ANALELE UNIVERSITĂŢII„EFTIMIE MURGU” REŞIŢA. FASCICOLA … · 2019-01-29 · Analele...

UNIVERSITATEA „EFTIMIE MURGU” DIN REŞIŢA

ANALELE UNIVERSITĂŢII„EFTIMIE MURGU” REŞIŢA.

FASCICOLA II. STUDII ECONOMICE

ANUL XXV, 2018

ISSN 2344 – 6315

ISSN-L 2344 – 6315

Reşiţa, 2018

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Despre Revistă…

Analele Universităţii „Eftimie Murgu” Reşiţa, Fascicola II. Studii Economice, se află la numărul XXV, număr care marchează totdodată şi o maturizare a rezultatelor ştiinţifice cultivate de către această revistă. De-a lungul timpului, în această revistă au publicat cu succes articole ştiinţifice cadrele universitare din domeniul economic şi cercetători de prestigiu din ţară şi străinătate. O dată cu dezvoltarea UEMR, a Facultăţii de Ştiinţe Economice, revista noastră a câştigat în consistenţă, atât din punct de vedere cantitativ, cât şi calitativ. Recunoaşterea a venit treptat, facultatea noastră demarând legături şi activităţi ştiinţifice în consorţii internaţionale şi totodată diseminând rezultatele, atât a cadrelor didactice interne, cât şi a partenerilor străini prin intermediul revistei, care a câştigat notorietate. Validarea rezultatelor ştiinţifice în prezent se realizează de profesori universitari de anvergură internaţională. Aceştia susţin promovarea unor rezultate ştiinţifice de actualitate şi de utilitate dovedite pentru economia României şi pentru alte economii emergente sau dezvoltate.

- COMITETUL DE REDACŢIE -

About the Journal…

The Annals of „Eftimie Murgu” University Reşiţa, Fascicle II. Economic Studies, encounters itself at its XXV number, number that celebrates a certain ripening of the scientific results nurtered by this journal. Along the time, in this journal, have been published scientifical papers belonging to the academic researchers from the economic field as well as well-known researchers from all over Romania and abroad. Once with the process of development of the UEMR, of the Faculty of Economic Sciences, our journal gained in consistency, both in a quantitative and a qualitative way. The recognition came gradually, with the development of scientifical connections and common activities that took place in the international consortium that our faculty accomplishedand in the same time, with the dissemination of results, that came from reasearchers from inside the country and from abroad. Currently, the validation of the scientifical papers is realized by proffesors with a high international reputation. They are interested in promoting current and useful scientific results, both for the Romanian economy and for the other emergent or developed economies.

- EDITORIAL BOARD -

Analele Universității ”Eftimie Murgu” Reșoța. Fascicola II. Studii Economice

Annals of „Eftimie Murgu” University Reșița. Fascicle II. Economic Studies vol. XXV, ISSN 2344 – 6315 www.analefseauem.ro

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The papers in the journal Analele Universităţii „Eftimie Murgu” Reşiţa, Fascicola II. Studii

Economice / Annals of „Eftimie Murgu” University Reşiţa, Fascicle II. Economic Studies,

ISSN 2344 – 6315, ISSN-L 2344 – 6315, are published in printed format and respectively on the site of

the journal www.analefseauem.ro, in electronic format, with free access to full text.

The papers published in this volume are exclusively engaging authors

EDITORIAL BOARD

MANCIU VENERA CRISTINA – DIRECTOR

Assoc.Prof.PhD., University„Eftimie Murgu” of Reșița, Romania

DEMYEN SUZANA - EDITOR IN CHIEF

Assist. PhD., University„Eftimie Murgu” of Reșița, Romania

Antonova Diana Prof. PhD., Rousse University „Angel Kanchev”, Bulgaria

Andreş Solomia Assoc. Prof. PhD., University„Eftimie Murgu” of Reșița, Romania

Bretcu Angela Assoc. Prof. PhD., University„Eftimie Murgu” of Reșița, Romania

Biloocaia Svetlana Prof. PhD. hab., Academy of Economic Studies of Moldova

Chybalski Filip Assoc. Prof. PhD., Technical University of Lodz, Poland

Ciurea Jeanina Lect. PhD., University„Eftimie Murgu” of Reșița, Romania

Ferreira Marques Helena Assoc. Prof. PhD., University of the Balearic Islands, Spain

Graef Michael Prof. PhD., FachhochschuleWorms, Germany

Kume Vasilika Prof. PhD., University of Tirana, Albania

Lesconi-Frumuşanu Nătăliţa Lect. PhD., University„Eftimie Murgu” of Reșița, Romania

Letonja Marina Lect. PhD., GEA College of Entrepreneurship, Slovenia

Miloş Laura Raisa Lecturer PhD, West University of Timisoara, Romania

Miloș Marius Cristian Lecturer PhD, West University of Timisoara, Romania

Minică Mirela Assoc. Prof. PhD., University„Eftimie Murgu” of Reșița, Romania

Pavlov Daniel Assoc. Prof. PhD, Rousse University „Angel Kanchev”, Bulgaria

Pirtea Marilen Prof. PhD., West University of Timișoara, Romania

Popovici Gheorghe Prof.PhD., University„Eftimie Murgu” of Reșița, România

Schulte Peter Prof. Phd.PhD., INEA, Dusseldorf, Germania

Sîrghi Nicoleta Assoc.Prof. PhD, West University of Timisoara, Romania

Singer Slavica Prof. PhD., Josip Juraj Strossmayer University of Osijek, Croatia

Tănase Adrian Assoc. Prof. PhD., University„Eftimie Murgu” of Reșița, Romania

Todorova Milena Chief assist. PhD., Rousse University „Angel Kanchev”, Bulgaria

Wassenberg Gerd Prof. PhD., Fachhochscule Aachen, Germania

Zeidan Rodrigo Assoc. Prof. PhD., University of Nottingham, China

EDITORIAL COLLEGE – ASSISTANCE

Assist.PhD. Roşu Monica

Assist. PhD. Bizău Viorel

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SCIENTIFIC COMMITTEE

Cătoiu Iacob Professor PhD, ASE București, Romania

Cechin Crista Persida Professor PhD., European University Drăgan, Lugoj, Romania

Cismaş Laura Professor PhD., West University of Timișoara, Romania

Cocriş Vasile Professor PhD., „Al. I. Cuza” University, Iași, Romania

Corduneanu Carmen Professor PhD., West University of Timișoara, Romania

Donath Liliana Professor PhD., West University of Timișoara, Romania

Frunzăverde Doina Professor eng. PhD., University „Eftimie Murgu”of Reșița

Hîncu Rodica Professor PhD. hab., Academy of Economic Studies of Moldova

Hurduzeu Gheorghe Professor PhD., ASE București, Romania

Kalkowska Joanna Professor PhD, Poznan University of Technology, Poland

Lala-Popa Ion Professor PhD., West University of Timișoara, Romania

Olteanu Valerică Professor PhD., ASE București, Romania

Ožegović Lazar Professor PhD, University Business Academy, Novi Sad

Matiş Dumitru Professor PhD., „Babeș-Bolyai” University Cluj-Napoca, Romania

Pirtea Marilen Professor PhD., West University of Timișoara, Romania

Pop Alexandru Professor PhD., ASE București, Romania

Popovici Gheorghe Professor PhD, University „Eftimie Murgu”of Reșița, Romania

Stancu Ion Professor PhD., ASE, București, Romania

Ştefea Petre Professor PhD., West University of Timișoara, Romania

Talpoş Ioan Professor PhD.,West University of Timișoara, Romania

Hanna Włodarkiewicz-Klimek Professor PhD, Poznan University of Technology, Poland

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Redaction address:

320085 – Reşiţa, Traian Vuia, nr.1-4

Tel/fax: 0255210214

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CONTENT

AUTHOR/S Title of the paper Page

1. Svetlana BILOOCAIA

Irina GAIDARLI

Role of government securities in economic

growth stimulation: EU practices and

particularities of the Republic of Moldova

7

2. Angela BRETCU Competitive strategies between the red

ocean and blue ocean 17

3. Lavinia Raluca CORNEANU-

LIPOU

The role of time management efficiency for

the professional training of young people 26

4. Delia DELIU

The new auditor’s report and the impact of

an eventual financial crisis on the financial

audit activity in Europe

37

5.

Suzana DEMYEN

Jeanina CIUREA

Mihaela MARTIN

Bankruptcy risk analysis for a company in

the pharmaceutical industry 49

6. Alicia ERINCZ,

Contanța TIUHTII

The role of informational capital in

ensuring the firms sustainability 56

7. Bashir GHANIM

Transparency as a management lever for

effective democracy in Israeli public

institutions

62

8. Liliana GHERGHINA Touristic activity in hotels 69

9. Rodica HINCU

Olga CONENCOV

Directions for the optimization of financing

investments in the educational human

capital in the perspective of improving the

quality of life in the Republic of Moldova

82

10.

Alexandru JIVAN

Miruna NACHESCU

Productivity between appearance and

effects. A relevant distinction 90

11. Irena KENAROVA-PENCHEVA

Diana ANTONOVA

The role of internal branding to increase

the engagement and motivation of human

resources

102

12. Venera MANCIU Perspectives of development for the medical

entrepreneurship in Romania 109

13. Venera MANCIU

The importance of negotiation in the

process of selling agroalimentary products

on the Romanian market

117

14.

Mario Innocenzo MANDRONE

Statistical physics for risk management 122

15. Nenad MARKOVIĆ

Snežana MILOŠEVIĆ

Radovan VLADISAVLJEVIĆ

Managing of value-added in supply chain of

tram part supply 138



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16. Andreea MARIN (ZGARDAN) The image of the accounting professional in

the activity of an economic entity 147

17. Andreea MARIN (ZGARDAN) Factorial analysis of profit on an economic

entity level 153

18. Mădălina MATICIUC Human capital creativity – source of

innovation 164

19. Mirela MINICĂ

Quantitative and qualitative aspects of

tertiary education in the European Union

member states

170

20. Csaba NAGY Public sector and public funds. Conceptual

approach and legislation 182

21. Gheorghe POPOVICI

Monica ROȘU

BANAT -100 offerings for Touristic

Romania (The 1918-2018 Centennial) 192

22. Doina RADA Profitability, risk or vulnerability in the

company activity 200

23. Svilena RUSKOVA

Ivalina RUSEVA

Empirical study on the impact of the

conflicts on the motivation of the employees 206

24. Ariana Emanuela TAL The benefits of social media adoption in a

SME. A competitive advantage perspective 215

25. Diana TĂNASE

Adrian TĂNASE

Aspects related to unemployment in

Romania 221

26. Elya YEHUDA

Responsible leadership and the climate of

quality service in public organizations in

Israel

228



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ROLE OF GOVERNMENT SECURITIES IN ECONOMIC

GROWTH STIMULATION: EU PRACTICES AND

PARTICULARITIES OF THE REPUBLIC OF MOLDOVA

Svetlana BILOOCAIA

1

Irina GAIDARLI2

Submitted: 7

th September 2018 Approved: 13

th October 2018

Abstract In this article were investigated the main theoretical and practical aspects related to the

macroeconomic and socio-economic consequences of public debt and budget deficit as well as the role

of Government securities in financing of state expenditures and economic growth. Investigation was

implemented based on such research methods as: general-scientific methods of cognition, logical

analysis of theoretical and practical materials, documentary method, analogy and grouping,

quantitative and qualitative data methods, graphical method, correlation analysis, methods of synthesis

and comparative analysis. In order to implement the best international experience in the Republic of

Moldova, in this study, besides domestic market, were estimated the Government securities markets

from Belgium and România; was revealed, based on correlation analysis, the influence of Government

securities markets on the dynamics of main macroeconomic indicators, and, using the best European

practices, were elaborated the recommendations for Government securities market development in the

Republic of Moldova.

Key words: Government debt, Government securities, economic growth

JEL: E5, G1, H6, H7

1. INTRODUCTION

Each country, within the framework of the state policy implementation,

regardless of its size and level of economic development, is aimed at maximizing the

mobilization of financial resources in order to form and timely replenish the state

budget, which serves as a prerequisite and financial basis for the implementation by the

state of its functions. The main objectives of the macroeconomic policy of the state are

the development of the national economy and the public welfare maximization. The

achievement of these goals is directly related to ensuring sustainable economic growth,

full employment of labour resources, price stability, balance of the state budget,

regulation of money supply, optimization of foreign economic relations, social

protection of population etc. The main sources of public expenditure financing are:

taxes, charges, fees and earnings, fines, but, in modern conditions, an important role

has public debt, the main part of which is represented by the Government securities

(GS). Government securities are the important source of budget replenishment and

covering its deficit, a significant tool in regulating the level of inflation, conducting

monetary policy, covering cash gaps.

In the European Union countries (EU27), during 2000-2007 both Maastricht

debt and net government debt were stable; Maastricht debt was approaching the 60%

threshold and net government debt was standing on average only 10.1 pp below the

1 PhD, Associate Professor, Faculty of Finance, Academy of Economic Studies of Moldova, Republic of

Moldova, e-mail: [email protected] 2 Economist, e-mail: [email protected]

https://ro.wikipedia.org/wiki/Rom%C3%A2nia

mailto:[email protected]



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gross measure. The economic and financial crisis started at 2008 was resulted in EU

countries’ growing budget deficits and increasing debts to finance them, bringing gross

and net debt levels to 87.6% and 72.0% of GDP, respectively. The growth rate of

government debt in European developed countries was higher than in developing ones.

Maastricht debt grew at a faster pace than net debt, what reflects governments’

increased accumulation of financial assets as a response to the financial crisis. In

particular, some governments intervened to take over failing banks, which led to an

increase in their gross debt; however, governments sometimes also took over financial

assets from the failing banks that had value and therefore net debt went up by less

(Eurostat, 2018).

The growth of the public debt is one of the challenges for modern economies.

The analysis of the role of government securities in economic growth stimulation

represents the highest interest and is the subject of much debate among economists,

development specialists and researchers around the world and is the scope of this

investigation.

2.1. Research theoretical aspects

The macroeconomic and socio-economic consequences of public debt and

budget deficit are the subject of a comprehensive investigation for various scientific

schools of economic theory. The subject of the studies is the impact of public debt on

such macroeconomic indicators as: economic growth, inflation, nominal and real

interest rates, unemployment, development of financial markets, etc. Government

debt is said to perform three functions: stabilizing function, bridging function and

burden-shifting function To stabilize the macro economy, government should

paydown debt when the economy shows signs of overheating and should be willing to

run up additional debt to fight recession. The bridging function describes the goal of

tax smoothing. If the benefits created through spending in the current fiscal year also

benefit future taxpayers, then tax burdens should be shifted and spread over time

(GNASL, 2016). The optimal methods used to finance government deficit/spending

remain a controversial topics for economists. Although most agree that government

financial policies require choosing among the imposition of taxes, the sale of debt

obligations and the ‘printing/creation of government money’ (or some combination of

these), there is often strong disagreement regarding the macroeconomic consequences

of these choices (Bell S., 1998).

The classical school of political economy viewed public debt as a temporary

phenomenon that must be repaid, but since the J. Keynes, public debt start to be

viewed as an indispensable element of an economic policy directed to maintaining a

sufficient level of aggregate demand that determines levels of production and

employment. To analyze the phenomenon of budget deficit and public debt and their

influence on national economies were elaborated a considerable number of theories. In

accordance with the Barro-Ricardo hypothesis (Ricardian equivalence), the financing

of public expenditure by debt is equivalent to financing them at the expense of taxes,

but received in the future. Modigliani F. argued that the national debt is a burden for

next generations, which comes in the form of a reduced flow of income from a lower

stock of private capital (Checherita C., Rother P., 2010), he also revealed the process of

ousting private investors through credit resources state. Agreeing to certain provisions

of neo-Keynesian theory, Lerner A. pointed to the impossibility of transferring the

“burden of debt” to future generations for domestic public debt. Neoclassical concept

explains the constant existance of public debt by political factors, since its repayment



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will require a significant reduction in public goods, which voters will not agree to.

The hypothesis of the irrelevance of the budget deficit, suggests that if the amount of

government loans intended to cover the budget deficit, reduce the amount of taxes,

then the inflation rate will not change (Savradim V., 2016).

Some theoretical and empirical arguments were initiated to provide

justifications for fiscal restraint and debt consolidation, especially in the Eurozone.

Some empirical findings support that debt/GDP ratios over 90% appeared to be

associated with low, or even negative growth rates (Tavani D., Zamparelli L., 2015).

Another study finds evidence for a non-linear impact of public debt on per-capita

GDP growth rate across. It unveils a concave relationship between the public debt and

the economic growth rate with the debt turning point at about 90-100% of GDP. It

means that public debt-to-GDP ratio levels above 90-100% of GDP, is associated, on

average, with lower long-term growth rates at debt (Checherita C., Rother P., 2010).

Based on these premises, EU governments implemented strict primary fiscal surpluses

at every fiscal year. Such ‘fiscal compact’ commitments by EU countries made the

already restrictive Stability and Growth Pact rules (targets of 3% deficit/GDP yearly,

and a long run target of 60% debt/GDP ratio) even more stringent (Tavani D.,

Zamparelli L., 2015).

At the same time, other economists assert, that the substantiation of a target for

a sustainable level of public debt must also consider the concept of debt intolerance.

They demonstrate that emerging economies cannot sustain the same debt/GDP ratio,

that countries with advanced economies, but a much lower one, mainly because of the

limited access to capital markets. The phenomenon is related to the pro-cyclicality of

the financial markets, that repeatedly lends large amounts to the emerging economies

during the boom periods (due to the low returns in developed countries) and restrict

capital flows to these when adverse shocks occur (Dumitrescu B., 2014).

Economists from the IMF emphasize that debt, poorly structured in terms of

payment terms, currency, interest rate, has repeatedly been a factor that caused the

economic crisis in many countries. That is why debt managers, fiscal and monetary

authorities, and financial sector regulators, should share an understanding of the

objectives of debt management, fiscal, monetary, and financial sector policies given

the interconnections and interdependencies between their respective policy

instruments (IMF, 2014).

2.2. Proposed research methods

Presented in this article investigation was implemented based on such research

methods as: general-scientific methods of cognition, logical analysis of theoretical and

practical materials, documentary method, analogy and grouping of quantitative and

qualitative data method, graphical method, correlation analysis, method of synthesis

and comparative analysis method. Analysis is grounded on the data obtained from

Eurostat, European Central Bank (ECB), World Bank, Belgian debt agency, Ministry

of Public Finance of Romania (MoPF), National Bank of Moldova (NBM) etc.

2.3. Research of empirical aspects

In order to analyse the effect of government securities in financing of state

expenditures and economic growth stimulation, in this study was investigated Belgian

and Romanian experience as well as practices of the Republic of Moldova during

2007-2016. Were analysed such indicators as: the structure of government debt



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instruments, the volume of issued GS and their share in Government expendituries

and GDP, the rates evolution, the types of investors and was implemented correlation

analysis between the volume of issued GS as well as their weighted average rates and

such macroeconomic indicators as: inflation, GDP per capita, level of employment,

volume of export.

2.3.1. The role of Belgian government securities in economic growth promotion

Belgium succeeded in significantly reducing its public debt from debt-to-GDP

ratio – from 130,5% in 1995 to the 87% in 2007. The global financial crisis in 2007-

2008, trigged the problems in Belgian financial sector, slowed economic growth as

well as growing cost of servicing an already high stock of debt, and was resulted in

the debt-to-GDP ratio that steadily grew till 2014. Started from the 2015, the share of

public debt in GDP has been gradually decreasing (see table 1).

The main part of Belgian public debt (93%) is formed by such Government

securities as: Linear Bonds (OLOs, are medium and long term securities), Treasury

Certificates and Bonds as well as State Notes. Loan agreements (Schuldschein) and

other debt financial instruments (Euro Medium Term Notes) and loans constitute

7,04%. Since 2007, the state strategy is aimed at increasing the share of long-term and

medium-term securities. Such, by 2016 the share of short-term securities decreased to

9.25%. The main part of GS are bonds with maturity of more than 5 years. The share

of GS with fixed rate is 89.76%, the share of GS with variable rate is 10.24% (figure

1).

Figure 1. The structure of the Belgian’ government debt instruments, 2016, %

(Source: elaborated by the authors based on Belgian debt agency, 2016)

The institutional investors actively invest their capital in GS. Thus, the share

of insurance companies in the whole invested capital in the public debt market,

constitutes 15,0%, the share of credit institutions is 10,7%, the share of pension funds

is 12,4%. The share of foreign investors in Belgian GS from EU countries during

2007-2016 varied within the 25.6%-32.3%, the share of foreign investors from non-

EU countries starting from 2010 demonstrated steadily growth and reached 24,7% in

2016.

During the analized period, in Belgium, the GS rates in general decreased; the

most significant decline, by 50%, was registered in 2012. Besides 2015 and 2016,

when the growth of inflation was caused by the rise in price of energy resources, the

GS rates exceeded inflation rates. Because of this fact, as well as due to prevailing

weighted average interest rate of GS under weighted average interest rate of banking



11

deposits, the Belgium’ GS is an attractive financial instrument for investments (figure

2).

Figure 2. The evolution of the rates on the Belgian financial market, 2007-2016, %

(Source: elaborated by the authors based on ECB, 2017)

Government securities play an important role in coverage of growing Belgian

public debt and expenditure, caused by the increasing social costs accounted for 37%

of the country’s expenditure. The volume of issued GS and their maturity are changed

in dependence from the Government debt evolution and the share of outstanding GS in

Government debt, which is steady growing, reached 62,6% in 2016 (see table 1).

Table 1

The role of Government securities in coverage of Belgian public expenditure, 2007-2016

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Volume of outstanding GS (bln

EUR) 264,5 290,2 297,4 308,3 328,7 340,3 348,2 357,7 365,1 376,7

Volume of issued GS (bln EUR) 29,6 33,8 35,7 45,3 40,9 48,0 46,7 35,7 40,7 42,3

General government debt (bln

EUR) 299,9 327,6 347,1 364,1 388,9 404,2 416,7 427,5 434,8 446,8

Government Debt to GDP, % 87,0 92,5 99,5 99,7 102,6 104,3 105,5 106,8 105,9 105,7

General government

expenditure (bln EUR) 166,4 178,1 189,5 194,1 206,7 217,3 218,7 220,8 220,8 224,6

The share of isued GS in

Government expenditure, % 17,8 18,9 18,8 23,3 19,8 22,1 21,3 16,2 18,4 18,8

(Source: elaborated by the authors based on Belgian Debt Agency, 2017)

Analysis of the Government securities market’ influence on the main Belgium

macroeconomic indicators revealed, that according to the Pearson correlation

coefficient, which is equal to 0,1258, interconnection between the volume of issued

GS and inflation rate is weak, but the interdependence between Belgium weighted

average interest rate of GS and inflation rate as well as between the volume of issued

GS and GDP pe capita is strong, that confirm Pearson correlation coefficients which is

0,6464 and 0,6590, correspondingly. The strong interrelation exists between volume of

issued GS and level of employment, is approved by Pearson coefficient equal to

0,6425. At the same time, the volume of issued GS does not influence the volume of

Belgium export and vice versa.

https://www.debtagency.be/en



12

2.3.2. The role of Romanian government securities in stimuation of economic

growth

Romania is among the EU countries with the lowest share of government debt in

the GDP. According to the Government public debt management Strategy for 2017-

2019, the main objectives of the debt management of Ministry of Public Finance of

Romania include: cover the funding needs of the central government and the payment

obligations, while minimizing the medium and long term debt costs; limit the risks of

the government public debt portfolio; development of the domestic market of

government securities. At the end of 2016 Romanian government public debt amounted

to EUR 61.3 bln., a deficit of the general consolidated budget was 2.4% of GDP.

Implementing the Strategy, budget deficit financing was executed mainly based on

allocation of GS on the domestic market and the structure of public debt continued to

change in favour of internal government debt and marketable debt instruments (mainly

in local currency), resulted in 52.0% of public debt contracted by resident creditors

and the share of non-marketable debt (external loans contracted with international

financial institutions) decreased from 48,5% in 2011 till 24,6% in 2016, with

increasing the share of marketable debt instruments to 75,4%. The share of GS with

medium- and long term maturity increased (figure 3).

Figure 3. The structure of the Romanian government securities issued, IQ 2017, %

(Source: elaborated by the authors based on MoPF, 2017)

The weighted average interest rate on Romanian GS till 2009 increased to its

maximum – 8,7%, from 2010 interest rates on GS have decreased. During all analysed

period weighted average interest rate on GS exceeded the rate of inflation, in 2016 – it

was in 1,73 times. During 2007-2010 the investments in banking deposits was more

profitable, then investments in GS. Starting ftom the 2011, the GS generates the better

return then banking deposits, in 2016 weighted average interest rate on Romanian GS

was in 3,36 times more then weighted average interest rate on banking deposits (figure

4).

Figure 4. The evolution of the rates on the Romanian financial market, 2007-2016, %

(Source: elaborated by the authors based on ECB, MoPF, 2017)



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The above mentioned tendencies influenced the GS investors’ structure, thus,

the share of local commercial banks decreased in 2016 to 47,1%, but the share of the

private pension funds increased to 12,8%, the share of non-residents did not change

and was 17,6%. The role of Government securities in financing of growing Romanian

public debt and expenditure is increasing. In 2016, GS issuance on the domestic market

is amounted to RON 45,4 bln and EUR 775 mln, accounting for 68.2% of the Central

Government gross borrowings, the budget deficit was financed on 77.0% from

domestic sources. On the foreign capital markets through Eurobonds were attracted

EUR 3,25 bln. The increase of outstanding GS was influenced by the growth of

medium- and long term GS (table 2). Table 2

The role of Government securities in coverage of Romanian public expenditure, 2007-2016 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Volume of issued GS on domestic

primary market in lei (bln EUR) - - - - 12,7 13,5 12,1 9,9 7,9 9,9

Volume of outstanding Treasury bills

and bonds (bln EUR) 2,0 3,8 10,1 14,5 18,2 21,8 23,6 24,7 25,7 28,0

Volume of outstanding Eurobonds

(bln EUR) 1,6 1,9 2,0 2,3 3,7 6,9 10,0 14,6 16,2 18,2

General government debt (bln EUR) 14,7 17,1 27,9 37,5 44,7 49,9 53,8 58,7 59,7 61,3


General government expenditure (bln

EUR) 47,9 55,2 49,5 50,0 52,2 49,9 51,0 52,5 57,3 58,6

Share of outstanding Treasury bills and

bonds in Government expenditure, % 4,2 6,9 20,4 29,0 34,8 43,7 46,3 47,0 44,8 47,8

Share of treasury bills and bonds in

Government expenditure, % - - - - 24,3 27,0 23,7 18,8 13,8 16,9

(Source: elaborated by the authors based on Eurostat, MoPF, 2017)

Analysis of the influence of Romanian Government securities market on

evolution of the main macroeconomic indicators demonstrates, that, according to the

Pearson correlation coefficient, which is less then 0,1, interconnection between the

volume of issued GS and inflation rate in Romania is weak, but interconnection

between weighted average interest rate of GS and inflation rate is strong due to the

Pearson coefficient is 0,7508. The investigstion also revealed the strong

interdependence between volume of issued GS and GDP pe capita as well as between

volume of issued GS and level of employment, which is confirmed by the Pearson

coefficient equal to 0,6629 and to 0,6796, respectively. The strong interdependence

exists for the volume of issued GS and the volume of export, that demonstrates Pearson

correlation coefficient, which is 0,9043.

2.3.3. The role of government securities in economic growth stimulation in the

Republic of Moldova

The share of Central government debt in the Republic of Moldova GDP is one

of the lowest in Europe, but it demonstrates a steady growth. The volume and

structure (figure 5) of issued GS are influenced by different circumstances, the most

important of them are connected with possibilities of budget deficit funding at the

expense of domestic sources or based on external assistance.



14

Figure 5. The structure of the Moldavian’ government securities issued, 2016, %

(Source: elaborated by the authors based on BNM, 2017)

Thus, in the first half of the 2016, the Ministry of Finance, to stimulate the

attraction of capital, announced the increase of the volume of issued treasury bills on

all maturities, but in the second half of the year, forecasting the external inflows from

the IMF, the EU Commission, the World Bank institutions, as a result of signing a

new Memorandum of economic and financial policies between the Republic of

Moldova and IMF, the Ministry of Finance increased proposition of Government

bonds, resulted in growth of their share in allocated GS from 0.32% in 2015 to 1.34%

in 2016.

The weighted average interest rate on Moldavian GS is volatile, thus, it

decreased from 19% in 2008 to 5,3% in 2013 and then increased to its historical

maximum – 24,8% in 2015. During the analysed period weighted average interest rate

on GS exceeded the rate of inflation, the highest difference was registred in 2008-

2009. During 2008-2015 the investments in banking deposits were less profitable,

then investments in GS, but starting from the 2016, weighted average interest rate on

banking deposits prevails over interest rate on GS (figure 6).

Figure 6. The rates evolution on the Moldovan financial market, 2007-2016, %

(Source: elaborated by the authors based on BNM, 2017)

At the end of 2016 the amount of all outstanding GS in the Republic of Moldova

amounted to MDL 21,5 bln or EUR 1,1 bln, including EUR 105,3 mln – convertible

GS, EUR 312,0 mln – GS allocated on the primary market and EUR 680,8 mln – state

securities issued for some purposes established by law (resulted in the liquidation

procedures of the three commercial banks and bonds issued by Moldova’s

Government 2016 to repay the central bank spent for emergency aid), that comprise

domestic debt (table 3). External debt includes only loans. During the analysed

period, the General government expenditure was steady increasing from MDL 22,3

bln in 2007 to MDL 48,4 bln in 2016, the growth was inregistred and for the volume

of issued GS in primary market in MDL, but this tendency does not persist in EUR



15

due to the EUR/MDL course dynamics. The investigation revealed that during 2007-

2016, the share of issued GS in GDP has grown 3 times, and the share of issued GS in

Government expenditure has increased more than twice, that means the growth of GS

influence in economy of the Republic of Moldova.

Table 3

The role of Government securities in Moldovan public expenditure coverage, 2007-2016 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Volume of issued GS in primary

market (mln EUR) 148,2 169,1 333,3 390,6 391,7 460,8 473,6 446,7 441,5 500,5

Volume of issued GS (bln MDL) 2,5 2,6 5,2 6,3 6,4 6,9 7,7 8,5 9,2 11,2


General government expenditure

(bln EUR) 1,4 1,7 1,8 1,8 1,9 2,3 2,4 2,3 2,2 2,2

Share of issued GS in GDP, % 2,3 1,9 4,3 5,0 4,3 4,8 4,3 4,6 6,2 6.9

Share of issued GS in

Government expenditure, % 10,5 9,9 18,5 21,7 20,6 20,0 19,7 19,4 20,0 22,7

(Source: elaborated by the authors based on World Bank, BNM, 2017)

The main investors in Government securities in the Republic of Moldova are

domestic commercial banks; the institutional investors on the GS market are

represented only by insurance companies, but the share of their investments in GS

market is small. Starting from the 2010, due to the growth of weighted

average interest rate on GS, the share of non-banking investors as well as foreign

investors increased, resulted in decreasing the share of commercial banks investments

in issued GS till its minimum – 80,2%. Absence in the Republic of Moldova of

importnant institutional investors as private pension funds, investment funds negatively

influences the GS market development and is one of the most important reason for

volatility of GS interest rates.

Estimation of the Government securities market impact on the evolution of the

main macroeconomic indicators of the Republic of Moldova demonstrates that according

to Pearson correlation coefficient, which is equal to 0,1265, does not exist interrelation

between the volume of issued GS and inflation rate. According to the Pearson coefficient,

which is 0,6530, there is interrelation between weighted average interest rate of GS and

inflation rate, as well as there is an interconnection between volume of issued GS and

level of employment, which is confirmed by the Pearson coefficient equal to 0,5848. The

strong interdependence is between volume of issued GS and GDP pe capita, since the

Pearson coefficient is equal to 0,8240, also exists an interrelation between the volume of

issued GS and the volume of export, that confirm Pearson correlation coefficient, which is

0,6228.

3. CONCLUSION

In all investigated countries the GS plays an important role in public expenditures

financing, budget deficit funding, realizing the goals of macroeconomic policy, regulating

the level of inflation and is an effective instrument for providing monetary policy. The

correlation analysis revealed that in Belgium, Romania and the Republic of Moldova the

volume of issued GS positively correlated with GDP pe capita, as well as with level of

employment, in Romania and Republic of Moldova exists positive influence of volume of

issued GS on volume of export and vice versa. At the same time, was found out that in

Belgium and Romania: the ratio of outstanding GS to GDP and to Government



16

expenditure, increased faster than the same ratios of issued GS, that allows authorities to

implement long-term macroeconomic strategies and is a result of increasing of share of

long- and medium- term Government bonds in issued GS; the interest rates on GS are less

volatile and low, the secondary market of GS is developed and liquid due to the presence

on the GS market the wide range of institutional investors, foreign investors, markets’

high liquidity, issuence of the GS in euro etc. as well as because of stable political and

macroeconomic situation in condition of transparency, predictability and credibility of

national developed financial markets. In the Republic of Moldova the ratio of outstanding

and issued GS to GDP and to Government expenditure is about the same, because of the

dominant share of short term Treasury bills in issued GS, what has negative effect on

planning of Government needs funding in long- term period; the interest rates on GS are

volatile and unpredictable for long- term perspectives; the base of investors in GS is

narrow with domination of domestic commercial banks, GS are not tranzactioned on

Moldova Stock Exchange, the secondary market is underdeveloped etc., what determine

the necessity of Moldovan GS market modernization based on the best experience of EU

countries.

REFERENCES

Belgian debt agency (2007-2017), “Federal State Debt”, Annual Reports 2007-2016,

available on-line at https://www.debtagency.be/en/downloadsannualreport

Bell S. (1998) “Can Taxes and Bonds Finance Government Spending?” Levy Economics

Institute Working Paper, No. 244, July 1998.

BNM (2007-2017) “Rapoarte Anuale 2007-2016”. available on-line at

https://www.bnm.md/ro/content/raportanual

Checherita C., Rother P. (2010) “The impact of high and growing government debt on

economic growth, an empirical investigation for the Euro Area”. ECB Working Paper

series, nr. 1237, august 2010.

Dumitrescu B. (2014) “The public debt in Romania - factors of influence, scenarios for the

future and a sustainability analysis considering both a finite and infinite time

horizon”. Procedia Economics and Finance, nr. 8, 2014, p.p. 283 – 292.

Eurostat (2018) “Measuring net government debt: theory and practice”. Statistical working

papers, Luxembourg: Publications Office of the European Union, 2018.

German National Academy of Sciences Leopoldina (GNASL) et al. (2016) “Government

debt: causes, effects and limits”, 1st edition, 2016, Berlin, 76 p.

IMF (2014) “Revised guidelines for public debt management”, policy paper, April, 2014

Ministry of Public Finance of Romania (2017) “Government public debt management Strategy

for 2017-2019”. Bucharest, 2017.

Savradim V. (Саврадым В.) (2016) “Современные постулаты о государственном долге

обрушают экономику: теория и факты”. Финансы и учет, nr. 4, 2016.

Tavani D., Zamparelli L. (2015) “Government Spending Composition, Aggregate Demand,

Growth and Distribution”. Working Paper, Macroeconomic Policy Institute, nov. 2015,

nr. 158.

https://countryeconomy.com/government/expenditure/

https://data.worldbank.org/indicator/

http://ec.europa.eu/eurostat/

https://www.ecb.europa.eu/stats/html/index.en.html

http://discutii.mfinante.ro/static/10/Mfp/buletin/executii/Structuradatorieipublice2000-

2017AprilEng.pdf

http://discutii.mfinante.ro/static/10/Mfp/buletin/executii/ReportonGovernmentPublicDebt201

6.pdf

http://mf.gov.md/ro/datoria-sectorului-public/rapoarte/datoria-de-stat

www.statistica.md

http://ec.europa.eu/eurostat/

http://discutii.mfinante.ro/static/10/Mfp/buletin/executii/ReportonGovernmentPublicDebt2016.pdf

http://discutii.mfinante.ro/static/10/Mfp/buletin/executii/ReportonGovernmentPublicDebt2016.pdf

http://mf.gov.md/ro/datoria-sectorului-public/rapoarte/datoria-de-stat



17

COMPETITIVE STRATEGIES BETWEEN THE RED OCEAN

AND BLUE OCEAN

Angela BRETCU1

Submitted: 5

th October 2018 Revised: 28 November 2018 Approved: 5

th December 2018

Abstract

Competitive strategies have been seen as a way to overcome boundaries, develop and improve firms.

From a marketing perspective, competition plays an important role in gaining a favourable position on

the market, which is why more aggressive strategies have been developed. At present,

hypercompetition is analysed, characterised by accelerated dynamism, which no longer allows for

sustainable and stable benefits. Advantages are temporary, companies being forced to be in perpetual

alertness and vigilance. They have to anticipate competitors' movements in order to be able to respond

quickly to the market mutations. In this context, the blue ocean strategy appears, making competition

irrelevant, focusing on value innovation, creating a new demand that can be met with low costs to the

advantage of both the firm and the customer alike. This strategy is beneficial to small businesses,

allowing them to remain on the market and develop profitable businesses. The paper continues with a

focus group made with companies from Reşiţa, meant to analyse how they understand the competition

on the Reşiţa market and develop their enterprise in this context.

Keywords: strategy, competition, competitive advantage, hypercompetition, red ocean strategy, blue

ocean strategy

JEL : M31, M37

1. INTRODUCTION

In marketing, there is a belief that firms cannot exist unless they have a vision

of their own existence, along with a vision of market on which they operate.

Kotler(1996), making the analogy of the firm with the human being, states that it must

have a "market and product consciousness" . The increasingly dynamic and

competitive environment forces companies to engage in specific behaviours and

actions. This can only be achieved by developing strategies that can guide the

company on the global market.

Strategy is defined as "the structure of objectives, purposes and goals, major

policies and plans for their realisation" (Kenneth A., 1981), "a model or plan that

integrates the major goals of the organisation" (Quinn si al. 1995), "a theory of the

firm" (Barney, 1991), measures (Ansoff, 1965), “ability to infiltrate into the free

competitiveness system” (Henderson B,1989), "set of reflections, decisions and

actions" (Marchesnay, 2004), "the purpose of an organisation existence" (Lynch,

2002), or "the process of simultaneous examination of the environment present and

future" (Higgins, 1983).

Petit Larousse (1995) defines strategy as "the art of coordinating actions and

manoeuvring them to achieve a goal.”

In the field of competitive dynamics, strategy must focus on achieving the

market position that offers maximum potential. Strategic guidance allows the firm to

"adapt and / or change environmental aspects for a more favourable alignment"

1 Associate Prof. PhD, “Eftimie Murgu” University of Reșița, România, [email protected]



18

(Manu, Sriram, 1996); Macmillan & Tampoe (2000) consider that strategic

orientation means "creating a new vision of the future in order to inspire the

organisation towards a broader goal."

Strategy involves making decisions after careful analysis, with policies and

action plans being put in place to achieve the expected results. Al Ries and Trout

(2002) believe that there are no good strategies and bad strategies "Everything

depends on who uses them" (marketing as war), a conception that are in line with Sun

Tzu's teachings "everyone can see the tactics by which they conquer, but what they do

not see is the strategy by which the great victory is achieved”.

Of all the strategies that companies design in order to reach the expected

results, competitive strategies are most often applied, increasing global

competitiveness (driven by accelerated technology development and enhanced

accessibility on any market), making it mandatory for companies to respond quickly

to competitors’ challenges, removing dangers and taking advantage of opportunities.

"The global market is a challenge that requires economic agents to exhibit a

proactive attitude and behaviour, meant to ensure an advantageous position within a

particular field of activity" (Cruceru, 2006). The so-called "unconventional strategies"

have emerged, whereby companies are trying to adapt to the new, fluctuating

situations, to face the increasingly complex challenges and to keep their place on the

market. Regardless of how a firm acts (whether conventional or not), business

strategy has become a necessity. Goold, Cambell, Alexander (1994) invented the term

"strategic tutorship," explaining the key role strategy plays in running a business

under the current environment, where markets have changed, technologies are

changing at a rapid pace, customers have become impatient and demanding.

2.1. Red ocean strategies

Dex defines competition as "an essential feature of a market economy that

reflects rivalry, dispute between economic agents to produce and sell similar or

substitutable goods under the most advantageous conditions for them; struggle,

rivalry".

In this context, competition strategy has often taken military strategies as

model, with market activity seen as a real "war theatre." In this respect the book

"Marketing Warfare" (Al Ries, J Trout, 2002) is significant; it, presents offensive

principles through which companies can obtain victories on the battlefield. The

authors believe that, faced with increasingly tough competition, "the stakes of the

game have become to take the business of another." It is about competitive

aggressiveness, defined by Lumpkin and Dess (1996) as "a firm's propensity to

directly and intensely challenge its competitors to achieve entry or improve position,

that is, to outperform industry rivals in the marketplace." Then they analyse

competitive aggressiveness declaring it "a combative and forceful approach toward

rivals through pre-emptive actions and aggressive responses to attacks" (2001).

Kirzner (1973) considers competition an "incessant race to get ahead", whereas Chen

(1996) identifies three factors that lead to a competitive approach, namely "awareness,

motivation, and capability". Companies constantly analyse the behaviour of their

competitors and the interactions that inevitably occur through their own actions or the

rivals’. Dutton & Duncan, (1987) draw the attention on the level of information that

firms must have on the intentions and actions of major competitors on the market.

Montgomery, Moore & Urbany, (2005) consider that continued information and

alertness before competitive aggression helps the company “to both reduce the



19

number of undetected competitive attacks and reduce the time required to detect an

attack”.

When dealing with competitive analysis, complex issues are addressed:

competitive position, competitive structure, competitive environment, competitive

advantage, competitive strategy development, competitive strategies change, etc.

The stronger the competition has been considered, the more competitive

strategies have been developed as a way to identify solutions to get the most

favourable positions on a given market. Competitive advantages have been created so

that they become "decisive factors for the competitive success of the company,

regardless of size" (Bell Chip, 2009). This is due to the current interdependence on

the market, so that a company's actions can often influence and trigger the response of

others on the respective market (Hoskisson, Hii, Wan, Yiu, 1999). In today's society,

dynamism forces companies to move quickly, flexibly and creatively to remain

competitive. In this context, Kuenne introduces the term of rivalry, noting that any

action by a firm will affect the activity of rivals, who will try to protect themselves

through offensive or defensive actions. Kuenne regards this rivalry as anonymous, as

the initiative of a firm has dispersed effects, and the response decisions are not

explicitly engaged (Kuenne, Le Roy, 2002).

The literature highlighted M. Porter's conception of competition as a key

aspect of marketing. He considered there are five forces in action engaging the

competitive environment: potential debutants; competitive rivalry; substitutes; buyers’

negotiating power; suppliers’ negotiating power.

"The five forces together determine together the intensity of competition and

profitability in the industry, and the strongest force governs and becomes crucial from

the point of view of strategy formulating... Even without substitute companies and

without the blockage of market entry, the intense rivalry between the existing

competitors will limit the potential incomes. "(Porter, 1980). This competition,

considered to be moderate, is replaced by what D'Aveni (1994) calls

hypercompetitions as a result of a new competitive reality. This new reality has

features so dynamic that it no longer allows for sustainable benefits and stable

competitive positions. Advantages are temporary, companies need to be able to

generate new competitive advantages at all times. "In order to compete irrespective of

how short-term the competitive advantage is, companies can implement a strategy

based on finding and building temporary advantages through market disruption rather

than trying to sustain an unsustainable advantage."

D'Aveni believes that we are currently witnessing a change in the competitive

paradigm - it is a shift from slow strategies that imposed stability, to alert strategies,

"characterized by a quick-strike mentality on the part of companies aimed specifically

at disrupting the competitive advantage of market leaders".

Thus, competitive strategies need to be characterised by continuous vigilance,

constant attention to the actions directed to the firms on the market, so that the

reaction is correct and at the right time. Moreover, companies must anticipate the

movement of competing firms to take the right action at the right time and place. It is

a matter of intuition, sometimes, of a reaction based on in-depth knowledge, on

professional flair, as competitive strategies are intangible, so they are only visible at

the moment they are produced, through results; anticipation is the only way to react in

a timely manner.

In this context, competitive advantage is no longer sustainable, it must be

created and recreated continuously.



20

Gamble, Tapp, et al (2008) emphasize that in marketing a revolution is under

way, hardly accepted by companies, driven by the "new technologies, integration of

poor economies into global demand and supply, liberalisation, privatisation and

exploitation of network infrastructure and communications, all affecting the

innovation and restructuring capabilities of major industries". They consider these

changes to be serious turmoil that leads to increased competition and aggravation of

rivalry. "To survive in these new extreme competition conditions, companies need to

be faster and more receptive than their predecessors."(Gamble, Tapp, 2008).

McKinsey (2008) appreciates that there will be four forms of extreme

competition: trench warfare (for mature and undifferentiated industries), judo

competition (for industry in general), white-knuckle competition (for declining

industries) and relative stability (the sudden and continuous changes mentioned by

D'Aveni).

The world economic situation brings important changes to the competitiveness

of the companies and implicitly to the way they choose to manifest on the market.

Trade barriers have disappeared, as have monopolies and niches on the market;

concurrently there are large mutations in the demographic and simultaneously in

demand on the market; urbanisation has also increased and the population has begun

to show demanding attitudes towards product quality, distribution, environmental

impact. In marketing, the differentiation and positioning of companies are starting to

look like clichés, as products are perceived to be more and more similar due to

constantly aligned technology. The price argument is increasingly being invoked, as

the brands begin to be considered obsolete, the fidelity to them consuming more and

more significant resources.

Although companies’ competitive strategies do not have to be conjectural, it is

clear that they have to be characterised by a sort of dynamism similar to the

technological one to ensure market maintaining. Competitive intelligence has to react

within a 360-degree circle to instantly capture the mutations and risks that appear in

order be able to react.

It is believed that in the near future the competitive advantage will be given by

firms that will address value co-creation (Prahalad, Ramaswamy, 2004) - producers

and consumers will jointly contribute to value creation, use of information as a

primary resource in economic activity, and as leverage in the knowledge of the market

and consumer satisfaction (Iancu D), continual innovation as a manner of satisfying

an increasingly demanding and well-informed consumer (Le Roy F, Torres O, 2002).

2.2. Blue ocean strategies

Nowadays, sciences are experiencing significant crises, ambiguities leading to

multiplicity of opinions, changing visions that have recently been seen as immutable,

approaching new territories, overcoming classical areas of action. Economics is also

undergoing profound opinion changes, and controversy is getting more and more

acute. One denies the conception that the human resource is a mere cost element, and

man a symbolic being, devoid of spirituality and feelings, concerned only with

pecuniary motivations. Thus, the stress goes on the importance of ethics, social

responsibility, moral involvement in economic processes, with strong consequences

from the perspective of human and social emancipation. Marketing has also been

harshly criticised, with reproaches directed not only toward questionable sales tactics

or the development of consumerist ideology, but also toward the scattering of

resources, the destruction of the environment, the aggressiveness of market actions.



21

By trying to replicate its values and gain legitimacy at the firm level,

marketing has been tackling competitive strategies in a different, responsible and

courageous manner over the past decades. This is how the so-called blue ocean

strategy, appeared designed by W Chan Kim and Renee Mauborgne in 2004, and

developed in 2005.

The authors combat the existing competitive strategies considering them to be

aggressive and part of the so-called red ocean, while the proposed strategies are part

of the blue ocean, being uncompetitive, focusing on the process of creating a new

market where competition is irrelevant. Through this strategy, through ingenious

processes there is an increase in demand so that both sides - firm and customer can be

satisfied. "Their goal (of companies) is not the overcoming competitors. It is to

provide a spectacular increase in value through which competition becomes

irrelevant. Focusing on the value of innovation, not on positioning against

competitors, causes companies to challenge all the underlying factors of competition

in a particular field, and not to assume that for the simple fact of doing something,

competition is linked to buyer values. "(Kim, Mauborgne, 2005). The essence of this

theory is based on value innovation, that thinking that causes simultaneous

differentiation and affordability. Innovation goes beyond the conventional framework

of mechanistic thinking. It is a multidimensional concept that goes beyond the

technological approach including, for example, innovation in services, organisational

innovation or innovation of the business model. "(Lăcătuş S, UVT).

According to this concept, companies should not be exhaustively concerned

about competition and rivalry, but should be focused on creating a new space in

which to act and manifest themselves freely and without constraints. This space is an

alternative obtained by innovation and creativity, a capture of existing opportunities, a

novel way to meet latent needs. This creates a new demand, which the company aims

to cover as satisfactorily as possible. Another key issue of blue oceans is that the

company focuses on its non-customers. "Non-customers, not customers, know best

the issues and intimidation elements that limit the size and boundaries of the industry.

Therefore, in order to create a new demand, the analysis and understanding of the

three levels of non-customers is an essential component of the blue ocean strategy."

(Kim, Mauborgne, 2005).

Understanding non-customers often generates innovative solutions that

increase demand again. Trying to analyse why they are not buying products, which

their motivations are and solving them, firms turn them from non-customers into

customers without appealing to the competition’s customers. The blue ocean strategy

considers that only this approach eliminates the harmful practice of imitation (specific

to competition) in favour of innovation, i.e. redefining the issue in question (not

finding a solution to an already existing problem).

This strategy allows small, but innovative companies to carry out cost-

effective activities in a market suffocated by large companies.



22

. Source: http://virtualboard.ro/blue-ocean-depasirea-concurentei

2.3. Competitive strategies of small firms in Reşiţa

The Focus Group method was used to analyse the competitive situation for

small firms in Reşiţa. There were six small companies, companies that do business:

three of them are firms selling foods (meat, vegetables, fruits, food products), a

company has as its activity press distribution, two companies sell natural products.

The following questions were asked for an efficient discussion:

How do small businesses see the competition on the market?

All these companies have perceived the last years as difficult from this

perspective, the competition of the big stores being considered stronger, even

suffocating. Virtually all companies have appreciated the development of commercial

activity in Reşiţa for the last few years as explosive, culminating with the opening of

3 large supermarkets this year: Profi, Lidl, Kaufland. These stores are territorially

dispersed, so there are few neighbourhoods that do not have easy access to them,

which is considered a big drawback for small neighbourhood stores.

How did small firms react to this increase in competition?

Companies reacted differently. Some still have an expectative reaction,

following market events and trying to predict trends, others have reacted, trying to get

differentiated. Thus, the meat merchant company attempted to position itself on the

market under the name of the "Smoke Library", producing in-house a record number

of products prepared in its own manner. Correlated with other quality-oriented

strategies, the company has so far managed to maintain its business in the same way

over the past few years. Other firms simply gave up the business, selling it, being

convinced that this competitive market cannot be defeated by small firms. Stores

selling natural products also have strong competition brought by major pharmacies

and big stores that also market these products.

What is the competitive strategy these companies apply?

Companies in the focus group are anchored in the red ocean; they look at how

large firms with large financial resources resort to important technological

innovations that offer them strategic advantages, trying to fight through an empirical

guerrilla strategy with limited impact over time. They do not know well the

environment in which they act, interpreting economic events in a personal manner,

specific to the entrepreneur. There are no well-targeted objectives and no clear

strategies in relation to it.

Do small businesses know the blue ocean strategy concept?



23

None of the companies are aware of this strategy. When some of the

cornerstones of the strategy were exposed, the attending persons seemed interested

but also intrigued. They do not think they can perform such actions, the concepts

presented - value creation, innovation - seem difficult to imagine and apply. There is a

need for consulting offices to implement new, innovative ways for small firms to

overcome the simple framework of imitating large businesses, guerrilla methods by

which they operate on the market, actions carried out without a vision.

How do small businesses regard their future from the competitive perspective?

None of the present firms are looking into the future. They are focused on the

present, which they find complicated; the essential business of these companies is to

survive, the future seems distant and confusing. However, during the talks, two

companies expressed the belief they will be able to pass on to their heirs the company

incorporated 20 years ago. But these firms are seen exactly as they were created,

entrepreneurs do not see new ways to approach business. The other attending people

are skeptical about the future of their companies: the competition on the market is

very tough and the small firms cannot cope with the unequal battle.

3. CONCLUSIONS

The present age is characterised by a dynamic and holistic economic

dimension, a plurality of interpretations and approaches from subjective perspectives,

which determines the fluidisation and interpretation of information, with positive

consequences on human consciousness, which can thus manifest openly and

permissively.

Society triggers new paradigms, profound changes, or approaches older

concepts from another perspective, strongly influencing the value system and trying to

find the predisposition of honest judgment and viable strategy in what Kotler calls the

new type of normality, "chaoticism" (2009) Competitive strategies are considered in

marketing a way of strengthening competitive position, thus contributing to the

development of the economic branch and implicitly of the economy as a whole. The

occurrence, according to some authors, of the network-type society, favours the

interconnection, the plurality of interests on the same market, the right to act and

develop without restriction and without protection. At the same time, the variety of

information that any company has at the moment allows for innovation and creativity

to manifest itself openly and freely without obstacles. In fact, all innovative processes,

all business successes are based on human training, the creative search for solutions,

inventiveness and originality. Business development opportunities are becoming more

accessible by exploring one’s own skills and competencies.

Thus, replacing the red ocean strategy with the blue ocean strategy no longer

seems a coincidence; is the result of the system of norms and values that developed

societies apply, considering them the only ones capable of positively boosting the

results of the future economy.

Intellectual expansion, combined with economic knowledge, pragmatic skills

and creative capacity of the human resource, is the only way for companies to behave

on the market in the manner desired by consumers, i.e. to create and meet human

needs.

Small and medium enterprises have the strong advantage of being close to the

consumer, knowing their latent needs, being able to easily adapt to the rapid changes

that take place in society. By using modern means of communication, advanced



24

technology, for utilitarian purposes, they can manage to address the market correctly

and efficiently, while at the same time gaining success.

Reşiţa’s small enterprises do not seem to understand the dynamics of the

present society, nor its challenges; they react shyly, stereotypically and inefficiently,

anchored in the red ocean, suffocated by competition, compounded by the financial

strength of large firms. Small businessmen are not informed about changes in national

and international markets, they do not know the new economic paradigms. In this

context it should be beneficial to organise certain courses, counselling sessions,

meetings with university teachers, in order to address the issues that provide high

economic value, direct the Reşiţa companies towards creativity, knowledge,

information.

They must be taught to change their thinking, behaviour and attitude, to

identify market opportunities, to find solutions in order to provide consumers with

products and services that are radically different from those provided by hypermarket

chains. Re-evaluating human capital in firms, increasing responsibility and

professionalism, reactivating creativity are key values that will become more

precisely outlined in the coming period and are the most valuable asset of small

businesses.

REFERENCES

Ansoff, H.L. (1965), Corporate Strategy, McGraw-Hill, New York.

Barney J.B., (1991), Firm resources and sustained competitive advantage, Journal of

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26

THE ROLE OF TIME MANAGEMENT EFFICIENCY FOR THE

PROFESSIONAL TRAINING OF YOUNG PEOPLE

Lavinia Raluca CORNEANU LIPOU

1

Submitted: 20

th August 2018 Revised: 30

th September 2018 Approved: 17

th November 2018

Abstract:

This paper aims to determine the factors that can influence the development of a young person in the

field in which they study and the influence of time management on career development. The first part of

the paper presents the definition of the concepts of time management and a series of methods used for

the efficient use of time, and in the second part of the paper is presented the whole managerial process

that is carried out by a person from the moment he finishes his studies and until he / she finishes his /

her university studies or becomes the employee of an enterprise. The last part of the study is presented

with the case study, which is divided into two categories. A questionnaire was applied in the first part

of the case study, and an experiment was described in the second part of the study. In the last part of

the paper, based on the case study explained above, an econometric model was developed.

Keywords: time management, young people, professional training, performance

JEL: M12, M54

1. INTRODUCTION

"The bad news is that time flies. The good news is that you are the pilot. "(Michael

Altshuler)

Vocational training begins from primary classes, when principles are

introduced into a child's thinking and during a lifetime, they will be followed. Then in

adolescence, they begin to form an idiom in terms of the professional future. There

was a period between 1990 and 2005 when university studies were not as attractive to

young people, so they chose to leave the country or to hire. After this period,

university studies become the goal of each high school graduate, fact that this will

lead to the improvement of the living conditions of both the person concerned and the

population within the country.

There have been several campaigns to promote tertiary education, and many

organizations have been set up for training. For example, a media trust has set up an

organization to form future generations of television journalists, this being called

Intact Media Academy, but there are also examples in other areas. The values

promoted under this program are: excellence, enthusiasm, success and

competitiveness. Also, an institution with a strong impact on the Romanian economy,

the National Bank of Romania, supports the vocational training of young people and

gives them the opportunity to form and to practice as economists within the

institution.

The Romanian labor force has started to descend a downward trend due to its

very low birth rate compared to the years 1965 and 1989, when a very high birth rate

was registered, representing a future labor force. Because of this very controversial

period, natality reaches high levels, and at this time most of the population born at

that time becoming today's employees, but with a fairly advanced age, are no longer

1 Master Student, University “Eftimie Murgu” of Resita, Faculty of Economic Sciences



27

very receptive to changes in the labor market. Much of the communist-born

population did not want to continue their studies and chose to learn a job that would

generate enough income to have a decent living, which can be noticed through

company studies. The vocational training during the communist period was largely

practical, with emphasis being placed on the practical skills of the employee for the

position he occupies.

Today, in the context of multitasking in companies, one of the main problems

identified among employees is the lack of time, or rather, the inability to manage it

effectively, to achieve positive results at all levels and for a sustainable professional

development and correct. The main objective of the paper, thus, is to identify the role

that a proper management of time, at different points of life, over a longer period of

time, has on building a positive career path of individual career, respectively general

performance. The secondary objectives of the paper are:

OS1 - determination of the role of time management (still under the acronym MT) in

the activity of individuals during the studies;

OS2 - determination of MT role in the activity of individuals after graduation;

OS3 - determining the long-term effects of MT strategies applied by an individual.

The research methodology included:

1. Study of specialized scientific, Romanian and international scientific literature:

books, articles.

2. Content analysis of specialized reports on the birth rate between 1965 and 1989 and

the evolution of university studies over time.

3. Application study, consisting of:

- a survey based on a questionnaire to determine the role of time management over

young people's professional training.

- Acting an experiment on students to determine the effects of time management on

professional training and direct results.

- Establishing the variables underlying the development of a future employee;

- Identifying the causal links between the factors mentioned in the study.

2. THE ORIGIN AND DEFINITION OF TIME AS A NOTION

In Greek mythology, time is symbolized by Cronos, the son of Uranus

(Heaven) and Gaia (Earth). Cronos's reign was known as the "Golden Age," during

which people lived without greed, violence, labor and laws, but the ruler was destined

to be deposed by one of his children. Because of this, he swallowed his newborn

babies, but his wife, Rhea, was not comfortable with the thought of losing their

children. With the help of Gaia, he will save him from Zeus, wrapping a stone in the

baby's clothes that will be swallowed by Cronos. Zeus was taken to Crete, in a cave,

where he would be nursed and raised by a divine goat, Amaltheia. Many years later,

Zeus decides to return to the shores of his father, where, with the help of Gaia, he

obliges Cronos to revive the five children. Zeus led a revolt against his father for ten

years, after which he defeated him by exiling him, ending his tyranny (Mitru, 2000).

"The culture of time means to obey time and activities, not to be subject to

time and activities." (L. Zaivert). Paul R. Godin defines time management as a

personal process by which to program, anticipate, and how to react in a planned,

predictive, effective, and effective manner. Time management refers in particular to a

set of systems, techniques, skills, practices and principles used to determine how

people can control the amount of time spent in order to be able to perform all planned

activities with maximum efficiency. Time can also be considered as a factor that



28

generates stress, tension, leading to a number of health problems, avoiding these

unpleasant events being accomplished with the help of self-discipline that each person

can create.

Everyone can become their own manager and can avoid "time traps" by using

time planning techniques such as:

1. Setting goals

2. Establishing harmony between person and object

3. Establish the areas in which they must act

4. The formulation of the strategy that will follow

5. Establish priorities or order in which tasks will be performed.

Task priority can be set by "ABC Analysis," which is a technique that can help

a person implement an efficient time management by tailoring tasks with a high

degree of importance as follows:

Planning 1-2 "A" tasks per day that will last about 3 hours;

Targeting 2-3 "B" daily tasks that will last about an hour;

Time allocation for C-type tasks approximately 45 minutes.

Another method of planning activities and obtaining an efficient time

management that can be used is the FORTE method. This method involves:

Forming a hierarchy of activities to be accomplished;

Observing and appreciating the time needed to carry out the proposed goal;

Reserve time for unexpected events;

Prioritization;

Evaluation of the level at which the intended tasks were performed.

3. TIME MANAGEMENT AS A FACTOR OF INFLUENCE IN THE

DEVELOPMENT OF A PROFESSIONAL CAREER

At an individual level, a person's career can be viewed from a management

perspective as being an investment project, depending on investments, information,

and which determines a certain level of feasibility. In order to select the most feasible

option, depending on the rational, timely and effective nature, an evaluation plan can

be determined to be addressed in the form of a continuous process, including periodic

reevaluations, while offering the possibility of renunciation. The approach to

evaluating a career management project can be structured in three stages (Ciurea,

2013):

1. Evaluation during the elaboration of the variants of the career management

project;

2. Evaluation during project implementation;

3. End of project evaluation.

In the first stage of drafting project proposals, the evaluation has the role of

helping to select possible variants by determining the necessary volume of resources

and effort, while appreciating the estimated efficiency for each of the variants. By

discussing at a general level the career path in this phase would correspond to the

early stages of life (the first 20 years) when the decision as a managerial process is

delegated to a hierarchically superior level. The "ex-ante" analysis in this situation is

oriented towards the studies of an individual, the main decenters from this point of

view being also the main investors, ie the parents.

In the second stage, which coincides with the project management stage, we

take into account the role of the assessment to determine the potential effectiveness of



29

the project. In-process evaluation thus corresponds to an in-depth training level, it also

allows continuous updating of information and context-based adaptation. This stage

coincides in our view with the tertiary level of education, when the decision belongs

to the main beneficiary, individually, but also according to the conjuncture, his

person, other factors, the main sponsors belonging to the family.

The third step ("ex-post") is to evaluate the effects of project implementation,

its timeliness and resource consumption, estimating possible restrictions, costs, and

system approach. This last step can be carried out by the individual only after the

completion of various life and career stages, taking into account the feasibility

assessment through elements of strategic, commercial, technical and financial nature.

Figure 1. Analyzing the evaluation of the time management effectiveness

(Source: Author, based on information from Ciurea J.,2013)

The behavior of a person will always be based on the principles infused from

childhood by parents and will always have these principles in their subconscious.

Based on previous information, the natural stages of life are described. The stages that

form an employee during the three major stages are analyzed using four categories of

financial, technical, commercial and strategic factors. It is said that the student is a

beautiful part of a man's life, as it is, with good and evil, but it is the moment when

you discover new horizons, passions, people, you get to know yourself better and you

have some situations increasingly different from one day to the next. The result of

these events will be seen after leaving the faculty banks and you want to show off

what you have learned during the years of study and prove that you deserve where

you are at the time.

4.4. CASE STUDY ON THE EFFICIENCY OF PERSONAL TIME

MANAGEMENT AND THE IMPACT ON PRESENT AND FUTURE

INDIVIDUAL PERFORMANCE

4.1. Study on student attitudes about the relationship between time management

and performance in work - "In process" analysis

4.1.1. Presentation of the overall framework and the assumptions of the study

In order to determine students' attitudes about the relationship between time

management and individual performance, we conducted a baseline survey based on a



30

questionnaire. It was applied through individual interaction through the interview

technique. The respondents were 118 people, aged 20 to 45, both men and women,

university-year students in the study programs: Marketing, Economy of Commerce,

Tourism and Services, Accounting and Computer Science Management - at bachelor

level, namely Marketing and Business Communication, Business Administration,

Accountancy Expertise and Firm Evaluation - at master level. This questionnaire

comprised 10 content questions with a complex structure, both closed - with simple

answers and scaling. In three of these, respondents used Likert score of 1 to 5,

expressing the level of agreement with the statement. The other questions involved

giving a score of 1 to 10 for each of the criteria, and for the other questions the

respondents had to choose one answer. At the end of the thing 6 identification

questions were asked to determine the age, sex, year / level of study, specialization,

respectively status on the labor market of those who participated in this case study.

The hypotheses from which we started are the following:

H_1: There is a wide variety of factors that determine the efficiency of managing a

student's individual time.

H_2: The results obtained in the individual activity are directly proportional to the

level of effort deployed by an individual.

H_3: Career development perspectives are based on the behavior of an individual

along a whole training cycle.

4.1.2. Working methodology and results of the survey applied by questionnaire

Questions in the applied questionnaire can be divided into three categories:

some of them give simple interpretation (recalled in 4.1.3.), Others have calculated an

average score for each of the criteria and the last category of questions refers to the

scaled ones, where the respondents gave scores. For the latter, interpretation is

performed statistically to verify the level of homogeneity of responses. In accordance

with the answers and in order to determine the representativeness of the obtained

results, the coefficient of variation was determined for each of the criteria subject to

observation. In order to be able to express conclusions based on the results of the

study, the following variation indicators were used: weighted arithmetic mean,

dispersion, standard deviation and coefficient of variation (Corneanu-Lipou, 2017) as

follows: Table 1 Indicator computation formulas

(1)

(2)

(3)

(source: designed by the author, based on information from Ciurea J, Statistics - Theory and

Applications, 2006, Şipos C, Preda C, Economic Statistics, 2004)

Values that the coefficient of variation can take are indicated differently in the

literature. It can record values between 0 and 100%, with the following interpretations

(Sipos, Preda, 2004): Table 2

ν є [0%;35%] ν є (35%;50%] ν є (50%;100%]

the series is homogeneous,

representative, edifying, and the

average usable

series is relatively

homogeneous, relatively

unrepresentative, relatively

unnecessary, and the media is

relatively unusable

The series is heterogeneous,

unrepresentative, needing, and

unusable

(source: designed by author, based on information in Ciurea J, 2006, Şipos C, Preda C, 2004)



31

In order to evaluate students' perceptions as to the characterization of the

session period, there were listed some attributes that they rated with grades 1 to 5,

according to the Likert scale, expressing the level of agreement / disagreement. Based

on the results, the above statistical indicators were determined individually for each

specialization and for each attribute. Depending on the study programs to which they

are enrolled, the following values for the coefficient of variation indicator are

displayed, interpreted according to the above table: ECTS Stressful

29,88%

Tiring

35,12%

Applicant

38,12%

Relaxing

46,51%

usual

47,89%

CIG Tiring

32,55%

Applicant

39,02%

Stressful

39,02%

Relaxing

52,29%

Usual

57,63%

MK Applicant

18,91%

Tiring

41,35%

Stressful

46,9%

Relaxing

53,43%

Usual

62,86%

ECEF Applicant

25,39%

Stressful

29,04%

Tiring

34,21%

Relaxing

48,07%

Usual

60,51%

AATCS Applicant

28,57%

Tiring

30,13%

Stressful

33,84%

Usual

45,3%

Relaxing

56,87%

MCA Applicant

28,15%

Tiring

33,94%

Usual

50,22%

Stressful

51,62%

Relaxing

54,65%

Figure 3. Characterization of the session, made by students

(Source: Author's own design based on the results of the study)

All the specializations in the final years, both the master and the graduates,

expressed their different opinions about the session period. Those from the Marketing

and Master specializations are of the opinion that the session is demanding, this

criterion having homogeneous values ranging from 18.91% to 32.55%, followed by

opinions that it is a tiring period, this attribute having also homogeneous values. It

seems that no study program considers the session to be a relaxing period, registering

a relatively homogeneous value in the case of Accounting and Accounting for

Accounting and Accounting Expetize and Firm Evaluation, with scores of 46.51%

and 48.07% , which indicates a lower level of representativeness, and for the other

specializations, values with an average heterogeneity were found, ranging from

52.29% to 62.86%.

Students consider the session to be demanding, stressful and tiring, because

they need to accumulate a significant amount of information in a relatively short time,

and the exam interval is not very long, although the minimum is 3 days away. Many

students do not study enough during the year for the session to be less loaded than

during the year. The factor that influenced most of the current students in university

studies was the prospect of professional development, very few of them u possessed

knowledge in the field that they have chosen and wanted to accumulate new

information or to deepen what has been held so far.

Before becoming students, they received a series of information about the

university environment and the way in which the activities were carried out, in this

case the highest score was registered by the activity criterion during the whole

semester, the attendance of the classes and the seminar for to obtain the best marks,

the coefficient of variation recording values between 8.37% and 9.03%, therefore a

high degree of representativeness. When students were questioned about how they

would describe their student lives, those in the Bachelor's degree programs claim that

student life is full of fun and entertainment, that is, those from all study programs at

The Master asserts that this life is demanding and interesting. This different



32

perspective can be based on the fact that those from the Master work in the field they

have chosen and after the work program they have to take part in the classes or the

seminar, which will require them very much and the interesting part is that I can see

the connection between theoretical and practical, implementing the accumulated

theoretical knowledge.

Most students state that the time they spend in the individual study session to

gather the information needed to pass a future exam is three days. Participation in

projects within the faculty is usually only the ones that raise students' interest or if

seminar work requires this.

4.2. Individual experimental study on time management

4.2.1. Presentation of the overall framework and the assumptions of the study

During the period 03.02.2018 - 11.03.2018 an experiment was carried out on

four persons, students in final years (3 persons), respectively the first year master (one

person). The experiment aims at analyzing over a three-week period time

management behavior at the individual level, completing a triple centralized table

daily, with the number of hours allocated to specific activities. For comparison, three

time intervals were considered: a weekly session (03.02.2018-09.02.2018), a holiday

week (10.02.2018-16.02.2018), and a regular week of studies - what was the second

week of studies in the second semester (05.03.2018-11.03.2018). The activities taken

into account were: sleep duration, relaxation on TV and computer, exits with friends,

study / learning and other activities. Each person gave a daily number of hours to each

activity, the total being 24 hours.

The hypotheses from which we started are the following:

H_1: During the session, the number of hours allocated to habitual relaxation is

replaced by the hours used to gather the information needed to get the best results.

H_2: There is a great difference in how to use time on holiday, when the individual

study will be given much less hours than during the session or the academic year.

4.2.2. Working methodology and results

Based on the results of the experiment, centralized in the three individual

tables (one for each analysis week), the arithmetic mean was determined according to

the formula in 4.1.2, obtaining the following centralization:

Fig.4 - Centralization of hours allocated to various

activities. (Source: author calculations

It can be very easily observed that the

number of hours fluctuates from one week

to the next, during the rest session, it

becomes an important factor, generating

our strength and the fact that students can

concentrate much better in order to gather

information. In terms of relaxation,

students seem to manage their time

effectively, in order to have time and

relaxation, they record a clue in the week

they are on vacation. Many will say that

the study during the session is more

intense, but it seems that the experiment

shows that they will study more during the

semester.



33

4.3 Conclusions of the study

The objective of the case study is to determine the number of hours allocated

to various activities, and in order to see exactly how a student manages his / her time,

an experiment was conducted, in which discrete time intervals were chosen. In a week

during the semester, students claim to allocate the individual study between 5.37 and

9.96 hours (averages calculated as the average of all 118 respondents' answers), and

during the session the number of hours will increase significantly, the average of

specializations ranging from 6.87 to 19.61 hours / week.

It seems that individual study is very common among students, as can be seen

from the case study and the experiment, the emphasis is on the study, which will

shape as future the employees with extensive knowledge in the field where they will

activate. The training of young people for the labor market is not based on the study

but also on the practical skills they have and can accumulate within the company they

work in. Vocational training is influenced by multiple factors, but also by the

willingness and desire of the person concerned. The labor market requires people

prepared to cope with any confrontations and who want to develop constantly, being

also a rather unstable environment, taking into account the current economy of the

country, thus influencing the development of existing businesses, as well as those in

the state of project. Into the in the curriculum of the Bachelor's degree programs, their

program is much lighter, because there are many who are not employed, but only

study, after studying to find a job and, thanks to free hours, also have relaxation ,

which are needed to detach themselves from the negative energies they accumulate

during the day, no matter where.

In principle, Master students are much more

mature and more compliant than those of

the Bachelor, they already have another

perspective on life and study, although it is

a much more busy period.

From the study carried out, the higher share

is registered by other activities, due to the

fact that they have jobs and spend much of

their time there, and the outings with friends

have not registered such a bigger share as in

the case of bachelor students.

Fig. 6 - Hours allocated to various activities. (Source: author calculations)

Most students are between the

ages of 20 and 27. Due to age,

they have a different perception

of life and time management.

Since graduating high school,

young people have direct contact

with life and the decisions they

have to make, taking

responsibility for each decision

taken so that they can be satisfied

with the choice they have made.

Fig. 5 - Centering of hours allocated to various activities

Source: author calculations



34

On the basis of the actual information gathered from the respondents by the

questionnaire survey explained above (4.1) and based on the experiment (4.2), we

find that the professional development can be transposed by a linear regression model

of statistical dependence:

Y= , , , )+ (4) where:

-factor of influence for rest

-factor of influence for mood

-factor of influence for study

-various factors

- random error

We consider that there are complex links between economic and social

phenomena that can be expressed using the multiple regression equation specified

above, where y1, y2, y3, y4 are independent characteristics, and ε is a residual

variable. We will explain the model using the following linear multifactor regression

model:

Y= + + (5)

Y= + + + + + (6)

We identify a set of variables that can influence professional development, as follows: Table 3 Variables that can influence time management and professional development

Rest Mood Study Various

Negative

emotions Living decoration Motivation Social factors

Psychological

discomfort Work placement Intellectual

capacity Economic

factors

Environmental

factors Food Will Political factors

Lifestyle Antourage Type of attention Psychological

factors

Health

Problems Level of Sedentarism Type of Memory Cultural

Factors

(Source: Author's own conception)

The regression equation becomes:

y= +( + + + + ) +( + ) +( + + ) +( + + + ) + (6)

Where:

- expresses a coefficient representing the information of factors not included in the

model, with constant action

, - multiple regression coefficients

GENERAL CONCLUSIONS, STUDY BOUNDARIES, AND FUTURE

RESEARCH DIRECTIONS

Time management is an issue that has become increasingly important for both

individuals and businesses over the past few years. Everyday activities can not be

accomplished at the same pace as a few decades ago, because mankind has evolved

from all points of view, both human and technological. It has been attempted to

explain this issue only from the students' perspective, but the study may also be



35

extended in the future to precise employee samples.

Certainly, this model conceived above can only be tailored to individual

people, taking into account the level of IQ, emotional intelligence (EQ), learning

style, etc. are different from one person to another. Similarly, each individual is

influenced differently by factors of category y1, y2 or y4. However, it is possible to

develop an individual experimental study, precisely to analyze how time management

can influence professional development.

The theoretical part of the paper was discussed in the three categories of

analysis: "Ex-Ante", "In process" and "Ex Post". The variables named in the final part

of the case study can be studied individually for each of the three major stages, from a

financial, investment, psychological, even competitive, perspective.

Each of them contributes to shaping the future professional development of a

young man. Parental vision is still a determining factor in the professional path, but

intrinsic motivation becomes one of the main determinants of performance at this

stage. Efficiency of personal time management becomes essential in professional

training primarily through the sense of prioritization of the activities carried out, a

chapter where young people are still not very well. But it can be considered a starting

point for the future. As future directions, a labor market analysis, vocational training

opportunities, and an analysis of how income-related factors influence the level of

future success can be achieved. It is quite difficult, however, to carry out such an

experiment because it would take a longer period of time to draw pertinent

conclusions.

Among the subjects studied in the present paper, a part (the Master students) is

working, and one of the opinions expressed is that time management becomes more

important when the range of activities to which focus attention, widen. Also, the sense

of involvement and the focus on results increase the importance of good management,

as well as the existence of a deadline for completion of tasks.

In general, we can say that in order to obtain an efficient time management it

takes three methods to use it properly: Organization, Prioritization and Planning, all of

which are related to the purpose that is desired to be achieved. In turn, the proposed

goal must be achievable, credible, but also desirable.

We must not ignore the fact that time is passing. It can not be either stored,

multiplied or bought, and the causes that can lead to inefficient time management are:

o External Causes

o Causes exclusively related to the person concerned

o Causes related to people around

Finally, the essence can be summed up by a quote by Benjamin Franklin: "Do

you love life? Then do not waste time as a reckless, for life is made of time".

REFERENCES

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Timișoara

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37

THE NEW AUDITOR’S REPORT AND THE IMPACT OF AN

EVENTUAL FINANCIAL CRISIS ON THE FINANCIAL AUDIT

ACTIVITY IN EUROPE

Delia DELIU

1

Submitted: 30

th October 2018 Approved: 18

th November 2018

Abstract

Given the growing concerns in the current socio-economic context for obtaining more relevant and

more „insuring” information on the quality of financial information provided by the financial

statements of various companies, both practitioners and academics, but also regulators, are asking

various questions on how external audits and audit reports are and should be looked at.

Unfortunately, during the financial crisis in 2017-2018 we faced a continuous degradation of the audit

image, and by default of that of financial auditors. This is due to scandals and bankruptcies of

companies and financial institutions, where auditors have contributed more or less. All these led to

intensified efforts of audit professional and regulatory bodies for analysing the causes of these

phenomena in order to identify and impose a number of measures aimed to restore the lack of

credibility occurring increasingly stronger in the results of auditors’ work.

Auditors and audit companies should not overlook the social importance of financial audits in recent

years – a position obtained after an effort of hundreds of years - and eventually extend their

responsibilities and seek for new methods or procedures compatible with current needs in order to

support their work. Therefore, audit value must be continually tested against requirements of users and

society. Accounting profession must build a solid case in favour of the benefits brought by audits to

business, economy and society.

Audits must evolve and expand to add more value for users. Especially for listed companies and even

more in times of crisis, audits must be more than an opinion on historical financial statements.

Over the last few decades audit quality has been investigated by many scholars, although it still hasn’t

been properly conceptualized and lacks one common definition. This may be explained by the constant

shifting of audit theory and practice, and the complexity of the audit service. The objective of the paper

is to investigate the existing definitions of audit quality, identify its main elements and provide a

cristical observation on how the changes in the form and content of the auditor’s report will affect the

audit quality in an eventual sensitive socio-economic context.

Keywords: financial audit, audit quality, financial crisis, credibility, perceptions, audit report

JEL: M42

1. INTRODUCTION

In an increasingly integrated economy, accounting information, respectively

its credibility, relevance and integrity, still are issues frequently studied by experts. In

this context, we believe that research conducted so far have been performed from the

standpoint of accountants as producers of information or from the perspective of its

users, and less from the standpoint of auditors, who ensure the integrity and

credibility of financial information against fraud.

The need for accurate and relevant information has always existed within all

economic, social or any other activities, but its importance became evident in the last

decade, with the financial scandals that have involved a number of large corporations.

1 PhD Research Assistant, West University of Timisoara, Romania



38

All these events have had a strong impact on the global economic market, outlining

the possibility for some investors to fully lose confidence in investments made by

companies, but also in their management.

In this context, the role of financial auditors becomes very important, namely

to provide credibility to financial information in order to ensure a decision-making

process based on accurate information, the functioning of cash-flows on capital

markets and of economy as a whole.

In terms of the gap between users’ perceptions and expectations on the audit,

because during 2007-2008 the economic crisis deepened in Europe, also, since then,

appeared a number of articles and studies that emphasize the importance of the work

of auditors, but also its relevance for the public interest. These refer to the proposed

models on the perception gap related to audit independence, for a greater awareness of

auditors, regulators and the public of the risk of the existence of such gaps with

adverse effects on the image of auditing profession (Ţurlea & Mocanu (2010)).

Other studies deal with interdependence relationships and direct effects of auditors’

independence on their performance (Jaba & Robu (2011)), the role of external audit

in insuring credibility of audit reports (Dobroţeanu et al. (2011a)), degradation of

perceptions and gaps between expectations and needs before and after the start of the

financial crisis (Dobroţeanu et al. (2011b)), the link between restoration of public

confidence and decrease of expectation gaps in terms of public interests (Ardelean

(2014)).

The role and relevance of information provided by auditors to the public

through audit reports is therefore a controversial topic, which in recent years has

generated lots of discussions among experts and practitioners. The risks to which

users of information provided by auditors are exposed to have increased, and also

diversified considerably, due to the economic changes caused by the global crisis.

Companies’ attempts to embellish results and present a distorted image of financial

statements also hinder auditors’ activities for obtaining reasonable assurance. It is

considered that an audit report containing a favourable opinion is in fact a business

card that can facilitate new business opportunities for the audited company.

2. RESEARCH METHODOLOGY

Most of this article is dedicated to fundamental research, containing a

number of debates and standpoints about the financial crisis as a fundamental concept,

respectively its impact on accounting theories and practices, and also standpoints

about the contributions of the new auditor’s report to the audit quality in case a new

financial crisis, similar to the one in 2007, will burst in the near future. A future

research will be reserved for the applied research, where we will intend to put face to

face the perceptions of the two groups about the impact of an eventual financial crisis

on audit activities and profession in Europe, a crisis similar to the one we experienced

starting with 2007.

By its nature, this article is part of the positivist research trend with extensive

interpretative approaches, and with a number of critical elements and many personal

opinions, which intertwine harmoniously and give the article a touch of originality

and professionalism. In terms of generated information, this research focuses on a

qualitative research (most investigated items are of qualitative nature).

The research follows a transverse direction through the used observation,

comparison and conceptual analysis techniques. Thus, the qualitative research valued

specialist literature by processing it with various methods specific to socio-human



39

sciences, such as document analysis, non-participating observation and comparison.

The non-participating approach is due to the research field and the current state of

knowledge in the field of interest, although comparisons made and opinions and

conclusions expressed show certain participating aspects of the research, respectively

the relevance of transmitted information.

In our opinion, the dynamics of analysing scientific literature is extremely

relevant in the analysis of audit evolution, and consequently for increasing complexity

of tasks and responsibilities attached to financial auditors, the more that we talk about

periods of financial crises. The sources used are mostly scientific articles published in

specialist magazines in the field of financial audit.

3. THE IMPACT OF FINANCIAL CRISIS IN 2007 ON ACCOUNTING

THEORIES AND PRACTICES

Currently, the socio-economic environment seems to be starting to go through

a difficult situation, similar to global financial crisis that began since late 2007. In this

respect, A. Einstein pointed out that: „It is in crisis that invention, discovery and

large strategies are born”. This crisis implicitly „pulls” the alarm on production and

procurement, but especially certification and use of financial information that have an

important role in preventing, reducing or fighting such difficult situations.

The central concept of this article is the financial crisis, which concerns all

stakeholders, calls for reconfiguration of economic philosophies and of the dominant

logic and requires strategies for exiting the state of economic decay, tactics for

controlling aggregation effects, dismantling of immobility and enhancement of

stimuli.

The general global economic crisis and the financial scandals at large

companies (Enron, WorldCom, Ahold, Parmalat, etc.) call again into question the

quality and reliability of financial information. Thus, the world’s globalisation

issues are reflected also on the evolution of accounting and auditing professions.

Globalisation of world economy amid a global economic crisis creates new situations

and doubts on everything related to the economy of each country.

These developments in the economic-social environment have often been

improperly associated with the accounting profession, which is responsible for

defending public interest by means of correctly informing external users, respectively

guaranteeing credibility of data published by companies. For example, in recent years,

ethical failures by certain members of the profession, which resulted in a lack of

confidence in financial reporting, required significant changes in the rules of the

profession (Sarbanes-Oxley Act in USA, Financial Security Law in France, etc.), as

documented in their study by Toma & Potdevin (2008: 33).

In our opinion, amongst the representatives of accounting profession, financial

auditors are most exposed to virulent criticism coming from users of information

within financial reporting. They are considered „scapegoats”, as guarantors of quality

and reliability of data disseminated by companies. Sometimes, it goes even further,

considering that these professionals are solely responsible for the failures faced by

large companies or groups of companies. Therefore, in our opinion, the reputation

and responsibility of the financial auditor profession are directly influenced by the

qualitative features of financial information, compliance with rules imposed by the

accounting referential, and with principles of ethical and professional conduct.

In this context, as Ion Mihăilescu, the ex-president of the Chamber of

Financial Auditors of Romania stated back in 2009, at the 2nd

Congress of the



40

Financial Auditors in Romania, the role of the auditor increases: „its value must

acquire new levels by providing additional elements related to transparency of

operations, the need of an increased vigilance towards complex financial products

and the need to better understand both individual and systemic risks” (Ion

Mihăilescu (2009)). Professional accountants are required to make the necessary

adjustments related to the way of reporting financial indicators, and for a more

accurate understanding of situations by users. Thus, the importance of auditors will

increase, because both creditors and investors, but also the large public, rely on their

opinion of independent experts.

Thus, we, as auditors, should be concerned of identifying solutions for

regaining investors’ confidence, by identifying liquidities, because they do exist, but

not at the right places. Auditors „see the financial reporting and activity of a company

from two standpoints: information accuracy and going concern. Auditors should

collect a sample of required, sufficient and appropriate evidence, so that in short time

they can provide a relevant opinion resulted from the audit report. The report as a

whole, and in particular the paragraph related to going concern, is one of the elements

that support business environment and, corporate management” (Ion Mihăilescu

(2009)).

The question is, how do we proceed as auditors, how do we overcome another

crisis and what did we learn out of the one in 2007? In our opinion, the answer lies is

how auditors, as accounting professionals, perceive the concept of fair value and

perform the audit of the balance sheet, in how they identify and report fraud,

respectively the going concern audit.

4. FINANCIAL AUDITORS’ RESPONSIBILITIES TO THE CHALLENGES

OF FINANCIAL CRISIS – CONVERGENCE BETWEEN THEORY AND

PRACTICE

The global financial crisis that lasted for some time during 2007-2009 aroused

acute concerns not only related to causes – which were discussed under all possible

aspects – but especially to the real recovery and revival chances. In particular, the

most appropriate mechanisms are sought for restoring trust in business and for

creating a fair and predictable commercial and financial climate.

Inevitably, when looking for appropriate solutions hopes are related to the

already learnt lessons and, thus, to the potential offered by information obtained

through financial audit, which is recognised to have an increasingly prominent social

role in ensuring business health. And it is not just about opinions on what is expected

from auditors, but also about specific actions, which – as we saw – took the form of

discussion papers for the preparation of measures considered necessary to be adopted.

Fact is that now financial audit is, once again, on the verge of a reform to

better meet the challenges of the period we are going through. In our opinion,

currently, audit is a global service, whose effects are felt throughout all economic

fields and with cross-border impact. However, greater public awareness of the

objectives and scope of an audit would be necessary, given that public awareness

deficiencies can cause deficiencies related to the public’s expectations from auditors.

There is a consensus that the social role of auditors and audit profession

should action in the context of protecting public interests. Thus, the public must gain

a proper understanding of the audit profession and not generalise it to believe that the

auditor is a factotum, a god, an omniscient that can also do very long-time predictions.



41

The „Green Book” of audit, a discussion paper issued by the European

Commission, even contains an attempt to charge auditors with a pretty unpleasant

duty, namely to make clear specifications on the period in which it is more likely for

the audited company to resist. This is very difficult, if not impossible. Not even rating

agencies – which have mathematical techniques and statistical models – can do this.

What could an auditor do, who studies some situations related to the past? He may

issue an opinion, but cannot predict an exact period for the company’s sustainability

for more than one year, according to the going concern principle.

Given its impact on various stakeholders, audit profession is very sensitive.

Thus, regulations and rules adopted domestically or internationally ought to be

judiciously based on extensive research and market studies. It is necessary for the

large public to gain a proper understanding of the audit profession in order to have

reasonable expectations. On the other hand, the profession is called to properly

respond, to adapt as good as possible to the requirements of the current period.

Therefore, financial auditors are bound to be in a position to build confidence in both

auditors and their professional bodies, first of all by the quality and accuracy of

services provided by its members.

5. IMPROVING THE AUDIT QUALITY THROUGH THE NEW

AUDITOR’S REPORT

The objective of an audit of financial statements is for the auditor to form an

opinion on the financial statements based on having obtained sufficient appropriate

audit evidence about whether the financial statements are free from material

misstatement and to report in accordance with the auditor’s findings.

For an external audit to fulfill its objective the users of audited financial

statements must have confidence that the auditor has worked to a suitable standard

and that “a quality audit” has been performed. Audit Quality is a complex subject

and there is no analysis of it that has achieved universal recognition. The Framework

provides an insight into the key elements that create an environment for audit

quality.

Audit quality encompasses the key elements that create an environment which

maximizes the likelihood that quality audits are performed on a consistent basis. A

quality audit is likely to have been achieved by an engagement team that:

Exhibited appropriate values, ethics and attitudes;

Was sufficiently knowledgeable, skilled, and experienced and had sufficient

time allocated to perform the audit work;

Applied a rigorous audit process and quality control procedures that complied

with law, regulation and applicable standards;

Provided useful and timely reports; and

Interacted appropriately with relevant stakeholders.

The responsibility for performing quality audits of financial statements rests

with auditors. However, audit quality is best achieved in an environment where there

is support from and appropriate interactions among participants in the financial

reporting supply chain.

The Framework for Audit Quality provided by the International Federation of

Accountants (IFAC) focuses on certain aspects:



42

(Source: https://www.ifac.org/system/files/uploads/IAASB/Framework-for-Audit-Quality-

Outline.pdf)

Figure 1 – Framework for Audit Quality, IFAC

The topic of changing the auditor’s report had been on the International

Auditing and Assurance Standards Board (IAASB)’s agenda for some time, since

2006, when IAASB started with commissioning academic research about how users

feel about the auditor report. As James Gunn, the Managing Director – Professional

Standards stated on 13th of June, 2016, at the 6th Brazilian Conference on

Accounting and Independent Auditing in Sao Paolo, Brazil, „they learned that the

only thing in an auditor’s report that was read is the audit opinion – a one-liner that

tells you whether the financial statements are OK or not. Important? Yes. But we

heard from a variety of stakeholders, in particular users, that more was needed. It was

asked why auditors don’t share more – about the audit, what they did, and why is it

that none of that is made transparent – except the valued audit opinion? Well, they

had a point. And all this even before the financial crisis. But that then heightened the

demand for more communication from auditors” (James Gunn (2016)). In addition to

this, to illustrate the reasons underlying the change in the auditor’s report, we must

also quote from the 2012 letter to IAASB from IBRACON: "The global financial

crisis and other related events have undermined investor confidence in corporate

financial reporting and challenged the usefulness of the auditor’s report and, more

broadly, the relevance of the financial statement audit. We support the IAASB’s

initiative to explore options to enhance the quality, relevance and value of auditor

reporting….[and] We believe the suggestions presented herein will improve the

auditor’s communication, making it more informative and significant to users… this

will represent a significant advance."

In April 2017, the new International Auditing Standards (ISAs) issued by the

IAASB dealt with: auditor reporting, changes to performance standards with respect

to going concern, changes to address the audit of financial statement disclosures, and

also with the reporting and other responsibilities relating to other information

included in an entity’s annual report.

The new and revised auditor reporting standards are designed to enhance

auditor’s reports for investors and other users of financial statements.

The auditor’s report is the key deliverable communicating the results of the

audit process. Investors and other financial statement users have asked for a more

https://www.ifac.org/system/files/uploads/IAASB/Framework-for-Audit-Quality-Outline.pdf




43

informative auditor’s report—in particular for auditors to provide more relevant

information to users. Research, public consultations, and stakeholder outreach,

including global roundtables, indicate that enhanced auditor reporting is critical to

influencing the perceived value of the financial statement audit.

The intended benefits, in our opinion, are the following:

Enhanced communication between auditors and investors, as well as those

charged with corporate governance

Increased user confidence in audit reports and financial statements

Increased transparency, audit quality, and enhanced information value

Increased attention by management and financial statement preparers to

disclosures referencing the auditor's report

Renewed auditor focus on matters to be reported that could result in an

increase in professional skepticism

Enhanced financial reporting in the public interest

Adopted by more than 110 countries, the new auditor’s report represents a step

change in the information content of the report. It better describes what an audit is

and what an auditor does, including an ability to provide transparency in the

reporting of key audit matters (KAM).

The new auditor’s report will be effective for all audits for periods ending on

or after 15 December 2018, with earlier adoption permitted. The IAASB’s effective

date for these standards was for periods ending on or after 15 December 2016.

The following enhancements to the auditors’report have been made:

Tabel 1 – Enhancements made to the auditors’report All entities Enhancements made to the new auditor’s

report, which are applicable for all entities:

Listed entities

Beyond those enhancements noted for

all entities, the following are enhancements

applicable to listed entities:

The format of the report has changed, with the

opinion presented at the beginning of the report,

followed by the basis for opinion.

The new auditor’s report contains an affirmative

statement of independence and fulfillment of

relevant ethical responsibilities.

A description of management’s and auditor’s

responsibilities relating to going concern is

required, and a separate dedicated section related

to material uncertainty is required when a

material uncertainty exists.

The new auditor’s report discloses identification

of those charged with governance (TCWG)

within the management’s responsibilities

section.

There is an expanded description of auditor’s

responsibilities, including key features of an

audit.

For all entities with “other information,” such as

an annual report, disclosure of other information

that the auditor is required to read but which the

auditor has not yet received at the date of the

auditor’s report is required.

Disclosure of the name of the

engagement partner is required.

There is a new section in the auditor

reporting standard addressing KAM,

which are those matters that were

considered to be of most significance

in the audit of the current period.

Disclosure of KAM will be optional

under the Canadian standard unless

required by law or regulation.

(Source: Ernst & Young – Adoption of New Auditors Reports (2017),

https://www.ey.com/Publication/vwLUAssets/EY-adoption-of-new-auditors-reports-july-

2017/%24File/EY-adoption-of-new-auditors-reports-july-2017.pdf )

https://www.ey.com/Publication/vwLUAssets/EY-adoption-of-new-auditors-reports-july-2017/%24File/EY-adoption-of-new-auditors-reports-july-2017.pdf




44

Therefore, a key feature of the new audit report is the fact that the audit

opinion is now presented first, basically because the users raised their voice to the

IAASB, stating the fact that they first want to know the conclusions, because this is

what they are actually interested in. Then, thrrough key audit matters, they want to be

told how auditors got to that conclusion.

In essence, not much has actually changed on the going concern assurance.

We can observe, however, that there is now clearer signaling when there is a going

concern issue. And in the specific ISA 570 on Going Concern, there is a clearer

imperative for auditors to be satisfied with management’s disclosure of their

judgements around going concern, in particular in "close call" situations.

Also, a new section has been created in order to clearly explain the auditor’s

work effort with regards to other information and exactly what information the

auditor has looked at.

And finally, among others, there was also a permanent new requirement to

name the engagement partner, which many jurisdictions globally were already doing

– thus, further modernizing the international reporting model.

But, probably the most significant change that introduces a new level of

transparency into the audit process in the new standards is the introduction of KAM.

KAM are defined as: “Those matters that, in the auditor’s professional judgment,

were of most significance in the audit of the financial statements of the current period.

KAM are selected from matters communicated with those charged with governance.”

(Source: Ernst & Young – Adoption of New Auditors Reports (2017),

https://www.ey.com/Publication/vwLUAssets/EY-adoption-of-new-auditors-reports-july-

2017/%24File/EY-adoption-of-new-auditors-reports-july-2017.pdf )

Figure 2 – The Introduction of KAMs in the New Audit Report

To explain KAM very simply: auditors now describe in their public reports

what they saw as the matters of most significance in the audit, and how those matters

were addressed in the audit.

The framework in ISA 701 provides auditors with a decision-making process

to determine KAM, and it is about judgement, about what is relevant to communicate.

The process is intuitive: start with essentially what already is being discussed with the





45

audit committees. That focuses the lens on the salient matters. Then, further focus on

matters requiring significant auditor attention – it could be areas of higher risk, or

areas of significant auditor judgment. And then, think about what is really unique and

relevant in this particular audit for this particular entity – that is, what is the matters of

most significance.

The new standard is required for listed entity audits, since the public market

investor community has been the most vocal about it. The final reporting standards, as

adopted, do not contain a KAM reporting requirement at this time. However, they do

allow for law or regulation to require reporting of KAM and for the auditor to decide

to do so.

To sum it up, the basics of communicating KAM are, essentially, the

following:

i. why the auditor judged a matter to be of most significance in the audit;

ii. how that matter was addressed in the audit; and

iii. reference to any related financial statement disclosures.

This being said, we can state the fact that auditors are thinking now in terms

of the lens of the reader, the investors, the users, this being exactly the reason former

IFAC president Warren Allen called the new Auditor Report "a step change."

In conclusion, significant efforts will be required to implement the enhanced

auditor’s reporting standards. Management, those charged with the governance, and

the auditors should align their goal of improving communications so as to ensure

smooth implementation in 2018 calendar-year audits. Effective implementation is

critical to the success of the new and revised Auditor Reporting standards. Everyone –

investors, regulators, audit oversight bodies, audit committees and others – has an

important role in effecting the change society wants to see in auditor reporting.

6. FINAL CONCLUSIONS AND PERSONAL CONTRIBUTIONS

Our scientific approach started from a question on how external audits and

audit reports are and should be regarded in view of the current sensitive socio-

economic context. Although the original question seemed simple at first sight, during

our research we noted the magnitude of the context, factors, differences and opinions

that influence but also result from this activity. Therefore, our research took into

consideration the more intense concerns in the current economic context for obtaining

relevant and „insuring” information on the quality of financial-accounting information

provided by various companies’ financial statements.

In a world where the concept of globalization tends to become obsolete, where

dynamism and complexity of financial operations reached levels that were difficult to

anticipate, facing more often in recent years the effects of economic decisions

influenced by a number of professional and ethical factors, financial audit, by means

of the audit report, can and should become again one of the main pillars that

underspin decision-making.

In our opinion, financial audit progressed and improved in line with the

economic development, in response to the challenges of the society. It progressed

historically, being present in some form in all periods in terms of concept and

especially in terms of goals. Therefore, we believe that auditors and audit companies

should not overlook the social importance of financial audit in current days, its

position obtained after hundreds of years of efforts and eventually to extend its

responsibilities, to seek new methods or procedures compatible with current needs

that would support their work.



46

The idea of this article is that the value of an audit should be tested

permanently against the requirements of users and society. Accounting profession

must build a solid case for the benefits that audits bring to business, economy and

society. Audit market is very sensitive, thus accurate perception of stakeholders of

auditors’ activity is essential.

The debate focused mainly on the fact that the crisis in 2007 was generated

not only by corporate blunders, but also by mistakes of governments and their

budgetary policies. In this context, we believe that statutory audit could play a more

active role in consolidating the global economic environment if it would be more

involved in the audit of public institutions, including financial and budgetary policies.

Based on the performed analysis, we noted that indeed the financial crisis has

had an impact on the activity of financial auditors in Europe. Thus, based on the

research performed, we concluded that audit evolved and expanded since then, in

order to add more value for users, and must continue to do so. Especially for listed

companies and more than ever in times of crisis, audit must be more than an opinion

on the historical financial statements. Auditors should be continually involved in

aspects such as: corporate governance effectiveness, assumptions underlying the

business model of an organisation and its risk management.

In our opinion, among all the presented potential benefits of a new style

reporting, the ones related to the following must be emphasized, especially if we

believe that another financial crisis will follow:

direct stimulation of even more robust interactions and communications

between auditor and entity;

improve audit quality – because if a matter is going to be discussed in the

auditor’s report, then greater focus by management especially on their own

disclosures, and also even greater attention and scepticism by the auditor,

might result;

better understanding of the (probably) least understood service, from a user

perspective (foscusing on what the auditors’responsibilities are, but not

boilerplating, rather, communicating what really auditors have been focusing

on).

(Source: own projection )

Figure 3 – Continuing improvement of the audit quality in order to meet the public

interest

As a final conclusion – in our opinion – it is necessary for both the profession

and the society as a whole to reach a reasonable balance between the degree of



47

responsibility and accountability that an auditor should assume related to the fair

presentation of financial statements and audit costs for the society.

REFERENCES

Books

Arens, A., Loebbecke, J. (2003), ”Auditing – an Integrated Approach”, 8th Edition, Pearson

Edition Inc., Prentice Hall, New Jersey

Argenti, J. (1976), ”Corporate Collapse: The Cause and Symptoms”, McGraw-Hill, New

York

Bunget, O.C. (2010), ”Audit financiar”, Editura Economică, Bucureşti

Carmichael, D., Willingham, M. (1989), ”Auditing Concepts and Methods: A Guide to

Current Auditing Theory and Practice”, Editura McGraw Hill Book Company, New

York

Dassen, R.J.M. (1995), ”Audit Quality: An Empirical Study of the Attributes and

Determinants of Audit Quality Perceptions”, Drukkerij Groenvelt BV, Landgraff

Deliu, D. (2014), ”Responsabilităţile şi limitele răspunderii auditorului financiar într-un

context socio-economic sensibil”, teză de doctorat, Facultatea de Economie şi de

Administrare a Afacerilor, Universitatea de Vest din Timişoara

Dumitrescu, A.C. (2010), ”Detectarea fraudelor şi erorilor în auditul financiar. Miză,

oportunitate şi responsabilitate”, Editura Mirton, Timişoara

Fusaro, P.C. Miller, R.M. (2002), ”What Went Wrong at Enron - Everyone’s Guide to the

Largest Bankruptcy in U.S. History”, Willey, New York

Mautz, R.K., Sharaf, H.A. (1961), ”The Philosophy of Auditing, American Accounting

Association”, Menasha, Wisconsin

Raimbourg, Ph. (1997), ”Asymetrie de l’information, theorie de l’agence et gestion

d’entreprise”, Encyclopédie de gestion, Economica, Paris

Articles & studies

Ardelean, A. (2014), ”Provocări la adresa profesiei auditorilor: interes, impact şi posibile

soluţii”, Revista Audit Financiar, C.A.F.R., nr. 1

Bobe, C-M., Mocanu, M. (2009), ”Salvarea companiilor afectate de criza economică – la

îndemâna stakeholderilor şi profesioniştilor contabili”, Jurnalul Cercetării Doctorale

în Ştiinţe Economice, vol. I, nr. 2, Editura ASE, Bucureşti, 2009

Bunget, O.C., Dumitrescu, A.C., Deliu, D. (2013), ”The Manipulation and Truncation of

Accounting Information and the Impact on the Decisional Process of the

Stakeholders”, Annals Economic Science Series, Universitatea Tibiscus, vol. XIX,

Editura Eurostampa, Timişoara

Bunget, O.C., Dumitrescu, A.C, Deliu, D. (2014), ”Impact of Financial Crisis on Financial

Audit Activity in Romania”, European Journal of Accounting, Finance & Business,

vol. 2, iss. 3

Dobroţeanu, L. şi colab. (2010), ”Crizele economice generează modificarea percepţiilor

privind rolul auditului?”, Revista Audit Financiar, C.A.F.R., nr. 1, pp. 21-29

Dobroţeanu, L., Coman, N., Dobroţeanu, C.L. (2011), ”Auditorii externi şi guvernanţa

corporativă sub impactul crizei financiare”, Revista Audit Financiar, C.A.F.R., nr. 3,

pp. 16-26

Dumitrescu, A.C., Deliu, D. (2012), ”Audit Expectation Gap: the Dynamics of Perception

Controversies Regarding External Audit under the Impact of the Global Financial

Crisis”, Proceedings of the 1st International Conference Accounting and Auditing

Perspectives, Supplement Theoretical and Applied Economics, pp. 392-415

Farcane, N., Deliu, D. (2011), ”Auditing Fair Values in a Sensitive Socio-Economical

Context”, Annales Universitatis Apulensis Series Oeconomica, Faculty of Sciences,

"1 Decembrie 1918" University, Alba Iulia, vol. 2, iss. 13, pp. 364-384



48

Pál, T. (2011), „Impactul crizei economice asupra activităţii de audit”, Revista Audit

Financiar, C.A.F.R., nr. 3, pp. 4-11

Porter, B.A. (1990), ”The Audit Expectation-Performance Gap and the Role of External

Auditors in Society”, New Zealand

Speeches & interviews

Gunn, J., Managing Director – Professional Standards stated on 13th of June, 2016, speech at

the 6th Brazilian Conference on Accounting and Independent Auditing in Sao Paolo,

Brazil

Mihăilescu, I., President of CAFR [Chamber of Financial Auditors of Romania] – interview /

The 2nd

Congress of the Financial Auditors of Romania: “Naţional şi internaţional în

activitatea de audit financiar. Auditorii şi criza economică globală” [National and

International in Financial Audit. Auditors and the Global Financial Crisis], 2009

Mihăilescu, I., President of CAFR [Chamber of Financial Auditors of Romania] – interview /

“Atât auditorul, cât şi clientul acestuia trebuie să se subordoneze unor valori etice”

[Both the auditor and the client must be subordinated to ethical values], Economistul

[The Economist] newspaper, 2009

Other sources

*** – European Commission (2010), ”Green Paper – Audit Policy: Lessons from the Crisis”,

Bruxelles, 31.10.2010, http://ec.europa,eu/internal_market/auditing/otherdocs/index_en.htm ;

consulted at 18.02.2012

*** – European Commission (2010), ”Authorized Contribution for Publishing the Green

Paper – Audit Policy: Lessons from the Crisis”,

http://ec.europa.eu/internal_market/consultations/2010/green_paper_audit_en.htm , consulted

at 18.02.2012

*** – European Parliament and European Commission (2011), ”The Response Concerning

the Green Paper – Audit Policy: Lessons from the Crisis”, Bruxelles, 30th november 2011,

http://www.eecs.europa.eu , consulted at 17.03.2013

*** – IFAC - The New Auditor’s Report: Questions and Answers,

https://www.ifac.org/publications-resources/new-auditor-s-report-questions-and-answers ,


*** – IFAC – Audit Quality Framework,

https://www.ifac.org/system/files/uploads/IAASB/Framework-for-Audit-Quality-Outline.pdf ,


http://ec.europa,eu/internal_market/auditing/otherdocs/index_en.htm

http://ec.europa.eu/internal_market/consultations/2010/green_paper_audit_en.htm

http://www.eecs.europa.eu/

https://www.ifac.org/publications-resources/new-auditor-s-report-questions-and-answers




49

BANKRUPTCY RISK ANALYSIS FOR A COMPANY IN THE

PHARMACEUTICAL INDUSTRY

Suzana DEMYEN

1

Jeanina CIUREA2

Mihaela MARTIN3

Submitted: 7

th July 2018 Approved: 15

th September 2018

Abstract

In a world where businesses in every field of activity face yearly high-risk bankruptcy, the

pharmaceutical industry proves to be a thriving and flourishing one. People are increasingly taking

care of their health, but on the other hand, the incidence level of diseases of various types is increasing

and it significantly contributes to the development of businesses in the field. This paper consists of

three parts, the first part which presents the brief evolution of the Romanian pharmaceutical industry,

the second part being a theoretical approach of the essential concepts regarding the method of

assessing the risk of bankruptcy of a company, while the third part includes the case study. For this,

was gathered real data linked with one of the most important players on the Romanian medicines

market, in order to determine the level of bankruptcy risk that they face on an annual basis.

Keywords: pharmaceutical industry, risk, bankruptcy, business, market

JEL: G32, I11

1. THE DEVELOPMENT OF THE PHARMACEUTICAL INDUSTRY - AN

OVERVIEW

Health has always been one of the most valuable assets of a human being, but

over the last few decades, individuals have begun to pay more attention to it. As a

result, large amounts of medicines and dietary supplements are consumed year after

year, thus pharmaceutical companies reaching a high level of income.

History has shown us how long and often tormenting way had the practitioners

in this field, being most of the time persecuted for the gift of offering a reclaim in the

affections of the patients of those times.

Regarding the Romanian pharmaceutical industry, we find one of the

important milestones in the history of this field in 1857, when Carol Davila

contributes decisively to the development of pharmaceutical higher education, by

setting the bases of the National School of Medicine and Pharmacy (Stancu, 2008).

Troubled period of the early twentieth century affects also the history of this

institution, because during First World War the experts weather, including Professor

Ștefan Minovici (Stancu, 2008), advocates for the separation between the Faculty of

Pharmacy and the Faculty of Medicine, independence which was obtained in 1923.

It was not the only institution of this type in Romania, the number of students

increasing. Such centers can be mentioned in the major cities of the country, Cluj -

where the foundations of the Upper Dacia University (Pamfil, 1940) were established

after 1918, one of its branches being specialized in Pharmacy, or Iasi, where in 1913,

1 Assistant PhD, University “Eftimie Murgu” of Resita, Faculty of Economic Sciences, [email protected] 2 Lecturer PhD, University “Eftimie Murgu” of Resita, Faculty of Economic Sciences, [email protected] 3 Lecturer PhD, University “Eftimie Murgu” of Resita, Faculty of Social Sciences, [email protected]



50

at the Faculty of Medicine were set up the foundations of a pharmacy department, but

initiatives in this area were also in other regions of the country starting with the reign

of Alexandru Ioan Cuza. Most of the students in the field (64%) were however trained

in the university centers from Bucharest (Pamfil, 1940, in Stancu, 2008).

Although the role of the pharmacy as an independent branch of higher

education has strengthened over time and was supported by some of the faculties

where the specialties in question were part, year1934 marked the issuing of a law on

the centralization of Romanian pharmaceutical education, one of the consequences

being the decrease of the number of places for this specialization.

The need to provide solutions for the population's illness has forced the

development of the pharmaceutical industry from a practical point of view, making an

extension of production on a larger scale. The interwar period was marked by the

expansion of some pharmacies, some of which being formed in partnership with

international, French, Austrian names, in addition to the Romanian co-operatives.

Contemporary pharmaceutical history is partly controversial and challenging

because it has become one of the most profitable areas over time, growing

exponentially, especially over the past two decades. The number of producers, as well

as the number of substances and products, is increasing, with two main business

models being imposed on the market: specialized companies in activities and

specialized companies on the market (Ciulu).

At present, there is a lot of investment in research, even more intensively than

in the informatics field, both at European and global level, with tens of billions of

euros allocated annually and hundreds of thousands of employees. The concern for

new discoveries is growing, as many diseases are still considered incurable.

The bankruptcy risks of companies in this area are rather low, as the whole

population of the globe is being confronted with a wide range of diseases, having

multiple causes, from genetic diseases to others caused by stress, inadequate nutrition,

etc.

According to economica.net there are various studies in this domain regarding

the overview of the industry, most of them indicating good prospects for the

development of these businesses (Milos, Milos, 2014). Thus, a review published by

Keysfin on the financial data of Romanian active companies in the field of medicinal

drug production and distribution appreciates an upward trend in the results, from

37.92 billion lei in 2012 to 47.87 billion in 2017, the forecast being even higher for

the coming years. The results of these companies are largely influenced by marketing

practices, the implemented advertising campaigns, as well as by the rise in medicines

prices, the turnover and the profit greatly increasing over the years. In this case, the

very good results determine the companies to allocate a consistent budget to the

promotion activity, often reaching to aggressive campaigns, TV, radio, internet or

written press.

According to official surveys and statistics, the total number of drug

manufacturers registered in Romania reached 158 in 2016, but this number does not

include traders, these being much higher. Among the most important names in the

industry are Terapia SA, Antibiotice SA, Sandoz SRL, Labormed Pharma, Gedeon

Richter, Fiterman Pharma. In the same field there is a large number of traders with

medicines, pharmacies, etc., the most numerous being found in the capital.

According to official information, the pharmaceutical industry is represented by

6 companies listed on the Bucharest Stock Exchange: MedLife, Pharmaceutical

Remedia, Zentiva, Antibiotice Iasi, Biofarm, Ropharma. All recorded a positive

evolution in 2017, with percentages ranging from 11% to 26%.



51

"In the" New World "created in the last decade, pharmaceutical companies

will focus on coordinating and financing the acquired skills and competences"

(Ciulu).

2. THE RISK - THEORETICAL APPROACH

Business, irrespective of the field, involves risks. This is also true with regard

to the medicinal drug industry. Thus, risk turns into a natural component, with

reference to operational, investment or financing activities. Regardless of the

approach, the notion of risk remains a "measure of uncertainty (...), even a future

action designed to generate losses that will affect the patrimony, interests, activity and

results of an economic agent" (Buglea, 2009).

Literature identifies many forms of risk, which can be mentioned in the

following form: speculative risk, pure risk, endogenous risks, exogenous risks, pre-

crisis risks, decisional risks, post-crisis risks, enterprise risk, country risk,

international risk.

Business risks can be remembered as:

Fig. no. 1. Business risks

(source: Lala Popa et al, 2017)

Several risk categories can be identified at the level of each enterprise,

bankruptcy risk analysis being the subject of a more complex analysis.

"Assessing the risk of entering and maintaining a business on a competitive

market involves the use of statistical methods, including short-term credit scoring.

The purpose of this method is to establish for each firm an indicator called a "score"

that allow the estimation of the bankruptcy of the firm.

The score is an "external diagnostic method that consists of measuring and

interpreting the risk to which the investor, the lender of the enterprise, and the

enterprise as a system in the future work is exposed" (Lala Popa et al., 2017).

Among the most popular models are: Altman Model, Conan-Holder Model,

Bank of France Balance Sheet Model (Demyen, Ciurea, 2016). We will continue to

focus on the first two, calculating the functions as follows:

Table 1

The Altman Model

Function Z = 1,2X1 + 1,4X2 + 3,3X3 + 0,6X4 + 0,999X5

x1 = working capital / total assets = trading capital / total assets

x2 = reinvested profit/ total assets

x3 = gross result of exercise / total assets

x4 = share capital / total debt/liabilities

x5 = net turnover / total assets

exploitation risk

financial risk

debt risk commercial risk

bankruptcy risk

credit risk innovator risk

accident risk

investment risk



52

Levels level I: solvency firms Z> 3 or 2.7

level II: companies with temporary financial difficulties that can be

remedied if the strategy is adequate for the situation of 1,8 <Z <3 or 2,7

level III: bankruptcy firms Z <1,8

The Conan-Holder model

Function Z = 16X1 + 22X2 - 87X3 - 10X4 + 24X5

x1 = working assets - stocks / short-term liabilities

x2 = fixed capital / total liabilities

x3 = financial expenses / turnover

x4 = personal expenses / added value

x5 = exploitation result / added value

Levels level I levels: Solvency firms (Z> 9)

level II: firms with temporary financial difficulties that can be remedied if

the appropriate strategy is applied (4 <Z <9)

level III: bankruptcies (Z <4) (source: Lala Popa et al, 2017)

3. CASE STUDY - ANALYSIS OF BANKRUPTCY RISK FOR A

PHARMACEUTICAL SOCIETY, USING THE SCORE METHOD

Generally, in order to be able to apply the Score method, it is necessary to use

a wider range of data belonging to either a sample of enterprises or to a longer range

of years. It is not possible to draw valid conclusions only by calculating the Z function

for a single year of analysis, but it is necessary to make a comparison over several

years. Moreover, by statistical testing, indicators that are considered to have a

permanent and strong influence on the analyzed samples can be retained.

For the purpose of the present case study, real data regarding Antibiotice Iasi

company were used, using public information from the balance sheets of the listed

company on the Bucharest Stock Exchange. As a general data, the company is

currently in its 63rd

year of activity, being a recognized brand in Romania, which

maintains business relationships with 75 countries, offering a vast portfolio of 157

medicines.

The bankruptcy risk is present, to a greater or lesser extent, for all companies,

but the level at which it can be appreciated is essential. For the present study the

scores method was used by determining the Z, Altman and Conan - Holder functions,

for which the calculation method was described above.

Information on the time period 2012-2017 was gathered, calculating the X1 ...

X5 coefficients for each of those years using the formulas in the previous table.

3.1 Calculation of Bankruptcy Risk using the Altman Method

In order to determine the risk of bankruptcy using the Altman method, it is

necessary to calculate the Z function with the following formula:

Z= 1,2X1+1,4X2+3,3X3+0,6X4+0,999X5



53

Table 2 Economic data for rate calculation Year 2012 2013 2014 2015 2016 2017

Working assets 310.675.989 313.535.436 305.661.428 327.313.900 314.785.312 331.443.488

Total asset 514.317.928 511.566.900 503.646.697 544.662.590 533.395.657 572.935.542

Gross profit 32.459.037 34.690.920 37.363.132 32.047.535 34.881.646 35.361.430

Net profit 27.110.836 31.380.855 31.138.739 27.178.823 30.370.811 33.558.354

Own capital 346.548.533 348.651.356 364.331.001 392.649.884 409.066.359 416.877.840

Total debts 160.555.784 155.100.484 134.294.362 144.832.768 117.380.140 151.471.431

Turnover 304.731.950 318.625.015 320.058.303 331.740.206 334.990.734 337.629.448

(Source: Balance Sheet and Profit and Loss Account of the enterprise/firm)

The calculation of the Z-determinant function and the rates for the years 2012-

2017 shows the following results regarding the Xi coefficients:

Table 3 Year 2012 2013 2014 2015 2016 2017

X1 60,4 61,28 60,68 60,09 59,01 57,85

X2 5,27 6,13 6,18 4,99 5,69 5,85

X3 6,31 6,78 7,41 5,88 6,53 6,17

X4 215,84 224,79 271,29 271,10 348,49 275,21

X5 59,24 62,28 63,54 60,9 62,80 58,92

Z Function 289,425 301,646 332,235 322,058 372,221 322,017

(source : computation made by authors)

3.2 Calculation of Bankruptcy Risk using the Conan-Holder method

In order to determine the bankruptcy risk by the Conan - Holder method, it is

necessary to calculate the Z function with the following formula:

Z= 16X1+22X2-87X3-10X4+24X5 For calculating the coefficients, the data from the following table will be used:

Table 4 Economic data for rate calculation

(Source: Balance Sheet and Profit and Loss Account of the enterprise)

In this case, the calculation of the determinant function Z and of the rates for

the years 2012-2017 shows us the following results regarding the Xi coefficients,

calculated using the Conan Holder method:

Table 5 Year 2012 2013 2014 2015 2016 2017

X1 1,69 1,96 2,17 2,18 2,65 2,02

X2 0,68 0,72 0,76 0,76 0,81 0,76

X3 0,079 0,09 0,05 0,04 0,03 0,02

X4 0,34 0,31 0,28 0,30 0,28 0,28

X5 1,25 1,23 1,17 1,18 1,18 1,17

Z Function 61,72 65,79 72,37 73,44 83,13 72,58

(source : computation made by authors)

2012 2013 2014 2015 2016 2017

Working assets 310.351.264 313.535.436 305.661.428 327.313.900 314.785.312 331.443.488

Stocks 47.937.857 50.361.680 57.284.464 60.449.619 60.269.602 67.414.789

Short-term debts 155.205.658 133.702.463 114.135.918 122.159.637 95.707.376 130.473.898

Fixed capital 350.366.971 369.853.531 385.989.017 419.308.981 434.773.885 439.636.509

Total liability 514.317.928 511.566.900 503.646.697 544.662.590 533.395.657 572.935.542

Financial expenses 24.368.301 29.436.485 18.441.604 13.487.742 10.810.946 10.015.775

Cifra de afaceri 304.781.950 318.625.015 320.058.303 331.740.206 334.990.734 337.629.448

Staff costs 68.929.460 70.814.377 71.439.222 70.868.388 71.316.549 81.310.923

EBE 252.994.747 281.622.120 297.561.746 278.854.677 298.104.882 335.937.566

Added value 200.805.438 227.197.898 252.886.982 235.830.467 252.588.832 286.623.648



54

3.3 Conclusions of the case study

Evolution of Z score, from 2012-2017, calculated using the Altman method, is

shown in the following graph:

Fig. no. 2 – Evolution of the Z score (source : computation made by authors)

The limits set in this case for determining the solvency of the enterprise are:

o Z <1,81 => the enterprise is insolvent

o 1.81 <Z ≤ 2.90 => the enterprise finds itself in difficulty

o Z> 2.90 => the enterprise can be considered economically sound.

The results obtained from the calculations, as can be seen in the above graph,

may be associated with the third situation, exceeding the level set as being minimal

for the enterprise to be considered economically sound.

Evolution of Z score during the analyzed period 2012-2017, calculated using

the Conan-Holder method, can be represented by the following graph:

Fig. no. 3 – Evolution of the Z score (source : computation made by authors)

Based on the calculations, it can be seen that the company's situation,

according to the Z score calculated using the Conan-Holder method, is very good.

The limits set in this case are:

Z ≤ -5≤ catastrophic situation

- 5 <Z ≤ 4⇒ unfavorable situation

2012 2013 2014 2015 2016 2017

289,425 301,646 332,235 322,058

372,221

322,017

61,72 65,79

72,37 73,44

83,13

72,58

2012 2013 2014 2015 2016 2017



55

4 <Z ≤ 9⇒ uncertain situation

9 <Z ≤ 16⇒ favorable situation

Z> 16⇒ very good situation.

All calculations indicate a good company situation, taking into account these

results, the likelihood of bankruptcy being below 15%.

All things considered, after using both methods for calculations made (the

Altman method and the Conan-Holder method), it can be forecast that Antibiotice SA

has a very good financial situation, thus being unlikely that it will face a high

bankruptcy risk during the next period.

However, some recommendations can be made, and the society should also

pay attention to the following aspects:

- possible managerial errors;

- level of communication with employees;

- staff motivation strategy;

- the qualification level of the personnel;

- the possibility of new competitors entering on the market;

- the characteristics of the life cycle stage in which it is positioned.

REFERENCES

Buglea A., (2009) Analiza financiară. Concepte și studiu de caz, Ed. Mirton, Timișoara

Bălan Mariana, Iorgulescu Raluca Ioana, Estimating SMEs risk of bankruptcy using stochastic

methods: Romanian Development Regions, Journal of Accounting and Management,

vol. 4, no. 2/2014

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Management si Marketing, http://www.managementmarketing.ro/pdf/articole/44.pdf

Demyen Suzana, Ciurea Jeanina, (2016), Study regarding the bankruptcy risk for an

industrial enterprise, Annals of ”Eftimie Murgu” University Resita, Fascicle II

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intuitie la știință, Volumul 2, Editura Economică, București

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record-de-50-de-miliarde-lei-in-2018_151984.html#ixzz5XL2VzGYS

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record-de-50-de-miliarde-lei-in-2018_151984.html#ixzz5XL2dcOSd

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http://www.economica.net/afacerile-din-industria-locala-farmaceutica-vor-atinge-nivelul-record-de-50-de-miliarde-lei-in-2018_151984.html#ixzz5XL2dcOSd

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56

THE ROLE OF INFORMATIONAL CAPITAL IN ENSURING

THE FIRM'S SUSTAINABILITY

Alicia, ERINCZ1

Constanța, TIUHTII2

Submitted: 1

st October 2018 Approved: 25

th October 2018

Abstract

In modern economic relations, firms as a form of organizing entrepreneurial activity are figuratively

associated with the circulating system of a market economy that sustains its viability. To achieve profit,

businesses need to combine optimally the limited resources. Therefore, they are usually viewed through

the perspective of economic art, organizational creativity, free expression of initiative, training to deal

with risk, holding information, etc.

The need for innovation to ensure success has made, in addition to the classic model, that the

innovative business economy model is becoming more and more focused not only on the available

resources but also on the possibility to attract and use external resources such as to provide the best

chances for business development. Among these, the implementation of a new resource, information,

which was developed extensively during the transition to an information society. First, this is due to the

fact that the main characteristic of the modern stage of the economic and social development of society

is the transformation of information products and services into the main production and consumption

object.

The paper presents an analysis of the firm's stability, its factors of influence and the involvement of the

informational capital in ensuring sustainability.

Keywords: sustainability, informational capital, business economy, business strategy

JEL : L2, O1

1. INTRODUCTION

For the economic science of the last decades, fundamental changes have been

characteristic of a new type of economic relations, in which information is the main

link between production and consumption, between the stages of material and non-

material production, which determine the trends of progressive socio-economic

changes.

The material basis of these changes is the formation of a technological type of

informational production that leads to radical changes in the modes of combining

living and materialized labor to affirm the elements of a new system of social

relations of production that can and must become a social form of movement and

development of production forces.

An innovative market model is a complex interconnection of multidirectional

information flows that characterize the competitiveness of various elements of the

economic system. The information structure becomes more complicated: apart from

quantity (the volume of products and services in terms of physical and value), it

increasingly includes qualitative utility indicators, proof of production adjustment to

the needs of specific consumers.

For this reason, new problems arise in the face of economic science, which

1 PhD student, University ”Lucian Blaga” of Sibiu e-mail:[email protected] 2 PhD student, University ”Lucian Blaga” of Sibiu e-mail: [email protected]




57

have not been previously included in its area of interest. In particular, it refers to the

assessment of the information environment in which the economic activities of the

company take place. Multi-choice or multilateral development, characteristic of

modern approaches to solving many problems, suggests a variety of methods of

analyzing economic phenomena and processes, depending on the objectives of the

study. Despite the great diversity, it is common in all economic studies that any

category or indicator also includes economic information.

The relevance of this research is also conditioned by the fact that, under market

conditions, the firm is an open system of development and, consequently, a struggle

for sustainability and stability. Stability is the property of the system to be in a state of

steady state or to operate within acceptable limits, which allows the maintenance of

unchanged basic characteristics for a certain period.

2. FIRMS’ ECONOMIC STABILITY

The theory of the firm's stability in its modern sense is represented as a

dialectical unit of the theory of the firm and the theory of stability, each of them

following a way of its own development.

Ideal models, especially the Walras model, describe the problem of the

equilibrium of economic systems at all levels but in practice, the model cannot be

reached (Walras (2003)). It is important that the economic system have the potential

for effective progressive development, within the limits of the specific minimum

parameters of its internal stability.

In the most general form, the definition of economic sustainability can be

formulated as follows: economic stability is a permanent and stable position of the

system, provided by existing mechanisms of self-regulation and management, which

is the internal component of the system's economic security.

The company is an open development system. It should therefore aim at

sustainability. Stability is the property of the system to be in a condition of steady

state or to operate within acceptable limits, which allows the maintenance of

unchanged basic characteristics for a certain period of time. Means of achieving a

stable state of the system under the changing conditions of its operation are timely

adaptation to the new conditions. If the firm is in a competitive environment, pressure,

uncertainty and risk are on the rise. They have to move, look for ways to increase

their competitiveness, hence the increasing risk. Therefore, direct presence and

feedback in the economic world is a characteristic feature and the most important

factor of efficient reproduction. The external environment influences everything that

happens within the enterprise (Schumpeter (1994)).

Therefore, the development of any company depends on the external

environment, the economic situation, the political and social climate, the

informational space, the attitude towards entrepreneurship, the legal framework.

Companies serve as a basic element in the structure of the economy,

conjugating labor resources, material and financial resources for producing goods. In

our opinion, when investigating the company's sustainability, it is advisable to present

it as a set of production, management, environment, marketing and socio-economic

sustainability. We propose to consider the company as a development system with

special properties.

Thus, it is logical to talk about the dynamic balance, and the stability of such a

system can be represented conditionally as if it were "step by step." Any external



58

impact can bring the system to a higher level, push it to a level lower or may leave it

in its original position.

In order to assess the economic sustainability of micro and macro systems at

each of these levels, different sets of parameters are used, determined by the specifics

of each level of the economy, including the firm. At the same time, the company's

stability is usually understood as its ability to maintain performance indicators over a

certain period of time, even when external conditions do not allow current activity to

be profitable. The total or partial stability of the firm can be ensured by achieving

complete or partial financial, production, social, managerial and business

sustainability.

2.1. Influence factors of firm stability

The stability of the firm is influenced by many factors - internal and external,

direct and indirect, objective and subjective, regulated by the market, by the state or

directly by the enterprise itself.

The most important internal factors of the company's stability are:

Availability of investments;

Innovative activity, directly determining the competitiveness of

products and production technology;

New technologies and techniques;

Intellectual resources, reserve capacities;

Capital management policy, product quality, marketing policy

strategy, company staff.

A great influence on the level of economic sustainability has some factors, such

as: lack of professional experience; poor general knowledge in economics and

marketing; financial error; poor organization of work; low adaptability to changes in

market, environmental and social environments.

External factors are divided into two groups: direct and indirect impact factors.

Direct impact factors directly affect the operation of the firm and are under the

influence of its operations. This group of factors includes labor providers, financial

factors, information, material resources, consumers, competitors, etc.

Indirect influence factors play the role of background factors: increasing or

decreasing economic stability. This group of factors includes the state of the

economy, factors of social-political nature, regulatory factors and so on.

The company's reaction to direct and indirect impact factors is different. The

enterprise can react to changes in the impact factors directly in two ways: it can

rebuild the internal environment and initiate a policy - both an adaptation policy and

an active or passive resistance policy. For indirect impact factors, the enterprise has to

adapt its objectives, tasks, structure, technical staff to the maximum.

The problem of a company's economic sustainability is acute for small firms.

For large industrial companies, it finds solutions to the effective use of methods to

adapt to critical changes in the external environment, such as: diversification of

products, works and services; expanding market ties; optimizing the structure of

productive fixed assets, etc. Small business subjects do not have such a wide range of

adaptation capabilities, and any change, even just one of the parameters of the

external environment, may be critical to them (Bell (1973)).



59

2.2. Ensuring company sustainability

Ensuring economic sustainability is first of all identifying the weaknesses of the

object's activity and then planning a strategy to improve it, including defining the

necessary resources and resources.

In order to identify deficiencies in the company's activities, it is necessary to

assess the components of the economic sustainability categories by means of a set of

indicators that characterize these categories:

Sustainability indicators of production (fixed asset availability

and renewal coefficient, fixed asset depreciation rate);

Social sustainability indicators (staff turnover rate, staff

replacement rate, etc.);

Sustainability indicators of business activity (size of sales

markets, sales volume of products / works / services, total turnover rate,

capital productivity;

Financial stability indicators (current liquidity ratio, financial

stability factor, coverage rate, etc.).

Thus, we underline that, under the modern conditions, the firm's stability is

formed under the influence of a complex set of factors. With all the diversity of

economic situations, there is an unity that characterizes economically sustainable

firms. This unit consists of an entrepreneurial approach to the organization of

production, financial and marketing activities; the ability to capture and respond

rapidly to changes in the environment through adaptation, active counteraction; the

ability of management to effectively use "human capital", the continuous updating of

technologies and the adoption of innovations.

Summarizing the above, we can say that the sustainable development of the firm

is a stable, balanced, progressive change of all sustainability indicators that can

withstand changing trends while maintaining core integrity and properties.

3. INVOLVING THE INFORMATIONAL CAPITAL IN ENSURING THE

STABILITY OF THE FIRM

In the modern information society, economic information capital is a strategic

product, which in the company's activities is the leading factor in the production and

investment resources. The state participates in the modeling of its competitiveness

through the implementation of national programs for the formation of the information

economy and the support of those sectors of the economy and of the companies that

promote the extensive and intensive factors of economic growth in the informational

field (Arrow (1984)). The information involved in economic circulation has the form of information

capital from the point of view of the economic entity on an equal basis with other

parts of the total capital (basic, circulating, human, innovative, and intellectual). The

circuit and turnover of information capital mediates the interaction of the internal and

external environment of the company's activities. The circuit and turnover of the

informational capital suppose its accumulation in the generalized form of knowledge,

which can be expressed as a logical chain: "information - knowledge - information."

Here derives the following specific characteristic - the informative capital of the

company acts as a production and investment resource.

As a production information factor, economic capital characteristics are:



60

• Complexity of use;

• Primary training;

• Introducing production factors into the system through capital;

• Information is expensive and perishable, requiring constant updating in a

competitive environment to create a competitive edge;

• The main indicator of the capital nature of any good (including the production

information factor) is capital productivity or productivity. In marginality theory -

marginal productivity;

• Alternative use. As a rule, an optimal production structure is determined on an

alternative basis;

• Interchangeability of production factors. In general, the interchangeability of

factors is one of the main reasons for the development of such a phenomenon, where

the same product in a country is capital or information and in another, labor.

Exchange opportunities reduces when information capital is approached not only as a

factor of production;

• The limited mobility of information capital as a factor of production,

respectively, the limited capacity to move this factor from one sphere of social

production to another, under the influence of higher economic incentives.

Attention is focused on the following: "Information capital" as a production

resource is characterized by a series of distinctive features that must be considered in

the complex. They determine its place and its particular role in the system of factors

of production., the company's strategic business plans achieves through the

information capital; through its reproduction mechanism the firm's long-term stability

and competitiveness are achieved (Castells (2010)).

At the same time, characterizing the particularities of the informational

economic capital as an investment resource, there are arguments to distinguish

between two concepts: "investment in economic information capital" and

"informative capital as an investment resource". If the first concept indicates the

dynamics of the changes in the structure of the IT economic capital under the

influence of the investment, the second is the process of using the capitalized value of

a certain informative economic capital at the firm level, that is, the process of

realizing the objective function to invest in it. If the realization of the first concept

takes place both in the reproduction processes at the company level and outside it, the

second is only at the level of the companies. If the first concept shows the potential

capacity to generate additional revenue for the owner and the user, then the second is

their real capacity, which can be measured. If the first concept considers economic

capital as an object of the investment, the second describes the process of using this

object.

The concept of sustainable development of company information is to achieve

optimal development results with minimal negative impact on external and internal

environment factors. Stability of the economy is impossible without a stable state of

economic information of the firm that is formed throughout the company's economic

activity and serves as a guarantee of survival and the basis of its lasting position. The

stability of the firm is influenced by various factors: its ownership status, its position

on the goods market, the potential for commercial cooperation, the degree of

dependence on creditors and external investors, the existence of insolvent debtors, the

efficiency of economic and financial transactions, etc.

Stability of internal information is the state of the firm, which ensures a high

stable operating result.



61

The Stability Reserve is the result of the company solidity margin, a reserve that

protects it from accidents, sudden changes in external factors that have developed

because of the company's previous activity.

The company's overall informational stability is a state in which a steady

development is foreseen over a long period. This type of stability is the main

objective.

4. CONCLUSIONS

Means of achieving a stable state of the system under the changing conditions of

its operation ensure timely adaptability to the new conditions. In a competitive

environment, pressure is exerted on the firm, increasing uncertainty and risk. The

company should move, find ways to improve its competitiveness. In order to remain

stable, the firm must react promptly and adapt to all changes.

Thus, ensuring external and internal financial sustainability is the creation of an

information infrastructure in one form or another: the introduction of an automated

management system by the firm, the creation of a computer system for financial

monitoring or the creation of a computer support system in a more primitive, non-

computerized. In order to form a system for ensuring the economic stability of the

firm, it performs an assessment and analysis of the current economic situation. In a

market economy, the most important is the analysis of the company's financial

situation, which is usually done using the financial reports. Since stability is a

dynamic feature, coefficients should be evaluated over time: indicators should be

compared over several years to identify trends of change (so-called trend analysis).

REFERENCES

Arrow, K. (1984) “The economics of information”. Cambridge

Bell, D. (1973). “The coming of post-industrial society: A venture in social forecasting”. New

York: Basic Books.

Castells, M. (2010) “Power of identity: The information age: Economy, society, and culture”.

Schumpeter, J. A. (1994), “Capitalism, Socialism and Democracy”

Walras, L. “Elements of pure economics”. Ebook published October 2013, London.

https://dl.acm.org/citation.cfm?id=523283



62

TRANSPARENCY AS A MANAGEMENT LEVER FOR

EFFECTIVE DEMOCRACY IN ISRAELI PUBLIC

INSTITUTIONS

Bashir GHANIM1

Submitted: 14

th November 2018 Approved: 6

th December 2018

Abstract

Transparency is a growing demand of the public from government authorities who responsible of the

money of the public. The effectiveness of public agencies depends not only on managing activitie in

order to achieve planned results, but also on the level of support, trust and public satisfaction from the

stakeholders of public sector. Only by managing the relation between these two components together

managing through policy and action will increase the effectiveness of the public sector organisation.

This article will discuss public transparency and why it is essential to the mechanisms of democracy in

public institutions.

Keywords: Management, effectiveness, transparency, satisfaction, citizen, public administration,

JEL : L98, M10, M19, Q58

1. TRANSPARENCY IN PUBLIC ORGANIZATION

Administrative transparency describes the conduct of an organization in such a

way that enables access to the organization's databases, such as: financial conduct,

protocols, statistics, regulations and laws, memos, open meetings and methods of

action. Transparency can be expressed in various strengths, for example only

members / employees will have access to all or some databases; and it is possible that

also people outside the organization will have access to all or part of the information.

Also the duration of time in which information remains published can be changed.

The use of the word transparency generally associates with openness, taking

responsibility, communicativeness, self-critique, and the Freedom of Information Law

(Erkkila, 2012). Transparency is measured first and foremost by the degree of

disclosure, the accessibility, and the availability of information to the public. The

meaning of transparency is also in providing importance that the information will be

relevant and qualitative, i.e., it provides 2 required updated, understandable, relevant

and rich information (Avidar, Sagi & Zoch, 2014).

The main rationales relating to governmental transparency focus on types of

information that are connected with supervision of the actions of the government,

political processes, and decision-making processes. It is common to mention these

rationales mainly in the context of advancing the enactment of freedom of information

laws, and their benefits are perceived as public-democratic.

In addition, in the context of open governmental information in the digital

world, there is another type of information that has the potential to empower citizens

and to enrich their quality of life, even if it does not contribute to governmental

transparency in its narrow democratic sense. Accessibility to information in business,

1 PhD student, West University of Timisoara, Romania



63

geographic, legal, social, transport, and meteorological fields can sometimes generate

public and economic benefits even if it has no direct democratic benefit (Dekkers,

Polman, Velde & Vries, 2006). For example, when the US Transportation Authority

decided to make sophisticated information about car safety seats for children and

infants as accessible, the information did not teach about the Authority's activities, but

it had great value for the public.

Therefore, we will discuss below about the rationales of both types of

information: Information, the accessibility of which has democratic benefits and

information, the accessibility of which has socio-economic benefits.

2. THE CONNECTION BETWEEN TRANSPARENCY AND DEMOCRACY

We have identified three main aspects that exist in the connection between

transparency and democracy: the first is the argument of supervision and control, the

second is the argument of ownership - loyalty and the last is the argument of

participation.

The first aspect refers to the fact supervision and control is an instrumental

argument that considers the confidentiality as a platform for corruption, power, and

inefficiency. Therefore, the activity of the public authority will conduct at its best if it

will be exposed to the public eye, and the public watchful eye may prevent corruption

in the public administration and indicate failures, errors, unnecessary burdens and

inefficient conduct of the authority. Each action will be exposed by force (also not in

practice) to critique and 3 supervision, and this will deter corruption.

In order for the supervision and control to be efficient, it is necessary to

ensure that in addition to the disclosure of information to the public, efficient

mechanisms have to be built to correct the errors found in the public authority’s work.

It is therefore important to ensure that the relevant mechanisms have a real and

practical influence. These mechanisms include the internal control measures of the

authority, the police, the State Audit, the Civil Service Commission and the courts.

The aspect of supervision and control also relates to the way in which the

information is exposed. As more accessible and available the information is

presented, so more effective the supervision will be. The authority therefore has to

ensure that the information in its possession will be processed in a clear and

accessible way, and that as much information as possible will be revealed on its own

initiative, without the need for an individual's prior demand.

Transparency and the availability of public information information thus

strengthen the legitimacy of the democratic regime and the trust in the democratic

institutions, and the openness of the government is perceived as closely connected

with the existence of democracy itself (Edes, 2003). The decline in public trust in the

government weakens the public's desire to participate in government processes and to

contribute valuable source, resources and information for it, to pay taxes and to be

integrated into the work of government authorities. Since this is a vicious circle,

Joseph Nye argues that "such cumulative deterioration can erode support for

democracy as a system of government" (Nye, 1997, pp. 5).

The public's perceptions of the existence of transparency in the society are

among the initial conditions for trust in government, and quantitative studies show a

correlation between the perceptions regarding levels of freedom and equality from

which the public enjoys and the perceptions of the level of governmental

transparency, even if such transparency does not exist in reality according to

international indices (Mahoney & Webley, 2004). As closer the citizens feel to the



64

government and public insitutions, so their trust in them increases. New studies

regarding the open government through the Internet, which examined the accessibility

of information through digital technologies (such as Websites of Government data),

showed that, it creates exactly this desired closeness (Bingham, 2010).

The second aspect will are discussing refers to ownership – loyalty. According

to this argument the authority is not the owner of the information that in its

possession, and holds it loyally only for the public, which is the real owner.

According to this approach, all the information in the possession of the authority

belongs to the public, and in the absence of any conflicting reason, the authority must

disclose all of the public information when it will be requested.

The argument of ownership - loyalty presents some interesting issues in the

digital age. The duty to document the actions of the government, which was expressed

in the establishment of “government printing” offices in Western democracies at the

beginning of the nineteenth century, now reaches another step of the perception of

government as a "platform of information".

The information systems that the government creates constitute the basis for

extra-governmental social activities that have enormous economic and social value for

society. The government's information is perceived as public property not only by

itself but also because it serves as an infrastructure, a catalyst and enables social

activity, and these are not less important than electromagnetic frequencies, roads,

electricity or water networks. This infrastructure represents important material factors

for entrepreneurship, which enables the creation of wealth of business and social

opportunities.

One of the most problematic barriers to achieving democratic governance in

public government is the inequality between citizens and the government in the access

to information (Dahl, 2000). The release of information which is initiated by the

government provides for every individual citizen information and understanding

about the state, strengthens them and their contact with public activities, encourages

new market forces towards information processing, and enables individuals to give

their personal interpretation to the the government information.

Some argue that at least some of the government information should be

presented to citizens in its raw shape so that they themselves will be able to attribute

interpretation and context for it and they will not receive the information with

government interpretation (Boland & Coleman, 2008). Since the releae of government

information reinforces the initiative and use of information by third parties, it can be

said that revealing information increases the pressure to collect and present additional

information, thereby effectively destroying the perceptions of government ownership

of information which is prevalent among some levels of government. One of this is

the police institution. Therefore, our research has focused on the police organisations

in Israel and the role of transparency on their organisational performance.

The last aspect refers to citizen participation in public government.: This

argument indicates that participation in the democratic process - especially in the

Knesset (parliamentary) elections - requires a conscious and calculated decision of the

citizen (Kello, 2003). A vote that is not based on all the relevant data is not an

informed vote. If the election to the Knesset is based on partial considerations, the

legitimacy of the government is impaired, since the government does not faithfully

reflect the informed will of the people. Therefore, in order to promote informed

participation in the democratic process, public information must be disclosed. In order

to implement the principle of participation, the public should be exposed to the all

information that can be used in its decision to support the party or the candidate.



65

This argument also highlights the need for proactive exposure of information

which is initiated by the public institutions. Often, the public is not aware of the types

of information which are held by the authorities and may be useful for them. For this

reason, it is appropriate that each public authority will publish as much information as

it possible about its activities, in each field that can have an influence on the

formulation of the opinion among the citizen.

Connections between information and political decision-making were

discussed in detail in the literature. The connection between civilian accessibility to

government information and decision-making in the Internet era will also be

examined. Downs' economic theory of democracy (Downs, 1957) sets a model of

rational choice by citizens of the information they are interested in it. According to

him, rational individuals seek to minimize as it possible their political uncertainty (for

example, to vote) and seek new information only when for them the marginal product

of the new information is higher than the marginal expense of obtaining the

information or equal to this expense.

The problem is that many times it is difficult to predict in advance the "value"

of specific information, so individuals create a number of "information pipes" for

themselves and turn them into their "personal system of obtaining information".

Bimber (2003) explains, based on Downs' work, how a floating of public information

affects civic engagement in the political life. Bimber argues that we are in the midst of

a "fourth information revolution," which means transitioning from a personal system

of obtaining information which is based on limited and biased sources (the mass

media and a government that is not committed to transparency) to a system with more

and more extensive information channels, in which on the one hand, the information

environment is comprehensive, and on the other hand it is more adapted to the needs

of the individual. Bimber also considers that the information revolution will create a

new type of political activity and engagement: the activity of middle – private citizens

who are not "the masses" on the one hand and not the elites on the other hand.

Transparency is perceived as useful for understanding public preferences, for

promoting governmental accountability, fairness and justice, and for building public

trust in government and the democratic process (Laurian, 2004). In addition, they

have the practical advantage of reducing time consuming processes resulting from

public objections.

3. RESEARCH METHOD

When it comes to public organization that is authorized to use force and to

deny freedom of the citizen, the issue becomes more relevant than ever. From the

perspective of the police it is required for more transparency on the part of citizens.

But also transparency does not guarantee their trust. One of the problems that arise are

discriminatory attitude towards minorities that stimulates occasional media storms

that indicate a lack of professionalism, a lack of transparency and inconsistent with

accountability.

The current research questions try to examine how the police will be able to

improve its performance on the one hand and to contribute to a sense of trust of

citizens to the police mechanism and to improve its image in other hand. The current

research includes four questions are central to the discussion. The one releating to

transparency is the following: Is there a high level of transparency in the Israeli police

organizations?



66

The purpose of public reporting is to increase the enforcement and the public

involvement. The externalization of police data and of knowledge will also assist to

increase the awareness for the various events and diverse police activity, and increase,

as a sub-product, the rates reports to the governmental authorities.

The model presents one of the basic premises of my research: transparency of

police (independent variable) will lead to better performances (dependent variable).

The fundamental basis of the report is that the creation of transparency will lead to

high satisfaction of citizens.

We have formulated the following hypothesis: There will be found a positive

relation between the transparency in the police and the performances of the

policemen. As the policemen will feel that the police encourages fulfilling of the

standards of transparency, so the level of the performances of the police will be

higher. We used a questionnaire with several parts. The part inquiring about

transparency in police work had 5 questions and that about performance 6 questions.

370 questionnaires were distributed by the Israel Police to officers and

policemen with the aim of confirming of the research model during the year 2017. A

total of 284 questionnaires were collected and returned to the researcher, representing

a rate of response of 68%. The research system included the use of geographical

clusters. The division was done according to the districts of the police, North, South

Central, etc. when each area conceptualizes a cluster, in each cluster policemen and

officers were sampled.

A total of 284 policemen responded to the questionnaires, of which 58.9%

were men and 41.1 were women, 82% were policemen, 18% were police officers. The

average age of the respondents was 27.5 years, when the youngest age was 26 years

and the oldest age was 42.

4. RESEARCH RESULTS AND DISCUSSION

There was found a positive correlation between police transparency and police

performance. The ”transparency” variable has a moderately positive correlation to

organizational performance (r=0.26; p <0.05). This means that as higher the level of

transparency in the organization, so higher the organization's performance. As more

policemen will feel that the police encourage compliance with standards of

transparency, so higher will be the performance level of the police and this confirms

the hypothesis H1.

The analysis in this study shows that regardless of the actual conditions, the

Israeli Police still does not efficiently demonstrate transparency. Various police

departments approached the issue of procedural justice in various ways. Some

provided structured training to their personnel and created procedures that are

designed to ensure certain standards of police contact with citizens. Others have

reexamined the acceptable policies and procedures in order to determine whether they

are biased. Some police bodies have also taken steps to ensure that each person in the

organization understands the procedures and the processes well.

Expanding of the procedural justice and the transparency means that the Israeli

Police should do a better work in order to assist to the public to understand what the

police do and how it acts, and thereby enable it to assess the organization based on

established knowledge. The Israeli Police has already taken several steps to that are

designed to explain to the public its procedures and decisions, and to establish a

system that will ensure better transparency and public accountability. The results

indicate also that further improvements are possible and that the rewards will be



67

expressed in terms of increasing public satisfaction, better policing results, and more

efficient policing in Israel.

5. CONCLUSIONS

In recent years, the discussion of the challenge faced by public representatives

and public sector managers to act according to criteria transparency is intensifying.

Open governmental information also contributes indirectly to good governance

because it reduces the need for governmental regulation (Alshuler, 2012). When the

public has a lot of information to evaluate the goods and the services, the economic

markets function better and the need for government involvement decreases. The cost

of sharing information (or even collecting information) is lower than regulation. It is

now clear that transparency is one of the major levers of public policy in the twenty-

first century.

We recommend to the managers of Israeli police to elaborating a complex

action plan, to allocate needed resources for its implementation in order to increase

transparency, responsiveness and improve community relations of the police and

ensure the publication of detailed data about crime rates and police performance.

Israeli public appreciates the police when it succeeds or acts to improve its

performance, although this assessment is only given when the public is aware of the

police's efforts and achievements through increased transparency about police

procedures, about their success and failures. On the other hand, when there are

failures or events that are perceived as failures, the public discourse immediately

returns to deal with the helplessness of the police. This is despite the fact that the

policemen and the police officer in the present study assess the performance of the

police as very high.

Promotion of the transparency may improve the efficiency and productivity of

central government services by means of comparison and informationbased

supervision; to change social relations by empowering individuals and communities;

to motivate economic growth.

REFERENCES

Avidar C., Sagi, (2014) “Koz'ok kilometers. Local authorities Transparency Index 2013”. Tel

Aviv: Transparency International.

Altschuler Schwartz Tehilla (2012) “Privacy in an Era of Change” Jerudalem: Israel

Democracy Institute, Media reform.

Bingham Blomgren (2010), “The Next Generation of Administrative Law: Building The Legal

Infrastructure for Collaborative Governance”. Wisconsin Law Review, pp. 297 - 344.

Bimber B. 2003 “Information and American Democracy: Technology in the Evolution of

Political Power” Cambridge: Cambridge University Press.

Boland L. & Coleman, E. (2008) “New Development: What Lies Beyond Service Delivery?

Leadership Behaviors for Place Shaping in Local Government,” Public Money &

Management , vol. 28 (5), pp.313-318.

Dekkers M., Polman f., Velde R. & Vries M. (2006) “MEPSIR — Measuring European

Public Sector Information Resources”, https://ec.europa.eu/digital-single-

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69

TOURISTIC ACTIVITY IN HOTELS

Liliana, Gherghina1

Submitted: 3

rd October 2018 Revised: 19


rd December 2018

Abstract

By the paper entitled Touristic Activity in hotels, we want to highlight the importance of the hotel

activity in the touristic development of a certain area. The hotel is considered as being the most

important structure of touristic accomodation by which the tourists are offered accomodation services,

public alimentation, recreation, treatment as well as additional services. Nowadays, most of the

population satisfy their superior needs by practising several forms of tourism but they do not have

knowledge about the touristic activity in hotels developed on the hotel’s departments.

The present research has aimed the touristic activity of the Aquaris Hotel in the Resort Crivaia, Caraş-

Severin, being considered the most endowed hotel in the area. We have observed that in order to

operate, the hotel observes some minimal obligatory criteria, imposed by the legislation in force,

respectively it disposes of its own technical-material base and offers qualitative touristic services. Due

to its favouring position, its setting near several touristic sights and developped recreation areas in the

period 2015-2017, the number of tourists accomodated in the hotel increased, a proof being the

increase of the turnover, of total income and recording profit in 2017.

Keywords: hotel, restaurant, bar, accomodation services, alimentation, classification, activity, department

JEL : L8, L83

1. THEORETICAL NOTIONS REGARDING THE TOURISTIC ACTIVITY

IN HOTELS

The Hotel is one of the most important touristic accomodation structure which

during the time has known many significant transformations, so that, it must be led by

a manager, qualified and patented and well prepared profesionally, able to take

optimal decisions and to intervene in the appearance of irregularities in the

management system, in order to achieve the proposed objectives.

In the technical-material base of a hotel there are different acitivities, based on

types of services, so it must dispose of a qualified staff, according to the attributions

and responsibilities of the position held. The collaboration relations on departments

are stipulated in the hotel organisational chart which “allows the manager to know the

position of the workers in the hotel as well as who is resposible to whom.” (Baker S.

et. al (2002), p. 20). It is important to define the hotel, hotel-appartment and motel.

”The hotel is a structure which receives tourists and which offers to these ones

space for rest, alimentaion for serving meals and also makes available for the tourists

a series of additional services in accordance to their needs » (Types of structures of

touristic receiving with accommodation structures, available on 01.05.2015 at

http://www.tur.md/rom/section/689)

“The hotel is the structure of touristic receiving arranged in buildings or

blocks of buildings which make available for tourists the accomodation spaces

(rooms, studio apartments, apartments, duplexes) adequately endowed, ensuring

1 Lecturer PhD, Faculty of Economics, University “Eftimie Murgu” of Reşiţa, Romania, [email protected]

http://www.tur.md/rom/section/689



70

specific services, it disposes of a reception hal land according to the case of space for

public alimentation.

The hotel-appartment is that hotel composed only of apartments and/or

studios, endowed in such a way as to ensure the keeping and preparation of food and

serving the meals in these ones or which have their own restaurant with permanent

serving through room-service. The motel is the hotel unit placed usually outside the

towns, very close to the most circulated roads, endowed and arranged both for

ensuring the accomodation and alimentation for tourists and for the safe parching of

means of transport.” (The decree of the president of the national authority for tourism

no. 65/2013, available on 27.02.2018 at http://turism.gov.ro/wp-

content/uploads/2013/05/Ordin1.pdf).

By the developed activities and its operation, the hotel is a touristic product.

Gabriela Stănciulescu understands by touristic product “a bunch of material and

imaterial elements offered to the consumption and which should bring some benefits

to the buyer, meaning to satisfy him/her” ”(Stănciulescu G. (coord.) (2002), p. 177).

Nowadays the development of tourism is very important because “tourism represents

today, by its content and role, a distinct field of activity, a component of prime

importance of economic and social life for a larger number of countries in the world.”

(Minciu R. (2005), p. 11).

The specialists in the field of tourism support that the touristic offer refers to

“the totality of goods and services which satisfy at a certain moment the touristic

demand” (Mărculescu I., Nichita N. (1977), p. 192), or represent “the totality of

touristic elements (attractions) which can motivate the tourists’travel and the

elements destined to value pleasure ” (Olteanu V., Cetină I. (1994), 119). The level

and structure of the touristic offer are determined, mainly, by the natural, anthropical,

economic, technical and human capital factors without which the services can’t be

achieved.

Regarding the touristic demand, this “expresses a circle of needs of superior

order” (Florescu C., Snack O. (1967), p 10) and „is formed by the assembly of people

who manifest the desire to travel periodically and temporarily outside their own

residence, for other reasons than rendering some activities remunerated at the

destination place” (Minciu R. (2000), p. 45). The touristic demand „is very elastic,

being determined by different touristic needs” (Olteanu V., Cetină I. (1994), p. 121).

Generally “between the demand and touristic offer there can be the following

situations:

- offer > the demand is manifested in the case of touristic structures in the dull season;

- offer = demand, the ideal case when there is a balance of the touristic market;

- offer < demand, in the situation in which the structures of touristic accomodation are

overloaded, respectively during the height of the season.” (Baker S. et. al (2002), p.

20).

The hotel is organised on operational and functional departments and having

in view to obtain the classification category it must fulfil a minimal of obligatory

categories regarding the existing technical-material base for the achievement in good

quality conditions of the accomodation services, those of public alimentation and the

additional services.

The hotel must have a very good aspect (3-5stars), good (1-2 stars) of the

building, a bright or lighting brand with the type, denomination and sign of the unit

category, set up green spaces, recreation areas, surrounding fields and other outdoor

endowment well maintained. Likewise, the hotel must have a car parking with

demarcated parking places of minimum 20%-50% of the number of accomodation

http://turism.gov.ro/wp-content/uploads/2013/05/Ordin1.pdf




71

spaces, endowed with trash bins and ensure the ward of the vehicles. The entrance in

the hotel must be separated: tourists (including an access ramp for the disabled

people), the staff, merchandise and material.

The accomodation department is the first operational department, in the

framework of which the employees of the hotel are permanently in contact with the

tourists and have as attribution the achievement and merchandising of the hotel

accomodation services and the additional services with or without fee. The reception

desk is “the focusing point of the activity inside this department. This is the place

where the clients form their first significant impressions about the hotel”

(Stănciulescu G., Micu C. (2012), p. 94).

The accomodation spaces and services must be organised in the following

way:

- a minimal number of 5-15 accomodation spaces. The minimal surface of the

accomodation spaces must be of 10-20 mp for rooms with 1-4 places, 12 mp for the

living of the apartment, 11 mp for the bedroom of the appartment of the studio. The

rooms must have a minmal endowment: good quality furniture (wardrobe, bed, night

tables, armchairs/chairs/stools, small table, hanger, desk with a chair, spring bed,

mattress and covering), wall-to-wall carpet or carpets, mirror, reading lamp, glasses,

ash-tray, telephone, TV, min-bar fridge (3-5 stars), bed sheet, big pillow for every

person, cover, curtains, drapes, insect screen;

- Reception hall (reception)with a space for keeping the tourists’ luggage and sport

materials. The reception must have a minimal surface of 1-2,5 mp on accomodation

space, respectively big hotels with over 200 accomodation spaces – 150-400 mp, and

for small hotels with less than 200 accomodation spaces – 15-80mp. At the reception,

there is a desk, electrical appliances to pay by card, safe for depositing values,

telephone, fax, medical kit. It is important to mention that the reception hall and the

halls of the floors have only: sofas, armchairs, hall table, light fitting. The reception

service must be ensured by the receptionist 24 hours a day for a 2-5 stars hotel, with a

split program or the reception service accessible by bell or phone outside the

operation hours of the reception for a 1 star hotel. The staff hired as chambermaid (1-

5 stars), doorman (5 stars), porter (3-5 stars) and commissionaire (4-5 stars) also

belongs to the reception;

- The bathrooms should have at least 3 mp and can be for tourists at the hotel

reception or in the room proper/ communal separated on genders, for the staff of the

hotel (locker room, showers, WC separate on genders). The bathrooms of the

accomodation spaces must be endowed with: bath/ shower enclosure and non-slip

mat, washbasin, WC, WC broom and deodorant, mirror, dustbin, 3 towels and towel

horse, bath wraps (4-5 stars), hanger, toilet paper, soap or soap dispenser;

- Space for the service of warding and security;

- Space – dining area for the meals of the hired staff (4-5 stars)

- Administration space

- Office for the chambermaids.

Hotel installation: ventilation system, heating system admitted by the P.S.I.

norms, phonic isolation of spaces, there should be at least a main soure of lighting in

accomodation spaces and an individual source for each place, lifts for tourists and

staff, luggage, room service.

The accommodation department is in charge with the activity of the following

services:



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Serviciul front-office, care îşi desfăşoară activitatea pe secţiunile: recepţie,

concierge, casă-facturare, rezervări şi centrală telefonică. Acest serviciu are ca

principale activităţi:

The front-office service which develop its activity on the following sections:

reception, concierge, cash-desk, reservation and telephone office. This service has as

main activities:

- promotion and merchandising of hotel services;

- receiving, processing orders and administering bookings;

- receiving and registering clients;

- receiving and solving the clients’complaints;

- making the evidence of the number of clients and of rooms;

- achieving the internal and external communications of the hotel by phone, fax,

internet;

- achieving the additional services for tourists: renting laptops, purchasing tickets

for events, sending messages, correspondence, information, waking up at fixed

hours etc;

- recording in the client’s account the payment for the provided services;

- drawing invoices, bills and receiving payment for the provided services;

- the elaboration of the daily reports and the specific statistic situations etc

The housekeeping has as specific activities: cleaning, arranging, administration

of linen and towels, maintaining the rooms and other spaces in the hotel and achieving

some additional services. “Maintaining the rooms and renewing these ones represent

a major objective of the hotel activity” (Zaharia V. (2002), p. 59). The activities of

housekeeping are developed on the following sectors: rooms accommodation for

tourists, spaces for common use, storage rooms, expendables and linen, dry cleaners.

For an optimal operation the hotel should also detain a department of public

alimentation, this being the second operational department. The main activities of this

department are: production, merchandising and serving different courses and

beverages. The spaces afferent to the alimentation department are: space for

alimentation- restaurant, placed in the structure of touristic reception, bar/cafe, spaces

for the organization of events/conferences at hotels of 4-5 stars. Likewise, for the 5

stars hotel they must offer at least 3 services of recreation/relaxation and for 3-5 stars

hotels the space should include a computer and internet connexion. For obtaining the

classification category, the restaurant should have:

signs by which you can distinguish the type and category of the unit;

separate entrances for the supply with products and the possibility of the staff

circulation;

reception and waiting hall for the customers including a dressing room;

reception room, bar, bathrooms, an office for the manager, an office for the master

chef and office for the waiters or distribution space;

climatization systems, installation of air-conditioning in spaces for serving and

production, central heating, current water installation, lightining in all the rooms

for serving, production, anexes, protection system against insects in the

departments of production and storage;

kitchen for the production of the courses, endowed according to the specific of the

food prepared fulfilling all the sanitary-veterinary norms, dish-washer, space

destined to the storage of food and beverages. Having in view the production, the



73

kitchen is organised on work sectors for the preparation: warm menus, cold

menus, meat products, pastry and confectionary;

spaces for the reception and storage of food;

tablecloths or other objects of hygene and decor;

meniu list in which there are presented the culinary preparations with their

denomination, composition and quantity;

serving inventary for: beverages (champagne cups, jugs,gasses, cups, mugs, pints,

cans), food (bowls, pans, trays, plates, covers, salt cellar, toothpicks support),

equiment or uniforms for: waiters, barmen, cooks and under-cooks.

Cleaning is achieved daily or whenever necessary in: bathrooms for tourists

and employees, serving rooms, spaces destined for production and storage. Rooms

destined for production must be cleaned and ventilated so that the smell from the

kitchen should not enter the serving and accomodation spaces.

The department for supplementary services is the third operational department

of the hotel by which we can offer to the tourist: post services, telecommunications

and advertisment (telephone, internet, cable TV, promotion materials), personal

services (laundry, cleaners), renting (laptop, fridge, sport equipment and materials,

boat, chaise longue), sport and physical education services (swimming, skating, schi),

cultural and art services (organisation and purchasing of tickets for shows, concerts),

diverse other services (room-service, wahing and ironing laundry, parking, transport

hotel-airport, swimming pool, sauna, solar, money exchange, selling products and

items of strict necessity), free services (charging, discharging, transport and keeping

luggage, keeping valuable things, sending messages, parking services).

The attributins of the employees of the operational department

„The whole staff which are in contact with the clients (permanently or

ocasionally) must have an adequate professional behaviour.” (Lupu N. (2010), p.

148).

Administrator/general manager:organises and leads the whole activity of the

hotel, establishes the objectives and strategies of development, elaborates the budget,

evaluates periodically the employees performances, signs the contracts with the

suppliers/ interagents/tourist of the hotel and ensure the observance of internal

operation norms by the hotel staff.

The receptionist: meets and distributes the tourists in rooms, ensures the phone

services of the hotel, supplies the solicited information, keeps the evidence of the

phone numbers/fax and the addresses communicated by the tourists, makes out

documents for the hotel.

The governess: ensures the security of the tourists and their goods, checks the

optimal functioning of the installations in the accomodation places and from the other

spaces of the hotel, achieves the service according to the tourist requirements, surveys

the activities in the floor compartment, manages the resources in the accomodation

department.

The chambermaid: cleans and disinfects the rooms, halls, annexes and toilets,

changes laundry and towels, replaces the soap, toilet paper and other products in the

room and bathroom.

The restaurant chief: coordinates and surveys the barmen and waiters’ activity,

programs and organises events and maintain optimal work relations with the

employees.

The waiter: it takes the orders and serves the menus and drinks to the clients,

presents the bills to the tourists, the invoice, takes the payment and then gives the

encashed sums to the restaurant chief.



74

The Barman: serves the beverages to the tourists, keeps the hygene and

cleanness at the bar, cash the payment of beverages and achieves the control of the

drinks stock.

The cook: receives the food and stores them, prepares the courses in the order

of the orders reception, gives the menus to the waiter, respect the hygene in the

kitchen, personal and clothes hygene (wrapper, cap).

Under cook: ensures the hygene of the kitchen, maintains the tools and

equipment in the kitchen, it accomplishes the preparations for cooking (sorts, peels,

washes) participate in establishing the demand of raw materials and achieves the

supply orders, and he fulfils other tasks given by the cook.

The functional departments of the hotel can be:

The sales-marketing department by which there are developed activities such as:

the transaction of contracts regarding the organisation of congresses, conferences,

symposiums, organisation and assistance in the development of actions

contracted, creation and promotion of the brand image, elaboration of studies

regarding profile and clients preferences;

The department of human resources has as role to achieve: selection, recruitment

and the staff’s work regulation, the elaboration of the performance standards,

improvement etc;

The commercial department fulfils supply activities and administration of stocks;

The financial-accounting department has as main attribution the administration of

financial resources, and the evidence and control of payment;

The security department answers to the safety and security of tourists and

employees inside the hotel, using modern means of surveillance and alarm.

Likewise, it achieves instruction programs of the hotel staff regarding the

prevention and way of action in case of danger (fire, earthquake, flood, theft,

terrorist attack);

The maintenance-technical department has as specific activities to fix the defaults

and maintenance: of sanitary and electrical installations, heating and ventilation

systems, specific equipment in the launderette and cleanser.

2. TOURISTIC ACTIVITY OF THE AQUARIS HOTEL

The Aquaris Hotel started its activity in June 2011, being authorised to

develop activities according to classification CAEN 5510 - Hotels and other similar

accomodation facilities is placed in Crivaia Resort on the banks of Gozna Lake at a

distance of 25 km from the town of Reşiţa and 20 km from the Semenic Resort.

According to the information on the date 17.08.2018, on the site of the Public

Finances Minister, Fiscal Information and balance sheets, http://www.mfinante.ro and

on the site of the Tourism Ministrer, Authorization tourism,

http://turism.gov.ro/web/autorizare-turism/, the Aquaris Hotel has as economic

operator S.C. Lis Consulting S.R.L. The management of the hotel must observe the

increase of the turnover and implicitly of the profit thus the economic activity must be

efficient.

The Aquaris Hotel offers the tourists a services paquet formed of:

accomodation services, services of public alimentation, recreation services and

services for renting conference rooms. At the development of the hotel they had in

view to correct combination of colours, forms and the correct placement fro the

technical and ergonomic point of view of the furniture and lamp fitting. These have

the purpose to create a very pleasant environment for the tourists.

http://www.mfinante.ro/

http://turism.gov.ro/web/autorizare-turism/



75

The Aquaris Hotel, classified with 3 stars, offers accomodation services in 27

rooms with or without terrace, with a view to the garden or to the lake, from which 3

appartments and 24 double rooms: 13- with twin beds, 7- with queen size bed, 4- with

king size bed. The hotel disposesof 54 accomodation places, with an average length

of the sojourn of 1-5 days, an occupation degree of 50% in October-March and April-

September.

Based on the information found, the hotel disposes of: luggage room, approach

slope for the people with locomotive disabilities, baby chairs and baby beds, room

service during night, launderette, safe at the reception with individual boxes for

valuable things, pay parking for 26 vehicles, 2 conference rooms completely equipped

with a capacity of 50 places. Rooms are endowed with: system of hotel television

with access to different TV channels, access to internet, minibar, telephone with direct

line for national and international conversations, hair dryer and towels. According to

the information available on the hotel site starting with 01.01.2018, the price list for

accomodation are presented in the table below.

Table 2 Prices for the accomodation services at Aquaris Hotel

Day Type of room Price for double

[lei]

Price for single

[lei]

Monday, Tuesday,

Wednesday,

Thursday

Apartment 260 240

Room 210 190

Friday, Saturday,

Sunday

Apartment 360 340

Room with terrace 300 280

Room without

terrace

250 230

1 night in Weekend

during season

Apartment 500 480

Room with terrace 450 430

Room without

terrace

400 380

(Source: Price list for rooms available on 18.08.2018 on

http://www.aquaris.com.ro/main.php)

We should mention the fact that breakfast is included in the accomodation

price including VAT and the hotel accomodation starts at 1600

and finish the next day

at 1200

. Bookings are available until 2100

of the first accomodation day. For special

situations, according to availabilty, you could solicit the delay of the client’s departure

until 1600

, free or paid, for half of the room price, until 1800

. Children under 8 years

old benefit of gratuitousness in the parents’ room respecting the condition of using the

existing beds and at the tourist demand some extra beds for chidren can be installed in

the room. The price for the extra bed in the double room or apartment is 110 lei/day

with breakfast included.

The Aquaris Hotel can commercialise touristic services for the following

methods:

-booking made by phone, fax or internet;

- without previous booking;

- based on some contracts with tourism agencies.

Based on the direct negociations between the tourism agencies and

accomodation units, there are also certain provisions of the contracts which in time

were uniformised due to: long collaboration between the tourism agencies and

http://www.aquaris.com.ro/main.php



76

accomodation units; understanding between the accomodation units on the one side

and the professional associations of agents on the other side. It is important to

mention that the access with pets and smoching are forbidden inside the complex.

The following types of rooms are arranged in the hotel:

● The standard double rooms without terrace with a surface of 15 mp, dispose of a

matrimonial bed or two separate beds with confortable matresses, 2 low night tables,

2 lamps above the bed, 1 wardrobe, a work space with chair and area for stocking the

luggage. The setting of the room is an elegant one, in warm and pastel colours creamy

and white and the thick wall to wall carpet offers a streak of colour being red, green or

blue.

The bathroom is lighted and endowed with quality furniture in different colours and a

toilet basin, sink and shower enclosure.

The superior double rooms with terrace are set up in the same style with

elegant furniture in neutral colours, combinations of pastel and light colours and a

pleasant and light setting. The beds also contain a relaxing area and the beds are either

matrimonial or single.

Luxury appartments which have as component a living room and a bedroom.

The bedroom has : 1 matrimonial bed, 1 wardrobe, 2 night tables, 2 lamps, a chest-of-

drawers for TV, office space with chair and air conditioning. The bathrooms of the

luxury hotels are very joyful due to the shade of the floor tile and make available for

their clients, towels, hair dryer and free cosmetics. The living room is the area of

recreation and relaxation for the client and it is endowed with: 1 sofa which cannot be

opened but it can be used as bed by a friend or child of the couple, chest-of-drawers

for TV, coffee table and work table.

The services of public alimentation of the hotel are commercialised through:

The classic restaurant Aqua-Aqua Restaurant: 3 stars, 54 places.. It is considered

as the main restaurant which makes available to their clients both Romanian and

international cooked meals.

The cooks of this restaurant have a thorough professional preparation, being

responsible in the first place by the quality of the menus prepared and also by the

services of high quality they offer. The restaurant panorama is towards Văliug Lake

and in the hot summer evenings it is a real delight to have the meals on the enchanting

terrace with a view on the lake.

The day bar Aqua-Aqua Bar: 3 stars, 90 places it is a bar set on a pontoon where

you can rent chaise longues, towels, umbrellas and you can buy refreshments.

Lounge Bar is a bar placed at the third floor where you can have an appetizer or a

digestive drink which enchants the senses, the tourists enjoying the enchanting

panorama of the lake. This bar being destined exclusively to the tourist

accommodated in this hotel.

Garden Place (the terrace bar) is an inner garden full of colour and joy where you

could serve the meal in a marvelous setting, during the summer you can serve the

famous cocktails martini, mojito, margarita, cosmopolitan etc. The cold season is

given the same importance, because in winter this garden is the ideal place to have

hot tea or boiled wine after the effort on the ski slope or after a walk in the snow.

The Wood Bar is built in wood trying to create a space full of warmth and

intimacy having a simplified menu.

The recretion services play an important part in the share of services offered

within this hotel putting a large accent on the diversification of their offer, having in

view the beneficial effects on the way of spending the summer. Tourists have at their

disposal:



77

- Aqua Kids, swimming pool otdoors for children endowed with chaise

longues and playground;

- two beach terraces;

- locker for sport equipment;

- locker for the ski equipment.

The development of the activities which regard spending a pleasant sojourn

and especially agreable of your free time at the place of the touristic destination

consists in the organisation of hikings on marked tracks with experienced guides, trips

by bikes, safari raids with vehicles available by Polas Xperience Center.

This wonderful area in which the hotel lies, gives opportunity to have very

many activities such as:

- nautical sports by the experience of 4 pontoons for sunbathing and

swimming on the lake Văliug’s banks, all being endowed with the necessary

equipment.

- winter sports by the inauguration of 2 ski slopes: The Slope Semenic-Văliug,

which is 5.800 km long.

At 11 km of the Acquaris Hotel there is Gărâna, a village, which also

represents a touristic attaction very famous in the Mountaineous Banat for the lovers

of jazz, rok and folk. The village is best known for the organisation of the Jazz

International Festival.

Services for renting the conference rooms at:

Conference Club which is used for the organisation of some conferences,

presentations or workshops being endowed with a modern system of video

projection and sound. Likewise, the bar of the Conference Club is the place in

which you can spend your free time with friends on a terrace outside and in the

evening there are karaoke shows. The price lis for renting are differentiated: 500

lei between 1000

-1800

, respectively 250 lei between 1000

-1400

.

Conference Room, which has a capacity of maximum 10 persons this space is

dedicated exclusively to the small meetings. Due to the technical endowment of

high qulity, the modern design, the Conference Room is the ideal location for

business discussions, project presetation, analysis sessions, professional prognosis

and formation. The renting price is reported to the number of the hours solicited,

respectively 200 lei/hour.

We mention as arch of touritic interest close to the Acquaris Hotel we have

the following:

Crivaia Resort – placed on the banks of the Gozna Lake at an altitude of 650 m,

Crivaia resort is part of the National Park Semenic- Caras Gorge an area with the

largest surface of quasi-virgin forest in Europe. The resort is recommended to those

who suffer from nervous asthenia, physical and intellectual fatigue, respiratory and

endocrine diseases.

Văliug Lake – is wonderful and it is placed in the top of the tourits preferences who

come in this area especially in summer for peace, coolness, vegetation, fishing,

swimming and sunbathing on the set pontoons. This denomination is given by the

inhabitants after the name of the village it is placed on. Placed at the bottom of

Semenic Mountain with a surface of 13 mp and an altitude of 600m the accumulation

Lake Văliug was built for the supply with water of the area but also for the production

of electrical power.

The Semenic Mountain – is placed at approximately 20 km from Acquaris Hotel. It

hosts the resort with the same name and it can be proud with the three peaks with

maximal atitude: Semenic 1446m, Piatra Gozna (Gozna Cliff) 1447m and Piatra



78

Nedeia (Nedeia Cliff) 1437m. It is among the few plces in the country where the snow

persists around 6 months of the year.

The lake Three Waters – is the biggest accumulation lake in the Semenic

Mountain, it is placed in Gărâna depression at around 37 km from Reșița and it is

situated at an altitude of aroud 835 m on a region of 45 hectares. After this lake was

also given the name The Resort Three Waters placed at around 18 km from the

Aquaris Hotel.

Gărâna Holiday Village – named also Wolfsberg, the holiday village Gărână is

known mainly as it is yearly the host of one of the most important events in the South-

East of Europe and namely The International Jazz Festival in Romania, but it can be

remarked by its architecture specific for the German mountain villages. The holiday

village Gărâna can be found at around 16km from Acquaris Hotel.

Comarnic Cave – it is the longest cave in Banat having a length of around 4.040 m

and it is placed on the left side of Comarnic Valley at 440 m altitude. On a marked

touristic track you can reach at the cave in 3 hours. It was declared a nature’s

monument.

We mention the fact that during the summer season and the winter seson, the

turistic demand for Aquaris Hotel is rather high from the part of the tourists who

come from other counties of Romania but also from the nearby areas. The

management of the hotel aims at the business segment sector, interested to organise

meetings, presentations or conferences and individual tourists. According to the age

criterion and the motivation for travel the touristic demand for Acquaris Hotel is from

the part of the following people:

- young wanting to spend free time in the winter season practising sports specific for

winter (ski, sledging) and summer season for hikings, bike trips, safari raids with

vehicles;

- middle age and families with children who benefit of a swimming pool outside,

playground and trips with the hydro-bike on the lake;

- seniors (old people) who come here for quietness, walks outside and for the

mountain air which is beneficial for the body.

The competition of Aquaris Hotel is from the part of the owners of

guesthouses, villas, rooms to rent and chalets in the area, the nearest are:

Dorf Haus Văliug is a type of house with rooms to rent, with the registered

office in Văliug, no. 806, operator type Registered Sole Trader, classified with 3 stars,

disposes of 6 rooms and 8 places of accomodation. It is situated at 2 km from the ski

slope Văliug and the Lake Gozna. Rooms are endowed with TV, microwave oven,

Wi-Fi and a relaxation area with fire place. The toursits accommodated can rent from

the owner equipment for ski and bikes. Facilities offered by the villa: terrace for

serving meals, garden, their own parking, bar, party facilities.

Gasthof Tirol Guesthouse belongs to S.C. Crivaia Agro Tour S.R.L., classified

3 daisies, it is one of the most searched for guesthouses in Văliug and offers to their

guests a pleasant sojourn in a pleasant, relaxing and quiet atmosphere. The guesthouse

disposes of 14 rooms out of which 7 with matrimonial bed and 28 accomodation

places. The restaurant of the guesthouse offers only traditional food prepared by the

guesthouse staff. The Tyrolese aspect which predominates in each room of the

guesthouse is especially attractive. Facilities offered by the chalet: swimming pool

access, parking with 20 places room service, business facilities, conference rooms and

parties.

Cusma Villa belongs to S.C. Berghaus Zum See S.R.L. with the registered

office in Văliug, Str. Văliug, no. 332, classified 2 stars, there are 9 camere and 24



79

accomodation places in two houses set in a rustic style. It has a large living room

where you can serve the meals, independent sanitary unit, kitchen endowed with all

the necessary tools, central heating, parking place, garden with a playground for

children, grill with wood and coal placed in a corner of the garden.

Sara Guesthouse belongs to S.C. Sara Investment S.R.L with the registered

office in Văliug , no. 706, classified 3 daisies, disposes of 10 rooms and 20

accomodation places. The restaurant of the guesthouse has a capacity of 50 places

offering cooked meals from the Romanian but also the international cuisine.

3. CONCLUSIONS

Created in order to satisfy the needs of superior order, the touristic services

can be: information, organisation, transport, accomodation, alimentation, relaxation

and treatment.

Most of the people, who practise any form of tourism, for one or more days,

know the touristic activity of a hotel, respectively how the reception/room look like,

what services do they offer and the accomodation services, alimentation and

recreation. The activity of the hotel services are develped on operational departments,

by which we ensure the accomodation services by which they insure the selling,

merchandising and promotion of services, administering human and financial

resources, tourists security, and the technical maintenance of the hotel’s endowment.

Indubitable in order to obtain the classification category, the hotel must

dispose of endowment and obligatory minimal services, having in view to achieve

quality touristic services.

Having in view the improvement touristic activity, the hotel owners must

achieve a superior qualitative differentiation of the services in relation to the

competition which should lead to the determination of the intention to buy and the

client’s satisfaction. Likewise, the hotel owners must identify the main factors which

contribute to the obtaining of the desired quality, according to the tourists’

expectations. Although there are more factors of negative influence on the qualitative

accomplishment of hotel services, in practice the most important being considered the

reduced number of hired staff, without which the service cannot be achieved. Besides

the performance of superior quality services, another important element is the optimal

endowment of the technical-material base, the quality of the products ued for the

preparation of menus and their diversification, thus, tourists should not choose other

touristic units for their meals. Morover for the department of public alimentation the

room-service should not miss, because it is an obligatory criterion for a 3 stars hotel

and serving brekfast in the room should be done based on the order note deposited by

the tourists at the hotel reception.

The Aquaris Hotel is the first touristic complex which belongs to the new

concept Aquaris Hotels&Resorts, has an inner and outer beautiful design, with the

aim to create an environment very pleasant for the tourists for spending free time,

keeping a balance reported to the elements from the nature. The hotel detains a very

developed technical-material base with a capacity of 54 places in the 27 accomodation

services, with or without terrace, respectively luxury appartments, double standard

rooms and double superior rooms. In the hotel there are authorised to function also the

two units of public alimentation, respectively the classic restaurant Aqua, with a

capacity of 54 places and the bar Aqua, with a capacity of 90 places. Besides these

two there are also: : Lounge Bar (for the accommodated tourists), Garden Place (bar

on a terrace), Wood Bar (wooden rustic construction), and for relaxation Aqua Kids



80

(swimming pool for kids), terraces on beach, lockers for sport equipment, renting

conference rooms Conference Club and Conference Room. The tourists of the

Aquaris Hotel can visit: Crivaia Resort, Văliug Lake, Semenic Mountain and Resort,

Lake Three Waters, the Holiday Village Gărâna, Comarnic Cave and other touristic

objectives in the area.

The prices practised are accessible to more segments of consumers and

through the offered facilities including the access of people with locomotive

disabilities.

Regarding the touristic activity of the Aquaris Hotel the management must

implement techniques of attracting tourists by: the reduction of the accomodation

services or the prices of the menus, the free lengthen of the hotel accomodation until

1800

, the free serving with fruit/watr/ coffee in the room, spaces set for tourits’ pets,

spaces for smokers, diversification of the recreation services. These techniques must

be promoted using advertisment by internet, TV, radio or through printed materials

offered to the hotel reception: brochures, flyers or visiting cards.

As a threat for the activity of the Aquaris Hotel can be considered: the poor

developed transport infrastructure, the low income of the population, the changing of

the tourists’ preferences, the tourists’ solicitation to increase the quality of services,

the lack of qualified staff available to work in seasons more than 8 hours per day, the

competition existing in the area leads to high expenses in order to keep the leading

position, and the poor promotion of the tourism in the area. Having in view the

increase of the turnover, the leadership of the hotel must not be based on the

Romanian tourists who come every year for their holiday at Aquaris Hotel due to the

setting and the endowment, but they should perform other measures of attracting also

the foreign tourists.

REFERENCES

Baker S. et. al (2002), The principles of the operations at the hotel reception, Bucureşti,

Editura All Beck.

Florescu C., Snack O. (1967), The population’s demand for merchandise, Bucureşti, Editura

Ştiinţifică.

Lupu N. (2010), Hotel– Economy and management, București, Editura C. H. Beck.

Mărculescu I., Nichita N. (1977), Services and modernisation of the Romanian economy,

Bucureşti, Editura Ştiinţifică şi Enciclopedică.

Minciu R. (2000), Economy of Tourism, Bucureşti, Editura Uranus.

Minciu R. (2005), Economy of Tourism, București, Editura Uranus.

Olteanu V., Cetină I. (1994), Services marketing, Bucureşti, Editura Marketer&Expert.

Stănciulescu G. (coord.) (2002), Lexicon of touristic terms, Bucureşti, Editura Oscar Print.

Stănciulescu G., Micu C. (2012), Management of operations in hotels and restaurants,

București, Editura C. H. Beck.

Zaharia V. (2002), Economy and organisation of hotel and alimentation services , București,

Editura Lumina Lex.

*** The decree of the president of the national authority for tourism no. 65/2013 for the

approval of

Methodological norms regarding the issue of the classification certificates of the touristic

accommodatin structure with accommodation and public alimentation functions, of

licences

and patents in tourism available on 27.02.2018 at http://turism.gov.ro/wp-

content/uploads/2013/05/Ordin1.pdf).





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*** Minister of Public Finances, Economic agents and public institutions – identification

data, fiscal information, balance sheets, available on 17.08.2018 at

http://www.mfinante.ro.

*** The Minister of Tourism, Autorisation in tourism, accommodation structures classified

on 06.07.2018; Structures of public alimentation classified on 21.05.2018, available on

14.07.2018 at http://turism.gov.ro/web/autorizare-turism/.

*** Prices for rooms, available on 18.08.2018 at http://www.aquaris.com.ro/main.php

*** Types of de structures of tourist reception with accommodation functions, available on

01.05.2015 at http://www.tur.md/rom/section/689

http://www.mfinante.ro/

http://turism.gov.ro/web/autorizare-turism/

http://www.aquaris.com.ro/main.php

http://www.tur.md/rom/section/689



82

DIRECTIONS FOR THE OPTIMIZATION OF FINANCING

INVESTMENTS IN THE EDUCATIONAL HUMAN CAPITAL IN

THE PERSPECTIVE OF IMPROVING THE QUALITY OF LIFE

IN THE REPUBLIC OF MOLDOVA

Rodica HINCU

1

Olga CONENCOV2

Submitted: 8


th November 2018

Abstract: The accessibility, the quality and the relevance of education determine, to a great extent, the

quality of life, in all countries, including the Republic of Moldova (RM). The development of human

capital ensures necessary conditions for the essential improvement of the quality of life, assuming, at

the same time, important investments in public education system. Given the existence of an outdated

model of funding of domestic higher education studies, the theme reflected in this article becomes

extremely relevant.

Ensuring the innovation potential of modern societies, achieving high performances, capitalizing on

the specific characteristics of the modern economy, based on knowledge and competition, occurs due

to a high level of development of human educational capital. In this respect, the research of the

directions for optimizing the educational human capital investments from the perspective of improving

the quality of life in the Republic of Moldova expresses the goal underlying the researches reflected as

follows.

This article focuses on: the evaluation of the quality of life in the Republic of Moldova, based on

authors' systematized indicators; the research of the interdependence between investment in education

and the development of human capital in the Republic of Moldova, based on econometric model; the

rationalization of the public funding mechanism of the higher education institutions in the RM; the

identification of the directions for improving the financing mechanism of the studies in the domestic

higher education, based on alternative financing methods.

Keywords: Quality of life, investment in educational human capital, financial losses, human capital

contract, social impact bond, public financing.

JEL : H 52, I 22, I 26, I 131

1. INTRODUCTION

Education is a national priority in the Republic of Moldova, being the basic factor

in creating and transmitting new knowledge in the development of human capital, in

promoting European integration aspirations, and plays a key role in creating the

premises for sustainable human development and building a knowledge-based society.

In this context, there is a direct correlation between investments in education, the

development of human capital and the quality of life.

In order to identify: the correlation between the low quality of life and labor

migration; the financial loses of the state as a result of non-employment of higher

education (HE) institutions’ graduates; the new methods of the domestic HE funding,

which would contribute to the expansion of opportunities of access to study in

1 Prof. PhD. hab., Academy of Economic Studies of Moldova, Republic of Moldova, [email protected]

2 PhD. student, Academy of Economic Studies of Moldova, Republic of Moldova, [email protected]



83

domestic HE institutions; the development of educational human capital, which would

lead to high qualification standards, followed by appropriate remuneration, thus

contributing to the increase in the quality of life, different research methods have been

applied. Among these are: the descriptive method used to define some innovative

tools for financing HE studies; the synthesis method, applied to establish a connection

of the researched phenomena; the method of quantitative and qualitative analysis,

applied in the analysis and interpretation of the indicators etc.

2. THEORETICAL BACKGROUND

The concept of human capital (HC) represents today an important direction of

research, a proof for that being the World Bank studies (2018), according to which

HC represents 64% of the global wealth. In this respect, such scientists like Naisbitt

A. and Aburdene P., can be quoted, who state that in the new information society

„human capital has replaced the financial one as a strategic source”. As a result of the

research of the specialty literature in the domain of research, the authors note that the

theoretical and methodological basis of the paper relies in the contemporary concepts

of quality of life, investments in the educational human capital, financing investments

in higher education. The research was based on an in-depth study of the scientific

works of different authors, including those with world-renowned acclaim, such as

Becker G., Kiker B. Schmutzler D., Naisbitt A., Aburdene P. and others.

3. DEPENDENCE BETWEEN THE ELEMENTS OF THE BINOMIAL

„QUALITY OF LIFE – MIGRATION”

3.1. Assessment of the quality of life in the Republic of Moldova

The quality of life (QL) in the Republic of Moldova, in the authors’ opinion, is

presented evasively in national policy documents. However, the authors identify a

series of documents that reflect the decision-makers’ concerns about the quality of

life. Among these documents can be mentioned: Moldova 2020 Strategy; Government

Activity Plan for 2016-2018; Moldova-EU Association Agreement; Education 2020

Strategy; Digital Moldova 2020 Strategy etc. The National Development Strategy

"Moldova 2030", currently at its launch stage, is focused on enhancing people's

quality of life, according to the priority objectives of the sustainable development

agenda for the period up to 2030 and the provisions of the EU-Moldova Association

Agreement. In the given context, in the authors’ opinion, it would be appropriate to

elaborate, under the auspices of the Government of the Republic of Moldova, a

Human Capital Development Strategy with a national, multi-annual character, rallied

to the EU guidelines as one of the components of the Moldova 2030 Strategy, which

would also reflect the social aspects of investments, including investments in

educational human capital (EHC).

In the international practice, the following indicators are used in the assessment

of the level of education and/or quality of life (respective rankings consider RM as

well): the Quality of Life Index (QLI), the Human Development Index (HDI), the

Prosperity Index (PI) etc.

According to the QLI, the Republic of Moldova, in 2015, occupies the 66th place

among 86 countries worldwide and the 31st place among 34 European countries

included in the ranking. It is worth mentioning that the RM occupies a midfield position

between the neighboring countries, such as Ukraine (75th place) and Romania (48th



84

place). Countries with the highest QL remain, over the years, Switzerland and

Germany. HDI values allow the characterization of the evolution of human

development and the comparison of the experience of different countries or regions in

the field of economic and social progress. Starting from these premises, the RM, in

2015, ranked 107th out of 188 countries and territories, with an average human

development. According to the PI, in 2017 Moldova ranks 98th out of 149 countries

and is considered the poorest country in Europe (according to GDP per capita). The

comparative analysis of some European states based on the components that form the

respective index is shown in Figure 1.

Source: developed by the authors based on Prosperity Index Ranking (2017)

Figure 1. Comparative analysis of the Republic of Moldova and some EU countries

according to the components of the Prosperity Index, 2017

Concluding, the authors find a direct interdependence between quality of life

and education. Respectively, education exerts a considerable influence on the

formation of the educational human capital, then on the quality of life, and only then

on the ability to use knowledge for the development of the economy.

Considering the fundamental role of income for enhancing the quality of life, an

important element of research is their analysis. In 2017, the available disposable

income of the Republic of Moldova constituted, on average, 2244.9 lei (or

approximately 130 US dollars), per person per month depending, greatly, on the level

of training. Based on the analyzed data presented by National Bureau of Statistics of

RM (2017), can be concluded that for persons with a higher level of education, the

following are attained: maximum income levels (higher by 30%); a higher degree of

employability in the workplace; lower social benefits compared to other categories,

generating a certain budgetary relaxation. These arguments should encourage the

government to promote incentives for investment in the respective sector.

3.2. Several aspects of educational human capital migration and the quality of

life in the Republic of Moldova

Should be mentioned that the discrepancy between the supply of the education

system and the demand for labor force remains significant. In the ranking of the

World Economic Forum 2017-2018, RM gained 3.9 points out of 7 or ranked 94th out

of 137 states analyzed for the Labor Market Efficiency indicator, registering a

downward trend over several consecutive years. In addition, the proportion of the

employed population with higher qualifications than those required at the workplace

has been decreasing the last few years, while the proportion of people with

qualifications below those required at the workplace has been increasing. This fact

reveals both educational deficiencies and labor market distortions that are incapable

of attracting and retaining human capital. According to the World Economic Forum

0

100

200 Economic quality

Business Environment

Governance

Education

Health Safety/Security

Personal Freedom

Social Capital

Natural Environment Denmark

France

Romania

Bulgaria

Republic of Moldova



85

indicators for 2017, "The ability to hold talented people in the country"/"The ability to

attract talented people to the country", RM scores only 1.9 / 1.8 out of 7 or places

133/134 of the 137 countries included in the ranking, surpassing only Serbia, Bosnia

and Herzegovina, Haiti and Venezuela.

The migration of the Moldovan population over the last three decades has

resulted in a significant phenomenon of brain drain and waste. Statistical data show

that there is a direct correlation between the migration flow and the level of education,

while the latter influences the capacity of integration on the labor market abroad and

the exodus of the domestic educational capital, respectively. The number of people

with higher education, although only 13.3% of total migrants, is steadily increasing as

compared to 2006, when this indicator was only 8.5%. From our point of view, due to

migration, the RM files a net financial loss, which is also caused by the low

capitalization of the costs related to the training of specialists in higher education

institutions. We analyzed the impact of migration by estimating the state’s financial

losses per person (first cycle, license, 3 years of study, budget funding), who decided to

leave abroad, immediately after graduation. To perform the calculation data presented

in Figure 2 regarding annual public expenses per student were used.

Source: developed by the authors based on data provided by the Ministry of Finance of the

RM

Figure 2. Evolution of average annual allowances per student from National Public Budget of

RM, MDL

The future value of the investments (annual expenditures) of the state between

2015-2017, and in the case of migration and non-capitalization of the formed EHC, the

future value of the financial loss (FVFL) were determined. Only the rate of inflation was

considered in this calculation, as a variable of major influence on the future value of

expenditures per student (financial losses), ignoring the other variables of the function a

= f (ri; rd; rr; e), where ri – inflation rate; rd – interest rate; rr – investment risk rate; e –

average efficiency in the field of activity in which the investment is made. Starting from

the formula for calculating the future value of the invested resource, the possible

financial loss (FVFL) will be:

FVFL = Ex2015 +Ex2016 +Ex2017 , (1)

where: Ex are the expenditures per student for the respective year (2015, 2016, 2017).

Considering an average inflation rate of 7%, by substitution, the following

were obtained:

FVFL = 26525,6 +28809,2 +26596,2 =87791 MDL

(2).

According to these calculations, can be concluded that the state’s financial

losses resulting from the direct investment related to the training of one single student,

who is not employed as labor force, are approximately equal to 87,8 thousand MDL

(almost 1.0 million MDL for 10 students). The losses would have been even higher if

the benefits that the state would have obtained after the capitalization of the

accumulated EHC were considered in the calculation.

23255,8 26682,4 26525,6

28809,2 26596,2

32991,7

22000 2013 2014 2015 2016 2017 2018

Average annual allowances per student



86

Based on the given case, starting from 2010, in the RM the priority within the

framework of the occupational policies relied on the inclusion of young graduates in the

labor market. The following steps should be to improve the financing system of high-

quality higher education based on performance indicators, the latter also aiming, in the

authors’ opinion, the level of professional employability (Hîncu et al., 2015).

4. PROBLEMS AND SOLUTIONS FOR HIGHER EDUCATION FINANCING

IN THE REPUBLIC OF MOLDOVA

4.1. Interdependence between investment in higher education and labor

productivity

It is well known, that individuals invest time and money in the process of

acquiring professional education and skills to increase labor productivity. Therefore,

they can expect higher wages, or these lead to a higher level of quality of life.

According to the neo-classical theory of economic growth, a more qualified

workforce adapts faster to new technologies, thus contributing to the growth of

education returns. In this context, the expanded Solow-Swan model describes the

relationship between economic growth and EHC from the perspective of the

neoclassical economic growth theory. As a consequence, also considering the

statistical indicators for the RM, we elaborated this econometric model to determine

the interdependence between investments in human capital and labor productivity.

Thus:

(3)

where: ln is the natural logarithm, PROD(t)/PROD(t-1) – rhythm of productivity growth;

P_FC – gross fixed capital formation as percentage of GDP; P_CHS – expenditures on

higher education as percentage of GDP; t – the fictitious variable for the description of

time, elasticity coefficients and , which exert an influence on the rate of labor

productivity growth. Empirical data on the influence of investments in human capital on

labor productivity are presented in Table 1.

Table 1. The results of the model estimation of the influence of public expenditures

on the domestic higher education on labor productivity

Explanatory variable Coefficient / Significance

Gross fixed capital formation as percentage of

GDP

0.06 (**)

Expenditures on higher education as percentage of

GDP 0.02 (**)

t (time variable) -0.005 (*)

Constant 0.232 (*)



87

R2

=0.75, F-statistic 9.5 (Prob=0.0, the

equation is significant for the

significance level 0,01)

* The coefficient is significant at the significance level of 0.01; ** the coefficient is significant at the

significance level of 0.05; *** the coefficient is significant at the significance level of < 0,1.

Source: calculated by the authors applying the econometric software Eviews 7.0

Based on estimations, the following results were obtained: =0.06, =0.02,

=-0.005. The time variable shows that the rhythm of growth of labor productivity,

on average, has decreased. The elasticity coefficient (share of expenditures on

higher education in GDP) indicates an increase in the growth rate of labor

productivity with 0.02%. The value of elasticity is positive, which indicates the

positive impact of public expenditures on HE on the rate of productivity growth. The

statistical significance test shows that the factor of public expenditure on HE in GDP

does not have a significant impact on the rate of labor productivity growth at the

national level. Assuming that the share of public expenditures on higher education in

GDP will not exceed the limit of 0,6% (as per official current statistics), certain values

were predicted for the studied indicators (Table 2).

Table 2. Results of analyzed indicators’ evolution forecast

Forecast year Share of expenditures on

higher education, %

Rate of labor productivity

growth, %

2018 0,5298 102,294

2019 0,553 102,679

Source: developed by the authors based on forecasted estimations

Considering the forecasted results for the evolution of the indicators studied in

table 2, figure 3 shows the dynamics and forecast of expenditures on HE and of the rate

of labor productivity growth. According to the obtained results, the rate of labor

productivity growth has a moderate growth trend, being also influenced by other

macroeconomic indicators. Broadly speaking, the econometric model confirmed the

initial hypothesis.

____the rate of labor productivity growth; ___the expenditures on higher education as percentage of GDP

Source: developed by the authors

Figure 3. Dynamics and forecast of the share of expenditures on higher education and of the

rate of labor productivity growth, %

4.2. Identifying new financing methods of the domestic higher education studies

The need to improve the domestic HE studies’ funding derives from several

reasons: 1) outdated funding mechanism; 2) continuous underfinancing of higher

education; 3) recent changes in the modern economy, where technology has become

the decisive factor influencing economic growth, while knowledge, skills and

competencies are essential for its use etc. Starting from the fact that in the RM the

state still supports the financing of a competitive student, as well as that of a non-

0

2

0

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019



88

performing student, and for the above-mentioned reasons, we consider it necessary to

improve the mechanism of public funding of domestic HE. It is important that the

new financing model contributes to overcoming the stated problems and assures the

balance between stability and incentives; orientating towards inputs and outputs;

promoting of national goals and institutional profiles; teaching and research as

funding criteria; public and private funding sources; need-based and merit-based

funding of students etc. Such a balanced approach does not currently exist in

budgeting HE in the RM, but could be implemented with a new financing model.

Public financing of the domestic education could be based on a three-component

financing model: core (stable) financing combined with performance-based funding

(based on performance indicators) and innovation-oriented funding (allotted through

performance agreements). The policy objectives of the RM suggest a variety of

performance indicators, which could become part of a new financing formula. The

following indicators are worth being considered: number of graduates, to minimize

university dropout; number of master students and PhD students, to incentivize the

continuity of studies; student mobility, to meet the internationalization objective; rate of

employment, to solve the issue related to migration, unemployment, and to recoup the

investments made, gain economic and social benefits and ensure a better level of QL.

The range of indicators can be expanded according to certain performances of the

universities, such as Ranking Web of Universities, Eduniversal Masters Ranking etc.

An alternative method of financing domestic higher education studies, which

could solve the financing problems it faces, implies the use of social impact bonds

(SIB), as a form of social investment. These are considered in the European Union since

the adoption of the Lisbon Agenda (2000). By social investments is understood that

current social spending for education will be recovered at a certain point in the future,

by a greater economic growth and employability. SIB presumes the use of private

financial resources to fund activities that generate social benefits, accompanied by a

certain financial return on previously made investments. Another alternative,

revolutionary for the RM, implies the use of Human Capital Contracts (HCC), which

offer the possibility for private markets to be more involved in financing higher

education studies by means of financial instruments. These contracts exclude the

marginalization of socially vulnerable individuals. The state can issue Government

HCCs. In this case, the signers of the contract will not be students and investors, but the

state and investors. This contract can be attractive to investors, as they will sign it with

the state, which, with the utmost certainty, will honor its obligations. If a limitation of

state involvement is desired, institutional HCCs can be applied. In this case, the use of

HCCs will require the formation of an Educational Fund.

Currently, these financing methods are hard to implement in the RM, due to an

inappropriate legal framework, a poorly developed capital market, a low investment

culture etc. Taking into account that the domestic capital market is reformed

according to the European model, the diversification of financial instruments and their

use for the purpose of financing education, represents a solution for the development

of the human capital and, implicitly, the improvement of the quality of life.

5. CONCLUSIONS

The mass migration of the young and skilled labor force is one of the phenomena

stagnating the economic growth in the Republic of Moldova. The state’s financial

loss as the result of the non-employment of a higher education graduate is about

87 thousand MDL. Thus, taking urgent measures to stop the migration

http://www.webometrics.info/en



89

phenomenon by promoting appropriate policies (social, investment, fiscal etc.)

becomes the responsibility of the state structures.

Investments in the EHC should be analyzed in the correlation with a series of other

indicators, that characterize the quality of life. The identified indicators comprise, in

their structure, the education as their core component. Observing the inferior level

of Moldova’s rankings according to these indicators can be concluded that the

domestic EHC is modest, with a declining competitive potential. This situation

shows the need to develop the binomial ”investments in EHC and quality of life”.

As a result of the adaptation of econometric models to the domestic economic

realities and testing of the hypotheses regarding the impact of investment in

education on the labor productivity growth, we concluded that a 1% increase of

the share of investments for HE in GDP indicates an increase in the productivity

growth rate with 0.02%.

In relation to the financing of the EHC and under the condition of creating the

necessary premises, can be specified some innovative financial instruments and

alternative methods of financing domestic HE studies, such as Human Capital

Contract and Social Impact Bonds.

BIBLIOGRAPHY

Global Competitivenes Ranking. Available on-line at: http://reports.weforum.org/global-

competitiveness-index-2017-2018/competitiveness-rankings/

Hîncu, R. & Conencov, O. (2017) ”Îmbunătăţirea calităţii vieţii prin investiţii în educaţie”.

Chişinău: Economica, ASEM, nr. 2 (100): 99-107

Hîncu, R., Conencov, O. & Hîncu, V. (2015) ”Réflexions sur la relation entre le financement

de l'enseignement supérieur, la qualité de celui-ci et la capacite de l’insertion dans la

vie professionnelle”. Chişinău: Internaţionalizarea învăţământului superior: realizări şi

perspective. Institutul Internaţional de Management IMI-NOVA: p. 28-40

Ministerul Finanţelor al Republicii Moldova: ”Baza de date BOOST”. Available on-line at:

mf.gov.md/actdoc/BOOST

Ministerul Finanţelor al Republicii Moldova: ”Bugetul pentru cetățeni”. Available on-line at

http://mf.gov.md/ro/buget/transparenţa-bugetară/bugetul-pentru-cetăţeni.

Naisbitt J., Aburdene P. (1985) ”Reinventing the Corporation: Transforming Your Job and

Your Company for the New Information Society”. New York: Warner Book Club,. 308

Publicaţie statistică ”Aspecte privind nivelul de trai al populaţiei” (2017). Available on-line at

http://www.statistica.md/pageview.php?l=ro&idc=263&id=2206

The legatum prosperity index. 2017. Available on-line at http://www.prosperity.com.

Quality of Life Index for Country 2015. Available on-line at

https://www.numbeo.com/quality-of-life/rankings_by_country.jsp?title=2015

World Bank (2018) ”The Changing Wealth of Nations: Economic Development and The

Composition of Wealth”. Available on-line at:

https://datawrapper.dwcdn.net/bMWKu/4.

http://www.statistica.md/pageview.php?l=ro&idc=263&id=2206

https://www.numbeo.com/quality-of-life/rankings_by_country.jsp?title=2015



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PRODUCTIVITY BETWEEN APPEARANCE AND EFFECTS.

A RELEVANT DISTINCTION

Alexandru JIVAN

1

Miruna-Lucia NĂCHESCU2

Submitted: 25


th December 2018

Abstract

The present paper aims to find again the original liberalism approach regarding productivity.

Therefore, it explains the essence of the effects of usual calculus used for determining productivity,

from the perspective of the service provided by the economic entity considered in such calculus. Thus,

the distinction between the usual approaches and the intrinsic meanings of the productive character of

human economic activity is made, and the development and highlighting of this distinction is the core

purpose of the research. The debate is purely theoretical, and no empirical applications or numerical

simulations are made. But, in the purpose of going deeper into the above-mentioned distinction, we

offer an expression of the ideas, through symbols and formulas, underlying the qualitative aspects that

are not captured in the normal approaches that are focused on growth (of the productivity and of the

economy in general). This way, we better separate what seems to be productive from what really

generates positive effects on different levels (the present paper shows different dimensions and levels

that should be considered in the productivity analysis, according to the wished scientific horizon).

Key words: productivity, rendered service

INTRODUCTION

The evolution from the production approach to the sales approach and then to

the marketing approach (with all the steps needed for such an evolution) describes, in

the last analysis, the increases of productivity and the society’s answer to these

changes. We can observe that, starting with the sales approach, entrepreneurs became

concerned with going over the real needs and demand on the market, arriving at

stimulating and even forcing consumption. Promoting the economic development,

based on the generous idea of productivity, lead humanity (after a few centuries of

increased industrialisation) to become a consumption society, proven to be destructive

for the natural resources of the planet (“le capitalisme financier et actionnarial encore

dominant [...] nous a efforcés dans une crise d'autant plus durable que rien de sérieux

n'a été fait pour réduire la pouvoir de la nuisance de la finance libéralisée”, says Jean

Gadrey, în Gadrey, 2010, p. 18, mentioning among other things that “Le culte de la

croissance est fondé sur l'oubli des principaux enjeux sociétaux: toujours plus de quoi,

pour qui et avec quelles conséquences?”). In those last words of Gadery we find

certain essential qualitative aspects that are missing from the race for growth. Also,

Thorstein Veblen criticized the abnormal consumption and waste, so common in

developed societies (Veblen, 2009).

From the economic, social or planet’s point of view, such evolutions became

problems, taking into account the overproduction and supra-production crises, the

exacerbated tendencies towards the throwing away of goods, towards the short-term

1 Professor PhD, West University of Timisoara 2 Associate Professor PhD, West University of Timisoara



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replacement of goods (see the changing fashions and the redecoration fashion, for

example), towards the planned obsolescence of goods and of course, towards a more

intense and even sometimes annoying puffery and advertising meant to renew

consumption, acquisition of goods and orders. The propaganda of the consumption

society has altered even the initial meanings of consumerism, changing its definitions

to a so called “consumers’ interests”.

This means that the increase of productivity – which should normally be a

wanted and positive thing –, through ever-increasing amounts of goods and services

risks developing perverse qualitative effects. Our aim in this paper is to highlight the

need of an increased productivity, but exactly by telling the usual mainly quantitative

approach of the economy from the genuine essence of the productivity concept.

Therefore, we try to make clear, point out and underline this distinction. Such

approach makes necessary highlighting the difference between the way productivity is

most commonly computed (see details in the next section), on one side, and the core

meaning of “being productive”, on the other side. (In the section “By opposition:

intrinsic productivity” we define what productive essentially means, i.e. creative, or

useful, or serviceable; the concept of servicity, as we’ve called it, was proposed in

Jivan, 1993 and developed in other papers, like certain cited later in this paper).

Therefore, our debate distinguishes between the essence of the productivity

concept – the quality of creating value, through rendered service – and the way the

productivity ratio is computed. To begin with, in the next section of our research,

we’ll bring our criticism to the actual manner of calculating productivity. The

inadequacy of the ratios applied in the economic practice was brought to light by

Bossel (1999), as well as by Stiglitz, Sen, Fitoussi (2009a, b). We’ll continue by

exposing the genuine principle of productivity – associated to the initial concept of

intrinsic productivity (in the second section). The approach used is that of servicity, as

defined by Jivan (1993, 2000 and 2014). In the third part of our research, we’ll

highlight the opposition between productivity (calculated according to the usual

formulas) and servicity, which opposition is revealed in expressions that are based on

relevant formulas. Other developments and operationalizing can be found in Jivan

2000 and 2014, and in Jivan (coordinated) 2016, that are not going to be presented in

the present paper. Criticism of the opposite effects generated by the computed

productivity is present all through the debate.

The conclusions refer to the requirement that the commonly calculated

indicator of productivity will not be any more employed as central for the quantitative

increase myth; we also offer suggestions and references regarding corrected and

completed indicators of productivity that should be suitable to diverse employments

(according to the analyses purposes) and, thus, could better express the alternative

rather qualitative ideas (in that what concerns the rendered service, the serviceability

and the servicity concept, see also Jivan, Năchescu, Iași/ 2018).

1. ABOUT THE OPTIMISM OF THE CALCULATED PRODUCTIVITY’S

OPTICS. SOME CRITICAL REMARKS

The basic principle of productivity is to generate some results by using certain

factors, namely by making certain efforts. The results are reflected at the numerator

and certain resources, factors, efforts or costs are considered as corresponding to them

(are allocated to them), being presented at the denominator. In other words, the idea

is: theory considers that the final recorded results or achievements are obtained thanks



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to that what was consumed (was employed to generate a certain effect or future

result).

This approach gives an optimistic character to the central idea of productivity:

even if negative productivities are not excluded (meaning that the value of the output

can be smaller than the input), one doesn’t talk about this possibility but about the

positive results; in reality, talking only about the positive effects means basically

ignoring the possibility of a negative productivity (or of mainly negative effects).

Therefore, the approach is limited to specific situations: a certain economic entity, a

certain time frame, a certain place or certain conditions. The industrial approach

became dominant, along with the development of industry, and it still remains. Until

then, such concerns were not explicitly, but since, the interest in productivity has put

the economic thought under the dominance of industrial specificities. This kind of

approach is still used, even over the non-material also (in despite of being not suited

for it), and also in the knowledge-based economy, where the analysis should be

adequate to the present complexity.

What counts are the net revenues of the entrepreneurs and quantitative factors

are dominant, in despite of the various qualitative aspects of the concerned realities.

So, the so much debated economic growth refers to the increase in the quantity of

food, for example, despite the fact that it’s quality has decreased: instead of thin skin,

tasty Romanian tomatoes (that we do no longer have for a few decades now), we have

tomatoes that are resistant to handling, that are full of fibre inside; instead of

biologically healthy fruits and vegetables, we have biologic material that can be very

good looking but treated by positive ionization (treatment that kills the principles of

life in order to make the product more resistant to storing, handling etc); the taste of

food is chemically influenced, different sweeteners, artificial colours and flavours and

other “improvers” are added.

Quality took shelter behind the “luxury” label – for the privileged ones that

can afford to pay much more. But here we talk about the planet population and not

about the small groups of financially powerful people.

In any case, the productivity is measured after the events take place, using the

registered data. The denominator represents the cost of the system’s inputs that are

considered as causally connected to the results: it is as if the effects are due to these

costs or inputs; the nominator is represented by the revenues registered by the

economic entity, or the income obtained through the offers it made to the market: that

output is considered to be the “creation” of the economic entity or action, the “added

value” generated through the efforts mentioned above. The registered incomes

obtained by the economic entity through market negotiation are considered to be the

counter-value of the company’s contribution, as if the market were the perfect

evaluator of what the entity gives to the environment, its role being considered to be

just giving a monetary expression, ensuring this way the undeniable rewarding of the

participants. Therefore, it is considered that the market can recognise completely and

correctly the contribution and effects of each action or that what a player on a market

gets from the market is exactly what the player was supposed to get. It means that if

the player got it, it deserved to get it. This is the applied economic logic. Problems as

the ones suggested by the Romanian proverb “an uncaught thief is a fair seller” are no

longer considered.

From such ratios results the calculated productivity (as it is called in the

servicity theory, according to Jivan, 1993, 2014). Apart from usage, the term of

calculated productivity ads the fact that the ratio commonly called “productivity” is

just the result of a simple calculus, but it is not always capturing the intrinsic meaning



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of productivity or fruitfulness of human activity, in the most appropriated way. Thus,

we make the distinction between that what is usually calculated (as productivity) on

one hand, and the true quality (which is an internal characteristic) of an economic

entity or activity, of generating (creating, producing) value.

The most important aspect that is ignored by such computing manner is that

the incomes result in conditions of market fight, and, therefore, they are not

necessarily the results of the quality values, but of the confrontation between market

values, which we are going to just consider “amoral” (in order to use a neutral,

accepted and used term). These include primarily the negotiating force. Using the

income of the entity as measure of the “production” is a very individualist and selfish

approach (see all the differences highlighted in Jivan, 2014, between the productivity–

namely the calculated productivity – and servicity). Also, the formulas use the

registered efforts in terms of their market prices: they are the results of market

negotiations too, done on the principles of market confrontations more than based on

fundamental values. The genuine value is exploited on the market by anyone that can,

not being rewarded for (to) the one that creates it. This stands true to John Kay and

other big inventors of the industrial revolution, that died in poverty, their inestimable

contribution being exploited by opportunists; the same stands in the case of nature

exploiting, where nature (the one giving value) doesn’t get anything in exchange (the

effort of those that act upon nature is not a price paid to nature, but to other economic

agents, as sums transferred to suppliers of inputs used in the actions upon nature).

In our opinion, the direct correlation between the results recorded by an entity

and the factors considered (as determinants) can also be put under question.

Not always the productivity ratios (regarding the companies’ interests) are

according to the interests of clients and suppliers (an empiric analysis regarding

partial aspects on this matter was done by Jivan, Curea-Pitorac, Tînjeală, 2018).

Such aspects, and others, that we do not develop in this study, generate the

need for some conceptual and methodological delimitations, and therefore of calculus,

ensured by the servicity concept (see the next section).

2. BY OPPOSITION: INTRINSIC PRODUCTIVITY (SERVICITY OR

SERVICEABILITY)

From what was shown in the previous section, some should not infer that we

criticise productivity itself. On the contrary: we support the idea of productivity. We

criticise the manner of calculating it, which doesn’t always express the whole and

correct meaning of the quality or characteristic of producing or creating. As opposed

to what productivity got sometimes to mean (e.g. purely quantitative aspects of values

absorbed or collected from the environment), by this paper we support the idea of the

intrinsic productivity (i.e. of the quality of generating useful effects). And we do such

support not by the commonly calculated productivity, but by promoting the theory of

servicity, theory that we consider more appropriated for the principle of creating

useful effects (service, serviceability).

The concern of the scientific world in the economic field focuses mainly on

business (the excellence in business, management improvement and so on), even

though improvements at this level can only lead to the redistribution between the

economic actors and not to increasing the general wellbeing. If a company enterprise

or economic activity becomes more efficient, it only surpasses others, taking away

some of their market (clients), through diverse methods that increase the relative

competitiveness. But such results do not necessary mean absolute optimisations. The



94

analyses are usually done at individual level, locally, and not on the level of human

society as a whole; thus, the desired specific improvements are not constantly and

with priority analysed at the general scale, from a general point of view (above the

specific, local, instant, individual one).

The common principle of calculating productivity is, in our opinion, an

abusive one, as it has inculcated in certain practical directions (individualism,

hedonism, saving of self-effort and excessive use of external values, translated into

exploiting of the environment by any individual entity that considers its activity on

the basis of such calculated productivity). From the individual point of view – namely

according to self-interest which is legitimate – this cannot be condemned; but this

becomes a problem when the economic science appreciates economic entities,

activities and even the economy as a whole by the same criteria. Such common use

(and we repeat: not only in individual analyses, but also in systemic ones) led to the

consumption society and to the destruction of the planet, in the name of wellbeing,

productivity and economic growth.

Counting on the improvements suggested by the invisible hand principle,

would firstly need going back to the conditions of the pure and perfect market; or

such theoretic perfect conditions, if they ever existed in economic reality, are no

longer existent for more than one and a half century. So, talking about wellbeing stays

just a theoretic point of view, as in reality, everything has as purpose the individual

profit of those interested in keeping this system of economic evaluation (of activities,

entities and economy in general). And the matter of growth and productivity became a

real ideology: it is highly promoted, through all means, as the calculation of

productivity has given it the power to dominate the consciences at a large scale.

At least, through its effects, the manner of evaluating quality by constantly

increasing quantities has proven to be inadequate at systemic level: if in the case of

individual/punctual analyses (on short term, short-sighted), such appreciation can lead

to positive results for the concerned entities (beneficial specific local results on short

term), from the systemic point of view, they have proven to be destructive (on long

and very long term, see Jivan, 2011).

Without developing it in this paper, we should consider Bastiat’s remarks

regarding the value-service in a harmonious systemic context (Bastiat, 1982). The

initial senses of the productive-creative qualities of an economic entity were systemic

and functional at the whole level, by definition: their core is the idea of effective

creation, in order of performing services. The rendered-service means a beneficial

effect brought to the whole system, e.g. to certain customers. This is the idea coming

from the well-known references of Adam Smith regarding the gains obtained by the

suppliers for themselves, exactly through the service performed (benefit generated) by

them for the client; the meanings at the scale of the systemic whole come better out

from his main opus, The Theory of Moral Sentiments – see, for instance, Smith, 2017;

this first book was considered by Smith as his principal, despite the later economists’

preferences). This approach, at the general level – even though it is done through the

logic action at the individual level – contains even the later idea of the optimum

described by Pareto (see the references to the specific optimum and the general

optimum done by Jivan, 2014).

Unfortunately, the “invisible hand” was interpreted exclusively in the private

interest and, thus, it is still supposed as well functioning despite of no longer having

the conditions of a market with a pure and perfect competition. Productivity was

reduced, from its profound genuine meaning, to what the usual calculus formula can

still express by dividing the income to the factor considered. As in so many cases, the



95

concept was changed by the way of being represented. The general use of such

formulas (concretized in a simple ratio) changed the initial physiocrat and classic

meanings of productivity, which is an abuse. But this abuse – even if it is a common

one- shouldn’t eliminate the use of the genuine correct concepts. These genuine ones

are for us the fundamental ones. So, they should be brought back, quicken anew, and

the ones that resulted from an insufficient rigour in constructing the calculus

formulas, should be corrected and brought to “the right path”, the path of real

concepts regarding value and its creation.

An economist in a company is mainly preoccupied by the company’s business

interests that he must follow. His interest is focused on the viability of the own actions

of that (particular) economic entity, at a specific moment and place, or of a strictly

individualist interest. But a researcher should adopt a larger horizon than the specific

one: he should test the validity of actions or entities beyond their specific interests,

namely at a general level, from the Pareto optimum point of view and, moreover,

according to a multi-criteria system (according to Jivan, 2014).

To the manner of judging the economic life that we presented above (in the

precious section), it is opposed the concept of genuine productivity, as it was

conceived in the context of genuine liberalism (Physiocrat and Smithian) and as it is

regarded in the servicity concept. This approach involves considering, beside the

individual implications, the “external” ones, in a distinctive manner – what is

considered by servicity in its narrow sense. The resultant at the assembly level is

captured in the idea of servicity in a broad sense (for important detailing, see Jivan,

2014, and also other researches, starting with Jivan, 1993, and continuing with

numerous further developments, including Jivan coord., 2016.) This suggestion is for

multi-criteria approaches and as broad as possible, in the purpose of ensuring the

scientific character for the economic analyses, in a manner consistent with the

knowledge-based society).

More than the differences between productivity and servicity shown in Jivan

2014, we can also highlight the opposition between the mainly optimist character of

productivity (as presented in the previous section) and the more complex character of

servicity. We consider that the productivity concept is limited, in a selfish way, to the

interest horizon of the analysed entity (the entity is not preoccupied by the effects –

positive or negative ones – on the environment). So, besides the fact that the costs

(inputs) and the wanted advantages (the output) are judged exclusively for the entity

(from its point of view), they are considered in an optimistic manner, as effort

(spending) now, for future gains, after the development of the process. There is

always a risk, but the approach (in a probabilistic sense) goes on the line of revenues

that are “worth” the initial costs, efforts to which those revenues are associated. This

optimistic approach is also connected to the strictly specific focus (punctual, selfish

even) that we were talking about (with reference to Jivan, 2014). The input efforts,

after the entity criteria, concern just a certain action or entity, and after the moment

criteria, are past efforts, done before the activity. The results are of output type,

meaning that according to the entity criteria they concern just that action or entity, and

according to the moment criteria, they are future results, that appear after that activity

takes place.

The usual approach on productivity, concerning the analysed reality, is

therefore limited (selfish) and, by being limited, it is optimistic. On the other hand, the

servicity approach takes into account the whole reality, namely the whole impact of

the activity (with the limitation of the scientific knowledge at the moment of the

analysis). The complete optics of servicity aims to take into account the complete



96

effects and efforts. At the input efforts (considered for the calculated productivity),

other efforts that are connected to that entity’s activity are added: the efforts of other

entities, the future efforts (beside the past ones). Regarding the result effects, besides

the output ones, we also have complex effects of outcome type (mediated), effects

that appear both at the analysed economic entity, as well as at other entities, possible

effects during the activity but also before the activity. In this complex, systemic

approach (with an exhaustive touch), the effects can be both positive and negative, so

not only the side-taking approach is extended to a complex, systemic, generalised one,

but also the optimistic touch is replaced with a neutral one that has a larger conceptual

horizon, of the global effect type. These effects can be of a general effort type, of

costs (negative results); and if they are positive, they are the advantages, winnings

type. In both cases one should establish which are the entities (i.e. the payers that bear

the efforts, and, respectively, the beneficiaries of the gains), and, as well what is the

moment each positive or negative effect appears, the moments of paying the costs or

of getting the positive effects.

All these aspects should be considered when designing indicators (ratios). For

further developments of such more complex approaches, including new ideas of

correcting the productivity ratio and other improvements besides the already cited

papers, one should also see Jivan (2000), as well as other more recent papers like

Jivan, Năchescu (2018), for instance.

3. SOME PRINCIPLES FOR REVISING THE PRODUCTIVITY TOPIC

If we take into account the broad and narrow meaning of servicity (Jivan, 2000

and 2014) and noting with σ the narrow meaning of servicity, then we can write:

σ + w = 1. (1)

The servicity in the narrow sense essentially expresses the aspects of

qualitative contribution (service rendered to other entities than the analysed one).

Such contribution (service) is not limited to the "produced" quantity, but primarily

concerns the contribution made by the activity or the entity considered as a quality

created. If we take into account these latter achievements (the qualitative plus

realized), in short, the quality of the achievements (k) means that any activity can be

expressed by such positive results (taken into account from a qualitative point of

view, considering their qualitative importance), reported against some negative effects

(of the kind of efforts, destruction, also in terms of quality, above all). This reasoning

leads to an expression (writing) of the servicity in the following form:

σ = k/(1- k) = 1/[(1- k)/ k] = 1/ (1/ k – 1). (2)

From the already written (1) and (2), it follows that:

w = 1 – σ = 1 – k/(1 – k) = (1 – k – k)/(1 – k k) = (1 – 2k)/(1 – k) (3)

We can read this relation as follows: the higher the quality (i.e. the service

brought to customers by the activities performed), the lower the productivity for the

enterpriser. Indeed, as business receipts, income, generally the effects for a particular

economic entity are desired to be bigger if compared with the consumption of the

factors that this entity bears, the more the effort it makes (the costs incurred by it) for



97

the achievements concerned are lower (and, as is normal in any negotiation, it wants

them as small as possible) Any economic entity seeks to achieve as high a

productivity as possible (advantageous to itself); this is because, by the effect of

increasing its productivity faster than the increase of the denominator in the usual

formula for calculating productivity, the entity will be in an advantageous position if

compared to the entities with which it engages business relations (including

negotiations). But individualistic concerns of this nature can have negative effects at

the general scale (at the level of a larger system, that is not reduced to the single

individual), if there is no Pareto optimal situation (Jivan, 2014). The overall

contribution for the environment (σ) and for the whole system (σ + w) is even lower

as the Pareto optimality is not achieved.

Suppliers do not especially aim bringing quality for the customer (creating a

quality image may be just a way, a means for selling at advantageous prices for the

enterpriser); but business target obtaining revenues, best selling price (in the

enterpriser's direct or indirect favour, therefore it may be to the detriment of

customers). But, on the contrary, from a servicity point of view, the selling price

should be as small as possible to the advantage of the customer:

σ = k/p, from which follows p = k/σ (4)

As already suggested, the purchase price of the entrepreneur's offers can be

increased by increasing the quality. But if it increases, it means lowering the servicity:

the higher the price, the lower the rendered service (for more accuracy, we make the

explanatory note that servicity decreases if the price increases faster than the quality

offered at that price.).

Using (4), it follows:

w = k · p = k · k / σ (5)

and vice versa, from, of formula (5), it follows:

p = w/ k, (6)

i.e. the price increases productivity (in the advantage of the producer), but not

(necessarily) the quality for the customer. So in formula (4) above, if we replace p in

formula (5), it follows:

σ = k/(w/ k) = k 2

/w. (9)

It expresses that serviceability is increased by the increase of quality in

customer's advantage, but is affected by (inversely proportional with) the productivity

growth.

Productivity can grow by increasing the quality but also by market means

(like, for instance, imposing the negotiating force, using formal ways of "enchanting"

clientele and psychological prices or cunning), which means, in fact, the reduction of

the actual contribution, the diminution of the rendered service.

Servicity, on the other hand, increases the smaller the difference between the

higher price paid to suppliers and the market price. It also depends on the difference

between the normal market price (the one under fair conditions of competition, i.e. for



98

pure and perfect competition) and the lower purchase price for the trader in the

monopsonic position (the difference between the market price and the price paid by

the monopson to its suppliers); here are also included the salaries paid to employees in

poor countries by the multinational company (coming to such countries just to take

advantage of the lower price of local labour: employees living in conditions of higher

poverty, of lower incomes and under higher unemployment conditions, must bear the

same level of work as Western employees, but on lower pay for their labour). We also

may take into account the difference between the lower prices claimed from buyers

and the market price, the difference between the monopoly price (the higher price

claimed, by the company in monopolist position, to the buyers) and the market price

under fair conditions of competition.

On the logic of the "buyer's gain" principle, the difference between the price

the buyer would have offered and the lower price required by the company (although

it might require more to that customer segment) is another aspect to be considered in

this matter. We can also consider the difference between better quality and average

market quality offered to buyers at the same price, as well as the spending on quality

investments that are not recovered by increased prices.

From the lines here, it could result that most companies have negative

servicity! We mention in particular the practical cases of monopoly and monopsony

(i.e. companies recording the highest productivity ...).

Servicity (serviceability) would increase if companies would pay higher wages

and better prices to other suppliers, higher than market prices, if a firm would bear

higher costs to ensure customers a higher quality than customer-paid, with special

concern for more security and sustainability than the common market level, at the

same price (more advantageous to upstream and downstream of the concerned

company, than usual in the consumer society). We highlight such aspects because in

today's economy, production is not precisely in the quality purpose, nor for the

protection of the planet's resources, but rather especially for selling as much as

possible, that is to say even with calculated perishability, and for often replacing

goods (by change of fashion, "redecorations", etc., which do not really represent

necessities, but only respond to the purpose of buying other goods, renouncing the

previously acquired ones).

Serviceability would be greater if companies would be content with a lower

income (for themselves), in the purpose of paying better pricing to their suppliers

(including higher employee wages), if they would provide customers with outputs at

lower prices, if some of their profits were left unrealized for reasons of preserving

nature, the forests of the planet, the ozone layer, and the conditions for the future

generations of the nation (Manoilescu, 2012 was talking about income for the country

too, not exclusively for a particular private entrepreneur) and of mankind (the Kyoto

phenomenon). But, of course, such ideas will not benefit from a good image, maybe

even a negative image, or, more simply, they will be silenced, because most of

research and publications are based on sponsorships just from economic entities that,

many of them, practice exploiting ways in relation to their environment, benefiting

from their dominant positions. However, their situation is different from that of many

small economic entities which, in order to obtain certain market positions, are forced

to apply market action closer to the models of pure and perfect competition: namely,

the ways of quality and of reduction prices. The latter are beneficial ways for the

environment of the enterprisers, rather than for themselves, that is to say, in the light

of the principle of Adam Smith's invisible hand. (We do not insist here on the

question of the distinction to be made between operating under dominant conditions



99

on the market and, respectively, in conditions close to pure and perfect competition;

we intend to develop it in future approaches on the topic.)

Servicity means efficiency of the performance (for the client, in its narrow

sense, and for the entire system, in the broadest sense). For the provider, it means

certain income only to the extent that, through this effectiveness for the client, for the

whole environment and the systemic assembly, in a marketing optics, the provider

(supplier) advertises, improves his/her image, ensures his/her clientele and market

position, under competition. That is, the inherent selfishness of the businessman is

satisfied exactly by satisfying the customer and by advantageous conditions offered to

suppliers, and not by other means, which moralist Smith has not imagined, in his

times (but which Veblen has revealed; see Veblen, 2009, for example).

On the subject of this section, we also mention Jean Gadrey's statement: “[La

qualité] ne se verra pas ou se verra peu dans les mesures de la croissance «en volume»

ou «à prix constants» sauf si l'on en change radicalement les méthodes pour qu'elles

deviennent capables de refléter la «croissance qualitative durable», ce qui est loin

d'être évident.” (Gadrey, 2010, p. 86-87). Criticisms on the way productivity is

calculated can be found, for instance, in Bossel (1999), then Stiglitz, Joseph, Amartya

Sen, Jean-Paul Fitoussi (2009b). Certain attempts to materialize some corrections on

productivity calculations can be found in Jivan (2016).

4. CONCLUDING CONSIDERATIONS

Productivity is a key principle of the economy since industrialization. Putting

it under question is at least unusual but necessary, given the abuse of quantitative

elements and, in this context, the abusing of the planet, especially as the economy has

reached the stage of consumer society at all costs (for the sake of obtaining the gains).

Economic growth dominates economic theory and practice and is further supported by

propaganda interested in gains (gains only or mainly for ones) that are, unfortunately,

destructive at the planetary level (for the systemic ensemble that includes both the

actors that profit, and other actors, as well as the natural environment/Mother Nature).

The bias to increase consumption through false stimuli, exceeding the human needs,

cannot be the natural; but it is just for the sake of whims that are not justified (the

"natural" word here gives the meanings envisaged in the conceptualism of the original

liberalism). But the problem that makes necessary putting under question such

productivity growth – and our present discussion – is that these individualist

economic bias we are talking about are indifferent and insensitive to the environment,

so perverse (destructive). As a cause for the negative effects of the quantitative

approach, our approach charges the usual way of judging everything in terms

appropriate only to the industry.

The issue is simplified when we find out (unveil) that everything is largely due

to a routine of calculations (see the section "About the optimism of the calculated

productivity's optics: some critical remarks", and that those calculations do not even

reflect the true meaning of the genuine concept of productivity, of genuine

liberalism): this initial concept is grounded by the idea of creation as rendered service

(remarks and developments in the section "By opposition: intrinsic productivity". And

the innovations modelled in the section "Some principles for revising the productivity

topic" make clearer the distinction we highlight, pointing out the very opposite

character of the calculated productivity towards the original and fundamental

meaning.



100

The conclusions of the theoretical debate presented in this paper consist in

putting under question and discussion of this indicator itself, with highlighting the

necessity of correcting, completing or even replacing it, depending on the specific

field on which the economic analyses are carried out. We underlined that any

improvement in the economic field gets an importance that is bigger than just

punctual (thus being more important than a redistribution, than absorptions from other

economic entities) only if it proves to be a general optimization, which can be

considered beneficial on the Pareto optimum line; in this approach that should be

above the individual interests, the optimization should, moreover, be checked on a

multi-criteria system (i.e. from the point of view of a generalised Pareto optimum).

If the manner of calculating productivity is criticized in the first section, it

turns out that not the idea of productivity is wrong, but only its transposition into

practice and the abuse of an inadequately rigorous calculation formula that cannot be

appropriate and beneficial for all possible cases. In the second section, on the

contrary, the idea of productivity was supported, but in a manner that better

corresponds to the genuine essentials of this concept, as expressed in the original form

of servicity. The opposition between (a) the fruitful character of an economic activity

– that is to generate value by rendering service (delivering “good”) – and (b) the

calculated productivity was underlined in an operationalized form in the third section,

resulting in a more eloquent distinction between the issues addressed/discussed in

previous sections. It is thus underlined that the current way of calculating productivity

does not stimulate the quality of service (of serving the customer or other components

of the system), as it should to correspond to the very essence of the concept of

productivity; indeed, productivity understood in the usual manner may have adverse

effects, conditions in which the legitimate interests of the enterpriser can continue to

be realized on the expenses of the environment.

The paper refers to some researches that are related from the point of view of

the ideas approached, in which certain other developments are being made.

BIBLIOGRAPHY

Bastiat, F. (1982), Harmonies économique, Libraires Guillaumin et Cie, Paris.

Bossel, H. (1999).Indicators for Sustainable Development: Theory, Method, Applications. A

Report to the Balaton Group.Winnipeg, Manitoba, Canada: International Institute for

Sustainable Development.

Gadrey, Jean, Adieu à la croissance. Bien vivre dans un monde solidaire, Les petits

matins/Alternatives économiques, Paris, 2010

Jivan, A. (1993), “Services and Servicity”, Services World Forum Bulletin, nr. 3,4/1993,

Dublin, pag.16-24

Jivan, A. (2000), Servicity – More than Productivity in the Service Economy (in Romanian),

Sedona Publihing House, Timişoara

Jivan, A. (2011), “Completions to Marshallian Out-Look, Consistent with Knowledge Based

Economy”, Timişoara Journal of Economics (TJE), Vol. 4 Issue (nr.) 1(13), 31 mai

2011, p 11-18

Jivan, A. (2014), “Productivité et servicité”, Economies et Sociétés, No.4/2014, Cahiers de

l’ISMEA, No 4/2014 (Série « Economie et Gestion des Services » EGS No 15, Avril

2014), pp 579-599

Jivan, A. (coord. 2016), Eléments of Intellectual Services Productivitye (in Romanian),

Mirton Publishing House, Timișoara



101

Jivan, A. and Miruna Năchescu (2018), “Environmental Approaches in Productivity Analysis.

Improving Proposals”, paper presented and accepted for publishing in the 2nd

SCIENVIR International Conference (“Scientific Convergence and Interdisciplinarity

in EU Environmental Research”) June 7-9, 2018, Iaşi, Romania

Jivan, A., Ruxandra Curea Pitorac, Diana Tînjală (2018), “Serviceable Results of Five

Automotive Companies. Comparisons Concerning Certain Originally Calculated

Indicators”, Proceedings of the 32nd IBIMA Conference: 15-16 November 2018,

Seville, Spain, ISBN:978-0-9998551-1-9 (accepted for publishing)

Manoilescu, Mihail (2012), Opere complete, vol. I, Forțele nationale productive- și

commerțul exterior. Schema teoretică a comerțului international, Editura Academieei

Române, București.

Smith, Adam (2017), The Theory of Moral Sentiments (in Romanian), Publica Publishing

House, Bucharest.

Stiglitz, J. E., Amartya Sen, Jean-Paul Fitoussi, (2009a): Report by the Commission on the

Measurement of Economic Performance and Social Progress, available on

http://www.stiglitz-sen-fitoussi.fr/documents/rapport_anglais.pdf.

Stiglitz, Joseph, Amartya Sen, Jean-Paul Fitoussi (2009b), Vers de nouveaux systèmes de

mesure, Maison d’Edition Odile Jacob, Paris.

Veblen, Thorstein (20009), Teoria clasei de lux, Publica Publishing House.

http://www.stiglitz-sen-fitoussi.fr/documents/rapport_anglais.pdf



102

THE ROLE OF INTERNAL BRANDING TO INCREASE THE

ENGAGEMENT AND MOTIVATION OF HUMAN RESOURCES

Irena KENAROVA-PENCHEVA1

Diana ANTONOVA2

Submitted: 1

st December 2018 Approved: 10

th December 2018

Abstract

In many areas of the economy in recent years the main problem is the lack of qualified and sufficiently

motivated staff. This article introduces internal branding as a tool that managers can use to motivate

and engage their employees. There is a literature review of the concepts of internal branding, internal

brand equity, employee brand and the engagement of the staff with the goals of the organization. The

aim is to show the connection between internal branding and the engagement of the staff and the

benefits that arise from it.

Keywords: internal branding, employee engagement, human resource, employee behaviour

JEL: M 12, M 14, M 31

1. INTRODUCTION

Nowadays the most valuable asset of each enterprise is the staff. Its behavior

and motivation depend to a large extent on the overall performance of the

organization. The literature of internal branding makes it clear that branding is

recommended for the management of every business and is a very important condition

for its success. When implemented strategically, it can serve as a viable competitive

advantage for the company. The particular importance of this study comprises the

detailed discussion of internal branding - presented as the main driver for increasing

employee engagement and improving its performance.

2. BRANDING & INTERNAL BRANDING

Viable enterprises are built through continuity and consistency in brand efforts

over time and in every activity that is being done. This is equally valid for large and

small companies. Any contact with the target customers should reinforce and

strengthen the brand position of the organization. This means that staff must also

clearly understand the brand strategy to support it with its actions. Everyone involved

in implementing it needs to know the target markets and brand positioning of the

company (Sexton, 2011). A complete review of the literature on these topics is

beyond the scope of this article. Therefore, the following sub-sections focus on the

key contributions in each area.

1 PhD student, MSc, University of Ruse “Angel Kanchev”, Bulgaria, [email protected] 2 Prof., PhD, University of Ruse “Angel Kanchev”, Bulgaria, [email protected]



103

2.1. Branding

The word "brand" designates a name, a sign or a symbol that identifies a

service or product. Brand-building is the creation of a brand. Branding is the process

of creating and developing the brand. It is the main way for product differentiation

and a tool to promote production and create long-term customer relationships based

on the core consumer values that are embedded in the brand. In short, branding is a set

of sequential activities and directions to create a complete image of the product or

service that corresponds to consumer demand. In short: branding is a brand

management (Panova, 2014). The active use of branding began in the Middle Ages

when craft shops marked their products with special brands. But the thriving of the

brand, which is associated with the second half of the twentieth century, is due to the

fact that a large number of similar products appeared on the market. The brand

highlighted the important characteristics of the product. It also facilitated the choice

of goods. Brands brought not just goods and services. They brought certain values and

impressions to consumers. Value added is substituted by the physical properties of

metaphysics. The quality determination is made by the emotions generated from the

use and possession of a unique brand (Panova, 2014).

2.1.1. Purpose of branding

The aim of branding is to create a different image of the brand and to form a

clear direction of communication. Branding also includes market research, product

positioning, branding description, slogan, visual and verbal identification system

(trademark, corporate identity, packaging, sounds, etc.), the use of identification and

communication media to reflect and to convey the idea of the brand (Panova, 2014).

2.1.2. Stages of branding

The main stages of branding are:

analysis of the market situation, the target audience (current status of the

brand, if it is already created);

planning (formulating the essence of brand positioning, developing of brand

management strategies);

building the brand (creating a system of visual and verbal identification,

developing the image of the brand, collecting documents for the creation of a

brand);

brand promotion (using integrated marketing communications to build a stable

relationship between the consumer and the brand);

monitoring and evaluation of brand performance (Panova, 2014).

2.2. Internal Branding

Nowadays there are numerous challenges in brand management. Internal

branding is a major challange in many companies. Most of the employees (not just

those of the marketing departments) understand and appreciate branding. It is

important for the company to organize events and surveys within the organization to

make it clear that each employee makes the necessary quality support for the brand

(Kirilova, 2009). Brand management is most successful when everyone in the



104

organization has a clear understanding of what the brand is, how its actions help or

harm the existence of this brand and, accordingly, assess how to work harmoniously

(Antonova, D., S. Kunev, T. Hristov & M. Marinov, 2018). The employees of the

brand owner play an increasing role in presenting individual and corporate brands in

the interface with the current and potential customers. As a result, domestic branding

has recently emerged as an important issue for the success of the market brand

(Baumgarth, C., Schmidt, M., 2010). Internal branding is perceived as an approach

that offers mechanisms with insufficient potential to motivate staff to synchronize

their work values and behavior with those of the brand. Internal branding acts in two

directions on the attitude of the brand-related staff. On one hand, it motivates them by

providing work satisfaction and by creating an inspiring working environment. On the

other hand, through internal communications, employees get to know the brand of the

company, as well as their role and responsibilities in implementing brand strategies.

(Stoycheva, B. & D. Antonova, 2018)

2.2.1. Internal brand equity

The wider concept of the brand is well established in the marketing literature

(de Chernatony, L., & McDonald, M., 1998) (Keller K. L., 2008) (Reizebos, 2003)

and is usually defined as the value added to a product or product portfolio that is due

to a brand name, brand logo or other attributes of the brand (Aaker, Managing brand

equity: Capitalizing on the value of a brand name, 1991) (Farquhar, 1989) (Keller K.

, 1993) (Yoo, B. & Donthu, N., 2001). By analogy, the internal brand equity is

conceptualized as a growing branding effect on employee behavior. It describes and

measures incentives provoked by brand respect among brand owners' own staff in the

direction of brand support, in their organizational roles and more generally, at present

and in the future. Therefore, the internal brand equity is great when the behavior of

the employees is consistent with the brand identity and the individual employees are

predisposed to transmit the brand consistently and enthusiastically to internal and

external stakeholders (Baumgarth, C., Schmidt, M., 2010).

2.2.2. Employee brand

Employee behavior should be as consistent as possible with regard to brand

identity and the expression of brand values. It is not just a question of proper self-

presentation and communication, but also a personal identification with the brand, an

emotional attachment to it, and a motivation to engage in the brand strategy through

direct interaction with clients and influential individuals (Baumgarth, C., Schmidt, M.,

2010). By definition, the employee's brand is the image presented to the organization's

clients and other stakeholders through its employees. This is extremely important for

the welfare of most organizations, taking into consideration the workers' potential to

create either a very positive or an extremely negative image. Until now, research in

the field focused primarily on the employee branding process and the positive results

likely to be realized by organizations that successfully manage the process (Mangold,

W. G., Miles, S. J., 2007). The aim was to ensure that employees who have direct

contact with customers, partners in the distribution network or other stakeholders

share a common understanding of the brand, feel equally enthusiastic about it and

design it in a unified way (Baumgarth, C., Schmidt, M., 2010).



105

2. EMPLOYEE ENGAGEMENT

The engagement of the employees is an indicator of their motivation. It also

reflects their behavior when performing their official duties. Over the last 80 years

employee satisfaction has been presented in the scientific community as a key factor

for the effective implementation of defined strategies, programs and tasks. Today, it is

argued that labor force engagement is an even stronger factor that directly impacts

market outcomes, while satisfaction does not always imply such an impact. There is a

relationship between the two categories: satisfaction is a prerequisite for the formation

of engagement. It is important to note that there is an opportunity for the company to

engage its employees directly through training and bidirectional communications

without being interested in their satisfaction. In this case, the management risks, for

example, not to assess adequately the efforts made (i.e. according to the expectations

of the employees), thus causing staff dissatisfaction. The latter may dissuade staff

from adhering to the prescribed pattern of behavior. (Antonova, D., Stoycheva, B.,

Kunev, S. & Kostadinova, I., 2018). When defining brand engagement as a concept

and a construct, we come from the scientific understanding of the overall commitment

to the organization and its goals. Definitions for this category can be divided into two

groups. The first group of authors represents engagement as "emotional affiliation to

an organization, personal identification, and involvement of the staff in it" (Mowday,

R. T, M. Steers and L.W. Porter, 1979). The second group of authors associates

commitment with the desire of the staff to make additional efforts to achieve the

organizational goals (Heffner,T.S and Reutsch, J.R, 2001) (Iverson,R.D., Mcleod,

C.S. And Erwin , P.J, 1996). Hence, employee engagement with the brand can be

represented as a degree to which employees identify themselves with it, feel bound

and involved in its core values, and are therefore reluctant to make further efforts to

implement brand strategies. In the scientific literature, the behavior of the staff in

positioning the brand is identified as crucial, as it is the main communicator or brand

"ambassador" (Boyd, G. and M.Sutherland, 2006). A strong brand requires time and

effort on the part of the staff to domineer and prove itself. The process of forming

requires engaged employees who understand the idea of the brand and fulfill its value.

The scientifically proven links between employee attitudes and brand perceptions

(James, 2000) determine the interest in the so called internal marketing as an approach

that can motivate and engage employees with the organization's brand (Mitchell,

2000).

A number of scientific publications have shown that successful internal

branding involves employees (Meyer, J . P, Stanley, D . J ., Herscovitch , L . and

Topolnytsky , L , 2002), causes brand identification (Papasolomou. I . and Vrontis, D . ,

2006) and establishes loyalty to the brand (Machtiger, 2004). After reviewing the

literature, we can summarize that internal branding influences the levels of brand

engagement through the following factors:

Employer brand image: As a result of internal marketing activities, the so-

called employer brand can be formed and managed to attract and retain quality

professionals. Amler and Barrow present the concept of an employer brand for

the first time and define it as a package of functional, economic and

psychological benefits that were obtained when recruiting and identified with

the employer organization (Ambler, T. and Barow, S., 1996). Employee

perceptions of the employer's brand predict their positive attitude, including

engagement with the consumer brand (Kimpakorn.N. аnd Tocquer, 2009).



106

Employer brand is a separate category of the consumer brand of organizations.

In order to build and maintain its authority abroad, the organization must first

achieve authority among its internal clients - the employees.

Employee awareness of the brand: Commitment to the organization as a

whole, as well as to the brand, in particular, implies awareness and

understanding by employees. As a basic tool for building the so-called brand

knowledge, internal communications are used. The latter, according to

Kimpakorn N and Tocquer (Kimpakorn.N. аnd Tocquer, 2009), form the

following three levels of staff awareness: Knowing the meaning of the brand,

i.e. each employee knows the message and its basic idea; Awareness of

consumer needs and perceptions, i.e. what the expectations of the customers

selected by the company are and how they perceive its brand; Employee

awareness of their role and responsibility in implementing brand strategies.

Job satisfaction: In the literature on internal branding, job satisfaction is a

factor that directly influences staff motivation to engage in communicating the

brand message and in applying its core service values in servicing customers.

Internal branding is based on the thesis that satisfied employees are more

motivated and committed to marketing goals and strategies towards external

stakeholder (Pervaiz, K. A. & Mohammed, R., 2003). Engaged employees

build the brand in two basic ways (King & Grace, 2008):

Directly influence consumer experiences associated with the organization's

brand through its behavior during customer meetings;

Indirectly by maintaining appropriate relationships with their colleagues.

Good relationships between colleagues within a department and between

departments are helping to build a work environment to stimulate brand-

friendly behavior.

3. CONCLUSIONS

Recently, the brand has begun to symbolize increasingly the value added to

the user as a result of the skills and perceptions of the staff. According to Spark

(Spark, 2004), the brand predetermines the relationship of the organization with all its

stakeholders (internal and external), including employees. In general, the well-known

and established brand can attract highly qualified employees, as it is associated with

the reliability and stability of the employer and with higher pay levels. At the same

time, the work for such a company has a positive impact on the professional

reputation of the cadres and their future career development. The brand can attract

qualified staff, but it is generally not a guarantee that it can motivate employees to

participate actively in building the brand's market position. From the management

point of view, it is important to know the levels of engagement of the staff and,

accordingly, the motivation factors that influence them. Employee engagement with

the brand can be achieved within the concept of internal marketing as it encourages

management to respect employees' needs and to assess their work efforts.

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109

PERSPECTIVES OF DEVELOPMENT FOR THE MEDICAL

ENTREPRENEURSHIP IN ROMANIA

Venera MANCIU1

Submitted: 1

st August 2018 Revised: 3

rd September 2018 Approved: 17

th October 2018

Abstract

The importance of small and medium-sized enterprises can be considered as a consequence of issues

such as their size and structure (The Forecasting Commission), which allow them to have a high level

of flexibility and ability, each of which is necessary for innovation, but at the same time establishing

close ties with the community by optimizing the use of local resources, creating new jobs, diversifying

and developing economic and social development in a territory and especially adapting to unfavorable

economic conditions. Thus, SMEs are considered as an element of economic growth and stability,

which influences the development, in particular, at lower levels, namely local and regional levels.

Key words: entrepreneurship, development, business, medical, entrepereurial culture

JEL: L26

1. THE ROLE OF ENTREPRENEURIAL CULTURE AND THE

ENTREPRENEURIAL SECTOR IN THE DEVELOPMENT OF THE

COUNTY

Even if large-scale enterprises are a key factor in restructuring the production

system, the SME's activity (Demyen, Ciurea, 2014) is considered to be of strategic

importance for the economic reconstruction of each area, but provided that enterprises

operate in a positive environment, in - a territorial network that facilitates links

between productive links, relations, to ensure fair exchanges between them and other

economic agents such as "banks, chambers of commerce, local public administration,

higher education institutions, consultancy firms" (Dodescu, 2010). Economic

development can therefore be perceived as a process directly related to the idea of

innovation and entrepreneurship (Dodescu, 2010).

Depending on the size, the profile and the way of their integration, but

especially the specificity of the geographical space in which they develop, the SMEs

will have a different impact on the local economic development of the human

communities (Bucharest, 2005).

The characteristics of the economic environment play a very important role in

the development of the entrepreneurial sector in a region. It may be stimulating

(market-specific) or a restrictive environment (typical of the centralized economy). If,

prior to 1989, entrepreneurship was annihilated in Romania since the 1990s, under the

conditions of a transition to a market economy, the development of the

entrepreneurial sector has become an important component of the economic

restructuring policy, which positively influences the pace of sustainable economic

growth (Bărbăcioru, 2007).

1 Associate Professor PhD, University “Eftimie Murgu” of Resita, Faculty of Economic Sciences,

[email protected]



110

The differentiated degree of development of this sector in each region has

been strongly influenced by a number of local factors that have spurred or slowed

down the process of SME development and development but, above all, the way

entrepreneurs managed to capitalize on the opportunities offered by the space (Ciurea,

2008).

The SME-Local Development Report should also be analyzed in light of the

trend of changing the profile of small and medium-sized enterprises over time, due to

their high flexibility. In general, there is an evolution of enterprises from the

commercial sector to the productive sector, which will produce obvious changes in

the relations between the components of the space.

2. DIAGNOSIS OF THE SME SECTOR

SMEs are the most dynamic sector of the economy (Ciurea, Demyen, 2015).

Most of them have up to 50 employees and run businesses less than 100 million lei

annually (CNPIMM). According to statistics published by Eurostat, 99 out of every

100 companies in Europe are SMEs and 8 out of 10 jobs are created in SMEs. Also, 9

out of 10 SMEs are part of the Micro (CNIPMMR) segment.

Micro, small and medium-sized enterprises (SMEs) are companies with less

than 250 employees and generating a net annual turnover of up to 50 million euros.

SMEs in Romania account for 99.91% of all enterprises active in the national

economy. Microenterprises have a share of 97.8%, small businesses 1.7% and

medium enterprises 0.3%. Large enterprises, whose turnover represents about 42% of

the national economy, account for 0.1% of the total number of enterprises (Report of

the Competition Council).

There are studies by specialized institutions providing information on the

economic and financial path of SMEs.

According to the CAFR data, which covers a period of 4 years, we see that in

Romania the net result trend is constantly increasing in the period 2013-2016, micro

enterprises registering, according to CAFR report, the most spectacular increase, from

a loss of 7.5 billion lei in 2013 to profit of 11 billion lei in 2016.

As regards the number of enterprises newly established in Romania in 2016,

most of the enterprises set up are micro-enterprises, and the region where they

predominate is Bucharest / Ilfov (29.04%), followed by the Northwest (14.05 %) and

Center (10.54%).

The number of newly established companies differs from one domain to

another, most of them being set up in the commercial field. The second place is the

field of professional activities, followed by construction, transport, respectively the

manufacturing industry.

The SME creation rate is the ratio between the number of newly created

enterprises and the number of enterprises active in the reference period.

• For the period 2013-2016, the growth rate of small and medium-sized

enterprises does not show major changes, rising from 7.3% in 2013 to 8.8% in 2016.

• 99.7% of newly created businesses are micro-enterprises.

The total number of SMEs in Romania in 2016 was 671,040, most of them

micro-enterprises - 97,91% (657,039). Only 1.7% of SMEs are small businesses,

while medium-sized enterprises are 0.4% of the total.

Most of the active SMEs are in the commercial field - 32.5%, followed by

those in the field of professional activities - 11.4%. At the opposite end, there is

mining, with only 0.2%, energy and gas - 0.4%, and water distribution - 0.6%.



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3. MEDICAL ENTREPRENEURSHIP IN ROMANIA

The sector of health care services is on the rise, given the decrease in the

number of state hospitals, and the large share of private investment in this area in

recent years. In this context, the structure and size of the market may change from one

year to the next, depending on private capital inflows into the sector. Healthcare

services and related activities have a strong impact on the health of the population and

on economic development.

The evolution of the healthcare services market and related activities is

influenced by each of its markets (the medical cabinet market, the hospital market, the

emergency healthcare market, etc.).

Romania ranks last in the European Union as regards the size of this sector.

The share of medical services in GDP is 5.5% compared to other countries, such as

the Netherlands 11.8%, France 11.2%, Belgium 10.9%, etc. It can also be mentioned

that Romania is at the European average for long-term healthcare spending, with a

share of 11.5% of total healthcare expenditure. This indicator is highest in Sweden

(40.3%) and the Netherlands (34.9%) and the lowest in Slovakia (0.3%) and Bulgaria

(0.1%).

The medical sector is one that has many advantages and perspectives for

entrepreneurial development, both at the country level and at the regional or county

level.

Caraş - Severin is one of the counties with potential, especially since there are

many medical specialties that are not currently covered by state services. The opening

of private cabinets from this point of view would be both a means of progress for the

county and a very good possibility for the graduates of medical education to capitalize

their knowledge without engaging in the state system which at least in comparison

with the international level of health care services has a lot of deficiencies, both

through the salaries of certain categories of specializations or positions, but also in

terms of working conditions.

Many patients in Caraş Severin County resort to medical units and doctors

from other parts of the country due to several factors, on the one hand, the lack of

certain categories of services, on the other hand, the increasing lack of confidence in

the quality of medical services in the county. Or, even if they do not travel to the

territory of another county for the medical services concerned, they come to

collaborate more with private medical practices since, in terms of organization, the

level of cleanliness and professionalism, they are in most cases above the level of

state cabinets or hospitals.

However, the benefits obtained from this point of view are not free, they imply

paying a tax depending on the type of consultation or intervention requested, but the

citizens do not show a bad deal when it comes to health, so doctors who have opened

private offices do not lack clients , building on time significant databases. The

prestige, experience and high qualification of some have prompted citizens to

increasingly turn to this type of service.

Some of the medical branches in which entrepreneurship has developed

through individual medical offices are: cardiology, internal medicine, neurology,

psychology, dental medicine, ophthalmology, but also individual medical analysis

laboratories, some of which collaborate with the National House of Health Insurance,

in order to facilitate patients access to the respective medical services.



112

Some of the most important the benefits of medical practices for patients is the

higher level of service speed, pre-programmed hours, etc.

The SWOT analysis of the general medical sector indicates the need for a

more active development of entrepreneurship in this field, and in this case it involves

identifying the strengths and weaknesses, respectively the opportunities and risks of

the healthcare sector and its related activities.

Table 1. SWOT analysis

STRENGHTS WEAKNESSES

The level of market concentration

is not an element of concern with

the further development of the

sector

Developing and continuously

expanding the private

environment within the sector

Patients can choose their

healthcare provider

Under-funding the health system

Difficult access of people from

rural areas to medical services

Lack of qualified staff, generated

by its migration from the sector

Outsourcing of medical / non-

medical services, which can be

performed within the state health

units, including through the

involvement of the local public

administration authorities

OPPORTUNITIES THREATHS

Development of new medical

infrastructure projects, eg the

construction of new hospitals,

especially at the regional level,

and a primary care infrastructure

at rural level

Insufficient involvement of the

local public administration

authorities

The existence of professional

organizations with regulatory

responsibilities and whose

members carry out economic

activities in these areas

The possibility of developing personal business in the form of individual

cabinets could cause young people not to resort to the emigration solution, a

phenomenon that has left many well-trained doctors out of the country. But for this, it

is necessary for the state to implement a policy of collaboration and support.

Especially in the last ten years, the number of physicians who have chosen the

way of abroad has increased greatly. One of the key motivations for this decision is

the high level of wages, compared to Romania, but the working conditions make their

own contribution in making the decision.

As an alternative to health exodus and specialists, private clinics contribute to

increasing the quality of medical services offered to Romanians, becoming an

increasingly powerful competitor of the state health system, on certain specialties.

However, the problem of accessibility of these services appears, because

usually the level of tariffs is quite high, which is a difficulty for certain categories of

low income people.

It develops a new business component, a physician-entrepreneur, who is

confronted with the medical problem of the specialty he founded, but also with others

specific to the field of entrepreneurship.



113

4. THE MEDLIFE CLINIC. GENERAL PRESENTATION

In the development of the Medlife clinic network, several stages have to be

mentioned, also presented on its official website. Although the number of medical

laboratories is quite large, these medical services being provided also in state regime,

the speed of private services and the seriousness caused the expansion of this

company in a large number of Romanian cities. A subsidiary is also found in Resita,

but it is only a medical laboratory, while in other cities like Timisoara, the range of

activities is much more numerous, covering various areas of medicine.

Currently, the activity takes place in 12 Hyperclinic MedLife in Bucharest,

Timisoara, Brasov, Arad, Galati, Iasi and Constanta, 6 hospitals - 3 in Bucharest and 3

in the country, Brasov, Timisoara, Arad, a hospital unit in Craiova, 18 own analysis

laboratories, 3 maternities in Bucharest and in the country, 12 centers of excellence, 8

own pharmacies reunited under the PharmaLife Med network and in collaboration

with 145 partner medical clinics all over the country.

As a result, MedLife has become the largest private medical service operator

and we are making every effort to further meet your needs and to ensure the quality

and safety of our medical care.

4.1. Studying the attitude of Resita inhabitants regarding the opportunity for the

development of medical entrepreneurship in Caraş Severin County

4.1.1. Overview of research

The purpose of this study is to identify the perspectives of the development of

medical entrepreneurship in Caras-Severin county.

The investigated subjects represent, in our case, the population of Resita,

comprised in a representative sample. The sampling method used is the quota method,

ie a rational choice of individuals, aiming to obtain, at the level of the sample, a

structure by gender, age groups, occupation (socio-professional category) identical to

the population structure of Reşiţa being used in this sense, real data obtained from the

general presentation of the total population of the municipality at the beginning of the

year.

As a form of research, the individual survey based on a questionnaire of 13

questions, all closed, was used. The questionnaire includes 10 content questions and 3

questions to identify the person questioned. The research was conducted between

August 10 and September 1, 2018. We can see that most of those who answered the

questionnaire have higher education - 65.2%, while 30.4% have only high school

studies, the post-secondary.

As for the income category of the respondent, 39.1% earn less than 2000 lei,

30.4% have an income between 2000 and 3000 lei, 17.4% - between 3000 and 4000

lei, and 13% over 4000 lei.

4.1.2. Research objectives

The main objective for this research is to identify the opportunities for business

development in the field of medical entrepreneurship in Caraş-Severin.

Secondary Goals:

• Identifying the respondents' opinion on state health services



114

• analyzing the satisfaction level of respondents regarding the quality of state

medical services

• identifying the respondents' choice in case of need of a medical consultation

and the reasons why they would opt for public or private services

• Identifying respondents' opinions on MedLife and Sante private clinics

• identifying the main reasons why patients would use private services to the

detriment of the state

• identifying the possible impact of private sector development in this area on

labor migration

Q1. What is your opinion about

public medical services?

a. Are poor in qualitative terms

b. are hardly accessible

c. I have a good opinion about

state health services

d. the quality of the services

provided is unsatisfactory

In this question, the majority of the respondents

who answered the questionnaire stated that the

public medical services are poor in qualitative

terms. This opinion is shared by 52.2% of the

respondents, ie over half of the respondents.

Similarly, a fairly high percentage, ie 39.1% of

respondents, recalls a lack of satisfaction with

state services.

Only 4.3% of respondents are satisfied with the

quality of public medical services, while

accessibility is declared as low, of a percentage

close to people.

Q2. Are you satisfied with the

level of public health service

quality?

a. very satisfied

b. satisfied

c. not satisfied

In the continuation of the previous question,

most respondents are dissatisfied with the

quality of the public medical services (69.6%),

and the percentage of the very satisfied ones is a

small one (4.3%).

Q3. If your health condition

requires consultation, you'd prefer

to call:

a. a hospital / clinic / public

medical practice

b. a hospital / clinic / private

medical cabinet

Health remains a precious asset for any person.

Thus, when respondents are divided, their

opinions are more interested in recourse to a

private hospital or clinic (78.3%), but if the

situation so requires, 26.1% of respondents say

they would call a state clinic, hospital, or clinic,

depending on the severity of the case and the

required specialty.

Most respondents therefore opt for private cabinets. As the main arguments in this

respect, respondents recall:

- Greater confidence in private-sector specialists

- Greater accessibility of private services

- the higher level of interest in the private environment

- Employee professionalism.

Q6. What is your opinion about the

clinic services?

a. Quality / price ratio is high

b. The price-to-price ratio is

average

c. the price-to-price ratio is low

Based on the experience above, most believe

that the service-quality ratio is high (52.2%), or

at least medium (43.5%). Only 4.3% of

respondents consider this value-for-money ratio

to be low.

Q7. What made you or would

cause you to call the services of

Some respondents have already referred to the

services of the clinic, others are considering this



115

these private clinics?

a. Uncertainty provided by state

clinics

b. guaranteeing the seriousness and

fairness of the results

c. Employee professionalism

d. the treatments offered

e. degree of comfort

f. The expected delay in the

programming / expected results

g. performance equipment used

h. previous experiences

i. the possibility to solve a wide

range of medical problems

variant in the future. The main criteria that play

a role in making this decision can be mainly:

- the insecurity offered by the state clinics -

47.8%

- guarantee of reliability and correctness of

results - 13%

- performance equipment used -13%

- the possibility to solve a wide range of medical

problems - 21.7%

Q9. Do you consider that the

alternative to setting up private

medicine practices can prevent

young doctors from emigrating?

to give

b. no

c. Depends on the graduated

specialty

d. Depends on other factors

(salary, professional development,

personal).

From the point of view of the additional benefits

that the alternative to the setting up of private

offices and the extension of the private sector in

the medical field would include the possibility

of preventing young doctors from emigrating in

search of much better paid jobs or conditions

better work. It would be an alternative that

would help keep them in the country.

This opinion is shared by the majority of those

who answered the questionnaire, with an

affirmative answer being given by 56.5% of the

respondents. The opposite is shared by 21.7%.

4.3% of respondents consider the option to be

part of the specialty graduated by young people,

because some of them have a much higher

search abroad or too many doctors for such

specializations in the country. 26.1% of the

respondents consider that there are other factors

that can contribute to making such a decision.

Q10. Do you believe that medical

entrepreneurship can contribute to

the economic and social

development of a county?

to give

b. no

c. do not know

The tenth question focuses on the role that

medical entrepreneurship can play in the

economic and social development of a county.

47.8% consider that this issue can have a major

long-term impact, while 43.5% responded quite

ambiguously, providing a neutral response. Only

8.7% denied a possible positive effect of

medical entrepreneurship on the development of

the county.

CONCLUSIONS

The sector of health care services is on the rise, given the decrease in the

number of state hospitals, and the large share of private investment in this area in

recent years. In this context, the structure and size of the market may change from one

year to the next, depending on the inflows of private capital into this sector.



116

Healthcare services and related activities have a strong impact on the health of

the population and on economic development.

The evolution of the healthcare services market and related activities is

influenced by each of its markets (the medical cabinet market, the hospital market, the

emergency healthcare market, etc.).

The majority of respondents who answered the questions in the questionnaire

stated that state health services are poor in qualitative terms.

Health remains a precious good for any person. Thus, when respondents'

opinions are shared, they are more interested in using a private hospital or clinic,

according to the severity of the case and the required specialty. Most respondents

therefore opt for private cabinets. As the main arguments in this respect, respondents

recall:

- Greater confidence in private-sector specialists

- Greater accessibility of private services

- the higher level of interest in the private environment

- Employee professionalism.

REFERENCES

Armeanu, D., Istudor, N. and Lache, L., (2014). The role of SMEs in assessing the

contribution of entrepreneurship to GDP in the Romanian business environment.

Amfiteatru Economic, 17(38), pp. 198-215

Bărbăcioru Iuliana Carmen, (2007) Tendinţe de dezvoltare a IMM – urilor în contextul

globalizării,http://www.utgjiu.ro/revista/ec/pdf/2007-

01/76_Barbacioru%20Iuliana%20Carmen.pdf

Bucurean Mirela, Perspectivele IMM-urilor din Romania in contextul integrarii in Uniunea

Europeana Analele Universității Oradea, 2005

Ciurea Jeanina Biliana, Dezvoltarea afacerilor, Resita Editura Eftimie Murgu 2008

Ciurea Jeanina, Demyen Suzana, Relevance of turnover for the performance analysis of an

enterprise,Ecoforum Journal, vol. 4, pp 57-62

Demyen Suzana, Ciurea Jeanina, (2014), Trends and implications regarding strategy

development at SME level, Annals of” Eftimie Murgu” University, Fascicle II.

Economic Studies, no XXI

Dodescu et al, Diagnoza economică a judeţelor din vestul României Volumul VI. Diagnoza

economică a judeţului Caras- Severin, Editura Universităţii din Oradea 2010

Popovici Gheorghe, Banatul Montan – ghid turistic, Ed. Tim, Reșița, 2013

Ghenea Marius, Antreprenoriat, Bucuresti Editura Universul Juridic 2011

https://congres.cafr.ro/wp-content/uploads/2017/11/4_8_CAFR-Prezentare-Short-version.pdf

http://www.consiliulconcurentei.ro/uploads/docs/items/bucket12/id12155/raport_servicii_me

dicale.pdf

http://www.aippimm.ro/files/articles_files/57/6521/carta-alba-a-imm-urilor-din-romania-

2016.pdf

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http://www.minind.ro/anunturi/imm/StrategieIMM_Documentul_strategic_050810.pdf

http://www.rosilva.ro/unitati_silvice/caras-severin__l_11.htm

www.medlife.ro

http://www.utgjiu.ro/revista/ec/pdf/2007-01/76_Barbacioru%20Iuliana%20Carmen.pdf

http://www.utgjiu.ro/revista/ec/pdf/2007-01/76_Barbacioru%20Iuliana%20Carmen.pdf

http://koha.uem.ro:81/cgi-bin/koha/opac-search.pl?q=au:Ciurea%20Jeanina%20Biliana

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http://koha.uem.ro:81/cgi-bin/koha/opac-search.pl?q=au:Ghenea%20Marius

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http://www.rosilva.ro/unitati_silvice/caras-severin__l_11.htm



117

THE IMPORTANCE OF NEGOTIATION IN THE PROCESS OF

SELLING AGROALIMENTARY PRODUCTS ON THE

ROMANIAN MARKET

Venera MANCIU

1

Submitted: 20

th August 2018 Approved: 1

st November 2018

Abstract

Over the last few years, it has been attempted to promote domestic products on the one hand, with the

desire to encourage local production and, on the other hand, to encourage organic farming to

contribute to a balanced health of the consumed food. The present paper aims to illustrate the

importance gained by the negociation process on the market, in the attempt to sell authochthonous

products by local producers.

Key words: negotiation, commerce, agroalimentary products, market

JEL: L11

1. INTRODUCTION

The trade activity in the field of agroalimentary products is one that often

faces more severe challenges than if we are dealing with trade in non-perishable

products.

We are talking about an area in which small traders are confronted with strong

rivals in a market where the ambitions and power of large chain stores are often

overwhelming.

Given that the income from the sale of products grown in their own country is

often the only form of subsistence of the Romanian peasant, he is not constantly

willing to practice a price that would seem acceptable to most of the potential buyers.

The direct consequence, however, is a negative one for the domestic producer and

trader, who either finds it necessary to sell the products, ultimately, at an unbeatable

price, or faces the loss of customers, which reorientates to supermarkets.

Over the last few years, it has been attempted to promote domestic products on

the one hand, with the desire to encourage local production and, on the other hand, to

encourage organic farming to contribute to a balanced health of the consumed food

(Borza, 2005).

The statistical data provided by economic publications indicate a deficit of

almost 854 million euros in 2017 in the trade with agro-food products, up from the

previous year, as exports in turn increased compared to 2016 , the main exported

products are wheat (EUR 1 billion) and maize (EUR 730 million), followed by rape

(EUR 580 million), sunflower seeds (EUR 520 million), barley (220 million) and live

animals (200 million). However, according to Capital, the trade deficit is present and

is due in particular to the added value of the imported products.

1 Associate Professor PhD, University “Eftimie Murgu” of Resita, Faculty of Economic Sciences,

[email protected]



118

If we are talking about the peculiarities of the supply of agricultural products,

we can mention some of them, as follows:

- seasonal character, production being often influenced by season and weather;

- perishable nature - because agri-food products do not keep their freshness for

a very long time, unless they are subject to a wider process of preservation;

- geographically dissipated;

- variable, subject to weather and temperature changes.

Agricultural production (Kusz, 2014) is increasing today, both quantitatively

and qualitatively, but agricultural products tend to grow increasingly seldom in the

natural state of the consumer's home. At present, agricultural producers are no longer

regarded merely as raw material suppliers, but as a chain link as a component of a

complex circuit, they are a mandatory, but not a core link.

Of the fruits and vegetables produced, important quantities have been sold

directly to consumers, often through street markets. Small farmers with vegetable

gardens or small orchards use production (Hatfield et al, 2011) for family

consumption and sell the surplus in street or peasant markets. At national level there

is a small number of commercial fruit and vegetable producers.

In such cases, the need for negotiating practice is emphasized as a strategy

applied by traders to sell traded products.

Regardless of the field, negotiation is the main form of business

communication, being also an activity present in everyday life. "Negotiation is a

discussion or dealing in order to reach an agreement" (KolmaCkova, 2011).

The goal is to obtain a mutually beneficial agreement for both parties, based

on a series of specific criteria regarding the main stake of the talks.

Whether negotiating as an enterprise-wide business, in the desire to conclude a

mutually beneficial agreement, or whether it is at the level of the act of selling, in the

desire to determine a customer to purchase a product under favorable conditions both

for it as well as for the trader, the negotiation process has specific features.

2. CASE STUDY - STUDYING THE RESPONDENTS ATTITUDES

REGARDING SELLERS NEGOTIATING TECHNIQUES ON THE MARKET

In order to study the respondents 'attitudes regarding the sellers' bargaining

techniques on the market, we conducted a research whose results will be presented

below.

The first part of the research consisted in the design and administration of a

questionnaire consisting of 13 closed questions, the total number of respondents being

30. They were people aged 18 to 70, customers and potential customers of the agri-

food products sellers of the market.

As a starting point, we left the idea that the majority of citizens in Resita still

frequently on products marketed by sellers in the market. Not all of them sell their

own goods, some of them are only an intermediate segment in the retail sale of fruits

and vegetables.

The product categories found on the market are usually varied, although the

seasonality of some of the agri-food products leads to a disadvantage compared to the

big stores, where some categories are found throughout the year but are imported

from other countries. The main categories of fruit and vegetables most commonly

requested by customers and identified in the trade are as follows:

- Fruits: apples, pears, peaches, nectarines, strawberries, cherries, sour

cherries, melon / green, grapes



119

- Vegetables: tomatoes, cucumbers, peppers, onions, garlic, potatoes, carrots,

parsley, cabbage, eggplant, pumpkin, cauliflower, beans, beets.

The questionnaire was applied for a period of 2 weeks, between July 15 and

August 1, in the following locations: Reşiţa Sud and Reşiţa Nord Market.

The applied questionnaire has the following structure:

Of the 30 respondents, 11 were men and 19 women, 6 were under the age

group of 25, 5 were in the 25-35 age group, 7 were in the 35-45 age group, 5 were

people in the 45-55 age group and 7 people in the age group over 55 years.

The bargaining styles observed during the application of the 30 questionnaires

in the two chosen locations, both for certain sellers and buyers, are:

- this style of negotiation was the most prevalent,

especially towards the end of the day, when the quantity of merchandise was high, the

price was maintained throughout the day, and the sellers, in the desire not to stay on

stock, are more open to negotiation with customers;

- another type of bargaining that is common among sellers

in the desire to sell their products as soon as possible in certain specific situations;

- most often met among customers, most of them

considering that they can find the same products at a better price elsewhere and

refusing to reach undesirable consensus with sellers.

CONCLUSIONS

The research findings can be synthesized as follows:

With the question of determining the frequency with which respondents buy

food from the market, the centralization of responses shows the following

conclusions:

- According to the gender criterion, we notice that women use this form of

shopping either multiple times a week (30.77%) or very rarely (30.77%);

- These two extremes may also be due to the fact that some women do not

have the time needed for this form of shopping, preferring the proximity of

supermarkets or mini markets, but others opt for products considered either more

authentic or more natural;

- As far as men are concerned, only 10% of them say they go to the market

every day, the other male respondents resorting less often to this form of shopping.

- Based on the age criterion, we notice that women aged 45-55 (5%) resort to

this form of shopping

- As for men, those aged between 45 and 55 years of age often appeal to this

form of shopping.

To the question of determining how respondents are satisfied with sellers'

behavior, we have the following conclusions:

- By the gender criterion, we find that women are satisfied at the average

(58.33%) with the behavior of sellers, or to a very small extent (8.33%).

- As regards men, they are satisfied at medium level (63.64%) with traders'

behavior, to a small extent (9.09%).

- By age criterion, women under 25 are satisfied with vendor behavior (5%),

compared to women aged 45-55 (2%), whose level of exigency is much higher and

are stated in less satisfied with the bargaining possibilities and the general behavior of

traders.



120

- Men under the age of 25 (3%) are satisfied with the behavior of vendors at

the average, and those aged 45-55 years are more demanding, but their share is lower

(1%).

With the question of determining the main reason why respondents choose the

market at the expense of stores, the centralization of responses shows the following

conclusions:

- We can find that women choose the market for bargaining opportunity

(50%), and to a lesser extent for the price of products (16.65 &).

- As for men, they choose the market both for the opportunity to negotiate

(54.54%) and for the price of the products (9.10%), which often proves to be more

advantageous than in the case of supermarkets.

- By age criterion, f emails under the age of 25 choose the market for

bargaining (5%), and those aged 45-55 choose the market for freshness of products

(2%).

- Men under 25 choose the market for bargaining (3%), and over 55 years

choose the market for the price of products.

In the question of determining the application of a negotiation process the

centralization of the answers shows the following conclusions:

- According to the gender criterion, we find that women consider that they can

be negotiated occasionally depending on the product (58.35%), or even the type of

trader or disposal (41.65%).

- As for the male respondents, we note that they consider that there is a

possibility of negotiation (45.45%), but under certain specific conditions, the product

and time alike.

- For men aged 35-45, they consider that there is no negotiation possibility

(3%), and those aged 25-35 consider that they can negotiate according to the product

(1%).

To the question of determining the flexibility and responsiveness of sellers in

the negotiation process, we have the following conclusions:

- Based on the gender criterion, we find that women consider that vendors are

receptive at medium (41.65%), or to a very small extent (25%).

- Male respondents identified an average level of traders' receptivity (36.36%).

- Based on the age criterion, we notice that women aged 45-55 years consider

traders to be highly flexible (5%), and over 55 years of age feel they are receptive to a

small extent.

- Men aged 35-45 appreciate flexibility to a large extent (3%), and those aged

25-35 consider that sellers are less flexible (10%).

In the question of determining the quality of the seller in the negotiation

process the centralization of the answers shows the following conclusions:

- Women appreciate their ability to communicate to a greater extent than the

criterion of flexibility, because they offer the opportunity to express their own

arguments, no matter which party they are talking about.

- Men do not show the opposite opinion, but largely appreciate the willingness

to reach a compromise (36.37%).

- By the age criterion, women aged 45-55 believe that the most important

quality is the willingness to reach a compromise (5%), and those over the age of 55

consider that the communication ability (2%) is the least importance.

- Male respondents under the age of 25 believe that the most important quality

is the ability to communicate (30%), and those aged 25-35 consider the least

important quality as flexibility (10%).



121

When questioning the quality of seller negotiator, the centralization of

responses shows the following conclusions:

- Women appreciate the trader's negotiating skills to a much greater extent

than men, being willing to initiate a negotiation process with the desire to get the

desired products at a better price.

To the question of determining the quality of the negotiator, the centralization

of the answers shows the following conclusions:

- According to the gender criterion, we find that women consider that they are

very much negotiated (33.33%).

- As for men, 63.63% consider that they are good negotiators, 18.19%

appreciating their level as medium.

- According to the age criterion, women aged 45-55 years negotiate very much

(5%) and women over 55 years negotiate less intensively (2%).

To the question of successfully determining the completion of the negotiation

process in the market we have the following conclusions:

- After the gender census, women successfully complete the negotiation

process (33.33%). The percentage of men successfully completing the negotiation

process is lower than that of women (27.27%).

REFERENCES

Borza Mioara, (2005), http://anale.feaa.uaic.ro/anale/resurse/64%20Borza%20M-

Comercializarea%20produselor%20agroalimentare%20ecologice.pdf

Hatfield, J. L.; Boote, K. J.; Kimball, B. A.; Ziska, L. H.; Izaurralde, R. C.; Ort, D. R,;

Thomson, A. M.; and Wolfe, D., "Climate Impacts on Agriculture: Implications for

Crop Production" (2011). Publications from USDA-ARS / UNL Faculty. 1350.

https://digitalcommons.unl.edu/usdaarsfacpub/1350

Kolmačková Martina, (2011), Strategies and Tactics of Effective Business Negotiation,

Thomas Bata University, Zlin,

http://digilib.k.utb.cz/bitstream/handle/10563/15633/kolma%C4%8Dkov%C3%A1_2

011_bp.pdf?sequence=1

Kusz Dariusz, (2014) Modernization of agriculture vs sustainable agriculture, Scientific

Papers Series Management, Economic Engineering in Agriculture and Rural

Development Vol. 14, Issue 1

Manciu Venera, (2012), Characteristics of Resita consumers' behaviour in the present

economic context, Annals of Eftimie Murgu University Resita, Fascicle II, Economic

Studies

https://www.capital.ro/avem-un-deficit-de-8539-mil-euro-in-comertul-cu-produse-

agroalimentare.html

*** The future of food and agriculture, Trends and challenges, Food and Agriculture

Organization of the United Nations Rome, 2017

https://www.wto.org/english/docs_e/legal_e/14-ag.pdf

https://digitalcommons.unl.edu/usdaarsfacpub/1350

http://digilib.k.utb.cz/bitstream/handle/10563/15633/kolma%C4%8Dkov%C3%A1_2011_bp.pdf?sequence=1

http://digilib.k.utb.cz/bitstream/handle/10563/15633/kolma%C4%8Dkov%C3%A1_2011_bp.pdf?sequence=1

http://search.ebscohost.com/login.aspx?direct=true&profile=ehost&scope=site&authtype=crawler&jrnl=15840972&AN=92535246&h=YtTxXnK4gmqvrsSdkEjLDSMLFUdWF2m%2FjSmRksz%2FnQCn0QkQ0iCnuKIos1H%2FIdm%2BBgUDIXiBJFk9WXto3KZU7A%3D%3D&crl=c

http://search.ebscohost.com/login.aspx?direct=true&profile=ehost&scope=site&authtype=crawler&jrnl=15840972&AN=92535246&h=YtTxXnK4gmqvrsSdkEjLDSMLFUdWF2m%2FjSmRksz%2FnQCn0QkQ0iCnuKIos1H%2FIdm%2BBgUDIXiBJFk9WXto3KZU7A%3D%3D&crl=c



122

THEORY OF FINANCIAL RISK: “FROM STATISTICAL

PHYSICS TO RISK MANAGEMENT”

Mario Innocenzo MANDRONE1

Submitted: 6


nd December 2018

Abstract The possibility of easily accessing and processing huge quantities of data on financial markets opens

the path to new methodologies where systematic comparison between theories and real data non only

becames possible, but mandatory. This perspective has spurrred the interest of the statistical physics

community, with the hope that methods and ideas developed in the past decades to deal with complex

systems, could also be relevant in finance. This work deals with recent theoretical development

inspired by statistical physics in the description of the potenzial moves in finanzial market and its

application to derivative pricing and risk control. Starting with important results in probability theory,

we discuss the statistical analysis of real data and the empirical determination of statistical laws. In

particulary we present:

1. Probability distribution: some usefull distrubutions;

2. Temporal evolution of fluctuations;

JEL: G32

1. PREFACE

In this contest we discuss the physicists’ way of approaching scientific

problems, in particular a systematic comparison between “theory” and “experiments”

(i.e.empirical results), the art of approximations and the use of intuition. Moreover,

the point of view on derivatives is the traditional one of Black and Scoles, where the

whole pricing methodology is based on the construction of “riskless strategy”. It our

belief that a more intuitive understanding of these theories is needed for a better

overall control of financial risk. The models discussed here are devised to account for

real markets’ statistics where the construction of riskless hedges is in general

impossible. The mathematical framework required to deal with these cases is however

not more complicated and has the advantage of making the issues mistake, in

particular the problem of risk, more transparent. I hope that these considerations can

be useful to all people concerned with financial risk control, by discussing, at length,

the advantages and limitations of various statistical models.

The most important continuous probability distribution is the normal

distribution (normal curve or Gauss distribution); it is one of the most used in

statistics because many phenomena are distributed normally, and moreover because

other probability functions (eg the binomial) can be approximated by it. In probability

theory, the Gaussian distribution is a continuous probability distribution that is often

used as a first approximation to describe random variables with real values that tend

to focus around a single mean value. The normal distribution is important in statistics,

as well as for the reasons mentioned above, also because it is the basis of statistical

1 Dipartimento di Scienze e Tecnologie, Universita’ degli Studi del Sannio Benevento, Italia



123

inference. In fact, normal distribution is often encountered in practical applications,

being used in statistics and in the natural and social sciences as a simple model for

complex phenomena. The normal distribution is completely identified by the

parameters and , in particular , determines the position of the curve on the axis of

the abscissas and (average quadratic deviation) gives information on how the values

are more or less concentrated around the mean. In statistical practice, the most useful

properties of the normal distribution are the relations between the distance of the

media and the density of probability subtended by the curve, in other words it is

possible to define how many data are included between the mean and a given value,

measuring the distance from the average in units of standard deviation, technically a

standard quadratic deviation in the normal curve almost all of the data is within the

average of 3 sigma amplitude. A distribution tells us how the results of a series of

measures are likely to be distributed. A number of natural phenomena, including real

price statistics, extreme risks and optimal portfolios, do not follow the random Gauss

curve. Analyzing and processing the data in our possession, we note that some of

these statistical phenomena follow a distribution with a power law profile. A power

law allows describing a phenomenon that is not distributed in a normal way (the bell

curve), where the average value characterizes most cases, but in a manner consistent

with the Pareto rule, or of the 80-20: this statement states that 20% of the causes

produce 80% of the effects; therefore, most of the effects are due to a reduced number

of causes, as the Italian economist and sociologist V. Pareto discovered in 1897,

studying the distribution of the income of the English population. Therefore, if the

phenomenon in question does not follow the Gaussian model, it appears evident that

the calculation of the parameters, average value and standard deviation, sufficient to

describe it, will not be indicative in these cases. In the Gaussian model, the average

value determines a characteristic scale, a typical dimension for the members of the

population as a whole. Many natural and financial phenomena are characterized by an

intrinsic scale, or the distributions of the numerical values of the quantitative variables

typical of the phenomena tend to concentrate in a rather well-defined interval, while

the values far from this interval are extremely improbable. However, there are also

numerous phenomena (e.g. forest fires) that do not possess an intrinsic scale, ie there

are no intrinsically favored or prohibited values. In the absence of an intrinsic scale,

the mean value of the distribution has no meaning because it is not possible to identify

the characteristic mean value as it diverges. In any case, to understand the role of the

Gauss distribution and to appreciate the meaning of non-Gaussian distributions, let us

consider the central limit theorem.

2. CENTRAL LIMIT THEOREM

The normal distribution has a particular importance that derives from the

central limit theorem, a theorem with considerable applicative implications. The

theorem states that the distribution of the sum of a large number of independent and

identically distributed random variables, with finite variance, tends to be distributed

normally, independently of the distributions of the individual variables; in other

words, it is not necessary to have much information about the nature of these

variables if the aim is to work with their sum. The determining importance of this

theorem is that it asserts the possibility of predicting the form of the distribution of a

variable that is the sum of other variables without knowing the form of the

distribution of the addends. For the validity of the central limit theorem, however,

there is an important precondition: the variance of the random variables must have a



124

finite value; then in the case of random variables with infinite variance, the hypothesis

of the central limit theorem are no longer valid. We must therefore consider a

different theorem, “the generalized limit theorem” that will give us different limit

distributions (stable distributions of Levy or power law). These distributions have

long tails that decay very slowly depending on the distance from the probability peak.

This means that events very far from the peak of the distribution (the most

probable value) have a probability of occurring not inconsiderable, contrary to the

case of the Gaussians. It is clear that, for this phenomenon, the notion of statistical

normality (even in the case indicated by the central limit theorem) has no meaning.

Therefore, it is necessary to resort to non-Gaussian probability distributions: the

power law distribution. These functions constitute a family of distributions

characterized by having a long tail, that is, the probability function tends to zero

slowly as the value of the variable increases. This feature ensures that power laws

provide non-negligible chances of finding extremely high variable values. The power

laws, although known and used in technical literature and statistics for several

decades, have had a revival of interest both as a result of research related to complex

networks, and, in general, because it has been found that allow to interpret

innumerable physical phenomena and series of experimental data of very different

nature and origin. A power law is, by definition, a function of the type: where C is the normalization constant and is usually called a “scale

exponent”. In order to demonstrate the versatility of power laws, the article by Mark

Newman of 2000 cites some simple and real examples of quantities of very different

origins that follow a power law, at least towards the tail of the distribution. For

example:

1) the standard price of individual financial securities or stock indices in a financial

market;

2) the population in the different cities;

3) the distribution of the lunar craters;

4) the number of plant species for each type of flowering;

5) the frequency of citations of scientific words

The first who identified a power law distribution in the amount of assets was

the economist and sociologist Vilfredo Pareto (for whom these laws are sometimes

known as Pareto laws), while the linguist G.K. Zipf introduced statistical methods in

the study of language and found power laws for the recurrence of words (Zipf's law).

There are two main features of this type of distribution:

1) their tails are generally much larger than other distributions like that of Gauss;

2) the absence of an intrinsic scale of the phenomena, ie the maintenance of the

proportions with the variation of the scale that led to define this probability

distribution as scale free.

A change in scale is absorbed into a normalization constant C, leaving

the form of the law unchanged. In fact, given the equation:

follows:

Scale invariance is a particularly evident property in fractal objects, also

described by distributions to power laws. In synthesis a fractal is an object that is

realized starting from an elementary structure that repeats itself on different scales,

that is it presents the same characters to whatever scale it is observed. Scale

invariance is a necessary and sufficient condition for a distribution to be power-law.



125

Usually power-law distributions are represented on a log-log graph, ie a graph in

which both variables on the axes are represented by their logarithm to highlight the

power laws as straight in the Cartesian plane. The experimental points are arranged on

a straight line so that the alpha exponenyt can be immediately defined by the slope of

the straight line. In 1987, Kurt A. Wiesenfeld and Chao Tang formulated a theory to

explain the behavior of many natural dynamical systems far from equilibrium and

constituted by a large number of short-distance interacting elements. This theory is

called the Self-Organized Criticality Theory (SOC). The idea of self-organized

criticality lies within a broader field of research that concerns the study and theory of

complex systems, defined generically as systems composed of interconnected parts

that exhibit as a whole properties not attributable to individual properties of the

component parts, and therefore necessarily deriving from the non-linear character of

the interconnection between the parties, as for example it is easy to find in many

economic and financial phenomena. In all scientific considerations involving

statistical or probabilistic phenomena, it is necessary and decisive to submit the

hypotheses to experimental verifications. The hypothesis testing can be defined as the

comparison between expected results and experimental data. The objective of the

verification is therefore to establish whether and to what extent the data confirm or

deny the hypothesised statistical model. In this regard, a verification test historically

known as a chi-square test is used. The chi-square test is a method of statistical

inference that does not require a priori assumptions about the type and characteristics

of the distribution; it is one of the no parametric methods (also called distribution

free), with which it is possible to establish whether a series of data is in agreement

with a specific hypothesis about their distribution or their relative frequency by

classes. The logical procedure to be followed in applying the chi-square test consists

of:

a) establishing the null hypothesis and the possible alternative hypothesis

b) choose the most appropriate test to test the null hypothesis according to the

research objectives and the statistical characteristics of the data;

c) specify the level of significance (indicated with alpha), the amplitude of the

sample and the degrees of freedom (ie the number of experimental data minus

the number of parameters deduced from the experimental data themselves).

d) find the sampling distribution of the statistical test in the null hypothesis,

normally provided by tables and calculate the value of the statistical test on the

basis of the experimental data, estimating the probability P associated with it;

e) on the basis of probability, draw conclusions: if we reject the null

hypothesis , we implicitly accept the alternative hypothesis .

3. PROBABILITY THEORY: BASIC NOTION

Probability distributions

The variation of price of a financial asset (asset is the generic name for o

financial instrument wich can be bought or sold, like stocks, currencies, gold, bonds,

etc.) can be arbitrary ( we disregard the fact that price change cannot actually be

smaller than a certain quantity- a tick). In order to describe a random process X, such

as the probability that X is within a small interval of width dx around X=x is equal to

P(x) dx. The probability that X is between a and b is given by the integral of P(x)

between a and b,



126

The function P(x) is a density. In order to be a probability density in the usual

sense, P(x) must be non negative ( for all ) and must be normalized, that is

that the integral of over the whole range of possible values for X must be equal

to one:

where ( resp. is the smallest value (resp. largest) which X can take. An

equivalent way of describing the distribution of X is to consider its cumulative

distribution , defined as :

takes values between zero and one, and is monotonically increasing with x.

Obviously:

and .

Similarly, one defines:

“Tipical” value of X are the most probable value, the median, and the mean.

The most probable value corresponds to the maximum of the function needs not to be unique if has several equivalent maxima. The median is

such that the probabilities that X be greater or less than this particular value are equal.

In other words:

The mean, or expected value of X, which we shall note as or in rhe

following, is the avarage of all possible value of X, weighted by their correspondind

probability:

For a unimodal distribution (unique maximum), symmetrical around this

maximum, these three definitions coincide.

One can then describe the fluctuations of the random variable X. If the random

processi s repeated several time, one expects the results to be scattered in a cloud of a

certain “width” in the region of typical values of X. This width can be described by :

1. the “mean absolute deviation (MAD) ;

2. the “root mean square (RMS) (or, in financial terms, the volatily);

3. the “full width at half maximum”

.

The mean absolute deviation from a given reference value is the avarage of the

distance between the possible value of X and thiss reference value:

One chooses as a reference value the median for the MAD and the mean for

the RMS, because for a fixed distribution P(x), these two quantities minimize,

respectivily, the MAD and the RMS.



127

Similarly, the variance is the mean distance squared to the reference value

m:

Its square root ( the RMS, ) gives the order of magnitude of the fluctuations

around . The full width at half maximum

is defined (for a distribution which is

simmetrical around its unique maximum ) such as :

wich corresponds to the points where the probability density has dropped by a factor

of two compared to its maximum value. One could actually define this width slightly

differently, for example such as the total probability to find an event outside the

interval

is equal to, say, 0,1. The pair mean-variance is

actually much more popular then the pair median-MAD. This comes from the fact that

the absolute value is not an analityc function of its argument, and thus does not

possess the nice properties of the variance, such as additivity under convolution.

However, for the empirical study of fluctuations, it is sometimes preferable to use the

MAD; it is more “robust” than the variance, that is, less sensitive to rare extreme

events which may be the source of large statistical errors.

4. MOMENTS AND CHARACTERISTIC FUNCTION

More generally, one can define higher-order moments of the distribution P(x)

as tha avarage of power of X:

Accordingly, the mean is the first moment ( , and the variance is

related to the second moment:

The above definition is only meaningful if the integral converges, which

requires that decreases sufficiently rapidly for large . From a theoretical point

of view, the moments are interesting: if they exist, their knowledge is often equivalent

to the knowledge of the distribution itself. (this is not rigorously correct, since one can

exibit examples of different distribution densities which possess exactly the same

moments).

In practise however, the high order moments are very hard to determine

satisfactorily: as grows, longer and longer time series are needed to keep a certain

level of precision on . These high moments are thus in general not adapted to

describe empirical data. For many computational purpose, it is convenient to

introduce the “characteristic function of , defined as its Fourier transform:

The function is itself related to its characteristic function through an

inverse Fourier transform :



128

Since is normalized, one always has . The moment of can be obtained through successive derivatives of the characteristic function at :

One finally defines the “cumulants of a distribution as the successive

derivatives of the logarithm of its characteristic function :

The cumulant is a polynomial combination of the moments with

. For example . It is often useful to normalize the cumulants by

an appropriate power of the variance, such that the resulting quantities are

dimensionless. One thus defines the “ normalized cumulants :

One often uses the third and the fourth normalized cumulants, called the “

skewness ” and “ kurtosis :

Note that it is sometime , rather than K, which is called the kurtosis.

The above definition of cumulant have ramarkable properties. For example,

the cumulants simply add when one sums indipendent random variables. Moreover a

Gaussian distribution (or the normal law of Laplace and Gauss) is characterized by

the fact that all cumulants of order larger than two are identically zero. Hence the

cumulants, in particular K, can be interpreted as a measure of the distance between a

given distribution and a Gaussian.The moments (or cumulants) of a given

distribution do not always exist. A necessary condition for the moment ( to

exist is that the distribution density should decay faster than for

going towards infinity ( .

5. SAME USEFUL DISTRIBUTION

The most commonly encountered distributions are the “normal” laws of

Laplace and Gauss, which we shall simply call Gaussian in the following. The Central

Limit Theorem (CLT) states that a phenomenon resulting from a large number of

small indipendent causes is Gaussian. There exists however a large number of cases

where the distribution describing a complex phenomenon is not Gaussian; for

example, the amplitude of earthquakes, the velocity difference in a turbolent fluid, the

stresses in granular materials etc, and the price fluctuations of most financial assets.

A Gaussian of mean and root mean square is defined as:

The median and the most probable value are in this case equal to m, whereas

the MAD is proportional to the RMS ( for example,

) .

For , all the odd moments are zero and the even moments are given by:



129

All the cumulants of order greater than two are zero for a Gaussian. In

particular, the kurtosis of a Gaussian variable is zero. As mentioned above, the

kurtosis is often taken as a measure of the distance from a Gaussian distribution.

When (leptokurtic distributions), the corresponding distribution density has a

marked peak around the mean, and rather “thick” tails. Conversely, when , the

distribution density has a flat top and very thin tails. A gaussian variable is peculiar

because “ large deviations” are extremely rare. The quantity

decays so fast

for large that deviations of a few times are nearly impossible. For example, a

Gaussian variable departs from its most probable value by more than only 5% of

the times, of more than in of the times, whereas a fluctuation of has a

probability of less than ; in other words, it never happens.

6. LOG-NORMAL DISTRIBUTION

Another very popular distribution in mathematical finance is the so-called

“log-normal” law. That X is a log-normal random variable simply means that is

normal, or Gaussian. Its use in finance comes from the assumption that the “rate of

returns”, rather than the absolute change of prices, are independent random variables.

The increments of the logarithm of the price thus asymptotically sum to a Gaussian,

according to the Central Limit Theorem (CLT). The log-normal distributiondensity is

thus defined as:

the moments of which being:

In the context of mathematical finance, one often prefers log-normal to

Gaussian distributions for several reasons. As mentioned above, the existence of a

random rate of return, or random interest rate, naturally leads to log-normal statistics.

This is however a red-herring argument, since the desription of the fluctuations of the

price of a financial asset in terms of Gaussian or log-normal statisticsis in any case an

approximation which is only valid in a certain range. These approximations are totally

unadapted to describe extreme risks. Finally, let us note that for moderate volatilities

(up to say 20%), the two distributions (Gaussian and log-normal) look rather alike,

exspecially in the “body” of the distribution. As for the tails, we shall see that

Gaussians substantially underestimate their weight, whereas the log-normal predicts

that large positive jumps are more frequent than large negative jumps. This is at

variance with empirical observation: the distributions of absolute stock price changes

are rather simmetrical. The log-normal distribution is important in the description of

natural phenomena. This follows, because many natural growth processes are driven

by the accumulation of many small percentage changes. These become additive on a

log scale. If the effect of any one change is negligible, the central limit theorem says

that the distribution of their sum is more nearly normal than that of the summands.

This multiplicative version of the central limit theorem is also known as Gibrat's law,

after Robert Gibrat (1904–1980) who formulated it for companies. If the rate of

accumulation of these small changes does not vary over time, growth becomes

independent of size.. Examples include the following:

In social sciences and demographics;

https://en.wikipedia.org/wiki/Central_limit_theorem

https://en.wikipedia.org/wiki/Central_limit_theorem

https://en.wikipedia.org/wiki/Gibrat%27s_law



130

In economics, there is evidence that the income of 97%–99% of the population

is distributed log-normally. (The distribution of higher-income individuals

follows a Pareto distribution.); In finance, in particular the Black–Scholes

model, changes in the logarithm of exchange rates, price indices, and stock

market indices are assumed normal (these variables behave like compound

interest, not like simple interest, and so are multiplicative)

In probability theory, a log-normal distribution is a continuous probability

distribution of a random variables whose logarithm is normally distributed . Thus, if

the random variable X is log-normally distributed, then Y = ln(X) has a normal

distribution. Likewise, if Y has a normal distribution, then the exponential function of

Y, X = exp(Y), has a log-normal distribution. A random variable which is log-normally

distributed takes only positive real values. The distribution is occasionally referred to

as Galton's distribution. The log-normal distribution also has been associated with

other names, such as McAlister, Gibrat and Cobb-Douglas. A log-normal process is

the statistical realization of the multiplicative product of many independent random

variables, each of which is positive. This is justified by considering the central limit

theorem in the log domain.

7. GAUSS ERROR FUNCTION

In mathematics, the error function (also called the Gauss error function) is

a special function (non-elementary) of sigmoid shape that occurs in probability,

statistics and partial differential equations describing diffusion. It is defined as:

In statistics, for non-negative values of x, the error function has the following

interpretation: for a random variable Y that is normally distributed with mean 0 and

variance 1/2, erf(x) describes the probability of Y falling in the range [−x, x]. The

name "error function" and its abbreviation erf were proposed by J.W.L.Glaisher in

1871 on account of its connection with "the theory of Probability. The error function

complement was also discussed by Glaisher in a separate publication in the same

year.n For the "law of facility" of errors whose density is given by:

(the normal distribution)

Glaisher calculates the chance of an error lying between p and q as:

When the results of a series of measurements are described by a normal

distribution with standard deviation σ and expected value 0, then:

is the probability that the error of a single measurement lies between −a and +a, for

positive a. This is useful, for example, in determining the bit error rate of a digital

communication system. The error and complementary error functions occur, for

example, in solutions of the heat equation when boundary conditions are given by the

Heaviside step function. The error function and its approximations can be used to

https://en.wikipedia.org/wiki/Economics

https://en.wikipedia.org/wiki/Income

https://en.wikipedia.org/wiki/Pareto_distribution

https://en.wikipedia.org/wiki/Finance

https://en.wikipedia.org/wiki/Black%E2%80%93Scholes_model

https://en.wikipedia.org/wiki/Black%E2%80%93Scholes_model

https://en.wikipedia.org/wiki/Probability_distribution

https://en.wikipedia.org/wiki/Probability_distribution

https://en.wikipedia.org/wiki/Logarithm

https://en.wikipedia.org/wiki/Normal_distribution

https://en.wikipedia.org/wiki/Exponential_function



131

estimate results that hold with high probability. Given random

variable and constant :

where A and B are numeric constants. If L is sufficiently far from the mean, i.e.:

then:

so the probability goes to as .The error function is an odd function. This

directly results from the fact that the integrand is an even function. The error

function at +∞ is exactly 1 (see Gaussian integral). The error function is an entire

function; it has no singularities (except that at infinity) and its Taylor expansion

always converges.

For iterative calculation of the above series, the following alternative formulation may

be useful:

A useful asymptotic expansion of the complementary error function (and

therefore also of the error function) for large real x is:

where (2n – 1)!! is the double factorial: the product of all odd numbers up to (2n – 1).

This series diverges for every finite x, and its meaning as asymptotic expansion is

that, for any N ∈ N one has:

where the remainder, in Landau notation, is:

Indeed, the exact value of the remainder is:

For large enough values of x, only the first few terms of this asymptotic

expansion are needed to obtain a good approximation of erfc(x) (while for not too

large values of x note that the above Taylor expansion at 0 provides a very fast

convergence)



132

8. LEVY DISTRIBUTIONS AND PARETIAN TAILS

Lévy distributions, noted , appear naturally in the contest of the Central

Limit Theorem (CLT) because of their stability property under addition (a property

shared by Gaussians). The tails of Lévy distributions are however much “fatter” then

those of of Gaussians, and are useful to describe multiscale phenomena (i.e. when

both very large and very small of o quantity can commonly be observed.- such as

personal income, size of pension fund, amplitude of earthquakes or other natural

catastrophes, etc). These distributions were introduced in the 1950s and 1960s by

Manderbrot (following Pareto) to describe personal income and the price changes of

some financial assets, in particular the price of cotton (Mandelbrot). An important

constitutive property of these Lévy distributions is their power-law bahaviour for

large arguments, often called “Pareto tails”:

where and

two constants which we call “ tail amplitude”, or “ scale

parameters”.

indeed gives the order of magnitude of the large (positive or negative) fluctuations

of . For instance, the probability to drow a number larger than decreases as

for large positive . One can of course ,in principle, observe Pareto

tails with ; but, those tails do not correspond to the asymtotic behaviour of a

Lévy distribution. In full generality, Lévy distributions are characterized by an

asymmetry parameter defined as:

which measures the relative weight of the positive and negative tails. We shall mostly

focus in the following on the simmetric case . The full asymmetric case

( is also useful to describe strictly positive random variables, such as, for

example, the time during which the price of an asset remains below a certain value,

etc.To note that, in the case the variance of a Lévy distributuion is formally

infinite : the probability density does not decay fast enough for the integral

tro converge. If even the mean, or the MAD, fail to exist. The median and the

most probable value however still exist. For a simmetric Lévy distribution, the most

probable value defines the so-called “localization” parameter . There is

unfortunately no simple analytic expression for simmetric Lévy distribution ,

except for , which corresponds to a Cauchy distribution (or “lorentzian”):

The scale of the fluctuations, defined by the width of the distribution, is

always set by

However, the characteristic function of a symmetric Lévy distribution is rather

simple, and reads:



133

where is a certain constant, proportional to the tail perameter . It is thus clear

that in the limit , one recovers the definition of a Gaussian.This distribution is

able to describe “intermittent phenomena” that are often very small or very large.

9. LARGE DEVIATION

The CLT (Central Limit Theorem) teaches us that the Gaussian approximation

is justified to describe tha “central” part of the distribution of the sum of a large

number of random variables (of finite variance). The CLT only states tha the

probability of finding an event in the “tails” goes to zero for large N. Thus we have to

characterize more precisely the region where the Gaussian approximation is valid. If

X is the sum on N i.i.d. random variables of mean and variance , one defines a

“rescaled variable” as:

which, according to the CLT tends towards a Gaussian variable of zero mean and unit

variance. For a general asymmetric elementary distribution, the skewness:

For the Gaussian approximation to be meanigful, one must at least require that

the skewness

is small in the central region where is of order one, which corresponds to:

that is

This thus imposes that

The Gaussian approximation remains valid whenever the relative error is small

compared to one. For large (which will be justified for large N), one then obtains

the following condition:

i.e.

This shows that the central region has an extension growing as

. A

simmetric elementary distribution is such that il is then the kurtosis

that fixed the first correction to the Gaussian when is large, and thus the extension

of the central region. The conditions now reads:



134

and

i.e.

the central region now extends over a region of width

. This results do not directly

apply if the elementary distribution decreases as a power-law (“broad distribution”).

In this case, some of the cumulants are infinite and, hence, meanigless and the

“central” region is much more restricted the in the case of “narrow” distributuions

where the above conditions become asymptotically relevant. These laws however may

have a very large kurtosis, which depends on the point where the truncation becomes

noticeable, and the above condition can be hard to satisfy. More

generally, when is large, one can write the distribution of the sum of N iid random

variables as:

where S is the so-called Cramer function, which gives some information about the

probability of X even outside the “central region”.

10. OTHER DISTRIBUTIONS

The discrete Poisson distribution:

The Poisson distribution describes the results of experiments in which events

occur randomly but with a defined time average. Examples of this kind of counting

experiments occur in almost all scientific areas. For example, a sociologist could

count the number of children born in a period of three days. In physics an important

example is the count of the decays of a radioactive sample. The distribution required

in this case is the binomial distribution which provides the probability to

obtain successes in n trials. If the number of tests is high and the probability of

success is very small, one can prove that the binomial distribution does not differ

from a simpler function called the Poisson distribution. Precisely, if we consider a set

of points randomly scattered on the real axis, with a certain density (e.g. the times

when the price of an asset (bene) changes), the number of points in an arbitrary

interval of length is distributed according to the Poisson distribution:

Other distributions are:

1. The hiperbolic distribution, which interpolates between a Gaussian “body” and

exponential tails;

2. The Student distributions which coincides with the Cauchy distribution for

, and tends towards a Gaussian in the limit .

AN APPLICATION: MAXIMUM LIKELIHOOD

Suppose that one observes a series of N realizations of the random iid variable

X, , drawn with an unknown distribution that one would like to

parameterize, for semplicity, by a single parameter If denotes the

corresponding probability distribution, the a priori probability to observe the

particular series is proportional to



135

The most likely value (il valore più probabile) of is such that this a priori

probability is maximized. Taking for example to be a power-law distribution:

with known, one has:

We can obtain the maximum value of by calculating the first derivative of

this function with respect to the parameter and placing this derivative equal to zero.

Calculating this derivative is obtained:

Since the exponential is always different from zero, the product is equal to

zero if:

By solving the previous equation with respect to the parameter , we obtain

the value of the parameter which maximizes this probability:

Then:

This method can be generalized to several parameters. In the above example,

if is unknown, its most likely value is simply give by:

CONCLUSION

“Le marché, à son insu, obéit à une loi qui le domine: la loi de la probabilité.”

(Bachelier, Théorie de la speculation) “The market, without knowing it, obeys a law

which overwhelms it: the law of probability.”

The easy access to enormous financial databases, containing thousands of

asset time series, sampled at a frequency of minutes or sometimes seconds, allows one

to investigate in detail the statistical features of the time evolution of financial assets



136

that allow us to propose some plausible mathematical modelling, as faithful as

possible (though imperfect) of the observed properties of these time series. These

models are however not the only possible models: the available data is often not

sufficiently accurate to distinguish say, between a truncated Lévy distribution and a

Student distribution. The choise between the two is then guided by mathematical

convenience. The central limit theorem tells us if the number of terms in a sum is

larghe enough to consider the sum (nearly) a Gaussian variable. This sum can

represent the temporal aggregation of the daily fluctuations of a financial asset, or the

aggregation, in a portfolio, of diffderent stocks. The Gaussian (or non-Gaussian)

nature of this sum is thus of crucial importance for risk control, since the extreme tails

of the distribution correspond to the most “dangerous” fluctuations. As we Know,

fluctuations are never Gaussian in the far-tails. When confronted with a concrete

problem, one must decide whether N is large enough to be satisfied with a Gaussian

description of the risks. In particular, if N is less than the characteristic value

defined above, the Gaussian approximation is very bad. But all this goes beyond the

limits I have set for myself in proposing this work and it can be the subject of study

and reflection of an upcoming article.

REFERENCES

Pellegrino F- “Legislation and regulation of risk management in aviation activity” (11 /

2015) -Vol II – Giuffrè Editore

Jhon C. Hull -“Risk management and Financial Institutions” Fourty Edition- Jhon Wiley and

sons

Floreani A. “Enterprise eisk management” ISU - Catholic University of Milan

Hsieh D. “Chaos and Non linear dynamics: Application to Financial Markets “ Journnal of

Finance , Vol 46, p. 1839-1878

Statistics: Applied Probability and Statistics (2nd ed.), New York: John Wiles abd sons

Lognormal mean and variance -MATLAB lognstat". www.mathworks.com. Retrieved 14

April 2018.

Heyde, CC. (1963), "On a property of the lognormal distribution", Journal of the Royal

Statistical Society, Series B, 25 (2): 392–393,

Holgate, P. (1989). "The lognormal characteristic function, vol. 18, pp. 4539–4548, 1989".

Communications in Statistical – Theory and Methods. 18 (12): 4539–4548..

Leipnik, Roy B. (January 1991). "On Lognormal Random Variables: I – The Characteristic

Function". Journal of the Australian Mathematical Society Series B

S. Asmussen, J.L. Jensen, L. Rojas-Nandayapa (2016). "On the Laplace transform of the

Lognormal distribution", Methodology and Computing in Applied Probability -

Thiele report 6 (13)

Gao, Xin (2009). "Asymptotic Behavior of Tail Density for Sum of Correlated Lognormal

Variables". International Journal of Mathematics and Mathematical Sciences. 2009:

1–28..

Clementi, Fabio; Gallegati Mauro (2005) “ Pareto’ s law of income distribution: Evidence for

Germany , the United Kingdom and the United States, EconWPA

Asmussen, S.; Rojas-Nandayapa, L. (2008). "Asymptotics of Sums of Lognormal Random

Variables with Gaussian Copula". Statistics and Probability Letters. 78 (16): 2709–

2714.

Marlow, NA. (Nov 1967). "A normal limit theorem for power sums of independent normal

random variables". Bell System Technical Journal. 46 (9): 2081–2089..

Botev, Z. I.; L'Ecuyer, P. (2017).” Accurate computation of the right tailof the sum of

dependent log-normal variates”, 2017 Winter Simulation Conference (WSC). 3th–

6th Dec 2017 Las Vegas, NV, USA: IEEE. pp. 1880–1890.



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Crow, Edwin L.; Shimizu, Kunio (Editors) (1988), Lognormal Distributions, Theory and

Applications, Statistics: Textbooks and Monographs, 88, New York: Marcel Dekker,

Inc., pp. xvi+387,

Limpert, E; Stahel, W; Abbt, M (2001). "Lognormal distributions across the sciences: keys

and clues". BioScience. 51 (5): 341–352.

Brooks, Corson, Jon, Donal, Wales "The Pricing of Index Options When the Underlying

Assets All Follow a Lognormal Diffusion". Advances in Futures and Options

Research. 7. SSRN 5735



138

MANAGING OF VALUE-ADDED IN SUPPLY CHAIN OF TRAM

PART SUPPLY

Nenad MARKOVIĆ

Snežana MILOŠEVIĆ

Radovan VLADISAVLJEVIĆ

Submitted: 1

st November 2018 Approved: 28

th November 2018

Abstract

This paper deals with the problem of increasing the value in the supply chain related to the

procurement of spare parts of trams, and is based on a wider study related to the logistics of the

companies involved in the maintenance of the tram. A survey was conducted on the territory of the city

of Belgrade on the basis of which authors could summarize valid conclusions. A number of research

questions and the recording of the current situation noted the shortcomings of the observed system of

supply of tram parts. On the basis of the obtained results, the authors are able to provide

recommendations and guidelines for changing the procurement system, which would, in consequence,

lead to an increase in value.

Key words: logistics, supply chain, value adding, tram parts

JEL: R41

1. INTRODUCTION

In the last few decades, the role of logistics has changed significantly. The

problem of increasing the value towards the end consumers gets more and more

important. This change in the paradigm of the main logistics principles requires

companies to reassess their entire business. Maintenance of trams is a specific activity

and requires a lot of effort to satisfy tram service users. In the field of urban passenger

transport there is relatively large competition in the form of mass and individual

transport. In order for the tram transport to survive as a competitive one, it is

necessary to invest a lot of effort in the maintenance process. Vehicles that are out of

service open up on the market for other modes of transport.

2. CHANGING THE SUPPLY CHAIN PARADIGM

Traditional vision of logistics includes, among other things, transport and

storage tasks. However, the modern understanding of logistics is much wider, today it

is considered that logistics is a thread that brings together a series of processes both

inside and outside the company. This is the main reason why literature is often

referred to as the "supply chain" rather than logistics, which is one of the effects of

globalization and the creation of close cooperation between suppliers, companies and

customers.

In the following table, we will show the important trends that logistics focused

in the course of its development.



139

Table 1. Change of the focus of logistics [1].

PERIOD OBLAST FOKUS

INDUSTRIJE

FOKUS LOGISTIKE

50's Production volume Costs Supplies

60's Sales / marketing A favor Distribution

70's Development of capital Profitability Production

80's Competition Quality Purchase, production,

sale

90's Globalization,

partnership, ecology

Time Business process

2000 Change priorities Consumers Supply chain

This change in the way you look at logistics leads to the creation of a new way

of managing the supply chain where more and more attention is paid to the delivered

value to consumers. Adding value to each process through which a product or service

passes, with additional analyzes, costs are sorted to the necessary and unnecessary.

This increases the value.

However, the value is a very elusive term and can not always be expressed in

money. To a large extent, value also depends on the perception of consumers. In other

words, "... the goal is to increase the perception of consumers towards increasing the

value they receive and leading to the desire to pay a higher price" [2]. (.. the aim is to

increase customers' perception of the value they are reciving and hence their

willigness to paz higher price.)

This can also be shown through the formula on the basis of which I take the

relation of the perception of the benffit carried by a product or service and the total

cost of ownership.

Consumer value= perception of benefit

total ownership costs

In the supply chain of spare parts for trams it is very important to take care of

the timely delivery of them. However, it is not enough just to supply a part, it is

necessary to limit the costs and create perceptions of efficiency and accuracy. The

best way to achieve this is to create close cooperation between buyers and suppliers of

parts, as well as having all the relevant relevant data.

3. MAINTENANCE OF TRAMWAY VEHICLES

Tramway vehicles are expensive (several million euros) and their lifetime is

thirty and more years. The actual life of the vehicle will depend on the financial

capabilities of the local community for the procurement of new vehicles, as the

companies for the transport of passengers in public urban transport are the property of

the city, and they constantly operate with significant subventions of the city. From the

above, we clearly notice the need to look at the process of maintaining tramway

vehicles from a logistics standpoint. This is necessary because, not only their

acquisition expensive, but also their maintenance requires substantial financial

resources that are constantly lacking. LCC-Life Cycle Cost can be orientated

according to the following: LCC = 1 + 2 (3) [3]. This means that for one invested

monetary unit for the purchase of a tram, it is necessary to invest two (sometimes



140

three) money units, depending on the maintenance, modernization and the length of

the service life after modernization. In addition, it is necessary to constantly invest in

infrastructure (rectification stations, electric cables, electro-contact network, tram

line) and its maintenance so that city transport companies are large consumers of the

city budget.

Because trams are expensive, their number must be kept to a minimum

sufficient number so that the basic task can be accomplished, or that there are always

enough vehicles that are needed for the planned timetable. In addition, it is always

necessary to have a certain number of correct vehicles in the reserve that serve as a

replacement for vehicles that are in the state of CANCELLATION. The collection of

the right vehicles needed to fulfill the timetable and vehicles in reserve is the

minimum number required for unhindered tram traffic.

The repair time of the tram vehicle has been long overdue due to various

shortcomings and some of them are:

• there is not enough material, spare parts in the warehouse needed for repair,

• Lack of necessary transportation means for the transfer of materials and

spare parts, as well as for the traction of tramway vehicles and work platforms within

the company,

• Inadequate and outdated IS essential for maintenance and procurement,

• Inadequate storage.

Solving the above deficiencies would shorten the time of the vehicle condition

in the COVER, and therefore the current number of trams in the fleet could also be

reduced. This would enable the write-off of old vehicles whose subsequent retention

in the fleet is uneconomical and, therefore, unjustified, because the resources of the

company are irrational. In addition, the quality of passenger transport would also

increase. In this way, there would be a multiple benefit - for passengers a more

comfortable carriage, and for the company, the less maintenance costs. Vehicles come

to the state of COVER during exploitation, which is "a part of the century of

equipment when it is ready for use, and maintenance is a component part of it" [4].

The aforementioned problems can be solved by the use of logistics in the

process of maintenance of tramway vehicles. The aim of this paper is to look at the

problem of maintenance of tramway vehicles from a logistic point of view.

Tramway vehicles belong to systems that are subject to maintenance

procedures and the system can always be in two states as shown in FIG. 1.

Figure 1. System conditions [5]

Therefore, it is necessary to constantly strive to rationalize business processes

in order to reduce total costs. Logistics represents the process of planning,

implementation and control: procurement, maintenance, storage, transport,

t

in progress

in the cancellation



141

information and sales / or the provision of services for the purpose of their

improvement [6]. The maintenance function is to return the system from the state U

CANCEL to the state in WORK. In order to make this task as efficient as possible, it

is necessary to have all the necessary resources available.

The term maintenance of a system means "a series of procedures necessary to

prevent the occurrence of a condition in the CANCELLATION, is restoring the

system after the appearance of a condition in the CANCELLATION to the state of

WORK, in the given time and given environmental conditions" [6] or "a set of

activities that are undertaken in order to a particular maintenance object has been

brought into the proper state or maintained for as long as possible in the correct state,

and all because of that it can perform its function well "[4]. According to HRN EN

13306, maintenance is a combination of all technical, administrative, and business

processes throughout the lifetime of an element in order to retain or restore an item to

a state in which it can perform the required function.

Maintenance of the tram vehicle system can be in and out of the workshop.

Maintenance outside the workshop is performed when trams are in circulation, ie, on

one of the lines on which passengers are transported. Such defects are smaller in

scope and less complexity performed by the masters while the vehicle is on the line

(replacement of the burned bulb, the door is stuck in the guide, etc.). In the case when

the master on the line can not remove the malfunction, the vehicle is sent to the

Tramway without passengers. Upon entering the repository in the vehicle's book, it is

determined how far the vehicle has traveled miles from the last service and / or repair

performed. If it is to be done, in addition to repairs, and some of the services then

repair is done together with the service, and if not, the defect is performed and after

the defect is performed, determine which type of failure and starts with the

preparation procedure for the repair. For repair it is necessary to always have

sufficient number of spare parts, assemblies ... etc. The task of logistics is to provide

all the necessary resources in order to return the vehicle as soon as possible from the

state of the CANCELLATION into the state OF WORK and with the minimum total

costs.

4. METHODOLOGY

Two research methods were used, the first method is qualitative while the

other method is quantitative. Recording of the situation on the ground is a qualitative

method and can be considered an auxiliary method that confirms the findings of a

quantitative method. As a quantitative method we used the questionnaire method,

with this method we obtained quantitative data on the basis of which we can access

statistical processing.

The subject of research is companies that deal with the supply of tram and

repair parts on the territory of the city of Belgrade. In order to avoid over-

concretization of the problem, we used data sources from several similar companies.

By this methodology we meet most of the criteria related to scientific research

work. On the one hand, we have a certain degree of generalization because we have

used more similar companies as the subject of the research, on the other hand, using

the situation from the field, we could confirm or deny the obtained results of the

survey. It is very important that the results of the survey are as close as possible to the

real situation, unfortunately in surveys there is always a tendency for the respondent

to choose socially desirable answers. With additional analyzes, it can be very easy to

determine whether the respondents gave socially-asked answers or not, by simply



142

comparing the snapshot with the results of the survey we can detect this. The reason

for giving socially desirable answers can also be due to fear of cancellation or other

disciplinary sanctions.

When choosing, we took care that the number of respondents would be

equally taken from different organizational units. As an independent variable we used

the hierarchical position of the respondents, in this way we could get the opinion of

people directly working on the given jobs or people from different levels of

management.

Dependent variables are determined based on the problem of work and move

in three directions:

• The first dependent variable refers to the means of communication. This

variable is closely related to the information systems of the observed company.

• Another independent variable that is important to us is the use of transport

vehicles in the process of tram car maintenance.

• The third dependent variable is related to the adequate means of transport /

tracking of trams in the maintenance process.

These three dependent variables greatly increase the value of maintaining the

tram, unfortunately this increase in value can be associated with unnecessary costs

that customers would prefer to avoid. Problems in communications can lead to

unforeseen problems, on the other hand inadequate means of transport can lead to

delays in new parts similar to the means of transporting / tramping trams.

Also, these three dependent variables can be relatively easily confirmed by the

method of recording the state. For example, the information and communication

system can be evaluated in relation to the technological generation of the same, as

well as the integration of certain communication tools with the information system of

the company. Transport means can also be linked to the technology generations

currently used in enterprises and with the maintenance level. Tram transport / tram

means can be compared with a wide range of new assets currently available in the

company.

Research questions

For our purposes, we will use research questions because they offer us more

freedom than is the case with hypotheses.

Research Question 1: Is there a statistically significant difference in the

attitude of the respondents towards the place in the business process in relation to the

application of modern communication links (eg radio links, mobile phones) among

the transport participants?



use of transport vehicles in the process of maintaining tram vehicles?



use of adequate means of marketing / traction of travay vehicles in the maintenance

process?

Data processing

We will use statistical mathematical data processing to arrive at the answer to

the set research questions. We will use the statistical analysis of the hi-square test as

the best statistical analysis in relation to the obtained results. At the end of the data

processing we will compare the data from the survey and the data obtained by



143

recording the current situation, in this way we will greatly prevent the emergence of

socially desirable answers.

Based on this test we will get the answer to the first research question. We

will test the existence of a statistically significant difference in the testimony of the

respondents depending on the type of work the respondent performs. We apply the hi-

square test of the independence of the tag. We will create a contingency table.

Tabela 2. Tabelarni prikaz kontingencije

Using modern communication links (eg radio

connections, mobile computers) among

transport participants would increase the

productivity of transport in the maintenance

process? In total

I agree I'm not sure I do not

agree

A place in the

business process

worker in the

maintenance process 34 15 0 49

upgrade 45 3 2 50

manager 20 1 0 21

Total 99 19 2 120

Table 3. Hi-square test

Value df

Asymp. Sig.

(2-sided)

Pearson Chi-Square 16.014 4 .003

Continuity Correction

Likelihood Ratio 16.860 4 .002

Linear-by-Linear

Association 6.186 1 .013

N of Valid Cases 120

The table value for four degrees of freedom along the test significance

threshold α = 0.05 is 9.48773 [7]. Since the obtained square value is higher than the

table, we conclude that there is a statistically significant difference in attitudes

between different groups of respondents on this issue.

On the basis of the hi-square test we can determine that the workers in the

middle and lower place in the process of maintaining the tram are particularly

interested in modern types of communication. This is not a surprise when considering

that these workers are the ones most dependent on the functioning of the tram

maintenance process.

Based on this test, we will get the answer to another research question. We

will test the existence of a statistically significant difference in the testimony of the

respondents depending on the type of work the respondent performs. We apply the hi-

square of the independence test. We will create a contingency table.



144

Table 4. Tabular and graphic representation of contingency

Vehicles in the process of tram car

maintenance are old? Total

I agree I'm not sure I do not agree

A place in the

business process

worker in the

maintenance process 46 1 2 49

upgrade 36 12 2 50

manager 18 0 3 21

Total 100 13 7 120

Tabela 5. Hi-kvadrat test

Value df

Asymp. Sig.

(2-sided)




Linear-by-Linear







And to the second research question we received the answer, by reviewing

Table 5 we can find that the most important ones for transport vehicles are those who

work with them. Maintenance and middle management is one that can greatly speed

up the process of transport in the process itself.

Based on this test, we will receive the answer to the third research question.

We will test the existence of a statistically significant difference in the testimony of

the respondents depending on the type of work the respondent performs. We apply the

hi-square of the independence test. We will create a contingency table.

Table 6. Tabular and graphic representation of contingency

Are there adequate means for transporting / tramping

of tramway vehicles in the maintenance process? Total

I agree I'm not sure I do not agree

A place in the

business

process

worker in the

maintenance

process

4 1 44 49

upgrade 8 17 25 50

manager 5 3 13 21

Total 17 21 82 120



145

Tabela 7. Hi-kvadrat test

Value df

Asymp. Sig.

(2-sided)




Linear-by-Linear







As in the previous two cases, workers' and middle management opinions are

such that the current situation regarding the means of transport is assessed negatively.

By comparing the snapshots with the obtained test results, we can find that

there is a big match there. In most cases, there is not enough good integration of

communication technologies / channels and unfortunately leads to problems related to

the use of wrong procedures. On the other hand, the transport of parts is also

problematic, old transport technologies inside and outside the company lead to delays

in parts or even transport losses. Lastly, the transport of the trams itself is also

problematic, the modern systems offered on the market provide greater safety and

greater speed of transport / hauling.

CONCLUSION

Basically, it is impossible to directly manage the increase in value, however it

is possible to identify "bottlenecks" in the process that lead to unnecessary costs. By

recording the current situation and using the survey, information and physical

transport of parts of the vehicles themselves were most vulnerable to unnecessary

costs.

Today we live in a wealth of information, information is the basis for many

business ventures. Unfortunately, older companies are often unable to cope with the

effects of the IT revolution. This is the case with the observed company. Namely, the

observed organization has hardware and software needed, but the acceptance of these

"novelties" is relative. The integration of various communication channels is still

problematic. People who work directly with information are aware of the problem and

have expressed their view that business will greatly facilitate the better use of

information systems.

These three dimensions interweave and complement each other so that it is

very difficult to separate them and analyze them in particular. Also, through the

proper use of these three parts of the process, a synergetic effect can be created that

yields much better results.

RESTRICTIONS

The authors of the work observed only one part of a much wider study.

Unfortunately, on the basis of one segment, it is very difficult to monitor the entire



146

system of value increase. On the other hand, it is necessary to access a supply chain

from a holistic approach in order to avoid the problem of suboptimization, because if

only one segment of the chain is good it will not be noticed at the end result.

Also, attention should be paid to research methods that are used because the

survey should serve to study the human component. However, this approach does not

give us enough accurate data with which we can begin to make concrete changes in

order to improve the supply chain system. On the other hand, research can serve as an

excellent starting point and it is within the domain of the academic sphere.

REFERENCES

Roca B., (2003) “Marketing of logistic”, Faculty of Economic Subotica

Waters, D. (Ed.), (2010), „Global Logistics New Direction in Logistics“, Kogan Page,

London: England

Ćuže, I., (2003) "Availability of track vehicles and maintenance costs" Suvremeni promet,

Zagreb

Čala, I. (2010) "Maintenance", author's lecture,, Tehničko sveleučilište u Zagrebu, Zagreb,

(http://strojarstvo.tvz.hr/php/skini_repoz.php?id=16194&id1=4&id2=2)

Zelenović, D., Todorović, J.(1990) "System Effectiveness in Mechanical Engineering,

Operational Concern, Reliability, Functional Benefit", III Innovated and Extended

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Šošić, I., Serdar, V., (1997) "Introduction to statistics", X. edition , Zagreb: Školska knjiga.



147

THE IMAGE OF THE ACCOUNTING PROFESSIONAL IN THE

ACTIVITY OF AN ECONOMIC ENTITY

Andreea Mihaela MARIN (ZGARDAN)1

Submitted: 5


th November 2018

Abstract

This paper addresses issues related to the role of the accounting professional, who has attributions

related to the preparation of annual financial statements - as a result of the effort to provide a true

image related to the patrimony of an economic entity. Besides the synthesis of the literature on the

perception of the specialists in the field regarding the professional accountants, the paper presents the

results of the research on the role of the accounting professional in the data collection and processing,

the provision of the information necessary for the decision-making process, the elaboration of the

synthesis and reporting documents and the participation in the decision-making process.

Keywords: accounting professional, image, economic entity, annual financial accounts.

JEL : M41

1. INTRODUCTION

The main protagonists in the entire complexity of functions accounting

information is called upon to fulfil are its producers and users.

The information producers are the accountants, professionals who have and

need to have the knowledge and at the same time the moral qualities required to

practice in good faith the profession and qualification of accountant. From the

organisational and legal point of view, based on the Accounting Law no. 82 of 1991,

updated, the books are kept, as the case may be, by the persons employed with

individual labour contracts in the economic entities or on the basis of contracts of

services of authorized legal or natural persons.

All of them ensure the formation of the accounting information supply by

which we understand all the accounting information obtained within the accounting

system, as well as the means of disseminating this information.

The accountant (or auditor), in the process of building the accounting

information, has to harmonize several interests, often divergent, related to the use of

the accounting information: the interest of the customer (the manager) from which

he/she receives the remuneration, his/her own professional interest (securing the

professional prestige and the revenue maximization) and the general interest

represented by all other users of accounting information (shareholders, bankers, tax

officers, employees, etc.). Therefore, the accounting ethics of the professional

accountant is ensured by applying and complying with accounting regulations, in

terms of independence and professional competence.

1 Assistant Lecturer / PhD / Faculty of Economics, University „Eftimie Murgu” of Resita, Romania,

[email protected]




148

The accounting ethics expresses the set of rules and usances that regulate the

relationship between the accounting professional, the producer of the accounting

information and its user. By professional ethics, the accounting professional must

impose a manner of work compatible with the good repute of the profession, avoiding

any activity that may harm this reputation.

According to this code, the conduct of accounting professionals and the

professional relationships with others must be characterized by: Integrity: to be

righteous, honest and sincere in the performance of the work; Objectivity: not to cave

before certain prejudices or a priori opinions; Independence: to be free from any

interest, such as: direct or indirect financial involvement in the activity of a customer;

involvement as a member of the executive or as an employee; incidence of family

relationships; level of remunerations received; acceptance of works based on

unspecified fees; Professional secrecy: to observe the confidential nature of the

information obtained; to promote professionalism and professional competence; The

defence of the honour and independence of the body must be proven by: expertise,

competence and consciousness; independence of spirit and material disinterest;

Morality, probity and dignity (Horomnea (2003)).

The professional accountant is one of the stakeholders of the economic

society, whose role and importance are perceived differently worldwide, due to

predominantly subjective factors. The literature comprises a number of real-world

studies, which aim at determining the image of the professional accountant in the

world. Research on professional accountants is important for understanding modern

society as they have become a powerful economic and social force (Cooper and

Robson (2006)).

The professional accountant is identified and placed in the literature as part of

evolutionary science and society. So it is identified by Baldvinsdottir, Burns,

Norreklit and Scapens (2009) who have emphasized in their research the ”social”

development of the accountant namely: between 1970-1980 the accountant was a

responsible and sensible person, beginning with 1990, he was a trained as a man of

action, in a recent publication being identified a hedonistic image of the professional

accountant. But professional accountants have learned to avoid making independent

judgments about fairness, thus becoming checkers of rules, this situation seriously

damaging the field as a science and in particular, as a profession.

In Romania, the image of the accounting profession is divided

disproportionately into a positive one (30%) demonstrated by dedicated practitioners

in the field and those who consider accounting professionals` activity notorious for

the evolution of the business, and another, a negative one, stated without

embarrassment by about 70% of the population. In this respect, Albu and Albu (2009)

conducted a study that allowed the identification of the image of the professional

accountant in Romania, branded as a “plodder” and also the setting of premises in

order to change this image to achieve a more odelled perception, particularly in the

leading members of the company. Thus, the implementation of advanced IT solutions,

ERP – Entreprise Resource Planning and the implementation of International

Financial Reporting Standards – IFRS changer the boring role of the accountant into a

more responsible role towards the business he is involved in. But is the technological

and informational development of an enterprise a real premise of a more odelled

perception of the accounting profession? The answer is somewhat predictable.

The image of a “plodder” of the accountant does not only exist in Romania,

but in most countries. The stereotype exists, this fact being argued in the study made

by dimnik and Felton (2006), in which they stated five stereotypes for the professional



149

accountant: dreamer, employee, eccentric, hero and villain. Even if it was made after

an analysis of American cinema, these characteristics cannot be disputed, having been

evidenced by other research studies.

Putting together a current body of norms can only be achieved by capitalizing

on the energies of organized accountants in order for their voice to be heard by the

business environment and the social environment (Bunget (2005)).

On the other hand, one should not neglect the role of the accountant in the

"organization of modern enterprises, because they are entrusted for directing and

harmonizing the figures related to the movement of the means and resources of an

entity, which, ordered by certain categories, according to a well-established scheme,

can proved at a certain moment the situation of an entity – no matter how complicated

(Toma (1993)).

2. EMPIRIC INVESTIGATION REGARDING THE ROLE OF

ACCOUNTING PROFESSIONALS IN THE ACTIVITY OF AN ECONOMIC

ENTITY

The manner of perceiving the necessity and usefulness of accounting

information for decision-making can be sensed through direct dialogue or by

surveying the users’ opinion. As we deal with the recording and gathering of opinions

and / or approximate data with a relatively high degree of subjectivity, the classical

method of the statistical survey can be used as a form of partial observation, with the

remark that the total observation is, if not impossible, at least extremely expensive,

exceeding both the possibilities and the needs of this research. Unlike the statistical

survey - the most rigorous method of statistical observation from the scientific and

mathematical point of view - the statistical survey does not assume the

representativeness of the sample; moreover, the answers of the interviewed subjects

within a statistical survey is voluntary, which is why the data gathered using this

method are preliminary and indicative, and can be used to orient the research in one

direction or other than to formulate clear and precise conclusions regarding the

evolution of economic phenomena and processes or about the results of the studied

phenomenon or process.

However, opinion polling is one of the most sensitive and demanding methods

of observation because, as there are a number of "methodological breaches" through

which subjectivity and errors can creep in, it must be rigorously organized and

mastered. An investigation that observes scientific rigors even minimally must take

over at least two ideas from the statistical survey method:

a. interviewees should be random;

b. the number of subjects should be large enough to cover the structure and diversity

of the general population whose opinion is to be explored.

This paper presents the results obtained from the processing of the information

included in the research conducted with the help of the questionnaire applied in the

West Development Region entitled "New dimensions of the accounting information

contained in the annual financial statements of economic entities", grasping aspects

related to the role of the accounting professionals in the collection data and

processing, the provision of information necessary to the decision-making process, the

elaboration of synthesis and reporting documents and the participation in the decision-

making process. The questionnaire strictly observed the anonymity of the persons

who complete it, avoiding any information related to their identity.



150

The administration of the questionnaire was conducted in the West

Development Region, the questionnaires were sent to the headquarters of economic

entities by electronic mail or were handed directly to the respondents, to be returned

by them either directly or by correspondence; they were handed to accounting experts

who are CECCAR members on their general assemblies, a number of 500 copies

being returned and 344 copies being validated and considered as returning valid

answers. They cover, in terms of volume and structure, the information needed for

research. The 344 valid answers were subjected to a process of centralization and

processing, including the statistical “components” needed for better visualization and

interpretation.

In order to capture the aforementioned aspects, the following questions were

addressed:

1. “How do you rate the professional accountant's role, in the following activities?”

2. “Within the entity where you conduct your activity, what categories of staff are

involved in the preparation of the annual financial statements?”

3. “Within the entity in which you operate, what categories of staff are involved in

developing the documentation underlying the decisions made by the entity's top

management?”

The first question is an appreciative - informative one asking: " How do you

rate the professional accountant's role, in the following activities?", and the

respondents are offered the following variants of answers: data collection, data

processing, providing information necessary for decision making, elaborating

synthesis and reporting documents and taking part in decision-making.

Legend: 1 totally insignificant; 2 insignificant; 3 none; 4 important; 5 very important

(Source: elaborated by the author)

Figure 1 – The graphical plotting of the answers to the fifteenth question

The respondents were provided with a 1-to-5 scale, with the following explicit

specifications: 1 "totally insignificant", 2 "insignificant", 3 "none", 4 "important" and

5 "very important". The interpretation of the results at this question is facilitated by

the fact that the respondents can respond relatively uniformly to all activities, most of

them appreciating that the role of professional accountant is important or very

important, but a certain differentiation, not very high, has been made, the number of

options passing from important to very important along with the transition to

How do you rate the professional accountant's role, in the following activities?



151

providing information to the decision-making process, i.e. the elaboration of synthesis

and reporting documents.

A similar role is also given to the second question: “Within the entity where

you conduct your activity, what categories of staff are involved in the preparation of

the annual financial statements?” The question is open, the nomination of staff

categories was left to the respondent, 290 responses were provided, 150 of them

nominated accounting experts and accountants, more than 50 respondents opted for

economists and 49 options were for functional nominations such as “administrator”,

“manager”, “director” without specifying the professional training of the nominees.

From the responses provided to the correspondence between the content and the

structure of the documents and the professional training of those who work on them, it

results that among the economic entities of the West Region there is a strong concern

to cover with qualified staff the organizational structures designed to manipulate the

accounting information and to prepare the annual financial statements

The last question addressed, namely “Within the entity in which you operate,

what categories of staff are involved in developing the documentation underlying the

decisions made by the entity's top management?” expected open answers, leaving the

option and possibility of nominating to the respondent, and 321 persons answered.

There is a certain degree of repeatability with the previous one and it correlates with

the first question in the sense that the majority (over 280) of the respondents declare

that in the elaboration of the documents on which the decision-making process is

based they employ accountants, expert accountants and economists.

3. CONCLUSIONS

For the introduction, we proceeded to a review of the scientific papers from

the literature from the country and from abroad, the main criteria for their choice

being the degree to which they responded to the research (they were "appropriate" to

the subject) as well as the representativeness (visibility of the authors). However it

was not possible to proceed to an exhaustive review, as this should have meant a true

monograph of the research, and the application of the two criteria was made, first of

all, by accepting a certain degree of subjectivity, which leads to the conclusion of the

partial fulfilment of the objective.

The purpose of this paper was to identify the role and importance of

accounting professionals in any economic entity. For this purpose, we used the

quantitative research method based on the questionnaire. Even if one of the limits of

this research is represented by the fact that the answers did not come from all the

counties of Romania, I hope that I have managed to render to a great extent the

importance of professional accountants in the activity of economic entities because

they offer solid evidence regarding the existence and the necessity of the accounting

profession in the activity of an economic entity, and the image of this profession in

the world is determined by the level of training of the people participating in the

studies, to a significant extent, as well as by the training manner of future accounting

professional.

REFERENCES Albu, C.N. & Albu, N. (2009) “How does organizational change affect the accountants`role?

An institutional approach on two Romanian setting”. International Journal of

Accounting and Information Management, Volume 17, Issue 1



152

Baldvinsdottir, G. & Burns, Jh. & Norreklit, H. & Scapens, R.W. (2009) “The image of

accountants: from bean counters to extreme accountants”. Accounting, Auditing &

Accountability Journal, Volume 22, Issue 6

Bunget, O.C. (2005) “Romanian accounting between reform and convergence (in original in

Romanian)”. Bucharest: Economic Publishing House, p.123 Cooper, D.J. & Robson, K. (2006) “Accounting, professions and regulation:

Locating the sites of professionalization”. Accounting, Organizations and Society

Volume 31, Issues 4-5 Dimnik, T. & Felton, S. (2006) “Accountant stereotypes in movies distributed in North

America in the twentieth century”. Accounting, Organizations and Society, Volume

31, Issue 2

Horomnea, E. (2003) “Basics of accounting. Concepts, applications, lexicon (in original in

Romanian)”. Iași: Sedcom Libris Editions, p. 405

Horomnea, E. (2012) “Scientific, social and spiritual dimensions in accounting (in original in

Romanian)”. Iași: TipoMoldova Editions

Pereş, I. (2009) “Accounting (in original in Romanian)”. Timișoara: Eurostampa Editions

Tabără, N. & Plesco, O. (2011) ”The identified image of accounting profession in society”.

Journal Economica, no. 3(77)

Toma, M. (1993) ”Organisation of the activity of accounting audit and authorised

accountant in Romania - traditions and prospects (in original in Romanian)”. Journal

Accounting audit no. 6/1993, p. 10, quoted by Bunget, O.C.



153

FACTORIAL ANALYSIS OF PROFIT ON AN ECONOMIC

ENTITY LEVEL

Andreea Mihaela, MARIN (ZGARDAN)1

Submitted: 14

h November 2018 Revised: 26


th December 2018

Abstract

The purpose of this article is to perform the factorial analysis of profit on the level of an economic

entity, in particular by following the main indicators acting directly on it, namely: the factorial

analysis of the gross result of the exercise, the factorial analysis of the exploitation result and the

factorial analysis of the profit related to the turnover.

Given the main objective of an economic entity's business, namely to earn a profit, which is the reason

for setting up an entity, the value of profit is of particular importance to any entity regardless of its

business, we have conducted a case study related to profit at an economic entity.

Keywords: factorial analysis, gross result, exploitation result, profit, turnover.

JEL : M41

1. INTRODUCTION

”In the contemporary economic theory there is a division of opinions

regarding the definition of profit, which represents: the advantage obtained in

monetary form from an action, operation or economic activity.

Economic agents must have information on the size and profitability of the

business, information captured by the two key indicators: the profit mass and rate.

The profit margin is the absolute amount obtained as the difference between

revenue and costs or, at product level, the difference between the selling price and the

cost. This indicator thus represents the positive financial result that expresses the

efficiency of the productive activity of an economic entity.

The profit rate is the percentile ratio of profit and turnover (cost or capital)

depending on the basis of comparison we choose. A final or residual element of the

difference between total income and costs; implicit remuneration of production

factors.

The condition for earning a maximum profit is that the marginal yield of each

factor equals its price. In addition, the sufficient profit maximisation condition is that,

at optimal, the marginal yields of the factors are decreasing.

A general, systemic diagnosis of the entity's profitability situation requires an

analysis based on the following system of indicators: the net profit of the entity's total

economic and financial activity; the gross profit of the entity's total economic and

financial activity; the gross profit on the three types of activities; gross profit on

organizational structures (by profit centres); gross profit on various products.

Based on this system of indicators, the areas of activity, the organisational

1 Assistant Lecturer / PhD / Faculty of Economics, University „Eftimie Murgu” of Resita, Romania,

[email protected]




154

structures and the products where there was an unfavourable profit dynamics can be

identified or, although favourable, still do not meet the level of competitiveness

demanded by the internal and external market in terms of profitability in that branch”

(Iosif (2000)).

Profit analysis also needs to be made on the basis of endogenous and

exogenous factors acting on the entity level. Taking into account the variety of forms

under which the entity profit is presented, its factorial analysis can be broadened

considering the following output categories: the gross result of the exercise; the result

of exploitation; the result of turnover.

2. FACTORIAL ANALYSIS OF THE GROSS RESULT OF THE FINANCIAL

PERIOD

The gross result of the financial year (Rb) is determined as the difference

between total revenue and total expenditure thus:

100

*

ii prbyprb

where:

prb - represents the gross average result (profit) per 1 leu of total income;

yi - total revenue structure by activity category;

prbi - the gross profit per 1 leu income per category of activity.

The system of factors is acting on gross profit, so it is presented:

Measurement of factor influence is achieved using the chain substitution

method.

2.1. FACTORIAL ANALYSIS OF THE EXPLOITATION RESULT

The result of the (Re) exploitation is circumscribed on the level of the entity's

core activity and characterizes in absolute terms the profitability of the exploitation

cycle. It is determined that the difference between operating income (Ve) and related

expenses (Ce) as follows:

Re=Ve-Ce

The factorial analysis of the result of the exploitation may be performed on the

basis of the following models:

a. preVeVe

CeVe *1

where: 100

*

ii prbyprb

i

i

iVe

Cepre 1



155

b. VeQe

Ve

Mf

Qe

Mf

Mf

Ns

MfNs

ReRe

'

'

c. VeAe

VeAe

ReRe

The system of factors is presented for the "x" analysis model:

This model of analysis, although generally valid for all entities, is

recommended to be used predominantly by those entities that do not have an

important technical and material basis.

The methodology of factorial analysis and quantification of factors influences,

respectively:

01 ReReRe

in which, due to:

a. the influence of the change in operating income:

preVeVeVe )( 01

which, due to:

- the influence of the change in the total working time fund

0001 )( prewhTTT

of which, due to:

- the influence of the change in the average number of employees:

00001 )( prewhtNsNsNs


00011 )( prewhttNst

- the influence of average hourly productivity:

0011)( )( prewhwhTwh ve

b. the influence of the change of the average profit to 1 leu operating income:

)( 011 prepreVepre

of which, due to:

- the influence of the structure of operating revenues on types of activities:

)( 011 prepreVeyr

i

100

01

preiyipre

r

- profit influence per 1 leu operating income per types of activities:

)( 0110 prepreVeprer



156

An example of factorial analysis and the quantification of factors influences

according to the "a" model and appropriate to the economic results of the economic

entity analysed are presented in the following table:

Table 1

NO. INDICATORS SYMBOL EXPECTED ACHIEVED

1 Revenues from exploitation Ve 22,540 29,120

2 Expenditure from

exploitation Che 20.286 26.499,2

3 Average number of

employees (pers.) Ns 350 400

4 Exploitation result (1-2) Re 2,254 2,620.8

5 Total labour time fund

(hours) T 644,000 728,000

6 Average time per employee

(hours) t 1,840 1,820

7

Hourly average

productiveness, calculated

based on the exploitation

revenues

)(vewh 35 40

8 Average profit for 1 leu

exploitation revenues (lei) pre 0,10 0,09

9

Average profit recalculated

for 1 lei exploitation

revenues (lei) pre

r

- 0.085

10

Annual average value of

fixed means, of which: -

directly productive fixed

means

3,850

2,464

4,600

2,990

11 Output of the financial year Qe 21,467 28,549

12

Degree of technical

endowment of labour

(million lei/employee) Ns

Mf 11 11.5

13 Weight of directly

productive fixed means (%) 64 65

14

Output of the financial year

for 1 leu directly productive

fixed means (lei) îMf

Qe 8.7122 9.5482

15

Degree of valorisation of

the financial year output

(lei)

1.05 1.02

(Source: drawn up by the author)

The calculations result in the following results:

01 ReReRe = + 366,8 million lei, of which, due to:

a. the influence of the change in operating income:

preVeVeVe )( 01 = +658 million lei

- the influence of the change in the total working time fund

0001 )( prewhTTT = +294 million lei

îMf

Mf

Mf

Mf î

Qe

Ve



157


00001 )( prewhtNsNsNs = +322 million lei

- the influence of changing average time on an employee:

00011 )( prewhttNst = -28 million lei

- influence of average hourly productivity:

0011)( )( prewhwhTwh ve

= +364 million lei

b. influence of the change of the average profit to 1 leu operating income:

)( 011 prepreVepre

= -291,2 million lei

- the influence of the structure of operating revenues on types of activities:

)( 011 prepreVeyr

i = -436,8 million lei

- profit influence on 1 leu operating income per types of activities:

)( 0110 prepreVeprer

= +145,6 million lei

There is an exceedance of the expected exploitation result of 366.8 million lei,

or 16.27%, due exclusively to the increase in operating income. This situation is

favourable because the overrun is found in gross profit, net profit and net profit of the

economic entity.

Analysing the influences of the factors that generated the change in the

exploitation result, we find the following:

• the increase in operating income and operating result was determined in proportion

of 44.7% by the extensive use of the labour force and the 55.3% difference was due to

the intensive side, respectively the increase in the average hourly productivity. The

increase in the average hourly productivity led to the increase of operating revenues

by RON 3,640 million and the operating result by 364 million lei;

• as a result of the full use of working time, the operating result increased by 294

million lei. This situation was caused by the increase of the number of employees

with 50 employees, while the average time per employee was not achieved by 20

hours / employee, which resulted in a reduction of the operating result by 28 million

lei;

• as a result of the full use of labour time, the operating result increased by 294

million lei. This situation was caused by the increase of the number of employees by

50 employees, while the average time per employee was not reached by 20 hours /

employee, which resulted in a reduction of the operating result by 28 million lei.

By enhancing the average profit analysis for 1 leu exploitation income through

indirect factors, the following results:

- the modification of the exploitation income structure took place in favour of the

types of activities, which provided a profit of 1 leu less operating income than the

average programmed at the level of the entity, which generated the decrease of the

operating result by 436.8 million lei;

- the profit per 1 leu of exploitation income per type of activity influenced the result

of exploitation in the sense of increasing it by 145.6 million lei, which shows that the

types of activities that have a decisive share in the incomes from exploitation, which

have registered a positive evolution (Ivei> Icei). This situation is mainly determined

by the production sold and, at its level, the reduction of unit costs and the increase in

average unit sales prices.

According to the model "b" analysis, the system of factors is:



158

This model of analysis is recommended to be used by manufacturing entities

that have an important technical and material basis. To measure the influences of the

factors on the phenomenon used, the chain substitution method (the variant produced

by factors).

Based on the data in Table 1, the following factors were determined:

Analysing the influence of the factors, the following are found:

• the increase in the number of staff by 50 has the effect of increasing the exploitation

result by 322 million lei. This influence is judged to be justified by the increase in the

volume of activity in the conditions of increasing labour productivity;

• the increase of the labour endowment by 0.5 million lei/ person led - in the given

conditions - to the increase of the exploitation profit by 117.1 million lei;

• the increase of the direct productive fixed assets by 1% compared to the planned

level is reflected in the increase of the exploitation result by 42.1 million lei; million

lei, so iQe> iMf. This situation can be determined by increasing the use of production

capacity, improving product quality, etc.;

• the value of the output of the exercise was reduced by 0.01 lei, leading to a decrease

in the operating result by 291.2 million lei.

The interpretation of the action of indirect factors acting through the average

profit to 1 leu in operating income is done in the same way as for model 1.

According to the "c" analysis model, the factor system is the following:



159

The value of operating assets reflects the value of non-current assets and of

assets related to the operating cycle. The size of operating assets determines the

amount of output of the exercise, operating income and operating profit.

The Ve / Ae indicator represents the average operating income per 1 leu of

exploitation assets and reflects the efficiency of the exploitation assets. The increase

in the value of this indicator can be achieved by accelerating the rotation speed of

circulating exploitation assets, improving the quality of products, etc.

2.2. FACTORIAL ANALYSIS OF THE PROFIT AFFERENT TO THE

TURNOVER

In the case of production entities, for the factorial analysis of turnover profit,

the following models are recommended:

a. qvcqvpP

b.

prCA

qvp

qvcqvpP 1

c. CAMf

CA

T

MfTP

Pr

The analysis of turnover profit is made using the data in the table below:

Table 2

N

O.

INDICATORS SYMBO

L

EXPEC

TED

ACHIE

VED

1

Turnover assessed

in sales prices, VAT

excluded qvp

20,000 21,000

2 Total expenditure

afferent to turnover qvc

18,000 19,135

3

Effective volume

of sold output assessed in

expected average prices 01 pqv

- 21,740

4

Effective volume

of sold output assessed

based on expected costs 01 cqv

- 19,457.5

5 Amount of profit

afferent to turnover Pr 2,000 2,365

6 Average profit for

1 leu turnover (lei) pr

0.10 0.11

(Source: drawn up by the author)



160

According to the model "a" analysis, the system of factors that act on profit is

the most important:

where:

qv - is the physical volume of the sold product;

y - the structure of production sold on products;

c - full unit costs;

p - average unit sales prices, VAT excluded.

The factorial analysis of the profit afferent to turnover supposes:

ΔP = P1 - P0 = 2365 - 2000 = +365 million lei

of which, due to:

l. the influence of the change in the physical volume of the sold production:

00 PIPqv qv = 2000 • 1 08,7% - 2000 - +1 74 million lei

%7,10810020000

21740100

00

01

pqv

pqvI qv

2. the influence of the change in the structure of production sold on products:

qvIPcqvpqvy 00101 )( = (21740-19457,5)-2000*108,7% =


3. the influence of unitary cost:

)()()( 011101011111 cqvcqvcqvpqvcqvpqvic=

= -(19135 - 19457,5)- +322,5 million lei

4. the influence of the change in average unit sales prices, VAT excluded

011111011111 )()( pqvpqvcqvpqvcqvpqvp =

= 21500-21740 = - 240 million lei

At the end of the analysed period, compared to the level set in the revenue and

expenditure budget, there was an increase of turnover by 365 million lei and 18.25%,

respectively. The increase in turnover profit affects the exploitation result, the current

result, the gross and net result of the year.

Analysing the influences of the factors, we find the following:

• exceeding the physical volume of production sold by 8.7% results in a profit

increase of 174 million lei. The influence of the volume of production sold shows that

there is demand for the production of the entity, i.e. the market is not saturated;

• the structure of the turnover influenced the profit in the sense of the increase by

108.5 million lei, a situation which is explained by the increase of the share of the

products sold at which rates of profitability were expected higher than the average

rate per unit total and the decrease of the share of the products with rates expected

lower returns than the average programmed rate per entity;

• the full unit costs exerted a positive influence on the profit, causing it to increase by

322.5 million lei, a situation caused by the decrease of the costs of the products

having the main weight in the total sales.



161

The influence of costs is appreciated as favourable provided that the quality of

the products sold has not been affected. This positive situation may be the result of

increasing productivity, reducing specific consumption, increasing the use of

production capacity, etc.;

• the sales prices were reduced compared to the level provided for the varieties

holding the majority weight in the turnover and determined the decrease of the profit

mass by 240 million lei. This situation can be determined by the decrease in the

product quality level (in which case the appreciation is negative) and by the action of

the conjuncture factors (higher supply than demand, lower purchasing power of

customers, etc.).

The system of factors acting on the appropriate profit, model "b", is the

following:

The methodology of factorial analysis of profit implies:

ΔP = P1- P0 = 2365 - 2000 - +365 million lei

of which, due to:

1. the influence of the turnover change:

ΔCA= (CA1 – CA0)* = +150 million lei

of which, due to:

1.1. the influence of the change in the volume of sales sold:

000011 )( prpqvpqvqv = +174 million lei

1.2. the influence of the change in average unit sales prices:

00111 )( prpqvpqvp = - 24 million lei

2. influence of the change of the average profit to 1 leu turnover:

215)( 011 prprCApr million lei

of which, due to:

2.1. the influence of the change in the structure of production sold on

products:

)()1(1 0

'

1

00

00

01

01

1 prprCAcqv

cqv

pqv

cqvCAy


1.2. the influence of the change in average unit sales prices:

)"()1(1 '

1

01

01

11

01

1 prprCApqv

cqv

pqv

cqvCAp

= - 215 million lei

1.3. the influence of the change in unit costs:

)()1(1 "

11

11

01

11

01

1 prprCApqv

cqv

pqv

cqvCAp



162

= + 322,5 million lei

The increase of the profit related to the turnover was obtained in the

proportion of 41.1% on account of the increase of the turnover and in the proportion

of 58.9% on account of the increase of the average profit to 1 leu sales.

Turnover increased to 1,500 million lei, contributing to a profit increase of 150

million lei. Studying in depth the influence of the turnover through the two factors of

the second degree, it is noticed that the physical volume of the sold goods has

positively influenced the increase of the profit by 174 million lei, while the decrease

of the average unit sales prices had the effect of decreasing the profit with 24 million

lei.

The increase of the average profit for 1 leu sales by 0.01 lei, which signifies an

increase of the rate of commercial profitability at the enterprise level by 1%, resulted

in an increase of turnover profit by 215 million lei. The influences of the indirect

factors that act on the profit through the average profit at 1 leu turnover (structure,

prices, costs), are interpreted similar to the model presented above (model ”a”

analysis).

According to the model "c" analysis, the system of factors is the following:

where:

T - represents the total labour time;

T

Mf

- represents the degree of technical endowment of labour;

Mf

CA

- represents the efficiency of the use of fixed assets, expressed as average sales of

1 leu fixed assets.

4. CONCLUSIONS

The notion of "profit" is used in economics in an accepted form. The simplest

and most recognised definition of profit is the difference between total income and

total cost. The capitalist economic system, the capitalist civilization as a whole, the

civilization of profitability highlight vital values such as: individual achievement of

success, individualism and acceptance of self-interest, devotion to activity and work

in general, efficiency and pragmatism, moral orientation, freedom, equality, material

comfort, external conformism, reason and morals in addressing any problem.

REFERENCES Albu, C.N. & Albu, N. (2009) “How does organizational change affect the accountants`role?

An institutional approach on two Romanian setting”. International Journal of

Accounting and Information Management, Volume 17, Issue 1



163

Bunget, O.C. (2005) “Romanian accounting between reform and convergence (in original in

Romanian)”. Bucharest: Economic Publishing House, p.123 Cooper, D.J. & Robson, K. (2006) “Accounting, professions and regulation:

Locating the sites of professionalization”. Accounting, Organizations and Society

Volume 31, Issues 4-5 Horomnea, E. (2003) “Basics of accounting. Concepts, applications, lexicon (in original in

Romanian)”. Iași: Sedcom Libris Editions, p. 405

Horomnea, E. (2012) “Scientific, social and spiritual dimensions in accounting (in original in

Romanian)”. Iași: TipoMoldova Editions

Iosif, G. (2000) „Economic and financial analysis of the company in the agri-food sector (in

original in Romanian)„. Bucharest: Tribuna Economică Ed., p. 338

Pereş, I. (2009) “Accounting (in original in Romanian)”. Timișoara: Eurostampa Editions

Robu, V. & Vâlceanu, G. & Georgescu, N. (2004) „Economic and financial analysis„.

Bucharest: Economică Ed., p. 245-247

Spătaru, L. (2004) „Economic and financial analysis: an instrument of enterprise

management„. Bucharest: Economică Ed., p. 333-335

Tabără, N. & Plesco, O. (2011) ”The identified image of accounting profession in society”.

Journal Economica, no. 3(77)



164

HUMAN CAPITAL CREATIVITY - SOURCE OF INNOVATION?

Mădălina-Dumitrița, MATICIUC1

Submitted: 6


rd December 2018

Abstract

In the current economy the emphasis is put on promoting knowledge as one of the most important

sources of competitive advantage. Due to the many changes that occur globally and at a very fast pace,

companies feel obliged to ensure their existence by offering creative and innovative products and

services. Supporting the development of employees' distinctive skills and encouraging creativity in the

workplace can be a strategic choice to make the difference between success and failure in business. To

find out what the nature of the relationship between innovation and creativity is, in the present paper

was made a presentation of what the concepts of creativity and innovation are and then showed their

evolution over time and their approach from the perspective of the current world.

Keywords: creativity, innovation, human resources, competences

JEL : J24, O30

1. INTRODUCTION

The present paper is based on a general research problem that can be

formulated as a question: what is the relationship between creativity and innovation in

business?

Creativity and innovation were originally studied separately, more

specifically, creativity was the subject of study in psychology at individual and then at

the group level, and innovation was studied at the organization level. The human

capital of any organization can benefit from creativity and can exploit it to gain added

value, the process of innovation and creativity being present throughout the world in

each state, although they have different stages of development.

What is desired in this paper is to treat innovation in terms of its human

aspects (individuals, culture, creativity) and not only from the perspective of

technology. We must not forget that in the innovation process, the human resource is

involved with its own intelligence and imagination. The most innovative companies

are not limited to technical innovation, they focus on developing relationships

between employees in a favorable cultural climate.

Creativity and innovation play an important role in achieving and preserving

the competitive advantage, contributing to the survival of companies, enabling them

to remain competitive in an era of globalization when the business environment is

constantly changing and full of unexpected situations.

The complexity of creativity is fascinating and is studied from the everyday

phenomenon, to an exceptional phenomenon, from an innate trait to one acquired

through life and to artificial creativity. Psychology often refers to creativity as a

specific element of art, but in economics it is often associated with innovation.

1 Research Assistant, West University of Timisoara- Faculty of Economics and Business Administration, Romania,

[email protected]



165

2. CREATIVITY - A NECESSITY OF THE CURRENT WORLD

For a long time, it has been considered that creativity is an inherited ability

that benefits only certain individuals, but later it has been shown that each of us is

born with this feature only in varying proportions.

In psychology, the one who introduced the notion of creativity was G.W.

Allport to refer to a personality formation. Due to the complexity of the creativity

phenomenon, various authors (Roşca, 1981) consider that it is very difficult to

establish a single universally valid definition of the term, because every author who

investigates the theme of creativity emphasizes its different dimensions.

Amabile and her colleagues (1996) define creativity as „the production of

novel and useful ideas in any domain” in relation with innovation which is „the

successful implementation of creative ideas within an organization”.

After 3 years, Williams and Yang write that “the major focus in creativity

research has been on the individual creator and his or her personality, traits, abilities,

experiences, and thought processes” (Williams & Yang, 1999). In the same year with

Williams and Yang`s paper, Sternberg and Lubart (1999) give us an explanation about

creativity as „the ability to produce work that is both novel (i.e., original, unexpected)

and appropriate (i.e., useful, adaptive concerning task constraints)”. Creativity is a

result of the human mind and can become a source of added value in business,

contributing to raising living standards because “in the knowledge and creative

economy, regional advantage belongs to places that can quickly mobilize the talent,

resources, and capabilities required to turn innovations into new business ideas and

successful commercial products” (Florida, 2002).

Often, creativity has been linked to the human resource development, as

Waight mentions: „Creativity and human resource development are linked through

performance-related variables such as learning, motivation, goal setting, leadership,

and job characteristics. These particular variables have been discussed in both human

resource development and creativity literature” (Waight, 2005).

Analyzing the definitions of creativity, we can see that this concept involves

new ideas, an original way of thinking, and George Kneller seems to surprise this

term very well: "Creativity is to rearrange what we know in order to find out what we

do not know" since 1965.

3. THE MEANING OF INNOVATION

Although the innovation term is used for a long time (the word coming from

the Latin innovatus), it continues to gain increasing attention with the competitive

development of economic entities. Revision of the existing literature shows that in

1939, J.A. Schumpeter observes, in a capitalist market, the results of business

innovation like "the only function that is fundamental in history".

About half a century after the definition of Schumpeter, Galbraith claimed that

innovation is “the process of applying a new idea to create a new process or

product” (Galbraith, 1982), and three years later, in 1985 Peter Drucker mentioned

that „innovation is the specific tool of entrepreneurs, the means by which they

exploit change as an opportunity for a different business or a different service. It is

capable of being presented as a discipline, capable of being learned, capable of

being practiced. Entrepreneurs need to search purposefully for the sources of

innovation, the changes and their symptoms that indicate opportunities for

https://link.springer.com/article/10.1007/s11187-008-9145-7#CR36



166

successful innovation, and they need to know and apply the principles of successful

innovation.” in his paper„Innovation and Entrepreneurship”.

Other authors who came up with their own vision of the innovation concept

were Van deVen and Angle who suggested that innovation is a process of

developing and implementing a new idea :„innovation refers to the process of

bringing any new problem-solving idea into use… it is the generation, acceptance,

and implementation of new ideas, processes, products, or services” (Van deVen

&Angle, 1989).

Innovation is a „fundamentally social process built on collective knowledge

and cooperative effort‟ (Sayer&Walker, 1992), and, according to Veryzer this

process presents three forms:

- Incremental – existing technology extends step by step;

- Architectural - the existing technology is reinventing to be used for new

purposes;

- Radical- a completely new approach.

The European Union places a special emphasis on increasing economic

performance by encouraging creativity and innovation. Including one of the priorities

of the Europe 2020 Strategy - A European Strategy for Smart, Green and Inclusive

Growth (European Commission, 2010) aims at developing an economy based on

research and innovation as the smart growth direction to which all the European

Union states will have to go.

The Organisation for Economic Co-operation and Development (OECD) that

aims on helping governments around the world to support new sources of growth

through innovation defines innovation as „based on the analyses of the above factors,

the section on innovation concludes by identifying the gaps in innovation in each of

the economies taking into consideration the relevant local factors and conditions.”

4. RELATIONSHIPS BETWEEN CREATIVITY AND INNOVATION

According to Regional Policy Commissioner Danuta Hübner, in Regions for

Economic Change, 2009 „Creativity can be considered the source of the ultimate

innovation - which transforms creative ideas into products and services. Thus,

creativity is always involved when innovation leads to economic results”.

Although there is a wealth of creativity and innovation models in the

literature, in this paper it is considered that the relationship between the two is

competently presented in the model developed by Amabile and Pratt. According to

this model in order to achieve innovation it is necessary to cumulate a number of three

elements:

- Motivation to innovate;

- Resources in the task domain;

- Skills in innovation.

Motivation is a psychological factor that influences the individual's behavior

and has a significant influence on it because it determines its behavior in various

situations. Thus, motivation to innovate involves focusing on organizational goals and

value placed on innovation. Even if we are motivated, enough resources are needed,

as well as a set of skills in innovation management. The latter implies a series of

challenges regarding the mechanisms of developing new ideas, the frequency of

feedback, work assignments matched to skills and interests.



167

(Source: Amabile T.M., Pratt M.G., 2016)

Figure 1 – The relation between innovation and creativity

In terms of creativity, this implies synergy between:

- Intrinsic motivation to do the task;

- Skills in the task domain;

- Creativity-relevant process.

All this involves a whole set of knowledge, skills, intelligence and talent in the

field in which an individual operates, all of which are focused on providing the most

relevant solutions to existing problems. These features are accompanied by creative

thinking, without which even the most significant expertise in the field will not lead to

a creative activity. It is also desirable for the individual to be motivated inherently, to

be excited about the activities that he / she carries out, the situations to be solved.

Although the model has undergone a series of changes over time, as a result of

the involvement of those who have elaborated it, it highlights, in the case of

creativity, the need for innate skills, learned skills, and attitude. In the category of

expertise we find„ opinions, principles and technical abilities. The creative process

includes personality, cognitive style, working style and the use of heuristics for

exploring new cognitive pathways” (Amabile, 1996).

Since Rosenfeld 1980 it was considered that creativity was sustained with the

help of intrinsic motivation, and constrained by extensive motivation, subsequently,

this idea being analyzed by Amabile in 1996 noted that extrinsic motivation can also

have positive effects when it is harmoniously interconnected by intrinsic motivation.

Human creativity is considered a key element of society's progress, generating

numerous competitions not only from individual to individual, but also between

organizations. Contemporary organizations need creative people with vision in

leadership positions. Having basic skills is no longer a sufficient condition in the



168

current economic scene, employees need to become proactive, bring added value to

techniques and methods applied in the past, must develop strong social relationships,

and creativity seems to be a basic competence in organizations.

Companies are learning to be innovative by putting creativity into practice and

can thus generate competitive advantages. In this sense, the two concepts are

interdependent. More than that, society has always relied on knowledge, but in recent

years there has been a growing awareness of a creative and innovative society, which

makes us reflect on the two terms: creativity and innovation. In these conditions

creativity and innovation play „an essential role in the survival and continuity of an

organization and its need to gain a competitive advantage.” ( Petrișor, I., & Petrache,

A.,2014).

5. CONCLUSIONS

Innovation is the result of human creativity, an idea to change into something

better but at the same time it can also be the result of experiments or accidents.

Creativity, in a sociological approach, involves a relationship between the

individual and society, Cropley stressing that in the social context there are

manifestations of preservation, which mainly focus on resistance to change, as well as

innovative forces that encourage creativity. At the same time, we can argue that

resistance to change is not always a disadvantage, nor is innovation always beneficial.

The power of creativity has always been conscious of mankind, irrespective of the

culture in which it manifests itself, especially history, giving us many examples of

encouraging or inhibiting creativity in various situations, often seen as a threat to

stability. As Demyen and Bretcu said, the culture change is a rigorous process which

implies a complex team with distinct degrees of creativity and distinctive skills to

innovate.

The optimal use of creativity leads to progress in the sense that creativity

generates ideas, and these ideas are implemented as new products, services or

processes. These two stages from creativity to progress seem logical until we become

aware of the complexity of creativity and innovation that often face tense situations

and many challenges. Analyzing the previous definitions, we can conclude that

creativity is one of the factors behind innovation, creative employees can influence

the whole process of innovation, but innovation is not just based on employees' ideas

but goes further than that. Instead, creativity is a condition for innovation, but it is not

enough. Creativity is the ability of a person to provide an idea, and innovation is the

process of transforming the idea into a product or service.

REFERENCES

Allport G.W. (1937), „Personality: a Psychological Interpretation”, Henry Holt, New York

Amabile, T. M., & Pratt, M. G. (2016), „The dynamic componential model of creativity and

innovation in organizations: Making progress, making meaning.”, Research in

Organizational Behavior, 36, 157-183.Westview Press.

Cropley, D. H. (2015). „Promoting creativity and innovation in engineering education.”

Psychology of Aesthetics, Creativity, and the Arts, 9(2), 161.

Demyen S.& Bretcu A.,(2018). "Total Quality Management and The Collaborative

Adhocracy," Annals of Faculty of Economics, University of Oradea, Faculty of

Economics, vol. 1(1), pages 402-422, July.



169

Drucker, P. F. (1985). „Innovation and Entrepreneurship: Practice and principles.” New

York: Harper & Row.

Florida, R. (2002).” The rise of the creative class and how it’s transforming work, leisure,

community, and everyday life”. New York, NY: Basic Books

Galbraith, J. (1982), „Designing the innovating organization.”, Organizational Dynamics,

11 (3)

George Kneller, (1965), „Art and science of creativity”, Holt, Rinehart and Winston

Manciu V.C. & Demyen S., (2015). "Measuring Development Through Human Resources.

The Case of Romania," Annals - Economy Series, Constantin Brancusi University,

Faculty of Economics, vol. 2, pages 124-131, April.

Petrișor, I., & Petrache, A. (2014). „The Implications of Logistics Dynamics over the Virtual

Organization – A Model of Analysis Proposition.” Procedia - Social and Behavioral

Sciences, 124, 107-113

Rosenfield, D., Folger, R. and Adelman, H.F. (1980), “When rewards reflect competence: a

qualification of the overjustification effect”, Journal of Personality and Social

Psychology, Vol. 39 No. 3)

Roşca et all (1981), „Creativitatea general și specific”, Academiei, București

Sayer, A. and Walker, R. (1992), „The New Social Economy”, Blackwell, Cambridge, MA.

Schumpeter, J. (1939). „Business Cycles: A Theoretical, Historical, and Statistical Analysis of

the Capitalist Process.”, London: McGraw-Hill.

Shah R., Gao Z., Mittal H., (2014), „Innovation, Entrepreneurship, and the Economy in the

US, China, and India: Historical Perspectives and Future Trends”, Academic Press,

(OECD)

Sternberg, R. J., & Lubart, T. I. (1999). „The concept of creativity: Prospects and

paradigms.” in R. J. Sternberg (Ed.), Handbook of creativity (pp. 3-15). Cambridge:

Cambridge University Press.

Van de Ven, A. H. Angle, H. L. and. Poole M. S (Eds.), „Research in the Management of

Innovation: The Minnesota Studies”: 663-697. New York, NY: Harper & Row

Veryzer, R. W., Jr. (1998). „Discontinuous innovation and the new product development

process.”, Journal of Product Innovation Management,

Waight, C. L. (2005), „Exploring connections between human resource development and

Creativity”. Advances in Developing Human Resources, 7(2), 151-159.

Williams,W. M.,&Yang, L. T. (1999). „Organizational creativity”. In R. J. Sternberg (Ed.),

Handbook of creativity (pp. 373-391). Cambridge, UK: Cambridge University Press.

https://www.google.ro/search?hl=ro&tbo=p&tbm=bks&q=inauthor:%22Rajiv+Shah%22&source=gbs_metadata_r&cad=8

https://www.google.ro/search?hl=ro&tbo=p&tbm=bks&q=inauthor:%22Zhijie+Gao%22&source=gbs_metadata_r&cad=8

https://www.google.ro/search?hl=ro&tbo=p&tbm=bks&q=inauthor:%22Harini+Mittal%22&source=gbs_metadata_r&cad=8



170

QUANTITATIVE AND QUALITATIVE ASPECTS OF TERTIARY

EDUCATION IN THE EUROPEAN UNION MEMBER STATES

Mirela MINICĂ1

Submitted: 1


th November 2018

Abstract

The article forwards a review of the quantitative aspects regarding the number of enrolled

students and of the dropout rate, as well as of the qualitative aspects regarding the study structure and

the employment rate for the higher education graduates. The correlation between the youth

unemployment rate and the level of education as well as the state funding of tertiary education is

highlighted, all these aspects being correlated with the objectives of the Europe 2020 Strategy, in a

comparative approach of the official statistics on the level the European Union member states and

Romania.

Keywords: school abandonment, unemployment, employability, funding, entrepreneurial education.

JEL: I23, J24, J62

1. INTRODUCTION

Developed countries have installed many policy measures over the past

decades based on the assumption that higher business ownership rates induce

economic value creation. Indeed, evidence has been collected of a positive

relationship between business ownership rates and economic value creation (Parker,

2009; Van Praag and Versloot, 2007)

At the macro level, a higher participation rate in tertiary education translates

into relatively more individuals with higher ability levels, i.e., in a fatter right-hand

side tail of the ability distribution. (Van Praag & Van Stel, 2012).

Education is a good whose acquisition entails charges that go beyond the price

of the good itself, and which include (Aghion & Cohen, 2004):

• specific expenses related to its acquisition (transportation costs to go to the

place where it is offered and, possibly, to live there, purchase of paper, books and

other "teaching aids" ...);

• time expenditure: time cannot be allocated to other alternative uses and in

particular to "making a living" (Eicher, 2001).

In today's society, entrepreneurship directly contributes to the growth and

personal development of citizens by providing them with many opportunities and

chances, and it also represents the essential element of economic development,

innovation and sustainability, with entrepreneurs and SMEs being the main actors in

this context, especially due to their activity in the tertiary and the quaternary sector,

based on knowledge.

1 Associate Professor PhD, University „Eftimie Murgu” of Reşiţa, Faculty of Economics, Romania,

e-mail: [email protected]



171

The Strategic European Cooperation Framework for Education and Training,

which is part of the Europe 2020 Strategy, supports the whole community to resolve

common disputes at European level and to encourage the exchange of good

educational and entrepreneurial practices between member countries. In this respect,

four targets have been set for 2020, one of which is to "stimulate creativity and

innovation, including entrepreneurship, on all levels of education and training".

The objective mostly aims at the economic training provided by tertiary

education, because this level is considered extremely important in a society as it

stimulates innovation and creativity and economic development respectively, which

leads to the increase of the living conditions of citizens in general. This can be

statistically analyzed from the data on investments and reforms in the field of

education and training, the number of students, the early school dropout, the

graduation from tertiary education etc.

2. COMPARATIVE ANALYSIS OF THE MAIN ASPECTS RELATED TO

THE EUROPEAN TERTIARY EDUCATION

2.1. Quantitative aspects of higher education in the European Union member

states

The starting hypothesis is that the countries that stimulate the system of higher

education (characterised by a higher flexibility of inputs and outputs and a higher

recovery rate) exhibit (both quantitatively and qualitatively) a higher rate of success

than the administratively centralised systems.(Minică, 2013)

An overview of the participation of young people in tertiary education is

presented in Fig.no.1. which highlights the evolution of the number of students

enrolled in higher education institutions in different Member States of the European

Union in 2013-2016, but also the average for each year.

Germany ranks first on this list, and is also the most populated EU member

state with a total of 2 780 013 students in 2013 and 3 043 084 students in 2016, with a

positive evolution of 8.64%. In French universities in 2013, 2 388 880 students were

admitted to studies, with the number rising by 3.68% by 2016. And the UK had a

significant number of students in 2013, namely 2 352 933, this figure being

practically constant during the 4 years. Top countries include Spain, Italy, Poland.

Data on top countries exceeds the EU average 3 or 4 times even in the case of

Germany. In Romania, however, only 535,218 students were admitted to studies in

2016, fewer by 1.18% than in 2015 and fewer by 7.51% compared in 2013, thus being

below the EU average of 23.48%. This annual decrease in student numbers is mainly

due to demographic decline, the drop in the number of high school graduates or the

preferences of young people to study or work abroad.



172

Source: Eurostat (educ_uoe_enrt01)

Figure1 – Number of students enrolled in the higher education units in the period 2013-2016

in the UE states.

As regards early school abandonment among the 18-24-year olds, in Fig. 2. we

can observe that last year in Romania, 18.1% of them dropped out of the educational

unit they were attending, which exceeded the EU average by 7.5%. The most affected

by this risk are young people coming from rural areas, poor families and Roma

ethnics. In 2010, the school dropout rate was the same, which confirms that there has

been no significant system change on the national level for 7 years. For 2020,

Romania aims to reduce school drop-out rates to 11.3%, but this target is far from

reality, with a 6.8% gap. An even poorer situation than in Romania is recorded in

Malta and Spain.

Also among the top countries in the ranking we encounter in exchange

Croatia, with only 3.1% drop-outs in the same year, Slovenia with 4.3%, Poland,

Ireland, countries where young people are more confident and determined to

successfully complete higher education.

Source: Eurostat (edat_lfse_14)

Figure 2 – Weight of early college dropouts in 2017 in the EU states (% of the school

population aged between 18 and 24)

School abandonment has long-term negative effects on the entire society,

because unskilled young people are disadvantaged when it comes to employment, and

this increases the risk of poverty. The main causes of school drop-out are the lack of

counselling for high school graduates to choose a training program in sync with their

skills and preferences, the lack of income for young people to cover their monthly

expenses, preferring to work as unqualified workers, dealing with the busy timetable,

the sessions of exams, but also the lack of interest in the subjects studied during the

http://ec.europa.eu/eurostat/product?code=educ_uoe_enrt01&language=en&mode=view



173

academic years. The fact that the subjects taught in educational institutions are not

sufficiently correlated with the more demanding requirements on the labour market,

or that most of the study programs are generally based on theory, and specialized

practice is often neglected, also trigger the early school abandonment.

As part of the Europe 2020 strategy, the benchmark is to reduce the school

drop-out rate down to 10% on the European level. 15 EU Member States have already

reached their national 2020 target for this indicator, some have even surpassed it.

These countries are Ireland, Denmark, Greece, France, Belgium, Croatia, Cyprus,

Latvia, Italy, Austria, Lithuania, Netherlands, Luxembourg, Finland and Slovenia.

As regards the tertiary education, Eurostat estimates that in 2015, in the EU-

28, 4.7 million young people graduated, most of them having studied in France (752

000), the UK (740 000 ) and Germany (545 000).

On the European level, in 2016, 39.1% of the persons aged between 30 and 34

had a document certifying the graduation from a higher education institution (Fig. 3),

the percentage rising by 2% compared to 2013 and by 5.5% compared to 2010.

Europe's target is at least 40% of people aged 30 to 34 to have higher education

diplomas by 2020 (eighteen EU Member States have already reached the threshold in

2016, some have even exceeded it).

In Romania, the weight of tertiary graduates (30-34 years) has increased twice

in the reference period, rising from 18.3% in 2010 to 25.6% in 2016. The national

target of 26.7% for 2020 is achievable, but the European one of 40% is not, as the

state still has a lot of work to do to achieve this goal, notably by identifying funding

resources and restructuring the fund allocation system by renouncing to the current

funding system per capita.

From Figure no. 3. it can be remarked that progress over time is significant,

but the results recorded by Romania, Italy, Hungary, Malta in 2016 show a gap of

about one half compared to the leading countries, such as Lithuania, Luxembourg,

Cyprus and Ireland.


Figure 3 – Weight of higher education graduates in the period 2010-2016 (% of the

population aged between 30 and 34).

The fact that so few young people in Romania become graduates of a higher

education institution is mainly due to the considerable number of school pupils who

drop out early, the negative or very poor results obtained at the baccalaureate exam,

but also the decrease of the level of disadvantaged people’s enrolment in the

educational system.



174

Each state is responsible for implementing reforms and taking action to

achieve both its national and European objectives. Reforms should aim not only at

increasing the number of graduates on the tertiary level, but also at improving the

quality of studies and research, and these two elements are closely linked. At the same

time, along with the necessary organisation and funding, emphasis should be placed

on the under-represented groups in tertiary education, which is also present in all EU

countries. Increasing the involvement of people from disadvantaged regions or

environments, ethnic communities and people with disabilities, facilitates an increase

in the number of graduates.

It is also necessary to encourage adults to enrol in tertiary education if they

have not been able to do so before. It would be extremely useful if adults who are

already integrated into the labour market acquire more in-depth knowledge in the field

in which they work, moving thus from vocational education to higher education.

Annually, more and more students are dropping out of higher education, and

in order to diminish this phenomenon it is necessary to actively guide and inform the

young people about their future career. This will help preserve the motivation to

successfully complete the studies and achieve the goals. Supporting girls and boys to

pursue specialised studies in areas where there are gender imbalances among students

will directly lead to their reduction both in education and on the labour market.

Motivating and attracting motivated and able young people from other countries could

also foster an increase in the number of qualified graduates.

Thus, by all these means, or by linking some of them, and especially by

modernising and continuously improving the quality of tertiary education, the

adaptation to the labour market requirements will enhance the possibility of achieving

the Europe 2020 goals.

2.2. Qualitative aspects of higher education in the European Union member

states

The fields of study from which the youth from EU Member States graduated

in 2015 are presented in Table no. 1, where we can see that more than one third, i.e.

33.8% on the average, obtained a degree in social, economic or legal sciences. The

most experts in these sciences, which are also the most preferred in all EU Member

States, graduated in Bulgaria (49.8%) and Luxembourg (45.8%) and the least in

Finland (25.3%) and Spain (26.2%). The second place in the EU is occupied by

engineering and constructions with a graduation share of 13.9%, exceeding the

medical field by only 0.2%. In Germany (22.3%) and Portugal (20.5%) the highest

number of engineers and building specialists graduated, and most doctors were trained

in the education systems in Belgium (25.6%) and Sweden (21.8%). The list of young

people's preferences continues with the arts and humanities with 11.0% of the total

graduates, natural sciences, mathematics, statistics, IT&C, with a share of 10.3% and

education with 9.3%. Fewer young people attended programs in services (3.7%) and

agriculture, forestry, fish farming and veterinary medicine (1.7%).

Romania recorded lower values than the EU average in the field of education

(3.5%), arts and humanities (9.2%) and medicine (11.0%), while in the other fields the

weight of higher education graduates is higher compared to the European average.



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Table .1. Higher education graduates' distribution by domains in 2015 (%)

Education Arts and Humanit

ies

Social sciences, communication

sciences;

Business and administration;

law

Natural sciences;

Mathematic

s and Statistics;

IT&C

Engineering and

constructi

ons

Medicine Services Agriculture, forestry,

fishery,

veterinarian medicine

EU 9.3 11.0 33.8 10.3 13.9 13.7 3.7 1.7

Belgium 9.0 10.6 31.0 5.4 11.4 25.6 1.3 1.8

Bulgaria 8.0 6.7 49.8 6.8 14.0 6.6 6.4 1.7

Czech

Republic

10.1 7.7 31.1 8.7 14.5 10.0 6.7 3.0

Denmark 8.8 12.9 30.8 9.0 10.6 21.6 4.2 2.0

Germany 9.6 12.2 29.7 14.4 22.3 7.2 2.6 1.9

Estonia 8.0 12.3 33.2 12.0 14.5 12.0 6.2 1.9

Ireland 7.9 13.3 30.8 14.6 10.2 16.5 4.7 1.6

Greece 9.8 11.4 32.4 11.8 18.1 10.9 1.6 4.0

Spain 16.2 8.8 26.2 9.0 16.4 14.5 7.1 1.1

France 3.4 9.2 41.4 10.4 14.8 15.8 3.3 1.6

Croatia 3.9 9.9 39.6 9.1 14.8 10.2 8.1 4.5

Italy 6.8 15.8 32.1 0.9 … 16.2 … 2.1

Cyprus 17.6 9.2 41.9 6.0 11.3 8.0 5.2 0.7

Latvia 6.8 7.9 41.3 7.9 12.5 14.0 7.9 1.7

Lithuania 7.1 8.0 43.9 5.8 17.3 13.8 2.0 2.1

Luxembou

rg

16.1 8.7 45.8 8.4 5.5 15.4 0.0 0.2

Hungary 16.2 9.5 35.1 6.5 15.5 7.9 5.1 2.6

Malta 10.9 13.0 35.0 17.0 7.8 13.0 1.6 0.2

Holland … … … … … … … …

Austria 12.7 9.0 31.8 9.6 19.7 6.7 8.9 1.6

Poland 13.5 7.4 34.3 7.2 15.1 13.2 7.8 1.5

Portugal 6.9 9.0 30.0 7.4 20.5 18.6 5.7 1.9

Romania 3.5 9.2 38.8 11.2 17.2 11.0 5.0 4.1



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Slovenia 10.1 9.5 34.3 9.5 16.2 10.1 7.5 2.9

Slovakia 13.1 7.4 32.9 8.4 12.7 17.5 6.1 2.0

Finland 6.5 12.9 25.3 11.5 17.0 19.5 5.1 2.3

Sweden 12.1 6.2 30.6 7.9 18.1 21.8 2.4 0.9

UK 9.6 15.5 33.8 17.0 9.2 13.3 0.0 1.0

Source: Eurostat (educ_uoe_grad02)

The situation regarding the integration of the graduates on the labour market

(Fig.4) shows that on the European level the employment rate was 78.2% in 2016,

increasing by 1.3% compared to the previous year. The Europe 2020 Strategy

proposes that the proportion of higher education graduates should be at least 82% for

the age group aged between 20 and 34.

Although the European Union is very close to achieving the objective, there

are still drawbacks in the interdependence between job requirements and the skills of

potential employees, especially among undergraduate college graduates.

This is also the case for Romania, where the employment rate of new

graduates was of 69.3% in 2016, by 1.2% higher than in the previous year. Prior to

enrolling in a study program, prospective students should first consider the

compatibility between their skills and the chosen field, and, with regard to higher

education institutions, it is necessary to review the programs and standards that guide

them.


Figure 4 -. Employment rate of tertiary education graduates on the labour market (% of the

population aged between 20 and 34).

The relevance of tertiary education on the labour market is an important factor

influencing the employability of young graduates and their contribution to the

sustainable development of the knowledge-based economy.

Along with the stabilisation of the post-crisis economy, there is also an

improvement in the integration of young people into the labour market. In 2016, a

youth unemployment rate of 18.7% was recorded on the European level (Fig. 5). But

in countries such as Greece and Spain, this rate is still extremely high, exceeding

40%. In 2016 the value of the unemployment rate was lower among girls (17.9%)

http://ec.europa.eu/eurostat/product?code=educ_uoe_grad02&language=en&mode=view



177

compared to boys (19.4%), due to the higher education level or the lower employment

rates. However, the data show that young people are often employed in temporary

positions, with lower salaries than other employees or even, involuntarily, in part-time

regime.

The employment rate according to the level of education may vary

significantly (Fig. 6). Thus, Eurostat statistics show that persons (25 - 64 years) who

have graduated from a tertiary education institution have a greater chance to get

employed. Thus, in 2017, the employment rate for the holders of a higher education

diploma was 85.3%, with 0.5 percentage points more than in 2016 (84.8%). At the

opposite end, people who have just completed primary or lower secondary education

have had a 55.6% employment rate, so they have a much lower chance of getting

employed. For graduates of upper secondary or post-secondary education the

employment rate in 2017 was 75.7%, with 1.8 percentage points more than in 2015.

Source: Eurostat (lfsa_ergaed).

Figure 5 – Differences in the employment rate depending on studies graduated from (25 – 64

years of age) on the level of the European Union for the period 2007-2017

Source: Eurostat (lfsa_ergaed)

Figure 6 – Difference in the employment rate depending on the education level for each EU

member state in 2017 (%).

57,1 56,5 54,6 53,8 53,4 52,7 52 52,5 53,2 54,3 55,6

74,4 74,7 73,4 73 73,1 72,9 72,7 73,4 73,9 74,8 75,7

85,2 85,1 84,3 83,9 83,7 83,5 83,4 83,7 84,2 84,8 85,3

0

10

20

30

40

50

60

70

80

90

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Primary or lower secondary Higher or post secondary Tertiary

0,0

10,0

20,0

30,0

40,0

50,0

60,0

70,0

80,0

90,0

100,0

UE MT LT SE RO NL DE PL LV SI PT AT BG CZ DK UK EE LU BE FR HU IE FI HR SK ES CY IT EL

Primary or lower secondary Higher or post-secondary Tertiary



178

Analysing these statistical data, we may conclude that it is crucial to develop policies

to encourage young people to attend a study program especially on the tertiary level, as the

employment level decreases when the level of education decreases.

In Romania, the labour market functioning is hindered by the existence, still at

high rates, of black labour, by the filling of different positions based on criteria other

than value, by the emigration of labour force, by the problems occurred in the

employer-employee relation, by the existence of a controversial legislation in the field

(Tănase, 2012).

In addition to the fact that young people are facing financial problems and thus

are exposed to the risk of poverty and social exclusion, long-term unemployment can

also affect further employment. Over time, skills and competencies in the education

systems get poorer if they are not practiced, and young people are no longer as

productive as they might have been when they had "fresh" knowledge. A high level of

youth unemployment has a negative impact on the entire society, leading to stagnation

of the economy development. If a large proportion of young people with higher

education are not integrated into the labour market, they are not productive,

respectively they cannot capitalise on their knowledge and cannot participate in the

economic growth of their country. They either choose to migrate and work in another

paid lower wages. The given situation, often visible today, may be a demotivation of

high school graduates in terms of enrolling in an education or training program.

Furthermore, it should also be mentioned that in the European Union in 2016

there were over 6 million young people aged 15-24 (figure corresponding to a

percentage of 11.5% of the persons belonging to this category) who were

economically inactive, i.e. they neither worked nor study in any form of education,

category called NEET (not in education, employment or training).

3. HIGHER EDUCATION FUNDING

The most cost-effective investment a state can make is education and training,

because everything starts from there. A country made of citizens with a high level of

intelligence and education is a strong step towards the growth of the economy and the

welfare of the entire society. The situation regarding the funds allocated by each EU

Member State for tertiary education is shown in Fig. 8, where we can see that the EU

average in 2014 was 1.27% of the GDP. Of the countries with statistical data on this

chapter, Luxembourg allocates the least to tertiary education, only 0.51% of its GDP,

and Romania allocates 0.68% of its GDP, down one tenth as compared to 2012. The

largest investments in this field are made by Denmark (2.35%), Finland (2.00%) and

Sweden (1.94%), the Northern countries being the most relevant example of the

correlation between the size of budgets allocated to education and the performance

gained over time.



179

Source: Eurostat (educ_uoe_fine06)

Figure 7.- Public expenditure for tertiary education in GDP percentage in 2014(%)

In Romania, the adoption of the funding system through the annual allowance

per student enrolled, given the allocation of such a small percentage of the GDP for

tertiary education, correlated with an additional allocation for the visibility of the

research results, considering the lack of funds allocated to this activity, led to a

paradox: the state allocation per equivalent student in 2018 was 3,252 lei, less than the

allocation per equivalent pupil in pre-academic education, which was of 4,413 lei.

As a result of this underfunding, a higher didactic norm is practised, close to

the maximum legal limit, and thus teachers can no longer engage in research

activities, the quality of the teaching act decreases, professional devotion being

insufficient to meet the criteria of educational effectiveness.

CONCLUSIONS

The European Union can cope with the above-mentioned challenges through

economic recovery and job creation, which in turn are closely dependent on the extent

to which a company is capable of encouraging business growth. The entrepreneur

creates new companies, opens new markets and develops new skills, and the most

solid sources of citizens’ integration on the EU labour market are represented by

SMEs.

The challenges occurred in the way of the Romanian higher education seem to

be correlated not only to ensuring the inputs (students’ financial resource, material

equipment) but especially to the process, i.e. finding the training methods able to

develop competencies and not propagate information irrelevant for the future

graduates. (Minică, 2013)

The importance of the tertiary education system in this new stage of evolution,

that of the knowledge-based society, is clearly highlighted in the European

educational plans and strategies, but the manner in which these policies are

implemented on the level of each EU member state, the results of national policies are

translated into quantitative indicators (number of students, dropout rate) and

qualitative indicators (structure of graduates by fields of study, employment rate,

unemployment rate and employment rate among graduates), indicators in which there

are major differences between countries.



180

On the macroeconomic level, no country has ever reached a sustained period

of economic development without having invested substantial sums of money in the

labour force, and the quantitative assessments of its contribution to development have

attributed a significant role to investment in the human capital.

Education and vocational training are the most important investments in

human capital, which is why many phenomena need to be analysed from this

perspective, that of their economic and social implications (Minica, 2005):

1. Gains usually increase with age, with a decreasing rate. Both the growth

rate and the delay rate tend to be positively correlated with the level of qualification.

2. Unemployment rates tend to be inversely correlated with the level of skill.

3. In the relationship with employees, firms in underdeveloped countries seem

to be more "paternalistic" than those in developed countries.

4. Young people change jobs more often and benefit from more workplace

training than older people.

5. Income distribution is positively inclined, especially for professionals and

other skilled workers.

6. Better skilled people benefit from more education and other types of

vocational training than the others.

7. The size of the work is limited to the size of the market.

8. The typical investor in human capital is more impetuous and thus more

likely to fail compared to the typical investor in tangible capital.

Romania has little chance of economic and social development if it does not

increase the amounts allocated to education and if it does not implement successful

models in the tertiary education system, generating a change of approach in the

teaching-learning-evaluation activity and in the relational capital generated by the

connection with the stakeholders of each university.

References:

Aghion, Ph.&Cohen, E. (2004) “Éducation et croissance”, La Documentation

française, Paris

Eicher, J-C. (2001) “Évolutions et problèmes de l’enseignement supérieur en Europe

“, Communication au séminaire international ‘L’évaluation des systèmes

éducatifs’, Université Mentouri-Constantine, 29-31 octobre.

Minică, M. (2005) “Human capital and economic growth in Romania” (in original in

Romanian), Mirton Editions, Timişoara

Minică, M. (2013) “New challenges for the training of the human capital through the

system of tertiary education in the context of the knowledge economy”,

International Economic Conference of Sibiu “Post crisis economy: challenges

and opportunities”, 10-12 May

Parker, S. (2009). “The economics of entrepreneurship”. Cambridge, UK: Cambridge

University Press.

Van Praag, M., & Versloot, P. (2007). “What is the value of entrepreneurship? A

review of recent research”. Small Business Economics, 29(4), 351–382.

Van Praag, M., &Van Stel, A. (2012) “The more business owners, the merrier? The

role of tertiary education” Small Business Economics, Springerlink.com

Tănase, D. (2012) “Issues of economy competitiveness”, (in original in Romanian),

Mirton Editions, Timișoara

http://ec.europa.eu/education/policy/strategic-framework_ro

http://ec.europa.eu/eurostat/statistics-explained

http://ec.europa.eu/education/policy/strategic-framework_ro

http://ec.europa.eu/eurostat/statistics-explained



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***European Commission, (2017) “Education and Training Monitor 2017. Romania”

Available on-line at: https://ec.europa.eu/education/sites/education/ , accessed

on 12.06.2018

*** European Commission, (2017) “Employment joint report draft of the commission

and council”, available on-line at: < https://eur-lex.europa.eu/legal-content,

accessed on 25.05.2018

https://ec.europa.eu/eurostat

https://ec.europa.eu/education/sites/education/files/monitor2017-ro_ro.pdf



182

PUBLIC SECTOR AND PUBLIC FUNDS. CONCEPTUAL

APPROACH AND LEGISLATION

Csaba NAGY1

Submitted: 19


th December 2018

Abstract

Over the past two decades, the economy and its fiscal policy have not been sufficiently consistent, they

have not been able to overburden the budget, but the structural weaknesses which are causing the

problems of efficiency and competitiveness also need to be phased out gradually, leading to the

emergence of public finances and, without reforming its modernization, it is unthinkable. Public

resources are the source of public tasks in all circumstances. In public finances, we regulate the

regulation of public power, define the subsystems of public finances, regulate the elaboration,

adoption, implementation and control of the subsystem budget, and control the control of state assets

and control of the management. In order to be verifiable, the tasks prescribed by the law are really

fulfilled, as a precondition for switching from institutional funding to task-based financing, program-

based budget. This should be achieved by the new Public Finance Act, which will allow it to be verified

that the available resources are actually spent for the purpose for which they were designed.

Key words: public sector; public finance; public funds; general government; public finance

management.

JEL: E60, G28.

1. INTRODUCTION

From the second half of the seventies it came to a crisis stage with crisis

symptoms, the pace of economic growth was broken, the fundamentals of

development became uncertain, it became apparent that the economic performance of

the economy had fallen, and the functioning of the welfare state had serious functional

disruption. This stagnant, sometimes declining economic performance has led to a

decline in public services, and a fall in state intervention, which has been a failure.

State involvement was based on continuous technical development and

economic growth, which resulted in a steady increase in the number of public tasks,

services and levels of service to be provided. In addition to this role increase, its

content has also changed and widened (Barr, 1987).

With the advance of time, this balance became more and more disturbed and

more and more disturbances came about. Thus, in the last decade, it is becoming

increasingly urgent that reforms need to be made to restore balance, and action on the

development and implementation of reforms has begun.

2. THE GENERAL GOVERNMENT

The general government sector defined as the group of entities capable of

implementing public policy through the provision of primarily non market goods and

services and the redistribution of income and wealth, with both activities supported

1 PhD, Lecturer, „Eftimie Murgu” University, Reșița, Romania, Faculty of Economics, [email protected]



183

mainly by compulsory levies on other sectors. The general government is

disaggregated into subsectors: central government, state government, and local

government (See Figure 1).

FIGURE 1 General Government

Source: IMF Government Finance Statistics Manual 2001(Washington, 2001) pp.13

The concept of general government does not include public corporations. The

general government plus the public corporations comprise the public sector (See

Figure 2).

FIGURE 2 Public Sector

Source: IMF Government Finance Statistics Manual 2001, Washington, 2001, pp.15

The general government sector of a nation includes all non-private sector

institutions, organizations and activities. The general government sector, by

convention, includes all the public corporations that are not able to cover at least 50%

of their costs by sales, and, therefore, are considered non-market producers. In the

European System of Accounts, the sector general government has been defined as

containing: “All institutional units which are other non-market producers whose

output is intended for individual and collective consumption, and mainly financed by

compulsory payments made by units belonging to other sectors, and/or all

institutional units principally engaged in the redistribution of national income and

wealth” (Eurostat).



184

In the second half of 2008, both in the real economy and in the financial

system, there was a huge shrinkage in the world economy. Our country was not able

to extract itself from the impact of the process of substantial loss of property,

bankruptcy and unemployment. In this situation, there is a great need to restore the

credibility of fiscal policy. In addition to short-term fiscal adjustment measures, a

well-predictable decision-making framework would be needed to encourage economic

players and the government to strict budgetary discipline.

In addition to equilibrium issues, transparency in accountability of public

funds and accountability of the fight against corruption are becoming more and more

focused on today. Transparency means a clear definition of how resources should be

used and how they have actually been used.

Accountability is to ensure that expenditure matches the number of plans and

the outcomes contribute to the government's objectives. The current practice basically

serves not to reconcile the resources needed to carry out the tasks and the tasks, but

starts from the re-orientation of the available or missing resources, i.e., what tasks and

how much of the available resources can be achieved.

However, no independent, comprehensive and comprehensive program,

development strategy was developed. Shorter-term, revenue-raising and mitigation

measures to stabilize and consolidate have mixed with reform-like measures.

Going beyond the consolidation, the job of sustainable growth is not made

easier by the clarification of the organizing principles of one of the most important

fundamental questions, such as the delimitation of the content and scope of the public

tasks that can be undertaken by the state.

The most important tasks for public services are: the modernization of

institutional management, the establishment of public finance management, the

prioritization of tasks, the application of the state-of-the-art methods of performance

measurement and output financing.

3. PUBLIC SECTOR AND PUBLIC FUNDS, CONCEPTUAL APPROACH

AND LEGISLATION

In the modern world, the public sector is called a subsystem for the production

of collective goods whose functions are closely related to the current system of

objectives and tools of public policy. Within the public sector, we can create

groupings according to a variety of organizing principles. Thus, for example, by way

of management, we can talk about public finance, utility, non-profit and cooperative

market systems. In present-day literature, there is a wide variety of wording and

approaches to public goods, public wealth, public finances and similar concepts.

For the operation of the public sector, we can distinguish between public and

public assets. Public money, as a concept, involves both public revenue and public

spending, to say one and the other. In the economy, the "public" and "private"

delimitation actually goes beyond the government sector as public and public property

must include all state organizations operating in the enterprise, in which the state's

ownership and role- ie the use of taxpayers' money for such purposes is systematically

dependent on the organization's performance, wealth and income position (Csonka-

Lehmann, 2000). They distribute income withdrawn from economic operators by

governmental constraints usage fees paid by economic operators for the use and use

of public goods, the use of exclusive and partial state / municipal property, donations

and public sector actors can be considered as money from loans borrowed by the

company.



185

In conjunction with the economic and social impacts of government revenues

and expenditures, economic theories and practice often lead to contradictory

conclusions, and the need for reform is usually based on effectiveness, and issues of

social justice are far behind (Csillag, 2001). The new regulation must address two key

issues. On the one hand, the right and responsibility of the elected political bodies

must be restored on the one hand, and on the other hand, the institutional guarantees

of the financial sustainability of the budget must be ensured.

Long-term budget planning assumes and demands the operation of a

macroeconomic financial planning system tailored to the nature of a market economy,

but more fully than today. Clearly defined tasks, transparent planning, budget based

on goal and performance requirements, and ethical consistency make performance

more measurable, improving the effectiveness of accountability, analysis and

evaluation, correction - and, last but not least, control possibilities too.

The modernization of public finance presupposes the establishment of a set of

rules, the establishment of an institutional system, and the finding of technical

solutions that make the management of public finances more transparent, predictable

and efficient at both the national economy, the local governments and the institutions,

and takes into account the risks involved. (Báger - Pulay, 2008).

The ultimate goal, however, is to improve the external and internal conditions

of competitiveness and sustainable development through better functioning of the

public finance system, financial equilibrium and confidence.

The laws that govern the operation of the public sector, namely the planning,

collection and utilization of public funds, need to be thoroughly revised in the early

1990s and need to be thoroughly upgraded. The principles of statutory and regulatory

regulation are unclear, and there are many contradictions between public sector rules.

Legislators and legislators have been trying to adapt to changing requirements

by constantly changing their laws and implementing regulations, but because of the

many modifications, they have become more and more unclear to law enforcers. In

many cases, it is not even clear what questions should be taken in law and which

issues should be regulated in the regulation. It cannot be assumed that accounting

laws other than accounting law on budgetary institutions are not drafted in law. The

basic provisions on public accounting for public decisions on the use of public funds

would require legislation at a legislative level.

The public sector as a whole, but within this, the regulatory system of public

funds should be transposed into the developed democratic states and the best

principles and practices that have been recognized in international organizations.

Really beneficial international recommendations can only be made if they are in the

domestic professional, political and social consensus. Creating a new regulation the

principle of popular representation and limited mandate should be applied on a

substantive basis, in which a fundamental principle should be to ensure broad public

transparency and full compliance with the principle of verifiability. In budget

planning and management, the true application of the principle of completeness and

detail should also be enforced.

The enforcement of the publicity principle is an important operational feature

of the rule of law. In addition to the political bodies empowered by the electorate in

the elections, the public creates the greatest deterrent force against all irresponsible

management and political manipulation and helps to avoid the crimes.

If the state does not decide clearly on which goods and services it intends to

provide, public funding becomes opaque and unbundled. Therefore, there is a need for

a clear separation of governmental levels of performance. Declaring the public



186

function should be a legal act, however, the order of assignment should be very

vigilant.

When establishing a new legal regulation, it is appropriate to examine whether

and how it can be it is advisable to fix the public tasks at a statutory level: Against and

against this proposal we can list many arguments. Instead, it means that knowledge of

this would greatly help both economic and social stability, and that there is a high

degree of variability, so it is only possible to review and clarify the medium term over

a medium-term period.

The current system of budget management budget planning is basically based

on existing revenue and expenditure appropriations and hence funding is based on

this. The process and its outcome clearly shows how rigid the financing structure is.

Although the importance of priorities is emphasized on a regular basis, it is clear that

appropriations and changes in key areas are practically only following the change in

inflation.

The two levels and four subsystems of the state budget today are too

fragmented, and the responsibilities are not clearly clarified among them, so it would

be sufficient to separate the central and local levels in the new public finance

regulation.

The separation of the two levels would make it possible to apply more

consistently to the actors of public finances and to the regulations that apply to the

levels to the present situation. An important element of the special rules is the solution

resulting from the constitutional position of the local governments and the

connections to the central level.

In reality, the constitutional autonomy of local governments is greatly

restricted by the sectoral and professional laws that are maximally restrictive,

sometimes inconceivable, and the constitutional autonomy of local governments is

hampered, and their rational management is impeded by the statutory titles,

allocations its mechanisms and the real value change to the current fiscal targets

subordinated.

Thus, a more predictable and transparent way of regulating the financial

relations between the central and the local level, the various techniques of which are

possible. All the advantages of the state contributions must be significantly reduced,

and it should be prevented from being broken down into sectoral parts. It is also

necessary to apply state aid to some macroeconomic changes (fixing), thus ensuring

predictability and fiscal policy latitude.



187

FIGURE 3 Financing Sustainable Infrastructure

Source: https://newclimateeconomy.report/2016/a-roadmap-for-financing-

sustainableinfrastructure/

Sustainable development is only a necessary but not a sufficient condition for

public finances. In the medium term, budgetary imbalances can not be ensured

through overdraws or withdrawals that jeopardize basic state tasks. The

competitiveness of the economy, neither on the expenditure side nor on the revenue

side, should not jeopardize the pursuit of the budgetary equilibrium. Budgetary rules

often do not formulate themselves as part of a comprehensive economic package

whose form can be varied. Obviously, budgetary rules are most effective when they

are fixed by high-level legislation. Experience shows, however, that the rules laid

down in the Constitution and in the law are too simplified, rigid and difficult to

change.

Transparency is of paramount importance to public finance systems. The

realization of this is an important means of building public trust that contributes to

reducing the losses caused by various irregularities and improves financial discipline.

Creating the requirement of transparency can significantly reduce the management

costs of public debt. Organizations belonging to the non-governmental sector are

becoming increasingly important in the field of public service provision. In order for

the public-private partnership to be fruitful for the "public", it is essential that all users

of public funds be accountable. To properly ensure transparency, a properly organized

information system is needed, as well as processes and decisions are public. The

information should be available in sufficient quantities and in depth with the content

indicated in international standards.It follows from the transparency that it should be

known to the general public as a whole risks inherent in the system. Risk Presentation

it is important that the state account should also show the changes in the financial

position of the sector, the risks of the so-called out-of-balance-sheet performance. An

important requirement is the transparency of the financial legal system, which

requires both legislation on the revenue and expenditure side to be stable, or changes

in them, to make clear the changes.

Publicity is also a guarantee that political competition can play a significant

role in the elections. Disclosure of data on the management of public assets should not

https://newclimateeconomy.report/2016/a-roadmap-for-financing-sustainableinfrastructure/




188

be restricted by the protection of business secrets, but it is necessary to review what is

and should be disclosed in order to prevent the publication of data in advance

position.

A good area of application of program-based budget planning is the local

government system, where pilot projects were already in the mid-1990s. At the same

time, the introduction of new planning methods also requires a differentiated approach

for local governments and sometimes longer time.

After the planning, the performance orientation can be exercised in the

management by assigning performance indicators to the use of each budget

appropriation and monitoring their performance at organizational, sectoral and

governmental level.

An important task of the regulation to be renewed is that this area, which

today's legislation is also neglected, is to settle in accordance with its importance and

international standards. The new regulation should include the concept and

importance of internal governance mechanisms. It must be stated that the elements

and structure of the internal governance systems to be set up at institutional level are

in line with international standards. The essential requirements relating to the

independent internal audit function forming part of the internal management system

should be laid down at the statutory level and the current regulation at the regulatory

level should be abolished.

4. BUDGET PLANNING AND MANAGEMENT

The public sector as a whole, but within this, the regulatory system of public

funds should be transposed into the developed democratic states and the best

principles and practices that have been recognized in international organizations.

Indeed, beneficial effects can only be made by international recommendations if they

are strengthened by domestic professional, political and social consensus. When

designing the new regulation, the principle of popular representation and limited

mandate should be applied substantively, in which a fundamental principle should be

to ensure broad public transparency and full compliance with the principle of

verifiability. In budget planning and management, the true application of the principle

of completeness and detail should also be enforced. The enforcement of the publicity

principle is an important operational feature of the rule of law. The current system of

budget management budget planning is basically based on existing revenue and

expenditure appropriations and hence funding is based on this. The process and its

outcome clearly shows how rigid the financing structure is. Although the importance

of priorities is emphasized on a regular basis, it is clear that appropriations and

changes in key areas are practically only following the change in inflation.

The two levels and four subsystems of the state budget today are too

fragmented, and the responsibilities are not clearly clarified among them, so it would

be sufficient to separate the central and local levels in the new public finance

regulation. The separation of the two levels would make it possible to apply more

consistently to the actors of public finances and to the regulations that apply to the

levels to the present situation. An important element of the special rules is the solution

resulting from the constitutional position of the local governments and the

connections to the central level. In reality, the constitutional autonomy of local self-

governments is significantly constrained by the sectoral-professional laws that

maximally enforce the requirements, and the constitutional autonomy of local

governments is hampered, and the rational management of the state contributions, the



189

allocation mechanisms and the real value of governmental contributions related to

compulsory tasks, subordinated.

Public finance rules generally govern the management of public finances, in

particular the rules of management of the general government and the status of actors

in the public sector.

According to foreign experience, in case of appropriate political intentions, an

effective solution to the so-called introduction of a rule-based budget and / or the

involvement of independent institutions. The convergence program and the euro area

regulations set balance requirements for the public sector as a whole. In order to

address the risks posed by the balance, adequate planning should be made during

planning and penalties should be applied when appropriations are exceeded. In the

medium term, budgetary imbalances can not be overcome by overcrowding or the

with withdrawals. The competitiveness of the economy, neither on the expenditure

side nor on the revenue side, should not jeopardize the pursuit of the budgetary

equilibrium.

Transparency is of paramount importance to public finance systems. The

realization of this is an important means of building public trust that contributes to

reducing the losses caused by various irregularities and improves financial discipline.

Creating the requirement of transparency can significantly reduce government debt

management costs. Organizations belonging to the non-governmental sector are

becoming increasingly important in the field of public service provision. In order for

the public-private partnership to be fruitful for the "public", it is essential that all users

of public funds be accountable.

The framework for the rational and economical management of each budget

organization is essentially governed by the legislation on the status of these

institutions. The regulation of the legal status of organizations operating budget

management within the framework of the public finance system and the special

regulation of public service organizations is one of the issues where several options

can be considered. It is important that accountability, transparency and performance

requirements are used when using public funds.

The internal governance system of public finances encompasses the

objectives, guidelines, operating procedures and rules established by the

organization's management. The operation of this control mechanism is necessary for

the organization to ensure that its mission and its various aspirations are

economically, efficiently and effectively fulfilled, in accordance with the law and

internal rules, protect the assets and information of the organization, the quality of the

accounting system, timely preparation, avoidance and detection of errors and fraud.

An important task of the regulation to be renewed is that this area, which today's

legislation is also neglected, is to settle in accordance with its importance and

international standards.

When regulating public finances, the requirement of stability is of paramount

importance. There is a need for the state's behavior to be economically viable for

long-term, accepted by society and public confidence in new solutions. Stability also

means that the public finance system avoids frequent changes to legislation, as

opposed to today's practice.

Accurate and prudent preparation of legislation is also a prerequisite for

predictability and stability establishing the consistency of certain legal blocks, setting

a date for the entry into force of legislation that will allow time to prepare for the

application. There is a whole new approach, methods, and techniques in the planning

and reporting and accounting, auditing and financial management systems to create



190

the proposed public finance regulation, as opposed to domestic practice. All this

requires that the new rules be introduced and put into practice gradually. The length

of time it takes to prepare for the application of a law is not and can not be determined

by law in the formulation of each law, its nature, quantity and quality.

With regard to the importance of the central budget, it stands out from the

general government system, and therefore some special rules would apply. Thus,

above all, the requirement that the public and statutory duties and other obligations

contained in the Constitution and the law be covered in the budget. The budget must

be set up in such a way that the implementation of this provision can be established.

Ensuring the sustainability of the balance of public finances is important to prevent

the growth of the indebtedness of the state. Only this principle may be in exceptional

circumstances. The detailed rules must be in law (Borsa, 2008).

It is especially important to enforce the principle of performance orientation

during planning, as this aspect of farming decides most on the other processes of

farming. When designing appropriations the purpose of the proposed expenditure, the

way in which it is to be achieved, the justification for the proposed resources and the

amount of expenditure should be presented. Performance indicators need to be widely

applied to marking and tracking targets. In case of change of appropriations, the same

requirement should be applied. Domestic fiscal planning practice needs to be revised

comprehensively and in detail. Current base-based design is unsuitable both to

enforce performance requirements and to lay down the necessary structural changes.

It provides performance orientation to introduce or prescribe program-based

budgeting for specific spending areas, monitor budget implementation, and measure

performance and institutionalize performance audits.

5. CONCLUSIONS AND RECOMMENDATIONS

The long-term economic interests of the country are regularly prevented by

short-term interests and measures, and this practice greatly increases the uncertainty

of economic players and blocks the country's catching up.

There is no definition of what tasks mandatory by the state, such as the state,

to be able to reconcile between the tasks and the resources needed to carry them out.

The serious problems of public finances and of the national economy would probably

not be so serious if, within a reasonable period of time, a consensus would be decided

on the definition of the scope, content and scope of the public tasks to be undertaken

and funded by the state.

It cannot be postponed further transforming the public sector as a whole,

modernizing the system and regulation of institutional management, prioritizing tasks,

introducing performance measurement, and applying state-of-the-art methods of

output financing (task financing).

In order to improve the situation, we have opportunities, both at macro and

micro level, in particular in the field of public funds, including task definition,

planning, regulation, management, control and registration.

Since there are a number of gaps and problems in the system's operation, the

current system is outdated in many areas, it cannot be achieved by refilling it, with

half-solutions, and the reformation of the system cannot be delayed.

In the absence of transparent and consistent management of public funds,

clarification of theoretical foundations and the necessary decisions, the coordination

of the tasks and the resources needed to perform these tasks cannot be achieved.



191

It is necessary to eliminate the practice of short-term political cycles interests

to be prevented and long-term ones, and to exclude the so-called choice budget.

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sustainableinfrastructure/ downloaded at 19 june 2018

Barr, N. : The Economics of the Welfare State, Weinenfeld & Nicolson, London, 1987. pp, 1-

392.

Báger, G. – Pulay, Gy. 2008. : A költségvetési tervezés makrogazdasági kockázatainak

elemzése, Pénzügyi Szemle. 2008. 3. Szám, pp, 384-401.

Borsa, D.: 2008. Önálló közpénzügyi fejezet létjogosultsága a hatályos magyar

alkotmányban, Közjogi szemle, 2008/2. pp, 46-51.

Csonka, G. – Lehmann, M. 2000, : A kormányzati szektor – új felfogásban. Pénzügyi Szemle,

2000. 4. szám, pp, 354-374.

Csillag, I. : Közpénzek, átláthatóság, pénzügyi fegyelem, Közgazdasági Szemle, 2001.

október, pp, 805-809.

General Government sector, Eurostat glossary https://en.wikipedia.org/wiki/Eurostat

downloaded at 22 sep 2018

IMF, Government Finance Statistics Manual 2001, Washington, 2001, pp.15

https://www.imf.org/external/pubs/ft/gfs/manual/pdf/all.pdf , downloaded at 19 june 2018

INTOSAI. Guidelines for Internal Control Standards for the Public Sector.

http://intosai.connexcc-ostignet/blueline/upload/1guicspublsece.pdf. downloaded at 22 sep

2018

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Nyikos, L. : Koncepció a közpénzügyi törvény megalkotásához (harmadik tervezet), 2006.

június.1-5, http.www.attentus.hu/Local%20folder/Tanulmanyok/koncepcio.pdf

downloaded at 8 aug 2018

OECD. : Use of Country Systems in Public Financial Management, Paris, 2007.

http://www.olis.oecd.org.olis/2007/doc.nsf/ENGDATCORPLOOK/NT000047/AE/$F

ILE/JT(03236549).pdf. downloaded at 22 sep 2018

OECD. : Performance Budgeting. A Useer' Guide. Paris, 2008.

http://www.oecd.org/dataoecd/32/0/40357919.pdf. downloaded at 22 sep 2018

Syquia, J. : Reforming Public Procurement in Emering Market Countries.

Washington,USAID.http.fiscalreform.net/images/Files/procurement_final_070601.pd

f. downloaded at 16 iun 2018



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https://en.wikipedia.org/wiki/Eurostat

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http://intosai.connexcc-ostignet/blueline/upload/1guicspublsece.pdf

https://en.wikipedia.org/wiki/Public_finance

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http://www.oecd.org/dataoecd/32/0/40357919.pdf



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BANAT -100 OFFERINGS FOR TOURISTIC ROMANIA (THE

1918-2018 CENTENNIAL)

Gheorghe POPOVICI1

Monica ROȘU2

Submitted: 17


rd December 2018

Abstract

One hundred years (1918-2018) after the Kingdom of Romania's union with Transylvania and Banat,

through this paper the authors present the results of the study carried out during the period 2016-2018

regarding the touristic and cultural patrimony of Banat. Cultural tourism is one of the five main forms

of tourism: seaside tourism, mountain tourism, spa tourism, active tourism in protected areas and

cultural tourism.

Cultural tourism is the form of tourism that places the cultural attraction at the centre of the offer.

Cultural tourism is a journey for body and soul.

Cultural tourism should not take place as a mere journey, nor as an "on-the-run" trip to "check” as

many cultural objectives as possible per day.

The historic Banat is the "land between the rivers", being bounded to the north by the Mures River, to

the west by the Tisa River, to the south by the Danube River, and to the east by the Cerna River and the

mountain chain (Godeanu Mountains and Ţarcu Mountains) past the Gugu Peak (2291 m) and closing

the Iron Gates of Transylvania in the Retezat Mountains. The region spreads on an area of 28,526

square kilometres, a surface comparable to that of Belgium, of which today two thirds (18,966 square

kilometres) belong to Romania, one third, the western section, to Serbia (9,276 square kilometres), and

a small corner around Szeged, to Hungary (284 sq. km).

Today, the Banat on the territory of Romania is a "country of offerings" grace to the 100 offerings

identified and presented as touristic attractions for the Romanian cultural tourism.

Key words: cultural tourism, touristic resources, touristic sights and touristic attractions

1. PREMISES

Cultural tourism is the form of tourism that places the cultural attraction at the

centre of the offer. Moreover, cultural tourism is a journey for body and soul. Socrates

himself wrote about the fundamental principle proclaimed by one of Zamolxis's

Thracian doctors: „everything comes from the soul, both the evil and the good of the

body and of our whole being”(Popovici, 2007)

Therefore, if people want to heal their eyes, they will try to heal their whole

body. But the body cannot be cured without healing the soul first and foremost.

Nowadays, the concern for the body has become a priority. The body has been and

continues to be "unveiled" of any mystery by the latest technologies (radiography,

endography, ultrasound, tomography, biometrics), while the soul, still more alien to

the body, has continued to remain a little enigma less deciphered.

Artificial Intelligence will attempt in the future, through "biochips" and

"nanobots" placed in the body - under the skin and in the blood - to read (to scan!)

people's thoughts and to decipher the soul, Then one shall take another step towards

Robot Man, without soul, without sadness or joy, possessing only "direction and

sense", with a programmed speed of passing through life.

1 Professor PhD, University “Eftimie Murgu” of Resita, Faculty of Economic Sciences, [email protected] 2 Assistant Lecturer PhD, University “Eftimie Murgu” of Resita, Faculty of Economic Sciences, [email protected]



193

That is why cultural tourism is meant to "heal" people by recreating the

harmony between body and soul. The journey with a cultural purpose takes man

closer to nature, his fellow men and God!

2. THE PROPOSED ISSUES

Cultural tourism should not take place as a mere relaxation, nor as a "run-

away" trip, a permanent "race" to "check" as many cultural sights in a single day as

possible.

Therefore, there will be no robotic cultural tourism in Banat, as it is now in

developed countries, where the traveller is moved around in a dizzy joy. In these

"fashionable" travels, the program is not one dedicated to the soul, but it is computer-

based, most of the time, for a man always under the sign of hurry: not to miss the

coach, not to miss lunch, to see everything that is written in the guide.

This is the purpose of this paper, to convey the message that in Banat one can

practice another type of cultural tourism, where everything belongs to the traveller:

„walking, eyes let to wander, time for halts and time to see the authenticity of cultural

tourism products.”(Popovici, 2011, 2013, 2014, 2016).

3. THE CORE OF THE PROBLEM

Today, the Banat on the territory of Romania is a "country of gifts" through

the 100 offerings identified and presented as touristic attractions for the Romanian

cultural tourism.

For a trip to be considered cultural tourism, it has to meet 3 (three)

requirements:

1. to have as main motivation the desire for knowledge and education;

2. to aim at the consumption of a touristic product with cultural

significance meant to create satisfaction and contentment for tourists;

3. to benefit from a guide (person or smart phone app) to tell the „story”

meant to valorise the cultural touristic product

The first requirement is brought about by man’s aspiration to acquire a

spiritual aura through culture and education, at any age – as a need and desire

situated at the highest level of Maslow's Pyramid.

The second requirement provides the visitor with the chance to see what man

has created along his life, together with nature. On the scale of needs, between needs

(bare necessities) and desires (maximum necessities), it is necessary that the package

of touristic products-services ensure the satisfaction of the tourists to the expected

level. If the touristic offer is above the expected level, tourists will be satisfied, and if

NOT, unwanted dissatisfaction will occur.

The third requirement is the need for the tourist to live a unique experience

and for a "stranger" visitor to become a "friend" visitor with the desire to return to the

visited places, not alone, but with other friends and acquaintances, to share with them

such fulfilment through cultural tourism.

As shown in the work (Popovici, 2018) „Caras-Severin country - a cultural

touristic destination”, for Banat tourism resources to become tourist attractions it is

necessary to "walk" the 4 steps of the AIDE model of attractiveness (Popovici):

drawing attention (A), stirring interest (I), provoking desire (D) and creating

emotion (E) which the tourist can hope to live throughout the journey (Fig 1).



194

The touristic sight is the touristic resource which attracts attention (A) grace

to its beauty and greatness and stirs interest (I) grace to its authenticity and

uniqueness.

A touristic sight becomes a touristic attraction if it provokes desire (D) to

travel grace to the credibility of the touristic image and the originality of the message

from the promotion story and creates emotion (E) through the experience to be lived

and the (re)discovery of each tourist and his/her recovery as human being, far from

stress and close to nature and culture.

The beauty and greatness of a touristic sight are presented through epithets

such „the most ... ...”, for instance the highest rock sculpture (40.45 m) in

Europe, for Decebalus’ Statue at the Danube Boilers, or the oldest spa resort in

Europe, for the Băile Herculane resort, as it is attested by the inscription on the

voctive tabula dating from 153 a.D.

After „the most …” the second wave of attributes follows, related to the

beauty and greatness by mere comparison „more...than ....”. It means we refer to

something more beautiful, more magnificent than a tourist attraction of the same type,

natural or cultural. The Danube boilers are more spectacular than any other section

of straits along the Danube, from its springs in the Black Forrest Mountains to its flow

into the Black Sea. The Resita Works (opened on the 3rd of July 1771) are older than

the proclamation of the United States of America (the 4th of July 1776) by 5 years

and one day!

In the third wave, the attributes intend to place the touristic sight on the same

level of beauty and greatness with other well-known touristic sights, by the phrase „as

… as...” (to fill in with beautiful, great, spectacular etc.), such as the Bigăr Waterfall

of Banat - Romania is as beautiful as the most sought waterfalls in the world.

Fig.1. Touristic sights and attractions

Any tourist destination is of interest to a visitor through authenticity and

uniqueness. Tourists look for authenticity because today it is rarely encountered.

Authenticity means a true, genuine, unaltered thing Cultural tourism in

Mountainous Banat will aim at stimulating cultural events which have content and

forms preserving the authentic traditional core. In situ, tourists shall feel confused if

instead of authenticity they are offered kitsch –an artificial, superficial thing –

TOURISTIC RESOURCES

Attract ATTENTION

(A)

Stir INTEREST

(I)

TOURISTIC SIGHTS

Provoke DESIRE

(D)

Create EMOTION

(E)

TOURISTIC ATTRACTIONS



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replacing the original. At a folk festival, for instance, with dancers in singers dressed

in casual or elegant attires, they will ask:

Where are the truly authentic folk costumes?

Uniqueness is another requirement that identifies a touristic destination,

with the need to mention to visitors the uniqueness of such destination. The

Monument of Tourism at Rusca Montana (1937) is the only monument dedicated to

tourism in the entire world. The Monument of Tourism is not just a mere attraction, a curiosity that

you come to see and then go away, checking another box on the "race" to visit as

many touristic sights as possible. It is a symbol of the very truth inscribed on its

"chest." We will really find the real meanings of recreation through tourism in the

middle of nature, as the verses on the frontispiece of the monument urge us:

Turistule, ajuns sub poala

pădurii,

Aruncă necazul şi patima

urii.

Încearcă să prinzi din legile

firii

Scânteia divină: virtutea

iubirii.”

„Oh, you tourist arrived under

the woods,

Throw away misery and hate

passion.

Try to grasp from the laws of

nature

The divine sparkle: the virtue

of love.”

The words carved in Ruschiţa marble can constitute the most beautiful

verses for any true hymn of Romanian tourism!

The Bone Cave is renowned in Europe by the discovery made by the

Romanian speleologists in 2002 of the remains of the first modern man in Europe –

Homo sapiens Ion & Vasile –40 000 years old. The open air museum of steam

locomotives in Reşiţa (1972) is unique in Europe grace to the 16 locomotives

exhibited in open air under the shape of a pyramid (1-2-4-9). Its uniqueness is given

by the fact that almost all exhibits are manufactured at Reşiţa, where the museum

stands. Out of the 16 locomotives present in the museum, 13 locomotives were

manufactured in Resita's factories.

The real discovery of Mountainous Banat is not to look for and promote new

touristic attractions, but to look at the existing ones with new eyes, in a unitary whole.

For this reason, through the study conducted between 2016 and 2018, we

identified the 100 offerings of Mountainous Banat’s touristic and cultural heritage.

They are summarized in Table 1.

Tab. 1. Banat’s cultural touristic sights

1. Calea ferată Oravița-Anina „Semeringul

bănățean” (1863) 1. Oraviţa-Anina Railway "Banat's

Semering " (1863)

2. Teatrul Vechi „Mihai Eminescu” din

Oravița (1817) 2. “Mihai Eminescu” Old Theater at

Oraviţa (1817)

3. Muzeul în are liber de locomotive cu abur

din Reșița (1972) 3. The open-air museum of steam

locomotives at Reşiţa (1972)

4. Morile de apă cu ciutură de la Rudăria

(1900) 4. Water mills with bucket at Rudaria

(1900)

5. Monumentul Turismului de la Rusca

Montană (1936-1937) 5. Monument of Tourism at Rusca

Montana (1936-1937)

6. Fântâna cinetică din Reșița (1984) 6. Kinetic Fountain at Resita (1984)

7. Furnalul din Reșița (1771, 1961) 7. Furnace at Resita (1771, 1961)

8. Funicularul din Reșița (1963-1964) 8. Resita cableway (1963-1964)

9. Muzeul Banatului Montan din Reșița

(1962) 9. Museum of Mountainous Banat at

Resita (1962)



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10. Muzeul cineastului amator din Reșița

(2015) 10. The amateur movie maker museum at

Resita (2015)

11. Muzeul de sculptură în inox „Constantin

Lucaci” din Bocșa (2012) 11. "Constantin Lucaci" stainless steel

sculpture museum at Bocsa (2012)

12. Muzeul de mineralogie estetică „Constantin

Gruescu” din Ocna de Fier (1957), UEM

Reșița (2008) și Bocșa (2018)

12. Museum of Aesthetic Mineralogy

"Constantin Gruescu" at Ocna de Fier

(1957), UEM Resita (2008) and Bocsa

(2018)

13. Hidrocentrala Grebla din Reșița (1902-

1904) 13. Grebla Hydro Power Plant at Resita

(1902-1904)

14. Grădina zoologică „Ion Crișan” din Reșița

(1965, 2013) 14. "Ion Crişan" Zoo at Resita (1965,

2013)

15. Biserica translatată din Reșița (1985) 15. Translated church at Resita (1985)

16. Muzeul Farmaciei Montanistice

„Knoblauch” –„La Vulturul Negru” din

Oravița (1763, 1974)

16. Knoblauch Mountaineering Pharmacy

Museum - " Black Eagle" at Oraviţa

(1763, 1974)

17. Muzeul Monetăriei Imperiale din Oravița

(2015) 17. Imperial Mint Museum at Oraviţa

(2015)

18. Muzeul Mineritului „Puțul I” din Anina

(2018) 18. Museum of Mining "Pit I " at Anina

(2018)

19. Calea cărbunelui Oravița–Iam-Serbia-

Baziaș (1854, 1856) 19. Oraviţa-Iam-Serbia-Baziaş Coal Path

(1854, 1856)

20. Gara din Oravița (1847-1849) 20. Oravița Railwat Station (1847-1849)

21. Gara din Anina (1863) 21. Anina Railwat Station (1863)

22. Cetatea Beiului (1312) 22. Bei’s Citadel (1312)

23. Crucea Albă de pe Muntele Mic (1936,

2003) 23. White Cross on Muntele Mic / Little

Mountain (1936, 2003)

24. Muzeul de Etnografie și a Regimentului de

Graniță din Caransebeș (1962) 24. Ethnography and Border Regiment

Museum at Caransebes (1962)

25. Muzeul de geografie literară „Tiberiu

Boșcaiu” din Oțelu Roșu (1980) 25. Tiberiu Boşcaiu Literary Geography

Museum at Oţelu Roşu (1980)

26. Tunelul iubirii (2013) 26. Tunnel of Love (2013)

27. Parcul de sculptură în lemn din Teiuș-

Caransebeș (2003-2007) 27. Wood carving park at Teiuş-

Caransebeş (2003-2007)

28. Parcul de sculptură în marmură din

Caransebeș (2008-2013) 28. Marble sculpture park at Caransebes

(2008-2013)

29. Parcul de sculptură în andezit din

Caransebeș (2013-2018) 29. Andesite sculpture park at Caransebeş

(2013-2018)

30. Casa lui Peter Pan (2018) 30. Peter Pan's House (2018)

31. Catedrala Episcopală din Caransebeș (2010) 31. Bishopry Cathedral at Caransebes

(2010)

32. Biserica cu picturi în mișcare din Cireșa-

Oțelu Roșu 32. Church with moving paintings at

Cireşa-Oţelu Roşu

33. Biserica „Voronețul Bănățean” din

Glimboca 33. "Banat Voroneţ " Church at Glimboca

34. Băile Imperiale Romane din stațiunea Băile

Herculane (153) 34. Roman Imperial Baths at Baile

Herculane (153)

35. Băile Imperiale Austriace din stațiunea

Băile Herculane (1736) 35. Austrian Imperial Baths at Baile

Herculane (1736)

36. Băile Termale Moderne din stațiunea Băile

Herculane (1924-2016) 36. Modern Thermal Baths at Baile

Herculane (1924-2016)

37. Vila Elisabeta (Sisi) cu muzeul „Nicolae

Cena” al stațiunii Băile Herculane (1924,

2017)

37. Elisabeta (Sisi) Villa with "Nicolae

Cena" Museum at Baile Herculane

(1924, 2017)

38. Biserica romano-catolică din centrul

stațiunii Băile Herculane 38. Roman Catholic Church in the centre

of Baile Herculane resort

39. Gara Băile Herculane (1878) 39. Băile Herculane Railway Station



197

(1878)

40. Scările de la Ineleț (1899) 40. Stairs at Inelet (1899)

41. Statuia lui Decebal (1994-2004) 41. Decebalus's Statue (1994-2004)

42. Tabula lui Traian (103) 42. Trajan's tabula (103)

43. Cetatea Tricule (1443) 43. Tricule Fortress (1443)

44. Muzeul sătesc „Ion Dragomir” din Gornea

(1969, 2013) 44. "Ion Dragomir" village museum at

Gornea (1969, 2013)

45. Cetatea Cula–Coronini (1428, 2018) 45. Cula-Coronini Fortress (1428, 2018)

46. Cetatea Golumbac (1428, 2018) 46. Golumbac Fortress (1428, 2018)

47. Morile de apă cu ciutură și butoni de la

Sichevița (1809) 47. Bucket and butoni water mills at

Sichevița (1809)

48. Biserica romano-catolică din Orșova (1972-

1976) 48. Roman Catholic Church at Orsova

(1972-1976)

49. Cramele Recaș (1447) 49. Recaș Wine Cellars (1447)

50. Satul Lacustru de la Berzasca (2016) 50. Berzasca lacustrine village (2016)

51. Mănăstirea „Adormirea Maicii Domnului”

(15 august) de la Teiuș-Caransebeș 51. „ Assumption of St. Mary Mother of

God” monastery (15 August) at Teiuș-

Caransebeș

52. Mănăstirea „Piatra Scrisă” de la Armeniș 52. Written Stone monastery at Armeniș

53. Mănăstirea „Schimbarea la față” de la

Almîj-Putna (6 august) 53. „Transfiguration of Jesus” monastery

at Almîj-Putna (6 August)

54. Mănăstirea „Nașterea Maicii Domnului” de

la Băile Herculane (8 septembrie) 54. „Birth of St. Mary Mother of God”

monastery at Băile Herculane (8

September)

55. Mănăstirea „Sfânta Ana” de la Orșova (25

iulie) 55. „St. Ann” monastery at Orșova (25

July)

56. Mănăstirea Mraconia de la Cazanele

Dunării (8 noiembrie) 56. Mraconia monastery at the Danube

Boilers (8 November)

57. Mănăstirea „Intrarea în Biserică a Maicii

Domnului” de la Gornea-Sichevița (21

noiembrie)

57. „Entry to church of St. Mary Mother

of God” monastery at Gornea-

Sichevița (21 November)

58. Mănăstirea Nera de la Slatina Nera (14

octombrie) 58. Nera monastery at Slatina Nera (14

October)

59. Mănăstrirea „Acoperământul Maicii

Domnului” Călugăra de la Ciclova Montană

(1 octombrie)

59. „Veil of the Virgin Mary” Călugăra

monastery at Ciclova Montană (1

October)

60. Mănăstirea „Sfântul Ilie” de la Bocșa-

Vasiova (20 iulie) 60. „St Elijah” monastery at Bocșa-

Vasiova (20 July)

61. Mănăstirea „Acoperământul Maicii

Domnului” de la Brebu-Soceni (1

octombrie)

61. „ Veil of the Virgin Mary” monastery

at Brebu-Soceni (1 October)

62. Mănăstirea ”Nașterea Sf. Ioan Botezătorul”

Sânzienele de la Poiana Mărului (24 iunie) 62. ”Birth of St. John the Baptist”

Sânzienele monastery at Poiana

Mărului (24 June)

63. Mănăstirea „Sfântul Sava” de la Baziaș

(27 ianuarie) 63. „St. Sava” monastery at Baziaș

(27 January)

64. Mănăstirea romano-catolică „Maria

Stâncii” de la Ciclova Montană (2 iulie) 64. Roman Catholic Monastery "St. Mary

of the Rock " at Ciclova Montana (July

2)

65. Sinagoga evreiască de la Caransebeș 65. Jewish Synagogue at Caransebes

66. Schitul „Sfântul Ilie” de pe Semenic 66. "St. Elijah" Hermitage on Mount

Semenic

67. Schitul „Stântul Ilie” de pe Muntele Mic 67. "St. Elijah" Hermitage on Little

Mountain

68. Statuia lui Hercules din centru stațiunii

Băile Herculane 68. Statue of Hercules in the centre of

Baile Herculane resort



198

69. Statuia Generalului Ioan Dragalina din

centrul municipiului Caransebeș 69. Statue of General Ioan Dragalina in the

centre of Caransebes

70. Statuia lui Eftimie Murgu din centrul

localității Bozovici 70. Statue of Eftimie Murgu in the centre

of Bozovici

71. Site-ul arhelogic Tibiscum de la Jupa-

Caransebeș 71. Tibiscum Archeologic site at Jupa-

Caransebes

72. Drumurile romane 72. Roman roads

73. Muzeele sătești de istorie și etnografie 73. Village museums of history and

ethnography

74. Zilele, sărbătorile și festivalurile

comunităților etnice din Banat 74. Celebrations, festivals and feasts of

ethnic communities in Banat

75. Festivalul internațional de jazz de la Gărâna 75. International Jazz Festival at Gărâna

76. Festivalul internațional de folclor

„Hercules” de la Băile Herculane 76. Hercules International Folklore

Festival at Baile Herculane

77. Festivalul Răchiei din Banat 77. Schnapps Festival in Banat

78. Rugile bănățene 78. Banat festivals of church saint patrons

79. Festivaluri folclorice bănățene 79. Banat folk festivals

80. Timișoara – capitală culturală europeană a

Banatului (2021) 80. Timisoara - European cultural capital

of Banat (2021)

81. Reșița – la porțile poeziei 81. Resita - at the gates of poetry

82. Anina - aurora unei lumi fără cer 82. Anina - the aurora of a world without

sky

83. Băile Herculane – stațiunea turistică în pași

de vals 83. Baile Herculane - the tourist resort in

waltz steps

84. Buziaș – stațiunea turistică în pași de

colonadă 84. Buzias - the touristic resort in columns

steps

85. Bocșa – în grai bănățean 85. Bocsa - in Banat folk idiom

86. Caransebeș – la hotar de cetate 86. Caransebes - at the border of the

fortress

87. Lugoj – dor și gând 87. Lugoj – longing and thought

88. Oravița- în stil baroc vienez 88. Oraviţa – in Viennese Baroque style

89. Orșova – arcadia bănățeană 89. Orşova - Banat Arcadia

90. Oțelu Roșu – culoare de maci 90. Oțelu Roșu – poppy coloured

91. Moldova Nouă –în valurile Dunării 91. Moldova Nouă - in the waves of the

Danube

92. Țara Almăjului 92. Almăj Country

93. Țara Gugulanilor 93. Gugulans’ Country

94. Satele turistice tradiționale de pemi-

germani 94. Traditional touristic villages of Pems-

Germans

95. Satele turistice tradiționale de croați-

crașoveni 95. Traditional touristic villages of

Croatians – Carasoveans

96. Satele turistice tradiționale de pemi-cehi 96. Traditional touristic villages of Pems-

Czechs

97. Satele turistice tradiționale de sârbi 97. Traditional touristic villages of

Serbians

98. Satele turistice tradiționale de ucrainieni 98. Traditional touristic villages of

Ukrainians

99. Satele turistice tradiționale de bufeni 99. Traditional touristic villages of Bufens

100. Satele turistice tradiționale românești 100. Romanian traditional touristic villages



199

4. CONCLUSIONS

Several useful and relevant conclusions were drawn from the study for the visit

of the 100 man-made anthropic touristic landmarks identified as Banat's offerings to

Romania.

A first conclusion is that cultural tourism in Banat cannot be an isolated

activity. It can be revived only by integrating it with the other forms of tourism

practiced in the area: mountain tourism, spa tourism and active tourism in protected

areas.

The second conclusion is that a trip to Banat will not be made in a hurry to

“check” a new touristic destination, instead everything will belong to the tourist:

walking, letting the eyes wander at will, and allowing time to stop and time to feel

genuine and unique emotions for the sake of experience.

The final conclusion is that the cultural touristic objectives will become

touristic attractions and Banat will become a touristic destination if their beauty and

grandeur are complemented with story, image and emotion through the touristic offer

rising to the level expected by tourists.

SELECTIVE BIBLIOGRAPHY

Kotler Ph., Marketing of places (Romanian translation), Teora Editions, Bucharest 2001

Popovici G., Valorisation of cultural touristic product of Mountainous Banat through

electronic marketing (in original in Romanian), PhD Thesis, UV Timișoara, 2007

Popovici G., Mountainous Banat - tourists’ guide (in original in Romanian), TIM Publishing

House, Reşiţa, 2018

Popovici Gh., Caras-Severin country - a cultural touristic destination, 5th International

Conference on Business Administration and Economics „People.Ideas.Experince”,

November 15-16, 2018, Reșița



200

PROFITABILITY, RISK OR VULNERABILITY IN THE

COMPANY ACTIVITY

Doina RADA

1

Submitted: 4


th November 2018

Abstract

The future entrepreneur must be supported in his/her entrepreneurial activity for the chances he/she

offers, without thinking about possible failure. However, the possibility of failure in the activity of a

company as a result of risk must also be considered. It is necessary to pursue realistic objectives and a

solid foundation of the actions necessary for their realization. Profitability is the fundamental criterion

by which the efficiency of the business is assessed. Risk is an increasingly important element, being an

instrument used to determine the profitability of an entity. An entity that is not profitable becomes

vulnerable. Vulnerability is a stringent problem of a patrimonial entity to determine its cost. It

represents the role of dimension, focus, interdependence of technology and social transformation.

Key words: enterprise, profitability, risk, vulnerability, profit, circulating assets, turnover, expenses,

variables, score.

JEL: L 21

1. INTRODUCTION

The primary objective of any business is to obtain economic benefits. In this

context, the keywords are profitability and, implicitly, return, represent very important

concepts that need to be taken into consideration when making profitable decisions.

The origin of the term „profit” is Latin and derives from the verb „proficere” which

means: to result, to program, and later took on the meaning of profit.

The importance of economic activities realized by different companies,

economic activities with a high degree of complexity in terms of market mechanisms,

have a profound impact on the management process. Thus, the management process

has to be studied on the basis of real information in a company and not on a routine

basis.

Profitability is the fundamental criterion by which the efficiency of the

business is assessed. This reflects all relationships between the efforts made and the

results obtained.

Profitability is defined as a measurement instrument of the company efficiency

and its ability to generate profit.

In today's economy, the main purpose of any business is to make profit and

increase it continuously. Any patrimonial entity that is not profitable is predisposed to

bankruptcy.

2. PROFITABILITY, RENTABILITY OR VULNERABILITY

When discussing profitability, one might say that it is the sovereign criterion

of the enterprise. “Profit generally represents a material or spiritual income that can be

the income introduced by the capital used in an enterprise, representing the difference

1Deputy Professor PhD., “Eftimie Murgu” University of Resita, Romania, [email protected]



201

between the receipts and the total expenditure. This income is the amount of money

left after the investment made to provide goods or services. After spending some

money, for the needs of the company, the remaining part of the total amount of money

represents the fiscal result that is determined by observing and applying the principle

of linking expenses called profit. If profit tax is deducted from profit or loss, the net

profit is obtained.” (https://ro.wikipedia.org/wiki/Profit)

In simple terms, profit is achieved when the revenue of an enterprise is greater

than its cost. These two terms, income and expenses are fundamental elements of

profit, and they form the basis of any entity reasoning in the exploitation of scarce

resources. In the case of cost-effective entity, the intent is not only to keep revenues

higher than the expenses but also the continuous maximization of this difference. This

can be achieved by getting higher incomes using the same amount of resources, or by

increasing expenses, but to a lesser extent. Commercial profit is the mirror that

reflects the capitalization level of production factors. The profit may be influenced by

the market situation, the achievements of other economic entities and the economic

policies of the state. In this context, three types of profit can be identified:

Profit earned at to management's initiative;

Profit received in favourable circumstances;

Profit allowed, determined by the public power.

The level of return is varied for each patrimonial entity and each type of

activity, according to the type of social economic environment in which an economic

agent operates, but also how resources are used, influences profitability. For example,

an investor who deals with the sale of goods to cover his expenses must apply a

commercial addition to his/her merchandise. However, too high a trade add-on does

not necessarily mean making a profit because the price is dictated by competition.

Too much trade adds leads to products not being any longer competitive due to high

prices.

Any investor, a small trader or a joint-stock company, seeks to benefit from

the capital consumption he has invested in. However, in order to invest in an

economic activity, a potential investor must also take into account the risk he assumes

and the profit generated by the potential investment to be commensurate with the

assumed risk.

If one pursues what is ideal in a patrimonial entity, one must highlight the

factors that prevent the entity from being profitable and producing return. An entity

that is not profitable or producing return becomes vulnerable. At present, many

factors force economic entities to make more efforts in producing return and

becoming profitable. Among these factors one might mention:

es;

At the same time, risk is an increasingly important element, being a tool used

to determine the profitability of an entity. Risk is a determining factor and a company

protects itself in this case with insurance. Insurance generally refers to pure risks and

not risks due to inappropriate managerial management. In this regard, one can recall

the speculative risks of driving.

2.1. Factors that influence the enterprise vulnerability

https://ro.wikipedia.org/wiki/Profit



202

Vulnerability is a stringent problem for a patrimonial entity in the

determination of its cost. It represents the role of dimension, focus, interdependence

of technology and social transformation.

The enterprise is influenced by factors that determine a certain degree of

vulnerability, as follows:

Activity management is developed. During this period, consumers tend to have a diversified lifestyle, which also

means diversified consumer preferences. This contemporary lifestyle requires

management departments to address a flexible and adaptable attitude towards

consumer demands.

The multiplication of interaction and competition.

To be profitable and cost-effective, companies need to focus not only on

promoting the products and services they have to offer but also on reorienting the

object of activity in line with the market.

The technical process

The fact that technological progress increases exponentially, it makes existing

businesses vulnerable. They must be up to date with technological progress and focus

more on the most important resource at present, namely gray matter. So the most cost-

effective patrimonial entities will be those that will turn from workers' companies into

intellectuals’ companies. Technological progress makes businesses vulnerable also

because of production facilities that can lead to risky situations such as accidents or

pollution.

Business legitimacy crisis.

The fact that the production diversifies leads to a lower attachment to the

workplace and in some cases it is realized that what is good for the company, but it is

not necessarily good for a shareholder too. The purpose of companies is therefore to

satisfy the shareholders.

Financial investment versus industrial investment There are no common elements between funding and industry. Even if the

intention of enterprises is not to make funding, they do so. A financial investment is

more attractive than an industrial one. Funding dominates industry. Financing is

detrimental to the national and global economy because the international financial

system and its vulnerability are dependent on the institutional arrangements governing

the functioning of the financial markets.

2.2. Bankruptcy risk

Since the beginning, entrepreneurs try to discover the formula of success,

regardless of the economic sector in which they operate. Experience gained over time

has shown that success and failure are complementary concepts. The escape from

failure represents a stronger desire than the realization by any means or by any

methods of profit, because the vulnerability of the enterprises, regardless of their size,

small or medium size, offers conditions for failure in time.

Bankruptcy risk assessment for an enterprise is a basic component of the

financial analysis of a managerial nature that is determined using specific methods.

These methods provide a preventive diagnosis of economic and financial problems

and thus offer the possibility to address them by recommending measures with

operative and strategic results to strengthen the financial state, strengthen the

business, increase performance and thus eliminate the risk of bankruptcy.



203

The “scoring” analysis method is one of the methods used to determine the

bankruptcy risk of the enterprise.

The Altman model was the first score-function, elaaborated 1968 in the USA.

This model made possible the anticipation of 75 % bankruptcies 2 before these

appeared.

The function - score (Z) has the following expression and holds 5 variables

(rates) i:

Z = 1,2R1 + 1,4R2 + 3,3R3 + 0,6R4 + 0,999R5, where:

R1 = Current assets/Total assets - Expresses the share of working capital in the

total assets, the use of working capital.

R2 = Reinvested profit/Total assets - Measures the internal financing capacity.

R3 = Gross profit /Total assets - Measures the assets return.

R4 = Capital value / Total depts - Measures financial independence

(autonomy).

R5 = Bussines figure/Total assets - Mesures the totation speed of assets.

The vulnerability of the business is appreciated by using the score function in

the following manner:

Z score value Entreprise situation Bankruptcy risk (%)

Z > 2,675 Good - solvency Reduced - inexistent

1,81 < Z < 2,675 Precarious - difficulty Undetermined

Z < 1,81 Difficult - insolvency Iminent - maximum

Based on the annual accounts of Parabomir S.R.L. one could determine the

risk of bankruptcy and the vulnerability of the ociety using the Altman model:

- Year 2016

R1 = Current assets/Total assets = 3.958.941 : 4.124.101 = 0,9600

R2 = Reinvested profit/Total assets = 0 : 4.124.101 = 0

R3 = Gross profit /Total assets = 1.655.946 : 4.124.101 = 0,4015

R4 = Capital value / Total depts = 1.377.154 : 2.746.947 = 0,5013

R5 = Bussines figure/Total assets = 31.929.956 : 4.124.101 = 7,7423

- Year 2017

R1 = Current assets/Total assets = 6.497.519 : 10.379.101 = 0,6260

R2 = Reinvested profit/Total assets = 0 : 10.379.101 = 0

R3 = Gross profit /Total assets = 971.500 : 10.379.101 = 0,0936

R4 = Capital value / Total depts = 309.329 : 10.070.431 = 0,0307

R5 = Bussines figure/Total assets = 38.929.151 : 10.379.101 = 3,7507



204

The values of the Z score function for Parabomir S.R.L. are presented in the

following table:

Calculation of the of Z score-function - Altman model:

No. Calculating variable (rates) 31.12.2016 31.12.2017

1 R1 = Current assets/Total assets X 1,200 1,1520 0,7512

2 R2 = Reinvested profit/Total assets X 1,400 0 0

3 R3 = Gross profit /Total assets X 3,300 1,3250 0,3089

4 R4 = Capital value / Total depts X 0,600 0,3008 0,0184

5 R5 = Bussines figure/Total assets X 0,999 7,7346 3,7545

Z score-function 10,5124 4,8330

According to the results obtained using the Altman model calculations, one can

notice, from a theoretical point of view, that in 2016 there is no risk, much less the risk

of bankruptcy, because the Z score function is of 10.5124, much higher than the value

of 2.675, thus the firm is solvable and has a good financial standing. It can be

appreciated that S.C. Parabomir S.R.L. does not pose any risk of bankruptcy and has a

low vulnerability.

For the year 2017, the value of the Z score is 4.8330, much higher than 2.675,

thus the firm is solvent and has a good financial status, but much less than the previous

year.

The variables influenced the score calculation for the year 2017 as follows:

The R1 variable for the year 2017 represents 65.21% of the value of the

previous year. The decrease in value of this variable is influenced by the increase by

1.51% of the total asset registered for the year 2015 due to the increase of the fixed

assets.

The R2 variable remains;


previous year. The reason for the reduced value of this variable is identical to that of

the variable R1, respectivelly the increase by 1.51% of the total asset in 2017.

The R4 variable for the year 2017 represents 6.12% of the value of the previous

year in the conditions in which equity dropped from ROL 1,377,154 to ROL 309,329

and total debts increased from ROL 2,746,947 to ROL 10,070,431. The debts with the

largest weight in the structure of the total debts is represented by the debts to the

providers which increased by 4.96% and the credit amounting to 3.000.000 lei.


previous year. The business figure increased by 21.92% for the year 2017 compared to

2016, but this growth is lower than the total asset growth by 151%.

The conclusion that emerges from this analysis is that S.C. Parabomir S.R.L.

does not have an upward trend, debt has increased, liquidity has fallen, and credit has

been required. The value of the asset increased by raising fixed assets, but this growth

was not the best choice because the company profit dropped in 2017.

The risk of bankruptcy does not exist but the company tends to become

vulnerable in the future if managerial measures are not taken.

3. CONCLUSIONS

The entreprise bankruptcy risk is a basic element of the financial analysis of a

managerial nature. Vulnerability and failure rate is high during the first five years of

functioning, as new businesses have the highest vulnerability.



205

In market-economy countries, studies have shown that the failure rate is high,

with figures around 50% for the first five years of existence.

The causes that can lead to bankruptcy are multiple and target:

- the decrease of activity volume;

- the diminishing of return margins and rates;

- the emergence and increase of management and of treasury issues;

- the bankruptcy of some clients;

- the disappearance of some outlets;

- chain blockages etc.

By analyzing the causes of bankruptcy, one can conclude that this result can be

noticed when the financial situation of the enterprise progressively deteriorates. The

insolvency risk occurs a few years before payments are terminated.

Vulnerability, risk and bankruptcy are the results of the financial analysis that

are contingent on each other, one derives from the other, and the effect is on chain

propagation.

If the risks are not properly assessed, the business may be subject to one of the

following “threats”:

Fixed asset lock-in - low efficiency use.

Insufficient current assets - there are no available supplies and stocks to

ensure continuity of activity.

Failure to repay credits - no possibilities.

Poor inventory management. The increase in sales does not imply an

increase in stocks of the same volume. Stocks will grow only 1/4 times.

Uncontrolled expansion - the market on which products are to be

launched has not been previously investigated.

The lack of qualifications and experience - employees do not have

adequate training and there is no interest in developing their professional

training.

Fluctuation of staff - if the activity does not work well, the staff will be

tempted to leave the workplace.

REFERENCES

Petrescu Silvia, (2004) “Diagnostic economic-financiar. Metodologie. Studii de caz”, Sedcom

Libris Publishing House, Iasi;

PierreF., (2004) “Valorisation d’entreprise et theorie financiere”, Organisation Publishing

House, Paris, 2004;

Prunea Petru, (2003) “Riscul în activitatea economică. Ipostaze. Factori. Modalităţi de

reducere”, Economic Publishing House, Bucharest;

Spătaru Liviu, (2014) “Analiza financiară”, Eftimie Murgu Publishing House, Resita;

***http://www.softagency.ro

***https://ro.wikipedia.org/wiki/Profit



206

EMPIRICAL STUDY ON THE IMPACT OF THE CONFLICTS

ON THE MOTIVATION OF THE EMPLOYEES

Ruskova, SVILENA1

Ruseva, IVALINA2

Submitted: 30


nd December 2018

Abstract

This study presents the essence of conflicts and motivation and their importance for the activities of

organizations. A poll has been conducted the analysis of which presents the results of a concrete study

on the impact of conflicts on the motivation of the employees from an organization involved in the

implementation of security alarm activities. On the basis of the conducted research specific

conclusions and recommendations have been formulated.

Keywords: conflicts, motivation, employees, organization.

JEL: M1, M12

1. INTRODUCTION

People are the most important resource in any organization regardless of its

size or subject of activity. Personnel is the face of the organization and how much

people are motivated to work, develop and do their best, depends on the success of the

organization as a whole. Namely for this reason the problems of motivation of the

staff are widely represented and the main goal of each manager and leader is their

solution and overcoming. Of primary importance are the factors that have a negative

impact on the motivation and how they can be avoided so that employees in the

organization to behave in such a way that they can achieve the highest possible

performance.

The aim of the present study is to investigate the impact of conflicts on the

motivation of the employees of the organization engaged in security alarm activities

which has branches all over the Republic of Bulgaria. For reasons of confidentiality

the name of the organization cannot be quoted in this article.

The implementation of this goal will be achieved through the following tasks:

1. Analysis of the specialized literature on conflict situations and their impact

on motivation from the point of view of individual authors.

2. Presentation of the results of the conducted empirical survey in the

organization engaged in security alarm activity on the territory of the

Republic of Bulgaria on the impact of the conflicts on the employee work

motivation.

3. Making the main conclusions on the grounds of the made analysis of the

reactions of the executive and managing staff in conflict situations and

their consequences on the motivation of the employees and formulating

some specific recommendations.

1 Associated Professor, PhD, “Angel Kanchev” University of Ruse, Bulgaria, e-mail:[email protected]

2 Master of Business Administration, “Angel Kanchev” University of Ruse, Bulgaria, e-mail:

[email protected]



207

1.1. Essence of conflicts and motivation

Usually in science studying conflicts the understanding of conflict is related to

something where two or more people wish to achieve goals perceived as possible by

one or the other, but not by both - (Stagner, Ross, (1967)).

Conflict management can be defined as conscious, purposeful activity of the

subject of management which takes place at all stages - from its origin and

development to its completion. This complex activity according to some authors

proceeds through prognosis, prevention, diagnosis, warning, weakening, regulation

and resolution of the conflict -(Dimitrov, D. (1999)).

Other authors divide the management of such situations into three stages:

Soothing the conflict;

Partial solution of the conflict;

A mutually beneficial and compromise solution between the parties

(Dimitrov, D. (2004)).

Each conflict is perceived as unique and possesses inherent specific features.

This objective circumstance however was not an obstacle to the construction and

existence of universal techniques and methodologies for solving it. Among them the

most commonly applied in practice are:

Conflict avoidance - It can be applied if the disputed question is

unessential or adversely affects the individuals;

Smoothening the conflict - It aims at eliminating open hostilities

between the parties;

Imposition of decisions - One of the groups wins at the expense of

others;

Applying a compromise - It supposes negotiations between the parties

and mutual compromises;

Change in the motivation of the members of the organization - It is

aimed at motivating the participants in the conflict in order to focus

their efforts on the main activity. As a rule the emergence of strong

motivation to work leads to diverting employees' attention from

participation in the conflict;

Making a mutually beneficial solution (co-operation) - It is applied to

satisfy both parties. With this strategy there are no losers and is

perceived as the surest way to solve the conflict (Andreeva, M.,

(1991)).

Motivation on the other hand is considered as a set of mental processes related

to the power and direction of behavior, the challenge, the directing and the

maintenance of voluntary purposeful actions (Evgeniev, G. et al. 1993).

The scientific literature distinguishes between external and internal

motivation. Internal motivation is understood as the intrinsic factors resulting mainly

from the education, but also from attitude, genetic inheritance, intuition and others

that influence people to behave in a certain way or to pursue a particular purpose.

While external motivation includes a system of management actions, means and

approaches to motivate collaborators to achieve the company's goals. This motivation

includes factors that influence individual behavior.



208

It is important to note that often external stimuli can have a rapid and powerful

effect, but rarely prolonged, unlike the internal ones which have a deep and lasting

effect because they are inherent to the individual rather than imposed from outside.

On the other hand, it should not be forgotten that the two forms of motivation - both

internal and external - are interrelated and affect one another (Armstring, M. (1993)).

From a psychological point of view motivation is presented as an internal

process. It starts with the frustration that you need something. This frustration later

directs the individual to certain actions. The logical sequence of the motivation

process according to some authors is as follows:

1. Unsatisfied need;

2. Pressure;

3. Incitements (motives);

4. Attitudes, decisions, actions;

5. Satisfied need;

6. Pressure decrease.

Of the six steps of the process we understand that the state of lack and

shortness called ‘unsatisfied need’ is not comfortable for the individual's condition. It

puts the individual under pressure, the incitements arise, the individual undertakes

certain actions. The satisfied need on the other hand causes a decrease of the pressure

(Sirashki, H. (2015)).

Hence the conclusion that the degree of employees satisfaction is among the

main indicators of the level of their motivation which in turn is considered as a major

factor for the favourable development of the individual personality and the

organization as an institution.

1.2. Review of the theoretical aspects of the impact of conflicts on the labor

motivation

In the scientific literature the impact of conflicts on motivation is presented in

two directions.

In the book ‘The Perfect Team Working as a Clock Mechanism’ the

constructive function of the conflict on motivation is examined and analyzed. This

point of view is supported by the fact that if there are no conflicts, there are also no

different opinions that are in the base of development and creativity. If the

participants do not dare to express their opinion openly, the group begins to mark time

and good ideas die. And striving for conflicts to be avoided at all costs can seriously

reduce the effectiveness of the team.

The fear for confrontation often causes team members to avoid expressing

disagreement with others in order not to hamper the work of the group. In such cases

the discrepancy swells and the team loses a valuable opportunity to exchange or

discuss important ideas. Gradually mistrust and fear accumulate and the ability to

make decisions suffers from it.

For this reason the authors say that the approach of avoiding conflicts is

absolutely wrong. In their opinion the disagreement and the pressure provide the

energy for the emergence of new ideas and new alternatives as long as the conflict is

directed in a productive direction (Harvard Business School Press (2005)).

Contrary to the above, other authors support the thesis of the destructive

impact of conflicts on motivation.

They say that conflicts are one of the main causes of stress which in turn

affects employees' productivity. When the problem arises, it cannot be solved on its



209

own, but on the contrary, it will rather be deepened because people will try to avoid

those with whom they do not get along well just to save them extra stress

(https://www.itce.com/bg/управление-конфликти-работно-място/).

The article ‘Motivation and Stress in The Organizational Environment’

emphasizes that the workplace stress can be considered as an adaptive response to

external situations that causes psychological, physical or behavioral changes in the

employee. This undoubtedly leads to a change in his/her working capacity and the

level of motivation for work and achievement, which negatively affects the

organization and its productivity (Cvetanova, I., (2010)).

The evolved dual feature of conflicts has prompted the authors of the present

study to conduct an empirical survey to find out whether workplace conflicts should

be avoided or could be used as a tool for successful management of employees in the

particular organization subject of the study below.

2. EMPIRICAL SURVEY ON THE IMPACT OF CONFLICTS ON LABOR

MOTIVATION

2.1. Methodology of The Conducted Study

In order to track the impact of conflicts on employees' motivation a survey has

been carried out in the organization that is engaged in the implementation of physical

and centralized security through the help of security alarm equipment. The

organization has 35 divisions on the territory of the Republic of Bulgaria. As stated at

the beginning of the study the name of the organization cannot be quoted because of

the subject of activity of the organization. The total number of employees is 5073. Of

these, 34.2% have participated in the survey. The survey has been conducted through

the help of a poll and a questionnaire has been worked out, structured to respond to

the main points of the survey:

What is the frequency of conflicts in the organization, as the idea is to

determine whether such events are everyday or rarity;

Which groups of employees most often encounter conflicts; in which

of them (interpersonal, intergroup or between individual and group)

usually are the affected subjects and which departments are the most

conflicting;

What are the main reasons for conflicts according to employees – poor

work conditions and organization, the qualities of managers and

colleagues, insufficient remuneration, the nature and emotionality of

the members of the organization or the mistrust on the part of the

manager toward the executive staff and vice versa. The aim is to

establish what according to the respondents is the strongest

provocation to occur misunderstandings;

What is the impact of the conflicts on the motivation and the

performance of the employees - whether they improve the team's work

by enabling ideas to be generated and finding new ways to solve

occurred problems, and whether they do not influence or heighten the

work environment, shifting the center out of important issues and

leading to losses;

Which are the most appropriate means according to the employees for

conflict solution and how it would affect the application of the chosen

method to their work motivation.

https://www.itce.com/bg/управление-конфликти-работно-място/



210

The poll has been conducted anonymously within the period: April 10 – May

15, 2018, as questionnaire sheets have been given to the employees, which the

employees have filled out by their own after having clarified the purpose of the survey

itself.

2.2. Analysis of The Survey Results

Based on the analysis of the answers of the respondents, 34.2% of the

employees working in the surveyed organization have formulated two profiles: profile

of the executive staff (26.2%) and the profile of the managers (8%).

The analysis shows that the managing body of the organization is represented

by men aged between 40 and 50 years with more than four years of service. The

profile of the executive staff is composed again mostly by middle-aged men but most

of them have less than 4 years of experience. According to the activity with which the

organization is concerned, the observed tendency of the predominant gender structure

is normal.

Concerning the frequency of conflicts (Figure 1), the profile of the managing

body identifies it as a phenomenon that occurs occasionally, whereas the executive

staff believes that such situations are rare, but both groups indicate that they are

primarily interpersonal and concern the executive staff.

Figure 1 – Frequency of conflicts in the organization

The difference in the points of view between both parties is probably due to

the fact that unlike the executive staff the managers have observations on all the

employees in the subdivisions of their organization.

There are also different points of view on the sources of conflict. The

operative staff have indicated the low wages as the main problem, while according to

the staff on high positions the reason of conflict are the skills and the abilities of

subordinates. Hence it can be concluded that the well-done job is of paramount

importance for the managers, while the persons of the executive staff have specific



211

expectations for their remuneration and do not bind it so much to the quality of their

work.

Nevertheless both groups believe that the conflicts in the organization are

rather positive, as 56.52% of the operative staff and 75% of the managing body state

that conflicts provide opportunities for generating ideas and help to find new ways to

solve the problems, which means that employees see rather the constructive

characteristics of the conflict than the destructive ones (Figure 2). It is generally

ascertained that the conflicts in the organization are everyday, which is confirmed by

the introductory questions. When eventually conflict situations arise they tend to

support the work process by reflecting its effectiveness rather than adversely affecting

it.

Figure 2 – Effects of conflicts on employee motivation

Interesting is the analysis of the matter when employees are asked to indicate

their probable reaction in a situation where they have felt themselves unjustly

assessed (Figure 3).

In such circumstances the superiors would be motivated to prove their abilities

which means they would not allow this condition to worsen their relations with other

employees and to demotivate them.

The persons from the operative staff indicate two possible alternatives as

probable - in one case, the situation would motivate them to prove themselves to the

others, but in the other it would worsen the relationship with their colleagues.



212

Figure 3 – Employee Reactions in Unfair Evaluation

Differences in the points of view of the both categories of surveyed

respondents (managers and executive staff) may be linked to the fact that managers

have a longer work experience, a stronger sense of belonging to the surveyed

organization and a higher level of education, and these personality characteristics

provoke the generation of internal motivation that has a strong and long-lasting effect.

Based on the results so obtained, it can be inferred that as far as the managers are

concerned, the conflict in the surveyed organization can be considered as a positive

phenomenon, positively influencing the motivation.

As for the persons from the executive staff, the fact that half of them accept

the situation as an opportunity to prove themselves and others perceive it

demotivating says that those who think that the situation has a negative impact may

develop some form of conflict that may eventually cause problems leading to

subsequent demotivation.

The last part of the questionnaire includes questions where respondents are

asked to indicate what they think are the most appropriate ways to solve conflicts

(Figure 4) and how their application would affect the direction, strength and dynamics

of their motivation.



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Figure 4 – Conflict management techniques

In the responses of the managing body the cooperation stands out as the most

effective way to manage conflicts, which means aiming at solving the contradictions

that are at the root of the conflict, as the pursuit is the satisfaction of mutual interests

as a way out of the situation. Here the conflict is perceived as ‘problem solving’, as

both parties are consciously committed to work together to overcome it.

The position of the executive staff regarding the appropriate means of

effective conflict management is directed to the use of additional motivation. This

group of interviewed respondents believe that using tools such as: higher wages,

better work conditions, etc. will lead to their efforts to perform effectively their work

and distract their attention from generating conflicts and participating in such. The

main problem that emerges from these answers is that the motivation generated by the

executive staff is from an external source. It would therefore have a short-lived effect.

A fact that should be taken into account by the managing body in the development of

a staff motivation system in the surveyed organization.

In summary, according to all survey participants, the application of both

categories of indicated methods of conflict management would have a positive impact

not only on the work but also on establishing better relations between colleagues. .

3. CONCLUSIONS

This study explores the impact of conflicts on the motivation of employees

from an organization involved in the implementation of security alarm activities.

These two factors interfere and influence not only labor motivation but also the

activities of organization. On the basis of the survey conducted, two profiles have

been formulated - a profile of the executive staff and a profile of the managing staff.

Summarizing the analysis of the results of both profiles the following conclusions can

be drawn:



214

Conflicts are a mandatory element in the functioning of each organization and can

be considered in both their positive and negative aspects of influence;

In the examined branch of the organization, according to managers and to a part

of the executive staff , the constructive characteristics of the conflict predominate,

as due to such situations the problems come to the fore and can be eliminated;

On the other hand, according to the other half of the executive staff, conflicts

have a destructive effect on their motivation, as they create pressure in their

relationship with other colleagues;

On this basis we can summarize that in fact the impact of conflicts on work

motivation is never unambiguous and while for some it contributes to increasing

motivation by stimulating their competitive start, for others it has a demotivating

effect. Consequently, the management of such situations should be done in

accordance with the individual characteristics of the subordinates, so that the

adverse effects of conflicts to be neutralized and the positive ones to be used to

improve the efficiency of the organization.

On the basis of these conclusions the following recommendations can also be

made:

As a result of the survey it is clear that both groups have some discrepancies

relating to the frequency of the conflicts and probably some of the situations

remain unnoticed, so it would be better to improve the communication between

both groups which would be a prerequisite for improving the relationship in the

collective;

It is appropriate to categorize the individual groups of employees according to the

way in which they react with respect to certain factors and their management to

take into account namely these personal characteristics;

Different ways to solve conflicts can be used to manage conflicts that have

already arisen. It’s necessary to stack the conflict management approaches

between managing and executive staff. Since subordinates want mostly stimulus,

and superiors - negotiations, it is good to find a balance approach or use both

approaches on equal terms.

REFERENCES

Andreeva, M., (1991), “Organizational behavior”.

Armstring, M., (1993). “Human Resource Management Manual”.

Dimitrov, D., (2004). „Conflictology“.

Dimitrov, D., (1999). „Sociology of the conflict”.

Evgeniev, G., Bliznakov, Y., Paunov, M., Atanasova, M., (1993). „Organizational behavior“.

Sirashki, H., (2015). „Motivation: Selected lectures”.

Cvetanova, I., (2010). „Motivation and stress in the organizational environment”.// Union of

Scientists.

Harvard Business School Press, translation from English, Karieva, R., (2005). „Тhe ideal

team that works as a clock mechanism”.

Stagner, Ross, (1967). “Psychological Aspects of International Conflict”.Belmont, CA:

Brooks/Cole

Stojqnovska, M., (2016) “How to manage conflicts in the workplace”. Available on line at

www.itce.com (https://www.itce.com/bg/управление-конфликти-работно-място/,

accessed on 23.04.2018).

http://www.itce.com/

https://www.itce.com/bg/управление-конфликти-работно-място/



215

THE BENEFITS OF SOCIAL MEDIA ADOPTION IN A SME. A

COMPETITIVE ADVANTAGE PERSPECTIVE

Ariana-Emanuela TAL1

Submitted: 4


th November 2018

Abstract

Social media landscape is not only a collection of tools for entertainment, but also a big opportunity

for business development in the digital area. This paper aims at analyzing the benefits of social media

adoption by SMEs from a competitive advantage perspective. Stating that the literature on the topic of

the impact of social media in SMEs is emerging, in this article we will present a few strengths that can

be helpful to a SME in the decision process of adopting social media. A short overview on the social

media background and perspectives will show the complexity and opportunities of these platforms.

Social media is a great opportunity for SMEs, and some characteristics like size, customer

management, innovation, Enterprise 2.0 can be used as competitive advantages in order to put the

business in a superior business position.

Keywords: social media, small medium enterprises, competitive advantage, business development

JEL : L14, L21

1. INTRODUCTION

Social media, once a phenomenon, now is the new ordinary. Is social media a

response to the need of continuos and instant interaction or was created? Either way,

we face major changes as living generation in terms of communication, accessibility,

online presence, change speed, and all these benefits affects the companies, and SMEs

too. Nevertheless, one thing must be said about social media in business: social media

is not a ,,panacea”. It might seem simple to handle the tools but it isn’t. Social media

platforms have become an consistent part of our daily life (Alalwan et al., 2016). The

most human interactions have been moving to take their place over virtual platforms

(i.e. Facebook, Instagram, LinkedIn and Twitter) and people are more likely to

formulate a positive attitude and perception towards such technologies (Carrillat et. al,

2014; Rathore et. Al, 2016; Taylor et al., 2011, Zhu et al, 2015). As an important

component of social media, social networks take the wheel when it comes to business

and best practices.

2. SOCIAL MEDIA’S IMPORTANCE IN THE DIGITAL AREA

Before arguing about social media in business, it is necessary to define social

media as primarily internet or cellular phone based applications and tools to share

information among people. Social media includes popular networking websites, like

Facebook and Twitter; as well as bookmarking sites like Reddit. It involves blogging

and forums and any aspect of an interactive presence which allows individuals the

1 Ph.D Student, Author Facultatea de Economie și de administrare a afacerilor (Universitatea de Vest din

Timișoara), România, [email protected]



216

ability to engage in conversations with one another, often as a discussion over a

particular blog post, news article, or event (Business Dictionary, 2017)”. Based on the

major changes that social media platforms bring, we might be tempted to cut the

traditional media importance and embrace only social media but social media is not to

be employed as a replacement to traditional media but should rather be used as a

supplement to it. Though large is the reach of social media, it does not reach all

customer segments, as some segments are still loyal to traditional media, so it is

recommended to utilize them concurrently. This especially applies to the older

generation (Moghrabi&Al-Mohammed, 2016). Social media ecosystem is vast and

authors had classified social media. Lehtimaki (2009) divides social media in 5 main

categories: blogs and podcasts, social networks (e.g. Facebook, YouTube),

communities, content aggregators and virtual world. Below, we present some

insights found in the literature from a 1) technical, 2) interaction and communication

and 3) business point of view of what is social media represents and the changes that

come up with these platforms.

1)From a technical perspective:

According to Kaplan & Haenlein (2010) social media are applications that are

built on the notion of Web 2.0 and offer a platform for users to connect with one

another and share information. The definition proposed by Constantinides and

Fountain (2008) combines and reconciles the basic technological and social elements

of the concept:,,Web 2.0 is a collection of open source, interactive and user-controlled

online applications expanding the experiences, knowledge and market power of the

users as participants in business and social processes. Web 2.0 applications support

the creation of informal users’ networks facilitating the flow of ideas and knowledge

by allowing the efficient generation, dissemination, sharing and editing/refining of

content”. On the other hand, Kangas et al. (2007) simply refer it as a set of

technologies that enable easy production and distribution of social media on the web.

The authors consider that the key concepts of social media are: Web 2.0,

Communities and Content.

2) From an interaction and communication perspective:

Social media and related technologies impact many areas as they are at the

convergence of social interaction and technology (Redondo, 2015). In his book, The

Digital Handshake, Paul Chaney sustains that ,,social media is not only about

technology”. He argues that the boundaries are so low that every person that can use

Microsoft Word or sends an e-mail can use every available app nowadays. (Chaney,

2009:4-5). Li and Bemoff (2008) offer a more simple classification of social media

upon how people used them: (1) creating, (2) connecting, (3) collaborating, (4)

reacting, (5) organizing, and (6) accelerating consumption.

3) From a business perspective:

Altes (2009) offers a futurist view social media; he believes that social media

applications will be just as integral to the work environment in a few years as the

Internet and e-mail are now; in some organizations social media is still considered

spear time not business oriented as in the past, Internet and e-mail access was

restricted to employees in many organizations. The younger generation of workers

will bring a new generation of communication tools to the workplace. The author

noted that technological tools, such as social media, will evolve into a part of

operations for all organizations. Li and Bemoff (2008, 2011) suggested that

organizations could better understand the “groundswell,” which they defined as “a

social trend in which people use technologies to get the things they need from each

other, rather than from traditional institutions like corporations” (p. 9). If business



217

owners argue, “Why would my business need to use social media, or why would this

make sense for me?” the answer would be; “because, that is where the money is.”

(Bottolfsen, 2013).

3. SM’S BENEFITS FOR SME’S

The impact of technology is powerful and we can’t deny it. Alvin Toffler, in

his extraordinary book, Future Shock, explains transience and the change speed,

stressing that those who won’t adapt will remain back. In 2018, we couldn’t agree

more with him, so the rethorical question is : What SMEs will do? Adapt or collapse?

Some business owners have argued that it does nothing for their business model and

prefer their current operating procedure. Despite the advantages of social media there

are also small businesses that haven’t and don’t now why it would be important.

Previous research has shown that most companies randomly establish a presence on

social media while others avoid these platforms altogether because of unknown

business risk and lack of understanding of the social media environment

(Lardi&Fuchs, 2013). Therefore we present a few competitive advantages for social

media adoption by Sme’s:

Direct access to clients: Web 2.0 technologies can facilitate and improve

customer relations, brand building, advertising, e-commerce and business intelligence.

They make it possible to locate, talk and develop relationships with people with

specialized knowledge and can provide significant sales related benefits. Combined

with trusted, classical marketing applications, they can form a marketing foundation

for information sharing and dialogue with clients. (Galanxhi, 2013). Information and

instant feedback from customers and/or shared among them allow organizations to get

the most from their customer relationships and feedback/information sharing become

loyalty instruments, key channels for gathering business intelligence, and new ways

of engaging with the customers (Buytendijk et al., 2008). Employees can use these

tools to share their passion for work, to document and organize ideas and work

practices, to find and engage others inside and outside the organization; whereas

employers can also obtain benefits resulting from accelerated information flow,

increased productivity, improved reputation (Schniederjans et al., 2013). Successful

implementation strategies, however, require a mindful adoption, community building

(Zhang, 2010). Enterprise 2.0 provides a democratic architecture which encourages

people to share ideas, promote discussions (Patel & Jasani, 2010)

Innovation: Companies achieve competitive advantage through innovation.

Innovation may appear from a new company, into an existing one, or from another

nation (Maticiuc, 2015). In the previous decade, organizations have been working by

cutting edge levels of data and correspondence. Technology innovations define new

methods for communication and socializing. Technology is primarily adopted as a

means to decrease the communication barriers. Innovative technology has become an

enabler of a new era of communication with a huge impact on business, thus creating

new means of interactions and introduced us to a new socializing median called social

media (Mohammad, 2014)

Size of the SMEs: At a general level, it has been proposed that issues around

a more effective and informed social media adoption process can be better understood

using the dimensions of context, content and competency (Durkin, 2013). Context

reflects the ‘setting or circumstance’ in which a firm operates. At firm level, the size

and maturity of the entity provide a useful contextual discriminator. If small, the

firm’s behaviour will be organic, flexible and responsive, with a bias towards personal



218

contact networking and ‘learning by doing’ (Carson et al, 1995). In the larger

enterprise, the context may be bureaucratic, inflexible and slow to respond, with a

bias towards formalized relationship building and learning by experience, formal

training and compliance with established and tested rules (Mintzberg, 1981). In terms

of content, the smaller firm may find opportunities for its customer relationship

through, inter alia, the online provision of added-value information relating to pricing,

product descriptions, other customer feedback and product/service endorsements.

Social media naturally facilitate user-generated content (UGC), in which users can

look online for reviews of businesses and products when they need help with a

purchasing decision. Concerning competency: to what extent is there a competency

base in the large firm marketing team/small firm team to manage both push and

interactive communications through new media such as Facebook and Twitter? In

smaller enterprises, knowing what to say (and when) through these new channels can

be challenging and time-consuming (McGowan and Durkin, 2002; Durkin et al,

2013).

Online presence: If you don’t manage your own social media presence then

the customers are doing it for you. Effing and Spil (2016) framework provides

significant key elements and areas of concern for the development of a social media

strategy. The seven elements are as follows; (i) Target audience: companies should

define what target group they intend to address using social media. (ii) Channel

choice: it is important to select the appropriate choice of channel for different target

groups. (iii) Goals: to gain business value, social media should be aligned with

business goals. (iv) Resources: adequate resources should be allocated to the success

of social media strategy. (v) Policies: should be structured to manage the use of social

media in the company. (vi) Monitoring: businesses should listen to what is been said

about the company\products and services. (vii) Content activities: a clear content post

and timeframe are defined to allow regular contribution on the platforms.

4. CONCLUSIONS

The technological progress affects all the areas of our lives as individuals and

so does to businesses. Social media platforms are powerful and the number of users

are increasing, so businesses should be where their clients are. As we saw above, the

types of platforms are diverse and offer a lot of solutions for companies, so SMe’s

should be there too. Even if a SME has constraints, there are some potential strengths

to be used as competitive advantages. In this paper, we considered that the following

factors can be a competitive advantage: Direct access to clients, Employees,

Innovation, Size of the SMe and Online presence.

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ASPECTS RELATED TO UNEMPLOYMENT IN ROMANIA

Diana, TĂNASE

1

Adrian, TĂNASE 2

Submitted: 8


th November 2018

Abstract

Unemployment is a topic of interest in all times. A prosperous economy controls as much as possible

the various aspects of employment, labour, unemployment. Therefore, macroeconomic policies must

also address the various aspects of unemployment, the problem that affects the welfare of the

population, and therefore the national economy.

Based on these considerations, the present paper attempts to highlight certain aspects of

unemployment in Romania and Caraş Severin, as well as the aspects that our country must consider in

order to reach the objectives of the Europe 2020 Strategy.

Keywords: unemployment, labour force, employment rate

JEL: E 24, J 21, J 64

1. INTRODUCTION

Unemployment is a topical issue and the subject is on the agenda of today's

economic development discussions and of broader debates; it is a subject targeted by

the macroeconomic policies of any country, authors such as Bassanini and Duval

(2009) highlighting the complementarity between different policies of the labour

market.

Many other authors such as Minică (2005), Tănase et al. (2013), Manciu and

Demyen (2016) have discussed the issue of unemployment in specialised papers,

trying to identify and classify the factors that lead to this phenomenon and, at the

same time, highlighting measures to combat it. Blanches and Wolfers (2000); Bertola

et al. (2007) showed that the various policy combinations generate different

unemployment outcomes. It is well known that the human resource is the most important resource of a

company and therefore of a nation. Effective use of this resource leads to spectacular

results from an economic point of view, and vice versa. Every country wants to have a

healthy and well-trained human resource, thus creating the premises for sustainable

development. It is obvious that healthy and trained workforce is one of the pillars of

the economic development of any country. (Tănase et al. (2013)). The welfare of the

nation depends on this important resource, namely its characteristics: age, health,

training, qualification at work, etc. According to Lalé (2018), there is a link between

the labour market volatility and the diversity of human resource habits. Robin (2011)

also considers that the volatility of unemployment can be explained by the

heterogeneous mechanism of workers.

1 Associate Professor PhD, University Eftimie Murgu of Reșița, Romania, [email protected] 2 Associate Professor PhD, University Eftimie Murgu din Reșița, Romania, [email protected]



222

The concern of decision-makers to have a healthy and well-trained human

resource must be a sine qua non condition of any macroeconomic policy. Ljungqvist

and Sargent (1998) have highlighted the connection between long-term

unemployment and welfare policies, and Prescott (2004) and Rogerson (2008) have

surprised the role of taxes to be paid for the work done.

Unemployment is an economic phenomenon that arises as a result of the gap

between supply and demand, having as a consequence the impossibility of finding a

paid job by those who are in search of a job and are qualified for that job. According

to ILO, the unemployed is any 15-74 year - old unemployed person who is available

to start work in the following two weeks and has been actively in search of a job in

the last four weeks.

The level of unemployment varies from one country to another, the factors

influencing its rates being diverse: the level of development of the country concerned,

the attractiveness of the country for investors, the degree of technology of the

economy, imports, labour force training, residence environment, social protection

policies, inflation etc.

According to economists, unemployment is characteristic to any economy, and

they agree to its permanence. According to J.M. Keynes’s “principle of effective

demand” (2009), the level of employment depends on the level of global demand for

goods and services, Phillips (1958) considering that there may be a link between the

unemployment rate and the rate of change in workers' wages. Furthermore, in the

economic literature they have introduced the notion of natural unemployment rate, a

rate that would correspond to a certain level of inflation.

2. UNEMPLOYMENT IN ROMANIA

Moving from a centralised economy to a market economy, since 1990 and up

to the present our country has undergone favourable and less favourable economic

times. Immediately after the 1990s, the employment rate in Romania declined

considerably due to the fact that much of the industry was closed. Very many of those

employed in the industry were unemployed or retired early, significantly lowering the

employment rate. If by 1998 the employment rate was above 70%, it had a sinuous

trend, falling to 63% in 2002, to reach 68.8% in 2017. (Eurostat)

(Source: Realised by the authors based on Eurostat data)

Figure 1 - Unemployment rate (%) – active population

0

7,2 7

9 9,6 9,7

10,5 10,9

10,2 9,4

8,6

7,6

0

6,4 5,6

6,5 7 7,2

6,8 7,1 6,8 6,8 5,9

4,9

0

2

4

6

8

10

12

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

UE Romania



223

When conducting a survey by gender, we can say that the employment rate is

higher among men, increasing from 70.4% in 2005 (the lowest rate in recent years) to

77.3% in 2017. Among women, the employment rate, on the level of 2017, was

60.2%, the lowest share being recorded in 2005 also - 56.9%.

If we analyse the phenomenon on the level of the European Union, we notice

that our country is well below the EU 28 average, the lowest percentages being

recorded in 2008 (5.6%) and 2017 (4.9%), the trend of European dynamics (figure 1).

Within the European Union, the Member States with the highest

unemployment rates are Greece, which reached a fabulous maximum in 2013 (27.5%)

and 26.5% in 2014, down to 21.5% in 2017, Spain with a rate of 26.1% in 2013 and

17.2% in 2017, Portugal with 16.4% in 2013 and 9% by 2017.

At the opposite pole, the member states with the lowest unemployment rates in

2017 were Germany with 3.8%, Hungary 4.2%, UK - 4.4%, Malta 4.6%, the

Netherlands and Poland 4, 9%.

(Source: Eurostat)

Figure 2 - Employment rate (%) by the 20-64 age group

As shown in Figure 2, in 2017, for the 20-64 age group, the EU has an

occupancy rate of 72.2%, and our country an occupancy rate of 68.8%.

In fact, for the 2007-2017 period, the employment rate in Romania for those

aged between 20 and 64 was below the European Union average. For 2020, the EU

has set a target of 75% for this age group, and Romania reached the value of 70%.

0

69,2 70,3 69 68,6 68,6 68,4 68,4 69,2 70,1 71,1 72,2

0

64,4 64,4 63,5 64,8 63,8 64,8 64,7 65,7 66 66,3 68,8

0

10

20

30

40

50

60

70

80

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

UE Romania



224

Table 1 Participation of population in the labour force

(Source: INS, Employment and unemployment)

In our country, in the 15-64 age group, we find that the employment rate is

higher among men, and with regard to the residential environment the situation is

better on the urban level. (table 1).

Table 2 Employment rate of the working age population by level of education, by

gender and environment, in 2017 (%)

(Source: INS, Labour force in Romania, Employment and unemployment 2017:31)

As for the relation between education and employment rate (Table 2), it can be

seen that there is a direct relationship between the level of education and the

employment rate. If the employment rate for people with low education levels is only

42.5%, it increases to more than double for people with higher education (87.9%).

Analysing by residence environment, among the low-skilled we find a great

difference between urban and rural employment rates (49.9% versus 27.3%).

According to the Inclusive Growth and Development Report 2017, one of the

seven pillars of the policy framework refers to Employment and Labour

Compensation, with two elements: Productive employment and wage and non-wage

compensation. At the same time, this report highlights the role of education and skills

in labour force training, which constitute the first pillar of the framework policy.

According to the same report, investments in the economic sectors are

important employment opportunities for young people, while EU member states must

ensure the creation of new jobs in knowledge-based areas with higher added value,

given the increase in individuals’ education quality, "expand professional training

opportunities to ensure that students graduate with skills useful for the current work

environment in addition to general know-how.” (WEF, 2017)

Regarding the unemployment rate by age groups, genders and residence areas,

we note the following:

Total Male Female Urban Rural

TOTAL 63,9 71,8 55,8 64,8 62,7

Higher education (University of short and

long term, including master's, doctoral,

postdoctoral and postgraduate)

87,9 89,7 86,4 88,3 85,3

Medium-term education (post-secondary

specialized, high school including first and

vocational, complementary or apprentices)

67,5 75,2 58,9 65,4 70,3

Lower education (gymnasium, primary and

non-school)

42,5 53,8 32,1 27,3 49,9

Total Male Female Urban Rural

Active population 9120 5184 3936 4994 4126

Employed population (15-

64) (thousand persons)

8671 4894 3777 4769 3902

Unemployed (thousand

persons)

449 290 159 225 224

Employment rate (%)

(15-64)

63.9 71.8 55.8 64.8 62.7

Unemployment rate (%) 4.9 5.6 4.0 4.5 5.4



225

A higher rate of unemployment is registered among women, aged between 15

and 24,

The lowest unemployment rate by age groups is recorded among people aged

55 and over (3.1% for men and 1.8% for women) - (justified by retirement). In

the same age group, on the rural level, compared to the urban area, there is a

rate of 1.8%. (figure 3)

Figure 3 - Unemployment rate (%) by age groups, genders and environments

(Source: INS, Employment and unemployment, published on 18.04.2018)

Regarding the unemployment in Caraş Severin county, according to the

official data from AJOFM, for 2017, the situation was the following:

Active civilian population - 111100 persons (61700 men, 49400 women);

Stable population aged between 18 and 62– 208327 persons, of whom 102946

women.

By ages and genders, the 2017 statistic was the following: (table 3)

Table 3 The situation of the unemployed by age groups, Caraș - Severin thousand persons

Unemployed

Under 25 25 - 29 30 - 39 40 - 49 50 – 55 Over

55

Total 3961 557 238 670 1152 629 715

Women 1685 211 92 291 531 298 262 (Source: AJOFM Caraș – Severin, Report of activity for 2017:9)

It can be seen that unemployment is lower among women, both per total and

by age groups. Thus, for the year 2017, the unemployment among the women was

42.54% of the total unemployed registered in Caraş Severin county. In the age group

of people under 25, the percentage was 37.88%, in the age group 25-29 - 38.65%, at

among the persons aged between 30 and 39 - 43.43%, in the 40-49 age group 46.09%,

in the 50-55 age group 47.38%, and in the group of people over 55 years of age -

36.64%.

15-24 years 25-34 years 35-44 years 45-54 years 55+

Male 18,1 7,4 3,7 4 3,1

Female 18,6 4,3 2,7 3 1,8

Urban 20,8 5,7 2,8 3,1 3,5

Rural 17 6,7 3,9 4,1 1,8

0

5

10

15

20

25

Male Female Urban Rural



226

3. CONCLUSIONS

As a result of the analyses carried out, it can be noted that Romania has a

significant gap compared to EU 28, both in terms of employment rate and as regards

the unemployment rate.

Taking into account the situation presented, Romania needs to align with the

EU framework policies on unemployment, policies related to the national strategy of

each EU member state, all in order to prepare for the reaching of the Europe 2020

strategy indicators: a strategy for smart, sustainable and inclusive growth. Our

country, as well as the other EU member states, must take into account the

employment policy guidelines: (Eurostat)

Boosting demand for labour;

Enhancing labour supply, skills and competences;

Enhancing the functioning of labour markets;

Fostering social inclusion, combating poverty and promoting equal opportunities.

Our country's macroeconomic policies must include amongst our priorities

unemployment and employment rates, not just for aligning with the Europe 2020

strategy but also for creating welfare for its citizens.

Thus, Romania must, among other things, pursue the following aspects:

- increasing the country's attractiveness for investors by creating a stable and

predictable legal framework;

- increasing the degree of technology of the economy;

- decreasing imports in favour of local products;

- training the labour force;

- enhancing social protection policies;

- attempting inflation control.

Furthermore, our country must also take into account the WEF

recommendations, guidelines related to the investments that must be made in the

economic sectors that generate jobs for young people and create jobs in the various

areas of knowledge. These issues need to be correlated with the enhancement of the

education quality, as well as skills shaping and skills training to help graduates adapt

to the environment in which they will work, all meant to generate know - how. By

observing these framework policies of WEF and Europe 2020, and also those that fit

its specificity, Romania will succeed in having an economy able to ensure the welfare

of its citizens.

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RESPONSIBLE LEADERSHIP AND THE CLIMATE OF

QUALITY SERVICE IN PUBLIC ORGANIZATIONS IN ISRAEL

Elyia YEHUDA

1

Submitted: 15


th December 2018

Abstract

This paper discusses the main concepts that underpin the relation between responsible

transformational leadership style. It is presenting several literature based arguments for supporting the

general hypothesis that responsilble transformational style in positively influencing the climate of

quality service in public organization from Israel.The research method is quantitative, based on a

survey administrated to 300 managers and employyes of Israeli public organizations. The teoretical

contribution is a proposed definition of the responsible transformational leadership style and the

practical will be validate the formulated hypothesis.

1. INTRODUCTION

We will present the hypothesis for the research related to the influence of

responsible leadership on the climate of quality service in public organizations from

israel in 2018. These hypothesis are based on a comprehensive critical literature

review. We are currently undertaking the recovering of distributed questionnaires to

managers and employees from all the types of public organizations from Israel. The

main contribution of this article is the proposed definition of the concept of

responsible transformational leadership style and of the positive strong influence of

this leadership style on the climate of quality service in the Israeli public institutions.

2. RESPONSIBILITY

Responsibility has long been recognized as one of the cornerstones of

successful public administration (Forrer, Kee, Newcomer & Boyer, 2010).The

relationship between leadership and accountability is presented by Grimshaw, Baron,

Mike & Edwards (2006) who argue that the process of promoting a culture of

"accountability" in the public organization is a process carried out by managers and

leaders. The motives for the process are the variables that determine whether the

followers will perform what is expected of them.

Responsibility as a leadership concept has been found to promote supportive

behavior, pro-social behavior, which similarly plays an important role in determining

service-oriented behavior (Williams, & Sanchez, 1998). Organizations that have a

system of process management policies that include employee accountability are

organizations that excel in promoting customer service. Schneider and others (2005)

have defined as common perceptions of employees and relate to methods, processes

and behaviors that are rewarded and valued - by the organization in everything related

to customer service and quality of service.

1 PhD Student, West University of Timisoara, Romania



229

The characteristics of accountability as defined by Winston et al. (2005) and

Roberts (2002) discuss transparency, reliability, responsibility, and responsiveness.

The role of managers in the organization is to assimilate these values. The role of

accountability as a process factor is to help the organization's managers develop an

atmosphere of sharing and developing a service climate within the organization, as

part of the policy set by the organization's leaders.

In order to achieve a higher level of accountability management has become

more challenging in modern management paradigms. These paradigms hold that

organizations that provide public service must reinvent themselves and sometimes

even redesign their activities, all in order to provide better service to their customers

(Kearns, 1996).

3. TRANSFORMATIONAL RESPONSIBLE LEADERSHIP STYLE, A NEW

CONCEPT

Leadership styles deal with behaviors towards peers and subordinates

throughout the process once objectives have been set through planning and executing

the task to drawing lessons from the experience and results. If responsibility is

required throughout the process, and not only in the evaluation of results, then the

question is, what is the weight attributed to it by the leader and if is it different from

one leadership style to another? For each of the three styles of leadership, avoidance

leadership, rewarding leadership and formative leadership, the characteristics of how

the leader behaves represent a personal positive example to be followed and that also

encourages responsibility and openness in his relationships between the leader and

his/her followers.

Bass (1985) argues that formative leadership creates identification and

internalization of values that the leader wishes to assimilate. The style of

transformational leadership is based on an inspirational relationship that breaks

through the familiar management barriers of manager-subordinate relations. This

leadership style captures the hearts of employees and encourages them towards

challenging goals. The level of employee awareness of their growth potential within

the organization validates their self-expression and motivates them to a higher level of

performance. Transformational leadership influences employees in shaping beliefs

and value systems (Vigoda-Gadot & Angert, 2007).

Two characteristics identified with the transformational leadership as

defined by Bass & Avolio (1997) in the full range model of leadership are: a)

intellectual stimulation, b) solving problems by encouraging innovation.

The first characteristic, intellectual stimulation constitutes the high point in

the continuum of formative leadership, with emphasis on moral and behavioral

models, and emphasis on the moral and ideological considerations involved in

decision making by the leader. This is an activity that leads followers towards the

identification and imitation of the leader. The leaders are willing to sacrifice personal

interests in favor of the interests of the organization, do not hesitate to take risks and

do not avoid taking responsibility for actions carried out by their people.

The second characteristic deals with solving problems by encouraging

innovation and creativity through challenging the accepted methods, and tolerance

towards making mistakes and considering them a constructive part of the learning

process. The leader does not necessarily solve the problem without his followers,

he/she acts to improve their ability to solve it themselves. The leader encourages his

people to ask, to show openness to criticism, and to offer creative alternatives. The



230

followers demonstrate deep, independent and critical thinking. These characteristics

are in direct relation with the encouragement of accountability and activity under full

transparency.

Wood & Winston (2005) define the responsibility of the leader as: a) the

leader's agreement to bear the inherent responsibilities of the leadership, in order to

serve the interests of the organization: b) the expectation that he/she (the leader) will

stand behind his words, actions and reactions, directly or implicitly; c) the expectation

that the leader may be called upon to explain his beliefs, decisions and commitments.

The role of leaders who act based on the principles of "accountability" is to

assimilate these principles within their organization, too. In examining the three

factors discussed above that make up accountability according to Wood & Winston

(2005), we have remarked that the characteristics that define responsibility are

characteristics inherent in the definition of transformational leadership. These

characteristics are: taking responsibility on the part of the leader, the manager

providing support to his/her employees, encouraging bi-directional critical thinking

without fear of sanctions, emphasis placed by the leader on moral and behavioral

models, and explaining the ideological considerations involved in making decisions.

Therefore, we define the transformational responsible leadership as the

transformational leadership style that explicitly is based on the three aspects of the

leader’s responsibilities: 1) to act responsible and show responsiveness in serving the

interests of the organization; 2) to fulfill the expectations of his followers that he will

stand behind his words, actions and reactions: and 3) to fulfill the expectations to

explain his beliefs, decisions and commitments to ths superiors and followers.

4. THE RELATIONSHIP BETWEEN TRANSFORMATIONAL

RESPONSIBLE LEADERSHIP STYLE AND CLIMATE OF QUALITY

SERVICE IN PUBLIC ORGANIZATIONS

Following to the increasing demand for better involvement of citizens and

interest groups in policy making and policy implementation, public sector managers

need to work to develop their management capacity (Markovits et al, 2011), while the

trend of providing services to the public through outsourcing has increased, with the

desire to provide quick and quality services in areas such as sanitation and

infrastructure services. The New Public Management (NPM) has made the citizen a

significant player in the interaction between the government and service providers to

the public.

Therefore, a situation is created in which the citizen as a client constantly

raises the level of demands placed on the government for responsiveness,

transparency and accountability (Vigoda-Gadot&Meisler, 2010; Vigoda-

Gadot@Mizrahi, 2008). Gill (2009) examined the relationship between leadership

and service climate while comparing the private and public sectors and argued that

leadership has a greater influence today than in the past on the service climate in the

public sector.

Another dimension that influences the relationship between leadership and

service is the formal and informal supervision by various media and interest groups

on the activities of public organizations. Unlike the private sector, there is

transparency regarding the activity of managers in the public sector. This transparency

enables an examination of the performance of the public organization and of the level

of service it provides.

Guthridge & Wearing (2003) argue that there is a strong connection between



231

the manager's leadership style and the service climate in the organization. They argue

that this connection between the manager's leadership style and the service climate in

the organization is also influenced by the leader's ability to create a suitable climate

and environment for the development of the service climate. This relationship is

important for building a service climate in the public organization that meets the

needs of the public today.

Service quality in the public sector is the yardstick for the functioning of the

public organization. It is the responsibility of the leader to act in order to meet public

demands for high level quality of the service. Vigoda-Gadot & Anger (2007) found

that the leadership style by which managers operate in public organizations has a

direct impact on the performance of the organization. Vigoda-Gadot & Mizrahi

(2008) argue that based on the new public management approach, public service

providers are expected to address their duties and tasks differently than in the past in

an attempt to respond first to citizens' needs.

On the other hand, Walumbwa et al, (2010) argue that leaders who have a positive

attitude that enables and encourages a service climate in an organization will

positively influence the employees in the service they provide. They argue that a

positive service climate makes it possible to define a goal that targets employees to

achieve excellent service performance.

There are key actions that managers can take to be effective leaders. These

actions can be grouped into three main clusters: 1) Task-oriented operations; 2)

Actions directed at people; 3) Actions characterized by morality. Such actions are:

making at taking decisions at the appropriate timing, motivating employees, providing

instructions and setting plans and dates for implementation.

In an effective service environment, managers influence and encourage

employee service behavior by setting goals for the service providers. Managers of this

type are empowering, energizing, rewarding and serving as role models for their

employees, in order that service providers in the organization will be made aware of

how the best of them could provide the best service (Hui et al., 2007).

A combination of leadership theory and organizational climate perspectives

in a study conducted by Kozlowski& Doherty (1989) found that employees who are

supported and backed by their managers will have a more positive attitude towards

the organizational climate than those who have little contact with their managers.

Salvaggio et al, (2007) found that the manager in the organization is a factor

influencing service orientation and influencing the service climate.

Thus, it is possible to conclude that leaders who are aware of the importance

of quality of service will act in such a way as to enable the construction of a service

climate in the organization (Schneider et al., 1998). They have found a link between

leadership that creates commitment to the role and organization and high levels of

service climate. Hossain (2010) argues that interpersonal relationships can facilitate

the assimilation of responsible behavior that operates within formal professional and

social frameworks, between this style of leadership and inspirational motivation and

cooperation, which harness the worker to the processes in the organization and build a

commitment to the organization. According to her, social relations have a strong

influence on the accountability and performance of public office holders.

From a review of this part, I have surmised that there is a strong positive

relationship between responsible leadership and the climate of service in the public

organization.

According to Vigoda-Gadot and others (2016), the climate of service in the

public sector is now characterized by a change in paradigms that were common in



232

outdated bureaucratic organizations. In the current period, marketing orientation,

organizational flexibility, efficiency and responsiveness to citizens' needs are

increasing. Such a process requires different thinking of renewal and abandonment of

established norms. This demand for flexibility and openness to change is inconsistent

with the rewarding leadership style. Therefore, we will research only the

transformational responsible leadership style in Israeli public organizations.

5. THE RESEARCH METHODOLOGY

Based on the literature review we have formulated the following six research

hypotheses:

1. There is a positive relation between transformational responsible leadership

and the climate of quality of public service.

2. There is a positive relation between classical transformational leadership and

the climate of quality of public service.

3. There is a positive relation between responsibilities and the climate of quality

of public service.

4. There is a positive relation between accountability of the leader and the

climate of quality of public service.

5. There is a positive relation between the accountability of employee and the

climate of quality of public service.

6. There is a positive relation between the organization's accountability and the

climate of quality of service.

The approach we are undertaking is a quantitative research, using a survey

based on a specific questionnaire.

We are currently in the process of executing a survey of the situation in the

public sector organizations in Israel. The research population refers to all employees

and managers in the public sector in Israel. Of these, a sample of about 300

employees and managers from all the organizations in the public sector will be

selected randomly.

A questionnaire will be distributed in order to examine the research variables.

The questions in the questionnaire of the research variables will be composed of

indexes that have been examined in the literature in the past, and describe the

dependent variable - the quality of service and the independent variables in the

research -leadership and accountability.

For the independent variable “Leadership” we have used the Multifactor

Leadership Questionnaire 360 (MLQ 360) of Bass and Avolio (1990). The MLQ 360

is composed of two forms: the Leader Form (36 items) and the Rater Form (45 items).

It is a multi-rater form, meaning that it analyzes the leader's self-assessment alongside

how superiors, peers, subordinates, and others perceive their leadership behaviors.

The MLQ 360 measures transformational leadership, transactional leadership,

passive/avoidant behaviors, and outcomes of leadership. We have used the Rater form

consisting of 36 questions.

The Quality Service climate questionnaire consists of 7 questions that are

asking respondents to evaluate (to scale) various aspects related to the service quality

climate in their own organization. Description of what happens in people’s work units

with regard to the service-focused policies, practices, and procedures they experience

as well as the behaviors they observe being rewarded, supported, and expected

(Schneider, White, and Paul, 1998).



233

Currently, the research is the stage of distribution and collection of

questionnaires. The research results and discussion will be presented in another article

following the completion of the field research.

6. CONCLUSIONS

Responsibility has long been recognized as one of the cornerstones of

successful public administration (Forrer, Kee, Newcomer & Boyer, 2010). The

process of promoting a culture of "accountability" in the public organization is a

process carried out by managers and leaders.

Service quality in the public sector is the yardstick for the effective

functioning of the public organization. It is the responsibility of the leader to act to

ensure a climate of quality service in order to meet public demands for high level

quality of the service.

The climate of quality service in the public sector is now characterized by a change in

paradigms that were common in outdated bureaucratic organizations. In the current

period, marketing orientation, organizational flexibility, efficiency and responsiveness

to citizens' needs are increasing. Such a process requires different thinking of renewal

and abandonment of established norms. This demand for flexibility and openness to

change is inconsistent with the rewarding leadership style. Therefore, we will focus

our research on the transformational responsible leadership style in Israeli public

organizations.

We consider that transformational responsible leadership is the

transformational leadership style that is explicitly based on three aspects of the

leader’s responsibilities: 1) to act responsible and show responsiveness in serving the

interests of the organization; 2) to fulfill the expectations of his followers that he will

stand behind his words, actions and reactions: and 3) to fulfill the expectations to

explain his beliefs, decisions and commitments to his superiors and followers.

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