viral marketing campaigns (conducted by Transylvania Bank - BT / 2009 and mobile phone company COSMOTE - CTM COSMOTE / March, 2013) had on the customers’ behavior and on the image that has been created through an online promotion carried out for the two companies. #e aim was to analyze all the elements that can contribute to the implementation of a successful marketing campaign, as well as to analyze some issues that could adversely a(ect the company or the product involved in the campaign. It was also taken into account the fact that in a viral marketing campaign, there are elements that cannot be controlled (audience reaction, feed-back sent etc.), but in order to carry out a successful campaign both positive


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examples and negative examples must be used, in order to minimize the likelihood that the campaign to fail.

#e qualitative research was applied using the non participative observation, based on the accession to the viral marketing sources that provided the thematic subject of the research: viral marketing campaign conducted by BT (2009) and the campaign conducted by CTM COSMOTE (2013). Note that the two viral marketing campaigns have used speci!c items (clips, context, language, characters) from a video viral video (“six beautiful horses” - http://www.youtube.com/watch?v=T-Zu0bRGuUQ) published prior to 2009. #e research has also relied on the accession to information published in the online media, on websites, blogs, forums, regarding the two viral campaigns. Of a particular importance were the nature and the content of the comments posted by the internet users who watched the three videos and the number of visualizations recorded over time.

#e painting o(ered by the said $ick is one of ignorance, of grotesque re$ected by the place and by the language of the interviewed person, as well as by the people who appear in the images. An original element is the spontaneity of the moment, which probably has increased its popularity among internet users. Perhaps it is this ingredient, namely, the spontaneity of the moment, that greatly contributed to the spread of “virus” in the online media, and has led to the phenomenon of “six horses” that pretty much everyone knows, even without the clip to be watched. It is called a phenomenon because at this point, the original clip (http://www.youtube.com/watch?v=9DW_jvxbDQs) has 2,991,859 views, while it was posted on the youtube.com website on 09.11.2008. #e comments posting option is disabled for this video. In 2009, the website blog.standout.ro, reported that the said video record 11.797 views per day, while he was not promoted by traditional means of promotion (http://blog.standout.ro/2009/06/social-media/top-20-clipuri-virale-in-romania).

In addition to the video that was originally posted, other videos with the same content have been subsequently posted. In their turn these videos have recorded a fairly large number of views: the clip available at http://www.youtube.com/watch?v=T-Zu0bRGuUQ recorded 1,584,280 views (June, 2014), and at the same time, the clip available at http://www.youtube.

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com/watch?v=Z7zpSVmQ94M, recorded 1,064,874 views. #ey contain comments which prove that they caused amusement to those who have watched them, and some of those who posted comments had taken inside the messages the phrase “six horses.” Based on the above information, it can be recon!rmed the status of viral phenomenon of the “six horses” video. In addition, this movie status is rea"rmed by the fact that parts of it were used in the two advertising campaigns of BT and CTM COSMOTE. Given the di(erences between the two companies (objects, target audience, etc.), we considered necessary a brief overview of the two spots having as inspiration source the “six horses” phenomenon.

#e spot the made by BT has a duration of 20 seconds. #e character Zânul (the Elf ) of the BT spot (2009), is found afterwards in other spots in the advertising campaigns of the bank. #e BT/2009 spot advertises loans that are usually secured by assets, but according to Elf ’s claim, they are guaranteed by two beautiful horses (the product shown in the commercial is actually a loan already guaranteed by the National Credit Guarantee Fund for SMEs). #e spot ends with the famous phrase “maximum six horses,” said by the Elf. #e spot available by accessing the link, http://www.youtube.com/watch?v=Ont-zrJ319M is not the only spot existing on youtube.com and it recorded 47 898 views, being posted on 19.06.2009. #e comments related to this post are similar to those of the original clip and show that among a certain type of audience it managed to arouse amusement, although on other sites (see http://www.zoso.ro/banca- transylvania-guarantee-6-way-beautiful/) there are also critical messages with respect to the borrowed elements that appear in the spot. However, given that the loan tenderer was a bank, there were also published comments with a question mark, namely if the spot published online had the purpose of an actual bank advertising campaign? A variant of the answer to this question is suggested at the end of this presentation of comparative research.

#e spot made by CTM COSMOTE (http://www.youtube.com/watch?v=nhvPNk2SQHU) took over several elements from the original “six horses” spot. In a context of modern decor, but that tries to replicate the décor of the original $ick, the main character and other Roma people and a horse are borrowed. In the !rst images of the spot a young man seated at a table and typing in front of a laptop is shown. A voice tells him “You who


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are eating, how would it have been if you were the !rst one to !nd it and put on the net the six beautiful horses?”. Immediately after this question, in the image appears the character of the initial video and puts the question “How many horses must be harnessed to a cart?”, which is answered by himself “Six, or two, two, maximum six ...!”. After this moment, the package of banking services to which it is intended is introduced, with the access to Internet as its strength point. #e ad was posted by the user CTM COSMOTE Romania on 03/14/2013 on youtube.com, which is the o"cial channel of COSMOTE. Some comments are positive, others criticize the use of the example of the “six horses”. #e clip has a duration of 50 seconds, as opposed to that presented by BT, which takes only 20 seconds. Carefully reviewing the mentioned spots, a number of items can be seen, which were used without taking into account a number of rules of viral marketing. And hence a number of negative e(ects on the two campaigns and companies resulted.

Conclusions regarding the success / failure of the two companies and the impact among the users, both in terms of created image and in terms of promoting the products and services through these spots are shown below.

For BT, the spot was an unfortunate idea, given the status a banking institution is supposed to have. By the said spot BT sent to the customers a message of a very simplistic approach of their business (spot advertises a product that addresses SMEs) in full !nancial crisis (2009), when many businesses have faced many problems in the context of relations with the bank. Just these di"cult situations the businessmen in SMEs sector have encountered with respect to the banks suggests a negligence on the part of BT, with respect to the manner in which the credits addressed to them are guaranteed. Another negative aspect of this campaign is the fact that BT has opted to use elements of a viral video, which often targets a speci!c type of audience. In this case, the aimed subjects are particularly young people, who adhere more easily to these forms of entertainment, compared with businessmen, despite the fact that the virals circulate also within the companies, by e-mail or other channels. Given this aspect, it is likely that a businessman who did not watch the original clip does not understand what it is about and was likely to consider the words of the Elf as a form of disrespect to the customers. #e banking system is known for the employees’ sobriety, the seriousness with which the customers are

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approached and their operations are treated. #e spot contradicts this picture and is even joking about the manner in which the credits for SMEs are guaranteed. Such an attitude would have been rather suitable for a product addressed to young people (e.g. a special card for students, o(ering di(erent facilities), because they are more receptive and nonconformist and also know much better the online media and the viral campaigns carried out in this context.

#is spot does not address the right audience, and contributes in creating a distorted image of the bank, and given the small number of views in relation to the views of the $ick that served as a guide, it can be said that the campaign aims to promote the company and one of its products, but it has been a failure. Unfortunately, this conclusion can only be based on information provided online.

Unlike the BT spot, the message of the spot made by CTM COSMOTE is appropriate to the target audience. It clearly addresses the young people by the presence of that young boy using a laptop and Internet services. COSMOTE uses elements from “six horses” as an example to young people who are eager to become popular, especially by these means. Usually they are the most knowledgeable in terms of online campaigns, and some of them want very much to be given the opportunity to become very popular, and to earn money very easy. CTM COSMOTE speculates this feature of the young Internet users and provides them with the means (Internet access and other services) by which they can reach the “viral” success promoted by the “six horses” phenomenon. A negative element met in the COSMOTE spot is the lack of spontaneity of the Roma actor. Even if he says the same words, the moment is not as funny as in the !rst spot. As we previously stated, the spontaneity of the moment in that $ick was a strong point, which stimulated propagation of images on the Internet, but in the case of COSMOTE it had not the same impact.

Clearly, the spots seek through the use of the elements from the $ick “six ways” to get a huge number of views of them, managing as such to promote the o(ered brand, products and services, but this is not always the case with the viral marketing. From the analysis of the spots and of the


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manner in which they are promoted through viral marketing campaigns, we can draw some important conclusions.

#us, in the case of Transilvania Bank: - #e commercial spot has negative e(ects on the image the customers have about the institution because of mismatches with the target audience; - #e attitude of the character of the BT spot increases the degree of negative impact it has and transmits to the bank’s image, showing a lack of seriousness in dealing with customers’ problems, amid an economic crisis (2009), which strongly a(ected the SME sector in Romania; - #rough the spot, customers have been sent a wrong message about partnership relationship that can be established between the two parties; - Relatively small number of views shows that the aim of becoming a viral spot was not reached.

In the case of COSMOTE campaign: - #e COSMOTE spot is adapted to the target audience, given that young people are very receptive to such kind of thing (which is a plus as compared to BT spot that did not take account of this aspect); - #e use of the Roma character failed to have the same comic e(ect as in the original video because it lacked spontaneity; - #e spot fails to register a high number of views, which shows that its purpose to become a viral spot was not reached.

#e brief comparative analysis, as well as other examples of viral marketing campaigns that took and are taking place in the public and business environment of the Romanian society, lead to a series of recommendations generated by the successful approach and implementation of the concept of viral marketing (http://studentsonmarketing.wordpress.com/2009/01/21/a-!-sau-nu-viral/).

- “#e di"cult mission is for the viral elements to produce value”. Unfortunately these two spots just mimicked certain elements from a viral clip but this was not a guarantee for success and has actually worked against them by contributing to the decay of the respective company’s image (it is

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obvious that in the case of BT this is more of an issue due to the fact that it is a bank and the clip was not adapted for the target audience).- Viral marketing insures a rapid spread of the message but after this message has been launched the companies no longer have any control over it and for this reason it is necessary that all the steps for the viral marketing campaigns are obeyed in order to minimize the risk for failure.- Contrary to all advantages generated by the use of viral marketing (low cost, rapid feed-back) there is a high degree of risk present that need to be assumed by al those who choose this type of marketing because of the uncontrollable elements. #is is necessary even if all the rules are obeyed and this leads to a clear analysis of the advantages and disadvantages before such a campaign is initiated.

Conclusions and implications / Discussions#e present article has set for itself the challenge to o(er a detailed and convincing approach for the success of real world business using the super performing tools of modern marketing, built on a network of “E-....”s of the virtual world: E-business, E-communication, E-economy, E-marketing, E-Technology, E-socializing, E-identity, E-education, etc..

In this context, “E-marketing” has become the support tool and generator of ongoing challenges and opportunities of modern society, a society characterized by the e(ects and performance, impact and results of multiple and various “E-....”s, found in all areas of existence, life and work of the contemporary world.

#us the E-marketing of the 2014 year manifests itself through other challenges and through some trends.

In the global market consumption (international, regional, national, local), the advertising agency JWT has published a study of 10 trends that will characterize the behavior and mindset of consumers in 2014 (www.wall-street.ro/articol/Marketing-PR/159328/10-tendinte2014.html). #ese are listed below.


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- Immersive Experiences (new technologies provide brands, retailers and content producers the opportunity to create experiences that allow consumers to abandon the “real” world).- Do you speak visual? (the world is expressed through an increasingly rich vocabulary based on pictures, emoticons and video content, reducing the text as a way of communication. Why? #e human processes visual elements at 60,000 times the speed of processing text).- #e age of impatience (puts pressure on brands to buy time with customers, as the on-demand economy becomes mainstream).- Mobile as Gateway to Opportunity (this trend emerged in 2013, including in Romania).- Telepathic Technology (robotics copy of a human body remotely controlled by the brain / BCI - Brain Computer Interface; the development of brain-computer interface type and emotion recognition technologies will enable brands to gain an understanding of what is in the minds of consumers).- #e end of anonymity (new technologies and projects which aim to gather personal data are making it increasingly di"cult for people to remain unregistered and unnoticed by corporations or governments).-Raging Against the Machine (brands can create friendlier technologies and focus on the needs of people who refuse devices and classic social networks).- Remixing traditions (creators of brands and corporate managers need to understand one simple thing: “ One size doesn’t !t all “).- Proudly imperfect (imperfection has an increasingly di(erent perception now, and brands can show that it is better to be imperfect, an example is the use of images less “worked” in Photoshop and the use of realistic examples).- Mindful Living (consumers develop a desire to live all kinds of experiences in a responsible manner and reported to the spiritual dimension of life: yoga, healthy eating, meditation, movement and so on. Brands are expected to react to the needs of this type of modern consumer).In the social networks, Romania manifests some tendencies (Forbes.com) #ese are listed below.- Investments in online social environment will become a necessity, not a luxury, for an increasing number of !rms / companies / organizations.

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- Google will become a major factor for rapid development (being the second social network by monthly number of users - 343 million, after Facebook).- Image social networks will become a success (eg. Pinterest, Slideshare, Tumblr, Path, Mobli and so on will continue to develop)- We will see the development of Micro-Video (New micro-video / Twitter, video posts / Instagram, video sharing, movies / Twitter, movies directly from the smart phones, etc.).- MySpace will increase (radical change of image and re-branding; application for iPhone users / receive private messages, listening to personalized radio stations etc.). - LinkedIn will become an important player for B2B growth.In 2014, advertising in Romania has some tendencies (www.limonade.ro/analize/tendinte-in-publicitate-din-2014).- Mobile advertising (targeted advertising / mobile, declining share of advertising on TV, etc.). - “Increasingly less privacy” (personal digital information becomes available to the people in advertising and companies). - Marketing content (companies constantly need more content, in order to support traditional advertising, content must be online and in social media to support any traditional advertising taking place. #e content needs to be updated, interactive and current. Social media content must be constantly renewed, active, etc.). - Targeted ads to “You” not to “we” (focused commercials / mobile phones; every client matters and must be sought where it is willing to see / hear etc.). - Online and interactive promotion etc.

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Economic% Publishing House. Crane, A., Matten, D., and Spence, L. (2007). Corporate Social Responsability:

Readings and Cases. Londra: Routledge.Dahlstrom, R. (2012). Green Marketing Management. Mason: South-Western

Cengage Learning. Gu)u-Tudor, D. (2008). New Media. Bucharest: Tritonic.


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Iannuzzi, A. (2012). Greener Products: "e Making and Marketing of Sustainable Brands. Boca Raton: Taylor and Francis Group.

Kotler, Ph., et. al. (2008). Managementul Marketingului, ed. aV-a. Bucharest: Teora Publishing House.

Kotler, Ph., et. al. (2010). Marketing 3.0 De la produs la consumator +i la spiritul uman. Bucharest: Publica Publishing House.

Mallin, C.A. (2009). Corporate Social Responsability A case study approach. Cheltenham: Edward Elgar Publishing Limited.

Maxim, C. (2009). Comunicarea online. Instrumente O)ce pentru mediul de comunicare. Bucharest: Comunicare.ro Publishing House.

Moldoveanu, M. (2013). Marketingul viral. Graduation paper, C. Maxim (coord.), College of Communication and Public Relations, NUPSPA, Bucharest.

O’Brien, E. (2011). Knowledge Management for Process, Organizational and Marketing Innovation: Tools and Methods. Hershey: Information Science Reference.

Orzan, Gh., and Orzan, M. (2007). Cybermarketing. Bucharest: Uranus Publishing House.

Pînzaru, F. (2009). Manual de marketing. Principii clasice +i practici actuale e!ciente. Bucharest: C.H.Beck.

Ryan, D., and Jones, C. (2009). Understanding Digital Marketing:Marketing Strategies for Engaging the Digital Generation. London: Kogan Page.

Sichirlischi, M. (2013). Marketing viral +i blogosfer'. Disertation thesis, C. Maxim (coord.), College of Communication and Public Relations, NUPSPA, Bucharest.

Tasner, M. (2010). Marketing in the Moment. New Jersey: FT Press.Wright J. (2006). Blog marketing-metoda revolu(ionar' de cre+tere a vânz'rilor,

construire a unui brand puternic +i ob(inere a unor rezultate excep(ionale în afaceri. Bucharest: Business Media Group.

Zbuchea, A., Pînzaru, F. +i Galalae, C. (2009). Relationship marketing – the new marketing philosophy, în Proceedings of the 4th International conference on Business excellence (eds. Constantin Br%tianu, Dorin Lix%ndroiu, Nicolae Al.Pop), Vol. II, Bra.ov: Infomarket, 304-308

Zimmerman, J. (2005). Web Marketing. Indianapolis: Wiley Publishing Inc.

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Online source:http://www.clickz.com/831941,http://studentsonmarketing.wordpress.com/2009/01/21/a-!-sau-nu-viral/http://www.youtube.com/watch?v=T-Zu0bRGuUQhttp://www.youtube.com/watch?v=9DW_jvxbDQs)http://blog.standout.ro/2009/06/social-media/top-20-clipuri-virale-in-romania/http://www.youtube.com/watch?v=T-Zu0bRGuUQhttp://www.youtube.com/watch?v=Z7zpSVmQ94Mhttp://www.youtube.com/ watch?v=Ont-zrJ319Mhttp://www.zoso.ro/banca-transilvania-garanteaza-6-cai-frumosi/http://www.youtube.com/watch?v=nhvPNk2SQHUhttp://studentsonmarketing.wordpress.com/2009/01/21/a-!-sau-nu-virawww.wall-street.ro/articol/Marketing-PR/159328/10-tendinte...2014.html).www.limonade.ro/analize/tendinte-in-publicitate-din-2014http://womma.org/wom101


Experiential marketing of tourism: an exploratory model

Janardan KRISHNA YADAV1

Omkumar KRISHNAN2

Abstract. Marketing is a dynamic phenomenon and marketing as a discipline has evolved overtime, the current era of marketing is evolving from the service dominant logic (S-D) as proposed by Vargo & Lusch (2004), to co-creation experiences (Prahalad & Ramaswamy, 2004). Experiential marketing orientation is the most contemporary of marketing discipline (Williams 2006) and is in sync with the service dominant logic. "e notion of value has changed and it no more resides in goods or services but in consumer’s utility expressed in terms of experience (Prahalad & Ramaswamy, 2004; Ramaswamy, 2011). "e organized tourism as we see today started as a bundled array of exotic cultural experiences, supplied to the markets. "e end product of tourism industry is experience and the memories of experience; it includes both the instant events and extended events. "is paper aims to explore a framework for understanding tourism through the lens of experiential marketing. As experiential marketing is evolving, getting acceptance and seen as a tool for distinguished di#erentiation from the competitors (Prahalad & Ramaswamy, 2004), the need for understanding the way a consumer experiences a product and the various stages involved in it need to be further explored and empirically tested. "e value of experience can be seen as a continuum between the goal directed/economic values to altruistic-hedonic ‘end-in-itself ’ kind of experiences (Holbrook, 2005, 2006). "e way experience is de!ned in the literature varies on the phenomenological perspective taken in past researches. Walls et al. (2011) provide a detail survey of the literature and have found almost twenty di#erent de!nitions of experience. "e experiences associated with various parts of tourism product like lodging, atmospherics, food and services (Walls et al., 2011) have been looked into discretely, but not much research has gone into understanding the holistic tourist experience and how it is recorded in the memory (to cherish!) as an end product, though a few exceptions exist like Walls et al. (2011). "e subjective personal introspection and autoethnography has been suggested as a good tool to understand the value of consumption experience to the consumer (Holbrook, 2005, 2006), but how the tourism experience is di#erent from the daily consumption experience, keeping in mind that tourism is seen as an interruption of routine life and away from usual place of inhabitance. Tourism when consumed provides with experiences that can be classi!ed

1. Ph.D. candidate in Management, Indian Institute of Management Kozhikode, Kunnamangalam, Kerala, India, [email protected]. 2. Associate Professor, Ph.D., Indian Institute of Management Kozhikode, Kunnamangalam, Kerala, India, [email protected].

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as Instant events e.g. having a co#ee at some restaurant and long episodic memories e.g. planning and execution of the travel. With the support of developments in the !eld of human autobiographic memory and the existing frameworks of consumption experience (Holbrook 2005, 2006; Walls et al 2011; Schmitt 1999) the authors suggest a conceptual model that proposes the role of emotionally charged, “$ashbulb like memories” in enhancing the tourist experience, memorability of tourist experience and thus destination image.

Keywords: experiential marketing; tourism; destination image.

Introduction Starting from simple ‘barter system’ to goods centric approach and then service centric approach; Marketing as a discipline is still evolving. It’s becoming a challenge for companies to attract consumers as the competing products matching on functional characteristics and comparable cost and quality are available to the modern consumers. Marketing discipline has seen the evolution from goods to services and is moving to experience based economy (Schmitt, 1999; Holbrook & Hirschman, 1982); since then more and more !rms are focusing on consumption experience rather than only on goods and services. #e focus towards the consumption experience and experiential value was shifted perhaps after the work of Holbrook & Hirschman (1982); they strongly pitched for the experiential aspects of the consumption. #ey wanted to convey that it’s the time marketers started to seek the purpose of consumption from consumer’s perspective for a successful business. It was argued that the consumers seek for and receive fun, fantasy and feelings through consumption experience. A further push was provided by the work of Pine and Gilmore (1998), who took a step further away from the supplier side dominance paradigm and declared that the future of markets and economic activities will be all based on consumer experiences and the !rms which will provide good consumption experience will survive the market competition. During the last decade of the 20th century the idea of consumer focus and experience as the next ‘point of di(erentiation’ was more or less established at the supply side of the market and the companies have already started to orient their businesses around the experiential paradigm.

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#e practitioners were looking for the answers to the questions like what we can do, how to create and manage the experience, what are the kinds of experiences those are sought by the consumers. #ese practitioner problems at conceptual level were resolved to a great extent by the experiential modules framework (namely sense, feel, think, act and relate) provided by Schmitt (1999). #eir work gives a rich description of the evolution of marketing from traditional –functional focus to more holistic branding approach of 90’s and explains why a more holistic approach of marketing is necessary.

#e experience is conceptualized most often as customer’s subjective response to the holistic (including all direct and indirect contacts) with the !rm resulting in the consumption and consumption experience (Lemke et al., 2011). In classical psychology the human experience was viewed as something internal and as it has no connection with external reality but later on the theory of action was incorporated and human experience was started to be seen as an outcome of social action Vasilyuk (1991). #e understanding of consumer experience is thus more holistic and incorporates the hedonic and subconscious dimension of consumer behavior as well as the physical engagement of consumer.

#e question is; what is so unique about experience; what we as a business need to know about human experience to stage successful experiences. Do we need to see our consumers di(erently, what actually happens that makes a customer say ‘Wow!’ why do we need to be more careful now . In the coming sections we will explain; what are the ways in which experience is conceptualized in the literature, how can it be practiced, how tourism experience is di(erent from other consumption experiences, and what tourism marketers can do.

!e Consumption ExperienceHuman life is full of consumption experiences; from early morning ‘teeth-brushing’ ritual to ‘retiring for night’ we use products and services to create our experiences. Our human life may be seen as a collection of experiences that we live every day. Our consumption experiences include not just individual material but social consumption as well. #e human

Janardan KRISHNA YADAV, Omkumar KRISHNAN

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experiences include the experiences that are somehow shaped by the products and services and other experiences that are beyond the control of marketers and are created by the consumers for themselves.

#e idea of experience is very old, it will be worthy to mention that Holbrook (2006) himself mention that even though they started and their work is seen as a benchmark but still the traces about customer experience can be found in some very early writings (e.g. Abbott, 1955). Experience has been used and de!ned variously in di(erent contexts. Ethnologically and anthropologically speaking, an experience is the way in which culture a(ects an individual’s perception of events; it includes the experiences happening to others, society and the world (Walls et al., 2011). As per economics and marketing perspective the experience is seen as very personal, subjective thing; occurring in response to the response of some stimulation provided by the product usage service settings, and involves the individual through active participation or through observation.

Customer experiences have primarily two dimensions, hedonic and utilitarian. #e utilitarian dimension was of primary importance in the traditional marketing literature;, but as per the experiential marketing paradigm, the consumption is seen as a part of day to day human life and seen more as a hedonic experience apart from its utility. #e experiential focus of research started by Holbrook and Hirschman (1982) is on the hedonic aspects (fun, fantasy, feelings) of consumption and how it contributes to the value in the minds of the consumer in terms of sensory feelings, pleasures and emotions.

#ere can be various perspectives through which we can conceptualize human experiences like psychological, social, spiritual etc; here in this paper we have restricted our focus to marketing, psychological and tourism perspective of the consumption experience.

Experience as in Marketing & Business literaturePepsi saw a growth of 30% in sales in 2002 and a reduced advertising budget after adopting the experiential paradigm (Tsai, 2005); Blue Nile, Starbucks, Café Co(ee Day, and Apple Store Experience are some other success examples. It seems holistic customer experience management is

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the latest success strategy (Tsai, 2005). #ere is lot of conceptual literature around consumption experience (Pine & Gilmore, 1998; Holbrook & Hirschman, 1982; Holbrook, 2006; Prahalad & Ramaswamy, 2004; Ramaswamy, 2011) and its ways of packaging for customers into the modules feel, sense, think, act and relate (Schmitt, 1999).

#e qualitative study by Roederer (2012) seems to be one of its kinds; there is an e(ort to understand the dimensions of customer experience. In the study the author has analyzed the twenty oral life narratives of consumption experiences of his subjects and summarized the four dimensions of consumption experience as praxeological, hedonico-sensory, rhetorical, and time-related dimensions. #e Praxeological dimension refers to the action, the individual’s participation or behavior on his/her environment; it includes the things done by the individuals and the things done to him/her. #e Hedonico-Sensory dimension re$ects the agreeableness of the stimulus received to human senses, which are generally referred to as pleasure and displeasure of the experience. It is a state of consumption-evaluation of the hedonistic product/service. #e Rhetoric dimension concerns the symbolic meaning associated to the experience or the event by the consumer, how he/she tries to explain the experience story. #e Time-related or time dimension is seen as a resource input from the consumers side, if the !rm is able to successfully keep the consumer engaged and happy throughout the event/service it should be seen as good utilization his resources and it will most probably result in a satis!ed, loyal customer.

#e consumer experience is a rather recent focus of academics and it is being tested in di(erent context for its e(ects, to help further understanding and value of this perspective. #e customer experience has a mediating e(ect on customer satisfaction induced through the social interaction and convenience in store shopping context (Srivastava & Kaul, 2014). #e importance of the touch-points in the service settings as well as in the entire supply chain has been discussed frequently in literature; it has been argued that all the touch-points create the total consumption experience. Using the metaphor of ‘journey’, Rawson et al. (2013) provided a commentary on the challenges and complexity brought in by more touch-points in the entire supply


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chain. #ey emphasize on the bottom-up $ow of the data and top-down $ow of the deep understanding of experience expectations of the consumers to create successful consumption experience. #ere is a need to orient the organizations to experiential perspective of the value. #ere has been a major shift in the way value is conceptualized in theory and the traditional practitioner mindset has created a gap that need to be !lled to create successful businesses in the current business environment. #e major di(erence perhaps between the service dynamic logic of Vargo and Lusch (2004) and the experience economy perspective (Pine & Gilmore, 1998; Prahalad & Ramaswamy, 2004) is the idea about customer value. #e customer value no more lies with the organizations rather it’s co-created with the consumer. It’s no more concentrated in the goods or services but in the experience and semantic meaning created by the consumer. Value is customer’s utility and high-quality interactions with the !rms that can create unique experience for the consumer is new source of competitive advantage (Prahalad & Ramaswamy, 2004) since the experiences are tough to imitate. #e way a product is used and the semantic associations which a customer makes to a particular product and service is not always as thought or understood by the organizations. Roederer (2012) reported time-related dimension of consumption experience; the value co-creation perspective of Ramaswamy (2011) hints on the importance of time as a resource input by the consumer as well as the temporal length of consumption experience. If the experiences are to be classi!ed on the temporal dimension then there will be a continuum of spontaneous/short duration experiences to lingering / long duration episodes of experiences. To better understand this aspect of experience one needs to understand the aspects of human memory and the human senses which gives us capacity to feel, make sense and remember.

Experience as in Neurosciences and Psychology#e experience is seen as an outcome of sensory feelings. #e human body has !ve major sense; sight, hearing, smell, taste and touch. As the researches on senses and stimuli response have evolved the number of senses human body possess is debated frequently with some of the researchers claiming as much as sixteen di(erent senses. For example say the sense of sight can be distinguished into the sense of color, sense of depth, sense of brightness etc. and sense of touch into sense of pressure, pain, temperature etc. (Pagliano, 2012); but such intricacies are beyond the scope of this study. Historically

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speaking, the sense of sight and hearing were seen as superior of other senses, perhaps as these senses provide information from a distance and helps the brain in !rst hand assessment of the things and environment. Aristotle came up with the list of !ve senses with an order of superiority. Since then the sense of vision and hearing have gathered the attention of academic understanding as well as the business practices were centered around the satisfaction of these two senses. #e third sense of smell has been a recent focus of retail chains and stores to add to the atmospherics of the shopping place.

Why do we need to understand links between the experience and human memory? Let’s illustrate with an example of experiential products. #ink of the co(ee experience or weekend dinner at local restaurant, we do get a good experience we enjoy the ambience, good food and some good private time; but do we remember that experience after couple of hours when we get up in the morning, does that experience keeps us emotionally engaged for long, the answer is negative. Now think of a week long holiday tour you took with friends or family; isn’t it more engaging, doesn’t it makes you nostalgic. Or take an example of time spent at your graduation college; a meeting with college friend can unwind a whole lot of exciting memories. #e tourism experience and the product value don’t ends as soon as you are back to your usual place of residence. It is the immediate pleasure as well as the memories that you get after the trip.#e discipline of human psychology categorizes human memory into semantic and episodic memory. #e semantic memory is related to our knowledge of world in terms of facts, ideas and concepts (Schwartz, 2011). We are not sure of the source from where we picked up the meanings most of the times yet we know what the things around us are. #e episodic memory is associated with autobiographic memories. Our memory processes include encoding, representation and retrieval. Earlier studies established that we store information in the terms of images but soon it was realized that those images are distorted and the constructivism school of thought claims that there are well de!ned ‘Schemas’ and ‘Scripts’ that help in the organization of the memory (Howes, 2006; Schwartz, 2011). Violation of schemas often out to be memorable, the ‘Novelty’ dimension of servicescape or service quality perhaps is associated with this characteristic dimension of human memory.


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#e autobiographic memory operates at three levels; event speci!c memories, general events and lifetime periods. #e autobiographic memories are organized as per the common themes that were dominant at particular phase of one’s life e.g. memories from school days, college days, time when you lived in particular city etc. #e link between strong emotions and memory is established, though some studies report that very intense emotion may actually result in poor details and recall of memory; but the $ashbulb memories are found to be signi!cantly accurate. Flashbulb memory is de!ned as highly con!dent personal memories of surprising events (Howes, 2006; Schwartz, 2011). #e term $ashbulb memories was coined by Brown & Kulik in 1977 (Brown & Kulik cited in Howes, 2006) and was associated generally with negative events happed in the past. #e generalized understanding of $ashbulb memories is that it involves spontaneous-surprising events (Howes, 2006; Schwartz, 2011). #e element of surprise has been used by marketers in the past, surprise gifts, $ash-mob etc are some examples. We want to make it speci!c that by $ashbulb-like memories we mean the memories that disrupt the regular schema or script of the service, we refrain from including the negative emotions, and rather we are looking at the moderating/catalyzing e(ects of positive $ashbulb events. Like celebrating the birthday/anniversary of a group member of a group tour to make the visit a memorable experience.

Another noteworthy contribution to psychology of experiencing was the concept of ‘Flow’ (Csikszentmihalyi, 1997). Depending upon the skill level and challenge level of the work various mental states are experienced; they range from anxiety to relaxation. A successful experience occurs when the mental state of $ow is achieved. #e state of $ow is de!ned as the state when the subject is fully immersed in a feeling of energized focus, full involvement, and enjoyment in the process of the activity. #e subjects in the state of arousal and control are most likely to attain the state of $ow, he argues that through practice and conscious e(orts one can achieve the state of $ow and make his/her experiences satisfactory. Later empirical studies proved that the $ow is obtained most of the times at workplace rather than at vacations.

#e Augmented Reality Experiential Marketing has become popular recently; the big companies like Proctor & Gamble and Wal-Mart have already have already adopted AREM (Bulearca, & Tamarjan, 2010),

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the AREM a(ects consumer satisfaction by enhancing the pre-purchase experience and pre-purchase value of the product (Bulearca, & Tamarjan, 2010). Some of the scholars (Tsai, 2005) see Integrated marketing as the management of holistic of holistic consumer experience, they propose strategic communications and strategic brand management to be maintained through integrated marketing communication; the idea of experiential marketing thus is a part of integrated management of consumer experience

Experience as in Hospitality and Tourism Literature#e idea of using experiential marketing for tourism can be traced back to 1980 when Krippendorf suggested that the marketing tactics used by many heritage destinations is somewhat a selling of experience (Leighton, 2007). Tourism and theme-parks were the businesses that started selling experiences ahead of other businesses, even Pine and Gilmore (1998), who gave a thrust to the idea of experiential marketing mention, “Today the concept of selling experiences is spreading beyond theaters and theme parks”; that much native is the concept of experiential marketing to tourism. But for long, tourism scholars have not explicitly engaged themselves into the theoretical issues involved with experiential marketing (Williams, 2006)

Experiential marketers view consumers as rational and emotional human beings who are concerned with achieving pleasurable experiences (Schmitt, 1999). We are living in a world that has overwhelming complexity and plethora of commodities and utilities. Commoditization of life sustaining goods is easy, but in the cases of services where the emotional involvement of consumers is high as compared to goods in general commoditization has always been a challenge. #e end product of most of the services is the service experience co-created with the consumer. For these kinds of experiences the physical environment of the service place plays an important role; not only the consumers but the employees also experience the !rm’s facility (Bitner, 1992). #e built environment (i.e. the manmade, physical surroundings, equipment etc.) was termed as servicescape by Bitner (1992). It’s noteworthy that Bitner (1992) did not consider natural or social environment in his construct of servicescape but in tourism servicescape inclusion of the natural and social environments along with political environment is indispensable.


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Walls et al. (2011) propose a holistic model explaining experience in tourism and hospitality context; it includes the four components viz. ordinary, extraordinary, cognitive and emotive which are generated and in$uenced by physical experience elements, human interaction elements, individual characteristics and the situational factors. Ordinary and extraordinary de!ne the range of experiences one can have and cognitive and Emotional describe the internal response to di(erent kind of experiences. Leighton (2007) proposed a framework for experiential marketing in the heritage tourism sector after a detailed industry analysis following the ideas as proposed by Schmitt (1999), he suggests that the !rms need to identify their orientations; whether they want to have a supply focus for the bene!t of customers seeking scholarship and learning, or they want to have a business that creates experience for the sake of experiential consumption and strong commercialization.

!e Destination Image#e destination image has been seen as an important criterion for destination selection. With tourism’s increased contribution to national GDP of many countries and increasing competition among destinations, the tourism boards/national tourism organizations are actively engaging in destination image management. Tourism academicians recognized the importance of destination image very early; Pike (2002) have provided a summary of published research that has contributed to the understanding of destination image. #e destination image is classi!ed sometimes as primary and secondary destination images. #e primary destination images are formed after actual visit to the destination while the secondary image is formed from secondary information sources. A corollary can be drawn between this destination image classi!cation and the concept of episodic and semantic memories. An organic image about a particular destination is formed by the information from various sources which may not directly be related to tourism at that place; the induced image is formed as a result of marketing communications, documentaries and !lms; the autonomous image is formed on the basis of past experiences and individual characteristics. #e destination image is a complex construct (Gallarza et al., 2002) owing to its complex, multiple, relativistic and dynamic nature. It is because of its dynamic nature that it can be changed

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or improved depending upon the positive or negative information about the destination.

Baloglu and McCleary, (1999) drawing upon the psychology of human memory proposed a model for destination image formation. #e core underlying assumptions were the ‘Image theory’ which suggests that the world is a psychological or distorted representation of objective reality residing and existing in the mind of the individual (Howes, 2006). #e environmental factors or atmospherics induces both the cognitive and a(ective images. #e objective evaluation of environment refers to cognitive dimension where as the feel or the engagement of senses is responsible for a(ective dimensions. We have preserved most parts of the Baloglu and McCleary, (1999) destination image formation model and have proposed that strong ‘$ashbulb like memories’ induce strong emotions and thus moderates the cognitive and a(ective evaluation of information inputs.

Figure 1. Conceptual model for moderating e$ects of “#ashbulb like

memories on cognitive and a$ective evaluation of antecedents of Destination Image

Source: adapted from Baloglu & McCleary, 1999


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ConclusionExperiential marketing is di(erent from traditional marketing in four di(erent ways (Schmitt 1999), it has focus on consumer experiences, treats consumption as a holistic experience, recognizes both the rational and emotional drivers of consumption, and the methodologies used for study of the situation are eclectic depending upon the objective.

An interesting ‘event-experience’ cycle operates in the real world; services the events are scripted that creates experience which is used to modify the events and virtual world starts with some form of scripted experience being formulated into events, though in the long run the events leads to experiences and the documented experiences are used to improve on the events.

#e proposed model is an improvement over the destination image formation model proposed by Baloglu and McCleary (1999). Here in this paper we conceptualize the role played by ‘$ashbulb like memories’ on cognitive and a(ective evaluation of the antecedents’ of destination image. We propose a positive moderating e(ect of $ashbulb like memories created by spontaneous-surprising events by the tourism management for the tourists.

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Holbrook, M.B., and Hirschman, E.C. (1982). #e experiential aspects of consumption: consumer fantasies, feelings, and fun. Journal of consumer research, 9(2), 132-140.

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Sheth, J.N., Newman, B.I., and Gross, B.L. (1991). Why We Buy What We Buy: A #eory of Consumption Values. Journal of Business Research, 22(2), 159–170.

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Product placement in Romanian music videos

Alexandra )tefania )TIRBU1

Abstract. Product placement (PP) is used as a form of marketing communication strategy. Generally, high pro!le companies use this technique to increase the awareness of their products. It improves their image among consumers by inserting a product, brand or logo in a video, !lm, TV production or novel resulting in increasing sales. I have chosen to investigate this topic because nowadays it is a very common practice in Romania. Products are placed in all types of TV productions, but mostly in a persistent way in local music clips of well-known stars. "e present paper investigates how PP is implemented in Romania, focusing on the case of music videos. "e research reveals that PP had registered a growth, in the same time evolving into a new style of placement.

Keyword: product placement; Romanian music video.

General considerations on product placement (PP)In our daily life, we perceive advertising all around us: on television, on radio, billboards, magazines, buses, newspapers, on the internet; ad-space is growing by the minute. We see ads all day - long, in our life from the designer clothes that we wear to the $yers placed on our cars and in our mailboxes. But the trend in advertising is to be less advertorial. #e idea is to cut the “in-your-face ads” – where the product is the star, for a less aggressive approach - where the product is in the background. #ese products are visible within the scene, but the product has to !t into, not take over it, - making it more realistic. #e television networks are going for this realistic product placement trend, mostly because they know that the audience appreciates to watch a show without the traditional ads from time to time. Another factor that leads to the development of placement is that viewers tend to avoid advertising breaks, increasing - the costs

1. Master degree in Communication & Advertising, College of Communication and Public Relations, National University of Political Studies and Public Administration, Bucharest, Romania, [email protected].

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of traditional instruments, generated by promotion and by the !erce competition in the market (Balaure, 2003).

For a company it is not enough anymore to provide the right product at the right place to generate sales and get pro!t. #e o(er must be communicated to the right segment of buyers for the product to awaken needs and desires. #is can create a favorable image of the product and incite a continuous and regular buying (Balaure, 2003).

Product placement can be part of the marketing mix due to the fact that the promotion and communication policies are an essential component of a company marketing communication strategy. #rough this approach, advertising is passing on to consumers all the information about the product and the company; in return, together with several other components of the promotion mix ( -Balaure, 2003).

Karrh (1998) de!nes product placement as “introducing free branded products or the elements identifying a mark through visual or auditory means in the mass media programs.” Product placement current form emerged in the 80s of last century.

#e legal TV regulation refers to brand entertainment as product integration, where the product placement has to share its advertising space with the 30-seconds traditional advertising spot. Both of them have the same purpose and now due to today’s reality based television shows they are used together as a combination (Neer, n.d).

#omas (2011) names - brand placement – “hybrid advertising”, due to the fact that in the context of entertainment, elements of advertising can be noticed in its structure. He talks about several risks, for example: if a placement is repeated very often in an ad, this can cause irritation among the consumers and generate a negative attitude towards the brand. According to his opinion, the e(ectiveness of a placement should be measured through: reach, impact and frequency.

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In the case of PP in music videos, this type of advertising uses the emotional connection that exists between the costumers and an artist or a band. #is is the perfect connection that will bring pro!t and !delity for a long period of time. Because, brands want fans and their loyalty and music artists have the perfect number of fans that will do anything for them and more than that, they will buy all that is related to their music idols (Sheehan, 2013).

But, as perfect as this relationship is, at the same time it can become a marketing plan tragedy. By transforming a customer into a “fan”, a brand has to make sure not to destroy the new created emotional connection. One bad step and a disappointed fan can be the brand’s worst advertising, by telling everyone her/his had experience every time she/he is reminded of it in real life and mostly online – on social networks (Pinzaru, S%vulescu, & Mitan, 2013).

PP in Romania music videoOn the Romanian market, the true growth of product placement began after the !rst national soap operas appeared. #e PP - is permitted by the Broadcasting Act and can be made for anything except cigarettes and alcohol (Biszok, 2014).

According to the legislation product placement “means any form of audiovisual commercial communication consisting of the inclusion of a product, service or brand or in reference to that, featured within a program, in return for payment or for similar considerations.” #e same code says that viewers should be warned about product placement. According to the Broadcasting code (n.d.), product placement has to be signaled at the beginning and end of the program with the white on black background symbol - PP and to resume after each commercial break.

According to the Universal McCann planning director, Victor Croitoru, product placement !rst started 12 years ago with the !rst Big Brother production, and began to grow 6 years ago. #is boost was due to the local production developed by Pro TV and Intact groups. But it is very low compared to the total TV market and it depends on the low or on the

Alexandra 4tefania 4TIRBU

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high interest of those productions advertisers. According to him, Coca-Cola was among the !rst companies to make such projects. In addition to the usual product placement, Coca-Cola had a sofa in the shape of their traditional red veil, set in the Big Brother scenery. (Biszok, 2014)

PP is common in TV programs, and in recent years has made its way ever more in music videos of Romanian stars. Product placement in videos is a way to escape from advertising slots, and the association between a brand and a celebrity is built very quickly, faster than through advertising spots. It is very important that the public of the music video match the target group of the brand. If in advertising the company who paid for that advertisement is clearly known, in the case of placement this is not a well de!ned distinction. #e product is integrated into the plot, it is naturally used and brand identi!cation is more di"cult. For this reason placement was more than once confused with subliminal advertising (Balaure, 2003).

#e celebrity endorsement type is de!ned by Business Dictionary (n.d.) as a “form of brand or advertising campaign that involves a well known person using their fame to help promote a product or service. Manufacturers of perfumes and clothing are some of the most common business users of classic celebrity endorsement techniques, such as television ads and launch event appearances, in the marketing of their products.”

Some authors notice that around 20% of television commercials feature celebrities with the majority being for soft drinks and athletic shoes. #is type of contracts can have a favorable impact on a company stock. #ey point out various advantages (build brand equity, help people remember ads, make people believe the product contributes to superstar status, stand out) and disadvantages (image change, celebrities become overexposed, celebrities can overshadow brands) for this celebrity endorsement strategy ("e Advantages and Disadvantages of Celebrity Endorsements, n.d.).

In Romania, at the beginning of this year the National Audiovisual Council (NAC) sanctioned celebrity product placement from Andra’s video - „Inevitabil va ! bine” and from the band Vunk - “A.a, .i!” for the endorsement of Garnier hair dye, Free Way Cola drink, La festa soluble co(e, Myke’s Pub, MedLife, Jaz Music Barr and Heineken. According

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to Petre Barbu, NAC decided to notify broadcasters MTV, Kiss TV and Music Channel on violation of the audiovisual law art. 31. Paragraphs 4 and 5 on product placement in audiovisual programs by broadcasting video of such artists as Andra and Vunk (Petre, 2014).

#is is the only sanction for a product placement in music video registered on the NAC o"cial site. Most of the sanctions regarding music videos are about the messages of their lyrics and the storyline, such as “Toate-s la fel”, Parazitii’s single.

Artists are making tracks under command for commercial purposes. #is practice is recent and represents the insertion of an advertisement in lyrics to promote a brand. One of the best known examples of this type - is the song “A Lu` Mamaia!”, Delia’s and Speak’s single, that has the purpose of promoting the Black Sea shore area. #e lyrics include many elements which are related to promoting it: carnival type events or print name of the campaign in the speci!c Mamaia Style. Even Connect-R with Corina are advertising this summer the ice cream Corso in the song “Of Corso” and Mandinga is advertising a beer brand in the song “Viva La Fiesta”(Ce spun ascultatorii de muzica despre reclama in clipuri, 2014). According to MediaFax, a study shows that fans are much less reluctant to advertising messages than one might think. Only 14% are bothered by advertising in videos that are distributed online, on Facebook or Youtube. 1 out of 3 teens think it’s good for artists to promote brands. Nearly half appreciates the brands that support their favorite artist. #e categories perceived as being closest to the artists are music and music accessories (56% considered normal advertising messages on this topic), fashion and clothing accessories (46%) free time, pubs, restaurants (43%) and gadgets (37%). #e study shows that other categories such as automotive, telecom, food or drinks can be capitalized on online communication such as social platforms of the stars (Micu, 2014).

In Romania, product placement in music clips is one of the most in$uential type of advertising. As it was shown from the recent study that was conducted by #inkDigital and Hit Yourself Consulting, Romanian fans are not disturbed by the heavy product placement. It is considered


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as a way to get close and personal with their favorite artists by using and buying the brand that appears in music videos.

Methodology of the researchObjectivesQ1: Is there any di(erence between the brand attitudes and the artist attitudes in music videos? – Could this a(ect the ethics of product placement?Q2: Does there exist a di(erence between how a brand image is portrayed in music videos compared to ad? Q3: How many brands are placed, on average, in a music video and for how long are they exposed to the public?

Content analysisContent analysis is a method used to describe and analyze the content of communication. I have chosen this research method because: it is objective and systematic, the documents are analyzed on a clearly stated rules and then applied in a consistent manner, it has a quantitative nature as it aims to identify and count of the size of the text or some speci!c characteristics and it aims to achieve some detailed explanations on a particular topic of interest.

I conducted the research on, three Romanian music videos: a successful product placement, an over-the-board placement and a poor product placement: the Andra ft. Marius Moga– “Atâta timp cât m' iube&ti”; Connect-R – “Vara nu dorm” and Delia & Speak – “A lu’Mamaia!”.

#ese music videos illustrate what makes a product placement successful and what are the risks and di"culties to be overcome. #e clips also show the simple product placement type - that the product is seen only for a little time. #e selected music clips are one of the most discussed clips in the product placement industry, mostly due to the fact that they created a big buzz amongst consumers and critics.

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#e main analysis was done through personally watching a couple of times the music videos listed above just to be able to spot out the product placements that appear in the clips. I realize this observation after:- Reading the information posted about every speci!c clip and about the product are placed in them, watching the music videos just to verify and identify the placements mention in the online articles;- #en watching them again, but this time stopping when a product appear and note down the number of products that are shown and the number of time they are seen; - And watching for the last time the entire music video to be able to observe the attitudes of the product in the speci!c clips.

Analysis of music videos for product placement#e music videos analyzed show how product placement is used in this clips and highlights the di(erent types of product placement. #e best types of placement, risks and bene!ts are explained for each artist investigated. I focused on the di(erent ways the product was placed in a music video, how it could be successful or unsuccessful and how they a(ect the viewer. By highlighting the negative and the positive product placement in these clips, I show how a good placement could generate pro!t.

To be able to increase awareness and to promote brands, communication experts resort to subtle strategies. When viewing music videos that make them feel good, people let their guard down and alongside the message of the song, in their mind enters any information from the commercial, viewers retain signs and graphic symbols though they are exposed for only a few seconds (Cosmescu, 2013).

Micro-research on Celebrity EndorsementFor the beginning I start by analyzing an example of heavy product placement is Andra’s music video ft. Marius Moga – “Atâta timp cât m' iube&ti”.


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Figure 1. Andra ft. Marius Moga – Atâta timp cât m* iube'ti – heavy product placement

#e music video is directed by Iulian Moga - Marius Moga’s brother and the usual person that has done music videos for many of today’s Romanian artists. #e clip was viewed on YouTube by over 2.301.019 people (MediaProMusic, 2013). #e music video was !lmed in !ve locations: in a house near the Carol Park, at the Beauty District Salons, at the La Brasserie bar and !nally at the Fabrica club. #e story of the video is seen through the eyes of her lover that captures the moments from a special day: the singer’s birthday. From the time she wakes up until the end of the day the artist receives a number of gifts - these representing the product placements.

Table 1. Andra ft. Marius Moga – Atâta timp cât m* iube'ti. Product placement in the clip

Brands Time of appearance Duration How many times?

Garnier 0:32/0:36/1:30 2’s/4’s/2’s 3Range Rover 1:03 8’s 1

LG G Pad 8.3 tablet

2:21/2:24/2:27/3:17 1’s/2’s/3’s/1’s 4

Freeway Orange 2:54/3:04/3:06 2’s/1’s/2’s/ 3DANA 3:17 1’s 1

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#e !rst product from the !ve brands used that was placed at the beginning of the clip is the Garnier hair dye. #e placement was noticed about three times along the way making the PP a “in your face” type. #e product presence is due to the fact that the singer is the new ambassador and the new image of Garnier Color Naturals and Garnier Essentials brands (Teodorescu, 2010). #e second product that is featured in the clip is a Range Rover car, which she received in reality as a present form her husband back in 2011(Deaconu, 2011). #e other products that were placed as gifts in the music video are from “Dana” clothes brand, a LG G Pad 8.3 tablet that she gave away to the winner of the contest from her o"cial Facebook (2013) page and that we can observe four times in the last part of the clip. #e last but not the least product placement that appears in the music video is the Freeway Orange juice a product from Lidl portfolio used three times, for which the singer and her husband have an image contract (“Andra &i C't'lin M'ru,' g'tesc pentru Lid”, 2013).

Along side the six number of products are also placed a large number of local artist like Ami, Nicole Cherry, Matteo, Alina Eremia, Dorian Popa, Sorin and Mihai from Akcent, Corina, Piticu from Simplu, Pepe, Red Blonde, Alb Negru, Robert Reamzy, Miky, Adela Popescu and Andreea Banica, two of the artist best friends (Andra a !lmat videoclipul piesei “Atâta timp cât m' iube&ti”, 2013). #is is a common image movement among Romanian artists.

It is clear that the “in your face” placement is only for the brands that the artist has a direct connection. #ey represent paid product placements, appearing more than once and having the focus on them although the brands aren’t related to the story of the clip.

Another aggressive product placement example is the music video of Connect-R – Vara nu dorm.


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Figure 2. Connect-R – Vara nu dorm. In your face product placement

#e video was directed two years ago by Ciprian Florea and was viewed over 13.753.040 times in the YouTube channel (Connect-R/Rappin’On, 2012). #e 3:29 time length clip was released in 2012 at the Romanian Music Awards.

In the clip four product placement can be noticed, two of them being heavily shown more than others. #e Wrangler Jeep used in the music video, is one from the O(-road Dobrogea club, for which the script of the clip was specially changed just to be used for a longer time in the scenes – !ve times with the longest appearance of 7’s (Forte, 2012). #is was an unpaid product placement. Another product placement was for the Rapping’On Production, the artists own music house production that we see !ve times. #e ROP logo appeared on white t-shirts worn by the artist and a group of children.

Table 2. Connect-R – Vara nu dorm. Product Placement in the clip


O(-road Jeep

0:30/0:38/0:47/1:11/3:15 7’s/3’s/3’s/1’s/2’s 5

ROP 0:42/0:46/1:05/1:43/1:51 1’s/1’s/1’s/3’s/1’s 5Pepsi 0:50/2:27/2:34 1’s/1’s/3’s 3Puma 1:08/1:21/1:40/1:58/2:06 1’s/1’s/1’s/2’s/2’s 5

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#e other two products used in the clips are the well-known Pepsi and Puma brands. For big brands like those two the approached is a very aggressive one. #e artist is dressed only by Puma and drinks only Pepsi in the music video.For the last analyses of Romanian product placement in music video, we have chosen the latest clip signed by Delia and Speak – A lu’Mamaia! – the song with a neutral single product placement was especially made to promote Mamaia Area, this summer.

Figure 3. Delia & Speak – A lu’Mamaia! Single product placement

#e video is made by Evil Twin Studios, directed by Spike, with Tudor Panduru PDO and is a co-production of HaHaHa and Music Cat Production. #e 3:34 time length clip represents the Anthem of Mamaia Area in 2014. #e music video was released this month and viewed by 2.282.480 times on the YouTube channel (Cat Music, 2014).

Table 3. Delia & Speak – A lu’Mamaia! Product placement in the clip


Heineken 2:29/2:32 1’s/1’s 2 Of course, due to the fact that it was ordered by the Local administration of Constan-a, the entire music video is an advertising of the Mamaia Area, done for attracting more tourists. But even so, a product from a well


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known beer brand found a place at the end of the music video. #is was a perfect placement, being noticed two times only if one is very attentive to the images and knows the beer brand.

#e Heineken brand was discreetly placed in the music video due to the fact that the company implemented in Constan-a the project “Heineken for Communities” a !nancing action for civic project (Perhaita, 2014).

As in the “Atâta timp cât m% iube+ti” clip, the presence of other artists and popular people can be seen. #e mayor of Constan-a - Radu Maz%re, also appears, as well as the well-known music artist Cabron (“Delia a lansat clipul pentru “A lu’ Mamaia”! Miercuri diminea,' vine la radio, ne poveste&te de clip &i cânt' LIVE piesa la Alarma ProFM!”, 2014).After the concept of celebrity and advertising in Romanian were discussed a couple of question appeared regarding the type of advertising:

Q1: Is there a popular brand that is an old and familiar contractor among Romanian celebrities?Q2: Is there a tendency of migratory artists, endorsing di(erent brands of similar market area?

In order to !nd an adequate answer for the questions mention above, and to observe the association of a music artist with a particular product, I have chosen to analyze a number of 20 well known Romanian artists and the brands they have endorsed in their career.

#e artists selected are some of the most popular music celebrities in Romania, as well as a couple of artists who were popular in the 90’s – being seen as a representative of an old generation.

I’ve conducted a research by:- navigating the internet for each artist selected, with the purpose of !nding o"cial connections between them and a brand;- noting down every brand for which an artist did an endorsement.

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Because the idea of celebrity endorsement is not well consider by the Romanian press, I’ve faced hard time obtaining exact information. #e lack of an o"cial data base regarding this type of information may have a(ected my !ndings; the accuracy of the information is hard to be veri!ed.

Table 4. Romanian Celebrity Endorsement

Celebrity Brand

Alex Velea Vodafone/BallantineSmiley Pepsi/Cosmote/Vodafone/RomtelecomPuya Vodafon/Lay’s/

Andra Garnier/Lidl/Banca TransilvaniaCorina Pepsi/Corso

Connect-R Corso/COOL/KFCAntonia Pepsi/Avon/Benvenuti

Marius Moga Vodafone/Tocmai.ro/Pepsi/Phillips/FordLoredana Groza Dero/Romtelecom/Avon

Delia Chio/Dacia Logan/KFC)tefan B*nic* Jr. Gillette/Delma/Dero/Carrefour

CRBL Vodafon/(MEGA)Chello BergenbierInna Pepsi

Holograf Millennium Bank/ Coca-ColaAylin Carla Szabo/Murmur

Horia Brenciu UPCAurelian Temi+an Lidl/Licurici

Adela Popescu Oral B/C-THRU/Philips VisaPure/Nivea DeoAndreea B%nic% Aquatiqa/Dacia Logan

After conducting the analyses I’ve noticed that the telecommunication company “Vodafone” is one of the brands that have in their portfolio six collaborations with artists, such as: Alex Velea, Smiley, CRBL, Marius Moga and Puya. Not being shy in placing not just one artist but three in one ad ( - C%t%lin Dobre, 2009). At the same time, Pepsi has collaborations with !ve artists from the list above: Antonia, Corina, Inna, Smiley and Marius Moga and made ad’s in which two artists appear simultaneously. (Pepsi Romania, 2013).


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I’ve noticed that Smiley, is one of the artists who is not shy in changing the brands for which he endorses the product but, he remains in the same area – telecommunication. He is one of the celebrities that had collaborations in his career with brands like “Vodafone”, “Cosmote” and “Romtelecom”.

But I can not say that Smiley - is the only migrating artist from the list. #e majority of them, from what I could !nd, have more than one collaboration with a brand. For example, the widest collaboration portfolio is owned by Marius Moga. He has endorsed along the way products for telecommunication brand, online shopping sites, soda company, automobile brand and electronics company.

From these analyses I can see that on the Romanian market the celebrity endorsement type is a used advertising tool by famous brands and not that well known brands. Using celebrities to maintain, attracted and to appeal to a large number of costumers.

Analysis of PP from 2011 – 2014Romanian product placement is a new type of advertising that got the eye of national artist. After the huge impact of PP from international stars such as Lady Gaga that changed the customer’s behavior, the others artists started to implement their own version of the PP strategy in their music videos.

For my second analyses I will observe the growth of the PP in Romania. In order to do this, I will continue with the qualitative approach. I have chosen a number of !ve well known Romanian artist and their o"cial videos from the last year (2014). #e videos were chosen after the number of visualizations by the public on the artists o"cial YouTube pages.

#e analysis was done by:- accessing the online media for information’s regarding every clip from di(erent year;- at the same time, I did a background research of every artist on the time lapse chosen to analyze;

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- to observe the product placement, I’ve watched all 20 clips and noted on table 5 the number of products placed, the frequency and the duration.

In order for to observe a growth in the utilizations of advertising and how it has changed by transforming itself and adding new meaning with the passing of time. Because I am focusing on the di(erent ways that the PP is used, I have chosen these speci!c artists.

Research Questions:Q1. Is there a growth in number for product placements in music videos?Q2. Does there exist a di(erence between how PP was used in earlier videos and how it is used today?Q3. Can we observe a new type of method that arises from the usage of pp?

Table 5. number of products placed, the frequency and the duration

2014 2013 2012 2011

Smiley 0

Nemuritorii

3

Criminal

3

Dead men walking

0

Dream girl

Alex Velea Din vina ta

0

E marfa tare

4

Minim doi

0

One shot

0Corina Autobronzant

4

Pernele moi

2

A ta

3

No sleepin’

1Antonia White horses

0

Hurricane

5

Jamaica

1

Marionette

0CRBL U+or, u+or

2

România nu-i juc%ria ta

1

Petre

0

Kboom

1

SmileyHe is one of the most successful pop artists, producers and entertainers from the Romanian music industry. From 2009, he is the founder of


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the record label HaHaHa Production producing music for many artists: Radio Killer, Alex Velea, Mihai Ristea, Soré, Don Baxter, Cabron, Jazzy Jo, Giulia, Pacha Man, Speak, Brigh, CRBL, Puya, Delia, Wanda, Zero, Elena Gheorghe, Anda Adam, Andreea B%nic%, Loredana, Andra, Corina, Cream and Emanuel (Facebook, n.d).

#e song “Dream girl” was released in 2011 and brought the artist the Best male award at RMA and was number one song for several weeks in Romania. It was viewed by over 6,860,885 people on his o"cial YouTube channel (HaHaHa Production, 2011). In the 3:32 music video, no product is placed.

But in 2012 and 2013 in the music videos “Dead man walking” and “Criminal” I noticed three product placements in each clip. #e “Dead man walking” music video was viewed by over 1,690,345 people on the CAT Music YouTube Channel (Cat Music, 2012). In this 4:23 minute clip, products from Pepsi, HaHaHa Production ( the artist personal label house) and Supremebeing ( jacket) are placed. #e products appear more than once in the clip. At the same time, I noticed the familiar faces of other Romanian artists ( Alex Velea, Radio Killer, Dox Baxter, Boier Bibescu, Mihai Ristea, Sore, Speakone and Brighi).

“Criminal” music video, was viewed by over 4,945,752 people (HaHaHa Production, 2013), Pepsi alongside Aqua Carpatica and Jacobs are placed. #e type of placement is the same as in the precedent year, Pepsi appears more than once in the 3:58 clip. But this year, as I mention in the !rst part, a new type of advertising appeared in Romania – the order type of song. “Nemuritorii” is an example of an order song that was made for the “Sel!e” movie soundtrack in which the artist is playing. #e 4:02 clip that was viewed by over 1,424,986 and the entire clip is based around the movie story line.

Alex VeleaIs a complex artist with good vocal abilities, dynamic sound, dancing and acting skills, that released in 2006 his !rst album “Yamasha” (Facebook,

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n.d.). Although he is a well known artist, in the music videos of 2011 (One Shot), 2012 (Minim doi) and 2014 (Din vina ta) there is no trace of product placement. But the music video “E marfa tare” released in 2013 and viwed by over 5, 827,243 on the YouTube channel (HaHaHa Production, 2013), has a number of four product placements. Pepsi, Mini Cooper, Gusto, and BLVO appear more than once, transforming the clip in a heavy product placement type. Just like Smiley, Alex Velea is another musician that has well known artists popping up in the clip (Smiley, Mihai Ristea, Sore, Jazzy Jo, Giulia, Boier Bibescu, DJ CellBlock, Cabron, Speak and Pacha Man).

Corina#e birth of another pop - Corina, dance and R&B singer was in 2004 with the debut album produced by Marius Moga “Noi Doi”. In 2011 her song “No Sleepin’” was number eight on the Romanian “Top 100” and was viewed by over 1,314,397 times on the Ego Italy YouTube channel (Ego Italy, 2011). Although the music clip has a large number of participants and the action does not take place in a single place, I observed only a single product that was placed – the Polaroid camera. #is was the beginning of a longtime relationship between the artist and PP.

It was followed by two number three song “A ta” in 2012 and “Pernele moi” in 2013. With a number of placement’s ranking between three and two. With placements from well known brands like Chio, Puma and Facebook, the !rst clip was viewed for only 925,298 times on YouTube (Ego Italy, 2012). In comparison with the 2,454,445 views that “Pernele moi” music video obtained. Having only two big brands Pepsi and Puma but with more than one placement in the 3:39 time length clip.

Her latest music video “Autobronzant” has been viewed already by over 1,568,430 times on YouTube (RotonMusicTv, 2014). With four product placements of brand like Pepsi, Channel Islands surfboards, Corina Bud clothes and Noon Copenhagen watches in only 3:12. #is is just con!rming the bound between the artist and PP along the years, becoming more prominent.


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Antonia#e R’n’B and soul artist ranked number eight with her 2011 song “Marionette”. On YouTube the 4:21 minutes long music video that has no product placement was viewed over 1,213,426 times (Roster Music, 2011).

#e !rst product was placed in her 2012 music video “Jameia” and it featured the Samsung tablet. #e song ranked number !ve in the Romanian charts, being viewed online over 5,197,922 times (#isIsAntonia, 2012). It was followed by the “Hurricane” music video in 2013, that had PP for products like Avon, Pepsi, Adevarul Books, Apple and Jack Daniel’s Tennessee Whiskey. #e song was recorded with another well known Romanian artist, Puya, ranked 23 in Top 100.

Although the 2013 music video had !ve product placements, this year clip for the “White horses” has not even, one product place in the background. #is being a dramatic change.

CRBLHe is a singular artist, being a singer, choreographer, dancer, actor, producer and music director. His music videos have, as his songs, di(erent meanings. From the single PP (Nike) for the song “ Kboom” in 2011 that was viewed over 1,283,023 time on YouTube ( Cat Music, 2011) to the double PP for his latest song “U+or, u+or” - Can-am Spyder and Rubik cub seen over 953,871 times on YouTube (Cat Music, 2014) – CRBL is getting comfortable with the Romanian placement strategy. With clips !lmed in places that have a certain meaning for the artist, as “Kboom” in his home town – Pitesti, CRBL is known to do everything for a reason. For example, the 2012 manifesto song “Romania nu-i juc%ria ta” viewed over 230,556 on YouTube (Cat Music, 2013) and that sends a strong message to all Romanians had products such as: rugby club, Stejarul Buzau and Kendama.

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Findings We observe that every artist has had at least a product in his/her music video along the years. In 2011, as I’ve noticed in my second analyses, the placing of products was at the beginning and artists were shy in using this type of strategy. #e placement was none or just one and hard to be notice by viewers in 1 second appearance in a 4 minute clip.

In just one year the PP can be observed at three of my !ve artists. And by 2013, the placement was at its peak, with examples of 6 product placements appearing more than once in a single clip of some Romanian artist. 2013 has been the PP year in Romania music videos, product popping up for more than 1 second.

#is year the ordered songs appears in the Romanian music industry with advertising clip, as the new music videos. #e PP frequency registered a low usage in comparison with earlier years. But of course, as I have mentioned before, there are faithful artist with music videos containing at least 1 product placement. Corina, can be seen as one of them with a grow of product placement, from just one placement in 2011 to four placements in 2014.

At the same time, I’ve noticed a well known brand always present in music videos from the start till now. #at is the big soda brand that still has the grip on the PP advertising strategy, appearing more than once and having more that 1 second of fame.

Regarding my third research question, we are witnessing a new placement that has grown alongside PP - the celebrity placement. I did not just observe the products that are placed in a clip but, at the same time, a huge number of other artists that are popping in an alert way. Having artists like Smiley, Alex Velea and CRBL, that want to show their viewers a big, happy gang that are behind them every time.


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ConclusionIn the successful product placement of music videos such as Delia & Speak – A lu’Mamaia!, the placement was a simple one, that recreated a feeling of reality when we saw the Heineken logo somewhere in the background of the scene. Because they were not the main focus of the scenes and they could be observed just for a couple of seconds the product placement was a successful one that brought bene!ts to the company image and to the sales of the product.

#e unsuccessful product placement examples, are the ones that look more as an advertising clip for the products from clips such as Andra’s – Atata vreme cat te iubesc. #e excessive number of placements in a music video can create a negative response from viewers because it looks more like they are forced to buy the product.

In the case of various product placements such as in Connect-R – Vara nu dorm, the mix of placement that appears around the clip can be a successful one but at the same time can have a low rating on sales for a speci!c product; it depends on the actual placement. In this case, there were !nancial and legal reasons to use those products, and the majority of placements that were made, were in fact successful.

#e research questions show that there is a di(erence between the product placement and the artist. Because when it comes to bad placement, or forced product placement, sometimes the attitude had nothing to do with the story of the music videos.

When it comes to the number of brands that are used in a music video, in the case of Romanian clips, that number varies from !ve to four, only in the neutral product placement case, there was just a product. #e main products appear two or three times in a music video, transforming the placement in an aggressive – in your face type.

Another characteristic of the Romanian music video is the well used trend of having all the artist of a speci!c music house production in the same

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clip. #is is very clear that they want their production to become an idol for the listeners that transmits the image of a happy family to their fans. Even the Romanian videos have a global audience with a huge number of consumers touched by it. Following the marketing plan of low cost and the credible message supported by celebrities that are often considered true role models we cannot questioned the e(ectiveness of product placement. But we should not forget that product placement is a method of promoting the today marketing area and in Romania it is used as hard and “in-your-face” way as possible.

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Cosmescu, C. (2013). Plasarea produselor: ce gasesti in videoclipurile romanesti. Retrieved from http://adevarul.ro/entertainment/muzica/video-plasarea-produselor-gasesti-invideoclipurile-romanesti-1_51e4307dc7b855(563(b4d/index.html.

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Forte (2012). Wrangler-ul lui Bigu de la O#-road in Dobrogea in Videoclip la Connect-r Vara nu dorm. Retrieved from http://www.o(roadindobrogea.ro/2012/06/09/wrangler-ul-lui-bigu-de-la-o(-road-in-dobrogea-in-videoclip-la-connect-r-vara-nu-dorm/.

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Artists Facebook accounts Alex Velea - https://www.facebook.com/alexveleaonline?fref=tsAndra - https://www.facebook.com/AndraRomania?fref=tsSmiley - https://www.facebook.com/smileyonline?fref=ts

Corpus of music video from YouTube

Catalin Dobre (2009, March, 28) Vodafone Avantaj cu Smiley Moga +i Cerebel, [Video !le]. Retrieved from https://www.youtube.com/watch?v=Rp-mKfqfWbI.Connect-R/Rappin’On ( 2012, May, 1) Connect-R – Vara nu dorm, [Video !le]. Retrieved from https://www.youtube.com/watch?v=MqU37Epe5mQ.Cat Music (2014, June, 3) Delia & Speak – A lu’Mamaia! [Video !le]. Retrieved from https://www.youtube.com/watch?v=VyR5paVVxEA.Cat Music (2012, May, 31) Smiley – Dead men walking, [Video !le]. Retrieved from https://www.youtube.com/watch?v=jPOvcVIZCqw.Cat Music (2011, October, 20) CRBL – Kboom, [Video !le]. Retrieved from https://www.youtube.com/watch?v=KQ6VFHRB268.


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Cat Music (2014, March, 31) CRBL – Usor, usor, [Video !le]. Retrieved from https://www.youtube.com/watch?v=JPATuX3I5f4.Cat Music (2013, December, 5) CRBL- Romania nu-I jucaria ta, [Video !le]. Retrieved from https://www.youtube.com/watch?v=X7INPalF9gc.Ego Italy (2011, March, 4) Corina – No sleepin’, [Video !le]. Retrieved from https://www.youtube.com/watch?v=z_nHMDCaUoY.Ego Italy (2012, November, 7) Corina – A ta, [Video !le]. Retrieved from https://www.youtube.com/watch?v=qp6nlDYKE_Y.HaHaHa Production (2011, July, 9) Smiley – Dream Girl, [Video !le]. Retrieved from https://www.youtube.com/watch?v=PdifyRx1XVI.HaHaHa Production (2013, July, 4) Smiley – Criminal, [Video !le]. Retrieved from https://www.youtube.com/watch?v=_HJkuihpHms.HaHaHa Production (2013, June, 18) Alex Velea – E marfa tare, [Video !le]. Retrieved from https://www.youtube.com/watch?v=1KJ1OEeetFo.MediaProMedia (2013, December, 9) Andra feat Marius Moga - Atâta timp cât m% iube+ti, [Video !le]. Retrieved from https://www.youtube.com/watch?v=npWS8PJ7iBM.RotonMusicTV (2014, June, 23) Corina – Autobronzant, [Video !le]. Retrieved fromhttps://www.youtube.com/watch?v=Pgs0Fj2RAgA.Roster Music (2011, December, 4) Antonia – Marionette, [Video !le]. Retrieved from https://www.youtube.com/watch?v=_DVRqlnUs8E.Pepsi Romania (2013, July, 17) Pleac% la drum doar cu Pepsi!, [Video !le]. Retrieved from https://www.youtube.com/watch?v=VXBEh45nNlU.#isIsAntonia (2012, September, 19) Antonia – Jameia, [Video !le]. Retrieved from https://www.youtube.com/watch?v=rqgjPR9gFDw.

BUSINESS ETHICS AND CSR

Do Romanian youngsters envision a CSR-oriented world? A research regarding digital natives values

Andreea MITAN1

Abstract. !e business world has undergone many changes in respect to how business is done as ITC evolved and as people became more and more concerned with the natural resources and their possible scarcity in the near future. Encyclopedias have welcomed pages addressing subjects as the need for oil consumption reduction in order to preserve some for future generations and the maliciousness of the greenhouse gas emisions. NGOs worldwide have been advocating for many decades for moderation, stressing on the e"ects of pollution of the seas and of deforrestation on climate and wild life. !e level of general awareness related to environmental problems and human life`s frailty is higher than ever. People from many countries on every continent say they are interested in all of these things and feel motivated to support the CSR initiatives of the companies aimed to #nding solutions to some of these issues. !e members of the young generation, the of the digital natives, as well as elder people, have been exposed to many messages concerning the need for sustainable development, for nature preservation and for humanitarian acts meant to increase the level of life quality of the entire human race. A particular generation spread in the whole world today, Milennials are rapidly coming of age and gaining #nancial power. Living in virtual communities comprising of people from various places in the world, they are able to get over cultural di"erences and their coming of age empowers them to act upon these tasks. !ey are expected to do that but we do not know what they actually want to do. Most of the research regarding their behaviour insists that they are tech savvy and that companies should report their CSR oriented behaviour online, perhaps using smartphones applications, but these people`s true motivations are rather unknown. !is is the reason why, in this paper, we present a research conducted in Romania based upon youngsters` personal values, as these are the most intimate criteria people use when they decide to do what they state it is desirable to do. !e results of our survey show that there are true social activists among our respondents but also that about as many digital natives are self-absorbed power seekers who care little about the welfare of others and of the natural resources. !eir common need for security is presented as a possible basis for favoring CSR-oriented behaviours.

Keywords: digital natives; CSR; generation Y; personal values; sustainable development.

1. Ph.D. candidate in Communication Sciences, National University of Political Studies and Public Administration, Bucharest, Romania, [email protected].

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Introduction A recent research (Cone Communications & Echo Research, 2013), with over 10,000 respondents worldwide, shows that only 6% of these people believe that today a business should only make money, while the rest of them stress upon the fact that a business must pay e!orts to improve the societal and environment conditions. And even up to 38% of these people expressed their wish that companies participate to the economic development by creating jobs and infrastructure for communities. 81% of the interviewed people say they would rather work for a CSR-oriented company, 85% would prefer such a company to operate in their community, 87% would rather buy products from it, and 85% would recommend its products to others. CSR is also a good di!erentiator for brands: 91% of the respondents say they would switch brands to one with a similar price and quality if that brand would be associated with a cause, while another study (Nielsen, 2013) states that 50% of the customers in 58 countries would even pay more for a product made by a CSR oriented organization. Zbuchea (2013) observes that people state they are in"uenced by CSR in terms of trust, loyalty, advocacy, and in their purchasing behaviour towards brands. Consequently, sustainable development seems to be important to many of the people aged 18 to over 55 and CSR initiatives are, at least on a theoretical level, highly valued. As shown above, people are attracted by companies that implement CSR strategies, but we have to acknowledge that CSR is expensive for a company to do (Smith, 2013). Also, CSR can be contradictory to the main role a business has in society, as it aims to improve societal needs, beyond a company`s legal obligations, but due to its costs it can impede the company from making available to its customers the best and cheapest products.

If elders might be more prone to think of environment issues and the welfare of others, as a legacy for their children and grandchildren, what can be said about what youngsters believe? It is an important thing to know, as the generations are changing and the Milennials, born by the mid-eighties to the year 2000 will become, at least in the US, the majority of the active work force by 2015, while by 2030 they will represent 75% of it (Mitchell, 2013). #is means they will soon have the power to dictate how businesses should be conducted, as CEOs, employees and customers of the world’s companies. We know they are gamers in their approach to life and that they have little trust in traditional companies and brands

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(Filloux, 2010). Until now, researchers have addressed their impact on CSR practices by referring to their interest in social media and ITC devices use (Cone Communications & Echo Research, 2013) but little is known about their actual inner orientation towards sustainability and CSR.

Literature Review#e digital natives are a generation of people who use ITC devices and the Internet on a daily basis (Barna, 1995). Obviously, as many authors have shown (Prensky, 2001; Huntley, 2006; Twenge, Campbell, Ho!man & Lance, 2010; Dagnaud, 2011; Gansky, 2011; Hansen & Leuty, 2012), they are not like their parents and grandparents: they are pro$cient with technology and they use it constantly, as extensions of the self, and they even seem to process information in a di!erent way, meaning they seem unable to think using linear models but go from a node to another in a web of thoughts and images. As we see, ITC pro$ciency is not their sole characteristic.

After studying over 6000 digital natives worldwide, Don Tapscott (2010) has come to believe these people are guided by eight principles in their behaviours and attitudes, which mark their lives both as employees and as humans: they value freedom of choice regarding jobs, personal style, the media (1), and they believe in the power of customization in every aspect of their lives, including jobs (2). #ey tend to search endlessly for the truth, they dream of a world where social justice is everpresent (3) and they ask for integrity (4). Egalitarians, digital natives dislike hierachies and prefer collaborative work when things need to get done (5). #ey believe anything can be improved and work towards innovation, especially related to ITC, each time it is possible for them to (6). #ey lack patience, so delays in grati$cations are to be avoided by them (7) and they would always choose a job where they can work and have fun too (8). Tapscott stresses the facts that these people value the truth above anything else and that they expect managers to listen to their ideas and companies to always do what they preach. With these norms in mind, it is expected that they put pressure on companies to act responsible in their communities and towards their employees and customers.

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In Romania the $rst true digital natives are the people born in the early 1990s. Along with the economic and political particularities of the country during the last twenty years, such as the ones given by the long process of democratization and the transition to a capitalist economic system, this fact has lead to a series of di!erences regarding the structure and characteristics of the digital natives here. As !e Coming of Age of Digital Natives GfK Report (as cited in Calei, 2013) shows, they are thirsty of feedback but they prefer speed over depth, so they are rather super$cial. #ey lack patience. #eir desires are of great importance to them and they become restless when someone or something delays their grati$cation. Unlike the foreign digital natives, says the cited report, these youngsters are lazy and have no long-term plans. #ey prefer to spend most of their time with their many friends, who give them the sensation of stability. Romanian digital natives, states the report cited above, are interested in ITC just because it gives them the opportunity to stay connected with their friends and create, through SNSs VIP-like images of themselves, which help them maintain their fragile sense of self-worth.

#ey have, nonetheless, tremendous expectations from people around them, from companies and from brands and they expect everything to be customizable, although they would never pay more for customized products (Coca cited in Calei, 2013). #ey expect the world to change in order to $t their views rather than create and innovate themselves. Companies and managers should be extremely open to their needs and expectations, in their opinion, and create "exible jobs and allow them customizable work schedules, or over 50% of them would not take a job at all, unless they badly need the money (Leonte, 2014). #is is a new trend, as a few years earlier Frunzaru (2008, pp.77-78) observed that students were willing to gain money by doing the jobs that were well paid, regardless of how much they disliked these jobs. Consequently, the next generation to take over the workforce in Romania is made up mostly of hedonist people who expect the world to do something for them because they are too afraid or unable to do something themselves. How does their attitude pair with the sustainable development orientation in business? We will approach this subject in an indirect manner.

Usually people are asked directly in surveys whether they prefer to work for a CSR-righteous company or to buy products made by one. As long as

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today it seems to be a sin not to say that you care about the environment and social causes, it is possible that people state they envision a CSR-lead business environment without really being motivated to act upon these words. Or, as Leiserowitz, Kates and Parris (2006) put it, it is possible for people to agree that values as social equity are desirable, but their own values, needs and interests to be in con"ict with such a view, so their acts to be di!erent. #is is the reason why we propose in this paper a research based upon people’s personal values.

Values de$ne or direct peoples’ goals and frame their attitudes (Leiserowitz, Kates & Parris, 2006). As fundamental criteria that we use in order to understand other peoples behaviour, to choose the way we should behave ourselves, and to explain why we bevahed in a certain manner, values can be a good predictor of an individual’s orientation towards sustainability and CSR-related topics. Values are concepts or beliefs that stress upon the desirable outcome of a state or behaviour. By invoking values, individuals evaluate the environment, people and their behaviours and events (Schwartz, 1992). #e evaluation can be conscious or unconscious (Bardi & Schwartz, 2003). Values transcend speci$c situations, meaning that they guide the selection and evaluation of events and behaviours regardless of the particular context and that they are placed in a certain hierarchy by each and every individual, according to the relative importance that the person places upon them (Schwartz, 1992, p. 4; Bardi & Schwartz, 2003). #ere are 10 value categories grouping 52 values: universalism, power, hedonism, self-direction, benevolence, security, tradition, stimulation, achievement, and conformity (Schwartz, 2001). #e ten values can be grouped in four clusters (Schwartz, 2001), as it follows: (I) Self-transcendence –encompasses the values of Universalism and Benevolence, (II) Self-enhancement – corresponding to Hedonism, Power and Success collated, (III) Openness to change – bringing together Hedonism, Self-direction and Stimulation and (IV) Conservation, a cluster dominated by the values of Security, Conformism and Tradition. #e preference for a value gives hint to the motivations behind peoples acts, as values are, in fact, motivational constructs (Bardi & Schwartz, 2003, p. 1208).

According to Schwartz (1992), people who rate highly the value of Power desire a high social status, believe they can and need to control resources and other people and wish to gain prestige. People who score high on

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Achievement desire to have personal success, to prove they are competent in social contexts. Other people make a point in avoiding pain and increasing pleasure. #ese are the ones who value Hedonism above all. For others, Stimulation is the most important thing in life: they need variety in order to be satis$ed with their existence. Some people thrive on independence, so they have high scores on Self-direction. While for some tolerance, the preservation of nature, the harmony with nature and other people is important (motivations linked to high values for Universalism), for others the welbeing of their community s members is the most valuable thing (Benevolence). Conformists, or the ones who value highly Conformism, are people who practice self-censorship in order to avoid upseting other people with their behaviours. #e ones who cherish Tradition desire to be respected in their community, are loyal to their community, to its religion and culture. Finally, people who prize Security want to obtain safety, harmony and stability for themselves and for their group members.

Schwartz (2001) says that some values are compatible, while others are in con"ict with each other. Power and Achievement can be appreciated by the same individual, as long as he desires to have social superiority and to be respected. Achievement and Hedonism are also compatible and people who tend to overindulge seem to rate both of these values high. Hedonism and Stimulation also work well together, especially for daunting individuals who wish to taste as many of the worlds pleasure as it is possible. Stimulation and Self-direction are to be found among the values of people who are intrinsically motivated to exhibit self-control and to welcome change in their lives. Individuals who rate high Self-direction can also rate high Universalism, as this way they show their high level of self-esteem and confort with the diversity of the existence. A great score for Universalism pairs well with a great score for Benevolence in people who are not egotistical and who desire to help others change in order to have better life experiences. People who obey the rules, rating high on Conformism, can also rate high on Tradition, as they may be submissive individuals who believe they can put their trust only in themselves. Conformism and Security are both important to individuals who wish to have harmonious relations with other people and who favor the existing order. Finally, people who embrace Security can also appreciate Power because this way they can avoid or surpass the uncertainty of life by controlling relationships and resources. However, a person who rates high on Stimulation and Self-

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direction would hardly rate high on Conformism, Tradition and Security (Schwartz, 2001). Also, an individual who likes to see the good in the other people, who searches fot the beauty in life and who aims to have a deeply harmonious connection with the other people and nature (rating high on Universalism and Benevolence) would not be able to step onto others in order to get things done his way, as people who consider Power and Success the most important things in their lives do. And hedonists, the ones who live only for themselves would never be conformists, meaning they would never put their community s interests on top of their own, nor would they value Tradition, for it holds them back from manifesting themselves as independent individuals.

After studying many programmatic documents regarding sustainable development Leiserowitz, Kates and Parris (2006) came to the conclusion that the following values, described in the Milennium Declaration, are substantially linked to the idea of sustainability: freedom for each individual to live a decent life under a democratic and participatory governing system, equality for all people, solidarity (equated with equity and social justice), tolerance (understood as respect for diversity), respect for nature and shared responsibility for development. #e aforementioned authors emphasize the values of economic development, environmental protection and equity as core values to sustainable development.

Methodology#e aim of our research was to provide insight into the core motivations of young Romanian people in order to understand their attitude towards CSR-related values. #e main research questions were:RQ1: What are the personal values Romanian youngsters cherish the most?RQ2: Are there more types of personal values pro$les among Romanian youngsters?RQ3: What are the characteristics of these pro$les?

Our hypothesis states that a true orientation towards CSR and sustainable development would be found in people for whom the clusters of Self-transcendence and Conservation are well represented, as these clusters

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are linked to motivations related to the welbeing of the self along with the welbeing of the other people. A truly hedonist individual or one who wishes to earn social power and material goods at all costs would certainly have a collateral interest in other people and in the blue print of the businesses they have or interact with, if ever, unless, perhaps, they also rate high on Security.

We conducted a pen and paper survey between 9.05.2014 and 30.05.2014. #e survey comprised of 52 items created by the author of this paper in order to re"ect all the personal values identi$ed by Schwartz (1992) and $ve other items that were meant to measure socio-demographical data. Respondents were asked to rate each of the 52 items using a scale with 9 points, as ”guiding principles in life” for them. #e 9 points were the following: -1 (opposed to my values), 0 (it is not important to me), 1 and 2 have no speci$c tags, 3 (it is important to me), 4 and 5 have no tags, 6 (it is very important to me) and 7 (it is the most important thing in life to me). #e scale re"ects the discriminations people naturally make when they think of the desirability of values, according to Schwartz (2001).

#e response rate was 92.72%. Further, we eliminated 53 of the 510 returned surveys because there were suspicions regarding the level of accuracy of the answers, as long as more than 20 items were rated 7 in each of these papers, meaning respondents believed that more than 20 values are the most important things in life for them. We have 457 valid questionnaires and our respondents are aged 18 to 25 (M=20, SD=1.3), with 279 females and 175 males.

Most of the respondents were enrolled in the $rst year of study at their chosen university (n=351), while others were enrolled in the second year (n=11) and in the third year (n=95). It is important to note that we have chosen a convenience sample. However, we have tried to increase the possible relevance of the results by choosing to apply the survey in various universities and various faculties. 68% of our respondents were students at the National University of Political Studies and Public Administration, at the College of Management, the College of Communication and Public Relations and the College of Political Science, 11% were students at the ”Dimitrie Cantemir” Christian University, at the College of International

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Economic Relations, 25% at the University ”Politehnica” of Bucharest, the College of Electronics, and 17% at the Bucharest University of Economic Studies, at the College of International Economic Relations, at the College of Business Administration and at the Faculty of Economic Cybernetics, Statistics and Informatics. Most of our sample (n=334) are not working but still many (n=157) enjoy a decent life out of the revenue they have, while even more of them (n=166) say they can buy expensive things if they pay the e!orts.

Results and DiscussionIn order to simplify the analysis we created score variables for each of the 10 dimensions or value categories described in the Literature Review section. Because it did not prove to be bene$cial, we have not eliminated any of the 52 items in computing these new variables

Using the means for each dimension (universalism M=4.4, benevolence M=4.7, conformism M=4.6, tradition M=3.1, security M=4.9, power M=3.8, success M=5, hedonism M=5.6, stimulation M=3.8, self-direction M=4.8) we have created the graphic representation of the Romanian youngsters values in Figure 1. It should be noted that the highest ranking values were obtained for hedonism, success and security, closely followed by self-direction, benevolence and conformism. By further computing these data, we learn that our respondents are oriented towards self-actualization (M=4.8), that they are open to change (M=4.7) but also that they are interested in self-transcendence (M=4.6) and conservation (M=4.2). Generally, they seem to be more interested in achieving a great deal of social success by doing what they like and running away from what could bring them pain.

To determine wether there can be identi$ed more than one pro$le of personal values in our sample, and also for better understading these pro$les, if found, we conducted a principal components analysis using the

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ten score variables. #e principal components analysis we used was based upon the correlations between the 10 variables. Initially, 2 components were extracted, with values surpassing 1,00. #e orthogonal rotation determined the component structure presented in Table 1. Because of the signi$cant number of missing values, that would have limited the number of cases to 393 from 457, we have chosen to replace the missing values with means on each dimension. #ere have been replaced 15 missing values for universalism, 11 for power, 7 for hedonism, 7 for self-direction, 12 for security, 4 for stimulation, 4 for conformism, 3 for success, 10 for tradition and 11 for benevolence. #e $rst component represents 31.4% of the variance, and the second 29.6% of the variance. #e $rst factor seems to be the Revolutionary and the second seems to be the Guardian (both etiquettes are given by the author of this paper).

Figure 1. !e Means Pro"le of Personal Values of Romanian Youngsters

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Table 1. !e Orthogonal Matrix for Ten Variables Rotated Component Matrix

Factor1

!e Revolutionary

2

!e GuardianSelf-direction ,814 ,279Success ,767 ,336Power ,747 ,131Hedonism ,678 ,223Stimulation ,654 ,021Tradition -,115 ,803Conformism ,242 ,767Benevolence ,304 ,755Universalism ,289 ,708Security ,448 ,632Extraction Method: Principal Component Analysis.

Rotation Method: Varimax with Kaiser Normalization.a. Rotation converged in 3 iterations.

!e Values of the Revolutionary #e Revolutionary is a person who wishes to be free of all limitations, a Me-$rst, domineering individual. His aim is to choose by himself the goals to be pursued. Revolutionaries are people who believe they are creative and who want to create whatever they want, unlimited by existing rules. Also, they are people who thrive to explore the world ad libitum. #ey may create valuable things, as Revolutionaries are curious people, who may work hard and who have a good level of self-esteem; they are people who do not wait for others to come and help them achieve their goals.

Most of the time, they want to prove themselves competent, to obtain and to maintain other people`s respect for them. In other words, they are ambitious, intelligent, motivated by success, and work for becoming in"uent individuals. #eir public image is of utmost importance to them. As they want to obtain a position of power in the society, to have prestige, to be able to control material resources and other people, they are sensitive to what others believe about them and do their best to present themselves as valuable people. However, their wish to gain social power is doubled by their love for material goods. Power is equated with money and with the

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ability to control others, to whom they like to present themselves as people who have authority.

#e guiding principle of their lives is avoiding pain and maximizing the level of pleasure felt. #ey are hedonists whose purpose is to enjoy life. #ey are daunting thrill seekers who need various experiences to maintain a good level of functioning, for whom the wisdom of the old holds little importance. Religion and local traditions are to be avoided as much as possible. At a deeper level, they run away from the cultural community they belong to by birth and even disrespect the world they were raised into. It is interesting to note that even though they dismiss traditional communities and customs, they are interested in security and stability.

It is hard to believe that Revolutionaries would agree to pay more for a product made by a CSR-oriented company. #ey are more inclined to choose the products that suit better their own needs than the products that are related with donations for humanitarian causes or that are made with reusable materials. As a manager, a Revolutionary himself would not change suppliers in order to diminish his company`s carbon emissions, unless he has some NGOs or media representatives knocking at the door. However, as he is sensitive to what other people think of him, he might donate money himself to a cause that would make him popular or he might even initiate a campaign addressing a special issue that he knows many public members would resonate with, so as to increase his chances to win public respect and appreciation. As employees, they will surely avoid a company that has bad reputation so that their reputation is kept safe and they will choose a company with excelent reputation.

Revolutionaries do not truly care about the community they come from, nor about the communities they interact with in their journey aimed to bring them to the best living standards available to a human being. It is not to say that a Revolutionary would not get involved passionately with CSR. As long as it earns him good points regarding his public image and as long as it helps him feel powerful and respected, he would work very hard to look responsible.

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When his own sanity and life quality are threatened, he will become a very dedicated CSR preacher and activist but as long as he can gain money from a factory in a place far away, where working conditions are not really good for employees, and the media will not ever $nd that, CSR will be just a word to him. Anyway, as they like to feel secure, as stakeholders they would put hard pressure on a company to reduce pollution in the area where they live or to raise the quality of the products they make. In the end, the Revolutionary thinks much of himself and desires to live a good life, so if CSR is needed to enhance his life`s quality, he will surely get involved with it to a great length.

!e Values of the Guardian Guardians, unlike Revolutionaries, are very drawn to tradition, religion, symbols, rites and rules of the community they belong to, to whom they are $ercely loyal. #ey do not dream of a stimulating life, they are not adventurers. Moderate, devout, even humble, Guardians accept the place they were given in the world by birth right and attempt to make no changes in the way things are. #ey do not blame God or others for lacking better opportunities in life. #ey $ght no battle with themselves and they are able to see the beauty in anything. #ese people prize sages and wish to become sages.

With a good capacity of self-discipline, Guardians are always polite and always in control of their words and actions. #ey fear they could say or do something that would upset the people close to them so they are permanently vigilant. #ey respect the elders and take their advice, they are obedient. Community is of utmost importance to them. #e motivation behind their exquisite self-mastery is their strong desire to keep and to enhance the welbeing of the people close to them. Beside family, they have good friends to whom they are loyal, forgiving and with whom they are honest. #ey help their friends when asked to and they believe in true friendship and true love.

Openminded, Guardians promote tolerance at a general level, support equal rights and dream of the day when all people would be appreciated for who they are and not for the social status they have or their material

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possesions. #ey would like to live in a world where there are no wars and where all the guilty people are punished for their wrongdoings. #ey feel at home in nature and they have a special interest in protecting it. #ey are also interested in their health and in the health of the ones dear to them. In essence, the Guardian wishes to live in a secure world, to be in harmony with the nature, with self and with the other people. A Guardian knows he is part of a community, feels like a cell in a living organism, and fears the possibility of losing its position as a member of it. He cherishes the feeling of belonging and feels protected by the cocoons that the national state, the local authorities, the family, the colleagues at work, the neighbours envelop him into. #ese protecting cocoons help him live relatively carefree, being able to search for and see the good in many areas in life, including people.

As security is one of his core needs, he will engage in all sort of activities that would protect him, his family and his friends from perceived harm, such as pollution, health issues, or human rights problems. #is means he would be willing to go clean the parks in his town along with fellow Guardians and some "ashy Revolutionaries, supporting a NGOs initiative. #is also means he would donate for causes that are dear to him, resonating with health, community and family. He would buy products that support a cause related to health research or health improvement for people in poor countries. He would speak to others about the CSR initiatives of a company and he would be a good advocate for the underdog.

Guardians might choose to work for a company that has proven its dedication to social causes, even though this may mean he would have to drive longer to work. He needs to feel his work makes a di!erence in the world and he will accept some personal deprivations if this way his family or community would prosper. If the company he works with has a CSR-related problem, he would get involved with the team working on it but in case the company would be proven guilty, even though his reputation might be at stakes, if his family needs him to keep that workplace, so will he.

Guardians are less likely to become CEOs or business leaders. #is does not mean that a Guardian who has a dream of solving a speci$c social problem or environment issue, and these are the kind of dreams they have,

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would not $ght for building his own company and for gathering around him the people he needs to make his dream happen. Actually, he might take the lead and become a social entrepreneur or he might create an NGO so that he would feel his life purpose as a member of the humanity is done well. He will also be open to protesting against companies that do not have or have little interest in CSR activities. It is beyond his power of understanding why a company would not care about its employees, about its neighbours or about the nature. People who are not born yet have the right to live in a world at least as good as the one we are living in, believes the Guardian.

ConclusionFrom a personal values perspective, about 30% of the Romanian youngsters we selected distinguish themselves as true social activists, who would support by all means available to them the companies that prove to be CSR-oriented. Other 30% are more attracted to the hedonistic lifestyle, where community and sustainability have little value, unless their own persona gets to be a!ected by some CSR-unresponsible company.

We did not have access to data about how many of these youngsters declare their support for CSR initiatives and how many actually support through real actions these initiatives so we cannot make a comparison between what they say it is desirable for them to do and what they actually do. #e general pro$le of the Romanian digital natives shows, however, a rather high interest of all youngstes in security and stability. #is suggests that, even though some of them might be interested more into climbing the social ladder, most would choose to act in ways they perceive as enhancing their level of security, and CSR-related activities are just that.

Acknowledgement. #e author of this article is a bene$ciary of the project ”Burse doctorale %i postdoctorale pentru tinerii cercet&tori în domeniile 'tiin(e Politice, 'tiin(e Administrative, 'tiin(e ale Comunic&rii %i Sociologie”, a project co-$nanced by the European Union through the European Social Fund, Sectoral Operational Programme Human Resources Development 2007-2013.

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Social Customer Relationship Management (social CRM): Sustainable relationship cultivation strategies

into the social web of consumers

Andreea - Denisa TUDOR1

Abstract. !e importance of organization-customer communications has been highlighted as a crucial factor for the foundation of any well-organized business. In today’s business world, technology continues to play a vital role within the business processes for management, communication, and customer service by cultivating internet-based relationships. !us, the modern business landscape demands that organizations maintain an online presence to network with their customers. !is constantly growing impact of online communication upon communication practices is posing both opportunities and challenges to organizations. Social Customer Relationship Management (Social CRM) has forced communication practitioners to reevaluate how, when and to what extent they interact with their customers. !ese features aid in the attraction of new clients and maintaining existing relationships. !erefore, understanding the link between social media and CRM is an important step in cultivating these internet-based relationships. !is paper addresses success factors for customer relationship management and is focused on the role of speci#c relationship cultivation strategies and how Social CRM has enhanced or altered each mentioned relationship cultivation strategy. Every topic discussed is illustrated with current business examples from Romanian business landscape. Several examples from the banking press are used to illustrate the success/results an organization can achieve when using Social CRM to enhance customer relationship. Social Customer Relationship Management (Social CRM): Sustainable Relationship Cultivation Strategies into the Social Web of Consumers provides a broad investigation into the use of social technologies in business practices through theoretical research. !is collection of reference source covers aspects of consumer behavior and relationship cultivation strategies aiming towards researchers, scholars, and practitioners in the #elds of communication and management.

Keywords: relationship cultivation strategies; dialogic organization development; social customer relationship management; individual ethics; organizational ethics.

1. Ph.D. candidate in Communication Sciences, National University of Political Studies and Public Administration, Bucharest, Romania, [email protected].

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IntroductionFor years, technology has been the impetus for progress in various processes, systems, and businesses and it shows no sign of ceasing further development. Consequently, the application of technology-driven processes in CRM has become more and more common in today’s business world. Today`s hyperconnected digital world is forcing organizations to acquire new practices and knowledge in order to leverage business opportunities. In this paper, the topic of dialogic organization development discussed is illustrated with current business examples from Romanian business landscape. Hence, several cases from the banking press are used to illustrate the results an organization can achieve when using Social CRM to enhance customer relationship. As Facebook is the largest social network in Romania, many examples are from Facebook presence of Romanian Bank. And, for Facebook Pages Analysis, fbMonitor (Analytics and Monitoring Tool for Facebook Pages) launched as part of Zelist in May 2014, is used in order to provide statistics concerning Banking Sector presence on Facebook, types of shared content, or even engagement rates.

Literature reviewRelationship management strategies in a hyper connected digital worldGiven the increasing pervasiveness of dialogue as a concept in public relations theories, many scholars and practitioners are more and more using terms like “dialogic” or “dialogue” to describe ethical and practical approaches. Consequently, relational and dialogic public relations management implies negotiation. Hence, this approach shifts theory from an emphasis on managing communication (Grunig & Hunt, 1984) to one on communication as a tool for negotiating relationships (Botan, 1992; Vasquez, 1996). Furthermore, negotiation may be viewed as communication phenomena (Vasquez, 1996, p. 1). A similar perspective suggested an “adaption or negotiation” model, whereby e!ective public relations focus on the facilitation of a give-and-take relationship between organisations and their publics (Botan, 1997, p. 196).Kent and Taylor (1998) describe dialogic relationships through the World Wide Web by naming the important point in this: using technology does not have to create distance between an organization and its publics. On the contrary, Internet communication can include the “personal touch”

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that makes public relations e!ective (p. 323). #us, when addressing the subject of online relationship building, developing or even maintaining, the dialogic process of communication is constantly presumed (Kent & Taylor, 1998; Kent & Taylor, 2002).

#e principles of a dialogic public relations theory include $ve features: mutuality (the recognition of organization– public relationships); propinquity (the temporality and spontaneity of interactions with publics); empathy (the supportiveness and con$rmation of public goals and interests); risk (the willingness to interact with individuals and publics on their own terms); and commitment – the extent to which an organization gives itself over to interpretation, and understanding in its interactions with publics (Kent & Taylor, 2002, pp. 24-25).

Actually, the strategies for communication to be use to create such dialogic relationships with online publics are: (1) the dialogic loop (which allows publics to enquire about the organization, meaning the information they need, not the information that the organization is willing to disseminate); (2) usefulness of information (including details about the way products are produced, how the services are delivered etc.), an essential aspect as provides publics the possibility to express their opinion; (3) interactivity (updating information, interesting content or even questions) (Kent & Taylor, 1998, p. 328).

Furthermore, dialogic feedback can be understood as: “interactive exchanges in which interpretations are shared, meanings negotiated and expectations clari$ed” (Carless, 2013, p. 90). While developing such forms of feedback, trust is important because of the relational, a!ective and emotional sides of feedback. #us, trusting virtues such as tact, empathy, and willingness to listen can "ourish positive feedbacks and soften more critical ones. For the purpose of this paper, we understand trust as one’s willingness to be vulnerable to another based on an investment of faith that the other is open, reliable, honest, benevolent and competent (Tschannen-Moran, 2004). All $ve features relate to assessment in organizational communication with online publics.

Andreea - Denisa TUDOR

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With the strategic dimension based on two-way and interactive communication, dialogical and socially responsible, the illusion of control is to be abandoned (Grunig, 2009) as refers to incapacity of communication practitioners to control the "ow of online information. Yet, this overwhelming information "ow can have a reverse e!ect on organizations looking to display as much public information as possible (in terms of openness, as a cultivation strategy) when disregarding the scope or functionalities of social networking sites (Kaplan & Haelein, 2010; Kietzmann, Hermkens, McCarthy & Silvestre, 2011). Additionally, social media users have become both consumers and producers and contribute dynamically to communication "ow. #us, when exploring motives of social media usage, the 4 C`s: Connect; Create; Consume; Control (Ho!man & Novak, 2011) express the best the nature of social media: free exchange of information.

When considering di!erent bene$cial types of relationships with publics, research demonstrates that communal (based on long term bene$ts), exchange (which are most frequent) and convenantal (focusing on common good) relationships are the most searched by organizations (Men, 2012). However, in terms of relationship cultivation and maintenance, three strategies in particular seemed to be more relevant: disclosure, openness and transparency (Waters et al., 2009).

Improving change management: dialogic organization development and social web 2.0 tools#e exponential growth of Web 2.0 tools, and especially of social media (from blogs, Facebook and Twitter to LinkedIn and YouTube etc.), o!ers organizations the chance to join or to start a conversation with millions of customers around the globe anytime. To compete in such globally connected economy, e!ective use of tools and technology of Internet to market, advertise, and promote products or services is a necessity, whether the organization is IBM, McDonald’s, or a small local business (Luther, 2011, p. 237). #e philosophy that should guide the marketing e!orts of the organization, requires new techniques and practices in communication covered by holistic marketing concept (Kotler & Keller, 2006, p. 16) which recognizes that “everything matters” for marketing, and that a broader, integrated

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perspective is vital. #e four components of this perspective are (1) relationship marketing, (2) integrated marketing, (3) internal marketing, and (4) socially responsible marketing. Hence, this represents an organizational communication strategy exclusively centered on customers’ particular needs and expectations.

Customers leverage di!erent media for satisfying di!erent needs. First, organization must determine its market. A market is a group of potential or current customers that have a similar need or desire (or what organization believe they will want or need) and share a common group of competitors, distribution channels, and packaging (Luther, 2011, p. 10). Strategic planning starts with the markets analysis: from what actual organizational activity to the future one (for maximum pro$tability). Finally, strategies of using social media need to be knitted together into an approach that spans people, processes and technology to achieve maximum customer bene$ts.

Many social media de$nitions suggest the collaborative attribute that it plays for an organization. For instance, social media, Internet-based tools that promote collaboration and information sharing (Junco, Helbergert & Loken, 2011) can be used in organizational settings to promote clients engagement and facilitate better organizational learning. Or, social media includes a variety of web-based tools and services that are designed to promote community development through collaboration and information sharing (Arnold & Paulus, 2010; Junco, Helbergert & Loken, 2011). As social media can include blogs, wikis, sharing tools, networking platforms, and virtual worlds, this collaborative attribute can take many forms, such as: audio, photo, video, text.

Organizations adopting social web tools mean organizations prepared of change and willing to embrace change. #e link between communications and organizational change has been attracting increasing interest, from scholars and practitioners, during the last decade (Johansson & Heide, 2008). In fact, communication has been recognized as relevant dimension to the success of organizational change. Or, even more appealing, change is a communicative challenge for formal and informal networks (Allen et al., 2007). Hence, communication within the context of change has been seen


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as a way to inform, involve and even motivate collaborators to participate in the change (Caldwell, 1993).

Yet, during online participation designed to produce dialogic communication the challenge of investigating the authenticity of participation is to make the di!erence. Summing up, di!erent participation processes may occur within a change implementation: (i) dialogic participation (where participants are considered as authentic subjects) or monologic participation (where participants are treated just as objects) (Jabri et al., 2008, p. 679).

Communication privacy management: ethics in the participatory culture#e unique participatory nature of social media (users can create, respond to, and share content) has had important impact on the way people use media. More time is spent on social media than on any other online activity (Nielsen, 2012). Bombarded with large streams of information, the individual is actually trying to ease the way to communicate by using emails, text messages, chat rooms, online forums, online social networks and other virtual surroundings. Currently social media usage plays an important role in communication initiatives to build community. As expected, the rise of social media systems quickly turned the web into a platform of lively discussions and debates (Weinberger, 2011).

Still, participatory culture implies a proactive behaviour on behalf of individuals who are now ful$lling roles of both pertaining production and consumption processes, but not unquestionably in an equal manner (Jenkins, 2006, p. 3). In fact, free exchange of information implies: (1) dialogue and (2) transparency, components of e!ective organization-public relationships. However, the circulation of media content directly and necessarily depends on “consumer’s active participation” (Jenkins, 2006, p. 3).

Yet, access issues have grown in importance for all SNS users (Lenhart & Madden, 2005). Previous research shows that incorporating others either without any restrictions or allowing only certain categories of people to access an SNS pro$le and postings is the most common way people utilize an SNS to manage disclosures (Lenhart, 2009; Madden et al., 2007).

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Still, there are various ways in which people tend to manage protection of their private information when using social network sites. For some of them, privacy boundaries are very thick, restricting access. For others, their privacy boundaries are very open, allowing high permeability. #ere are also those who slide between these two extremes depending on their needs, thus adjusting access as necessary (Petronio, 2002). In de$ning social network site (SNS), boyd and Ellison (2008) mention three criteria (1) construction of a pro$le in a system that can be bounded or restricted if desired, (2) inclusion of others with whom they share some type of connection, and $nally (3) viewership and sur$ng capabilities among the list of contacts if desired. As boyd (2014) later emphasized when discussing privacy and publicity (which were to play crucial roles in the development of social media) individuals care quite deeply about privacy and control.

In this respect, Communication Privacy Management (CPM) represents an evidence-based theory about how people manage private information (Petronio, 2002). #us, CPM stipulates #ve principles about the privacy management for better understand of both the times when access to the information is granted and when access is denied. #e #rst principle states that individuals equate their private information with personal possessions (Child et al., 2009). #e second principle predicts that because people believe they own their information, they also believe that they have the right to control the "ow of the information to others. Principle three predicts that people develop and use privacy rules to control the "ow of information to others (Petronio, 2002). Principle four predicts that once private information is disclosed or others are granted access, the information moves from individual ownership to collective ownership. #e #fth principle concerns the prediction that if owners and co-owners do not coordinate the privacy rules to regulate information "ow, disruption will occur and boundary turbulence will result.

Moreover, even though access and transparency mean permanent information availability, information does not equal communication or vice-versa (Jahansoozi, 2005). Additionally, by using the information processing perspective, public relations professionals engage in: (1) information assembling — constructing “frames of information” for these


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publics; (2) information promotion — making this frames of information known to key publics and (3) information consuming — to determine information content or to gain feedback (Vasquez 1996, pp. 71-72). #us, at an organizational level, SNS activation can help organizations manage their resources strategically; enabling individuals both (1) to locate useful information and (2) to contribute to the internal network by using social networking sites (Steinfeld et al., 2009).

Social Customer Relationship Management into the social web of consumers#e approach of social media and customer dialog management con$nes usage to a+speci#c+area, such as customer service. With the advent of social media, customer relationship management (CRM) is even more important to organizations today, as they strive to keep their customers from “straying” to opposing organizations.

#e millions of users linked from all over the world (though social media) can be translated (at the organizational level) into all level of consumers. On one hand, social media works as an e!ective CRM, giving organizations the opportunity to talk with their clients. On the other hand, social media for customer dialog is de$nitely related to the impact of social media on consumer behavior, as social media has in"uenced consumer behavior from information acquisition to post-purchase behavior such as dissatisfaction statements or behaviors about a product or a organization (Mangold & Faulds, 2009). Technology gives consumer the power to investigate products and services) and criticize them (if having reasons).

Social media can make it much easier for organization the process of learning about their customers. Correspondingly, organizations should $nd out what their consumers would like to hear, or talk about, and what they might $nd interesting, enjoyable, and valuable. #en, the organization should go about developing and posting content that $ts those expectations (Kaplan & Haenlein, 2010, p. 66).

Social CRM (SCRM), the combination of social media and CRM (Woodcock et al., 2011, p. 52), is very individually focused, therefore: (1) it is important to make the consumers feel that they are important to your

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organization (as CRM deals with building trust) and (2) it supports the whole customer lifecycle, and should lead to increased sales and decreased costs if implemented correctly (Woodcock et al., 2011, p. 55).

Clients’ engagement through social media can increase connections to create a virtual community which leads to better content sharing. Due to the advantages of social media in connecting businesses directly to end-consumers, in a timely manner and at a low cost (Kaplan & Haenlein, 2010), a great in"uence on customer perceptions and behaviors has been noticed (Williams and Cothrell, 2000). As a consequence, social media use for customer dialog has been brought in the center of attention in di!erent industries in the last few years.

!e impact of connectedness on loyalty and retention strategiesAs shown so far, social media can be seen as activity and practice between human groups who share information, knowledge and opinion online. #is interactive media improves connectedness between members of the groups. #us, considering Web 2.0 a set of online application controlled by users (Constantinides & Fountain, 2008), discussing the impact of connectedness on loyalty and retention strategies drawn by organizations is essential. In fact, the impact on loyalty and retention stays, mainly, in the controlled aspect of Web 2.0.

While CRM is de$ned as a process which helps in pro$ling prospects, understanding their needs, and in building relationships with them by providing the most suitable products and enhanced customer service, SCRM (the combination of social media and CRM) is described as the business strategy of engaging customers through social media with the goal of building trust and brand loyalty (Woodcock et al., 2011, p. 52).

An important step in the CRM process is that of retaining consumers. In fact, retaining customers is the perquisite for learning and building relationships with them (Kierzkowski et al., 1996). Social media o!ers organizations the opportunity to learn about the customer they are talking to. In this way, the organizations that are using SCRM are able to provide interesting and valuable content on social media sites – an important tactic for retaining customers (Chan & Guillet, 2011, p. 365). Furthermore,


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beyond the building relationships with customers, there is a strong correlation between high customer-retention rates and sustainable pro$ts (Murphy et al., 2003, p. 73), which justi$es why social media should be considered a key element in CRM.

Developing and cultivating relationship strategies on Web 2.0 bought many researches to life, researches that are important to knowledge in the $eld. However, researches can be carried out in a number of ways (depending, amongst other reasons, on the methodology and the purpose of the paper). In this respect, social network site (SNS), with their speci$c features and functionalities, should be approached di!erently when conducting a research. Considering the potential of social media in harnessing e!ective and positive relationships based on interactivity and engagement between organizations and their publics, this paper focuses on identifying how Romanian banks (those who are present on Facebook, as the world’s biggest social network) are developing collaborative partnership with their publics and whether speci$c cultivation strategies (such as openness and interactivity) used when online communicating, are enhancing and building genuine relationships by creating consumer experiences (Social CRM).

Research questionsDeveloping and cultivating relationship strategies on Web 2.0 bought many researches to life, researches that are important to knowledge in the $eld. Researches can be carried out in a number of ways (depending, amongst other reasons, on the methodology and the purpose of the paper). In this respect, Facebook pages, with their speci$c features and functionalities, should be approached di!erently when conducting a research. Considering the potential of Facebook activity in harnessing e!ective and positive relationships based on interactivity and engagement between banks and their publics, this paper focuses on identifying how the most active Romanian banks on Facebook are developing collaborative partnership with their publics and whether speci$c cultivation strategies (such as usefulness of information and interactivity) used on Facebook, are enhancing and building genuine relationships by creating consumer experiences.

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#erefore, the case is represented by the most visible (in terms of interactivity and online response rate) social media actions driven by Romanian banks on their Facebook Pages and the research questions of the paper are:

R1: How Romanian banks build online relationship through their Facebook Pages activity? R2: Do the negotiated meanings and expectations are clari$ed as the base of the interactive exchanges?

Methodology#is research is based on a qualitative case study on Romanian banks with active presence on Facebook, as the largest social network by number of users (with more than 7,200,000 active accounts in Romania according Facebrands.ro, accessed on 18 June 2014). #erefore, the case is determined by the most visible (in terms of interactivity and online response rate) social media actions driven by Romanian banks on their Facebook Pages (from 1 May 2014 to 13 July 2014). Given the fact that the research is based on speci$c online statistics concerning activities on Facebook, o!ered by fbMonitor (Analytics and Monitoring Tool for Facebook Pages), a tool launched as part of Zelist in May 2014, the above mentioned period of conducting the research is justi$ed. #us, several relevant social media actions from the banking are used to illustrate the results an organization can achieve when using Social CRM to enhance customer relationship. When analyzing the selected banking social media actions we looked out for the connection between that speci$c shared content and the bank’s product. In doing so, we were investigating ways in which Romanian banks are developing relationships by creating consumer experiences (Social CRM). Moreover, this costumer experience can be seen as an opportunity for insight and shaping new markets. Besides this investigation of the most visible Facebook posts (from 1 May 2014 to 13 July 2014), the rebranding campaign of ABN Amro Bank from 2009 (a campaign which received at that time PR Golden Award for Excellence) is discussed as an example of strategically managed resources at organizational level (Praward.ro, 2009).

As we are interested in looking at the same issue (the most visible social media actions driven by Romanian banks on their Facebook Pages), but


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we were intrigued by the di!erent online relationship strategies driven by banks when posting on their Facebook Pages, then a holistic case study with embedded units enables us to explore the case while considering the in"uence of the various strategies and associated attributes on the audience’s decision making (Social CRM). #erefore, we look at sub-units (see Code Book: Measuring Online Relationship Cultivation Strategies) that are situated within the larger case in three steps: (1) data is analyzed within the subunits separately (within case analysis), (2) data is analyzed between the di!erent subunits (between case analysis), and (3) across all of the subunits (cross-case analysis).

#e units of analysis of this research paper were $rstly the Facebook pages (as a mark on Romanian banks social media presence) and, mainly, speci$c Facebook posts (statuses and shares) by banks pages. #e sample of speci$c Facebook posts selected have in common the large visibility gained (as they are the most visible ones from the mention period of analysis), but, interestingly, this case analysis investigate the di!erences that operates between them.

ResultsR1: How Romanian banks build online relationship through their Facebook Pages activity?

Addressing online communication while building relationship though Facebook, Romanian banking sector generated in May 2014 nearly 13,000 online appearances via owned Facebook pages, with 24% fewer than in April, and a viewership of over 24 million. Furthermore, network visibility in banking increased from the previous month on blogs and forums with 1%, but decreased both in online media by 29% and social networks by 18%. (IQads.ro, 2014) In Romania, Facebook is the largest social network by number of users with more than 7.200.000 active accounts (Facebrands.ro, 2014). Hence, Romania ranks the top 35 countries in the world by number of users, according to data provided by Facebrands.ro and Quintly.com (Wall-street.ro, 2013). #inking of these active users in terms of potential audience for banking sector, 60% of them are young

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people aged 18-34 years (idem). In this respect, banks e!orts invested in growing Facebook Pages is justi$ed.

A brief activity overview in Romanian Banks (see Figure 1 in Annex 1) shows for 7-13 July 2014 increasing rates for Fans Interaction and Average Response. Moreover, concerning the type of content shared by banks on Facebook (for the above mentioned period), Text Content is the most shared one (Total Posts: 107, Total Links: 25, Total Statuses: 21), followed by Video Content (Total Photos: 57, Total Videos: 4). #ese $gures show banks inclination towards a type of online communication that involves creating content, rather than sharing an existing one.

In addition, when considering the second and third criteria mentioned by boyd and Ellison (2008) in de$ning social network sites (see Communication Privacy Management: Individual and Organizational Ethics in the Participatory Culture) for banking sector communication, from a Fan Base of 1,205,859 for 7-13 July 2014, only 8,444 are Active Fans, and, more speci$cally, just 39 represent Super Fans (see Figure 1 in Annex 1). #us, having a Fan Base on any social network site does not assure the interaction and create, by default, an active community around the brand.

Curiously, the $ndings about online communication of Romanian banking sector actors for the last two years represented a period of consistent actions and di!erent trials e!ectuated by Romanian banks in order to attract their online publics. Hence, the connection between improving change management and social web 2.0 tools (see Improving change management: Dialogic Organization Development and Social Web 2.0 tools) can be expressed by two representative examples. One example is Facebook Log Out Experience Campaign made by BCR (see Figure 2 in Annex 2) which had a great impact (see Figure 3 in Annex 3), being the $rst such Facebook campaign launched in Romania. Another example to be mentioned here is the case of Banca Transilvania who enabled the service of sending money to the loved one though your Facebook account (Dailybusiness.ro, 2013). All you need is to have a Banca Transilvania active account and a Facebook Account. A Facebook account is so easy to have (more than 7.200.000 romanians already have one), so make a Banca Transilvania account – could be the “backstage campaign message”. #is


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later example is well expressing the banks initiative to get closer to their clients. As a bank representative suggested, this type of service was created as a belief in the correlation between banking and technology, as in the future the alternative channels will cover much of the traditional ones area. (Dailybusiness.ro, 2013) Also, Banca Transilvania has launched two other facilities: money transfers via SMS and email (Dailybusiness.ro, 2013). #us, giving clients the opportunity to choose the facility that is at hand.

Moreover, SNS activation at an organizational level (in the context of information and networked society) can help organizations manage their resources strategically (Steinfeld et al, 2009); being a useful tool in bridging internal and external publics of the organization. Hence, an appropriate example of strategically managed resources at organizational level is the case of ABN Amro Bank rebranding campaign from 2009 when it became RBS Romania, a campaign which received at that time PR Golden Award for Excellence (Praward.ro, 2009). #is campaign engaged both internal and external publics through the following communication channels distribution: (1) internal communication: local network Intranet, E-mail, Insite – international network intranet, face to face meetings and special events and (2) external communication: special events for the three target audiences in the campaign (employees; the press; existing and prospective corporate and retail clients), print, online, radio, TV, one to one meetings with the press, press release. Interestingly, the online component in this rebranding campaign took part on both levels: internal and external and completed the media mix.

With the concept of mutual trust (Woodcock et al., 2011, p. 53) in mind, in Romanian banking sector, players on Facebook are the most important banks (see Figure 4 in Annex 4). Interestingly, from the 8.444 Active Fans for 7-13 July 2014 (see Figure 1 in Annex 1), ING Web Cafe (top 1 player for the period mentioned above) has almost half of these active fans, more speci$cally: 4.123 Active Fans (see Figure 4 in Annex 4), followed by Garanti Bank with 2.059 Active Fans. Furthermore, looking at engagement $gures by days (see Figure 4 in Annex 4), we can easily notice that Tuesday, Wednesday, #ursday and even Friday are the most interactive days of the week.

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When analyzing loyalty and retention strategies through Facebook pages by Romanian banks we $rst look at the top content (see Figure 5 in Annex 5) in order to highlight the types of content that engage users and, secondly, to look out for the connection between them and the bank’s products. Hence, the most visible and the one with the greatest engagement rate is the status provided by Garanti Bank where users are invited to write down in a comment who they think will win the World Cup 2014 and they can win a shopping voucher of 200 Lei (see Figure 5 in Annex 5).

Concerning this status, above analyzed, more than the strategies for communication practitioners to engage client in conversation, we talk about contextual framing as a starting point of online discourse by making the signi$cance of the publication date (around the World Cup 2014) the reason of the status itself and giving users the chance to win shopping money. Contextual frames are presumably built up through real-world experiences, and subsequently in"uence how we perceive and predict the social world (Levanthal & Scherer, 1987; Bar, 2004). Hence, contextual framing enhances the impact of the message. Moreover, contexts may also operate as nodes by which common events are organized in memory (Anderson & Bower, 1972; Bar & Amino!, 2003). What is the connection of this type of contest organized by banks with the bank’s products? Clearly, there is no direct connection, but, at the same time, would be di,cult for a bank to directly, promote its products. #us, the link with bank’s products is assured by the presence of money, as money represent the direct indicator when talking about banks. Furthermore, the second most visible content for the mentioned period came from ING Web Cafe (see Figure 6 in Annex 6). #is time the content refers to a Text Content with Link (as the categories mentioned in Figure 1 in Annex 1) and refers to a urban project that the bank is supporting. What is the connection of this type of content with the bank’s products? None. #is type of content expresses the ING Bank social interest for the community well-being, as part of this community along with its clients (online users).

R2: Do the negotiated meanings and expectations are clari#ed as the base of the interactive exchanges?


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Given the purpose of this paper, interestingly, the most visible Facebook posts by Romanian banks, in May 2014, had di!erent approaches and messages (see Figure 6 in Annex 6 and Figure 7 in Annex 7). #ey come from ING Web Cafe and Garanti Bank. On one hand, $rst one represents a status based on contextual framing, created by making the signi$cance of the publication date (1st May - International Workers’ Day, a national public holiday in Romania) the reason of the status itself, as follows: “We love International Workers’s Day almost as much as the work itself!” Afterwards, as the contextual framing is assured, the status announces how ING Web Café thought to celebrate with their online public the International Workers’ Day: “Guess all jobs in the picture until Saturday, May 3 at 20:00, and you can win a voucher of 100 Lei to use it in Carturesti bookstore. !e #rst person correctly listing all occupations in the picture and posting the answer as a comment on this picture will be awarded (in case no one guesses all occupations, the prize will go to the #rst person who found most occupations). Edited answers will not be counted. Good luck!” (see Figure 1 in Annex 1) Hence, ING Web Cafe greets its online public with an interesting and updated content by asking them to play the guessing game. As the case of Garanti Bank status (mentioned in the $rst part of this section) (see Figure 5 in Annex 5),where users are invited to write down in a comment who they think will win the World Cup 2014, this status is also based on contextual framing, created by making the signi$cance of the publication date (around the International Workers’s Day). #us, while the $rst post (see Figure 1 in Annex 1) received 1093 likes, 72 shares and 226 comments, the second one (see Figure 2 in Annex 2 ) is just half of the results, naming: 667 likes, 19 shares and 43 comments.

Concerning negotiated meanings and expectations clari$ed as the base of interactive exchanges (D. Carless, 2013, p. 90), ING Web Cafe in the above analyzed status o!ers both contest rules participation in mentioned competition and the mechanism of interaction for people interest in participating.

On the other hand, the latter represents a status which communicates one Garanti Bank employee success in the Romanian business environment, as follows: “Our colleague, Anca Motca, Deputy General Manager of Garanti Bank, last night won one of the ten prizes awarded for best performing young managers in the Romanian business environment. Congratulations, Anca, we

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are proud that you are part of our team! More details on Ziarul Financiar: http://bit.ly/1jUwAtf.” (see Figure 7 in Annex 7).

Addressing the subject of critical and softened feedback (idem), on Garanti Bank status above mentioned (see Figure 7 in Annex 7), one of the 43 comments brings into question a problem that one client is experiencing with a Garanti Bank employee, as follows: “CONGRATULATIONS! Dear Madam I am a faithful Garanti Bank client who has a problem with headquarters Rotondo in Craiova: the director and an employee Cristina who is not involved in my problems at all. I please ask seriousness if not from their part, at least from yours. Regards.” #us, this represents an appropriate example of bank’s willingness to be vulnerable to their clients and a situation that needs to be properly managed and give a solution to the client’s complaint.

Again, referring to the reaction to Garanti Bank status, it expresses well this abandoned illusion of control suggested by Grunig (2009) as an indicator for organizational online communication accumulating the strategic dimension based on two-way and interactive communication. Hence, the web turned into a platform of lively discussions and debates (D. Weinberger, 2011) made possible the interaction of one Garanti Bank client having problems with speci$c employee, as discussed above (see Figure 7 in Annex 7).

Limitations of the research#is research can serve as a pilot study for investigating the ways banks from Romanian landscape are using Facebook pages in order to develop relationship cultivation strategies with their customer and other larger publics. Other possible research topics could include investigating the internal and external use of social network sites by banks. In this respect, one of the main methodological limitations of this research is the sample size which is not large enough to ensure a representative a set of conclusive results.

Given the purpose of this paper: identifying how Romanian banks present on Facebook are developing collaborative partnership with their publics


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and whether speci$c cultivation strategies (such as usefulness of provided information and interactivity) used when online communicating, are enhancing and building genuine relationships by creating consumer experiences (Social CRM), the measure used to collect the data could inhibited researcher’s ability to conduct a thorough analysis of the results. In retrospect, a quantitative analysis researching a signi$cant sample of Facebook Pages could have given new dimensions to the results of the study.

DiscussionsAs shown so far, social media websites provide an opportunity for businesses to engage and interact with potential consumers, encourage an increased sense of intimacy with consumers, and build all important relationships with potential consumers. (Mersey et al., 2010) Many organizations started out with basic online communication o!er for their clients, such as creating social media accounts and pages, than creating content, and have now graduated to playing the role of social media consultants for themselves. #e evaluation and continuous monitoring of social media activity help companies converse in the proper context with the right audience and close business with customers. Importance of evaluation for insights and shaping new markets is crucial.

Moreover, through the use of SCRM a company can get to know their high value customers, and then proceed to market accordingly to those customers (Woodcock et al., 2011, p . 56). In fact, this creates a sense of trust between organization and the consumer, and it can also lead to shaping new markets. Many companies have turned to social media for help in understanding who they are interacting with, what users like and how to create communication to reach out to the right audience. Besides shaping entry strategies in new markets, by using SCRM organizations mine millions of real-time social media conversations to identify top in"uencers in their segment of interest. In fact, analyzing the volume of direct conversations around speci$c topics or about topics that are related could be, also, a technique of gathering information in order to get directions in shaping entry strategies in new markets. Not only companies are using conversations on social media platforms to shape entry strategies

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in new markets, these new markets also could mean new country (if considering the mobility facilitated by social media).

For instance, the two new services driven by Banca Transilvania, namely: (1) the service of sending money to the loved one though your Facebook account (Dailybusiness.ro, 2013) and (2) money transfers via SMS and email (Dailybusiness.ro, 2013) represent clear actions of SCRM techniques used to contribute to retention and loyalty of customers.

Merely being present on social media is no longer su,cient for those banks that are looking for help in decoding social chatter for business gain. #ese banks are using insights gained from e,cient results (called conversations) on Facebook, Twitter and other social media platforms to shape entry strategies in new markets, and communicate directly with target groups.

Social media are truly all about conversations, that’s why banks need to create targeted communication, ideally creating the feeling for the customer of being in a one-on-one relationship with the bank.

Conclusions #e main purpose of this study was to identify how Romanian banks (those who are present on Facebook, as the world’s biggest social network) are developing collaborative partnership with their publics and whether speci$c cultivation strategies (such as usefulness of provided information and interactivity) used when online communicating, are enhancing and building genuine relationships by creating consumer experiences (Social CRM). As Social CRM is about information, leverage, connections, conversations, discovery, and ampli$cation, the paper focuses on speci$c communication strategies for cultivating and maintaining organizational-public relationship (OPR), such as openness and interactivity. In this respect, this study was focused on identifying if banks use speci$c relationship cultivation strategies on their Facebook Pages in order to enhance customer relationship.


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As a synthesis of the results, Romanian banks use Facebook Pages in order to be close to their customers (in terms of being present were they are), not with the $rst purpose in mind of communicating their services and/or products. Moreover, social media acts like a real-time support in understanding banking customers and addressing their needs, either for retention or loyalty programs (see the cases of the two new services introduced by Banca Transilvania in 2013).

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Dailybusiness.ro. Retrieved from http://www.dailybusiness.ro/stiri-$nante-banci/clientii-bancii-transilvania-pot-face-plati-prin-facebook-vezi-cum-transfera-bani-prietenilor-95932/.

Facebrands.ro. Retrieved from www.facebrands.ro.Iqads.ro. Retrieved from http://www.iqads.ro/articol/29892/cele-mai-populare-

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campanii-facebook-logout-experience.html.Prawards.ro. Retrieved from http://www.praward.ro/castigatori/2009/

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Zelist.ro. Retrieved from http://www.zelist.ro/fb/domains/banci.

Code Book: Measuring Online Relationship Cultivation Strategies

Unit of analysis: Facebook postOrganization name: Fill in the bank name - "rst 4 letters

1. Facebook administration rules for writing on the Page wall:1 – Only admins are allowed to post0 – Fans are allowed too

Facebook Post characteristics and the generated visibility2. Type of post:1 - News2 - Reports3 - Press Releases/Events4 - Campaigns5 - Polls/Questionnaires6 - Multimedia (taken from other sources)7- Multimedia (original)

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8 - Links to website9 - Simple text article10 - Promotion/prizes

3. Indicate the nature of analyzed Facebook post:1 – Update related to the banking products and/or services2 – Update related to a CSR campaign the bank is part in3 – Update with online audience oriented message (with no relation to the banking products and/or services)

4. No. of likes0 - 0 likes1 - Between 1-492 - Between 50-993 - Between 100-1994 - Between 200-4995 - More than 500

5. No. of comments0 - 0 comments1- Between 1-492 - Between 50-993 - Between 100-1994 - Between 200-4995 - More than 500

6. No. of shares0 - 0 shares1 - Between 1-492 - Between 50-993 - Between 100-1994 - Between 200-4995- More than 500


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7. Disclaimer (negotiated meanings and expectations clari"ed as the base of the interactive exchanges)3 - High: Provides a consistent guideline/disclaimer within the Facebook post with rules of interaction with the bank and other users on the Facebook (the mechanism of interaction for people interest in participating).2 - Medium: Provides a short guideline/disclaimer with rules of interaction with the bank and other users via a link within the Facebook post1 - Low: Provides some rules of interaction within the Facebook post0 - Not available: Does not provide any disclaimers.

Relationship strategies on Web 2.0Openness

8. Usefulness of information3 - High: #e Facebook post provides detailed information about subject it addresses and users need it it2 - Medium: #e Facebook post provides detailed information about subject it addresses1 - Low: #e Facebook post provides little information about subject it addresses0 - Not available: #e Facebook post represents just a share from other pages or Facebook users

Interactivity9. Originality3 - High: #e Facebook Post content is entirely original, fully created by the bank (even and multimedia part: image and/or video).2 - Medium: #e Facebook Post content is partly original (multimedia part: image and/or video is not created by the bank).1 - Low: Most multimedia is taken from third party sources, but the post includes some originality.0 - Not available: #e entire Facebook Post content is taken from other sources.

10. Immediacy of response3 - High: Users` comments are answered immediately after they were posted.2 - Medium: Users` comments are answered within the same day of their posting1 - Low: Users` comments are answered the next days after their posting.0 - Not available: Users` comments are not being answered.

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11. Dialogue stimulation3 - High: #e Facebook Post incentivizes users to respond to questions or to take part to contest driven by the bank.2 - Medium: #e Facebook Post incentivizes to respond to general question (with no contest part included)1 - Low: #e Facebook Post incentivizes (calls-to-responses) users to answer to a short question (being provided no multimedia content)0 - Not available: #e Facebook Post does not provide any feature to collect information from the users/ let the user express his opinion.

12. Human Voice3 - High: #e administrator (or administrators) of the page reveal their name when responding to users. #eir contact details and full name of the people who administrate the page are provided at the Contact section2 - Medium: #e administrator (or administrators) of the Facebook Page reveal their name when responding to users1 - Low: #e administrator (or administrators) provide their contact details in the Contact section, but still use their brands` name when interacting with other users on the page.0 - Not available: #e organizational voice is constantly present, without any name of an administrator


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AnnexesANNEX 1

Figure 1. Activity Overview on Facebook in Romanian banking sector (fbMonitor - http://www.zelist.ro/fb/domains/banci)

ANNEX 2

Figure 2. BCR Facebook Logout Experience Campaign in Romania (http://marketing20.ro/rezultatele-primei-campanii-facebook-logout-experience.

html)ANNEX 3

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Figure 3. Results of BCR Facebook Logout Experience Campaign(http://marketing20.ro/rezultatele-primei-campanii-facebook-logout-

experience.html)

ANNEX 4


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Figure 4. Top Players on Facebook in Romanian banking sector (fbMonitor - http://www.zelist.ro/fb/domains/banci)ANNEX 5

Figure 5. Top Content on Facebook in Romanian banking sector (fbMonitor - http://www.zelist.ro/fb/domains/banci)

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ANNEX 6

Figure 6. !e most popular Facebook Post on ING Web Cafe Facebook Page

in May 2014(IQAds.ro - http://www.iqads.ro/articol/29892/cele-mai-populare-postari-

de-pe-facebook-ale-brandurilor-de-banci-si-asigurari)

“Most popular posts by Banks and Insurance brands on Facebook in May 2014”Status translation:We love International Workers’s Day almost as much as the work itself! Guess all jobs in the picture until Saturday, May 3 at 20:00, and you can win a voucher of 100 Lei to use it in Carturesti bookstore. !e #rst person correctly listing all occupations in the picture and posting the answer as a comment on this picture will be awarded (in case no one guesses all occupations, the prize will go to the #rst person who found most occupations). Edited answers will not be counted. Good luck!


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ANNEX 7

Figure 7. !e most popular Facebook Post on Garanti Bank Facebook Page in May 2014 (IQAds.ro - http://www.iqads.ro/articol/29892/cele-mai-

populare-postari-de-pe-facebook-ale-brandurilor-de-banci-si-asigurari)

“Most popular posts by Banks and Insurance brands on Facebook in May 2014”

Status translation:Our colleague, Anca Motca, Deputy General Manager of Garanti Bank, last night won one of the ten prizes awarded for best performing young managers in the Romanian business environment. Congratulations, Anca, we are proud that you are part of our team! More details on Ziarul Financiar: http://bit.ly/1jUwAtf ”

Against intellectual property moral rights on economic grounds

Alin SPERIUSI-VLAD1

Abstract. Intellectual property moral rights must be carefully studied by the business community, which could easily and wrongly believe that the intellectual property business involves only intellectual property economic rights. !is paper represents an introduction meant to reveal a contrasting legal and economic reality concerning the e"ects of the intellectual property moral rights over the economic relations. !is is a consistent proof that the entire intellectual property regulatory system is set not for the “enrichment” of the commerce with new intangible assets or for clarifying the legal status of this category of intangible assets, but rather to protect the authors of intellectual property that are part of the international commerce. Considering this, any unclear regulation must be interpreted in favour of the author, as they prevail over the interests of all other interested persons and, by consequence, any obligation assumed by the author or a contractor thereof, may be restricted, i.e. extended, by claiming that the author’s moral rights are violated or that they are not fully protected. In the intellectual property #eld, any kind of use of the protected creation involving the economic rights, is indissolubly connected to the work’s authorship claiming and, very often, with the work’s integrity compliance or withdrawal right. Any contract concluded between a person acquiring economic rights over an intangible asset, cannot deny or diminish author’s moral rights. Also considering the intertwining of moral rights with economic rights, one part of a contract can invoke the existence of a moral damage as a result of failure to comply with the author’s moral rights, which is impossible to claim in an ordinary contract not involving intellectual creations.

Keywords: contractual liability; economic rights; freedom of commerce; intangible assets; intellectual property; mandatory regulations; moral rights.

1. Assistant Professor, Ph.D., Post-doctoral researcher, Faculty of Law, West University, Timi%oara, Romania, [email protected]

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Atypical moral rights in intellectual property law: similar object with the intellectual property economic rights Even if intellectual property law represent a marvellous domain of research for academics, especially for private law scholars due to the numerous debates around the fundamental basis of property rights acknowledged by the nationals and internationals regulations with pro arguments going from natural rights to an utilitarian vision and with an opposition to the patent and copyright (Kinsella, 2001) and around the tensions in an intellectual property system (Boyle, 1997) every person who begins studying intellectual property law is easily overwhelmed by the large amount of regulations. Legal rules about creations, di!erent systems protection concerning copyright, patents, trade marks, national statutes and international conventions concerning each one of this author’s rights, sui generis right and many other important matters. Indeed we can easily assume that intellectual property is an esoteric and arcane $eld, something that is only interesting and comprehensible to a specialist. Even for someone with a private law background it is not the easiest thing to do to understand the intellectual property regime. Even if intellectual property law is part of the private law (Speriusi-Vlad, 2012 for further development on this matter), is an atypical domain because of the numerous imperative rules and the in$nite international conventions. #e private law, regardless the national systems, is not characterized by imperative regulations, which involve more of the time a public law or a criminal regulation. Also the international conventions are referring usually to di!erent matters that are not regulated by the private law, like international crime, taxation or sovereign state matters. All this could be understood considering the speci$c object of the regulation, the intangible assets (Moore, 2012), but also the importance of the impact of the intellectual property rights as a general rule (Georgescu & Necula, 2013 - ”without any doubt, in the last years, the impact of intellectual property rights has played a very important role in the promotion of innovative processes and indirectly in the process of economic growth”).

Considering all this, imagine the e!orts made by a person without a legal background in order to understand all this legal mechanisms. Nowadays when intellectual property value seems to be tremendous important and is growing all the time (-tef&nescu, Petrecun & Munteanu, 2011- ”many meaningful reasons make intellectual property and its protection be

815Alin SPERIUSI-VLAD

imperative (...) the legal protection of new creations encourages investment, leading to other innovations; the promotion and protection of intellectual property stimulates economic growth, leading to the creation of new jobs and new branches of activity, improving the quality of life”), it is very probable that someone tries at least to search an information about a particular aspect of intellectual property and wants to understand it. When someone concludes a business transaction involving an intellectual creation, he values all the economic aspects, but paradoxically he must also take under consideration also the moral ones. More exactly each business transaction relating to an intellectual creation involves also the intellectual property moral rights and not only the economic ones. #is paradox underlines the need to understand and to explain the intellectual protection system. All the debates involving philosophical and ethical arguments justifying or denying intellectual property rights are very interesting, but the more important ones are those disputes that produce a signi$cant impact in the close reality. Loved or blamed the intellectual property protection systems cannot be denied and is more important to better understand it.

#e intellectual moral rights are conceptually based on the natural law. According to the natural-rights view of Intellectual Property creations of the mind are entitled to protection just as tangible property is. Both are the product of one’s la bor and one’s mind. Because one owns one’s labor, one has a natural law right to the fruit of one’s labor. Under this view, just as one has a right to the crops one plants, so one has a right to the ideas one generates and the art one produces (Kinsella, 2001). #e consequence is that the intellectual creation represents an extension of the creator’s personality and consequently his entitled to exercise moral rights over his creation.

#e intellectual property moral rights present a particular feature at the level of the entire legal system. #e existence of the generally moral rights (non economic rights) is recognized in any legal system, but rather as having a completely di!erent object than economic rights, which is most often the person or others legal subjects or theirs private life. But the intellectual property moral rights have the same object with the intellectual property economic rights, which is the intellectual creation. Basically, the author simultaneously exercises economic rights and moral rights on and in relation to the intellectual creation. #is is the only case of coexistence

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of economic and moral (non economic) rights over the same object, i.e. the intellectual creation. #e only other link between an economic right and exercise of a non-economic right is the fact that in case of failing to comply with a non-economic right allows the rightholder to claim damages (Iona%cu cited in Mihai, 2002, p. 93 - ”If, however, violation of a personal non-economic right causes the holder […] any pecuniary loss, the civil law obliges the one who, by his wrongful act has caused this damage, to repair it in full, often by compensation, according to the rules on civil liability”), having recognized its economic right of claiming compensations for the moral damage su!ered. However, this connection, also valid for infringement of moral rights, is by far a representation of simultaneous exercise of moral and economic rights on the sole object represented by the protected intellectual creation, which con$rms the uniqueness of moral rights in the $eld of intellectual property.

#is simple coexistence of simultaneous exercise of moral and non-economic rights on intellectual creation protected by the law, results in a very close relationship between moral rights and economic rights, where exercise of economic rights may be in"uenced by moral rights (for example from the French jurisprudence see Olteanu, 2010, p. 17 - ”Bringing of recordings in an MP3 format and their placement on the Internet is, according to French jurisprudence a violation of the moral right to disclosure, as long as the author has not exercised the right to disclose this. !is way, it was appreciated, for example, by the Paris Court House, that posting on Internet of 23 songs of Jean Ferrat is a violation of the right to disclosure (see M. Cornu, I. de Lamberterie, P. Sirinelli, C. Wallaert (2003). Dictionnaire comparé du droit d’auteur et du copyright. Paris: CNRS Editions, p. 428, which mentions the existence of a decision to support the exhaustion of the right to disclosure). In our opinion, it is rather a violation of the economic right to decide how the work can be used. It is, indeed, a very close connection between the right to disclosure and the economic right of the author to decide if, how and when his/her work will be used”).

However, what is the reason behind the high stake of recognition and protection of the moral rights of the author of intellectual creation? A stake so high as to prevent one of the most important national legal systems (of #e United States of America) to adopt the rules of the Convention from Bern, at almost 100 years of its signing, all the more so as at the date of

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its adoption, our moral rights protected through the Convention of Bern were, in one way or another, already protected in the legal system of the United States which, at $rst glance, would mean that adherence to the rules of the Convention of Bern could have been done much faster and that the entire route of joining the international convention rules would have been nothing but a misunderstanding, later clari$ed. Clearly, there was no big misunderstanding requiring a period of clari$cation of almost 100 years, but US reluctance was due to the special importance given to the author’s moral right, importance that re"ects in a special regulation of these rights, separately from other personal non-economic rights of the subjects, such as personality rights and, in some extent, by the fact that they did not understand what justi$es at the present a separate regulation for the copyright moral rights.

Intellectual property moral rights and the economic side of the intellectual creationOnce with the appearance of the $rst rules on intellectual property, intellectual creations fall into the commercial distribution, instituting their legal regime, both in terms of protection granting, and in terms of author’s recognized rights. #is way, actual intellectual creations (and not the various creations materialized in paintings, sculptures, manuscripts, and book copies) have evolved in terms of law, from an asset insusceptible of appropriation under the legal rules of the time or, at least, a res nullius stray asset, into an intangible asset that was part of the commercial distribution. By regulating the author’s moral rights in relation to intellectual creation, we wanted to emphasize that the entire system of regulations in the $eld of intellectual property has not been set for the ”enrichment” of the commerce with new intangible assets or for clarifying the legal status of this category of intangible assets, but rather to protect the authors of intellectual property who are thus part of the international commerce. #is way, it is established that protection of intellectual creations by legal rules and not by moral norms, as happened before, does not mean an abandonment of non-economic, moral side of the intellectual creation, which relates to the author’s person, in favour of economic aspects inherent to including any asset in the commercial distribution. #is emphasis was especially important because, often during privileges and rarely during $rst national regulations, the economic side of intellectual creation and the bene$t of

Alin SPERIUSI-VLAD

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earnings from the exploitation of intellectual creation were taken into consideration, without giving due consideration to the legitimate interests of authors. #is was no longer ignored when granting $rst privileges to authors of creations, enabling authors to print them and earn from their exploitation. Con$rmation of author’s moral rights in the national legislation clari$es this issue.

Another justi$cation of author’s moral rights con$rmation in intellectual property regulation is directly related to the ratio between protection of authors’ intellectual creations, on the one hand, and freedom of commerce, freedom of ideas, freedom of access to knowledge, freedom to research, freedom of expression and information, on the other hand (Olteanu, 2010, p. 17). In terms of values protected by the legal system, the interests of the author are contradictory to the interests of all other subjects hat will take advantage of and enjoy the intellectual creation base on the freedom of commerce, freedom of ideas, freedom of access to knowledge, freedom to research, freedom of expression, freedom of information a.s.o. But this contradictory position is more theoretical or potential because, in practice, there is often a question of identifying the relationship between the author of intellectual creation and other persons he/she enters into contractual relations with, and thus acquire the right to use the intellectual creation. #orough regulation of author’s moral rights emphasizes the fact that author’s status and person take precedence over others who have, acquire or claim a right over it, the protected creation having an intrinsic value, closely related to the author’s person, independently of his/her social exploitation, including distribution. A con$rmation in this direction is the fact that in the $eld of industrial property, where intellectual creation is inextricably linked to the commercial distribution, by industrial applicability, author’s moral rights, even if applicable, are much less highlighted by national and supranational regulations, even if recognized by several relevant case-law (Spineanu-Matei, 2011, pp. 244-245 - ”!e damaging fact consisted in using the webpage and, hence, the phrase ”hebo” contained by several keywords in the source code – and not in its creation. !erefore, there was no relevance if the defendant herself created the page or by a third party the defendant had a contract concluded with. (...) If the defendant founded, eventually, that, despite those agreed under the contract, S.C. G.M. CO S.R.L. created a webpage that is used by accessing some keywords over which the defendant has no legal right obtained from the holder, nothing

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prevents her from refusing the product or claim damages; but the fact that the defendant used the webpage as it was created, places her in the position of liability towards the holder of the trademark that was violated, pursuant to art. 35 par. (2) letters a) and b) of Law 84/1998 (...) !e defendant entered into a contract with the plainti", under which she bought from the latter “HEBO” trademark modular cabins and accessories, which indicates that she was aware of the mark use by another trader. !is contract does not grant the right to use the mark in its own commercial activity, and such a use was prohibited according to art. 36 par. (1) of Law 84/1998, starting with the registration date of the trademark. (...) Publication of request in B.O.P.I. has precisely the aim to warn others about the applicant’s approach to appropriate a sign as a trademark and the latter is conferred a temporary protection which is strengthened only if the trademark is, at the end of the procedure, registered with O.S.I.M. (...) Article 85 of Law 84/1998 provides that for committing the acts of infringement, under art. 83, persons in fault may be required to pay damages under the civil law. !e civil law, i.e. art. 998-999 Civil Code, does not contain speci#c criteria for determining the amount of compensation, but after entry into force of Law 84/1998, G.E.O no. 100 was adopted, which led to the direct transposition of Directive 2004/84/EC of the European Parliament and the Council. Article 14 of the mentioned regulation provides that: 1) At the request of the injured party, the Court shall order the person who intentionally conducted a counterfeit, to pay the rights holder appropriate compensations for the damages actually su"ered, as a result of infringement; 2) In determining damages, the Court shall consider: a) all relevant aspects, such as negative economic consequences, in particular loss of earnings su"ered by the party, bene#ts achieved by the person who violated a protected intellectual right and, as appropriate, elements other than economic factors, such as the moral prejudice caused to holder of the infringed right; (...) Paragraph (2) letter a) contains a list of illustrative issues which the Court takes into account in determining damages, among which non-pecuniary damage caused to the holder of the infringed right. It does not result from this wording that, every time an infringement of intellectual property is ascertained, the Court shall have to grant the rights holder compensations, both for material damages, and moral damages. On the contrary, referring to moral damages, the law provides that it is taken into consideration, “as appropriate”. With reference to the European Convention on Human Rights, also cited in support of appeal and which might apply primarily where domestic law would be inconsistent with, according to art. 21 of the Constitution, the High Court #nds the followings: !ere is no text in the Convention which provides that whenever there is an

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infringement of property rights – such as intellectual property subject to the present case – the person whose right was infringed su"ers both material and moral damages. Not even from the jurisprudence of the European Court of Human Rights, which is integral with the Convention, such a conclusion can be drawn. !e Court of Appeal did not consider that granting of compensations for moral damages would be incompatible with the action founded on infringement of the trademark, in which case it would be the issue of legality of decision, but fairly considered that infringement of a trademark does not involve, de plano, creation of moral damages. As one who makes a claim must prove it, according to art. 1169 Civil Code and, in this case, the Court of Appeal took notice of the fact that the plainti" has not established a moral damage, the decision to reject the count appears to be legal”, see the High Court of Cassation and Justice, Civil and Intellectual Property Section (2010) – Earlier Infringement Action. Use of Advertise Brand in B.O.P.I. Material and Moral Compensations. Legal Ground (HEBO/HEBO ROM INTERNATIONAL SRL), Decision no. 2856 of May 7, 2010), precisely to emphasize the balance that characterizes the relationship between the author of intellectual property and other persons who have a right to use the intellectual creation.

#e primacy of the author versus other subjects which will enjoy the intellectual creation base on the freedom of commerce, freedom of ideas, freedom of access to knowledge, freedom to research, freedom of expression, freedom of information (Ken, 2006), is also manifested in the legal relations arising under tort liability, as a result of failure to comply with the author’s rights, an infringement of author’s legitimate rights and interests being considered an infringement of author’s person and status, since most times moral rights expressly regulated by national or supranational legislations are violated. In most of these legal systems, non-economic rights bene$t from a much broader protection compared to economic rights, which re"ects in the legal conditions to attract liability of the person who committed the o!ense, the probation, the statute of limitations, a fact inclusively con$rmed by Romania’s jurisprudence (Zeca, 2010, pp. 56-66 - ”Responsibility that entails under art. 139 of Law no. 8/1996 is one that has a tort basis (...) !e capacity to stand trial results from the author of the illegal prejudicial fact: ignoring the economic rights of the author of the musical play, and of the plainti"’s related interpretation rights, which had to authorize the type of use under its exclusive rights (...) Ministry

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of Culture and Heritage has not obtained the agreement of the plainti" to use his/her creations: the musical work with text and interpretation, through a contract of assignment speci#c to the type of use the parties agreed on, i.e. loan of work and set execution or interpretation. !e right to authorize the use belongs exclusively to the plainti", according to art. 12 and art. 98 par. (1) of law (...) !us, the defendant, Ministry of Culture and Heritage, committed an unlawful illegal fact, using in illegal conditions works carrying copyrights and related rights protected by law (...) For ful#lling the conditions of torts, it was noted that it is su$cient for the author to indicate legal, non-economic and moral values deemed injured by the conduct of the defendant, their guarantor, a conduct inconsistent with the law assuming use of his musical composition and interpretation in an advertisement to promote a national public company, without his consent (which he declared ready to express) (...) To repair this damage, moral damages must be justi#ed, and not proved” see Bucharest Court of Appeal (2009) – Rights to Use His Intellectual Creation. Video Advertising – Audiovisual Work. Tort Liability. Quality to Stand Trial of the Person Responsible. Need to Justify Punitive Damages. No Obligation to Prove Moral Damages, Civil Decision no. 49/2009).

Given the importance granted to moral rights in the $eld of intellectual property, in all national systems, the e!ect of their protection and recognition in the $eld of intellectual property must be identi$ed, i.e. the extent to which this area is or is not di!erent from establishing moral credentials for the author. Such an approach is justi$ed because moral rights radiate beyond their strict $eld – author’s person, personality or reputation – signi$cantly interfering with economic aspects of commercial relations arising in connection with the protected intellectual creation.

Firstly, the recognition by law of author’s moral rights stresses the importance of authorship in all legal relations arising in connection with the intellectual creation protected. #is emphasis its important because, usually, granting the legal status of intangible assets is primarily made for them to be appropriated, to be part of the commercial distribution, in order to protect the persons who want to acquire any type of right over them. Regulation of moral rights mitigates this rule in the $eld of intellectual property assets by showing that in this domain, the author has a dominant position to other persons they have commercial relations with, and also to any other person they might have commercial relations with,

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i.e. to other legal subjects. #is way, it emphasizes once again that legal rules have been established in this area, not to regulate and certify social relations arising in connection with intellectual property, but rather to protect the author’s interest, in the $rst place. A direct consequence would be that any unclear regulation must be interpreted in favour of the author, i.e. the holder of the right recognized, as they prevail over the interests of all other legal subjects.

#e economic contractual relations who refer to an intellectual creation are thus substantially in"uenced, because any obligation assumed by the author or a contractor thereof may be restricted, i.e. extended, by claiming that the author’s moral rights are violated or that they are not fully protected. Intertwining of moral rights with economic rights in legal relations having as subject intellectual creations creates a speci$c kind of unique moral-economical legal obligation that does not resemble any other category of legal obligations, and which are clearly distinguished, as shown in economic legal relations or non-economic personal legal relations. In these clearly di!erentiated legal relationships, the only link is the possibility to cover compensation for moral damage through materials. In the legal $eld of intellectual property, any kind of use of the work that pertains to the economic side has a close connection with the work’s authorship and, very often, with the work’s integrity compliance or withdrawal right. In a property sale-purchase contract, the seller cannot go back on the given contract or request its cancellation as a result of its rights pertaining to personal status might have been prejudiced, due to the fact that the person acquiring the property would cause some changes that might a!ect the memory or image of the vendor’s family, and if there were a clause in this respect, such clause would be interpreted narrowly in the sense of granting compensation to the person a!ected in any way, and not in the sense of transaction cancellation.

#irdly, direct consequences of legal recognition and protection of author’s moral rights consist in setting of some imperative rules in contractual legal relations the author is a part of. #ese imperative rules are also applicable to contractual legal relations that have as subject intellectual property, even if the author is not a part of (Harrison, 2014). Virtually, any contract entered into by a person who has acquired the intellectual property rights over the intellectual creation of any other subject of law, cannot deny or

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diminish the author’s moral rights, namely the holder’s protected moral rights (important emphasize especially in the case of distinctive marks, when the holder of the registration certi$cate is di!erent than the author of that distinctive mark) and, insofar there is the slightest possibility in this respect, such a contractual clause is either void, or interpreted as having e!ects are not likely to restrict the moral rights recognized by law. In this respect, by decision rendered in the Roualt a!airs, Orléans Court of Appeal decided that the work cannot enter the commercial distribution in any other day than the day its author has freely declined jurisdiction by a discretionary act and brought it into the public eye, creating an inter-conditionality between exercising the right of disclosure and entry of asset into the commercial distribution. #is is the best example of moral rights’ in"uence on commercial distribution rules and economic legal relations. #e in"uence is even greater as it is claimed, based on the absolute and discretionary features, the author being the only one who could decide, without any jurisdiction, on disclosure of work, name under which the work shall be made public and its withdrawal.

A particular e!ect of recognition of moral rights is the change of a recognized rule in the $eld of contractual liability, related to impossibility of claiming damages for breaches of contractual obligations, moral damages being sought only under tort liability. In this respect, the jurisprudence (Zeca, 2010, pp. 29-33 - ”Regarding the ground of appeal, in that the Court has not given the amount of RON 100,000,000 as moral damages, this is also unfounded, as the plainti"s appellants have not shown the occurrence of a moral damage, respectively occurrence of an injury susceptible to be covered by granting of moral damages. !is case brought before the Court, is actually a contractual liability and not a tort and therefore, after cancellation of the sale-purchase contract, plainti"s are entitled only to the reimbursement price (the restitution in integrum principle), and not to moral damages. All other considerations of the appellants, in that they have an advanced age, are unable to acquire another place to live and are subject to the possibility of being drawn in the street, and due to stress they fell ill etc., besides being irrelevant, are unproven in relation to the subject of the action and cannot lead to granting o moral damages in favour of plainti"-appellants” see Bucharest Court House, 4th Civil Section (2005) – Absolute Nullity of the Sales-Purchase Contract, Decision no. 700/2005) has held that ”given that, in reality, it is about a contractual liability and not a tort liability, following cancellation

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of the sale-purchase contract, plainti"s are entitled only to restitution of price (according to restitution in integrum principle in the previous situation)”. In the $eld of intellectual property, considering the intertwining of moral rights with economic rights, one part of a contract can invoke the existence of a moral damage as a result of failure to comply with the clauses of the contract on economic rights acquired and transmitted over intellectual creations. Consequently, granting of moral damages under the invocation of contractual liability in the $eld of intellectual property is recognized by the legal practice (Zeca, 2010, pp. 66-73: ”(...) regarding infringement of the right protected by the provisions of art. 10 letter b) of Law 8/1996 (recognition of the right to claim authorship of work), from interrogations and documented evidence consisting in various comments of those who were spectators to concerts held by the band V., during litigation, the Court #nds that the #rst Court correctly granted moral damages to the plainti"s amounting to EUR 15,000, even if not for infringement of this moral damage, but for infringement of the economic right to consent to the use of the work. (...) the solution of the #rst Court on the grant and amount of moral damages, is going to be supported by the herein considerations on the basis of their grant, art. 10 letter b), and not art. 5 par. (3) of the law, being harder to conceive the situation of remedying the infringement of economic rights by granting of moral damages, but perfectly possible for infringement of moral rights to be remedied by material damages” see Bucharest Court of Appeal (2008) – Rights on Creation Consisting in Part and Lyrics. Joint Impartible Work. Quality of Co-Author. Co-Authors’ Economic and Moral Rights, Civil Decision no. 225A/2008).

Another e!ect of recognizing moral rights is the legislator’s decision to include certain categories of intellectual creations in a certain area where moral rights are recognized and protected indubitably, namely the copyright area. Moral rights are recognized and protected, also in the $eld of industrial property, but in the $eld of copyright, their establishment is express and constantly applied by all the legal systems. Clearly, protection of a certain category of intellectual creation through the legal mechanism in the $eld of copyright leads to an undeniable advantage in terms of moral rights. #e best example is the software programs. #ey came to be protected by the legal mechanism in the $eld of copyright, particularly that this is much more "exible and faster than the mechanism of inventions, which corresponds to the rapid developments in this $eld. To the extent that computer programs should be protected by legal mechanism in

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the $eld of inventions, until issuance of patent following completion of registration formalities in this $eld, the software program would be out of date, and may come to be replaced by its newer version. However, by inclusion of the software program in the $eld of copyright, the program is protected from the moment of creation.

Conclusions: intellectual property moral rights represent an excessive protection of the intellectual property economic rightsClearly, however, granting of legal protection in the $eld of copyright for the bene$t of the author’s moral rights contribute to the strengthening of his/her economic rights. In terms of national legislation, it is worth noting that in Great Britain software authors’ moral rights are not recognized (Sterling, 2003, p. 351), in Germany there is no legal provision limiting software authors’ moral rights (Sterling, 2003, p. 348), in France only the withdrawal and adaptation rights of the author are limited, which cannot be opposed to the person who acquired the right to use the software (Sterling, 2003, p. 346), while in Romania, the withdrawal right of the software author is limited.

Following this brief analysis, it can be argued that moral rights have been diverted from the purpose they were established for and that they fundament the excessive protection of intellectual property (Olteanu, 2010, pp. 16-20 for an introduction to theories regarding excessive protection in the $eld of intellectual property) by reinforcing the importance of author’s intellectual property in relation to other subjects of law and intertwining of moral rights with the economic rights. Basically, economic rights, through extension of their duration, take over from the perpetuity of moral rights, while economic rights take over from authorship. Nevertheless, moral rights have a very important connotation in the context of promoting a less exaggerating protection of intellectual property to encourage freedom of commerce, freedom of access to knowledge, because they are able to reward the author even in such a new system.

For this reason is argued that moral rights represent a limitation on the artist’s right and power of alienation over her creations and for that reason they are inconsistent with a Hegelian analysis of property, more precisely

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with the personality theory of property associated with G.W.F. Hegel. Hegel believes that property rights are only fully consummated in the alienation of property through contract. #is is because it is only through performance of reciprocal contractual obligations that two legal subjects e!ectively recognize their mutual rights and duties (cited in Schroeder, 2004).

Acknowledgements. #is work was supported by the strategic grant POSDRU/159/1.5/S/133255, Project ID 133255 (2014), co-$nanced by the European Social Fund+ within the Sectorial Operational Program Human Resources Development 2007–2013.

References Boyle, J. (1997). A politics of intellectual property: Environmentalism for the

Net?. Duke Law Journal, 47(1), 87-116.Georgescu, M., and Necula, S. (2013). #e Impact of Information Piracy and

Intellectual Property Rights on the Economic Development. Proceedings of the WSEAS 2nd International Conference on Finance, Accounting and Auditing (FAA ‘13) and 2nd International Conference on Risk Management, Assessment and Mitigation (RIMA ‘13). WSEAS Press.

Harrison, J.L. (2014). Copyright as Contract. Retrieved from http://ssrn.com/abstract=2470121.

Mihai, L. (2002). Invention: Substance of Patents: Rights. Bucharest: Universul Juridic Publishing House.

Moore, A.D. (2012). A Lockean #eory of Intellectual Property Revisited. San Diego Law Review, 50 (Fall 2012), 1070-1103.

Olteanu, E.G. (2010). Copyright and Technological Progress. !e Romanian Journal of Intellectual Property Law, 7th year, 2(23), June 2010, ASDPI, Romania.

Ken, H. (2006). Justifying Intellectual Property Protection: Why the Interests of Content-Creators Usually Wins Over Everyone Else’s. In Rooksby, E. and Weckert, J. (Ed.), Information technology and social justice (pp. 47-68). Hershey, PA: Idea group.

Kinsella, S. (2001). Against Intellectual Property, Journal of Libertarian Studies, 15(2), 1-53. Schroeder, J.L. (2004). Unnatural Rights: Hegel and Intellectual Property. Cardozo Law, Legal Studies Research Paper No. 80.

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Benjamin N. Cardozo School of Law, Jacob Burns Institute for Advanced Legal Studies.

Speriusi-Vlad, A. (2013). !e Author of an Intellectual Creation Between a Simple Private Person and a Professional According to the New Civil Code. AWUT - Annals of West University of Timisoara, Law series, no. 2.

Spineanu-Matei, O. (2011). Intellectual Property (5): Legal Practice 2010. Bucharest: Hamangiu Publishing House.

-tef&nescu, C., Petrecu, I., and Munteanu, A. (2011). Intellectual Property in Critical Conditions. Proceedings of the WSEAS 3rd World Multiconference on Applied Economics, Business and Development (AEBD ‘11). WSEAS Press.

Sterling, J.A.L. (2003). World Copyright Law (Second Edition). London: Sweet and Maxwell Publications.

Zeca, D. (2010). Moral Damages in Civil, Criminal and Intellectual Property Litigations: Legal Practice. Bucharest: Hamangiu Publishing House.

Alin SPERIUSI-VLAD

Big Data: the Beauty or the Beast

Camelia CRI#AN1,Alexandra ZBUCHEA2

Steliana MORARU3

Abstract. Big Data is a phenomenon that has been made possible by the IT and the social media revolutions - where content is created or generated by users and their interaction, at the same time with the exponential increase of the data storage capacity, according to the Moore’s law. It has been a long-time dream of social scientists to investigate an issue of importance for large groups of people where n - the number of the investigated subjects - is not determined by some statistical complex formula, but rather by mentioning n=all. !is would allow for better results, with wider applicability in the attempts to understand the society, its trends, ideas and how they propagate, as well as the capacity of taking more e$cient decisions that concern purchase, education, health and politics. But what are the costs? Our paper aims at looking at means and ways through which Big Data is being generated, to provide examples of Big Data ownership and consequences derived from this, and to illustrate the use of Big Data for improving the life of the society’s members. We de#ne the Big Data, how it is generated, processed and the degrees of responsibility in maneuvering such precious resource. At the same time, our focus is on the backside of accumulating large amounts of personal information. We evaluate how and if major companies are handling Big Data properly - from disclosing information about gathering such data, processing it and using it to their own pro#t, with the informed consent of the subjects. In our research we discuss potential implications from the perspective of rede#ning what personal and private still means when individual data becomes a commodity.

Keywords: Big Data, data analysis, privacy, business ethics.

1. Lecturer, Ph.D., College of Communication and Public Relations, National University for Political Studies and Public Administration, [email protected]. Associate Professor, Ph.D., College of Management, National University for Political Studies and Public Administration, [email protected]. Ph.D. Candidate, College of Communication and Public Relations, National University for Political Studies and Public Administration, [email protected].

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Big Data is everywhere. Big Data is upon us. We live in the age of „big data”. #e era of Big Data has begun (Boyd & Crawford, 2014; Tene & Polonetsky, 2013). Or should we say: „Welcome to Big Data. Welcome to the end of computing as we have known it for 70 years” (Needham, 2013). All the above points of view are conveying one thing - we are witnessing a revolution in the way information is being gathered, stored and processed. From each Internet login, from each app usage, from each shopping item bought online, from the sensors of our engines millions and millions of pieces of information are being generated every minute. Such data does not only need huge capacity to be stored, but what researchers have recently found is that processing it, brings about patterns and correlations that are a!ecting large amounts of people or can increase the innovation potential of companies. For instance, in 2009 Google was able to track the expansion of pig "u epidemic by following searches for "u related topics. It did this two weeks before the US Center for Disease Control (Loukides, 2011). In another example, a computer scientist, Oren Etzioni, aggregating open data o!ered by airline companies, has set up a web search engine allowing future passengers to buy plane tickets at the best timing, for the best price (Mayer-Schonberger & Cukier, 2013). Even if it is about big or small results, big data analyses have allowed people make better, more informed decisions and as a result, their lives changed for better.

How big is Big Data?,Sangameswar (2013) says that Big Data refers to data of massive scale and complexity. If one unit of data is measured by a byte, the data stored in the world reached as of 2012, about 2.5 exabytes of data and that number is doubling every 40 months or so (McA!ee & Brynjolfsson, 2012). #is means 1018 bytes, while the largest measurement unit for data storage goes up to yottabytes, which is 1024 bytes. #at is 10 followed by 24 zeros. Mayer-Schonberger and Cukier (2013) give a signi$cant example related to amassing data in astronomy. It’s about the Sloan Digital Sky Survey and its telescope in New Mexico, which has been collecting more data in a few weeks than it has been collected in the entire history of astronomy - 140 terabytes of information by 2010. But not all data gathered can be considered Big Data.

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Boyd and Crawford (2014, p. 663) de$ne Big Data as: “a cultural, technological and scholarly phenomenon that rests on the interplay of: technology, analysis and mythology”. In their view Big Data rests on computer power, its analysis determine patterns which generate knowledge and insights that one could not have foreseen previously „with an aura of truth, objectivity and accuracy”. Sangameswar (2013) de$nes more clearly the type of information that are part of Big Data: traditional enterprise data (customer information, web store transactions, etc.), machine generated and sensor data, weblogs, equipment logs and social data, including customer feedback streams, micro-blogging. McA!ee and Brynjolfsson (2012, p. 63) say that Big Data has three types of characteristics: volume (which has been detailed above), variety (messages, updates, and images posted to social networks; readings from sensors; GPS signals from cell phones, etc.) and velocity (information is generated in real-time or nearly real-time which allows a company to be much more faster than its competitors).

As a result of these de$nitions, we understand that not any data gathered and analyzed by companies could be labeled as Big Data, but this title applies to all those cases where mass information is generated from a variety of sources at high rate. An important feature of Big Data is its messiness. It means, according to Mayer-Schonberger and Cukier (2013, p. 39) that „more trumps better”, and thus a research where potentially the number of respondents equals the total of the researched population (n=all) should decrease for this reason its obsession for exactitude. #e more information we add, the higher the potential for errors within data, as well as consistency for data formatting and combining various types of data. However, as the two authors put it, quoting Hopkins and Evelson (2011) “sometimes 2+2 equal 3.9 and that is good enough”. #is does not mean that the data is incorrect, just that when we whiteness for instance 1000 tweets per second it makes more sense to show tolerance for error rather than aim for clockwork precision. #is reality is then transferred to the way data is analyzed.

Davenport and Patil (2012) claim that a new job - data scientist - is the sexiest job of the 21st century. #ey start their argument from presenting the case of a PhD graduate from Stanford which brought LinkedIn to the success it is today, just because his data analysis showed that people could

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develop their networks easier if they follow machine based algorithms in $nding people they could be matched with, based on the information they have shared in their pro$le. A similar example of using data analysis is shared by Mayer-Schonberger and Cukier (2013) when they describe the success Amazon.com had, when replacing the comments and recommendation of professional reviewers to items customers may be interested it, based on books purchased from the same domain by other people who checked out certain item. It was all based on how the „traces” left by di!erent users have been processed and analyzed to understand a pattern. #e important issue here is that instead of trying to understand the Why, what is the Cause which determined purchases based on people preferences rather than expert recommendations, the companies were satis$ed with identifying the pattern, and were not looking for the explanation of the pattern. In sociological analysis this equals with $nding a correlation between two phenomena / variables. It means that the change in one goes along with the change in the other, but it is not necessarily determining it. Such types of results based on data processing are allowing companies to extract added value and innovate. It appears not only that Big Data is omnipresent, but also using and processing it is a highly economically viable option.

#e detractors of “Big Data conquers all” position express, in our view, 3 main areas of concern: quality of data analysis, compensation for personal data usage, protection of privacy and intimacy. Big Data does not necessary mean better data or scienti$cally sound data, which could lead to scienti$cally sound research and thus quality of knowledge (Boyd & Crawford, 2014). Companies storing people’s data should made them aware that such data may be used for economic purposes and, as a result, pay them in return for using their data (Buck, Horbel, Kessler & Germelmann, 2014). To the same extent, people should be made aware or educated to become more careful that the free usage of some apps in return to their personal data needed to install them may be a bad bargain for them. In terms of privacy and intimacy, we will refer to this by large in the next chapter, however, it is worth mentioning here that realizing at some point that your personal data is available to potentially anyone paying a good price to sell you something, or that a Big Brother can follow your every move tend to cast a shadow of fear and adversity towards companies for which we, sometimes non intentionally, allow access to our private online life.

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!e backside of Big Data from the individual and society perspective - breaching the right to intimacyAs mentioned above, the bene$ts of using Big Data are largely recognized, both at society level / macro-level policies (Bollier, 2010; Chen, Chiang & Storey, 2012; Gehrke, 2012; Lohr, 2012; Whitepaper, 2012), as well as at business-level strategies (Bollier, 2010; Lohr, 2012; McA!ee & Brynjolfsson, 2012; Russom, 2011). Using Big Data has also downsides. For instance, it could be deceptive and could lead to false $ndings, either deliberately or unconsciously (Lohr, 2012; Yetiskin, 2014). Interpretation of Big Data is sensitive in several ways to biases (Bollier, 2010). In this context not just honesty in dealing with and analyzing Big Data is important, but also quali$ed work force is necessary. #ere is an increased demand for specialized analysts (Lohr, 2012; McA!ee & Brynjolfsson, 2012), as well as for a new managerial approach (McA!ee & Brynjolfsson, 2012; Yetiskin, 2014).

In business context, one of the most debated Big Data related issues is the privacy of consumers. Laurila et al. (2012) consider that “protecting privacy of individuals behind the data is obviously the key reason for access and usage limitations of Big Data”. Respecting the right to privacy of the consumers and stakeholders is not just a matter of ethics but also a matter of good business. Companies have to consider not just the legislation, but also the requirements of the wider public to bene$t of privacy and respect in their relationships with businesses in order to be trusted and preferred to their competition.

Agreeing that the main three characteristics of big data are volume, velocity and diversity (McAfee & Brynjolfsson, 2012; Whitepaper, 2012; Russom, 2011), we would like to add to these, a relevant forth one: personal character. Big Data is intimately related with individuals, comprising in many instances sensitive personal and $nancial information. #erefore, privacy issues are extremely important to consider when acquiring, storing, processing, analyzing and using Big Data. #is is proved by the interest of governments to regulate this $eld, as well as numerous public scandals and consumer taking of stand in this respect.


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Researchers investigating the regulation of big data in various countries tend to agree that the European Union has the amplest legislative system but none is comprehensive (Asay, 2013; Guo, 2012; MacDermott & Smith, 2013). #e main di!erence between the European and American approaches is that the $rst imposes tight governmental regulations, while the other lets the industry self-regulate and gives customers more liberty to decide. Data Protection in the EU involves high standards; only legitimate data collection is allowed under tight security. It sets criteria to be considered. #ere is an agreement between the EU and the US to comply with the European standards, but just a few American companies have accepted the terms (Guo, 2012). In the US, consumers have the choice to control their information and protect their privacy. #e weak aspect is that people do not generally read privacy notices or they do not understand them (Asay, 2013). #is, corroborated with some debatable aspects of the legislation in the US, could generate privacy breaches or other problems in handling Big Data (Asay, 2013).

Big Data management has to consider several complex privacy-related aspects. #e main points of reference would be: the scale and the aims of the collector; the media used to gather information. Big Data could be collected by businesses of all sorts, by regional / national collectors and public organizations (open data). Especially in the last case data sets are shared for the bene$t of a wider public, while personal information is protected. Still privacy breach could occur (Gehrke, 2012).

Research of Big Data, even in academic context, involves sensitive issues, especially privacy-related ones (Laurila et al., 2014). #ree main aspects are to be considered: data security, data anonymization and the respect of privacy by the researchers. If the data is speci$cally collected for the research, consent from the participants / subjects of the investigation also has to be secured. In order to share the results of the research, privacy during the entire research "ow is a must.

Special privacy issues could emerge also when using Big Data for the bene$t of larger communities. Many discussions are related, for instance, with the use of Big Data in health care in the US (Bollier, 2010; Groves et al., 2013). Privacy is a key-factor in the process of sharing vital data, as well

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as to investigate the data corpus available. Other relevant aspects opposing the use of integrated Big Data in healthcare are related with the interests of various actors, and with various ethical aspects (Boillier, 2010).

Big Data is collected using various channels: o.ine/administrative, online and mobile. #e Internet and mobile phones are increasingly more challenging due to their dynamics. #e Internet is the one that changed the way information is dealt with and generated the use and the research on big data. More recently, the development of smartphones o!ers new type of information and databases (mobile big data), as well as new challenges. #is refers to the need to manage large-scale information generated by the use of smartphones, including online and application use. #is type of data allows “understanding real-life phenomena, including individual traits, as well as human mobility, communication, and interaction patterns” (Laurila et al., 2012)

#e $rst sensitive issue is to decide what information to collect. It is not just a matter of management – of having signi$cant information, but also of ethics – of justifying the storage of that speci$c information. An additional ethical and legal aspect is to obtain the approval of each individual to store, manipulate and use that information. In many cases the information is not used only by the organization that obtained it, but also by its associates. #e transmission of data to third-bodies is also highly sensitive (Asay, 2013). Not just consumers do not have control over this information, but companies themselves loose the control.

One of the privacy breaches is the identity theft. It can occur in many forms, as it widely means the unauthorized use of information (MacDermott & Smith, 2013). 10% of the US online consumers were victim of an identity theft (MacDermott & Smith, 2013). Some artists and hacktivists draw the attention on the perils associated with Big Data wrongful handling, in order to make people aware of the sensitivity of the information they share online (Yetiskin, 2014) and how social reality can be manipulated. A severe privacy issue is the phishing phenomenon, since it involves in many cases disclosure and subsequent use of $nancial information.


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A frequent aspect involving ethical aspects related with privacy violation is the use of cookies4. Many of the popular websites use cookies to track their visitors, some of them permanently not only while on their website. At least to a certain degree people know and accept this if they are interested in those websites. Nevertheless most of them are uneasy with the idea of being tracked by advertising (Bollier, 2010).

Even if privacy seems to be a hot topic in the context of Big Data and the Internet / mobile environment, the tendency overall, both considering businesses and governments is the growing control of consumers, as well as of citizens (Yetiskin, 2014). Organizations and individuals are caught between ethics and business/politics. Some delicate situations may arise. Sometimes companies take the ethical stand, but for whose bene$t? For instance, Facebook protected its users from intrusion and loss of privacy against their employers, but, in fact, the company protected itself from future damage and lack of trust (MacDemott, 2013).

#e trust of consumers in companies is an issue of prime importance. Big Data could be a!ected by the lack of trust. For instance consumers and individuals could provide partial or false information, so data will be from the beginning corrupted (Gehrke, 2012). Trust in online transaction would also in"uence the online shopping behavior. Other issues to be considered in this context are online (perceived) security system, information scanning, recommendation / review system, credibility, and virtual experience (Fang & Li, 2014). #e shopping and searching behavior in"uences the data collected, as well as Big Data in"uences consumer behavior.

4. A cookie, also known as an HTTP cookie, web cookie, or browser cookie, is a small piece of data sent from a website and stored in a user’s web browser while the user is browsing that website. Every time the user loads the website, the browser sends the cookie back to the server to notify the website of the user’s previous activity. Cookies were designed to be a reliable mechanism for websites to remember statefull information (such as items in a shopping cart) or to record the user’s browsing activity (including clicking particular buttons, logging in, or recording which pages were visited by the user as far back as months or years ago).

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Collecting Big Data - an Orwellian reality or an individual fully assumed risk? Tracking and analyzing users’ pro$les and personal history across di!erent online environments are among the main activities taken into consideration when we tackle the subject Big Data. In fact, nowadays every human activity, from eating habits, sports activities, relationships, hobbies, political options, relationships, holidays, work life, or payments to medical records can be online monitored, registered, traced and put into the service of an advertising campaign, a political debate or a fundraising initiative, just to name a few. #e “market opportunity” of browsing through the digital footprints of the online consumer can be and is already translated for each type of institutions into insights, predictions and activities trends. In the view of this online magnifying glass, the question that both the consumers and the companies should ask is where privacy and con$dentiality stand? #is “Big Brother” concerns are not new, but they are renewable, as the world becomes more connected, through phones, Internet, computers, networks and video cameras. Data can be transferred, sold, processed, stored and used in ways that only George Orwell or Aldous Huxley have imagined. Nowadays, even a new specialization has emerged–data brokers. #ey work for companies who gather, harvest and then redistribute highly personal data about persons to anyone willing to pay for it.

No more than 15 years ago (Google was created just the year before, and Facebook or Twitter did not exist yet), Scott McNealy, at that time CEO of Sun Microsystem5, put it very brie"y - consumer privacy issues are a “red herring” and “you have zero privacy anyway” in a meeting with journalists. His statement raised many problems and was followed by numerous critical points of view. For the purpose of our article, we quote Stephen Manes, editor at PC World (an??). He a,rmed, “he (McNealy) is right on the facts, wrong on the attitude. It’s undeniable that the existence of enormous data-bases on everything from our medical histories to whether we like beef jerky may make our lives an open book, thanks to the ability of computers to manipulate that information in every conceivable way. But I suspect even McNealy might have problems with somebody publishing his family’s medical records on the Web, announcing his whereabouts to the

5. Sun Microsystems, Inc. was a company that sold computers, computer components, computer software, and information technology services and that created the Java programming language and the Network File System.In 2010was acquired by Oracle.


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world, or disseminating misinformation about his credit history. Instead of ‘getting over it,’ citizens need to demand clear rules on privacy, security, and con$dentiality”.

14 years later, in 2013, the world encountered a new face of the problem, as Edward Snowden6 leaked the information regarding National Security Agency’s (NSA)7 program called PRISM8. #is brought a new perspective regarding the value of privacy and con$dentiality and many citizens become more aware of the possible implications data-mining could have. Nine in ten (88%) US consumers are at least “a little” concerned about the privacy of their personal data, new $gures show (GfK, 2014).

According to Clemons et al. (2014), there are three directions when it comes to online privacy. #e $rst one addresses the not allowed actions targeting someone’s personal space. Usually, these are sponsored actions such as spam, pop-up advertising, and online marketing. #e second type implies a more serious threat about a person’s privacy, including identity theft and fraudulent activities. #e third type is a more silent, but the most profound, the personal pro$ling developed by companies like Google or Facebook in order to obtain advertising bene$ts. #e personal pro$ling includes all the types of information mentioned above, blended together in order to better understand who is the persons using their services. Although most of the companies claim that such measurements are mostly for helping customers to receive a personalized service, in reality the potential of personal data rises above the basic needs.

6. Edward Joseph „Ed” Snowden is an American computer professional who leaked classi$ed information from the National Security Agency, starting in June 2013.7. #e National Security Agency (NSA) is a U.S. intelligence agency responsible for global monitoring, collection, decoding, translation and analysis of information and data for foreign intelligence and counterintelligence purposes - a discipline known as Signals intelligence. NSA is also charged with protection of U.S. government communications and information systems against penetration and network warfare8. PRISM is a clandestine mass electronic surveillance data mining program launched in 2007 by the National Security Agency (NSA), with participation from an unknown date by the British equivalent agency, GCHQ. PRISM is a government code name for a data-collection e!ort known o,cially by the SIGAD US-984XN. #e Prism program collects stored Internet communications based on demands made to Internet companies such as Google Inc. under Section 702 of the FISA Amendments Act of 2008 to turn over any data that match court-approved search terms.

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As mentioned earlier, people have started to be more preoccupied about their online presence. As recently as 2013, Pew Research, in a study regarding anonymity, privacy, and security online, revealed that 64% of people seeking online privacy clear their cookies and browser history, while 41% have disabled cookies. #e same study found that 86% of the Internet users have tried to be anonymous online and they have taken at least one step to mask their behavior or avoid being tracked, and 55% have taken measures to hide from speci$c persons or organizations. To encourage free online navigation, many of the available browsers have an anonymous browsing mode option. Moreover, there are a series of applications that enable anti-tracking software, in order to erase the browsing history and other data. For example, AdBlock Plus, one of the most popular browser extension for blocking banner ads, pop-up ads, rollover ads, preventing visiting known malware-hosting domains, and disabling third-party tracking cookies and scripts, has been downloaded by 300,000,000 people (according to their own statistics). Some add-ons, for example Lightbeam for Firefox, allow users to visualize the $rst and third-parties sites s/he interacts online. Other reports highlight the increasing use of ad blocking add-ons for browsers and even Google trends reports (2013) showed that this type of software has an annual growth of 43%. For example, IAB report from 2012 regarding the consumer and online privacy stated that 45% of the respondents used clean-up programs and 30% used ad-blocking software. A 2013 report from PageFair9 estimated that the average adblocking rate on 220 monitored website was 22.7%. According to their estimation, the adblock rate will continue to increase, reaching a 100% level in 2018.

Regardless though, for every action taken in order to protect the users’ privacy, there is a counterpart that reminds them about the facilities they may gain from o!ering personal information. #e online industry, and not only, has made a purpose from gathering as much as possible data, in order to o!er a personalized experience to each consumer. From advertisers, to governments and nongovernmental organizations, each of them looks for opportunities to have access to users’ data, in order to mine it and to be able to perform their activities even better.

9. PageFair is a free service that allows websites owners to measure how many of their visitors block ads, and attempt to recover the lost revenue. For the mentioned report, they have been collecting anonymous data on adblocking behavior from their clients in 2012.


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Research methodologyWe propose in this paper an exploratory research in order to map the relation between the consumer and selected companies in what concerns the use of their data and the terms and conditions they agree upon when they start using their services and products. Our aim is to compare the type of information requested by two international companies and two Romanian companies from their users through the „Terms and Conditions” - contractual relations. Our methodological approach consisted in analyzing the online documents publicly posted on each company’s website and conducting content analyses of the terms and conditions speci$ed. #e analysis unit has been the theme and the text we have studied are the provisions from Terms and Conditions. #e main themes we have identi$ed are: what data is being asked from users, how the data is created and used, and if the data can be used by third parties. All these themes have been split in sub-categories, for a more detailed analysis.

#e coding process for each sub-category envisages giving points, incrementally, for each type of action required by the terms and conditions in relation to how much they are invading the intimacy and personal cyber space of the users.

As a result, the coding process for the analyzed text has been the following:

A. Data provided by users consisted in the following sub-categories co: account requirement, restrictions related to creating an account, type of information being displayed, options to restrict the company’s access to personal data.a. Account requirement: 1 - users need an account, 0 - users don’t need an account.b. Restrictions related to creating an account: 1 - restrictions are in place, 0 - restrictions are not in place.c. Type of information being displayed: each type of information displayed received one point.d. Options to restrict the company’s access to personal data: 1 point for each limitation in service delivery the company is putting in place once the user decides to restrict the company’s access to the personal data.

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B: How data is created and used consisted in the following sub-categories: content property (creating, sharing, uploading, submitting, storing, sending, receiving), data storage, ceasing services.a. Content property (creating, sharing, uploading, submitting, storing, sending, receiving): each type of activity performed with the raw data receives 1 point; each activity that is performed with the secondary data (processed information of the users) receives 0.5 points.b. Data storage: storage of data inde$nitely - 2 points, storage of data for de$nite amount of time based on self regulation - 1 point, storage of data according to law - 0 points.c. Ceasing services: arbitrary cease of services - 2 points, cease of service due to misconduct of user - 1 point, cease of service based on contractual terms - 0 points;

C. #ird party data usage consisted in the following sub-categories: use of data for the company’s purposes; sharing data and using data for other purposes, tracking, monitoring and personal information analysis; data transfer in other countries; transparency on law enforcement requests.a. Use of data for the company’s purposes: for each purpose the personal data is used - 1 point;b. Sharing data and using data for other purposes, tracking, monitoring and personal information analysis: all data is shared based on the acceptance of T&C - 2 points, data is shared based on legal regulation - 1 point, no data is shared with third parties - 0 points.c. Data transfer in other countries: data transferred without restrictions once the T&C accepted - 1 point, data transferred based on legislation - 0 points.d. Transparency on law enforcement requests: law enforcement requests made public - 0 point; law enforcement requests not made public: 1 points.

#e criteria for selecting the four companies were their impact upon consumers in terms of daily use and the potential of generating data (over 1 million users, highly rate of daily content creation and sharing, number of monthly visits) and their turnover (over 500,000 Euro). Besides that, we took into consideration their location, including two Romanian-based


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companies. #ese companies are Google Inc., Facebook Inc., which are American based companies, and Dante International (owner of Emag.ro), and Orange, which are Romanian based companies.

Founded in 1998, Google Inc. has set itself the mission to organize the world’s information and to make it universally accessible and useful. According to the company’s $nancial reports, Google Inc. turnover in 2013 was USD 57.86 billion, the highest since the company was established, and currently, they process over 40,000 search queries every second on average, meaning more than 3.5 billion searches per day and 1.2 trillion searches per data, year worldwide. Taking into consideration the information o!ered by in4mation insights10, a company specialized among other in Big Data, Google processes more than petabytes11 a day. As Kulathuramaiyer and Balke (2006) stated, in the light of constant growth, Google is not really a competitor anymore, but already the environment.

#e second company included in our research is Facebook Inc. Started as a student membership website, Facebook has surpassed at the beginning of 2014 1.23 billion monthly active users12, 945 million mobile users, and 757 million daily users.

Emag.ro is one of the largest Romanian online stores, owned by Dante International. It started in 2001 as an online platform selling stationery and calculus systems. Currently, the online magazine o!ers products from a broad series of categories, from electronic equipment to cosmetics, toys, movies and fast moving consumer goods (FMCG). In their $nancial documents, the company reported 4 million users/month in 2013, and a turnover of 187 million Euros.

10. in4mation insights, located in Needham, MA, was founded in 2006 by Mark Garratt and Steve Cohen. #eir vision is to evolve the $eld of analytics and marketing research beyond the standard methods by providing the marketplace with highly innovative solutions and predictive tools.11. A petabyte is 1,048,576 gigabytes12. According to Facebook, active user is de$ned as an user who has logged into Facebook at least once in the previous 30 days.

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Orange Romania is the France Telecom brand that o!ers worldwide mobile communications services, Internet and television, having 183 million clients worldwide. In Romania, it has 10,382,481 clients (as of October 2013) and a turnover of over 917,000 Euro. For this paper, we have analyzed the terms and conditions stated in the contract for the postpaid voice services.

Table 1. Comparison of Terms and Conditions from Google Inc, Facebook Inc, Emag.ro, and Orange Romania

Terms and conditions Google Inc.

Facebook Inc. Emag.ro

Orange Romania

(voice postpaid contract)

Data provided by usersAccount requirement 1 1 1 1Restrictions from creating an account

1 1 0 1

Public information displayed

3 3 0 0

Options to restrict the company’s access to your personal data

1 1 1 1

How data is created and used: content property (creating, sharing, uploading, submitting, storing, sending, receiving); data storage, ceasing servicesContent property (creating, sharing, uploading, submit-ting, storing, sending, receiving)

9.5 4.5 9.5 1

Data storage 1 1 2 0Ceasing services 2 1 1 -!ird party data usage: use of data for the company’s purposes; sharing data and using data for other purposes, tracking, monitoring and personal information analysis; data transfer in other countries; transparency on law enforcement requests.

Use of data for the company’s purposes

7 13 8 7

Data transfer in other countries

0 1 1 1


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Sharing data and using data for other purposes

2 2 2 2

Tracking, monitoring and personal informa-tion analyze

2 2 2 0

Transparency on law enforcement requests

0 0 1 1

Total 30.5 31.5 27.5 14

Results and discussions: there are close scores obtained by the companies which have been analyzed, apart from Orange, for which we have taken into account only one service. #e highest scores are being recorded in those areas where the information is not only recorded but also processed and then either sent to other partners or sold for commercial purposes. #e other high score is obtained in the area where personal information of users is treated as a commodity - where companies ask for this commodity in exchange to providing a certain service. In the rush to collect data, to share it, to analyze it, to process it, to mine it, in order to o!er tailored services and to take advantage of every innovation, companies and consumers $nd themselves in middle of a strong debate regarding the privacy and con$dentiality. Also, there are not big di!erences between the Romanian company and the US based ones - a sign that although the UE has tough regulation as regards personal data, they are either not applicable in Romania yet or the Romanian company is just doing things its way. #e only big di!erence is in the sub-category how much of the personal information is displayed, where both Google and Facebook have higher scores than the Romanian companies. It’s most probably something which relates with the type of business, rather than the care for the privacy rights in the case of the Romanian companies analyzed.

Fully securing our online data is no longer possible, and our online activities are subject to monetization, development and research. Consumers deserve to bene$t from high standards of commitment from the companies they trust their information with. #is means that both companies, and customers should act in a more responsible way confronted with personal and sensitive information. In the users case, many of them tend to be unaware of the potential dangers of over-sharing information on di!erent online environments and the ways other persons, not companies, might take advantage of that speci$c information. #e best example in this case

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is sharing information about ones location or holiday’s location, leaving an open space for potential thieves. Also, research (Asay, 2013) and di!erent experiments show that many users do no read the terms and conditions and the privacy policies13.

Besides this, for the persons who read these documents, the language and the particularities of certain terms (e.g. data storage and legislation) might not be easy to understand. #is leads us to the responsibility of the company. Under the façade of tailored services, we could see that the companies’ practices go further. #ey can track many of our online activities, be it on their website or on others. Everything is measured and analyzed, making possible for third parties to bene$t or could lead to a discriminatory pro$ling based on age, race, ethnicity etc. In essence, our paper raises a few interesting issues to explore further: personal information and online actions are becoming commodities. At the same time, trade and revenues are generated by the primary and secondary processing of personal data. #e actions of the companies are in a grey area, due to the fact that the information requested by Terms and Conditions is voluntary provided.

To put everything in balance is easy, but $nding the right way to focus on the responsible way of collecting more data, because this is what future reveals to us, is a real challenge. #e debate goes now to the ethical sphere, where the battle between acceptable and not acceptable, and the context and the purpose will play a bigger role in de$ning the ethical framework, more than legislation.

13. Two situations are popular among the examples given to sustain these a,rmations. In 2004, PC Pitstop, a company active in the technology $eld, put a clause in its end-user license agreement, o!ering $1,000 to the $rst person who emailed the company at a certain address. Only after $ve months and 3,000 sales, someone wrote the company asking for the sum of money. +Another recent example, from 2010, refers to Gamestation, a computer game retail, which wanted to play a joke for April fools day, mentioned in their Terms and conditions that the users would sell them their souls. #ey added the „immortal soul clause” to the contract signed before making any online purchase, stating that customers grant the company the right to claim their soul. In that day, 7500 online agreements were signed.


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What we see from our research is a need to invest more in the digital education of the consumer, to help him / her better understand his/her choices, the possible consequences of his/her online activities and the impact these could have upon shaping the legislation.

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Vasilache, A. (2013). Num&rul Clientilor Orange România a crescut cu peste 10,38 milioane de utilizatori (SIM-uri valabile), 20% dintre ace%tia $ind utilizatori de smartphone. Retrieved from http://economie.hotnews.ro/stiri-telecom-15870802-numarul-clientilor-orange-romania-crescut-peste-10-38-milioane-utilizatori-sim-uri-valabile-20-dintre-acestia-$ind-utilizatori-smartphone.htm.

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Research in the "eld of goodwill and corporate governance accounting: a synthesis bibliography in

the 2011-2014 academic literature

Lumini$a Mihaela DUMITRA#CU1

Radu - Daniel LOGHIN2

Abstract. We present a quanitative study regarding the recent research in the #eld of goodwill and corporate governance accounting. We focus on the research done in 2011-2014. !is research contributes to the existing one, being a synthesis of the literature review. We have included many important academic journals as part of the survey, with the goal to #nd a trend within the academic community for the publishing of scientifc papers within the boundries of goodwill accounting and corporate governance. We #nd that the existing body of scienti#c literature acts as a deterrant for the study of existing themes and it is used instead as a basis for new and innovative discourses beyond the scope of the previous studies..

Keywords: semantical analysis; frequencies, international accounting; corporate governance; goodwill.

Introduction and literature reviewCorporate governance is a set of rules under which companies are managed and controlled, that branch of economics that studies how companies can become more e,cient, promote fairness, transparency and accountability at the company level. #is can be viewed narrowly and broadly. Narrowly, corporate governance is a set of economic and legislative means to help ensure investors’ interests. In a broad sense is a set of standards and controls applied in order to protect and harmonize interests, in many cases contradictory, of all categories of economic actors (stakeholders) of the organizations.

1. Assistant professor, Ph.D., Bucharest University of Economic Studies, Bucharest, Romania, [email protected]. Ph.D. candidate, Bucharest University of Economic Studies, Bucharest, Romania.

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Corporate governance is a combination of laws, regulations and codes of conduct adopted on a voluntary basis to ensure the company to attract $nancial and human capital necessary for its activity and ability to operate e!ectively in order to ensure existence by generating long-term value for its shareholders and society .

#e stakeholders are „any group of individuals who can a!ect or is a!ected by the achievement of the organization objectives” (Freeman, 1984). #e number of owners and shareholders and their role di!er from company to company according to its size. Managers’ role is to be accountable to the owner(s), to control, to organise, to take decissios, to plan etc. Employees are important to carry out the activities of a company. Another stakeholders are: investors (there are studies that explore the correlation between sustainality and performance, the main aspect that investors take note about), customers, suppliers, authorities, communities.

According to the literature, we found the sources of corporate governance theory, as were noted by James P. Hawley and Andrew T. Williams, in 1996. (Hawley & Williams, 1996). #ese were the starting point for the Organization for Economic Cooperation and Development (OECD), which consider the existence of the four theoretical sources of corporate governance:

#e Agency #eory (#e Agent’s #eory or the Principal - Agent #eory or the Shareholder Model) (La Porta et al., 1999; Hart, 1995; Eisenhardt, 1989; Fama & Jensen, 1983; Fama, 1980; Jensen & Meckling, 1976) aims at monitoring managers by administrators to eliminate the potential negative e!ects. #e sole responsibility of an organization is the pro$t, legally obtained, as Milton Friedman said, a professor at the University of Chicago, Nobel laureate for Economics. In 1776, Adam Smith, the author of the „Wealth of Nations, Research on its Nature and its Causes”,

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brings into the spotlights the notion of the „invisible hand”, emphasizing the regulatory function of the market in terms of rational allocation of the resources. #e Agency #eory is tackled later by Mill (1848/1909) and Berle and Means (1932/1991), who highlights the idea that managers act in their own interest, considering the existing divergences. #e Agent #eory is based on the fact that managers (agents) must act in the interest of shareholders (principal). It thus appears the clear separation between ownership and control. However, it is interesting to note why managers should act in this direction.

#e Stewardship #eory shows that the managers work in the interests of stewards (Muth & Donaldson, 1998; Donaldson & Davis, 1991; Donaldson, 1990). #e Stakeholder #eory (Kolb, 2010; Laplume, Sonpar & Litz, 2008) establishes the responsibilities of all stakeholders (Laplume, Sonpar & Litz 2008; Jonge, 2006; Roberts & Mahoney, 2004; Jensen, 2001; Stoney & Winstanley, 2001; Mitchell et al., 1997; Donaldson & Preston, 1995). Freeman (1984, p. 45) is also the proponent of this theory, which refers to the sustainability or triple bottom line (Elkington, 1997).

#e Legitimacy #eory provides that organisations agree to undertake various social activities. (Mathews, 1993; Gray, Kouhy & Lavers, 1995a; Neu et al., 1998; Campbell, 2000; Parker, 2005, De Villiers & Van Staden, 2006). As shown in the literature, the Agency #eory is the fundamental theory in corporate governance.

#e Corporate Governance Models (Feleag&, Feleag& & Dragomir, 2010; Feleaga, 2008; Short, 1998):

#e Anglo-Saxon Model or the Outsider Model or the Shareholder Model is characterized by: the capital allocation;

Lumini(a Mihaela DUMITRA'CU, Radu - Daniel LOGHIN

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(GAAP);

Hong Kong etc.

#e Continental Model or #e Insider Model or #e Stakeholders’ Model is characterized by:

(IFRS);

#e cultural and the legal di!erences help trying to converge to global corporate governance systems. We cannot say there is a best model of corporate governance, all systems presenting pluses and minuses, the perfect model of corporate governance being only an illusion. (Elkington, 2006). #e study done by Rafael La Porta and his research team (La Porta, 1997) is a comparison of the corporate governance systems. #e research conducted on a sample of 49 countries, re"ects from a legal point of view that the English system o!ers the highest protection of investors, followed

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by the German one, while the French system provides a small degree of protection.

#e existence of furthermore models of corporate governance can be argued, as stated above, in terms of di!erent national cultures and, in this case, is relatively di,cult to build a single model of corporate governance able to $t perfectly on each country. It is the same thing with trying to put the same ring on the $nger of furthermore people, the opportunity to suit perfectly to all of them being very low. #e classi$cation and the framing, is useful for various analyzes and empirical research. A challenge is to $nd the representative points of convergence of corporate governance models. #e wide range of corporate governance systems directs us to the question: “which one is more reliable?”. #e corporate governance systems from United Kingdom (where the focus is on protection of investors, unlike with the one from continental-European countries), France, Germany are some of the best, and their di!erences are not so signi$cant to other states. (Abbott & Snidal, 2004). At the opposite pole there are the least developed or in transition countries, within the corporate governance systems are not practically implemented. A reliable system of corporate governance is the one able to anticipate and prevent the shareholders-managers con"icts or the shareholders-creditors con"icts.

#ere is a very $ne line between corporate governance, goodwill, corporate social responsibility and sustainability. All are extremely important for a company and should not be viewed separately. Responsibility for society is a strong di!erentiating factor for companies, with implications on sustainable development of society. Social responsibility actions, on short-term, includes costs for the organisation, but on long term they brings a win-win-win relationship, if we try to look beyond the numbers. Social responsibility is not a necessity, is an important economically, ecologically, and socially obligation.

#ere are two de$nitions of reputation, one of the organization’s perspective and from the perspective of stakeholders. Organizational reputation is an intangible asset (Ferguson et al., 2000). Organizations can be viewed as a network of relationships (Jones, 1995), and their ability to be in good relations with several stakeholders at the same time can be a core value.


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In the Information Age, intangible assets provide an ever greater assistance to stakeholders and improve the social peace of their respective entities. Improvements in technology have allowed an ever greater number of entities to improve their communications with its stakeholder network. #is network has seen the rise of a new class of assets described intially by Menger, which writes ‘‘Of special scienti$c interest are the goods that have been treated by some writers in our discipline as a special class of goods called ‘relationships’. In this category, there are $rms, goodwill, monopolies, copyrights, patents, trade licenses, authors’ rights, and also, according to some writers, family connections, friendship, love, religious and scienti$c fellowships, etc.’’ (Menger, 2004; Magliulo, 2010). From an Austrian perspective goodwill and communications are assets of a company and a measure of real wealth.

According to the guidance set by 35-3C Transition Guidance 350-20-65-1, as amendments to SFAS 142, several circumstances should be considered while performing impairment tests on an entity’s goodwill accounts.

Such circumstances are subject to the entity as well as its stakeholder/shareholder framework, including a de$nitive list of socio-economic and operational factors which interfere with the entity’s capability of presenting itself as an appropriate enterprise within its stakeholder framework.

Table 1. List of Socio-Economic and Operational Factors (based on FAS 142)

Factors Related parties Risk

Macroeconomical factors National and international agencies

Interest risks, Political risks

Apprisals of the market and the sector

Competitors, lenders, clients, the central banks

Political risks, marketing risks, operational risks

Cost "uctuations Unions, lenders, state Operational risksRelevant events Partners and managers Political and operational

risksA drop in the share prices Investors, Central Bank Capital and Operational

risks

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#is decision framework relies on an appropriate level of corporate governance disclosure, as a risk mitigator factor in the relationship with the appropriate related parties. Such parties can be considered from the ranks of both the shareholders and stakeholders alike. While the markers of impairment are loose and apply to a variety of business models, the underlying factor in all business models is a good model of corporate governance.

Critics like Lev and Zarowin argue that the accounting treatment of the intangible assets (omitting several key intangible assets from the balance sheet) has reduced the utility of the balance sheet and comprehensive income. Lev’s analysis draws on two bene$ts of using intangible assets namely (a) the complementary use and (b) the chain e!ects. An adequate corporate governance disclosure system ful$lls this demands.#e complementary use implies that intangible assets can be used simultaneously to ful$ll many tasks. An adequate corporate governance disclosure system enchances the quality of the $nancial statements by earning the trust of the investors. According to Aishah Hashim and Devi(2008), $rms which disclosed complience with corporate governance codes in Malasyia had a greater earnings quality. #e users of $nancial statements are more likely to accept the $nancial results of a company with a higher level of corporate governance transparency. Also, disclosing the corporate governance structures reduces litigation risks as third parties will $nd the appropriate person to voice their concerns and thus be less likely to sue the company over unsatisfactory interactions. Moreover by ensuring the stakeholders are awknoledged in the annual report, reduces the alienation of these parties.

Lastly, disclosing the corporate governance system in an appropriate manner reduces audit costs by limiting the time required for the collection of evidence. #us the corporate governance disclosure system provides multiple purposes satis$es the $rst criteria for inclusion as demanded by Lev.

Regarding the chain e!ects, this implies that an insigni$cant early advantage can lead to signi$cant later advantages leading to the control of the market. E!ective corporate governance codes are a game changer and insigni$cant advantages such as a better board disclosure prevent fraud


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and save investors millions. Chung et al. (2007) $nd that $rms with better corporate governance have narrower spreads, higher market quality index, smaller price impact of trades, and lower probability of information-based trading. Moreover intangible assets such as a corporate governance disclosure system produce other means of gaining onto the market such as goodwill and dividends for the owners.

Figure 1. !e link between goodwill and corporate governance

It is obvious from the cycle that better corporate governance disclosures will demand more resources from the company’s management and thus be likely to incur a cost on the shareholders. However if the initial setting provide an advantage over the competitors such costs are likely to be mitigated by the bene$ts of the endorsement and the costs will contribute to a better stakeholder framework. Such a shift in the balance of power is likely to bene$t the stakeholders with impacts over the accounting policies and principles endorsed by the company and thus provide even more bene$ts for the company.

Hypothesis, sample selection and methodologyA problem for academics is if the planning of their research initiatives. Such planning has to be considered within the larger body of scienti$c literature with respect to originality, prior research and relevance. Since the issues of goodwill and corporate governance can combine in many contexts the problem in hand is to $nd a method to plan the scope of the research.

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#e issue thus in question for the paper is whether the interest expressed by researchers in topics related to goodwill and corporate governance are limited by the pre-existent body of literature and what is the exploratory limit available to authors at the present moment. A natural formulation of the problem would be that the more a theme is studied within the body of scienti$c literature the less likely an author would be to approach the issue as part of his or her research.

#us, the hypothesis in question for the study and its null hypothesis can be formulated accordingly:H0: Research initiatives in the matters pertaining to goodwill and corporate goverance are signi#cantly dependant on previous research!H1: Research initiatives in the matters pertaining to goodwill and corporate goverance are not signi#cantly dependant on previous research!

We opted for a quantitate analysis of a qualitative data set through epistemic mapping and numericalanalysis of the data derived from the meta-data. #e data re"ected research which focused on areas related to goodwill accounting and corporate governance and represent an appropriate mirror of the interference between those epistemic areas. #e research papers were selected for relevance and meaning and were excluded those research papers which focus on corporate governance and goodwill accounting in a super"ous manner or are irrelevant to the accounting discourse which focus on other social sciences such as sociology and political sciences.

#e data was extracted from the Science Direct database and it includes 45 relevant research papers which bridge the gap between goodwill accounting and corporate governance for the period 2011-2014.

We have included in our sample academic journals such as Critical Perspectives on+Accounting, International Review of Financial Analysis, Emerging Markets Review, Journal of+Accounting+and Public Policy, Journal of+ Accounting+ and Economics, Research in+ Accounting+ Regulation, Advances in+ Accounting, + Management+ Accounting+ Research, Journal of+ Corporate+ Finance, Journal of Financial Economics, International Business Review, Journal of Comparative Economics, World Development,


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Management+Accounting+Research, International Journal of Information Management, +#e International Journal of+Accounting, + International Journal of Project Management, +International Business Review.

Results #e time period for this review is 2011-2014. While we could not review exhaustively the literature, we identi$ed those articles which we considered relevant for our research. #e main ideea of our research is that to $nd the relevant papers on the basis of the keywords detection. We used in the present study a quantitate analysis of a qualitative data set through epistemic mapping and numerical analysis of the data derived from the meta-data.

While we researched the relationship between corporate governance and goodwill we discovered that the nowadays evidence is too variable to scatch up some generalizable conclusions. By this quantitative research we conduct a meta analysis of 45 studies.

No Article Author 1 Author 2 Author 3

Emerging Market Sample

Keyword 1

Keyword 2

Keyword 3

Keyword 4 Year

Figure 2. !e basis of the quantitate analysis

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Table 2. !e semantic areas

Semantic Areas Number of Keywords

Precen-tage Priority

business combinations 8,00 5% 17closed governance systems 6,00 3% 12

corporate governance theory 24,00 14% 2Fraud 10,00 6% 8

Globalization 6,00 3% 13

governance mechanisms 3,00 2% 19

IT 6,00 3% 10macroeconomic risks 4,00 2% 18

Methodology 13,00 7% 3Metrics 22,00 13% 1

organizational behaviour 3,00 2% 16Others 7,00 4% 5

Ownership 5,00 3% 11Politics 10,00 6% 6

Regulation 9,00 5% 9risk management 7,00 4% 14

Sampling 9,00 5% 7stakeholder theory 6,00 3% 15

Stakeholders 3,00 2% 20Values 13,00 7% 4Total 174,00 100% -

From the articles we extracted the four top keywords and the number of contributing authors:


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Table 3. !e epistemic areas

Epistemic area Total Unique Key-Words Sample

Business combinations 4 MergerSmall-scale governance systems 6 S&M enterprises

Corporate governance theory 12 Corporate Social Responsibility

Creative accounting 8 Moral hazardGlobalization 6 Internationalizationgovernance practice 4 Stock based incentivesInformation Technology 6 IT-based co-creation of valuemacroeconomic risks 3 2007/2008 $nancial crisisResearch methodology 11 Labor theory creationPerformance metrics 20 GoodwillOrganizational behaviour 3 OCBOthers 6 Learning from failuresOwnership 8 Family $rmsPolitics 9 PrivatizationRegulation 8 Sarbanes Oxleyrisk management 7 Information asymmetrySampling 8 Athens Stock ExchangePublic Relations 6 Social performanceRelated Parties 3 n o n g o v e r n m e n t a l

organizations+Value systems 13 JusticeTotal 152 X

Some keywords which belong in practice to a two or more epistemic areas were grouped based upon the dominant aspect of the keyword. In the case of cross-border M&A for instance the focus of the discourse is at the crossroads of globalization and business combinations, but from an ideological perspective the discourse emphasizes globalization in contrast with domestic M&A. After we determined the major epistemic areas , we mapped the keywords in the research papers based upon the categories. From the mapped research papers we derived two numeric variables and

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two variables which were analyzed in an univariate regression. Regarding the relative research priority metric which is the depenedent variable of the study was derived from a popular keyword density formula adapted for use in the paper’s context. #e original formula is the following where represents the presence of the phrase, represents the word count of the phrase and represents the total word count from the text.

#is formula was modi$ed for the purpose of the paper with the following variables:

and

where represents the average focus on a particular epistemic area, represents the total number of authors which contributed to the

publication of a research paper, represents the frequency of mentioning of the epistemic area within the keywords and as in the previous model represents the total number of epistemic areas tackled within the paper’s keywords. #e variable represents the total number of research papers sampled. #e rank of the paper was determined according to Mirimano!’s (1917) set theory. #is variable depicts the average interest expressed in the sub$eld by researchers and forms the dependent variable of the model.

Regarding the independent varibale, we picked the average presence of the epistemic area within the literature. #is was determined by the following


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manner, where represents the average interest in the $eld weighted from all the key-words mapped by the procedure.

#e regression involves describing and evaluating the possible links between several variables.

Table 4. !e Regression- Summary Output

Multiple R 0.81

R Square 0.65

Adjusted R Square 0.63

Standard Error3.55

According to the table above, the R2 is close to tends to one, meaning the model explains 63% of the empirical observations. According to the Fisher

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test performed in order to rule out the null hypothesis, the signi$cance of the model is satisfactory 1.42E-05<5%. #us the model is valid.

Table 5. !e Anova test

%Anova df SS MS F Signi#cance F

Regression 1 437.6669 437.6669 34.65401 1.42E-05Residual 18 227.3331 12.62962Total 19 665 + + +

Also, the p-value stats of the variables within the model $t the required statistical tests.

Coe$cients Standard Error t Stat P-value Lower

95%Upper 95%

Lower 95.0%

Upper 95.0%

17.80845 1.474047 12.08133 4.53E-10 14.71159 20.90531 14.71159 20.90531-146.169 24.8301 -5.88677 1.42E-05 -198.335 -94.0029 -198.335 -94.0029

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Regarding the coe,cients, the suprising $ndings are that authors try to expand beyond the con$nes of the previous body of scienti$c literature and are discouraged to replicate previous studies or to adapt them to a new context. Instead, most authors try to explore new niches distinct from their predecesors. #us, while the body of scienti$c literature does no encourage convergence of the studies towards a common topic, it does encourage a diversi$cation of the scienti$c e!ort. For the emerging market research, where research is only beginning, such a trend could only mean a boom of scienti$c literature breaking new grounds awaits to be written.

ConclusionsIt is challenging to study and analyze corporate governance in periods of economic turbulence. #ese activities should be communicated by presenting concrete results and achievements; this contributes to


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greater understanding of the nowadays research. Corporate governance is recognized as a key element in attracting investment and increasing economic performance and competitiveness in the long run. However, due to cultural factors, economic and social in emerging economies can not speak yet of a comprehensive approach, especially when it is compared with developed economies. \regarding the research of the relationship between corporate governance and goodwill we can say that the nowadays evidence is too variable to scatch up some generalizable conclusions. By this quantitative research of the relevant papers which bridge the gap between goodwill accounting and corporate governance we conduct a meta analysis of studies for the period 2011-2014. #e data was extracted from the Science Direct database. #rough our demarch we noted that the R2

is close to tends to one, meaning the model explains 63% of the empirical observations. According to the Fisher test performed in order to rule out the null hypothesis, the signi$cance of the model is satisfactory 1.42E-05<5%. #us the model is valid. Also, the p-value stats of the variables within the model $t the required statistical tests.

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Nation state, market and corporations in the context of globalization

Robert SABOTICI1

Abstract. !e main assumption of the present paper is related to the relationship between the State and the Market on the middle and long-term future. Under the assumptions that we use as the starting point of our analysis, global revolutions in democratic countries are unlikely, regardless of the formula and their expression domains. !us, we start from the idea that the modern world would not know a revolution sector - economy, politics, culture, social, but a gradual change of societal type. From this point of view, our assumption favours a progressive change of the assembly-type in the society, in which the role of institutions and of the relationship between public and private / corporate will change in favour of the latter dimension. What is surprising and represents the main target of criticism in this paper is that the theorists, in their overwhelming majority, remain the prisoners of a pattern of thinking of the relations between the State and the market which were established in the nineteenth century and usually o"er some sort of combination of the world political system, where, possibly, the rule of law and democracy exist and also an increased corporate social action.

Keywords: nation state; corporations, free market; globalization; economic and #nancial crisis; institutional change; corporate social responsibility.

Introduction: two research questions

Starting from the observation that the economic e!ects of the $nancial and economic crisis, which started in 2008, had a major impact on the institutional reform at global scale, an institutional change designed to address the new challenges of the current economic dynamics, will a!ect inevitably the old structure of the fundamental institutions of modernity, in which the nation state still holds a privileged place. #is inquiry, though

1. Ph.D. candidate in Sociology, National University of Political Studies and Public Administration, Bucharest, Romania, [email protected].

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apparently raises a theoretical issue, seeks to start a challenging discussion for further applied research with relevance for: collecting $nancial data for measuring the loan level of the students involved in higher education programmes, analysing the trend of unemployment due to higher education bubble, calculating the potential that the market can have in taking over state responsibilities in the new global context, obtaining results that could potentially provide predictions on the most important points about the current relationship between the State and the market.

Accordingly, a $rst research question which may also be a real concern for the new global political, economic and social issues will foresee if we can really talk about a necessary connection between the State and the free market. From this formulation it is clear that it will not be easy to formulate a response, knowing that, at least the institution of the nation State, not only that it was not designed to provide an appropriate response for the challenges we see today, but it did not even experienced them in the past.

#e novelty of the relationship between the state and the free market nowadays, which tends to be available worldwide, leads to the assumption related to the research which says that not only there is no necessary connection between the State and the free market, but, among them, there is even a tension, respectively, the free market can provide higher development of various sectors, not just economic and $nancial but educational etc.

#us, more speci$cally, a second research question can arise: can the free market provide a more e,cient development of di!erent sectors, not just economically, $nancially, but also educational? In what follows I will try to formulate an appropriate response to these questions, but only after specifying some necessary methodological stages: determination of the method of analysis, de$ning the concepts and developing the assumptions that can help in the analysis and also in formulating an appropriate response to the research questions.

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Research methodNoting both the research topic and the concepts mentioned above, especially the free market and the State, we can $t this analysis in the holistic approach, which is encountered in many $elds like economics, philosophy, sociology etc. In terms of methodology, a simple distinction mentioned early from Plato, who distinguished between knowledge as a whole and knowledge as part, is the distinction between methodological holism and methodological individualism; for example, structuralism is holistic, existentialism is individualistic, while the rational choice approach is also individualistic.

I think therefore suitable as method of analysis and also consistent with the holistic approach for this paper to use the case study as an analytical tool, by which I will analyse the present $nancial crisis and that of the higher education bubble. As Feagan, Orum and Sjobert (1991, p. 12) a,rm, „the case study is an ideal methodology when a holistic, in-depth investigation is needed”. Although the case study is most frequently used in sociology, procedures for applying this analytical tool have been re$ned over time, becoming more robust. #is has allowed that when these procedures are followed, the researcher will be following methods as well developed and tested as any in the scienti$c $eld (Tellis, 1997).

Simply de$ned, the case study is „an empirical inquiry about a contemporary phenomenon (e.g., a “case”), set within its real-world context—especially when the boundaries between phenomenon and context are not clearly evident” (Yin, 1984, p. 18). Although the relationship between the state and the free market in the context of the economic e!ects with global impact, is a complex phenomenon with various branches of analysis, I use the case study about the higher education bubble and about the now a days economic and $nancial crisis in order to reserve a speci$c $eld for analysis, so that it can serve me as a concrete material for the broader discussion mentioned above, the relationship between the State and the free market. #us, using the case study to reveal this relationship (the particular case of higher education) it is expected that this method of analysis developed in the social sciences will „use di!erent methods that are combined with the purpose of illuminating a case from di!erent angles” (Johansson, 2003). For the case discussed here, as a practical enquiry for this paper, I also

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resort to the case study analysis because, as a qualitative method, it has other methodological advantages which o!er an approach that facilitates exploration of a phenomenon within its context using a variety of data sources. #is feature of the case study „ensures that the issue is not explored through one lens, but rather a variety of lenses which allows for multiple facets of the phenomenon to be revealed and understood” (Baxter & Jack, 2008).

It is suitable to show that we reject any historicist temptation, both the leftist one, of the need to overcome capitalism, and the opposite one, which denies the tension between the State and the free market, arguing instead that they both bring the end of history, “stopping the progress in developing the principles and the political institutions because all the really important issues have been resolved” (Fukuyama, 1992, p. 12).

#e analysis is situated at this level of depth, including de$nitions of the State and of the market; she is merely to $nd the facts, to assume that the “historical connection of the two is based on a state of mind and not on the mechanical system of the market and democracy” (Lindblom, 2001, 230). Being focused on facts and acting non-speculatively, we are interested especially to explore the future developments of these fundamental institutions today, the State, the free market, and the corporations. Methodologically, this research focuses on analysing the tension between two concepts that de$ne increasingly less cooperative and less communicating realities in the contemporary reality, an evident tension in the two cases that are studied here.

De"ning the conceptsDe$ning the problem – the State and the free market: a number of indicators on the relationship between state and society, the state and the market, the free market and corporations look increasingly clear that the most important feature, not just the last 50 years, but probably for the next 50-100 years of societal development is the tension between the character, limited and local, of the most important political institution, the State, and the universal vocation of the most important capitalist economic institution, the free market.

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#e most widely accepted de$nition of the State, used by Max Weber, says that “the state is a human community which, on a de$ned territory - and the key word here is territory - claimed (successfully) the monopoly of legitimate physical force” (Weber, 1921, p. 397). #e State institution is related, by all its functions (security, taxation, foreign relations etc.), of a territory and of the global society, and its institutions are, in their great majority, products made by the states. By their de$nition and by their link to a territory, states have the vocation to control all activities at their level, including the main institution of the capitalist economy, the free market. #e latter is based on supply and demand with little or no government control. However, in order to be able to be understood more appropriate, „a completely free market is an idealized form of a market economy where buyers and sellers are allowed to transact freely (i.e. buy/sell/trade) based on a mutual agreement on price without state intervention in the form of taxes, subsidies or regulation… in simple terms, a free market is a summary term for an array of exchanges that take place in society”.+De$ned in this way, the free market will always include notions like exchange, understood as „a voluntary agreement between two parties who trade in the form of goods and services” (http://www.investopedia.com/terms/f/freemarket.asp). But the origins of such formulations about the free market features can be found, as is widely known, from Adam Smith, an 18th-century philosopher and free-market economist known his ideas about the e,ciency of the division of labor and the societal bene$ts of individuals’ pursuit of their own self-interest. In his $rst book, !e !eory of Moral Sentiments, Smith invented the concept of the invisible hand, understood as „a tendency of free markets to regulate themselves by means of competition, supply and demand, and self-interest” (http://www.investopedia.com/terms/a/adam-smith.asp) and also like a kind of an un-observable market force that helps the demand and supply of goods to reach equilibrium automatically.

It is important to note that the two concepts mentioned above, the state and the market were very often part of great debates concerning how they can be de$ned, and also how their relationship evolved. #us, abandoning the intention of de$ning them strictly separated, it is more useful to further consider their meaning by appealing to the relation between them, in which the State tend to be perceived as a fundamental institution that allows the context for the development of economic exchanges, while the

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market can no more be de$ned without a reference to the State. In this sense can be understood more appropriate the indication of Oppenheimer, according to which “by the State I do not mean the human aggregation which may perchance come about to be, or as it properly should be... I mean by it that summation of privileges and dominating positions which are brought into being by extra economic power” (Oppenheimer, 1926, p. XIV). At the same time, taking into account further its relationship with the market, even the State can be perceived as an amount of procedures by which political factor manages to create “a systematization of the predatory process over a given territory” (Oppenheimer, 1926, pp. 24-26). Following the same idea, Rothbard says that “the State provides a legal, orderly, systematic channel for the predation of private property; it renders certain, secure, and relatively “peaceful” the lifeline of the parasitic caste in society” (Rothbard, 2009, p. 16), and, because the relationship between the state and the market is mainly based on the framework of production and consumption of resources, it appears that the market not only occupy a previously place (Rothbard not accept the idea of a social contract), but also the State can be reduced in essence to a mechanism of resource extraction from what is produced on the market, beyond its traditional de$nition by which the State is seen only as the main institution responsible for the production of public services / goods.

Although the classical view of the free market provides a de$nition at least optimistic and try to prove that the state regulatory trends inevitably lead to lower economic e,ciency, recent perspective do not preclude the government’s role in establishing and ensuring the stability concerning various economic arrangements: „the existence of a free market does not of course eliminate the need for government. On the contrary, government is essential both as a forum for determining the “rules of the game” and as an umpire to interpret and enforce the rules decided on” (Friedman, 1982, p. 15). Of course, in its concrete form, the capitalist market is presented as essential, either through a product (oil market), either by the environment in which it took place (electronic market), either by the place in which its located (Milan Stock Exchange). But, in its essence, as a vocation (that is why she is called free), the capitalist market is universal, ideally it’s not subject to any limitations or rules other than purely economic ones $nally expressed by the ratio of supply and demand: “the mechanism of buyers and sellers that meet each other permit the coordination of economic

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activities without allowing a person or a group to have control over the operation of the free market, this is the result of all the decisions taken by individual buyers and sellers” (Doyle, 2005, p. 35). Furthermore, “it is a tragic error to believe that democracy and freedom are compatible with interventionism” (Mises, 2011, p. 93), the latter being the main destabilizing factor of any system of economic organization. In the same time, “interventionist measures lead to conditions which, from the standpoint of those who recommend them, are actually less desirable than those they are designed to alleviate” (Mises, 2011, p. 93).

Looked from this deep level of analysis, of the de$nitions of these institutions, the relationship between the State (and when we speak of State we have in mind, as it is normal, the rule of law in a liberal democracy, because it coexists almost for about two centuries with the capitalist economy) and market (as we have seen, the free market, because a planned marked is, at limit, a contradictio in adjecto) is rather one of opposition. #e State and the capitalist economy, operating together, have produced major bene$ts, from the uni$cation of the market at national level, up to providing resources to citizens in order to ensure their political manifesto; the technological progress, the economic development and the ability to respect human rights are all products of this synergy between the State and the market.

It is natural that we want the perpetuation of such bene$ts; the question is, by what means we can achieve this thing; the economy and the state, the same as the Sabbath, were made for man and the institutional arrangements are decisive for the individual and for society. Given that, until the $rst half of the twentieth century, individual mobility (except the streams to the United States which are subject for another type of analysis) was not particularly marked, situations related to the di,culties about applying for $nancial facilities for higher education in other EU countries have more than anecdotal signi$cance.

Developments of capitalist economy especially in the second half of the twentieth century made that the balance between the rule of law and the free market to break; #ere are a multitude of symptoms, usually placed

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under the name of globalization2, which express an increasing tension between the free market, which tends to universalism, and the State, who attempts to control the main activities related to territory and exercising power; One thing is clear, “the nation State ... is now pressed on the one hand, by the forces of the global economy, and on the other hand, by the political demands of devolution of power” (Stiglitz, 2006, p. 21).

2. #e term appeared in the Oxford Dictionary only in 1960 with the purpose of economic phenomenon of creating a single market in the world, later on its use has expanded to other areas, culture, communications, etc. Gradually the literature on this phenomenon has become enriched so much that it is very di,cult to orient yourself in it; if you want to establish a de$nition, it is desirable to start from the cause of globalization, from what determines its emergence; from this point of view, the two de$nitions worth highlighting. First describes globalization as „the growing interpenetration of states, markets, people and ideas across territorial borders” (Donnelly, J. (2002). Human Rights, Globalizing Flows and State Power. In A. Brysk (Ed.), Globalization and Human Rights. Berkeley: University of California Press, p. 226). #e second one describes it as „growing cross-border private activities in total economic output of the country” (Schirm, S.A. (2007). Analytical Overview: State of the Art of Research on Globalization. In S.A. Schirm (Ed.), Globalization. State of art and perspectives (pp. 1-21). London: Routledge, p. 3). First de$nition describes at $rst sight a broader phenomenon that spans di!erent $elds, political, economic, social, cultural, the second refers only to the economy and, at $rst glance, is centered on nation states, because it speaks about national income earned abroad. In fact, the $rst de$nition is cultural and it has rather an impressionistic character, the second has a scienti$c-economic background and has a technical character. If someone had to say how the globalization of States occurs, he may be in big trouble, however, it can be shown that the national income of Germany or China is achieved by investing abroad. Actually the only controllable fact is that, by its nature, capitalism tends to create a much wider market as possibly one worldwide without the restrictions of the boundaries per se, but of the di!erent policies and scales applied by the national states. Given that, the investments abroad are one of the main ways more important than the international trade of achieving this single market; this reality expresses the second de$nition, while the $rst de$nition contained actually nonsense. By their nature, as shown by Weber, states try to control a territory, to exercise power over it and, even if even they have a geo-strategic in"uence, such as the United States, their $rst concern is to secure the borders, population and activities within them. Instead, private $rms have every incentive to expand the market for their products and to participate in a market the widest possible for resources; the capital is the generator of globalization, the purpose being the single market and the possibility of higher returns. Speci$cally, the stakeholders in this process are multinational corporations that are more competitive than local $rms in underdeveloped or emerging countries. Political power for the latter countries try to protect domestic capital through taxation mentioned already, but since multinationals have in turn in the back the political power from their home countries, they can put pressure and liberalize the market so as to produce economic globalization. Its main characteristics are increasing competition and the chance of higher returns for those who are competitive.

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Analysing the main issueFrom now on, more and more complex problems begin to emerge for the actors of our story, the States, corporations and individuals and also for the storytellers and for theorists. In what concerns the actors, each of them has logic of action in line with what it is: States seek to perpetuate their powers, corporations to increase pro$ts, and individuals to keep their rights and, where possible, to increase them. Citizens, understanding the strength of the association, have used most frequently the creation of non-governmental organizations to relate with State or corporations; in the present, all these relations are still carried by the rules set by the state.

States, which are governing the activities of society, have felt pressed by the citizens, but especially by corporations, so they decided to act accordingly. Shares are widely diversi$ed, from the establishment of supranational organizations, the European Union, to free trade agreements or free movement of persons; UN organization states have tried to integrate the United Nations Global Compact, and even the response of corporations to the challenges posed by globalization. In turn, under the pressure of the mentioned developments, corporations have developed a speci$c answer, Corporate Social Responsibility, “which refers to the satisfaction of economic, ethical, philanthropic expectations that at some point are demanded by the society from various organizations” (Carroll, 2007, p. 123).

But these reactions are more an approach to symptoms, not the actual ethology of the problem. #e State gives solutions, but only under the great pressure of the big actors, the corporations, but no to the small actors, the citizens. In turn, the corporations understand their social responsibility as primarily ethical and that can be satis$ed by economic compensation; they assume a complementary role, in fact, a secondary role, in comparison with the actions of the state in these areas. In other words, the main actors, the corporations and the State, act as if they will have to face hundreds of years further in which to act according to a model of the twentieth century with appropriate adjustments. In turn, the people, through non-governmental organizations, at a careful analysis, it appears that either fall on one or the other of the lines of action of the two main actors, the State

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and corporations, encouraging or criticizing their actions according to the bene$ts they believe they have.

What is surprising and represents the main target of criticism in this paper is that the theorists, in their overwhelming majority, remain the prisoners of a pattern of thinking of the relations between the State and the market which were established in the nineteenth century and usually o!er some sort of combination of the world political system, where, possibly, the rule of law and democracy exist and also an increased corporate social action.

An intellectual like Habermas (2000, p. 40), after recording the symptoms of globalization, says simply that “on-going modernity needs to be taken further forward”, describing this development as an in"uence of the political community upon itself which might become globalized. Despite the signs of absolute novelty, Habermas believes that the Westphalia system in which the State and the market have harmoniously coexisted can develop without problems in a democratic world. More realistic is Robert Dahl, who believes that the democratic arrangement cannot be maintained and we do not know what kind of institutions can emerge, but he is inclined to consider them as “government by limited pluralistic Elites” (Dahl, 2005, p. 203). It is easy to see, however, that Dahl remains in the same perspective of the synergy between the State and the market; it’s just a question of form of political power. As for us, we consider the transient assertion of Hayek, which has a capital value for our subject, “we are only beginning to understand... the market... which turns out to be a more e,cient mechanism... than any that man has deliberately designed” (Hayek, 1990, p. 34).

We believe that the phenomena associated with globalization are actually a maturing of the market and capitalism and this evolution destroys the old pattern between the State and the market. Simply, the weight falls increasingly on the latter; it will even generate new social functions and will assume and transform others. Corporations will have a fundamental role to play in the new structure of society.

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A new Corporate Social Responsibility - two case studies

#e traditional understanding of CSR as “ a way to characterize the corporate values and / or corporate behaviour” (#omsen, 2006, p. 40) must be essentially rede$ned; we must rede$ne its meaning and get it out of the moral and the complementary aspect of the state; developments in the market and society will make the players, the corporations, the main suppliers of the rules of the game of intelligence and skills that make the design of a society; corporate responsibility becomes fully understood after engaging corporations in a number of sectors that are so far exclusive or primary for the State. We must stop thinking like those barbarian kings who once considered themselves Roman consuls; it’s not a simple revolution, a replacement of an empire with a republic or vice versa; simply, in the context of the market forces, we are in a process of a societal change; we need to innovate, to create institutions and to slowly stop relating to the past. It is a di,cult and courageous decision, but the analytical superiority it’s just seen in exploring solutions that are less familiar to us, but which we see that are more likely to evolve. It will provide a multitude of problems: from how they would regulate labour relations, to how we will educate our children and the market will have to be one of the leading solution providers and the corporations along with it.

!e "nancial and economic crisis#e $rst case concerns an event that began in 2007 and whose consequences we still fell nowadays, the economic and $nancial crisis; basically, the same mechanisms described for this case can be discerned in the previous crises. I want to be short, because there is a huge literature of the phenomenon; the two statements I make are, however, undeniable.

#e $rst is the proven fact that $nancial and banking crisis was caused by excessive incentives which the banks management have received in order to obtain pro$t, coupled with the poor link between this management and the long-term interests of the $nancial bank institutions. #e shareholders have put pressure on the management in order to achieve higher pro$ts, and the management was also interested to act in this direction because its reward was directly related to the provided pro$ts, so that there were invented more sophisticated and more risky $nancial tools;

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but “much of executive compensation is short-term, it splits the issuance of long-term ESOs, so there is also the possibility that encourage these incentives CEOs to run great risks, show enormous pro$ts, and collect huge payo!s, all in the short run these problems ... is endemic ... ” (Kolb, 2011, p. 249).

#e second assertion concerns the doctrine of too big to fail and the aid o!ered through the treasury by Henry Paulson in 2007 to the largest banks, even to those who had no trouble after the collapse of Lehman Brothers. #is policy of the state is actually the one that introduced major distortion; if there is no safety net provided by the state, shareholders are more interested in short-term quality control of the management to avoid long-term problems caused to it. In simple terms, if the market is allowed to work alone, no matter how painful it would be the consequences in the short and even medium term, they would be salutary on the long term.

Even before the crisis, there were others who were protesting against the policy of government support for banks in di,culty because of the reason too big to fail, but from the o,cials, “the message WAS the same: policy makers and the public should not spend much time worrying about how to address too big to fail” (Stem and Feldman, 2004, p. XII), and after the crisis, criticism became more severe; Democratic chairman of the Finance Committee of the House of Representatives, „Barney Frank, mockingly declaring that he was going to propose a resolution to call September 15—the day Lehman $led for bankruptcy”—as “Free Market Day”, “#e national commitment to the free market lasted one day”, Frank said. “It was Monday” (Sorkin, 2009, pp. 269-270), one of the best economists saying the necessary conclusion: „we must also return to and embrace the principle of capitalism that a failing $rm must vanish with no life support o!ered by the government and $nanced by taxpayers’ money” (Moosa, 2010, p. 199). I know that this opinion is against the tide that favours the strengthening of regulations, but I point out that more sophisticated regulations usually lead only methods of breaching them, even more sophisticated themselves. #is road we’ve travelled several times; the societal transformation we are witnessing will force us to adopt another way, the market way.

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!e issue of higher educationLike the housing bubble, the higher education bubble appeared as a phenomenon of overselling a public good under the conviction that everyone ought to attend to higher education, ignoring the fact that knowledge is a matter of competition and hierarchy, not just a right for all like the primary education. As was expected, among the $rst e!ects were found the falling of academic standards, the rise of uninterested students and, most important, the rise of unemployment by creating a huge number of graduates on a market that could not absorb this o!er of potential employees. In contrast to the early twentieth century, when college attendance was relatively rare—limited to only the very brainy or very wealthy, and most universities were private, placing little burden on taxpayers, since the 1940s, enrollment in colleges and universities has permanently been on the rise (see Figure 1). #us, by 2009, 70 percent of high school graduates enrolled in a college or university, moreover, President Obama saying that he wants that, “by 2020, America will once again have the highest proportion of college graduates in the world” (http://www.popecenter.org/commentaries/article.html?id=2511#.U_MR6sWSz97).

Figure 1. Educational attainment of Americans 25 years and over: 1940 to 2009 (http://www.popecenter.org/commentaries/article.html?id=2511#.U_

MR6sWSz97)

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At the same time, we should not overlook the observation that a higher education bubble was not possible without creating one in parallel, the high school enrollment. #e data con$rm this thing for a large period of time (Figure 2). Meanwhile, numerous studies (Simkovic, 2012) con$rm that investment in education has led to increased economic productivity and has raised the standards of professional quality, the direct bene$ciaries of higher education, the employees, managing to meet greater opportunities for development and promotion. However, the condition remains the careful selection of candidates for higher education, the main criterion being the allocation of resources and the fact that higher education must ultimately be paid by someone, and its cost must be justi$ed by results. #us, “allocating educational resources more e,ciently would not only bene$t individual students and their families — it would enhance the productivity and competitiveness of the U.S. labor force, with bene$cial consequences for both the private sector and public $nances. Over the long term, such e,ciencies could increase the resources available for further investment in education and research” (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1941070).+ By contrast, together with the in"ationary increase of the number of university graduates, their need for loans also increased, resulting in a bubble chain of loans, so that “student loan debt is the only form of consumer debt that has grown since the peak of consumer debt in 2008” (http://www.newyorkfed.org/studentloandebt/).

Figure 2. College enrollment rates vs. college tuition 1967 to 2009 (http://mjperry.blogspot.dk/2012/05/higher-education-bubble-vs-housing.html)

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Also, the data also show that over the last decade the value of a college degree measured by wages has stagnated (http://macroblog.typepad.com/macroblog/2013/04/higher-education-a-deflating-bubble.html). But the most visible element con$rming an oversold in higher education remains the decline of the enrolment, earning a college degree getting increasingly more lame for both students and policy makers, in any case no more a panacea for all personal and social problems. Not only that more colleges already admit a large numbers of academically weak, disengaged students, but also “we already have all the good students, almost all the mediocre students, and lots of bad students” (http://www.forbes.com/sites/georgeleef/2013/11/26/the-college-bubble-is-popping-so-shameless-sales-pitches-pick-up/). According to a study led by Baum, Ma and Payea (2013), signi$cant numbers of college graduates earns today less than the median earnings for those who only have high school diplomas (http://trends.collegeboard.org/sites/default/$les/education-pays-2013-full-report-022714.pdf ). But, in the same time, according to #e Bureau of Labor Statistics (BLS), “in 2009, almost all lawyers had doctoral or professional degrees and only about 1% of speech-language pathologists and pharmacists lacked four-year college degrees. At the other end of the spectrum, less than 2% of paving, surfacing, and tamping equipment operators held bachelor’s degrees” (http://trends.collegeboard.org/sites/default/files/education-pays-how-college-shapes-lives-report-022714.pdf, pp. 37-38). So, it becomes easy to see that the in"ation created in superior education not only had decreased the academic standards, by the phenomenon of leveling and adjusting the average learning ability of the large number of students accepted in universities, but this also made the diplomas obtained to become futile for both the overall market and for the ability of students in private employment (http://www.popecenter.org/commentaries/article.html?id=2932#.U_MR6sWSz96).

#e second case discussed here, about the higher education is, in fact, a suggestion about a new modelling, one on private bases, and, at the limit, without any state intervention. In the new social model, most of the universities should belong to corporations. #is model is di!erent from that of U.S. private university based on the economies of the previous

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generation and on increasingly unlikely integration in the labour market so that today in the U.S., it speaks of a higher education bubble3.

Human capital is important, a corporation is interested in educating the workforce, so that it would ensure both the correct acceptance and agreement with the labour market and the $nancing required for students; they are encouraged to be competitive; education is future-oriented and the trade-o!’s with an educated workforce are cheaper. Of course, there are areas, like higher education teaching, for who the new model should propose solutions; nothing, however, precludes the corporations to take over such a $eld, as graduates they are useful for training their sta! in other institutions of higher education from which they belong. We should not be afraid of such a development; Greco-Roman culture and education have been made with other educational systems than those we are familiar and successful.

#e truth is that we are like Monsieur Jourdain, we make prose without knowing it: the market and the corporations are working fully in the on-going societal change; the two examples above show this clearly; is for our good to have the courage to recognize it.

Conclusions: state, free market and Corporate Social Responsibility After tracking the analysis of this paper, we found not only that the two case studies discussed could not exclude the mention of the two fundamental institutions of a society, the state and the market, but even at their level of de$nition, the two concepts could be understood more appropriate when it was established and identi$ed the type of relationship between them. Answering the $rst research question concerning the existence or nonexistence of a necessary link between the State and the market, we found that they determine each other and they can take freely each other’s functions (e.g., the current trend of the market to adapt to the global context and the developing limitations of the State). Such $ndings could

3. #is phenomenon is reported in the United States by Ginsberg, B. (2011). #e Fall of the Faculty: #e Rise of the All-Administrative University and Why It Matters. Oxford: Oxford University Press, and in France, by Philippe Nemo, P. (2011). La regression intellectuelle de la France. Paris: Texis.+

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also answer to the second research question regarding the ability of the market to provide educational services in response to the State challenges in the new global context of economic crisis.

#e two case studies have positively tested the research hypothesis. #e testing process o!ers an answer to the research questions, reaching the objective of the study, which is to show that in the presence of the tension between the State and the free market, in the future the free market should take more and more of the State functions. Such a redistribution of functions between the State and the free market seems to require a real rede$nition of Corporate Social Responsibility, (i) removing the free market from the mere condition of minor complement of State’s action and (ii) shifting it into the position of a major player not only in economics, $nance, but also in education4.

ReferencesBaum, Ma and Payea (2013), Education Pays 2013. !e Bene#ts of Higher Education

for Individuals and Society .Baxter, P., and Jack, S. (2008). Qualitative Case Study Methodology: Study Design

and Implementation for Novice Researchers. !e Qualitative Report, 13(4), 544-559. Retrieved from http://www.nova.edu/ssss/QR/QR13-4/baxter.pdf.

Carroll, A. (2007). Corporate Social Responsibility. In Visser, W. et al. (Eds.), !e A to Z of Corporate Social Responsibility (pp. 122-131). Chichester: John Wiley and Sons.

Dahl, R.A. (2005). Is International Democracy Possible?. In S. Fabbrini (Ed.), Democracy and Federalism in the European Union and the United States. London: Routledge.

Donnelly, J. (2002). Human Rights, Globalizing Flows and State Power. In A. Brysk (Ed.), Globalization and Human Rights (pp. 226-241). Berkeley: University of California Press.

Doyle, E. (2005). !e Economic System. Chichester, UK: John Wiley and Sons.Feagin, J., Orum, A., and Sjoberg, G. (Eds.) (1991). A case for case study. Chapel

Hill, NC: University of North Carolina Press.

4. #e idea for the future relationship between the State and the free market has been discussed with my friend Marian Panait, from the Institute of Philosophy and Psychology of the Romanian Academy. I take this opportunity to thank him.

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Friedman, M. (1982). Capitalism and Freedom. Chicago: #e University of Chicago Press.

Fukuyama, F. (1992). !e End of History and the Last Man. New York: #e Free Press.

Ginsberg, B. (2011). !e Fall of the Faculty: !e Rise of the All-Administrative University and Why It Matters. Oxford: Oxford University Press.

Habermas, J. (2000). Beyond the National State?. In E.O. Eriksen and J.E. Fossump (Eds.)., Democracy in the European Union (pp. 29-41). London: Routledge.

Hayek, F.A. (1990). New Studies. London: Routledge.Johansson, R. (2003). Case Study Methodology. International Conference

Methodologies in Housing Research. Royal Institute of Technology, Stockholm, 22–24 September 2003. Retrieved from http://www.psyking.net/htmlobj-3839/case_study_methodology-_rolf_johansson_ver_2.pdf.

Kolb, R.W. (2011). !e Financial Crisis of Our Time. Oxford: Oxford University Press.

Lindblom, C. (2001). !e Market System. New Haven: Yale University Press.Markham, J.W. (2011). From the Subprime Crisis to the Great Recession (2006-

2009). Armonk: M.E. Sharpe.Mises, L.v. (2011). Interventionism. An Economic Analysis. Indianapolis: Liberty

Fund.Moosa, I.A. (2010). !e Myth of Too Big to Fail, New York: Palgrave Macmillan.Nemo, P. (2011). La regression intellectuelle de la France. Paris: Texis.+Oppenheimer, F. (1926). !e State. New York: Vanguard Press.Rothbard, M. (2009). Anatomy of the State. Auburn: Ludwig von Mises Institute.Schirm, S.A. (2007). Analytical Overview: State of the Art of Research on

Globalization. In S.A. Schirm (Ed.), Globalization. State of art and perspectives (pp. 1-21). London: Routledge.

Sinn, H.-W. (2010). Casino Capitalism. How the Financial Crisis Came About and What Needs to be Done Now. Oxford: Oxford University Press.

Simkovic, M. (2012). Risk-Based Student Loans. Seton Hall Faculty Summer Research Colloquium Newark, NJ, July 31, 2012.

Sorkin, A. (2009). Too Big to Fail. New York: Viking Press.Stern, G.H., and Feldman, R.J. (2004). !e Hazards of Bank Bailouts. Washington,

D.C.: Brookings Institution Press.Stiglitz, J. (2006). Making Globalization Work. New York: W.W. Norton and

Company.

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Tellis, W. (1997). Application of a Case Study Methodology. !e Qualitative Report, 3(3). Retrieved from http://www.nova.edu/ssss/QR/QR3-3/tellis2.html.

A. (1937). Smith, nations of wealth !e. New YorkLibrary. Modern : #e#omsen, S. (2006). Corporate Governance and Corporate Social Responsibility.

In A. Kakabadse, M. Morsing, and G. Lenssen (Eds.), Corporate Social Responsibility (pp. 40-54). New York: Palgrave Macmillan.

Yin, R.K. (1984). Case study research: Design and methods. Newbury Park, CA: Sage.

Weber, M. (1921). Politik als Beruf. Gesammelte politische Schriften. Muenchen: Drei Masken Verlag.

Online sourceshttp://www.investopedia.com/terms/f/freemarket.asphttp://www.investopedia.com/terms/a/adam-smith.asp http://mjperry.blogspot.dk/2012/05/higher-education-bubble-vs-housing.html http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1941070 http://www.newyorkfed.org/studentloandebt/ http://macroblog.typepad.com/macroblog/2013/04/higher-education-a-

de"ating-bubble.html http://www.forbes.com/sites/georgeleef/2013/11/26/the-college-bubble-is-

popping-so-shameless-sales-pitches-pick-up/ http://trends.collegeboard.org/sites/default/files/education-pays-2013-full-

report-022714.pdf http://trends.collegeboard.org/sites/default/files/education-pays-how-college-

shapes-lives-report-022714.pdfhttp://www.popecenter.org/commentaries/article.html?id=2932#.U_

MR6sWSz96 http://www.popecenter.org/commentaries/article.html?id=2511#.U_

MR6sWSz97 http://nces.ed.gov/programs/digest/d10/tables/dt10_212.asp

Robert SABOTICI

Premises and recommendations for communication strategies on environmental policies in Romania

Diana – Maria CISMARU1

Abstract. !e article traces directions for public communication strategies in case of environmental and energy policies in Romania. In introduction some social variables placed as a ground for forming speci#c attitudes to publics, with observations on social capital of trust in Romania and on social priorities, are identi#ed. By using secondary analysis, statistical data from public polls, connected with the results in an international ERA-NET research project on public acceptance of the new technologies for reducing global warming are set as premises for communication strategies in the environmental #eld. !e results of analysis showed the paradoxical attitude of the Romanian publics: on one hand, the public is enthusiastic and open to changes and modern views, being con#dent in experts and in interactive information, on the other hand proves a low level of trust in institutions and in traditional sources of authority. Basing on the results of data analysis, the last part of the paper formulates principles and recommendations for building public communication strategies on environmental issues.

Keywords: trust; communication; public acceptance; environment; Romania.

Introduction

#e introduction of an industrial innovation or of a problem on the public agenda is easier or harder, depending on the capital of social trust in a society and on the level of public acceptance. #e sociological research in the last ten years in the Romanian space demonstrated the erosion of the capital of trust, which makes more and more di,cult the construction of valid communication strategies. #e accentuated erosion of the social capital of trust could be explained as a consequence of the paradox of “high level of trust from the start of the relationship” (McKnight, Cummings & Chervany, 2006, pp. 116-117). In this view, the relationship built by

1. Associate Professor, Ph.D., College of Communication and Public Relations, National University of Political Studies and Public Administration, Bucharest, Romania, [email protected].

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Romanian people with the $rst governments and political groups after 1989 Revolution has been marked by a high level of expectations and positive attributions, but the repeated disappointments which came after built the opposite of this state, the generalized suspicion.

#e objective of the paper is to trace the characteristics of the social background in Romania in order to build public communication strategies. #e preliminary research and data suggested that the Romanian publics have contrary features which should be taken into account by policy makers. #e present paper aims to emphasize these features as a basis for public communication strategies, especially in the matter of implementation of environmental policies.

#e research method was the secondary analysis, by using data either from statistical polls or data from an international research project implemented in six European countries (in which the author was a scienti$c coordinator for Romania). #e data were used as a basis for comparison between Romania and other European states with respect to public communication strategies’ principles and recommendations.

!eoretical background!e Romanian social background for public communication strategiesTrust is indispensable for the development of a social life, as the society could not function without the credit awarded by individuals to each other: “without the trust that individuals generally invest in each other, society would disintegrate, because very few relationships are built on what’s known for certain about other people” (Simmel, 1978, cited in Meyerson, Weick & Kramer, 2006, p. 429). In the organizational sociology (Rotter, 1967, cited in Mayer, Davis & Shoorman, 2006, p. 87) social trust is de$ned as “the expectance of an individual or of a group that the promise, verbal or written declaration of another individual or group will be ful$lled”. Tied to the social trust are, for the trusted pole of relationship, the credibility (or the characteristics that enables trust from other people) and, back to the other pole, the orientation to trust of individuals or groups (the availability to have trust). Groups and societies could have di!erent level of these parameters, depending of their stage of

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development, psychological attributes and cultural background. National culture (Hofstede, 1998), especially, could be an intermediate factor with a strong in"uence on the manifestation of these variables.

#e barometers in the last years (RISE poll, 2010) revealed an accentuated decrease of trust in institutions, but also in other traditional actors of democracy. Only Emergency Services, Romanian Postal Services, Church and Army have a high level of trust (over 70%). On the opposite side of the scale are institutions from public administration (the Parliament, the Government and the governmental agencies have the lowest level of trust, under 18%, and the highest level of negative evaluation). For the rest, with the exception of schools and public universities (56%-60% level of trust), the other collective entities are placed under the level of 50% on positive evaluation. NGOs had only 25% level of trust and 46% negative evaluation in the general public (RISE poll, 2010, pp. 57-78). As it concerns trust in media institutions, news are not perceived as objective. Media institutions had a low level of trust, though they still are considered major sources of information. #e level of trust in public television and radio (half of the respondents) is almost double compared to private television channels and radio channels (RISE poll, 2010, pp. 61-69).

#e levels of trust registered in 2011 indicate even a lower tendency. Other polls of the same research institute (RISE poll, February 2011, pp. 17-19) indicate a lower level of trust (10-15%) when important public institutions are named, without giving details to the respondents (Presidency, Parliament, Government).

Also, suspicion is a general feature of the climate, about 60% from Romanians think that people in their community look for pro$t in relationships, and have con$dence only in people they know personally. Neighbors, other religion adherents and unknown people have to be avoided, think a half/ three quarter of the Romanians. #e data from above suggest the di,culties of ful$lling public communication objectives and obtaining public acceptance on almost every topic. Further, the recent history of Romania in transition determined an unclear image of the organizations, especially those in the former public sector. #e area of environmental issues is considered as the domain of

Diana – Maria CISMARU

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NGOs, but NGOs are considered to some extent as being partisan and not e!ective, having a low level of trust for a part of the public. On the other hand, the public is not interested in public policies, perceiving them as being abstract and with little impact in the real life. #e lack of education determines di,culties in research and collection of data: there is a confusion of practices used in the collection of data and of channels of public communication. #ese features determine supplementary cautions in applying research tools and recommendations based on $ndings in public communication policies.

As a $rst glance, the availability to understand industrial innovation and “secondary issues” as the environmental issues is low when considering the social characteristics and the level of social trust.

Social priorities and social agenda in Romania In the last years, economic crises or political con"icts succeeded, and the focus of social attention moved on poverty, reforms and con"icts from public space. As sociological research reports show, Romania could be considered a “modern-feudal” state, with a modest economic development, high level of poverty and accentuated di!erences between rich and poor people (the report was of 7 in 2008) (Zam$r, 2012, pp. 25-29). #e proportions for absolute and relative poverty vary between reports, but the subjective evaluation of poverty is relevant: 67% of the respondents of a representative poll in 2011 considered that their monthly incomes are insu,cient or barely enough to survive (RISE poll, December 2011, p. 10).

Returning to the Romanian society, the country is split into developed areas and poorly developed areas (Moldavia, Oltenia – with poor people and high rate of unemployment), and the European funds invested for the delayed areas have not erased that gap. Moreover, there are poor areas which are in need for an environmental policy, as Oltenia. But still, the di!erentiation between regions is not only economic, but one of mentality. People from developed regions (Transilvania, Banat, Muntenia) have not only a di!erent lifestyle, but also di!erent political orientation (right views, in favor of private initiative and less social protection). People from poor areas (which have also a high level of temporary emigration in Europe

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in search of a workplace, especially in Italy, Spain and England) expect an increase in the social protection policies in the next years, because they have few options to $nd a workplace or to start a business.

#e $nancial and social crisis changed the reality and the public priorities in Romania. As in 2007-2008 Romanians were still optimistic as a majority and considered that in the future their situation will improve, in the next year the situation is reversed: in 2009, 69% of Romanians perceived the country as going in a wrong direction. Ever since, the percentage remained higher: either increased to 80-85% of people perceive the country as going in the wrong direction (RISE poll, February 2011, p. 3) or decreased a little, in present being around 73% (RISE poll, March 2014, p. 4).

#is pessimistic evolution of the Romanian’s views determined a change in the public perception of problems considered as important. In 2011, the $rst places on the social agenda were material and economic problems as: corruption, salaries, health system, level of salaries and social gaps, unemployment. Still, the environmental issues are placed on a $ne place, the 6th place (pollution) and 8th place (protection of environment), after the most important problems mentioned above (RISE poll, September 2011, p. 43). In 2014, the priorities on the social agenda were two major concerns: unemployment (26%), salaries’ level (22%) and corruption (10%). #e other problems were far behind situated on this agenda, with less than 7% (RISE poll, June 2014, p. 33). #is concentration in the public agenda shows the intensi$cation of the chronic social and economic crisis, the public perception focusing on the most important causes perceived by publics and considering the other public discussion topics as being less important.


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Research resultsResearch results in FENCO-ERA program as premises for public communication on environmental issues#e FENCO-ERA research project “Scrutinizing the impact of CCS public communication on general and local publics” (2009-2010)2 was a beginning in Romania, building a $eld for the implementation of environmental policies. #e CCS (carbon capture and storage) technologies are designed to decrease the level of industrial CO2 emissions, having an important diminishing e!ect on global warming. #e research project (Schumann, 2010) compared several countries in Europe in the matter of communication of CCS technologies to local and general public. Some of the countries were advanced in the development of the new technologies at the beginning of the research project, while others were just beginning the development and communication of these environmental protection technologies.

#e $rst part of the research project used the focus group method to test the forming of collective opinion, the strength of opinion and also the type of information better received by publics. Using a similar methodology in each case (ter Mors et al., 2013), three focus groups were organized in each country, with the information presented by an expert. #ree alternative groups (ICQ groups, abbreviation from “information-choice questionnaire groups”), with an equivalent composition of participants, received the same information in a written form, without discussing the information. #e purpose of this part was to see which presentation form is more e!ective, and which generates the most solid opinion. After receiving information, participants from both groups answered to a detailed questionnaire in order to verify the recalling of information. #e only di!erence in the content that participants received in each country referred to the technologies (in each country, due to economic conditions, carbon capture and storage technologies to be implemented are di!erent). #e results of the information-choice questionnaires and focus groups phase for Romania (Cismaru et al., 2010, pp. 59-60) showed a $ne

2. #e data from this section are gathered from the FENCO-ERA project „Scrutinizing the impact of CCS communication on the general and local public (2009-2010)”, an international project implemented in six countries, which was funded by the national funding agencies of the project partners. #e author of this paper was the scienti$c coordinator for Romania.

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reception of the information: both focus groups participants and information-choice questionnaire participants considered the information about carbon capture and storage and the two selected technology options to be comprehensible, valid and useful. Further, both focus group and information-choice questionnaire participants recalled a considerable amount of the information provided, even there was new information and with technical details. When comparing the e!ectiveness of the two methods of communication, oral presentation of an expert followed by group debate was in advantage for Romanians (see Table 1). #e collective opinion towards the innovations was more positive if the information was presented by an expert, and could receive feed-back.

Table 1. Mean (and SD) for opinions on technology 1 and technology 2

Overall on T1 Vote for T1 Overall on T 2 Vote

for T2

FGD 5,43 (1,59) 5,30 (1,80) 5,43 (1,52) 5,60 (1,83)ICQ 4,87 (1,79) 6,00 (2,01) 4,60 (1,90) 4,83 (2,23)

Note. Overall opinion was measured on a scale ranging from 1 = very bad, to 7 = very good. Higher scores indicate a positive evaluation. FGD= Focus –group discussions: presentation made by an expert followed by group discussion; ICQ – information provided to participants only in written form.

#e second part of the project had as main activity the organization of representative polls at a national level, in order to identify: the place of environmental issues on the public agenda, the level of information on carbon and capture storage technologies, the level of potential acceptance of the general public for the implementation of these technologies, and the in"uence of the source on the public acceptance. #e poll tested the in"uence of the source in changing attitude: information was presented in four ways to respondents (negative presentation with a source, negative presentation without a source, positive presentation with a source and positive presentation without a source - for Romania, the source for “negative information” was Greenpeace, and the source for “positive information” was Shell).

In the $rst part of the survey, one of the questions tested the trust in di!erent types of sources: local, national or international, from the


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institutional or private sector. #e results con$rmed the previous polls in this matter (the polls that have been cited above): institutions have a low level of trust, in comparison with other organizational actors (Figure 1).

Figure 1. Level of trust for di%erent public actors in RomaniaNote: !e scale of answers was from 1 – very low level of trust to 7 – very high level

of trust

#e poll at the national level showed a $ne level of information about pollution and global warming e!ect, but almost no information on capture carbon and storage technologies or other environmental protection technologies at a majority of the Romanians (75% never heard about carbon capture and storage, only 2,9% had more information).

Other important $nding is that the level of acceptance is very high, even considering that information was new, or considering the “negative” alternative of presentation (which was introduced in the poll for testing the strength of public opinion). Almost three quarters of the Romanians would be in favor of testing the carbon capture and storage technology in the country and only 12,8% would be against. #e active attitude (vote or sign a petition in favor of implementation) would be stronger than the opposite attitude (vote or sign a petition against implementation of technologies). #e high level of public acceptance has a small variation (only 3%) between negative and positive presentation even if it comes from well-known actors as Greenpeace) (Cismaru & Ivan, 2010, pp. 14-16). An explanation of this small variation could be the low level of trust in some sources, particularly from the private or non-pro$t sector, and the preference to process the information by $ltering it through the personal network.

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For respondents, environmental issues were placed on the third place on the public agenda, after medical system problems and economic problems, but before criminality. #e poll revealed that Romanians understand the importance of the maintenance of the environment, and would like modern options of producing energy, as solar and wind energy. #e level of public acceptance is rather enthusiastic about any new technology of protection for the environment. Because of the lack of information, carbon capture and storage technologies were associated with even more positive e!ects, but in reality positive e!ects were only on global warming. For example, toxic waste or water pollution were considered positive e!ects of CCS technologies, which was not true, by 70% of the respondents (almost the same amount of association with the correct e!ect) (Cismaru & Ivan, 2010, pp. 10-14). But, even with the unrealistic expectations from an industrial innovation, the public acceptance would not be totally guaranteed; still, a quarter of respondents do not accept the testing of the new technology on a pilot plot in Romania. When asked what technology would introduce for reducing global warming, respondents preferred the new forms of energy (solar and wind energy) and low-consuming machines instead of carbon capture and storage technologies (Cismaru & Ivan, 2010, p. 16).

Figure 2. Alternative forms of energy preferred instead of CCS technologies

A secondary objective of research in the FENCO project was which factors determine more public acceptance of an innovation. #e four scenarios used


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in the poll inventory (positive presentation with/without a source, negative presentation with/without a source) revealed that, in environmental issues and promoting industrial innovation, the most important factor in creating public acceptance is not the positive/negative aspect of information, but the accessibility and the structure of the information presented (see Figure 3 and 4). Another additional explanation in this matter could be that the quality of source is determinant: if the source has a negative reputation (like in this case Shell), than it will not be considered trustful.

As we can see in Figure 3 (under) the variation in acceptance determined by a source in general, and in particular by presenting positive information generally, is very slight. #is proves a certain degree of skepticism in Romanian publics (not interested on who and how presents the information) and, on the other hand, the availability to accept new technologies in general, regardless of how are they presented.

Figure 3. !e change in acceptance while changing positive/negative (+/-) information with/without a source (S)

Note. Red-the total options of agreement; blue – the intense options (“totally agree”)

#e lowest percentage in voting for technology (Figure 4) and, respectively, in voting against technology (Figure 5) was characteristic to the third situation (positive information with a negative reputation source

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- Shell). #e low level of support in this case shows that the opinion/reputation of a negative source in"uences negatively the decision to vote (or the unconditioned support). As a consequence for the communication strategies built in the Romanian public space, this aspect emphasizes the necessity of having neutral sources, or sources perceived as having a positive reputation.

Figure 4. !e percentage of people who would vote for introducing the CCS technology

Note. Red-the total options of agreement; blue – the intense options (“totally agree”). Case 1: negative information with a positive source, case 2: negative information without a source, case 3: positive situation with a negative source, and case 4: negative information without a source.

When changing the topic of question from “voting for” to “voting against” technology, the negative information managed to win more partisans to vote against technology; also, the correlation of negative information with a positive reputation source showed that, possibly, the credibility of


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the source plays an important role not only in spreading information in general, but in the formation of negative attitudes against an innovation (Figure 5). #us, when a source (individual or collective) with positive reputation provides a negative information, will contribute more intensely to build negative attitudes (in comparison with the situation when it provides positive information and forms positive attitudes).

Figure 5. !e percentage of people voting against the introduction of CCS technology

Note. Red-the total options of agreement; blue – the intense options (“totally agree”). Case 1: negative information with a positive source, case 2: negative information without a source, case 3: positive situation with a negative source, and case 4: negative information without a source.

When comparing the Romanian sample with the other countries participants in the project, some characteristics come into evidence. #e level of information of Romanian respondents is high if taking into account that environmental technologies are very new in Romania and no prior e!ort to inform the general public was done. #e level of information on environmental statements in the poll was on the average (lower than Netherlands and Norway, but higher then Greece and comparable to United Kingdom). #e main di,cult statement for respondents from all countries was if the greenhouse e!ect is caused by a hole in the atmosphere, with an average of only a half of correct answers (Pietzner et al., 2010, pp. 26-28). A visible di!erence can be seen when comparing Romania with the other countries in the project at the level of trust in several public actors (Figure

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6): in Romania, there is a high level of trust in the European Union, but a low level of trust in national Government or in Political Parties. From the other countries, only Greece shows the same tendency (Pietzner et al., 2010, p. 25).

Figure 6. Level of trust in three from the nine actors considered, in the six European countries

Note. !e means range between 1 – very low level of trust to 7 –very high level of trust.

A di!erence between Romania and the other countries was the low level of self-reported awareness on carbon capture and storage technologies (the highest for Romanians, 71%) (Pietzner et al., 2010, p. 36). Another di!erence was in the acceptance to introduce the technology. #e Netherlands, the UK, Norway and Germany are essentially neutral on average regarding the use of carbon capture and storage technologies, although the Germans are the most sceptical of all respondents. Greece and Romania have the highest level of supporting the introduction of new technologies (around a half of respondents would be strongly in favour of introducing the CCS technologies)(Pietzner et al., 2010, pp. 40-42). Also, almost a half of Greek and Romanian respondents would strongly involve and they would probably make an active e!ort (such as signing petitions) in favour of CCS facilities (Pietzner et al., 2010, p. 43).Also, a di!erence between Romania and the other countries was in the percentage of respondents who changed their attitude after receiving information about the CCS technologies. #e Romanian respondents changed their attitudes to a less extent that the respondents from other


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countries: their attitudes were more positive from the beginning (Figure 7 – data from Pietzner et al., 2010, p. 48).

Figure 7. Comparison of Romania and Greece with other countries in the change of attitude after receiving information

When comparing Romania with the other countries in the experiment with the four options of presenting the information, a distinct characteristic occurs. Even in the case of negative presentation (with or without a source), the attitude towards carbon capture and storage technology changes in a positive way for the Romanian respondents (Figure 8 and Figure 9 – data from Pietzner et al., 2010, pp. 51-53).

Figure 8. Change in attitude when a negative information about CCS without a source was provided

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Figure 9. Change in attitude when a negative information with a source (Greenpeace) was provided

#is change was registered only for Romanian respondents, while the respondents from other countries reacted “normally” to the change in the content of presentation and to the presence of a well-known source, with a negative change after negative presentation and positive change after positive presentation (strongly in case of positive presentation with a source). #is result suggests that for a change of attitude of the Romanian public on a new issue is enough to present a large amount of information and to create a frame of free, collective debate.

Recommendations for communication strategies on environmental policies in RomaniaAs general observations, the participants in Romanian focus groups preferred the information that could receive feed-back and also the information delivered by a competent source. Also, the Romanian respondents to the nationally representative survey showed a positive disposition in receiving new information, even on new procedures or on areas that are at a beginning. Moreover, environmental issues were always considered positive and tended to be positively appreciated, as a neglected area. Further, both statistical and research project data analysis suggested contradictory features of Romanian publics: on one hand, availability to accept new technologies and information, on the other hand, a low level of trust in many institutional and organizational actors.

With this background for forming attitudes in the environmental $eld, the accent should be placed not on information details, but on the awareness of


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the problem. #e channels and the adaptation of messages to target publics play an important role in all strategies of communication (Cutlip, Center & Broom, 2005, pp. 372-382), but for the e,ciency of a communication strategy they could play the central role. Further, recommendations in this article follow the structure of a communication plan, as adapted in the recent Romanian literature in the $eld of public relations (Iacob, Cismaru & Pricopie, 2011, pp. 200-202).

%"# First of all, there must be done a careful re"ection on the sources of public communication. #e expert sources should be experts and research institutes, but not only. #e high level of public suspicion suggests that private companies or NGOs from outside of the environmental $eld should not be the sources of the messages. #e best formula would be a partnership of research institutes with local administration. #e partnership should be made with local administration (and not with central public administration), because local administration has a higher level of public trust. Also, local leaders could be used as “image factor”, with a secondary e!ect of increasing the level of positive attitude towards environmental issues.

&"# #e segmentation for the target publics should be based more on the age and urban/rural area as criteria of selection, and not so much on gender or level of instruction. #e $nal target public segments should be chosen after a qualitative analysis, but the current data indicate with priority the interval 25-33 years in the urban area, with high level of instruction, politically neutral but socially active, as $rst target. Environmental issues are more important for urban area (that is over a certain level of living) and for young people, who are more active and responsible. Also, a special category of target public should be the opinion leaders in the civil society, who could be a very useful link to the local communities, having a role of representation and of explanation of the debated issues. Also, international NGOs and environmental NGOs are secondary agents (secondary public) who could help to the implementation of energy innovation and environmental policies.

c. #e objectives of communication must be oriented not only on public acceptance (which reaches quickly a majority, as research data showed) but

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to awareness and explanation about the goals and e!ects of environmental technologies and policies. Discussing the type of communication objectives, not only the qualitative objectives are important (as “how accurate is the recalling of the information”) because the $ndings showed that, in Romania, information on a new $eld is $ne recalled. Quantitative objectives are important as well (penetrating in all geographic areas and all public categories, for obtaining the best level of public acceptance).

d. #e public communication strategy should have some compulsory features, as practice showed previously. Intense and short campaigns have no success in Romania, new information touches very di,cult the public and are rapidly forgotten (even if it was positively appreciated). #e communication strategy should be not “loud”, with a high amount and intensity of messages, but should be persistent, disseminated on a long time range, and through the most adequate channels of communication.

#e strategy should be di!erentiated on regions. Oltenia (South-East) and Galati (East Region) should receive a special attention, because they are the most polluted and will be the main areas involved in the implementation of environment protection technologies in the future. #e level of industrial damages is high enough here, so publics will pay attention for environment protection messages as a good starting background.

e. !e tactics refer to actions, channels of communication and messages. #e need of feed-back was identi$ed in research and should be ful$lled by the presentation of public messages. Oral presentations (such as video presentation) should be primarily considered, because they o!er a great possibility to associate the message with an expert source and, secondly, TV as a channel has a great deal of penetration in all areas, even in the rural ones.

#e channels of communication must cover the two sides of public life in Romania: the “face-to-face” public space and the online public space. Separate kits of information should be conceived for mainstream and, respectively, online channels. (a) In the “face-to-face” space, the public TV channels are recommended, for having the greatest level of trust. Also, in case of restricted budgets, public radio channels could be preferred as being


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less expensive and appreciated by several segments of publics. (b) In the online space, the online social networks (as Facebook and Twitter) should be preferred instead of other social media. #e reason for choosing the online social networks are multiple: the economy in budgets, the facility to reach young target publics, the possibility to associate speci$c messages to speci$c publics, and so on. As a supplementary reason, the online social networks are used by opinion leaders, which can be transformed in active promoters of information. Also, young and informed people are the main public with a positive orientation and interest toward environmental policies and energy innovations.

Facebook is the most popular online social network in Romania and registered 6, 6 million users at the end of 2013 (data from Facebrands.ro, December 2013). In the online social networks, there are two types of users: producers of content and interpretation, and those who only transfer or consume information. In time, age and users’ pro$le expanded on all age levels, but the dominant segments remain the young ones (18-33 years, and 33-40 years). #e attractiveness of the network comes from the variety of instruments used in spreading, selection and interpretation of information, both for producers and for consumers of information. In the particular topic of environment protection, some important actors in this $eld have built their social trust capital using Facebook, therefore the network should have a privileged position in the implementation of communication strategies on environmental issues.

For Twitter, the number of users in Romania is limited to around 68.000 (data from monitoring site Zelist, December 2013). #e main feature of this network is the concision (the network which sets the greatest limit to the length of message – 140 characters on a status) and the orientation to two aspects: the novelty value of information, and the audience. Twitter is a network of opinion leaders, and the information competency is the primary factor that determines the presence and the behavior inside the network. In case of implementation of energy and environmental innovations, this network is of a particular interest, because “green” NGOs are respected inside the network and win audience, while mass media from Romania ignores niche issues as the environmental topics.

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#e characteristics of messages should be derived from the two branches of communication strategy. (a) For the mainstream channels, messages must be conceived in an accessible manner, especially for rural area, where subjects have a lower level of instruction. In this area, the translation of message in accessible formulas plays a great deal in reception and evaluation of the content. Also, narrative content could have a central role, so, for example, videos with local leaders showing interest for environmental aspects would be a $ne idea of promotion. (b) For the online channels, a rich and detailed content is allowed, but messages should be adapted to social media, concentrated in the best form to be repeated and shared in networks. Also, the video part of the content should be consistent, for attracting and maintaining users’ attention.

f. #e calendars and budgets should be adapted to the particular programs executed, but all actions should be included in the main strategy, and thus obtaining a chain e!ect. #e calendars should be constructed on longer periods, even if they include shorter campaigns. Mainly, the preference should be for programs and not for isolated events and initiatives. #e budgets could be reduced by the e!ective use of tools of social media; the main focus in previous phases of the plan should be on obtaining more and more “free ambassadors” to promote the environmental conservation activities and principles, and thus diminishing the resources spent in communication strategies.

g. #e evaluation is connected to the correctness and to the realism of the objectives. If the objectives avoid unclear formulas and the coincidence with implementation objectives (frequent in communication strategies which go parallel with activities of implementation of a project) (Iacob, Cismaru & Pricopie, 2011) evaluation should be simple. Also, in the online space, evaluation is easier than in the real space, because of the variety of available instruments.

Conclusion Using secondary analysis, the paper aimed to depict the Romanian social background as premise for building recommendations for public communication strategies in order to implement environmental policies


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in Romania. #e paper reviewed data from an international research project implemented in six European countries. As results of data analysis and of comparison, the Romanian publics proved to have paradoxical characteristics in attitude: on one hand, they are less mature and more enthusiastic in comparison with other European publics (manifesting a high level of acceptance of new technologies about they never heard before), but in the same time manifest a low level of trust of institutions and in authority factors. #ese features suggested, as principles for building public communication strategies: the preference for education instead of boosting communication campaigns, the emphasis on urban and young publics in segmentation, and di!erentiation between regions. With respect to the most adequate communication channels, the orientation for public television and private radio channels, and (for young publics and opinion leaders) the emphasis on the online communication in social networks. In the same time, from all the actors who could be involved, NGOs and local administrations should be preferred, as a consequence of the low level of trust in public institutions and, to some extent, in private companies.

Every beginning allows initiative and imagination, and so does the public communication in the implementation of environmental policies. As from Romania, the research revealed positive attitudes towards new environmental and energy technologies, and these attitudes may be used as a ground in building a consistent level of information.

References Cismaru, D.M., and Ivan, L. (2010). Scrutinizing the impact of CCS

communication on general public in Romania: results of the national survey (30.09.2009-30.06.2010), Research Report. Bucharest: NSPAS.

Cismaru, D.M., Sava, C.S., Anghel, S., Dudu, A., Constantin, C., Tomescu, C.E., Samoila, I.R., and Nih$dov, O.C. (2009). Communicating CCS information to the lay public by means of Focus Group Discussions (FGD) and Information-Choice Questionnaires (ICQ): National report for Romania. Research report.

Cutlip, S.M., Center, A.H., and Broom, G.M. (2010). E"ective public relations, Bucharest: Comunicare.ro.

Harquail, C.V. (2011). Re-creating reputation through autenthic interaction: using social media to connect with individual stakeholders. In R.J.

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Burke, G. Martin and C.L. Cooper (Eds.). Corporate Reputation - Managing Opportunities and !reats (pp. 245-267). Burlington, Vermont: Ashgate Publishing.

Hofstede, G. (1998). Managementul structurilor multiculturale – software-ul gândirii. Bucharest: Economic& Publishing.

Iacob, D., Cismaru, D.M., and Pricopie, R. (2011). Rela&iile publice – coeziune 'i e#cien&( prin comunicare. Bucharest: Comunicare.ro.

Mayer, R.C., Davis, J.H., and Shoorman, F.D. (2006). An integrative model od organizational trust. In R.M. Kramer (Ed.), Organizational trust (pp. 82-111). New York: Oxford University Press.

McKnight, D., Cummings, L.L., and Chervany, N.L. (2006). Initial trust in formation of new organizational relationships. In R.M. Kramer (Ed.), Organizational trust (pp. 111-140). New York: Oxford University Press.

Meyerson, D. Weick K.E., and Kramer, R.M. (2006). Swift trust and temporary groups. In R.M. Kramer (Ed.), Organizational trust (pp. 415-445). New York: Oxford University Press.

ter Mors, E., Terwel, B.W., Daamen, D.D.L., Reiner, D.L., Schumann, D., Anghel, S., Boulouta, I.;, Cismaru, D.M.; Constantin, C., de Jager, C.C.H., Dudu, A., Esken, A., Falup, O.C., Firth, R.M. Gemeni, V., Hendriks, C., Ivan, L., Koukouzas, N., Markos, A., Næss, R., Pietzner, K., Samoila, I.R., Sava, C.S., Stephenson, M.H.C., Tomescu, C.E., Torvatn, H.Y., Tvedt, S.D., Vallentin, D., West, J.M., Ziogou, F. (2013). A comparison of techniques used to collect informed public opinions about CCS: Opinion quality after focus group discussions versus information-choice questionnaires. International Journal of Greenhouse Gas Control, 18(2013), 256-263.

Pietzner, K., Schumann, D., Torvatn, H.Y., Tvedt, S.D., Naess, R., Reiner, D.M., Anghel, S., Cismaru, D.M., Constantin, C., Daamen, D.D.L., Dudu, A., Esken, A., Gemeni, V., Kristiansen, G., Ivan, L., Markos, A., Nih$dov, O.C., Pietzner, K., Papadimitriou, J., Samoila, I.R., Sava, C.S., ter Mors, E., Tomescu, C.E., Terwel, B.W., and Ziogou, F. (2010). Public awareness and perceptions of CCS: Insights from surveys administered to representative samples in six European countries. In Proceedings to International Conference of Greenhouse Gas Control Technologies no. 10, Amsterdam: Elsevier.

Pietzner, K., Schumann, D., Torvatn, H.Y., Tvedt, S.D., Naess, R., Reiner, D.M., Anghel, S., Cismaru, D.M., Constantin, C., Daamen, D.D.L., Dudu, A., Esken A., Gemeni, V., Kristiansen, G., Ivan, L., Markos, A., Nih$dov, O.C., Pietzner, K., Papadimitriou J., Samoila, I.R., Sava C.S., ter Mors, E., Tomescu, C.E., Terwel, B.W., and Ziogou, F.


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(2010). Results of representative surveys of public awareness, knowledge and opinions concerning CCS. Research Report.

Schumann, D. (2010). Scrutinizing the impact of CCS communication on general and local public – #nal research report. Final Research Report. Retrieved from http://bit.ly/wmND8A.

Zam$r, C. (2012). Raport social ICCV 5/2012. Research Report.

Online referencesInstitute of Research on Life Quality. Retrieved from http://www.iccv.ro.Fenco research project “Scrutinizing the impact of CCS communication on

general and local public. Retrieved from http://ccs-communications.grRomanian Institute of Social Evaluation. Retrieved from http://www.ires.com.ro.Facebrands. Retrieved from www.facebrands.ro.Zelist. Retrieved from www.zelist .ro.

Polls listRomanian Institute of Social Evaluation (March 2010). Barometrul încrederii

românilor. Retrieved from http://bit.ly/xMT5MX.Romanian Institute of Social Evaluation (February 2011). Percep(ii ale

popula(iei privind agenda public&. Retrieved from http://bit.ly/z87Avd.Romanian Institute of Social Evaluation (September 2011). România marilor

nelini%ti. Retrieved on from http://bit.ly/xdmnAi.Romanian Institute of Social Evaluation (December 2011). Proiec(ii sociale ale

românilor pentru 2012. Retrieved from http://bit.ly/yYDNvM.Romanian Institute of Social Evaluation (March 2014). Agenda public&, martie

2014. Retrieved from http://www.ires.com.ro/uploads/articole/ires-agenda_publica_24-26_martie-2014.pdf.

Romanian Institute of Social Evaluation (June 2014). Agenda politic& a s&pt&mânii 2-6 iunie 2014. Retrieved from http://www.ires.com.ro/articol/265/agenda-politica-a-s-pt%C4%83manii-2-6-iunie-2014.-opinia-public%C4%83-si-temele-de-actualitate.

!inking strategically-thinking green: Albanian economy case

Ardita TODRI1

Francesco SCALERA2

Abstract. Surprisingly, the catalytic function of Albanian banking system hasn’t deeply penetrated in the country economic concerns… By this way during the last twenty years the lending activity is focused on the economic sectors which provide high returns in short-term periods such as construction, manufacture, trade, etc as well as bear the brunt of environmental pollution. !us, in this paper is emphasized the nowadays importance of being projected on green activities aiming an e"ective approach to the future country development phase. Trying to approach the latest, the paper describes the main areas where green interventions must be done in order to save the environment and contemporary reduce as much as possible the air and water pollution, land damages from commercial constructions in touristic areas, wood structure change, etc by favoring the establishment of recycling opportunities. All this gives a new dimension of making business in the country in accordance with environmental standards set worldwide that helps the exploration of the Albanian economy based on respective natural resources, energetic, touristic and agricultural capabilities. By referring to other country experiences as well as from the sporadic green projects and agriculture development results related to nonperforming loans ratio the key success factor seem to be the establishment of green banks. Similar experiences can act more closely with individuals, businesses, organizations, institutions and government aspirations under an environmental and ethical context. !e paper recommends the agriculture development within the country as the hotspot, which can solve lots of previously mentioned environmental issues currently faced and also helps in reducing the poverty in rural areas. Beyond this, through the designation of tailored green lending products other important paths can be opened toward further country economic development. In light of this, the paper concludes that the measures needed to be implemented aiming the existing banks switch into green standards or the in)ow of international green banks are: tax facilities in term of yearly pro#t and dividends distribution, the establishment of environmental educational programs in schools and designation of

1. Lecturer, Ph.D. candidate, Finance & Accounting Department, Faculty of Economics, University of Elbasan, Elbasan, Albania, [email protected]. 2. Lecturer, Ph.D., Department of Economics, University of Bari “Aldo Moro”, Bari, Italy.

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legal reforms in focus the economic priorities and environmental care. Decidedly, a green projected system in the country can unveil new standards by transforming its current weaknesses in future success.

Keywords: green banking; economic sustainability; agriculture development.

Introduction Despite the fact that, as of today the per capita incomes in Albania are more than quadrupled during last two decades (even in high "uctuation conditions see Figure 1), the Albanian GDP growth rate is slowly decreased starting from 2008.

Figure 1. !e GDP growth trend in Albania during last two decades (World Bank Data)

#e latest due to global $nancial crisis especially derived from neighborhood: Italian and Greek crises, and the country is still considered poor as per Western European standards. But as argued from Todri (2012, p. 51) the main factors that positively impacted on the country GDP growth rate are “the foreign direct investments and trade relations with European countries in previous years without skipping the impact of remittances from the Albanian workers”. Referring to the INSTAT data for the year 2012, the above-mentioned foreign direct investments are represented mainly from manufacture, $nancial intermediation, transport and telecommunication, trade, informatics, etc. While as per historical INSTAT data other important factors that signi$cantly contributed on GDP growth rate during the last two decades are the services within 49.4% followed by industry 19.97%, construction 17.18% and agriculture

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13.45%. It should also be mentioned that the informal economy is the main factor that negatively impacts the Albanian economy by representing above 40% of it.

In general, it should be admitted that even while the Albanian economy has shown a gradual improvement due to infrastructure development, tax collection and law reforms, etc a lots of remains to be done in respect of environmental care, health management, biodiversity conservation, etc. Because the country’s economic development strategy wasn’t sustained from strict environmental standards by considering here also the environmental abuse from foreign as well as from national entrepreneurs. By this way as per Environmental Evaluation Report 2012 elaborated from Agriculture Ministry the main pollution in Albania refer to:

- air pollution, which poses serious health risks to country habitants, as actually the air quality level for Tirana, Elbasan, Fier and Fushëkruja is more than twice in excess in comparison with World Health Organization Air Quality Standards. And each year are estimated 500 deaths per city attributed to this. #e latest reason but not the only one is the dramatic increase in the number of cars, and especially the number of old vehicles in use, tra,c in urban areas. From the other side the rapid urbanization and associated major increase in residential and commercial building construction signi$cantly contribute to air pollution, together with the current bad condition of streets and roads within urban areas. #e waste burning is another phenomenon that continuously impacts the air quality due to the fact that municipalities haven’t implemented yet alternative solutions. Also the industrial concessions’ soot delivered as the major part still use the old factories constructed in communist period. -water pollution is another risk factor which impacts the Albanians lives due to its usage in agriculture products as the water supply infrastructure in general is inadequate and poorly maintained. Together with a lack of metering and operational control, this results in signi$cant water losses, estimated to be over 60 per cent in all cities. In addition, insu,cient storage capacities and frequent cuts in electricity mean that water supply in urban areas is intermittent. Moreover, in the same areas sometimes due to

Ardita TODRI, Francesco SCALERA

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illegal constructions the drinkable water channels join the sewerage. #us, about 40 per cent of the urban population has a distinct sewer connection.

In rural areas, only a small proportion of the areas with piped water supply is equipped with sewer networks. All industrial activities located near rivers discharge wastewater directly without pre-treatment. And the worst is that, in locations with access in lake or sea the major "owing sewage is discharge there by a!ecting also tourism areas as well as the aquatic "ora and fauna. Because only the municipalities of Kavaja and Pogradec have an operational treatment facility for the wastewater while in cities like Lezha, Vlora, Korça, Saranda, Durres, Shkodra, etc it is under construction or improvement phase. Even in cities the municipal waste management systems aren’t well managed and in lots of rural areas they aren’t present. So the urban waste is disposed in unauthorized areas and along roads. Should be highlighted that also exists sites designated for disposal of municipal solid water waste that aren’t well managed due to the lack of necessary infrastructure or engineering provisions. #e extensive use of chemical fertilizers and pesticides in agriculture are other determinants of water pollution. In addition the pollution leads to a deterioration of groundwater quality, especially in low-lying areas, where most of the population lives and most industrial and agricultural activities take place.

-Sanitation is a long-standing problem in the country. As mentioned due to the poor state of existing sewage collection and treatment systems poses a risk of contamination to both drinking water and soil. #ere is a signi$cant burden of ill-health associated with these water pollution risks. #e levels of shigellosis and typhoid fever are still high in Albania during the year’s seasons.

-Forest accessibility has been signi$cantly degraded through overharvesting and overgrazing which also caused the changed of forest age structure through species composition and reduced the forest under wood. Trees $lling for heating, cooking, trade, and construction purposes as well as the $res induced by human being or climacteric conditions are threatening the forest ecosystems. #e abusive practices are largely extent as there were charged the communal bodies to give construction permissions. In any

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case, their intensity will probably decrease in the future due to the ongoing depopulation of rural areas and decreasing demand for $rewood.

- protected areas due to the species habitat and conservation are increased during the years but a lot of them have also disappeared. Together all the upper conditions impact on the species habitat independently from the fact that we are going to enlarge the protected area surface or just strictly protect them.

And together all the environmental issues can a!ect:a) the climate change; b) the river "ows; c) and tourism which is going to be highly promoted from government and other local agents which have invested in the $eld.

So, the future country development should take under consideration immediately remediation possibilities in order to $ght the environmental pollution and degradation by promoting green activities. Hereinafter are explored the challenges that Albanian economy should enhance in order to meet the standards of an e!ective growth through a proactive management of environmental issues derived from its economic sectors.

Challenges toward green opportunities in Albania#e Albania’s rapid economic development after the fall of communist regime doesn’t promise anymore the same growth rate referring to di!erent circumstances such as : economic, political, $nancial and environmental. Trying to approach the latest, this section describes the main areas where green interventions must be done in order to save the environment and contemporary reduce as much as possible the air and water pollution, land damages from commercial constructions in touristic areas, wood structure change, etc by favouring the establishment of recycling opportunities and aiming the transition into a green economy for a sustainable development in the future. #at’s why the establishment of green banks in Albania is considered relevant not only under the business context but primarily for the solution of vital concerns.


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Initially, worth mentioned that some sporadic initiatives oriented toward green opportunities are handled from international companies branches established in Albanian such as: Coca-Cola, Vodafone, etc. Voluntarily they are involved in forestry building and care. #e same is done from some international banking group’s a,liates operating in the country years ago with the plant of trees in di!erent roads. But this isn’t enough.

#e other countries experiences initiated from government show that green economy results constituted the leverage for boosting them during low GDP growth or recession periods. #at’s why the binom “business-government” should be focus on $nding and promoting activities by implementing multi-sectoral interventions targeted toward the environmental sustainability and friendly green businesses prosperity. Dedicated initiatives are actually missing in Albania but they should be further developed in order to mitigate all the issues mentioned previously.

Starting with the manufacturing sector, which represents the major part of foreign direct investments in Albania by also being the main bene$ciary of electricity usage as well as responsible for a high quantity of CO2 emission in environment due to the primary resources extraction and elaboration it directly impacts the GDP growth and the human health. #us, by improving the recovery and recycling processes as explained by Mohanty et al. (2002) through respective cycles adaption can help the manufactured goods extension and the sector growth without a!ecting the environment. Because as proposed from Mohanty et al. (2002) the usage of renewable, recyclable, sustainable, triggered biodegradable materials reduce the carbon dioxide emission in the environment thanks of the photosynthesis process, which transforms the composites in renewable resources, and vice –versa.

For this purposes the remanufacturing can be used and a lot of oil can be saved. Another way that can be proposed to it refers to the sustainable products practices management by co- integrating the products in order to save time and expenses. Michaels et al (2009 p.10) basically considers that “these direct and indirect e!ects on job creation are the most signi$cant reason why the green investment stimulus program creates more jobs than a household-consumption stimulus”. In other words, the environmental reorganization can increase not only the investment returns but also gives

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additional opportunities in terms of technological and innovative ideas by creating job opportunities for the Albanian community. Appropriately this means resizing the business on behalf of resources use, environmental care and economic reality by evaluating the potential opportunities in order to sustain future $nancial projects under a multi-dimensional and environmental defensive approach.

But the investments require a lot of changes especially in resource e,ciency, investment in clean technologies, the development of alternative products, services and materials as well as the ability to obtain value from unavoidable waste. And to do all this should be implemented a di!erent governance model, enhanced the management processes and developed the measurement and reporting standard in respect of accounting complexities in accordance with Morrissey et al (2004) proposal. Meaning that, in order to assess and follow-up a sustainable waste management model implemented in a certain country should be taken into consideration three main factors such as: legal framework, local conditions, economic and socio-economic aspects which further complicates the management system.

In respect of food and beverage industry, aiming the agricultural production and processing, food production and distribution, retail and catering chains the challenge as argued from Guthrie et al. (2008) should report related to these issues: over$shing, high meat consumption, environmental degradation, health, resource and energy use, water, waste, worker rights.

Pertaining to the extractives mining of minerals, metals, oil and gas the main issues refer to the environmental degradation, water and energy use, even when the host community bene$ts including employment, revenues and taxes. For these reasons by referring to Hámor (2004) the Albanian government should review the legislative aspect aiming an appropriate shift in the resources price structure, the increase of energy e,ciency and life-cycle of resources as well as the waste management.

From the other side the above mentioned legislative review will contemporary favor the establishment of green banks in the country as well as the exploration of green dimension from the banks pertaining


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to Albanian market and their further development in respect of below mentioned circumstances which can be treated as their current and future business opportunities.

Transport (air, rail, shipping, road vehicles) management is another important $eld that should be considered into green transition. #e issues to take care refer to: environmental degradation, land usage, emissions, fuels and road infrastructure safety. As envisaged from Meyer (1998) in order to help the transition should be developed lighter vehicles, increase the emphasis on collective and intermodal travel contemporary with technology in order to reduce the environmental impact and the noises. And contemporary with the government new legislative aspects only the green banks activity within the country can appropriately support the transport development in full compliance with environmental, health and new economic standards set.

Trade focus on organic foods, drinks, social, cultural and environmental products can help the countries to integrate environmental considerations into economic &trade policies by accounting for multilateral trade and climatic conditions as well as products diversi$cation on behalf of Mæstad (1998).

Tourism management and promotion pertaining to lodging, recreation, restaurants and bars, events, services, culture, tours and excursions should deal with environmental degradation, socio-economic development, heritage and culture. A proactive manner to do so in green way is to collectively manage resources between public and private partners and improve the valuation of heritage and culture by initially using Font’s et al (2001) agenda.

Construction and urban areas management, more attention should be paid on construction permits given aiming a better management of the areas in & out side cities. #us, legal reforms should be implemented by reconsidering the functionality and environment care through detailed construction plans. #is means that constructions should need the help of urban architects in order to better adopt the spaces with ethical and

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environmental standards attempting to pursue Colding et al. (2006) results and be prepared for a better future development.

Concessions agreements signed with the industrial partners by requiring new investments in case of old technological standards, or appropriate technologies to act on behalf of environmental care as well as major salaries, health care and lower working hours for the respective employees.

Another important step that should be implemented immediately is the di!erentiated waste collection by imposing the people to respect the nature and di!erentially collect. #ese initiatives should be immediately undertaken form communal and municipal instances through the purchase of distinctive waste containers and trash trucks. In addition Chattopadhyay et al. (2005, p. 357) suggests that “tax increment $nancing by the local government is a feasible option to fund cleanup”.

However tax facilities should be implemented for the businesses that have as main activity the waste elaboration not only related to the yearly results but also to the space, publicity, etc. Worth mentioned that similar activities should be undertaken from municipalities aiming not only the better environmental management but also the pro$tability as they $rstly deal with these kinds of issues.

Obviously as described from McNabb (2005) public utilities management should be considered in every single stage while shifting to green economy in respect of: emissions, nuclear power, water usage and waste disposal. Focusing on demand management, e,ciencies increase, the development of renewable technologies at all scales must be a priority by also taking care of pricing structure and waste resources reuse, recycling and energy recovery from waste.

Green banking perspectiveFor the time being green banking stands for a di!erent concept in the Albanian banking system. Actually the banks pertaining to the Albanian banking system are mainly focused on investing in high return activities


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by $rstly dealing with the risk management standards as argued from Scalera et al. (2012). Nevertheless, the statistics show that the volume of nonperforming loans is increased.

Meanwhile, green banking promotes green activities by changing also the customer’s attitudes toward the environment and not only by contemporary contributing in the country’s future economic development. #ey are totally normal banks that have di!erent topics (compared with the commercial or investment ones) in agenda such as:- Creating awareness about green communication (to employees, customers, public institutions);- Friendly operations and technological improvements;- Designing and launching green products (by promoting environmentally responsible lending and investments).

#us, they can act through agencies/a,liations or even on-line but in any case their aim is to earn pro$ts by improving the business future as well as the bank’s assets quality through:

a. Nature and Environment projects in the $eld of renewable energy (wind energy & hydro-electric projects), organic agriculture across the entire value chain including healthy food shops and environment technology like recycling companies and nature conservation projects;

b. Culture and Welfare loan purposes, granted to artists and organizations actively involved in education, healthcare or aid to people with physical and learning disabilities as all these enterprises have a clear, people-centered policy;

c. Social Businesses, through loans granted to traditional businesses, innovative enterprises and service providers with clear social goals, including $nancing of start-up enterprises, fair trade businesses and micro $nance institutions and providing basic $nancial services for people in the developing areas.

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In any case, they use as credentials: knowledge, capital and energy which enable the solution of a lot of problems and they feel almost responsible to contribute on this such as: HSBC Bank, State bank of India, PNC Bank, etc.

Green sustainability Mainly green banks undertake green and social activities in the countries where are located or even $nance governmental, municipal and international projects by giving the sound example to the customers as well as preserving the brand identity and reputation.

In any case they act according the following three principles:-tend to substantially expand their concept of return including the social and ecological added-value of their activities;-include internal rules and systems that comply with ethical criteria;-understand and accept their responsibility in handling money-streams and invest them responsibly.

Acting by this way the banks can almost enhance the competition between them through the ongoing o!er of convenient products and services to businesses and population. #is translates into a continuous investment and strong relationship with the customers target group in order to respond on time and more e,ciently as possible to respective demands and build with them a better future.

!e present and potential future of green activities in AlbaniaAlbanian economy represents a rural economy as agriculture is the second largest sector (20% of GDP) and employs more than half of active labour force. But the lending activity pertaining to agriculture, hunting and forestry together constitutes only 1.2% of total amount granted in the economy during the year 2013. By referring to the historical evolution (see Figure 2) and current situation worth mentioned that it requires huge investments (related to farmers, hicks, cultivators, etc, for special borrowing requirements and technological instruments necessary for


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the improvement of agriculture companies production and pro$table performance) in order to make it fully operational and compliant with the European standards as exits a large surface appropriate for agriculture development.

Figure 2. Agriculture trend in Albania during last two decades (INSTAT Data)

But in contrast, it hasn’t a large access in banking sector in terms of lending products and services dedicated to agriculture due to:- Climatic risk (which is not appropriately measured from banks);- Lack of collaterals (meaning the propriety title for the infrastructures and

lands used);- Lack of documents and experience in $nancial management $elds;- Long-term returns as per production cycle;- Lack of agri-insurance schemes;- Lack of marketing knowledge in the sector within the country.

In most of cases agriculture needs working capital in order to manage the cash-"ow during the planting period while long terms funding is required for investments in warehouses, technological equipments for harvesting, collection and processing of products. #e latest also encourages the chemical fertilizers export based on production bio-standards by positively impacting the life tenor of people involved in agriculture and signi$cantly alleviates the poverty in rural and agriculture areas.

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#e also called “agribusiness” is one of the main focuses of Procredit Bank which has established dedicated structures in advice, evaluation, monitoring and collection process in farming, agriculture, orchards, vineyards, poultry, agricultural processing and agricultural mechanics, etc.

#e novelty in the $eld is that:-start-up loans are o!ered for the farm entrepreneurs; -alternative loans are o!ered for consolidated agri-businesses with speci$c investment plans (without requiring almost high collateral coverage ratio);-management relations are handled for the agri-clients between ProCredit International agencies in support of new markets development.

Contemporary, Procredit bank is the pioneer in exploring the “Green Loans’ which enables individual, businesses, farming and livestock activities to lower energy costs, protect the environment, and make the best use of natural resources through $nancing some equipments with the appropriate technology which save energy.

Organic food and $shing is an alternative investment channel thanks to high nutritional values that our national products have, thus they can expand the export opportunities in di!erent countries worldwide. #e banks should consider the $nancing in schools which have in their program the healthy nutrition and forestry care by targeting two crucial elements toward the environment safety:a. Eat and consequently demand organic food;b. Take care of the environment and invest on it aiming to protect the respective "ora, fauna and its organic qualities.

From the other side Albania needs immediately to recycle: glass, plastics, waste, etc but similar initiatives can be $nanced only on a green banking prospective.

Additionally, the banks could exploit the country capacities such as: water, mineral resources through investments in environmental projects. Mining


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and quarrying as industrial branches are important for the development of the country and they also attract the attention of foreign investors.

Spa with their curative values in Elbasan and Peshkopia represents an attribute for the rural areas economic growth and green banks can e!ort them by making a pleasant reality toward tourism development.

Other new tourism form such as Eco-tourism re"ect a totally unexplored dimension of the Albanian economy that can be raised in Butrint, Berat, Gjirokaster, Kruja, Lezha, Pogradec, Lura National Park, Patok and particularly in the lagoons of Karavasta and Narta. In the same context can be expanded the mountain tourism in rural alps such in the areas of #eth, Valbona and Vermosh, etc.

So, it conveys innovation and special interest from all visitors and further green development for these virgin areas.

On the green light of these banks development the most important responsibility to be undertaken remains their strategic alignment on activities that support and expand the environmental safety by performing in steady $nancial performance and contribute on country economic growth.

ConclusionsIn order to come to the aid of the Albanian economy by appropriately responding to the environmental disaster related to: air and water pollution, sanitation in rural areas, forestry damages is more than necessary the development of green funding projects oriented in manufacture sector, transport, tourism management and promotion, organic trade, construction in urban and rural areas, high-tech industrial investments and utilities management in order to save the environment and support additional economic growth opportunities.

All this means that the banks operating in Albania should be immediately focus on green lending products in coherence with national development

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strategy implemented from Ministry of Agriculture, Rural Development and Water Administration and other green banks are welcomed to join the $nancial sector.

As mentioned, the $rst step can be undertaken in agri-business referring to the country premises, and second it will be supported from the previously mentioned national strategy through the:- allocation of agriculture grants in unexplored areas;- equipment with propriety certi$cates for the lands used for agriculture purposes;- establishment of guarantee funds for managing potential risks faced from agriculture;- implementation of land insurance schemes;- closure of the cooperation agriculture agreements with foreign direct investments;- use of European union agriculture development funds IPARD-like pertaining to our pre-association phase.

#e investments in agriculture spontaneously can help the entrepreneurs to better manage and save the environment oriented toward: healthy and organic food trade, technological transport by avoiding the air pollution, utilities-resources management aiming the agriculture expansion and energy provisioning, forestry management and expansion for touristic and business purposes, new ecological constructions in accordance with climacteric conditions and worldwide environmental standards. #at’s why the Albanian Agriculture Ministry responsibility is enlarged also in rural and water management.

It is worth mentioned that actually the nonperforming loans pertaining to agriculture sector represent only 6% of the amount granted which is the lowest ratio compared with other economic sectors (above 25%). #is is related also to agriculture growth results for the last quarter of the year 2013 which were quite good by marking an average growth of 2.9%, mainly focused on agri-business products as they represent a consolidate and formalized marked segment.


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Undoubtedly, that the green banks acting accordingly their strategic lines can promote the country agriculture development in the future by designing eco-friendly products and services for customers almost where their needs become more and more green….

But what should be done in order to make attractive the being green beyond the potential economic factor? Under business context tax facilities (lower taxes in terms of yearly pro$t and lack of taxes as per dividends distribution) should be implemented to green businesses and banks as the latest apply lower interest rates per loan products compared with the commercial banks. Contemporary this in"uences the stakeholder decision to invest more and more in green activities. Another factor that should be mentioned is the interest of all the actors in environment under customers and entrepreneurs’ quality and their e!orts and $ght in a better life quality. And $nally what prevails the sustainability of green cycle in a certain economy is the legal factor designed by responsible authorities within the country in coherence with energetic, educational, economic and development priorities.

ReferencesChattopadhyay, S., Braden, J.B., and Patunru, A. (2005). Bene$ts of hazardous

waste cleanup: New evidence from survey and market based property value approaches.+Contemporary Economic Policy,+23(3), 357-375.

Colding, J., Lundberg, J., and Folke, C. (2006). Incorporating green-area user groups in urban ecosystem management.+AMBIO: A Journal of the Human Environment,+35(5), 237-244.

Font, X., and Tribe, J. (2001). Promoting green tourism: the future of environmental awards.+International Journal of Tourism Research,+3(1), 9-21.

Guthrie, J., Cuganesan, S., and Ward, L. (2008, March). Industry speci$c social and environmental reporting: #e Australian Food and Beverage Industry. Accounting Forum, 32(1), 1-15.

Hámor, T. (2004). Sustainable mining in the European Union: the legislative aspect.+Environmental Management,+33(2), 252-261.

Mæstad, O. (1998). On the e,ciency of green trade policy.+Environmental and Resource Economics,+11(1), 1-18.

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McNabb, D.E. (2005).+Public utilities: management challenges for the 21st century. Cheltenham, UK ; Northampton, MA: Edward Elgar Publishing.

Meyer, P.S. (1998). Toward green mobility: the evolution of transport. European Review,+6(2), 137-156.

Michaels, R. and Murphy, R.P. (2009). Green jobs: fact or $ction.+Institute for Energy Research, Houston, Texas, January, 1-15.

Mohanty, A.K., Misra, M., and Drzal, L.T. (2002). Sustainable bio-composites from renewable resources: opportunities and challenges in the green materials world.+Journal of Polymers and the Environment,+10(1-2), 19-26.

Morrissey, A.J., and Browne, J. (2004). Waste management models and their application to sustainable waste management.+Waste management,+24(3), 297-308.

Scalera, F., and Todri, A. (2012). #e Operational Risk Evaluation and Management Prospective in the Albanian Banking System. 1st International Conference “South-East European Countries Towards European Integration”. Elbasan (Albania), October 20, 2012, 63-64.

Strategic Plan 2014-2020 for Agriculture Development in Albania. Albanian Ministry of Agriculture, Rural Development and Water Management, January 2014.

Todri, A. (2012). “Atypical” Banks: A Value-Driven Banking in Albania.+International Journal of Business and Commerce,+2(4), 66-77.

INSTAT. http://www.instat.gov.al/al/home.aspx.WORLD BANK. http://data.worldbank.org/indicators.


Business ethics and gender equality: the basis for a new leadership model

Maria MEDINA - VICENT1

Abstract. Business Ethics remains necessary in a globalized world. Companies need to listen to their stakeholders and identify their needs. As social institutions, companies should display moral behavior because society expects good actions of them. As a result, they need to integrate social and environmental problems into their day-to-day work because that is their responsibility. Consequently, gender equality has to be integrated into company management because it is a global, social interest. Since the dichotomist division of public and private spaces, cultural constructions of gender have been determined, which are based on values and restrictive principles that build a con)icting model for men and women. In contemporary western societies, these roles are the basis of our education and lifestyle, and they impregnate all areas of society cross-sectionally, from politics to economy. !is gender di"erentiation becomes gender inequality, which is reproduced by companies. In the present communication, our main task is to identify the real relation between Business Ethics and an emerging form of leadership: Women’s Leadership. Our hypothesis centers on the notion that Business Ethics can enhance the presence of women as leaders in companies. Moreover, we have to work on the possibilities of de#ning a women’s leadership model, which is not often done visibly, and highlight its main features which come close to the transformational leadership model. We will also see how in a context of change and economic recession that the need to reformulate the basis of the traditional leadership model, traditionally associated and practiced by men, is evident. Companies demand complementary leadership, transformational leadership, and need to respond to the principles and values of Business Ethics.

Keywords: business ethics; stakeholders; discourse ethics; women’s leadership; transformational model.

1. Ph.D. candidate, Department of Philosophy and Sociology, Universitat Jaume I, Castellón, Spain, [email protected].

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Introduction: Why is business ethics necessary to build healthier companies in a global society?Companies operate globally, which is a new reality shaped through the trans$guration of temporal-spatial limits. Information and communication technologies allow us real-time access to information around the world. Consequently, national borders are disintegrating to give way to a new multicultural citizenship, as the European Union case. Nevertheless, some di!erences remain between one national state and another, because strong nation-state governance allows each country to determine its own commercial law, labor and environmental regulations, and economic policies. #is new global situation can be useful for companies because they can internationalize their activities and increase their presence in other countries, but we must remember that some signi$cant di!erences are still alive, especially in the legal $eld. At the same time, business activity can become more complicated because its actions do not only a!ect immediate surroundings, but the entire world. For example, a single decision made by an executive or manager in a very short time a!ects thousands of people working in a distant place. So we now $nd ourselves in a “global society”, where companies are not islands, but are interconnected with lots of groups in many places worldwide. In short, the $rst step is to recognize that the environment is changing and that the company is interconnected with society, nature and politics. #erefore, due to this interconnection, the company will face many social problems, including the gender inequality, which is a global issue. First of all, in order to incorporate the ethics perspective into business dynamics, we should recognize the relations between people and companies. If we manage to identify the links that attach the company to society, we will build a better world; we will build healthier companies. From a philosophical point of view, the links from the Latin term “ligatio”, that link the company to all its groups of interests must be recognized and, therefore, they oblige (ob-ligatio) it to live up to the expectations that they have placed in it (Cortina, 2007). As human beings, we are interdependent social beings who live in an increasingly interconnected world, and this will continue to grow in forthcoming years. So, as the Spanish philosopher Adela Cortina remembers, recognizing the need for us all to be linked together, including companies, is the $rst step toward social growth of trust (Cortina, 2007). According to this recognition, it is easier to join

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governments, companies and citizens to address di!erent problems of society, such as gender inequality or environmental pollution. Nowadays, companies need to be aware of this new request made by citizens. In many cases, the company acts without paying attention to the changes that now take place around it, hiding behind the current economic crisis to make immoral and harmful decisions for employees, the environment and society in general. It is fair to state that many companies are lurching blindly without considering that society is changing and, for this reason, they must adapt appropriately if it want to survive. #is imbalance between new social demands and company actions is generating a crisis of trust in society as far as company action is concerned. People are suspicious about business actions, and they develop a critical attitude of them at the same time. #e ethical management of companies is required for them to know Stakeholders’ needs, as opposed to having to answer for our actions.

#us those companies that want to survive must be aware of the real sense of their own actions. Recognizing one of the key problems is an absolute must: the traditional economic rationality model in which economic pro$ts are above any other issue; this perspective conceals an autistic notion of the company as if it owes nothing to society. Even so, companies are a very important part of society because they create value in many ways: economic, technological, cultural and, more importantly, this allows society to continue to work. So the second step will consist in building business ethics to overcome this autistic and economic rationality concept by stressing the notion that the company forms part of Civil Society and that it generates social goods, and not just pro$ts for shareholders. At the beginning, this may come as a shock to executives, managers and directors. However, we must understand that the company’s ethical behavior does not go against long-term pro$ts. For this reason, we have to introduce ethical values into everyday management decision-making and create healthy leadership models that include women and other groups. Moreover, we stress that an ethical management ought to have a strong communicative component, so it is necessary to invest resources in the communication channels, internal and external, to enable dialogue between company and society. #is task is complicated for multinationals, operating in di!erent territories, but this serves to reinforce our argument and encourage them to invest a portion of their funds in monitoring communication and ethics management business.

Maria MEDINA - VICENT

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So the third step is to recognize who is a!ected by business activity. We start with the Stakeholders #eory by R. Edward Freeman in the 1980s (Strategic Management. A Stakeholder Approach, 1984). From it we understand Stakeholder as “any group or individual who can a!ect, or be a!ected by, the achievement of business objectives” (Freeman, 1984, p. 24). One of the key bases of this theory is that it envisages a management model that collectively integrates the company’s ethical and organizational aspects (González, 2012, p. 71). Evidently, society as a whole is important for the company’s activity, but in each speci$c case, the company will have to respond to the speci$c demands made by di!erent groups (trade unions, feminist groups, environmental groups, etc.). We need to assume that neither the law nor the market is a mechanism that su,ciently regulates today’s organizational behavior, because the economic and political laws change by state, so something else is necessary (García-Marzá, 2004, p. 45). #at something else lies in trust and the moral management of resources, and in the ability to generate trust through dialog, and it also involves mutual recognition. For example, respect Human Rights, which are universal, should be strong when the laws of a country are not enough to guarantee other minimum rights. It is not su,cient to rely on a strategic business management understanding to explain the company’s shares; communicative action to bring the company closer to its stakeholders is needed.

It is important to point out that the business ethics model we propose herein focuses on the Discourse Ethics of Habermas (1989). #is ethics model helps us to perceive Stakeholders as “active subjects, speakers, and not merely resources to satisfy one of the parties” (García-Marzá, 2004, p. 197). So this deontological perspective of ethics is vital for allowing dialogs between companies and stakeholders because it is during this exercise of freedom that companies can heed the demands made by citizens and can participate in a fairer society. Accordingly, women and feminist groups will always form part of stakeholders as gender equality is based on a global human value. In summary, dialogue-based business ethics allows us to build healthier and fairer companies because it teaches them to become moral institutions that form part of Civil Society, and as such, seeks to generate social goods, not only economic bene$ts, which it also is one of its primary objectives. As a basic social demand, if we wish to enhance

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the importance of women in the business world, we must $rst carry out ethical business management. We must not be afraid of the changes taking place around us because in today’s volatile world, we must know how to adapt our working methods to social demands. Fair companies have to deal with di!erent groups of interest that claim that men and women in all spheres are treated equally, including the workplace, leadership positions and economy. All of these features needs a real possibility to attend the demands of stakeholders in Civil Society. #e Discourse Ethics of Habermas (1989) o!ers this possibility because its universalization and deontological principles, inheriting of Kantian philosophy, as García-Marzá remembers: “just a universalist ethics is able to respond to the internationalization of moral demands and expectations placed on the company in a global context” (García-Marzá, 2004, p. 32).

Gender equality as an ethical claim in companiesWe highlight the vital necessity to introduce gender equality into the company’s di!erent management levels. #is need is based on a fundamental demand and is also extensively based on the theoretical principles of participatory democracy and democratic citizenship. One way to achieve a more equal company is to promote equality plans. However, it should be pointed out that this is a pending matter in business. #ese plans must include a component to ful$ll the equality standards that the European Union promotes and recommends. But companies themselves should also look after not only such ful$llment, but should also have the initiative to promote their own Gender Equality plans based on social corporate responsibility that adapt to the company’s own characteristics and peculiarities.

Nowadays, it may seem that equality between women and men has been achieved because several international agencies, such as the Declaration of Human Rights, incorporate this premise. For example, within the European Union framework, we can $nd agreements that work on ensuring Gender Equality, such as the Strategy for equality between women and men (2010-2015), which is one of the most recent agreements that includes the principles de$ned by the Women’s Charter: Declaration by the European Commission on International Women’s Day (2010). However when we


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look at what is actually happening, we see that inequality still remains because, although moral principles exist and are speci$ed in declarations of rights, this problem is structural, and changing structures in a society is hard work. So the occupational sexism we $nd in the business world is merely a re"ection of the patriarchal domination features of our society. #is statement does not imply accepting women’s under-representation; indeed the exact opposite is true. #is evidences the need to incorporate this problem into the business ethics management instruments we looked at earlier.

Another example on our closer horizon is found in the 2020 world meeting in Beijing, where governments and other institutions will discuss Gender Equality and entrepreneurship among women. #e key point here is to realize that social problems today are the responsibility not only of politicians, but also of companies and Civil Society (Cortina, 2004, p. 11). Indeed there are moral values and ideals that society considers valuable, including the achievement of a more egalitarian society in which men and women receive equal opportunities to access work. However, our daily actions seem to contradict the beliefs to which we cling so strongly (Cortina, 2007). One of the most important problems is that Gender Equality in the business world forms part of the “ought to be” sphere, but not part of the “to be” reality. #is is not su,cient; we have to incorporate the demands made from feminism into business ethics.

For this reason, it is surprising to see how such claims have been integrated into regulations and state laws, such as Article 14 of the Spanish Constitution (1978), which addresses by law and sets out the prohibition of any discrimination based on gender. However, many companies deny following such principles. #en there are more recent plans like the Strategic Plan for Equal Opportunities 2014-2016 (Plan Estratégico para la Igualdad de Oportunidades 2014-2016), which promotes equality between men and women, and de$nes actions that contribute to reduce inequality in our daily lives. When a principle like equality is formalized in a law, we perceive that it has come true. Yet this belief is false because reality is quite di!erent: women are still treated unequally and they do not have the same opportunities as men, so they have fewer chances to move up the ladder than men do in companies.

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In the business domain, we still encounter di,culties that women must overcome to occupy management positions, to earn the same salaries as men, or to reconcile family life with work. Consequently, “rede$ning our business concept so that its meaning and raison d’être also include the gender perspective” (García-Marzá, 1999, p. 1) becomes an urgent matter. Perhaps the law and equality plans are a good initial step towards achieving a more ethical company. Nonetheless, the real need lies in changing the mentality of people and companies. #us the real problem is how to integrate the gender equality in companies, and one of the advances for the dialogue-based ethics, is to understand companies from the responsibility. #e recognition of this fact involves that the company needs to response of their actions in front of stakeholders, o!ering concrete actions to solve the gender inequality. Society demands all the policies we looked at before to be integrated into the day-to-day work of companies and managers. Consequently, the company must understand e,ciency not only from an ethics perspective of equality. It must also be studied from the #eory of Stakeholders by always considering that their activity will a!ect women more (De Luis, 2008). #is operation will allow them to $ght against the glass ceiling and other inequalities, which continue to characterise companies.

In the speci$c case of the Spanish State, there is the Strategic Plan for Equal Opportunities 2014-2016 (Plan Estratégico para la Igualdad de Oportunidades 2014-2016). We can see that gender demands are being incorporated in legal terms. Some of the actions made by Spanish State are focused on issues such as: motivate the women entrepreneurship, facilitate the reconciliation of personal, work and family life; or promote social awareness in eradicating gender violence. #e main objective of this plan is to promote the inclusion and long-termism of women in the workplace, and to also make their contribution to economy visible. Overall, the plan refers to the long-standing problem of the public sphere being separated from the private $eld, where a woman’s role has been traditionally played, which a!ects and conditions her social role. #is political and economical separation between spheres separates the economic sphere from the social one, which leads to an unequal society. #is aspect has been highly criticized by feminist theorists like Nancy Fraser (2006) and Anne Phillips (2010), whose studies have focused on the e!ects that this situation has on social


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life. Policies and plans have mentioned inequality and this separation, but it has been used only for companies can to wash their hands of it. In that regard, discourse ethics allows us to highlight the need to recognize the contribution to the economy of the traditional work of women in the $eld of home in childcare and household management.

It is also true that companies must go beyond policies by moving further and more toward positive action in an attempt to eradicate the social roots of discrimination (Garcia-Marzá, 1999, p. 14). Law is necessary to promote business ethics, but it does not su,ce to achieve the integration of women into companies. For this reason, it is vital that companies learn to operate fairly, and that companies, managers and executives must move in the right direction and implement good actions that are considered socially valid. So the basic aim of business ethics is to deal with the conditions of making the company’s social credibility possible and to, therefore, encourage all the groups that form part of, or are a!ected by, its activity to be con$dent in it (García-Marzá, 2004, p. 23). We must emphasize that companies a!ect women. So if companies do not include one of the groups a!ected by their activity, then strategic communication based on coercion that shuns dialog on equal terms comes into play (Habermas, 1989). One of the ways to include the women voices in the company is the “ethics committee” (comité de ética) (García-Marzá, 2007, p. 203), a meeting where the company can establish real dialogue with the stakeholders, as well as with women. From this active listening, companies could implement measures to promote the women participation in decision-making positions, measures of time "exibility, implement policies against sexual harassment, etc. Importantly, the ethics committee must be accompanied by the drafting of a code of ethics (código ético) and conducting ethics audits (auditoría ética) (García-Marzá, 2004), these three instruments will implement ethical management in companies.

To summarize this section, we agree with the fact that Gender Equality is a basic human right, and for this reason, all companies should integrate it into their day-to-day work and business management. We as citizens must be aware of promoting women’s rights in the workplace, which the International Labor O,ce states as one of its principles. Other international organizations like the ONU also integrate this demand. In short, the fact that “women are able to work on equal terms with men it is

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not just a desirable question, but an expected one” (García-Marzá, 1999, p. 26), that needs to be integrated into business reality.

Business ethics can be the drive for women’s leadershipGlobalization has brought about changes in our economies and societies. New global economic structures have made markets fragile, and competitiveness has been moved to a global level. Moreover, the Communication Society (Castells, 1999) has enabled the creation of global networking by o!ering individuals and organizations around the world the ability to communicate easily. #is is characterized by new communication network structures, which are supposedly more democratic, and by widespread public access to information sources. Nowadays it seems to be that we live in an interconnected world where citizens begin to accept their active critical role against governments and companies. In this dynamical context, companies feel they must rethink their ways of working in order to become not only more "exible and proactive, but also active subjects. To this globalization and communicative transformation process, we must add the recent economic and $nancial global crisis, which we $nd ourselves in since 2007. Such economic and social restructuring has led people to question the traditional ways that companies have worked and their leadership model. Nowadays, immersed as we are in a global economic crisis, companies are beginning to question the e!ectiveness of a leadership model based on the traditional male stereotype, and are seeking new management models that imply another way of understanding the company. Because this traditional model no longer generates trust, companies must rethink their kinds of leaders, because they have to generate trust to survive to the crisis. For example, leaderships including employees in the decision making are being very well received (El Tiempo, 2014). #is is an excellent opportunity to promote equality between men and women in leadership positions because, assumedly, women’s leadership is related with the transformational model de$ned by Bass. Transformational Leadership has four basic characteristics: Idealized In"uence, Inspirational Motivation, Intellectual Stimulation and Individualized Consideration (Bass & Avolio, 1994a). Charismatic leadership can boost organizational changes by inspiring each employee. Inspirational motivation consists in the leader


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transmitting his/her perspective to the team to ful$ll the business vision so that it becomes an example to imitate. Furthermore, in order to achieve complete implication, the leader must treat each team member separately by paying attention to his/her needs so they feel valued. Intellectual stimulation involves encouraging all the team members to participate in problem solving, and brainstorming is well-valued, even though some ideas do not match the leader’s. #ese four principles should work together to achieve individual aims that are combined with organizational ones and for them to become shared goals.

Following Bass’s theory, many authors have studied the di!erences in leadership between men and women. Some authors support these di!erences by associating women with a more transformational leadership model. One of the most important reasons for this association is that the four characteristics we looked at, and the values underlying them, can be easily identi$ed with the characteristics associated with female gender stereotype, such as cooperativism, empathy, cooperation, collaboration, sensitivity, etc. #ese values are becoming more important at managerial levels (Ramos, 2005, p. 55). Furthermore, authors like Loden (1987) argue that male leaders respond to a pyramidal hierarchy scheme, while Women’s Leadership is identi$ed with a network structure, which involves open dialogue networking. Finally, we might think that the transformational leadership model approaches Women’s Leadership since the „Four I’s” relate to the characteristics classically attributed to women and internalized through socialization, with which they feel more at ease and which they develop in the workplace (Escapa & Martinez, 2010, p. 57). But if we understand that a stereotype is the biased image or idea commonly accepted by a group or society, we will agree that it is possible to change this stereotype, but this could take decades, maybe centuries.

As we can see, associating a given leadership style with women and another with men is complicated because it can prove essentialism and could be dangerous for equality, because the essentialism perpetuate unequal gender stereotypes and does not provide an ethical approach to management. Yet it is necessary to recognize the capacities that most women have to occupy leadership posts in companies. #us ethical management in companies will promote a transformational-type leadership, which will open out to e!ective equality between men and women in positions of leadership.

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Integrating the ethical perspective into business management can also be a good way to include all the groups a!ected by companies’ activities in dialog, where all the groups’ legitimate needs and claims must be considered. #is is also a good way forward to promote Women’s Leadership of a more transformational ethics kind, one that is better connected with new company demands, but always from an ethical perspective.

ConclusionsGlobalization has brought about changes in the role that the State plays, which can no longer control the actions that companies perform in other countries. #e law di!ers from one territory to another, but must never be an excuse to ignore Human Rights. So companies must be self-governed, based on universal moral principles, because they generate good social values since they are an inextricable part of Civil Society (Conill, 2004). Hence they should behave ethically and responsibly in all the actions they carry out. Accordingly, we $rmly believe that companies have the moral responsibility to address the gender inequality problem, to create more egalitarian forms of working, and to provide women with equal employment opportunities in management posts.

In conclusion, it is necessary to integrate business ethics with a gender perspective into all companies. In line with this, we can argue that the better implemented ethics management is in these companies, the most likely that women will be allowed to occupy managerial positions. First, if the company becomes an active listener, it will realize that it must leave behind a leadership model based on exclusive, aggressive values, and that it must make way for a more ethical transformational leadership model. Second, as a social institution, the company should be aware of the demands of its Stakeholders, and should work on transforming exclusion-based social structures. Hence it is the companys’ direct responsibility to facilitate access of women to managerial positions without setting up barriers. We therefore defend the hypothesis that the better ethical management implemened in the company, the more likely it will be that work dynamics are based on equality, to thus provide more women with access to managerial posts and to the development of transformational models. Indeed, we conceive that an ethical company is the most important key toward women becoming transformational leaders.


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Business ethics and gender equality: the basis for a new leadership model

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